<PAGE>
As filed with the Securities and Exchange Commission on April 27, 2000
Registration No. __________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 1 TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FLORIDA 5045 59-2928366
- ---------------------- ----------------------- ------------------------
(State or other juris- Primary Standard Indus- (I.R.S. Employer Identi-
diction of incorpora- trial Classification fication number)
tion or organization) Code Number
925 West Kenyon Avenue, Suite 15, Englewood, Colorado 80110 303/783-9153
- --------------------------------------------------------------------------------
(Name, address, including zip code, and telephone number, including area code,
of registrant's principal executive office)
--------------------
GUNTHER THAN, PRESIDENT and CHIEF EXECUTIVE OFFICER
VIEW SYSTEMS, INC.
925 West Kenyon Avenue, Suite 15
Englewood, Colorado 80110
303/783-9153
------------------------------------------------------------
(Name, address, including zip code, and telephone number,
including area code, of agent for service
--------------------
COPIES TO:
ANDREW L. JIRANEK, ESQ.,
VICE PRESIDENT AND GENERAL COUNSEL, VIEW SYSTEMS, INC.
9693 Gerwig Lane
Suite O
Columbia, Maryland 21046
Telephone No. 410/290-5919
Approximate date of commencement of proposed sale to the public: As
soon as practicable after the Registration Statement becomes effective. If this
Form is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act, please check the following boxes and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following boxes and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
<PAGE>
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box [X]
If delivery of the Prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
We amend this registration statement as may be necessary to delay its
effective date until we shall file another amendment which specifically states
that this registration statement shall become effective in accordance with
Section 8 (a) of the Securities Act of 1933 or until the registration statement
shall become effective on such date as the Commission acting pursuant to Section
8 (a) may determine.
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE AND PAR VALUE OF EACH AMOUNT TO BE PROPOSED PROPOSED AMOUNT OF
CLASS OF REGISTERED(1) MAXIMUM MAXIMUM REGISTRATION
SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE FEE
(MAXIMUM) OFFERING
PRICE PER
SHARE(2)
<S> <C> <C> <C> <C>
Common Stock, Par Value $.001.............. 1,491,727 2.25 3,356,385.75 $ 886.08
Common Stock, Par Value $.001, Issuable 2,954,000 2.25 6,646,500 $ 1754.68
Upon Exercise of the Warrants...............
Total Registration Fee................... 2,640.76(3)
</TABLE>
(1) If there is a stock split, stock dividend or similar transaction involving
the Company's Common Stock, in order to prevent dilution, the number of shares
registered hereunder will automatically be increased to cover the additional
shares in accordance with Rule 416(a) under the Securities Act.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) and (g).
(3) We have already paid a registration fee of $2,832.35 in connection with our
original filing on Form SB-2 on January 11, 2000. No additional registration fee
is due with the filing of this amendment.
<PAGE>
PROSPECTUS
for the initial public offering
for sale of shares of Common Stock
VIEW SYSTEMS, INC.
a Florida corporation
This is our initial public offering. Shares of our Common Stock are
currently quoted on the over-the-counter Bulletin Board under the symbol "VYST."
All of the shares to be sold under this Prospectus are owned by selling
shareholders. We are not offering to sell any of our securities. We will not
receive any of the proceeds from the sale of common stock by the selling
shareholders. However, we will receive the exercise price of certain warrants
which may be exercised by the selling shareholders prior to the sale of common
stock. We expect that the selling shareholders will sell their stock from time
to time at then prevailing market prices until 180 days after the effective
date, which period may be extended up to 180 days at our option.
Investing in our common stock involves risks. See "Risk Factors"
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved our securities or determined that this
Prospectus is truthful or complete. It is illegal for anyone to tell you
otherwise.
April 27, 2000
The information in this Prospectus is not complete. We are not allowed
to sell the common stock offered by this Prospectus until the registration
statement that we have filed with the Securities and Exchange Commission becomes
effective. This Prospectus is not an offer to sell our common stock -- and does
not solicit offers to buy -- in any state where the offer or sale is not
permitted.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary..........................................................................1
Risk Factors................................................................................3
Description of Our Business.................................................................6
Management's Discussion and
Analysis..................................................................................20
Description of Property....................................................................26
Shares Available for Future
Sale......................................................................................27
Selling Shareholders.......................................................................28
Plan of Distribution.......................................................................31
Directors, Executive Officers,
Promoters and Control Persons.............................................................32
Principal Shareholders.....................................................................36
Description of Securities..................................................................38
Legal Proceedings..........................................................................42
Certain Transactions.......................................................................43
Market for Common Equity and
Related Shareholder Matters...............................................................45
Executive Compensation.....................................................................46
Interest of Named Experts and Counsel......................................................49
Management Indemnification.................................................................49
Changes in Accountants ....................................................................50
Available Information......................................................................51
Additional Information.....................................................................51
Index to Financial Statements..............................................................52
</TABLE>
UNTIL 90 DAYS AFTER THE DATE OF THE PROSPECTUS ALL DEALERS EFFECTING
TRANSACTIONS IN THE REGISTERED SECURITIES WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE
OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND
WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
You should rely only on the information contained in this Prospectus.
We have not authorized anyone to provide you with information different from
that contained in this Prospectus. The selling shareholders are offering and
selling the shares only in jurisdictions where offers and sales are permitted.
The information contained in this Prospectus is accurate only as of the date of
this Prospectus, regardless of the time of the delivery of the Prospectus or any
sale of the shares.
<PAGE>
PROSPECTUS SUMMARY
THE COMPANY
We are in the business of developing and selling digital video systems
for security and surveillance purposes. Most security systems are based on
closed circuit television systems which use video tape to record video image
data. Our products digitize the video image data. This means that the data is
converted to computer readable format. Our products are also capable of
compressing the data to save space and time in data transmission and storage.
Our products are intended to offer a variety of features not available with
traditional non-computer based CCTV systems.
We incorporated in January 1989, but did not commence operations until
Fall of 1998. Since 1998, we began development of our product line and made
three key acquisitions to complement our proposed product line. We have
completed development and commenced marketing our SecureView-TM- line of digital
monitoring systems. We are in the process of developing other products including
facial recognition systems, license plate recognition systems, and other
security products that are enhanced through the use of digitized data.
Our executive offices are located at 925 West Kenyon avenue, Suite 15,
Englewood, Colorado 80110 and our telephone number is (303)783-9153. Our
worldwide web address is WWW.VIEWSYSTEMS.COM. A copy of this prospectus may be
accessed from our website.
THE OFFERING
<TABLE>
<S> <C>
Shares of Common Stock offered
by the Selling Shareholders 4,445,727
Common Stock outstanding after
the offering 12,581,807
Common Stock owned by the Selling
Shareholders after the offering 584,333
OTC Bulletin Board symbol VYST
</TABLE>
We are required to register 1,491,727 shares of common stock and
2,954,000 shares of common stock underlying warrants. The selling shareholders
are offering these shares.
There are 8,136,080 shares of common stock outstanding as of the date
of this Prospectus. This excludes 416,360 shares of common stock subject to
outstanding employee stock options, of which 364,860were exercisable as of March
31, 2000, and warrants to acquire 2,954,000 shares. This total also assumes the
exercise of the warrants and the sale of the underlying shares of common stock
in this offering.
1
<PAGE>
SUMMARY FINANCIAL INFORMATION
Set forth below is our summary financial information for the years
ended December 31, 1998, and 1999. The summary financial information should be
read in conjunction with the financial statements included elsewhere in this
prospectus and are qualified in their entirety by these statements.
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1999 December 31, 1998
<S> <C> <C>
OPERATIONS
Sales and other income $ 310,057 $ 31,438
Gross profit $ 51,579 $ 10,547
Total operating expenses $ 3,438,420 $ 254,104
Net loss $(3,932,331) $ (243,557)
Net loss per share $ (0.68) $ (0.06)
FINANCIAL POSITION
Current assets $ 323,641 $ 191,735
Current liabilities $ 383,999 $ 270,986
Current ratio 0.84 0.71
Total assets $ 824,342 $ 275,070
Stockholders' equity $ 440,343 $ 4,084
Book value per share $ 0.06 $ 0.00
</TABLE>
2
<PAGE>
RISK FACTORS
An investment in our Common Stock involves a high degree of risk. In
addition to the other information contained in this Prospectus, you should
carefully consider the following risk factors before investing in our Common
Stock.
WE HAVE A LIMITED OPERATING HISTORY. WE MAY NOT BE ABLE TO SUCCESSFULLY MANAGE
OUR BUSINESS OR ACHIEVE PROFITABILITY.
We first commenced active business operations in October 1998. Sales of
our products have been limited and we have not achieved profitability to date.
We have not completed development of all of our proposed line of products. We do
not know if all of our proposed products can be developed or marketed. Our
management team faces the challenge of successfully implementing Company wide
production and marketing systems. We may not be able to successfully manage our
business to achieve or maintain profitability.
WE HAVE A HISTORY OF OPERATING LOSSES.
We anticipate that our operating revenue will increase in the future,
but we cannot guarantee that our operations will be profitable. We recorded
operating losses of $3,932,331_ and $243,557 for the years ended December 31,
1999, and 1998 respectively.
WE ARE SUBJECT TO INTENSE COMPETITION.
The market for video surveillance products is highly competitive. Many
of our competitors have advantages including established positions, brand name
recognition, greater financial resources and established distribution networks.
Our competitors may also succeed in developing products or technologies that are
or are perceived as being better than ours. Some of our competitors produce a
more comprehensive product line that may give them an advantage in selling
products competitive to ours.
WE MAY NOT BE ABLE TO PROTECT OUR PROPRIETARY PROPERTY RIGHTS.
Our ability to compete will depend on our ability to protect the
proprietary nature of our technology through copyright, trademark or patent
applications and appropriate agreements with third parties. We cannot be certain
that complete protection is achievable. If our proprietary technology is
disclosed to outsiders, protracted and costly litigation could be necessary to
enforce and determine the scope of our proprietary rights. Our failure to
maintain protection for our intellectual property, for any reason, could have a
material adverse effect on our business.
3
<PAGE>
OUR SUCCESS DEPENDS ON OUR ABILITY TO RETAIN GUNTHER THAN AND OTHER KEY
PERSONNEL.
We believe that the management and other experience of Gunther Than,
our President and Chief Executive Officer, is critical to our success and the
loss of his services would have a detrimental impact on our business. Our
success will also depend on our ability to retain other key personnel in
management, development and marketing positions. Our success will depend on our
ability to retain management as well as our ability to hire competent marketing,
technical and sales personnel.
WE ARE SUBJECT TO RISKS FROM GOVERNMENT REGULATION.
Security and surveillance systems, such as those sold by us, raise
privacy issues. Government agencies throughout the country are in the process of
formulating rules and regulations which may be directed at the Company, its
resellers or its products. We cannot predict the extent to which our operations
will be affected by such government regulations until they are finalized.
MARKET ACCEPTANCE OF OUR PRODUCTS IS UNCERTAIN.
We have designed and developed our products in response to what we
believe are specific market needs. We cannot be certain that markets for our
products will develop as anticipated. Our success is dependent upon increased
market acceptance of our systems.
Although we have devoted resources to the development of design
engineer services from our ETMC subsidiary, we cannot be certain that we will be
able to compete effectively and establish ourselves in this market.
WE WILL NEED ADDITIONAL CAPITAL.
The proceeds from the exercise of the warrants underlying the shares
offered will not be sufficient to fund our operations beyond December 31, 2002.
We will need additional financing and will be dependent on our ability to either
raise equity capital, borrow on commercially reasonable terms or realize
increased sales revenue growth in order to continue operations. If we are unable
to obtain additional capital, we may not have sufficient working capital to
pursue business opportunities, to develop products or to remain in business.
WE MUST KEEP PACE WITH TECHNOLOGICAL CHANGE.
Video monitoring is an emerging market and is characterized by rapid
changes in technology and the frequent introduction of new and enhanced
products. Digital video systems handle a significant amount of data which causes
technical problems for transmission and storage of this data in the systems.
Further, these systems are prone to bugs or defects that effect their
functionality. Customers demand systems that can handle large
4
<PAGE>
amounts of data more efficiently and economically, and without interruptions in
service due to technical problems. To compete successfully, we must continue to
design, develop, manufacture and sell new and enhanced products that will
respond effectively to these customer requirements.
WE ARE SUBJECT TO THE "PENNY STOCK" RULES.
Our Common Stock is subject to the "penny stock" rules. When the price
of our shares falls below $5 and if we are unable to obtain a listing of our
stock on the NASDAQ System, we shall be subject to the "penny stock" rules. In
general, the penny stock rules impose requirements on securities broker/dealers
which tend to reduce the level of trading activity in a stock. If our shares
remain subject to the penny stock rules, investors may find it difficult to sell
them.
INVESTORS WILL PAY SUBSTANTIALLY MORE FOR THEIR SHARES THAN OUR MANAGEMENT.
Our management, including directors and officers, own approximately
2,427,000 shares of our common stock. These shares were acquired as either
executive compensation or founders shares, which were acquired for less than
$.01 per share. Investors in this offering will pay significantly more for their
common stock than management.
THE SALE OF COMMON STOCK OFFERED IN THIS PROSPECTUS COULD DEPRESS THE MARKET
VALUE OF SHARES.
The shares offered under this Prospectus are owned by current selling
shareholders or will be acquired by the sellers upon the exercise of warrants.
Currently, our public float is approximately 2,800,000 shares. The introduction
of the shares offered under this Prospectus into the public market could depress
the market price for our shares after completion of this offering.
THE SALE OF COMMON STOCK WHICH IS CURRENTLY UNDER RESTRICTION COULD DEPRESS THE
MARKET VALUE OF SHARES.
We have approximately 5,300,000 shares that have not been registered
and are currently restricted from trading in the public market. Shareholders who
own these shares may seek to remove restrictions on these shares and trade them
in the public market, which could depress the market price for the Company's
shares after completion of this offering.
OUR STOCK PRICE MAY BE VOLATILE.
Recently, the stock market in general and the market for shares of high
technology companies -- such as ours, in particular, have experienced extreme
price fluctuations. In many cases these fluctuations have been unrelated to the
operating performance of the affected companies. The trading price of our
5
<PAGE>
common stock may be subject to such fluctuations in response to both business
related issues and stock market related issues. Because a significant portion of
our business may be derived from orders placed by a limited number of large
customers, the timing of such orders can also cause significant fluctuations in
our operating results. In the past our customers have failed to deliver orders
as promised and they have deferred or cancelled orders. As a result of these
factors and other factors, our periodic operating results could be below the
expectations of securities analysts or investors, which would likely result in a
significant reduction in the market price of our stock.
OUR STOCK IS THINLY TRADED AND WE HAVE A SHORT MARKET HISTORY.
The average weekly trading volume in our shares in the public market is
approximately 200,000 to 250,000 shares and we have only been traded in the OTC
market since October, 1998. Therefore, it is uncertain that an active and
substantial market in our stock will be developed and sustained.
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS.
We intend to identify forward-looking statements in this Prospectus
using words such as "believes," "intends," "expects," "may," "will," "should,"
"plan," "projected," "contemplates," "anticipates," or similar statements. These
statements are based on our beliefs as well as assumptions we made using
information currently available to us. Because these statements reflect our
current views concerning future events, these statements involve risks,
uncertainties and assumptions. Actual future results may differ significantly
from the results discussed in the forward-looking statements. Some, but not all,
of the factors that may cause these differences include those discussed in the
Risk Factors section of this Prospectus. You should not place undue reliance on
these forward-looking statements, which apply only as of the date of this
Prospectus.
DESCRIPTION OF OUR BUSINESS
OVERVIEW
We are in the business of developing and selling digital video systems
for security and surveillance. Closed circuit television or CCTV has an
established use in the security industry. Conventional CCTV stores recorded data
on video tape using a video tape recorder or VCR. Our systems digitize the data
- -- that is convert it to a computer readable format. This allows us to offer a
variety of features not available with traditional non-computer based CCTV
systems.
ORGANIZATION AND HISTORY
We incorporated in Florida in January 1989. We remained a shell company
until the fall of 1998. At that time we began raising funds, purchasing working
assets, hiring staff, designing
6
<PAGE>
computer software and hardware, and establishing a corporate identity. During
the months that followed, we began development of our product line. Shortly
thereafter we acquired three businesses that were key to our plans.
We began making our first sales of the prototypes of our security and
surveillance products in March 1999. Through our manufacturing subsidiary, we
offer electronic component manufacturing, testing and engineering design
services.
KEY ACQUISITIONS
Our acquisition of three businesses during our development stage have
strengthened significantly our ability to deliver products and services.
Information about the three acquisitions follows.
REALVIEW
NAME OF ACQUIRED COMPANY: RealView Systems, Inc., a Colorado corporation
DATE OF ACQUISITION: October 6, 1998
PRINCIPAL SHAREHOLDERS Name Number of Shares
OF ACQUIRED COMPANY: ---- ----------------
Gunther Than 1,046,800
Russ Benefield 131,338
View Technologies, Inc. 130,937
Linda Than 66,700
Leokadia Than 200,000
7
<PAGE>
CONSIDERATION PAID: 1.33 shares of newly issued restricted common
stock in exchange for each outstanding share of
RealView. In the aggregate, we issued
2,000,000 shares to acquire all of RealView.
CALCULATION OF PURCHASE An evaluation was made of the assets,
PRICE AND SHARE EXCHANGE: liabilities, sales and prospects of RealView to
determine the amount of shares we would issue
for all of the shares of RealView.
ASSETS AND PRODUCTS RealView had developed software for use in the
ACQUIRED: real estate market. Our interest was in the
software program which had innovative
compression techniques -- that is software that
reduces the amount of data required to
represent video images in computer readable
format. We believed these techniques could be
used for our products. We have discontinued
selling RealView's software. RealView had a
license from View Technologies, Inc. to use its
compression software in all non-medical
markets. RealView also owned computers,
equipment and furniture.
LIABILITIES ASSUMED: We did not assume any material liabilities of
RealView.
XYROS SYSTEMS, INC.
NAME OF ACQUIRED COMPANY: Xyros Systems, Inc.
DATE OF ACQUISITION: February 25, 1999
PRINCIPAL SHAREHOLDERS Name Number of Shares
OF ACQUIRED COMPANY: ---- ----------------
Kenneth C. Weiss 70,500
David C. Bruggeman 39,000
Hal Peterson 32,250
CONSIDERATION PAID: 150,000 shares of newly issued restricted
common stock.
CALCULATION OF PURCHASE An evaluation was made of the assets,
PRICE AND SHARE EXCHANGE: liabilities, sales and prospects of
Xyros to determine the amount of shares we
would issue for all of the shares of Xyros.
ASSETS AND PRODUCTS Xyros had developed a product which permitted
ACQUIRED: remote monitoring and storage of video. We
believed that the engineering of Xyros's
product could be
8
<PAGE>
incorporated into our line of products. The
primary asset acquired was Xyros's product
development. We also acquired computers,
equipment, furniture and software designs.
Xyros had an earnings deficit of approximately
$91,000.
LIABILITIES ASSUMED: We assumed Xyros's liability to its former
shareholders as follows:
NAME AMOUNT OWED
---- -----------
Kenneth C. Weiss $ 50,000
Hal Peterson $ 75,000
David Bruggeman $ 30,000
--------
$155,000
EASTERN TECH MANUFACTURING CORP. - ETMC
NAME OF ACQUIRED COMPANY: Eastern Tech Manufacturing Corp. ("ETMC")
DATE OF ACQUISITION: May 25, 1999
PRINCIPAL SHAREHOLDER Lawrence Seiler
OF ACQUIRED COMPANY:
CONSIDERATION PAID: 250,000 shares of newly issued restricted
common stock and cash payments or guarantees of
cash payments for the benefit of Mr. Seiler.
CALCULATION OF PURCHASE An evaluation was made of the assets,
PRICE AND SHARE EXCHANGE: liabilities, sales and prospects of ETMC to
determine the price of $935,684. Shares were
exchanged on the basis of a value of $3.15 per
share.
ASSETS AND PRODUCTS ETMC is a manufacturer of electronic hardware
ACQUIRED: and assemblies and has been operating for more
than 15 years. ETMC provides us with a captive
manufacturer, as well as additional assets and
revenues. Through the acquisition of ETMC, we
can better demonstrate our ability to fill
significant orders of our products, control the
quality of our products, manage our inventory
and support our products. We acquired ETMC's
inventory, manufacturing equipment, furniture,
9
<PAGE>
goodwill and other intangible assets.
LIABILITIES ASSUMED: We agreed to:
1. Assume a loan payable to Lawrence Seiler in
the amount of $101,816;
2. Pay $48,184 to Lawrence Seiler for a
covenant not to compete;
3. Pay $69,307.51 as incentive compensation to
Lawrence Seiler so he would assist with
management transfer;
4. Pay $100,000 in legal fees toward Lawrence
Seiler's defense in the suit being brought
against him in the U.S. District Court for
the District of Columbia.
PRODUCTS
Our CCTV system:
- - takes video images captured by cameras
- - digitizes the video
- - stores the video
- - transmits the video across computer networks or phone lines
- - connects for remote or local access
- - triggers programmed responses to events detected in surveillance area
In July 1999, we introduced to market the SecureView-4. In many ways
the SecureView-4 embodies all of our engineering development work (including the
companies we have acquired) to date. We completed first production runs of an
enhanced and upgraded SecureView-4 in April, 2000.
SECUREVIEW-TM-
SecureView-TM- is a line of digital recording, remote monitoring
systems. These products allow a user to view its existing closed circuit
television system remotely. A SecureView-TM- user can dial into its CCTV system
and view the video and audio output from the system's cameras and microphones
using ordinary phone lines.
Our systems store video output on computer hard discs, rather than VCR
tapes. Storage on computer hard discs improves access to stored data. With a
VCR, a user must search an entire tape to review a critical event, often fast
forwarding and rewinding. With computer hard disc, a user can gain immediate
access to stored data by doing a controlled search for the desired data. Our
systems come standard
10
<PAGE>
with up to 21 days storage.
Our systems are programmable -- they can be pre-set to take actions
when events are detected in the surveillance area. For example, they can be
programmed to begin recording when motion is detected in a surveillance area or
to notify the user if the system is not functioning properly. Because of the
programmable recording features, our systems can eliminate the unnecessary
storage of non-critical image (and audio) data.
Our digital systems employ video data compression. This saves space and
time for transmission on low bandwidth channels such as plain telephone wiring.
The SecureView-TM- Line of Products include the following features:
- Users can remotely monitor any number of locations from a PC
- Connects to an existing Closed Circuit Television system
- Uses any and all forms of telecommunications, such as standard
telephone lines
- Video can be monitored 24 hours a day by a security monitoring
center
- Allows uninterrupted "2-way" audio transmission while
switching, controlling and monitoring up to 16 cameras per
unit
- Local and remote recording, storage and playback for up to 21
days, with optional additional storage capability
- ZOOMVIEW-TM- provides instant 2x, 3x, 4x zoom capability, pan
and tilt within the camera's field of view
- Guard Tour-TM- allows a user to set the system to
automatically review an area in desired camera sequence
- Provides remote software and system programmability
- Remotely monitors itself to insure system functionality with
alert messages in the event of covert or natural interruption
- Modular expansion system configuration allows user to purchase
only what is needed and to add on components later
The many benefits of the SecureView-TM- line of products include:
- Equipment cost reduction by a user's existing CCTV system
- Digital storage eliminates the need for costly VCRs,
11
<PAGE>
maintenance programs, and tapes
- Plug and play technology minimizes installation cost
- User can access and monitor system from off site
- Security stamp (Watermark) on video assures authenticity
- Adds higher level of employee security when connected to a 24
hour monitoring station.
VIEWSTORAGE-TM-
ViewStorage-TM- is currently in development and is expected to reach
market later in 2000.
ViewStorage-TM- is a competitively priced VCR replacement device that
will fit existing CCTV systems. This storage device will record video output
digitally, and the devices come standard with 7 days storage of video output
from cameras.
Video recording can be programmed for continuous recording, timed
"GUARD TOUR" recording, or event driven recording. Unlike images stored on tape,
images stored on this VCR replacement device do not degrade over time. It also
does not require the on-going and expensive maintenance required by VCR
recording devices.
ViewStorage-TM- is modular in nature and can be expanded to add
additional storage, up to an amount that meets the requirements of each
particular customer. This product has a unique "CAMERA AND DATE/TIME FILTERING"
feature which allows the user to immediately locate the video recorded on a
camera at a given time and date.
PLATEVIEW-TM-
PlateView-TM- is a license plate recognition system that uses optical
character recognition technology to provide an additional means of identifying
individuals in a surveillance area. The system can be integrated into an access
control mechanism that can open gates or call an attendant to compare an
identification made from other data, such as a driver's license, with the
identification made with the license plate. Law enforcement personnel can use
this system in traffic enforcement. In addition to plate identification,
officers can receive early warnings as to a number of items, including whether
the owner of a car being stopped has outstanding arrest warrants or whether the
license plate matches the vehicle's registration. PlateView-TM- was brought to
market in the first quarter of 2000, with the Company supporting current
installations.
FACEVIEW-TM-
FaceView-TM- is developed and being tested. We expect to bring it to
market in second quarter of 2000.
FaceView-TM- is a self-contained facial identification system for
tracking individuals in a surveillance area. Using cameras installed
12
<PAGE>
in a surveillance area, this easy-to-use system records an individual's face.
The system then converts this facial information into a digital format that is
transmitted over phone lines to a computer processing unit. The facial
information is compared against a database, and a quick and accurate
identification of a match is found. This resulting information can be used to
track and identify persons in a surveillance area.
There are many market applications requiring identity confirmations.
The need to know who is entering our work place, schools, airports, even our
country is critical. From an individual's face, FaceView-TM- allows a user to
compare virtually any visual characteristic against a predetermined database.
FaceView's-TM- customizable format is easily adaptable FOR may applications.
Some of the applications utilizing this technology today are:
- - Access Control - Time and Attendance
- - Guard Enhancement/Replacement - Criminal Identification
- - Gate Watch - Terrorist Tracking
- - Vehicle tracking - Banking applications
All facial identification applications can be performed remotely using
our products. We license facial identification software for FaceView-TM- from
Visionics Corp. through a distribution license. The software developed by
Visionics Corp. captures facial information from live video and creates audit
trails, including components for automatic head finding and matching. It then
acts as a search engine against a database of facial records. See Materials and
Suppliers
FaceView-TM- requires a SecureView-TM- system, and a local PC
workstation or network server. SecureView-TM- enhances FaceView-TM- by allowing
a user to use the system from any location. One to four cameras on the
SecureView-TM- system can be scanned continuously for facial images. When a face
is detected in the field of view, the system processes the image and creates a
"FACEPRINT," a digital code of the face. This code is then compared against
"FACEPRINT" digital codes previously stored in the PC workstation or other
network component.
Facial comparisons in conjunction with other double check methods, such
as ID card scans, can trigger events to occur, such as, opening a door, turning
on the lights, setting an alarm condition or notifying the PC operator(such as a
security guard) of the event. From an attended PC workstation, the operator can
also obtain additional profile information on the person identified, such as
name, address, or status. This aids in the determination of their eligibility
for access. The user can set a "THRESHOLD" to determine how accurate the match
must be so that there is a high confidence that the person has been identified
accurately.
