UNITED STATES
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 March 31, 2006
[ ] TRANSITION REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-30178
VIEW SYSTEMS, INC.
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(Exact name of small business issuer as specified in its charter)
Nevada 59-2928366
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(State of incorporation) (I.R.S. Employer Identification No.)
1550 Caton Center Drive, Suite E, Baltimore, Maryland 21227
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(Address of principal executive offices)
Issuer's telephone number: (410) 242-8439
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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 [ ]
Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of May 1, 2006, View Systems, Inc. had 90,762,422 shares of common stock
outstanding.
Transitional small business disclosure format: Yes [ ] No [X]
TABLE OF CONTENTS
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements..............................................2
Item 2. Management's Discussion and Analysis or Plan of Operation.........8
Item 3. Controls and Procedures..........................................14
PART II: OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds......14
Item 4. Submission of Matters to a Vote of Security Holders..............14
Item 6. Exhibits ........................................................15
Signatures................................................................16
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The financial information set forth below with respect to our statements of
operations for the three month periods ended March 31, 2006 and 2005 is
unaudited. This financial information, in the opinion of management, includes
all adjustments consisting of normal recurring entries necessary for the fair
presentation of such data. The results of operations for the three month
period ended March 31, 2006 are not necessarily indicative of results to be
expected for any subsequent period.
2
View Systems, Inc. and Subsidiaries
Consolidated Balance Sheets
ASSETS
-------
March 31, December 31,
2006 2005
------------- --------------
(unaudited)
Current Assets
Cash $ 193,421 $ 8,708
Accounts Receivable(Net of Allowance of $64,486) 28,123 280,001
Inventory 196,931 72,012
------------- --------------
Total Current Assets 418,475 360,721
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Property & Equipment (Net) 26,434 18,043
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Other Assets
Licenses 1,626,854 1,626,854
Due from Affiliates 103,875 95,575
Deposits 9,646 7,291
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Total Other Assets 1,740,375 1,729,720
------------- --------------
Total Assets $ 2,185,284 $ 2,108,484
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
-------------------------------------
Current Liabilities
Accounts Payable $ 440,260 $ 343,430
Accrued Expenses 30,009 43,229
Accrued Interest 82,083 77,000
Accrued Royalties 56,250 75,000
Loans from Shareholder 64,000 64,000
Notes Payable 310,000 110,000
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Total Current Liabilities 982,602 712,659
------------- --------------
Stockholders' Equity
Preferred Stock,
Authorized 10,000,000 Shares, $.01 Par Value,
Issued and outstanding 7,171,725 71,717 71,717
Common Stock,
Authorized 100,000,000 Shares, $.001 Par Value,
Issued and Outstanding 91,035,752 91,036 -
Issued and Outstanding 90,775,752 - 90,776
Additional Paid in Capital 19,319,544 19,293,804
Retained Earnings (Deficit) (18,279,615) (18,060,472)
------------- --------------
Total Stockholders' Equity 1,202,682 1,395,825
------------- --------------
Total Liabilities and Stockholders' Equity $ 2,185,284 $ 2,108,484
============= ==============
The accompanying notes are an integral part of these
consolidated financial statements.
3
View Systems, Inc. and Subsidiaries
Consolidated Statements of Operations
(unaudited)
For the Three Months Ended
March 31,
---------------------------
2006 2005
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Revenues, Net $ 402,575 $ 285,643
Cost of Sales 207,282 104,328
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Gross Profit (Loss) 195,293 181,315
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Operating Expenses
Business Development 39,677 15,530
General & Administrative 112,912 67,591
Professional Fees 51,295 38,515
Salaries & Benefits 205,206 86,244
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Total Operating Expenses 409,090 207,880
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Net Operating Income (Loss) (213,797) (26,565)
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Other Income(Expense)
Interest Expense (5,346) -
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Total Other Income(Expense) (5,346) -
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Net Income (Loss) $ (219,143) $ (26,565)
============= =============
Net Income (Loss) Per Share $ (0.00) $ (0.00)
============= =============
Weighted Average Shares Outstanding 90,875,752 76,675,422
============= =============
The accompanying notes are an integral part of these
consolidated financial statements.
