VIEW SYSTEMS INC - Quarter Report: 2019 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT UNDER TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED September 30, 2019

[  ] 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)

7833 Walker Drive, Suite 520, Greenbelt, MD 20770

(Address of principal executive offices) (Zip Code)

(410-236-8200)

(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 [X] 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 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):

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [  ] No [X]

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

VIEW SYSTEMS, INC.

FORM 10-Q

FOR THE PERIOD ENDED September 30, 2019

INDEX

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.

View Systems, Inc. and Subsidiaries

Consolidated Balance Sheets (Unaudited)

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

View Systems, Inc. and Subsidiaries

Consolidated Statements of Operations (Unaudited)

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

View Systems, Inc. and Subsidiaries

Consolidated Statements of Stockholders’ Deficit (Unaudited)

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

View Systems, Inc. and Subsidiaries

Consolidated Statements of Cash Flows (Unaudited)

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

View Systems, Inc. and Subsidiaries

Consolidated Statements of Cash Flows (Unaudited) (Continued)

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

VIEW SYSTEMS, INC. and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

View Systems, Inc. and Subsidiaries (the “Company”) designs, develops and sells computer software and hardware used in conjunction with surveillance capabilities. The technology utilizes the compression and decompression of digital inputs. View Systems, Inc. was incorporated in Nevada in 2003 and is currently revoked and not in good standing in Nevada. In March 2002, the Company acquired Milestone Technology, Inc., an inactive Idaho corporation, which has developed a concealed weapons detection portal. In July 2009, the Company acquired FibreXpress, Inc., which is an inactive Delaware corporation that specializes in developing and selling equipment and components for the fiber optic and communication cable industries. During the second quarter of 2017, the Company established a new business line in the Erectile Dysfunction Medical market by opening one clinic within its’ Medical Therapeutics subsidiary. In the fourth quarter of 2018, the Company sold its Medical Therapeutics division another company called Ultimate Sports, Inc.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. For further information, refer to the audited consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.

Basis of Consolidation

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

Use of Estimates

Management uses estimates and assumptions in preparing financial statements in accordance with accounting principles generally accepted in the United States of America. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could differ from the estimates that were used.

Cash and Cash Equivalents

Cash and cash equivalents include all highly liquid investments with original maturities of three months or less.

VIEW SYSTEMS, INC. and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Revenue Recognition

Effective January 1, 2018, the Company adopted ASU No. 2014-9, “Revenue from Contracts with Customers” and the related amendments (“Topic 606”) using the modified retrospective method. Topic 606 was applied to all uncompleted contracts by recognizing the cumulative effect of initially applying Topic 606 as an adjustment to the opening balance of equity at January 1, 2018. Due to the cumulative net impact of adopting ASC 606, the January 1, 2018 balance of accumulated deficit was increased by $51,148, primarily relating to the accelerated recognition of revenue on installation projects.

Under Topic 606, revenue is measured based on consideration specified in the contract with a customer. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in Topic 606. Revenue from all customers is recognized when a performance obligation is satisfied by transferring control of a product or service to a customer. Amounts billed to customers for shipping and handling are included in revenue.

The Company had three main products, namely the concealed weapons detection system, the visual first responder system and the Viewmaxx digital video system. The concealed weapons detection system and the digital video system each require installation and training. The customer can engage us for installation and training, which is a separate performance obligation and apart from the sale of the product. Each product has an unconditional 30 day warranty, during which time the product can be returned for a complete refund. Customers can purchase extended warranties, which provide for replacement or repair of the unit beyond the period provided by the unconditional warranty.

During 2018 and 2019, the Company did not sell it’s products or installation and training, but rather only fulfilled extended warranties on its’ existing installed units. Warranties can be purchased for various periods but generally they are for one year period that begins after any other warranties expire. Under the new guidance, there is no change in our revenue recognition for extended warranty as compared to revenue recognition for these transactions under the prior revenue recognition standards. The Company recognizes revenue from extended warranty ratably over the warranty period.

