View Systems, Inc. and Subsidiaries
|
Consolidated Balance Sheets (Unaudited)
|
|
|
June 30,
|
|
December 31,
|
|
|
2014
|
|
2013
|
ASSETS
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
4,896
|
|
|
$
|
53,078
|
|
Accounts receivable
|
|
|
45,034
|
|
|
|
46,424
|
|
Inventory
|
|
|
1,088
|
|
|
|
24,109
|
|
Prepaid expenses
|
|
|
185,000
|
|
|
|
32,889
|
|
Total current assets
|
|
|
236,018
|
|
|
|
156,500
|
|
|
|
|
|
|
|
|
|
|
Property and Equipment (Net)
|
|
|
7,192
|
|
|
|
10,392
|
|
|
|
|
|
|
|
|
|
|
Other Assets
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
2,872
|
|
|
|
2,872
|
|
Total other assets
|
|
|
2,872
|
|
|
|
2,872
|
|
Total assets
|
|
$
|
246,082
|
|
|
$
|
169,764
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
528,084
|
|
|
$
|
357,803
|
|
Deferred compensation
|
|
|
7,490
|
|
|
|
124,190
|
|
Accrued and withheld payroll taxes payable
|
|
|
169,534
|
|
|
|
170,509
|
|
Accrued interest payable
|
|
|
58,125
|
|
|
|
43,125
|
|
Accrued royalties payable
|
|
|
225,000
|
|
|
|
225,000
|
|
Loans from stockholders
|
|
|
334,716
|
|
|
|
251,054
|
|
Notes payable
|
|
|
88,483
|
|
|
|
126,116
|
|
Deferred revenue
|
|
|
105,678
|
|
|
|
121,975
|
|
Total current liabilities
|
|
|
1,517,110
|
|
|
|
1,419,772
|
|
|
|
|
|
|
|
|
|
|
Non-current Liabilities
|
|
|
|
|
|
|
|
|
Notes payable (non-current portion)
|
|
|
32,088
|
|
|
|
46,098
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,549,198
|
|
|
|
1,465,870
|
|
|
|
|
|
|
|
|
|
|
Stockholders' Deficit
|
|
|
|
|
|
|
|
|
Convertible preferred stock, authorized 10,000,000 shares, $.001 par value, at June 30, 2014 Issued and outstanding 5,489,647 and at December 31, 2013, Issued and outstanding 3,489,647
|
|
|
5,490
|
|
|
|
3,490
|
|
Common stock, authorized 950,000,000 shares, $.001 par value, at June 30, 2014, Issued and outstanding 261,730,860 and at December 31, 2013, Issued and outstanding 222,399,749
|
|
|
261,730
|
|
|
|
222,399
|
|
Common stock issuable
|
|
|
16,000
|
|
|
|
538,720
|
|
Additional paid in capital
|
|
|
26,856,220
|
|
|
|
25,550,331
|
|
Accumulated deficit
|
|
|
(28,442,556
|
)
|
|
|
(27,611,046
|
)
|
Total stockholders' deficit
|
|
|
(1,303,116
|
)
|
|
|
(1,296,106
|
)
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' deficit
|
|
$
|
246,082
|
|
|
$
|
169,764
|
|
View Systems, Inc. and Subsidiaries
|
Consolidated Statements of Operations (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
For the Six Months Ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2014
|
|
2013
|
|
2014
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales and Installation
|
|
$
|
73,135
|
|
|
$
|
38,258
|
|
|
$
|
127,052
|
|
|
$
|
358,999
|
|
Extended warranties
|
|
|
27,642
|
|
|
|
29,124
|
|
|
|
63,998
|
|
|
|
46,613
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
100,777
|
|
|
|
67,382
|
|
|
|
191,050
|
|
|
|
405,612
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
18,482
|
|
|
|
27,098
|
|
|
|
37,553
|
|
|
|
224,588
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
82,295
|
|
|
|
40,284
|
|
|
|
153,497
|
|
|
|
181,024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
78,894
|
|
|
|
85,573
|
|
|
|
139,469
|
|
|
|
143,970
|
|
Professional fees
|
|
|
289,428
|
|
|
|
169,048
|
|
|
|
570,166
|
|
|
|
258,434
|
|
Salaries and benefits
|
|
|
157,429
|
|
|
|
72,522
|
|
|
|
257,449
|
|
|
|
137,468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
525,751
|
|
|
|
327,143
|
|
|
|
967,084
|
|
|
|
539,872
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(443,456
|
)
|
|
|
(286,859
|
)
|
|
|
(813,587
|
)
|
|
|
(358,848
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock option compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(450,000
|
)
|
Interest expense
|
|
|
(9,042
|
)
|
|
|
(28,883
|
)
|
|
|
(17,923
|
)
|
|
|
(41,777
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense)
|
|
|
(9,042
|
)
|
|
|
(28,883
|
)
|
|
|
(17,923
|
)
|
|
|
(491,777
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(452,498
|
)
|
|
$
|
(315,742
|
)
|
|
$
|
(831,510
|
)
|
|
$
|
(850,625
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share (basic and diluted)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(basic and diluted)
|
|
|
255,056,135
|
|
|
|
188,604,329
|
|
|
|
249,835,845
|
|
|
|
181,154,143
|
|
View Systems, Inc. and Subsidiaries
|
Consolidated Statements of Cash Flows (Unaudited)
|
|
|
For the Six Months Ended
|
|
|
June 30,
|
|
|
2014
|
|
2013
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(831,510
|
)
|
|
$
|
(850,625
|
)
|
Adjustments to reconcile net loss to Net cash used in operations:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
3,200
|
|
|
|
5,762
|
|
Common stock issued in payment of services
|
|
|
309,500
|
|
|
|
124,157
|
|
Preferred stock issued in payment of services
|
|
|
185,000
|
|
|
|
—
|
|
Stock option expense
|
|
|
—
|
|
|
|
450,000
|
|
Interest expense paid with debt
|
|
|
2,521
|
|
|
|
—
|
|
Change in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
(Increase) decrease in cash from:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
1,390
|
|
|
|
28,727
|
|
Inventories
|
|
|
23,021
|
|
|
|
122,871
|
|
Prepaid expenses
|
|
|
32,889
|
|
|
|
—
|
|
Increase (decrease) in cash from:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
170,281
|
|
|
|
(108,699
|
)
|
Deferred compensation
|
|
|
(6,700
|
)
|
|
|
48,456
|
|
Accrued interest
|
|
|
15,000
|
|
|
|
38,073
|
|
Payroll taxes accrued and withheld
|
|
|
(975
|
)
|
|
|
4,217
|
|
Deferred revenue
|
|
|
(16,297
|
)
|
|
|
(75,224
|
)
|
Net cash used in operating activities
|
|
|
(112,680
|
)
|
|
|
(212,285
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Purchases of equipment
|
|
|
—
|
|
|
|
(4,589
|
)
|
Net cash used in investing activities
|
|
|
—
|
|
|
|
(4,589
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from sale of common stock
|
|
|
25,000
|
|
|
|
285,000
|
|
Principal payments on notes payable
|
|
|
(18,642
|
)
|
|
|
—
|
|
Loans from stockholders
|
|
|
58,140
|
|
|
|
5,500
|
|
Net cash provided by financing activities
|
|
|
64,498
|
|
|
|
290,500
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash
|
|
|
(48,182
|
)
|
|
|
73,626
|
|
|
|
|
|
|
|
|
|
|
Cash at beginning of period
|
|
|
53,078
|
|
|
|
107,181
|
|
Cash at end of period
|
|
$
|
4,896
|
|
|
$
|
180,807
|
|
|
|
|
|
|
|
|
|
|
Non cash investing and financing activities:
|
|
|
|
|
|
|
|
|
Stock settlement payable (resolution)
