Converted by EDGARwiz

0001023175-06-000281.txt : 20060911 0001023175-06-000281.hdr.sgml : 20060911 20060911141841 ACCESSION NUMBER: 0001023175-06-000281 CONFORMED SUBMISSION TYPE: 10KSB/A PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20051231 FILED AS OF DATE: 20060911 DATE AS OF CHANGE: 20060911 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: 10KSB/A SEC ACT: 1934 Act SEC FILE NUMBER: 000-30178 FILM NUMBER: 061083853 BUSINESS ADDRESS: STREET 1: 1550 CATON CENTER DRIVE STREET 2: SUITE E CITY: BALTIMORE STATE: MD ZIP: 21227 BUSINESS PHONE: 410-242-8439 MAIL ADDRESS: STREET 1: 1550 CATON CENTER DRIVE STREET 2: SUITE E CITY: BALTIMORE STATE: MD ZIP: 21227 10KSB/A 1 view0510ka1f.htm ANNUAL REPORT ON FORM 10KSB AS AMENDED FOR THE YEAR ENDED DECEMBER 31, 2005 Converted by EDGARwiz

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-KSB/A

Amendment No. 1

[X]

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2005

[ ]

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 0-30178

VIEW SYSTEMS, INC.

(Exact name of small business issuer as specified in its charter)

Nevada

59-2928366

(State of incorporation)

(I.R.S. Employer Identification No.)

1550 Caton Center Drive, Suite E, Baltimore, Maryland 21227

(Address of principal executive offices) (Zip code)

Issuer's telephone number: (410) 242-8439

Securities registered under Section 12(b) of the Exchange Act: None

Securities registered under Section 12(g) of the Exchange Act: Common Stock

Check whether the issuer is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. [ ]

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B not contained in this form, and no disclosure will be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB [ ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [ ] No [X]

Issuer’s revenues for its most recent fiscal year: $1,172,163.

As of March 29, 2006 the issuer had 90,702,422 outstanding shares of common stock. The aggregate market value of the registrant's voting stock held by non-affiliates on that date was approximately $12,820,571.

Documents incorporated by reference: None

Transitional Small Business Disclosure Format: Yes [ ] No [X]

Explanatory Note

Due to an Securities and Exchange Commission review of this Form 10-KSB, we have expanded the disclosures in certain items to comply with the SEC’s comments. The disclosures in this report are as of the initial filing date of April 17, 2006 and do not include subsequent events.

TABLE OF CONTENTS

PART I

Item 2. Description of Property

PART II

Item 6. Management’s Discussion and Analysis or Plan of Operations

PART III

Item 13. Exhibits

Signatures

In this report references to “View Systems,” “we,” “us,” and “our” refer to View Systems, Inc. and its subsidiaries.

SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS

The Securities and Exchange Commission (“SEC”) encourages companies to disclose forward-looking information so that investors can better understand future prospects and make informed investment decisions. This report contains these types of statements. Words such as “may,” “will,” “expect,” “believe,” “anticipate,” “estimate,” “project,” or “continue” or comparable terminology used in connection with any discussion of future operating results or financial performance identify forward-looking statements. You are cautioned not to place undue reliance on the forward-looking statements, which speak only as of the date of this report. All forward-looking statements reflect our present expectation of future events and are subject to a number of important factors and uncertainties that could cause actual results to differ material ly from those described in the forward-looking statements.

PART I

ITEM 2. DESCRIPTION OF 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.

We also lease two additional offices. We lease a 1,299 square foot sales, engineering and manufacturing office in the East Point Business Center in Jacksonville, Florida. This lease has a base rent of approximately $1,500 with a 4% annual escalator and expires on January 1, 2008. The second sales and engineering office is located in Office World Plaza in Lomita, California, near Los Angeles. We lease this office for $850 per month and this lease expires February 28, 2007.

PART II

ITEM 6. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS

EXECUTIVE OVERVIEW

Our product lines are related to visual surveillance, intrusion detection and physical security. Management believes that heightened attention to personal threats potential large scale destruction and theft of property in the United States and spending by the United States government on Homeland Security will continue to drive growth in the market for security products.

During 2004 we increased our product lines to include our Visual First Responder and during 2005 we had engineering design changes made to the sensor boards for the SecureScan product to allow lower costs and to accommodate the price points required by competitive pressures. Also, in 2005 we redesigned and outsourced the assembly and manufacture of the Visual First Responder and SecureScan products.

During 2005 we continued 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. These developments have led to increased sales while at the same time decreasing the cost of products. We intend to develop these sales and distribution channels to a level that will result in increased revenues and continued profitability. We have completed sales in the correctional facility market, some Homeland Security departments and some sports venues.

For the next twelve months our primary challenge will be to add new products and develop our sales and distribution network into additional regions and markets in the United States and abroad. We intend to increase sales by offering demonstrations of our products in specific geographical areas to potential customers or at region specific trade shows, such as sheriff’s conventions, court administrators’ meetings, civil support team, state police shows and dealers shows. When a demonstration results in a sale of one of our products, then we attempt to expand that market by contacting other potential customers in the area, such as, correctional facilities, courthouses and other municipal buildings. After several sales in a particular geographic area management will decide whether it is appropriate to open a sales and service office.

