ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
EXECUTIVE OVERVIEW
The following analysis of our consolidated financial condition and results of operations for the three-month period ended March 31, 2018 and March 31, 2017 should be read in conjunction with the Consolidated Financial Statements and other information presented elsewhere in this quarterly report.
Overview
View Systems, Inc. has developed, produced and marketed computer software and hardware systems for security and surveillance applications. In 1998 digital video recorder technology was our first developed product and we enhanced this product line 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 expanded our product line in 2002 to include a concealed weapons detection system we call ViewScan. In 2003 we added a hazardous material first response wireless video transmitting system to our product line we refer to as Visual First Responder. Unfortunately, the rising costs of manufacturing equipment and the large quantities required to become cost competitive has forced us to quit manufacturing our own products.
Our strategy for 2018 for ViewScan is to continue our extended warranty offerings and service provisions to the various installations we have. In the short term, management continues to raise funds by providing parts and repair service work to our current installations.
Then, the next phase of our business plan will be to raise additional funds through common stock offerings to provide working capital to finance new types of 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.
Products and Services
Our current products and services include:
ViewScan Concealed Weapons Detection System
ViewScan, which has also been 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 locations of the concealed weapon(s) to be displayed and stored electronically.
Medical Services Including Men's Health and Physiological Quality of Life
The company has opened and is operating a medical clinic including physical examinations, medical advice and prescriptions. The company has determined that there is a large demand by male consumers to extend their sexual ability and activities into later years. Many maladies including cardiovascular inadequacies, high blood pressure, diabetes, smoking and obesity are inhibiting aging males from enjoying sexual activity with their mates. Early results are stimulating the company to open more clinics, specifically in Pittsburg, Chicago and Philadelphia.
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 three months ended March 31, 2018 and March 31, 2017 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, 2017.
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SUMMARY COMPARISON OF OPERATING RESULTS
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Three ended March 31,
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2018
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2017
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Revenues, net
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$
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73,628
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$
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8,764
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Cost of sales
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6,176
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0
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Gross profit (loss)
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67,452
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8,764
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Total operating expenses
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135,294
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30,311
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Profit (Loss) from operations
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(67,843
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)
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(21,547
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Total other income (expense)
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(57,884
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(9,156
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Net income (loss)
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(125,727
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(30,703
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Net income (loss) per share
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$
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(0.00
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$
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(0.00
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Three Month Period Ended March 31, 2018 Compared to Three Month Period Ended March 31, 2017.
Our net loss for the three-month period ended March 31, 2018 was ($125,727) compared to a net loss of ($30,703) during the three month period ended March 31, 2018 (an increase in net loss of $95,024). We generated net revenues of $73,628 during the three month period ended March 31, 2018 compared to $8,764 during the three month period ended March 31, 2017 (an increase in net revenue of $64,864). Revenue is considered earned when service is provided and in addition when the product is shipped to the customer.
We have experienced an increase in sales of our services and products which resulted in increase revenues for the three month period ended March 31, 2018 compared to the three month period ended March 31, 2017. We believe the increased revenue is the result of the ramp up of services and the increase of sales of product. We also continue service our install base of security products and we continue to receive purchase orders for the View Scan.
Cost of service provided and the goods sold increased during the three month period ended March 31, 2018 to $6,176 from $0 incurred during the three month period ended March 31, 2017, resulting in a gross profit of $67,452 for the three month period ended March 31, 2018 compared to a gross profit of $8,764 for the three month period ended March 31, 2017. During the three month period ended March 31, 2018, the increase of cost of goods sold and service provided was due to our growth of the new venture into men's health.
During the three month period ended March 31, 2018, we incurred operating expenses of $ 135,295 compared to $30,311 incurred during the three month period ended March 31, 2017 (an increase of $104,984).
Operating expenses incurred during the three month period ended March 31, 2018 compared to the three month period ended March 31, 2017 increased primarily due to the increase in professional fees and general and administrative expenses.
Our net operating loss during the three-month period ended March 31, 2018 was ($125,727) compared to a net operating loss of ($30,703) during the three-month period ended March 31, 2017.
During the three-month period ended March 31, 2018, interest expense in the amount of ($10,184) (2017: ($9,156) was incurred. The increase in interest expense was due to continued interest paid on a loan from stockholder.
During the three-month period ended March 31, 2018, derivative expense in the amount of ($47,700) (2017: -0-) was incurred. The increase in derivative expense was due to due to a loan from a lending institution.
After deducting other expense, we realized a net loss of ($125,727) for the three month period ended March 31, 2018 compared to a net loss of ($30,703) for the three month period ended March 31, 2017.
The weighted average number of shares outstanding was 326,705,526 for the three month period ended March 31, 2018 compared to 326,705,526 for the three month period ended March 31, 2017.