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, 2019 and 2018 amounted to $0 and $200, respectively.

VIEW SYSTEMS, INC. and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Income Taxes

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

The Company files income tax returns in the U.S. federal jurisdictions, and in various state jurisdictions. The Company is no longer subject to U.S. federal, state and local examinations by tax authorities for years prior to 2010. The Company policy is to recognize interest related to unrecognized tax benefits as income tax expense. The Company believes that it has appropriate support for the income tax positions it takes and expects to take on its tax returns, and that its accruals for tax liabilities are adequate for all open years based on an assessment of many factors including past experience and interpretations of tax law applied to the facts of each matter.

Research and Development

Research and development costs are expensed as incurred.

Advertising

Advertising costs are charged to operations as incurred. Advertising costs for the periods ended September 30, 2019 and 2018 were $25 and $0, respectively.

Nonmonetary Transactions

Nonmonetary transactions are accounted for in accordance with ASC 845 ” Nonmonetary Transactions” which requires the transfer or distribution of a nonmonetary asset or liability to be based generally, on the fair value of the asset or liability that is received or surrendered, whichever is more clearly evident.

Financial Instruments

For most financial instruments, including cash, accounts receivable, accounts payable and accruals, management believes that the carrying amount approximates fair value, as the majority of these instruments are short-term in nature.

Stock-Based Compensation

The Company accounts for share-based compensation at fair value. Share-based compensation cost for stock options granted to employees, board members and service providers is determined at the grant date using an option pricing model that uses level 3 unobservable inputs. The value of the award that is ultimately expected to vest is recognized as expense on a straight-line basis over the requisite service period.

VIEW SYSTEMS, INC. and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Net Loss Per Common Share

Basic net loss per common share is computed by dividing net loss available to common stockholder by the weighted average number of common shares outstanding. Diluted net loss per common share is computed by dividing net loss available to common stockholders by the weighted average number of common shares and dilutive potential common share equivalents then outstanding. Potential common shares consist of shares issuable upon the exercise of stock options and warrants in addition to shares that may be issued in the event that convertible debt is exchanged for shares of common stock. The calculation of the net loss per share available to common stockholders for the periods ended September, 2019 and 2018 does not include potential shares of common stock equivalents, as their impact would be antidilutive. The following reconciles amounts reported in the financial statements:

VIEW SYSTEMS, INC. and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

2. GOING CONCERN

The Company has incurred and continues to incur, losses from operations. For periods ended September 30, 2019, the Company incurred a net loss of $308,285, 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 to for the future growth and development of the Company. Management is in the process of renegotiating more favorable repayment terms on the notes payable and the Company anticipates that these negotiations will result in extended payment plans.

Historically, the Company has financed its operations primarily through private financing. It is management’s intention to finance operations during the remainder of 2018 primarily through increased sales although there will still be a need for additional equity financing. In addition, management is actively seeking out mergers and acquisitions that would be beneficial to the future growth of the Company. There can be no assurance, however, that this financing will be successful and the Company may be required to further reduce expenses and scale back operations.

As described in Note 4, the Company is currently in default on a $50,000 loan from a stockholder.

The consolidated financial statements presented above and the accompanying Notes have been prepared on a going concern basis, which contemplates the realization of assets and discharge of liabilities in the normal course of business for the foreseeable future, and does not include any adjustments to reflect possible future effects on the recoverability and classification of assets, or the amounts and classification of liabilities that may result from the outcome of any extraordinary regulatory action, which would affect our ability to continue as a going concern.

Due to the conditions and events discussed above, there is substantial doubt about the Company’s ability to continue as a going concern.

