NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2018 AND 2017
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. View
Systems, Inc. was incorporated in Nevada in 2003 and is currently revoked and not in good standing in Nevada. In March 2002,
the Company acquired Milestone Technology, Inc., an inactive Idaho corporation which has developed a concealed weapons
detection portal. In July 2009, the Company acquired FiberXpress, Inc., which is an inactive Delaware corporation that
specializes in developing and selling equipment and components for the fiber optic and communication cable industries. During
the second quarter of 2017, the Company established a new business line in the Erectile Dysfunction Medical market by opening
one clinic within its’ Medical Therapeutics subsidiary however as of the end of the year the company decided to not
pursue this avenue of business and disposed of its interest in the subsidiary.
Basis
of Consolidation
The
consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, Milestone
Technology, Inc and, FiberXpress, 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
FOR
THE YEARS ENDED DECEMBER 31, 2018 AND 2017
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 balance of equity at January
1, 2018. Therefore, the comparative financial information for the six months ended June 30, 2017 has not been adjusted and
continues to be reported under Topic 605,
“Revenue Recognition”.
Due to the cumulative net impact of adopting
ASC 606, the January 1, 2018 balance of accumulated deficit was increased by $51,148, primarily relating to the accelerated recognition
of revenue on installation projects.
Under
Topic 606, revenue is measured based on consideration specified in the contract with a customer. A performance obligation is a
promise in a contract to transfer a distinct good or service to the customer and is the unit of account in Topic 606. Revenue
from all customers is recognized when a performance obligation is satisfied by transferring control of a product or service to
a customer. Amounts billed to customers for shipping and handling are included in revenue.
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
2017 and 2018, the Company did not sell its products or installation and training, but rather only sold extended warranties on
its’ existing installed units. Warranties can be purchased for various periods but generally they are for one year
period that begins after any other warranties expire. 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 recognition standards.
The Company recognizes revenue from extended warranty ratably over the warranty period.
For
our Medical Business, service revenue was considered earned when the service is provided.
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 December 31, 2018 and 2017amounted to $800 and $800, respectively.
VIEW
SYSTEMS, INC. and SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2018 AND 2017
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 2010. 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 years ended December 31, 2018 and 2017 were $0 and $3,322,
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
FOR
THE YEARS ENDED DECEMBER 31, 2018 AND 2017
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 December 31, 2018 and 2017 does not include potential shares of common stock equivalents, as their impact
would be antidilutive. The following reconciles amounts reported in the financial statements:
|
|
|
|
|
Weighted
Avg
|
|
|
|
|
|
|
(Loss)
|
|
|
Shares
|
|
|
Per-share
|
|
|
|
(Numerator)
|
|
|
(Denominator)
|
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
from operations which is the amount that is available to common stockholders
|
|
$
|
962,333
|
|
|
|
329,705,526
|
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
ended December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations which is the amount that is available to common stockholders
|
|
$
|
(202,678
|
)
|
|
|
326,705,526
|
|
|
$
|
(0.00
|
)
|
VIEW
SYSTEMS, INC. and SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2018 AND 2017
2.
GOING CONCERN
The
Company has incurred and continues to incur, losses from operations. For the years ended December 31, 2018 and 2017, the Company
incurred operating losses of $25,242 and $142,664, respectively. In addition, certain notes payable have come due and the note
holders are demanding payment. While 2018 resulted in a net income, that income was the result of the forgiveness of major debts
and not from operations. Therefore, the company continues to be in a loss status from general operations.
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 the remainder of 2018 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.
In
May 2014, the FASB issued guidance on the recognition of revenue which provides a single, comprehensive revenue recognition model
for all contracts with customers and supersedes most existing revenue recognition guidance. The main principle under this guidance
is that an entity should recognize revenue at the amount it expects to be entitled to in exchange for the transfer of goods or
services to customers. The Company is currently evaluating the impact of this guidance on its consolidated balance sheets and
statement of operations. This guidance is effective for interim and annual reporting periods beginning after December 15, 2017,
with early adoption permitted for interim and annual reporting periods beginning after December 15, 2016.
4.
NOTES PAYABLE
Notes
payable as of December 31, 2018 and 2017 consists of the following:
|
|
2018
|
|
|
2017
|
|
Stockholder
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
Auctus Fund, LLC
|
|
|
|
|
|
|
|
|
Convertible promissory note with
interest at 12% per year dated January 24, 2018, convertible into the Company’s common stock 50% discount to the lowest
trading price during the 25 trading days immediately preceding conversion. The note was due October 24, 2018 and is currently
in default
|
|
|
53,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Convertible promissory note with
interest at 12% per year dated July 2, 2018, convertible into the Company’s common stock 50% discount to the lowest
trading price during the 25 trading days immediately preceding conversion. The note is due April 2, 2019
|
|
|
40,000
|
|
|
|
-
|
|
Discount on
convertible note
|
|
|
(13,333
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
$
|
134,237
|
|
|
$
|
50,000
|
|
At
December 31, 2018, the Company had 520,000,000 shares of common stock reserved for issuance related to
convertible debentures.
