NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1.
NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature
of Operations
View
Systems, Inc. and Subsidiaries (the “Company”) designs, develops and sells computer software and hardware used in
conjunction with surveillance capabilities. The technology utilizes the compression and decompression of digital inputs. In March
2002, the Company acquired Milestone Technology, Inc., which has developed a concealed weapons detection portal. In July 2009,
the Company acquired FibreXpress, Inc., which is a company that specializes in developing and selling equipment and components
for the fiber optic and communication cable industries.
During
the second quarter of 2018, the Company established a new business line in the Erectile Dysfunction Medical market by opening
one clinic within its’ Medical Therapeutics subsidiary. In the fourth quarter of 2018, the Company sold its Medical Therapeutics
division to another company called Ultimate Sports, Inc.
Basis
of Presentation
The
accompanying unaudited condensed consolidated financial statements have been prepared in accordance with US generally accepted
accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required by US generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. For further information, refer to the audited consolidated financial statements
and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.
Basis
of Consolidation
The
consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Milestone Technology,
Inc. and FibreXpress, Inc. All significant intercompany accounts and transactions have been eliminated in consolidation.
Use
of Estimates
Management
uses estimates and assumptions in preparing financial statements in accordance with accounting principles generally accepted in
the United States of America. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure
of contingent assets and liabilities, and the reported revenues and expenses. Actual results could differ from the estimates that
were used.
Cash
and Cash Equivalents
Cash
and cash equivalents include all highly liquid investments with original maturities of three months or less.
VIEW
SYSTEMS, INC. and SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1.
NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue
Recognition
Effective
January 1, 2018, the Company adopted ASU No. 2014-9, “Revenue from Contracts with Customers” and the related amendments
(“Topic 606”) using the modified retrospective method. Topic 606 was applied to all uncompleted contracts by recognizing
the cumulative effect of initially applying Topic 606 as an adjustment to the opening balancer of equity at January 1, 2018. Due
to the cumulative net impact of adopting ASC 606, the January 1, 2018 balance of accumulated deficit was increase by $51,148,
primarily relating to the accelerated recognition of revenue on installation projects.
Revenue
is recognized in accordance with ASC 606. The Company performs the following five steps: (i) identify the contract(s) with a customer,
(ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction
price to the performance obligations in the contract, and (v) recognize revenue when (or as) the entity satisfies a performance
obligation. The Company applies the five-step model to arrangements that meet the definition of a contract under Topic 606, including
when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it
transfers to the customer. At contract inception, once the contract is determined to be within the scope of Topic 606, the Company
evaluates the goods or services promised within each contract related performance obligation and assesses whether each promised
good or service is distinct. The Company recognizes as revenue, the amount of the transaction price that is allocated to the respective
performance obligation when (or as) the performance obligation is satisfied..
The
Company has three main products, namely the concealed weapons detection system, the visual first responder system and the Viewmaxx
digital video system. The concealed weapons detection system and the digital video system each require installation and training.
The customer can engage us for installation and training, which is a revenue source separate and apart from the sale of the product.
Each product has an unconditional 30 day warranty, during which time the product can be returned for a complete refund. Customers
can purchase extended warranties, which provide for replacement or repair of the unit beyond the period provided by the unconditional
warranty.
During
2019, sales consisted of the sale of one demonstration unit and the fulfillment of extended warranties. The Company did not sell
its’ products or installation and training, but rather only fulfilled extended warranties on its’ existing installed
units. Under the new guidance, there is no change in our revenue recognition for extended warranty as compared to revenue recognition
for these transactions under the prior revenue standards. The Company recognizes revenue from extended warranty contracts ratably
over the warranty period.
Property
and Equipment
Property
and equipment is recorded at cost and depreciated over their useful lives, using the straight-line and accelerated depreciation
methods. Upon sale or retirement, the cost and 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 periods ended March 31, 2020 and 2019 amounted to $0 and $0, respectively.
VIEW
SYSTEMS, INC. and SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1.
NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Income
Taxes
Income
taxes are recorded under the assets and liabilities 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 carry forwards. 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.
The
Company files income tax returns in the U.S. federal jurisdictions, and in various state jurisdictions. The Company is no longer
subject to U.S. federal, state and local examinations by tax authorities for years prior to 2015. The Company policy is to recognize
interest related to unrecognized tax benefits as income tax expense. The Company believes that it has appropriate support for
the income tax positions it takes and expects to take on its tax returns, and that its accruals for tax liabilities are adequate
for all open years based on an assessment of many factors including past experience and interpretations of tax law applied to
the facts of each matter.
Research
and Development
Research
and development costs are expensed as incurred.
Advertising
Advertising
costs are charged to operations as incurred. Advertising costs for the periods ended March 31, 2020 and 2019 were $0 and $0, respectively.
