-----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, RVAnKfyz+5C28m3RPsZTm1ZvuNpPCr6GuWybHTuzGIQfkNObbW4CcucdH80juWin vtAkuSMwn0oh6enhYnXnDQ== 0001075857-99-000005.txt : 19991018 0001075857-99-000005.hdr.sgml : 19991018 ACCESSION NUMBER: 0001075857-99-000005 CONFORMED SUBMISSION TYPE: 10SB12G/A PUBLIC DOCUMENT COUNT: 1 FILED AS OF DATE: 19991015 FILER: COMPANY DATA: COMPANY CONFORMED NAME: VIEW SYSTEMS INC CENTRAL INDEX KEY: 0001075857 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-MISCELLANEOUS BUSINESS SERVICES [7380] IRS NUMBER: 592928366 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10SB12G/A SEC ACT: SEC FILE NUMBER: 000-30178 FILM NUMBER: 99728894 BUSINESS ADDRESS: STREET 1: 925 W KENYON STREET STREET 2: SUITE 215 CITY: ENGLEWOOD STATE: CO ZIP: 80110 BUSINESS PHONE: 3032957200 MAIL ADDRESS: STREET 1: 925 W KENYON STREET STREET 2: SUITE 215 CITY: ENGLEWOOD STATE: CA ZIP: 80110 10SB12G/A 1 SECOND AMENDMENT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-SB/A #2 GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS Under section 12(b) or (g) of the Securities Exchange Act of 1934 Commission File Number: 0-30178 VIEW SYSTEMS, INC (Name of small business issuer in its charter) FLORIDA 59-2928366 (States of other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 925 W. Keynon Street , Suite 15, Englewood, CO 80110 (Address of principal executive offices) (Zip Code) Issuer's telephone number (303) 783-9153 Securities registered under Section 12(b) of the Exchange Act: Title of each class Name of each exchange on which registered To be so registered each class is to be registered N/A N/A Securities registered under Section 12 (g) of the Exchange Act: Common stock, par value $.001 per share (Title of class) (Title of class) VIEW SYSTEMS, INC. REPORT ON AUDITS OF CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 No extracts from this report may be published without our written consent. Stegman & Company TABLE OF CONTENTS INDEPENDENT AUDITORS' REPORT CONSOLIDATED FINANCIAL STATEMENTS Page Balance Sheets I Statements of Operations 2 Statement of Changes in Stockholders' Equity 3 Statements of Cash Flows 4 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5 -8 STEGMAN & COMPANY To the Board of Directors and Sockholders View Systems, Inc. Columbia, Maryland INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders View Systems, Inc. Columbia, Maryland We have audited the accompanying consolidated balance sheet of View Systems, Inc. (a development stage company) and subsidiaries as of December 31, 1998, and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. The consolidated financial statements of View Systems, Inc. as of December 31, 1997, were audited by other auditors whose report dated July 23, 1998, expressed an unqualified opinion on those statements. We conducted our audit in accordance with generally accepted auditing standards. 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. 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 statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of View Systems, Inc. and subsidiaries as of December 31, 1998, and the results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles. Baltimore, Maryland May 15, 1999 VIEW SYSTEMS, INC. (A Development Stage Company) CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1998 AND 1997 ASSETS 1998 1997 CURRENT ASSETS: Cash $167,953 7 Due from affiliated entity 3,663 3,090 Total current assets 171,616 3,097 PROPERTY AND EQUIPMENT: Equipment 20,763 18,263 Software tools 7,825 7,825 28,588 26,088 Less accumulated depreciation 20,759 16,874 Net value of property and equipment 7,829 9,214 OTHER ASSETS - Software development costs 50,146 50,146 TOTAL ASSETS 22,591 62,457 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $23,773 $ 6,685 Loans payable - stockholders 18,000 18,000 Total current liabilities 41,773 24,685 STOCKHOLDERS' EQUITY: Common stock 4,167 1,556 Additional paid-in capital 406,403 169,145 Deficit accumulated during development stage (222,752 (132,929 Total stockholders' equity 187,818 37,772 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 229,591 $ 62,457 See accompanying notes. VIEW SYSTEMS, INC. (A Development Stage Company) CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 AND THE PERIOD FROM JANUARY 26,1989 (INCEPTION) TO DECEMBER 31, 1998 Year Ended December 3 1, 1998 1997 Cumulative During Development Stage REVENUES EARNED - - 9,230 OPERATING EXPENSES: Advertising and promotion 1,14 1,222 15,165 Automobile - - 1,728 Depreciation 