3. NEW ACCOUNTING PRONOUNCEMENTS

In February 2016, the FASB issued new guidance on the accounting for leases, which supersedes previous lease guidance. Under this guidance, for all leases with terms in excess of one year, including operating leases, the Company will be required to recognize on its balance sheet a lease liability and a right-of-use asset representing its right to use the underlying asset for the lease term. The new guidance retains a distinction between finance leases and operating leases and the classification criteria is substantially similar to previous guidance. Additionally, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee have not significantly changed. The Company is currently evaluating the impact of this guidance on its consolidated balance sheets. This guidance is effective for interim and annual reporting periods beginning after December 15, 2018 with early adoption permitted. The Company implemented this standard effective January 1, 2019. Implementation of the standard did not have a material impact on the Company’s financial statements.

VIEW SYSTEMS, INC. and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

4. NOTES PAYABLE

Notes payable as of September 30, 2019 and December 31, 2018 consists of the following:

VIEW SYSTEMS, INC. and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

5. INCOME TAXES

For income tax purposes the Company has net operating loss carry forwards of $29,100,186 as of September 30, 2019 that may be used to offset future taxable income. In the instance of future corporate acquisitions, the net operating losses may be used to offset the future taxable income of a qualifying subsidiary corporation which meets IRS regulations governing such situations. The losses have accumulated since 1998 and start to expire in 2018. IRS regulations also provide that significant changes in ownership (greater than 50%) could result in the expiration of some of the net operating loss carry forwards. As of the date of this report the Company has not made an analysis of the changes in ownership to determine if any of these losses have expired.

Net income tax benefit is not recognized at this time because there is no reasonable expectation that the benefit will be realized in the future.

6. CONVERTIBLE PREFERRED STOCK

At September 30, 2019 and December 31, 2018, the Company has 5,589,647 shares of Series A Preferred Stock outstanding. Each share of Series A Preferred Stock has a liquidation preference, in the event of liquidation of the Company, of $0.001 per share before any payment or distribution is made to the holders of common stock. Each Series A Preferred share can be converted into common stock in the ratio of 15:1.

7. OPERATING LEASE

The Company has terminated all leases for office space as of December 31, 2018. The company handles its executive functions from and shares space with its CPA firm, CG Davis, CPA at 7833 Walker Drive. In Greenbelt, MD 20770.

8. STOCK BASED COMPENSATION

On April 2, 2010 the Company adopted its 2010 Equity Incentive Plan. Reserved for equity issuances under the Equity Incentive Plan are 50,000,000 shares of our common stock. During 2011 14,116,433 shares of common stock were issued under the provisions of the 2010 Equity Incentive Plan for which $92,065 of expenses were recognized.

On June 1, 2010 the Company adopted its 2010 Service Provider Stock Compensation Plan. Reserved for equity issuances under the Service Provider Stock Compensation Plan are 50,000,000 shares of our common stock. No equity issuances were made during the reporting period from the 2010 Service Provider Stock Compensation Plan.

VIEW SYSTEMS, INC. and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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. These options expired unexercised during the year ended December 31, 2018.

9. RELATED PARTY TRANSACTIONS

Certain stockholders made cash advances to the Company to help with short-term working capital needs. The net proceeds (repayments) from stockholders with unstructured payment plans amounted to $0 and $(11,401) for the six months ended June 30, 2019 and 2018, respectively. The total balance due on unstructured loans from stockholders amounted to $266,512 and $266,512 at September 30, 2019 and December 31, 2018, respectively. Loans from stockholders made with repayment terms are described in Note 4 above.

During the six months ended September 30, 2019, the Company advanced $26,419 to Medical Therapeutics, its’ former subsidiary sold in 2018.

10. ISSUABLE COMMON STOCK

As of September 30, 2019 and December 31, 2018, 740,000 shares of the authorized shares, amounting to $16,000 had not been issued.

11. CONTINGENT LIABILITY

Effective January 1, 2015 the Board of Directors authorized a new employment contract with Gunther Than, CEO of View Systems, Inc. That employment contract provides that in the event of a change in control of the Board of Directors or a buyout or takeover or substantial change of management structure Mr. Than will receive a minimum of three year’s salary plus 4.8 million shares of unrestricted stock or the equivalent in cash or equivalent in Preferred shares at Mr. Than’s direction. Mr. Than’s current base salary is $120,000 per annum. This agreement was renewed on January 1, 2018.

