-----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, JVTEqY/8VzPHKzyGW305wBnlNPz/YJIFBwysC9VPEra/exu5+UwNyw7IaK7FHJnO XwmhtnQqlV28WPNGQcmrfw== 0001023175-05-000210.txt : 20051012 0001023175-05-000210.hdr.sgml : 20051012 20051012143325 ACCESSION NUMBER: 0001023175-05-000210 CONFORMED SUBMISSION TYPE: SB-2 PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 20051012 DATE AS OF CHANGE: 20051012 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: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SB-2 SEC ACT: 1933 Act SEC FILE NUMBER: 333-128956 FILM NUMBER: 051134731 BUSINESS ADDRESS: STREET 1: 1100 WILSO DR STREET 2: 1100 WILSO DR CITY: BALTIMORE STATE: MD ZIP: 21223 BUSINESS PHONE: 4106463000 MAIL ADDRESS: STREET 1: 1100 WILSO DR STREET 2: 1100 WILSO DR CITY: BALTIMORE STATE: MD ZIP: 21233 SB-2 1 viewsystemssb2.txt As filed with the Securities and Exchange Commission on October 12, 2005 Registration No. 333-___________ ============================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form SB-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 VIEW SYSTEMS, INC. (Name of small business issuer in its charter) Nevada 3812 59-2928366 (State of incorporation) (Primary Standard Industrial (I.R.S. Employer Classification Code Number) Identification No.) 1550 Caton Center Drive, Suite E Baltimore, Maryland 21227 Telephone: (410) 242-8439 (Address and telephone number of principal executive offices and principal place of business) Gunther Than, CEO View Systems, Inc. 1550 Caton Center Drive, Suite E Baltimore, Maryland 21227 Telephone: (410) 242-8439 (Name, address and telephone number of agent for service) --------------- Copies to: Cindy Shy, Attorney Cindy Shy, P.C. P.O. Box 380-236 Ivins, Utah 84738 Telephone: (435) 674-1282 Approximate date of proposed sale to the public: As soon as practicable after this registration statement becomes effective. If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] THIS COMBINED PROSPECTUS RELATES TO OUR REGISTRATION STATEMENT ON FORM SB-2, FILE NO. 333-118043 If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the Prospectus is expected to be made pursuant to Rule 434, please check the following box. [ ] If any of these securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [X] CALCULATION OF REGISTRATION FEE - ------------------------------------------------------------------------------ Proposed Proposed maximum Title of each Amount maximum aggregate Amount of class of securities to be offering price offering registration to be registered registered(1) per unit(2) price fee - ------------------------------------------------------------------------------ Common Stock 3,770,000 $ 0.258 $ 972,660 $111.68 (3) - ------------------------------------------------------------------------------ (1) This registration statement covers the resale by certain selling stockholders of up to an aggregate of 3,770,000 shares of View Systems, Inc. common stock. Of the aggregate shares, 170,000 shares are being carried forward from Form SB-2, File No. 333-118043. (2) Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(c) under the Securities Act, based on the average of the high and low prices of the common stock as of October 7, 2005. (3) View Systems, Inc. previously paid a filing fee of $2.80 for the 170,000 shares which are carried forward from the Form SB-2, File No. 333-118043 and the registration fee has been reduced by that amount. View Systems, Inc. hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until we shall file a further amendment which specifically states that this registration statement shall become effective in accordance with Section 8(a) of the Securities Acts of 1933 or until the registration statement shall become effective on such date as the Commission, acting pursuant to Section 8(a), may determine. PROSPECTUS ---------------------------------------------------------------------------- | SUBJECT TO COMPLETION | | The information in this prospectus is not complete and may be changed. We | | may not sell these securities until the registration statement filed with | | the Securities and Exchange Commission is effective. This prospectus is | | not an offer to sell these securities and it is not soliciting an offer to | | buy these securities in any state where the offer or sale is not permitted.| ---------------------------------------------------------------------------- View Systems, Inc. a Nevada corporation 3,770,000 shares of common stock ___________ ----------------------------- | | | Trading Symbol | | | We are registering 3,770,000 shares | OTC Bulletin Board | of our common stock which will be | "VYST" | sold by selling stockholders who are | | named in this prospectus. | Common stock prices as | | reported by the OTC | | Bulletin Board | We will not receive the proceeds | on October 7, 2005, | from the sale of these common shares. | $ 0.255 high bid and | | low ask $ 0.263. | | | ----------------------------- This investment involves a high degree of risk, you should review the "Risk Factors" beginning on page 4. ______________ Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. __________________ Prospectus dated October --, 2005 TABLE OF CONTENTS Prospectus Summary.........................................................3 Risk Factors...............................................................4 Use of Proceeds............................................................7 Market for Common Equity...................................................7 Description of Business....................................................9 Property..................................................................16 Legal Proceedings.........................................................16 Management's Discussion and Analysis......................................17 Management................................................................22 Certain Related Transactions..............................................23 Principal Stockholders....................................................23 Description of Securities.................................................25 Selling Stockholders......................................................25 Plan of Distribution......................................................27 Other Information.........................................................28 Interest of Named Experts and Counsel.................................28 SEC's Position on Indemnification for Securities Act Liability........28 Additional Information................................................29 Changes In and Disagreements With Accountants.............................29 Financial Statements......................................................29 2 PROSPECTUS SUMMARY View Systems, Inc. 1550 Caton Center Drive, Suite E Baltimore, Maryland 21227 Telephone: (410) 242-8439 View Systems, Inc. designs and manufactures computer software and hardware systems for security and surveillance applications. Our principal products include a concealed weapons detection system, a hazardous material first response wireless video transmitting system and digital video recorder technology. We also offer biometric verification systems, magnetic door locks and central monitoring or video command centers which can be combined with our principal products. We are registering 3,770,000 common shares to be sold by selling stockholders, who are identified in the "Selling Stockholders" section starting on page 25. Our board of directors has determined that we will register these shares for the benefit of the selling stockholders. These transactions and agreements are described in more detail in "Selling Stockholders - Transactions Related to the Selling Stockholders," starting on page 26. We will not receive any of the proceeds from the sale of the shares which are being registered for the selling stockholders. These shares will be sold from time to time at the total discretion of the selling stockholders. See "Plan of Distribution" starting on page 27 for further details about the possible methods of sale which may be used by the selling stockholders. Shares of common stock outstanding as of October 11, 2005 86,382,422 Shares of common stock to be registered 3,770,000 Common stock outstanding after the offering 86,382,422 3 References in this prospectus 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 prospectus contains these types of statements. Words such as "may," "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 prospectus. 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. The factors listed in the "Risk Factors" section of this prospectus, as well as any cautionary language in this prospectus, provide examples of these risks and uncertainties. RISK FACTORS Potential investors should carefully consider the following risk factors before deciding to buy our common stock. Each investor should also consider the other information in this prospectus. Investing in our common stock involves a high degree of risk and you should not invest in our common stock unless you can afford to lose your entire investment. RISKS RELATED TO THE OFFERING AND OUR STOCK PRICE We have not paid cash or stock dividends on our common stock and this may discourage potential investors from purchasing our shares. Potential investors should not anticipate receiving dividends from our common stock. We intend to retain future earnings to finance our growth and development and do not plan to pay cash or stock dividends. This lack of dividend potential may discourage potential investors from purchasing our common stock. The nature of our business makes it difficult to predict our revenues and operating results, which may negatively affect our stock price. We currently are unable to finance our operations through our generated revenues and we have consistently incurred losses since our formation. Our revenues and operating results have varied significantly from period to period and it is possible that our quarterly operating results from time to time will be below the expectations of public market analysts and investors. In that case, we expect that the price of our common stock would be materially and adversely affected. Although we expect that the development of new sales channels will cause our earnings to become more predictable, our revenues and operating results can be expected to fluctuate somewhat for a variety of reasons beyond our control, including, but not limited to: .. Changes in the volume or timing of product orders; .. Competitive pressures resulting in lower selling prices; .. Purchase order delays by customers subject to prior governmental or regulatory approval for purchases; .. Our failure to obtain necessary funding to further develop our business plan; and .. New products and technologies launched by our competitors. The future sale of common stock may negatively affect our stock price and pose investment risks. The market price of our common stock could drop as a result of sales of the common stock in the market after the effective date of this registration statement, or the perception that such sales could occur. We are registering 4 3,770,000 shares of common stock, or 4.3% of our issued and outstanding common stock. If the selling stockholders attempt to sell their shares into our market at the same time, this could drive down the market price of our common stock. A drop in the market price for our common stock may make it more difficult for us to raise funds through future offerings of our common stock. Investors may have difficulty selling our shares due to penny stock rules. Our common stock is traded on the OTC Bulletin Board and there has not been a large public market for our common stock. We do not know the extent to which investor interest in our stock will lead to the development of an active trading market for our stock, or how liquid that market might be. Also, our common stock qualifies as a "penny stock" under the Penny Stock Suitability Reform Act of 1990 based on its market value and our net tangible assets. The liquidity of penny stock is affected by specific disclosure procedures that must be followed by all broker and dealers related to a penny stock transaction. The rules require delivery by brokers and dealers of a disclosure schedule before any transaction in a penny stock. The broker and dealers must determine the suitability of the stock for a particular customer and obtain a written agreement from the customer to purchase the stock. In addition, the SEC recently adopted new regulations which require a two-business day delay prior to execution of a trade in a penny stock by a broker and dealer. These additional requirements affect the timing of purchases and sales by investors. RISKS RELATED TO OUR BUSINESS Our independent auditors have expressed concern 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. Our net loss for the six month period ended June 30, 2005 was $184,377 and our net loss for the year ended December 31, 2004 was $1,186,478. Our accumulated deficit was $15,875,873 at the six month period ended June 30, 2005. 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. 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 reserves, 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. 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 abandon our business plan. 5 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 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 line. 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. 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 remediate 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. 6 USE OF PROCEEDS We are registering the shares for the benefit of the selling stockholders and they will sell the shares from time to time under this prospectus. We will not receive the proceeds from the shares sold by the selling stockholders. We will pay the costs of this offering, with the exception of the costs incurred by the selling stockholders for their legal counsel and the costs they may incur for brokerage commissions on the sale of their shares. MARKET FOR COMMON EQUITY MARKET INFORMATION Our shares of common stock are traded on the NASD OTC Bulletin Board under the symbol "VYST." The following table lists the range of the quarterly high and low bid prices of our common stock in the over-the-counter market for each quarter for the two most recent fiscal years and each quarter of the nine month period ended September 30, 2005. The high and low bid prices were reported by the OTC Bulletin Board Historical Data Service. These over-the-counter market quotations reflect inter-dealer prices, without retail mark-up, mark-downs or commissions, and may not necessarily represent actual transactions. Year Quarter Ended High Bid Low Bid ---- ------------- -------- ------- 2003 March 31 $ 0.205 $ 0.08 June 30 0.145 0.04 September 30 0.19 0.06 December 31 0.65 0.17 2004 March 31 $ 0.37 $ 0.18 June 30 0.33 0.115 September 30 0.145 0.06 December 31 0.24 0.09 2005 March 31 $ 0.165 $ 0.061 June 30 0.078 0.046 September 30 0.46 0.055 Our common shares are subject to Section 15(g) and Rule 15g-9 of the Securities and Exchange Act of 1934 (the "Exchange Act"), commonly referred to as the "penny stock" rule. The rule defines penny stock to be any equity security that has a market price less than $5.00 per share, subject to certain exceptions. The rule provides that any equity security is considered to be a penny stock unless that security is: .. registered and traded on a national securities exchange meeting specified criteria set by the SEC; .. issued by a registered investment company; or .. excluded from the definition on the basis of share price or the issuer's net tangible assets. These rules may restrict the ability of broker-dealers to trade or maintain a market in our common stock and may affect the ability of stockholders to sell their shares. The rules require broker-dealers who sell penny stocks to persons other than established customers and accredited investors to make a special suitability determination about the purchaser before for the purchase of the security. Accredited investors, in general, include individuals with assets in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 together with their spouse, and certain institutional investors. The rules require the broker-dealer to receive the purchaser's written consent to the transaction prior to the purchase and require the broker-dealer to deliver a risk disclosure document relating to the penny stock prior to the first transaction. A broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative, and current quotations for the security. Finally, monthly statements must be sent to purchasers disclosing recent price information for the penny stocks. 