3,885 4,526 20,759 Dues and subscriptions 250 - 250 Insurance 442 - 442 Interest 217 233 500 Miscellaneous expense 282 - 282 Office expenses 1,002 2,264 18,717 Professional fees 9,500 5,054 58,811 Consulting 45,415 - 45,415 Rent 16,325 8,375 31,518 Repairs and maintenance - - 3,570 Travel and entertainment 11,040 720 27,296 Utilities 325 2,443 7,529 Total expenses 89,823 24,837 231,982 NET LOSS (89,823) (24,837) $(222,752) LOSS PER SHARE: Basic (.04) (.01) Diluted (.04) (.01) See accompanying notes. VIEW SYSTEMS, INC. (A Development Stage Company) CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE PERIOD FROM JANUARY 26,1989 (INCEPTION) TO DECEMBER 31, 1998 Deficit .001 Par Value Accumulated Common Stock Par Additional During the Total Date of Number Value Paid-in Development Stockholders ansaction of Shares Capital Stage Equity Stock issued for services rendered 06/01/1990 5,000 $5,000 $ 5,000 Net loss for the period January 26, 1989 to December 31, 1990 (5,000 (5,000 Balance at December 31, 1990 5,000 5,000 (5,000) Balance at December 3 1, 1991 5,000 5,000 (5,000) Balance at December 31, 1992 5,000 5,000 (5,000) Balance at December 31, 1993 5,000 5,000 (5,000) Balance at December 31, 1994 5,000 5,000 (5,000) Balance at December 31, 1995 5,000 5,000 (5,000) Balance at December 3 1, 1996 5,000 5,000 (5,000) Balance at December 3 1, 1997 5,000 5,000 ( 5,000) Articles of incorporation restated. Change par value to $0.001 per share 07/21/1998 (4,995) 4,995 Forward stock split 200:1 07/21/1996 995,000 95 (995) Forward stock split 2:1 09/30/1998 1,000,000 1,000 (1,000) Stock issuance in conjunction with Real View Systems, Inc. business combination 10/06/1998 2,000,000 2,000 153,570 (127,929) 27,641 Stock issuance - 504 public offering 11/16/1998 66,667 167 249,833 250,000 Net loss for the year ended December 31, 1998 Balance at December 31, 1998 $4,166,667 4,164 406,403 (222,752) 187,818 See accompanying notes. 3 VIEW SYSTEMS, INC. (A Development Stage Company) CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 AND THE PERIOD FROM JANUARY 26,1989 (INCEPTION) TO DECEMBER 31, 1998 Cumulative During Year Ended December 31, Development 1998 1997 Stage CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(89,823) $(24,837) $(222,752) Adjustment to reconcile net loss to net cash used by operating activities: Depreciation 3,885 4,526 20,759 Expenses incurred for issuance of stock - 830 10,601 Net changes in operating assets and liabilities: Software development costs - (13,792) (50,146) Due (to) from affiliated entity (573) 8,543 (3,663) Accounts payable 17,088 6,687 23,773 Net cash used by operating activities (69,423 (18,043 (221,428 CASH FLOWS FROM INVESTING ACTIVITIES - Purchase of property and equipment (2,500) (4,050 (28,588 CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from loans provided by stockholders 13,000 18,000 Stock issuance costs - (2,900) (2,900) Proceeds from issuance of stock 239,869 12,000 402,862 Net cash provided by financing activities 239,869 22,100 417,962 NET INCREASE IN CASH 167,946 7 167,946 CASH AT BEGINNING OF YEAR 7 - 7 CASH AT END OF YEAR $167,953 7 167,953 See accompanying notes. VIEW SYSTEMS, INC. (A Development Stage Company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Qperations View Systems, Inc. (the "Company") has been in the development stage since its formation on January 26, 1989. It designs and develops high technology software used in conjunction with surveillance capabilities. The technology utilizes the compression and decompression of digital inputs. Operations, since formation, have been devoted primarily to raising capital, developing the technology, promotion, and administrative functions. Basis of Consolidation The consolidated financial statements include the accounts of View Systems, Inc. and its wholly owned subsidiary, Real View Systems, Inc. All significant inter company accounts and transactions have been eliminated in consolidation. Property and Equipment Property and equipment is recorded at cost and depreciated over their estimated useful lives, using the straight-line and accelerated depreciation methods. Upon sale or retirement, the cost and related accumulated depreciation are eliminated from the respective accounts, and the resulting gain or loss is included in the results of operations. The useful lives of property and equipment for purposes of computing depreciation are as follows: 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, 1998 and 1997 amounted to $3,885 and $4,526, respectively. Advertising Advertising costs are charged to operations as incurred. 