VIEW SYSTEMS, INC. and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

13. DERIVATIVE INSTRUMENT

The Company has notes payable with elements that qualify as a derivative instrument. The note payables had a variable conversion feature that similarly prevented the calculation of the number of shares into which they were convertible. The note bear interest at 12% and are convertible at variable prices based upon discounts of 42% to 50% of the lowest trading price during the previous 15 to 25 days ending on the last trading day prior to notice These variable conversion feature requires bifurcation from the convertible debenture and measurement at fair value.

The derivative liability, as it relates to the instrument, is shown in the following table:

All of the convertible notes were analyzed at the time of their issuance for derivative accounting consideration. In some instances, the Company concluded that a derivative liability existed. The derivative liabilities were measured using the commitment-date stock price. As of September 30, 2019, the Company determined that the fair value of these derivative liabilities totaled $336,562

The value of the derivative liabilities was determined using the following Black-Scholes methodology:

During the nine months ended September 30, 2019, the Company converted, upon receiving formal notices from its noteholders, $20,011 in note principal, plus accrued interest totaling $8,254, into common stock.

The Company has adopted the guidance under ASC Topic 820 for financial instruments measured on a fair value on a recurring basis. ASC Topic 820 establishes a fair value hierarchy, giving the highest priority to quoted prices in active markets and the lowest priority to unobservable data and requires disclosures for assets and liabilities measured at fair value based on their level in the hierarchy. Further authoritative accounting guidance (ASU No. 2009-05) under ASC Topic 820, provides clarification that in circumstances in which a quoted price in an active market for the identical liabilities is not available, a reporting entity is required to measure fair value using one or more of the techniques provided for in this update.

VIEW SYSTEMS, INC. and SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The standard describes a fair value hierarchy based on three levels of input, of which the first two are considered observable and the last unobservable, that may be used to measure fair value, which are the following:

Level 1 – Quoted prices in active markets for identical assets and liabilities.

Level 2 – Input other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets of liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the asset or liabilities.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

The Company analyzes all financial instruments with features of both liabilities and equity under ASC 480, “Distinguishing Liabilities from Equity” and ASC 815, “Derivatives and Hedging”. Derivative liabilities are adjusted to reflect fair value at each period end, with any increase or decrease in the fair value being recorded in results of operations as adjustments to fair value of derivatives. The effects of interactions between embedded derivatives are calculated and accounted for in arriving at the over- all fair value of the financial instruments. In addition, the fair value of free-standing derivative instruments such as warrant, and option derivatives are valued using the Black-Scholes modes.

The Company uses Level 3 inputs for its valuation methodology for the embedded conversion option liabilities as their fair value were determined by using the Black Scholes option-pricing model based on various assumptions. The Company’s derivative liabilities are adjusted to reflect fair value at each period end, with any increase or decrease in the fair value being recorded in results of operations as adjustments to fair value of derivatives.

Assets and liabilities measured at fair value on a recurring basis were presented on the Company’s consolidated balance sheet as at September 30, 2019 as follows:

14. ACQUISITION OF SANNABIS SAS

On July 25, 2019, the Board of Directors authorized the execution of that certain Acquisition Agreement (the “Acquisition Agreement”) with Sannabis S.A.S., a Cali, Colombia corporation. Sannabis is a privately held corporation engaged in the business of growing and shipping Hemp Products, which provide treatments for various medical issues.

In accordance with the terms and provisions of the Acquisition Agreement: (i) Sannabis agrees to transfer and assign its assets, intellectual property, interests and management rights in and to all of its operations; (ii) the Company agrees to recapitalize; (iii) View Systems technology will be operated and consolidated into an entity called View Systems International, Inc.(VSI), a wholly-owned subsidiary of the Company and shall be consolidated into the Company’s financials; and (iv) the Board of Directors shall be Mr. Gunther Than, Director and Chairman of VSI.; Mr. Juan Campo, Director and President of View Systems, Inc.; and Mr. Juan Paulo Guzman, Director and Chief Operations Officer of the Sannabis Operation.

