U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
|X| Quarterly Report Pursuant to Section 13 or 15 (d) of
the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2000
|_| TRANSITION REPORT PURSUANT SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ___________
Commission File Number 0-30178
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VIEW SYSTEMS, INC.
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(Exact Name of Small Business Issuer as Specified in Its Charter)
Florida 59-2928366
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(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
925 West Kenyon Avenue,
Englewood, Colorado 80110
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(Address of Principal Executive Offices)
(303) 783-9153
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(Issuer's Telephone Number, Including Area Code)
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(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
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APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court.
Yes X No
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APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 9,054,120 shares of common stock as
of September 30, 2000.
Transitional Small Business Disclosure Format (check one):
Yes No X
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<PAGE>
Table of Contents
PART I. Financial Information
Item I. Financial Statements
Consolidated Balance Sheet.....................................................1
Consolidated Statement of Operations...........................................2
Consolidated Statement of Stockholder's Equity.................................3
Statement of Cash Flows........................................................4
Notes to Consolidated Financial Statements.....................................5
Item II. Management Discussion and Analysis...................................7
PART II. Other Information
Item I. Legal Proceedings..................................................12
Item II. Changes In Securities..............................................12
Item III. Defaults Upon Senior Securities....................................13
Item IV. Submission of Matters To A Vote of Security Holders................13
Item V. Other Information..................................................13
Item VI. Exhibits And Reports On Form 8-K...................................14
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
VIEW SYSTEMS, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
<CAPTION>
September 30, December 31,
2000 1999
------------- -------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash $ 44,043 $ 89,150
Accounts receivable 42,227 93,278
Inventory 218,070 141,213
------------ ------------
Total current assets 304,340 323,641
------------ ------------
PROPERTY AND EQUIPMENT:
Equipment 364,641 344,638
Leasehold improvements 20,261 4,000
------------- ------------
384,902 348,638
Less accumulated depreciation (83,822) (48,296)
-------------- -------------
Net value of property and equipment 301,080 300,342
-------------- -------------
OTHER ASSETS:
Goodwill 925,675 1,007,518
Investments 28,000 28,000
Due from affiliated entity 103,433 90,990
Due from stockholders 14,324 74,362
Deposits 8,660 7,007
------------- ------------
Total other assets 1,080,092 1,207,877
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TOTAL ASSETS $ 1,685,512 $ 1,831,860
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 335,783 $ 174,106
Note payable - bank 46,564 69,730
Notes payable - stockholders 110,000 110,000
Accrued interest payable 19,250 11,000
Other accrued liabilities 39,073 19,163
------------- ------------
Total current liabilities 550,670 383,999
------------- ------------
STOCKHOLDERS' EQUITY:
Common stock - par value $0.001
50,000,000 shares authorized,
8,552,259 shares issued and outstanding 8,552 -
7,167,203 shares issued and outstanding - 7,167
Additional paid-in capital 6,199,311 5,334,342
Accumulated deficit (5,073,021) (3,893,648)
------------- ------------
Total stockholders' equity 1,134,842 1,447,861
------------- ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 1,685,512 $ 1,831,860
============= ============
</TABLE>
1
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VIEW SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ -----------------
September 30, September 30 September 30, September 30
2000 1999 2000 1999
------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
REVENUE:
Sales of security systems $ 31,719 $ 11,647 $ 146,979 $ 11,647
Sales of assembled electronic components 34,848 141,583 261,080 182,844
------------- ------------ ------------ ------------
Total sales 66,567 153,230 408,059 194,491
Cost of goods sold 20,412 141,199 211,168 154,068
------------- ------------ ------------ ------------
GROSS PROFIT ON SALES 46,155 12,031 196,891 40,423
------------- ------------ ------------ ------------
OPERATING EXPENSES:
Advertising and promotion 1,283 - 12,663 -
Amortization 27,281 12,384 81,843 16,512
