<PAGE>
As filed with the Securities and Exchange Commission on June 7, 2000
Registration No.333-94411_____
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO. 2 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 PROPOSED MAXIMUM AMOUNT OF
EACH CLASS OF SECURITIES AMOUNT TO BE AGGREGATE OFFERING PROPOSED MAXIMUM REGISTRATION
TO BE REGISTERED (MAXIMUM) REGISTERED(1) PRICE PER SHARE(2) OFFERING PRICE FEE
-------------------------- ------------- ------------------- ---------------- ------------
<S> <C> <C> <C> <C>
Common Stock, Par Value $.001 1,756,727 2.25 3,952,635.70 $1,043.49
Common Stock, Par Value $.001, Issuable
Upon Exercise of the Warrants 2,689,000 2.25 6,050,250 $1,597.27
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>
4,445,727 Shares
----------
VIEW SYSTEMS, INC.
Common Stock
PROSPECTUS
This is our initial public offering. Shares of our common stock are
currently quoted and traded on the NASD over-the-counter bulletin board under
the symbol "VYST."
All of the shares to be sold under this prospectus are owned by selling
shareholders or will be acquired upon the exercise of warrants. We are not
offering to sell any of our securities.
----------
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" AT
PAGE 3.
----------
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.
June 7, 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
Note About Forward Looking Statements................ 7
Description of Our Business.......................... 8
Management's Discussion and Analysis................. 23
Description of Property.............................. 32
Shares Available for Future Sale..................... 32
Selling Shareholders................................. 34
Plan of Distribution................................. 37
Directors, Executive Officers,
Promoters and Control Persons...................... 39
Principal Shareholders............................... 43
Description of Securities............................ 45
Legal Proceedings.................................... 50
Certain Transactions................................. 51
Market for Common Equity and
Related Shareholder Matters........................ 54
Executive Compensation............................... 56
Interest of Named Experts and Counsel................ 59
Management Indemnification........................... 59
Changes in Accountants............................... 60
Available Information................................ 61
Additional Information............................... 62
Index to Financial Statements........................ 63
</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 develop and sell digital video systems used for security and
surveillance. Sales of our products have been increasing and we intend to bring
several new products to market this year. We have also continued the business
line of a company we acquired, Eastern Tech Manufacturing Corp., which provides
contract electronic component assembly services.
We incorporated in January 1989, but did not commence operations until
Fall of 1998. Thereafter, we began development of our product line. In 1999, we
made three acquisitions to complement our proposed product line, and completed
development of and commenced selling our SecureView-TM- line of digital
monitoring systems.
We have executive offices at 925 West Kenyon Avenue, Suite 15,
Englewood, Colorado 80110 and engineering and production facilities at 9693
Gerwig Lane, Suite D, Columbia, Maryland 21045 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. Other information on our website
does not constitute part of this prospectus.
THE OFFERING
<TABLE>
<S> <C>
Shares of common stock offered
by the selling shareholders 4,445,727
Common stock outstanding after
the offering 11,075,080
Common stock owned by the selling
shareholders after the offering 584,333
OTC bulletin board symbol VYST
</TABLE>
We are registering 1,756,727 shares of common stock and 2,689,000
shares of common stock underlying warrants. The selling shareholders are
offering these shares. 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 warrants which may be exercised by the selling shareholders prior to
the sale of common stock.
There are 8,386,080 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 364,860 were exercisable as of
March 31, 2000, and warrants to acquire 2,689,000 shares.
-1-
<PAGE>
SUMMARY FINANCIAL INFORMATION
Below is our summary financial information for the year ended December
31, 1999 and the three month period ended March 31, 2000. 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 THREE MONTHS ENDED
DECEMBER 31, 1999 MARCH 31, 2000
----------------- ------------------
(UNAUDITED)
<S> <C> <C>
OPERATIONS
Sales and other income $ 303,711 $ 110,412
Gross profit $ 45,333 $ 50,017
Total operating expenses $ 3,988,668 $ 499,048
Net loss $(3,943,335) $ (449,031)
Net loss per share $ (0.68) $ (0.06)
FINANCIAL POSITION
Current assets $ 323,641 $ 344,881
Current liabilities $ 383,999 $ 342,092
Current ratio 0.84 1.00
Total assets $ 1,559,421 $ 1,580,188
Stockholders' equity $ 1,175,422 $ 1,239,096
Book value per share $ 0.16 $ .15
</TABLE>
-2-
<PAGE>
RISK FACTORS
An investment in our common stock involves a high degree of risk. You
should carefully consider the following risk factors before investing in our
common stock.
RISKS RELATING TO OUR BUSINESS
WE HAVE A LIMITED OPERATING HISTORY. WE MAY NOT BE ABLE TO SUCCESSFULLY DEVELOP
OUR LINE OF PRODUCTS, ASSEMBLE THEM AT ACCEPTABLE COSTS OR MARKET THEM.
We first commenced active business operations in October 1998. Although
we have completed development of our base product, our SecureView-TM- line of
digital recording, remote monitoring systems, we have not completed development
of all of our proposed products. We do not know if other proposed products,
including our WebView-TM- and CareView-TM- remote monitoring systems can be
developed and made available for sale to customers.
If our products are developed and made available for sale, we do not
know if we will be able to obtain necessary hardware and assemble our systems at
costs that will allow us to price our products competitively. We also face the
challenge of implementing company wide production systems that take advantage of
the recent acquisition of our ETMC manufacturing subsidiary.
We are not certain if we will be able to market our products in
sufficient quantities to achieve profitability. Our network of value added
resellers has limited market penetration and may not be able to generate
sufficient sales revenues to sustain our growth. We believe that long term sales
growth will need to be driven by larger distribution companies and there is no
assurance these larger companies will be willing to sell our products.
WE HAVE A HISTORY OF OPERATING LOSSES. WE EXPECT OPERATING LOSSES TO CONTINUE
FOR THE FORESEEABLE FUTURE AS WE CONTINUE TO SPEND TO DEVELOP OUR BUSINESS.
Sales of our products have been limited since we commenced operations.
As a result of the expenses we have incurred for research and development,
marketing, and hiring and retaining key personnel, our expenses have greatly
exceeded our revenues. For the three months ended March 31, 2000, and the year
ended December 31, 1999, we had operating losses of $449,031 and $3,943,335,
respectively.
Most of our revenues to date have been produced from sales of contract
electronic assembly services. However, we believe
-3-
<PAGE>
our profitability is dependent on our ability to develop, produce and sell our
security and surveillance products. Therefore, the development of our business
depends on our ability to significantly increase our spending on items such as:
-- development of enhancements and upgrades to our existing SecureView-TM-
line of products
-- completion of development and testing of our CareView-TM- and
WebView-TM- products and enhancements and upgrades to our FaceView-TM-
products
-- research for new products
-- marketing and business development expenses
-- employment related expenses for the hiring and retention of key
personnel
If these expenses do not help us generate increased sales of our
security and surveillance products, we will not become profitable and we will be
forced to reevaluate our business plan.
WE ARE SUBJECT TO INTENSE COMPETITION, PRIMARILY FROM LARGER MORE ESTABLISHED
COMPANIES.
The market for video surveillance and identification products is very
competitive and subject to rapid technological advances and the frequent
introduction of new and enhanced products. To compete successfully, we must
continue to design, develop, manufacture and sell new and enhanced products that
will respond to customer requirements. We expect the intensity of competition to
continue in the future as existing competitors enhance and expand their
products. Any failure to increase our market share could adversely affect our
business and prospects. Increased competition also may result in price
reductions or reduced gross margins. We must be able to keep our production
costs low relative to our competition.
Many of our competitors have advantages including established
positions, brand name recognition, greater financial resources and established
distribution networks. These larger more established competitors include
Polaroid Corporation, Loronix Information Systems, Sensormatic Corporation and
NICE Systems, Ltd. The distribution networks of these larger more established
competitors gives them an advantage in achieving higher sales volumes. If they
can achieve higher sales volumes, they can spread their costs over larger
numbers of units, thereby reducing their per unit production costs and
increasing their profitability.
-4-
<PAGE>
Competitors with greater financial resources may be able to offer lower
prices or other incentives that we cannot match or offer. Some of our
competitors produce a more comprehensive product line that may give them an
advantage in selling products competitive to ours. We cannot be certain that we
will be able to compete successfully against existing or other competition in
the future.
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. Although
Mr. Than has signed an Employment Agreement with us, this agreement may be
terminated by Mr. Than on not less than a sixty (60) days notice, subject to a
one (1) year covenant not to materially compete with us. Our success will also
depend on our ability to hire and retain other qualified management, including
trained and competent research and technical, marketing and sales personnel.
WE ARE DEPENDING ON THE EXERCISE OF WARRANTS FOR OPERATING CAPITAL. WE WILL
STILL NEED ADDITIONAL CAPITAL IF THE WARRANTS ARE EXERCISED.