7 HOLDERS As of October 11, 2005 we had 332 stockholders of record, which does not include "street accounts" of securities brokers. DIVIDENDS We have not paid cash or stock dividends, have no present plan to pay any dividends, and payment of any cash dividends on our common stock is unlikely. Instead, we intend to retain any earnings to finance the operation and expansion of our business 8 DESCRIPTION OF BUSINESS HISTORICAL DEVELOPMENT View Systems was incorporated in Florida on January 25, 1989, as Beneficial Investment Group, Inc. and became active in September 1998 when we began development of our digital video product line and changed the company's name to View Systems, Inc. Starting in 1999 we expanded our business operations through a series of acquisitions of technologies we use in our digital video recorder technology products and in our concealed weapons technology. On July 25, 2003, View Systems incorporated View Systems, Inc. as a wholly-owned Nevada corporation for the sole purpose of changing the domicile of the company from Florida to Nevada. On July 31, 2003, articles of merger were filed with the state of Nevada to complete the domicile merger. OUR BUSINESS View Systems acquires and/or develops technologies related to surveillance, detection and security for the purpose of commercializing them. Digital video recorder technology was our first developed product. We enhanced this product line by developing interfaces with other various technologies, such as facial recognition, access control cards and control devices such as magnetic locks, alarms and other common security devices. We expanded our product line in 2002 to include a concealed weapons detection system and in 2003 to include a hazardous material first response wireless video transmitting system. We acquired exclusive licenses to manufacture, use, sub-license and distribute technology and processes for the concealed weapons detection technology and the first response wireless video transmitting system from Bechtel BWXT Idaho, LLC. Bechtel BWXT Idaho, LLC manages and operates the U.S. Department of Energy's Idaho National Engineering and Environmental Laboratory ("Idaho Engineering Lab"). The development of the concealed weapons detection technology was funded by the National Institute of Justice and development was performed by the Idaho Engineering Lab. The hazardous materials first response video transmitting system was developed at the Idaho Engineering Lab through cooperative research and development agreements at the request of various military organizations. Products and Services SecureScan Concealed Weapons Detection System This product is a walk-through concealed weapons detector which uses sensing technology and artificial intelligence algorithms to accurately pinpoint the location, size and number of concealed weapons. The control unit for this walk-through portal is a personal computer based unit which receives magnetic and video information and combines it in a manner that allows the suspected location of the weapon to be stored electronically and referenced. SecureScan products are distributed in two basic configurations; stand-alone units and integrated door systems. Concealed weapons detection systems are used in a wide range of situations in order to provide added security against violent crimes. In addition to the well-known use of concealed weapons detection systems in public airports, such weapons detection systems are increasingly being used in court houses, schools and other public/governmental facilities that may be subject to threats or attacks by various members of the public. One commonly used concealed weapons detection system is the electromagnetic induction system. Essentially an electromagnetic induction system operates by periodically broadcasting an electromagnetic pulse or series of pulses, usually in the kilohertz range. The transmitted electromagnetic pulse induces an electrical current, or 9 currents, in electrically conductive objects contained within the sensing area. The induced electrical current or currents create their own electromagnetic signals which are then detected by a suitable detector associated with this type of weapons detection system. While electromagnetic induction systems of the type described above have been used for decades as concealed weapons detection systems, they are not without their problems. For example, such electromagnetic induction systems are generally sensitive to the overall size, i.e., surface area of the object, not its mass. Consequently, small, compact, but massive objects, such as a small pistol, may not produce a "signature" that is significantly larger than the signature produced by a light weight object of the same size, such as keys or pocket change. Another problem associated with electromagnetic induction systems is related to the fact that electromagnetic systems are sensitive to electrically conductive objects, regardless of whether they are magnetic or non-magnetic. That is, electromagnetic systems tend to detect non-magnetic objects, such as pocket change, just as easily as magnetic objects, such as weapons. Consequently, electromagnetic systems tend to be prone to false alarms. In many circumstances, such false alarms need to be resolved by scanning the suspect with a hand-held detector in order to confirm or deny the presence of a dangerous weapon. Our SecureScan system differs from electromagnetic induction systems because the SecureScan system uses passive magnetic technology. When an object of a specific ferro-magnetic mass passes by the magnetic sensors the surrounding magnetic field is altered. The software calculates the difference between the magnetic field strength with the object in the magnetic field inside the sensors' range and the normal magnetic field strength. Then the system displays the results in graph format on a video display unit. Since the SecureScan technology does not use transmitters to produce electromagnetic induction, stray energy that can cause false alarms does not exist. The SecureScan portal uses an array of advanced magnetic sensors, each with internal digital signal processors. The sensors communicate with the control unit's software which spatially places identified magnetic anomalies and visually places the location of the potential threat object with a red dot that is superimposed over a real time snapshot image of the person walking through the portal. Along with the snapshot, a graph displays the sensor data which automatically scales the signal strength of the individual sensors and cross-references them to the video image. All of this information is brought together on a video screen that displays the image of the person, the location of the weapon(s) and the size of the weapon(s), depending on the intensity of the magnetic signature. The SecureScan technology discriminates weapons from non-weapons by assuming that possible threat objects will have ferromagnetic composition. The SecureScan system promotes smooth traffic flow because it only detects the types of ferrous metals commonly found in guns and knives, rather than personal possessions such as coins, keys or belt buckles. This capability reduces false alarms and eliminates the need to use hand wands or resort to a personal search. In addition, the sensor settings can be adjusted to allow the detection of high composite pistols, titanium and stainless steel guns, and box cutters. Body cavity object identification is also available, as well as locating objects that have been covered or masked with aluminum foil or other materials. The SecureScan system operates faster than ordinary metal detectors and can scan as high as 1,500 persons per hour. The SecureScan weapons detection system can be controlled via a central monitoring station using a Windows(TM) operating system and Pentium(TM) hardware. This can include additional closed-circuit television, two-way voice communication, door interlock, card-key and other biometric identification or access control components. The functionality of the SecureScan portal is increased by access control, database recording, video capture and archiving of images. The SecureScan concealed weapons detection technology was patented by the Department of Energy and approved by the Federal Aviation Administration. View Systems owns the exclusive worldwide rights to the SecureScan technology and ongoing improvements currently being funded by the National Institute of Justice. In 2004 we introduced the SecureScan product to the venue and stadium market. In February 2005 we tested the SecureScan at the pre-game venues of the Super Bowl football game in Jacksonville, Florida. Our product was 10 well received for throughput and ease of use. During that installation, the portal scanned up to 3,000 to 4,000 people and at various times throughput ranged from approximately 600 to 1,200 persons per hour, with 384 alarms triggered by the sensitivity threshold. During 2005 we contracted with the University of Northern Florida to design new sensor boards for the SecureScan product which has allowed us to reduce the installed sensor cost by a factor of four. The new lower costs allow us to offer price points to the market which compete directly with traditional metal detectors. We feel the new reduced price points and enhanced interface abilities will allow us to be more competitive, along with the advantages of three to four times the throughput rate, non-contact imaging and permanent visual storage, and a log of all individuals scanned. Visual First Responder In December 2003 View Systems obtained exclusive licensing and marketing rights for the HAZMAT CAM technology from the U.S. Department of Energy's Idaho National Engineering and Environmental Laboratory. We initially marketed this product as FirstView Wireless Camera System, then changed the name to Visual First Responder. Visual First Responder is a lightweight, wireless camera system housed in a tough, waterproof flashlight body. The camera system sends back real-time images to a computer or video monitor at the command post located outside the exclusion zone or containment area. Visual First Responder is able to transmit high quality video in the most difficult environments. It uses a patented triple-diversity antenna system that minimizes signal distortion in urban environments. Traditional wireless videos use one antenna and a single receiver. The problem with this configuration is that signals multi-path, which means they bounce off other structures, like buildings, file cabinets, etc., on the way to the receiver. This multi-pathing causes interference and seriously degrades the video images. The Visual First Responder receiver seeks the strongest signal from each of the three antennas and locks in that signal, resulting in a more reliable and clearer image. The image received from the Visual First Responder monitor or on the Visual First Responder color LCD monitor, and can be easily recorded using a common camcorder or VCR with video input. The camera can be completely submerged for fast and easy decontamination. We also offer a unit with 360 degree coverage of a target area. Visual First Responder also uses Extension Link which is a separate transmitter and receiving system that increases the operating range of the Visual First Responder. The Extension Link has field-selectable channels to avoid interference at longer distances. We have also incorporated a video encryption feature that allows first responders to transmit on-scene video to the command post without the data being intercepted by unwanted parties. The complete Visual First Responder fully deployed by one person in a stand alone configuration in less than 10 minutes. The system is battery operated and can operate for eight continuous hours using one set of spare camera batteries. We have entered into a cooperative research and development agreement with the Idaho Engineering Lab for the Visual First Responder. This agreement allows us to use the research and development resources of the Idaho Engineering Lab to further develop the technology as driven by customer need. The cooperative research and development agreement provides a means for View Systems to efficiently continue to offer state of the art technology, yet concentrate on its marketing and manufacturing operations. ViewMaxx Digital Video System ViewMaxx is a high-resolution, digital video recording and real-time monitoring system. This system can be scaled to meet a specific customer's needs by using anywhere from one camera up to 16 surveillance cameras per each ViewMaxx unit. The system uses a video capture card recording which translates closed-circuit television 11 analog video data (a format normally used by broadcasters for national television programs) to a computer readable digital format to be stored on direct access digital disk devices rather than the conventional television format of video tape. VideoMaxx offers programmable recording features that can eliminate the unnecessary storage of non-critical image data. This ability allows the user to utilize the digital disk storage more efficiently. The ViewMaxx system can be programmed to satisfy each customer's special requirements, be it coverage which is continuous, or only when events are detected. For example, it can be programmed to begin recording when motion is detected in a surveillance area, or a smaller field of interest within the surveillance area, and can be programmed to notify the user with an alarm or message. Viewing of the stored digital images can be performed locally on the computer's video display unit or remotely through the customer's existing telecom systems or data network. It also uses a multi-mode search tool to quickly play back files with simple point and click operations. The search mode parameters can be set according to a specific monitoring need, such as: certain times of day, selected areas of interest in the field of view or breaches of limit areas. These features and abilities avoid the need to review an entire, or many, VCR tapes for a critical event. Our ViewMaxx products include the following features: .. Use any and all forms of telecommunications, such as standard telephone lines; .. Video can be monitored 24 hours a day by a security monitoring center; .. Local and remote recording, storage and playback for up to 28 days, with optional additional storage capability; .. The system may be set to automatically review an area in a desired camera sequence; .. Stores the video image according to time or a criteria specified by the customer and retrieves the visual data selectively in a manner that the customer considers valuable or desirable; .. The system may trigger programmed responses to events detected in a surveillance area, such as break-ins or other unauthorized breaches of the secured area; .. Cameras can be concealed in ordinary home devices such as smoke detectors; .. The system monitors itself to insure system functionality with alert messages in the event of covert or natural interruption; and .. Modular expansion system configuration allows the user to purchase add-on components at a later date. Additional Products We also offer integration of other products with SecureScan or ViewMaxx. Biometric verification is a system for recognizing faces and comparing them to known individuals, such as employees or individuals wanted by law enforcement agencies. This product can be interfaced with SecureScan and/or ViewMaxx to limit individual access to an area. SecureScan and/or ViewMaxx can be coupled with magnetic door locks to restrict access to a particular area. We also offer a central monitoring or video command center for SecureScan or ViewMaxx products. In addition, we offer support services for our products which include: .. On site consulting/planning with customer architect and engineers, .. Installation and technical support, .. Training and "Train the Trainer" programs, and .. Extended service agreements. Markets Our family of products offers government and law enforcement agencies, commercial security professionals, private businesses and residential consumers an enhanced surveillance and detection capacity. Management has chosen to avoid the air passenger traffic and civilian airport market for metal detection because we believe that a 12 larger market exists in venues, such as sporting events, concerts, and race tracks, and schools, courthouses and municipal buildings, and law enforcement agencies. Commercial business users represent the greatest potential users of our surveillance and weapons detection products. Commercial businesses have already realized the need for surveillance and using access control devices for protection of employees, customers, and assets. Our products can curtail crime and prevent loss caused by employees and others. The market for surveillance technology includes many types of commercial buildings; including, hospitals, schools, museums, retail, manufacturing and warehousing facilities. Our SecureScan products and technology can be used where there is a temporary requirement for real-time weapons detection devices in areas where a permanent installation is cost prohibitive or impractical. For example, our SecureScan portal could be set up for special events, concerts, and conventions. Our systems may reduce the need for a large guard force and can provide improved pedestrian traffic flow into an event because individuals can be scanned quickly and false alarms are reduced. Schools have been very receptive and enthusiastic about the SecureScan portal and its integration with School Technology Management's Comprehensive Attendance/Security System. In early October 2003 we announced an alliance with School Technology Management, Inc. to integrate and market its products with ours. School Technology Management developed the Comprehensive Attendance, Administration and Security System ("Comprehensive Attendance/Security System"), which is designed to use a magnetic card swipe system to monitor identification of students entering a school and to verify each student's attendance. School Technology Management combined our SecureScan portal with its card swipe system. With the combined technology a student enters the portal and is scanned for any threat objects and his or her identity is concurrently confirmed to school security officers. During the spring semester of 2004, a subcontractor of the National Institute of Justice conducted a study of the effectiveness of the SecureScan portal in a school environment and the results were positive. The combined technology has been tested in schools in New York and Philadelphia and we have received very positive responses from those tests. Management estimates that there are over 120,000 schools in the United States that may have problems with violence, truancy and other safety