5 VIEW SYSTEMS, NC. (A Development Stage Company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations View Systems, Inc. (the "Company") has been in the development stage since its formation on January 26, 1989. It designs and develops high technology software used in conjunction with surveillance capabilities. The technology utilizes the compression and decompression of digital inputs. Operations, since formation, have been devoted primarily to raising capital, developing the technology, promotion, and administrative functions. Basis of Consolidation The consolidated financial statements include the accounts of View Systems, Inc. and its wholly owned subsidiary, Real View Systems, Inc. All significant intercompany accounts and transactions have been eliminated in consolidation. Property and Equipment Property and equipment is recorded at cost and depreciated over their estimated useful lives, using the straight-line and accelerated depreciation methods. Upon sale or retirement , the cost and related accumulated depreciation are eliminated from the respective accounts, and the resulting gain or loss is included in the results of operations. The useful lives of property and equipment for purposes of computing depreciation are as follows: 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, 1998 and 1997 amounted to $3,885 and $4,526, respectively. Advertising Advertising costs are charged to operations as incurred. 5 Loss Per Share Loss per share is computed by dividing the net loss for the year by the weighted average number of common shares outstanding. Income Taxes Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes. Deferred taxes are recognized for differences between basis of assets and liabilities for financial statement and 'income tax purposes. The deferred tax assets and liabilities represent the future tax return consequences of those differences, which will be either taxable or deductible when the assets or liabilities are recovered or settled. Use of Estimates Management uses estimates and assumptions in preparing financial statements 'in accordance with generally accepted accounting principles. 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. 2. UNINSURED CASH BALANCES The Company maintains its cash balances at a regional bank, located in Laurel, Maryland. Accounts at this institution are insured by the Federal Deposit Insurance Corporation up to $100,000. Uninsured balances were approximately $146,005 at December 31, 1998. 3. SOFTWARE DEVELOPMENT COSTS The Company accounts for computer software development costs, in accordance with Statement of Financial Accounting Standards No. 86, Accounting for the Costs of Computer Softvare to be Sold, Leased, or Othervise Marketed. Capitalized costs will be amortized over the estimated product life on the straight-line basis. At December 31, 1998 and 1997, the Company has recorded no amortization since a final product has yet to be completed and marketed. 4. RELATED PARTY TRANSACTIONS The Company's major stockholders also own interests in a related corporation - View Technologies, Inc. View Technologies, Inc. is the owner of the source code of the software being developed, as well as all enhancements, documentation and derivatives by the Company. The two companies enter into various transactions throughout the year to provide working capital to one another when necessary. At December 31, 1998 and 1997, View Technologies, Inc. owed the Company $3,663 and $3,090, respectively. 6 Additionally, the Company has entered into a licensing agreement with View Technologies, Inc. Under the terms of this agreement, the Company will pay a source code license fee in an amount equal to 5% of gross sales derived from use of the software to View Technologies, Inc. Payment of this fee will cease when total fees of $50,000 have been paid. In addition, upon delivery of a copy of the software to a customer, the Company wiII remit a sublicense fee equal to 5% of gross sales to View Technologies, Inc. license agreement commenced in October 1997 and has a ten year term. At December 31, 1998, the Company has yet to generate any sales with respect to this agreement. 5. LOANS PAYABLE - STOCKHOLDERS Certain stockholders have made loans to the Company. These loans have no specific repayment terms. These individuals have been issued stock as compensation in place of interest payments. 