-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Chiu+72j75pj0ldLN/xVc+dkR8ZAd5ypYMByfPENJwJSXtB2ZIgudiAabhDQ90/0 CVhkNVWe3w0uwobu2wPtgQ== 0001023175-03-000142.txt : 20030813 0001023175-03-000142.hdr.sgml : 20030813 20030813145425 ACCESSION NUMBER: 0001023175-03-000142 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20030630 FILED AS OF DATE: 20030813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VIEW SYSTEMS INC CENTRAL INDEX KEY: 0001075857 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISCELLANEOUS BUSINESS SERVICES [7380] IRS NUMBER: 592928366 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-30178 FILM NUMBER: 03840722 BUSINESS ADDRESS: STREET 1: 825 W KENYON AVE STREET 2: SUITE 15 CITY: ENGLEWOOD STATE: CO ZIP: 80110 BUSINESS PHONE: 3032957200 MAIL ADDRESS: STREET 1: 925 W KENYON STREET STREET 2: SUITE 15 CITY: ENGLEWOOD STATE: CA ZIP: 80110 10QSB 1 viewsystems10qsb.txt 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 June 30, 2003 | | TRANSITION REPORT PURSUANT SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number 0-30178 VIEW SYSTEMS, INC. (Exact name of small business issuer as specified in its charter) Nevada 59-2928366 (State of incorporation) (I.R.S. Employer Identification No.) 1100 Wilso Drive Baltimore, Maryland 21223 (Address of principal executive offices) (410) 646-3000 (Issuer's telephone number) 7717 West 6th Avenue, Suite A & B Lakewood, Colorado 80205 (Former address) 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 [ ] As of July 28, 2003, the issuer had 45,620,619 shares of common stock outstanding. Transitional Small Business Disclosure Format (check one): Yes [ ] No [X] TABLE OF CONTENTS PART I: FINANCIAL INFORMATION Item 1: Financial Statements.........................................3 Item 2: Management's Discussion and Analysis........................11 Item 3: Controls and Procedures.....................................13 PART II: OTHER INFORMATION Item 1: Legal Proceedings...........................................13 Item 5: Other Information ..........................................14 Item 6: Exhibits and Reports on Form 8-K ...........................14 Signatures ..........................................................15 PART I: FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS The financial information set forth below with respect to our statements of operations for the three and six month periods ended June 30, 2003 and 2002 are 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 six month period ended June 30, 2003, are not necessarily indicative of results to be expected for any subsequent period. These statements should be read in conjunction with our Form 10-KSB for the year ended December 31, 2002 which was filed with the Securities and Exchange Commission on March 31, 2003. 2 VIEW SYSTEMS, INC. CONSOLIDATED BALANCE SHEETS AS OF JUNE 30, 2003 AND DECEMBER 31, 2002 ASSETS December 31, June 30, 2003 2002 ------------- ------------- (Unaudited) CURRENT ASSETS: Cash $ 3,056 $ 3,229 Accounts receivable (Net of allowance for uncollectible accounts of $10,000 at June 30, 2003 and December 31, 2002 130,066 62,711 Inventory 99,940 171,326 ------------- ------------- Total current assets 233,062 237,266 ------------- ------------- PROPERTY AND EQUIPMENT: Equipment 348,385 348,385 Leasehold improvements 17,940 17,940 Software tools 34,571 34,571 Vehicles 46,832 46,832 ------------- ------------- 447,728 447,728 Less accumulated depreciation 235,687 204,247 ------------- ------------- Net value of property and equipment 212,041 243,481 ------------- ------------- OTHER ASSETS: Goodwill 781,248 781,248 Licenses and patents 1,538,925 1,626,855 Due from affiliated entities 118,827 123,327 Deposits 2,532 2,532 ------------- ------------- Total other assets 2,441,532 2,533,962 ------------- ------------- TOTAL ASSETS $ 2,886,635 $ 3,014,709 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 377,544 $ 445,623 Accrued interest 78,343 72,843 Notes payable - related entities 916,950 599,450 ------------- ------------- Total current liabilities 1,372,837 1,117,916 ------------- ------------- STOCKHOLDERS' EQUITY: Common stock-par value $0.001 50,000,000 shares authorized, 45,275,619 shares issued and outstanding 45,275 - 44,598,620 shares issued and outstanding - 44,598 Additional paid-in capital 13,896,751 13,810,878 Accumulated deficit (12,428,228) (11,958,683) ------------- ------------- Total stockholders' equity 1,513,798 1,896,793 ------------- ------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,886,635 $ 3,014,709 ============= ============= See Accompanying Notes. 3
