**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549** 

FORM 10-Q

Amendment No. 1

 þ QUARTERLY REPORT UNDER TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2010

 

o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number **000-30178**

** **

**VIEW SYSTEMS, INC.**

(Exact name of registrant as specified in its charter)

 
|  

 

 

**Nevada**

** **

**59-2928366**

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

**1550 Caton Center Drive, Suite E,****Baltimore, Maryland  21227**

(Address of principal executive offices) (Zip Code)

 

**(410) 242-8439**

(Registrant's telephone number, including area code)

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 

Yes R   No £

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes    £    No   £

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,”“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Large accelerated filer £

  

Accelerated filer £

  

Non-accelerated filer £

  

Smaller reporting company R

  

  

  

  

(Do not check if a smaller reporting company)

  

  

 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes o No þ

 Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class

  

Outstanding at September 10, 2010

Common Stock, $.001 par value per share

  

93,343,369    

1

**Purpose of This Amendment**

We are amending our Form 10-Q for the period ended June 30, 2010 to correct our balance sheet’s description of our authorized shares. We reported in error that there were 100,000,000 shares of common stock authorized while the correct number of authorized shares is 950,000,000. 

2

**VIEW SYSTEMS, INC.**

**FORM 10-Q**

**FOR THE PERIOD ENDED JUNE 30, 2010**

**As Amended**

3

**Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995**

Information included in this Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”). This information may involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of View Systems, Inc. (the “Company”), to be materially different from future results, performance or achievements expressed or implied by any forward-looking statements. Forward-looking statements, which involve assumptions and describe future plans, strategies and expectations of the Company, are generally identifiable by use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” or “project” or the negative of these words or other variations on these words or comparable terminology. These forward-looking statements are based on assumptions that may be incorrect, and there can be no assurance that these projections included in these forward-looking statements will come to pass. Actual results of the Company could differ materially from those expressed or implied by the forward-looking statements as a result of various factors. Except as required by applicable laws, the Company has no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.

4

**PART I: FINANCIAL INFORMATION
**ITEM 1. FINANCIAL STATEMENTS**

**View Systems, Inc. and Subsidiaries**

Consolidated Balance Sheets

 

 

JUN 30,

 

DEC 31,

 

 

 

2010

 

2009

 

**ASSETS**

 

(Unaudited)

 

 

 

Current Assets

 

 

 

 

 

     Cash

 

$

27,158 

 

$

70,804 

 

      Accounts Receivable (Net of Allowance of $1,000)

 

118,267 

 

251,561 

 

      Inventory

 

7,792 

 

7,792 

 

          Total Current Assets

 

153,217 

 

330,157 

 

 

 

 

 

 

 

Property & Equipment (Net)

 

79,175 

 

95,948 

 

 

 

 

 

 

 

Other Assets

 

 

 

 

 

      Licenses 

 

839,664 

 

892,144 

 

      Due from Affiliates

 

147,507 

 

147,507 

 

      Investment 

 

67,500 

 

67,500 

 

      Deposits

 

7,528 

 

7,528 

 

             Total Other Assets

 

1,062,199 

 

1,114,679 

 

 

 

 

 

 

 

                     Total Assets

 

$

1,294,591 

 

$

1,540,784 

 

 

 

 

 

 

 

**LIABILITIES AND STOCKHOLDERS' EQUITY**

 

 

 

 

 

Current Liabilities

 

 

 

 

 

      Accounts Payable

 

$

495,913 

 

$

486,979 

 

      Accrued Expenses

 

94,985 

 

71,912 

 

      Accrued Interest

 

122,604 

 

170,518 

 

      Accrued Royalties

 

225,000 

 

225,000 

 

      Loans from Shareholder

 

185,978 

 

193,027 

 

      Notes Payable

 

555,899 

 

637,719 

 

      Deferred Revenue

 

42,153 

 

129,553 

 

             Total Current Liabilities

 

1,722,532 

 

1,914,708 

 

 

 

 

 

 

 

Long-term Debt

 

 

 

 

 

      Note payable

 

37,384 

 

39,872 

 