We have outstanding warrants to acquire 2,689,000 shares of our common
stock at an exercise price of $2.00 per share. We are depending on the exercise
of these warrants for working capital. Unless the range of trading prices of our
common stock increases to over $2.00 per share, it is unlikely the warrants will
be exercised. In order to receive needed working capital, we may have to agree
to lower the exercise price of the warrants, which may result in dilution in
value of our outstanding common stock.
The proceeds from the exercise of the warrants 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.
BECAUSE WE MUST SHARE PROPRIETARY TRADE SECRETS WITH OUR BUSINESS PARTNERS, WE
MAY NOT BE ABLE TO PROTECT THIS INFORMATION.
We rely on keeping our technology secret from our competitors. We do
not have any patents for our product designs or innovations. We have entered
into and expect to enter into business arrangements where we share our
proprietary technology
-5-
<PAGE>
with business partners and employees. These arrangements are necessary to
develop and sell our products. We require that these parties sign agreements
that they will keep our proprietary technology confidential. There can be no
assurance that these parties will honor their contractual commitments. If they
do not, our technology could fall into our competitors' hands.
RISKS RELATING TO THE OFFERING
WE ARE SUBJECT TO THE "PENNY STOCK" RULES.
Our common stock is subject to the "penny stock" rules. As long as the
price of our shares remains below $5 and we are unable to obtain a listing of
our stock on the NASDAQ System, we will be subject to the "penny stock" rules.
In general, the penny stock rules impose requirements on securities brokers
which tend to reduce the level of trading activity in a stock. Among other
things, these rules require that securities brokers:
-- make a special suitability determination before recommending a penny
stock
-- deliver a risk disclosure document prior to purchase
-- disclose commission information concerning sales of a penny stock
-- provide customers with monthly statements containing recent price
information
If our shares remain subject to the penny stock rules, investors may
find it difficult to sell them.
THERE IS NO UNDERWRITER WHO WILL ENGAGE IN TRANSACTIONS THAT WILL STABILIZE OR
MAINTAIN THE PRICE OF OUR COMMON STOCK. THE SALE OF COMMON STOCK OFFERED IN THIS
PROSPECTUS AND OTHER UNREGISTERED SHARES COULD DEPRESS THE MARKET PRICE OF OUR
SHARES.
The shares offered under this prospectus are owned by selling
shareholders or will be acquired by the sellers upon the exercise of warrants.
The selling shareholders will probably sell the shares through customary
brokerage channels. No underwriter will take any actions that may stabilize,
maintain or otherwise affect the price of our common stock. No underwriter will
have any incentive to try to complete the distribution of our shares in an
orderly manner. The absence of an underwriter may have a material adverse effect
on the price of our shares in the market after the sale of the shares.
-6-
<PAGE>
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. In addition, we have
approximately 3,000,000 shares that are not registered, but could be sold with
certain restrictions in the public market. If the shareholders holding these
shares sell them in the public market, it could depress the price of our stock.
NOTE ABOUT FORWARD-LOOKING STATEMENTS
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.
-7-
<PAGE>
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 record 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, our principal shareholders were Pamela
Wilkinson and Julie Birns. Julie Birns was our President until September, 1998,
when Gunther Than was elected our President. We then began raising funds,
purchasing working assets, hiring staff, designing 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. Prior
to the negotiations which led to the acquisition of these three businesses,
there was no affiliation between the three businesses and us. Information about
the three acquisitions follows.
<TABLE>
REALVIEW
--------
<S> <C>
NAME OF ACQUIRED COMPANY: RealView Systems, Inc.
DATE OF ACQUISITION: October 6, 1998
</TABLE>
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
---- ----------------
<S> <C> <C>
PRINCIPAL SHAREHOLDERS Gunther Than 1,046,800
OF ACQUIRED COMPANY: Russ Benefield 131,338
View Technologies, Inc. 130,937
Linda Than 66,700
Leokadia Than 200,000
</TABLE>
-8-
<PAGE>
<TABLE>
<S> <C>
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, liabilities, sales and
PRICE AND SHARE EXCHANGE: 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 real estate market.
ACQUIRED: 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
</TABLE>
<TABLE>
<CAPTION>
NAME NUMBER OF SHARES
---- ----------------
<S> <C> <C>
PRINCIPAL SHAREHOLDERS Kenneth C. Weiss 70,500
OF ACQUIRED COMPANY: David C. Bruggeman 39,000
Hal Peterson 32,250
</TABLE>
<TABLE>
<S> <C>
CONSIDERATION PAID: 150,000 shares of newly issued restricted common stock.
CALCULATION OF PURCHASE An evaluation was made of the assets, liabilities, sales and
PRICE AND SHARE EXCHANGE: prospects of Xyros to determine the
</TABLE>
-9-
<PAGE>
<TABLE>
<S> <C>
amount of shares we would issue for all of the shares of Xyros.
ASSETS AND PRODUCTS Xyros had developed a product which permitted remote monitoring
ACQUIRED: and storage of video. We believed that the engineering of Xyros's
product could be 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 accumulated deficit of approximately
$246,000.
LIABILITIES ASSUMED: We assumed Xyros's liability to its former shareholders as follows:
</TABLE>
<TABLE>
<CAPTION>
NAME AMOUNT OWED
---- -----------
<S> <C> <C>
Kenneth C. Weiss $ 50,000
Hal Peterson $ 75,000
David Bruggeman $ 30,000
--------
$155,000
</TABLE>
<TABLE>
<S> <C>
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, liabilities, sales and prospects
PRICE AND SHARE EXCHANGE: of ETMC to determine the price of $935,684, including the assumption
of certain liabilities. Shares were exchanged on the basis of a value
of $3.15 per share.
</TABLE>
-10-
<PAGE>
<TABLE>
<S> <C>
ASSETS AND PRODUCTS ETMC is a manufacturer of electronic hardware and assemblies and has
ACQUIRED: 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, 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.
</TABLE>
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
-11-
<PAGE>
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 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
-12-
<PAGE>
-- 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 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,
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.
-13-
<PAGE>
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 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
-14-
<PAGE>
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.
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 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
-15-
<PAGE>
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 delays and prohibitive costs associated with recording analog data on tape,
transmitting it and later accessing it. Thus, much of the information captured
-16-
<PAGE>
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:
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 time 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.
-17-
<PAGE>
Our products and technology can be used where there is a 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
-18-
<PAGE>
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.
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. The term of the
license is two years, with options to renew. The agreement can be terminated by
either party with or without cause. Our license agreement calls for the payment
of an $11,748 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 of $200 for each copy of Visionics software
that we distribute, subject to a minimum annual license fee of $20,000.
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
engineer, manufacture, assemble and ship from this facility. We also maintain an
executive office at 925 West Kenyon Avenue, Suite 15, Englewood, Colorado.
MARKET
The increased functionality that digital technology brings to CCTV
systems has made this a dynamic and rapidly growing market. According to a
published report by J.P.Freeman & Co., the market size for products such as our
SecureView-TM- line was
-19-
<PAGE>
$1.3 billion for factory and service revenue in 1998. This market is growing at
a rate of 11 - 13% per year and is expected to double by 2004.
We are distributing 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 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.
We currently have ongoing reseller arrangements with 20 small and
medium sized domestic and international resellers. We are 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. This product 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.
In addition to these products, through our acquisition of
-20-
<PAGE>
ETMC, we acquired an ongoing business operation of providing contract electronic
component assembly and test services. ETMC had been in operation for over
fifteen (15) years and had an established base of clients. ETMC had done
approximately 60% of its business for the commercial sector and 40% of its
business for the government sector. ETMC's diverse clients 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 plan to continue ETMC's business line while
converting its manufacturing capability to the production of our security and
surveillance products.
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 and PlateView, 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.
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. 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.
-21-
<PAGE>
RESEARCH AND DEVELOPMENT
We spent approximately $210,143 during 1999 and $63,765 during the
three (3) months ended March 31, 2000 on research and development and continue
to refine our product line. In addition, we estimate that our wholly owned
subsidiaries Xyros and RealView collectively spent $200,000 prior to their
acquisition 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 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.
-22-
<PAGE>
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 resellers and
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 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. We
also employ 4 independent contractors who devote a majority of their work to a
variety of our projects. 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 financial statements and the accompanying notes.
Since start-up of operations in October, 1998, we have
-23-
<PAGE>
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.
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 two sources:
- sales of security systems, including embedded software, and supplies from
maintenance services on the systems
- sales of contract electronic component and system assembly and test
services
In 1999, of our $303,711 in total revenues, we derived $65,954 from
sales of security systems and $237,757 from sales of contract manufacturing and
test services. Seventy nine percent of our total revenue in 1999 was
attributable to our 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, was
$45,333. Gross profit margin was 15% in 1999. At these modest sales amounts of
our products, we consider the gross profit margin not to be a good indicator of
future profit margins. Our gross profit margin should stabilize with increased
sales.