considerations, which may be addressed by the combined technology. In addition to school security, the gathering of video and data images and weapons detection is commonplace in law enforcement. Because our technology can be used for stakeouts and remote monitoring of areas, we believe there is a market potential with law enforcement agencies. A primary market for our SecureScan portal is federal and state government courthouses, and county and municipal buildings. We have installed our SecureScan weapons detection products in a variety of court house situations. The Visual First Responder product's market includes state National Guard units and first response agencies, such as; firemen, police swat and homeland security response teams. The residential home security user may purchase our products from either commercial companies installing self-contained or centrally monitored systems, or directly from retail distribution centers. However, at this time we do not have retail agreements in place. Using our technology, individuals may run their own perimeter and interior surveillance systems from their own home computer. Real-time action at home can be monitored remotely through a modem and the Internet. There is also the capability to make real-time monitors wireless. An additional advantage of our technology is that it allows for the storage of information on the home computer and does not require a VCR. This capability may reduce the expense and time of the home installation and may make installation affordable for a majority of homeowners. Manufacturing In August 2005 we contracted with Inter-Connect Electronics, Inc. to manufacture and assemble our Visual First Responder units. We have also contracted with Sports Field Specialties, LLC, an experienced manufacturer, to 13 build the SecureScan line. These manufacturing agreements will allow us to clear our current backlog, discussed below, for our product lines and reduce our labor cost. We manufacture several of the hardware components in our systems and assemble our systems by combining other commercially available hardware and software together with our proprietary software. We hold licenses for software components that are integrated into our proprietary software and installed in our systems. We believe that we can continue to obtain components for our systems at reasonable prices from a variety of sources. Although we have developed certain proprietary hardware components for use in our products and purchased some components from single source suppliers, we believe similar components can be obtained from alternative suppliers without significant delay. Sales and Distribution We have ongoing reseller arrangements with small- and medium-sized domestic and international resellers. Our reseller agreements grant a non-exclusive right to the reseller to purchase our products at a discount from the list price and then sell them to others. These agreements are generally for a term of one year and automatically renew for successive one-year terms unless terminated by notice or in the event of breach. We are in the process of building a United States domestic network of manufacturing representatives and dealers for the sale and distribution of our products. We are seeking security consultants, specifiers and distributors of security and surveillance equipment that sell directly to schools, courthouses, government and commercial buildings. We hired three in-house regional sales persons and intend to develop a national sales channel model and a distributor development program. We also have experienced international interest from security related resellers and system integrators. However, sales and shipments to overseas are regulated by federal guidelines for export. We have chosen not to pursue international markets, but intend to focus on domestic markets which are less expensive to support and maintain. Backlog As of September 30, 2005, we had a backlog of over $700,000. We measure backlog as orders for which a purchase order or contract has been signed or a verbal commitment for order or delivery has been made, but which has not yet been shipped and for which revenues have not been recognized. We typically ship our products months after receiving an order. However, we are attempting to shorten this lead time to several weeks. Also, product shipments may require more lead-time and may be delayed for a variety of reasons beyond our control, including: .. additional time necessary to conduct product inspections prior to shipping, .. design or specification changes by the customer, .. the customer's need to prepare the site, and .. delays caused by other contractors on the project. Competition We believe the introduction of digital technology to video surveillance and security systems is our market opportunity. We believe that many of the established closed-circuit television companies have approached the design of their digital closed-circuit television products from the standpoint of integrating their digital products to existing security and surveillance product offerings. These systems are closed, not easily integrated with other equipment and not capable of upgrades as technology improves. We have designed our systems such that they are open, compatible with other digital and analog systems, and adaptable to technological advances that will inevitably occur with digital technology. In addition, we have evaluated price point competition and to ease the financial burden for schools and other customers with budget constraints, we accept a down payment with remaining payments due monthly for an agreed upon term. 14 The markets for our products are extremely competitive. Competitors include a broad range of companies that develop and market products for the identification and video surveillance markets. In the weapons detection market, we compete with Ranger Security Scanners, Inc. and Garrett Electronics, Inc. in the United States, and an Italian company, CEIA SpA, which has the most sophisticated electromagnetic induction product. In the video surveillance market we compete with numerous VCR suppliers and digital recording suppliers, including, Sensormatic Corporation and NICE Systems, Ltd. and Integral Systems. Trademark, Licenses and Intellectual Property Certain features of our products and documentation are proprietary and we rely on a combination of patent, contract, copyright, trademark and trade secret laws and other measures to protect our proprietary information. We limit access to, and distribution of, our software, documentation and other proprietary information. As part of our confidentiality procedures, we generally enter into confidentiality and invention assignment agreements with our employees and mutual non-disclosure agreements with our manufacturing representatives, dealers and systems integrators. Notwithstanding such actions, a court considering these provisions may determine not to enforce such provisions or only partially enforce such provisions. The SecureScan concealed weapons detection technology involves sensing technology and data acquisition/analysis software subsystems that have patents pending or issued to the U. S. Department of Energy. We hold an exclusive license, D.O.E. License No. 03-LA-18, to commercialize, manufacture and market the concealed weapons detection technology. However, since the intellectual property was developed by the federal government under a grant from the National Institute of Justice, the patents belong to the government and we pay royalties of 2% of the net sale price per SecureScan unit sold. We also hold the exclusive license, D.O.E. License No. 03-LA-20, for the Visual First Responder technology and pay royalties of 4% of the net sale price per each Visual First Responder unit sold. Governmental ownership of the patents is advantageous because the government has prosecution and stewardship responsibilities for the life of the patents. This is also true for continuations and improvements to the concealed weapons detection technology under the ongoing contract between the Department of Energy and National Institute of Justice. We have obtained software licensing agreements for .. software operating systems components, .. for facial recognition to possibly integrate into our proprietary software, and .. integration of commercially available operating systems software into our proprietary software for installation into our products. Because the software and firmware (software imbedded in hardware) are in a state of continuous development, we have not filed applications to register the copyrights for these items. However, under law, copyright vests upon creation of our software and firmware. Registration is not a prerequisite for the acquisition of copyright rights. We take steps to insure that notices are placed on these items to indicate that they are copyright protected. The copyright protection for our software extends for the 20-year statutory period from the date of first "publication," distribution of copies to the general public, or from the date of creation, whichever occurs first. We provide software to end-users under non-exclusive "shrink-wrap" licenses, which are automatic licenses executed once the package is opened. This type of license has a perpetual term and is generally nontransferable. Although we do not generally make source code available to end-users, we may, from time to time, enter into source code escrow agreements with certain customers. We have also obtained licenses for certain software from third parties for incorporation into our products. 15 Government Regulation We are not subject to government regulation in the manufacture of our products or the components in our products. However, we are subject to certain restrictions in the sale of our products to "unfriendly" countries and countries designated as adversarial. In addition, our resellers and end users may be subject to numerous regulations that stem from surveillance activities. We also benefit from the recent "made in America" trade laws where non-United States manufactures must secure waivers in order to sell security and surveillance products to United States domestic end-users. Security and surveillance systems, including cameras, raise privacy issues and our products involve both video and audio, and added features for facial identification. The regulations regarding the recording and storage of this data are uncertain and evolving. For example, under the Federal wiretapping statute, the audio portion of our surveillance systems may not record people's conversations without their consent. Further, there are state and federal laws associated with recording video in non-public places. Research and Development For the year ended December 31, 2004 and 2003, we did not record research and development expense. We have cooperative research arrangements with the Department of Energy to receive technical assistance and further enhancements of the concealed weapons detection technology and Visual First Responder technology through contractual relationships between the Department of Energy and the National Institute of Justice. Employees We employ 12 persons, including four sales executives, four engineers and two office personnel. Two persons are part-time and we also contract with two independent contractors who devote a majority of their work to a variety of our projects. Our employees are not presently covered by any collective bargaining agreement. Our relations with our employees are good, and we have not experienced any work stoppages. Reports to Security Holders We are required to comply with the reporting requirements of Section 12(g) of the Exchange Act and must file annual, quarterly and other periodic reports with the SEC, as well as proxy and information statements. The public may read and copy any materials we file with the SEC, including copies of this registration statement at the SEC's Public Reference Room at 450 Fifth Street N.W., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0300. We are an electronic filer and copies of our periodic reports and other information filed with the SEC should be available through the Internet by using the SEC's EDGAR database which may be found at http://www.sec.gov. We also have an Internet web site at www.viewsystems.com. PROPERTY We lease 4,600 square feet of office space in Baltimore, Maryland. The lease term is three (3) years beginning on October 1, 2005, and expiring on September 30, 2008. The base rent is approximately $3,000 per month subject to an annual escalator of 3%. Management believes this facility will suit our needs for the future. LEGAL PROCEEDINGS As of the date of this prospectus we are not a party to any material legal proceedings. 16 MANAGEMENT'S DISCUSSION AND ANALYSIS EXECUTIVE OVERVIEW View Systems acquires, develops and markets technologies related to surveillance, detection and security for the purpose of commercializing them. Management believes that heightened attention to terrorism and other security threats, and spending by the United States government on Homeland Security will continue to drive growth in the market for security products. For the past two years we have recorded revenues from the sale of our products. During the first quarter of 2004 we increased our product lines when we entered into a cooperative research and development agreement with the Idaho Engineering Lab for our Visual First Responder. During the second quarter of 2004 we set up a complete manufacturing line in our Baltimore, Maryland facility for building, testing and further development of the Visual First Responder product. In 2004 we worked diligently to make engineering design changes to the SecureScan product to accommodate the price points required by competitive pressures. In 2005 we contracted with the University of Northern Florida to design new sensor boards for the SecureScan product which allowed us to reduce the installed sensor cost by a factor of four. The new lower costs allow us to offer price points to the market which compete directly with traditional metal detectors. We believe the new reduced price points and the enhanced interface abilities of our products will allow us to be more competitive. During 2005 we have continued to provide live demonstrations of our SecureScan product at sporting and entertainment venues, expos, and at state corrections facilities. We also have provided demonstrations of our Visual First Responder for police and civil support teams. These demonstrations have raised interest in our products and resulted in increased orders of our products. During 2005 we continue to establish new partnerships, add active resellers and dealers and we hired four sales representatives to build a United States domestic network for the sale and distribution of our products within the 48 states. However, we cannot assure you that we will be able to develop these sales and distribution channels to a level which will result in increased revenues or continued profitability. In August 2005 we contracted with Inter-Connect Electronics, Inc. to manufacture and assemble our Visual First Responder units. We have also contracted with Sports Field Specialties, LLC, an experienced manufacturer, to build the SecureScan line. These manufacturing agreements allowed us to clear our backlog for our product lines and reduced our labor cost. For the next twelve months our primary challenge will be to more fully develop our sales and distribution network for the United States. LIQUIDITY AND CAPITAL RESOURCES We rely on revenues from the sale of our products, private financing and sales of common stock to fund our operations. We have incurred losses for the past two fiscal years and had a net loss of $1,186,478 at December 31, 2004 and a net loss of $184,377 for the six month period ended June 30, 2005. Our auditors have expressed doubt that we can continue as a going concern based on these operating losses. Management believes we will incur operating losses for the near future while we continue to expand our product line and develop our sales and marketing channels. Management continues to seek additional funding to continue our business plan development for the next twelve months. However, we can not assure you that we will be successful at obtaining the necessary funding to continue this development. While our revenues are increasing, we are unable to satisfy our operating expenses. Net cash used by operating 17 activities was $211,201 for the six month period ended June 30, 2005 (the "2005 six month period") compared to $539,078 for the six month period ended June 30, 2004 (the "2004 six month period"). However, operating expenses for the 2005 second quarter were less than half of the 2004 second quarter. Net cash used by operating activities was $788,113 for the 2004 year compared to $1,011,569 for the 2003 year. For the short term, management believes that revenues, advances and sales of our common stock will provide funds for operations and further development of our business plan. For the long term, management expects that the development of our sales and distribution channels will increase our revenues; however, we will need to continue to raise additional funds through loans and sales of our common stock, as needed. FINANCING We have financed our operations primarily through revenues and private financing. Net cash provided by financing activities for the 2005 six month period was $137,000, primarily from proceeds from sales of common stock. Net cash provided by financing activities for the 2004 six month period was $538,685, with $491,685 of that amount related to funds advanced by stockholders. We estimate that we will require additional financing of approximately $500,000 to meet our needs for the next six months. We intend to use this financing to increase ongoing operations to self-sustaining levels and increase profits. Net cash provided by financing activities for the 2004 year was $941,700, primarily from proceeds from sales of common stock. Net cash provided by financing activities for the 2003 year was $951,370; consisting of debt financing of $817,820 and proceeds received from sales of common stock of $508,550. Management believes that it will be essential to continue to raise additional capital, both internally and externally, to compete in our markets. We cannot assure you that we will be able to obtain financing on favorable terms 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, if necessary. 