            Total Liabilities

 

1,759,916 

 

1,954,580 

 

 

 

 

 

 

 

Stockholders' Equity (Deficit):

 

 

 

 

 

      Preferred Stock, Authorized 10,000,000 Shares, $.01 Par Value, 

           Issued and outstanding 89,647

 

896 

 

896 

 

      Common Stock, Authorized 950,000,000 Shares, as of December 31,

 

 

 

 

 

          2009 and 100,000,000 as of December 31, 2008, $.001 Par Value

 

 

 

 

 

          Issued and Outstanding 83,903,369 

 

83,903 

 

-- 

 

          Issued and Outstanding 79,442,369

 

-- 

 

79,442 

 

      Additional Paid in Capital 

 

22,032,912 

 

21,830,320 

 

      Retained Earnings (Deficit) 

 

(22,583,036)

 

(22,324,434)

 

             Total Stockholders' Equity (Deficit)

 

(465,325)

 

(413,776)

 

 

 

 

 

 

 

                       Total Liabilities and Stockholders' Equity

 

$

1,294,591 

 

$

1,540,804 

 

The accompanying notes are an integral part of these consolidated financial statements

5

**View Systems, Inc. and Subsidiaries**

Consolidated Statements of Operations

(Unaudited)

 

 

 

THREE

MONTHS

ENDED

JUN 30, 2010

 

THREE

MONTHS

ENDED

JUN 30, 2009

 

SIX

MONTHS

ENDED

JUN 30, 2010

 

SIX

MONTHS

ENDED

JUN 30, 2009

 

 

 

 

 

 

 

 

 

Revenues, Net

 

$

214,956 

 

$

63,690 

 

$

478,947 

 

$

175,052 

 

 

 

 

 

 

 

 

 

Cost of Sales

 

52,516 

 

30,527 

 

160,926 

 

71,871 

 

 

 

 

 

 

 

 

 

Gross Profit

 

162,440 

 

33,163 

 

318,021 

 

103,181 

 

 

 

 

 

 

 

 

 

Operating Expenses

 

 

 

 

 

 

 

 

      Business Development

 

21,752 

 

16,415 

 

53,978 

 

42,753 

      General & Administrative

 

136,707 

 

239,286 

 

243,377 

 

340,875 

      Professional Fees

 

24,770 

 

109,640 

 

126,750 

 

276,825 

      Salaries & Benefits

 

(239,324)

 

63,178 

 

120,611 

 

300,301 

            Total Operating Expenses

 

(56,095)

 

428,519 

 

544,716 

 

960,754 

 

 

 

 

 

 

 

 

 

Net Operating Income (Loss)

 

218,535 

 

(395,356)

 

(226,695)

 

(857,573)

 

 

 

 

 

 

 

 

 

Other Income (Expense)

 

 

 

 

 

 

 

 

       Interest Expense

 

(18,832)

 

(17,294)

 

(31,907)

 

(36,999)

           Total Other Income (Expense)

 

(18,832)

 

(17,294)

 

(31,907)

 

(36,999)

 

 

 

 

 

 

 

 

 

Net Income (Loss)

 

$

199,703 

 

$

(412,650)

 

$

(258,602)

 

$

(894,572)

 

 

 

 

 

 

 

 

 

Net Income (Loss) Per Share

 

0.00 

 

(0.01)

 

(0.00)

 

(0.02)

 

 

 

 

 

 

 

 

 

Weighted Average Shares Outstanding

 

83,903,369 

 

46,261,222 

 

77,788,119 

 

46,638,222 

The accompanying notes are an integral part of these consolidated financial statements

6

**View Systems, Inc. and Subsidiaries**

Consolidated Statements of Stockholders' Equity (Deficit)

 

 

 

 

 

 

 

 

 

 

 Additional 

 

 Retained 

 

 Preferred 

 

 Common 

 

 Paid-in 

 

 Earnings 

 

Shares

 

 Amount 

 

 Shares 

 

 Amount 

 

 Capital 

 

 (Deficit) 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2008

89,647 

$ 

896 

 