In 2006 we will add three additional products which relate to sensing enriched nuclear material which may be used to build nuclear based explosive devices or for creating radiological disasters. These sensing devices will be integrated into our current products in addition to being used as stand alone handheld portable detectors. These products are based on existing patents owned by the United States government and are licensed exclusively to View Systems for the purpose of commercializing them for the public good.

LIQUIDITY AND CAPITAL RESOURCES

We have incurred losses for the past two fiscal years and had a net loss of $2,243,976 at December 31, 2005. Approximately $1.5 million of this loss is due to compensation expense recognized for shares issued for services. Our revenues from product sales have been increasing but are not sufficient to cover our operating expenses. Our auditors have expressed substantial doubt that we can continue as a going concern. We have some financing commitments in place, but not enough to meet our expected cash requirements for 2006.

Management intends to finance our 2006 operations with the revenue from product sales and any cash short falls will be addressed through equity financing. In December 2005 we completed a subscription agreement, discussed below in “Commitments and Contingent Liabilities”, that will provide for the purchase of convertible promissory notes through $100,000 installments over a five month period. We will use this cash for marketing, working capital, and to enhance our presence in other geographical regions.

Historically, we have relied on private financing and revenues to satisfy our cash requirements for working capital. For the year ended December 31, 2005 ( “2005”) we received cash from revenues of $1,172,163, proceeds of $312,534 from sales of our common stock and relied on advances of $64,000 from Gunther Than, our CEO. For the year ended December 31, 2004 (“2004”), we received cash from revenues of $476,319, received proceeds of $933,800 from debt financing, proceeds of $157,900 from sales of common stock, and received advances from Mr. Than totaling $132,000. Due to the increase in revenues in 2005 we were less reliant on financing. Net cash provided by financing decreased in 2005 to $338,034 from $1,003,700 in 2004.

We use our cash for working capital and at our current revenue levels we will require an additional $500,000 during the last half of 2006 to cover our operating costs of approximately $100,000 per month. These operating costs include cost of sales, general and administrative expenses, salaries and benefits and professional fees related to contracting engineers. The engineering efforts were mainly applied to unit cost reduction of the SecureScan product which has been reduced in cost by more than 50% from $8,450 to $4,200 per unit.

We also rely on the issuance of our common stock to pay for services and to convert debt when cash is unavailable. In 2004 we issued 1,934,850 shares for services valued at $353,604 and 5,221,050 shares for debt valued at $702,105. In 2005 we issued 10,106,000 shares for services valued at $1,856,862 and 128,000 shares to convert debt of $19,000. As of the date of this filing we have approximately 9,000,000 authorized common shares remaining and management believes we will need to take the necessary steps to increase our authorized common stock during 2006.

Management believes revenues will continue to increase but not to the point of profitability in the short term. We will need to continue to raise additional capital, both internally and externally, to cover cash shortfalls and to compete in our markets. We cannot assure you that we will be able to obtain financing on favorable terms and we may be required to reduce our expenses and scale back our operations.

COMMITMENTS AND CONTINGENT LIABILITIES

Our base rent for operating leases related to our principal office and manufacturing facility is approximately $2,870 per month, with an annual rent escalator of 3%. Operating leases for our offices in Florida and California total approximately $2,350 per month. Rent expense was $81,216 for 2005 compared to $61,047 for 2004. At December 31, 2005, future minimum payments for operating leases related to our office and manufacturing facilities were $97,646 through December 31, 2008.

Our total current liabilities at December 31, 2005 included accounts payable of $343,430, accrued expenses of $43,229, accrued interest of $77,000, accrued royalties of 75,000, loans to an officer of 64,000 and notes payable of $110,000.

At December 31, 2004, we are in default on a $110,000 note payable to a former stockholder of Xyros Technology which was due in 1999. We negotiated to repay the loan as cash flows permit and this debt remains outstanding. We are in doubt about the intentions, will or ability of the note holder to attempt collection of this debt.

At December 31, 2004, did not have financing commitments in place to meet our expected cash requirements. Our auditors expressed substantial doubt that we could continue as a going concern based on these operating losses. To remedy this situation on September 22, 2005, we arranged for three accredited investors to pay notes payable of $237,357 that we owed to Niki Group, LLC and Compass Equity Partners LLC. In consideration for the pay-off of this debt our board of directors authorized the issuance of an aggregate of 2,390,000 shares to three investors. Starr Consulting, Inc. received 597,500 shares for $60,000 paid on the debt; Power Network, Inc. received 597,500 shares for $60,000 paid on the debt; and YT2K, Inc. received 1,195,000 shares for $120,000 paid on the debt.

Subscription Agreement

We entered into a Subscription Agreement, dated December 23, 2005, with three accredited investors; Starr Consulting, Inc., Active Stealth, LLC, and KCS Referral Service LLC (the “Subscribers”). We agreed to sale and the Subscribers agreed to purchase convertible promissory notes and warrants. However, on January 6, 2006, the Subscribers consented to the removal of the warrants from the subscription agreement, with the understanding that the warrants would be reinstated after we increased our authorized common stock and the shares underlying the warrants would be registered at a later date. The Subscribers did not receive any other additional consideration for the removal of the warrants. The Subscribers agreed to purchase up to an aggregate of $500,000 of 8% promissory notes convertible into shares of our common stock at a per share conversion price of $0.10. The notes are due and payable by December 31, 2006. The Subscribers agreed to purchase the promissory notes over a 5 month period in $100,000 per month installment; however, other than the contractual agreement there is no guarantee that the Subscribers will purchase the promissory notes.