The parties also agreed that the Company’s current President/Chief Executive Officer, Gunther Than, shall be retained as a consultant and remain a member of the Board of Directors of the Company for a period of at least two years

The acquisition of Sannabis has not yet closed.

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 September 30, 2019 and September 30, 2018 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 View Scan and consequently sold about 500 units Domestically and Internationally.

Our strategy for 2019 is 1: to patent an enhanced and more complex Weapons Detection Portal. 2: Create a subsidiary that contains all security related technologies, patents, and expertise to further capitalize in the security market with superior products 3: utilize the current View Systems public structure to initially manage and promote Medicinal Cannabis related products as a supplier of the raw materials. The company will divide its operations into manufacturing and promoting security devices internationally in one subsidiary and become an importer of raw materials used in the Cannabis market space for medical purposes in another subsidiary operation.

We have announced that we have acquired a company called Sannabis that grows and ships Cannabis grown for medical and industrial purposes. The Board of Directors will be John Campo as President and Chairman, Juan Pablo Guzman as Director and Chief Operations Officer of Sannabis Operations. We have filled an 8K the effect on July 31, 2019. We are methodically working on the merger process to assure proper integration. We expect the acquisition to be complete in the first quarter of 2020.

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 magnetic 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.

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 nine months ended September 30, 2019 and September30, 2018 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, 2018.

Three Month Period Ended September 30, 2019 Compared to Three Month Period Ended September 30, 2018.

Our net loss for the three-month period ended September 30, 2019 was ($109,370) compared to a net income of $223,503 during the three month period ended September 30, 2018 (an increase in net loss of $332,873. We generated no revenues during the three month period ended September 30, 2019 compared to $9,052 during the three month period ended September 30, 2018 (a decrease in net revenue of $9,052). Revenue is considered earned when service is provided and in addition when the product is shipped to the customer.

We have experienced a decrease in September 30, 2019 compared to the three month period ended September 30, 2018. We believe the decreased revenue is the result of licensing the technology of the current ViewScan to IPVideo a substantial security technology provider to manufacture and distribute the current ViewScan product. We also direct service of our remaining install base of security products and we continue to direct purchase orders for the View Scan to IPVideo to quote, sell and service.

During the three month period ended September 30, 2019, we incurred total operating expenses of $ 35,000 compared to $27,608 incurred during the three month period ended September 30, 2018 (an increase of $7,392).

Operating expenses incurred during the three month period ended September 30, 2019 compared to the three month period ended September 30, 2018 increased primarily due to the increase in salaries in benefits.

Our net operating loss for the continuing operations during the three-month period ended September 30, 2019 was ($35,000) compared to a net operating loss of ($18,556) during the three-month period ended September 30, 2018.

During the three-month period ended September 30, 2019, interest expense in the amount of ($36,307) was incurred as compared to ($82,465) for three months ended September 30, 2018. The decrease in interest expense was due to decreased interest paid on loans from stockholders.

After deducting other expense, we realized a net loss of ($109,370) for the three month period ended September 30, 2019 compared to a net income of $204,850 for the three month period ended September 30, 2018.

The weighted average number of shares outstanding was 372,520,421 for the three month period ended September 30, 2019 compared to 326,705,526 for the three month period ended September 30, 2018.

Nine Month Period Ended September 30, 2019 Compared to nine Month Period Ended September 30, 2018.

Our net loss for the nine-month period ended September 30, 2019 was ($308,285) compared to a net income of $1,093,005 during the nine month period ended December 30, 2018 (a decrease in net loss of $1,401,290). We generated net revenues of $1,400 during the nine month period ended September 30, 2019 compared to $31,102 during the nine month period ended September 30, 2018 (a decrease in net revenue of $29,702). Revenue is considered earned when service is provided and in addition when the product is shipped to the customer.