CAREVIEW-TM-
Parent's rising concerns about the safety of their children at home
with a baby sitter or nanny or in a day care center - as well as
13
<PAGE>
the treatment of a loved one in a nursing home - have created the need for a way
of monitoring activities in these facilities. We are developing the CareView-TM-
system as an option for the care facility. Users of the CareView-TM- system,
access the Internet to scan the day care center's Web Site and immediately view
the video output produced by cameras installed at the care facility.
For nursing and hospice care facilities, the CareView-TM- system allows
family and friends to view loved ones when they are not able to be at the care
facility -- just by accessing the facilities' web sites.
The heart of CareView-TM- is a proprietary personal computer board or
component that we have designed. CareView-TM- requires our proprietary software
capable for use on the internet. We have developed a prototype of CareView-TM-
and have successfully tested it at our Columbia, Maryland facility. We expect to
release CareView-TM- to the market in Fall, 2000.
WEBVIEW-TM-
We are developing WebView-TM- , a low-priced retail product that allows
a user to capture camera output from a limited number of cameras and view that
output remotely via a connection to a server connected to the World Wide Web. It
consists of a proprietary personal computer card or component and proprietary
software that is compatible with use on the World Wide Web. These products are
ideal for the consumer who would like a low cost way to monitor his/her assets
remotely. We have developed a prototype of WebView-TM- and have successfully
beta tested it. We expect to release WebView-TM- to the market in Fall 2000.
END USERS OF OUR PRODUCTS
Our family of products offers government and law enforcement agencies,
commercial security professionals, gaming casinos, private businesses and
consumers a dramatically enhanced surveillance capacity. It also offers a more
efficient and economical method to store, search and retrieve historically
stored data.
Surveillance devices are common today and are used as a proven method
for protection and risk management. They are routinely used in law enforcement,
residential, commercial, and industrial applications. The most common
surveillance systems used today capture video and sound data and then transmit
them to a VCR where the information is monitored and stored in tape format. This
provides a historical record that could then potentially be used for
information, identification, legal or insurance purposes.
The most common systems for the real-time transmission of video data is
the analog closed circuit television -- CCTV -- system and a tape recording
device -- a VCR -- at the receiving end for archiving. However, VCRs are
expensive to maintain, tape images degrade over time and tapes are burdensome to
store. VCRs are also inefficient for search and review. This type of video/sound
recording is not compatible with remote access because there are significant
time
14
<PAGE>
delays and prohibitive costs associated with recording analog data on tape,
transmitting it and later accessing it. Thus, much of the information captured
by an analog CCTV system, becomes stale and unusable to make immediate critical
decisions.
We have identified the following key potential end users for our
digital surveillance and security systems: (1) the residential home security
user; (2) commercial security companies; (3) federal, state and local law
enforcement agencies; and (4) casinos and gaming establishments
RESIDENTIAL
The residential home security user will purchase our products from
either commercial companies installing either self-contained or centrally
monitored systems or directly from retail distribution centers. While not as
large or as lucrative as the market for commercial users, the market for
residential users is still significant. The major obstacle to marketing to the
residential home user is convincing the individual homeowner of the need for
investing in a security system that digitizes data.
Utilizing our technology, individuals can run their own perimeter and
interior surveillance systems from their own home computer. They can remote
monitor real-tine action at their homes through a modem and the Internet. There
is also the capability to make real-time monitors wireless. In turn, this
reduces the expense and time of the home installation and makes installation
affordable for a majority of homeowners.
An additional advantage of our technology is that it allows for the
storage of information on the home computer and does not require a VCR.
COMMERCIAL
Commercial business users represent the greatest potential users of our
surveillance products. Commercial businesses have already realized the need for
using surveillance devices for protection. A commercial business's major use of
our products would be monitoring. Our products provide observation of facilities
for protection of employees, customers, and assets. This results in the
curtailment of crime and loss prevention, by employees and others. Our products
reduce employee theft, violence in the workplace, fraud and white-collar crime.
The market for this technology is the same as the current market for analog CCTV
systems, including hospitals, schools, museums, retail manufacturing and
warehousing.
The benefits which the customers derive are plentiful. Our system
reduces the requirements for a guard force. Lesser number of security personnel
are needed to monitor, verify and respond to tripped alarms. Our products also
allow companies that deal in cash and precious items, such as ADT, Brinks, and
Ameritech, to remotely monitor facilities.
Our products and technology can be used where there is a
15
<PAGE>
temporary requirement for real-time surveillance in areas where an analog CCTV
system is impractical or impossible. Examples of this are special events,
concerts, and conventions: our systems reduce the need for a large guard force
and provide unobtrusive monitoring of these events.
LAW ENFORCEMENT
The gathering of video image and data images is commonplace in law
enforcement. The data is used to protect both the law enforcement officer and
the suspect. It is also used as a historical record for prosecution and event
verification.
Because our technology can be used for stakeouts and remote monitoring
of areas, we believe there is a market potential with federal law enforcement
agencies. Our units have been successfully used with facial recognition
capability to identify wanted criminals. We have been asked to submit proposals
for license plate recognition systems that help law enforcement identify people
entering a surveillance area.
Our products can also be integrated to work with robotic systems. More
than ever, robotic units are used to investigate and disarm potential explosive
devices. These robots are limited by a closed circuit video system which
requires a VCR. Our technology eliminates this problem.
CASINOS AND GAMING ESTABLISHMENTS
The number of casinos and gaming establishments in this Country has
been growing. These gaming outlets have a need to maintain surveillance for
security purposes. We have been installing our systems in large casinos in Las
Vegas for purposes of testing and evaluation and we have been actively marketing
these systems to casinos and gaming establishments around the country. These
casinos have been particularly interested in the facial recognition and license
plate recognition capabilities of our products, as a means of tracking persons
entering the casino and protecting the casinos against undesirable persons and
criminals.
AVAILABILITY OF MATERIALS AND SUPPLIES
We do not manufacture any of the hardware in our systems. We assemble
our systems by combining commercially available hardware and software together
with our proprietary software. We license software components that are
integrated into our proprietary software and installed on our systems. We
believe that we can continue to obtain components for our systems at reasonable
prices from a variety of sources. Although we have developed certain proprietary
hardware components for use in our products and purchased some components from
single source suppliers, we believe similar components could be obtained from
alternative suppliers without significant delay.
16
<PAGE>
We have a licensing agreement with Aware, Inc. for compression software
components. The license agreement permits us to integrate the compression
software into our software for the SecureView-TM- products. We pay a per copy
license fee as part of a reseller marketing plan.
We have a distribution software license agreement with Visionics, Inc.
for facial recognition and database search software components. Our license
agreement calls for the payment of a fee to obtain Visionics software
development kits along with enhancements and upgrades to this software. These
software development kits provide the facial identification software we
integrate into our proprietary software. We pay a per unit royalty for each copy
of Visionics software that we distribute, subject to a minimum annual license
fee.
We have a duplication and distribution license agreement with Lead
Technologies, Inc. in connection with our applications software for
PlateView-TM-. The license agreement permits us to integrate Lead Technologies
software components into our software for the PlateView-TM- products. We pay a
per copy license fee that was negotiated as part of a reseller marketing plan.
We have a duplication and distribution license agreement with Anasoft
Systems, Inc., an approved distributor of Microsoft operating systems. The
license agreement permits us to integrate operating system software into our
software for installation and operation on our products. We pay a license fee
for each copy of the software as part of a reseller marketing plan.
PRODUCTION, ENGINEERING AND EXECUTIVE FACILITIES
The engineering and manufacturing facility for our products is an 8,000
square foot facility located at 9693 Gerwig Lane Suite 0, Columbia, MD 21046. We
will engineer, manufacture, assemble and ship from this facility. We also
maintain an executive office at 925 West Kenyon Avenue, Suite 15, Englewood,
Colorado.
MARKET
According to an estimate by Bear, Stearns & Co., the market size for
products such as our SecureView-TM- line is at least $2,200,000,000 per year,
with this market size increasing at a rate of 12 - 15% per year. The increased
functionality that digital technology introduces to CCTV systems has made this a
very dynamic and rapidly growing market. We are distributing and will distribute
our SecureView-TM- line of products, with add-on features, such as FaceView-TM-,
to this market through a network of value-added resellers and strateGIC
partners. We are also in discussions with some very large security and law
enforcement integrators about distribution agreements. In the short term, we
will rely on our existing value added reseller network to generate sales
revenues; however, we believe long term sales growth will be substantially
driven by agreements with larger companies.
17
<PAGE>
We currently have ongoing reseller arrangements with 20 small and
medium sized domestic and international resellers and are actively selling our
products through these distribution channels.
Our reseller agreements grant a non-exclusive right to sell our
products. The reseller purchases from us at a discount from list price and on
other terms and conditions in effect at the time of order. The agreements are
generally for a term of one (1) year and automatically renew for successive one
(1) year terms unless terminated by notice. The agreements are also terminable
by us in the event of breach or other causes.
We will offer our CareView-TM- products through these same distribution
channels. Day care centers and nursing homes will be the primary end users of
these systems. The aging population and large numbers of double income working
families have dramatically increased the number of facilities that could be
installed with CareView-TM-. As the public becomes increasingly comfortable with
computer use and multiple computers become more commonplace in the home and
office, we expect market demand for this type of service to expand
significantly.
We plan to offer WebView-TM- for direct retail sale on the World Wide
Web and wholesale through retail distributors. We do not have any agreements
with any distributors and will not seek any until we complete development of the
product. These products will be priced at a level which will be attractive to
retail consumers.
The market for ViewStorage-TM- consists of replacement of VCR recording
devices. Based on internal surveys and discussions with others in the industry,
we believe the market size for ViewStorage-TM- is approximately $1,600,000,000.
We believe we can price this product at a level which will make owners of
existing CCTV systems want to buy ViewStorage-TM- as A way of reducing overall
CCTV system costs through elimination of on-going maintenance costs.
Our contract electronic component assembly and test division, ETMC, has
been in operation for over fifteen (15) years and has an established base of
clients for which it has long done business. Traditionally, ETMC has done
approximately 60% of its business for the commercial sector and 40% of its
business for the government sector. ETMC's diverse clients have included
Hewlett-Packard, IBM, Martin Marietta, Aero & Naval Systems, Maryland Government
Procurement Office, Lockheed Martin, and John Hopkins's Applied Physics Labs
under contract to NASA.
We believe the market for the types of contract electronic component
manufacturing and testing services offered by ETMC is well established. This
market is subject to cyclical swings. We believe the current market demand for
electronic manufacturing and engineering design services is strong. We plan to
take advantage of this climate to leverage our engineering resources into new
and expanded service offerings and to expand our manufacturing base of clients
and business.
18
<PAGE>
Historically, ETMC has limited itself to the multimillion dollar
contract electronic component assembly and testing market in the
Baltimore-Washington area; however, we plan to expand marketing for electronic
component assembly services in other geographic regions in this country and
internationally. Moreover, we plan to expand ETMC's service offerings to include
engineering design services. The market for these services is very large and is
often serviced by the same companies that provide electronic component assembly
services. We believe that we will be limited in our efforts to capture market
share for our engineering service offerings only by the new equipment and
machinery we can acquire, the size of our production facilities and our
engineering human resources.
COMPETITION
The markets for our products are extremely competitive. Competitors
include a broad range of companies that develop and market products for the
identification and video surveillance markets. Competitors in the market for our
identification products, such as FaceView-TM- and PlateView-TM-, include
Polaroid Corporation, Loronix Information Systems, Data Card Corporation, Dactek
International, Inc., Imaging Technology Corporation, G & A Imaging, Goddard
Technology Corporation and Laminex, Inc. Competitors in the surveillance market
include numerous VCR suppliers and digital recording suppliers including,
Loronix Information Systems, Inc., Sensormatic Corporation and NICE Systems,
Ltd.
However, we believe the introduction of digital technology to video
surveillance and security systems is our market opportunity. We believe that
many of the established CCTV companies have approached the design of their
digital CCTV products from the standpoint of integrating their digital products
to existing security and surveillance product offerings. As a result, these
systems are closed, not easily integratable with other equipment and not capable
of upgrades as technology improves. We have designed our systems so that they
are open, compatible with other digital and analog systems, and easily adaptable
to technological advances that will inevitably occur with digital technology.
We believe that the principle competitive factors in our markets
include: system performance and functionality, price, system configuration
flexibility, ease-of-use, system maintenance costs, quality, reliability,
customer support and brand name. Larger more established companies with
substantially greater technical, financial and marketing resources, such as Data
Card Corporation, Loronix Information Systems, Inc., Sensormatic Corporation and
NICE Systems, Ltd., have an enhanced competitive position due in part to their
established brand name franchises. We believe that our primary competitive
strengths include system performance and functionality, system configuration
flexibility and ease-of-use.
Many of the companies that provide competitive electronic component
manufacturing and testing services provide greater engineering services than
those currently being provided by ETMC. By providing these services, these
competitors put themselves in a better position to obtain manufacturing service
contracts.
19
<PAGE>
Essentially, these competitors leverage off of their engineering services to
attract and grow their manufacturing business. ETMC will be focusing on building
its capacity to deliver these services through use of the engineering staff of
View Systems.
RESEARCH AND DEVELOPMENT
During 1999, we spent approximately $212,841 on research and
development and continue to refine our product line. In addition, we estimate
that our wholly owned subsidiaries Xyros and RealView have collectively spent
$200,000 on research and development, most of which has been integrated into our
products.
PATENTS AND TRADEMARKS
We believe certain features of our products and documentation are
proprietary and we rely on a combination of contract, copyright, trademark
and trade secret laws and other measures to protect our proprietary
information. As part of our confidentiality procedures, we generally enter
into confidentiality and invention assignment agreements with our employees
and mutual non-disclosure agreements with our manufacturing representatives,
dealers and systems integrators. Notwithstanding such actions, a court
considering these contract provisions may determine not to enforce such
provisions or only partially enforce such provisions. We also limit access to
and distribution of our software, documentation and other proprietary
information.
Because the software and firmware are in a state of continuous
development, we have not filed applications to register the copyrights in these
items. However, under the law, copyright vests upon creation of our software and
firmware, and registration is not a prerequisite for the acquisition of
copyright rights. We take steps to insure that notices are placed on these items
to indicate that they are copyright protected. The copyright protection for our
software extends from 95 years from the date of first "publication"
(distribution of copies to the general public) or 120 years from the date of
creation, whichever expires first.
We are applying with the U.S. Patent and Trademark Office for trademark
protection of important trade identifiers for our products. We are presently in
the process of preparing and filing applications to register the trademarks
SecureView-TM-, CareView-TM- and WebView-TM-.
We provide software to end-users under non-exclusive "shrink-wrap"
licenses, which generally are nontransferable and have a perpetual term.
Although we do not generally make source code available to end-users, we may,
from time to time, enter into source code escrow agreements with certain
customers. We have also licensed certain software from third parties for
incorporation into our products.
GOVERNMENT REGULATION
We are not subject to Government regulation in the manufacture and sale
of our products, and the components in our products. However, our end users will
be subject to numerous regulations that stem from proposed activities in
surveillance. Security and surveillance systems, including cameras, raise
privacy issues. Our
20
<PAGE>
products involve both video and audio, and add features for facial
identification. The regulations regarding the recordation and storage of this
data are uncertain and evolving. For example, under the Federal wiretapping
statute, the audio portion of our surveillance systems may not record people's
conversations without their consent. Further, there are state and federal laws
associated with recording video in non-public places. Shipments of our products
internationally may be regulated as to certain countries that raise national
security concerns. These laws are evolving.
YEAR 2000 DISCLOSURE
We did not experience any material disruption in our operations or
normal business activities as a result of the arrival of Year 2000.
We are not aware of any failure to address potential Year 2000
malfunctions in our computers and other equipment. All of our important external
vendors assured us that they were taking steps to avoid any disruption from Year
2000 problems and we have not experienced any disruption to date. Our
expectations about any future costs associated with the Year 2000 issue are
uncertain. Factors which could influence the amount of future costs would depend
on malfunctions in our products or computers and none have occurred to date.
EMPLOYEES
We employ 23 persons including 3 persons in part-time positions. The Company
also employs 4 independent contractors who devote a majority of their work to
various projects of the Company. Our employees are not presently covered by any
collective bargaining agreement. Our relations with our employees are good, and
we have not experienced any work stoppages.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
The following discussion and analysis should be read in conjunction
with our audited financial statements and the accompanying notes.
Since start-up of operations in October, 1998, we have devoted most of
our resources to the development, sale and marketing of digital video
surveillance and security products. We have generated only limited revenues from
our security products to date, but are rapidly expanding our sales and
distribution network. At the same time we are working on delivering new products
to market and enhancing and upgrading our product line. Until we more fully
develop our product line and our sales and distribution network, we expect our
operating losses to continue. Our acquisition of Eastern Tech Manufacturing
Corp. on May 25, 1999, added a substantial revenue and customer base for
contract electronic manufacturing services and accounted for the bulk of our
revenues in 1999.
21
<PAGE>
RESULTS OF OPERATIONS
Year Ended December 31, 1999, Compared To Year Ended December 31, 1998
REVENUE
We moved from being a development stage company in 1998 to earning
substantial revenue in 1999. Our revenue is derived from (1) sales of systems,
included embedded software, and supplies from maintenance services on the
systems; and (2) sales of contract electronic component and system assembly and
test services. In 1999, we derived $65,954 from sales of systems and $231,970
from sales of contract manufacturing and test services. Revenue increased
approximately 900% from $31,438 in 1998 to $310,057 in 1999. We attribute the
increase in revenue from 1998 to 1999 to the acquisition of ETMC, and ETMC's
on-going revenue base. We plan to bring three products in development,
WebView-TM-, CareView-TM- and FaceView-TM-, to market in 2000. In addition, we
will be introducing enhancements and upgrades to our SecureView-TM- product line
in 2000. We expect that these new product offerings will contribute TO a growth
in revenues in 2000.
GROSS PROFIT AND OPERATING EXPENSES
Gross profit on sales for the year ended December 31, 1999, increased
to $51,579, from $10,547 in the year ended December 31, 1998. This represents an
approximate 390% increase in gross profit on sales. Gross profit margin
decreased from 34% in 1998 to 17% in 1999. At these modest sales amounts, we
consider the gross profit margin fluctuation to be non-material. The gross
profit margin should stabilize with increased sales.
Operating expenses for the year ended December 31, 1999, increased to
$3,438,420 , compared with $254,104 in 1998. Approximately, $2,264,000 of our
operating expenses in 1999 were attributable to the issuance of shares of our
common stock as compensation and incentive, and as a means to attract and retain
qualified personnel. It does not represent actual cash outlays. If we adjust for
this expense item, our operating expenses from actual cash outlays would be
reduced to $1,174,000. Much of this expense can be attributed to a significant
focus on sales, marketing, investor relations and promotion, as well as research
and development outlays that increased to $212,841 in 1999. We plan to build a
larger sales force in 2000, as well as spending increasing amounts on trade
shows, advertising and promotion.
As a result of the foregoing, net loss was $3,932,331 for the year
ended December 31, 1999, compared to a net loss of $243,557 for the previous
year.
COSTS AND EXPENSES
COSTS OF PRODUCTS SOLD The cost of products and services sold,
22
<PAGE>
consisting principally of the costs of hardware components, supplies and
software amortization, increased from $20,891 in 1998 to $258,478 in 1999, and
represented 83% of revenue in 1999 and 66% of revenue in 1998. The increase
resulted from higher total revenue and a shift in our business lines from the
software for the real estate market that was produced by RealView Systems, Inc.
to security and surveillance systems and contract electronic component assembly
and test work. We are currently working on engineering changes in our security
products that we expect will lower component costs for these products.
SALARIES AND BENEFITS We spent $2,094,959 in salaries and benefits in
1999, as opposed to no expenses in this category in 1998. We organized and
staffed up in 1999, converting many independent contractors to employees. We
booked $1,755,000 in expenses associated with issuing shares of our common stock
as a means of attracting, retaining and providing incentive to employees. We
believed these expenses were necessary in order to attract qualified personnel
and conserve cash during the start-up phase.
SELLING, BUSINESS DEVELOPMENT, GENERAL AND ADMINISTRATIVE. Selling,
business development, general and administrative expenses increased from $17,424
in 1998, to $269,450 in 1999, and represented 87% of total revenue in 1999, and
55% of total revenue in 1998. A significant portion of these expenditures in
1999 related to the payment of 140,000 shares to Bruce Lesniak as a way of
attracting and providing incentive to him in performing the job of Senior Vice
President of Corporate Development. We also spent $106,194 in travel and
entertainment expenditures, mainly as a result of sales trips associated with
sale efforts for our security products.
RESEARCH AND DEVELOPMENT EXPENSE. We spent $212,841 in 1999 on research
and development costs. This represented 69% of 1999 revenues. We expect to
continue to fund new product development in 2000 at or above the dollar levels
expended in 1999.
INVESTOR RELATIONS EXPENSE. Investor relations expenses increased from
$45,415 in 1998 to $212,086 in 1999. Our filing to become a fully reporting
Company became effective October 13, 1999. In addition, trading in our stock
increased significantly in 1999. As a result, we undertook more efforts on
investor relations in 1999. Included in this expense category is the issuance of
shares of our common stock to Columbia Financial Group with a value of $200,000,
in partial payment of their services in providing investor relations support.
PROFESSIONAL FEES Professional fees increased from $10,819 in 1998, to
$317,100 in 1999. Of these expenses in 1999, we paid $80,100 in programming fees
to independent contractors and $110,000 to various consultants for a marketing
and promotional campaign associated with bringing our products to market in
1999.
WRITE-OFF OF GOODWILL AND OTHER INTANGIBLE ASSETS We took a charge
against earnings in 1999 of $545,490. Based on a thorough
23
<PAGE>
review of our operations, we wrote off the goodwill we booked in connection with
our acquisition of Eastern Tech Manufacturing Corp. in the amount of $473,490.
In addition, we had previously capitalized $72,000 on software development costs
for the program developed by RealView Systems. As we are no longer marketing
this program, we wrote off the $72,000 in software development costs associated
with this program in 1999.
STOCK SPLIT AND CHANGE IN PAR VALUE.
In July 1998, we increased the number of authorized shares from 7,500
shares to 50,000,000 shares of common stock, and changed the par value of each
share of stock from $1.00 to $.001. Also, in that month, we forward stock split
our common stock 200:1, thereby increasing the number of outstanding common
stock shares from 5,000 shares to 1,000,000 shares. On September 30, 1998, we
forward split our common stock from 1,000,000 shares to 2,000,000 shares. In
connection with the RealView, Xyros and ETMC acquisitions in 1999, we issued
2,013,333, 150,000 and 250,000 shares, respectively. Unless otherwise noted in
this statement, all share amounts reflect the forward stock split par value
changes and acquisitions. At year end, we had 7,167,203 shares issued and
outstanding.
NET OPERATING LOSS.
We have accumulated approximately $1.5 million of net operating loss
carry-forwards as of December 31, 1999, which may be offset against taxable
income and income taxes in future years. The use of these losses to reduce
income taxes will depend on the generation of sufficient taxable income prior to
the expiration of the net operating loss carry forwards. The carry- forwards
expire in the year 2018. In the event of certain changes in control, there will
be an annual limitation on the amount of net operating loss carry-forwards which
can be used. No tax benefit for these carry-forwards has been reported in the
financial statements for the years ended December 31,1999, or 1998.
LIQUIDITY AND CAPITAL RESOURCES.
Since start-up of operations, we have funded our cash requirements
primarily through equity transactions. We used the proceeds from those
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 December 31, 1999, we had total assets of
$824,342, and total liabilities of approximately $383,999, resulting in equity
OF $440,343. During 1999, we received equity investments totaling $1,598,059.
Our principal uses of cash during 1999 were to (1) fund operating activities,
including increased sales and marketing activities; (2) acquire businesses,
property and equipment; and (3) invest in the development of products.
24
<PAGE>
During 1999, our cash decreased from $169,899 at December 31, 1998, to
$89,150 at December 31, 1999. Net cash used in operating activities was
$1,141,274 for the year ended December 31, 1999. Net cash used in investing
activities of $537,534 consisted primarily of $459,180 in funds advanced to
affiliated entities. Net cash generated from financing activities of $1,598,059
consisted of proceeds received from the sale of stock.
We have three short-term debt obligations. We owe the principal amount
of $110,000 to two former managers of Xyros, which we acquired on February 25,
1999, and a demand loan payable of approximately $70,000 to Columbia Bank. The
loans to the former managers came due on December 31, 1999.
During 1998, our cash increased from $7 at December 31, 1997, to
$169,899 at December 31, 1998. Net cash used in operating activities of $253,373
consisted primarily of a net loss of $243,557 and increases in accounts
receivable and inventory of $18,173, offset by decreases in prepaid expenses and
other assets, and increases in accounts payable and accrued liabilities of
$26,301. Net cash used in investing activities of $6,604 consisted of capital
expenditures. Net cash generated from financing activities of $429,860 consisted
primarily of proceeds from issuance of stock and loans provided by stockholders.
As of December 31, 1999, we had $(60,385) in net working capital,
including $93,278 of trade accounts receivable and $141,213 in inventory. Days
sales outstanding, calculated using an average accounts receivable balance, were
approximately 45 days as of December 31, 1999. We have provided and may continue
to provide payment term extensions to certain of our customers from time to
time. As of December 31, 1999, we have not granted material payment term
extensions.
Our inventory balance at December 31, 1999, and 1998, was $141,213, and
$4,574, respectively.
Our principal sources of liquidity are our cash and cash generated from
operating activities. We anticipate capital expenditures for 2000 of
approximately $500,000. We are also exploring the purchase of the commercial
space we are leasing in Columbia, Maryland, plus adjoining space, consisting of
a total of approximately 10,000 square feet. If we can obtain favorable terms,
we would purchase the building through debt financing.
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. In this offering, we
are registering 2,954,000 shares of common stock for resale that can be obtained
from exercising warrants held by the selling stockholders. If the selling
stockholders exercise all of their warrants, at the exercise price of
25
<PAGE>
$2.00 per share, we will receive $5,908,000, which we will use for working
capital and to expand operations to execute our business plan.
PLAN OF OPERATION. We have devoted most of our resources since
inception of operations to (1) the research and development of the
SecureView-TM- line of products; (2) the development of marketing and sales
infrastructure; and (3) the development of production capability and brand
awareness of "SecureView.-TM-" Although we have been selling products since
March of 1999, we are still developing these products and have generated limited
revenues from these products to date. In the quarter ended September 30, 1999,
we began earning substantial revenues. As of December 31, 1999, we had an
accumulated deficit of approximately $4,400,000. We expect the operating losses
to continue until we develop a sufficient network of resellers and strategic
partners generating sales revenues to cover our operating expenses. A large part
of our earnings deficit is due to the issuance of equity to attract, retain and
provide incentive key personnel. This was done to preserve cash resources. Thus,
much of our earnings deficit is not attributable to actual cash outlays.
We hope to use the cash raised from the exercise of warrants held by
selling shareholders to (1) bring our WebView-TM-, ViewStorage-TM- and
CareView-TM- products to market; (2) continue our product development efforts;
(3) expand our sales, marketing and promotional activities for the SecureView
line of products; and (4) to increase our engineering, production management,
quality control, and customer support staff. We operate in a very competitive
industry that requires continued large amounts of capital to develop and promote
our products. We believe that it will be essential to continue to raise
additional capital, both internally and externally, to compete in this industry.