Starr Consulting, Inc. agreed to purchase convertible promissory notes in the aggregate amount of $166,667, which may be converted into 1,666,667 shares of our common stock. Active Stealth, LLC and KCS Referral Service LLC each agreed to purchase convertible promissory notes in the aggregate amount of $166,666, convertible into 1,666,666 common shares. On January 3, 2006, we closed the first $100,000 installment under this agreement and Starr Consulting purchased promissory notes valued at $33,334, Active Stealth purchased promissory notes of $33,333 and KCS Referral Service purchased promissory notes valued at $33,333. In March 2006 we terminated this agreement with KCS Referral Service LLC, which reduced the amount we could receive under this agreement to $366,668.

The agreement provides for piggy back registration rights for the shares underlying the convertible promissory notes. The agreement provides that we must file a registration statement within 60 days of a request by any Subscriber and cause the registration statement to become effective within 120 days of that request. We are obligated to maintain the effectiveness of the registration statement until all the underlying shares have been sold by the Subscribers. If we fail to obtain or maintain effectiveness of the registration statement, then we are required to pay liquidated damages in an amount equal to 2% of the purchase price of the convertible promissory notes remaining unconverted and the purchase price of the shares issued upon conversion of the notes owned of record by the holder of the notes for each 30 day period that the registration statement is not effective. We filed a registration statement on Form SB-2 on October 12, 2005, as amended, to register th e underlying shares, but as of the date of this filing, the registration statement has not been declared effective.

If we fail to issue shares within 10 business days after a request by a Subscriber, then the Subscriber is entitled to a sum of money, whichever is greater of either (i) multiplying the outstanding principal amount of the note designated by the Subscriber by 130%, or (ii) multiplying the number of shares deliverable upon conversion of the amount of the note’s principal and/or interest at the conversion price that would be in effect on the deemed conversion date by the highest closing price of the common stock on the principal market for the period commencing on the deemed conversion date until the day prior to the receipt of the payment.

OFF-BALANCE SHEET ARRANGEMENTS

None.

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Estimates of particular significance in our financial statements include annual tests for impairment of our licenses. These estimates could likely be materially different if events beyond our control, such as changes in government regulations that affect the usefulness of our licenses or the introduction of new technologies that compete directly with our licensed technologies affect the value of our licenses.

We first determine the value of the license using a projected cash-flow analysis to determine the present value of cash flows. The test is done using assumptions as to various scenarios of increases and decreases in the revenue stream and applying a discount rate of 6%. If the value achieved under these various methods is less than the carrying value of the assets then it is considered that an impairment has occurred and the asset’s carrying value is adjusted to reflect the impairment.

Management also makes estimates on the useful life of our licenses based on the following criteria:

Whether other assets or group of assets are related to the useful life of the licenses,

Whether any legal, regulatory or contractual provisions will limit the use of the assets,

We evaluate the cost of maintaining the license,

We consider the possible effects of obsolescence, and

Whether there is maintenance or any other costs associated with the license.

RESULTS OF OPERATIONS

The following discussions are based on the consolidated financial statements of View Systems and its subsidiaries. These charts and discussions summarize our financial statements for the years ended December 31, 2005 and 2004 and should be read in conjunction with the financial statements, and notes thereto, included with this report at Item II, Part 7, below.

Summary Comparison of 2005 and 2004 Fiscal Year Operations

2005

2004

Revenues, net

$ 1,172,163

$ 476,319

Cost of sales

629,319

257,179

Gross profit (loss)

542,844

219,140

Total operating expenses

2,900,136

1,369,474

Loss from operations

(2,357,292)

(1,150,334)

Total other income (expense)

(11,684)

(36,144)

Net income (loss)

(2,368,976)

(1,186,478)

Net earnings (loss) per share

$ (0.03)

$ (0.02)

Revenue is considered earned when the product is shipped to the customer. The concealed weapons system and the digital video system each require installation and training. Training is a revenue source separate and apart from the sale of the product. In those cases revenue is recognized at the completion of the installation and training.

Our marketing efforts have increased sales of our SecureScan and Visual First Responder and resulted in increased revenues for 2005 compared to 2004. Management anticipates that increases in revenues will continue as we develop our sales and marketing channels and establish local sales and service offices in geographic areas where we have already completed sales. The increased net revenues for 2005 resulted in an increased gross profit for 2005 compared to 2004.

The following chart provides a breakdown of our sales in 2004 and 2005.

Dec. 31, 2004

Dec. 31, 2005

Secure Scan

$ 24,800

$ 727,895

ViewMaxx

153,271

50,412

Visual First Responder

296,100

362,340

Service

2,148

31,516

Our backlog at December 31, 2005, was $200,000, down from $700,000 at September 30, 2005. The reduction in backlog is primarily a result of outsourcing our manufacturing. Our back log is more manageable and is in part carried by the third party manufacturers because purchase orders are placed with the manufacturers and they receive payment when we receive payment from the customer. However, the delay between the time of the purchase order and shipping of the product results in a delay of recognition of the revenue from the sale. This delay in recognition of revenues will continue as part of our results of operations.