|
|
$
|
—
|
|
|
$
|
124,578
|
|
Prepaid expenses paid with preferred stock
|
|
$
|
185,000
|
|
|
$
|
—
|
|
Loans from stockholders repaid with common stock
|
|
$
|
10,000
|
|
|
$
|
7,500
|
|
Deferred compensation paid with preferred stock
|
|
$
|
110,000
|
|
|
$
|
—
|
|
Common stock issuable in prepayment of services
|
|
$
|
—
|
|
|
$
|
22,500
|
|
Notes payable paid by shareholders
|
|
$
|
23,001
|
|
|
$
|
—
|
|
Issuance of common stock issuable
|
|
$
|
522,720
|
|
|
$
|
72,500
|
|
|
|
|
|
|
|
|
|
|
Cash paid for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
—
|
|
|
$
|
40
|
|
Income taxes
|
|
$
|
—
|
|
|
$
|
—
|
|
VIEW SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Nature of Operations
View Systems, Inc. (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 FiberXpress, Inc., which is a company
that specializes in developing and selling equipment and components for the fiber optic and communication cable industries.
Basis of Consolidation
The consolidated financial statements
include the accounts of the Company and its wholly owned subsidiary, 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.
Accounts Receivable
Accounts receivable consists of amounts
due from customers. Management periodically reviews the open accounts and makes a determination as to the ultimate collectability
of each account. Once it is determined that collection is in doubt the account is written off as a bad debt. In order to provide
for accounts that may become uncollectible in the future, the Company has established an allowance for doubtful accounts. The
balance of the allowance for doubtful accounts is based on management’s judgment and the Company’s prior experience
with managing accounts receivable.
The Company recognized bad debt expense
of $0 and $0 for the periods ended June 30, 2014 and 2013, respectively. Management’s determination is that the remaining
balance is collectible and therefore no allowance for possible uncollectible accounts receivable has been recorded for the period
ended June 30, 2014 and for the year ended December 31, 2013.
Revenue Recognition
The Company has three main products,
namely the concealed weapons detection system, the visual first responder system and the Viewmaxx digital video system. In all
cases revenue is considered earned when the product is shipped to the customer, installed (if necessary) and accepted by the customer
as a completed sale. 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.
In those cases revenue is recognized at the completion of the installation and training and acceptance by the customer. However,
the customer can also self-install or can engage another firm to provide installation and training. 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. Warranties can be
purchased for various periods but generally they are for one year period that begins after any other warranties expire. The revenue
from warranties is recognized on a straight line bases over the period covered by the warranty. Prior to the issuance of financial
statements management reviews any returns subsequent to the end of the accounting period which are from sales recognized during
the accounting period, and makes appropriate adjustments as necessary. Product prices are fixed or determinable and products are
only shipped when collectability is reasonably assured.
VIEW SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES (continued)
Inventories
Inventories are stated at the lower
of cost or market. Cost is determined by the first-in-first-out method (FIFO). As of June 30, 2014 and December 31, 2013 the Company’s
inventory consisted of assembled units as well as unassembled parts of products.
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
Depreciation expense for the periods
ended June 30, 2014 and 2013 amounted to $3,200 and $5,762, respectively.
Stock-Based Compensation
We account 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.
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 2009. 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.
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 June
30, 2014 and 2013 does not include potential shares of common stock equivalents, as their impact would be antidilutive.
VIEW SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
2. GOING CONCERN
The Company has incurred and continues
to incur, losses from operations. For the six month periods ended June 30, 2014 and 2013, the Company incurred net losses of
$831,510 and $850,625, respectively. In addition, certain notes payable have come due and the Company is in default.
Management is actively working to cure
these situations and has implemented major plans 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. In addition, during 2014 and 2013, the Company implemented marketing and information strategies
to increase public awareness of its products and thereby sales. It has established new international markets which it believes
will be the source for sales growth in the very near future. It also was able to reduce the per-unit cost of manufacturing its
products. Additionally, the Company has increased the efficiency of its processes and focused its development efforts on products
that appear to have greater sales potential.
Historically, the Company has financed
its operations primarily through private financing. It is management’s intention to finance operations during the remainder
of 2014 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 discussed in Note 4, the Company is currently
in default on a $50,000 note payable to 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
The Financial Accounting Standards Board
(“FASB”) periodically issues new accounting standards in a continuing effort to improve standards of financial accounting
and reporting. The Company has reviewed the recently issued pronouncements and concluded that there are no new accounting standards
are applicable to the Company.
In May 2014, the FASB issued Accounting
Standards Update No. 2014-09 Revenue from Contracts with Customers (Topic 606). This guidance is intended to improve and converge
with international standards the financial requirements for revenue from contracts with customers. It will be effective for our
first quarter 2017 and early adoption is not permitted. We are currently evaluating the impact of adoption of this new accounting
pronouncement on our financial statements.