Depreciation 11,293 15,415 33,404 22,039
Dues and subscriptions 495 1,175 2,741 1,494
Insurance 5,694 4,961 13,174 11,156
Interest 4,022 5,595 15,570 17,585
Investor relations 15,488 155,141 49,353 166,392
Miscellaneous expense 11,338 4,533 13,777 8,417
Office expenses 26,102 25,687 92,311 79,292
Professional fees 110,757 291,637 282,013 427,797
Rent 26,746 7,495 81,590 30,395
Repairs and maintenance 1,158 10,754 8,165 14,277
Research and development 34,538 - 143,840 2,698
Salaries and benefits 137,103 724,087 420,032 1,155,541
Sales promotions 25,796 - 74,050 -
Taxes - other 362 2,393 4,667 3,201
Travel 4,882 28,884 34,412 66,847
Utilities 4,875 3,363 12,659 10,360
-------------- ----------- ------------ -----------
Total operating expenses 449,213 1,293,504 1,376,264 2,034,003
-------------- ------------ ------------ -----------
NET LOSS FOR THE THREE MONTHS $ (403,058) $(1,281,473) $ (1,179,373) $(1,993,580)
============= ============ ============== ============
LOSS PER SHARE:
Basic $ (0.05) $ (0.19) $ (0.15) $ (0.39)
============= ============ ============== ==========
Diluted $ (0.05) $ (0.19) $ (0.15) $ (0.39)
============= ============ ============== ==========
</TABLE>
2
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VIEW SYSTEMS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Additional Total
Common Paid-In Accumulated Stockholders'
Stock Capital Deficit Equity
------- ---------- ------------ -------------
<S> <C> <C> <C> <C>
Balances at January 1, 1999 $ 4,167 $ 406,253 $ (222,752) $ 187,668
Sale of common stock 814 1,049,535 - 1,050,349
Issuance of common stock
(Xyros acquisition) 150 562,350 - 562,500
Redemption of common stock (191) (396,590) - (396,781)
Issuance of common stock
(employee and other compensation) 1,469 1,240,864 - 1,242,333
Issuance of common stock
(ETMC acquisition) 250 787,250 - 787,500
Issuance of common stock
(debt conversion) 170 194,038 - 194,208
Net loss for the nine months
ended September 30, 1999 - - (1,993,580) (1,993,580)
--------- ----------- ------------ -------------
Balances at September 30, 1999 (unaudited) 6,829 3,843,700 (2,216,332) 1,634,197
Sale of common stock 138 1,280,842 - 1,280,980
Issuance of common stock
(debt conversion) 200 209,800 - 210,000
Net loss for the period of October 1, 1999
to December 31, 1999 - - (1,677,316) (1,677,316)
--------- ----------- ------------ -------------
Balances at December 31, 1999 7,167 5,334,342 (3,893,648) 1,447,861
Sale of common stock 1,285 863,991 - 865,276
Stock options exercised 100 978 - 1,078
Net loss for the nine months
ended September 30, 2000 - - (1,179,373) (1,179,373)
--------- ----------- ------------ -------------
Balances at September 30, 2000(Unaudited) $ 8,552 $ 6,199,311 $ 5,073,021 $ 1,134.842
========= =========== ============ =============
</TABLE>
3
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VIEW SYSTEMS, INC.
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED
<TABLE>
<CAPTION>
September 30, September 30,
2000 1999
-------------- -------------
(Unaudited) (Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,179,373) $(1,993,581)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 115,247 38,552
Employee and other compensation
paid with stock - 1,242,333
Changes in operating assets and liabilities:
Accounts receivable 51,051 56,819
Inventory (76,839) (63,996)
Deposits and other assets (1,653) -
Accounts payable 162,489 (1,455)
Accrued interest 8,250 8,250
Other accrued liabilities 19,910 20,202
Software development cost - 20,490
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Net cash used in operating activities (900,918) (672,387)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (34,972) (26,958)
Funds advanced to affiliated entities (12,443) (447,792)
Investment in MediaComm Broadcasting, Inc. - (28,000)
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Net cash used in investing activities (47,415) (502,750)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Funds advanced (to) from shareholders 60,038 431,315
Repayment of note payable - bank (23,166) (4,291)
Proceeds from sales of stock 866,354 1,050,192
Redemption of stock - (396,781)
------------- ------------
Net cash provided by financing activities 903,226 1,080,435
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NET INCREASE (DECREASE) IN CASH (45,107) (94,702)
CASH AT BEGINNING OF PERIOD 89,150 169,899
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CASH AT END OF PERIOD $ 44,043 $ 75,197
============= ===========
</TABLE>
4
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VIEW SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
--------------------
View Systems, Inc. (the "Company") designs and develops
computer software and hardware used in conjunction with surveillance
capabilities. The technology utilizes the compression and decompression of
digital inputs. Operations, from formation to June 30, 1999, have been devoted
primarily to raising capital, developing the technology, promotion, and
administrative function. As of July 1, 1999 the Company was no longer considered
to be in the development stage.