VIEW SYSTEMS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE AND SIX MONTH PERIODS ENDED JUNE 30, 2003 AND DECEMBER 31, 2002 (Unaudited) Three Months Ended Six Months Ended ----------------------------- ----------------------------- June 30, 2003 June 30, 2002 June 30, 2003 June 30, 2002 -------------- -------------- -------------- -------------- REVENUE: Sales of security systems $ 53,568 $ 71,512 $ 99,758 $ 131,596 Sales of weapons detection portals 92,917 - 112,417 - -------------- -------------- -------------- -------------- Total sales 146,485 71,512 212,175 131,596 Cost of goods sold 67,454 39,338 94,990 72,114 -------------- -------------- -------------- -------------- GROSS PROFIT ON SALES 79,031 32,174 117,185 59,482 -------------- -------------- -------------- -------------- OPERATING EXPENSES: Advertising and promotion 11,872 1,139 11,872 9,110 Amortization 43,965 - 87,930 - Bad debts - 234,809 - 234,809 Business development 29,892 27,763 29,892 70,257 Depreciation 15,720 15,189 31,440 30,378 Dues and subscriptions - - 122 - Insurance 4,380 7,146 7,088 16,495 Interest 2,957 6,878 5,966 11,654 Investor relations 16,119 17,007 16,119 51,829 Miscellaneous expense 4,891 7,135 4,891 9,935 Office expense 19,985 49,331 30,441 95,540 Professional fees (36,595) 257,651 40,469 321,191 Rent 17,193 15,213 37,780 26,268 Repairs and maintenance - 1,758 - 4,064 Research and development 1,342 21,404 11,432 74,886 Salaries and benefits 112,021 123,581 243,066 295,026 Taxes-other 2,140 20 2,290 2,150 Travel 3,401 12,332 14,749 30,779 Utilities 4,921 2,957 11,183 8,645 -------------- -------------- -------------- -------------- Total operating expenses 254,204 801,313 586,730 1,293,016 -------------- -------------- -------------- -------------- NET LOSS FOR THE PERIOD $ (175,173) $ (769,139) $ (469,545) $ (1,233,534) ============== ============== ============== ============== LOSS PER SHARE: Basic $ (0.004) $ (0.03) $ (0.01) $ (0.04) ============== ============== ============== ============== Diluted $ (0.004) $ (0.03) $ (0.01) $ (0.04) ============== ============== ============== ============== WEIGHTED AVERAGE SHARES OUTSTANDING 45,275,619 26,501,289 44,937,195 27,166,289 ============== ============== ============== ============== See Accompanying Notes 4
VIEW SYSTEMS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND 2002 June 30, 2003 June 30, 2002 -------------- ------------- (Unaudited) (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (469,545) $ (1,233,534) Adjustments to reconcile net loss to net cash provided by operating activates: Depreciation and amortization 119,370 30,378 Bad debt expense - 234,809 Employee compensation paid with stock - 214,238 Changes in operating assets and liabilities: Accounts receivable (67,355) (1,008) Inventory 71,386 (60,360) Accounts payable (68,079) (24,414) Accrued interest 5,500 5,500 -------------- ------------- Net cash used in operating activities (408,723) (834,391) -------------- ------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment - (21,023) Funds advanced (to) from affiliated entities 4,500 (20,594) Cash element in Milestone Acquisition - 52,448 -------------- ------------- Net cash provided by investing activities 4,500 10,831 -------------- ------------- CASH FLOWS FROM FINANCING ACTIVITIES: Funds advanced (to) from shareholders 317,500 31,332 Repayment of note payable-bank - (6,052) Proceeds from sales of stock 86,550 753,700 -------------- ------------- Net cash provided by financing activities 404,050 778,980 -------------- ------------- NET DECREASE IN CASH (173) (44,580) CASH AT BEGINNING OF PERIOD 3,229 73,344 -------------- ------------- CASH AT END OF PERIOD $ 3,056 $ 28,764 ============== ============= SIGNIFICANT NON-CASH INVESTING ACTIVITIES: Common stock issued in exchange for net assets of Milestone Technology, Inc. as follows: Accounts receivable - 28,132 Inventory - 359,647 Fixed assets - 188 Patents - 1,323,867 Accounts payable - (6,470) Notes payable - (703,449) Accrued interest - (28,343) See Accompanying Notes 5
VIEW SYSTEMS, INC. CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE PERIOD ENDED JUNE 30, 2003 AND DECEMBER 31, 2002 Additional Total Common Paid-In Accumulated Stockholders' Stock Capital Deficit Equity ------------- ------------- ------------- ------------- Balances at January 1, 2002 $ 20,193 $ 10,119,024 $ (8,035,214) $ 2,104,003 Sales of common stock 3,415 750,285 - 753,700 Issuance of common stock in exchange for interest in Milestone Technology, Inc. 3,300 1,019,700 - 1,023,000 Issuance of common stock (employee and other compensation) 985 213,253 - 214,238 Net loss for the six months ended June 30, 2002 - - (1,233,534) (1,233,534) ------------- ------------- ------------- ------------- Balances at June 30, 2002 (Unaudited) 27,893 12,102,262 (9,268,748) 2,861,407 Sales of common stock 5,135 533,365 - 538,500 Issuance of common stock (employee and other compensation) 10,835 981,986 - 992,821 Issuance of common stock in payment of a note payable 735 193,265 - 194,000 Net loss for the period of July 1, 2002 to December 31, 2002 - - (2,689,935) (2,689,935) ------------- ------------- ------------- ------------- Balances at December 31, 2002 44,598 13,810,878 (11,958,683) 1,896,793 Sales of common stock 677 85,873 - 86,550 Net loss for the six months ended June 30, 2003 - - (469,545) (469,545) ------------- ------------- ------------- ------------- Balances at June 30, 2003 (Unaudited) $ 45,275 $ 13,896,751 $(12,428,228) $ 1,513,798 ============= ============= ============= ============= See Accompanying Notes 6