4
View Systems, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(unaudited)
For the Three Months Ended
March 31,
---------------------------
2006 2005
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Cash Flows from Operating Activities:
Net Income (Loss) $ (219,143) $ (26,565)
Adjustments to Reconcile Net Loss to Net
Cash Provided by Operations:
Depreciation & Amortization 3,000 6,388
Stock issued for services 16,000 -
Change in Operating Assets and Liabilities:
(Increase) Decrease in:
Accounts Receivable 251,878 (71,111)
Inventories (124,919) 35,000
Deposits (2,355) -
Increase (Decrease) in:
Accounts Payable 96,830 (131,551)
Accrued Expenses (13,220) (15)
Accrued Interest 5,083 -
Accrued Royalties (18,750) -
------------- -------------
Net Cash Provided (Used) by
Operating Activities (5,596) (187,854)
Cash Flows from Investing Activities:
Purchases of equipment (11,391) (985)
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Net Cash Used In Investing Activities (11,391) (985)
Cash Flows from Financing Activities:
Funds advanced (to) from affiliate (8,300) -
Fund provided by issuance of notes payable 200,000 -
Proceeds from stock issuance 10,000 15,500
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Net Cash Provided by Financing Activities 201,700 15,500
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Increase (Decrease) in Cash 184,713 (173,339)
Cash and Cash Equivalents at Beginning of Period 8,708 173,486
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Cash and Cash Equivalents at End of Period $ 193,421 $ 147
============= =============
The accompanying notes are an integral part of these
consolidated financial statements.
5
View Systems, Inc. and Subsidiaries
Consolidated Statements of Cash Flows (Continued)
(unaudited)
For the Three Months Ended
March 31,
---------------------------
2006 2005
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Cash Paid For:
Interest $ - $ -
Income Taxes $ - $ -
Non-Cash Investing and Financing Activities:
Stock issued in payment of accounts payable $ - $ 19,000
The accompanying notes are an integral part of these
consolidated financial statements.
6
View Systems, Inc.
Notes to the Consolidated Financial Statements
March 31, 2006
GENERAL
View Systems, Inc. (the Company) has elected to omit substantially all
footnotes to the financial statements for the three months ended March 31,
2006 since there have been no material changes (other than indicated in other
footnotes) to the information previously reported by the Company in their
Annual Report filed on the Form 10-KSB for the twelve months ended December
31, 2005.
UNAUDITED INFORMATION
The information furnished herein was taken from the books and records of the
Company without audit. However, such information reflects all adjustments
which are, in the opinion of management, necessary to properly reflect the
results of the interim period presented. The information presented is not
necessarily indicative of the results from operations expected for the full
fiscal year.
7
In this report references to "View Systems," "we," "us," and "our" refer to
View Systems, Inc. and its subsidiaries.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
The Securities and Exchange Commission ("SEC") encourages companies to
disclose forward-looking information so that investors can better understand
future prospects and make informed investment decisions. This report contains
these types of statements. Words such as "may," "will," "expect," "believe,"
"anticipate," "estimate," "project," or "continue" or comparable terminology
used in connection with any discussion of future operating results or
financial performance identify forward-looking statements. You are cautioned
not to place undue reliance on the forward-looking statements, which speak
only as of the date of this report. All forward-looking statements reflect
our present expectation of future events and are subject to a number of
important factors and uncertainties that could cause actual results to differ
materially from those described in the forward-looking statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
EXECUTIVE OVERVIEW
Our product lines are related to visual surveillance, intrusion detection and
physical security. Our principal products include:
.. Visual First Responder - a lightweight, wireless camera system housed in
a tough, waterproof flashlight body. The camera systems sends real-time
images back to a video monitor at a command post located outside the
exclusion zone or containment area. The Visual First Responder is able
to transmit high quality video in the most difficult environments. It
uses a triple-diversity antenna system that minimizes signal distortion
in urban environments.