Operating expenses for the year ended December 31, 1999, increased to
$3,988,668, compared with $89,824 in 1998.
-24-
<PAGE>
Approximately, $2,147,000 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. Non-cash expenses consisted of stock based compensation, write-off
and amortization of goodwill and other intangible assets, and totaled $2.9
million, so that actual cash expenses incurred were approximately $1.1 million.
As a result of the foregoing, net loss was $3,943,335 for the year
ended December 31, 1999, compared to a net loss of $89,824 for the previous
year.
COSTS AND EXPENSES
COSTS OF PRODUCTS AND SERVICES SOLD. The cost of products and services
sold, consisting principally of the costs of labor, hardware components,
supplies and software amortization, was $258,378 in 1999, and represented 85% of
revenue. As product sales account for a larger percentage of overall sales, we
expect that our costs of goods and services sold will decline as a percentage of
total revenue. We anticipate that our profit margins on sales of security
systems will exceed our profit margins on sales of services. We are currently
working on engineering changes in our security products that we expect will
lower component costs for these products.
SALARIES AND BENEFITS. We spent $2,045,531 in salaries and benefits in
1999. 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
the past and will continue to be necessary in the future in order to attract
qualified personnel and conserve cash during the start-up phase.
SELLING, BUSINESS DEVELOPMENT, TRAVEL AND ENTERTAINMENT. Selling,
business development, travel and entertainment expenses increased from $12,191
in 1998, to $269,450 in 1999, and represented 89% of total revenue in 1999. 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 $105,813 in 1999 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 $210,143 in 1999 on research
and development costs. This represented 69% of 1999 revenues. We expect to
continue to fund new product development
-25-
<PAGE>
in 2000 at or above the dollar levels expended in 1999.
INVESTOR RELATIONS EXPENSES. 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 $9,500 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. During the year ended December 31, 1999,
we wrote-off the remaining goodwill associated with our purchase of ETMC in the
amount of $473,490. Management completed a thorough review of the operations of
ETMC and determined that ETMC had experienced a loss of a significant portion of
its revenue stream and, on a divisional basis, had experienced operating and
cash flow losses since the acquisition. Management believes that although ETMC's
business is cycical in nature and could recover, the basis under which the
goodwill was originally recorded no longer exists and the goodwill should be
eliminated. In addition, we had previously capitalized $72,000 of 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 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.
-26-
<PAGE>
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.
Three Months Ended March 31, 2000, Compared With Three Months Ended March 31,
1999
REVENUE
For the three months ended March 31, 1999, $_17,900_or 16% of our
revenue was derived from sales of systems and $92,512 or 84% from sales of
contract manufacturing and test services. We did not have any material sales in
the three month period ended March 31, 1998.
GROSS PROFIT AND OPERATING EXPENSES.
Gross profit for the three months ended March 31, 2000, was $50,017.
Gross profit margin was 45% in this period. Our gross profits for the three
months ended March 31, 2000, were substantially derived from sales of our
contract electronic component assembly services.
Operating expenses for the three months ended March 31, 2000, increased
to $449,048, compared with $119,834 for the comparable period in 1999. The
increase is due to expanded operations and increased expenditures in the areas
of sales and marketing, research and development and investor relations. We will
complete development on and market several new products and upgrade and enhance
existing products in 2000. Thus, we expect continued significant expenditures on
research and development in 2000.
As a result of the foregoing, net loss was $(449,031) for the three
months ended March 31, 2000, compared to a net loss of $(119,834) for the three
months ended March 31, 1999.
COSTS AND EXPENSES
COSTS OF PRODUCTS SOLD. The cost of products and services
-27-
<PAGE>
sold, was $60,395 for the three months ending March 31, 2000, and represented
55% of revenue for the period.
RESEARCH AND DEVELOPMENT EXPENSE. We spent $63,765 on research and
development for the three months ended March 31, 2000, representing 67% of
revenue for this period. We did not have material research and development
expenses for the three months ended March 31, 1999.
NET OPERATING LOSS. We incurred approximately $420,000 of net operating
loss carry forwards for the three-month period ended March 31, 2000, which may
be used to offset taxable income and income taxes in future years.
LIQUIDITY AND CAPITAL RESOURCES.
Since start-up of operations, we have funded our cash requirements
primarily through equity transactions. We have received $511,705 in equity
investments during the three month period ended March 31, 2000 and $2,671,026
since inception. We are not currently generating cash from our operations in
sufficient amounts to finance our business and will continue to need to raise
capital from other sources. We used the proceeds from these transactions to fund
investments in, and acquisition of, technology, assets and companies, to provide
working capital and for general corporate purposes, including paying expenses
incurred in connection with the development of the SecureView-TM- line of
products. As of March 31, 2000, we had total assets of $1,580,188, and total
liabilities of $342,092, resulting in stockholder's equity of $1,238,096. Our
principal uses of cash during 1999 and the first three months of 2000 were to:
- fund operating activities, including increased sales and marketing
activities
- acquire businesses, property and equipment
- invest in the development of products
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
$1,094,399 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.
During the three months ended March 31, 2000, our cash increased
$32,854 to $122,004. Net cash used in operating activities was $444,770 for the
three months ended March 31, 2000. Net cash generated from financing activities
during the three months ended March 31, 2000 of $490,089 consisted primarily
-28-
<PAGE>
of proceeds received from the sale of stock.
We have a demand loan payable to Columbia Bank that has been reduced to
an outstanding principal balance of $68,144. Beginning July 1, 2000 Columbia
Bank will convert this loan to an amortized loan that will be repaid over a one
year term ending July 1, 2001.
We are disputing payment of purported promissory notes in the stated
principal amount of $110,000 held by two former managers of Xyros. The notes
purport to accrue interest at the rate of 10% per annum.
As of March 31, 2000, we had $2,789 in net working capital, including
$87,113 of trade accounts receivable and $135,764 in inventory. Days sales
outstanding, calculated using an average accounts receivable balance, were
approximately 45 days as of March 31, 2000. We have provided and may continue to
provide payment term extensions to certain of our customers from time to time.
As of March 31, 2000, we have not granted material payment term extensions.
Our inventory balance at December 31, 1999, and 1998, was $141,213, and
$4,574, respectively. With expected increased product sales, we will need to
make increased inventory expenditures. However, the terms of our product sales
requires a twenty five percent (25%) deposit on order. In addition, we endeavor
to keep inventory levels low. Therefor, we do not believe that increased product
sales, associated materials purchases and inventory increases, will adversely
affect liquidity.
We anticipate further capital expenditures for 2000 of approximately
$500,000. We are also exploring the purchase of the commercial space we are
leasing in Columbia, Maryland, plus adjoining space, consisting of approximately
10,000 square feet. If we can obtain favorable terms, we would purchase the
building through debt financing.
Under our outstanding employment and consulting agreements, we are
obligated to pay $228,000 in cash to Messrs. Than, Jiranek and Lesniak in salary
and fees during calendar year 2000. We are also obligated to issue common stock
to them with a value of $108,780. If we terminate the employment or engagement
of Messrs. Than, Jiranek and Lesniak without cause (including because of merger,
acquisition or change in control), we will be obligated to pay a total of
$792,780 in severance payments over a three year period.
We report each issuance of stock for less than fair market
-29-
<PAGE>
value as a charge against earnings to the extent of fair market value. The
obligation to issue stock is a substantial capital commitment in year 2000 and
subsequent years.
We believe that cash from operations and funds available will not be
sufficient to meet anticipated operating capital expenditure and debt service
requirements for the next twelve months and that we will be dependent on raising
additional capital through equity sales or debt financing. In this offering, we
are registering 2,689,000 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 $2.00 per
share, we will receive $5,378,000, which we will use for working capital and to
expand operations to execute our business plan. We anticipate that the proceeds
from the exercise of the warrants will fund operations through approximately
December 31, 2002.
Unless the range of trading prices of our common stock increases to
over $2.00 per share or we agree to lower the exercise price of the warrants, it
is unlikely that the warrants will be exercised. In May, 2000, we lowered the
exercise price of warrants for 200,000 shares held by a selling shareholder from
$2.00 to $.50 per share and the warrants were immediately exercised, resulting
in net proceeds to us of $100,000.
We have an outstanding loan balance of $94,362 representing monies that
have been advanced to Gunther Than, our President & CEO, and his mother,
Leokadia Than. Mr. Than and Ms. Than have indicated that they have the ability
to repay these loans on demand. Moreover, Mr. Than has indicated that he will
loan monies to us that we may need to meet operating capital needs.
We own 840,000 shares of MediaComm Broadcasting, Inc. MediaComm is
filing an application to be quoted and traded on the NASD OTCBB. If their
application is accepted, we will be able to make limited sales of MediaComm
shares in this public market.