VIEW SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2003 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. In March 2002, the Company acquired Milestone Technology, Inc. which has developed a concealed weapons detection portal. Basis of Presentation --------------------- The accompanying unaudited interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the Securities and Exchange Commission for interim financial information. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position and results of operations. It is management's opinion, however, that all adjustments (consisting of normal recurring adjustments have been made which are necessary for a fair financial statement presentation. The results for the interim period are not necessarily indicative of the results to be expected for the year. Basis of Consolidation ---------------------- The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Milestone Technology, Inc. ("Milestone"). 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 of America. 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, the price of the product is fixed or determinable and collectibility is reasonably assured. Inventories ----------- Inventories are stated at the lower of cost or market. Cost is determined by the last-in-first-out method (LIFO). The inventory at June 30, 2003 and December 31, 2002 consists entirely of weapons detection portals. 7 VIEW SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2003 Property and Equipment ---------------------- Property and equipment is recorded at cost and depreciated over their estimated useful lives, using the straight-line and accelerated depreciation methods. Upon sale or retirement, the cost and related accumulated depreciation are eliminated from the respective accounts, and the resulting gain or loss is included in the results of operations. The useful lives of property and equipment for purposes or computing depreciation are as follows: Equipment 5-7 years Software tools 3 years Repairs and maintenance charges, which do not increase the useful lives of assets, are charged to operations as incurred. Depreciation expense for the six months ended June 30, 2003 and 2002 amounted to $31,440 and $30,378, respectively. 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 six months ended June 30, 2003 and 2002 were $11,872 and $9,110, 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. 8 VIEW SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2003 Goodwill -------- Goodwill represents the excess of the cost of assets acquired in business combinations accounted for under the purchase method of accounting over the fair value of the net assets acquired at the dates of acquisition. Effective January 1, 2002 goodwill will no longer be amortized but rather tested for impairment on an annual basis. Licenses and Patents -------------------- The Company has assigned a value to licenses and patents acquired in its acquisition of Milestone which are being amortized on a straight-line basis over a ten-year period. 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 three and six months ended June 30, 2003 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 June 30, 2003. 2. FINANCIAL CONDITION Since its inception, the Company has incurred significant losses and as of June 30, 2003 had an accumulated deficit of $12.5 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 or sustain operations in the future. 3. GOODWILL AND OTHER INTANGIBLE ASSETS Intangible assets consist of the following:
June 30, 2003 December 31, 2002 ------------------------- ------------------------- Average Gross Gross Life Carrying Accumulated Carrying Accumulated (Years) Amount Amortization Amount Amortization ------- ------------ ------------ ------------ ------------ Amortized intangible assets: Licensed and patents 10.0 $ 1,758,594 $ 219,669 $ 1,758,594 $ 131,739 ============ ============ ============ ============ Intangible assets not subject to amortization: Goodwill $ 1,346,972 $ 565,724 $ 1,346,972 $ 656,724 ============ ============ ============ ============ 9