Basis of Consolidation
----------------------
The consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries, 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:
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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 September 30, 2000 amounted to $33,404 and $15,415
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 September 30, 2000 were $12,663.
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.
6
<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 September 30,
2000 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 September 30, 2000.
2. FINANCIAL CONDITION
Since its inception, the Company has incurred significant losses
and as of September 30, 2000 had an accumulated deficit of $5 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 September 30, 2001.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion and analysis should be read in conjunction
with our audited and unaudited financial statements and the notes thereto
included in this Report.
OVERVIEW
We have two business lines. We develop, produce and sell a family of
closed circuit television - CCTV - digital recording and video management
products and digital identification products based on our proprietary software.
These products are used for
8
<PAGE>
security and surveillance. We also provide contract manufacturing services for
electronic components and systems.
We only began providing contract manufacturing services in May, 1999,
when we acquired Eastern Tech Manufacturing Corp. Eastern Tech had provided such
services for more than 15 years and had an established customer base. We have
continued the contract manufacturing business line, while converting Eastern
Tech's manufacturing capacity to production of our products.
RESULTS IN OPERATIONS
Nine Months Ended September 30, 2000, Compared With Nine Months Ended September
30, 1999
REVENUE
For the nine months ended September 30, 2000, revenues from sales of
our products increased $135,332 or 1162% to $146,979 from $11,647 in the same
period last year, and revenues from sales of our services grew $78,236 or 43% to
$261,080 from $182,844 in the same period last year. We only began receiving
revenues from services after May 25, 1999, when we acquired Eastern Tech, and,
therefore, our service revenue figures for the year ago period ended September
30, 1999, do not include a full nine months of operations. Of the $408,059 in
total revenue during the nine month period ended September 30, 2000, $146,979 or
36% was derived from sales of systems and $261,080 or 64% from sales of contract
manufacturing services. The ratio of security systems sales to contract
manufacturing is increasing.
NET SALES AND GROSS PROFIT MARGIN
Net sales for the nine months ended September 30, 2000, increased
$156,468 or 387% to $196,891 compared with $40,423 in same period last year.
Gross profit margin for the nine months ended September 30, 2000, was 48%
compared with 21% in the same period last year. Because of low net sales we
achieved in the period last year ended September 30, 1999, we do not believe
growth profit margin comparisons are meaningful at this stage of our operations.
OPERATING EXPENSES
Operating expenses for the nine months ended September 30, 2000,
decreased to $1,376,264, compared with $2,034,003 for the comparable period in
1999. The decrease is principally due to decreased expenditures in the areas of
salaries and professional fees.
As a result of the foregoing, net loss was $(1,179,373) for the nine
months ended September 30, 2000, compared to a net loss of $(1,993,580) for the
nine months ended September 30, 1999.
COSTS AND EXPENSES
COSTS OF PRODUCTS SOLD. The cost of products and services sold, was
$211,168 for the nine months ended September 30, 2000, and represented 52% of
revenue for the period, compared with $154,068 for the nine months ended
September 30, 1999. Because of our low sales volume in the same period last
year, we do not consider the costs of goods sold in the same period last year to
be a good measure of our true costs of goods sold. As our product sales increase
and account for a larger percentage of our overall sales, we expect that our
costs of goods and services sold will decline and stabilize as a percentage of
9
<PAGE>
total revenue. We anticipate that our profit margins on sales of security
systems will exceed our profit margins on sales of services. We are continually
working on engineering changes in our security products that we expect will
lower component costs for these products. We do not determine our inventory on a
quarterly basis, instead we do it on an annual basis. Therefore, our cost of
goods sold calculations are based on estimates of inventory used in products
sold.
AMORTIZATION. We acquired Xyros Systems, Inc. on February 25, 1999, and
Eastern Tech Manufacturing Corp. on May 25, 1999, and accounted for both
acquisitions under the purchase method of accounting. We recorded goodwill for
the Xyros combination of $802,069 and $495,344 for the Eastern Tech combination,
all of which was determined based on the difference between the fair market
value of what we paid for Xyros and Eastern Tech and the fair value of their net
assets. During the fourth quarter of 1999, we conducted a thorough review of the
acquired companies operations, including their current customer base, current
production capacity, and job order backlog, in accordance with SFAS #121. Based
on this review, we recognized an impairment loss of $199,009 for Xyros, and
$222,904 for Eastern Tech at year end 1999, and elected to amortize the
remaining goodwill balance over a 10 year period. For the nine months ended
September 30, 2000, we recorded amortization expense for this goodwill of
$81,843 based on this schedule.