VIEW SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
4. NOTES PAYABLE
Notes payable as of June 30, 2014 and December 31, 2013
consists of the following:
|
|
June 30, 2014
|
|
December 31, 2013
|
|
|
|
|
|
Lafayette Community Bank
A term loan secured by a stockholder, payable in monthly installments of $2,587 commencing in December 25, 2009 but refinanced in May 2011. The loan is due in full on May 18, 2016. Interest accrues monthly at 7.5% per annum.
|
|
|
59,595
|
|
|
|
72,596
|
|
|
|
|
|
|
|
|
|
|
Stockholder
Demand
loan payable with interest at 5% per month. The loan is secured by the Company’s accounts receivable. The note payable matured
on December 17, 2009 at which time the debt became due and payable and therefore the loan is currently in default.
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
Investor
An unsecured loan from an investor, payable in monthly installments of $5,000 commencing July 1, 2013 until paid in full. The loan bears no interest and is the amount due as a result of a settlement of the stock settlement payable mentioned below.
|
|
|
10,000
|
|
|
|
45,000
|
|
|
|
|
|
|
|
|
|
|
Chase
A secured loan to finance the purchase of a truck, payable monthly in installments of $533, which includes interest at 5.34% per annum.
|
|
|
976
|
|
|
|
4,618
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
$
|
120,571
|
|
|
$
|
172,214
|
|
Less current portion
|
|
|
88,483
|
|
|
|
126,116
|
|
Non-current portion
|
|
$
|
32,088
|
|
|
$
|
46,098
|
|
Principal payments for the next five years ending June 30:
|
2015
|
|
|
$
|
88,483
|
|
|
2016
|
|
|
|
29,643
|
|
|
2017
|
|
|
|
2,445
|
|
|
Thereafter
|
|
|
|
0
|
|
|
Total
|
|
|
$
|
120,571
|
|
5. INCOME TAXES
For income tax purposes the Company
has net operating loss carry forwards of approximately $26,158,000 as of December 31, 2013 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 that 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. Due to the continuous losses
from operations the Company has assigned a full valuation allowance against its deferred tax assets.
VIEW SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
6. 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 corporation, 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 preferred 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 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
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 services 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, current and future compensation
of $480,000.
7. OPERATING LEASE
The Company leases 3,600 sq. ft. of
office and warehouse space at 1550 Caton Center Drive, Suites D and E, Baltimore, Maryland, under a non-cancellable operating
lease which expires in December 2014. The original base rent was $3,077 per month with a 3% annual rent escalator clause. The
current monthly rent is $3,464. Rent expense, which includes the Caton Center property as well as some other short-term leases,
was $20,562 and $24,825 for the periods ended June 30, 2014 and 2013, respectively.
8. STOCK BASED COMPENSATION
During the periods ended June 30, 2014
and 2013 the Company issued stock in payment of services and debts as follows:
For the six month period ended June
30, 2014 the Board authorized the issuance of 15,700,000 shares of common stock in payment of services amounting to $309,500.
In addition, 23,631,111 shares were issued during 2014 for stock shown as issuable as of December 31, 2013.
For the six month period ended June
30, 2013, the Board authorized the issuance of 2,833,333 shares of common stock in payment of services in the amount of $86,500.
In addition 1,500,000 shares were issued in payment of loans in the amount of $7,500. Although authorized prior to June 30, 2013,
these shares were not issued until after Jun3 30, 2013.
Independent contractors and consultants’
expense was based on the value of services rendered or the value of the common stock issued, if more reliably determined.
VIEW SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
8. STOCK BASED COMPENSATION (continued)
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
were issued during the period ended June 30, 2013 to a member of the board of directors as compensation for services
performed. Stock option expense was $0 and $450,000 for the six month periods ended June 30, 2014 and 2013, respectively.
|
|
Number of Options
|
|
Weighted Average Exercise Price
|
|
Weighted Average Remaining Contractual Life
|
|
Aggregate Intrinsic Value
|
|
|
|
|
|
|
|
|
|
|
Outstanding at January 1, 2014
|
|
|
|
10,000,000
|
|
|
$
|
0.03
|
|
|
|
4.14
|
|
|
$
|
—
|
|
|
Granted
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Exercised
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Forfeited
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Outstanding at June 30, 2014
|
|
|
|
10,000,000
|
|
|
$
|
0.03
|
|
|
|
3.62
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at June 30, 2014
|
|
|
|
10,000,000
|
|
|
$
|
0.03
|
|
|
|
3.62
|
|
|
$
|
—
|
|
9. RELATED PARTY TRANSACTIONS
During the periods reflected on this report
certain shareholders made cash advances to the Company to help with short-term working capital needs. The net proceeds from stockholders
with unstructured payment plans amounted to $58,140 and $5,500 for the period ended June 30, 2014 and 2013, respectively. The
total balance due on unstructured loans from shareholders amounted to $334,716 and $251,054 at June 30, 2014 and December 31,
2013, respectively. Loans from stockholders made with repayment terms are described in Note 4 above.
Also, please see Note 12 regarding a contingent
liability payable to the Company’s CEO in the case of an occurrence of certain events relating to a significant change of
control.
During the period ended June 30, 2014 a Board
member accrued fees for professional services to the Company in the amount of $90,000 of which $45,000 was paid subsequent to
June 30, 2014.
During the year ended December 31, 2013 a Board
member provided professional services to the Company for which he was paid $25,000 in cash and awarded 7,113,333 shares of common
stock with a value of $173,500. Of the total shares 1,680,000 were issued subsequent to December 31, 2013 and are reflected on
the financial statements as issuable common stock.
VIEW SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
10. STOCK SETTLEMENT IN PROCESS
During 2006 the Company negotiated a loan from an individual
in the amount of $100,000. Under the terms of the loan it was to be repaid in full within one year together with interest at the
rate of 15% per annum. The Company was unable to pay the loan when due and under the threat of litigation the note holder was
given 3,500,000 shares of common stock. The stock was issued on January 28, 2010. At that time the principal, accrued interest
and legal fees amounted to $163,366. Under the terms of a court ordered stipulation agreement if the note holder was unable to
liquidate the stock in full payment of the stipulated amount then the Company would be obligated to issue more stock to him to
make up for the shortage. As a part of the agreement the note holder is required to account for proceeds realized from the sales
of stock.
