FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 2002
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OR
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from _______________ to _______________
Commission file number 0-30178
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VIEW SYSTEMS INC.
(Exact name of registrant as specified in its charter)
Florida 59-2928366
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) identification No.)
825 W KENYON AVENUE, SUITE 15, ENGLEWOOD, CO 80110
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(Address of principal executive offices) (Zip Code)
Registrant's Telephone number, including area code: (303)295-7200
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(former, name, address and former fiscal year, if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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 [ ]
State the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date.
Outstanding at
Class of Common Stock March 31, 2002
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$.001 par value 25,233,031 shares
Transitional Small Business Disclosure Format Yes [ ] No [X]
FORM 10-QSB
Securities and Exchange Commission
Washington, D.C. 20549
VIEW SYSTEMS, INC.
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Index
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheet ..................................3
Consolidated Statement of Operations.........................5
Consolidated Statement of Stockholder's Equity...............6
Statement of Cash Flows......................................7
Notes to Consolidated Financial Statements...................8
Item 2. Management Discussion and Analysis..............................12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings...........................................16
Item 2. Changes in Securities and Use of Proceeds...................16
Item 3. Defaults Upon Senior Securities.............................16
Item 4. Submission of Matters to a Vote of Security Holders.........16
Item 5. Other Information...........................................16
Item 6. Exhibits and Reports on Form 8-K............................16
SIGNATURES
2
PART I. FINANCIAL INFORMATION
-----------------------------
ITEM 1. FINANCIAL STATEMENTS
VIEW SYSTEMS, INC.
CONSOLIDATED BALANCE SHEET
March 31, December 31,
2002 2001
------------ ------------
(Unaudited)
ASSETS
CURRENT ASSETS:
Cash $ 46,150 $ 73,344
Accounts receivable (net of allowance
for uncollectible accounts of $279,149 and $53,038 at
March 31, 2002 and December 31, 2001 respectively) 975,738 938,230
Inventory 467,196 55,644
------------ ------------
Total current assets 1,489,084 1,067,218
------------ ------------
PROPERTY AND EQUIPMENT:
Equipment 336,495 332,967
Leasehold improvements 17,940 3,000
Software tools 34,571 34,571
Vehicles 46,832 46,832
------------ ------------
435,838 417,370
Less accumulated depreciation 153,496 138,307
------------ ------------
Net value of property and equipment 282,342 279,063
------------ ------------
OTHER ASSETS:
Patents and licenses 1,228,254 -
Goodwill 781,248 781,248
Investments - 275,000
Due from affiliated entities 121,552 105,552
Due from officers 133,099 88,099
Deposits 2,532 2,532
------------ ------------
Total other assets 2,266,685 1,252,431
------------ ------------
TOTAL ASSETS $ 4,038,111 $ 2,598,712
============ ============
The accompanying notes are an integral part of these financial statements.
3
VIEW SYSTEMS, INC.
CONSOLIDATED BALANCE SHEET, Continued
March 31, December 31,
2002 2001
------------ ------------
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 320,553 $ 345,657
Notes payable 314,200 6,052
Accrued interest 35,750 33,000
Notes payable-Xyros shareholders 110,000 110,000
------------ ------------
Total current liabilities 780,503 494,709
------------ ------------
STOCKHOLDERS' EQUITY:
Common stock - par value $0.001,
50,000,000 shares authorized,
issued and outstanding - 25,233,031 25,233 -
issued and outstanding - 20,193,031 - 20,193
Additional paid-in capital 11,731,984 10,119,024
Accumulated deficit ( 8,499,609) ( 8,035,214)
------------ ------------
Total stockholders' equity 3,257,608 2,104,003
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 4,038,111 $ 2,598,712
============ ============
The accompanying notes are an integral part of these financial statements.