6. STOCK OFFERING On November 16, 1998, the Company commenced a private placement stock offering for 650,000 shares of common stock. The offering was successfully concluded on February 8, 1999 with the sale of 650,000 shares and total proceeds to the Company of $1,000,000. As of December 31, 1998, 166,667 shares of the 650,000 shares offered were sold resulting in proceeds of $250,000. The total proceeds of the offering will be used by the Company to fund its operations and other capital needs for the coming year. 7, INCOME TAXES The components of the net deferred tax asset and liability as of December 31, 1998 are as follows: Effect of net operating loss carry forward $49,000 Less valuation allowance (49,000 Net deferred tax asset (liability) $ - The Company has recorded a valuation allowance in an amount equal to the deferred tax asset resulting from its net operating loss carryforward. The Company believes this to be appropriate due to its status as a development stage company. The Company has net operating loss carryforwards of approximately $222,750 at December 31, 1998. 7 8. BUSINESS COMBINATIONS - POOLING OF INTERESTS On October 6, 1998, the Company completed its acquisition of Real View Systems, Inc. in Columbia, Maryland. As provided under the terms of the merger agreement, Real View Systems, Inc. became a wholly owned subsidiary of the Company and each of the outstanding shares of the common stock of Real View Systems, Inc. was converted into 1.33 shares of the Company's common stock. The Company issued 2,000,000 shares of its common stock in connection with the merger. This acquisition was accounted for as a pooling of interests and all financial statements and financial information contained herein have been restated to include the accounts and results of operations of these companies for all periods presented. On February 25, 1998, the Company acquired Xyros Systems, Inc. of Columbia, Maryland, a developer of a computer based system that captures video and audio data from surveillance equipment , transmits and stores it within standard personal computer systems. Under the terms of the merger agreement, each of the 100 shares of Xyros Systems, Inc.'s common stock will be exchanged for 1,500 shares of the Company's common stock. The transaction was completed in the first quarter of 1999 and was accounted for as a po rest. 9. SUBSEQUENT EVENTS During the first quarter of 1999, a letter of intent to purchase Eastern Tech Manufacturing, Inc. was entered into by the Company. Eastern Tech Manufacturing, Inc. deals *in the production of computer parts and accessories. The merger agreement is expected to be consummated as a pooling of Interests during the second quarter of 1999. 8 VIEW SYSTEMS, INC. (A Development Stage Company) CONSOLIDATED BALANCE SHEETS ASSETS March 3 1, December 31, 1999 1998 (Unaudited) CURRENT ASSETS: Cash $399,867 $169,899 Due from affiliated entities 208,243 3,663 Accounts receivable 23,473 13,599 Inventory 5,774 4,574 Investment in MediaComm Broadcasting, Inc. - at fair value which approximates cost 28,000 Total current assets 665,357 191,735 PROPERTY AND EQUIPMENT: Equipment 133,635 22,429 Software tools 10,263 10,263 143,898 32,692 Less accumulated depreciation 21,580 21,580 Net value of property and equipment 122,318 11,112 OTHER ASSETS - Software developmental costs 72,223 72,223 TOTAL ASSETS 859,898 275,070 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 24,919 $ 30,071 Loans payable - stockholders 170,677 238,000 Note payable - bank 75,000 - Taxes payable 1,473 2,915 Total current liabilities 272,069 270,98 STOCKHOLDERS' EQUITY: Common stock - par value $.01, 50,000,000 shares authorized, issued and outstanding - 4,816,667 (March 31, 1999) and 4,316,667 (December 31, 1998) 4,817 4,317 Additional paid-in capital 1,153,503 406,253 Deficit accumulated during development stage (570,491 (406,486 Total stockholders' equity 587,829 4,094 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 859,898 275,070 See accompanying notes. VIEW SYSTEMS, INC. (A Development Stage Company) CONSOLIDATED STATEMENTS OF OPERATIONS Cumulative from Three Months Ended Years Ended January 26, 1989 March 31 March 31 December 31, (Inception) to 1999 1998 1998 199 March 31, 1999 (Unaudited) (Unaudited) REVENUE: Sales and other income $ 19,117 - $ 31,438 - $50,555 Cost of goods sold 1,206 - 20,891 - 22,097 GROSS PROFIT ON SALES 17,911 - 10,547 - 28,458 OPERATING EXPENSES: Advertising and promotion - - 3,959 1,222 17,894 Automobile 65 - - - 1,728 Depreciation 8 - 4,706 4,526 21,580 Dues and subscriptions 219 - 250 - 250 Insurance 1,108 - 1,268 - 1,268 Interest 6,477 114 10,054 233 10,337 Miscellaneous expense 844 27 1,343 - 27,556 Office expenses 34,701 - 106,375 2,264 135,008 Professional fees 61,974 - 10,819 5,054 60,130 Consulting 2,657 - 45,415 - 45,415 Rent 3,900 2,925 52,204 8,375 67,397 Repairs and maintenance 1,960 - - - 3,570 Research and development 2,698 - - - - Salaries and benefits 49,429 - - - - Travel and entertainment11,893 178 13,465 720 31,361 Utilities 3,983 64 4,246 2,443 11,450 Total expenses 181,916 3,30 254,10 24,83 434,944 NET LOSS (164,005 (3.308) (243,557) (24,837) (406,486) LOSS PER SHARE: Basic (.04) (.001) (.06) (.01) Diluted (.04) (.001) (.06) (.01) See accompanying notes. 