VIEW SYSTEMS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2003 Amortization expense for the three and six months ended June 30, 2003 was $43,965 and $87,930, respectively. Estimated amortization expense for each of the following years ending on December 31, is as follows: 2003 $ 175,860 2004 175,860 2005 175,860 2006 175,860 2007 175,860 4. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In January 2003, the Financial Accounting Standards Board (FASB) issued FASB Interpretation 46 Consolidation of Variable Interest Entities, an interpretation of ARB No. 51 (FIN 46). FIN 46 provides a new framework for identifying variable interest entities (VIEs) and determining when a company should include the assets, liabilities, noncontrolling interests and results of activities of a VIE in its consolidated financial statements. FIN 46 is effective immediately for VIEs created after January 31, 2003 and is effective beginning in the third quarter of 2003 for VIEs created prior to the issuance of the interpretation. The adoption of this standard will not have a material impact on the Company's financial statements. Statement of Financial Accounting Standards (SFAS) No. 148 Accounting for Stock-Based Compensation - Transition and Disclosure - an amendment of FASB Statement No. 123 (SFAS 148) provides alternative methods of transition for a voluntary change to the fair value-based method of accounting for stock-based employee compensation. SFAS 148 also amends the disclosure requirements of SFAS 123, Accounting for Stock-Based Compensation to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The adoption of this standard will not have a material impact on the Company's financial statements. On May 15, 2003, the FASB issued SFAS 150 Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity and is effective May 31, 2003 for all new and modified financial instruments and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. SFAS 150 changes the accounting for certain financial instruments that, under previous guidance issuers could account for as equity. SFAS 150 requires that those instruments be classified as liabilities (or assets in some circumstances). The adoption of this standard did not have a material impact on the Company's financial statements. 10 In this report references to "View Systems," "we," "us," and "our" refer to View Systems, Inc. FORWARD LOOKING STATEMENTS This quarterly report contains certain forward-looking statements that involve risks and uncertainties, such as statements of the View System's plans and expectations. Any statements contained in this report that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, words such as "may," "will," "expect," "believe," "anticipate," "estimate" or "continue" or comparable terminology are intended to identify forward-looking statements. These statements by their nature involve substantial risks and uncertainties, and actual results may differ materially depending on a variety of factors, many of which are not within View Systems's control. These factors include but are not limited to economic conditions generally and in the industry which View Systems participate; competition within View Systems's chosen market and failure by View Systems to successfully develop business relationships. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS View Systems designs and develops computer software and hardware used in conjunction with surveillance capabilities. We have incurred losses for the past two fiscal years and have an accumulated deficit of $12,428,228 at June 30, 2003. Management believes we will incur operating losses for the foreseeable future. However, management expects projected sales revenues and anticipated equity infusions and advances from management to be sufficient to provide sufficient funding to sustain operations through June 30, 2004. Since start-up of operations in September 1998, we have devoted most of our resources to the development of digital video surveillance products. However, in March 2002 we shifted the focus of our operations to the introduction of our SecureScan Concealed Weapons Detection System. We have worked diligently to make engineering design changes to the Concealed Weapons Detection product to accommodate the price points required by competitive pressures. The engineering design changes required locating new sources for components and limited field testing. In addition, demonstration of the product involves the shipping of a large bulky archway and a highly trained technical staff, consequently, sales cycle times are lengthy. Acquisition Treatment In December of 2001 we entered into a joint venture agreement with Milestone Technology, Inc., an Idaho corporation, to develop its Concealed Weapons Detection portal. As part of the agreement we issued 500,000 shares of View Systems common stock for a 6% interest in Milestone