.. SecureScan Concealed Weapons Detection System - a walk-through concealed
weapons detector which uses passive magnetic sensing technology and
location algorithms to accurately pinpoint the location, size and number
of threat objects. The control unit for this patented product combines
the magnetic and video information in a manner that allows it to be
stored and displayed for easy recognition and auditory warning. The
software system's architecture allows for easy integration of biometrics
and access control devices.
.. ViewMaxx Digitial Video products - a high-resolution, digital video
recording and real-time monitoring system.
.. Biometric verification systems, magnetic door locks and central
monitoring or video command centers which can be combined with our
principal products.
.. RADView - a patented integrated neutron and gamma-ray radiation
sub-system which can be integrated into other detection systems such as
fire, breach, magnetic, explosive, nuclear, biometric or video.
Management believes that heightened attention to personal threats, potential
large scale destruction and theft of property in the United States and
spending by the United States government on Homeland Security will continue to
drive growth in the market for security products.
In February 2006 we demonstrated a SecureScan II product with a precision
optical biometric fingerprint terminal. We had developed this product with
Sagem Morpho, a multi-biometric solutions provider. In March 2006 the Georgia
Courts placed a purchase order for three Secure Scan II units with fingerprint
identification capabilities. We expect the demand for biometric interfaces to
increase. In addition to verifying that an individual is likely not carrying
guns, knives and sometimes cameras, the units can perform multi-modal double
and triple identity checks, including, fingerprint, drivers license and
employee identification card verification.
During the next six months we will integrate technology to sense enriched
nuclear material into our SecureScan and our Visual First Responder products.
This technology will allow our products to detect enriched nuclear material
that may be used to build nuclear based explosive devices or for creating
radiological disasters. In addition, this technology will be used in stand
alone handheld portable detectors. These products are based on existing
patents owned by the United States government and are licensed exclusively to
View Systems for the purpose of commercializing them.
8
For the next twelve months our primary challenge will be to add new products
and develop our sales and distribution network into additional regions and
markets in the United States and abroad. We intend to increase sales by
offering demonstrations of our products in specific geographical areas to
potential customers or at region specific trade shows, such as sheriff's
conventions, court administrators' meetings, civil support team, state police
shows and dealers shows. When a demonstration results in a sale of one of our
products, then we attempt to expand that market by contacting other potential
customers in the area, such as, correctional facilities, courthouses and other
municipal buildings. After several sales in a particular geographic area
management will decide whether it is appropriate to open a sales and service
office.
LIQUIDITY AND CAPITAL RESOURCES
We have incurred losses for the past two fiscal years and had a net loss of
$219,143 at March 31, 2006. Our revenues from product sales have been
increasing but are not sufficient to cover our operating expenses. Our
auditors have expressed substantial doubt that we can continue as a going
concern. We were also in default on some of our debt obligations at March 31,
2006, but continue to make payments. We have some financing commitments in
place, but not enough to meet our expected cash requirements for 2006.
Management intends to finance our 2006 operations with the revenue from
product sales and any cash short falls will be addressed through equity
financing. In December 2005 we completed a subscription agreement, discussed
below in "Commitments and Contingent Liabilities", that will provide for the
purchase of convertible promissory notes through $100,000 installments over a
five month period. We will use this cash for marketing, working capital, and
to enhance our presence in other geographical regions.
Historically, we have relied on private financing and revenues to satisfy our
cash requirements for working capital. For the three month period ended March
31, 2006 (the "2006 first quarter") we received cash from revenues of
$402,575, proceeds of $200,000 from debt financing, $10,000 from sales of our
common stock and relied on advances of $8,300 from Gunther Than, our CEO. For
the three month period ended March 31, 2005 (the "2005 first quarter"), we
received cash from revenues of $285,643 and received proceeds of $15,500 from
sales of common stock.