During the year ended December 31, 2011, $38,788 was levied
against the Company’s bank accounts as a result of a legal action brought to force collection of the balance. The note holder’s
contention was that stock sales had fallen well short of the balance due and thus he was due to be paid. While the Company had
a complaint that they had not been provided with any information regarding sales of stock, management was unable to stave off
the forced levy. As a result of the levy the debt balance as of December 31, 2011 was reduced to $124,578.
Subsequent to June 30, 2013, the note holder
reported that he had sold all of the 3,500,000 shares of the common stock noted above. After giving effect to those proceeds,
and the note holder and the Company agreed to settle the remaining debt for $75,000. As a result, the Company has agreed to make
monthly payments of $5,000, commencing in July 2013, until the debt is paid in full. The agreement provides that there is no interest
due on this debt. As of June 30, 2014 the balance due on this agreement was $10,000.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
EXECUTIVE OVERVIEW
View Systems, Inc. develops, produces
and markets computer software and hardware systems for security and surveillance applications. Our digital video recorder was our
first product, which we enhanced by developing interfaces with other various technologies, such as facial recognition, access control
cards and control devices such as magnetic locks, alarms and other common security devices. We sold this product to various commercial
entities including schools, restaurants, night clubs, car washers and car dealers (license plate recognition was incorporated into
these types of installations), ranches and gas stations. We expanded our product line to include a concealed weapons detection
system we call ViewScan. We have penetrated four major market segments for this product: correctional facilities, judicial facilities,
probation offices and federal facilities in the Mid-Atlantic States, the West Coast and the South. We added a hazardous material
first response wireless video transmitting system to our product line we refer to as Visual First Responder. The markets for these
units are first responder units for agencies such as the National Guard, Coast Guard, Army, state law enforcement agencies, and
fire departments. Both of these technologies were licensed from the U.S. Department of Energy's Idaho National Engineering Laboratory
("INEL"). Until 2005 we assembled all of our products in-house, but we currently contract with third party manufacturers
to manufacture some components of our products.
Our strategy for 2013 for ViewScan is
to extend our sales and service provisions. To increase sales we offer demonstrations of our products to potential customers in
specific geographical areas and at region - specific trade shows, such as sheriff’s conventions, court administrators’
meetings, civil support team, state police and dealer shows. When a demonstration results in a sale of one of our products,
then we attempt to expand that market by contacting other potential customers in the area, such as, correctional facilities, courthouses
and other municipal buildings.
In the short term, management plans
to raise funds through sales of our common stock for fulfillment (manufacturing, packaging and shipment), which will set the stage
for future orders becoming self funding. Then the next phase of our business plan will be to raise additional funds
through common stock offerings to provide working capital to finance several acquisitions and the integration of new technologies
and businesses. We also intend to continue to strengthen our balance sheet by paying off debt either through exchange of equity
for cancellation of debt obligations or the payment of debt obligations with cash.
CURRENT PRODUCTS AND SERVICES
ViewScan Concealed Weapons Detection System
ViewScan, which is also sold under the name
“Secure Scan”, is a walk-through concealed weapons detector which uses data sensing technology to accurately pinpoint
the location, size and number of concealed weapons. This walk-through portal is controlled by a master processing board and a personal
computer based unit which receives magnetic and video information and combines it in a manner that allows the suspected location
of the weapon to be stored electronically and referenced. Because ViewScan does not produce a graphic anatomical display of a scanned
person, the Company does not believe that ViewScan is susceptible to privacy concerns raised about certain personnel scanners produced
by other companies.
ViewScan products are distributed in three
basic configurations; stand-alone units, portable units and integrated door systems.
Today we sell these units for an average retail
price of approximately $9,000 with a one year extended warranty. We feel the new reduced price points and enhanced interface abilities
will allow us to be more competitive, along with the advantages of three to four times the throughput rate, non-contact imaging
and permanent visual storage, and a log of all individuals scanned. We have been making additional cost reductions through economies
of scale and larger scale integration by taking advantage of ongoing computer component improvements.
3D Facial Recognition Technology - Animetrics
Inc.
On August 9, 2012, we entered into a partnership
with Animetrics Inc. ("Animetrics"), a leading developer of advanced 3D facial recognition and identify management solutions
(the "Animetrics Agreement"). In accordance with the terms and provisions of the Animetrics Agreement, we will integrate
Animetrics' next-generation 3D facial recognition technology into its concealed weapons detection systems used for security screening
at correctional facilities, stadiums, courthouses, schools and other public facilities. Our ViewScan Concealed Weapons Detector
is a walk-through portal which uses advanced magnetics technology to accurately pinpoint threat objects on a visual image of the
subject. The system is sensitive enough to locate items such as hidden razor blades and cellular phones but will ignore common
objects such as coins, keys and belt buckles. The initial objective is to integrate Animetrics' facial identify management software,
the FaceR identity management solution (FIMS) onto our ViewScan, incorporating next generation facial recognition and investigative
face biometric capabilities into the weapons detection and identification system. We also plan to utilize Animetrics' cloud-based
FaceR FIMS and its suite of FaceR facial biometric identify and screening applications, including FaceR Mobile ID, FaceR Credential
Me and ForensicaGPS across its entire portfolio of security and surveillance systems and applications.
The FIMS is deployed either via Web server
or in a clod-based architecture system. Both configurations provide centralized and scalable management of highly distributed :one-to-many"
identity searched in the field. FIMS utilized Animetrics' FACEngine biometric facial recognition technology that converts 2D images
to accurate 3D geometrics for enhanced biometric templates. FIMS makes these 3D facial "signatures" for identification
purposes available to credentialized users via any mobile or fixed digital device with internet connectivity. This powerful combination
with the ViewScan delivers most advanced facial-recognition and comparison technology to personnel in the field providing accurate
and fast results.
National Security Resources
On February 9, 2012, we entered into a partnership
(the "Partnership") with National Security Resources, Inc., a facial recognition company ("National Security Resources").