Nonmonetary
Transactions
Nonmonetary
transactions are accounted for in accordance with ASC 845 “ 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.
Stock-Based
Compensation
The
Company accounts for share-based compensation at fair value. Share-based compensation cost for stock options granted to employees,
board members and service providers is determined at the grant date using an option pricing model that uses level 3 unobservable
inputs. The value of the award that is ultimately expected to vest is recognized as expense on a straight-line basis over the
requisite service period.
VIEW
SYSTEMS, INC. and SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1.
NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Net
Loss Per Common Share
Basic
net loss per common share is computed by dividing net loss available to common stockholder by the weighted average number of common
shares outstanding. Diluted net loss per common share is computed by dividing net loss available to common stockholders by the
weighted average number of common shares and dilutive potential common share equivalents then outstanding. Potential common shares
consist of shares issuable upon the exercise of stock options and warrants in addition to shares that may be issued in the event
that convertible debt is exchanged for shares of common stock. The calculation of the net loss per share available to common stockholders
for the periods ended March 31, 2020 and 2019 does not include potential shares of common stock equivalents, as their impact would
be antidilutive. The following reconciles amounts reported in the financial statements:
|
|
Income
|
|
|
Weighted Avg
|
|
|
|
|
|
|
(Loss)
|
|
|
Shares
|
|
|
Per-share
|
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
Period ended March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations which is the amount that is available to common stockholders
|
|
$
|
(584,872
|
)
|
|
|
663,862,161
|
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period ended March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
which is the amount that is available to common stockholders
|
|
$
|
(71,629
|
)
|
|
|
368,520,421
|
|
|
$
|
(0.00
|
)
|
VIEW
SYSTEMS, INC. and SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
2.
GOING CONCERN
The
Company has incurred and continues to incur, losses from operations. For the three months ended March 31, 2020 and 2019, the Company
incurred net losses of $584,872 and $71,629, respectively. The Company also had a working capital deficiency of $1,932,740 and
an accumulated deficit of $30,615,749 at March 31, 2020. In addition, certain notes payable have come due and the note holders
are demanding payment.
Management
is very actively working to cure these situations. It has implemented major plans to for the future growth and development of
the Company. Management is in the process of renegotiating more favorable repayment terms on the notes payable and the Company
anticipates that these negotiations will result in extended payment plans.
Historically,
the Company has financed its operations primarily through private financing. It is management’s intention to finance operations
during 2020 primarily through increased sales although there will still be a need for additional equity financing. In addition,
management is actively seeking out mergers and acquisitions which would be beneficial to the future growth of the Company. There
can be no assurance, however, that this financing will be successful and the Company may be required to further reduce expenses
and scale back operations.
As
described in Note 4, the Company is currently in default on a $50,000 loan from a stockholder.
The
consolidated financial statements presented above and the accompanying Notes have been prepared on a going concern basis, which
contemplates the realization of assets and discharge of liabilities in the normal course of business for the foreseeable future,
and does not include any adjustments to reflect possible future effects on the recoverability and classification of assets, or
the amounts and classification of liabilities that may result from the outcome of any extraordinary regulatory action, which would
affect our ability to continue as a going concern.
Due
to the conditions and events discussed above, there is substantial doubt about the Company’s ability to continue as a going
concern.
3.
NEW ACCOUNTING PRONOUNCEMENTS
In
February 2016, the FASB issued new guidance on the accounting for leases, which supersedes previous lease guidance. Under this
guidance, for all leases with terms in excess of one year, including operating leases, the Company will be required to recognize
on its balance sheet a lease liability and a right-of-use asset representing its right to use the underlying asset for the lease
term. The new guidance retains a distinction between finance leases and operating leases and the classification criteria is substantially
similar to previous guidance. Additionally, the recognition, measurement, and presentation of expenses and cash flows arising
from a lease by a lessee have not significantly changed. The Company is currently evaluating the impact of this guidance on its
consolidated balance sheets. This guidance is effective for interim and annual reporting periods beginning after December 15,
2018 with early adoption permitted. The adoption of this standard did not have a material impact on the Company’s financial
position or results of operations as the Company did not have any leases..
VIEW
SYSTEMS, INC. and SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
4.
NOTES PAYABLE
Notes
payable as of March 31, 2020 and December 31, 2019 consists of the following:
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Demand loan payable with
interest at 5% per month dated September 18, 2009. The loan is secured by the Company’s accounts receivable.