LIQUIDITY AND CAPITAL RESOURCES
Three Month Period Ended March 31, 2018
As of March 31, 2018, our current assets were $40,421 and our current liabilities were $2,188,212, which resulted in a working capital deficit of $2,100,091. As at the three month period ended March 31, 2018, current assets were comprised of: (i) $40,421 in cash; (ii) $31,195 in accounts receivable (net of allowance of $1,000); and (iii) $1,197 in inventory.
As of March 31, 2018, current liabilities were comprised of: (i) $451,897 in accounts payable and accrued expenses; (ii) $319,579 in deferred compensation; (iii) $195,310 in accrued and withheld payroll taxes payable; (iv) $164,153 in accrued interest payable; (v) $225,000 in accrued royalties payable; (vi) $625,633 in loans from stockholders; (vii) $103,000 in notes payable; (viii) deferred revenue of $55,940; and derivative liability of $100,700.
As of March 31, 2018 our total assets were $41,618 comprised of: (i) $40,421 in current assets; (ii) property and equipment (net) of $1,197; and (iii) $9,226 in deposits. The increase in total assets during the three month period from fiscal year ended December 31, 2017 was primarily due to the increase in accounts receivable.
As of March 31, 2018 our total liabilities were $2,188,212 comprised of: (i) $2,087,512 in current liabilities; and (ii) $100,700 in derivative liability.
Stockholders' deficit increased from ($2,020,867) for fiscal year ended December 31, 2017 to ($2,146,594) for the three month period ended March 31, 2018.
Cash Flows from Operating Activities
For the three month period ended March 31, 2018, net cash flows provided by operating activities was $32,455 compared to net cash flows used in operating activities of ($45) for the three month period ended March 31, 2017.
Cash Flows from Investing Activities
For the three month periods ended March 31, 2017 and March 31, 2016, net cash flows used in investing activities was $-0-.
Cash Flows from Financing Activities
We have financed our operations primarily from debt or the issuance of equity instruments. For the three month period ended March 31, 2018, net cash flows provided from financing activities was $11,401 compared to $60 for the three-month period ended March 31, 2017. Cash flows from financing activities for the three month period ended March 31, 2018 consisted of: (i) $0 in proceeds from sales of common stock; and (ii) $0 in loans received from stockholders; and (iii) $53,000 in notes payable which was offset by ($0) in principal payment on notes payable.
PLAN OF OPERATION AND FUNDING
We have incurred losses for the past two fiscal years and had a net loss of $125,727 at March 31, 2018 and $30,703 at March 31, 2017. Our revenues from service and product sales have been insufficient to cover our operating expenses. Our auditors have expressed substantial doubt that we can continue as a going concern. We have continued to push warranty sales, service contracts and control costs but the large overwhelming marketing budgets of our competitors in spite of our superior technology has diminished our ability to compete.
Our Board of Directors has decided to broaden our perspective and add additional business related or unrelated to the current security product market. Two of our directors are physicians and both have investigated the Erectile Dysfunction market. Our Board of Directors has decided to pursue the Erectile Dysfunction Medical market.
According to Pew Research, 10,000 Baby Boomers turn 65 every day, of which 49% are men. This ensures that we will have an expanding pool of prospective clients, and thus make possible the exponential growth of patients each year until 2030. The current US market estimates for erectile dysfunction therapies is upwards of $6 Billion.
We have established one working medical clinic and are in process of opening others in selected cities. The business strategy will be to establish multiple concierge
, all-inclusive medical practices, providing a "one-stop shop" for most issues relating to male sexual dysfunction, including erectile dysfunction, testosterone replacement therapy, and premature ejaculation. By establishing or acquiring "men's clinics" in select geographic areas, View's business strategy is to capitalize on two irrefutable trends that are currently at play in the marketplace: an aging population and the rising prevalence of certain medical conditions cause erectile dysfunction such as diabetes, high blood pressure, smoking, obesity prostate issues etc. One particular attractive procedure will be hair rejuvenation and restoration using platelet rich plasma injections.
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 2018. 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 2018, 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 in their reports on the accompanying financial statements 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
Our total current liabilities increased to $2,188,212 at the three month period ended March 31, 2018 compared to $2,022,346 at fiscal year ended December 31, 2017. As of March 31, 2018, our short and long term notes payable consist of the following:
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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. The lender has not demanded repayment.
We are not in default of a convertible promissory note $53,000 dated January 12, 2018 with interest at 12% per annum with a nine month maturity date. At any time prior to the complete satisfaction of the Note, the Note shall be convertible into shares of the Company's common stock.
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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, the Company is not required to provide this information.
CRITICAL ACCOUNTING POLICIES
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.. 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, 2016, including our financial statements and the related notes thereto.