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, 2004, future minimum payments for operating leases related to our office and manufacturing facility were $19,964 through 2006. Our total current liabilities of $394,579 at June 30, 2005 included accounts payable of $143,377, accrued expenses of $30,802, accrued interest of $71,400 and notes payable of $149,000 OFF-BALANCE SHEET ARRANGEMENTS None. RESULTS OF OPERATIONS For the Three and Six Month Periods Ended June 30, 2005 Compared to the Three and Six Month Periods Ended June 30, 2004 The following discussions are based on the unaudited consolidated financial statements of View Systems and its subsidiaries. These charts and discussions summarize our financial statements for the three and six month periods ended June 30, 2005 and 2004 and should be read in conjunction with the financial statements, and notes thereto, included in this prospectus starting on page 30. 18 Summary Comparison of Three and Six Month Period Operations ------------------------------------------------------------ Six month Six month Three month Three month period ended period ended period ended period ended June 30, 2005 June 30, 2004 June 30, 2005 June 30, 2004 ------------- ------------- ------------- ------------- Revenues, net $ 481,556 $ 192,394 $ 195,914 $ 158,041 Cost of sales 229,508 106,198 125,180 73,872 Gross profit 252,048 86,196 70,734 84,169 Total operating expenses 430,887 703,062 223,008 489,694 Total other income (expense) (5,538) (28,311) (5,538) (25,297) Net income (loss) (184,377) (645,177) (157,812) (430,822) Net earnings (loss) per share $ (0.00) $ (0.01) $ (0.00) $ (0.01) Revenues for the 2005 six month period increased 150.2% compared to the 2004 six month period due to increased sales of our products. Revenues for the three month period ended June 30, 2005 (the "2005 second quarter") increased 24.0% compared to the three month period ended June 30, 2004 (the "2004 second quarter"). However, costs of sales also increased 116.0% for the 2005 six month period compared to the 2004 six month period and increased 69.4% for the 2005 second quarter compared to the 2004 second quarter. As a result of increased revenues in the 2005 six month period our gross profit increased 192.4% from the 2004 six month period. Due to increased cost of sales, gross profit decreased 16.0% for the 2005 second quarter compared to 2004 second quarter For the 2005 six month period total operating expense decreased 54.6% compared to the 2004 six month period. For the 2005 second quarter total operating expense decreased 38.7% compared to the 2004 second quarter. The decreases in the 2005 periods were primarily a result of decreases in general and administrative expense and salaries and benefits. Total other expense for the 2005 and 2004 comparable periods was related to interest on loans. As a result of the above, our net loss decreased 63.4% for the 2005 six month period compared to the 2004 six month period and decreased 71.4% for the 2005 second quarter compared to the 2004 second quarter. The following chart summarizes our balance sheet at June 30, 2005 and December 31, 2004 Summary Balance Sheet --------------------- For six month period ended For the year ended June 30, 2005 December 31, 2004 -------------- ------------------ Cash and cash equivalents $ 93,269 $ 173,486 Total current assets 133,438 343,025 Total assets 1,937,487 2,151,958 19 Total current liabilities 394,579 647,324 Retained earnings (Deficit) (15,875,873) (15,691,496) Total stockholders equity $ 1,542,908 $ 1,504,634 Our total assets decreased at June 30, 2005, primarily as a result of decreases in our total current assets and property and equipment. Total current liabilities decreased primarily due to decreases in accounts payable and accrued expenses. Year Ended December 31, 2004 Compared to Year Ended December 31, 2003 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 December 31, 2004 and 2003 and should be read in conjunction with the financial statements, and notes thereto, included in this prospectus starting on page 35. Summary Comparison of 2004 and 2003 Fiscal Year Operations ----------------------------------------------------------- 2004 2003 -------------- -------------- Revenues, net $ 476,319 $ 569,952 Cost of sales 257,179 257,632 Gross profit 219,140 312,320 Total operating expenses 1,220,546 1,872,585 Loss from operations (1,001,406) (1,560,265) Total other income (expense) (185,072) (986,069) Net income (loss) (1,186,478) (2,546,334) Net earnings (loss) per share $ (0.02) $ (0.05) Revenues for the 2004 year decreased 16.4% compared to the 2003 year and costs of sales remained relatively the same in the 2004 year compared to the 2003 year. As a result of the decrease in revenues our gross profit decreased 29.8% for the 2004 year compared to 2003. For the 2004 year total operating expense decreased 34.8% compared to the 2003 year. The 2004 decrease was the result of a 6.8% decrease in general and administrative expenses, a 47.2% decrease in professional fees, a 25.2% decrease in salaries and benefits and recording $0 for business development expenses. The reductions in these expenses resulted in a 35.8% decrease in net operating loss. Total other expense decreased in the 2004 year compared to the 2003 year primarily as a result of recording a valuation/impairment loss of $888,658 in the 2003 year compared to no valuation/impairment loss for the 2004 year. The impairment loss for the 2003 year was related to a change in accounting principle from the adoption of Statement of Financial Accounting Standards No 142, "Goodwill and Other Intangible Assets," issued in June 2001, which addressed financial accounting and reporting for acquired goodwill and intangible assets. The adoption of SFAS No. 142, required the cessation of goodwill amortization for 2002 which decreased net loss for 20 2002 by $113,135, and the write off of goodwill in 2003 resulted in a decreased net loss of $787,248. As a result of the above changes, we recorded a 53.4% decrease in net loss for the 2004 year compared to the 2003 year and decreased our loss per share from $0.05 for the 2003 year to $0.02 for the 2004 year. 21 MANAGEMENT DIRECTORS AND EXECUTIVE OFFICERS The name, age, position and biographical information of our executive officers and directors are presented below. Our bylaws provide for a board of directors consisting of at least one director. The term of office of each director is until the next annual meeting of stockholders or until the director's earlier death, resignation, or removal. However, if his term expires, he continues to serve until his successor is elected and qualified. Executive officers are chosen by our board of directors and serve at its discretion. There are no family relationships between or among any of our directors and executive officers. Name Age Position Director Since - ---- ---- -------- -------------- Gunther Than 58 Chief Executive Officer, Treasurer, September 1998 and Director Michael L. Bagnoli 49 Secretary and Director May 1999 Martin Maassen 63 Director May 1999 Gunther Than - Gunther Than was appointed Treasurer in July 2003 and has served as our Chief Executive Officer since September 1998. He served as our President from September 1998 to May 2003 and had served intermittently as Chairman of the Board from September 1998 to September 2003. Mr. Than was the founder, President and CEO of Real View Systems, Inc. and View Technologies, Inc., software developers. Mr. Than continues as President, CEO and director of View Technologies, Inc. Mr. Than is a graduate of the University of Wisconsin, with a dual bachelors degree in engineering physics and applied mathematics. Michael L. Bagnoli - Mr. Bagnoli became a Director in May 1999 and was appointed Secretary in June 2004. He holds degrees as a medical doctor and a dental specialist. Since 1988 he has practiced dentistry in the specialty area of oral and masiofacial surgery for a physician group in Lafayette, Indiana. In his practice he introduced arthroscopy surgery along with the full scope of arthroplastic and total joint reconstruction. Mr. Bagnoli was founder, CEO and president of a successful medical products company, Biotek, Inc., which was sold in 1994. Martin Maassen - Mr. Maassen became a Director in May 1999, he formerly served as our Chairman of the Board from April 2000 to September 2002. He is board-certified in internal medicine and emergency medicine and has served as a staff physician in the emergency departments of Jackson County, Deaconess, Union and St. Elizabeth hospitals located in Indiana. In addition to practicing medicine, he maintains an expertise in computer technologies and their medical applications. EXECUTIVE COMPENSATION The following table shows the compensation paid to our named executive officers in all capacities during the past three fiscal years. SUMMARY COMPENSATION TABLE --------------------------- Annual Compensation ------------------- Fiscal Name and Principal Position Year Salary Other - --------------------------- ---- ------------- ------------- Gunther Than 2004 $ 100,000 (1) $ 120,000 (2) CEO, Treasurer 2003 100,000 (1) 138,000 (3) Director 2002 18,000 0 22 (1) Represents accrued salary. (2) Represents 600,000 common shares issued as compensation. (3) Represents 1,150,000 common shares issued as compensation. Compensation of Directors We compensate our independent directors, Messrs. Maassen and Bagnoli, with 5,000 shares of our common stock for each month of service. Messrs. Maassen and Bagnoli each accrued 60,000 shares for the year ended December 31, 2003 and 60,000 shares for the year ended December 31, 2004. In June 2005 we issued 120,000 shares valued at approximately $12,000 to Michael Bagnoli for services rendered on our behalf. We have not issued the accrued shares to Mr. Maassen. We do not have any arrangement for cash compensation of our directors for the services they provide in their capacity as directors, including services for committee participation or for special assignments. Employment Contracts Mr. Than entered into an employment agreement with us and agreed to serve as our Chief Executive Officer, effective January 1, 2003. Mr. Than's employment is "at will" and we may terminate him with or without cause. Either party may terminate his employment with a 30-day written notice or we may terminate him immediately and provide Mr. Than with severance pay in an amount equal to thirty (30) days of salary as of the date of termination. Mr. Than will receive an annual salary of $100,000 and 50,000 shares of common stock for each month of service. Mr. Than has agreed to maintain the confidentiality of our trade secrets and not to compete with the company or to solicit any employee or client of the company during his employment and for a period of one year after any termination of his employment. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The following information summarizes transactions exceeding $60,000 we have either engaged in during the last two years, or propose to engage in, involving our executive officers, directors, more than 5% stockholders, or immediate family members of these persons. In April 2005 we issued an aggregate of 1,800,000 shares of common stock to Gunther Than, our Chief Executive Officer and director, in accordance with his employment agreement. Of those shares, 1,200,000 shares were in lieu of wages of $100,000 and 600,000 shares were issued in accordance with the 50,000 shares a month requirement in his employment contract. In June 2005, our board of directors authorized the issuance of 7,171,725 shares of Series A Preferred Stock to Mr. Than in consideration for $573,738 that he invested in the company. In April 2004 we issued 600,000 shares to Mr. Than in accordance with his employment agreement. These transactions between View Systems and View Technologies were negotiated between related parties without "arms length" bargaining and, as a result, the terms of these transactions may be different than transactions negotiated between unrelated persons. PRINCIPAL STOCKHOLDERS The following table lists the beneficial ownership of our management. We are unaware of any person or group that beneficially owns 5% or more of our outstanding common stock. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to the shares. Except as indicated by footnote, the persons named in the table below have sole voting power and investment power with respect to all shares of common stock shown as beneficially owned by them. The percentage of beneficial ownership is based on 86,382,422 outstanding shares of common stock as of October 11, 2005 and any shares that each of the following persons may acquire within 60 days by the exercise of warrants and/or options. 23 MANAGEMENT ----------- Name and address of Title of Amount of Percent of beneficial owner class beneficial ownership class - ------------------ --------- ----------------------- ----------- Michael L. Bagnoli Common 730,000 (1) Less than 1% 40 Redwood Court Lafayette, Indiana 47905 Martin Maassen Common 2,810,419 (2) 3.3% 1340 Fawn Ridge Drive West Lafayette, Indiana 47906 Gunther Than Common 5,344,140 (3) 6.2% 1100 Wilso Drive Preferred 7,171,725 100% Baltimore, Maryland 21223 Directors and officers Common 8,884,559 10.3% as a group Preferred 7,171,725 100% (1) Represents 660,000 shares owned by Mr. Bagnoli, 40,000 shares held by his spouse, and 30,000 shares held by Mr. Bagnoli as trustee of a trust. (2) Represents 2,060,419 held by Mr. Maassen and 750,000 shares held by his spouse (3) Represents 5,174,140 shares owned by Mr. Than and 170,000 shares held by his spouse. 24 DESCRIPTION OF SECURITIES We are registering common stock under this prospectus and have 100,000,000 authorized shares of common stock, par value $0.001, and 10,000,000 shares of Series A Preferred stock authorized, par value $0.01, as of the date of this prospectus. We have 86,382,422 common shares outstanding as of October 11, 2005, and have 7,171,725 of Series A preferred stock outstanding. COMMON STOCK All shares of common stock have equal rights and privileges with respect to voting, liquidation and dividend rights. After preferential rights are satisfied, if any, the holders of common stock are entitled to receive dividends out of funds legally available if, and when, declared by our board of directors and to participate pro rata in any distribution of assets available for distribution upon liquidation of View Systems. Any dividends declared with respect to shares of common stock will be paid pro rata in accordance with the number of shares of common stock held by each stockholder. Each holder of common stock is entitled to one vote for each share owned of record on all matters voted upon by stockholders. A majority of the outstanding common stock is required to establish a quorum for a shareholder vote and a majority vote of the outstanding shares present at a stockholders' meeting is required for actions to be taken by stockholders. Our bylaws provide that shareholder action may be taken by written consent of a majority of the outstanding common stock. Directors are elected by a majority vote at a stockholders' meeting and the holders of the common stock do not have cumulative voting rights. Accordingly, the holders of a majority of the voting power of the shares voting for the election of directors can elect all of the directors if they choose to do so. PREFERRED STOCK Each share of Series A Preferred has a liquidation preference of $0.01 per share before any payment or distribution is made to the holders of common stock in the event of liquidation of View Systems. The Series A Preferred has no conversion rights into common stock. Each share of Series A Preferred is entitled to fifteen votes and shall be entitled to vote on any matters brought to a vote of the common stock shareholders. We may elect to redeem the Series A Preferred with proper notice to the holders of the Series A Preferred and, upon redemption, the Series A Preferred will be cancelled and not be reissued as Series A Preferred. SHARES ELIGIBLE FOR FUTURE SALE Of the shares of common stock outstanding, 62,252,091 shares are freely transferable without restriction or further registration under the Securities Act of 1933 (the "Securities Act"), and 24,130,331 shares are "restricted securities," as that term is defined in Rule 144 under the Securities Act. Of the restricted securities, 8,884,559, or 10.3%, are held by our "affiliates," as defined in Rule 144. In addition, we have options outstanding exercisable through 2009 to purchase 107,690 common shares at a weighted average exercise price of $1.63. Sales of substantial amounts of common stock in the public market could adversely affect the prevailing market prices of our common stock. SELLING STOCKHOLDERS The following table identifies the selling stockholders under this prospectus and identifies their relationship to View Systems during the past three years. The table also lists the number of shares of common stock owned by each selling stockholder prior to the offering, the estimated number of shares to be offered for the