VIEW
SYSTEMS, INC. and SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2018 AND 2017
5.
INCOME TAXES
For
income tax purposes the Company has net operating loss carry forwards of $27,386,000 as of December 31, 2018 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 they will start 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.
The
components of the net deferred tax asset as of December 31, 2018 are as follows:
|
|
|
|
|
Effect
of net operating loss carry forward
|
|
$
|
7,942,000
|
|
Less
evaluation allowance
|
|
|
(7,942,000
|
)
|
Net
deferred tax asset
|
|
$
|
-
|
|
The
components of income tax expense (benefit) are as follows:
|
|
Year
ended
|
|
|
|
December
31, 2018
|
|
|
December
31, 2017
|
|
Net
income (loss) per financial statements which approximates net income (loss) per income tax returns
|
|
$
|
918,238
|
|
|
$
|
(202,678
|
)
|
Income tax expense
(benefit) applying prevailing
|
|
|
|
|
|
|
|
|
Federal and state
income tax rates
|
|
|
267,000
|
|
|
|
(80,000
|
)
|
Less
NOL carryforward and valuation allowance
|
|
|
(267,000
|
)
|
|
|
80,000
|
|
|
|
|
|
|
|
|
|
|
Net income
tax expense (benefit)
|
|
$
|
-
|
|
|
$
|
-
|
|
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.
The
Company has adopted accounting rules that prescribe when to recognize and how to measure the financial statement effects, if any,
of income tax positions taken or expected on its income tax returns. These new rules require management to evaluate the likelihood
that, upon examination by relevant taxing jurisdictions, those income tax positions would be sustained.
Based
on that evaluation, if it were more than fifty percent (50%) probable that a material amount of income tax would be imposed at
the entity level upon examination by the relevant taxing authorities, a liability would be recognized in the accompanying balance
sheet along with any interest and penalties that would result from that assessment. Should any such penalties and interest be
incurred, the Company’s policy would be to recognize them as operating expenses.
Due
to continuous losses from operations the Company has assigned a full valuation allowance against its deferred tax assets.
VIEW
SYSTEMS, INC. and SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2018 AND 2017
6.
CONVERTIBLE PREFERRED STOCK
In
July 2005 the Company issued 7,171,725 shares of Series A Preferred Stock in payment of services. The issuance had been previously
authorized by the Board of Directors. 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 or distribution is made to the holders of common stock.
During
2008 the Board of Directors approved a reverse split of the stock in which one new share of preferred stock was issued in exchange
for each 80 shares of stock outstanding. Accordingly, the total issued of preferred stock was adjusted from 7,171,725 shares to
89,647 shares. The par value and the total authorized shares did not change.
Effective
in 2010 the initial issuance of Series A Preferred can be converted into common stock in the ratio of 15:1. During 2011 the Board
of Directors authorized the issuance of an additional 1,400,000 shares of Series A Preferred Stock in payment of a loan from a
shareholder in the amount of $64,000 and also in payment of services in the amount of $34,000. These additional shares can be
converted to common stock beginning in 2013. Each share is entitled to fifteen votes and shall be entitled to vote on any matters
brought to a vote on the common stock shareholder.
During
2012 the Board of Directors authorized the issuance of an additional 1,500,000 shares of Series A Preferred Stock in payment of
deferred compensation and current compensation in the amount of $161,463.
During
2013 the Board of Directors authorized the issuance of an additional 500,000 shares of Series A Preferred Stock in payment of
professional services in the amount of $225,000.
During
2014 the Board of Directors authorized the issuance of an additional 2,000,000 shares of Series A Preferred Stock in payment of
deferred and current compensation in the amount of $480,000.
During
2015 an owner of preferred stock elected to convert 1,400,000 shares of his preferred stock into 21,000,000 shares of the Company’s
common stock.
During
2015 the Board of Directors authorized the issuance of an additional 1,000,000 shares of Series A Preferred Stock in payment of
deferred compensation of $37,500 and current compensation of $37,500.
During
2016 an owner of preferred stock elected to convert 500,000 shares of preferred stock into 7,500,000 shares of the Company’s
common stock.
7.
OPERATING LEASE
The
Company has terminated all leases for office space as of December 31, 2018. And therefore has no commitment for future lease payments.
Rent expense was $1,595 and $26,379 for the years ended December 31, 2018 and 2017, respectively.
VIEW
SYSTEMS, INC. and SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2018 AND 2017
8.
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.
During
2017 and 2016, the Company issued the following compensatory shares outside of its existing Stock Option and Restricted Share
Plans at the discretion of the Board of Directors:
For
the year ended December 31, 2016 there were 7,000,000 shares of common stock issued as a payment of interest in the amount of
$16,800.
Independent
contractors and consultants’ expense was based on the estimated value of services rendered or the value of the common stock
issued, if more reliably determined.
Stock
Options and Warrants
On
April 2, 2010, the Company adopted its 2010 Equity Incentive Plan, which authorized, among other forms of incentives, the issuance
of stock options. Reserved for equity issuances under the 2010 Equity Incentive Plan are 50,000,000 shares of our common stock.