17,175,222 

$ 

17,175 

$ 

20,460,829 

$ 

(20,764,422)

 

 

 

 

 

 

 

 

 

 

 

 

January - March 2009 - shares issued for services,

 

 

 

 

 

 

 

 

 

 

 

   accounts payable and notes payable

- 

 

- 

 

13,536,000 

 

13,536 

 

527,489 

 

- 

 

 

 

 

 

 

 

 

 

 

 

 

April - June 2009 - shares issued for services,

 

 

 

 

 

 

 

 

 

 

 

   accounts payable and notes payable

-

 

-

 

18,100,000

 

18,100

 

327,500

 

-

 

 

 

 

 

 

 

 

 

 

 

 

April - June 2009 - shares issued as an investment

 

 

 

 

 

 

 

 

 

 

 

  in stock of another company (non subsidiary)

- 

 

- 

 

5,000,000 

 

5,000 

 

327,500 

 

- 

 

 

 

 

 

 

 

 

 

 

 

 

July-September 2009 – shares issued for services,

 

 

 

 

 

 

 

 

 

 

 

  Interest expense and notes payable

-

 

-

 

5,631,147

 

5,631

 

72,002

 

-

 

 

 

 

 

 

 

 

 

 

 

 

October - December 2009 - shares issued for services

- 

 

- 

 

20,000,000 

 

20,000 

 

380,000 

 

- 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss for the year ended December 31, 2009

- 

 

- 

 

- 

 

- 

 

- 

 

(1,560,012)

 

 

 

 

 

 

 

 

 

 

 

 

Balance, December 31, 2009

89,647 

 

896 

 

79,442,369 

 

79,442 

 

21,830,320 

 

(22,324,434)

 

 

 

 

 

 

 

 

 

 

 

 

January – March 2010 – shares issued for services,

 

 

 

 

 

 

 

 

 

 

 

  notes payable and accrued interest

- 

 

- 

 

14,461,000 

 

14,461 

 

492,592 

 

- 

 

 

 

 

 

 

 

 

 

 

 

 

April – June 2010 – reversal of shares issued for

 

 

 

 

 

 

 

 

 

 

 

    services in error

- 

 

-

 

(10,000,000)

 

(10,000)

 

(290,000)

 

-

 

 

 

 

 

 

 

 

 

 

 

 

Net loss for the period ended June 30, 2010

- 

 

- 

 

- 

 

- 

 

- 

 

(258,602)

 

 

 

 

 

 

 

 

 

 

 

 

Balance, June 30, 2010

      89,647 

$ 

         896 

 

83,903,369 

$ 

83,903 

$ 

22,032,912 

$ 

(22,583,036)

The accompanying notes are an integral part of these consolidated financial statements

7

**View Systems, Inc. and Subsidiaries**

Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

SIX

MONTHS

ENDED

JUN 30, 2010

 

SIX

MONTHS

ENDED

JUN 30, 2009

**Cash Flows from Operating Activities:**

 

 

 

 

    Net Income (Loss)

 

$

(258,602)

 

$

(894,572)

    Adjustments to Reconcile Net Income (Loss) to 

     Net Cash Provided (Used) by Operations:

 

 

 

 

         Depreciation & Amortization

 

62,480 

 

58,380 

         Common stock issued in payment of services

 

30,695 

 

548,881 

         Loss from sale of fixed assets

 

4,996 

 

-- 

         Proceeds from sale of fixed assets

 

2,036 

 

-- 

     Change in Operating Assets and Liabilities:

 

 

 

 

     (Increase) Decrease in:

 

 

 

 

          Accounts Receivable

 

133,294 

 

3,619 

          Inventories

 

-- 

 

(42,082)

     Increase (Decrease) in:

 

 

 

 

          Accounts Payable

 

8,955 

 

46,943 

          Accrued Expenses

 

23,073 

 

(12,645)

          Accrued Interest

 

28,444 

 

35,220 

          Deferred Revenue

 

(87,400)

 

-- 

          Accrued Royalties

 

- 

 

37,500 

    Net Cash Provided (Used) by Operating Activities

 

(52,029)

 

(218,756)