Cost of sales include costs of products sold and shipping costs and were approximately 54% of net revenues for both 2004 and 2005. Management anticipates that the relative margins of each product line should remain relatively the same during 2006.

For 2005 total operating expense increased in 2005 compared to 2004. The increase in 2005 was primarily a result of $1,774,696 of professional fees expense. Approximately $1.5 million of the professional fees expense is related to consulting contracts with third parties which was recognized in 2005. We rely on independent contractors to provide services rather than hiring employees. During 2005 our business was growing and we contracted with independent contractors to assist our growth and the fair value of the shares issued for these services was recognized as professional fees expense.

For example we entered into agreements with independent contractors during the fourth quarter of 2005. We entered into a engineering consulting agreement with John F. Alexander, dated October 6, 2005, and agreed to issue him 10,000 shares per month. The term of the consulting agreement was for a one year period beginning January 2, 2005 and renewed automatically. We also entered into a consulting agreement, dated December 27, 2005, with Business Development Corporation, Inc., a Nevada corporation, located in Palm Springs, California (“Business Development”). In consideration for 2,500,000 shares, Business Development agreed to act as an independent consultant, to provide financing, public relations, business modeling and corporate development related to acquisitions, mergers and financing for a one year term. We also paid for legal services with 300,000 shares and invest or relation services for 500,000 shares plus 1,500,000 warrants at $0.10 per share.

Management anticipates that our professional fees related to consulting contracts will decrease in the next quarter due to the non-recurring nature of the third party consulting contracts. The majority of these contracts were for a term of one year or less and the majority of the shares required under these agreements have been issued. We do not anticipate that we will enter into additional contracts during the next quarter that will require issuance of additional shares.

Total other expense for the 2005 and 2004 comparable periods was related to interest on loans. Management anticipates interest expense to increase as a result of the subscription agreement with the Subscribers, described above, and our need to seek further private financing in the future to cover cash shortfalls.

Management believes net losses will continue in the short term as we expand our sales channels.

FACTORS AFFECTING FUTURE PERFORMANCE

Our independent auditors have expressed substantial doubt whether we can continue as a going concern.

We have incurred ongoing operating losses and do not currently have financing commitments in place to meet expected cash requirements for the next twelve months. Our net loss for the year ended December 31, 2005 was $2,368,976 and our net loss for the year ended December 31, 2004 was $1,186,478. Our retained deficit was $18,060,472 at December 31, 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. As a result we rely on private financing to cover cash shortfalls.

We need additional external capital and may be unable to raise it.

Based on our current growth plan we believe we may require approximately $500,000 in additional financing within the next twelve months to develop our sales channels. Our success will depend upon our ability to access equity capital markets and borrow on terms that are financially advantageous to us. However, we may not be able to obtain additional funds on acceptable terms. If we fail to obtain funds on acceptable terms, then we might be forced to delay or abandon some or all of our business plans or may not have sufficient working capital to develop products, finance acquisitions, or pursue business opportunities. If we borrow funds, then we could be forced to use a large portion of our cash 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.

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.

Our directors and officers are able to exercise significant influence over matters requiring stockholder approval.

Currently, our directors and executive officers collectively hold approximately 58.8% of the voting power of our common and preferred stock entitled to vote on any matter brought to a vote of the stockholders. Specifically, Gunther Than, our CEO, holds approximately 57.0 % of the total voting power as of the date of this report. Pursuant to Nevada law and our bylaws, the holders of a majority of our voting stock may authorize or take corporate action with only a notice provided to our stockholders. A stockholder vote may not be made available to our minority stockholders, and in any event, a stockholder vote would be controlled by the majority stockholders. As a result, our minority stockholders may not have the opportunity to approve or consent to corporate actions or other transactions. This concentration of ownership may also have the effect of delaying or preventing a change in control.

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, 2008, 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.

PART III

ITEM 13. EXHIBITS

No.

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)

4.1

View Systems, Inc. 2005(b) Professional/Consultant Compensation Plan, dated November 7, 2005 (Incorporated by reference to exhibit 4.1 to Form S-8 filed November 8, 2005)

4.2

Subscription Agreement between View Systems, Inc. and Starr Consulting, Inc., Active Stealth, LLC, and KCS Referral Service LLC, dated December 23, 2005 (Incorporated by reference to exhibit 4.1 of Form 8-K, filed January 6, 2006)

10.1

View Systems, Inc. 1999 Stock Option Plan (Incorporated by reference to exhibit 10.16 to Form SB-2 filed January 11, 2000)

10.2

Employment agreement between View Systems and Gunther Than, dated January 1, 2003 (Incorporated by reference to exhibit 10.3 for Form 10-KSB, filed April 14, 2004)

10.3

Lease agreement between View Systems and MIE Properties, Inc., dated August 3, 2005 (Incorporated by reference to exhibit 10.2 to Form 10-QSB, filed November 10, 2005)

10.4

Consulting Agreement between View Systems and Business Development Corporation, dated December 27, 2005.

