The following analysis of our consolidated financial condition and results of operations for the years ended December 31, 2008 and 2007 should be read in conjunction with the Consolidated Financial Statements and other information presented elsewhere in this annual report.

Our product lines are related to visual surveillance, intrusion detection and physical security. Our principal products include:

·

ViewScan Concealed Weapons Detection System - a walk-through concealed weapons detector which uses passive magnetic sensing technology and location algorithms to suggest the location of certain kinds of threatobjects or other undesirable objects such as cell phones or digital cameras. The control unit combines the magnetic and video information in a manner that allows it to be stored and displayed for easy recognition and auditory warning. The network architecture allows for remote monitoring, networking and integration of biometrics and access control devices.

·

Biometric analysis such as fingerprint verification or facial recognition can be and have been incorporated into ViewScan. The control unit can be programmed to automatically search against "most wanted" or outstanding warrant databases. Access control methods such as magnetic door locks can and have been incorporated.

·

Central monitoring or video command centers which have and can be combined with the ViewScan product.

·

Passport and driver's license verification for positive identification in correctional facilities, large government and commercial office buildings have been and are currently being combined with the ViewScan portal.

·

ViewMaxx Digitial Video products - a high-resolution, digital video recording and real-time monitoring system.

·

Visual First Responder - a lightweight, wireless camera system housed in a tough, waterproof flashlight body. The camera systems sends real-time images back to a video monitor at a command post located outside the exclusion zone or contaminated area. The Visual First Responder is able to transmit high quality video in the most difficult environments. It uses a triple-diversity antenna system that minimizes signal distortion in difficult environments. A multitude of these systems have been deployed by the Department of Defense in combat areas. This product is being replaced by the new Multi-mission Mobile Video product release in the fall of 2007 and which is currently being field-tested.

Management believes that heightened attention to personal threats, potential large scale destruction and theft of property in the United States along with spending by the United States government on Homeland Security will continue to drive growth in the market for security products.

During 2004 we increased our product lines to include our Visual First Responder and during 2005 we had engineering design changes made to the sensor boards for the ViewScan product to allow lower costs and to accommodate the price points required by competitive pressures. Also, in 2005 we redesigned the Visual First Responder and ViewScan products.

During 2005 we continued to establish new partnerships, add active resellers and dealers and we hired four sales representatives to build a United States domestic network for the sale and distribution of our products within the 48 states. These developments have led to increased sales while at the same time decreasing the cost of products. We intend to develop these sales and distribution channels to a level that will result in increased revenues and continued profitability. We have completed sales in the correctional facility market, some Homeland Security departments and some sports venues.

During 2006 we previewed our Biometric ViewScan III which includes positive identification and biometric verification capabilities, expanded our dealers and resellers in the Mid-West and Southwest region of the United States, introduced two new products. The ViewScan III includes a fingerprint identification and verification system, state-issued identification scanning device for driver's licenses and passports, and a visitor badge printing system. The new products introduced in 2006 include a product offering marketed as the "LAW," which is a handheld metal detector designed to improve police officer safety. We do not manufacture the "LAW" product but use it as an adjunct to the ViewScan and sell it separately. The wireless network detection system is currently a military product and we are intending to deploy it exclusively in the correctional facilities market. Response to and interest in this technology has been from high security situations.

We have also continued to develop international markets in China and the Mid-East and have established international relationships with distributors and dealers. We will be separating our international business from our domestic business to gain efficiency and financial backing.

In September 2008 we disseminated an information statement to shareholders to inform them of a forthcoming reverse-split of our common stock. The share split occurred in October 2008 and was effected in a 1:80 ratio. Following the recapitalization of our common stock structure, the next phase of our business plan will be to raise additional funds through common stock offerings to provide working capital to finance several acquisitions of new technologies and/or businesses. We also intend to strengthen our balance sheet by paying off debt with cash if possible or through the exchange of equity securities for the release of debt obligations.

We have been approached by certain entities that would make use of our public structure and/or our net tax loss carry-forward of approximately $19,782,661.
However, it is our intention to continue to execute our current business plan until such time, if ever, that we conclude that an acquisition or merger will lead to greater value for our principals and shareholders. We have not entered into definite agreements or decisions about any business combination opportunities.

We are continuing to negotiate with potential merger and acquisition candidates.

We intend to hold an annual meeting as soon as practicable. However, no firm plan or date has been identified. Thus, we will issue notice of a meeting at an appropriate time.

For the next twelve months our primary challenge will be to continue to develop our sales and distribution network into additional regions and markets in the United States and abroad. We have been and plan to continue to increase sales by offering demonstrations of our products in specific geographical areas to potential customers or at region specific trade shows, such as sheriff's conventions, court administrators' meetings, civil support team, state police shows and dealer shows. When a demonstration results in a sale of one of our products, then we attempt to expand that market by contacting other potential customers in the area, such as, correctional facilities, courthouses and other municipal buildings. After several sales in a particular geographic area management will decide whether it is appropriate to open a sales and service office.

In the short term, management plans to raise funding through sales of our common stock for fulfillment (manufacturing, packaging and shipment), which will set the stage for future orders becoming self funding. Then the next phase of our business plan will be to raise additional funds through common stock offerings to provide working capital to finance several acquisitions and the integration of new technologies and businesses.