 

 

 

 

 

**Cash Flows from Investing Activities:**

 

 

 

 

    Purchases of equipment

 

(259)

 

(50,853)

    Net Cash Used In Investing Activities

 

(259)

 

(50,853)

 

 

 

 

 

**Cash Flows from Financing Activities:**

 

 

 

 

    Loans received (repaid)  under a line of credit

 

(29,559)

 

198,566 

    Principal payments on notes payable

 

(4,749)

 

-- 

    Loans received under notes payable

 

50,000 

 

-- 

    Loans from Shareholders

 

(7,050)

 

70,889 

    Net Cash Provided by Financing Activities

 

8,642 

 

269,455 

 

 

 

 

 

Increase (decrease) in Cash

 

(43,646)

 

(154)

 

 

 

 

 

Cash and Cash Equivalents at Beginning of Period

 

70,804 

 

1,768 

 

 

 

 

 

Cash and Cash Equivalents at End of Period

 

$

27,158 

 

$

1,614 

The accompanying notes are an integral part of these consolidated financial statements

8

**View Systems, Inc. and Subsidiaries**

Consolidated Statements of Cash Flows (Continued)

 

 

SIX

MONTHS

ENDED

JUN 30, 2010

 

SIX

MONTHS

ENDED

JUN 30, 2009

Non Cash Investing and Financing Activities:

 

 

 

      Notes payable paid down with common stock

100,000

 

181,000

      Accrued interest paid with common stock

76,538

 

-

      Vehicle purchase financed with note payable

-

 

54,041

      Loans from shareholders repaid with common stock

-

 

16,656

      Accounts payables paid with common stock

-

 

132,250

      Vehicle purchased with common stock

-

 

7,813

      Investment made with common stock

-

 

67,500

 

 

 

 

Cash Paid For:

 

 

 

      Interest

$

5,260

 

$

1,226

      Income Taxes

$

-

 

$

-

9

**VIEW SYSTEMS, INC.**

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2010 AND DECEMBER 31, 2009

1.

NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

View Systems, Inc. (the “Company”) designs and develops computer software and hardware used in conjunction with surveillance capabilities.  The technology utilizes the compression and decompression of digital inputs.  In March 2002, the Company acquired Milestone Technology, Inc. (“Milestone”), which has developed a concealed weapons detection portal.

Basis of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Milestone Technology, Inc.  All significant intercompany accounts and transactions have been eliminated in consolidation.

Cash and Cash Equivalents

The Company considers all highly liquid investments with maturities of three months or less to be cash equivalents.

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 collectibility 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.  

10

**VIEW SYSTEMS, INC.**

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2010 AND DECEMBER 31, 2009

1.

NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 

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.  The concealed weapons 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.  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.  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 collectibility is reasonably assured.

Inventories

Inventories are stated at the lower of cost or market.  Cost is determined by the last-in-first-out method (LIFO).  All inventory as of June 30, 2010 and December 31, 2009 consisted of 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

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 June 30, 2010 and December 31, 2009 amounted to $10,000 and $11,985, respectively.

11

**VIEW SYSTEMS, INC.**

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2010 AND DECEMBER 31, 2009

1.

NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Licenses

In connection with the acquisition of Milestone, the Company received various licenses to products developed by INEEL (Idaho National Engineering and Environmental Laboratory).  Milestone transferred the licenses to View Systems, Inc., and in November 2003, two separate licenses were signed in the name of View Systems with Bechtel BWXT Idaho, LLC (BBWI).

BBWI is the management and operating contractor of the INEEL under its Contract No. DE-AC07-99ID13727 (“M&O Contract”) and has the authorization, right and ability to grant the license of the Agreement.  The licenses allow View Systems to commercially develop, manufacture, use, sell and distribute processes and products embodying the U.S. Patent No. 6.150.810 “Method for Detecting the Presence of a Ferromagnetic Object Using Maximum and Minimum Magnetic Field Data”, and U.S. Patent Application S/N 10/623,372, “Communication Systems, Camera Devices, and Communication Methods”.