selling stockholder's account and the estimated number of shares and percentage of outstanding shares to be owned by each selling stockholder after the completion of the offering. Since the selling stockholders may sell all, a portion, or none of their shares from time to time, no firm estimate can be made of the aggregate number of shares that will be owned by each selling stockholder upon completion of the offering. Accordingly, the ownership amount and 25 percentage after the offering assumes the sale of all of the registered shares by the selling stockholders. - ------------------------------------------------------------------------------ Estimated securities Securities Number of owned after Selling stockholder owned prior shares being offering name and relationship to offering registered Shares Percent - ------------------------------------------------------------------------------ MBA Investors, Inc. (1) Consultant 1,210,000 1,210,000 0 0% - ------------------------------------------------------------------------------ Power Network, Inc. (2) Investor 597,500 597,500 0 0% - ------------------------------------------------------------------------------ William D. Smith Former Secretary, Chairman of the Board and consultant 1,170,000 170,000 1,000,000 1.2% - ------------------------------------------------------------------------------ Starr Consulting, Inc. (3) Investor 597,500 597,500 0 0% - ------------------------------------------------------------------------------ YT2K, Inc. (4) Investor 1,195,000 1,195,000 0 0% - ------------------------------------------------------------------------------ Total 4,770,000 3,770,000 1,000,000 1.2% - ------------------------------------------------------------------------------ (1) As provided by MBA Investors, Inc., Thomas F. Pierson has power to vote and dispose of the securities. (2) As provided by Power Network, Inc., Joe V. Overcash has power to vote and dispose of the securities. (3) As provided by Starr Consulting, Inc., Dan Starczewski has power to vote and dispose of the securities. (4) As provided by YT2K, Inc., Richard Muller has power to vote and dispose of the securities. TRANSACTIONS RELATED TO THE SELLING STOCKHOLDERS On September 22, 2005, our board of directors authorized the issuance of an aggregate of 2,390,000 shares to three accredited investors. These investors paid on our behalf notes payable of $237,357 that we owed to Niki Group, LLC and Compass Equity Partners LLC. Starr Consulting, Inc. received 597,500 shares for $60,000; Power Network, Inc. received 597,500 shares for $60,000; and YT2K, Inc. received 1,195,000 shares for $120,000. Our board of directors has determined that these shares shall be registered under this prospectus. On September 22, 2005, our board of directors authorized the issuance of 1,210,000 shares to MBA Investors for corporate consulting services valued at $120,000 rendered to us over the past four months by MBA Investors and Thomas F. Pierson. Our board of directors has determined that these shares will be registered under this prospectus. Carry Over Shares We filed a registration statement on Form SB-2 (File No. 333-118043) which originally registered 17,521,050 shares of our common stock to be sold by the selling stockholders named in that registration statement. Of the shares registered, 14,099,230 shares have been sold, 170,000 shares will be carried over to this registration statement and 3,251,820 shares have not been sold and are deregistered. 26 William D. Smith is the owner of the 170,000 shares being carried over from the prior registration statement. He served as the Chairman of the Board and Secretary of the company from February 2003 to June 2004. On August 20, 2003 we issued 1,000,000 common shares to Mr. Smith for $100,000. On September 10, 2003, we issued 200,000 common shares, valued at $24,000, to Mr. Smith for consulting services for the period from September 2002 through August 2003. Our board of directors has determined that 170,000 shares held by Mr. Smith shall be registered under this prospectus. PLAN OF DISTRIBUTION We have agreed to register these shares for the benefit of the selling stockholders, but the registration of these shares does not necessarily mean that any of them will be offered or sold by the selling stockholders. The selling stockholders will have absolute discretion as to when and if the registered shares will be sold, and the manner and timing of sales of the shares. They may sell all or a portion of the shares through public or private transactions, on or off established markets, or in negotiated transactions or otherwise. We will not use the services of underwriters or dealers in connection with the sale of the shares registered under this prospectus. However, the selling stockholders may sell all or any part of the shares offered in this prospectus through an underwriter. No selling stockholder has entered into any agreement with a prospective underwriter as of the date of this filing and there is no assurance that any agreement will be entered into. If a selling stockholder enters into an agreement or agreements, the relevant details will be disclosed in a supplement or revision to this prospectus. The shares may be sold by the selling stockholders either directly or through brokers or dealers, or in a distribution by one or more underwriters on a firm commitment or best-efforts basis. The methods by which the shares may be sold may include: .. a block trade, which may involve crosses, in which the broker or dealer will attempt to sell the securities as agent but may position and resell a portion of the block as principal to facilitate the transaction; .. purchases by a broker or dealer as principal and resale by the broker or dealer for its own account; .. ordinary brokerage transactions and transactions in which the broker solicits purchasers; .. privately negotiated transactions; .. through the writing of options on the shares; .. the selling stockholders may deliver all or a portion of the shares to cover a short sale or sales made after the date of this prospectus, or a call equivalent position or a put equivalent position entered or established after the date of this prospectus; and/or .. the selling stockholders may also sell all or any portion of the shares in reliance upon Rule 144 or Regulation S. The sale price to the public may be: .. the market price prevailing at the time of sale; .. a price related to the prevailing market price; .. at negotiated prices; or .. any other price as the selling stockholders determine from time to time. The selling stockholders or their respective pledgees, donees, transferees or other successors in interest, may also sell the shares directly to market makers acting as principals and/or broker-dealers acting as agents for themselves or their customers. These broker-dealers may receive compensation in the form of discounts, concessions or commissions from the selling stockholders. These broker-dealers may also receive compensation from the purchasers of shares for whom the broker-dealers may act as agents or to whom they sell as a principal. This compensation might be in excess of customary commissions as to a particular broker-dealer. Market makers and block purchasers purchasing the shares will do so for their own account and at their own risk. It is possible that selling stockholders will attempt to sell shares of common stock in block transactions to market makers or other purchasers at a price per share which may be below the then market price. 27 The selling stockholders and any broker-dealers participating in the distribution of the shares may be deemed to be "underwriters" within the meaning of the Securities Act and any profit on the sale of the shares by the selling stockholders and any commissions received by any broker-dealers may be deemed to be underwriting commissions or discounts under the Securities Act. Since the selling stockholders may be deemed to be "underwriters" they will be subject to the prospectus delivery requirements of the Securities Act. We and the selling stockholders will be subject to applicable provisions of the Exchange Act and the rules and regulations promulgated under it, including, without limitation, Regulation M. Regulation M restricts certain activities of the selling stockholders and may limit the timing of purchases and sales of any of the shares by the selling stockholders or any other person. Also, Regulation M may restrict the ability of any person engaged in the distribution of the shares to engage in market-making activities with respect to the particular shares being distributed for a period of up to five business days prior to the commencement of a distribution. All of these limitations may affect the marketability of our shares and the ability of any person or entity to engage in market-making activities with respect to our shares. In the event a block trade or other special offering of these shares is arranged, then we will distribute a prospectus supplement, if required, that will identify the name of any dealers or agents and any commissions and other terms constituting compensation from the selling stockholders and as well as any other required information. Some states securities laws may require the shares be sold only through registered or licensed brokers or dealers. In addition, in some states, these shares may not be sold unless they have been registered or qualified for sale in that state or an exemption from the registration or qualification requirement of that state is available and is complied with. OTHER INFORMATION INTEREST OF NAMED EXPERTS AND COUNSEL We are not aware of any expert or legal counsel named in this prospectus who will receive a direct or indirect substantial interest in the offering. Our financial statements for the year ended December 31, 2004, were audited by Chisholm, Bierwolf & Nilson, LLC. We have included the financial statements in this prospectus in reliance on the reports provided by Chisholm, Bierwolf & Nilson, LLC, dated March 23, 2005, given on their authority as experts in accounting and auditing. Cindy Shy, P.C. has provided an opinion regarding the validity of the shares to be registered. SEC'S POSITION ON INDEMNIFICATION FOR SECURITIES ACT LIABILITY Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors, officers or persons controlling us, we have been informed that in the opinion of the SEC this type of indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable. In the event that a claim for indemnification against these liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by any director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether this indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of this issue. 28 ADDITIONAL INFORMATION This prospectus does not contain all of the information in or attached as an exhibit to the registration statement. Investors should refer to the exhibits to the registration statement for the complete text. The registration statement and its exhibits may be inspected at the office of the SEC without charge. A copy of the registration statement, any post-effective amendment and exhibits may be accessed through the SEC's EDGAR database located at the SEC's web site at http://www.sec.gov. Other information can be inspected and copied at the public reference facilities maintained by the SEC at Room 1024 of the SEC's office at 450 Fifth Street, N.W., Judiciary Plaza, Washington, DC 20549. Additional updating information with respect to the securities covered by this prospectus may be provided to purchasers in the future by means of amendments to this prospectus. In addition, the information incorporated by reference is available to you without charge upon your written or oral request. We agree to respond to your requests for the additional information within one business day of receipt of the request. We will send the copies of the document by first class mail or other equally prompt means. You must address your request to: Investor Relations View Systems, Inc. 1550 Caton Center Drive, Suite E Baltimore, Maryland 21227 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS In our current report on Form 8-K, dated February 24, 2004, and as amended, we reported that we engaged Chisholm, Bierwolf & Nilson, LLC, as our independent auditors. Our former auditors, Stegman & Company, Certified Public Accountants, resigned as our independent auditors on March 1, 2004. FINANCIAL STATEMENTS INDEX TO FINANCIAL STATEMENTS Unaudited consolidated financial statements for View Systems for the three and six month periods ended June 30, 2005 and June 30, 2004 Consolidated Balance Sheets......................................... 30 Consolidated Statements of Operations............................... 31 Consolidated Statements of Stockholders Equity...................... 32 Consolidated Statements of Cash Flows............................... 33 Notes to Consolidated Financial Statements.......................... 34 Audited consolidated financial statements for View Systems for the year ended December 31, 2004 and 2003 Independent Auditor's Report of Chisholm, Bierwolf & Nilson, LLC.... 37 Consolidated Balance Sheets......................................... 38 Consolidated Statements of Operations............................... 39 Consolidated Statements of Stockholders' Equity..................... 40 Consolidated Statements of Cash Flows............................ 41-42 Notes to Financial Statements.................................... 43-53 29 View Systems, Inc. and Subsidiaries Consolidated Balance Sheets ASSETS June 30, December 31, 2005 2004 ------------- ------------- (unaudited) Current Assets Cash $ 93,269 $ 173,486 Accounts Receivable (Net of allowance of $20,054 at December 31, 2004) 13,972 108,342 Inventory 26,197 61,197 ------------- ------------- Total current assets 133,438 343,025 ------------- ------------- Property & Equipment (Net) 9,518 14,803 ------------- ------------- Other Assets Licenses 1,626,854 1,626,854 Loans to Shareholder 62,000 66,500 Due from Affiliates 103,358 98,457 Deposits 2,319 2,319 ------------- ------------- Total Other Assets 1,794,531 1,794,130 ------------- ------------- Total Assets $ 1,937,487 $ 2,151,958 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts Payable $ 143,377 $ 331,776 Accrued Expenses 30,802 100,548 Accrued Interest 71,400 66,000 Notes Payable 149,000 149,000 ------------- ------------- Total Current Liabilities 394,579 647,324 ------------- ------------- Stockholders' Equity Preferred Stock, Authorized 10,000,000 Shares, $.01 Par Value, Issued and Outstanding -0- - - Common Stock, Authorized 100,000,000 Shares, $0.001 Par Value, Issued and Outstanding 81,509,422 81,510 - Issued and Outstanding 76,533,922 - 76,534 Additional Paid in Capital 17,337,271 17,119,596 Retained Earnings (Deficit) (15,875,873) (15,691,496) ------------- ------------- Total Stockholders' Equity 1,542,908 1,504,634 ------------- ------------- Total Liabilities and Stockholders' Equity $ 1,937,487 $ 2,151,958 ============= ============= The accompanying notes are an integral part of these consolidated financial statements. 30
View Systems, Inc. and Subsidiaries Consolidated Statements of Operations (Unaudited) Three Months Ended June 30, Six Months Ended June 30, ---------------------------- --------------------------- 2005 2004 2005 2004 -------------- ------------- ------------- ------------- Revenues, Net $ 195,914 $ 158,041 $ 481,556 $ 192,394 Cost of Sales 125,180 73,872 229,508 106,198 -------------- ------------- ------------- ------------- Gross Profit (Loss) 70,734 84,169 252,048 86,196 -------------- ------------- ------------- ------------- Operating Expenses Business development 17,617 - 32,646 - General & Administrative 25,238 325,100 94,020 380,678 Professional Fees 31,341 57,955 69,856 82,174 Salaries and Benefits 148,812 106,639 234,365 240,210 -------------- ------------- ------------- ------------- Total operating expenses 223,008 489,694 430,887 703,062 -------------- ------------- ------------- ------------- Net Operating Income (Loss) (152,274) (405,525) (178,839) (616,866) -------------- ------------- ------------- ------------- Other Income (Expense) Interest Expense (5,538) (25,297) (5,538) (28,311) -------------- ------------- ------------- ------------- Total Other Income (Expense) (5,538) (25,297) (5,538) (28,311) -------------- ------------- ------------- ------------- Net Income (Loss) $ (157,812) $ (430,822) $ (184,377) $ (645,177) ============== ============= ============= ============= Net Income (Loss) Per Share $ (0.00) $ (0.01) $ (0.00) $ (0.01) ============== ============= ============= ============= Weighted Average Shares Outstanding 76,866,047 64,523,490 76,866,047 63,671,982 ============== ============= ============= ============= The accompanying notes are an integral part of these consolidated financial statements 31
View Systems, Inc. and Subsidiaries Consolidated Statements of Stockholders' Equity (Deficit) Preferred Stock Common Stock Additional Retained ----------------- --------------------------- Paid-in Earnings Shares Amount Shares Amount Capital (Deficit) ------- --------- ------------- ------------- ------------- ------------- Balance, December 31, 2004 - $ - 76,533,922 $ 76,534 $ 17,119,596 $(15,691,496) January - March 2005 - shares issued for cash - - 155,000 155 15,345 - January - March 2005 - shares issued in payment of accounts payable - - 128,000 128 18,872 - April - June 2005 - shares issued for cash - - 2,287,500 2,288 114,712 - April - June 2005 - shares issued for services - - 2,405,000 2,405 68,745 - Net loss for the period ended June 30, 2005 - - - - - (184,377) ------- --------- ------------- ------------- ------------- ------------- Balance, June 30, 2005 (unaudited) - $ - 81,509,422 $ 81,510 $ 17,337,270 $(15,875,873) ======= ========= ============= ============= ============= ============= The accompanying notes are an integral part of these consolidated financial statements. 32
