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, 2001
|_| TRANSITION REPORT PURSUANT SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ___________
Commission File Number 0-30178
VIEW SYSTEMS, INC.
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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
--- ---
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 No
--- ---
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: 14,305,000 shares of common stock as
of September 30, 2001.
Transitional Small Business Disclosure Format (check one):
Yes No x
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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...................................9
PART II. Other Information
Item I. Legal Proceedings....................................................12
Item II. Changes In Securities...............................................12
Item III. Defaults Upon Senior Securities....................................12
Item IV. Submission of Matters To A Vote of Security Holders.................12
Item V. Other Information....................................................12
Item VI. Exhibits And Reports On Form 8-K....................................12
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
VIEW SYSTEMS, INC.
CONSOLIDATED BALANCE SHEET
ASSETS
September 30, December 31,
2001 2000
------------- --------------
(Unaudited)
CURRENT ASSETS:
Cash $ 366,207 $ 265,245
Accounts receivable (net) 562,488 155,017
Inventory 173,442 95,339
----------- -----------
Total current assets 1,102,137 515,601
----------- -----------
PROPERTY AND EQUIPMENT:
Equipment 416,864 382,609
Leasehold improvements 20,261 20,261
----------- -----------
437,125 402,870
Less accumulated depreciation 113,387 79,814
----------- -----------
Net value of property and equipment 323,738 323,056
----------- -----------
OTHER ASSETS:
Goodwill 809,531 894,383
Investments 28,000 28,000
Due from affiliated entity 105,552 105,552
Due from stockholders 79,099 20,000
Deposits 3,332 832
----------- -----------
Total other assets 1,025,514 1,048,767
----------- -----------
TOTAL ASSETS $2,451,389 $1,887,424
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 393,170 $ 401,247
Note payable bank 6,720 42,083
Notes payable 110,000 110,000
Accrued interest payable 30,250 22,000
Other accrued liabilities 1,490 31,951
Due to stockholder - 2,090
----------- -----------
Total current liabilities 541,630 609,371
----------- -----------
STOCKHOLDERS? EQUITY:
Common stock par value $0.001
50,000,000 shares authorized,
4
14,305,000 shares issued and outstanding 14,305 -
11,481,031 shares issued and outstanding - 11,481
Additional paid-in capital 8,875,678 7,364,502
Accumulated deficit (6,980,224) (6,097,930)
----------- -----------
Total stockholders? equity 1,909,759 1,278,053
----------- -----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $2,451,389 $1,,887,424
=========== ============
See accompanying notes.
VIEW SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine months Ended
------------------ -----------------
September 30, September 30, September 30, September 30,
2001 2000 2001 2000
-------------- ------------- ------------- -------------
REVENUE:
Sales of security systems $ 312,353 $ 31,719 $ 744,842 $ 146,979
Sales of assembled electronic components - 34,848 9,512 261,080
-------------- ------------- ------------- ------------
Total sales 312,353 66,567 754,354 408,059
Cost of goods sold 161,675 20,412 360,575 211,168
-------------- ------------- ------------- ------------
GROSS PROFIT ON SALES 150,678 46,155 393,779 196,891
-------------- ------------ ------------- ------------
OPERATING EXPENSES:
Advertising and promotion 31,168 1,283 32,294 12,663
Amortization 28,284 27,281 84,852 81,843
Depreciation 11,191 11,293 33,573 33,404
Dues and subscriptions 885 495 2,795 2,741
Insurance 11,443 5,694 28,138 13,174
Interest 3,202 4,022 11,800 15,570
Investor relations 22,525 15,488 73,575 49,353
Miscellaneous expense 249 11,338 9,741 13,777
Office expenses 18,751 26,102 82,208 92,311
Professional fees 75,362 110,757 302,936 282,013
Rent 7,779 26,746 88,752 81,590
Repairs and maintenance 820 1,158 8,560 8,165
Research and development - 34,538 - 143,840
Salaries and benefits 116,961 137,103 422,178 420,032
Sales promotions 11,618 25,796 35,723 74,050
Taxes - other - 362 9,151 4,667
Travel 11,618 4,882 35,723 34,412
Utilities 2,348 4,875 14,074 12,659
-------------- ----------- ------------- ------------
Total operating expenses 354,204 449,213 1,276, 073 1,376,264
-------------- ----------- ------------- ------------
NET LOSS FOR THE PERIODS $( 203,526) $(403,058) $ ( 882,294) $(1,179,373)
============== ============ ============= ============
LOSS PER SHARE:
Basic $ (0.02) $ (0.05) $ (0.07) $ (0.15)
============== ============ ============= ==============
Diluted $ (0.02) $ (0.05) $ (0.07) $ (0.15)
============== ============ ============= ==============
2
See accompanying notes.