4
VIEW SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED
(unaudited)
March 31, March 31,
2002 2001
------------ ------------
REVENUE:
Sales of security systems $ 60,084 $ 341,709
Sales of assembled electronic components - 9,512
------------ ------------
Total sales 60,084 351,221
Cost of goods sold 32,776 143,910
------------ ------------
GROSS PROFIT ON SALES 27,308 207,311
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OPERATING EXPENSES:
Advertising and promotion 7,971 577
Amortization 28,284
Business development 42,494 17,119
Depreciation 15,189 11,191
Dues and subscriptions 720
Insurance 9,349 7,503
Interest 4,776 5,756
Investor relations 34,822 33,084
Miscellaneous expense 2,800 7,380
Office expenses 46,209 26,277
Professional fees 63,540 114,331
Rent 11,055 40,006
Repairs and maintenance 2,306 3,441
Research and development 53,482 -
Salaries and benefits 171,445 173,706
Taxes - other 2,130 6,930
Travel 18,447 8,559
Utilities 5,688 5,187
------------ ------------
Total operating expenses 491,703 490,051
------------ ------------
NET LOSS $ (464,395) $ (282,740)
============ ============
LOSS PER SHARE:
Basic $ ( 0.02) $ ( 0.02)
============ ============
Diluted $ ( 0.02) $ ( 0.02)
============ ============
The accompanying notes are an integral part of these financial statements.
5
VIEW SYSTEMS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD ENDED JANUARY 1, 2001 TO MARCH 31, 2002
Additional Total
Common Paid-In Accumulated Stockholders'
Stock Capital Deficit Equity
---------- ----------- ------------ -------------
Balances at January 1, 2001 $ 11,481 $ 7,364,502 $ (6,097,930) $ 1,278,053
Sale of common stock 500 199,500 - 200,000
Issuance of common stock as
compensation to employees
and others 60 24,940 - 25,000
Net loss for the three months
ended March 31, 2001 - - ( 282,740) ( 282,740)
---------- ----------- ------------ -------------
Balances at March 31, 2001 (Unaudited) 12,041 7,588,942 (6,380,670) 1,220,313
Sale of common stock 5,000 1,560,000 - 1,565,000
Issuance of common stock as
compensation to employees and others 2,652 695,582 - 698,234
Issuance of common stock in exchange for
interest in Milestone Technology, Inc. 500 274,500 - 275,000
Net loss for the nine months ended
December 31, 2001 - - (1,654,544) ( 1,654,544)
---------- ----------- ------------ -------------
Balances at December 31, 2001 20,193 10,119,024 (8,035,214) 2,104,003
Sale of common stock 1,740 593,260 - 595,000
Issuance of common stock in exchange for
interest in Milestone Technology, Inc. 3,300 1,019,700 - 1,023,000
Net loss for the three months
ended March 31, 2002 - - ( 464,395) ( 464,395)
---------- ----------- ------------ -------------
Balances at March 31, 2002 (Unaudited) $ 25,233 $11,731,984 $ (8,499,609) $ 3,257,608
========== =========== ============ =============
The accompanying notes are an integral part of these financial statements.
6
VIEW SYSTEMS, INC.
CONSOLIDATD STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED
(Unaudited)
March 31, March 31,
2002 2001
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $( 464,395) $ ( 282,740)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 15,189 39,475
Stock issued for services - 25,000
Changes in operating assets and liabilities:
Accounts receivable ( 9,376) ( 202,074)
Inventory ( 51,905) ( 27,856)
Deposit - 52
Accounts payable ( 31,574) 49,045
Accrued interest 2,750 2,750
Other accrued liabilities - ( 30,474)
------------ ------------
Net cash used in operating activities ( 539,311) ( 426,822)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment ( 18,280) ( 3,677)
Funds advanced to affiliated entities ( 16,000) -
Cash element in Milestone acquisition 2,449
------------ ------------
Net cash used in investing activities ( 31,831) ( 3,677)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Funds advanced (to) from shareholders ( 45,000) 29,757
Repayment of note payable - bank ( 6,052) ( 15,000)
Proceeds from sales of stock 595,000 200,000
------------ ------------
Net cash provided by financing activities 543,948 214,757
------------ ------------
NET DECREASE IN CASH ( 27,194) ( 215,742)
CASH AT BEGINNING OF PERIOD 73,344 265,245
------------ ------------
CASH AT END OF PERIOD $ 46,150 $ 49,503
============ ============
SIGNIFICANT NON-CASH INVESTIING ACTIVITIES:
Common Stock issued in Exchange for net assets of
Milestone Technology, Inc. as follows:
Accounts receivable 28,132
Inventory 191,000
Manuals 168,647
Fixed assets 188
Patents 1,228,254
Accounts payable ( 6,470)
Notes payable ( 314,200)
The accompanying notes are an integral part of these financial statements.