We use our cash for working capital and at our current revenue levels we will
require an additional $500,000 during the next six months to cover our
operating costs of approximately $100,000 per month. These operating costs
include cost of sales, general and administrative expenses, salaries and
benefits and professional fees related to contracting engineers.
We also rely on the issuance of our common stock to pay for services and to
convert debt when cash is unavailable. For the 2005 first quarter we issued
128,000 shares to convert debt valued at $19,000. As of the date of this
filing we have approximately 9,000,000 authorized common shares of common
stock remaining and management has started the process to increase our
authorized common stock during 2006. (See Part II, Item 4, below, for more
details.)
Management believes revenues will continue to increase but not to the point of
profitability in the short term. We will need to continue to raise additional
capital, both internally and externally, to cover cash shortfalls and to
compete in our markets. We cannot assure you that we will be able to obtain
financing on favorable terms and if we cannot obtain financing, then we may be
required to reduce our expenses and scale back our operations.
COMMITMENTS AND CONTINGENT LIABILITIES
Our base rent for operating leases related to our principal office and
manufacturing facility is approximately $2,870 per month, with an annual rent
escalator of 3%. At December 31, 2005, future minimum payments for operating
leases related to our office and manufacturing facility were $97,646 through
December 31, 2008.
Our total current liabilities increased to $982,602 at March 31, 2006 compared
to $ 712,659 at December 31, 2005.
9
The increase was primarily the result of notes payable related to the
subscription agreement discussed below.
Subscription Agreement
We entered into a Subscription Agreement, dated December 23, 2005, with three
accredited investors; Starr Consulting, Inc., Active Stealth, LLC, and KCS
Referral Service LLC (the "Subscribers"). We agreed to sale and the
Subscribers agreed to purchase convertible promissory notes and warrants.
However, on January 6, 2006, the Subscribers consented to the removal of the
warrants from the subscription agreement, with the understanding that the
warrants would be reinstated after we increased our authorized common stock
and the shares underlying the warrants would be registered at a later date.
The Subscribers agreed to purchase up to an aggregate of $500,000 of 8%
promissory notes convertible into shares of our common stock at a per share
conversion price of $0.10. The notes are due and payable by December 31,
2006. The Subscribers agreed to purchase the promissory notes over a 5 month
period in $100,000 per month installments.
Starr Consulting, Inc. agreed to purchase convertible promissory notes in the
aggregate amount of $166,667, which may be converted into 1,666,667 shares of
our common stock. Active Stealth, LLC and KCS Referral Service LLC each
agreed to purchase convertible promissory notes in the aggregate amount of
$166,666, convertible into 1,666,666 common shares. On January 3, 2006, we
closed the first $100,000 installment under this agreement and Starr
Consulting purchased promissory notes valued at $33,334, Active Stealth
purchased promissory notes of $33,333 and KCS Referral Service purchased
promissory notes valued at $33,333. In March 2006 we terminated this
agreement with KCS Referral Service LLC.
The agreement provides for piggy back registration rights for the shares
underlying the convertible promissory notes. The agreement provides that we
must file a registration statement within 60 days of a request by any
Subscriber and cause the registration statement to become effective within 120
days of that request. We are obligated to maintain the effectiveness of the
registration statement until all the underlying shares have been sold by the
Subscribers. If we fail to obtain or maintain effectiveness of the
registration statement, then we are required to pay liquidated damages in an
amount equal to 2% of the purchase price of the convertible promissory notes
remaining unconverted and the purchase price of the shares issued upon
conversion of the notes owned of record by the holder of the notes for each 30
day period that the registration statement is not effective. We filed a
registration statement on Form SB-2 on February 2, 2006 to register the
underlying shares, but as of the date of this filing, the registration
statement has not been declared effective.