The amount of capital that we need to raise will depend upon many
factors primarily including, but not limited to: (1) the rate of sales growth
and market acceptance of our product lines, (2) the amount and timing of
necessary research and development expenditures, (3) the amount and timing of
expenditures to sufficiently market and promote our products and the amount and
timing of any accessory product introductions. In addition to accessing the
public & private equity markets, we will pursue bank credit lines and equipment
lease lines for certain capital expenditures. We currently estimate we will need
between $7 million and $8 million to fully develop all of our products and
launch our expanded business operations in accordance with our current business
plan. Other factors that will affect the amount of capital we will need to raise
include (1) our ability to negotiate favorable prices for purchases of necessary
parts and assemblies, (2) the number and composition of our resellers, and
strategic partners, (3) the prices we can obtain for our products and services
and the costs of servicing our products and delivering our services, and (4)
changes in technology. In addition, our costs and revenues could vary from the
amounts we expect or budget, possibly by a material amount, and those variations
are likely to affect how much additional financing we will need for our
operations.
26
<PAGE>
ACQUISITION TREATMENT.
In October, 1998, we acquired RealView Systems. In February, 1999, we
acquired Xyros Systems. We have accounted for these two acquisitions under the
pooling of interests accounting method. In May, 1999, we acquired ETMC. We
accounted for the ETMC acquisition under the purchase accounting method. For
additional information concerning these acquisitions, see "Description of
Business - Key Acquisitions," pages 7 - 9.
DESCRIPTION OF PROPERTY
We lease executive office space in Englewood Colorado of approximately
2,000 square feet, including common areas, from a non-affiliate, pursuant to
standard commercial lease terms. In addition, we lease 8,000 square feet of
space used for engineering design and manufacturing at 9693 Gerwig Lane,
Columbia, Maryland from Lawrence Seiler, a significant shareholder of the
Company. The terms of this lease are standard commercial terms, with rent being
established at market. We also own engineering design, hardware and software
development equipment, and manufacturing equipment and inventory on hand with an
approximate replacement value of $800,000, including surface mount equipment,
through-hole equipment, cable and wire harness and inspection equipment.
We own 840,000 shares of MediaComm Broadcasting Systems, Inc., a Denver
corporation, which we purchased in a private placement for $28,000. Gunther Than
is a Director of MediaComm. MediaComm has partnered with an Internet service
provider to provide high-quality Internet access and value-added local content
through an Internet service portal, primarily to customers in the Denver
metropolitan area. MediaComm will offer streaming live or pre-taped video over
the Internet. Through agreements with RealNetworks, Inc., MediaComm Broadcasting
plans to deliver events, concerts, corporate training and education, as well as
archived content from a variety of licensed sources. In addition to our equity
stake in MediaComm, we hope to function as MediaComm's technical partner with
regard to its digital video requirements on the Internet. On November 3, 1999,
MediaComm filed with the SEC for an initial public offering of stock at an
estimated price of $1.00 per share.
SHARES AVAILABLE FOR FUTURE SALE
Upon completion of the offering, we will have outstanding an aggregate
of 12,581,807 shares of common stock. These amounts include the number of shares
we would be obligated to issue on exercise of the warrants underlying 2,954,000
shares offered under this prospectus. In addition, we reserved for issuance
416,360 shares issuable upon exercise of outstanding options (of which 364,860
were exercisable as of March 31, 2000).
The shares sold will be freely transferable without restriction or
further registration under the Securities Act, except for shares which may be
acquired by our "affiliates" as that term is defined in Rule 144 under the
Securities Act. We also have approximately
27
<PAGE>
2,800,000 million shares of Common Stock that are currently freely tradable
(except for such of those shares as may be acquired by our affiliates) as of
March 31, 2000.
The remaining shares of Common Stock held by existing shareholders are
"restricted securities" as that term is defined in Rule 144. Restricted
securities may be sold in the public market only if they are registered or if
they qualify for exemption from registration under Rules 144 or 701 under the
Securities Act or otherwise. In general, under Rule 144 as currently in effect,
a person (or persons whose shares are aggregated), including an affiliate, who
has beneficially owned shares for at least one year is entitled to sell, within
any three-month period commencing 90 days after the date of this prospectus, a
number of shares that does not exceed the greater of (1) 1% of the then
outstanding Common Shares or (2) the average weekly trading volume in the common
shares during the four calendar weeks preceding such sale, subject to the filing
of a Form 144 with respect to such sale and certain other limitations and
restrictions. In addition, a person who is not deemed to have been an affiliate
of the Company at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years, would
be entitled to sell such shares without regard to the volume, manner of sale and
other limitations described above. None of the restricted shares held by our
existing shareholders will be eligible for immediate sale in the public market
under Rule 144(k).
An employee or consultant to the Company who purchased his or her
shares pursuant to a written compensatory plan or contract is entitled to rely
on the resale provisions of Rule 701, which permit non-affiliates to sell their
Rule 701 shares without having to comply with the public information,
holding-period, volume-limitation or notice provisions of Rule 144 and permit
affiliates to sell their Rule 701 shares without having to comply with the Rule
144 holding period restrictions, in each case commencing 90 days after the
Company becomes a reporting company under the Securities Exchange Act.
SELLING SHAREHOLDERS
On June 17, 1999, we entered into a consulting agreement with Columbia
Financial Services pursuant to which we agreed to pay it 200,000 shares and
warrants to purchase another 400,000 shares at $2.00 per share in exchange for
its provision of investor relations, public relations and related services to
us. We agreed to register for resale the shares of common stock underlying
Columbia Financial's Warrants at our expense as part of any registration of
shares for sale to the public. The sale of the 400,000 shares underlying these
warrants are covered by this Prospectus. Columbia Financial Services has
provided investor relations services to us since the fall of 1998, including
- preparing and issuing press releases to major new wires;
- providing information on the Company to the investment
community, including institutional investors and broker
dealers;
28
<PAGE>
- facilitating the dissemination of financial and other
information on the Company to market makers in the Company's
stock before it became fully reporting;
- assisting with the development of investment relations
materials and a web site;
- identifying and, in some cases, paying for attendance at major
trade shows and other activities designed to educate the
investment community about the Company.
We believe the efforts of Columbia Financial Services have also substantially
assisted the Company in the development of its sales and marketing efforts.
Columbia Financial Services is a large firm with three branch offices in
Louisiana, Florida and Maryland employing approximately 70 persons specializing
in investment relations services.
On July 29, 1999, we entered into an agreement with Lawrence Seiler,
the former sole shareholder of ETMC, whereby Mr. Seiler subscribed for 170,000
shares in exchange for the satisfaction of certain debts and obligations owed
to, or for the benefit of, Mr. Seiler. We agreed to register 100,000 of the
shares as part of our next registration of securities and these shares are
covered by this prospectus. Mr. Seiler is past president and a current sales
representative of ETMC.
On August 2, 1999, we commenced an offering pursuant to Rule 506 of
Regulation D. In connection with that offering, we agreed with investors that we
would register the shares those investors purchased at our expense as part of
the next registration of our shares. Under the terms of our agreements with
those investors, we are registering the following shares as part of this
offering:
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
---- ----------------
<S> <C>
Martin J. Maassen 35,000
Michael Bagnoli 20,000
Gus Mastracci 1,000
</TABLE>
Dr. Maassen is Chairman/Board and Dr. Bagnoli is a Director.
On October 29, 1999, we sold 100,000 shares to Jim Price and Tim Rieu,
two accredited investors, pursuant to Rule 506 and agreed to register their
shares as part of our next registration of securities, subject to the ability to
cut back the amount of shares we would register for those investors if in the
reasonable opinion of management such a cut back was necessary for the success
of the offering. These shares are covered by the prospectus. Messrs. Price and
Rieu are principals of Columbia Financial.
On November 15, 1999, we issued 200,000 shares of common stock to
Leokadia Than in exchange for forgiveness of indebtedness in the principal
amount of $177,000 and accrued interest of $33,000. As part of this
subscription, we agreed to register 50,000 shares that were issued to Ms. Than
as part of our next registration of
29
<PAGE>
securities, subject to our ability to cut back the amount of these shares we
would register if in the reasonable opinion of management such a cut back was
necessary for the success of the offering. Ms. Than is the mother of our
President and CEO, Gunther Than. These shares are covered by this prospectus.
On November 11, 1999, we initiated and on January 8, 2000, we closed an
offering of securities pursuant to Rule 506. As a condition of subscription in
this offering, we agreed to register investor shares as part of our next
registration of securities, subject to the ability to cut back the amount of
shares we would register for those investors if in the reasonable opinion of
management such a cut back was necessary for the success of the offering. We
sold 285,727 shares as part of this offering. We are registering the following
shares from this Rule 506 private placement in this offering:
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
---- ----------------
<S> <C>
Jim & Dotty Burg 10,000
Jim McDaniel 1,200
Steve Viel 1,200
Richard Carey 1,200
Lawrence Gilroy 1,200
Scott Fuselier 5,714
Thomas Fuselier Colorado resident 5,714
Michael Bagnoli 20,000
John Thompson 20,000
Jeung Hee Hwang, resident of Korea 17,000
Gary Bray 5,000
John Gilroy 2,500
Lawrence Gilroy 1,200
John May 10,000
Joel Konicek 50,000
Victor & Eileen Gruchalski 5,000
Keith & Debra Company 5,000
Gordon Ray Kemmerling 7,000
Lisa Hedman 571
Eleanore G. Hendricks 5,000
Jeffrey Grahl 5,000
Jane Emanuele 10,000
Marie Lesniak 6,000
Keith Burg 5,000
Cynthia & David Gruchalski 5,000
Mark & Mary Gordman 750
Ed & Cindy Lesniak 3,164
Seth Lesniak 1,514
Mark & Molly Michaels 6,000
Paul & Barbara Knoebel 20,000
Gerald Klamrowski 40,000
Bruce Lesniak/American Home Systems 10,000
</TABLE>
Mr. Lesniak is our senior vice president of corporate development.
On December 9, 1999, we entered into consulting agreements, with Tom
Cloutier and Guy Parr. Both of these consultants had been
30
<PAGE>
working with us and these agreements formalized arrangements with them for past
and future services. We granted 5 year warrants to purchase shares of common
stock at $2.00 per share. We granted Tom Cloutier warrants to purchase 44,000
shares and Guy Parr warrants to purchase 10,000 shares. We agreed to register
for resale the shares that could be obtained from exercise of these warrants in
our next registration of securities. As of February 1, 2000, Tom Cloutier became
our full time employee. From 1989 to 1997, Mr. Cloutier worked, first, with RAF
Financial and, then, with Global Financial providing investment banking
services, including brokerage and brokerage management services. Beginning in
1997, he worked for Media Concepts, Inc., a publicly held company located in
California, providing investment relations services. In fall 1998, he began
providing consulting services to us in the areas of investment relations. Guy
Parr is a retired manager, having worked for 25 years with the corporate
predecessor for Martin Marietta. He provides strategic business advice and
consulting on a range of operational issues.
On December 9, 1999, we entered into an agreement with Magnum Worldwide
Investments Ltd. where, among other things, we agreed to register 100,000 shares
held by them in our next registration of securities. Magnum had purchased
100,000 shares of our common stock from a third party. Magnum has brokered an
important relationship with NetServ Caribbean, Ltd. -- a reseller of our
products in the Caribbean and South America -- for which we granted the
registration rights. These shares are covered by this Prospectus. We hope to
develop a joint venture with NetServ Caribbean, Ltd. to develop, produce and
distribute products primarily in the Caribbean and South America.
On January 10, 2000, we commenced an offering of securities pursuant to Rule
506 of Regulation. On February 18, 2000, we sold to Rubin Investment Group, an
institutional accredited investor entity 800,000 common shares and warrants to
acquire an aggregate of up to 2,500,000 shares, of which 1,000,000 expire in 5
months, 500,000 expire in 6 months and 1,000,000 expire in 3 years from the date
of sale. We agreed to register the shares and the shares received upon warrant
exercises and these shares are included in this prospectus. With this sale, we
closed this offering.
PLAN OF DISTRIBUTION
The selling shareholders will act as principals for their own accounts
in selling the shares and may sell the shares through public or private
transactions, on or off established markets. The selling shareholders will
receive all of the net proceeds from the sale of their shares and will pay all
commissions in connection with their sale. We will not receive any proceeds from
the sale of the selling shareholders' shares, but we will receive the exercise
price from exercise of the warrants. The warrants are not being registered for
sale; only the shares the warrant holders may obtain upon exercise are being
registered for sale. If a dealer is utilized in the sale of the shares in
respect of which the prospectus is delivered, the selling shareholder may sell
such shares to the dealer, as principal.
31
<PAGE>
The dealer may then resell such shares to the public at varying prices to be
determined by such dealer at the time of resale.
The distribution of the shares is not subject to any underwriting
agreement. We expect that the selling shareholders will sell the shares through
customary brokerage channels, including broker/dealers acting as principals (who
then may resell the Shares), in private sales, or in block trades in which the
broker/dealer engaged will attempt to sell the Shares as agent.
The selling shareholders may also pledge all or a portion of the shares
as collateral in loan transactions. Upon any default by the selling
shareholders, the pledgee in the loan transaction would then have the same
rights of sale as the selling shareholders under this prospectus. The selling
shareholders may also transfer the shares in other ways not involving market
makers or established trading markets, including directly by gift, distribution
or other transfer without consideration, and upon any such transfer, the
transferee would have the same rights of sale as the selling shareholders under
this prospectus.
From time to time, the selling shareholders may engage in short sales,
short sales against the box, puts and calls and other transactions in our
securities or derivatives of our securities, and will be able to sell and
deliver the shares in connection with those transactions or in settlement of
securities loans.
We will pay all expenses of registration incurred in connection with
this offering, but the selling shareholders will pay all brokerage commission,
legal fees and other similar expenses incurred by them.
The selling shareholders and any other person participating in the
distribution of the shares will also be subject to applicable provisions of the
Securities Exchange Act of 1934 and the rules and regulations promulgated under
it, including, without limitation, Regulation M, which may limit the timing of
purchases and sales of the shares by the selling shareholders and any other
person. Furthermore, Regulation M may restrict the ability of any person engaged
in the distribution of the shares to engage in market-making activities with
respect to the particular shares being distributed for a period of up to 5
business days prior to the commencement of the distribution. All of the
foregoing may affect the marketability of the Shares and the ability of any
person or entity to engage in market-making activities with respect to the
shares. The shares are eligible for sale only in certain states, and, in some of
those states, may be offered or sold only to "institutional investors," as
defined under applicable state securities law. To comply with certain states
securities laws, if applicable, the shares may be sold in those jurisdictions
only through registered or licensed brokers or dealers. In certain states the
shares may not be sold unless the selling shareholder meets the applicable state
notice and filing requirements. No sales or distributions, other than as
described herein, may be affected after this prospectus shall have been
appropriately amended or supplemented.
32
<PAGE>
DIRECTORS, EXECUTIVE OFFICERS,
PROMOTERS AND CONTROL PERSONS
Our directors, executive officers and key employees, their respective
ages and positions, and biographical information on them is set forth below.
<TABLE>
<CAPTION>
NAME AGE POSITION HELD
---- --- -------------
<S> <C> <C>
Gunther Than 52 President, CEO, Chairman
of the Board September,
1998 - April, 1999,
Director, since April, 1999
Dr. Martin Maassen 56 Director since May, 1999
Chairman - April, 2000
Dr. David Barbara 49 Director since May, 1999
Dr. Michael L. Bagnoli 42 Director since May, 1999
Andrew L. Jiranek 38 Vice President,
Secretary and General
Counsel since February, 1999
Bruce Lesniak 41 Senior Vice President of
Corporate Development
since March, 1999
David Bruggeman 56 Vice President of
Engineering since
February, 1999
John Curran 58 Vice President of
Manufacturing since
July, 1999
Linda Than 49 Comptroller
</TABLE>
The current board was appointed in May, 1999, by Gunther Than, who was
then the sole Director, and elected by the shareholders for a term of one year
commencing August 1999.
All directors hold office until the next annual shareholders meeting or
until their death, resignation, retirement or until their successors have been
elected and qualified. Vacancies in the existing board are filled by a majority
vote of the remaining directors.
Our executive officers are chosen by our Board of Directors and serve
at its discretion. There are no existing family relationships between or among
any of our directors or executive officers. Messrs. Lesniak, Bruggeman and
Curran are not executive officers.
33
<PAGE>
GUNTHER THAN, PRESIDENT, DIRECTOR AND CEO.
Throughout his career Gunther has been involved in leading edge
technologies, and has devoted his efforts to our technology on a full-time basis
since forming RealView in May 1994. He served as President and Chief Executive
Officer of RealView until we acquired it in October 1998. He has served as our
President, Chief Executive Officer and Chairman since then. He also serves as
President, CEO and Board Member of View Technologies. Before RealView, he was
vice president and a principal, from 1980 to 1984, of Patterson Dental
Corporation, the largest dental industry supplier in the world.
Prior to Patterson Dental Corporation, Mr. Than's career included:
General Manager at Rutland Biotech, Vancouver, Canada, a developer of medical
and health related proprietary products; Director of Information Systems of
Salkin and Linoff, a Minneapolis, Minnesota retailer of soft goods and ladies
apparel, with $100MM in sales and over 500 retail outlets including Peck and
Peck; Manager of Systems and Programs, Fairway Foods, a $2 billion sales
division of Holiday Worldwide, Inc, and; Systems Programmer, Twin Disc, Inc, a
Wisconsin manufacturer of power transmissions for heavy equipment, ships and
construction implements.
Mr. Than is a graduate of the University of Wisconsin, with a dual
degree in engineering physics and applied mathematics. He has completed graduate
level studies toward a Ph.D. in mathematics at the University Of Wisconsin and
towards an MBA at Marquette University. Mr. Than became President, CEO and
Chairman in September, 1998, and stepped down as Chairman in April, 2000.
BRUCE E. LESNIAK, SENIOR VICE PRESIDENT OF CORPORATE DEVELOPMENT
Mr. Lesniak has been active in the security industry for over 15 years.
The last 14 years were spent with the largest security system integrator in the
U.S., ADT Security Services. Mr. Lesniak was National Director of Business
Developmen at ADT from 1997 to 1999. While at ADT, Mr. Lesniak was instrumental
in driving market growth as his responsibilities included guiding sales,
implementing numerous new product releases and managing the largest and most
profitable sales territory in the company. Mr. Lesniak will aid us in developing
a strategic business plan, creating strong partner alliances and building sales
and marketing infrastructure. Mr. Lesniak received an undergraduate degree from
Illinois State University and has taken courses toward his Masters in Business
Administration at Illinois State University. Mr. Lesniak heads our corporate
development, sales and marketing departments.
ANDREW L. JIRANEK, VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL
Prior to joining us on February 1, 1999, Mr. Jiranek practiced law in
the areas of corporate and securities regulation. From 1998 to 1999, Mr. Jiranek
served as founding partner in the law firm of Jiranek & Harasti. From 1992 to
1998 he was an associate attorney at the Washington, DC and Baltimore, Md. law
firms of Niles, Barton &
34
<PAGE>
Wilmer and Dickstein, Shapiro & Morin in the corporate departments. Mr. Jiranek
clerked for Chief Judge Truman Hobbs of the Middle District Court of Alabama and
was an attorney, U.S. Department of Justice, Honors Program. He received his
Juris Doctorate in 1987 from the College of William and Mary School of Law and
an Economics Degree in 1984 from Princeton University.
DAVID C. BRUGGEMAN, VICE PRESIDENT OF ENGINEERING
Mr. Bruggeman joined us in February, 1999, after we acquired Xyros
Systems, Inc., as Vice President of Engineering. Mr. Bruggeman is responsible
for overseeing the hardware design and product development for the
SecureView-TM- line of remote interactive video monitoring and surveillance
products, as well as CareView-TM-, FaceView-TM-, the VCR replacement prODUCTS
and the products we are developing for the low-end consumer retail market. Mr.
Bruggeman has been designing in the computer industry for over 37 years, with an
emphasis on video and audio products in the past ten years. He was Vice
President Operations and a principal of Xyros from 1997 through 1999. In
1995-1996 he was Vice President, Product Management of Systems of Excellence,
Inc., a publicly held video teleconferencing company, where he managed all
elements of the corporation's technical hardware and software design and product
support. From 1994 to 1995, Mr. Bruggeman was Director of Project Management and
Advanced Programs for MELA Associates, Inc., a privately held government
contractor, where he directed the activities of a major U.S. Department of
Defense program as Program Manager.
JOHN CURRAN, VICE PRESIDENT OF MANUFACTURING
A graduate of the University of Maine, Mr. Curran has thirty years of
diversified electronic and electromechanical manufacturing engineering
experience. Mr. Curran specializes in start-up manufacturing operations,
productivity, and quality assessments. From 1995 to 1999, Mr. Curran was a
Manufacturing Engineer with Novatec, Inc. From 1991 to 1995, he was a consultant
specializing in start-up manufacturing operations, productivity and quality
assessments. From 1989 to 1991, he was a Production Manager for Ant
Telecommunications, Inc., coordinating all subassembly contractors for in-line
engineering changes and revision upgrades.
LINDA THAN, COMPTROLLER
Ms. Than began has been functioning as our Business Manager and
Comptroller for daily operations with responsibilities for bookkeeping,
payables, receivables, and other financial aspects of day to day operations
since September, 1998. Since February 1994, Ms. Than has also been the
Comptroller and Business Manager for RealView Systemss and View Technologies.
Additional directors of the Company are:
DAVID MICHAEL BARBARA, JR. M.D., DIRECTOR
Dr. Barbara has held a variety of executive positions with hospitals in
Lafayette, Indiana. From 1994 to 1997, Dr. Barbara was
35
<PAGE>
a surgeon with the Arnette Clinic in Layayette, Indiana and from 1997 to 1998,
Dr. Barbara was a surgeon for the Vein Treatment Center in Indianapolis,
Indiana. Since 1998, he has been a surgeon with _a 120-physician multi-specialty
clinic in Atlanta, Georgia. He holds a BA from Xavier University and MD from the
University of Kentucky, and is a board certified surgeon.
MARTIN MAASSEN, M.D., CHAIRMAN OF THE BOARD
Dr. Maassen is board-certified in internal medicine and emergency
medicine and has served as a staff physician in the emergency departments of
Jackson County, Deaconess, Union and St. Elizabeth hospitals in Indiana since
1977. In addition to practicing medicine he maintains an expertise in computer
technologies and their medical applications. He holds a Bachelors and a MD
degree from Indiana University. In April, 2000, Dr. Maassen was elected Chairman
of the Board of Directors when Gunther Than stepped down as Chairman.
MICHAEL L. BAGNOLI, D.D.S., M.D., DIRECTOR
Dr. Bagnoli holds degrees as a medical doctor and a dental specialist.
Since 1988 he has practiced dentistry in the specialty area of oral and
masiofacial surgery. Through his practice, he introduced orthroscopic surgery
along with the full scope of arthroplastic and total joint reconstruction to the
community. Dr. Bagnoli was founder, CEO and president of a successful medical
products company, Biotek, Inc., which sold to a larger interest in 1994.
BOARD OF DIRECTORS COMMITTEES
Our board of directors has established an executive compensation
committee and an audit committee. Each of these committees will be responsible
to the full Board of Directors, and, in general, its activities will be subject
to the approval of the full Board of Directors.
The audit committee will be primarily charged with the review of
professional services provided by our independent auditors, the determination of
the independence of those auditors, our annual financial statements, and our
system of internal accounting controls. The audit committee will also review
such other matters with respect to our accounting, auditing and financial
reporting practices and procedures as it finds appropriate or as is brought to
its attention, including our selection and retention of independent accountants.
We anticipate that non-employee, outside directors will comprise the audit
committee.
The compensation committee is charged with the responsibility of
reviewing executive salaries, administering bonuses, incentive compensation and
our stock option plans and approving our other executive officer benefits. The
compensation committee will also consult with our management regarding pension
and other benefit plans, and our compensation policies and practices in general.
The compensation committee consists of three outside directors.
36
<PAGE>
COMPENSATION OF DIRECTORS
We do not have any arrangement for compensating our directors for the
services they provide in their capacity as directors, including services for
committee participation or for special assignments.
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of the date of this prospectus, the
beneficial ownership of our outstanding common stock by:
- - each person known by us to own beneficially 5% or more of our
outstanding common stock
- - each of our executive officers
- - each of our directors
- - all executive officers and directors as a group
- - the selling shareholders.
Beneficial ownership after this offering will depend on the number of shares
actually sold by the Selling Shareholders. Beneficial ownership is determined in
accordance with the rules of the SEC and generally includes voting or investment
power with respect to securities. For purposes of calculating the percentages
shown in the chart, each person listed is also deemed to beneficially own any
shares that have been issued as of the date of this prospectus and shares that
would be issued upon exercise of warrants included in this Prospectus. Except as
indicated by footnote, the persons named in the table have sole voting and
investment power with respect to all shares of common stock shown as
beneficially owned by them. The inclusion of any shares as beneficially owned
does not constitute an admission of beneficial ownership of those shares.
<TABLE>
<CAPTION>
COMMON STOCK COMMON STOCK
BENEFICIALLY OWNED NUMBER OF BENEFICIALLY OWNED
PRIOR TO OFFERING(1) SHARES AFTER OFFERING(1)
NAME OF BENEFICIAL OWNER AND -------------------- BEING ---------------------
RELATIONSHIP TO US SHARES PERCENT REGISTERED SHARES PERCENT
---------------------------- ------ ------- ---------- --------- -------
<S> <C> <C> <C> <C> <C>
OFFICERS, DIRECTORS AND 5% SHAREHOLDERS
Gunther Than, President, CEO and Director................ 1,973,640 26.9% 0 1,973,640 22.3%
Bruce Lesniak Senior V.P. of Corporate Development....... 150,000 2.1% 10,000 140,000 1.6%
Andrew L. Jiranek, V.P., Secretary, General Counsel...... 107,200 1.5% 0 107,200 1.2%
Martin J. Maassen chairman & Rule 506 Investor......... 247,800 1.5% 35,000 212,000 0
</TABLE>
37
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
David Bruggeman Vice President, Engineering.............. 39,000 1.1% 0 39,000 .8%
Mike Bagnoli Director & Rule 506 Investor................ 40,000 0.6% 40,000 0 0
All Executive Officers, Directors & 5% Shareholders as a 2,557,640 33.5% 65,000 2,471,840 26.9%
Group (6 persons)(1)...................................
SELLING SHAREHOLDERS
Columbia Financial Group Consultant - Investor Relations. 600,000 8.3% 400,000 200,000 2.3%
Consultants Acquiring Warrants........................... 54,000 .7% 54,000 0 0
Rule 506 Investors....................................... 417,727 5.7% 341,727 76,000 .1%
Lawrence Seiler.......................................... 230,000 3.2% 100,000 130,000 1.5%
Leokadia Than R 506 Investor............................. 228,333 3.1% 50,000 178,333 1.1%
Jim Price R 506 Investor................................. 50,000 .7% 50,000 0 0
Tim Rieu R 506 Investor.................................. 50,000 .7% 50,000 0 0
Magnum Worldwide Investments, Ltd........................ 100,000 1.4% 100,000 0 0
Rubin Investment Group................................... 3,300,000 30% 3,300,000 0 0
</TABLE>
In the preceding table -
- Gunther Than's wife, Linda Than, who is our comptroller, owns 166,700
shares of our common stock. Mr. Than's total does not include options
to purchase 325,860 shares of common stock. As of December 31, 1999,
options to purchase 280,860 of these shares had vested. Gunther Than
does not claim beneficial ownership of the shares owned by Leokadia
Than, his mother.