2 VIEW SYSTEMS, INC. (A Development Stage Company) CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT) FOR THE PERIOD JANUARY 1, 1997 TO MARCH 31, 1999 (UNAUDITED) Deficit Accumulate Total Additional During the Stockholders' Common Paid-in Development Equity Stock Capital Stage (Deficit) Balance at January 1, 1997 $4,150 $ 156,570 $(138,092) $ 22,628 Net loss - - (24,837) (24,83 Balance at December 31, 1997 4,150 156,570 (162,929) (2,209) Sale of common stock 167 249,833 - 250,000 Net loss - - (243,557) (243,55 Balance at December 31, 1998 4,317 406,403 (406,486) 4,234 Sale of common stock 500 747,100 - 747,600 Net loss - - (164,005) (164,005) Balance at March 31, 1999 (Unaudited) $(4,817) (1,153,503) $(570,491) $587,829 See accompanying notes. 3 VIEW SYSTEMS, INC. (A Development Stage Company) STATEMENTS OF CASH FLOWS Cumulative from Three Months Ended Years Ended January 26, 198 March 3 1 March 31, December 31, (Inception) to 1999 1998 1998 1997 March 31,1999 (Unaudited) (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $(164,005) $(3,308 ) $(243,557)$(24,837) $(570,491) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation - - 4,706 4,526 21,580 Changes in operating assets and liabilities: Accounts receivable (9,894) - (13,599) - (23,473) Inventory (1,200) - (4,574) - (5,774) Software development costs - - (22,077) (13,792) (72,223) Due (to) from affiliated entity (204,580) 3,090 (573) 8,543 (208,243) Accounts payable (5,153) 749 23,386 7,517 24,919 Taxes payable (1,442 - 2,915 - 1,473 Net cash (used) provided by operating activities (386,254) 531 (253,373 (18,043 (832,232 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment (111,205) (2,500) (6,604) (4,050) (143,898) Investment in MediaCornm Broadcasting, Inc. (28,000 - - - (28.000 Net cash used in investing activities (139,205) (2,500) (6,604) (4,050) (171,898 CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from loans provided by stockholders 20,150 - 189,850 13,000 170,677 Proceeds from loans payable (12,323) 3,128 - - 75,000 Proceeds from issuance of stock 747,600 - 240,019 9,10 1,158,320 Net cash provided by financing activities 755,427 3,128 429,869 22,100 1,403,997 NET INCREASE IN CASH 229,968 1,159 169,892 7 399,867 CASH AT BEGINNING OF PERIOD 169,899 7 7 - - CASH AT END OF PERIOD 399,867 1,166 169,899 7 399,867 see accompanying notes. 4 VIEW SYSTEMS, INC. AND SUSIDIARIES,INC. (A Development Stage Company) CONSOLIDATED BALANCE SHEETS ASSETS June 30 December 31 1999 1998 (unaudited) CURRENT ASSETS: Cash $ 44,265 $ 169,899 Accounts receivable 14,751 13,599 Inventory - at lower of cost or market 88,897 41574 Due from affiliated entities 385,705 3,663 Total current assets 533,618 191,735 PROPERTY AND EQUIPMENT Machinery and other equipment 526,607 22,429 Software tools 7,825 10,263 534,432 32,692 Less accumulated depreciation 116,560 21,580 Net value of property and equipment 417,872 11,112 OTHER ASSETS: Investment in MediaComm Broadcasting, Inc. - at cost which approximates fair value 28,000 - Software development costs 57,527 72,223 INTANGIBLE ASSETS - net of accumulated amortization 491,216 - TOTAL ASSETS 1,528,233 $ 275,070 LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable 50,282 $ 30,071 Accrued interest payable 5,500 - Loans payable - stockholders 327,097 163,000 Note payable - bank 71,500 75,000 Taxes payable 21,180 21915 Total current liabilities 475,559 270,986 STOCKHOLDERS' EQUITY: Common stock - par value $.001, 50,000,000 shares authorized, issued and outstanding - 5,595,667 ( June 30, 1999) and 4,316,667 ( December 31, 1998) 5,596 4,317 Additional paid in capital 2,165,671 406,253 Deficit accumulated during development stage (1,118,593) (406,486 Total stockholders' equity 1,052,674 4,084 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY S 1,528,233 $ 275,070 See accompying notes, VIEW SYSTEMS, INC. AND SUSIDIARIES, INC. (A Development Stage