VIEW SYSTEMS, INC
See Accompanying Notes
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS? EQUITY
FOR THE PERIOD JANUARY 1, 2000 TO SEPTEMBER 30, 2001
Additional Total
Common Paid-In Accumulated Stockholders'
Stock Capital Deficit Equity
--------- -------------- ------------------ ---------------
Balances at January 1, 2000 $ 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
Sale of common stock 1,446 583,044 - 584,490
Stock options exercised 100 978 - 1,078
Issuance of common stock
(employee and other compensation) 1,383 581,169 - 582,552
Net loss for the period of October 1, 2000
to December 31, 2000 - - ( 1,024,909) ( 1,024,909)
----------- -------------- ------------------ -------------
Balances at December 31, 2000 11,481 7,364,502 ( 6,097,930) 1,278,053
Sale of common stock 2,764 1,486,236 - 1,489,000
Issuance of common stock
for services 60 24,940 - 25,000
Net loss for the nine months
ended September 30, 2001 - - ( 882,294) ( 882,294)
----------- -------------- ------------------ -------------
Balances at September 30, 2001 (Unaudited) $ 14,305 $ 8,875,678 $( 6,980,224) $ 1,909,759
=========== =========== ================== ==============
3
VIEW SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED
September 30, September 30,
2001 2000
------------- --------------
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $( 882,294) $( 1,179,373)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 118,425 115,247
Stock issued for services 25,000 -
Changes in operating assets and liabilities:
Accounts receivable ( 407,471) 51,051
Inventory ( 78,103) ( 76,839)
Deposit ( 2,500) ( 1,653)
Accounts payable ( 8,077) 162,489
Accrued interest 8,250 8,250
Other accrued liabilities ( 30,461) 19,910
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Net cash used in operating activities ( 1,257,231) ( 900,918)
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CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ( 34,255) ( 34,972)
Funds advanced to affiliated entities - ( 12,443)
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Net cash used in investing activities ( 34,255) ( 47,415)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Funds advanced (to) from shareholders ( 61,189) 60,038
Repayment of note payable - bank ( 35,363) ( 23,166)
Proceeds from sales of stock 1, 489,000 866,354
------------- --------------
Net cash provided by financing activities 1,392,448 903,226
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NET INCREASE/(DECREASE) IN CASH 100,962 ( 45,107)
CASH AT BEGINNING OF PERIOD 265,245 89,150
------------- --------------
CASH AT END OF PERIOD $ 366,207 $ 44,043
============== ==============
4
VIEW SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 AND 2000
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 September 30, 1999, have been devoted primarily to
raising capital, developing the technology, promotion, and administrative
function.
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 accounting principles generally accepted in the
United States. 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.
In December 1999, the Securities and Exchange Commission ("SEC")
issued Staff Accounting Bulletin No. 101 ("SAB 101"), "Revenue Recognition in
Financial Statements". SAB 101 summarizes certain of the SEC's views in
applying accounting principles generally accepted in the United States to
revenue recognition in financial statements. The Company adopted SAB 101 in the
fourth quarter of 2000. The adoption of SAB 101 had no impact on the Company's
financial position or results of operations.