In accordance with the Partnership, we will work together with National Security Resources to develop and deliver an integrated
solution for a combined technology line. We intend to integrate National Security Resources' advanced "scan and match facial
recognition" ability into our concealed weapons detection ViewScan.
Multi-Mission Mobil Video
The Multi-Mission Mobil Video (MMV) is a lightweight,
wireless camera system housed in a tough, waterproof body. The camera system sends back real-time images to a computer or video
monitor at the command post located outside the exclusion zone or containment area. The MMV is able to transmit high quality video
in the most difficult environments. The image is received from the MMV and displayed on a monitor and can be easily recorded using
a common camcorder or VCR with video input. The camera can be completely submerged for fast and easy decontamination.
The MMV also uses an Extension Link which is
a separate transmitter and receiving system that increases the operating range of the MMV. The Extension Link has field-selectable
channels to avoid interference at longer distances. We have also incorporated a video encryption feature that allows first responders
to transmit on-scene video to the command post without the data being intercepted by unwanted parties.
The complete MMV is fully deployed by one person
in a stand-alone configuration in less than 10 minutes. The system is battery operated and can operate for eight continuous hours
using one set of spare camera batteries. We sell this base product for approximately $9,000 retail, but the cost can be as high
as $18,500 depending on additional special features such as the extension link and encryption capabilities.
This product allows hands-free operation of
the unit because it allows the person to wear the unit with a helmet mounted monocle.
ViewMaxx Digital Video System
ViewMaxx is a high-resolution, digital video
recording and real-time monitoring system. This system can be scaled to meet a specific customer's needs by using anywhere from
one camera up to 32 surveillance cameras per each ViewMaxx unit. The system uses a video capture card recording which translates
closed-circuit television analog video data (a format normally used by broadcasters for national television programs) to a computer
readable digital format to be stored on direct access digital disk devices rather than the conventional television format of video
tape.
ViewMaxx offers programmable recording features
that can eliminate the unnecessary storage of non-critical image data. This ability allows the user to utilize the digital disk
storage more efficiently. The ViewMaxx system can be programmed to satisfy each customer's special requirements, be it coverage
which is continuous, or only when events are detected. For example, it can be programmed to begin recording when motion is detected
in a surveillance area, or a smaller field of interest within the surveillance area, and can be programmed to notify the user with
an alarm or message.
Viewing of the stored digital images can be
performed locally on the computer's video display unit or remotely through the customer's existing telecom systems or data network.
It also uses a multi-mode search tool to quickly play back files with simple point and click operations. The search mode parameters
can be set according to a specific monitoring need, such as: certain times of day, selected areas of interest in the field of view
or breaches of limit areas. These features and abilities avoid the need to review an entire, or many, VCR tapes for a critical
event.
Depending on the features of a particular system
the retail price including installation can range from approximately $5,000 up to $50,000.
Additional Applications and Integration
of ViewScan and ViewMaxx
We also offer integration of other products
with ViewScan or ViewMaxx. Biometric verification is a system for recognizing faces and comparing them to known individuals, such
as employees or individuals wanted by law enforcement agencies. This product can be interfaced with ViewScan and/or ViewMaxx to
limit individual access to an area. ViewScan and/or ViewMaxx can be coupled with magnetic door locks to restrict access to a particular
area. We also offer a central monitoring or video command center for ViewScan or ViewMaxx products.
The MINI
The MINI (Mobile Intelligent Network Informer)
is a portable, wireless watchdog communication device that checks for intrusion into uninhabited areas such as foreclosed houses,
storage spaces and vacation homes. The MINI senses motion and sends text messages to a user's cell phone. Property and remote assets
may be guarded by this innovative device that requires no plug-in electricity, no physical phone line and no monitoring service.
The MINI runs on batteries and one configuration of the system can even send a photo of the intruder to the user's cell phone.
Camera settings can be controlled and changed via SMS commands.
We license the MINI from its manufacturer and
act as a distributor. The Company established a dedicated e-commerce platform for the direct sale of this innovative product, which
went online in February 2010. We are marketing the MINI to large potential users, such as real property managers, as well as retail
customers through the www.minicamsim.com website. We have had non-material amounts of revenue from MINI sales thus far, which we
attribute to a lack of advertising funds and market awareness.
RESULTS OF OPERATIONS
The following discussions are based
on our consolidated financial statements, including our subsidiaries. These charts and discussions summarize our financial statements
for the six months ended June 30, 2014 and June 30, 2013 and should be read in conjunction with the financial statements, and notes
thereto, included with our most recent Form 10-K for fiscal year ended December 31, 2013.
SUMMARY COMPARISON OF OPERATING RESULTS*
|
|
|
Six Month Period
ended June 30
|
|
|
|
2014
|
|
|
|
2013
|
|
Revenues, net
|
|
$
|
191,050
|
|
|
$
|
405,612
|
|
Cost of sales
|
|
|
37,553
|
|
|
|
224,588
|
|
Gross profit
|
|
|
153,497
|
|
|
|
181,024
|
|
Total operating expenses
|
|
|
967,084
|
|
|
|
539,872
|
|
(Loss) from operations
|
|
|
(813,587
|
)
|
|
|
(358,848
|
)
|
Total other income (expense)
|
|
|
(17,923
|
)
|
|
|
(491,777
|
)
|
Net loss
|
|
|
(831,510
|
)
|
|
|
(850,625
|
)
|
Net loss per share
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
Six Month Period Ended June 30, 2014 Compared
to Six Month Period Ended June 30, 2013.
Our net loss for the six month
period ended June 30, 2014 was ($831,510) compared to a net loss of ($850,625) during the six month period ended June 30, 2013
(a decrease in net loss of $19,115). We generated net revenues of $191,050 during the six month period ended June 30, 2014 compared
to $405,612 during the six month period ended June 30, 2013 (a decrease in net revenue of $214,562). During the six month period
ended June 30, 2014, revenue consisted of: (i) $127,052 (2013: $358,999) in product sales and installation; and (ii) $63,998 (2013:
$46,613) in extended warranties.
Revenue is generally considered
earned when the product is shipped to the customer. The concealed weapons detection system and the digital video system each require
installation and training. Training is a revenue source separate and apart from the sale of the product. In those cases revenue
is recognized at the completion of the installation and training.