Company) CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30,1999 AND 1998 1999 1998 (unaudited) (unaudited) REVENUE: Sales and other income $ 41,260 $16,953 Cost of goods sold 12,869 3,887 GROSS PROFIT ON SALES 28,391 13,066 OPERATING EXPENSES: Advertising and promotion 8,440 2,819 Amortization 4,128 - Automobile expenses 1,221 - Commissions 1,000 - Depreciation 6,624 - Dues and subscriptions 319 - Insurance 6,195 488 Interest 11,990 1,617 Investor relations 2,811 - Miscellaneous expenses 1,660 197 Office expenses 22,290 2,638 Postage and delivery 2,878 226 Printing and reproduction 21,637 - Professional fees 136,160 9,901 Rent 22,900 14,746 Repairs and maintenance 3,523 - Research and development 2,698 2,538 Salaries and benefits 431,457 31,894 Taxes 808 3,065 Telephone 6,800 582 Travel expenses 37,963 981 Utilities 6,997 - Total expenses 740,499 71,692 NET LOSS $ (712,108 $ (58,626 LOSS PER SHARE: Basic $ (0.14 $ (0.01 Diluted $ (0.14 $ (0.01 See accompanying notes. VIEW SYSTEMS, INC. AND SUBSIDIARIES, INC. (A Development Stage Company) CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30,1999 AND 1998 1999 1998 (unaudited) (unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (712,108) $ (58,626) Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 31,848 - Employee compensation paid through the issuance of common stock 277,000 - Changes in operating assets and liabilities: Accounts receivable 79,838 - Inventory (54,113) - Accounts payable 4,415 749 Accrued interest payable 5,500 - Taxes payable 14,915 (352,705 (57,877 CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment 4,940 Amounts advanced to/from affiliated entities (382,042) 3,090 Investment in MediaComm Broadcasting, Inc. (28,000) - (405,102 3,090 CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from loans provided by stockholders - 57,280 Repayment of loans to stockholders (61,927) - Repayment of note payable - bank (3,500) Proceeds from issuance of common stock 747,600 Redemption of Stock (50,000 - 632,173 57,280 NET DECREASE IN CASH (125,634) 2,493 CASH AT BEGINNING OF PERIOD 169,899 7 CASH AT END OF PERIOD $ 44,265 $ 2,500 Schedule of non cash investing and financing transactions: Stock issued to effect purchase of Eastern Technologies, Inc. $ 787,500 $ - Debt issued to effect purchase of Eastern Technologies, Inc. $ 148,184 $ Cash paid during the period for: Interest $ 6,490 $ Income taxes See accompanying notes. VIEW SYSTEMS, INC. AND SUBSIDIARIES, INC. (A Development Stage Company) CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (unaudited) Common Additional Retained Stock Paid In Capital Earnings Balance at January 1, 1998 4,150 156,570 (162,928) Net loss - - (59,626) Balance at June 30,1998 4,150 156,570 (221,554) Sale of common stock 167 249,683 - Net loss - - (184,931) Balance at December 31, 1998 4,317 406,253 (406,485) Sale of common stock 500 745,697 - Redemption of common stock (25) (49,975) - Issuance of common stock (employee compensation) 554 276,446 - Issuance of common stock (Eastern Tech acquisition) 250 787,250 Net loss (712,109) Balance at June 30, 1999 5,596 $ 2,165,671 (1,118,593) See accompanying notes. VIEW SYSTEMS, INC. (A Development Stage Company) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31,1998 AND 1997 AND THE THREE MONTHS ENDED MARCH 31, 1999 AND 1998 (UNAUDITED) 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations View Systems, Inc. (the "Company") has been in the development stage since its formation on January 26, 1989. It designs and develops high technology software used in conjunction with surveillance capabilities. The technology utilizes the compression and decompression of digital inputs. Operations, since formation, have been devoted primarily to raising capital, developing the technology, promotion, and administrative functions. Basis of Consolidation The consolidated financial statements include the accounts of View Systems, Inc. and its wholly owned subsidiaries, Real View Systems, Inc. and Xyros Systems, Inc. All significant intercompany accounts and transactions have been eliminated in consolidation. Revenue Recognition The Company and its subsidiaries recognize revenue and the related cost of goods sold upon shipment of the product. Property and Equipment Property and equipment is recorded at cost and depreciated over their estimated useful lives, using the straight-line and accelerated depreciation methods. Upon sale or retirement, the cost and related accumulated depreciation are eliminated from the respective accounts, and the