7
VIEW SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2002
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
--------------------
View Systems, Inc. (the "Company") designs and develops computer software
and hardware used in conjunction with surveillance capabilities. The technology
utilizes the compression and decompression of digital inputs.
Basis of Consolidation
----------------------
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries, Milestone Technology, Inc., Real View
Systems, Inc. ("Real View"), Xyros Systems, Inc. ("Xyros") and Eastern Tech
Manufacturing, Inc. ("ETMC"). All significant intercompany accounts and
transactions have been eliminated in consolidation.
Use of Estimates
----------------
Management uses estimates and assumptions in preparing financial statements
in accordance with 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.
Revenue Recognition
-------------------
The Company and its subsidiaries recognize revenue and the related cost of
goods sold upon shipment of the
product.
Inventories
-----------
Inventories are stated at the lower of cost or market. Cost is determined
by the last-in-first-out method (LIFO).
Property and Equipment
----------------------
Property and equipment is recorded at cost and depreciated over their
estimated useful lives, using the straight-line and accelerated depreciation
methods. Upon sale or retirement, the cost and related accumulated depreciation
are eliminated from the respective accounts, and the resulting gain or loss is
included in the results of operations. The useful lives of property and
equipment for purposes or computing depreciation are as follows:
Equipment 5-7 years
Software tools 3 years
Repairs and maintenance charges which do not increase the useful lives of
assets are charged to operations as incurred. Depreciation expense for the three
months ended March 31, 2002 and 2001 amounted to $15,189 and $11,191
respectively.
8
VIEW SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2002
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Income Taxes
------------
Deferred income taxes are recorded under the asset and liability method
whereby deferred tax assets and liabilities are recognized for the future tax
consequences, measured by enacted tax rates, attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss carryforwards. The effect on
deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period the rate change becomes effective. Valuation allowances are
recorded for deferred tax assets when it is more likely than not that such
deferred tax assets will not be realized.
Research and Development
------------------------
Research and development costs are expensed as incurred. Equipment and
facilities acquired for research and development activities that have
alternative future uses are capitalized and charged to expense over the
estimated useful lives.
Advertising
-----------
Advertising costs are charged to operations as incurred. Advertising costs
for the three months ended March 31, 2002 and 2001 were $7,971 and $577,
respectively.
Monetary Transactions
---------------------
Nonmonetary transactions are accounted for in accordance with Accounting
Principles Board Opinion No. 29 Accounting for Nonmonetary Transactions which
requires the transfer or distribution of a nonmonetary asset or liability to be
based, generally, on the fair value of the asset or liability that is received
or surrendered, whichever is more clearly evident.
Financial Instruments
---------------------
For most financial instruments, including cash, accounts receivable,
accounts payable and accruals, management believes that the carrying amount
approximates fair value, as the majority of these instruments are short-term in
nature.
Net Loss Per Common Share
-------------------------
Basic net loss per common share ("Basic EPS") is computed by dividing net
loss available to common stockholders by the weighted average number of common
shares outstanding. Diluted net loss per common share ("Diluted EPS") is
computed by dividing net loss available to common stockholders by the weighted
average number of common shares and dilutive potential common share equivalents
then outstanding. Potential common shares consist of shares issuable upon the
exercise of stock options and warrants. The calculation of the net loss per
share available to common stockholders for the three months ended March 31, 2002
does not include potential shares of common stock equivalents, as their impact
would be antidilutive.
9
VIEW SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2002
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, Continued
Segment Reporting
-----------------
The company has determined that it does not have any separately reportable
operating segments as of March 31, 2002.