RESEARCH AND DEVELOPMENT EXPENSE. We spent $143,840 on research and
development for the nine months ended September 30, 2000, as compared with
$2,698 in the same period last year. Our R&D expenditures in the nine months
ended September 30, 2000, represented 73% of gross profit margin for this
period. We continue work on enhancements and upgrades to our existing products
and introduced a redesigned base model SecureView-4 product to the market in
April, 2000. We are working on introducing additional products to the market in
2000. We expect continued heavy expenditures in this area, evidencing our
commitment to develop industry leading video management and identification
products.
SALARIES AND BENEFITS. We spent $420,032 on salaries and benefits for
the nine months ended September 30, 2000, as compared with $1,155,541 in the
same period last year. In the same period last year, we recognized $893,520 in
expense associated with the issuance of stock as compensation and we have
recognized no comparable expense due to the issuance of stock as compensation in
the 9 month period ended September 30, 2000. We have increased expenditure on
salaries and fees for sales and marketing personnel, including consultants, and
we incurred $74,050 on sales and promotional expenses for the 9 month period
ended September 30, 2000, with no comparable expense in the year ago period.
NET OPERATING LOSS
We incurred approximately $1,179,373 of net operating loss carry
forwards for the nine-month period ended September 30, 2000, which may be used
to offset taxable income and income taxes in future years.
Three Months Ended September 30, 2000, Compared With Three Months Ended
September 30, 1999
REVENUE
For the three months ended September 30, 2000, revenues from sales of
our products increased $20,072 or 172.3% to $31,719 from $11,647 in the same
period last year, and revenues from sales of our services decreased $106,735 or
75.3% to $34,848 from $141,583 in the same period last year. Of the $66,567 in
total revenue during the three month period ended September 30, 2000, $31,719 or
48% of our revenue was derived from sales of systems and $34,848 or 52% from
sales of contract manufacturing services. We expect sales of our products to
continue becoming a larger percentage of our overall revenues, as we begin
converting our manufacturing capacity to production of our products.
10
<PAGE>
NET SALES AND GROSS PROFIT MARGIN
Net sales for the three months ended September 30, 2000, increased
$34,124 or 284% to $46,155 compared with $12,031 in the same period last year.
Gross profit margin for the three months ended September 30, 2000, was 69%
compared with 8% in the same period last year. Because of low net sales we
achieved in the period last year ended September 30, 1999, we do not believe
growth profit margin comparisons provide meaningful information.
OPERATING EXPENSES
Operating expenses for the three months ended September 30, 2000,
decreased to $449,213, compared with $1,293,504 for the comparable period in
1999. The decrease is principally due to the fact that we did not have
comparable stock issuances as employee compensation in the period ended
September 30, 2000, as we did for the same period last year. We have increased
expenditures in the areas of research and development, sales and marketing and
write-offs of goodwill associated with acquisitions we did in 1999.
As a result of the foregoing, net loss was $(403,058) for the three
months ended September 30, 2000, compared to a net loss of $(1,281,473) for the
three months ended September 30, 1999.
COSTS AND EXPENSES
COSTS OF PRODUCTS SOLD. The cost of products and services sold, was
$20,412 for the three months ending September 30, 2000, and represented 31% of
revenue for the period, compared with $141,199 for the three months ended
September 30, 1999. Because of our low sales volume in the same period last
year, we do not consider the costs of goods sold in the year ago period to be a
good measure of our true costs of goods sold.
NET OPERATING LOSS
We incurred approximately $403,058 of net operating loss carry forwards
for the three-month period ended September 30, 2000, which may be used to offset
taxable income and income taxes in future years.