resulting gain or loss is included in the results of operations. The useful lives of property and equipment for purposes of computing depreciation are as follows: 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, 1998 and 1997 amounted to $4,706 and $4,526, respectively. Advertising Advertising costs are charged to operations as incurred. Loss Per Share Loss per share is computed by dividing the net loss for the period by the weighted average number of common shares outstanding. Income Taxes Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes. Deferred taxes are recognized for differences between basis of assets and liabilities for financial statement and income tax purposes. The deferred tax. assets and liabilities represent the future tax return consequences of those differences, which will be either taxable or deductible when the assets or liabilities are recovered or settled. Use of Estimates Management uses estimates and assumptions in preparing financial statements in accordance with generally accepted accounting principles. 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. 2. UNINSURED CASH BALANCES The Company maintains its cash balances at a regional bank, located in Laurel, Maryland. Accounts at this institution are insured by the Federal Deposit Insurance Corporation up to $100,000. Uninsured balances were approximately $69,899 at December 31, 1998. 3. INVESTMENT IN MEDIACOMM BROADCASTING, INC. During the three months ended March 31, 1999, the Company purchased 280,000 shares of MediaComm Broadcasting, Inc., a privately held corporation based in Denver, Colorado which develops and/or acquires new internet related technologies. As an available-for-sale investment security, it is being carried at fair value as of March 31, 1999 which approximates its fair value. 4. SOFTWARE DEVELOPMENT COSTS The Company accounts for computer software development costs, in accordance with Statement of Financial Accounting Standards No. 86, Accounting for the Costs of ConWuter Software to be Sold, Leased, or Otherwise Marketed. Capitalized costs will be amortized over the estimated product life on the straight-line basis. As of March 31, 1999, the Company has recorded no amortization since a final product has yet to be completed and marketed. 6 5. RELATED PARTY TRANSACTIONS The Company's major stockholders also own interests in a related corporation - View Technologies, Inc. View Technologies, Inc. is the owner of the source code of the software being developed, as well as all enhancements, documentation and derivatives by the Company. The two companies enter into various transactions throughout the year to provide working capital to one another when necessary. At March 31, 1999 and December 31, 1998, View Technologies, Inc. owed the Company $114,924 and $3,663, respectively. Additionally, the Company has entered into a licensing agreement with View Technologies, Inc. Under the terms of this agreement, the Company will pay a source code license fee in an amount equal to 5 % of gross sales derived from use of the software to View Technologies, Inc. Payment of this fee will cease when total fees of $50,000 have been paid. In addition, upon delivery of a copy of the software to a customer, the Company will remit a sublicense fee equal to 5 % of gross sales to View Technologies, Inc re license agreement commenced in October 1997 and has a ten year term. At March 31, 1999, the Company has yet to generate any sales with respect to this agreement. 6. LOANS PAYABLE - STOCKHOLDERS Certain stockholders have made loans to the Company. These loans have no specific repayment terms or interest rates. It is the Company's intention to repay these loans within the next six months with the proceeds from equity issues. 7. NOTE PAYABLE -BANK One of the Company's subsidiaries has a demand note payable with a bank with an outstanding balance of $75,000 as of March 31, 1999. The note bears interest at 10.5% per annul payable monthly and is personally guaranteed by a stockholder of the Company. 8. STOCK OFFERING On November 16, 1998, the Company commenced a private placement stock offering for 650,000 shares of common stock. The offering was successfully concluded on February 8, 1999 with the sale of 650,000 shares and total proceeds to the Company of $1,000,000. The total proceeds of the offering will be used by the Company to fund its operations and other capital needs for the coming year. 9. RESTRICTED SHARE PLAN The Company has approved a restricted share plan under which shares of the Company will be granted to officers, employees and directors at the discretion of the Board of Directors. The Company has reserved 775,000 shares for this plan. No shares have been granted as of March 31, 1999. 