If we fail to issue shares within 10 business days after a request by a
Subscriber, then the Subscriber is entitled to a sum of money, whichever is
greater of either (i) multiplying the outstanding principal amount of the note
designated by the Subscriber by 130%, or (ii) multiplying the number of shares
deliverable upon conversion of the amount of the note's principal and/or
interest at the conversion price that would be in effect on the deemed
conversion date by the highest closing price of the common stock on the
principal market for the period commencing on the deemed conversion date until
the day prior to the receipt of the payment.
OFF-BALANCE SHEET ARRANGEMENTS
None.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the amounts reported
in the consolidated financial statements and accompanying notes. Estimates of
particular significance in our financial statements include annual tests for
impairment of our licenses. These estimates could likely be materially
different if events beyond our control, such as changes in government
regulations that affect the usefulness of our licenses or the introduction of
new technologies that compete directly with our licensed technologies affect
the value of our licenses.
10
We first determine the value of the license using a projected cash-flow
analysis to determine the present value of cash flows. The test is done using
assumptions as to various scenarios of increases and decreases in the revenue
stream and applying a discount rate of 6%. If the value achieved under these
various methods is less than the carrying value of the assets then it is
considered that an impairment has occurred and the asset's carrying value is
adjusted to reflect the impairment.
Management also makes estimates on the useful life of our licenses based on
the following criteria:
.. Whether other assets or group of assets are related to the useful life
of the licenses,
.. Whether any legal, regulatory or contractual provisions will limit the
use of the assets,
.. We evaluate the cost of maintaining the license,
.. We consider the possible effects of obsolescence, and
.. Whether there is maintenance or any other costs associated with the
license.
RESULTS OF OPERATIONS
The following discussions are based on the consolidated financial statements
of View Systems and its subsidiaries. These charts and discussions summarize
our financial statements for the years ended March 31, 2006 and 2005 and
should be read in conjunction with the financial statements, and notes
thereto, included with this report at Item 1, above.
Summary Comparison of 2006 and 2005 First Quarter Operations
------------------------------------------------------------
Quarter ended Quarter ended
March 31, 2006 March 31, 2005
-------------- --------------
Revenues, net $ 402,575 $ 285,643
Cost of sales 207,282 104,328
Gross profit (loss) 195,293 181,315
Total operating expenses 409,090 207,880
Net operating loss (213,797) (26,565)
Total other income (expense) (5,346) -
Net income (loss) (219,143) (26,565)
Net earnings (loss) per share $ (0.00) $ (0.00)
Revenue is considered earned when the product is shipped to the customer. The
concealed weapons system and the digital video system each require
installation and training. Training is a revenue source separate and apart
from the sale of the product. In those cases revenue is recognized at the
completion of the installation and training. The following chart provides a
breakdown of our sales for the 2005 and 2006 first quarters.
March 31, 2006 March 31, 2005
-------------- --------------
Secure Scan $ 139,900 $ 70,970
Digital Video - -
Visual First Responder 252,180 184,595
Service $ - $ 3,830
Our marketing efforts have increased sales of our SecureScan and Visual First
Responder and resulted in increased
11
revenues for the 2006 first quarter compared to the 2005 first quarter.
Management anticipates that increases in revenues will continue as we develop
our sales and marketing channels and establish local sales and service offices
in geographic areas where we have already completed sales. In addition, the
introduction of our new products that have the capability to sense enriched
nuclear material may also increase our revenues.
Our backlog at March 31, 2006, was $160,000 compared to $200,000 at December
31, 2005. Our back log is more manageable and is in part carried by the third
party manufacturers because purchase orders are placed with the manufacturers
and they receive payment when we receive payment from the customer. However,
the delay between the time of the purchase order and shipping of the product
results in a delay of recognition of the revenue from the sale. This delay in
recognition of revenues will continue as part of our results of operations.