Technology and the rights to the Concealed Weapons Detection technology. Then on March 25, 2002, View Systems acquired the remaining 94% interest of Milestone Technology in exchange for 3,300,000 common shares. This acquisition was valued at approximately $1,298,000 and was accounted for under the purchase method of accounting. Accordingly, Milestone Technology's results of operation have been included with View Systems from the closing date in March 2002 and its consolidated assets and liabilities have been recorded at their fair values on the same date. In May 2003 a controversy arose regarding the ownership of Milestone Technology, Inc. and the Concealed Weapons Detection technology, see, "Part II, Item 1: Legal Proceedings" for further details. Results Of Operations The following discussion and analysis should be read in conjunction with our unaudited financial statements and the accompanying notes for the three and six month periods ended June 30, 2003 and 2002, which are included in this report. Sales -- Total sales increased 61.2% from $131,596 for the six month period ended June 30, 2002 to $212,175 for the six month period ended June 30, 2003. Total sales increased 104.8% from $71,512 for the three month period ended June 30, 2002 to $146,485 for the three month period ended June 20, 2003, our 2003 second 11 quarter. These increases in sales are largely due to the addition of sales for our SecureScan Concealed Weapons Detection product. The sales cycles in the concealed weapons detection market are long and require the approval of highly bureaucratic decision makers. However, in contrast to digital video storage, the Concealed Weapons Detection product price points and profit margins are larger. Costs Of Goods Sold -- Cost of products and services sold consist principally of the costs of hardware components and supplies. We generally operate through resellers who install and service the units. 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. These costs increased $22,876, or 31.7%, in the 2003 six month period compared to the 2002 six month period. These costs increased $28,116, or 71.5%, for the 2003 second quarter compared to the 2002 second quarter. As our product sales increase we expect that our costs of goods and services sold will decline and stabilize as a percentage of total sales. Also, we have been working on engineering changes in our SecureScan products that we expect will lower component costs for these products. Gross Profit -- Gross profit for the 2003 six month period increased $57,703, or 97.0%, compared to the same period in 2002. Gross profit increased $46,857, or 145.6%, for the 2003 second quarter compared to the 2002 second quarter. Total Operating Expense -- Total operating expenses for the 2003 six month period decreased $706,286 compared to the 2002 six month period. These expenses decreased $547,109 for the 2003 second quarter compared to the 2002 second quarter. The 2003 decrease is principally the result of a combination of bad debt expense of $234,809 recognized in the 2002 comparable periods and reductions in professional fees, research and development and office expense in the 2003 periods. Net Loss -- Our net loss was $469,545 for the 2003 six month period compared to $1,233,534 for the 2002 comparable period. Our net loss was $175,173 for the 2003 second quarter compared to a net loss of $769,139 for 2002 second quarter. Our net loss per diluted weighted average outstanding share was $0.01 for the 2003 six month period compared to $0.04 for the 2002 six month period and was $0.004 for the 2003 second quarter compared to $0.03 for the 2002 second quarter. Liquidity and Capital Resources Historically, we have funded our cash requirements primarily through equity transactions. We are not currently generating sufficient cash from our operations to finance our business and will continue to need to raise capital from other sources. At June 30, 2003 we had negative working capital of $1,139,775. We had total assets of $2,886,635 at June 30, 2003 compared to total assets of $3,014,709 at December 31, 2002. Total current liabilities were $1,372,837 at June 30, 2003 compared to $1,117,916 at December 31, 2002. This resulted in stockholders' equity of $1,513,798 for the 2003 six month period compared to $1,896,793 at December 31, 2002. During the six months ended June 30, 2003, net cash used in operating activities was $408,723 compared to net cash used of $834,391 for the 2002 six month period. Net cash provided by investing activities was $4,500 in the 2003 six month period and was related to advances from affiliated entities. Net cash provided by investing activities was $10,831 in the 2002 six month period and was primarily the result of the acqusition of cash in the Milestone Technology