7 10. INCOME TAXES The components of the net deferred tax asset and liability as of March 31, 1999 and December 31, 1998 are as follows: March 3 1, December 3 1, 1999 1998 (Unaudited) Effect of net operating loss carryforward $171,000 $108,000 Less valuation allowance (171,000 (108,000 Net deferred tax asset (liability) - $ - The Company has recorded a valuation allowance in an amount equal to the deferred tax asset resulting from its net operating loss carryforward. The Company believes this to be appropriate due to its status as a development stage company. The Company has net operating loss carryforwards of approximately $375,000 at December 31, 1998 which, due to ownership changes, will be limited in annual usage. 11. BUSINESS COMBINATIONS On October 6, 1998, the Company completed its acquisition of Real View Systems, Inc. in Columbia, Maryland. As provided under the terms of the merger agreement, Real View Systems, Inc. became a wholly owned subsidiary of the Company and each of the outstanding shares of the common stock of Real View Systems, Inc. was converted into 1.33 shares of the Company's common stock. The Company issued 2,000,000 shares of its common stock in connection with the merger. This acquisition was accounted for as a pooling of interests and all financial statements and financial information contained herein have been restated to include the accounts and results of operations. of these companies for all periods presented. On February 25, 1998, the Company acquired Xyros Systems, Inc. of Columbia, Maryland, a developer of a computer based system that captures video and audio data from surveillance equipment, transmits and stores it within standard personal computer systems. Under the terms of the merger agreement, each of the 100 shares of Xyros Systems, Inc.'s common stock will be exchanged for 1,500 shares of the Company's common stock. This acquisition was accounted for as a pooling of interest and all financial statements l information contained herein have been restated to include the amounts and results of operations of these companies for all periods presented. 12. PROPOSED ACQUISITION During the first quarter of 1999, a letter of intent to purchase Eastern Tech Manufacturing, Inc. was entered into by the Company. Eastern Tech Manufacturing, Inc. deals in the production of computer parts and accessories. The merger agreement is expected to be consummated as a purchase during the second quarter of 1999. 8 VIEW SYSTEMS, INC NOTES TO INTERIM FINANCIAL STATEMENTS NOTE I - General Reclassification Certain amounts for 1998 have been reclassified to conform to the 1999 presentation Use of Estimates The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses durinf the reporting period. Estimates are uesed when accounting fot uncollectible accounts recievable inventoy valuation, depreciation, and amortization, intangable assets and contingencies, among others. Actual results could vary from those estimates NOTE 2 - Loss Per Share Basic and fully diluted loss per share have been calculated by the dividing the loss by the weighted average shares OutStanding during each of the periods presented . NOTE 3 - Due From Affiliated Entities Due from affiliated entities includes amounts due from a member of the Board of Directors andr j senior management and a company under his control. The amounts due during tile third quarter through equity transaction. NOTE 4 - Intangible Assets Intangible assets consist of goodwill created by the purchase acquisition of Eastern Technologies, Inc., This good will is being amortizized on a straight line basis over a ten year period. NOTE 5 - Loans Payable - Stockholders Loans payable - stockholders consist of amounts dues to stockholders which will be converted common stock during the third quarter. NOTE 6 - Income Taxes The Company is in a net operating loss (NOL) carryforward position for book and tax purposes; No tax benefit will be recognized until taxable income is recognized NOTE 7 - Business Combination During the quarter ended June 30, 1999, the Company aquired all of the outstanding common stock of Eastern Technologies, Inc., a closely held company located in Columbia Maryland. The business combination was accounted for as a purchase and resulted in the creation of the goodwill in the amount of $495,34 -----END PRIVACY-ENHANCED MESSAGE-----