PLAN OF OPERATION. We have devoted most of our resources since
inception of operations to:
- the research and development of the SecureView-TM- line of products
- the development of marketing and sales infrastructure
- the development of production capability and brand awareness of SecureView
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
-30-
<PAGE>
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 to 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:
- bring our WebView-TM-, ViewStorage-TM- and CareView-TM- products to market
- continue our product development efforts
- expand our sales, marketing and promotional activities for the
SecureView-TM- line of products
- 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:
- the rate of sales growth and market acceptance of our product lines
- the amount and timing of necessary research and development expenditures
- the amount and timing of expenditures to sufficiently market and promote
our products
- the amount and timing of any accessory product introductions
In addition to accessing the public and 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.
-31-
<PAGE>
ACQUISITION TREATMENT
In October, 1998, we acquired RealView Systems. We accounted for this
acquisition under the pooling of interests accounting method. In February, 1999,
we acquired Xyros Systems. In May, 1999, we acquired ETMC. We accounted for
these later two acquisitions under the purchase accounting method.
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. 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 or approximately 10% of the outstanding stock of
MediaComm Broadcasting Systems, Inc., a Denver corporation, which we purchased
in a private placement for $28,000. 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 a registration statement with the
SEC for an initial public offering of stock at an estimated price of $1.00 per
share. This registration statement has become effective. MediaComm intends to
file an application with the NASD to have its common stock quoted on the
over-the counter bulletin board.
SHARES AVAILABLE FOR FUTURE SALE
Upon completion of the offering, we will have outstanding an aggregate
of 11,075,080 shares of common stock. These amounts include the number of shares
we would be obligated to issue on exercise of the warrants underlying 2,689,000
shares offered
-32-
<PAGE>
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 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, 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, under Rule 144(k), 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.
-33-
<PAGE>
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:
o preparing and issuing press releases to major new wires
o providing information on the company to the investment community,
including institutional investors and broker dealers
o facilitating the dissemination of financial and other information on
the company to market makers in the company's stock before it became
fully reporting
o assisting with the development of investment relations materials and
a web site
o 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 us in the development of our 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 of ETMC and a current
sales representative.
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
-34-
<PAGE>
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 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:
-35-
<PAGE>
<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
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 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,
-36-
<PAGE>
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. As of the date of this
prospectus, Rubin Investment Group has exercised warrants for 265,000 shares
for an aggregate purchase price of cash and property in the amount of
$230,000.
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. The
dealer may then resell such shares to the public at varying prices to be
determined by such dealer at the time of resale.
-37-
<PAGE>
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 subject to restrictions imposed
by those states. 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,
-38-
<PAGE>
other than as described herein, may be affected until after this prospectus
shall have been appropriately amended or supplemented.
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 53 President, CEO and Director since
September, 1998; Chairman of the
Board from September 1998 to
April, 2000
Dr. Martin Maassen 56 Director since May, 1999; Chairman of the
Board since 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; Chief Financial Officer
</TABLE>
-39-
<PAGE>
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 June 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.
GUNTHER THAN, PRESIDENT, DIRECTOR AND CEO.
Gunther Than has served as our President and Chief Executive Officer
since September, 1998. He also served as Chariman of the Board from
September, 1998 to April, 2000, and as a director since April, 2000. From
1994 - 1998, Mr. Than was the founder, President and CEO or RealView Systems
and View Technologies, Inc. Mr. Than continues as President, CEO and board
member of View Technologies.
Prior to founding RealView and View Technologies, Mr. Than held a
variety of business management positions including:
- Founder and President, EasyView Systems, Inc., a developer of
software for use in the furniture industry
- Founder and President, National Systems and Software, Inc., a retail
distributor of computer hardware and software
- General Manager, Rutland Biotech, Vancouver, Canada, a developer of
medical and health related proprietary products
- Vice President of Information Systems, Patterson Dental Corporation,
one of the largest U.S. dental product supply corporations
- Director of Information Systems, Salkin and Linoff, a Minneapolis
retailer of soft goods and ladies apparel, with $100 MM in sales and
over 500 retail outlets including Peck & Peck
- Manager of Systems and Programs, Fairway Foods, a $2 billion sales
division of Holiday Worldwide, Inc.
- Systems Programmer, Twin Disc, Inc., a Wisconsin manufacturer of
power transmissions for heavy equipment,
-40-
<PAGE>
ships and construction implements
Mr. Than is a graduate of the University of Wisconsin, with a dual
degree in engineering physics and applied mathematics.
BRUCE E. LESNIAK, SENIOR VICE PRESIDENT OF CORPORATE DEVELOPMENT
Mr. Lesniak has been Senior Vice President of Corporate Development
since March, 1999. He is not an executive officer and is a consultant. Mr.
Lesniak will aid in developing a strategic business plan, creating strong
partner alliances and building sales and marketing information. Mr. Lesniak
heads our corporate development, sales and marketing departments. 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 Development
at ADT from 1997 to 1999. While at ADT, Mr. Lesniak's responsibilities
included guiding sales, implementing numerous new product releases and
managing the largest and most profitable sales territory in the company.Mr.
Lesniak received an undergraduate degree from Illinois State University.
ANDREW L. JIRANEK, VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL
Mr. Jiranek has been our Vice President and Secretary since June,
1999,and our General Counsel since February, 1999. Prior to joining us on
February 1, 1999, Mr. Jiranek practiced law in the areas of corporate and
securities regulation. In March, 1998, Mr. Jiranek founded 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 & 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. He is not an executive
officer. Mr. Bruggeman manages our engineering department and is responsible
for design and product development. 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 founder
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
-41-
<PAGE>
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.
LINDA THAN, COMPTROLLER AND CHIEF FINANCIAL OFFICER
Ms. Than began has been functioning as our Comptroller and Chief
Financial Officer for daily operations with responsibilities for bookkeeping,
payables, receivables, and other financial aspects of day to day operations
since September, 1998. She is not an executive officer. Since February 1994,
Ms. Than has also been the Comptroller and Business Manager for RealView
Systems and View Technologies.
Our additional directors are:
DAVID MICHAEL BARBARA, JR. M.D., DIRECTOR
Dr. Barbara became a Director in May, 1999. He has held a variety of
executive positions with hospitals in Lafayette, Indiana. From 1994 to 1997,
Dr. Barbara was 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 became a Director in May, 1999. He became our Chairman
of the Board in April, 2000. He 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.
MICHAEL L. BAGNOLI, D.D.S., M.D., DIRECTOR
Dr. Bagnoli became a Director in May, 1999. He 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 for a physician group
in Lafayette, Indiana. 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.
-42-
<PAGE>
BOARD OF DIRECTORS COMMITTEES
Our board of directors has established an executive compensation
committee and an audit committee. Each of these committees is responsible to
the full Board of Directors, and, in general, its activities are subject to
the approval of the full Board of Directors.
The audit committee is 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 also reviews
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 also consults 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.
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 lists as of the date of this prospectus, the
beneficial ownership of our outstanding common stock by:
o each person known by us to own beneficially 5% or more of our
outstanding common stock
o each of our executive officers
o each of our directors
o all executive officers and directors as a group
o the selling shareholders.
-43-
<PAGE>
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 or
options currently exercisable or exercisable within 60 days of the date of
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 PRIOR NUMBER OF BENEFICIALLY OWNED
TO OFFERING SHARES AFTER OFFERING
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 2,181,800 26% 0 2,181,900 19%
Bruce Lesniak Senior V.P. of
Corporate Development 194,000 2.3% 10,000 184,000 21.6%
Andrew L. Jiranek, V.P., Secretary,
General Counsel 125,200 1.4% 0 125,200 1.1%
Martin J. Maassen, Board Chairman 247,800 2.9% 35,000 212,000 .1%
David Bruggeman Vice President,
Engineering 39,000 .1% 0 39,000 .1%
Mike Bagnoli Director 40,000 .1% 40,000 0 .1%
All Executive Officers, Directors &
5% Shareholders as a Group (6 persons) 2,826,8000 30% 85,000 2,471,840 22%
SELLING SHAREHOLDERS
Columbia Financial Group Consultant
Investor Relations 600,000 6% 400,000 200,000 1.8%
Consultants Acquiring Warrants 54,000 .6% 54,000 0 0
Rule 506 Investors 417,727 2.7% 341,727 76,000 .6%
Lawrence Seiler 230,000 2.7% 100,000 130,000 1.5%
Leokadia Than R 506 Investor 228,333 2.7% 50,000 178,333 1.6%
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 3,300,00 32% 3,300,000 0 0
</TABLE>
-44-
<PAGE>
In the preceding table -
o Gunther Than's wife, Linda Than, who is our comptroller, and Chief
Financial Officer owns 150,200 shares of our common stock. Gunther Than
does not claim beneficial ownership of the shares owned by Leokadia
Than, his mother
o 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
o Rubin Investment Group holds 1,065,000 shares of common stock and
warrants to acquire 2,235,000 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
Dan J. Rubin, Ca. resident and accredited investor
o Columbia Financial Group is a Maryland corporation that is closely held
by Jim Price and Tim Rieu, both Maryland residents and accredited
investors
o The consultants acquiring warrants are Guy Parr who owns warrants to
acquire 10,000 shares at $2.00 per share and Tom Cloutier who owns
warrants to acquire 44,000 shares at $2.00 per share
o The Rule 506 Investors are those investors that purchased in our
private placement offerings that commenced in August and November, 1999
and are identified in "Selling Shareholders."
o Magnum Investments, Ltd. is a privately held corporation registered in
Republic of Trinidad. The principal shareholder is Tom Alexion who owns
75% of the outstanding shares of that comapny
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 8,386,080 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
2,689,000 shares may be issued to certain warrant holders upon the exercise of
warrants and the payment of the exercise price of $2.00 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.