Cost of sales include costs of products sold and shipping costs and were
approximately 51.5% of net revenues for the 2006 first quarter and 36.5% of
net revenues for the 2005 first quarter. Cost of goods sold increased for
the 2006 first quarter primarily due to mark-ups from vendors to whom we have
outsourced sales. Management anticipates that the relative margins for
product sales for each product line, assuming similar quantities sold and
similar sourcing of components, should remain relatively the same during 2006.
For the 2006 first quarter total operating expense increased compared to the
2005 first quarter. The increase in the 2006 first quarter was primarily a
result of increases in business development related to increased marketing.
General and administrative expenses increased primarily due to increases in
rent from the addition of office space in Baltimore, Jacksonville and New
Jersey. Professional fees increased due to an increase in engineering fees of
$15,000 and recognition of $16,000 related to the issuae of shares for
services in February 2006. Salaries and benefits expenses increased due to
the addition of three employees to our Florida office.
Total other expense for the 2006 first quarter was related to interest on
loans. Management anticipates interest expense to increase as a result of the
subscription agreement with the Subscribers, described above, and our need to
seek further private financing in the future to cover cash shortfalls.
Management believes net losses will continue in the short term as we expand
our sales channels.
FACTORS AFFECTING FUTURE PERFORMANCE
Our independent auditors have expressed substantial doubt whether we can
continue as a going concern.
We have incurred ongoing operating losses and do not currently have financing
commitments in place to meet expected cash requirements for the next twelve
months. We recorded a net loss of $219,143 for the three month period ended
March 31, 2006 and our retained deficit was $18,279.615 at March 31, 2006. We
are unable to fund our day-to-day operations through revenues alone and
management believes we will incur operating losses for the near future while
we expand our sales channels. While we have expanded our product line and
expect to establish new sales channels, we may be unable to increase revenues
to the point that we attain and are able to maintain profitability. As a
result we rely on private financing to cover cash shortfalls.
We need additional external capital and may be unable to raise it.
Based on our current growth plan we believe we may require approximately
$500,000 in additional financing within the next twelve months to develop our
sales channels. Our success will depend upon our ability to access equity
capital markets and borrow on terms that are financially advantageous to us.
However, we may not be able to obtain additional funds on acceptable terms.
If we fail to obtain funds on acceptable terms, then we might be forced to
delay or abandon some or all of our business plans or may not have sufficient
working capital to develop products, finance acquisitions, or pursue business
opportunities. If we borrow funds, then we could be forced to use a large
portion of our cash, if any, to repay principal and interest on those loans.
If we issue our securities for capital, then the interests of investors and
stockholders will be diluted.
12
We are currently dependent on the efforts of resellers for our continued
growth and must expand our sales channels to increase our revenues and
further develop our business plans.
We are in the process of developing and expanding our sales channels, but we
expect overall sales to remain down as we develop these sales channels. We are
actively recruiting additional resellers and dealers and have hired
in-house sales personnel for regional and national sales. We must continue to
find other methods of distribution to increase our sales. If we are
unsuccessful in developing sales channels we may have to delay further
development of our business plan.
We may not be able to compete successfully in our market because we have
a small market share and compete with large national and international
companies.
We estimate that we have less than a 1% market share of the surveillance and
weapons detection market. We compete with many companies that have greater
brand name recognition and significantly greater financial, technical,
marketing, and managerial resources. The position of these competitors in the
market may prevent us from capturing more market share. We intend to remain
competitive by increasing our existing business through marketing efforts,
selectively acquiring complementary technologies or businesses and services,
increasing our efficiency, and reducing costs.
Our revenues are dependent in part upon our relationships and alliances
with government agencies and partners.
While we own exclusive licenses for the SecureScan technology, we are
dependent upon the continuation of the ongoing contract between the Department
of Energy and National Institute of Justice for continuations and improvements
to the concealed weapons detection technology. We are also reliant upon the
Department of Energy and National Institute of Justice for continuations and
improvements to the Visual First Responder. If either of these entities
should discontinue its operations or research and development in these areas
we may lose our competitive edge in our market.