The note was payable in full on December 17, 2009 and is currently in default.
|
|
$
|
50,000
|
|
|
$
|
50,000
|
|
|
|
|
|
|
|
|
|
|
Convertible promissory note with interest
as 8% per year dated January 24, 2018, convertible into the Company’s common stock 50% discount to the lowest trading
price during 25 trading days immediately preceding conversion. The note was due October 24, 2018 and is currently in default
|
|
|
5,419
|
|
|
|
16,831
|
|
|
|
|
|
|
|
|
|
|
Convertible promissory note with interest
as 8% per year dated July 2, 2018, convertible into the Company’s common stock 50% discount to the lowest trading price
during 25 trading days immediately preceding conversion. The note was due July 2, 2019 and is currently in default
|
|
|
40,000
|
|
|
|
40,000
|
|
|
|
|
|
|
|
|
|
|
Convertible promissory note with interest
as 8% per year dated August 19, 2019, convertible into the Company’s common stock 50% discount to the lowest trading
price during 25 trading days immediately preceding conversion. The note is due August 19, 2020
|
|
|
-
|
|
|
|
38,000
|
|
|
|
|
|
|
|
|
|
|
Convertible promissory note with interest
as 10% per year dated October 8, 2019, convertible into the Company’s common stock 50% discount to the lowest trading
price during 25 trading days immediately preceding conversion. The note is due October 20, 2020.
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
Convertible promissory note with interest
at 8% per year dated January 8, 2020, convertible into the Company’s common stock 50% discount to the lowest trading
price during 25 trading days Immediately preceding the conversion. The note is due January 8, 2021
|
|
|
112,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Convertible promissory
note with interest as 8% per year dated October 22, 2019, convertible into the Company’s common stock 50% discount to
the lowest trading price during 25 trading days immediately preceding conversion. The note is due October 22, 2020
|
|
|
36,500
|
|
|
|
53,000
|
|
|
|
$
|
294,669
|
|
|
$
|
247,831
|
|
Discount on convertible
notes
|
|
|
(115,803
|
)
|
|
|
(105,410
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
178,866
|
|
|
$
|
142,421
|
|
VIEW
SYSTEMS, INC. and SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
5.
INCOME TAXES
For
income tax purposes the Company has net operating loss carry forwards of $27,608,848 as of December 31, 2019 that may be used
to offset future taxable income. In the instance of future corporate acquisitions, the net operating losses may be used to offset
the future taxable income of a qualifying subsidiary corporation which meets IRS regulations governing such situations. The losses
have accumulated since 1998 and started to expire in 2018. IRS regulations also provide that significant changes in ownership
(greater than 50%) could result in the expiration of some of the net operating loss carry forwards. As of the date of this report
the Company has not made an analysis of the changes in ownership to determine if any of these losses have expired.
Net
income tax benefit is not recognized at this time because there is no reasonable expectation that the benefit will be realized
in the future.
6.
CONVERTIBLE PREFERRED STOCK
At
March 31, 2020, the Company has 5,589,647 shares of Series a Preferred Stock outstanding. Each share of Series A Preferred
Stock has a liquidation preference in the event of liquidation of the Company of $0.001 per share before any payment of distribution
is made to the holders of common stock. Each Series A Preferred share can be converted into common stock in the ration of 15:1.
7.
COMMON STOCK
At
March 31, 2020 and December 31, 2019 and 2018, the Company has 729,683,597 and 560,915,727 shares of common stock outstanding,
respectively. During the three months ended March 31, 2020, 168,767,870 shares of common stock were issued for the conversion
of $28,038 in convertible debentures and accrued interest.
8.
OPERATING LEASE
The
Company has terminated all leases for office space as of December 31, 2019. The Company handles its executive functions from and
shares space with its CPA firm, CG Davis & Associates at 7833 Walker Drive in Greenbelt, MD 20770.
9.
STOCK BASED COMPENSATION
On
April 2, 2010 the Company adopted its 2010 Equity Incentive Plan. Reserved for equity issuances under the Equity Incentive Plan
are 50,000,000 shares of our common stock. During 2011 14,116,433 shares of common stock were issued under the provisions of the
2010 Equity Incentive Plan for which $92,065 of expenses were recognized.
On
June 1, 2010 the Company adopted its 2010 Service Provider Stock Compensation Plan. Reserved for equity issuances under the Service
Provider Stock Compensation Plan are 50,000,000 shares of our common stock. No equity issuances were made during the reporting
period from the 2010 Service Provider Stock Compensation Plan.
VIEW
SYSTEMS, INC. and SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Stock
Options and Warrants
Certain
nonqualified stock options were issued during the period ended June 30, 2013 to a member of the board of directors as compensation
for services performed. These options expired unexercised during the year ended December 31, 2018.
10.
RELATED PARTY TRANSACTIONS
Certain
stockholders have made cash advances to the Company to help with short-term working capital needs. The net payments to stockholders
with unstructured payment plans amounted to $3,000 and $16,269 for the periods ended March 31, 2020 and December 31, 2019, respectively.
The total balance due on unstructured loans from stockholders amounted to $263,512 at March 31, 2020 and $266,512 at December
31, 2019, respectively. Loans from stockholders made with repayment terms are described in Note 4 above.