View Systems, Inc. and Subsidiaries Consolidated Statements of Cash Flows (Unaudited) For the Six Months Ended June 30, -------------------------------- 2005 2004 ---------------- --------------- Cash Flows from Operating Activities: Net Income (Loss) $ (184,377) $ (645,177) Adjustments to Reconcile Net Loss to Net Cash Provided by Operations: Depreciation and Amortization 6,400 17,490 Stock Issued for Services 71,150 239,380 Changes in Operating Assets and Liabilities: Accounts Receivable 94,370 (14,764) Inventory 35,000 - Increase (Decrease) in: Accounts Payable (169,398) (168,514) Accrued Expenses (64,346) 32,507 ---------------- --------------- Net Cash Used by Operating Activities (211,201) (539,078) ---------------- --------------- Cash Flows from Investing Activities: Purchases of Equipment (1,115) - Funds Advanced (to) from Affiliated Entities (4,901) - ---------------- --------------- Net Cash Used in Investing Activities (6,016) - ---------------- --------------- Cash Flows from Financing Activities: Funds Advanced (to) from Stockholders 4,500 491,685 Proceeds from Stock Issuance 132,500 47,000 ---------------- --------------- Net Cash Provided by Financing Activities 137,000 538,685 ---------------- --------------- Increase (Decrease) in Cash (80,217) (393) Cash and Cash Equivalents at Beginning of Period 173,486 19,899 ---------------- --------------- Cash and Cash Equivalents at End of Period $ 93,269 $ 19,506 ================ =============== Cash Paid For: Interest $ 138 $ - Income Taxes $ - $ - Non-Cash Activites: Stock Issued in Payment of Accounts Payable $ 19,000 $ - Stock Issued for Notes Payable and Accrued Interest $ - $ 522,105 Stock Issued for Services $ - $ 239,380 The accompanying notes are an integral part of these consolidated financial statements. 33
View Systems, Inc. Notes to the Consolidated Financial Statements June 30, 2005 GENERAL View Systems, Inc. (the Company) has elected to omit substantially all footnotes to the financial statements for the six months ended June 30, 2005 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, 2004. 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. 34 VIEW SYSTEMS, INC. CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 35 C O N T E N T S Accountants' Report........................................................F-3 Consolidated Balance Sheets ...............................................F-4 Consolidated Statements of Operations .....................................F-5 Consolidated Statements of Stockholders' Equity............................F-6 Consolidated Statements of Cash Flows......................................F-7 Notes to the Consolidated Financial Statements.............................F-8 36 INDEPENDENT AUDITORS' REPORT To the Audit Committee of the Board of Directors and Stockholders View Systems, Inc. Baltimore, Maryland We have audited the accompanying consolidated balance sheet of View Systems, Inc., and subsidiaries (the Company) as of December 31, 2004, and the related consolidated statements of operations, changes in stockholders' equity and cash flows for the years ended December 31, 2004 and 2003. These consolidated financial statements are the responsibility of Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the accompanying consolidated balance sheet as of December 31, 2004 and the related consolidated statements of operations, changes in stockholders' equity and cash flows for the years ended December 31, 2004 and 2003 present fairly, in all material respects, the financial position of the Company as of December 31, 2004, and the results of operations and cash flows for the years then ended in conformity with U.S. generally accepted accounting principles. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has incurred ongoing operating losses and does not currently have financing commitments in place to meet expected cash requirements through 2004. Additionally, the Company is in default on its debt obligations. These conditions raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the outcome of this uncertainty. /s/ Chisholm, Bierwolf & Nilson LLC Chisholm, Bierwolf & Nilson, LLC Bountiful, Utah March 23, 2005 F-3 37 View Systems, Inc. and Subsidiaries Consolidated Balance Sheets ASSETS December 31, 2004 ------------- Current Assets Cash $ 173,486 Accounts Receivable(Net of Allowance of $20,054) 108,342 Inventory 61,197 ------------- Total Current Assets 343,025 ------------- Property & Equipment (Net) 14,803 ------------- Other Assets Licenses 1,626,854 Loans to shareholder 66,500 Due from Affiliates 98,457 Deposits 2,319 ------------- Total Other Assets 1,794,130 ------------- Total Assets $ 2,151,958 ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Accounts Payable $ 331,776 Accrued Expenses 100,548 Accrued Interest 66,000 Notes Payable 149,000 ------------- Total Current Liabilities 647,324 ------------- Stockholders' Equity Preferred Stock, Authorized 10,000,000 Shares, $.01 Par Value, Issued and outstanding 0 - Common Stock, Authorized 100,000,000 Shares, $.001 Par Value, Issued and Outstanding 76,533,922 76,534 Additional Paid in Capital 17,119,596 Retained Earnings (Deficit) (15,691,496) ------------- Total Stockholders' Equity 1,504,634 ------------- Total Liabilities and Stockholders' Equity $ 2,151,958 ============= The accompanying notes are an integral part of these consolidated financial statements. F-4 38 View Systems, Inc. and Subsidiaries Consolidated Statements of Operations For the Year Ended December 31, --------------------------- 2004 2003 ------------- ------------- Revenues, Net $ 476,319 $ 569,952 Cost of Sales 257,179 257,632 ------------- ------------- Gross Profit (Loss) 219,140 312,320 ------------- ------------- Operating Expenses Business Development - 155,130 General & Administrative 281,127 301,482 Professional Fees 286,323 542,612 Salaries & Benefits 653,096 873,361 ------------- ------------- Total Operating Expenses 1,220,546 1,872,585 ------------- ------------- Net Operating Income (Loss) (1,001,406) (1,560,265) ------------- ------------- Other Income(Expense) Loss on Sale of Assets - (14,839) Interest Expense (36,144) (11,572) Bad Debt (148,928) (71,000) Valuation/Impairment Loss - (888,658) ------------- ------------- Total Other Income(Expense) (185,072) (986,069) ------------- ------------- Net Income (Loss) $ (1,186,478) $ (2,546,334) ============= ============= Net Income (Loss) Per Share $ (0.02) $ (0.05) ============= ============= Weighted Average Shares Outstanding 68,924,152 51,529,119 ============= ============= The accompanying notes are an integral part of these consolidated financial statements. F-5 39 View Systems, Inc. and Subsidiaries Consolidated Statements of Stockholders' Equity (Deficit) Additional Retained Common Stock Paid-in Earnings Shares Amount Capital (Deficit) ------------- ---------- ------------- ------------- Balance, December 31, 2002 44,598,620 $ 44,598 $ 13,810,878 $(11,958,683) January - March 2003 - shares issued for cash 676,999 677 85,873 - January 2003 - shares issued for services 445,000 445 51,755 - July - September 2003 - share issued for cash 3,220,000 3,220 318,780 - September 2003 - shares issued for payment of notes payable 300,000 300 29,700 - September 2003 - Stock issued for services 500,000 500 59,500 - September 2003 share issued to employees 1,600,000 1,600 190,400 - September 2003 - shares issued for payment of notes payable 10,800,000 10,800 755,520 - October 2003 - shares issued for services 190,000 190 9,310 - Forgiveness of Debt by subsidiary-contribution - - 193,293 - October-December 2003 - shares issued for cash 400,000 400 99,600 - Net loss for the year ended December 31, 2003 - - - (2,546,334) ------------- ---------- ------------- ------------- Balance, December 31, 2003 62,730,619 62,730 15,604,609 (14,505,017) Cancellation of shares (100,000) (100) (4,900) - January - March 2004 - shares issued for cash 244,500 245 34,755 - January - March 2004 - shares issued for services 932,000 932 203,048 - April - June 2004 - shares issued for cash 84,333 84 11,916 - April - June 2004 - shares issued for services 221,250 221 39,979 - June 2004 - shares issued for payment of notes payable and accrued interest 5,221,050 5,221 516,884 - July - September 2004 - shares issued for cash 100,000 100 19,900 - July - September 2004 - shares issued for services 781,600 782 108,642 - September 2004 - shares issued in settlement of litigation 2,000,000 2,000 178,000 - October - December 2004 - shares issued for cash 1,066,750 1,067 89,833 - December 2004 - shares issued for payment of notes payable and accrued interest 3,251,820 3,252 321,930 - Cost of issuance of common stock - - (5,000) - Net loss for the year ended December 31, 2004 - - - (1,186,478) ------------- ---------- ------------- ------------- Balance, December 31, 2004 76,533,922 $ 76,534 $ 17,119,596 $(15,691,495) ============= ========== ============= ============= The accompanying notes are an integral part of these consolidated financial statements. F-6 40 View Systems, Inc. and Subsidiaries Consolidated Statements of Cash Flows For the Year Ended December 31, 2004 2003 -------------- ------------- Cash Flows from Operating Activities: Net Income (Loss) $ (1,186,478) $ (2,546,334) Adjustments to Reconcile Net Loss to Net Cash Provided by Operations: Depreciation & Amortization 29,890 45,160 Impairment of Assets - 888,658 (Gain) Loss on Disposal of Assets - 14,839 Bad Debts 148,928 71,000 Accrued interest paid with stock 13,987 - Stock Issued for Services 353,604 313,700 Change in Operating Assets and Liabilities: (Increase) Decrease in: Accounts Receivable (32,182) (143,376) Inventories 32,044 (21,916) Prepaid expenses - (655) Other Assets 2,500 (2,287) Increase (Decrease) in: Accounts Payable (146,439) 211,747 Accrued Expenses (3,967) 157,895 -------------- ------------- Net Cash Provided(Used) by Operating Activities (788,113) (1,011,569) Cash Flows from Investing Activities: Advances (to)/ receipt from related party - 76,869 -------------- ------------- Net Cash Provided (Used) by Investing Activities - 76,869 Cash Flows from Financing Activities: Funds advanced (to) from stockholders (62,000) - Proceeds from debt financing 933,800 817,820 Proceeds from stock issuance 157,900 508,550 Cost of issuance of common stock (5,000) - Principal Payments on Notes Payable (83,000) (375,000) -------------- ------------- Net Cash Provided (Used) by Financing Activities 941,700 951,370 -------------- ------------- Increase (Decrease) in Cash 153,587 16,670 Cash and Cash Equivalents at Beginning of Period 19,899 3,229 -------------- ------------- Cash and Cash Equivalents at End of Period $ 173,486 $ 19,899 ============== ============= The accompanying notes are an integral part of these consolidated financial statements. 7 41 View Systems, Inc. and Subsidiaries Consolidated Statements of Cash Flows (Continued) For the Year Ended December 31, ---------------------------- 2004 2003 -------------- ------------- Cash Paid For: Interest $ 25,144 $ 572 Income Taxes $ - $ - Non-Cash Investing and Financing Activities: Stock Issued in payment for Note Payable $ 833,300 $ 796,320 Stock issued in payment of accounts payable $ 200,000 $ - The accompanying notes are an integral part of these consolidated financial statements. F-8 42 VIEW SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 1. NATURE OF OPERATIONS AND 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 Consolidation - ---------------------- The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Milestone Technology, Inc. All significant intercompany accounts and transactions have been eliminated in consolidation. Cash and Cash Equivalents - ------------------------- The Company considers all highly liquid investments with maturities of three months or less to be cash equivalents. 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 recognizes revenue when the product has been shipped. 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). All inventory as of December 31, 2003 consisted of finished goods. Property and Equipment - ---------------------- Property and equipment is recorded at cost and depreciated over their useful lives, using the straight-line and accelerated depreciation methods. Upon sale or retirement, the cost and F-9 43 VIEW SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES related accumulated depreciation are eliminated from the respective accounts, and the resulting gain or loss is included in the results of operations. The useful lives of property and equipment for purposes of computing depreciation are as follows: Equipment 5-7 years Software tools 3 years Repairs and maintenance charges which do not increase the useful lives of assets are charged to operations as incurred. Depreciation expense for the years ended December 31, 2004 and 2003 amounted to $29,890 and $45,1260, respectively. Goodwill - -------- Goodwill represents the excess of the cost of assets acquired in the business combinations accounted for under the purchase method of accounting over the fair value of the net assets acquired at the dates of acquisition. Prior to the adoption of SFAS Nos. 141 and 142, the excess purchase price was being amortized using the straight-line method over ten years. Effective January 1, 2002 goodwill will no longer be amortized but rather tested for impairment under the provision of SFAS No 142. As of December 31, 2003, goodwill was determined to be impaired and was written off. Licenses - -------- In connection with the acquisition on Milestone, the Company received various licenses to products developed by INEEL (Idaho National Engineering and Environmental Laboratory). Milestone transferred the licenses to View Systems, Inc., and in November 2003, two separate licenses were signed in the name of View Systems with Bechtel BWXT Idaho, LLC (BBWI). BBWI is the management and operating contractor of the INEEL under its Contract No. DE-AC07-99ID13727 ("M&O Contract") and has the authorization, right and ability to grant the license of the Agreement. The licenses allow View Systems to commercially develop, manufacture, use, sell and distribute processes and products embodying the U.S. Patent No. 6.150.810 "Method for Detecting the Presence of a Ferromagnetic Object Using Maximum and Minimum Magnetic Field Data", and U.S. Patent Application S/N 10/623,372, "Communication Systems, Camera Devices, and Communication Methods". The valuation of these licenses consist of the cost of acquiring Milestone, ie the difference of the cost paid for the entity vs. the value of the underlying assets and liabilities which was determined to be $1,626,866. Consistent with SFAS No. 142, the license was analyzed to determine if any impairment existed at December 31, 2004. It was determined to not be impaired. Pursuant to SFAS No. 142, the license will not be amortized, rather the valuation of this intangible will reviewed periodically. F-10 44 VIEW SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Income Taxes - ------------ Deferred income taxes are recorded under the assets and liability method whereby deferred tax assets and liabilities are recognized for the future tax consequences, measured by enacted tax rates, attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss carryforwards. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the rate change becomes effective. Valuation allowances are recorded for deferred tax assets when it is more likely than not that such deferred tax assets will not be realized. Research and Development - ------------------------ Research and development costs are expensed as incurred. Equipment and facilities acquired for research and development activities that have alternative future uses are capitalized and charged to expense over the estimated useful lives. Advertising - ----------- Advertising costs are charged to operations as incurred. Advertising costs for the years ended December 31, 2004 and 2003 were $10,214 and $21,264. 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. F-11 45 VIEW SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Net Loss Per Common Share - ------------------------- Basic net loss per common share is computed by dividing net loss available to common stockholder by the weighted average number of common shares outstanding. Diluted net loss per common share is computed by dividing net loss available to common stockholders by the weighted average number of common shares and dilutive potential common share equivalents then outstanding. Potential common shares consist of shares issuable upon the exercise of stock options and warrants. The calculation of the net loss per share available to common stockholders for the years ended December 31, 2004 and 2003 does not include potential shares of common stock equivalents, as their impact would be antidilutive. 2. GOING CONCERN The Company has incurred and continues to incur, losses from operations. For the years ended December 31, 2004 and 2003, the Company incurred net losses of $1,186,478 and $2,546,334, respectively. During 2004 and 2003, the Company implemented a strategy to reduce its cash used in operating activities which included reductions in personnel and facilities expense. Additionally, the Company has increased the efficiency of its processes and focused its development efforts on products with greater sales potential. To date, the Company has financed its operations primarily through private financing. Additionally, the Company is in default on its debt obligations. It is management's intention to finance 2005 operations through an additional equity financing. There can be no assurance, however, that this financing will be successful and the Company may be required to further reduce expenses and scale back operations. These conditions raise substantial doubt about the Company's ability to continue as a going concern. 