LIQUIDITY AND CAPITAL RESOURCES
Since start-up of operations in 1999, we have funded our cash
requirements primarily through equity transactions. We received $866,354 from
the sale of stock during the nine month period ended September 30, 2000, and
$3,040,675 since inception, excluding $244,000 in loan payables that were
satisfied through the issuance of stock. We are not currently generating cash
from our operations in sufficient amounts to finance our business and will
continue to need to raise capital from other sources. We used the proceeds from
these transactions to fund investments in, and acquisition of, technology,
assets and companies, to provide working capital and for general corporate
purposes, including paying expenses incurred in connection with the development
of the SecureView(TM) line of products. As of September 30, 2000, we had total
assets of $1,685,512, and total liabilities of $550,670, resulting in
stockholders' equity of $1,134,842. Our principal uses of cash during the nine
months ended September 30, 2000, were to:
o fund operating activities, including increased sales and marketing activities
o invest in the development of products
During the nine months ended September 30, 2000, our cash decreased
from $89,150 at December 31, 1999, to $44,043 at September 30, 2000. Net cash
used in operating activities was $900,918 for the nine months ended September
30, 2000, including decreases
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in accounts receivable of $51,051, increases in inventory of $76,839, increases
in accounts payable of 162,489 and increases in accrued interest of $8,250. Net
cash used in investing activities of $47,415 consisted of $34,972 used for the
purchase of capital equipment and $12,443 advanced to View Technologies, a
company controlled by President and Chief Executive Officer, Gunther Than, to
provide View Technologies with capital needed to finish development of products
which View Systems would manufacture pursuant to a cross licensing agreement.
Net cash generated from financing activities during the nine months ended
September 30, 2000, was $903,226, consisting of proceeds received from the sale
of stock, plus $60,038 advanced from stockholders, less payments made on a
promissory note with an outstanding principal balance of $35,000, plus accrued
and unpaid interest, which the note accrues at a rate of 2% plus prime, to
Columbia Bank. The loan to Columbia Bank was due June, 1999. View Systems pays
$5000 per month to Columbia Bank.
We consented to entry of judgment to pay Hal Peterson, a former officer
of Xyros, approximately $88,000. This agreement arose out of our settlement of a
suit brought by Hal Peterson for repayment of monies he advanced to Xyros prior
to our acquisition of Xyros. We also have a purported promissory note due Ken
Weiss, the former President of Xyros, for monies he advanced to Xyros prior to
our acquisition of Xyros, in the stated outstanding amount of $40,000, plus
accrued and unpaid interest. Ken Weiss has made demand for repayment of monies
and the monies are immediately due according to the stated terms of the note.
As a result of the foregoing, as of September 30, 2000, we had negative
net working capital of $246,330, including $42,227 of trade accounts receivable
and $218,070 in inventory. We have provided and may continue to provide payment
term extensions to certain of our customers from time to time. As of September
30, 2000, we have not granted material payment term extensions.
Our inventory balance at September 30, 2000, was estimated to be
$218,070. We do not take inventory on a quarterly basis, and we made inventory
estimates based on annual inventory determinations. With expected increased
product sales, we will need to make increased inventory expenditures. However,
the terms of our product sales requires a twenty five percent (25%) deposit on
order. In addition, we endeavor to keep inventory levels low. Therefore, we do
not believe that increased product sales, associated materials purchases and
inventory increases, will adversely affect liquidity.
We anticipate further 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 Mr. Than $96,000 per year and Mr. Lesniak $30,000 per year in
salary and fees during calendar year 2000. If we terminate the employment or
engagement of Mr. Than without cause (including because of merger, acquisition
or change in control), we will be obligated to pay approximately $350,000 in
severance payments over a three year period.
We report each issuance of stock for less than fair market value as a
charge against earnings to the extent of fair market value. The obligation to
issue stock is a substantial capital commitment in year 2000 and subsequent
years.
We believe that cash from operations and funds available will not be
sufficient to meet anticipated operating capital expenditure and debt service
requirements for the next twelve months and that we will be dependent on raising
additional capital through equity sales or debt financing. We have outstanding
warrants with various investors with an exercise price of $2.00 per share. Some
of the shares that can be obtained from exercise of these warrants have been
registered for resale with the SEC and some state jurisdictions. These warrants
are out-of-the-money, as the trading price as of the date of this report is less
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that $1.00 per share. If the selling stockholders exercise all of their
warrants, at the exercise price of $2.00 per share, we will receive $4,200,000,
which we will use for working capital and to expand operations to execute our
business plan.
However, unless the range of trading prices of our common stock
increases to over $2.00 per share or we agree to lower the exercise price of the
warrants, it is unlikely that the warrants will be exercised. In May, 2000, we
lowered the exercise price of warrants for 200,000 shares held by a selling
shareholder from $2.00 to $.50 per share and the warrants were immediately
exercised, resulting in net proceeds to us of $100,000. It is likely that we
will agree to lower the exercise price of the warrants in the future if our
stock continues to be traded below $2.00 per share.