The valuation of these licenses consist of the cost of acquiring Milestone, that is, the difference of the cost paid for the entity vs. the value of the underlying assets and liabilities which was determined to be $1,626,854.  The cost of the licenses is being amortized on a straight line basis over the remaining useful lives of the underlying patents, which at the date of the purchase was 15.5 years.  Amortization expense for the periods ended June 30, 2010 and December 31, 2009 was $52,480 and $104,958, respectively.  Consistent with SFAS No. 142, the license was also analyzed to determine if any impairment existed at June 30, 2010 and December 31, 2009.  It was determined not to be impaired. The Company has fundamentally advanced the technology under which these licenses operate  but never sought its own patent protection.

Income Taxes

Deferred income taxes are recorded under the assets and liability method whereby deferred tax assets and liabilities are recognized for the future tax consequences, measured by enacted tax rates, attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss carryforwards.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the rate change becomes effective.  Valuation allowances are recorded for deferred tax assets when it is more likely than not that such deferred tax assets will not be realized.

Research and Development

Research and development costs are expensed as incurred.  

Advertising

Advertising costs are charged to operations as incurred.  Advertising costs for the periods ended June 30, 2010 and December 31, 2009 were $8,000 and $19,737.

Nonmonetary Transactions

Nonmonetary transactions are accounted for in accordance with Accounting Principles Board Opinion No. 29, “Accounting for Nonmonetary Transactions” which requires the transfer or distribution of a nonmonetary asset or liability to be based generally, on the fair value of the asset or liability that is received or surrendered, whichever is more clearly evident.

12

**VIEW SYSTEMS, INC.**

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2010 AND DECEMBER 31, 2009

1.

NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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.

Reverse Stock Split 

During 2008 the Board of Directors approved a 1 for 80 reverse stock split of the issued and outstanding common and preferred stock.  The reverse split did not change the authorized shares or the par value for either class of stock.  

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, 2010 and December 31, 2009 does not include potential shares of common stock equivalents, as their impact would be antidilutive.  The following reconciles amounts reported in the financial statements:

 

 

Income

 

Shares

 

Per-share

 

 

(Numerator)

 

(Denominator)

 

Amount

 

 

 

 

 

 

 

Six months ended June 30, 2010

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations which is the  

 

 

 

 

 

 

amount  that is available to common stockholders

$

(258,602)

 

77,788,119

$

(0.00)

 

 

 

 

 

 

 

Year ended December 31, 2009

 

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) from continuing operations which is the 

 

 

 

 

 

 

amount  that is available to common stockholders

$ 

(1,560,012)

 

40,285,009

$

(0.09)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13

**VIEW SYSTEMS, INC.**

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2010 AND DECEMBER 31, 2009

2.

GOING CONCERN

The Company has incurred, and continues to incur, losses from operations.  For the periods ended June 30, 2010 and December 31, 2009, the Company incurred net losses of $258,602 and $1,560,012, respectively.  In addition, certain notes payable have come due and the note holders are demanding payment.  

Management is very actively working to cure these situations.  It has implemented major plans 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 2009 and 2008, the Company implemented marketing and information strategies to increase public awareness of its products and thereby enhance its 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; however, sales revenue during 2010 and 2009 and decreases in expenses during 2010 made a significant contribution to working capital.  It is management’s intention to finance operations during the remainder of 2010 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.

14

**VIEW SYSTEMS, INC.**

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2010 AND DECEMBER 31, 2009

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.

4.

 BUSINESS COMBINATION

The Company purchased 100% of the common stock of Milestone Technology, Inc., effective March 25, 2002.  The purchase was accomplished in two transactions.  The Company acquired 6% of Milestone in December 2001 in exchange for 500,000 shares of the Company’s common stock.  In March 2002, the Company acquired the remaining 94% of Milestone for 3,300,000 share of the Company’s common stock.  Based on the market value of the Company’s common stock ($0.55 per share in December 2001 and $0.31 per share in March 2002) the total cost of the acquisition was $1,298,000.

Milestone Technology, Inc., is a developer of concealed weapons detections systems.  Its primary product is a walk-through detector that uses advanced magnetic technology to accurately pinpoint the location, size, and number of concealed weapons.