- Mr. Jiranek influences the investment power and voting power of 6,000
shares held by his three children. Mr. Jiranek does not disclaim
beneficial ownership of his childrens' shares. His total does not
include options to purchase 22,500 shares of common stock. As of March
31, 2000, options to purchase 9,000 of these shares had vested.
- Rubin Investment Group holds 815,000 shares of common stock and
warrants to acquire 2,485,000 shares at $2.00 per share. The percentage
of ownership was calculated based on a fully diluted basis, unlike the
other percentages of ownership calculated in the table. Rubin
Investment Group is an accredited investor entity owned by Daniel J.
Rubin, Ca. resident and accredited investor.
- Columbia Financial Group is a Maryland corporation that is closely held
by Jim Price and Tim Rieu, both Maryland residents and accredited
investors.
DESCRIPTION OF SECURITIES
Our authorized capital consists of 50,000,000 shares of Common Stock,
$0.001 par value. As of the date of this prospectus, there are 8,136,080 shares
of common stock issued and outstanding. An additional 416,360 shares of common
stock are subject to issuance upon the exercise of outstanding options, of which
364,860 are presently exercisable. As of March 31, 2000, up to an additional
2,954,000 shares may be issued to certain warrant holders upon the exercise of
warrants and the payment of the exercise price of $2.00
38
<PAGE>
per share. As of December 31, 1999, we listed 187 shareholders of record. The
Company estimates that there are approximately 900 beneficial owners of its
common stock.
COMMON STOCK
Each share of our common stock has the same relative rights and is
identical in all respects with every other share of common stock. The holders of
the common stock are entitled to one vote for each share they hold of record on
all matters submitted to a vote of our stockholders. No holder of any class of
stock has preemptive rights with respect to the issuance of shares of that or
any other class of stock. The common stock is not entitled to cumulative voting
rights with respect to the election of directors.
The holders of common stock are entitled to pro rata dividends and other
distributions if, as, and when declared by the board of directors out of assets
legally available for the payment of dividends. The payment of dividends, if
any, in the future rests within the discretion of the board of directors.
Upon our liquidation, dissolution or winding up, the holder of each
share of common stock is entitled to share equally in the distribution of our
assets after the payment of liabilities. The holders of common stock are not
entitled to the benefit of any sinking fund provision.
The shares of common stock are not subject to any redemption
provisions, nor are they convertible into any other security or property. All
shares of common stock outstanding are fully paid and non-assessable.
TRANSFER AGENT
The transfer agent for the common stock is Interwest Transfer Co.,
Inc., 1981 East 4800 South, Suite 100, Salt Lake City, Utah 84117.
STOCK OPTIONS
GENERAL
On August 13, 1999, our board of directors adopted the View Systems,
Inc. 1999 employee stock option plan and on August 20, 1999, our shareholders
adopted the stock option plan at a special meeting of shareholders in lieu of
annual meeting. The stock option plan provides a mechanism for us to provide
incentive to executives, employees and other key personnel. The stock option
plan provides for two kinds of options: incentive stock options and
non-qualified stock options.
Our 1999 stock option plan currently authorizes the grant of options to
purchase a maximum of 4,500,000 shares of common stock, subject to adjustment
for stock splits and similar capital changes. As of March 31, 2000, options to
purchase 191,000 shares had been granted and 84,500 of the options had been
exercised. Assuming all
39
<PAGE>
outstanding options under the stock option plan were granted and exercised, the
shares would constitute approximately 2.3% of our currently outstanding shares
of common stock.
ADMINISTRATION
The stock option plan is administered by the board or the executive
compensation committee. The board or the compensation committee has the
authority to determine terms and conditions of the option issuances to
participants to the extent such terms and conditions are not otherwise stated in
the plan.
EFFECTIVE DATE
The stock option plan became effective as of August 13, 1999, and will
continue in effect for a term of ten years unless terminated sooner.
ELIGIBILITY
All of our officers and other key employees are eligible to participate
in the stock option plan. Non-qualified stock options may be granted under the
plan to any employee, officer or director, regardless of whether the director is
an officer or employee, and to any independent contractor.
PROVISIONS OF THE STOCK OPTION PLAN
Options granted under the stock option plan will either be incentive
stock options or non-qualified stock options. The exercise price of each share
underlying an incentive stock option equals 100% of the fair market value of the
share on the date of grant of such option; provided, however, that the exercise
price of incentive stock options granted to holders of at least 10% of our
shares may not be less than 110% of fair market value.
Options are exercisable in whole or in part at any time over the
exercise period, but in no event may the exercise period exceed 10 years from
the date of grant; provided, however, that the exercise period for incentive
stock options granted to holders of at least 10% of our shares may not exceed
five years from the date of grant. The option exercise price must be paid in
full, at the time of exercise, in cash or with Committee approval, in shares
having a fair market value in the aggregate equal to the option exercise price
or in a combination of cash and shares.
In the event that a participant (other than an independent consultant)
ceases to maintain continuous service to the Company, for any reason other than
death, disability or termination for cause, an exercisable stock option will
continue to be exercisable for 3 months but in no event after the expiration
date of such option. If a participant dies or is disabled, exercisable options
will continue to be exercisable for 6 months, to the extent exercisable by the
participant immediately prior to his/her death or disability. A stock option
terminates automatically and is no longer exercisable as of the date a
participant is terminated for cause.
40
<PAGE>
Options are nontransferable and must be exercised by the grantee except
in the event of death or disability in which case the options may be exercised
by the qualified successor to the grantee within one year after the date of
death or disability but in no event after the expiration date of such options.
Notwithstanding the foregoing, the board may permit transfer of non-qualified
stock options during the exercise period. The shares issued on exercise of the
options will not be subject to any transfer restriction except those mandated by
applicable federal and state securities laws.
AMENDMENTS AND TERMINATION
The board may from time to time suspend, terminate, modify, or amend
the stock option plan, provided that no suspension, termination, modification,
or amendment of the plan may adversely affect any rights under the plan unless
the written consent of those affected is obtained. Unless terminated earlier by
the board, the stock option plan will terminate on August 13, 2009.
SUMMARY OF ARTICLES OF INCORPORATION AND BY-LAWS
The following is a summary of the material provisions of our articles
of incorporation.
The power to issue additional shares of common stock rests with the
board of directors, which may help delay or deter a change in control by
increasing the number of shares needed to gain control. The following provisions
of our articles of incorporation may also have the effect of preventing,
discouraging or delaying any change in control of the Company.
NUMBER OF DIRECTORS AND TERM OF OFFICE
Our by-laws provide that we have a minimum of 1, but no more than 7
directors. The by-laws further provide that the directors shall hold office for
a term for which a director is elected and that directors shall be elected at
the annual meeting of shareholders. The by-laws permit the board of directors to
implement staggered terms for board members, so that only a portion of the
members come up for reelection at any time. The current board consists of 4
members who were elected for 1 year terms in August 1999.
ACQUISITION OFFERS
The board of directors may be required to evaluate an offer of another
person to: (1) make a tender or exchange offer for our equity securities; (2)
merge or consolidate with us; or (3) purchase or all or substantially all of our
properties. In that event, the board may, in connection with the exercise of its
business judgment in determining what is in our best interest, give due
consideration to all relevant factors, including, without limitation: (1) the
consideration being offered, (2) the social and economic effect of acceptance of
such offer on our present and future customers and employees, as well as on the
communities in which we operate or are located, and (3) the desirability of
maintaining independence from
41
<PAGE>
any other business entity.
CONTROL SHARE ACQUISITIONS
Our articles of incorporation exempt us from the Florida statutes
governing control-share acquisitions. Generally, under the statute, a person
intending to acquire 20% or more of our shares must give us notice of such
intent and request approval of the acquisition by the board of directors. If the
board of directors fails to approve the acquisition then such persons may
request a meeting of the shareholders at which shareholders will be given an
opportunity to vote on whether such shares will be accorded full voting rights.
Refusal by the shareholders to accord full voting rights would result in the
proposed acquirer obtaining shares that could not be voted on any matters to
come before the shareholders. Certain acquisitions are exempt from the effects
of the statute, such as mergers, business combinations or other acquisitions
that have been approved by the board of directors, as well as acquisitions of
shares issued by us in our original offering or in subsequent offerings approved
by the Board.
OTHER PROVISIONS
Under Florida law, the selection of a period for achieving corporate goals
is the responsibility of the directors. In addition, the directors and officers,
in exercising their respective powers with a view to the interest of the
corporation, may consider (1) the interest of the corporations employees,
suppliers, creditors and customers, (2) the economy of the state and the nation,
(3) the interest of the economy and of society and (4) the long-term, as well as
short-term, interests of the corporation and its stockholders, including the
possibility that those interests may be best served by the continued
independence of the corporation. The directors may also resist any change or
potential change of control of the corporation if the directors, by majority
vote of a quorum, determine that a change or potential change is opposed to or
not in the best interest of the corporation "upon consideration of the interest
of the corporations stockholders," or for one of the other reasons described
above. The directors may also take action to protect the interests of the
corporation' stockholders by adopting or executing plans that deny rights,
privileges, powers or authority to a holder of a specific number of shares or
percentage of share ownership or voting power.
REPORTS TO SECURITY HOLDERS
We intend to send to our shareholders, upon request, copies of our
annual report on form 10-KSB, which report contains audited financial
statements, but do not intend to send our interim quarterly reports to our
security holders.
LEGAL PROCEEDINGS
Hal Peterson, a former Vice President of Sales and Marketing of Xyros
and a trust he controls filed suit against us on October 28, 1999 in the Circuit
Court for Howard County, Maryland. The lawsuit
42
<PAGE>
alleges that we have not timely paid interest and other monies due Hal Peterson,
which Xyros had agreed to pay under two promissory notes, in the original
principal amounts of $45,000 and $30,000. As part of our acquisition of Xyros,
we guarantied the repayment of these promissory notes. The outstanding principal
under the promissory notes was not due until December 31, 1999, and the dates
for payment of accrued interest are not specified. Prior to our acquisition of
Xyros, it was controlled by Hal Peterson and had not paid interest on the notes.
We intended at the time of acquisition to pay the notes in full when we had
raised sufficient working capital to do so. We are defending the lawsuit on the
grounds that the outstanding principal was not due until December 31, 1999, and
the dates for payment of accrued interest are not specified in the promissory
notes. Hal Peterson beneficially owns a substantial stake in our common stock as
a result of our acquisition of Xyros.
Several years prior to our acquisition of Eastern Tech Manufacturing
Corp., the President of Eastern Tech, Lawrence Seiler, became involved in a
series of transactions arising out of the performance of a contract for Boeing,
Inc. that are the subject of a criminal indictment and prosecution pending in
the U.S. District Court of the District of Columbia. Preliminary to this action,
the Federal Bureau of Investigation, Washington Field Office seized certain
assets they believed were involved in the transactions in question. At one time,
Eastern Tech had an interest in one of the seized assets, namely a corporate
bank account holding $63,572.21 in its name. Eastern Tech has subsequently
transferred all right, title and interest in this bank account to Lawrence
Seiler in exchange for his forgiving an obligation to pay him fees for services
he has rendered.
Eastern Tech was acquired by us on May 25, 1999. Following this
acquisition, Lawrence Seiler was named the President of Eastern Tech. On
December 4, 1999, Lawrence Seiler was removed as President of Eastern Tech and
is now an independent sales representative with the Company. Eastern Tech is not
a party to the proceedings involving Lawrence Seiler.
We have inquired with the Assistant U.S. Attorney handling the
prosecution of Mr. Seiler's case whether Eastern Tech is the subject of a
civil or criminal investigation arising out of these events. He has advised
us that we were not involved.
Other than these proceedings, we are not a party to any pending legal
proceedings that would have a material effect on our operations and to the best
of our knowledge, no such action has been threatened.
CERTAIN TRANSACTIONS
The following information summarizes certain transactions we engaged in
during the past two years, or we propose to engage in, involving our executive
officers, directors, 5% stockholders or immediate family members of those
persons:
Prior to the acquisition of Real View in October 1998, our principal
shareholders were Pamela Wilkinson with 974,800 shares and
43
<PAGE>
Julie Birns with 975,200 shares.
Gunther Than, Chairman of the Board, President and CEO, acquired
1,046,800 shares of common stock as a result of our acquisition of RealView
Systems. Leokadia Than, Gunther Than's mother, received 200,000 shares through
the exchange of RealView shares.
On May 27, 1999, we entered into a redemption agreement with Mr. Than,
whereby we redeemed 25,000 shares of common stock owned by Mr. Than in exchange
for a total cash payment of $50,000. As part of this agreement, we granted Mr.
Than an option to purchase back these 25,000 shares for $50,000, plus interest
on $50,000 from May 27, 1999, to the date of redemption, at a rate of 10% per
annum.
On September 30, 1999, we redeemed 34,860 shares of common stock of
Gunther Than in exchange for forgiveness of $67,719.35 in loans Gunther Than had
taken from us during 1999. As part of this agreement, Mr. Than was granted an
option to purchase these 34,860 shares back for $67,719.35, plus interest at the
rate of 10% per annum thereon from September 30, 1999, to the date of
redemption. Mr. Than continues to be indebted in the amount of approximately
$20,000 in loans he has taken from the Company during 1999.
For information concerning stock and options awarded to Mr. Than during
1998 and 1999, see "Executive Compensation," beginning at page 48
We have also issued 200,000 shares of common stock to Leokadia Than,
Gunther Than's mother, in exchange for forgiveness of loans totaling $177,000
and unpaid and accrued interest in the amount of $33,000 on these loans. In
December, 1999, we loaned Leokadia Than $35,000. There are no certain terms for
repayment of this loan. In addition, Ms. Than purchased a 10,000 shares of the
common stock of RealView Systems, Inc. and exchanged this stock certificate for
13,333 shares of the common stock of View Systems, Inc. in July, 1999. Mr. Than
disclaims beneficial ownership of Leokadia Than's shares.
For information concerning stock and options awarded to Andrew L. Jiranek,
Bruce Lesniak, David Bruggeman and John Curran, see "Executive Compensation,"
beginning at page 48.
Martin Maassen, Chairman of Board, received $21,000 in consulting fees
from us prior to becoming a director. He also purchased 111,000 shares from us
on August 18, 1999, as part of our rule 506 offering at terms established for
that offering.
Mr. Michael Bagnoli purchased 20,000 shares from us on August 8, 1999,
as part of our Rule 506 offering, and another 20,000 shares as part of our
November 11, 1999 offering.
Linda Than, the wife of Gunther Than, and our Comptroller, received
100,000 shares under our restricted share plan and was the recipient of 66,700
shares in the RealView share exchange.
The former shareholders and management of Xyros loaned monies to
44
<PAGE>
Xyros for working capital, and took back promissory notes, which mature on
December 31, 1999, and accrue interest at the rate of 10% per annum. As part of
our acquisition of Xyros, we agreed to guaranty the repayment of this
indebtedness. As of March 31, 2000, the outstanding principal amount of these
loans had been paid down to $110,000. Some of the management of Xyros became
involved in our management following the acquisition and some did not.
View Technologies, Inc., a privately held Colorado corporation founded
in 1994, is a related company. It was founded and organized by Gunther Than, our
President, CEO and chairman. Mr. Than is also President, CEO and chairman of
View Technologies. View Technologies produces software and hardware products
used in computer networks which transmit and store diagnostic medical imagery.
Some of the shareholders of View Technologies were also shareholders in RealView
Systems, Inc., a company acquired by us in October 1998.
We share human resources with View Technologies. We account for any
resources that are jointly used. From time to time, as is necessary, View
Systems and/or View Technologies will loan each other funds. On September 30,
1999, we redeemed 130,937 shares of common stock, held by View Technologies for
the redemption price of $2.13 per share, canceling View Technologies
indebtedness of $278,895.81 to us. View Technologies is in debt to us in the
approximate amount of $90,000, as of December 31, 2000, approximately $30,000 of
which was advanced in the fourth quarter of 1999. We believe we will be able to
collect the indebtedness owed by View Technologies to View Systems.
The board of directors approved all of these transactions on terms it
believes were as fair as those attainable from third parties.
Our policy in dealing with transactions between a related party and us
is intended to make each transaction fair and on market terms. All transactions
involving compensation, including options and restricted stock grants, must be
approved by the Compensation Committee. All other transactions must be approved
by a majority of directors who are not interested in the transaction after full
disclosure by the related party.
Gunther Than is a director of MediaComm Broadcasting. We own 840,000
shares of MediaComm. In November 1999, Mr. Than received options to acquire
150,000 shares of MediaComm for $2.00 per share. The options were granted as
compensation for his services as a director.
MARKET FOR COMMON EQUITY AND
RELATED SHAREHOLDER MATTERS
The shares of View Systems, Inc. trade on the OTC Bulletin Board under
the symbol "VYST". As of December 31, 1999, the Company had 187 shareholders of
record. We estimate that there are approximately 900 beneficial owners of our
common stock. The high and low bids for the periods indicated, according to
information from the National Quotation Bureau, were:
45
<PAGE>
<TABLE>
<CAPTION>
1998 COMMON STOCK
- ---- QUOTED BID PRICE
----------------
HIGH LOW
---- ---
<S> <C> <C>
First Quarter N/A
Second Quarter N/A
Third Quarter N/A
Fourth Quarter 3.25 1.85
1999 COMMON STOCK
- ---- QUOTED BID PRICE
----------------
HIGH LOW
---- ---
<S> <C> <C>
First Quarter 6.35 2
Second Quarter 5 2.25
Third Quarter 3.15 1.75
Fourth Quarter 3.65 1.75
</TABLE>
These quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not represent actual transactions.
Our shares will be subject to section 15(g) and rule 15g-9 of the
Securities and Exchange Act, commonly referred to as the "penny stock" rule.
The rule defines penny stock to be any equity security that has a
market price less the $5.00 per share, subject to certain exceptions. The rule
provides that any equity security is considered to be a penny stock unless that
security is: registered and traded on a national securities exchange meeting
specified criteria set by the commission; authorized for quotation from the
NASDAQ stock market; issued by a registered investment company; excluded from
the definition on the basis of price -- at least $5.00 per share -- or the
issuer's net tangible assets. If our shares are deemed to be a penny stock,
trading in the shares will be subject to additional sales practice requirements
on broker-dealers who sell penny stocks to persons other than established
customers and accredited investors. Accredited investors, in general, include
individuals with assets in excess of $1,000,000 or annual income exceeding
$200,000, or $300,000 together with their spouse, and certain institutional
investors.
For transactions covered by these rules, broker-dealers must make a
special suitability determination for the purchase of such security and must
have received the purchaser's written consent to the transaction prior to the
purchase. Additionally, for any transaction involving a penny stock, the rules
require the delivery, prior to the first transaction, of a risk disclosure
document relating to the penny stock. A broker-dealer also must disclose the
commissions payable to both the broker-dealer and the registered representative,
and current quotations for the security. Finally, monthly statements must be
sent disclosing recent price information for the penny stocks held in the
account and information on the limited market in penny stocks. Consequently,
these rules may restrict the ability of broker-dealers to trade or maintain a
market
46
<PAGE>
in our common stock and may affect the ability to shareholders to sell their
shares.
DIVIDEND POLICY
We have not declared or paid cash dividends or made distributions in
the past, and we do not anticipate that we will pay cash dividends or make
distributions in the foreseeable future. We intend to retain and invest future
earnings to finance our operations.
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning
compensation for the year ended December 31, 1999, 1998 and 1997.
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
----------------------
NAME AND ALL SECURITIES
PRINCIPAL OTHER UNDERLYING RESTRICTED
POSITION YEAR SALARY BONUS COMPENSATION OPTIONS STOCK
- -------- ---- ------ ----- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Gunther Than 1999 $72,000 $900,000(1) -- 120,000 300,000
President, CEO or 78,000
and Chairman
1998 0 0 0 0 0
</TABLE>
- --------------------------------------------------------------------------------
(1) Represents fair value on date of receipt of 300,000 shares awarded in
exchange for a covenant not to compete and covenant not to solicit
employees and customers and 250,000 shares awarded as bonus for
effecting acquisition of Eastern Tech.
OPTION/SAR GRANTS
The following table sets forth certain information concerning
option/SAR grants for the year ended December 31, 1999.
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
NAME AND UNDERLYING GRANTED TO EXERCISE
PRINCIPAL OPTIONS/SARS EMPLOYEES IN PRICE PER EXPIRATION
& POSITION GRANTED FISCAL YEAR SHARE DATE
<S> <C> <C> <C> <C>
Gunther Than, 250,000 100% $2.00 None
President, CEO
and Chairman
40,000 75% $ .01 July 1, 2004
</TABLE>
47
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
30,000 80% $2.07 August 18, 2005
</TABLE>
- - The 40,000 share option is an incentive stock option that vests at the
rate of 5,000 options per month commencing September 16, 1999.
- - The 30,000 share option is a non-qualified stock option that vests at the
rate of 5,000 options per month commencing July 1, 1999.
AGGREGATED OPTION/SAR EXERCISES
IN LAST FISCAL YEAR AND YEAR END VALUES
The following table sets forth certain information concerning option
exercises and options held for the fiscal year ending December 31, 1999.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
SHARES OPTIONS/SARS OPTIONS/SARS
ACQUIRED AT FY-END AT FY-END ($)
ON VALUE EXERCISABLE/ EXERCISABLE/
NAME AND POSITION EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
- ----------------- ------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Gunther Than 0 0 320,000 37,200
President, Chief exercisable
Executive Officer 50,000
and Director unexercisable
</TABLE>
- We recognized $37,200 in expenses associated with the issuance of
options to Gunther Than in 1999.
LONG TERM INCENTIVE PLANS
The following table sets forth certain information concerning long term
incentive plan awards for the fiscal year ending December 31, 1999.
<TABLE>
<CAPTION>
NAME AND PRINCIPAL NUMBER OF SHARES TERM UNTIL
& POSITION OF RESTRICTED STOCK PAYOUT
<S> <C> <C>
Gunther Than 300,000 --
President, Chief
Executive Officer
and Chairman
</TABLE>
- 150,000 vested in 1999 and 150,000 vested in 2000.
GUNTHER THAN, PRESIDENT, CEO, DIRECTOR
- --------------------------------------------------------------------------------
48
<PAGE>
Mr. Than has an executive employment agreement for $6,000 per month.
Under the agreement, he received 300,000 shares of our common stock in exchange
for a covenant-not-to-compete or solicit our employees. Mr. Than's employment
agreement will continue in effect unless terminated by either Mr. Than or us on
a sixty-day notice.
BRUCE LESNIAK, SENIOR VICE-PRESIDENT OF CORPORATE DEVELOPMENT
Mr. Lesniak has an independent contractor agreement for $4,000 per
month. Either party may cancel said agreement on thirty days notice. Mr. Lesniak
has also participated in our restricted share plan for 140,000 fully vested
shares, and we recognized $140,000 in expense associated with the issuance of
these shares. We have also agreed, for every month of service, beginning July 1,
1999, to grant Mr. Lesniak options to purchase 4,000 shares for a nominal option
price. In addition, Mr. Lesniak is to receive commissions for sales of products
and any negotiated business combination he procures, upon such terms as are
subsequently agreed at the time the opportunity is identified.
ANDREW L. JIRANEK, VICE PRESIDENT, SECRETARY & GENERAL COUNSEL
Mr. Jiranek has an employment agreement for $6,000.00 per month. Either
party may cancel the agreement on sixty days notice. Mr. Jiranek has
participated in our restricted share plan for 100,000 fully vested shares, and
we have recognized $135,000 in expense in 1999. Mr. Jiranek has also received,
under our 1999 stock option plan, an incentive stock option to purchase a total
of 18,000 shares and a non-qualified stock option to purchase a total of 18,000
shares. These options vest under the stock option plan at the rate of 1,500
incentive options and 1,500 non-qualified options every month, beginning
September 16, 1999, and July 1, 1999, respectively.
DAVID C. BRUGGEMAN, VICE PRESIDENT OF ENGINEERING
Mr. Bruggeman has an employment agreement with us for $6,000 per month.
The agreement may be canceled by either party on thirty days notice. Mr.
Bruggeman has participated in our restricted share plan for 48,000 shares, and
we recognized $24,000 in expense associated with the issuance of these shares in
1999. These shares are vesting at a rate of 4,000 shares per month beginning
March 1, 1999.
JOHN CURRAN, VICE PRESIDENT OF MANUFACTURING
Mr. Curran has an employment agreement with ETMC for $5,000 per month.
The agreement may be canceled by either party on thirty days notice. Mr. Curran
has also received 12,000 shares under our restricted share plan, and we
recognized $12,000 in expense associated with the issuance of these shares in
1999. These shares are vesting at a rate of 1,000 shares per month beginning
July 1, 1999.
EMPLOYMENT AGREEMENTS
49
<PAGE>
We have adopted a policy of entering into employment agreements with
our senior management, and have entered into such agreements with Messrs.
Than, Bruggeman, Curran, Lesniak and Jiranek. The terms of the employment
agreements for Messrs. Than and Jiranek, provide that if termination is
without cause, these executives are entitled to severance payments for three
(3) years equal to the salary and bonuses they received in the year prior to
termination. Bonuses are determined in the discretion of the board of
directors. These agreements expressly survive acquisition by another company.
Our employment agreements include non-compete agreements and
confidentiality provisions which survive termination. In the event that we seek
enforcement of our confidentiality and non-compete agreements in court, it is
possible that the court may strike all or part of an agreement on the grounds
that it is unenforceable or unnecessary to protect our interests. These
agreements expressly survive acquisition by another company.
INTEREST OF NAMED EXPERTS AND COUNSEL
Our financial statements at December 31, 1999 and 1998, and for the
periods ending then, have been audited by Stegman & Company, as set forth in
this report at the end of this prospectus, and are included in reliance on that
report given on the authority of that firm as experts in accounting and
auditing.
MANAGEMENT INDEMNIFICATION
Florida corporations are authorized to indemnify against liability any
person who is a party to any legal proceeding because such person is a director
or officer of the corporation. The officer or director must act in good faith
and in a manner reasonably believed to be in the best interests of the
corporation and, with respect to any criminal action or proceeding, have no
reasonable cause to believe the conduct was unlawful. Florida law does not allow
indemnification for an act or omission that involves intentional misconduct or a
knowing violation of a law. In the case of an action by or on behalf of a
corporation, indemnification may not be made if the person seeking
indemnification is found liable, unless the court in which such action was
brought determines such person is fairly and reasonably entitled to
indemnification. Indemnification is required if a director or officer has been
successful on the merits.
The indemnification authorized under Florida law is not exclusive and
is in addition to any other rights granted to officers and directors. A
corporation may purchase and maintain insurance or furnish similar protection on
behalf of any officer or director.
Our articles of incorporation provide for the indemnification of
directors and executive officers to the maximum extent permitted by Florida law.
The articles also authorize the board of directors to advance expenses incurred
in connection with the defense of any legal proceeding.