-45-
<PAGE>
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, 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
-46-
<PAGE>
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 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.
-47-
<PAGE>
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.
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
-48-
<PAGE>
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 enter into certain types of transactions with us. These transactions
include:
- tender or exchange offers for our equity securities
- mergers or consolidations
- purchases of all or substantially all of our properties.
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 regarding our business and operations. These factors include:
- the consideration being offered
- the social and economic effect of acceptance of such offer on our present
and future customers and employees
- the social and economic effect offset of the acceptance of such offer on
the communities in which we operate or are located
- the desirability of maintaining independence from 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.
-49-
<PAGE>
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 interests of
the corporation, may consider:
- the interest of the corporation's employees, suppliers, creditors and
customers
- the economy of the state and the nation
- the interest of the economy and of society
- 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 alleges that we have not timely
paid interest and other monies due Hal Peterson, which Xyros allegedly 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
indebtedness of Xyros to Hal Peterson and Ken Weiss. 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
-50-
<PAGE>
acquisition of Xyros, it was controlled by Hal Peterson and had not paid
interest on the notes. We are defending the lawsuit on the grounds that the
notes might not evidence an actual indebtedness of Xyros to Hal Peterson or his
trust.
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:
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
-51-
<PAGE>
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."
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."
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. We extended a $20,000 short term loan to Dr. Maassen in December,
1999, which was completely repaid in January, 2000.
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 and Chief
Financial Officer, 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 Xyros
for working capital, and took back promissory
-52-
<PAGE>
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. In the three (3) months ended
March 31, 2000, we advanced another $9,000 to View Technologies. 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, as compensation for his
services as a director.
-53-
<PAGE>
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:
<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
</TABLE>
<TABLE>
<CAPTION>
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>
<TABLE>
<CAPTION>
2000 COMMON STOCK
---- QUOTED BID PRICE
----------------
HIGH LOW
---- ---
<S> <C> <C>
First Quarter 4.19 2.06
</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
-54-
<PAGE>
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 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.
-55-
<PAGE>
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 AWARDS
-------- ---- ------ -------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Gunther Than 1999 $72,000 $900,000 -- 370,000 ($)405,000
President, CEO
And Chairman
1998 0 0 0 0 0
1997 0 0 0 0 0
</TABLE>
- Bonus amount represents fair value on date of receipt of 300,000 shares of
common stock awarded in exchange for a covenant not to compete and covenant
not to solicit employees and customers and 250,000 shares of common stock
awarded as bonus for bringing about the acquisition of ETMC.
- The restricted stock awards were valued at $1.35 per share. We recognized a
discount from the public trading price based on the restrictions on the
shares.
-56-
<PAGE>
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
60,000 55% $ .01 July 1, 2004
60,000 74% $2.07 August 18, 2005
</TABLE>
- The 250,000 share option was awarded as a bonus for bringing about the
acquisition of ETMC.
- Mr. Than has been granted an incentive stock option under our stock option
plan to acquire 60,000 shares that vests at the rate of 5,000 options per
month commencing September 16, 1999.
- Mr. Than has been granted a non-qualified option under our stock option
plan to acquire 60,000 shares which vests at the rate of 5,000 options per
month commencing July 1, 1999.
AGGREGATED OPTION/SAR EXERCISES
IN LAST FISCAL YEAR AND YEAR END VALUES
The following table sets forth certain information concerning option
exercises and options held for the fiscal year ending December 31, 1999.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED UNDERLYING
UNEXERCISED IN-THE-MONEY
SHARES OPTIONS/SARS OPTIONS/SARS
ACQUIRED AT FY-END AT FY-END ($)
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>
-57-
<PAGE>
- We recognized $37,200 in employment 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
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 $7,000 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 $.01 per share.
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
-58-
<PAGE>
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
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
-59-
<PAGE>
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.
As indemnification for liabilities arising under the 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. Due to the
immateriality of this transaction, we accounted 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
-60-
<PAGE>
filed a registration statement to register our common stock under Section 12(g)
of the Exchange Act on August 13, 1999, on Form 10SB. 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 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
-61-
<PAGE>
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.
-62-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
VIEW SYSTEMS, INC
-----------------------------
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Summary Pro Forma Consolidated Financial Information E-1
Independent Auditors' Report F-1
Consolidated Balance Sheet at December 31, 1999 F-2
Consolidated Statements of Operations for the years ended F-3
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
Consolidated Balance Sheet at March 31, 2000 (unaudited) F-17
Consolidated Statements of Operations for the three months ended
March 31, 2000 and 1999 (unaudited) F-18
Consolidated Statements of Stockholders' Equity for the Three
Months Ended March 31, 2000 and 1999 (unaudited) F-19
Consolidated Statements of Cash Flow for the Three Months Ended
March 31, 2000 and 1999 (unaudited) F-20
Notes to Consolidated Financial Statements F-21
</TABLE>
-63-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
EASTERN TECH MANUFACTURING CORP.
-----------------------------
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Independent Auditors' Report G-1
Balance Sheet at June 30, 1998 G-2
Statements of Operations and Retained Earnings for the years
ended June 30, 1998 and 1997 G-3
Statements of Cash Flows for the years ended June 30, 1998 and 1997 G-4
Notes to Financial Statements G-5
Balance Sheet at March 31, 1999 (unaudited) G-7
Statements of Operations for the Nine Months Ended March 31, 1999
and 1998 (unaudited) G-8
Statements of Cash Flow for the Nine Months Ended March 31, 1999
and 1998 (unaudited) G-9
</TABLE>
-64-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
XYROS SYSTEMS, INC
-----------------------------
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Independent Auditors' Report H-1
Balance Sheet at December 31, 1998 H-2
Statements of Operations and Accumulated Deficit for the years
ended December 31, 1998 and 1997 H-3
Statements of Cash Flows for the years ended December 31, 1999
and 1998 H-4
Notes to Financial Statements H-5
</TABLE>
-65-
<PAGE>
SUMMARY PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following table provides summary pro forma consolidated financial
information for View Systems, Inc., Eastern Tech Manufacturing Corporation and
Xyros Systems, Inc. based on historical data for the year ended December 31,
1999 which assumes that the acquisition of these companies was consummated on
January 1, 1999. The summary pro forma financial data do not necessarily
indicate the operating results which would have resulted from the operation of
View Systems, Inc. on a consolidated basis during the period presented , nor
does this pro forma data necessarily represent any future operating results. In
addition to this summary financial data, you should also refer to the more
complete financial information included elsewhere in this prospectus, including
more complete historical results for our acquired businesses.
CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS DATA FOR THE YEARS ENDED
DECEMBER 31, 1999 AND 1998:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
REVENUE:
Sales and other income $ 704,322 $ 852,121
Cost of goods sold 588,163 681,231
----------- -----------
GROSS PROFIT ON SALES 116,159 170,890
OPERATING EXPENSES 4,107,475 418,189
----------- -----------
NET LOSS $(3,991,316) $ (247,299)
=========== ===========
BASIC AND DILUTED LOSS PER SHARE $ (0.68) $ (0.06)
=========== ===========
</TABLE>
-E-1-
<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.
As discussed in Note 14 to the accompanying consolidated financial
statements, the Company has restated its financial statements for the years
ended December 31, 1999 and 1998.