acquisition. Net cash provided by financing activities during the 2003 six month period was $404,050, consisting of proceeds received from sales of stock of $86,550 and loans from shareholders of $317,500. During the 2002 six month period net cash generated from financing was $778,980 and was primarily the result of proceeds from sales of our common stock. During the six month period ended June 30, 2003 we have relied primarily on our management for cash infusions to sustain operations. These cash infusions are in the form of advances without repayment terms. It is 12 anticipated that we will require additional advances at least until equity financing is arranged. There can be no assurance that these funds will be available in the future Commitments and Contingent Liabilities Our commitments include operating leases and current liabilities. At December 31, 2002, future minimum payments for operating leases related to properties in Colorado, Maryland and Idaho were $183,069 through 2006. Other commitments include notes payable of $916,950 for the 2003 six month period, which are related to notes payable of $354,450 to former shareholders of companies we acquired, $245,000 payable to a commercial bank and $317,500 advanced by shareholders during the 2003 second quarter. Financing We operate in a very competitive industry that requires continued large amounts of capital to develop and promote our products. We currently estimate we will need between $1 million and $2 million to fully develop our products and further expand our business operations. We believe that it will be essential to continue to raise additional capital, both internally and externally, to compete in this industry. Management intends to finance our operations through additional equity financing, which we expected to complete by the first quarter of 2003. We delayed this financing, but anticipate completion of equity financing before the end of 2003. Any proceeds we may receive from these equity transactions will be used for business operations. We cannot assure that this financing will be successful and we may be required to further reduce expenses and scale back our operations. In addition to accessing the public and private equity markets, we will pursue bank credit lines and equipment leases for certain capital expenditures. ITEM 3: CONTROLS AND PROCEDURES Our CEO and principal financial officer, Gunther Than, has supervised the design and establishment of disclosure controls and procedures to ensure that material information is made known to him in a timely manner by others within the company and its subsidiaries. He reevaluated the effectiveness of these disclosure controls and procedures as of the end of the period covered by this report and determined that there continued to be no significant deficiencies in these procedures. Also, Mr. Than evaluated the design and operation of our internal control over financial reporting which relates to our ability to record, process, summarize and report financial information. He did not find any significant deficiency or material weakness which would require changes to be made or corrective actions to be taken related to our internal control over financial reporting. Nor did he identify fraud that involved management or other employees who had a significant role in our internal control over financial reporting. PART II. OTHER INFORMATION ITEM 1: LEGAL PROCEEDINGS On May 8, 2003, View Systems, Inc. filed a complaint against Messrs. Steve Williams and Paul Reep, former officers and shareholders of Milestone Technology, Inc. The complaint was filed in the United States District Court for the District of Maryland Division and the controversy is related to the ownership of Milestone Technology, Inc. and the Concealed Weapons Detection System. View Systems claims ownership of Milestone Technology, Inc. and the exclusive licensing rights to the Concealed Weapons Detection System. View Systems asked the court to declare it as the beneficial and legal owner of 100% of the outstanding Milestone Technology, Inc. shares pursuant to a purchase contract dated May 24, 2002. View Systems also asked the court to require Messrs. Williams and Reep to complete the conveyance of all of the Milestone Technology, Inc. shares in accordance with the agreement. In addition, View Systems seeks to enjoin Messrs. Williams and Reep 13 from the use, sale, marketing or exploitation of the assets of Milestone Technology, Inc. View Systems also asked the court to enjoin Mr. Williams from acting for or on behalf of Milestone Technology, Inc. Management and counsel negotiated a settlement with Mr. Williams and Milestone Technology, Inc. in July 2003; but we continue to pursue Mr. Reep. ITEM 5: OTHER INFORMATION On July 31, 2003, View Systems, Inc., completed