Inventories
-----------
Inventories are stated at the lower of cost or market. Cost is
determined by the last-in-first-out method (LIFO).
Property and Equipment
----------------------
Property and equipment is recorded at cost and depreciated over their
estimated useful lives, using the straight-line and accelerated depreciation
methods. Upon sale or retirement, the cost and related accumulated depreciation
are eliminated from the respective accounts, and the resulting gain or loss is
included in the results of operations. The useful lives of property and
equipment for purposes of computing depreciation are as follows:
5
Equipment 5-7 years
Software tools 3 years
VIEW SYSTEMS, INC.
Repairs and maintenance charges which do not increase the useful lives
of assets are charged to operations as incurred. Depreciation expense for the
nine months ended September 30, 2001 and 2000 amounted to $33,573 and $33,404
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 nine months ended September 30, 2001 and 2000 were $32,294 and
$12,668, 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.
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.
6
VIEW SYSTEMS, INC.
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 nine months ended September 30,
2001 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, 2001.
2. FINANCIAL CONDITION
Since its inception, the Company has incurred significant losses and
as of September 30, 2001 had an accumulated deficit of $7.0 million. The tragic
events of September 11, 2001 have, however, generated an increased interest in
the Company's products and services. While the Company believes that it will
incur operating losses in the near term, it is anticipated that increased sales
resulting from the heightened interest in security products will have a
significantly positive effect on the Company's earnings. However, there can be
no assurance that the Company will be able to generate sufficient revenues to
achieve or sustain profitability in the future. 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,
2002.
3. NEW ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 141, Business
Combinations, and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No.
141 requires that the purchase method of accounting be used for all business
combinations initiated after June 30, 2001. SFAS No. 141 also specifies the
criteria for intangible assets acquired in a purchase method business
combination to be recognized and reported apart from goodwill. SFAS No. 142 will
require goodwill and intangible assets with indefinite useful lives to no longer
be amortized, but instead tested for impairment at least annually in accordance
with the provisions of the statement. SFAS No. 142 will also require intangible
assets with definite useful lives to be amortized over their respective
estimated useful lives to their estimated residual values, and reviewed for
impairment in accordance with SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of.
The Company is required to adopt the provision of SFAS No. 141
immediately and SFAS No. 142 effective January 1, 2002. Further more, any
goodwill and any intangible assets determined to have an indefinite useful life
that are acquired in a purchase business combination completed after June 30,
2001, will not be amortized, but will continue to be evaluated for impairment in
accordance with the appropriate pre-SFAS No. 142 accounting literature. Goodwill
and intangible assets acquired in business combinations completed before July 1,
2001, will continue to be amortized prior to the adoption of SFAS No. 142.
7
SFAS No. 141 will require, upon adoption of SFAS No. 142, that the
Company evaluate its existing intangible assets and goodwill that were acquired
in prior purchase business combinations, and make any necessary
reclassifications in order to conform with the new criteria in SFAS No. 141 for
recognition apart from goodwill. Upon adoption of SFAS No. 142, the Company will
be required to reassess the useful lives and residual values for all intangible
assets acquired in purchase business combinations, and make any necessary
changes to the amortization period by the end of the first interim period after
adoption. In addition, to the extent an intangible asset is identified as having
an indefinite useful life, the Company will be required to test the intangible
asset for impairment in accordance with the provisions of SFAS No. 142 within
the first interim period. Any impairment loss will be measured as of the date of
adoption and recognized as the cumulative effect of a change in accounting
principle in the first interim period. The Company is assessing the effects of
the adoption of these standards and these potential effects cannot be determined
at this time.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion should be read and reviewed in conjunction
with Management's Discussion and Analysis of Financial Condition and Results of
Operations set forth in the Company's Annual Report on Form 10-KSB for the year
ended December 31, 2000. In addition to historical information, this Form 10-KSB
contains forward-looking statements that involve risks and uncertainties, such
as statements of the Company's plans and expectations. The Company's actual
results could differ materially from management's expectations.