Baltimore, Maryland
May 22, 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:
Goodwill 735,079
Investments 28,000
Due from affiliated entity 90,990
Due from stockholders 74,362
Deposits 7,007
-----------
Total other assets 935,438
-----------
TOTAL ASSETS $ 1,559,421
===========
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 5,334,342
Accumulated deficit (4,166,087)
-----------
Total stockholders' equity 1,175,422
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,559,421
===========
</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 $ 303,711 $ -
Cost of goods sold 258,378 -
----------- -----------
GROSS PROFIT ON SALES 45,333 -
----------- -----------
OPERATING EXPENSES:
Advertising and promotion 23,256 1,151
Amortization of goodwill - Xyros 66,839 -
Business development expense 140,000 -
Contributions 2,500 -
Depreciation 29,856 3,885
Dues and subscriptions 3,379 250
Employee compensation and benefits 2,045,531 -
Insurance 17,038 442
Interest 51,262 217
Investor relations 212,086 45,415
Miscellaneous expense 19,009 282
Office expenses 69,989 992
Professional fees 317,100 9,500
Rent 74,228 16,325
Repairs and maintenance 10,167 -
Research and development 210,143 -
Taxes - other 3,201 -
Telephone 28,398 -
Travel and entertainment 105,813 11,040
Utilities 13,383 325
Write-off of goodwill and other intangible assets 545,490 -
----------- -----------
Total operating expenses 3,988,668 89,824
----------- -----------
NET LOSS $(3,943,335) $ (89,824)
=========== ===========
LOSS PER SHARE:
Basic $ (0.68) (.02)
=========== ===========
Diluted $ (0.68) (.02)
=========== ===========
</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 Total
Common Paid-in Accumulated Stockholders'
Stock Capital Deficit Equity
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balances at January 1, 1998 $ 4,000 $ 156,420 $ (132,928) $ 27,492
Sale of common stock 167 249,833 - 250,000
Net loss - - (89,824) (89,824)
----------- ----------- ----------- -----------
Balances at December 31, 1998 4,167 406,253 (222,752) 187,668
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 (Xyros acquisition) 150 562,350 - 562,500
Issuance of common stock (ETMC acquisition) 250 787,250 - 787,500
Issuance of common stock (debt conversion) 370 403,838 - 404,208
Net loss - - (3,943,335) (3,943,335)
----------- ----------- ----------- -----------
Balances at December 31, 1999 $ 7,167 $ 5,334,342 $(4,166,087) $ 1,175,422
=========== =========== =========== ===========
</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 $(3,943,335) $ (89,824)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 96,695 3,885
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 (93,278) -
Inventory (141,213) -
Other assets (7,007) -
Accounts payable 150,333 17,088
Accrued interest 11,000 -
Other accrued liabilities 19,163 -
----------- -----------
Net cash used in operating activities (1,094,399) (68,851)
----------- -----------
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/repayment of loans provided by stockholders 132,071 (6,599)
Repayment of note payable - bank (5,270) -
Proceeds from sales of stock 1,426,329 250,000
----------- -----------
Net cash provided by financing activities 1,553,130 243,401
----------- -----------
NET (DECREASE) INCREASE IN CASH (78,803) 167,946
CASH AT BEGINNING OF YEAR 167,953 7
----------- -----------
CASH AT END OF YEAR $ 89,150 $ 167,953
=========== ===========
</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 noncash investing and financing transactions:
Common stock issued to effect purchase of
Eastern Tech Manufacturing, Inc. $ 787,500 $ -
========== =======
Common stock issued to effect purchase of
Xyros Systems, Inc. $ 562,500 $ -
========== =======
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 intercompany accounts and transactions have been
eliminated in consolidation.
USE OF ESTIMATES
Management uses estimates and assumptions in preparing financial
statements in accordance with generally accepted accounting principles. Those
estimates and assumptions affect the reported amounts of assets and liabilities,
the disclosure of contingent assets and liabilities, and the reported revenues
and expenses. Actual results could differ from the estimates that were used.
REVENUE RECOGNITION
The Company and its subsidiaries recognize revenue and the
related cost of goods sold upon shipment of the product.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
determined by the first-in-first-out method (FIFO).
-F-7-
<PAGE>
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
Long-lived assets and identifiable intangibles (including
goodwill) to be held and used are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount should be addressed.
Impairment is measured by comparing the carrying value to the estimated
undiscounted future cash flows expected to result from use of the assets and
their eventual disposition.
INCOME TAXES
Deferred income taxes are recorded under the asset and liability
method whereby deferred tax assets and liabilities are recognized for the future
tax consequences, measured by enacted tax rates, attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss carryforwards. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period the rate change becomes effective. Valuation
allowances are recorded for deferred tax assets when it is more likely than not
that such deferred tax assets will not be realized.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
Equipment and facilities acquired for research and development activities that
have alternative future uses are capitalized and charged to expense over the
estimated useful lives.
ADVERTISING
Advertising costs are charged to operations as incurred.
Advertising costs for the years ended December 31, 1999 and 1998 were $23,256
and $3,959, respectively.
NONMONETARY TRANSACTIONS
Nonmonetary transactions are accounted for in accordance with
Accounting Principles Board Opinion No. 29 ACCOUNTING FOR NONMONETARY
TRANSACTIONS which requires the transfer or distribution of a nonmonetary asset
or liability to be based, generally, on the fair value of the asset or liability
that is received or surrendered, whichever is more clearly evident.
-F-8-
<PAGE>
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 antidilutive.
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 $4.2 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 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.
-F-9-
<PAGE>
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 purchase.
Condensed financial information for Xyros for the two months ended
February 28, 1999 and the year ended December 31, 1998 is as follows:
<TABLE>
<CAPTION>
Two Months
Ended Year Ended
February 28, 1999 December 31, 1998
----------------- -----------------
(Unaudited)
<S> <C> <C>
Sales and other income $ 6,346 $ 31,438
Cost of goods sold 100 20,891
--------- ---------
Gross profit on sales 6,246 10,547
Operating expenses 62,081 186,567
--------- ---------
Net loss $ (55,835) $(176,020)
========= =========
</TABLE>
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 during the year ended
December 31,199.
Condensed financial information for ETMC for the eleven months ended
May 31, 1999 and the year ended June 30, 1998 ETMC's fiscal year is as follows:
<TABLE>
<CAPTION>
Eleven Months
Ended Year Ended
May 31, 1999 June 30, 1998
-------------- -------------
(Unaudited)
<S> <C> <C>
Sales and other income $ 867,383 $ 820,683
Cost of goods sold 725,308 660,340
--------- ---------
Gross profit on sales 142,075 160,343
Operating expenses 107,584 164,085
--------- ---------
Net income (loss) $ 34,491 $ (3,742)
========= =========
</TABLE>
-F-10-
<PAGE>
The following unaudited condensed pro form summary presents the
consolidated results of operations for the years ended December 31, 1999 and
1998 of the Company as if the purchase business combinations had occurred
January 1, 1998:
<TABLE>
<CAPTION>
1999 1998
----------- ---------
(unaudited) (unaudited)
<S> <C> <C>
Sales and other income $ 704,322 $ 852,121
Cost of goods sold 588,163 681,231
----------- ---------
Gross profit on sales 116,159 170,890
Operating expenses 4,107,475 418,189
----------- ---------
Net loss $(3,991,316) $(247,299)
=========== =========
</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 which 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.
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.
-F-11-
<PAGE>
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 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.
In relation to the business combination with Xyros accounted for
under the purchase method of accounting, the Company recorded goodwill in the
amount of $802,069. This amount was based on the difference between the fair
market value of the Company's stock at the acquisition date and the fair market
value of Xyros's net assets and is being amortized on a straight-line basis over
a ten year period. Amortization expense from the purchase date of February 25,
1999 through December 31, 1999 was $66,839.
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.
-F-12-
<PAGE>
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.
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 carryforward $ 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 carryforward. The
Company has net operating loss carryforwards 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>
-F-13-
<PAGE>
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:
<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>
-F-14-
<PAGE>
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 these 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
---------------------------- ------------------------
Year Net Per Net Per
Ended Loss Share Loss Share
----- ---- ----- ---- -----
<S> <C> <C> <C> <C> <C>
1999 $(3,943,335) $(0.68) $(4,209,848) $(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-15-
<PAGE>
14. RESTATEMENT OF FINANCIAL STATEMENTS
The Company has restated its financial statements for the years
ending December 31, 1999 and 1998 to account for the acquisition of Xyros as a
purchase. The previous financial statements had accounted for this acquisition
as a pooling of interests. Accordingly, such statements have been restated as
follows:
<TABLE>
<CAPTION>
1999 1998
---------------------------- ----------------------
As As
Reported Restated Reported Restated
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Statements of Operations Data:
Sales and other income $ 310,057 $ 303,711 $ 31,438 $ -
Cost of goods sold 258,478 258,378 20,891 -
Gross profit 51,579 45,333 10,547 -
Total operating expenses 3,983,910 3,988,668 254,104 89,824
Net loss (3,932,331) (3,943,335) (243,557) (89,824)
Net loss per share (basic and diluted) .68 .68 .06 .02
Balance Sheet Data:
Goodwill - 735,079 - -
Total assets 824,342 1,559,421 - -
Additional paid-in capital 4,771,992 5,334,342 - -
Accumulated deficit (4,330,816) (4,166,087) - -
</TABLE>
-F-16-
<PAGE>
VIEW SYSTEMS, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 122,004 $ 89,150
Accounts receivable 87,113 93,278
Inventory 135,764 141,213
----------- -----------
Total current assets 344,881 323,641
----------- -----------
PROPERTY AND EQUIPMENT:
Equipment 351,848 344,638
Leasehold improvements 19,533 4,000
----------- -----------
371,381 348,638
Less accumulated depreciation 61,186 48,296
----------- -----------
Net value of property and equipment 310,195 300,342
----------- -----------
OTHER ASSETS:
Goodwill 715,031 735,079
Investments 28,000 28,000
Due from affiliated entity 80,712 90,990
Due from stockholders 94,362 74,362
Deposits 7,007 7,007
----------- -----------
Total other assets 925,112 935,438
----------- -----------
TOTAL ASSETS $ 1,580,188 $ 1,559,421
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 126,059 $ 174,106
Note payable - bank 68,114 69,730
Notes payable - stockholders 110,000 110,000
Accrued interest payable 13,750 11,000
Other accrued liabilities 24,169 19,163
----------- -----------
Total current liabilities 342,092 383,999
----------- -----------
STOCKHOLDERS' EQUITY:
Common stock - par value $0.001
50,000,000 shares authorized,
8,108,781 shares issued and outstanding 8,109 -
7,167,203 shares issued and outstanding - 7,167
Additional paid-in capital 5,845,105 5,334,342
Accumulated deficit (4,615,118) (4,166,087)
----------- -----------
Total stockholders' equity 1,238,096 1,175,422
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 1,580,188 $ 1,559,421
=========== ===========
</TABLE>
See Accompanying Notes.