3. NEW ACCOUNTING PRONOUNCEMENTS Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation - Transition and Disclosure-an Amendment of FASB Statement No. 123, effective for fiscal years ending after December 15, 2002. This Statement amends FASB Statement No. 123, Accounting for Stock-Based Compensation, to provide alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this Statement amends the disclosure requirements of Statement No. 123 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 SFAS No. 148, did not have a material impact on the Company's financial position or results of operations. F-12 46 VIEW SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 3. NEW ACCOUNTING PRONOUNCEMENTS (Continued) In December 2004, FASB issued a revision to SFAS 123 "Share-Based Payment". This Statement is a revision of FASB Statement No. 123, Accounting for Stock-Based Compensation. This Statement supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and its related implementation guidance. This Statement establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity's equity instruments or that may be settled by the issuance of those equity instruments. This Statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. This Statement does not change the accounting guidance for share-based payment transactions with parties other than employees provided in Statement 123 as originally issued and EITF Issue No. 96-18, "Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services." This Statement does not address the accounting for employee share ownership plans, which are subject to AICPA Statement of Position 93-6, Employers' Accounting for Employee Stock Ownership Plans. The Company does not believe adoption of this revision will have a material impact on the Company's consolidated financial statements. In December 2004, FASB issued SFAS 153 "Exchanges of Nonmonetary Assets an amendment of APB Opinion No. 29". The guidance in APB Opinion No. 29, Accounting for Nonmonetary Transactions, is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. The guidance in that Opinion, however, included certain exceptions to that principle. This Statement amends Opinion 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. The Company does not believe adoption of SFAS 153 will have any impact on the Company's consolidated financial statements In December 2004, FASB issued SFAS 152 "Accounting for Real Estate Time-Sharing Transactions an amendment of FASB Statements No. 66 and 67". This Statement amends FASB Statement No. 66, Accounting for Sales of Real Estate, to reference the financial accounting and reporting guidance for real estate time-sharing transactions that is provided in AICPA Statement of Position (SOP) 04-2, Accounting for Real Estate Time-Sharing Transactions. This Statement also amends FASB Statement No. 67, Accounting for Costs and Initial Rental Operations of Real Estate Projects, to state that the guidance for (a) incidental operations and (b) costs incurred to sell real estate projects does not apply to real estate time-sharing transactions. The accounting for those operations and costs is subject to the guidance in F-13 47 VIEW SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 3. NEW ACCOUNTING PRONOUNCEMENTS (Continued) SOP 04-2. This Statement is effective for financial statements for fiscal years beginning after June 15, 2005. The Company does not believe adoption of SFAS 152 will have any impact on the Company's consolidated financial statements. In November 2004, the FASB issued SFAS 151 "Inventory Costs an amendment of ARB No. 43". This Statement amends the guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). Paragraph 5 of ARB 43, Chapter 4, previously stated that ". . . under some circumstances, items such as idle facility expense, excessive spoilage, double freight, and re-handling costs may be so abnormal as to require treatment as current period charges. . . ." This Statement requires that those items be recognized as current-period charges regardless of whether they meet the criterion of "so abnormal." In addition, this Statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. The provisions of this Statement shall be effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The Company does not believe adoption of SFAS 151 will have any impact on the Company's consolidated financial statements. In December 2003, FASB issued a revision to SFAS 132 "Employers' Disclosures about Pensions and Other Postretirement Benefits an amendment of FASB Statements No. 87, 88, and 106". This Statement revises employers' disclosures about pension plans and other postretirement benefit plans. It does not change the measurement or recognition of those plans required by FASB Statements No. 87, Employers' Accounting for Pensions, No. 88, Employers' Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits, and No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions. This Statement retains the disclosure requirements contained in FASB Statement No. 132, Employers' Disclosures about Pensions and Other Postretirement Benefits, which it replaces. It requires additional disclosures to those in the original Statement 132 about the assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other defined benefit postretirement plans. The required information should be provided separately for pension plans and for other postretirement benefit plans. The Company does not believe adoption of this revision will have a material impact on the Company's consolidated financial statements. In May 2003, the FASB issued SFAS 150, "Accounting for Certain Financial Instruments with characteristics of both Liabilities and Equity." This new statement changes the accounting for certain financial instruments that, under previous guidance, issuers could account for as equity or classifications between liabilities and equity in a section that has been know as "mezzanine capital." It requires that those certain instruments be classified as liabilities in balance sheets. Most of the guidance in SFAS 150 is effective for all financial instruments entered into or modified after May 31, 2003. The adoption of SFAS 150 did not have any impact on the Company's consolidated financial statements. F-14 48 VIEW SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 3. NEW ACCOUNTING PRONOUNCEMENTS (Continued) In April 2003, the FASB issued SFAS 149, "Amendment of Statement 133 on Derivative Instruments and Hedging Activities." SFAS 149 amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities under SFAS 133, "Accounting for Derivative Instruments and Hedging Activities". This Statement is effective for contracts entered into or modified after June 30, 2003, with certain exceptions, and for hedging relationships designated after June 30, 2003, with certain exceptions. The adoption of SFAS 149 did not have any effect on the Company's consolidated financial statements. In January 2003, the FASB issued Interpretation 46, "Consolidation of Variable Interest Entities" (FIN 46), which addresses consolidation by business enterprises of variable interest entities. FIN 46 clarifies the application of Accounting Research Bulletin No. 51, "Consolidated Financial Statements", to certain entities in which equity investors do not have the Characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 applies immediately to variable interest entities created after January 31, 2003, and to variable interest entities in which an enterprise obtains an interest after that date. It applies in the first fiscal year or interim period beginning after June 15, 2003, to variable interest entities in which an enterprise holds a variable interest that it acquired before February 1, 2003. The Company has not identified and does not expect to identify any variable interest entities that must be consolidated. 4. BUSINESS COMBINATION The Company purchased 100% of the common stock of Milestone Technology, Inc., effective March 25, 2002. The purchase was accomplished in two transactions. The Company acquired 6% of Milestone in December 2001 in exchange for 500,000 shares of the Company's common stock. In March 2002, the Company acquired the remaining 94% of Milestone for 3,300,000 share of the Company's common stock. Based on the market value of the Company's common stock ($0.55 per share in December and $0.31 per share in March) the total cost of the acquisition was $1,298,000. Milestone Technology, Inc., is a developer of concealed weapons detections systems. Its primary product is a walk-through detector that uses advanced magnetic technology to accurately pinpoint the location, size, and numbers of concealed weapons. Prior to its acquisition, Milestone Technology, Inc., was considered to be a development stage enterprise. F-15 49 VIEW SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 5. DUE FROM AFFILIATED ENTITIES The Company has advanced non-interest bearing funds of $98,458 as of December 31, 2004 and 2003 to a related corporation, View Technologies, Inc., which is controlled by the Chief Executive Officer of the Company. There are no formal repayment terms associated with this advance. The two companies enter into various transactions throughout the year to provide working capital to one another when necessary. The Company has advanced non-interest bearing funds to one of its officers in the amount of $66,500 as of December 31, 2004. 6. NOTES PAYABLE Notes payable as of December 31, 2004 consist of the following: Note payable - due to an individual, non-interest bearing due on demand. 500 Note payable - due to an individual, non-interest bearing due on demand 9,500 Note payable - due to an individual, non-interest bearing due on demand 3,000 Note payable - due to an individual, non-interest bearing due on demand 11,000 Note payable - due to an individual, non-interest bearing, due on demand 15,000 Notes payable - due former stockholder of Zyros Technology, due on demand, interest at 10% per annum 110,000 ------------ Total Notes Payable $ 149,000 ============ The notes payable due former stockholders of Xyros Technology, which was acquired by the Company in 1999 was due December 31, 1999 but the Company has negotiated to repay the loan as cash flow permits. F-16 50 VIEW SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003 7. INCOME TAXES The components of the net deferred tax asset and liability as of December 31, 2004 are as follows: Effect of net operating loss carryforward $ 6,118,178 Less evaluation allowance (6,118,178) --------------- Net deferred tax asset (liability) $ - =============== 8. OPERATING LEASE The Company leases office and warehouse space in Baltimore, Maryland under a five-year noncancellable operating lease, expiring August 2005. Base rent is $2,260 per month with an annual rent escalator of 3%. Rent expense was $52,900 and $61,047 for the years ended December 31, 2004 and 2003, respectively. The following is a schedule by year, of approximate future minimum lease payments required under this lease: Year ending December 31: 2005 19,964 2006 and Thereafter - ------------ Total minimum future rental payments $ 19,964 ============ 9. STOCK BASED COMPENSATION During the years ended December 31, 2004 and 2003 the Company granted restricted stock, incentive stock options, nonqualified stock options, and warrants to employees, officers, and independent contractors and consultants. Restricted Stock Grants The Company's Board of Directors and stockholders have approved a restricted share plan under which shares of the Company's common stock will be granted to employees, officers and directors at the discretion of the Board of Directors. During 2004 and 2003, the Company issued the following shares under this Plan and additional shares at the discretion of the Board of Directors: F-17 51 VIEW SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2003 AND 2002 9. STOCK BASED COMPENSATION(Continued) Stock Options and Warrants 2004 2003 ----------------------- --------------------- Number Expense Number Expense of Shares Recognized of Shares Recognized ----------- ----------- --------- ----------- Officers and employees 702,000 $ 144,480 1,690,000 $ 196,500 Independent contractors and consultants 1,502,850 209,124 1,035,000 117,200 ----------- ----------- --------- ----------- Total 2,204,850 $ 353,604 2,725,000 $ 313,700 =========== =========== ========= =========== Officers' and employees' compensation was based on the fair market value of the common stock issued on the date of grant less a discount of 10% due to the restricted nature of the grant. Independent contractors and consultants expense was based on the estimated value of services rendered. The Company adopted the 1999 Stock Option Plan during the year ended December 31, 1999. The Plan reserves 4,500,000 shares of the Company's unissued common stock for options. Options, which may be tax qualified and non-qualified, are exercisable for a period of up to ten years at prices at or above market price as established on the date of the grant. A summary of the Company's common stock option activity and related information for the years ended December 31, 2004 and 2003 is as follows: 2003 ---------------------------------------- Weighted Common Average Range of Stock Exercise Exercise Options Price Price ------------- ------------ ------------- Outstanding at beginning of year 107,690 $ 1.63 $ .01 - 2.07 Granted - - - Exercised - - - Expired/Cancelled - - - ------------- ------------ ------------- Outstanding at end of year 107,690 $ 1.63 $ .01 - 2.07 ============= ============ ============= 2004 ---------------------------------------- Weighted Common Average Range of Stock Exercise Exercise Options Price Price ------------- ------------ ------------- Outstanding at beginning of year 107,690 $ 1.63 $ .01 - 2.07 Granted - - - Exercised - - - Expired/Cancelled - - - ------------- ------------ ------------- Outstanding at end of year 107,690 $ 1.63 $ .01 - 2.07 ============= ============ ============= F-18 52 VIEW SYSTEMS, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2003 AND 2002 9. STOCK BASED COMPENSATION (Continued) The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation (SFAS No. 123), but applies Accounting Principle Board Opinion No. 25 and related interpretations. There were no stock options granted during the years ended December 31, 2004 and 2003. 10. LITIGATION On May 8, 2003, the Company filed a complaint against two former officers and shareholders of Milestone Technology, Inc., related to the ownership of the Concealed Weapons Detection System. In July 2003, the complaint was settled and the Company agreed to pay $375,000 including attorney fees of $50,000. The liability is recorded in accounts payable at December 31, 2003. The settlement also called for the cancellation of 1,050,000 shares issued to one of the principals of Milestone. Other legal actions are in the normal course of business. F-19 53 __________ We have not authorized any dealer, salesman or any other person to give any information or to make any representations not contained in _________________ this prospectus. Any information or representation not contained in PROSPECTUS this prospectus must not be relied upon as having been authorized by _________________ View Systems. __________ TABLE OF CONTENTS Prospectus Summary................3 Risk Factors......................4 Use of Proceeds...................7 Market for Common Equity..........7 VIEW SYSTEMS, INC. Description of Business...........9 Property.........................16 Legal Proceedings................16 Management's Discussion and Analysis........................17 3,770,000 Common Shares Management.......................22 Certain Related Transactions.....23 Principal Stockholders...........23 Description of Securities........25 Selling Stockholders.............25 Plan of Distribution.............27 Other Information................28 Interest of Named Experts and Counsel...................28 SEC's Position on Indemnification for Securities Act Liability......28 October --, 2005 Additional Information..........29 Changes In and Disagreements With Accountants................29 Financial Statements.............29 54 PART II ITEM 24: INDEMNIFICATION OF DIRECTORS AND OFFICERS Pursuant to Nevada Revised Statutes Section 78.7502 and 78.751 our articles of incorporation and bylaws provide for the indemnification of present and former directors and officers and each person who serves at our request as our officer or director. Indemnification for a director is mandatory if the indemnification is determined to be permissible and authorized, and indemnification for an officer, agent or employee is permissive. We will indemnify these individuals against all costs, expenses and liabilities incurred in a threatened, pending or completed action, suit or proceeding brought because the individual acted or failed to act when serving as our director or officer. Indemnification is authorized if the individual met the standard of conduct, the expenses are reasonable and we have the financial ability and desire to pay the expenses. The standard of conduct required for indemnification is that the individual conducted himself in good faith and reasonably believed that his conduct was in, or not opposed to, our best interest. In a criminal action he must not have had reasonable cause to believe his conduct was unlawful. This right of indemnification is not exclusive of other rights the individual is entitled to as a matter of law or otherwise. We will not indemnify an individual a court finds liable to us due to his negligence or willful misconduct toward us, or if he improperly received personal benefit. In absence of a final adjudication of liability, our board of directors may rely on an opinion of legal counsel as to the liability of the individual seeking indemnification. Indemnification in a derivative action is limited to reasonable expenses incurred in connection with the proceeding. Also, we are authorized to purchase insurance on behalf of an individual for liabilities incurred whether or not we would have the power or obligation to indemnify him pursuant to our bylaws. Our bylaws provide that individuals may receive advances for expenses if the individual provides a written affirmation of his good faith belief that he met the required standard of conduct and he will repay the advance if he is judged not to have met the standard of conduct. ITEM 25: OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the expenses to be paid for by View Systems in connection with the sale of the shares. We will pay all the costs of this offering, with the exception of the costs incurred by the selling stockholders for their legal counsel and the costs they may incur for brokerage commissions on the sale of their shares. All the amounts shown include estimates of future expenses, except for the registration fee: Securities and Exchange Commission registration fee.................