10.5

Engagement between View Systems and John F. Alexander, dated October 6, 2005

10.6

Consulting Agreement between View Systems and Elite Equity Marketing, dated February 6, 2006, filed April 17, 2006

21.1

Subsidiaries (Incorporated by reference to exhibit 21.1 for Form 10-KSB, filed March 31, 2003)

31.1

Chief Executive Officer Certification

31.2

Principal Financial Officer Certification

32.1

Section 1350 Certification

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

VIEW SYSTEMS, INC.

Date: September 8, 2006

By: /s/ Gunther Than

Gunther Than, Chief Executive Officer

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Date: September 8, 2006

/s/ Gunther Than

Gunther Than, CEO, Principal Financial and Accounting Officer,

Treasurer and Director

Date: September 8, 2006

/s/ Martin J. Maassen

Martin J. Maassen

Director

Date: September 8, 2006

/s/ Michael L. Bagnoli

Michael L. Bagnoli

Director and Secretary

EX-10.4 2 viewexh104busdev.htm CONSULTING AGREEMENT: VIEW SYSTEMS & BUSINESS DEVELOPMENT CORPORATION, DATED DECEMBER 27, 2005 Consulting Agreement

Exhibit 10.4

Consulting Agreement

This is an agreement dated and effective this 27^th day of December, 2005 by Business Development Corporation, Inc., a corporation organized under the laws of the State of Nevada having its principal office at 2452 East Camino Pelicano in Palm Springs, CA 92262 (hereinafter referred to as The Company), and View Systems, Inc. (VYST) (hereinafter referred to as The Client) for business development services for View Systems, Inc. (VYST).

Recitals

I. The Client desires to obtain consulting services from The Company as more particularly described herein (“Scope of Services and Manner of Performance”).

II. The Company is in the business of providing such consulting services and has agreed to provide the services on the terms and conditions set forth in this agreement.

Now, therefore, in consideration of the faithful performance of the obligations set forth herein and other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, The Company and The Client hereby agree as follows.

Terms

1. Scope of Services. The Company will perform financial consulting and corporate development for and on behalf of The Client in relation to interactions with members of the public and business entities and will consult with and advise The Client on matters pertaining to company in financing, public relations, business modeling and corporate development including:

Acquisitions

Mergers

Financing

2. Manner of performance. It is intended that The Company will provide research on the company and distribute company material to institutions, business development managers, financial advisers and other persons whom The Company determines in its sole discretion, are capable of disseminating such information to the public. The Company will also advise The Client concerning promotional matters relating to its business. It is expressly agreed and acknowledged that The Company will not be expected to provide investment advice or recommendations regarding The Client to anyone. The Company will focus on contracting persons, generally though conventional communications in order to familiarize them with information concerning The Client. Additionally, The Company shall be available for advice and counsel to the officers and directo rs of The Client at such reasonable and convenient times and places as may be mutually agreed upon. Except as aforesaid, the time, place and manner of performance of the services hereunder, including the amount of time allocated by the Company, shall be determined at the sole discretion of The Company.

3. Status of Consultant. The Company shall act as an independent Consultant and not as an agent or employee of The Client and The Company shall make no representation as an agent or employee of The Client. The Company shall furnish insurance and be responsible for all taxes as an independent Consultant. The Company shall have no authority to bind The Client or incur other obligations on behalf of The Client. Likewise, The Client shall have no authority to bind on incur obligations on behalf of The Company.

4. Disclosure of Material Events. The Client agrees to promptly disclose to The Company those events/discoveries which are known and/or anticipated that may conceivably have an impact on the stock, business operations, future business, or public perception of The Client, as this has material impact on the ability and effectiveness of The Company and service rendered.

5. Confidentiality Agreement. In the event The Client discloses information to The Company that The Client considers to be secret, proprietary or non-public and so notifies the Company, the Company agrees to hold said information in confidence. Proprietary information shall be used by The Company only in connection with services rendered under this Agreement. Proprietary information shall not be deemed to include information under a) is in or becomes in the public domain without violation of this Agreement by The Client, or b) is rightfully received from a third entity having no obligation to The Client and without violation of this Agreement. In reciprocal, The Client agrees to hold confidential all trade secrets of and methods employed by The Company in fulfillment of services rendered.

6. Indemnification. The Client agrees to indemnify and hold harmless The Company against any losses, claims, damages, liabilities and/or expenses (including any legal or other expenses reasonably incurred in investigating or defending any action or claim in respect thereof) to which The Company is willing and capable of providing services on a “Best Efforts” basis. The Company cannot be held liable for negative stock activity unless it can be shown that this activity comes as a direct result of willful, negligent, in appropriate and illegal representation or misrepresentation by The Company. The Company cannot and will not provide a guarantee as to the anticipated stock price, performance and/or trading volume. The Company does intend to sell all of the stock provided as payment by The Client. Payment by The Clien t to The Company is irrevocable and irreversible.

7. Conflict of Interest. The Company shall be free to perform services for other persons. The Company will notify The Client of its performance of consulting services for any other Client that could conflict with its obligations under this agreement.

8. Term. Refer to Schedule A.

9. Payment. Refer to Schedule B.

10. Severability. This agreement may be dissolved at any time at the express consent of both parties. In the event any part of this agreement shall be held to be invalid by any competent court or arbitration panel, this agreement shall be interpreted as if only that part is invalid and that the parties to this agreement will continue to execute the rest of this agreement to the best of their abilities unless both parties mutually consent to the dissolution of this agreement.