 5.

DUE FROM AFFILIATED ENTITIES

The Company has advanced non-interest bearing funds of $147,507 as of June 30, 2010  and $147,587 as of December 31, 2009 to a related corporation, The Fight Zone, Inc., (formerly Geoscopix, Inc.), which until approximately March 2008 was controlled by the Chief Executive Officer of the Company.  There are no formal repayment terms associated with this advance, but the Fight Zone, Inc.’s viability is no longer certain, and Management is exploring its collection options. 

15

**VIEW SYSTEMS, INC.**

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2010 AND DECEMBER 31, 2009

 

6.

NOTES PAYABLE

Notes payable as of June 30, 2010 and December 31, 2009 consists of the following:

 

 

JUN 30 

2010

 

DEC 31, 2009

**Investor/stockholder Group  **

During 2006 the Company negotiated a loan arrangement with a group of investors to loan a specific amount to the Company which, once the total amounts loaned reached a certain amount, the loans would be converted into shares of common stock. Since the threshold was never achieved, the conversion option was terminated and the loans became due on demand with interest at 8% per annum.  After the reporting period, the balance due was settled for the issuance of 4,500,000 shares of Company common stock.

$     162,092

 

$     162,092

 

 

 

 

**Stockholder**

An unsecured loan from a stockholder which is payable on demand with interest at 12%.

116,000

 

116,000

 

 

 

 

**Stockholder**

 An unsecured loan from a stockholder which was due in full on November 1, 2007 with interest at 15%.  The note is convertible into shares of common stock at the option of lender at the rate of $6.00 per share of common stock. If converted in full this amounts to 16,667 shares. This debt was settled in 2010 for 3,500,000 shares of

common stock.

0

 

100,000

 

 

 

 

**Lafayette Community Bank**

A short term line of credit loan secured by a stockholder, payable in five monthly installments of $6,175 that commenced in December 2009 with a balloon payment in the amount $175,630 due in May 2010.  Interest accrues monthly at 7% per annum. We have continued to make monthly payments, and the balloon provision has not been exercised.

170,441

 

200,000

 

 

 

 

**Investor**

Demand loan payable with interest at 5% per month. The loan is secured by the Company’s accounts receivable.

50,000

 

50,000

 

 

 

 

**Investor**

Convertible promissory note payable on December 31, 2010 with interest at 8% per annum.  Upon meeting certain provisions the note can be converted to 5,005,562 shares

of common 

50,000

 

0

 

 

 

 

**Chase**

Equipment loans to finance the purchases of two trucks, payable monthly in installments of $1,003, which include interest at 5.34% per annum

44,750

 

49,497

 

 

 

 

**                                        **  TOTAL

$      593,283

 

$      677,589

 

 

 

 

Principal payments for the next five years are as follows:

 

 

 

                                        2010

$      555,899

 

 

                                        2011

10,151

 

 

                                        2012

10,708

 

 

                                        2013

11,294

 

 

**                               **         2014 

5,231

 

 

**                                        **TOTAL

$      593,283

 

 

16

**VIEW SYSTEMS, INC.**

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2010 AND DECEMBER 31, 2009

7.

INCOME TAXES

               For income tax purposes the Company has net operating loss carryforwards of $21,342,673 as of December 31, 2009 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.

The components of the net deferred tax asset as of December 31, 2009 are as follows:

 

 

Effect of net operating loss carryforward

$ 

8,963,923 

Less evaluation allowance

 

(8,963,923)

Net deferred tax asset

$ 

- 

            The components of income tax expense (benefit) are as follows:

 

 

Period ended

 

 

June 30,

 

December 31,

 

 

2010

 

2009

       Net loss per financial statements which approximates

 

 

 

 

          net loss per income tax returns

$

(258,602)

$

(1,560,012)

       Income tax expense (benefit) applying prevailing

 

 

 

 

          Federal and state income tax rates

 

(108,613)

 

(655,205)

          Less valuation allowance

 

108,613 

 

655,205 

 

 

 

 

 

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.