-F- 17 -
<PAGE>
VIEW SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED
MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
March 31, March 31,
2000 1999
--------- ---------
(Unaudited) (Unaudited)
<S> <C> <C>
REVENUE:
Sales of security systems $ 17,900 $ -
Sales of assembled electronic components 92,512 -
--------- ---------
Total sales 110,412 -
Cost of goods sold 60,395 -
--------- ---------
GROSS PROFIT ON SALES 50,017 -
--------- ---------
OPERATING EXPENSES:
Advertising and promotion 10,418 -
Amortization 20,048 -
Depreciation 12,890 8
Dues and subscriptions 820 219
Insurance 2,633 1,108
Interest 6,190 1,360
Investor relations 33,865 -
Miscellaneous expense 1,699 683
Office expenses 36,216 31,688
Professional fees 96,378 64,631
Rent 27,985 3,500
Repairs and maintenance 4,493 1,960
Research and development 63,765 -
Salaries and benefits 131,040 -
Sales promotions 26,513 -
Taxes - other 4,205 -
Travel 16,905 11,512
Utilities 2,985 3,165
--------- ---------
Total operating expenses 499,048 119,834
--------- ---------
NET LOSS FOR THE THREE MONTHS $(449,031) $(119,834)
========= =========
LOSS PER SHARE:
Basic $ (0.06) $ (0.04)
========= =========
Diluted $ (0.06) $ (0.04)
========= =========
</TABLE>
See Accompanying Notes
-F-18-
<PAGE>
VIEW SYSTEMS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
Additional Total
Common Paid-In Accumulated Stockholders'
Stock Capital Deficit Equity
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balances at January 1, 1999 $ 4,167 $ 406,253 $ (222,752) $ 187,668
Sale of common stock 500 747,100 - 747,600
Net loss for the three months
ended March 31, 1999 - - (119,834) (119,834)
----------- ----------- ----------- -----------
Balances at March 31, 1999 (Unaudited) 4,667 1,153,353 (342,586) 815,434
Sale of common stock 452 678,277 - 678,729
Redemption of common stock (191) (396,590) - (396,781)
Issuance of common stock
(employee and other compensation) 1,469 2,145,864 - 2,147,333
Issuance of common stock
(Xyros acquisition) 150 562,350 - 562,500
Issuance of common stock
(ETMC acquisition) 250 787,250 - 787,500
Issuance of common stock
(debt conversion) 370 403,838 - 404,208
Net loss for the period of April 1, 1999
to December 31, 1999 - - (3,823,501) (3,823,501)
----------- ----------- ----------- -----------
Balances at December 31, 1999 7,167 5,334,342 (4,166,087) 1,175,422
Sale of common stock 857 509,918 - 510,775
Stock options exercised 85 845 - 930
Net loss for the three months
ended March 31, 2000 - - (449,031) (449,031)
----------- ----------- ----------- -----------
Balances at March 31, 2000 (Unaudited) $ 8,109 $ 5,845,105 $(4,615,118) $ 1,238,096
=========== =========== =========== ===========
</TABLE>
See Accompanying Notes
-F-19-
<PAGE>
VIEW SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED
MARCH 31, 2000 AND 1999
<TABLE>
<CAPTION>
March 31, March 31,
2000 1999
--------- ---------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(449,031) $(119,834)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 32,938 -
Changes in operating assets and liabilities:
Accounts receivable 6,165 3,549
Inventory (5,449) -
Accounts payable (48,047) (9,831)
Accrued interest 2,750 -
Other accrued liabilities 15,904 (1,422)
--------- ---------
Net cash used in operating activities (444,770) (127,538)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (22,743) (111,205)
Funds advanced to affiliated entities 10,278 (204,580)
Investment in MediaComm Broadcasting, Inc. - (28,000)
--------- ---------
Net cash used in investing activities (12,465) (343,785)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Funds advanced (to) from shareholders (20,000) (33,041)
Repayment of note payable - bank (1,616) -
Proceeds from sales of stock 511,705 747,600
Repayment of loans payable - (12,323)
--------- ---------
Net cash provided by financing activities 490,089 702,236
--------- ---------
NET INCREASE IN CASH 32,854 230,913
CASH AT BEGINNING OF PERIOD 89,150 167,953
--------- ---------
CASH AT END OF PERIOD $ 122,004 $ 398,866
========= =========
</TABLE>
See Accompanying Notes
- F-20 -
<PAGE>
VIEW SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2000 AND 1999
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 intercompany accounts and transactions have been
eliminated in consolidation.
USE OF ESTIMATES
Management uses estimates and assumptions in preparing
financial statements in accordance with generally accepted accounting
principles. Those estimates and assumptions affect the reported amounts of
assets and liabilities, the disclosure of contingent assets and liabilities, and
the reported revenues and expenses. Actual results could differ from the
estimates that were used.
REVENUE RECOGNITION
The Company and its subsidiaries recognize revenue and the
related cost of goods sold upon shipment of the product.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
determined by the last-in-first-out method (LIFO).
PROPERTY AND EQUIPMENT
Property and equipment is recorded at cost and depreciated
over their estimated useful lives, using the straight-line and accelerated
depreciation methods. Upon sale or retirement, the cost and related accumulated
depreciation are eliminated from the respective accounts, and the resulting gain
or loss is included in the results of operations. The useful lives of property
and equipment for purposes or computing depreciation are as follows:
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 March 31, 2000 amounted to $29,856 and $4,706
respectively.
- F-21 -
<PAGE>
VIEW SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 2000 AND 1999
IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets and identifiable intangibles (including
goodwill) to be held and used are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount should be addressed.
Impairment is measured by comparing the carrying value to the estimated
undiscounted future cash flows expected to result from use of the assets and
their eventual disposition.
INCOME TAXES
Deferred income taxes are recorded under the asset and
liability method whereby deferred tax assets and liabilities are recognized for
the future tax consequences, measured by enacted tax rates, attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating loss carryforwards.
The effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period the rate change becomes effective. Valuation
allowances are recorded for deferred tax assets when it is more likely than not
that such deferred tax assets will not be realized.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
Equipment and facilities acquired for research and development activities that
have alternative future uses are capitalized and charged to expense over the
estimated useful lives.
ADVERTISING
Advertising costs are charged to operations as incurred.
Advertising costs for the years ended March 31,2000 were $10,418.
MONETARY TRANSACTIONS
Nonmonetary transactions are accounted for in accordance with
Accounting Principles Board Opinion No. 29 ACCOUNTING FOR NONMONETARY
TRANSACTIONS which requires the transfer or distribution of a nonmonetary asset
or liability to be based, generally, on the fair value of the asset or liability
that is received or surrendered, whichever is more clearly evident.
FINANCIAL INSTRUMENTS
For most financial instruments, including cash, accounts
receivable, accounts payable and accruals, management believes that the carrying
amount approximates fair value, as the majority of these instruments are
short-term in nature.
NET LOSS PER COMMON SHARE
Basic net loss per common share ("Basic EPS") is computed by
dividing net loss available to common stockholders by the weighted average
number of common shares outstanding. Diluted net loss per common share ("Diluted
EPS") is computed by dividing net loss available to common stockholders by the
weighted average number of common shares and dilutive potential common share
equivalents then outstanding. Potential common shares consist of shares issuable
upon the exercise of stock options and warrants. The calculation of the net loss
per share available to common stockholders for the years ended March 31, 2000
does not include potential shares of common stock equivalents, as their impact
would be antidilutive.
- F-22 -
<PAGE>
VIEW SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for the years ended march 31, 2000 AND 1999
SEGMENT REPORTING
The company has determined that it does not have any
separately reportable operating segments as of March 31, 2000.