This agreement shall be interpreted accordance with laws of the State of Maryland. This agreement and attached schedules constitutes the entire contract of the parties with respect to the matters addressed herein and no modifications of this agreement shall be enforceable unless in writing signed by both The Company and The Client. This agreement is not assignable by either party without the consent of the other.

Schedule A

Term of Commitment

The Company shall perform consulting services for The Client for twelve months. Such services shall commence upon receipt of payment as outlined in Schedule B.

Schedule B

Compensation:

2,500,000 (Two million five hundred thousand) Options * with piggyback registration

* (Described by Subscription Agreement)

View Systems, Inc. (Gunther Than)

Authorized person x /s/ Gunther Than__________ Title CEO________ Date 12-27-05

I hereby certify that I agree to the terms of the contract above and am authorized to enter into a binding contract.

Business Development Corporation, Inc. (Thomas Cloutier)

Authorized person x /s/Thomas Cloutier__ Title President_______ Date 12-27-05

I hereby certify that I agree to the terms of the contract above and am authorized to enter into a binding contract.

EX-10.5 3 exh105alexander.htm ENGAGEMENT BETWEEN VIEW SYSTEMS AND JOHN F. ALEXANDER, DATED OCTOBER 6, 2005 EMPLOYMENT AGREEMENT

View Systems, Inc. logo appears here

1550 Caton Center Drive, Suite E

Baltimore, MD 21227

Exhibit 10.5

Terms and Conditions of Engagement

The following terms and conditions are applicable to of the Company's rules and regulation as pertains to a public company, and by accepting engagement, you (referred to herein as "Consultant") agree to be bound by these terms and conditions, as well as the terms and conditions separately agreed between you and the Company regarding duties, compensation, benefits, etc. These terms are not intended to limit the Company's rights under general principles of law regarding the matters described below. Consultant and the Company agree that if the terms contained herein conflict with the terms of the engagement agreement to which this is annexed, the engagement agreement shall govern. Consultant shall function as a member of the Advisory Board and shall be engaged under the terms and conditions as following.

1. Disclosure of Information.

1.1

In the course of Consultant's engagement hereunder, Consultant will receive, contribute to the production of, or become privy to the Company's Confidential Information (as hereinafter defined).

1.2

Consultant agrees that during Consultant’s engagement by Company and for a period of three (3) years thereafter, Consultant shall hold in confidence and shall not directly or indirectly reveal, report, publish, copy, duplicate, disclose or transfer any of the Confidential Information to any person or entity, or utilize any of the Confidential Information for any purpose, except in the course of Consultant’s work for Company. Consultant agrees that during Consultant’s engagement by Company and in perpetuity thereafter, Consultant shall hold in confidence and shall not directly or indirectly reveal, report, publish, copy, duplicate, disclose, transfer or otherwise misappropriate any Confidential Information to any person or entity, or utilize such Confidential Information for any purpose, except within the course of Consultant’s engagement with Company.¹

1.3

All notes, data, reference materials, sketches, drawings, memoranda, documentation and records in any form or media in any way incorporating or reflecting any Confidential Information of Company shall belong exclusively to Company. Upon termination of his engagement for any reason, or at any time Company may request prior thereto, Consultant shall immediately surrender and turn over to Company any of Company’s property whatsoever and all Confidential Information of Company, whether the same be in writing, print, copy, audio or video tape, computer program or disc, picture, or any other medium whatsoever, and whether appearing in original documents, summaries, excerpts, abstracts or other formats, and shall provide Company with all information necessary to access and use said Confidential Information. Consultant shall have no right to retain any originals or copies of the foregoing for any reason whatsoever after termination of his engagement hereunder without the express prior written consent of Company and, upon termination, Consultant shall certify in writing that he no longer possesses and has not distributed or retained any Confidential Information of Company or any of Company’s property whatsoever.

1.4

Notwithstanding the terms of this Agreement, the obligation of Consultant to protect the confidentiality of any Confidential Information shall terminate as to any information or materials which: (i) are, or become, public knowledge through no act or failure to act of Consultant; (ii) are publicly disclosed by the proprietor thereof; (iii) are lawfully obtained without obligations of confidentiality by Consultant from a third party after reasonable inquiry regarding the authority of such third party to possess and divulge the same; (iv) are independently developed by Consultant from sources or through persons that Consultant can demonstrate had no access to Confidential Information; or (v) are lawfully known by Consultant at the time of disclosure other than by reason of discussions with or disclosures by Company.

1.5

As used in this Agreement, “Confidential Information” means information or material, whether oral or written, that is proprietary to Company or designated (either expressly or by virtue of the manner in which such information or material is traditionally treated in business settings) as Confidential Information by Company

For the stated duties Consultant shall receive 10,000 per month effective January 2, 2005

and not generally known by non-Company personnel, which Consultant may develop or which Consultant may receive, obtain knowledge of or become privy to through or as a result of Consultant’s relationship with Company (including information conceived, originated, discovered or developed in whole or in part by Consultant). “Confidential Information” includes, but is not limited to, the following types of information and other information of a similar nature (whether or not reduced to writing): trade secrets, discoveries, ideas, concepts, software in various stages of development, designs, drawings, specifications, techniques, models, data, source code, object code, documentation, diagrams, flow charts, research, development, processes, procedures, “know-how”, marketing techniques and materials, marketing and development plans, names of consultants and information related to them, customer names, contacts, and other information related to customers, price lists, pricing policies, and financial data, information and projections. “Confidential Information” also includes any information described above which Company obtains from another party and which Company treats as proprietary or designates as “Confidential Information”, whether or not owned or developed by Company. Information that is publicly known and that is generally employed by the trade or generic information or knowledge which Consultant would have learned in the course of similar work elsewhere in the trade is not intended to and shall be deemed not to be a part of the “Confidential Information”.