We have experienced a decrease
in sales of our products which resulted in decreased revenues for the six month period ended June 30, 2014 compared to the six
month period ended June 30, 2013. The decline in decreased revenues was due to a decline in the demand for our security products.
Cost of goods sold decreased during
the six month period ended June 30, 2014 to $37,553 from $224,588 incurred during the six month period ended June 30, 2013, resulting
in a gross profit of $153,497 for the six month period ended June 30, 2014 compared to a gross profit of $181,024 for the six month
period ended June 30, 2013. During the six month period ended June 30, 2014, the prevailing trend of decreasing cost of goods sold
was due to an decrease in the security-related products ordered by government agencies and due to the decrease in associated costs
related to the components of our security-related products, which is based on general overall economic factors. The gross profit
percentage on our non-warranty revenue, which is a measurement of gross profit as a percent of sales of products, installations
and related revenue, decreased during the six month period ended June 30, 2014 as compared to the six month period ended June 30,
2013.
During the six month period ended
June 30, 2014, we incurred operating expenses of $967,084 compared to $539,872 incurred during the six month period ended June
30, 2013 (an increase of $427,212). These operating expenses incurred during the six month period ended June 30, 2014 consisted
of: (i) general and administrative of $139,469 (2013: $143,970); (ii) professional fees of $570,166 (2013: $258,434); and (iii)
salaries and benefits of $257,449 (2013: $137,468).
During the six month period ended
June 30, 2014, our general and administrative expenses generally consisted of: (i) bank service charges of $
1,053
(2013: $
2,371
); (ii) contractual temporary labor of $
20,878
(2013: $17,159
); (iii) filing and service fees of $
5,307
(2013: $
18,072
);
(iv) insurance of $
7,975
(2013: $
17,076
); (v) postage
and delivery of $
8,357
(2013: $
3,210
); (vi) rent
of $
20,563
(2013: $
24,825
); (vi) supplies of $
7,376
(2013: $
6,355
); (vii) telephone of $
4,630
(2013:
$
6,700
); (viii) other of $
3,574
(2013:
-
$
7,631
);
(ix) travel $
40,867
(2013: $
39,402
); (x) utilities of
$
5,546
(2013: $
5,010
); (xi) advertising and promotion
$
3,447
(2013: $
3,720
); (xii) depreciation of $
3,200
(2013: $
5,762
); (xiii) auto and truck of $
3,071
(2013:
$
1,939)
; and (xiv) pro
duct development
of $
3,626
(2013: $-0-).
During the six month period ended June
30, 2014, our professional fees consisted of: (i) accounting fees of $
62,829
(2013: $
67,307
);
(ii) engineering fees of $
106,500
(2013: $
52,500
); (iii)
legal fees of $
6,200
(2013: $
20,470
); (iv) investor relations
fees of $
22,500
(2013: $
35,625
); (v) management and operations
$
180,000
(2013: $
27,000
); (vi) marketing and promotion
$
190,728
(2013: $
55,532
); and (vii) programming of $
1,409
(2013: $-0-).
Operating expenses incurred during
the six month period ended June 30, 2014 compared to the six month period ended June 30, 2013 increased primarily due to the increase
in professional fees of $311,732 and salaries and benefits of $119,981.
Our loss from operations during
the six month period ended June 30, 2014 was ($813,587) compared to a loss from operations of ($358,848) during the six month period
ended June 30, 2013.
During the six month period ended
June 30, 2014, we incurred other expenses as follows: (i) stock option compensation based on valuation of options granted of $-0-
(2013: $450,000); and (ii) interest expense in the amount of ($17,923) (2013: ($41,777). The decrease in interest expense was due
to a decrease in interest bearing notes payable. During the six month period ended June 30, 2013, we realized stock compensation
based on issuance of shares as compensation for salaries.
After deducting
other expense, we realized a net loss of ($831,510) or ($0.00) per share for the six month period ended June 30, 2014
compared to a net loss of ($850,625) or ($0.00) per share for the six month period ended June 30, 2013. The weighted average
number of shares outstanding was 249,835,845 for the six month period ended June 30, 2014 compared to 181,154,143 for the six
month period ended June 30, 2013.
Three Month Period Ended June 30, 2014 Compared
to Three Month Period Ended June 30, 2013.
Our net loss for the three month
period ended June 30, 2014 was ($452,498) compared to a net loss of ($315,742) during the three month period ended June 30, 2013
(an increase in net loss of $136,756). We generated net revenues of $100,777 during the three month period ended June 30, 2014
compared to $67,382 during the three month period ended June 30, 2013 (an increase in net revenue of $33,395). During the three
month period ended June 30, 2014, revenue consisted of: (i) $73,135 (2013: $38,258) in product sales and installation; and (ii)
$27,642 (2013: $29,124) in extended warranties.
Revenue is generally considered
earned when the product is shipped to the customer. The concealed weapons detection system and the digital video system each require
installation and training. Training is a revenue source separate and apart from the sale of the product. In those cases revenue
is recognized at the completion of the installation and training.
We have experienced a slight increase
in sales of our products which resulted in increased revenues for the three month period ended June 30, 2014 compared to the three
month period ended June 30, 2013. The increase in revenues was due to an increase in marketing efforts of our security products.
Cost of goods sold decreased during
the three month period ended June 30, 2014 to $18,482 from $27,098 incurred during the three month period ended June 30, 2013,
resulting in a gross profit of $82,295 for the three month period ended June 30, 2014 compared to a gross profit of $40,284 for
the three month period ended June 30, 2013. During the three month period ended June 30, 2014, the prevailing trend of decreasing
cost of goods sold was due to a decrease in associated costs related to the components of our security-related products, which
is based on general overall economic factors. The gross profit percentage on our non-warranty revenue, which is a measurement
of gross profit as a percent of sales of products, installations and related revenue, increased during the three month period
ended June 30, 2014 as compared to the three month period ended June 30, 2013.
During the three month period
ended June 30, 2014, we incurred operating expenses of $525,751 compared to $327,143 incurred during the three month period ended
June 30, 2013 (an increase of $198,608). These operating expenses incurred during the three month period ended June 30, 2014 consisted
of: (i) general and administrative of $78,894 (2013: $85,573); (ii) professional fees of $289,428 (2013: $169,048); and (iii)
salaries and benefits of $157,429 (2013: $72,522).