In the first several years of operation since September 1998, we have
devoted most of our resources to the research and development of digital video
surveillance and security products. We have generated limited revenues from our
security products to date, but are rapidly expanding our sales and distribution
network. During the last year we have working on delivering new products to
market and enhancing and upgrading our product line. Until we more fully develop
our sales and distribution network, we expect our operating losses to continue.
Although our revenue from contract manufacturing services has decreased
significantly, we still provide contract manufacturing services, and remain
ready to take advantage of potential increases in this market. ETMC had provided
such services for more than 15 years and had an established customer base. While
we have continued the contract manufacturing business line, we have increased
ETMC's manufacturing capacity to permit production of our products.
The tragic events of September 11, 2001 generated a larger than normal
interest in our products and services. This trend has continued and inquiries
have increased proportionately. On-line and web site inquires more than
quadrupled and phone inquires more than tripled since September 11, 2001. We
have added two more inbound telephone lines and are staffing to meet the
increased demand. We have $2,800,000 of purchase orders, some which are backed
by letters of credit.
Nine months Ended September 30, 2001 Compared With the Nine months Ended
September 30, 2000
Revenue
For the nine months ended September 30, 2001, revenues from sales of
our products increased $597,863 or 407% to $744,842 from $146,979 in the same
period last year, and revenues from sales of our services decreased $251,568 or
96% to $9,512 from $261,080 in the same period last year. Of the $754,354 in
total revenue during the nine month period ended September 30, 2001, $744,842 or
99% was derived from sales of systems and $9,512 or 1% from sales of contract
manufacturing services. While the percentage of revenues generated from sales of
our contract manufacturing services has decreased significantly, we will
continue to provide contract manufacturing services, and remain ready to take
advantage of potential increases in this market.
Gross Profit
Gross profit on sales for the nine months ended September 30, 2001,
increased $196,888 or 100%, to $393,779 compared with $196,891 in the same
period last year. Gross profit margin for the nine months ended September 30,
2001, was 52% compared with 48% in the same period last year. Because of low net
sales we achieved in the period last year ended September 30, 2000, we do not
believe gross profit margin comparisons are meaningful at this state of our
operations.
Operating Expenses
Operating expenses for the nine months ended September 30, 2001,
decreased to $1,276,073 from $1,376,264 for the comparable period in 2000. The
decrease is principally due to decreased expenditures in sales promotions.
9
As a result of the foregoing, net loss was $(882,294) for the nine
months ended September 30, 2001, compared to a net loss of $(1,179,373) for the
nine months ended September 30, 2000. The basic and fully diluted loss per share
is $.02 for the 3rd quarter 2001, compared to $.05 for the same period last
year. The basic and fully diluted loss per share for the nine months ended
September 30, 2001 is $.07 compared to $.15 for the same period last year.
Costs and Expenses
Costs of Products and Services Sold. The cost of products and services
sold was $360,575 for the nine months ended September 30, 2001 and represents
48% of revenue for the period, compared to $211,168 for the nine months ended
September 30, 2000 which represents 52% of revenues for that period. 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 cost
of goods sold. 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 is based on estimates of inventory used in products sold.
Research and Development Expense. No expenditures were made on
research and development for the nine months ended September 30, 2001, as
compared with $143,840 in the same period last year.
Salaries and Benefits. We spent $422,178 on salaries and benefits for
the nine months ended September 30, 2001, as compared with $420,032 for the same
period last year. Going forward, we plan to significantly increase our
expenditures in salaries and benefits to address the additional staffing needed
in the aftermath of the events of September 11.
Net Operating Loss. We incurred $(882,294) of net operating losses for
the nine-month period ended September 30, 2001, which may be used to offset
taxable income in future years.