We have experienced a decrease in sales of our services and products which resulted in a decrease of revenues for the six month period ended September 30, 2019 compared to the nine month period ended September 30, 2018. We believe the decreased revenue is the result of licensing the technology of the current ViewScan to IPVideo a substantial security technology provider to manufacture and distribute the current ViewScan product. We also continue service our remaining install base of security products and we continue to receive purchase orders for the View Scan which we direct to IPVideo to quote, sell and service.

During the nine month period ended September 30, 2019, we incurred total operating expenses of $73,071compared to $57,545 incurred during the nine month period ended Septembere 30, 2018 (an increase of $15,526).

Operating expenses incurred during the nine month period ended September 30, 2019 compared to the nine month period ended September 30, 2018 increased primarily due to the increase in salaries in benefits.

Our net operating loss for the continuing operations during the nine-month period ended September 30, 2019 was ($308,285) compared to a net operating income of $1,137,700 during the nine-month period ended September 30, 2018.

During the nine-month period ended September 30, 2019, interest expense in the amount of ($70,476) (2018: ($85,777) was incurred. The decrease in interest expense was due to decreased interest paid on a loan from stockholder.

During the nine-month period ended September 30, 2019, the change in value of derivative liability in the amount of ($54,558) (2018: $22,203) was incurred. The decrease in derivative liability was due to re-measurement of the derivative liabilities and conversions during 2019.

After deducting other expense, we realized a net loss of ($308,285) for the nine month period ended September 30, 2019 compared to a net income of $1,093,005 for the nine month period ended June 30, 2018.

The weighted average number of shares outstanding was 372,520,421 for the nine month period ended September 30, 2019 compared to 326,705,526 for the nine month period ended September 30, 2018.

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 2019, our current assets were $26,855 and our current liabilities were $1,082,980, which resulted in a working capital deficit of $967,555. At September 30, 2019, current assets were comprised of: (i) $436 in cash; (ii) $26,419 in amounts due from a related party.

As of September 30, 2019, current liabilities were comprised of: (i) $167,215 in accounts payable and accrued expenses; (ii) $0 in deferred compensation; (iii) $134,237 in accrued and withheld payroll taxes payable; (iv) $1,322 in accrued interest payable; (v) $266,512 in loans from stockholders; (vi) $177,132 in notes payable; (vii) deferred revenue of $0; and derivative liability of $336,562

Stockholders’ deficit decreased from ($953,885) for fiscal year ended December 31, 2018 to ($1,056,125) for the nine month period ended September 30, 2019.

Cash Flows from Operating Activities

For the nine month period ended September 30, 2019, net cash flows used in operating activities was ($102,637) compared to net cash flows used in operating activities of ($73,992) for the nine month period ended September 30, 2018.

Cash Flows from Investing Activities

For the nine month periods ended September 30, 2019 and September 31, 2018, 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 debt and equity instruments. For the nine month period ended September 30, 2019, net cash flows provided from financing activities was $103,073 compared to $73,955 for the nine-month period ended September 30, 2018. Cash flows from financing activities for the nine month period ended September 30, 2019 consisted of: (i) $0 in proceeds from sales of common stock; and (ii) $0 in loans received from stockholders; and (iii) $103,000 in notes payable.

PLAN OF OPERATION AND FUNDING

We have incurred losses for the past two fiscal years and had a net loss of $308,285 for the nine months ended September 30, 2019. 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. The BoD has investigated multiple markets. The Board, since selling its sub; Medical Therapeutics, has decided to separate the operation into one focusing on further security product development and one open to financial opportunities which can capitalize on current trends rapidly.

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 2019. 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 2019, 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 $1,082,980 at September 30, 2019 compared to $953,885 at fiscal year ended December 31, 2018. As of September 30, 2019, our short and long term notes payable consist of the following:

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.