2. FINANCIAL CONDITION
Since its inception, the Company has incurred significant losses and as of
March 31, 2002 had an accumulated deficit of $8.5 million. The Company believes
that it will incur operating losses for the foreseeable future. There can be no
assurance that the Company will be able to generate sufficient revenues to
achieve or sustain profitability in the future. However, the Company believes
that its current cash and cash equivalents, along with sales revenue and
anticipated equity infusions, will be sufficient to sustain operations through
March 31, 2003.
3. BUSINESS COMBINATION
The Company purchased 100% of the common stock of Milestone Technology,
Inc. effective March 25, 2002. The purchase was accomplished in two
transactions. The Company acquired 6% of Milestone in December 2001 in exchange
for 500,000 shares of the Company's common stock. In March 2002 the Company
acquired the remaining 94% of Milestone for 3,300,00 shares of the Company's
common stock. Based on the then market value of the Company's common stock
($0.55 per share in December and $0.31 per share in March) the total cost of the
acquisition was $1,298,000.
Milestone Technology, Inc. is a developer of concealed weapons detections
systems. Its primary products is a walk-through detector that uses advanced
magnetic technology to accurately pinpoint the location, size and numbers of
concealed weapons. Prior to its acquisition, Milestone Technology, Inc. was
considered to be a development stage enterprise.
10
VIEW SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 2002
3. BUSINESS COMBINATION, Continued
Summarized unaudited financial statements for Milestone Technology, Inc. as
of and for the year ended December 31, 2001 are as follows:
Balance Sheet (Unaudited)
As of December 3l, 2001
Assets
Current Assets $ 399,232
Fixed Assets 3,810
Licenses and patents 1,000,000
-----------
Total assets $ 1,403,042
-----------
Liabilities and Stockholders' Equity
Notes payable-current $ 620,000
Other current liabilities 183.000
Notes payable - long term 184,000
-----------
Total liabilities 987,000
Stockholders equity 416,042
-----------
Total liabilities and stockholders' Equity $ 1,403,042
-----------
Statement of Operations (Unaudited)
For the Year Ended December 31, 2001
Revenue $ 24,290
-----------
Expenses
Product Development $ 328,318
Operating expenses $ 156,775
-----------
Total Expenses $ 487,093
Net loss for the year $ (462,803)
-----------
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Plan Of Operation
-----------------
Over the next twelve months, Management is of the opinion that
sufficient working capital will be obtained from operations and external
financing to meet the Company's liabilities and commitments as they become
payable. The Company has in the past successfully relied on private placements
of common stock securities, bank debt, loans from private investors and the
exercise of common stock warrants in order to sustain operations.
We operate in a very competitive industry that requires continued large
amounts of capital to develop and promote our products. We believe that it will
be essential to continue to raise additional capital, both internally and
externally, to compete in this industry.
The amount of capital that we need to raise will depend upon many
factors primarily including
o the rate of sales growth and market acceptance of our product
lines;
o the amount and time of necessary research and development
expenditures;
o the amount and time of expenditures to sufficiently market and
promote our products; and
o the amount and timing of any accessory product introductions.
We intend to use the cash raised from the private sale of shares and
the exercise of warrants held by the Selling Stockholders to the following:
o bring the Concealed Weapons Detections portal to market;
o continue our product development efforts for facial
identification;
o expand our sales, marketing and promotional activities for the
SecureView line of products; and
o increase our engineering, production management, quality control,
and customer support staff.
In addition to accessing the public and private equity markets, we will
pursue bank credit lines and equipment lease lines for certain capital
expenditures. We currently estimate we will need between $3 million and $4
million to fully develop all our products and launch our expanded business
operations in accordance with our current business plan.
There is no expected or planned sale of significant equipment by the
Company.
12
The following discussion should be read and reviewed in conjunction
with Management's Discussion and Analysis of Financial Condition and Results of
Operations set forth in the Company's Annual Report on Form 10-QSB for the year
ended December 31, 2001. In addition to historical information, this Form 10-QSB
contains forward-looking statements that involve risks and uncertainties, such
as statements of the Company's plans and expectations. The Company's actual
results could differ materially from management's expectations.