2. FINANCIAL CONDITION
Since its inception, the Company has incurred significant losses
and as of March 31, 2000 had an accumulated deficit of $4.8 million. The Company
believes that it will incur operating losses for the foreseeable future. There
can be no assurance that the Company will be able to generate sufficient
revenues to achieve or sustain profitability in the future. However, the Company
believes that its current cash and cash equivalents, along with sales revenue
equity infusions, and investment sales will be sufficient to sustain operations
through March 31, 2001.
- F-23 -
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Eastern Tech Manufacturing Corporation
We have audited the accompanying balance sheets of Eastern Tech
Manufacturing Corporation as of June 30, 1998 and 1997 and the related
statements of operations and retained earnings, and cash flows for the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the 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 financial statements referred to above present
fairly, in all material respects, the financial position of Eastern Tech
Manufacturing Corporation as of June 30, 1998 and 1997, and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
Davis, Sita & Company
June 2, 2000
-G-1-
<PAGE>
EASTERN TECH MANUFACTURING CORPORATION
BALANCE SHEET
JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 8,970 $ 6,538
Accounts receivable 33,138 71,590
Prepaid expenses 1,669 -
-------- --------
Total current assets 43,777 78,128
-------- --------
PROPERTY AND EQUIPMENT:
Equipment, at cost 154,935 141,571
Less accumulated depreciation 83,879 81,970
-------- --------
Cost less accumulated depreciation 71,056 59,601
-------- --------
TOTAL ASSETS $114,833 $137,729
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable $ 48,807 $ 67,961
Loans from stockholder 42,953 42,953
-------- --------
Total current liabilities 91,760 110,914
-------- --------
STOCKHOLDER'S EQUITY:
Common stock - par value $1.00
500 shares authorized, issued and outstanding 500 500
Retained earnings 22,573 26,315
-------- --------
Total stockholder's equity 23,073 26,815
-------- --------
TOTAL LIABILITIES AND
STOCKHOLDER'S EQUITY $114,833 $137,729
======== ========
</TABLE>
See Notes To Financial Statements
-G-2-
<PAGE>
EASTERN TECH MANUFACTURING CORPORATION
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
FOR THE YEARS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
REVENUE:
Sales of assembled electronic components $ 820,683 $1,942,563
---------- ----------
COST OF SALES:
Material 484,961 1,307,755
Labor 175,379 310,205
---------- ----------
Cost of sales 660,340 1,617,960
---------- ----------
Gross profit 160,343 324,603
---------- ----------
OPERATING EXPENSES:
Salaries and benefits 43,844 61,480
Rent 43,029 101,015
Taxes (principally payroll) 26,981 42,144
Other operating expenses 25,683 88,895
Insurance 22,639 23,507
Depreciation 1,909 5,758
---------- ----------
Total operating expenses 164,085 322,799
---------- ----------
NET INCOME (LOSS) FOR THE YEAR (3,742) 1,804
RETAINED EARNINGS, BEGINNING OF YEAR 26,315 24,511
---------- ----------
RETAINED EARNINGS, END OF YEAR $ 22,573 $ 26,315
========== ==========
</TABLE>
See Notes To Financial Statements
-G-3-
<PAGE>
EASTERN TECH MANUFACTURING CORPORATION
BALANCE SHEET
MARCH 31, 1999
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS:
Cash $ 9,537
Accounts receivable 35,261
Inventory 30,210
--------
Total current assets 75,008
--------
PROPERTY AND EQUIPMENT:
Equipment, at cost 154,935
Less accumulated depreciation 86,874
--------
Net value of equipment 68,061
--------
TOTAL ASSETS $143,069
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable $ 15,076
Loans from stockholder 101,816
Other accrued liabilities 3,350
--------
Total current liabilities 120,242
--------
STOCKHOLDER'S EQUITY
Common Stock - par value $1.00, 1000 shares authorized, 100 shares
issued and outstanding 500
Retained earnings 22,327
--------
Total stockholder's equity 22,827
--------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $143,069
</TABLE>
-G-7-
<PAGE>
To the Board of Directors and Stockholders
Xyros Systems, Inc.
Columbia, Maryland
We have audited the accompanying balance sheet of Xyros Systems, Inc.
as December 31, 1998 and the related statements of operations and accumulated
deficit and cash flows for the years ended December 31, 1998 and 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these 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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the 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 our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Xyros Systems, Inc.
as December 31, 1998, and the results of its operations and cash flows for the
years ended December 31, 1998 and 1997 in conformity with generally accepted
accounting principles.
Stegman & Company
Baltimore, Maryland
May 31, 2000
-H-1-
<PAGE>
4,445,727 SHARES
VIEW SYSTEMS, INC.
PROSPECTUS
June 07, 2000
TABLE OF CONTENTS ON
Back of Prospectus Cover Page
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
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
II-1
<PAGE>
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 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 $ 2,640.76
Blue Sky Fees and Expenses 5,000
Accounting Fees and Expenses 28,000
Printing Expenses 25,000
Transfer Agent and Registrar Fees 1,000
----------
TOTAL $61,640.76
==========
</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
II-2
<PAGE>
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 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 501 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
II-3
<PAGE>
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 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
II-4
<PAGE>
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 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
II-5
<PAGE>
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 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
II-6
<PAGE>
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 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
II-7
<PAGE>
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
Section 4 (2) and 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 agreed to register all
shares sold in this offering for resale in our next registered offering pursuant
to the Securities Act of 1933
On February 14, 2000, we issued 26,000 shares to Richard Gray an
independent sales representative who is no longer working for us. Mr. Gray
exercised 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. Rubin Investment Group purchased its
shares in an offering conducted under Section 4(2) and Rule 506 of the
Securities Act of 1933. During April and May, 2000, Rubin Investment Group
partially exercised the warrants to the extent of providing us with cash and
property with a value of $230,000 and receiving 265,000 shares of our common
stock. We modified these agreements of May 22, 2000, to permit Rubin Investment
Group to acquire 200,000 shares for $100,000.
II-8
<PAGE>
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.
II-9
<PAGE>
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.
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
II-10
<PAGE>
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
4.16 (6) Non-qualified Stock Option Agreement with Richard W. Gray
4.17 (attached to registration statement) Amendment to First Purchase Common
Stock Warrant, Dated February 18, 2000, Second Purchase Common Stock
Warrant, Dated February 18, 2000, and Subscription and Investment
Agreement, Dated February 18, 2000, Between View Systems and Rubin
Investment Group
5. (1) Opinion of Woodford & Martien, P.C. Regarding Legality.
II-11
<PAGE>
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
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
II-12
<PAGE>
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
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
II-13
<PAGE>
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 (5) 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 (5) Typical Non-Exclusive Reseller Agreement
II-14
<PAGE>
10.30 (5) Schedule of Contracted Resellers
10.31 (5) Agreement between View Systems, Inc. and Magnum Financial Services,
Inc., dated February 27, 2000
10.32 (6) View Systems, Inc. Employment Agreement with Keith Company
11. (6) Statement regarding computation of per share earnings
16. (4) Letter From Katz,Abosch, Windesheim, Gershman & Freedman, P.A. to
View Systems, Inc., dated April 11, 2000
21. (1) Subsidiaries of Registrant.
23.1 (attached to registration statement) Consent of Stegman & Company
23.2 (attached to registration statement) Consent of Davis, Sita & Company
23.3 (attached to registration statement) Consent of Stegman & Company
27. (attached to registration statement) Financial Data Schedule.
-----------------------------------------------------------------
(1) Incorporated By Reference from Registrant's Registration
II-15
<PAGE>
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.
(5) Incorporated By Reference From Registrant's Statement on Form SB-2/A
Filed with the Commission on April 27, 2000.
(6) Incorporated By Reference From Registrant's Form 10-QSB, Dated May 15,
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
II-16
<PAGE>
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:
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%
II-17
<PAGE>
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-18
<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 June 7, 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.
II-19
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
President,
Chief Executive
Officer and
Chairman of the
Board and
/s/ Gunther Than Director June 7, 2000
-------------------------- ---------------- ------------
Gunther Than
/s/ Martin Maassen Chairman/BD June 7, 2000
-------------------------- ---------------- ------------
Martin Maassen
/s/ Michael Bagnoli Director June 7, 2000
-------------------------- ---------------- ------------
Michael Bagnoli
/s/ David Barbara Director June 7, 2000
-------------------------- ---------------- ------------
David Barbara, Director
</TABLE>
II-20
<PAGE>
<TABLE>
<S> <C> <C>
Vice President,
Secretary and
/s/ Andrew L. Jiranek General Counsel June 7, 2000
-------------------------- ---------------- ------------
Andrew L. Jiranek
Comptroller and
Chief Financial
/s/ Linda Than Officer June 7, 2000
-------------------------- ---------------- ------------
Linda Than
</TABLE>
II-21