Insofar as indemnification for liabilities arising under the
50
<PAGE>
Securities Act may be permitted to our directors, or officers or persons
controlling us, we have been informed that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
There is no pending litigation or proceeding involving any of our
directors, officers, employees or agents where indemnification would be required
or permitted. We are not aware of any threatened litigation or proceeding that
would result in a claim for such indemnification.
CHANGES IN
ACCOUNTANTS
Prior to becoming a reporting company under the Exchange Act, we
acquired RealView Systems. The acquisition occurred on October 6, 1998. RealView
Systems was acquired by View Systems through a share exchange "B" reorganization
under Section 368 of the Internal Revenue Code. As a result of the acquisition,
RealView Systems became a wholly owned subsidiary of View Systems. We decided to
account for the acquisition of RealView Systems as a pooling of interest.
Therefore, all financial statements and financial information for View Systems
were restated to include the amounts and results of operations of RealView
Systems and View Systems for all periods.
Following the acquisition, we decided to become a fully reporting
company under the Exchange Act. To become a reporting company, we filed a
registration statement to register our common stock under Section 12(g) of the
Exchange Act on August 13, 1999, on Form 10SB. As required by regulation SB,
Item 310, we were required to include in this registration statement audited
statements of income, cash flows and changes in stockholders' equity for 1997
and 1998. This required us to include the financial information for RealView
Systems for 1997 and 1998.
RealView Systems had engaged the accounting firm of Katz, Abosch,
Windesheim, Gershman & Freedman, P.A. - Katz, Abosch - to provide audit
accounting services and to render an independent audit report, dated June 1,
1998, of the financial statements of RealView Systems, Inc., as of December 31,
1997, and the related statements of operations, stockholders' equity and cash
flows for the year then ended and for the period from September 15, 1993
(inception) to December 31, 1997. In that report, Katz, Abosch gave an
unqualified opinion.
We requested and received Katz, Abosch's authorization to include the
results of their audit of our financial reports in our Form 10SB and in our
registration statement on Form SB-2, which we filed on January 11, 2000.
However, as a matter of its own internal policy, Katz, Abosch does not provide
audit accounting services to public companies. Therefore, it did not offer to
provide audit accounting services to View Systems and we engaged another
company, Stegman & Company, that does provide audit accounting services to
public companies. Stegman & Company has provided audited account services to
View Systems for the time periods from 1998 to the
51
<PAGE>
present.
Katz, Abosch did not render an adverse opinion or disclaimer of opinion
with regard to its audit of the financial statements of RealView, nor was its
audit work for RealView modified as to uncertainty, audit scope, or accounting
principles. The decision to engage Stegman & Company as our auditors was
approved by both our board of directors and shareholders. We did not have any
disagreements with Katz, Abosch on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure.
AVAILABLE INFORMATION
We are subject to the information reporting requirements of the
Securities Exchange Act and, accordingly, file reports and other information
with the Commission. Such reports and other information are available for
inspection and copying at the public reference facilities maintained by the
Commission at Room 1026, 450 Fifth Street N.W., Washington, D.C. 20549, and the
public may obtain information on the operation of the public reference room by
calling the SEC at 1-800/SEC-0330. The information is also available at the
Commission's regional offices located at 7 World Trade Center in New York, New
York 10007, at the Klucynski Building, 230 Fourth Dearborn Street, in Chicago,
Illinois 60604 and at 5757 Wilshire Boulevard, Los Angeles, California 90024.
Copies of such material also may be obtained from the Public Reference Section
of the Commission, 450 Fifth Street N.W., Judiciary Plaza, Washington, D.C.
20549 at prescribed rates and are also available on the Commission's web site at
www.sec.gov.
ADDITIONAL INFORMATION
We have filed a registration statement with the Commission under the
Securities Act with regard to the securities offered hereby. The prospectus does
not contain all of the information set forth in the registration statement and
in the exhibits and schedules thereto, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information reference is made to such registration statement and the exhibits
and schedules thereto. The registration statement and any amendments, including
exhibits are available for inspection and copying as set forth above. We intend
to distribute annual reports containing audited financial statements to our
shareholders.
52
<PAGE>
INDEX TO FINANCIAL STATEMENTS
VIEW SYSTEMS, INC
-----------------
-----------------------------
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Independent Auditors' Report F-1
Consolidated Balance Sheet at December 31, 1999 F-2
Consolidated Statements of Operations for the F-3
years ended December 31, 1999 and 1998
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 1999 and 1998 F-4
Consolidated Statements of Cash Flows for the
years ended December 31, 1999 and 1998 F-5
Notes to Consolidated Financial Statements F-7
</TABLE>
53
<PAGE>
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. and subsidiaries as of December 31, 1999, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the years ended December 31, 1999 and 1998. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with 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 audits provide 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, 1999, and the results of their
operations and their cash flows for the years ended December 31, 1999 and 1998
in conformity with generally accepted accounting principles.
Stegman & Company
Baltimore, Maryland
March 24, 2000
F-1
<PAGE>
VIEW SYSTEMS, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1999
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash $ 89,150
Accounts receivable 93,278
Inventory 141,213
-----------
Total current assets 323,641
-----------
PROPERTY AND EQUIPMENT:
Equipment 234,699
Furniture and fixtures 28,595
Leasehold improvements 4,000
Software tools 12,664
Vehicles 68,680
-----------
348,638
Less accumulated depreciation 48,296
-----------
Net value of property and equipment 300,342
-----------
OTHER ASSETS:
Investments 28,000
Due from affiliated entity 90,990
Due from stockholders 74,362
Deposits 7,007
-----------
Total other assets 200,359
-----------
TOTAL ASSETS $ 824,342
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 174,106
Note payable - bank 69,730
Notes payable - stockholders 110,000
Accrued interest payable 11,000
Other accrued liabilities 19,163
-----------
Total current liabilities 383,999
===========
STOCKHOLDERS' EQUITY:
Common stock - par value $.01, 50,000,000 shares authorized,
issued and outstanding - 7,167,203 7,167
Additional paid-in capital 4,771,992
Accumulated deficit (4,338,816)
-----------
Total stockholders' equity 440,343
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 824,342
===========
</TABLE>
See accompanying notes.
F-2
<PAGE>
VIEW SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
REVENUE:
Sales and other income $ 310,057 $ 31,438
Cost of goods sold 258,478 20,891
----------- -----------
GROSS PROFIT ON SALES 51,579 10,547
----------- -----------
OPERATING EXPENSES:
Advertising and promotion 23,256 3,959
Business development expense 140,000 -
Contributions 2,500 -
Depreciation 29,856 4,706
Dues and subscriptions 3,379 250
Employee compensation and benefits 2,094,959 -
Insurance 17,038 1,268
Interest 56,379 10,054
Investor relations 212,086 45,415
Miscellaneous expense 19,235 1,343
Office expenses 73,002 106,375
Professional fees 317,100 10,819
Rent 74,628 52,204
Repairs and maintenance 10,167 -
Research and development 212,841 -
Taxes - other 3,201 -
Telephone 28,398 -
Travel and entertainment 106,194 13,465
Utilities 14,201 4,246
----------- -----------
Total operating expenses 3,438,420 254,104
=========== ===========
LOSS BEFORE WRITE-OFF OF GOODWILL
AND OTHER INTANGIBLE ASSETS (3,386,841) (243,557)
WRITE-OFF OF GOODWILL AND
OTHER INTANGIBLE ASSETS 545,490 -
----------- -----------
NET LOSS $(3,932,331) $ (243,557)
=========== ===========
LOSS PER SHARE:
Basic $ (0.68) (.06)
=========== ===========
Diluted $ (0.68) (.06)
=========== ===========
</TABLE>
See accompanying notes.
F-3
<PAGE>
VIEW SYSTEMS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
Additional
Common Paid-in Accumulated Stockholders'
Stock Capital Deficit Equity
----------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Balances at January 1, 1998 $ 4,150 $ 156,420 $ (162,928) $ (2,358)
Sale of common stock 167 249,833 - 250,000
Net loss - - (243,5587) (243,557)
----------- ----------- ----------- -----------
Balances at December 31, 1998 4,317 406,253 (406,485) 4,085
Sale of common stock 952 1,425,377 - 1,426,329
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 250 787,250 - 787,500
(ETMC acquisition)
Issuance of common stock 370 403,838 - 404,208
(debt conversion)
Net loss - - (3,932,331) (3,932,331)
----------- ----------- ----------- -----------
Balances at December 31, 1999 $ 7,167 $ 4,771,992 $(4,338,816) $ 440,343
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE>
VIEW SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
----------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(3,932,331) $(243,557)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 29,856 4,706
Write-off of goodwill and other intangible assets 545,490 -
Employee and other compensation paid through
the issuance of common stock 2,147,333 -
Employee compensation related to stock
options granted 87,420 -
Interest paid through issuance of common stock 33,000 -
Changes in operating assets and liabilities:
Accounts receivable (79,679) (13,599)
Inventory (136,639) (4,574)
Other assets (7,007) (22,650)
Accounts payable 144,035 23,386
Accrued interest 11,000 -
Other accrued liabilities 16,248 2,915
----------- ---------
Net cash used in operating activities (1,141,274) (253,373)
----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (50,354) (6,604)
Funds advanced to affiliated entities (459,180) -
Investment in MediaComm Broadcasting Systems, Inc. (28,000)
----------- ---------
Net cash used in investing activities (537,534) (6,604)
----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from loans provided by stockholders 177,000 179,869
Repayment of note payable - bank (5,270) -
Proceeds from sales of stock 1,426,329 250,000
----------- ---------
Net cash provided by financing activities 1,598,059 429,869
----------- ---------
NET (DECREASE) INCREASE IN CASH (80,749) 169,892
CASH AT BEGINNING OF YEAR 169,899 7
----------- ---------
CASH AT END OF YEAR $ 89,150 $ 169,899
=========== =========
</TABLE>
F-5
<PAGE>
VIEW SYSTEMS, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
-------- ----------
<S> <C> <C>
Schedule of non-cash investing and financing transactions:
Common stock issued to effect purchase of
Eastern Tech Manufacturing, Inc. $787,500 $ -
======== ==========
Debt issued to effect purchase of
Eastern Tech Manufacturing, Inc. $148,184 $ -
======== ==========
Common stock issued for conversion of debt $404,208 $ -
======== ==========
Common stock redeemed in exchange for receivable $396,781 $ -
======== ==========
Cash paid during the period for:
Interest $ 45,379 $ -
======== ==========
Taxes $ - $ -
======== ==========
</TABLE>
See accompanying notes.
F-6
<PAGE>
VIEW SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
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, Real View Systems, Inc. ("Real
View"), Xyros Systems, Inc. ("Xyros") and Eastern Tech Manufacturing, Inc.
("ETMC"). All significant inter-company 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 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, 1999 and 1998 amounted to $29,856 and $4,706,
respectively.
IMPAIRMENT OF LONG-LIVED ASSETS
F-7
<PAGE>
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 carry-forwards.
The effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period the rate change becomes effective. Valuation
allowances are recorded for deferred tax assets when it is more likely than not
that such deferred tax assets will not be realized.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
Equipment and facilities acquired for research and development activities that
have alternative future uses are capitalized and charged to expense over the
estimated useful lives.
ADVERTISING
Advertising costs are charged to operations as incurred.
Advertising costs for the years ended December 31, 1999 and 1998 were $23,256
and $3,959, respectively.
NON-MONETARY TRANSACTIONS
Non-monetary transactions are accounted for in accordance with
Accounting Principles Board Opinion No. 29 ACCOUNTING FOR NON-MONETARY
TRANSACTIONS which requires the transfer or distribution of a non-monetary 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 December 31, 1999
and 1998 does not include potential shares of common stock equivalents, as their
impact would be anti-dilutive.
SEGMENT REPORTING
The Company has determined that it does not have any separately
reportable operating segments as of December 31, 1999 and 1998.
2. FINANCIAL CONDITION
Since its inception, the Company has incurred significant losses and
as of December 31, 1999 had an accumulated deficit of $4.3 million. For the year
ended December 31, 1999 the Company's net loss, consisting primarily of non-cash
stock based compensation, was $3.9 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
F-8
<PAGE>
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 December 31, 2000.
3. BUSINESS COMBINATIONS
On October 6, 1998, the Company completed its acquisition of Real
View located in Columbia, Maryland. As provided under the terms of the merger
agreement, Real View became a wholly owned subsidiary of the Company and each of
the outstanding shares of the common stock of Real View 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 Real View for all periods presented.
On February 25, 1999, the Company acquired Xyros of Columbia,
Maryland, a developer of a computer based system that captures video and audio
data 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's common stock will be exchanged for 1,500 shares of the
Company's common stock. This acquisition is 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
Xyros for all periods presented.
In May of 1999, the Company completed its acquisition of ETMC, a
computer parts and accessories manufacturer. The business combination was
accounted for as a purchase in which each outstanding share of ETMC common stock
was converted into the right to receive a number of shares of the Company's
common stock. At closing, the purchase price (as defined in the agreement and
plan of merger) of $935,684 was paid by the issuance of 250,000 shares of common
stock and the assumption of liabilities for both legal fees and a non-compete
clause. The excess cost over net liabilities acquired of $495,344 was recorded
as goodwill and was subsequently amortized and written-off (see Note 7).
The following unaudited pro forma summary presents the
consolidated results of operations for the year ended December 31, 1999 of the
Company as if the business combination had occurred on January 1, 1999:
<TABLE>
<S> <C>
Revenue $ 958,147
Net loss $(231,524)
Loss per share $ (0.05)
</TABLE>
The above amounts are based upon certain assumptions and estimates
which the Company believes are reasonable. The pro forma results do not
necessarily represent results that would have occurred if the business
combination had taken place at the date and on the basis assumed above.
4. INVENTORY
Inventories at December 31, 1999 consisted of the following:
<TABLE>
<S> <C>
Finished goods $ 42,000
Work in process 32,563
Raw materials 66,650
---------
$ 141,213
=========
</TABLE>
The Company did not have any inventory as of December 31, 1998.
5. DUE FROM AFFILIATED ENTITIES
The Company has advanced non-interest funds to its chief executive
officer, a member of his family and a related corporation controlled by the
Chief Executive Officer. There were no formal repayment terms associated with
these advances. The amount outstanding at December 31, 1999 was $165,352.
F-9
<PAGE>
Of the $165,352 due from affiliates, $90,990 is due from a
related corporation - View Technologies, Inc. The two companies enter into
various transactions throughout the year to provide working capital to one
another when necessary.
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 for use of compression software in an amount equal to
5% of gross sales derived from use of the software. 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. This software license
agreement commenced in October 1998 and has a ten year term. At December 31,
1999, the Company has yet to generate any sales with respect to this agreement.
6. INVESTMENTS
The Company owns approximately 14% of the common stock of a privately
held entity known as MediaComm Broadcasting Systems, Inc. ("MediaComm"). There
is no market for the entity's common shares, and it was impracticable to
estimate fair value of the Company's investment. The investment is carried on
the balance sheet at original cost of $28,000 or $.03 a share. Following is a
summary of pertinent information about the entity for the year at and for the
year ended June 30, 1999:
<TABLE>
<S> <C>
Total assets $ 28,129
--------
Total equity $ 26,630
--------
Net loss $(82,780)
--------
</TABLE>
7. INTANGIBLE ASSETS
In relation to the business combination with ETMC accounted for under
the purchase method of accounting, the Company recorded goodwill in the amount
of $495,344. This amount was based on the difference between the fair market
value of the Company's stock at the acquisition date and the fair value of
ETMC's net assets. During the fourth quarter of 1999, management conducted a
thorough review of ETMC's operations, including customer base, current
production capacity, and job order backlog. Based on this review, it was
determined that there was no basis for the amount of goodwill and the remaining
balance of $473,267 was written-off to expense.
Software development costs of $72,223 relating to internal costs
associated with a software product that the Company will not market were also
written-off to expense during 1999.
8. NOTE PAYABLE - BANK
One of the Company's subsidiaries has a demand note payable with a
bank having an outstanding balance of $69,730 as of December 31, 1999. The note
bears interest equivalent to the prime rate plus 2% per annum payable monthly
and is personally guaranteed by three stockholders and former officers of the
Company.
9. NOTE PAYABLE - STOCKHOLDERS
In connection with the acquisition of Xyros, the Company assumed
liabilities evidenced by notes payable to the stockholders of Xyros. The notes
carry an annual interest rate of 10% with interest paid monthly. The notes were
due December 31, 1999. The Company has not fulfilled its obligation to repay the
notes because of a dispute with the former Xyros stockholders. The matter is
currently in litigation.
10. INCOME TAXES
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to difference between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
F-10
<PAGE>
The components of the net deferred tax asset and liability as of
December 31, 1999 are as follows:
<TABLE>
<S> <C>
Effect of net operating loss carry forward $563,000
Less valuation allowance (563,000)
--------
Net deferred tax asset (liability) $ -
========
</TABLE>
The Company has recorded a valuation allowance in an amount equal to
the deferred tax asset resulting from its net operating loss carry forward. The
Company has net operating loss carry forwards of approximately $1,500,000 at
December 31, 1999.
11. STOCK-BASED COMPENSATION
During the year ended December 31, 1999 the Company granted
restricted stock, incentive stock options, non-qualified stock options, and
warrants to employees, officers, and independent contractors and consultants.
RESTRICTED STOCK GRANTS
The Company's Board of Directors and stockholders have approved
a restricted share plan under which shares of the Company's common stock will be
granted to employees, officers, and directors at the discretion of the Board of
Directors. During 1999 the Company issued the following shares under this Plan
and additional shares at the direction of the Board of Directors:
<TABLE>
<CAPTION>
Number Expense
of Shares Recognized
--------- ----------
<S> <C> <C>
Officers and employees 1,100,000 $1,755,000
Independent contractors and consultants 369,000 392,333
--------- ----------
1,469,000 $2,147,333
========= ==========
</TABLE>
Officers' and employees' compensation in the amount of
$1,755,000 was based on the fair market value of the common stock issued on the
date of the grant less a discount of 10% due to the restricted nature of the
grant. Independent contractors and consultants expense of $392,333 was based on
the estimated value of services rendered.
STOCK OPTIONS AND WARRANTS
The Company adopted the 1999 Stock Option Plan during the year.
The Plan reserves 4,500,000 shares of the Company's unissued common stock for
options. Options, which may be tax qualified and non-qualified, are exercisable
for a period of up to ten years at prices at or above market price as
established on the date of grant.
A summary of the Company's stock option activity and related
information for the year ended December 31, 1999 is as follows:
<TABLE>
<CAPTION>
Common Weighted
Stock Average Range of
Options Exercise Price Exercise Prices
------- -------------- ---------------
<S> <C> <C> <C>
Outstanding at beginning of year - $ - $ -
Granted 504,860 1.56 0.01 - $2.07
Exercised - - -
Expired/cancelled - - -
------- -------------- ---------------
Outstanding at end of year 504,860 $ 1.56 $0.01 - $2.07
======= ======= =============
</TABLE>
Additionally, the Company has issued warrants to purchase the
Company's stock as follows:
F-11
<PAGE>
<TABLE>
<CAPTION>
Common Weighted
Stock Average Range of
Warrants Exercise Price Exercise Prices
-------- -------------- ---------------
<S> <C> <C> <C>
Outstanding at beginning of year - $ - $ -
Granted 454,000 2.00 2.00
Exercised - - -
Expired/cancelled - - -
------------ -------- ---------
Outstanding at end of year 454,000 $2.00 $2.00
======= ===== =====
</TABLE>
The Company has adopted the disclosure-only provisions of Statement
of Financial Accounting Standards No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION (SFAS No. 123), but applies Accounting Principle Board Opinion No.
25 and related interpretations. Compensation expense relating to the granting of
stock options at grant prices below the fair value at the date of grant was
$87,420 for the year ended December 31, 1999. The fair value of other equity
awards was estimated at the date of grant using a Black-Scholes option pricing
model with the following weighted average assumptions for 1999: risk-free
interest rate of 5.97% - 6.09%; expected volatility of 70.0%; expected option
life of 2 years from vesting and an unexpected dividend yield of 0.0%. If the
Company had elected to recognize cost based on the fair value at the grant dates
consistent with the method prescribed by SFAS No. 123, net loss and loss per
share would have been changed to the pro forma amounts for the year ended
December 31, 1999 as follows:
<TABLE>
<CAPTION>
As Reported Pro Forma
------------------------------ ---------------------------
Net Net
Year Income Per Income Per
Ended (Loss) Share (Loss) Share
----- ------------------------------ ---------------------------
<S> <C> <C> <C> <C> <C>
1999 $(3,932,330) $(0.68) $(4,198,843) $(0.72)
=========== ====== =========== ======
</TABLE>
12. RELATED PARTY TRANSACTIONS
During the year ended December 31, 1999 the Company redeemed 59,860
shares owned by the Chief Executive Officer for $50,000 in cash and the
elimination of $67,719 due to the Chief Executive Officer for a total
consideration of $117,719.
During the year ended December 31, 1999 the Company converted a note
payable and related accrued interest to a family member of the Chief Executive
Officer in the amount of $200,000 to 200,000 shares of the Company's common
stock.
13. SUBSEQUENT EVENT
On February 18, 2000 the Company sold to an accredited institutional
investment entity 800,000 shares of the Company's common stock, a warrant to
purchase (i) 1,000,000 shares of common stock during the five-month period
following February 18, 2000, at an exercise price of $2.00 per share, and (ii)
500,000 shares of common stock during the six-month period following February
18, 2000, at an exercise price of $2.00 per share, and another warrant to
purchase 1,000,000 shares of common stock during the three-year period following
February 18, 2000, at an exercise price of $2.00 per share. At closing, the
Company received $400,000. The shares were issued pursuant to Regulation D
promulgated by the Securities and Exchange Commission under the Securities Act
of 1933, as amended. The securities purchased pursuant to the investment carry
demand and piggyback registration rights.
- -------------------------------
F-12
<PAGE>
4,445,727 SHARES
VIEW SYSTEMS, INC.
PROSPECTUS
April 27, 2000
TABLE OF CONTENTS ON
PAGE 2
================================================================================
WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE
ANY INFORMATION OR REPRESENT ANYTHING NOT CONTAINED IN THIS PROSPECTUS. YOU MUST
NOT RELY ON ANY UNAUTHORIZED INFORMATION. THIS PROSPECTUS DOES NOT OFFER TO SELL
OR BUY ANY SHARES IN ANY JURISDICTION WHERE IT IS UNLAWFUL. THE INFORMATION IN
THIS PROSPECTUS IS CURRENT ONLY AS OF ITS DATE.
<PAGE>
PART II
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The FBC Act authorizes Florida corporations to indemnify any person who
was or is a party to any proceeding (other than an action by, or in the right
of, the corporation) by reason of the fact that he or she is or was a director,
officer, employee, or agent of the corporation or is or was serving at the
request of the corporation as a director, officer, employee, or agent of another
corporation or other entity, against liability incurred in connection with such
proceeding, including any appeal thereof, if he or she acted in good faith and
in a manner he or she reasonably believed to be in, or not opposed to, the best
interests of the corporation and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
Florida law does not provide for indemnification for (i) an act or omission that
involves intentional misconduct or a knowing violation of a law, or (ii) payment
of improper distributions. In the case of an action by or on behalf of a
corporation, indemnification may not be made if the person seeking
indemnification is adjudged liable, unless the court in which such action was
brought determines such person is fairly and reasonably entitled to
indemnification. The indemnification provisions of the FBC Act require
indemnification if a director or officer has been successful on the merits or
otherwise in defense of any action, suit or proceeding to which he or she was a
party by reason of the fact that he or she is or was a director or officer of
the corporation. The indemnification authorized under Florida law is not
exclusive and is in addition to any other rights granted to officers and
directors under the articles of incorporation or bylaws of the corporation or
any agreement between officers and directors and the corporation. A corporation
may purchase and maintain insurance or furnish similar protection on behalf of
any officer or director against any liability asserted against the director or
officer and incurred by the director or officer in such capacity, or arising out
of the status, as an officer or director, whether or not the corporation would
have the power to indemnify him or her against such liability under the FBC Act.
The Company's Articles of Incorporation provide for the indemnification
of directors and executive officers to the maximum extent permitted by Florida
law. The Articles also authorize the board of directors to advance expenses
incurred in connection with the defense of any action, suit or proceeding that
the director or executive officer was a party to by reason of the fact that he
or she is or was an officer or director of the Company and to procure insurance
on behalf of such an individual for liabilities incurred whether or not we would
have the power or obligation to indemnify him pursuant to our articles of
incorporation. Insofar as indemnification for liabilities
II-1
<PAGE>
arising under the Securities Act may be permitted to our directors, officers or
persons controlling us pursuant to the foregoing provisions, the registrant has
been informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is therefore unenforceable.
There is no pending litigation or proceeding involving any of our
directors, officers, employees or agents where indemnification would be required
or permitted. We are not aware of any threatened litigation or proceeding that
would result in a claim for such indemnification.
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following is a schedule of the estimated expenses to be incurred by the
Company in connection with the issuance and sale of the securities being
registered hereby, other than underwriting discounts and commissions.
<TABLE>
<S> <C>
Registration Fee $ 2,719
Blue Sky Fees and Expenses 5,000
Accounting Fees and Expenses 14,281
Document Prep Consulting Fees 5,000
Printing Expenses 22,000
Transfer Agent and Registrar Fees 1,000
-------
TOTAL $50,000
=======
</TABLE>
RECENT SALES OF UNREGISTERED SECURITIES
The Company was organized January 26, 1989, under the laws of the State
of Florida as Beneficial Investment Group, Inc. On June 1, 1990, the Company
issued 5,000 shares of its $1.00 par value common stock for services of $5,000.
On July 21, 1998, the State of Florida approved the Company's restated Articles
of Incorporation, which increased the Company's capitalization from 7,500 shares
to 50,000,000 common shares. The par value was changed from $1.00 to $0.01. On
July 21, 1998, the Company forward split its common stock 200-to-1, thus
increasing the number of outstanding common stock shares from 5,000 shares to
1,000,000 shares. On July 21, 1998, the Company changed its name to Bigi, Inc.
On September 22, 1998, the Company changed its name to View Systems,
Inc. On September 30, 1998, the Company forward split its common stock 2-to-1,
thereby increasing the outstanding common stock from 1,000,000 shares to
2,000,000 shares. On September 30, 1998, the Company entered into a plan of
merger to acquire RealView Systems, Inc. ("RealView"), a Colorado corporation,
by issuing 2,000,000 shares in the Company to the shareholders of RealView in
exchange for their shares of RealView common stock. On October 28, 1998, the
shareholders of RealView
II-2
<PAGE>
approved this plan of merger. The shares were issued under Section 4(2) of the
Securities Act and Rule 506. The purchasers were accredited investors and all
the other conditions of Rule 506 were satisfied.