8

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 $0.01 per share before any payment or distribution is made to the holders of common stock.  Effective in 2010 the Series A Preferred can be converted into common stock in the ratio of 15:1.  See note 13 below.  Each Series A Preferred share is entitled to fifteen votes of common stock and shall be entitled to vote on any matters brought to a vote by the common stockholders.

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 preferred 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 preferred shares did not change.

9.

OPERATING LEASE

The Company leases office and warehouse space in Baltimore, MD under a three-year non-cancellable operating lease which expired in October 2008 and which was subsequently extended to August 2010.  The base rent is $3,047 per month with an annual rent escalator of 3%.   Rent expense was $26,436 and $47,461 for the periods ended June 30, 2010 and December 31, 2009, respectively.

17

**VIEW SYSTEMS, INC.**

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2010 AND DECEMBER 31, 2009

10.

STOCK BASED COMPENSATION

During the periods ended June 30, 2010 and December 31, 2009 the Company granted restricted stock to independent contractors and consultants as payment for services rendered.

Restricted Stock Grants

Our 1999 Restricted Share Plan terminated automatically pursuant to the terms of its agreement on March 1, 2009.   

Our 2000 Restricted Share Plan terminated automatically pursuant to the terms of its agreement on March 15, 2010.

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.  No equity issuances have been made from the 2010 Equity Incentive Plan.

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 2010 and 2009, 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:

 

2010

2009

 

Number of

Expense

Number of

Expense

 

Of shares

Recognized

Of shares

Recognized

Officers and employees

500,000

$

15,000

35,305,500

744,681

 

 

 

 

 

Independent contractors and consultants

0

0

9,230,000

270,100

 

 

 

 

 

Total

500,000

$

15,000

44,535,500

$

1,014,781

Independent contractors and consultants’ expense was based on the estimated value of services rendered.

Stock Option Awards

Our 1999 Stock Option Plan terminated automatically pursuant to the terms of its agreement on March 1, 2009.   Footnote 10 in our Form 10-K for the year ended December 31, 2009 should have  reported that 1,346 stock options (adjusted for stock split in 2008) were expired as of March 1, 2009. Instead, the stock option table in footnote 10 incorrectly reported these options as being outstanding at December 31, 2009. 

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 price as established on the date of the grant.

18

**VIEW SYSTEMS, INC.**

NOTES TO FINANCIAL STATEMENTS

JUNE 30, 2010 AND DECEMBER 31, 2009

11.

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 total additions to loans from shareholders with unstructured payment plans amounted to $68,630 during 2009 and none during the six months ended June 30, 2010.  The total balance due on unstructured loans from shareholders amount to $185,978 at June 30, 2010 and $193,027 at December 31, 2009.  Loans from stockholders made with repayment terms are described in Note 6 above.

12.

 CORRECTION FOR DUPLICATIVE STOCK ISSUANCE

On January 13, 2010, we inadvertently issued a total of 10,000,000 shares of common stock to two of our directors who had previously been issued a total of 10,000,000 shares of common stock in December 2009.  The duplicative issuance did not affect our directors’ reporting of their actual stock holdings.  However, the duplicative stock issuance was recorded in our financial statements and reported on Form 10-Q for the period ending March 31, 2010.   We have reversed the expense item attributed to the duplicative stock issuance which results in a decrease in our expenses of $300,000 and a corresponding increase in revenue for the six months ended June 30, 2010. 

19

**PART II - OTHER INFORMATION**

**ITEM 6.  EXHIBITS**

 The following exhibits are filed herewith:

 

31.1        Rule 13a-15(e)/15d-15(e) Certification by the Chief Executive Officer and Chief Financial Officer

 

32.1        Certification by the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

**SIGNATURES
 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. 

 

 

 

 

 

 

 

 

 

**VIEW SYSTEMS, INC.**

 

 

 

 

 

Date: September 13, 2010

By: 

*/s/ Gunther Than*

 

 

 

Gunther Than

 

 

 

Chief Executive Officer 

(Principal executive officer, principal financial officer, and principal accounting officer)

 

20**** |
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