No equity issuances have been made from the 2010 Equity Incentive Plan. Stock options, which may be tax qualified and non-qualified,
are exercisable for a period of up to ten years at prices at or above market prices as established on the date of the grant.
Stock
Options
Certain
nonqualified stock options in the amount of 10,000,000 options were issued during the period ended June 30, 2013 to a member of
the board of directors as compensation for services performed. Those stock options were never exercised and expired during 2018.
|
|
Number
of Options
|
|
|
Weighted
Average Exercise Price
|
|
|
Weighted
Average Remaining Contractual Life
|
|
|
Aggregate
Intrinsic Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2017
|
|
|
10,000,000
|
|
|
$
|
0.03
|
|
|
|
.50
|
|
|
$
|
-
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Expired
|
|
|
(10,000,000
|
)
|
|
$
|
0.03
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding at December 31, 2018
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2018
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
The
Company uses the Black-Scholes option pricing model to calculate the fair value of options. Significant assumptions used in this
model include:
Annual Dividend
|
|
|
-
|
|
Expected Life (in years)
|
|
|
5.00
|
|
Risk Free Interest Rate
|
|
|
0.78
|
%
|
Expected Volatility
|
|
|
325.25
|
%
|
VIEW
SYSTEMS, INC. and SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2018 AND 2017
9.
RELATED PARTY TRANSACTIONS
Certain
stockholders made cash advances to the Company to help with short-term working capital needs. The net proceeds (repayments) from
stockholders with unstructured payment plans amounted to ($16,269) and $45,826 for the years ended December 31, 2018 and 2017,
respectively. The total balance due on unstructured loans from stockholders amounted to $266,512 and $584,136 at December 31,
2018 and 2017, respectively. Loans from stockholders made with repayment terms are described in Note 4 above.
10.
ISSUABLE COMMON STOCK
As
of December 31, 2018 and 2017 740,000 shares of the authorized shares, amounting to $16,000 had not been issued.
11.
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. Mr. Than’s current base salary is $120,000 per annum. This
agreement was not renewed on January 1, 2018.
12.
DERIVATIVE INSTRUMENTS
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 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:
Beginning balance, January 1, 2018
|
|
$
|
-
|
|
Additional issuance
|
|
|
53,000
|
|
Exercised/converted
|
|
|
-
|
|
Reclassification to equity
|
|
|
-
|
|
Change in
value of derivative liability
|
|
|
191,004
|
|
|
|
|
|
|
Fair Value, December 31, 2018
|
|
$
|
244,004
|
|
The
derivative liability was valued using the Black-Scholes method with the following inputs:
Expected life
|
|
9 months
|
|
Stock price volatility
|
|
|
193.33
|
%
|
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 December 31, 2018 as follows:
|
|
Fair Value Measurements
at December 31, 2018
|
|
|
|
Using
Fair Value Hierarchy
|
|
Description
|
|
Total
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
liability
|
|
$
|
244,004
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
244,004
|
|
Total
|
|
$
|
244,004
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
244,004
|
|
VIEW
SYSTEMS, INC. and SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2018 AND 2017
NOTE
13. DISCONTINUED OPERATIONS
During
the third quarter of 2018, the Company made the determination to discontinue its’ Medical Therapeutics subsidiary and exit
the erectile dysfunction market. In the fourth quarter of 2018, the Company sold its Medical Therapeutics subsidiary to Ultimate
Sports, Inc. (USPS) for 122,500 shares of common stock of USPS. As the Company and USPS are under common management control, the
sale was accounted for at historical cost. The Company transferred $10,964 in assets and $14,000 in liabilities to USPS. The results
of operations for Medical Therapeutics for the years ended December 31, 2018 and 2017 was as follows:
|
|
Year Ended
|
|
|
|
December
31,
|
|
|
|
2018
|
|
|
2017
|
|
Revenues
|
|
$
|
98,201
|
|
|
$
|
18,787
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
20,098
|
|
|
|
18,618
|
|
Operating
expenses
|
|
|
122,798
|
|
|
|
64,590
|
|
|
|
|
142,896
|
|
|
|
83,208
|
|
|
|
|
|
|
|
|
|
|
Loss
|
|
$
|
(44,695
|
)
|
|
$
|
(64,421
|
)
|
NOTE
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 by IPVideo. No units were sold by IPVideo during
2018 under this license.
NOTE
15. SUBSEQUENT EVENTS
In
March 2019, the Company executed a $65,000 convertible promissory note with Power Up Lending Group Ltd. The convertible note accrues
interest at 12% and is convertible at a price of 58% of the lowest trading prices of the Company’s stock during the prior
15 trading days.
Subsequent
to December 31, 2018, the Company issued 33,814,895 shares of common stock to covert convertible notes and related interest of
$28,576.
On
May 29, 2019, Power Up Lending Group Ltd. filed a complaint in New York State Court claiming breach of the Company’s convertible
promissory note seeking judgment of $97,500. The Company is in the process of making its’ periodic filings and plans to
vigorously defend itself in any action.