On November 16, 1998, we commenced an offering of common stock at a
price of $1.50 per share under Rule 504 of Regulation D promulgated under the
Securities Act of 1933. Investors in this offering were provided with a private
placement memorandum and each investor executed a subscription agreement,
representing, among other things, that the shares were being acquired as an
investment for their own accounts, and not with an eye toward distribution or
resale. The offering was made to Accredited Investors, within the meaning of
Rule 506 of Regulation D, with the exception of one Non-Accredited Investor,
Marilyn King, a Florida resident who had a preexisting business relationship
with the Company and by reason of her business and financial experience,
understood the risks of her investment. From November 10, 1998, to February 8,
1999, when we closed the offering, we sold the following amounts of shares to
the following individuals: Sue Dardirun, a Florida resident and an Accredited
Investor, 40,000 shares; Code Craft Corp., a Bahamas corporation and an
Accredited Investor, 100,000 shares; George R. and Carol A Kinney, New Jersey
residents and Accredited Investors, 26,667 shares; Martin & Marlene Maassen,
Indiana residents and Accredited Investors, 14,000 shares; Martin Maassen, an
Indiana resident and an Accredited Investor, 9,000 shares; Chelverton Fund,
Ltd., a British corporation and an Accredited Investor, 70,000 shares; Lawrence
Seiler, a Maryland resident and an Accredited Investor, 5,000 shares; Michael
Bagnoli, a Indiana resident and an Accredited Investor, 10,000 shares; Dan & Edi
Connor, Minnesota residents and Accredited Investors, 2,000 shares; Coral Cove
Partners, a Florida partnership and an Accredited Investor, 100,000 shares; Ron
Guillot, a Colorado resident and an Accredited Investor, 24,750 shares; Martin
Maassen, a Indiana resident and an Accredited Investor, 16,000 shares; Stephen
McAdams, a North Carolina resident and an Accredited Investor, 10,000 shares;
David Barbara, an Indiana resident and an Accredited Investor, 10,000 shares;
Bluegrass Securecor, a Bahamas corporation and an Accredited Investor, 110,000
shares; Stateside Investco, a Bahamas corporation and an Accredited Investor,
110,000 shares; Marilyn King, a Florida resident and a Non-Accredited Investor,
1,000 shares; and John Thompson, a California resident and an Accredited
Investor, 8,250 shares. In total, we offered and sold 666,667 shares as part of
this offering, for a total consideration of $1,000,000. Three of the investors
in this offering, Martin Maassen, Michael Bagnoli and David Barbara,
subsequently became directors of the Company.
On February 25, 1999, we acquired all of the issued and outstanding
shares of Xyros Systems, Inc., a Maryland
II-3
<PAGE>
corporation, through a share exchange whereby we issued 150,000 of the Company's
non-registered, restricted stock to the former shareholders of Xyros in exchange
for all of their shares. The former shareholders of Xyros were all Maryland
residents. The following shareholders received the following shares in this
share exchange: Kenneth C. Weiss, 70,500 shares; the Peterson/Delgado Living
Trust, 32,250 shares; David C. Bruggeman, 39,000 shares; Vincent DeCampo, 5,250
shares; and Thomas G. Weiss, 3,000 shares. The shares were sold only to
accredited investors or sophisticated investors and the other conditions of Rule
506 were satisfied. The shares were exempt from registration pursuant to Rule
506 and Section 4(2) of the Securities Act of 1933. Subsequent to the
acquisition, the Company employed Vincent DeCampo, Thomas G. Weiss and David C.
Bruggeman.
On April 7, 1999, our Board of Directors adopted the View Systems, Inc.
1999 Restricted Share Plan, which Plan, and the agreements under the Plan, were
subsequently ratified at a special meeting of shareholders held on August 27,
1999. The Plan provides for the issuance of incentive and compensation shares of
common stock to key employees of the Company. From April 7, 1999, to July 20,
1999, we issued 706,000 shares under the plan. In addition to being
non-registered, restricted shares pursuant to Rule 144 of the Securities Act of
1933, the shares issued under the plan also contained contractual restrictions,
which provided that the shares vested over time according to a schedule set
forth in the agreement entered into pursuant to the plan. As of October 1, 1999,
526,000 shares had fully vested under the plan and were freely transferable, to
the extent transferable under the Securities laws. The following grants were
made to the following employees: Vince DeCampo, Senior Software Engineer, 3,000
shares (2,000 shares fully vested as of 10/1/99); Tom Weiss, Manufacturing
Engineer, 3,000 shares (2,000 shares fully vested as of 10/1/99); Gunther Than,
President & CEO, 300,000 shares (150,000 shares fully vested as of 10/1/99);
Linda Than, Comptroller, 100,000 shares (100,000 shares fully vested as of
10/1/99); Bruce Lesniak, Senior VP Business Development, 140,000 shares (140,000
shares fully vested as of 10/1/99); John Curran, VP of Manufacturing, 12,000
shares (4,000 shares fully vested as of 10/1/99); David Bruggeman, 48,000 shares
(28,000 shares fully vested as of 10/1/99); and Andrew Jiranek, 100,000 shares
(100,000 shares fully vested as of 10/1/99). These shares were issued under Rule
701 promulgated under the Securities Act of 1933. The shares were issued as
compensation and were valued at $.50 per share on the Company's financial
statements. Gunther Than and Andrew Jiranek were the only executive officers
receiving shares under the plan.
On May 25, 1999, we acquired all of the stock of ETMC in exchange for
the issuance of 250,000 shares of restricted common stock to Lawrence Seiler and
cash payments to Lawrence Seiler
II-4
<PAGE>
and/or guaranties of cash payments for the benefit of Larry Seiler. On July 29,
1999, the Company issued 170,000 shares of restricted common stock in exchange
for the cancellation of indebtedness it owed to or for the benefit of Lawrence
Seiler. In connection with this issuance, the Company agreed to register at its
expense 100,000 of these shares. Each share issued on July 29, 1999, canceled
$2.00 worth of indebtedness. These shares were exempt from registration under
Rule 506. Lawrence Seiler is a Maryland resident and a Sales Manager of ETMC.
Mr. Seiler is an accredited investor and all the other conditions of Rule 506
were satisfied.
On June 17, 1999, in connection with a consulting engagement agreement,
we granted to Columbia Financial Group 200,000 shares of our common stock and
five year warrants to purchase a total of 400,000 shares of our common stock at
$2.00 per share. The shares of common stock that can be obtained upon exercise
of the warrants carry registration rights. Columbia Financial Group provides
investment relations services, including direct investor relations and
broker-dealer relations services, public relations services, publishing
services, advertising services and fulfillment services. Its securities were
exempt from registration under Section 4(2) of the Securities Act of 1933 and
Rule 506. The purchaser is an accredited investor and all the other conditions
of Rule 506 were satisfied.
On July 2, 1999, the Company issued 250,000 shares of restricted common
stock and options to purchase 250,000 shares at an exercise price of $2.00 per
share to Gunther Than, President, CEO and a Director in connection with the
acquisition of ETMC. Mr. Than acquired this stock pursuant to Section 4(2) of
the Securities Act of 1933 and Rule 506. The purchaser is an accredited investor
and all the other conditions of Rule 506 were satisfied.
On July 2, 1999, we issued 13,333 shares to Leokadia Than because she
exchanged a RealView stock certificate in the amount of 10,000 shares that she
had obtained from Keith Bosworth, a former shareholder of RealView Systems, Inc.
The Company had agreed to exchange 1.33 of its shares of common stock in
exchange for every share of stock of RealView Systems, Inc. Ms. Than acquired
this stock pursuant to Rule 506 promulgated under the Securities Act of 1933.
The purchaser is an accredited investor and all the other conditions of Rule 506
were satisfied.
On July 19, 1999, we issued 300,000 shares of restrictive common stock
to Gunther Than as consideration under an executive employment agreement he
entered into with the Company, in which he agreed to a restrictive, non-compete,
non-solicit covenant running to the benefit of the Company. These shares of
restrictive common stock were issued under Section 4(2) of the Securities Act of
1933 and Rule 506. These shares were issued as
II-5
<PAGE>
compensation and were valued at $.50 per share on the Company's financial
statements. The purchaser is an accredited investor and all the other conditions
of Rule 506 were satisfied.
On August 2, 1999, the Company commenced an offering under Rule 506 of
Regulation D promulgated under the Securities Act of 1933. Investors in this
offering were provided with a private placement memorandum and each investor
executed a subscription agreement, representing, among other things, that the
shares were being acquired as an investment for their own accounts, and not with
an eye toward distribution or resale. The offering was made to Accredited
Investors, within the meaning of Rule 501 of Regulation D. From August 2, 1999,
to August 18, 1999, when we closed the offering, we sold the following amounts
of shares to the following individuals: Gus and Anita Mastracci, Maryland
residents, 1,000 shares; Michael L. Bagnoli, Indiana resident, 20,000 shares;
Martin J. Maassen, Indiana resident, 111,000 shares. Two of the three investors
in this offering, Michael L. Bagnoli and Martin J. Maassen are members of our
board of directors.
On October 29, 1999, we issued 100,000 shares to two accredited
Maryland resident investors who are working for Columbia Financial Group, our
investment relations firm. These investors, Jim Price and Tim Rieu, purchased
50,000 shares each for $1.00 per share and executed subscription agreements. As
condition of their subscription for shares, we agreed to register their shares
in our next registered offering under the Securities Act of 1933. These
securities were issued under Section 4(2) of the Securities Act of 1933 and Rule
506. The purchaser is an accredited investor and all the other conditions of
Rule 506 were satisfied.
Also, on October 29, 1999, we agreed to issue 200,000 shares to
Leokadia Than in exchange for satisfaction of loan indebtedness of $210,000
($177,000 in principal loans, plus $33,000 in accrued interest). As part of
Leokadia Than's subscription agreement, we agreed to register 50,000 shares in
our next registered offering under the Securities Act of 1933. These securities
were issued under Section 4(2) of the Securities Act of 1933 and Rule 506. The
purchaser is an accredited investor and all the other conditions of Rule 506
were satisfied.
On November 11, 1999, we commenced an offering of securities under Rule
506 of Regulation D of the Securities Act of 1933. Each investor was given a
Private Placement Memorandum prior to acceptance of any subscription in the
offering and each executed a subscription agreement, representing, among other
things, that the shares are being acquired for investment purposes only. We sold
285,727 shares at a price of $1.75 per share, for total sales proceeds of
$500,026 to the Company. As a condition of investment in this offering, we
agreed to register the shares
II-6
<PAGE>
purchased by investors in our next registered offering under the Securities Act
of 1933. In this offering, we sold the following amounts of shares to the
following individuals: Jim & Dotty Burg, Wisconsin residents (10,000 shares);
Jim McDaniel, Nevada resident (1,200 shares); Steve Viel, Nevada resident (1,200
shares); Richard Carey, Nevada resident (1,200 shares); Lawrence Gilroy,
Wisconsin resident (1,200 shares); Thomas Fuselier, Colorado resident (5,714
shares); Scott Fuselier, Colorado resident (5,714 shares); Michael Bagnoli,
Indiana resident (20,000 shares); John Thompson, California resident (20,000
shares); Jeung Hee Hwang, Korean resident (17,000 shares); Gary Bray, Illinois
resident (5,000 shares); John Gilroy, Wisconsin resident (3,700 shares);
Lawrence Gilroy, Wisconsin resident (1,200 shares); John May, Wisconsin resident
(10,000 shares); Joel Konicek (50,000 shares); Victor & Eileen Gruchalski,
Wisconsin residents (5,000 shares); Keith & Debra Company, California residents
(5,000 shares); Gordon Ray Kemmerling, Wisconsin resident (7,000 shares); Lisa
Hedman, Florida resident (571 shares), Eleanore Hendricks, Wisconsin resident
(5,000 shares); Jeffrey Grahl, Wisconsin resident (5,000 shares); Jane
Emmanuele, Wisconsin resident (10,000 shares); Marie Lesniak, Illinois resident
(6,000 shares); Keith Burg, Wisconsin resident (5,000 shares); Cynthia & David
Gruchalski, Wisconsin residents (5,000 shares); Mark & Mary Gordman, Missouri
residents (750 shares); Ed & Cindy Lesniak, Mississippi residents (3,164
shares); Seth Lesniak, Mississippi resident (1,514 shares); Mark & Molly
Michaels, Illinois residents (6,000 shares); Paul & Barbara Knoebel, Wisconsin
residents (20,000 shares); Gerald Klamrowski, Wisconsin resident (40,000
shares); Bruce Lesniak/American Home Systems, Wisconsin resident (10,000
shares). Each investor was an accredited investor or sophisticated and with
knowledge to evaluate the investment. All of the other conditions of Rule 506
were met. We closed this offering on January 8, 2000.
On December 9, 1999, in connection with 2 consulting agreements, we
granted 5 year warrants to purchase shares of our common stock at $2.00 per
share. The warrants were granted to Tom Cloutier, a California resident (44,000
shares), and Guy Parr, a Maryland resident (10,000 shares) and carried
registration rights. The shares were issued under Section 4(2) of the Securities
Act of 1933 and Rule 506. The purchaser is an accredited investor and all the
other conditions of Rule 506 were satisfied.
On January 10, 2000, we commenced an offering of securities pursuant to
Rule 506 of Regulation D of the Securities Act of 1933. This offering is being
made only to persons who would be qualified institutional buyers for purposes of
Rule 144A of the Securities Act of 1933 and a limited number of large
institutional accredited investors. We have agreed to register all shares sold
in this offering for resale in our next
II-7
<PAGE>
registered offering pursuant to the Securities Act of 1933. We have not made any
sales in this offering yet.
On February 14, 2000, the Company issued 26,000 shares to Richard Gray
upon his exercise of options that he received under the View Systems, Inc. 1999
Stock Option Plan.
On February 18, 2000, we sold to Rubin Investment Group, an
institutional accredited investor in a private placement a total of 800,000
shares and warrants to acquire an aggregate of up to 2,500,000 shares, of which
1,000,000 expire in 5 months, 500,000 expire in 6 months and 1,000,000 expire in
3 years from the date of purchase. We agreed to register the shares and the
shares received upon warrant exercises.
EXHIBITS
INDEX OF EXHIBITS
2.1 (1) View Systems, Inc. Board of Directors Resolutions approving
Acquisition Agreement and Plan of Reorganization With RealView Systems,
Inc; Resolution of Shareholders and Board of Directors of Real View
Systems, Inc. approving Acquisition Agreement and Plan of
Reorganization With Real View Systems, Inc
2.2 (1) View Systems, Inc. Acquisition Agreement and Plan of Reorganization
With Xyros Systems, Inc.
2.3 (1) View Systems, Inc. Acquisition Agreement and Plan of Reorganization
With ETMC.
2.4 (1) Letter of Intent to Form Joint Venture Corporation Between NetServ
Caribbean, Ltd. and View Systems, Inc.
3.1 (1) Articles of Incorporation and all Articles of Amendment of View
Systems, Inc.
3.2 (1) By-Laws of View Systems, Inc..
4.1 (1) Agreement with Columbia Financial Group Granting Warrants and Stock
and Granting Piggyback Registration Rights.
4.2 (1) Form of Subscription Agreement For 8/8/99 Rule 505 (Amended to Be
Rule 506) Offering and Terms of Offering Pages From Private Placement
Memorandum, Dated August 8, 1999, Describing Rights of Subscribers.
4.3 (1) Form of Subscription Agreement For 11/11/99 Rule 506 Offering and
Terms of Offering Pages From Private Placement Memorandum, Dated
November 11, 1999, Describing Rights of Subscribers.
II-8
<PAGE>
4.4 (1) Subscription Agreement Between View Systems, Inc. and Lawrence
Seiler for 170,000 Shares, Granting Registration Rights to 100,000
Shares.
4.5 (1) Lock-Up Agreement With Lawrence Seiler.
4.6 (1) Consulting Agreement with Tom Cloutier Granting Warrants and
Registration Rights
4.7 (1) Consulting Agreement with Guy Parr Granting Warrants and
Registration Rights
4.8 (1) Form of Stock Certificate.
4.9 (1) Consulting Agreement with Magnum Worldwide Investments, Ltd.
4.10 (1) Subscription Agreement Between View Systems, Inc. and Leokadia Than
4.11 (1) Form of Subscription Agreement Between View Systems, Inc. and Jim
Price and Tim Rieu
4.12 (2) Subscription and Investment Representation Agreement between View
Systems, Inc. and Rubin Investment Group, dated February 18, 2000
4.13 (2) First Common Stock Purchase Warrant between View Systems, Inc. and
Rubin Investment Group, dated February 18, 2000
4.14 (2) Second Common Stock Purchase Warrant between View Systems, Inc. and
Rubin Investment Group, dated February 18, 2000
4.15 (2) Registration Rights Agreement between View Systems, Inc. and Rubin
Investment Group, dated February 18, 2000
5. (1) Opinion of Woodford & Martien, P.C. Regarding Legality.
10.1 (1) View Systems, Inc. Employment Agreement with Gunther Than
10.2 (1) View Systems, Inc. Employment Agreement with Andrew L. Jiranek
10.3 (1) View Systems, Inc. Engagement Agreement with Bruce Lesniak
10.4 (1) View Systems, Inc. Employment Agreement with David Bruggeman
II-9
<PAGE>
10.5 (1) Eastern Tech Mfg. Corp. Employment Agreement with John Curran
10.6 (1) Lease Agreement Between View Systems, Inc. and Lawrence Seiler
10.7 (1) Stock Redemption Agreement, dated May 27, 1999, Between View
Systems, Inc. and Gunther Than
10.8 (1) Stock Redemption Agreement, dated September 30, 1999, Between View
Systems, Inc. and Gunther Than
10.9 (1) View Systems, Inc. 1999 Restricted Share Plan
10.10 (1) Restricted Share Agreement with Bruce Lesniak (Lesniak &
Associates)
10.11 (1) Restricted Share Agreement with John Curran
10.12 (1) Restricted Share Agreement with David Bruggeman
10.13 (1) Restricted Share Agreement with Gunther Than
II-10
<PAGE>
10.14 (1) Restricted Share Agreement with Andrew Jiranek
10.15 (1) Restricted Share Agreement with Linda Than
10.16 (1) View Systems, Inc. 1999 Employee Stock Option Plan
10.17 (1) Non-qualified Stock Option Agreement with Gunther Than
10.18 (1) Non-qualified Stock Option Agreement with Andrew Jiranek
10.19 (1) Qualified Stock Option Agreement with Gunther Than
10.20 (1) Qualified Stock Option Agreement with Andrew Jiranek
10.21 (1) Promissory Notes from Xyros Systems, Inc. to Ken Weiss
10.22 (1) Promissory Notes from Xyros Systems, Inc. to Hal Peterson
10.23 (1) Loan Agreement Between Xyros Systems, Inc. and Columbia Bank
10.24 (1) Letter From Columbia Bank Extending Term of Loan
10.25 License and Distribution Agreement with Visionics Corporation
10.26 (3) License and Distribution Agreement with Lead Technologies, Inc. for
Video OCR Software
10.27 (3) License and Distribution Agreement with Anasoft Systems for
Microsoft Operating System Software
10.28 (3) License and Distribution Agreement with Aware, Inc. for Compression
Software
10.29 Typical Non-Exclusive Reseller Agreement
10.30 Schedule of Contracted Resellers
10.31 Agreement between View Systems, Inc. and Magnum Financial Services,
Inc., dated February 27,2000
16. (4) Letter From Katz,Abosch, Windesheim, Gershman & Freedman, P.A. to
View Systems, Inc., dated April 11, 2000
21. (1) Subsidiaries of Registrant.
II-11
<PAGE>
23.1 Consent of Stegman & Company
27. Financial Data Schedule.
- --------------------------------------------------------------------------------
(1) Incorporated By Reference from Registrant's Registration Statement on
Form SB-2 Filed With the Commission On January 11,2000
(2) Incorporated By Reference From Registrant's Report on Form 8K, dated
February 19,2000.
(3) Incorporated By Reference From Registrant's Report on Form 10KSB,
Dated March 30,2000.
(4) Incorporated By Reference From Registrant's Report on Form 8K, Dated
April 13,2000.
UNDERTAKINGS
A. Supplementary and Periodic Information, Documents and Reports.
Subject to the terms and conditions of the Securities Exchange Act of
1934, as amended, the Registrant hereby undertakes to file with the Securities
and Exchange Commission such supplementary and periodic information, documents
and reports as may be prescribed by any rule or regulation of the Commission
duly adopted pursuant to authority in that Section.
B. Indemnification.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers or persons controlling the
Registrant pursuant to the foregoing provisions or otherwise, the Registrant has
been informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless, in the opinion of counsel, the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
D. Undertakings Pursuant to Rule 415.
The undersigned Registrant hereby undertakes that it will:
II-12
<PAGE>
1. File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of
the Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information in
the registration statement; and notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in the volume and price represent no
more than a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration statement.
(iii) Include any additional or changed material information
on the plan of distribution.
2. For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
3. File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
II-13
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on behalf of the undersigned in the City of Columbia,
Maryland, on April 27, 2000.
VIEW SYSTEMS, INC.
By: /s/ GUNTHER THAN
----------------------------------
Gunther Than, President, CEO
and Director
In accordance with the requirements of the Securities Act of 1933, as
amended, this Registration Statement was signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
President,
Chief Executive
Officer and
Chairman of the
Board and
/s/ Gunther Than Director April 24, 2000
- -------------------------- ------------------ --------
Gunther Than
/s/ Martin Maassen Chairman/BD April 24, 2000
- -------------------------- ------------------ --------
Martin Maassen
/s/ Michael Bagnoli Director April 24, 2000
- -------------------------- ------------------ --------
Michael Bagnoli
/s/ David Barbara Director April 24, 2000
- -------------------------- ------------------ --------
David Barbara, Director
Vice President,
Secretary and
/s/ Andrew L. Jiranek General Counsel April 24, 2000
- -------------------------- ------------------ --------
Andrew L. Jiranek
/s/ Linda Than Comptroller April 24, 2000
- -------------------------- ------------------ --------
Linda Than
</TABLE>
II-14
<PAGE>
Exhibit 10.25
Exhibit 10.25 License and Distribution Agreement Between View Systems, Inc. and
Visionics Corporation, dated April 12, 2000
VALUED ADDED RESELLER (VAR) AGREEMENT
This Agreement is made as of April 12th, of 2000, by View Systems,
Inc., a corporation organized under the laws of Florida ("VAR"), with offices at
9693 Gerwig Lane, Suite O, Columbia, Md. 21046 and Visionics Corporation, a
corporation organized under the laws of New Jersey ("Licensor"), with offices at
1 Exchange Place, Jersey City, NJ 07302 USA.
WHEREAS, Licensor owns or controls the rights in and to the Licensed Technology
(as defined below), consisting of the FaceIt Application (as defined below) and
the FaceIt API (as defined below);
WHEREAS, the FaceIt Application provides face detection and recognition
functionality to various types of products and services and the FaceIt API can
be used to embed such functionality into such products and services;
WHEREAS, VAR desires to obtain from Licensor, and Licensor desires to grant to
VAR, a license (as defined below, the "License") to use the Licensed Technology
for the purpose of developing, selling, and distributing to third parties in
accordance with and subject to all of the provisions of this Agreement products
and/or services into which the functionality of the FaceIt Application has been
embedded (defined below as "VAR Developed Products");
NOW, THEREFORE, for the consideration stated in this Agreement, the parties
hereby agree as follows:
SECTION 1.
DEFINITIONS
The following words shall, where the context allows, have the following
meanings whether such words shall appear in lower case or with the first letter
of each word capitalized:
1.1 "FACEIT APPLICATION" shall mean that certain library of algorithms,
database structures, data and related items of software that provides face
detection and recognition functionality in the products and services into which
such library is embedded through the use of the FaceIt API, and which set
comprises [in part] the FaceIt Developer Kit (SDK) version 3.0 or upgrades
thereto issued within one year of the effective date of this Agreement.
II-15
<PAGE>
1.2 "FACEIT API" shall mean that certain applications programming
interface for integrating the FaceIt Application in various products and
services, and which applications programming interface comprises [in part] the
FaceIt Developer Kit (SDK) version 3.0 or upgrades thereto issued within one
year of the effective date of this Agreement.
1.3 "INTELLECTUAL PROPERTY RIGHTS" with respect to any item of
intellectual property shall mean the patent, copyright, trade secret, trade
mark, service mark, trade dress, mask work and other like rights in such item.
1.4 "LICENSED TECHNOLOGY" shall mean the FaceIt Application and the
FaceIt API, together comprising . the FaceIt Developer Kit (SDK) version 3.0 or
upgrades thereto issued within one year of the effective date of this Agreement.
1.5 "LICENSOR LOGOS" shall mean the FaceIt logo(s) and/or expression
"with FaceIt-Registered Trademark- Technology" or "with Visionics'
FaceIt-Registered Trademark- technology" or "with FaceIt-Registered
Trademark- Face Recognition Technology" and equivalent expressions of the
foregoing that acknowledge that the face detection and recognition technology
to which such expressions relate is the FaceIt Application from Licensor.
1.6 "TERRITORY" shall mean the World.
1.7 "VAR DEVELOPED PRODUCTS (VDPS)" shall mean the products and
services into which VAR embeds the FaceIt Application through use of the FaceIt
API subject to and in accordance with the terms and conditions of this
Agreement, and which products and services are described in Appendix A to this
Agreement.
SECTION 2.
GRANT OF LICENSE
2.1 For the term of this Agreement, Licensor hereby grants to VAR and
VAR hereby accepts a limited, non-exclusive license throughout the Territory to
embed the FaceIt Application in VDPs through the use of the FaceIt API under the
Windows 95/98/NT/2000 Operating System and solely for the purpose of
distributing, selling, and marketing the VDPs with the FaceIt Application so
embedded therein; PROVIDED, HOWEVER, that VAR shall not have the right to
sublicense the Licensed Technology, by any means, except as incorporated in
VDPs.
2.2 As a condition to the exercise of the license granted in paragraph
2.1 above, VAR shall place one or more Licensor Logos where appropriate, in the
reasonable judgment of Licensor, in VDP packaging and advertising and CGI
scripts, screens, forms and the like comprising the VDP, with all such use
II-16
<PAGE>
to inure to the benefit of Licensor and its suppliers. Reasonably prior to the
first publication of the Licensor Logo on any such packaging, advertisements and
CGI scripts, session screens, forms and the like during the term of this
Agreement, VAR will provide Licensor with copies or samples of such materials
for the purpose of allowing Licensor to comment on the format and appearance of
the Licensor Logo in such materials, and VAR shall use commercially reasonable
efforts to incorporate Licensor's comments in such materials prior to the
publication thereof.
2.3 Notwithstanding any other provisions contained in this Agreement,
Licensor and its suppliers reserve all rights in the Licensed Technology, the
Licensor Logos, and the Intellectual Property comprising the Licensed Technology
and the Licensor Logos, in each case not expressly granted herein to VAR.
SECTION 3.
LICENSOR'S OBLIGATIONS
3.1 Licensor shall deliver to VAR a copy of the FaceIt Developer Kit's
(SDK) version 3.0 for Identification and verification, within ten (10) business
days following the execution of this Agreement. Licensor will invoice VAR for
the FaceIt Developer Kit (SDK) in the amount of US$11,748. VAR shall pay all
amounts due pursuant to such invoice within 60 days of receipt of such invoice.
3.2 During the term of this Agreement, Licensor shall supply VAR (at no
additional cost to VAR) with all upgrades to and patches directed at bugs in the
Licensed Technology that it generally provides free of charge to its licensees.
3.3 From time to time during the term of this Agreement, Licensor, at
its sole and absolute discretion, may modify the Licensed Technology in response
to one or more written requests from VAR. In consideration thereof, VAR shall
pay to Licensor the invoiced charges for such modifications in accordance with
the schedule of fees and expenses set forth in Schedule 7.1, which such schedule
may be changed from time to time by Licensor upon written notice to VAR.
SECTION 4.