We own 840,000 shares of MediaComm Broadcasting, Inc. MediaComm
previously submitted a filing to be quoted and traded on the NASD OTCBB.
MediaComm has decided that it is not in their best interest to have their share
traded publicly at this time.
RISK FACTORS AND CAUTIONARY STATEMENTS
Statements within this 10-QSB which are not historical facts, including
statements about strategies and expectations for new and existing products,
technologies, and opportunities, are forward-looking statements that involve
risks and uncertainties. Our actual results may differ substantially from such
forward-looking statements. Forward-looking statements involve risks and
uncertainties that could cause actual results to differ materially from those
expressed in or implied by the statements, including, but not limited to, risks
detailed in our other securities filings, including our Annual Report on Form
10-KSB for the year ended December 31, 1999, and our registration statement, as
amended, filed on Form SB-2.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Hal Peterson, a former executive officer of Xyros and a trust he
controls filed suit against us on October 28, 1999 in the Circuit Court for
Howard County, Maryland. Xyros was acquired by us on February 25, 1999. Pursuant
the terms of the acquisition, we assumed the liabilities of Xyros. One of such
liability was a loan to Xyros from Mr. Peterson in the amount of $88,000 which
we contested. We have settled this lawsuit by agreeing to pay $88,000.
We are not aware of any other material pending legal proceeding against
us or our property.
ITEM 2. CHANGES IN SECURITIES
On May 4, 2000, we issued 50,000 shares to Rubin Investment Group after
it partially exercised a warrant by paying consideration consisting of $56,000
in cash and computer equipment with a value of $44,000. On May 22, 2000, we
issued another 200,000 shares to Rubin Investment Group, after it partially
exercised a warrant by paying consideration with a fair market value of
$100,000. Rubin Investment Group acquired its warrant on February 18, 2000,
under Rule 506 of Regulation D of the Securities Act of 1933.
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ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Our subsidiary, Xyros Systems, Inc., is the maker of two promissory
notes in favor of two former shareholders of Xyros, Ken Weiss and Hal Peterson.
The promissory notes are alleged to evidence loans from Ken Weiss and Hal
Peterson to Xyros prior to the time that we acquired Xyros. We have guarantied
repayment of the indebtedness evidenced by these notes. The promissory notes to
Ken Weiss carry an outstanding principal balance of $40,000, plus accrued and
unpaid interest, which the notes state accrues at the rate of 10% per annum,
which represents money advanced to Xyros from Ken Weiss. The notes in favor of
Ken Weiss have matured by their terms and Ken Weiss has demanded immediate
payment.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Inapplicable
ITEM 5. OTHER INFORMATION
Inapplicable
ITEM 6. EXHIBITS AND REPORT ON FORM 8-K
(A) EXHIBITS:
--------
3.1 (1) Articles of Incorporation
3.2 (1) By-laws
4.1 (2) Amendment to First Common Stock Purchase Warrant of VIEW SYSTEMS,
INC. Dated February 18, 2000, and Second Common Stock Purchase Warrant
of Company, Dated February 18, 2000, Issued to Rubin Investment Group
(Holder) and to Subscription and Investment Agreement dated February
18, 2000, Between Company and Holder
4.2 (2) Second Amendment to First Common Stock Purchase Warrant of View
Systems, Inc., Dated February 18, 2000, and Subscription and Investment
Agreement, dated February 18, 2000, Between Company and Holder
11. (attached to report) Statement re: Computation of Per Share Earnings
27. (attached to report) Financial Data Schedule
--------------------------------------------------------------------------------
(1) Incorporated By Reference From Issuer's Registration Statement on Form
SB-2 Filed With The Securities & Exchange Commission On January 11,
2000
(2) Incorporated By Reference From Issuer's Registration Statement on Form
SB-2 Filed With The Securities & Exchange Commission On June 7, 2000
(B) REPORTS ON FORM 8-K
-------------------
We filed did not file any reports on Form 8-K during the quarter for
which this report is filed.
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
View Systems, Inc.
Registrant
Date: November 14, 2000 /s/ GUNTHER THAN
---------------------------------
GUNTHER THAN
PRESIDENT & CEO
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