Agreement Not to Solicit Customers. Consultant agrees that during his engagement by Company and for a period of one (1) year following termination of such engagement for any reason whatsoever, Consultant shall not, either directly or indirectly, on his own behalf or in the service of or on behalf of others actively solicit, or attempt to solicit, initiate contact with, or call upon any clients or actively sought prospective clients of Company with whom Consultant had material contact during his engagement with Company, for the purpose of soliciting, selling, diverting to or otherwise providing services on behalf of any business entity which engages in the business of design, manufacture or sale of information security technology.

2.1

Material Contact. For purposes of this Agreement, “material contact” exists between Consultant and each client or actively sought prospective client of Company with whom Consultant personally interacts on behalf of Company, whether such interaction is conducted in person, in writing, by telephone or by other form of communication.

Agreement Not to Solicit Consultants. Consultant agrees that during his engagement by Company and for a period of two (2) years following termination of such engagement for any reason, he will not, either directly or indirectly, on his own behalf or in the service of, or on behalf of others, actively encourage or induce the voluntary termination of, or recruit or hire, or attempt to recruit or hire, any person(s) then employed by or associated with Company as an consultant, independent contractor or consultant, whether or not such recruit or hire is a full-time, part-time or temporary consultant, independent contractor or consultant of said entities, and whether or not such engagement is for a determined period or is at-will, for the purpose of engagement, consultancy, or serving as an independent contractor for, directly or indirectly, any business entity which engages in the business of design, manufacture and sale of information security te chnology.

Work Product.

4.1

Consultant agrees that any inventions, ideas, Confidential Information, or copyrightable or patentable subject matter in whole or in part conceived or made by consultant during or after the term of his engagement with Company which are made through the use of any of Company’s Confidential Information or any of Company’s equipment, facilities or time, or which result from any work performed by Consultant for Company (collectively, “Work Product”), shall belong exclusively to Company and shall be considered part of the Confidential Information (as the case may be) for purposes of this Agreement.

4.2

Company, its designees, and its assigns shall have the right to use and/or to apply for patents, copyrights or other statutory or common law protections for such Work Product in any and all countries. Consultant shall provide reasonable assistance to Company (at Company’s expense) to obtain and from time to time enforce patents, copyrights, and other statutory or common law protections for such Work Product in any and all countries. To that end, Consultant shall execute, during and after his engagement with Company, all documents reasonably related to the application, procurement, and enforcement of patents, copyrights, and other statutory or common law protections, as Company or its counsel may request, together with any assignments thereof to Company or its designee.

4.3

All copyrightable subject matter generated or developed by Consultant under this Agreement shall be deemed to be work made for hire, and exclusively the Company shall upon creation, own all such copyrightable subject matter. In the event that any such copyrightable subject matter may not be considered work made for hire, then to the fullest extent permitted by law, Consultant hereby assigns to Company or its designee all ownership of all copyrights in all such copyrightable subject matter, and Company or its designee shall have the right to obtain and hold in its own name copyrights, registrations and similar protections related thereto to the extent available.

Conflicts of Interest. During the term of his engagement Consultant shall not engage in activities or practices involving any possible conflict of interest. These activities or practices may subject Consultant to disciplinary action, up to and including termination of engagement. Consultant should avoid at all times the appearance of, as well as an actual, conflict of interest.

5.1

Conflicts of interest activities or practices include, but are not limited to: engaging in business conduct that is damaging to the reputation of the Company, accepting outside engagement in any organization that does business with the Company or is a competitor of the Company, investing or having a financial interest in a private company which does business with the Company or having stock ownership in a publicly traded company which does business with the Company if the relationship(s) may influence Consultant’s business decisions (this applies to Consultant and to close relatives and is applicable at the time of hire and at any time during the course of engagement). If an individual does own stock in a company that does business with the Company, the relationship should be disclosed upon engagement and all significant business dealings with that company will be reviewed.

5.2

Consultant may not accept gifts from any person or company doing or seeking to do business with the Company. Consultants are allowed to accept advertising novelties and other gifts of nominal value.

5.3

Consultant may not give, offer, or promise, directly or indirectly, anything of value to any representative of any company doing business with the Company.

5.4 Consultant may not select vendors on the basis of anything other the merit of their products or services.

5.5

Discussing company information with the press without prior authorization from management is also a conflict of interest.

Outside Engagement. Unless agreed otherwise in writing, the Company does not expect that Consultant's full time and effort will be devoted to Consultant's duties for the Company; in addition, the Company recognizes that Consultant will hold outside engagement, which does not interfere with Consultant's completion of duties owed to the Company.