Since start-up of operations in September 1998, we have devoted most of
our resources to the development and the sale of digital video surveillance
products. We have generated limited revenues from these products to date, but
are rapidly expanding our distribution network. At the same time we are working
on developing new products to meet market demand and enhancing our product line.
We have had some success in capturing interest and limited sales in overseas
markets such as Europe and the near East.
We have provided contract manufacturing services since May, 1999, when
we acquired ETMC. ETMC had provided such services for more than 15 years and had
an established customer base. In December of 2001 we entered into a joint
venture with Milestone Technology to enhance and further develop their Concealed
Weapons Detection portal. This relationship was precipitated by our ability to
manufacture electronic boards and the fact that we had skills in developing
facial recognition systems. In March of 2002, the relationship evolved into a
complete merger of the two companies. Milestone has no less than 8 patents and
licenses than become available to be integrated into sellable products. We
believe that the combination of our products: Video Command Centers, advanced
biometric access control, such as facial recognition, and Concealed Weapons
Detection (CWD) will help us meet the new heightened awareness of security due
to the September 11th events.
We have refocused our efforts towards the new market demands and are
restructuring our companies into marketing this CWD portal as an entree and
adding facial recognition capability as a value added feature. This direction
has required us to make changes in personnel, add engineering and staff that
experienced in business with the federal government, state government and local
jurisdictions. Revenues resulting from these changes will not be realized for
several quarters, although we believe that they will be significantly greater as
a result of this new direction.
Results of Operations
---------------------
Three Months Ended March 31, 2002 Compared With the Three Months Ended March 31,
--------------------------------------------------------------------------------
2001
----
Revenue
-------
For the three months ended March 31, 2002, revenues from sales of our
products decreased $291,137 or 83%, to $60,084 from $351,221 in the same period
last year. The refocusing of our efforts to the Concealed Weapons Detection
Portals sales has resulted in low net sales for the period ended March 31, 2002.
The sales cycles for this product are significant longer but also our revenue
potential is much larger than digital video revenue. The competition in digital
video products is much greater whereas the CWD portal is unique and patent
protected.
13
Gross Profit
------------
Gross profit on sales for the three months ended March 31, 2002
decreased $180,003 or 87% to $27,308 compared with $207,311 in the same period
last year. Gross profit margin for the three months ended March 31, 2002 was 45%
compared with 59% in the same period last year. We do not believe gross profit
margin comparisons are meaningful at this state of our operations. We do
anticipate higher gross margin percentages with our new products.
Operating Expenses
------------------
Operating expenses for the three months ended March 31, 2002, increased
to $491,703, compared with $490,051 for the comparable period in 2001. The
increase is principally due to a shift of expenditures with increased
expenditures in research and development and decreased in professional fees.
As a result of the foregoing, net loss was $(464,395) for the three
months ended March 31, 2002, compared to a net loss of $(282,740) for the three
months ended March 31, 2001. Our expenses have not decreased significantly in
spite of decreased sales due to our shifting of direction to the CWD sales.
Costs and Expenses:
------------------
Costs of Products and Services Sold
-----------------------------------
The cost of products and services sold, was $32,776 for the three
months ended March 31, 2002 and represented 55% of revenue for the period,
compared to $143,910 for the three months ended March 31, 2001 which represents
41% of revenues for that period. Because of our low sales volume during this
period, we do not consider the costs of goods sold in the same period last year
to be a good measure of our true costs of goods sold. As our product sales
increase and account for a larger percentage of our overall sales, we expect
that our costs of goods and services sold will decline and stabilize as a
percentage of total revenue. We are continually working on engineering changes
in our security products that we expect will lower component costs for these
products. We do not determine our inventory on a quarterly basis, instead we do
it on an annual basis. Therefore, our cost of goods sold calculations are based
on estimates of inventory used in products sold.
Research and Development Expense
--------------------------------
We spent $53,482 on research and development for the three months
ended March 31, 2002, as compared with $0 in the same period last year. Our R&D
expenditures in the three months ended March 31, 2002, represented 95% of gross
profit margin for this period. We are working on introducing additional
products, such as the CWD and Central Station Monitoring to the market in 2002.