a change of domicile merger moving its domicile from Florida to Nevada. As part of the domicile merger, the following persons were named as directors and officers of View Systems, Inc., Nevada. Barry S. Feldman President and Director Gunther Than Chairman of the Board and Treasurer William D. Smith Secretary and Director Dr. Michael L. Bagnoli Director Dr. Martin Maassen Director Barry S. Feldman is 63 years old and in May 2003 joined View Systems as President. From April 2002 to April 2003 he was a partner and Sr. Vice President Corporate Relations for Summit Resource Group. From July 1998 to February 2002 he was Sr. Vice President Corporate Relations for Columbia Financial Group. Mr. Feldman has over 25 years experience with small business corporate restructuring, management and financing. He holds a Bachelors of Science in Business Management from Rutgers University. ITEM 6. EXHIBITS AND REPORT ON FORM 8-K Part II Exhibits 3.1 Articles of Incorporation and all Articles of Amendment of View Systems, Inc. (Incorporated by reference to registration statement on Form SB-2, filed January 11, 2000) 3.2 By-Laws of View Systems, Inc. (Incorporated by reference to registration statement on Form SB-2, filed January 11, 2000) 10.1 View Systems, Inc. Employment Agreement with Gunther Than. (Incorporated by reference to registration statement on Form SB-2, filed January 11, 2000) 21.1 Subsidiaries of Registrant (Incorporated by reference to Form 10-KSB, filed March 31, 2003) 31.1 Section 302 Chief Executive Officer Certification 31.2 Section 302 Principal Financial Officer Certification 32.1 Section 1350 Certification Reports on Form 8-K On May 19, 2003, we filed a current report on Form 8-K, dated May 8, 2003, under Item 5, disclosing the initiation of a legal proceeding related to the ownership of Milestone Technology, Inc. No financial statements were filed. 14 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. /s/ Barry S. Feldman Date: August 12, 2003 By: ___________________________________ Barry S. Feldman President and Director /s/ Gunther Than Date: August 12, 2003 By: ___________________________________ Gunther Than CEO, Principal Financial Officer, Treasurer and Chairman of the Board 15 EX-31.1 3 viewsystemsex311.txt SECTION 302 CHIEF EXECUTIVE OFFICER CERTIFICATION Exhibit 31.1 CHIEF EXECUTIVE OFFICER CERTIFICATION I, Gunther Than, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of View Systems, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statement made, in light of the circumstances under which statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report. 4. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuers's internal control over financial reporting; and 5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of small business issuer's board of directors (or persons performing the equivalent function): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. /s/ Gunther Than Date: August 12, 2003 _____________________________________ Gunther Than, Chief Executive Officer EX-31.2 4 viewsystemsex312.txt SECTION 302 PRINCIPAL FINANCIAL OFFICER CERTIFICATION Exhibit 31.2 PRINCIPAL FINANCIAL OFFICER CERTIFICATION I, Gunther Than, certify that: 1. I have reviewed this quarterly report on Form 10-QSB of View Systems, Inc.; 2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statement made, in light of the circumstances under which statements were made, not misleading with respect to the period covered by this quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report. 4. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuers's internal control over financial reporting; and 5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of small business issuer's board of directors (or persons performing the equivalent function): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. /s/ Gunther Than Date: August 12, 2003 _________________________________________ Gunther Than, Principal Financial Officer EX-32.1 5 viewsystemsex321.txt SECTION 1350 CERTIFICATION Exhibit 32.1 View Systems, Inc. CERTIFICATION OF PERIODIC REPORT Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 18 U.S.C. Section 1350 I, Gunther Than, Chief Executive Officer and Principal Financial Officer of View Systems, Inc. certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (A) the quarterly report on Form 10-QSB of the Company for the quarter ended June 30, 2003, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (B) the information contained in the Form 10-QSB fairly presents, in all material respects, the financial condition and results of operations of the Company. Date: August 12, 2003 /s/ Gunther Than ____________________________________ Gunther Than Chief Executive Officer Principal Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----