During the three month period ended June
30, 2014, our general and administrative expenses generally consisted of: (i) bank service charges of $
499
(2013: $
1,494
); (ii) contractual temporary labor of $
18,463
(2013: $
14,808
); (iii) filing and service fees of $
3,176
(2013: $
11,150
); (iv) insurance of $
7,975
(2013: $
13,929
);
(v) postage and delivery of $
3,316
(2013: $
1,342)
;
(vi) rent of $
10,086
(2013: $
11,680
); (vi) supplies of
$
3,324
(2013: $
3,926
); (vii) telephone of $
2,449
(2013: $
2,790
); (viii) other of $
1,330
(2013: $
-3,635
);
(ix) travel $
22,507
(2013: $
21,810
); (x) utilities of $
2,889
(2013: $
2,243
); (xi) advertising and promotion $
1,279
(2013:
$
2,650
); (xii)
and
depreciation of $
1,600
(2013: $
2,880
)
.
During the three month period ended June
30, 2014, our professional fees consisted of: (i) accounting fees of $
29,504
(2013: $
57,787
);
(ii) engineering fees of $
27,500
(2013: $
29,900
); (iii)
legal fees of $
5,400
(2013: $
20,470
); (iv) investor relations
fees of $
20,000
(2013: $
5,625
); (v) management and operations
$
130,000
(2013: $
27,000
); (vi) marketing and promotion
$
77,024
(2013: $
28,266
); and (vii) programming of $
-0-
(2013: $-0-).
Operating expenses incurred during
the three month period ended June 30, 2014 compared to the three month period ended June 30, 2013 increased primarily due to the
increase in professional fees of $120,380 and salaries and benefits of $84,907.
Our loss from operations during
the three month period ended June 30, 2014 was ($443,456) compared to a loss from operations of ($286,859) during the three month
period ended June 30, 2013.
During the three month period ended
June 30, 2014, we incurred other expense in the form of interest expense in the amount of ($9,042) (2013: ($28,883). The decrease
in interest expense was due to a decrease in interest bearing notes payable.
After deducting
other expense, we realized a net loss of ($452,498) or ($0.00) per share for the three month period ended June 30, 2014
compared to a net loss of ($315,742) or ($0.00) per share for the three month period ended June 30, 2013. The weighted
average number of shares outstanding was 255,056,135 for the three month period ended June 30, 2014 compared to 188,604,329
for the three month period ended June 30, 2013.
LIQUIDITY AND CAPITAL RESOURCES
Six Month Period Ended June 30, 2014
As at the six month period ended June 30, 2014,
our current assets were $236,018 and our current liabilities were $1,517,110, which resulted in a working capital deficit of $1,281,092.
As at the six month period ended June 30, 2014, current assets were comprised of: (i) $4,896 in cash; (ii) $45,034 in accounts
receivable; (iii) $1,088 in inventory; and (iv) $185,000 in prepaid expenses. As at the six month period ended June30, 2014, current
liabilities were comprised of: (i) $528,084 in accounts payable; (ii) $7,490 in deferred compensation; (iii) $169,534 in accrued
and withheld payroll taxes payable; (iv) $58,125 in accrued interest payable; (v) $225,000 in accrued royalties payable; (vi) $334,716
in loans from stockholders; (vii) $88,483 in notes payable; (viii) $105,678 in deferred revenue.
As of June 30, 2014, our total assets were
$246,082 comprised of: (i) $236,018 in current assets; (ii) property and equipment (net) of $7,192; and (iii) $2,872 in deposits.
The increase in total assets during the six month period ended June 30, 2014 from fiscal year ended December 31, 2013 was primarily
due to the increase in prepaid expenses.
As of June 30, 2014, our total liabilities
were $1,549,198 comprised of: (i) $1,517,110 in current liabilities; and (ii) $32,088 in notes payable (non-current portion). The
increase in liabilities during the six month period ended June 30, 2014 from fiscal year ended December 31, 2013 was primarily
due to the increase in accounts payable and loans from stockholders.
Stockholders’ deficit increased
from ($1,296,106) for fiscal year ended December 31, 2013 to ($1,303,116) for the six month period ended June 30, 2014.
Cash Flows from Operating Activities
We have not generated positive cash flows from
operating activities. For the six month period ended June 30, 2014, net cash flows used in operating activities was ($112,680)
compared to net cash flows used in operating activities of ($212,285) for the six month period ended June 30, 2013. Net cash flows
used in operating activities consisted primarily of a net loss of $831,510 (2013: $850,625), which was partially adjusted by: (i)
$3,200 (2013: $5,762) in depreciation and amortization; (ii) $309,500 (2013: $124,157) in common stock issued in payment of services;
(iii) $185,000 (2013: $-0-) in preferred stock issued in payment of services; (iv) $-0- (2013: $450,000 in stock option expense;
and (v) $2,521 (2013: $-0-).
Net cash flows used in operating activities
was further changed in operating assets and liabilities by: (i) a decrease in accounts receivable of $1,390 (2013: ($28,727); (ii)
a decrease of $23,021 (2013: $122,871) in inventories; and (iii) a decrease of $32,889 (2013: $-0-) in prepaid expenses.
Net cash flows used in
operating activities was further changed in cash by: (i) an increase in accounts payable of $170,281 (2013: ($108,699)); (ii) an
decrease in deferred compensation of $6,700 (2013: $48,456); (iii) an increase in accrued interest of $15,000 (2013: $38,073);
(iv) a decrease in payroll taxes accrued and withheld of $975 (2013: $4,217); and (v) a decrease in deferred revenue of $16,297
(2013: ($75,224)).
Cash Flows from Investing Activities
For the six month period ended June 30, 2014
, net cash flows used in investing activities was $-0- compared to net cash flows used in operating activities of $4,589 for the
six month period ended June 30, 2013 relating to purchases of equipment.
Cash Flows from Financing Activities
We have financed our operations primarily from
debt or the issuance of equity instruments. For the six month period ended June 30, 2014, net cash flows provided from financing
activities was $64,498 compared to $290,500 for the six month period ended June 30, 2013. Cash flows from financing activities
for the six month period ended June 30, 2014 consisted of: (i) $25,000 in proceeds from sales of common stock; and (ii) $58,140
in loans to/from stockholders, which was offset by $18,642 in principal payments on notes payable.