11.
ISSUABLE COMMON STOCK
As
of December 31, 2019 45,740,000 shares of the authorized shares, amounting to $20,500 had not been issued. As of March 31, 2020
an additional subscription was issued authorizing another 45,000,000 shares for $5,000.
12.
CONTINGENT LIABILITY
Effective
January 1, 2015 the Board of Directors authorized a new employment contract with Gunther Than, CEO of View Systems, Inc. That
employment contract provides that in the event of a change in control of the Board of Directors or a buyout or takeover or substantial
change of management structure Mr. Than will receive a minimum of three year’s salary plus 4.8 million shares of unrestricted
stock of the equivalent in cash at Mr. Than’s direction. With the change in management in 2019, $376,800 in additional compensation
to Mr. Than was accrued. Mr. Than’s current base salary is $120,000 per annum.
Effective
July 1, 2019 the Board of Directors authorized a new employment contract with John Campo to become CEO of View Systems, Inc. Mr.
Campo’s current base salary is $120,000 per annum.
13.
DERIVATIVE INSTRUMENT
The
Company has note payables with elements that qualify as a derivative instrument. The note payable are convertible at the lowest
trading price during the previous 15-25 days ending on the last trading day prior to notice. This variable conversion feature
requires bifurcation from the convertible debenture and measurement at fair value.
The
derivative liability, as it relates to the instrument, is shown in the following table:
Fair Value, December 31, 2019
|
|
$
|
383,852
|
|
|
|
|
|
|
Change in value
of derivative liability
|
|
|
242,266
|
|
|
|
|
|
|
Fair Value, March 31, 2020
|
|
$
|
626,118
|
|
VIEW
SYSTEMS, INC. and SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The
derivative liability was valued using the Black-Scholes method with the following inputs:
Expected life
|
|
9 months
|
|
Stock price volatility
|
|
|
245
|
%
|
Annual risk-free interest rate
|
|
|
2.63
|
%
|
Expected dividends
|
|
|
None
|
|
ASC
820, “Fair Value Measurements” and ASC 825, “Financial Instruments”, requires an entity to maximize the
use of observable inputs and minimize the use of unobservable inputs when measuring fair value. It establishes a fair value hierarchy
based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument
is categorized within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
It prioritizes the inputs into three levels that may be used to measure fair value:
Level
1
Level
1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level
2
Level
2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability
such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in
markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant
inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level
3
Level
3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to
the measurement of the fair value of the assets or liabilities.
Assets
and liabilities measured at fair value on a recurring basis were presented on the Company’s consolidated balance sheet as
of March 31, 2020 and December 31, 2019 as follows:
|
|
Fair Value Measurements
at
|
|
|
|
March 31, 2020
|
|
|
|
Using
Fair Value Hierarchy
|
|
Description
|
|
Total
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability
|
|
$
|
626,118
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
626,118
|
|
Total
|
|
$
|
626,118
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
626,118
|
|
|
|
Fair Value Measurements
at
|
|
|
|
December 31, 2019
|
|
|
|
Using
Fair Value Hierarchy
|
|
Description
|
|
Total
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability
|
|
$
|
383,852
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
383,852
|
|
Total
|
|
$
|
383,852
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
383,852
|
|
14.
LICENSE AGREEMENT
In
August 2018, the Company executed a license agreement with IPVideo Corporation (“ipvIDEO”) where the company licensed
the View Scan Concealed Weapons Detection System and all related hardware, software, documentation and manufacturing detail to
IPVideo. IPVideo is required to pay $300 to the Company per View Scan unit sold in IPVideo.
VIEW
SYSTEMS, INC. and SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
15.
MEMORANDUM OF UNDERSTANDING WITH SANNABIS
During
2019 the Company agreed to a Memorandum of Understanding to acquire Sannabis S.A.S. and New Columbia Resources, Inc. The agreement
gives the company a First Right of Refusal to acquire both companies upon satisfaction of certain conditions. The conditions have
not been me to date and the acquisition has not been consummated. During the year ended December 31, 2019, the Company invested
$58,660 in developing this agreement, of which $38,660 was for operating expenses and $20,000 was to acquire equipment and supplies
for use in this venture. During the period ended March 31, 2020 the Company invested an additional $34,402 for this purpose of
all of the investment was for operating expenses.
NOTE
16. SUBSEQUENT EVENTS
Subsequent
to March 31, 2020, the Company issued 861,814,649 shares of common stock to convert convertible debentures and accrued interest.
The
Company executed a note for $15,000.
The
Company executed stock purchase agreements to sell 40,000,000 shares of common stock for $3,000.
The
Company acquired the intellectual property, including a domain name and phone numbers, for 10,000,000 shares of the Company’s
common stock.