$ 111.68 Printing expenses................................................... 200.00 Legal fees and expenses............................................. 5,500.00 Accounting fees and expenses........................................ 2,000.00 Transfer agent and registrar fees and expenses...................... 500.00 Miscellaneous....................................................... 200.00 Total.........................................................$ 8,511.68 ITEM 26: RECENT SALES OF UNREGISTERED SECURITIES The following discussion describes all securities sold without registration by View Systems during the past three years. On September 22, 2005, we issued an aggregate of 2,390,000 common shares to three investors for conversion of debt totaling approximately $240,000. We issued 1,195,000 shares valued at approximately $120,000 to YT2K, 55 Inc. and 597,500 shares valued at $60,000 each to Starr Consulting, Inc. and Power Network, Inc. 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 September 22, 2005, we issued 1,210,000 shares to MBA Investors, Inc. in consideration for consulting services valued at approximately $120,000. 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 September 19, 2005, we issued 60,000 shares to Charles Nelson for services rendered to us. 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 August 22, 2005, we issued 50,000 shares to Cheryl Stamp for $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 August 3, 2005 we issued 90,000 shares to William Jordan in consideration for services rendered to us. 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 July 27, 2005, we issued 100,000 shares to Will Stamp for $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 July 18, 2005, we issued 200,000 shares to Jeffrey McIntosh for $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 June 21, 2005, we issued 522,000 shares of common stock to Martin J. Maassen for advances to the company of $52,000. We issued 230,000 shares of common stock to Michael L. Bagnoli for direct investments to the company of $11,000 and director services rendered to the company. 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 June 15, 2005, we issued 7,171,725 shares of Series A Preferred Stock to Gunther Than in consideration for $573,738 that he invested in the company. 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 May 11, 2005, we issued 200,000 shares of common stock to Jeffrey B. McIntosh for $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 May 3, 2005, we issued 2,000,000 shares of common stock to Clark Companies in consideration for an agreement. 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 April 15, 2005, we issued 600,000 shares of common stock to Gunther Than as required by his employment agreement. These shares were valued at approximately $60,000. 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 October 12, 2004, we issued an aggregate of 571,750 common shares to five purchasers for $45,740. 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. 56 On April 7, 2005, we issued 1,200,000 shares of common stock to Gunther Than in consideration for his salary for the 2004 year. These shares were valued at approximately $120,000. 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 April 6, 2005, we issued 87,500 shares of common stock to William H. Zuhone for $7,000. 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 10, 2005, we issued 25,000 shares of common stock to Calvin McCohm for $2,500 cash. 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 9, 2005, we issued 200,000 shares of common stock to Liem Nguyen in consideration for a final and full release. 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 16, 2005, we issued 51,000 common shares to Will Stamp for $5,100. 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 10, 2005, we issued 30,000 common shares to H.J. Lurie for $3,000 cash. 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 January 10, 2005, we issued 128,000 common shares to Charles G. Davis III to convert a debt for accounting services valued at $19,000. 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 January 4, 2005, we issued an aggregate of 275,000 common shares to three purchasers for $27,500. We issued 100,000 shares to Lex Dalton, 25,000 shares to Calvin L. McCollum and 150,000 shares to William Stamp. 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 December 6, 2004, we issued an aggregate of 3,251,820 common shares to convert debt of $325,182. We issued 851,000 shares to Compass Equity Partners, 1,151,000 to Niki Group, and 1,249,820 to First Equity Holdings Corp. 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 December 1, 2003, we issued 400,000 common shares to Robert T. Williamson for $100,000. 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 November 4, 2004, we issued an aggregate of 160,000 common shares to three purchasers for $16,000. We issued 100,000 shares to Lex Dalton, 20,000 shares to Maxwell G. Levy and 40,000 shares to Duane R. Anderson. 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 October 12, 2004, we issued 160,000 common shares to Martin J. Maassen for $12,500. 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. 57 On July 9, 2004, we issued an aggregate of 805,600 common shares to four purchasers for $20,000. 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 June 21, 2004, we issued an aggregate of 5,221,050 common shares to convert notes payable with accrued interest totaling $522,105. We issued 1,246,440 shares to Compass Equity Partners, 3,039,000 shares to Niki Group and 935,610 shares to First Equity Holdings Corp. 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 June 3, 2004, we issued an aggregate of 160,000 shares in consideration for services valued at $30,400. We issued 100,000 shares to Barry S. Feldman and 60,000 shares to Liem Nguyen 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 May 11, 2004, we issued 31,250 common shares valued at approximately $5,000 to InCap Group, Inc. in consideration for services. 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. In February and March of 2004 we issued an aggregate of 902,000 common shares in consideration for services rendered or as compensation pursuant to employment agreements. We issued 100,000 shares valued at approximately $26,000 to Paul Scaccio; 100,000 shares valued at approximately $26,000 to Barry S. Feldman; 102,000 shares valued at approximately $24,480 to David Johansen; and 600,000 shares valued at approximately $120,000 to Gunther Than. 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. During the six month period ended June 30, 2004, we issued an aggregate of 334,833 shares to five investors for $47,000. 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 October 14, 2003, we issued an aggregate of 290,000 common shares in consideration for services rendered under employment agreements. We issued 100,000 shares valued at approximately $5,000 to Ruediger Klose; 100,000 shares to Lawrence Seiler valued at approximately $5,000; and 90,000 shares valued at approximately $4,500 to Charlotte DeLoof. 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. In September 2003 we issued an aggregate of 2,100,000 common shares for services rendered. We issued 1,150,000 common shares valued at approximately $138,000 to Gunther Than in consideration for services rendered to the company. We issued 500,000 shares valued at approximately $60,000 to Daniel W. Jackson for legal services. We issued 200,000 shares valued at approximately $24,000 to William D. Smith for consulting services rendered to the company. We issued 250,000 shares valued at approximately $30,000 to Barry S. Feldman for services rendered to the company. 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. Starting in August 2003 we conducted a Regulation D, Rule 505 offering for an aggregate offering amount of $1,500,000. We issued 12,300,000 common shares for a combination of cash and conversion of debt valued at approximately $1,230,000. We relied on an exemption from the registration requirements of the Securities Act of 1933 for a limited offering provided by Section 3(b) and Regulation D. In January through March of 2003 we sold an aggregate of 676,999 common shares to six purchasers for $86,550. 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. In December 2002 we issued 3,300,000 common shares to Milestone Technology, Inc. in a stock-for-stock 58 exchange for the remaining 94% interest of Milestone Technology. The exchange was valued at approximately $1,023,000. 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. In each private transaction we believe each purchaser either had unrestricted access to detailed material information regarding our operations due to personal relationships with us or each purchaser was provided the same kind of information regarding our operations as would be available in a registration statement. We believe each possessed sufficient sophistication to evaluate the information provided and each was able to bear the economic risk of the purchase. Also, we believe each purchaser: .. was aware that the securities had not been registered under federal securities laws; .. acquired the securities for his/her/its own account for investment purposes of the federal securities laws; .. understood that the securities would need to be indefinitely held unless registered or an exemption from registration applied to a proposed disposition; and, .. was aware that the certificate representing the securities would bear a legend restricting its transfer. We believe that, in light of the foregoing, the sale of our securities to the respective acquirers did not constitute the sale of an unregistered security in violation of the federal securities laws and regulations by reason of the exemptions provided under 4(2) of the Securities Act, and the rules and regulations promulgated thereunder. ITEM 27: EXHIBITS Exhibit Description - ------- ------------- 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) 5.1 Opinion of Cindy Shy, P.C. 10.1 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) 10.2 Lease agreement between View Systems and MIE Properties, Inc., dated August 3, 2005 21.1 Subsidiaries (Incorporated by reference to exhibit 21.1 for Form 10-KSB, filed March 31, 2003) 23.1 Consent of Chisholm, Bierwolf, Nilson, LLC 23.2 Consent of Cindy Shy, P.C. (See Exhibit 5.1) ITEM 28: UNDERTAKINGS Pursuant to Rule 415 of the Securities Act of 1933, the undersigned registrant hereby undertakes to: (1) file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement which will include any prospectus required by Section 10(a)(3) of the Securities Act; reflect in the prospectus any facts or events which, individually or together, represent a fundamental change in the information in the registration statement; and include any additional or changed material information on the plan of distribution; (2) for the purpose of determining any liability under the Securities Act, to treat each post-effective amendment as a new registration statement of the securities offered, and the offering of the securities at that time to be the initial bona fide offering; and (3) to file a post-effective amendment to remove from registration any of the securities that remain unsold at the end of the offering. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission this indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against these liabilities (other than the payment by the registrant of 59 expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by any director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether this indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of this issue. 60 SIGNATURES In accordance with the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets the requirements of filing on Form SB-2 and authorized this registration statement to be signed on its behalf by the undersigned, in the City of Baltimore, State of Maryland, on October 11, 2005. VIEW SYSTEMS, INC. /S/ Gunther Than By: ______________________________________________ Gunther Than Chief Executive Officer and Treasurer In accordance with the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated. /s/ Gunther Than Date: October 11, 2005 ______________________________________________ Gunther Than Chief Executive Officer, Principal Financial and Accounting Officer, Treasurer and Director /s/ Michael L. Bagnoli Date: October 11, 2005 _______________________________________________ Michael L. Bagnoli Secretary and Director /s/ Martin Maassen Date: October 11, 2005 ______________________________________________ Martin J. Maassen Director 61 EX-5.1 2 viewsystemsex51.txt OPINION OF CINDY SHY, P.C. CINDY SHY, P.C. A professional law corporation _____________________________________________________________________________ P.O. Box 380-236 * Ivins, Utah 84738 * Telephone (435) 674-1282 Fax (435) 673-2127 October 10, 2005 Board of Directors View Systems, Inc. 1550 Caton Center Drive, Suite E Baltimore, Maryland 21227 Re: Registration Statement on Form SB-2 for View Systems, Inc. filed on or about October 12, 2005 Gentlemen: This firm represents View Systems, Inc., a Nevada corporation (the "Company"), in connection with the preparation of the above-referenced registration statement on Form SB-2 (the "Registration Statement"), to be filed by the Company with the Securities and Exchange Commission (the "Commission") on or about October 12, 2005. The Registration Statement relates to the registration under the Securities Act of 1933 (the "Act") of 3,770,000 shares of common stock, par value $0.001. You have requested that this firm render an opinion as to whether the common stock as proposed to be registered in the Registration Statement is validly issued, fully paid, and non-assessable. This opinion is delivered in accordance with the requirements of Item 601(b)(5) of Regulation S-B promulgated under the Act. In connection with this opinion, we have examined and are familiar with originals or copies, certified or otherwise identified to our satisfaction of: (i) the Articles of Incorporation of the Company; (ii) certain resolutions and written consents of the Board of Directors of the Company relating to the issuance and registration of the shares; (iii) the Registration Statement; and (iv) such other documents as we have deemed necessary or appropriate as the basis for the opinions set forth below. In such examination, we have assumed the genuineness of all signatures, the legal capacity of natural persons, the authenticity of all documents submitted to us as certified or photostatic copies and the authenticity of the originals of such latter documents. As to any facts material to this opinion which we did not independently establish or verify, we have relied upon statements and representations of officers and other representatives of the Company and others. Based upon the above examination of the shares to be registered pursuant to the Registration Statement, we are of the opinion that 3,770,000 shares of common stock issued and outstanding are validly issued, fully paid, and non-assessable. View Systems, Inc. October 10, 2005 Page 2 We hereby consent to being named in the prospectus included in the Registration Statement as having rendered the foregoing opinion. We also consent to the filing of this opinion with the Commission as Exhibit 5.1 to the Registration Statement. In giving this consent, we do not thereby admit that we are included in the category of persons whose consent is required under Section 7 of the Act or the rules and regulations of the Commission. /s/ Cindy Shy, P.C. Cindy Shy, P.C. EX-23.1 3 viewsystemsex231.txt CONSENT OF CHISHOLM, BIERWOLF, NILSON, LLC Chisholm, Bierwolf & 533 West 2600 South, Suite 250 Nilson, LLC Bountiful, Utah 84010 Office (801) 292-8756 Certified Public Accountants Fax (801) 292-8809 ______________________________________________________________________________ CONSENT OF INDEPENDENT AUDITORS We hereby consent to the use of our report dated March 23, 2005, with respect to the consolidated financial statements included in the filing of the Registration Statement (Form SB-2) of View Systems, Inc. for the fiscal year ended December 31, 2004 and 2003. /s/ CHISHOLM, BIERWOLF & NILSON Chisholm, Bierwolf & Nilson, LLC Bountiful, UT October 10, 2005 -----END PRIVACY-ENHANCED MESSAGE-----