Cash flows from financing activities for the
six month period ended June 30, 2014 consisted of: (i) $285,000 in proceeds from sale of common stock; and (ii) $5,500 in loans
to/from stockholders.
PLAN OF OPERATION AND FUNDING
We have incurred losses for the past two fiscal
years and had a net loss of $831,510 at June 30, 2014 and $850,625 at June 30, 2013. Our revenues from several product sales have
been decreasing and some others increasing but are not sufficient to cover all of our operating expenses. Our auditors have expressed
substantial doubt that we can continue as a going concern. We are continuing to push sales and control costs.
Management intends to finance our 2014 operations
primarily with the revenue from product sales and any cash short falls will be addressed through equity or debt financing, if available.
Management expects revenues will continue to increase but not to the point of profitability in the short term. We will need to
continue to raise additional capital, both internally and externally, to cover cash shortfalls and to compete in our markets. At
our current revenue levels management believes we will require an additional $1,200,000 in equity financing during the next 12
months to satisfy our cash requirements of approximately $100,000 per month for operations and to facilitate our business plan.
These operating costs include cost of sales,
general and administrative expenses, salaries and benefits and professional fees related to contracting engineers. We have insufficient
financing commitments in place to meet our expected cash requirements for 2014 and we cannot assure you that we will be able to
obtain financing on favorable terms. If we cannot obtain financing to fund our operations in 2013, then we may be required to reduce
our expenses and scale back our operations.
Going Concern
If the market price of our common stock falls
below the fixed price of our registered stock offering, as in prior years we may again have insufficient financing commitments
in place to meet our expected cash requirements for 2014. We cannot assure you that we will be able to obtain financing on favorable
terms. If we cannot obtain financing to fund our operations in 2014, then we may be required to reduce our expenses and scale back
our operations. These factors raise substantial doubt of our ability to continue as a going concern. Footnote 2 to our financial
statements provides additional explanation of Management’s views on our status as a going concern. The audited financial
statements contained in this Annual Report do not include any adjustments to reflect the possible future effects on the recoverability
of assets or the amounts of liabilities that may result should we be unable to continue as a going concern.
Our independent registered accounting firm
included an explanatory paragraph December 31, 2013, in their reports on the accompanying financial statements for December 31,
2013 regarding concerns about our ability to continue as a going concern. Our financial statements contain additional note disclosures
describing the circumstances that lead to this disclosure by our independent auditors.
COMMITMENTS AND CONTINGENT LIABILITIES
We lease 3,600 sq. ft. of office and warehouse
space at 1550 Caton Center Drive, Suites D and E, Baltimore, Maryland. The base rent had been $3,077 per month with an annual rent
escalator of 3%. Under the current renewal the current monthly lease payment is $3,464.
Our total current liabilities increased to
$1,517,110 at the six month period ended June 30, 2014 compared to $1,419,772 at fiscal year ended December 31, 2013. As of June
30, 2014, our short and long term notes payable consist of the following:
•
|
|
We have financed a vehicle in 2009 through Chase Auto Finance with an outstanding balance of $976. Payments are $533 per month which includes interest at 5.34%. The loan is for 60 months with the final payment due in July 2014.
|
•
|
|
We are in default of a September 18, 2009 demand loan payable to an investor which was due December 17, 2009 in the amount of $50,000. Interest has accrued at 5% per month since December 17, 2009. The loan is secured by our accounts receivable. Effective July 1, 2012 the accrual of interest was halted by agreement with the lender.
|
•
|
|
A term loan secured by a shareholder payable in monthly installments of $2,587 commencing December 25, 2009 but re-financed in May 2011. The loan is due in full on May 18, 2016 and interest accrued monthly at 7.5% per annum.
|
Management intends to finance our 2014 operations
primarily with the revenue from product sales and any cash short falls will be addressed through equity or debt financing, if available.
Management expects revenues will continue to increase but not to the point of profitability in the short term. We will need to
continue to raise additional capital, both internally and externally, to cover cash shortfalls and to compete in our markets. At
our current revenue levels management believes we will require an additional $1,200,000 in equity financing during the next 12
months to satisfy our cash requirements of approximately $100,000 per month for operations and to facilitate our business plan.
These operating costs include cost of sales,
general and administrative expenses, salaries and benefits and professional fees related to contracting engineers. We have insufficient
financing commitments in place to meet our expected cash requirements for 2013 and we cannot assure you that we will be able to
obtain financing on favorable terms. If we cannot obtain financing to fund our operations in 2014, then we may be required to reduce
our expenses and scale back our operations.
OFF BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements
that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition,
revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
CONTRACTUAL OBLIGATIONS
As a “smaller reporting company”
as defined by Item 10 of Regulation S-K, we are not required to provide this information.
CRITICAL ACCOUNTING POLICIES
We have three main products, namely
the concealed weapons detection system, the visual first responder system and the Viewmaxx digital video system. In all cases revenue
is considered earned when the product is shipped to the customer, installed (if necessary) and accepted by the customer as a completed
sale. 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. In those
cases revenue is recognized at the completion of the installation and training and acceptance by the customer. However, the customer
can also self-install or can engage another firm to provide installation and training. 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. Warranties can be purchased
for various periods but generally they are for one year period that begins after any other warranties expire. The revenue from
warranties is recognized on a straight line bases over the period covered by the warranty. Prior to the issuance of financial statements
management reviews any returns subsequent to the end of the accounting period which are from sales recognized during the accounting
period, and makes appropriate adjustments as necessary. Product prices are fixed or determinable and products are only shipped
when collectability is reasonably assured.
Going Concern Opinion
You should carefully consider the risks,
uncertainties and other factors identified below because they could materially and adversely affect our business, financial condition,
operating results and prospects and could negatively affect the market price of our Common Stock. Also, you should be aware that
the risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties that we do not
yet know of, or that we currently believe are immaterial, may also impair our business operations and financial results. Our business,
financial condition or results of operations could be harmed by any of these risks. The trading price of our Common Stock could
decline due to any of these risks, and you may lose all or part of your investment. In assessing these risks you should also refer
to the information contained in or incorporated by reference to our Form 10-K for the year ended December 31, 2013, including
our financial statements and the related notes thereto.