VAR'S OBLIGATIONS
4.1 VAR shall, subject to the terms of this Agreement, use its
reasonable commercial efforts to manufacture the VDP and promote, exploit and
sell it throughout the Territory.
4.2 VAR shall cause copyright, patent and trademark notices to appear
on or within each unit of the VDP and each item of packaging and promotional
material and each CGI script, screen, form and the like comprising VDP user
sessions as described in
II-17
<PAGE>
Section 2.2. This Section 4.2 shall be applicable only when a VDP includes
Licensed Technology.
4.3 VAR shall cooperate with Licensor in protecting the Licensed
Technology, at Licensor's expense, and shall promptly supply Licensor, at
Licensor's expense, with any information or materials reasonably required by
Licensor. If VAR is notified in writing or becomes aware of any unauthorized use
of the Licensed Technology in the Territory, VAR shall so advise Licensor.
Licensor may, in its discretion, take, or elect not to take, such action as it
deems advisable against any infringing party. If Licensor fails, or elects not
to take action against an infringing party within ninety (90) days after receipt
by Licensor of VAR's notice to Licensor of such unauthorized use, VAR shall have
the right, at VAR's expense, to commence an action against the infringer in
VAR's name and in Licensor's name and Licensor shall cooperate with VAR, at
VAR's expense, in connection therewith. VAR shall not enter into any settlements
of any such actions commenced by VAR with respect to the Licensed Technology
without Licensor's consent.
4.4 VAR agrees to create and/or license the VDP such that a single copy
of the VDP: (a) is used for analysis on a single video input at any given time,
(b) is used on a single machine, and not in a multiple client/server
architecture, with head finding, template creation and face matching functions
performed on such single machine, (c) is licensed for use for up to 200 images
or faces stored within a list, subject to the corresponding fees set forth in
Schedule 7.1, (d) is used for the purpose of physical access control (supplying
identification of an individual for physical access to a facility) (e) is used
for the explicit purpose of supplementing existing access control mechanisms,
and (f) is not designed for, sold to, nor specifically targets the law
enforcement, surveillance, banking or travel industry segments (collectively,
"Core Application")..
SECTION 5.
PROPRIETARY RIGHTS
5.1 Licensor or its suppliers shall own all of the Intellectual
Property Rights and other rights to the Licensed Technology, and VAR shall not
challenge, or cause any third party to challenge, the rights of Licensor or its
suppliers anywhere in the world.
5.2 VAR shall own all of the Intellectual Property Rights and other
rights to any packaging, advertising and promotional material produced by VAR
for the VDP only to the extent that they are not derivative works of the
Licensed Technology. VAR acknowledges that it is not, by virtue of this
Agreement, acquiring
II-18
<PAGE>
from Licensor the right to create or utilize derivative works from the Licensed
Technology except as provided in Section 2.1.
5.3 Each party hereto shall keep in confidence and not disclose to any
third party, without the written permission of the other party the terms of this
Agreement and the proprietary information of each party made known to the other
under this Agreement including any and all portions of the Licensed Technology,
and any information about the suppliers, pricing and business of the other
party. This requirement of confidentiality shall not apply to information that
is (a) in the public domain through no wrongful act of the receiving party; (b)
rightfully received by the receiving party from a third party who is not bound
by a restriction of nondisclosure; or (c) is required to be disclosed by
applicable rules and regulations of government agencies or judicial bodies,
provided that the disclosing party is provided reasonably sufficient notice to
contest or limit such required disclosure.
SECTION 6.
TERM OF AGREEMENT
6.1 The term of this Agreement shall commence upon the date of this
Agreement and shall expire two years following the initial shipment of a VDP
that incorporates the Licensed Technology in the Territory by VAR or two and a
half years from the date of this Agreement, which ever is shorter . VAR shall
inform Licensor of the date of initial shipment of VDP in the Territory. This
agreement may be renewed for successive one year periods upon the mutual written
agreement of the parties and after a performance review to be conducted no later
than 6 months before the then current date of expiration of this Agreement.
SECTION 7.
PAYMENT OF ROYALTIES
7.1 VAR shall pay to Licensor royalties in accordance with Schedule 7.1
annexed hereto which is incorporated and made a part hereof ("Royalties") by
check or wire transfer in U.S. Dollars, according to instructions given to VAR
by Licensor. VAR will bear all related bank charges. Any late payment will
accrue interest at a rate of 1.5% per month. VAR will pay any late payment
charge upon remitting the principal amount to Licensor.
7.2 Statements as to Royalties shall be sent by VAR to Licensor within
30 days following the end of each quarterly calendar period for such preceding
quarterly period together with payment of Royalties, if any, shown to be due
thereon.
II-19
<PAGE>
7.3 All statements of Royalties and all other accountings rendered by
VAR hereunder shall be subject to objection, stating the basis thereof, by
Licensor within three (3) years after the date rendered (including after
termination or expiration of this Agreement).
7.4 VAR shall maintain, at its executive offices in 9693 Gerwig Lane,
Suite O, Columbia, Md. 21046, books of account concerning sales of the VDP and
the Licensed Technology. Licensor or its agent may, at Licensor's sole expense,
examine VAR's said books relating to the sale of the VDP and the Licensed
Technology hereunder for the purpose of verifying the accuracy thereof, during
VAR's normal business hours and upon reasonable written notice. Such books
relating to any particular royalty statement may be examined as aforesaid only
within two years after the date rendered. Licensor shall notify VAR in writing
within 90 days after such examination if Licensor believes that VAR's books are
not accurate. Licensor and its agents shall keep all information obtained in
such examination confidential and use such information solely for the purpose of
this paragraph.
7.5 Licensor may change the List Prices as defined in Schedule 7.1,
Maintenance Fees and Upgrade Fees, in whole or in part, at any time upon no less
that 90 days prior notice to VAR, subject to any binding commitment that
Licensor has made to VAR, but only if Licensor generally applies such changes to
its other VARs. Licensor may also increase the Product Discount, Maintenance
Discount or Upgrade Discount upon no less that 30 days prior notice to VAR. Any
reduction of such discounts will require VARs consent.
7.6 All amounts payable by VAR under this Agreement are exclusive of
any tax, levy or similar governmental charge that may be assessed by any
jurisdiction, whether based on gross revenue, the delivery, possession or use of
VAR's products, the execution or performance of this Agreement or otherwise,
except for net income, net worth or franchise taxes assessed on VAR outside of
the Territory. If, under the laws of the Territory, VAR is required to withhold
any taxes on such payments, then the amount of the payment will be automatically
increased to totally offset such tax, so that the amount actually remitted to
Licensor , net of all taxes, equals the amount invoiced or otherwise due. VAR
with promptly furnish Licensor with the official receipt of payment of these
taxes to the appropriate taxing authority. VAR will pay all other taxes, levies
or similar governmental charges or provide Licensor with a certificate of
exemption acceptable to the taxing authority.
SECTION 8.
II-20
<PAGE>
REPRESENTATIONS AND WARRANTIES/INDEMNIFICATION
8.1 Each party represents and warrants to the other that this Agreement
has been duly authorized, executed and delivered by it; it has the full power
and authority and is free to enter into this Agreement and to perform its
obligations hereunder; this Agreement constitutes its valid and binding
obligation, enforceable in accordance with its terms; and the making of this
Agreement does not violate any agreement, right or obligation existing between
it and any other person, firm or corporation, on the other hand.
8.2 VAR represents and warrants to Licensor that the VDP does not and
will not infringe the Intellectual Property Rights and other proprietary rights
of any third party. VAR further represents and warrants to Licensor that the VDP
and the Licensed Technology will be manufactured in accordance with industry
standards for similar products, and, to the best of its knowledge, will (i) be
free of defects and (ii) not be harmful to the property or person of third
parties. VAR will handle in a professional manner any end user or distributor
inquiries or complaints regarding the Licensed Technology.
8.3 Licensor represents and warrants that the Licensed Technology and
any materials created or added to the Licensed Technology by Licensor does not
and will not infringe the Intellectual Property Rights and other proprietary
rights of any third party.
8.4 Each party shall indemnify, defend and hold harmless the other (and
the other's officers, directors, and affiliated companies) from and against all
liabilities, damages, costs or expenses (including reasonable attorney's fees)
payable or paid by the indemnified party to a third party as a result of a
breach or alleged breach by the indemnifying party of its representation and
warranty contained in Section 8.2 or Section 8.3, as the case may be, of this
Agreement. The party asserting any claim to indemnification under this Section
8.4 shall promptly notify the other party of any such claim or proceeding and
shall not settle any such claim or proceeding without the indemnifying party's
prior written consent. The indemnified party shall have the right at its expense
to participate in the defense thereof with counsel of its choice, provided that
the indemnifying party shall have the right at all times to retain or resume
control of the conduct of such defense. This indemnification obligation shall
survive for two years after termination or expiration of this Agreement.
8.5 Licensor warrants that the Licensed Technology, in its unaltered
form, will, for a period of 90 days from its installation date conform
substantially to the then-current published functional specification of the
Licensed Technology, provided such Licensed Technology is used in the manner
consistent
II-21
<PAGE>
with any applicable Licensor minimum Hardware and Software configuration
specifications that have been supplied by Licensor to VAR. Licensor will make
reasonable efforts to correct errors reflecting material deviations from the
functional specifications as are reported by License to Licensor during such
warranty period. Because not all errors in Licensed Technology can or need be
corrected in order for the Licensed Technology to operate in accordance with the
applicable specifications, Licensor does not warrant that all Licensed
Technology defects will be corrected. Similarly, Licensor does not warrant that
the Licensed Technology will meet VAR's or its customers' requirements, that the
Licensed Technology will operate in combinations selected for use by VAR or
customer or that use of the Licensed Technology will be uninterrupted or
error-free.
8.6 VAR shall indemnify, defend and hold harmless the Licensor (and
Licensor's officers, directors, and affiliated companies) from and against all
liabilities, damages, costs or expenses (including reasonable attorney's fees)
payable or paid by the indemnified party to a third party as a result of any
claim that the use of the Licensed Technology in the VDP or otherwise by VDP
then has resulted, results or may result in any deprivation or violation of the
constitutional, statutory, contractual, common law or other rights of any
person. The party asserting any claim to indemnification under this Section 8.6
shall promptly notify VAR of any such claim or proceeding and shall not settle
any such claim or proceeding without VAR's prior written consent. The
indemnified party shall have the right at its expense to participate in the
defense thereof with counsel of its choice, provided that the indemnifying party
shall have the right at all times to retain or resume control of the conduct of
such defense. This indemnification obligation shall survive termination or
expiration of this Agreement.
SECTION 9.
TERMINATION
9.1 9.1. Upon expiration of the term of this Agreement, all rights
granted to VAR hereunder shall immediately and without further action by
Licensor revert to Licensor. VAR shall not thereafter manufacture, advertise,
distribute or sell Licensed Technology; provided, however, that VAR may sell off
on a non-exclusive basis existing inventories of the Licensed Technology for a
period of six (6) months, subject to all the other terms and conditions hereof.
In respect of any sales by VAR of Licensed Technology during such six-month
period after expiration or other termination of this Agreement, VAR shall
continue to pay all royalties that become due and payable hereunder and VAR
shall send to Licensor within thirty (30) days following the last day of such
six-month period a statement and final payment of Royalties.
II-22
<PAGE>
9.2 Either party may terminate this Agreement in the event that (1) the
other party materially breaches its obligations hereunder, which breach remains
uncured following 30 days notice from the nonbreaching party, or (2) bankruptcy,
insolvency or reorganization proceedings, or other proceedings analogous in
nature or effect, are instituted against the other party or by the other party
with respect to itself. For purposes of this Agreement, the failure of VAR to
render statements and payment of Royalties in accordance with the terms of this
Agreement shall be deemed to be a material breach of VAR's obligations
hereunder. Either party may terminate this Agreement at any time upon 60 days
notice.
9.3 The following sections shall survive any termination or expiration
of this Agreement: Sections 1, 5, 7, 8.2, 8.3, 8.4, 8.6, 9.1, 9.3, 10 and 11.
SECTION 10.
LIMITATION OF LIABILITY
10.1 VAR agrees to include an appropriate end-user license in its VDP
that is as protective of Licensor's rights as is this Agreement and in the form
set forth in Schedule 10.1 attached hereto.
10.2 Except for the indemnity obligations arising out of Section 8.4
and 8.6, under no circumstances will either party be liable for any
consequential, indirect, special, punitive or incidental damages or lost
profits, whether foreseeable or unforeseeable (including, but not limited to,
claims for loss or data, goodwill, use of money or use of the Licensed
Technology, interruption in use or availability of data, stoppage of other work
or impairment or other assets), arising out of breach or failure of express or
implied warranty or condition, breach of contract, misrepresentation,
negligence, strict liability in tort, or otherwise. Except for the indemnity
obligations arising out of Section 8.4 and 8.6, in no event will the aggregate
liability which either party may incur in any action or proceeding exceed the
total amount actually paid to Licensor by VAR hereunder. Under no circumstance
shall Licensor be liable for any actions, claims or the like by VAR or any third
party that the use of the Licensed Technology has resulted, results or may
result in any deprivation or violation of the constitutional, statutory,
contractual, common law or other rights of any person. This section will not
apply in the event and to the extent that applicable law specifically prohibits
the limitation of liability set forth in this Section 10.2.
SECTION 11.
II-23
<PAGE>
MISCELLANEOUS PROVISIONS
11.1 NOTICES. All notices, statements and payments to be sent to the
parties hereunder shall be addressed to the parties at the addresses set forth
on the first page hereof or at such other address as the parties shall designate
in writing from time to time. All notices shall be in writing and shall either
be served by personal delivery (to an officer of each company), mail, or
facsimile (if confirmed by mail or personal delivery of the hard copy), all
charges prepaid. Except as otherwise provided herein, such notices shall be
deemed given when received. Copies of all notices to Licensor should be sent to
Licensor at its address set forth above, attention: Dr. Joseph Atick.
11.2 NO ASSIGNMENT. VAR shall not have the right to assign any of its
rights or obligations hereunder.
11.3 SCOPE OF AGREEMENT AND AMENDMENT. The entire understandings
between the parties hereto relating to the subject matter hereof are contained
herein. There are no representations, warranties, terms, conditions,
undertakings or collateral agreements, express, implied or statutory, between
the parties other than as expressly set forth in this Agreement. This Agreement
cannot be changed, modified, amended or terminated except by an instrument in
writing executed by both VAR and Licensor. All Schedules, which may be attached
hereto, constitute a part of this Agreement and are incorporated herein by this
reference.
11.4 NO WAIVER. No waiver, modification or cancellation of any term or
condition of this Agreement shall be effective unless executed in writing by the
party charged therewith. No written waiver shall excuse the performance of any
act other than those specifically referred to therein and shall not be deemed or
construed to be a waiver of such terms or conditions for the future or any
subsequent breach thereof.
11.5 RELATIONSHIP OF PARTIES. This Agreement does not constitute a
partnership or joint venture between Licensor and VAR. Neither VAR nor Licensor
shall have any right, power or authority to obligate or bind the other in any
manner whatsoever, except as provided for in this Agreement, and nothing herein
contained shall give or is intended to give any rights of any kind to any third
persons.
11.6 APPLICABLE LAWS. This Agreement shall be governed by the laws of
New Jersey applicable to contracts made and to be wholly performed therein
(without regard to choice of law).
11.7 ARBITRATION. In the event of any dispute or controversy hereunder
(including, without limitation, any dispute
II-24
<PAGE>
involving the existence, validity or breach of this Agreement), the parties
shall submit same to arbitration privately and confidentially in New York, New
York pursuant to the Commercial Arbitration Rules of the American Arbitration
Association by three arbitrators, one of whom shall be appointed by Licensor,
one of whom shall be appointed by VAR and one of whom shall be appointed by the
first two arbitrators, subject to each such arbitrator executing an appropriate
confidentiality agreement. The result of any such arbitration shall be binding
but shall not be made public unless necessary to confirm same after
non-compliance by a party.
11.8 SEVERABILITY. If any provision of this Agreement is or becomes or
is deemed invalid, illegal or unenforceable under the applicable laws or
regulations of any jurisdiction, then either such provision will be deemed
amended to conform to such laws or regulations without materially altering the
intention of the parties or it shall be stricken and the remainder of this
Agreement shall remain in full force and effect.
11.9 APPROVAL AND CONSENT. Wherever the approval or consent of a party
is required hereunder, such approval or consent shall not be unreasonably
withheld.
11.10 COMPETING PRODUCTS. VAR agrees not to represent, market,
distribute or sell any product which is in direct competition to any of the
Licensor's products or services. A list of products or vendors known to be in
competition with the products as of the effective date of this Agreement is
attached hereto in Exhibit G.
11.11 NO CONFLICT OF INTEREST. The parties represent and warrant that
they have full power and authority to undertake the obligations set forth in
this Agreement and that they have not entered into any other agreements that
would render them incapable of satisfactorily performing their obligations
hereunder.
11.12 COMPLIANCE WITH LAW. The parties agree that they shall comply
with all applicable laws and regulations of governmental bodies or agencies in
their performance under this Agreement.
11.13 COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed an original Agreement for all purposes and which
collectively shall constitute one and the same Agreement.
II-25
<PAGE>
IN WITNESS WHEREOF, the parties hereto have signed this Agreement as of
the day and year first above written.
VIEW SYSTEMS, INC.
By:______________________________________
Its:_____________________________________
VISIONICS CORPORATION
By:______________________________________
Its:_____________________________________
II-26
<PAGE>
SCHEDULE 7.1
ROYALTY SCHEDULE
Visionics will receive royalties based on the following model:
1. Royalty based on a fee equal to $200 per copy of the Licensed Technology
incorporated into the VDP by check or wire transfer in U.S. Dollars, as
stipulated in section 7.2.
2. For applications outside the Core Application listed in Section 4.3 of this
Agreement, VAR and Licensor shall structure in good faith an alternative
pricing model to be determined at a later date.
3. In consideration of the terms listed above, VAR agrees to a minimum royalty
payment in the amount of $20,000 per year. The minimum royalty payment
shall be pro-rated to a quarterly payment of $5,000 and is due 30 days
after the close of each quarter. The accounting period shall coincide with
the fiscal accounting period.
4. VAR and Licensor agree to reassess the licensing structure/including
minimum royalty payments after 6 months (to asses market acceptance)
5. Maintenance Fees: Visionics 12-month maintenance fee of 15% on SDK and on
unites installed where customer has elected to receive maintenance
(upgrades/enhancements).
II-27
<PAGE>
APPENDIX A
CAREVIEW DESCRIPTION
Captures video output from cameras, digitizes it, stores it, transmits
it and runs computer programs and functions against it, including facial
recognition, for purposes of physical access control.
II-28
<PAGE>
Exhibit 10.29
Exhibit 10.29 Typical Non-Exclusive Reseller Agreement
This Non-Exclusive Reseller Agreement ("Agreement"), made and effective
as of January 24, 2000, by and between View Systems, Inc., a Florida Corporation
with an office at 9693 Gerwig Lane, Suite O, Columbia, Maryland 21046 ("View
Systems") and O-Tech International, Ltd., a Virginia corporation whose principal
place of business is at 6862 Elm Street, Suite 350, McLean, Virginia 22101
("Reseller").
View Systems desires to appoint Reseller and Reseller desires to accept
appointment, as a Reseller of View Systems' products as set forth herein.
NOW, THEREFORE, in consideration of the mutual agreements promises set forth
herein, the parties agree as follows:
1. RIGHTS GRANTED. View Systems hereby grants to Reseller a
non-exclusive right, on the terms and conditions contained below, to purchase,
inventory, promote and resell "View Systems' Products" (as defined in the next
paragraph) to end users. The sale of each of View Systems' Products to Reseller
or transfer of its title for each purchased Product to Reseller shall not
include a sale of, or a transfer of title to, the Licensed Product, as defined
in the next paragraph. Use of this software or firmware shall be subject to a
shrink-wrap license agreement between View Systems and the End User. Nothing
herein shall prevent or prohibit View Systems from selling any of View Systems'
Products directly to the following customers: View Systems National Accounts.
Unless expressly agreed otherwise, Reseller shall not be permitted to sell View
Systems' Products to other resellers or distributors under the terms of this
Agreement.
2. PRODUCTS. As used in this Agreement, the term "View Systems'
Products" shall mean the products, related service parts and accessories
Manufactured and/or sold by View Systems as defined in the Current Price
list(s). "Licensed Product" shall mean collectively the Licensed Software and
Licensed Documentation. Licensed Software shall mean the software provided by
manufacturer with manufacturer's products, in object code form, in the form and
content existing as of the date of this agreement. "Licensed Documentation"
shall mean all documentation, other than the Licensed Software related to the
Licensed Software. "End User" shall mean the owner or lessee of the View
Systems' Products who purchases a license to use the Licensed Software as an end
user.
3. TERMS OF SALE. All sales of View Systems' Products to Reseller shall
be made pursuant to this Agreement at a discount
II-29
<PAGE>
from View Systems, Inc. Domestic or International Price List (as applicable) in
effect at the time of the order, at prices and terms as View Systems shall
establish from time to time. In any instance where written proposals are
outstanding from the Reseller, quoted prices and terms shall not change for
ninety (90) days from the date of the Resellers proposal. View Systems shall
deliver View Systems' Products to Reseller at Reseller's Principal place of
business unless otherwise from time to time agreed by the parties hereto.
Reseller shall promptly reimburse View Systems for all shipping and insurance
costs incurred by View Systems in shipping and delivering View Systems' Products
to Reseller. Risk of loss to View Systems' Products shall shift to Reseller upon
delivery of View Systems' Products to Reseller. The shipper will be selected by
View Systems unless Reseller requests a reasonable alternative. All orders are
subject to acceptance by View Systems. Reseller shall examine all products
promptly upon delivery and shall report in writing or by telex any damaged
products to both View Systems and the carrier within 72 hours after delivery.
Reseller shall be deemed to have accepted View Systems' Products on their
delivery unless it gives such notice within this time.
4. LICENSE. (a) View Systems hereby grants to the Reseller, and the
Reseller hereby accepts, a personal, nonexclusive and nontransferable license to
market, demonstrate and distribute, during the term hereof the Licensed Product
to End Users for use only on the View Systems' Products.
(b) Reseller shall distribute the Licensed Product to
End Users subject to the terms and conditions of the Software License Agreement
enclosed with the Licensed Product which governs its use by End Users.
5. PAYMENT. Reseller shall pay all charges due hereunder in accordance
with the payment terms established by View Systems for Reseller's order. Payment
shall be made as shown on the invoice. View Systems may impose a late payment
charge of one and one-half percent (1 1/2%) per month on overdue amounts.
6. MARKETING POLICIES. Reseller will at all times maintain adequate
demonstration capability, and will promote vigorously and effectively the sale
of View Systems' Products, in conformity with View Systems' established
marketing policies and programs. Reseller will use its best efforts to sell View
Systems' Products to end-users providing satisfactory consumer service
throughout Reseller's primary marketing area. Reseller is authorized to enter
into written agreements with its end users relating to the purchase, resale and
service of View Systems' Products on forms approved by View Systems for this
purpose.
7. MERCHANDISING POLICIES. View Systems will provide Reseller with
merchandising assistance from time to time in the
II-30
<PAGE>
form of advertising programs, product and sales training and sales promotions.
Reseller agrees to fully use such assistance in carrying out View Systems'
merchandising and sales promotion policies.
8. SALES POLICIES. Sales quotas, giving reasonable regard to past
performance and market potential of View Systems' Products, may be established
by View Systems from time to time. Reseller agrees to employ sales personnel of
demonstrated capacity to attain such quotas and consents to rewards directly to
such personnel by View Systems in recognition of superior performance.
Reseller will maintain such technical support, sufficient to provide
first line support to customers, including installation, training of operators
and repair all manufacturers products. View Systems agrees to provide training
for this purpose at its facilities in Columbia, Maryland, at no cost to
Reseller. Reseller is responsible for all travel and living expenses associated
with such training.
9. ADVERTISING POLICIES. View Systems will cooperate with Reseller and
its dealers in providing for continuous and effective advertising and promotion
of View Systems' Products throughout Reseller's principal marketing area, and
Reseller agrees at Reseller's expense to participate in, actively promote and
faithfully comply with the terms and conditions of such cooperative advertising
and merchandising programs as View Systems may establish and offer to Reseller
from time to time. Nothing herein shall prevent Reseller from independently
advertising and marketing the View Systems' Products, provided the form and
content of the advertising or marketing materials are approved by View Systems
in advance. If Reseller is using View Systems' advertising material, no
preapproval is necessary. If Reseller is using Reseller's own advertising
material, Reseller shall provide it first to View Systems and the material shall
be deemed approved unless View Systems communicates its disapproval within 72
hours of receiving the advertising material for review.
10. PRODUCT WARRANTY POLICIES. In the event that any of View Systems'
Products are proved to View Systems' satisfaction to have been defective at time
of sale to Reseller, View Systems will make an appropriate adjustment in the
original sales price of such product or, at View Systems' election, replace the
defective product. View Systems shall provide to Reseller information with
respect to View Systems' limited warranty extended to the original consumer of
View Systems' Products. VIEW SYSTEMS MAKES NO WARRANTY TO RESELLER WITH RESPECT
TO THE PRODUCTS, EITHER EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, THE
IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
11. INDEMNIFICATION.
II-31
<PAGE>
A. View Systems agrees to protect Reseller and hold Reseller harmless
from any loss or claim arising out of defects in any of View Systems' Products
existing at the time such product is sold by View Systems to Reseller, provided
that Reseller gives View Systems immediate notice of any such loss or claim and
cooperates fully with View Systems in the handling thereof.
B. Reseller agrees to protect View Systems and hold View Systems
harmless from any loss or claim arising out of the negligence of Reseller,
Reseller's agents, employees or representatives in the installation, use, sale
or servicing of View Systems' Products or arising out of any representation or
warranty made by Reseller, its agents, employees or representatives with respect
to View Systems' Products that exceeds View Systems' limited warranty.
12. ORDER PROCESSING AND RETURNS.
A. View Systems will employ its best efforts to fill Reseller's orders
promptly on acceptance, but reserves the right to allot available inventories
among Resellers at its discretion.
B. Except for View Systems' products that are defective at the time of
sales to Reseller, View Systems shall not be obligated to accept any of View
Systems' Products that are returned. In the event such returns are accepted,
View Systems may impose a reasonable restocking charge.
C. View Systems shall confirm all orders for product using an order
confirmation form substantially in the form of the attached order confirmation
form, which order confirmation form shall incorporate by reference the terms and
conditions of this Agreement. Prior to shipment of product to Reseller, Reseller
shall provide View Systems with such downpayment as shall be established by View
Systems.
13. FINANCIAL POLICIES. Reseller acknowledges the importance to View
Systems of Reseller's sound financial operation and Reseller expressly agrees
that it will:
A. Maintain and employ in connection with Reseller's business and
operations under this Agreement such working capital and net worth as may be
required to enable Reseller properly and fully to carry out and perform all of
Reseller's duties, obligations and responsibilities under this Agreement;
B. Pay promptly all amounts due View Systems in accordance with terms
of sale extended by View Systems from time to time; provided however that if
Reseller fails to pay any amounts when due, View Systems shall be entitled to
cancel or delay orders which
II-32
<PAGE>
it has accepted or refuse to accept any further orders.