We expect continued heavy expenditures in this area, evidencing our commitment
to develop industry leading video management and identification products.
14
Salaries and Benefits
---------------------
We spent $171,445 on salaries and benefits for the three months ended
March 31, 2002, as compared with $173,706 in the same period last year. We
incurred $42,494 on business development expenses for the three month period
ended March 31, 2002 as compared with $17,119 in the same period a year ago.
Net Operating Loss
------------------
We incurred approximately $(464,395) of net operating loss carry
forwards for the three-month period ended March 31, 2002, which may be used to
offset taxable income and income taxes in future years.
Liquidity and Capital Resources
-------------------------------
Since the start-up of our operations in 1998, we have funded our cash
requirements primarily through equity transactions. We received $10,573,497
since inception through the issuance of our common stock. We are not currently
generating cash from our operations in sufficient amounts to finance our
business and will continue to need to raise capital from other sources. We used
the proceeds from these sales of equity to fund operating activities, including,
product development, sales and marketing, and to invest in the acquisition of
technology, assets and business. As of March 31, 2002, we had total assets of
$4,038,111, an increase of $1,439,399 over last year's $2,598,712 at December
31, 2001. Total liabilities were $780,503, at March 31, 2002, resulting in
stockholders' equity of $3,257,608, an increase of $1,153,605 from the December
31, 2001 balance of $2,104,003.
During the three months ended March 31, 2002, our cash decreased from
$73,344 at December 31, 2001, to $46,150 at March 31, 2002. Net cash used in
operating activities was $539,311 for the three months ended March 31, 2002,
including increases in accounts receivable to $9,376, increases in inventory of
$51,905, and decrease in accounts payable of $31,574.
Net cash generated from financing activities during the three months
ended March 31, 2002 was $543,948, consisting of proceeds received from sales of
stock of $595,000, less $45,000 loaned to stockholders, less payments of $6,052
made on a promissory note to Columbia Bank.
As a result of the foregoing, at March 31, 2002 we had working capital
of $708,581, including $975,738 in net trade accounts receivable and $467,196 in
inventory. We have provided and may continue to provide payment term extensions
to certain customers from time to time. As of March 31, 2002 we have not granted
material payment term extensions.
Our inventory balance at March 31, 2002, was estimated to be $467,196.
We do not take inventory on a quarterly basis, and we made inventory estimates
based on annual inventory determinations. With expected increased product sales,
we will need to make increased inventory expenditures. In addition, we endeavor
to keep inventory levels low. Therefore, we do not believe that increased
product sales, associated materials purchases and inventory increases, will
adversely affect liquidity.
15
Under our outstanding employment and consulting agreements, we are
obligated to pay Mr. Than $96,000 per year, in salary and fees during calendar
year 2002. If we terminate the employment of Mr. Than without cause or because
of merger, acquisition or change in control, we will be obligated to pay him
approximately $350,000 in severance payments on a three year period.
We believe that cash from operations and funds available will not be
sufficient to meet anticipated operating capital expenditure and debt service
requirements for the next twelve months and that we will be dependent on raising
additional capital through equity sales or debt financing.
We also have outstanding warrants with various investors with an
exercise price of $.70 per share and some at $.30 per share. If the warrant
holders exercise all of their warrants, at their relative exercise price, we
will receive $1,700,000, which we will use for additional working capital.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are not a party to any pending legal proceedings that would have a material
effect on our operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
There are no changes in Securities other than such changes reported in our SB-2
filed on August 1, 2001, registration number 333-66482.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES:
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
Reports on Form 8-K:
April 17, 2002 Item 5
Notification of late filing of Form 10KSB
Disclosure of Acquisition of a minority interest in
Milestone Technology, Inc.
16
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
VIEW SYSTEMS, INC.
(Registrant)
Date: May 15, 2002 /s/ GUNTHER THAN
----------------
GUNTHER THAN
PRESIDENT & CEO