7. MISCELLANEOUS

7.1

Severability. Should any provision of this Agreement be declared or be determined by any court of competent jurisdiction to be illegal or invalid, said court is hereby authorized and instructed to modify said provision, if possible, so as to make said provision legal or valid; however, the remaining parts, terms or provisions shall not be affected thereby; and said illegal or invalid part, term or provision shall be deemed not to be a part of this Agreement.

7.2

Pronouns. Pronouns used herein shall be construed as masculine, feminine, or neuter, and both singular and plural, as the context may require, and the term "person" shall include an individual, Company, association, partnership, trust, and other organization.

7.3

No Waiver. Neither Party shall be deemed to waive any of its rights, powers or remedies hereunder unless such waiver is in writing and signed by said Party. No delay or omission by either Party in exercising any of said rights; powers or remedies shall operate as a waiver thereof. Nor shall a waiver signed by either Party of any breach of the covenants, conditions, or agreements binding on the other Party on one occasion be

construed as a waiver or consent to such breach on any future occasion or a waiver of any other covenant, condition, or agreement herein contained.

7.4

Paragraph Headings. Paragraph headings contained in this Agreement are for convenience only and shall in no way be construed as a part of this Agreement.

7.5

Governing Law; Arbitration. The terms of Consultant's engagement with the Company shall be governed by and interpreted in accordance with the laws of the State of Florida applicable to agreements made and wholly to be performed therein. Any controversy or claim arising out of or related to this Agreement or the breach thereof shall be settled by binding arbitration in the Arbitration Location (as hereinafter determined) in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment on the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof; provided, however, that, in the event of a breach of Consultant's obligation hereunder, Company shall be entitled to seek injunctive relief in any court of competent jurisdiction. The Arbitration Location shall be (i) the city in which Consultant's principal place of performance of the Duties hereunder is l ocated, if such city is a Qualified City, or (ii) if no city qualifies as an Arbitration Location pursuant to (i) above, the Qualified City nearest to the city in which Consultant's principal place of performance of the Duties hereunder is located, as measured by airline mileage. "Qualified City" shall mean a city (i) in which Company maintains a place of business, and (ii) which is located in a state in which Company is either (a) incorporated, or (b) qualified to transact business as a non-resident Company (as defined under applicable state law).

CONSULTANT ACKNOWLEDGES THAT HE HAS READ AND UNDERSTANDS THESE TERMS AND CONDITIONS OF ENGAGEMENT AND AGREES THAT THESE TERMS AND CONDITIONS ARE NECESSARY FOR THE REASONABLE AND PROPER PROTECTION OF THE COMPANY'S BUSINESS. CONSULTANT FURTHER ACKNOWLEDGES THAT THE COMPANY HAS ADVISED HIM THAT HE IS ENTITLED TO HAVE THIS AGREEMENT REVIEWED BY AN ATTORNEY OF HIS SELECTION PRIOR TO SIGNING, AND HE HAS EITHER DONE SO OR ELECTED TO FOREGO THAT RIGHT.

VIEW SYSTEMS

INCORPORATED

CONSULTANT

By: /s/ Gunther Than____

/s/ John F. Alexander____

Name: Gunther Than___

John F. Alexander Ph.D. P.E

Title: CEO___

________

4236 NW 58^th Way

Gainesville, FL 32606

Date: Oct. 6, 2005________

Date: 10-6-05_________

EX-31.1 4 viewex311.htm CHIEF EXECUTIVE OFFICER CERTIFICATION Converted by EDGARwiz

Exhibit 31.1

CHIEF EXECUTIVE OFFICER CERTIFICATION

I, Gunther Than, certify that:

I have reviewed this annual report on Form 10-KSB of View Systems, Inc.;

Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statement made, in light of the circumstances under which statements were made, not misleading with respect to the period covered by this annual report;

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report.

The small business issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Evaluated the effectiveness of the small business issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c) Disclosed in this report any change in the small business issuer’s internal control over financial reporting that occurred during the small business issuer’s most recent fiscal quarter (the small business issuer’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuers’s internal control over financial reporting; and

The small business issuer’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer’s auditors and the audit committee of small business issuer’s board of directors (or persons performing the equivalent function):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s internal control over financial reporting.

Date: September 8, 2006

/s/ Gunther Than

Gunther Than

Chief Executive Officer

EX-31.2 5 viewex312.htm PRINCIPAL FINANCIAL OFFICER CERTIFICATION Converted by EDGARwiz

Exhibit 31.2

PRINCIPAL FINANCIAL OFFICER CERTIFICATION

I, Gunther Than, certify that:

I have reviewed this annual report on Form 10-KSB of View Systems, Inc.;

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s internal control over financial reporting.

Date: September 8, 2006

/s/ Gunther Than

Gunther Than

Principal Financial Officer

EX-32.1 6 viewex321.htm SECTION 1350 CERTIFICATION Converted by EDGARwiz

Exhibit 32.1

View Systems, Inc.

CERTIFICATION OF PERIODIC REPORT

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

18 U.S.C. Section 1350

The undersigned officer of View Systems, Inc. certifies pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that:

•

the annual report on Form 10-KSB of the Company for the year ended December 31, 2005, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

•

the information contained in the Form 10-KSB fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: September 8, 2006

/s/ Gunther Than

Gunther Than

Chief Executive Officer

Principal Financial Officer