C. Furnish View Systems with financial statements in such form as View
Systems may reasonably require from time to time for credit purposes; and
D. Furnish, at View Systems' request, a detailed reconciliation of View
Systems' statements of account with Reseller's records, listing all differences,
and showing net amount Reseller acknowledges to be due View Systems.
In addition to any other right or remedy to which View Systems may be
entitled, shipments may be suspended at View Systems' discretion in the event
that Reseller fails to promptly and faithfully discharge each and every
obligation in this Section.
14. USE OF VIEW SYSTEMS' NAME. Reseller will not use, authorize or
permit the use of, the name "View Systems" or any other trademark or trade name
owned by View Systems as part of its firm, corporate or business name in any
way. Reseller shall not contest the right of View Systems to exclusive use of
any trademark or trade name used or claimed by View Systems. Reseller may,
subject to View Systems' policies regarding reproduction of same, utilize View
Systems' name, trademarks or logos in advertising on stationery and business
cards.
15. RELATIONSHIP OF THE PARTIES. The relationship between View Systems
and Reseller is that of vendor and vendee. Reseller, its agents and employees
shall, under no circumstances, be deemed employees, agents or representatives of
View Systems. Reseller will not modify, or reverse engineer or decompile any of
View Systems' Products without written permission from View Systems. Neither
Reseller nor View Systems shall have any right to enter into any contract or
commitment in the name of, or on behalf of the other, or to bind the other in
any respect whatsoever.
16. TERM AND TERMINATION. Unless earlier terminated as provided below,
the term of this Agreement shall commence upon execution of this Agreement and
shall continue until 1 year thereafter, after which it shall automatically renew
for successive 1 year periods unless terminated by either party on at least
ninety (90) days prior notice.
A. View Systems may terminate at any time by written notice given to
Reseller not less than ninety (90) days prior to the effective date of such
notice in the event View Systems decides to terminate all outstanding Reseller
agreements for View Systems' Products and to offer a new or amended form of
Reseller agreement.
B. View Systems may terminate this Agreement upon notice to Reseller,
upon any of the following events: (1) failure of
II-33
<PAGE>
Reseller to fulfill or perform any one of the duties, obligations or
responsibilities of Reseller in this Agreement, which failure is not cured with
ten (10) days notice from View Systems; (2) any assignment or attempted
assignment by Reseller of any interest in this agreement or delegation of
Resellers obligations without View Systems' written consent; (3) any sale,
transfer or relinquishment, voluntary or involuntary, by operation of law or
otherwise, of any material interest in the direct or indirect ownership or any
change in the management of Reseller; (4) failure of Reseller for any reason to
function in the ordinary course of business; (5) conviction in a court of
competent jurisdiction of Reseller, or a manager, partner, principal officer or
major stockholder of Reseller for any violation of law tending, in View Systems'
opinion, to affect adversely the operation or business of Reseller or the good
name, goodwill, or reputation of View Systems, products of View Systems, or
Reseller; or (6) submission by Reseller to View Systems of false or fraudulent
reports or statements, including, without limitation, claims for any refund,
credit, rebate, incentive, allowance, discount, reimbursement or other payment
by View Systems.
17. OBLIGATIONS ON TERMINATION. On termination of this Agreement,
Reseller shall cease to be an authorized Reseller of View Systems and:
A. All amounts owing by Reseller to View Systems shall, notwithstanding
prior terms of sale, become immediately due and payable;
B. All unshipped orders shall be cancelled without liability of either
party to the other, provided that View Systems shall refund any deposits that
Reseller has deposited with View Systems for the purchase of products;
C. Reseller will resell and deliver to View Systems on demand, free and
clear of liens and encumbrances, such of View Systems' Products and materials
bearing View Systems' name as View Systems shall elect to repurchase, at a
mutually agreed price, but not in excess of View Systems' current price to
Resellers for such products and materials, provided that View Systems shall not
be obligated to pay Reseller for any item originally provided free of charge;
and
D. Neither party shall be liable to the other because of such
termination for compensation, reimbursement or damages on account of the loss of
prospective profits or anticipated sales, or on account of expenditures,
investments, lease or commitments in connection with the business or good will
of View Systems or Reseller or for any other reason whatsoever growing out of
such termination.
II-34
<PAGE>
18. USE OF NAME PROHIBITED. On termination of this Agreement, Reseller
will remove and not thereafter use any sign containing any trade name, logo or
trademark of View Systems including, but not limited to, View Systems, and will
immediately destroy all stationery, advertising matter and other printed matter
in its possession or under its control containing such name, or any of View
Systems' trademarks, trade names or logos. Reseller will not at any time after
such termination use or permit any such trademark, trade name or logo to be used
in any manner in connection with any business conducted by it or in which it may
have an interest, or otherwise whatsoever as descriptive of or referring to
anything other than merchandise or products of View Systems. Regardless of the
cause of termination, Reseller will immediately take all appropriate steps to
remove and cancel its listings in telephone books, and other directories, and
public records, or elsewhere that contain the View Systems' name, logo or
trademark. If Reseller fails to obtain such removals or cancellations promptly,
View Systems may make application for such removals or cancellations on behalf
of Reseller and in Reseller's name and in such event Reseller will render every
assistance.
19. ACKNOWLEDGMENTS. Each party acknowledges that no representation or
statement, and no understanding or agreement, has been made, or exists, and that
in entering into this Agreement each party has not relied on anything done or
said or on any presumption in fact or in law, (1) with respect to this
Agreement, or to the duration, termination or renewal of this Agreement, or with
respect to the relationship between the parties, other than as expressly set
forth in this Agreement; or (2) that in any way tends to change or modify the
terms, or any of them, of this Agreement or to prevent this Agreement becoming
effective; or (3) that in any way affects or relates to the subject matter
hereof. Reseller also acknowledges that the terms and conditions of this
Agreement, and each of them, are reasonable and fair and equitable.
This Agreement terminates and supersedes all prior understandings or agreements
on the subject matter hereof. This Agreement may be modified only by a further
writing that is duly executed by both parties.
20. ASSIGNMENT. Neither this Agreement nor any interest in this
Agreement may be assigned by Reseller without the prior express written approval
of View Systems, which may be withheld by View Systems at View Systems' absolute
discretion.
21. NO IMPLIED WAIVERS. Except as expressly provided in this Agreement,
waiver by either party, or failure by either party to claim a default, of any
provision of this Agreement shall not be a waiver of any default or subsequent
default.
II-35
<PAGE>
22. NOTICES. Any notice required by this Agreement or given in
connection with it, shall be in writing and shall be given to the appropriate
party by personal delivery or by certified mail, postage prepaid, or recognized
overnight delivery services;
If to View Systems: View Systems, Inc., c/o AL Jiranek
9693 Gerwig Lane, Suite O
Columbia, MD 21046
If to Reseller: O-Tech International, Ltd.,
6862 Elm Street, Suite 350
McLean, Virginia 22101
22. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the laws of the state of Maryland. All disputes under this
Agreement shall be resolved in the Federal District Court in Baltimore or State
Court in Howard County, Maryland, and both parties consent to resolution of
disputes under this agreement in those forums.
23. SEVERABILITY; INTEGRATION. If any term of this Agreement is held by
a court of competent jurisdiction to be invalid or unenforceable, then this
Agreement, including all of the remaining terms, will remain in full force and
effect as if such invalid or unenforceable term had never been included. This
agreement constitutes the final agreement of the parties with respect to the
subject matter herein and merges all prior and contemporary communications or
agreement of the parties. This Agreement may be amended only in writing.
24. HEADINGS. Headings used in this Agreement are provided for
convenience only and shall not be used to construe meaning or intent.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
VIEW SYSTEMS, INC. O-Tech International, Ltd.
By: ______________________________ By: __________________________
David Bruggeman Name:
VP Title:
II-36
<PAGE>
ORDER CONFIRMATION FORM
<TABLE>
<CAPTION>
------------------------------------ -----------------------------------
<S> <C> <C>
Company Name: Sales & Use Tax License
Number:
------------------------------------ -----------------------------------
Company Address: Software Version:
-----------------------------------
Order Date:
------------------------------------ -----------------------------------
Telephone and Fax Number: Sales Representative:
------------------------------------ -----------------------------------
</TABLE>
TERMS: DOMESTIC: 50% Down Prior to Shipment, Balance
Due On Shipment, F.O.B. Destination
INTERNATIONAL: Wire Transfer for orders, F.O.B.
Destination;
15% Restocking charge on returned merchandise. This Order
incorporates the terms and conditions of the Non-Exclusive Reseller
Agreement between View Systems and Company
SPECIAL
INSTRUCTIONS:___________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
Approved By:_____________________ Approved By:_____________________
Bruce Lesniak, Sr. VP Andrew L. Jiranek, VP
II-37
<PAGE>
<TABLE>
<CAPTION>
Model Description Quantity Price Extended
Number Price
- --------------------- ----------------------------------------------------------------- -------------- ----------- ----------------
<S> <C> <C> <C> <C>
SecureView-4 Remote Interactive Video System
Remote Monitor Control Unit with 4 Video Channels and 4 Audio
Channels and Remote Monitor Computer Software
- --------------------- ----------------------------------------------------------------- -------------- ----------- ----------------
SecureView-8 Remote Interactive Video System
Remote Monitor Control Unit with 8 Video Channels and 8 Audio
Channels and Remote Monitor Computer Software
- --------------------- ----------------------------------------------------------------- -------------- ----------- ----------------
SecureView-15 Remote Interactive Video System
Remote Monitor Control Unit with 15 Video Channels and 15 Audio
Channels and Remote Monitor Computer Software
- --------------------- ----------------------------------------------------------------- -------------- ----------- ----------------
SecureView-8-D Deployable Remote Interactive Video System
Includes the same features as the SecureView-8 (above) in a
portable carrying case
- --------------------- ----------------------------------------------------------------- -------------- ----------- ----------------
SecureView-10 7 Port Audio/Video Expansion Module
(available with SecureView-8, SecureView-15 Only)
- --------------------- ----------------------------------------------------------------- -------------- ----------- ----------------
SecureView-12 Recordable Capacity Expansion Module
Additional features which permit up to 21 days of additional
recording
- --------------------- ----------------------------------------------------------------- -------------- ----------- ----------------
SecureView-40 Pan-Tilt-Zoom Option Kit
RS-232 to RS-422/485 Converter with PTZ Control Software
- --------------------- ----------------------------------------------------------------- -------------- ----------- ----------------
SecureView-41 Pan-Tilt-Zoom Camera Module
RS-422/485 to RS-232 Converter
- --------------------- ----------------------------------------------------------------- -------------- ----------- ----------------
SecureView-50 ViewAlarm - Alarm & Relay Control Unit
8 Alarm Inputs, 8 Outputs, 8 Relays
- --------------------- ----------------------------------------------------------------- -------------- ----------- ----------------
SecureView-51 ViewAlarm - Alarm & Relay Control Unit Expansion Module 8
additional I/O Ports and 8 additional Relays
- --------------------- ----------------------------------------------------------------- -------------- ----------- ----------------
SecureView-99 Rack-mount kit for SecureView-8,SecureView-15
(with/SecureView-8 or SecureView-15 Only)
- --------------------- ----------------------------------------------------------------- -------------- ----------- ----------------
SecureView-100 Spares Kit for SecureView-4
One kit recommended for each 100 systems
- --------------------- ----------------------------------------------------------------- -------------- ----------- ----------------
SecureView-101 Spares Kit for SecureView-8, SecureView-15
One kit recommended for each 100 systems
- --------------------- ----------------------------------------------------------------- -------------- ----------- ----------------
Service Plan Service Plan for Software
Entitles user to all software upgrades and enhancements for
period of one year
- --------------------- ----------------------------------------------------------------- -------------- ----------- ----------------
Other
- --------------------- ----------------------------------------------------------------- -------------- ----------- ----------------
</TABLE>
II-38
<PAGE>
Exhibit 10.30
Exhibit 10.30 Schedule of Contracted Resellers
<TABLE>
<CAPTION>
Address Name
- ------------------------------------------------ ----------------------------------------------------
<S> <C>
c/o Perry Bean Cartwright & Bean, Inc.
3935 Lakefield Court
Suwanee, Georgia 30024
- ------------------------------------------------ ----------------------------------------------------
P.O. Box 670, Dumfries, Va. Class International Security Incorporated
- ------------------------------------------------ ----------------------------------------------------
8027 Laurel Lakes Court, DPC Technologies
Laurel, Maryland 20707
- ------------------------------------------------ ----------------------------------------------------
5726 Industry Lane Engineering Systems Solutions, Inc.
Frederick, Maryland 21704
- ------------------------------------------------ ----------------------------------------------------
7524 Maple Place ESTECH Electronic Surveillance Technology
Annandale, VA 22003-3002
- ------------------------------------------------ ----------------------------------------------------
Digital Video Tek 7318 Ritchie Highway Digital Video Tek
Glen Burnie, Maryland 21061
- ------------------------------------------------ ----------------------------------------------------
Bloomington, Illinois Integrated Security, Inc.
- ------------------------------------------------ ----------------------------------------------------
6188 Oxon Hill Rd., Suite 300, L & B Associates, Inc.
Oxon Hill, Md. 20745-3113
- ------------------------------------------------ ----------------------------------------------------
11618 First Avenue Cathy Long
Hesperia, CA 92345
- ------------------------------------------------ ----------------------------------------------------
Otto Veniusstratt 17, B-2000 Millennium Marketing
Antwerp, Belgium
- ------------------------------------------------ ----------------------------------------------------
Buyukdere Caddes; 89/8 MTI-TANSA Guvenlik Ltd.
Mecidiyekoy-Istanbul/Turkey
- ------------------------------------------------ ----------------------------------------------------
979/34 SM Tower 17th Floor Naka Interbusiness
Phaholyothin Road
Phayathai, Bangkok 10400
Thailand
- ------------------------------------------------ ----------------------------------------------------
#17 Sweet Briar Road Netserv Caribbean Ltd.
St. Clair, Port of Spain
Trinidad, West Indies
- ------------------------------------------------ ----------------------------------------------------
3065 Rose Crans Place, Suite 100, POS Center, Inc.
San Diego, Ca. 92110
- ------------------------------------------------ ----------------------------------------------------
12011 North Tejon Street PSA Security Network
Denver, Colorado 80234 Contact: Yolanda Akerib, Vice President
- ------------------------------------------------ ----------------------------------------------------
c/o James Peters Remote Viewing Solutions, Inc.
9722 Groffs Drive
PMB235
Owings Mills, Maryland 21117
- ------------------------------------------------ ----------------------------------------------------
11141 Georgia Avenue, Suite 520 Systems Innovation Group
Wheaton, Maryland 20902 Contact: Dan Gray
- ------------------------------------------------ ----------------------------------------------------
</TABLE>
<PAGE>
Exhibit 10.31
Exhibit 10.31 Agreement Between View Systems, Inc. and Magnum Financial, dated
February 27th, 2000
February 21, 2000
Gunther Than
VIEW SYSTEMS, INC.
925 W. Kenyon Avenue, No. 15
Englewood, CO 80110
RE: LETTER OF AGREEMENT
Financial Communications Services
---------------------------------
Mr. Than:
Under separate cover, entitled "PRELIMINARY PROPOSAL FOR SERVICES" dated
February 17, 2000, we previously submitted our assessment of View Systems and
our recommendations as to how we would carry out comprehensive financial
communications program for them. As we have now concluded after several phone
conversations and a meeting with management, we are prepared to commence
financial communications activities on behalf of the Company for certain
compensation as outlined below. Attached herewith are the details of the subject
activities we have agreed upon which are exhibited as "Summary of Program
Components" and "Program Activity Schedule."
To reiterate statements previously made to View Systems, the objective of our
financial communications program is to broaden the awareness of the Company in
the U.S. capital markets through a methodical, disciplined and proven
communications process structured to generate interest in the Company's
securities with a goal of achieving the highest sustainable market value for
those securities.
This Letter of Agreement shall serve as the complete and final understanding by
and between the Parties hereto which, upon execution hereof, becomes the binding
agreement by and between View Systems, Inc. (hereafter "View Systems," "VYST" or
the Company") and Magnum Financial Group, LLC (hereafter "Magnum"), both of
which are also referred to collectively herein as "the Parties."
II-40
<PAGE>
COMPENSATION
As consideration for the services Magnum has agreed to provide, View Systems
shall pay Magnum monthly cash fees according to the following schedule:
CASH FEES
View Systems shall pay Magnum cash as follows...$18,000 monthly on or
before the first of each month. Monthly fees are invoiced on the 20th of the
month prior to their due date as they are due upon the 10th of each month when
services are to be rendered. A two percent (02%) discount may be taken for
payments made and received at our office on or before the 20th of the month due;
the payment is late on the 20th, in which event Magnum has the right to stop
services until the payment is received. In the event subject payment is not
received by the 30th of the month, Magnum reserves the right to terminate this
Agreement and accelerate all compensation and reimbursable expenses as due and
payable (see "Termination")
EXPENSES
As is typical with the rendering of professional services, we shall invoice View
Systems for a pro-rata share of the indirect costs incurred on behalf of all of
our clients which include long-distance telephone, outgoing broadcast
facsimiles, cellular telephone, on-line securities trading and data services,
and printed reference materials. These additional charges will initially run
$450-$550 per month during the advisory and corporate development phase (March
through April) (and to wind down the program in October), and then increase to
$750-$1150 per month during the aggressive marketing phase (May through
September). It is the policy of Magnum to pass through these indirect costs
without markup. Your pro-rata portion of the indirect costs will be itemized,
paid by Magnum in advance, and then billed to your separately from the monthly
flat fee charge at the end of each month hereafter and due within thirty (30)
days of receipt.
Total indirect costs shall be capped at $9000 for the term of this Agreement.
In addition, View Systems will normally incur certain direct costs from time to
time over the duration of this Agreement for news wire distribution services,
printing, 35mm color slides, color and black & white reproductions, bulk-mail
postage, airfare, hotel, ground transportation,
II-41
<PAGE>
meeting rooms, audio/visual equipment rental, catering, entertainment, and
monthly maintenance of the contact database we develop for you. It is the policy
of Magnum to pass through these additional direct costs without markup and
therefore will be billed to you directly from the vendor when pre-approved.
Our purchase of goods and services from vendors and others outside of Magnum on
your behalf (direct costs) related to our carrying out the subject activities
for View Systems shall first be approved by View Systems and then billed
directly to View Systems when practicable.
EXCESS EVENTS, PREMIUM FEES
Our monthly fees are designed to provide a planned financial communications
program that is implemented consistently over a period of time based on a
reasonable estimate of the hours of work required to effect that plan. For
reasons beyond our control, particularly in times of crisis (proxy fights,
auditor resignations, class-action litigation, suspension of trading, de-listing
of securities, frenzied trading activity, etc) or rush situations (such as late
SEC filings, last minute news releases, other critical news releases, after-hour
meetings, etc.) the Company may require our involvement and time beyond the
scope of this Agreement.
These events and situations shall henceforth be considered "excess" events. In
such events, should any principal or employee of Magnum be required to work in
excess of eight (08) hours per day to complete tasks for the Company, then the
company shall be billed on an hourly basis at the rate of $375.00 per hour.
Pre-approval by the Company is required.
EQUITY AND DEBT FINANCING EXPRESSLY EXCLUDED
Further, while our scope of work traditionally interfaces with investment
bankers and investment funds in the financial community, we do not engage in
corporate finance. Our services are defined as financial communications and
investor relations, and our fees are structured to cover only these services.
Should View Systems require any form of financing, we would be more than pleased
to facilitate an introduction to Atlantis Capital Group, LLC who will consider
the financing request and possibly place it with the appropriate commercial
lenders, investment banks or institutional funds known to them. In such case, a
separate success fee would apply should the financing be secured.
II-42
<PAGE>
EFFECTIVE DATE, COMMENCEMENT DATE
While the effective date of the Agreement is the date it is signed by view
Systems, the date our activities will actually commence will be March 1, 2000.
Both the effective date and commencement date are subject to View Systems'
execution of this Agreement and their timely delivery of the various
compensation instruments and an original signed document as stipulated herein
(see "Acceptance, Execution, & Completion".
TERM OF AGREEMENT
Upon the Company's execution hereof and their timely delivery of compensation
instruments as stipulated herein (see "Acceptance, Execution, & Completion"),
this Agreement shall continue for a duration of nine (09) months from the
Commencement Date (see " Commencement Date"0. Thereafter, if the Agreement is
not terminated as provided herein, the Agreement shall continue on a
month-to-month basis at a monthly fee that may be negotiated and agreed upon by
and between the Parties upon the Agreement converting to a month-to-month basis.
In the event the Agreement is not terminated as provided herein and a monthly
fee is not determined by the Parties prior to the conversion to month-to-month,
then the Agreement shall continue on a month-to month-basis, at a monthly fee as
determined by the last fee remitted by the View Systems to Magnum, until
terminated by either Party.
TERMINATION
This Agreement may be terminated by either party after the nine-month period
without cause by providing fifteen (15) days written notice to the other and
delivering same by registered mail.
View Systems shall, within ten (100 days of the execution date hereof, remit to
Magnum the compensation instruments and an original of this signed as stipulated
further in this Agreement (see "Acceptance, Execution, & Completion"). In the
event View Systems fails to remit any of the items stipulated, then Magnum shall
have the right to terminate this Agreement immediately without notice or demand.
In the event Magnum is not in receipt of its monthly fee or reimbursed for
expenses billed within thirty (30) days of its due date, then Magnum shall have
the right to terminate this Agreement immediately without notice or demand.
II-43
<PAGE>
Should Magnum desire to terminate this Agreement as provided herein, then all
monies, stock, and stock purchase warrants then earned or unearned shall
accelerate and become due, payable, and issuable, as the case may be. Simple
interest of twelve percent (12%0 per annum will be levied on any and all unpaid
balances, whether monies owed are fees or expenses to be reimbursed Magnum. All
costs of collection, litigation, and enforcement of any judgment shall be paid
by losing party.
Notwithstanding the above, any material breach, insolvency, or bankruptcy of
either party shall terminate this Agreement immediately.
LAWS, REGULATIONS, & CONFIDENTIALITY
In this relationship, Magnum agrees to comply fully with all federal and state
securities laws and regulations, industry guidelines and applicable corporate
law. Additionally, our firm shall maintain the confidentiality of all
information of View Systems not cleared by the Company for public release.
INDEMNIFICATION
View Systems agrees to indemnify and hold harmless Magnum, including its
principals, members, and employees from and against any and all losses, claims,
damages, expenses and/or liabilities which Magnum may incur arising out Magnum's
reliance upon and approved use of information, reports, and data furnished by
and representations made by View Systems, with respect to itself, whereby Magnum
in turn distributes and conveys such information, reports, and data to the
public in the normal course of representing View Systems in financial
communications activities. Such indemnification shall include, but not be
limited to, expenses (including all attorney's fees), judgments , and amounts
paid in settlement actually and reasonably incurred by Magnum in connection with
an action, suit or proceeding brought against Magnum and/or its principals,
members, or employees.
Similarly, Magnum agrees to indemnify and hold harmless View Systems, including
its principals, directors, officers, and employees from and against any and all
losses, claims, damages, expenses and/or liabilities which View Systems may
incur arising out of Magnum's representation of View Systems to the investment
community, media, or its shareholder. Such indemnification shall include, but
not be limited to, expenses (including all attorney's fees), judgments, and
amounts paid in settlement actually and reasonably incurred by View Systems in
connection with an action, suit or proceeding brought
II-44
<PAGE>
against View Systems and/or its principals, members, or employees
ACCEPTANCE, EXECUTION, & COMPLETION
Should you accept the terms, conditions, and provisions outlined herein please
indicate such by signing and dating as provided for below.
In order that Magnum Financial have documented authority to represent View
Systems, Inc., please forward a facsimile of the signed and dated document to us
at (Fax: 213-892-2281) immediately upon execution.
To complete the transaction between us, View Systems shall, within ten (10) days
of the execution date hereof, remit the following: (i. An original of the signed
and dated document; and (ii. A check in the amount of $18,000 ( as the March
fee). We recommend that you express all aforementioned items for timely
delivery.
MISCELLANEOUS
This Agreement shall be deemed to be executed and delivered within the State of
California and is to be construed, interpreted and applied in accordance with
the laws of the State of California, excluding that body of law relating to the
Conflicts of Law. This Agreement shall have venue in the courts of Los Angeles
County.
If any provision, term, or condition of this Agreement, or any application
thereof, shall be declared invalid or unenforceable by any court of competent
jurisdiction, then the remainder of this Agreement, and any other application of
such provision, term, or condition, shall survive and continue in full force and
effect.
The failure of either party to exercise any right, power, options or remedies
provided or hereunder, or to insist upon strict compliance with the terms hereof
by the other, shall not constitute a waiver of the terms and conditions of this
Agreement with respect to any other subsequent breach thereof, nor a waiver by
either party compliance with all terms hereof. The rights and remedies hereunder
are cumulative to any other rights or remedies that may granted by law. of its
rights at any time thereafter to require exact and strict
The undersigned hereby represent, warrant and certify that they in fact have
full authority to enter into this specific Agreement; and furthermore agree to
provide each other proof of such authority should such proof be
II-45
<PAGE>
requested.
This is the complete and final Agreement between the Parties relative to the
subject matter hereof and all prior and contemporaneous statements, both oral
and written are hereby superceded.
On behalf of the principals and entire staff at Magnum Financial Group, we wish
to thank you for your confidence in retaining our firm. Your account team looks
forward to working with you now and in the future toward mutually beneficial
goals.
Respectfully submitted and agreed upon:
MAGNUM FINANCIAL GROUP, LLC
Steven B. Johnson
Principal
IN AGREEMENT AND ACCEPTANCE OF THE TERMS AND CONDITIONS HEREIN:
VIEW SYSTEMS, INC.
__________________________ ________________
Gunther Than Date
President & Chief Executive Officer
II-46
<PAGE>
ADDENDUM
Mr. Gunther Than
President & CEO
View Systems, Inc.
925 West Kenyon Avenue
Englewood, Colorado 80110
Dear Gunther:
This letter forms an Addendum to that Agreement between Magnum Financial Group,
LLC and View Systems, Inc. dated February 27, 2000.
Magnum Financial Group, LLC and View Systems, Inc. hereby agree to an early
termination of the Agreement for financial communications services, such
termination to be effective April 30, 2000, and such termination will be
conditional upon payment in full by View Systems, Inc. of $20,301.34, by April
28, 2000, being the financial communications fees for the month of April, and
all expenses incurred by Magnum not yet paid by View Systems. Upon such payment
each party shall be released from any further obligations or liabilities in
connection with the Agreement.
Please acknowledge this Addendum to the Agreement by signing below. Please fax a
copy to our office, and Federal Express an original signed copy to us, for our
records.
Sincerely;
MAGNUM FINANCIAL GROUP, LLC
Michael Manahan
Principal
Acknowledge and accepted on behalf of View Systems, Inc.
________________________
Gunther Than, CEO
II-47
<PAGE>
Exhibit 23.1
Exhibit 23.1 Consent of Stegman & Company
Stegman & Company
To: Board of Directors of View Systems Inc.
We hereby consent to the inclusion in amended Form SB-2 of our report
dated March 24, 2000, related to the financial statements of View Systems, Inc.
and Subsidiaries for the years ended December 31, 1999, and 1998.
/s/ Stegman and Company
Baltimore, Maryland
April 24, 2000
II-48