LIQUIDITY AND CAPITAL RESOURCES
Since the start-up of our operations in 1998, we have funded our cash
requirements primarily through equity transactions. We received $8,276,259 since
inception through the issuance of our common stock. We used the proceeds from
these sales of equity to fund operating activities, including, product
development, sales and marketing, and to invest in the acquisition of
technology, assets and business. 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. As of September 30, 2001, we had total
assets of $2,451,389 an increase of $563,965 over the December 31, 2000 balance
of $1,887,424. Total liabilities were $541,630, at September 30, 2001, resulting
in stockholders' equity of $1,909,759, an increase of $631,706 from the December
31, 2000 balance of $1,278,053.
During the nine months ended September 30, 2001, our cash increased
from $265,245 at December 31, 2000, to $366,207 at September 30, 2001. Net cash
used in operating activities was $1,257,231 for the nine months ended September
30, 2001, including increases in accounts receivable of $407,471, increases in
inventory of $78,103, and decreases in accounts payable of $8,077.
Net cash generated from financing activities during the nine months
ended September 30, 2001 was $1,392,448, consisting of proceeds received from
sales of stock of $1,489,000, less $61,189 advanced to stockholders, less
payments of $35,363 made on a promissory note to Columbia Bank with an
outstanding principal balance of $6,720 at September 30, 2001.
As a result of the foregoing, at September 30, 2001 we had working
10
capital of $560,507, $562,488 of net trade accounts receivable, and $173,442 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, 2001 there
were not material payment term extensions in effect.
Our inventory balance at September 30, 2001, was estimated to be
$173,442. 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 frequently require 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, and the resulting
materials purchases and inventory increases, will adversely affect liquidity in
any material respect.
Under our outstanding employment and consulting agreements, we are
obligated to pay Gunther Than, President and CEO, $96,000 per year. If we
terminate the employment of Mr. Than without cause or because of merger,
acquisition or change in control, we will be obligated to pay him approximately
$350,000 in severance payments over a three year period.
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.
Plan Of Operation
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 time of expenditures to sufficiently market and
promote our products; and
- the amount and timing of any accessory product introductions.
We intend to use the cash raised from the private sale of shares and
the exercise of warrants held by stockholders to the following:
- bring our FaceView, PlateView and Access Control products to
market;
- continue our product development efforts;
- expand our sales, marketing and promotional activities for the
SecureView line of products; and
- increase our sales and marketing 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.
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 $2 million and $3
million to launch our expanded business operations in accordance with our
current business plan.
RISK FACTORS AND CAUTIONARY STATEMENTS
Statements within this Form 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 or implied by the statement, 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, 2000, and a registration statement,
as amended, filed on Form SB-2
11
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are not aware of any material pending legal proceeding against us
or our property.
ITEM 2. CHANGES IN SECURITIES
There are no changes in securities other than such changes reported in
our SB-2 filed on August 1, 2001, registration number 333-66482.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORT ON FORM 8-K
(A) EXHIBITS:
--------
3.1 (1) Articles of Incorporation and all articles of amendment
3.2 (1) By-laws
11. (attached to report) Statement re: Computation of Per Share Earnings
(1) Incorporated By Reference From Issuer's Registration Statement on Form SB-2
Filed With The Securities & Exchange Commission On January 11, 2000
(B) REPORTS ON FORM 8-K
-------------------
On July 16, 2001, the Company filed a Report on Form 8-K, under Item 5
of Form 8-K, announcing that the Company disputes the claim of beneficial
ownership by Rubin Investment Group ("Rubin") set forth in its Schedule 13D
filing on July 12, 2001, in which Rubin claimed a beneficial ownership of
2,235,000 shares that it may acquire upon the exercise of certain warrants.
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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, 2001 /s/ GUNTHER THAN
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GUNTHER THAN
PRESIDENT & CEO
13