We must successfully introduce new or enhanced products and manage the
costs associated with producing several product lines to be successful.
Our future success depends on our ability to continue to improve our existing
products and to develop new products using the latest technology that can
satisfy customer needs. For example, our short term success will depend on
the continued acceptance of the Visual First Responder and the SecureScan
portal product lines. We cannot be certain that we will be successful at
producing multiple product lines and we may find that the cost of production
of multiple product lines inhibits our ability to maintain or improve our
gross profit margins. In addition, the failure of our products to gain or
maintain market acceptance or our failure to successfully manage our cost of
production could adversely affect our financial condition.
Our directors and officers are able to exercise significant influence
over matters requiring stockholder approval.
Currently, our directors and executive officers collectively hold
approximately 58.8% of the voting power of our common and preferred stock
entitled to vote on any matter brought to a vote of the stockholders.
Specifically, Gunther Than, our CEO, holds approximately 57.0 % of the total
voting power as of the date of this report. Pursuant to Nevada law and our
bylaws, the holders of a majority of our voting stock may authorize or take
corporate action with only a notice provided to our stockholders. A
stockholder vote may not be made available to our minority stockholders, and
in any event, a stockholder vote would be controlled by the majority
stockholders. As a result, our minority stockholders may not have the
opportunity to approve or consent to corporate actions or other transactions.
This concentration of ownership may also have the effect of delaying or
preventing a change in control.
13
Failure to achieve and maintain effective internal controls in
accordance with Section 404 of the Sarbanes-Oxley Act could lead to
loss of investor confidence in our reported financial information.
Pursuant to proposals related to Section 404 of the Sarbanes-Oxley Act of
2002, beginning with our Annual Report on Form 10-KSB for the fiscal year
ending December 31, 2007, we will be required to furnish a report by our
management on our internal control over financial reporting. If we cannot
provide reliable financial reports or prevent fraud, then our business and
operating results could be harmed, investors could lose confidence in our
reported financial information, and the trading price of our stock could drop
significantly.
In order to achieve compliance with Section 404 of the Act within the
prescribed period, we will need to engage in a process to document and
evaluate our internal control over financial reporting, which will be both
costly and challenging. In this regard, management will need to dedicate
internal resources, engage outside consultants and adopt a detailed work plan.
During the course of our testing we may identify deficiencies which we may not
be able to remedy in time to meet the deadline imposed by the Sarbanes-Oxley
Act for compliance with the requirements of Section 404. In addition, if we
fail to achieve and maintain the adequacy of our internal controls, as such
standards are modified, supplemented or amended from time to time, we may not
be able to ensure that we can conclude on an ongoing basis that we have
effective internal controls over financial reporting in accordance with
Section 404 of the Sarbanes-Oxley Act. Moreover, effective internal controls,
particularly those related to revenue recognition, are necessary for us to
produce reliable financial reports and are important to helping prevent
financial fraud.
ITEM 3. CONTROLS AND PROCEDURES
Our Chief Executive Officer, who also acts in the capacity of principal
financial officer, evaluated the effectiveness of our disclosure controls and
procedures as of the end of the period covered by this report. Based on that
evaluation, he concluded that our disclosure controls and procedures were
effective.
Also, our Chief Executive Officer determined that there were no changes made
in our internal controls over financial reporting during the third quarter of
2006 that have materially affected, or are reasonably likely to materially
affect our internal control over financial reporting.
PART II: OTHER INFORMATION
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On April 28, 2006, we issued 60,000 shares to Carolyn Harrison for marketing
services valued at $6,000. We relied on an exemption from registration for a
private transaction not involving a public distribution provided by Section
4(2) of the Securities Act.
On March 20, 2006, we issued 100,000 shares to Mike Luke in consideration for
services valued at $10,000. We relied on an exemption from registration for a
private transaction not involving a public distribution provided by Section
4(2) of the Securities Act.
On February 6, 2006, we authorized the issuance of warrants to purchase
1,500,000 shares of common stock to Elite Equity Marketing in consideration
for investor relations consulting services for a term of three months. The
warrants are exercisable in 500,000 share increments at $0.10 per share
starting in February 2006. We relied on an exemption from registration for a
private transaction not involving a public distribution provided by Section
4(2) of the Securities Act.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On the April 24, 2006 (the "Record Date") stockholders holding 114,534,934
voting shares, or 57.8% of our voting
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power, authorized by written consent the following matters:
.. Increase our authorized common stock from 100,000,000 to 250,000,000;
.. Authorized our management to seek out acquisitions of assets or business
opportunities in order to remain competitive in our markets;
.. Ratified our domicile merger effected on July 31, 2003; and
.. Ratified the certificate of amendment to our articles of incorporation
filed with the Secretary of State of Nevada on July 31, 2003
On April 24, 2006 our board of directors proposed these matters for
shareholder approval. The increase of our authorized is necessary to
facilitate future equity financings which we will require to satisfy our
financial requirements. We will file the necessary certificate of amendment
with the Secretary of State of Nevada to effect the increase twenty calendar
days from the mailing date of a Definitive 14C Information Statement to our
stockholders.
ITEM 6. EXHIBITS
Part I Exhibits
31.1 Chief Executive Officer Certification
31.2 Principal Financial Officer Certification
32.1 Section 1350 Certification
Part II Exhibits
3.1 Articles of Incorporation of View Systems, as amended
(Incorporated by reference to exhibit 3.1 to Form 10-QSB, filed
November 14, 2003)
3.2 By-Laws of View Systems (Incorporated by reference to exhibit 3.2 to
Form 10-QSB, filed November 14, 2003)
4.1 View Systems, Inc. 2005(b) Professional/Consultant Compensation Plan,
dated November 7, 2005 (Incorporated by reference to exhibit 4.1 to Form
S-8 filed November 8, 2005)
4.2 Subscription Agreement between View Systems, Inc. and Starr Consulting,
Inc., Active Stealth, LLC, and KCS Referral Service LLC, dated December
23, 2005 (Incorporated by reference to exhibit 4.1 of Form 8-K, filed
January 6, 2006)
10.1 View Systems, Inc. 1999 Stock Option Plan (Incorporated by reference to
exhibit 10.16 to Form SB-2 filed January 11, 2000)
10.2 Employment agreement between View Systems and Gunther Than, dated
January 1, 2003 (Incorporated by reference to exhibit 10.3 for Form
10-KSB, filed April 14, 2004)
10.3 Lease agreement between View Systems and MIE Properties, Inc., dated
August 3, 2005 (Incorporated by reference to exhibit 10.2 to Form
10-QSB, filed November 10, 2005)
10.4 Consulting Agreement between View Systems and Business Development
Corporation, dated December 27, 2005 ((Incorporated by reference to
exhibit 10.4 to Form SB-2, as amended, filed February 2, 2006)
10.5 Engagement between View Systems and John F. Alexander, dated October 6,
2005 (Incorporated by reference to exhibit 10.5 to Form SB-2, as
amended, filed February 2, 2006)
10.6 Consulting Agreement between View Systems and Elite Equity Marketing,
dated February 6, 2006 (Incorporated by reference to exhibit 10.6 to
Form 10-KSB filed April 17, 2006)
21.1 Subsidiaries (Incorporated by reference to exhibit 21.1 for Form 10-KSB,
filed March 31, 2003)
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
VIEW SYSTEMS, INC.
/s/ Gunther Than
Date: May 15, 2006 By: ______________________________________________
Gunther Than
Chief Executive Officer, Treasurer, Director
Principal Financial and Accounting Officer
/s/ Michael L. Bagnoli
Date: May 15, 2006 By: ______________________________________________
Michael L. Bagnoli
Secretary and Director
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