On November 24, 2008 and December 26, 2008, we announced that a merger with Wytan Corp. is underway. Wytan manufactures security products, sells internationally, is profitable, and can benefit from our net tax asset of $8,301,528. Wytan has since insisted that the Company pay for its audit, advance it additional cash, and commit to supporting. We believe that the acquisition of Wytan would be beneficial to the Company overall and anticipate that the acquisition will occur; however, the progress of the negotiations has been slower than anticipated because the Company will at a minimum need to raise the funds necessary to pay for the audit. The timing of a capital raise is presently unknown but is a condition precedent to the parties' execution of a material definitive agreement.

The following discussions are based on the consolidated financial statements of View Systems and its subsidiaries. These charts and discussions summarize our financial statements for the years ended December 31, 2008, 2007 and 2006 and should be read in conjunction with the financial statements, and notes thereto, included with this report at Part II, Item 8, below.

                     SUMMARY COMPARISON OF OPERATING RESULTS
                                        Year ended December 31,
                                     2008           2007(*)            2006(*)
   Revenues, net         $      1,148,314  $      1,256,534   $      1,250,188
   Cost of sales                  391,216           574,971            751,578
   Gross profit (loss)            757,098           681,563            498,610
   Total operating                965,388         1,675,604          1,608,321
   expenses
   Loss from operations          (208,290)         (994,041)        (1,109,711)
   Total other income              34,751           (81,045)           (30,741)
   (expense)
   Net income (loss)             (173,539)       (1,075,086)        (1,140,452)
   Net income (loss) per $          (0.04) $          (0.89)   $         (0.97)
   share

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. Training is a revenue source separate and apart from the sale of the product. In those cases revenue is recognized at the completion of the installation and training.

We have not increased sales of our SecureScan and Visual First Responder but have increased our gross margins through better efficiency of our employee's efforts and higher units per sale. Management anticipates that increases in revenues will resurge as we further develop our sales and marketing channels and establish local sales and service offices in geographic areas where we have already completed sales. The increased quantity per sales resulted in an increased gross profit for 2008 compared to 2007.

The following chart provides a breakdown of our sales in 2008, 2007 and 2006.

                                      Dec. 31, 2008  Dec. 31, 2007  Dec. 31, 2006
 Totals per financial statements          1,148,314      1,256,535      1,250,188
 Secure Scan                                851,961        910,485        840,713
 ViewMaxx                                    12,478         15,635         32,802
 MMV, VFR & misc.                            87,497        224,997        332,646
 Service, installation, training, etc       196,378        105,417         44,027
                                          1,148,314      1,256,534      1,250,188

Our backlog at December 31, 2008, was $310,000. The delay between the time of the purchase order and shipping of the product results in a delay of recognition of the revenue from the sale. This delay in recognition of revenues will continue as part of our results of operations.

Cost of sales include costs of products sold and shipping costs and were approximately 34% of net revenues for 2008, a decrease from 46% in 2007. The decrease from year to year is primarily the result of decreased costs due to engineering changes. Management anticipates that the relative margins of each product line will increase even more with an increase of number of units shipped. The quantities per average sale have been increasing steadily.

For 2008 total operating expense decreased $710,216, a decrease of 43%, as compared to 2007. Net Income (Loss) was ($173,539) in 2008, and ($1,075,086) in 2007, an improvement of $901,547.

Inflation has not been a significant factor in our either our price points nor in the cost of product sold. The sales cycles are long and cross budget and annual review boundaries. The approval for purchase process is affected by both federal funds being available and state decisions interacting with local needs and review of safety and homeland security committees comprised of sheriffs, police, fire and SWAT teams. We have not found elasticity in price affecting decision for purchase or approval.

Liquidity and Capital Resources

We have incurred losses for the past two fiscal years and had a net loss of $173,539 at December 31, 2008. We had insufficient funds to deliver our backlog in the last half of 2008. Our revenues from several product sales have been increasing and some others decreasing but are not sufficient to cover our all of our operating expenses. Our auditors have expressed substantial doubt that we can continue as a going concern.

Historically, we have relied on revenues, debt financing and sales of our common stock to satisfy our cash requirements. For the year ended December 31, 2008 we received cash from revenues of $1,148,314, proceeds of $20,000 from sales of our common stock, and loans from shareholders of $93,496. Management anticipates that we will continue to issue shares for services in the short term.

For the year ended December 31, 2007 we issued 984,573 shares for investments.
For the year ended December 31, 2005 we issued 2,907,000 shares, valued at $294,540, to officers and employees for services, and we issued 7,199,000 shares, valued at $1,562,376 to independent contractors and consultants for services.

For the year ended December 31, 2006, we received cash from revenues of $1,250,188, proceeds from debt financing of $526,425 (less principal payments on notes payable of $10,797), $312,800 from sales of our common stock (less costs of issuance of common stock of $23,526) and $49,175 from stockholder advances.
For the year ended December 31, 2005 we received cash from revenues of $1,172,163, proceeds of $312,534 from sales of our common stock and relied on advances of $64,000 from Gunther Than, our CEO. We also continue to rely on the issuance of our common stock to pay for services and to convert debt when cash is unavailable.

Management believes we will need to take the necessary steps to file a registration of common stock to fund growth and acquisitions during 2009. The Company intends to hold a special meeting of shareholders during 2009 to consider, among, other things, an increase in the authorized common stock of the Company to 250,000,000 shares.

Management intends to finance our 2009 operations primarily with the revenue from product sales and any cash short falls will be addressed through equity financing, if available. Management expects revenues will continue to increase but not to the point of profitability in the short term. We will need to continue to raise additional capital, both internally and externally, to cover cash shortfalls and to compete in our markets. At our current revenue levels management believes we will require an additional $500,000 during the next 12 months to satisfy our cash requirements of approximately $100,000 per month.

These operating costs include cost of sales, general and administrative expenses, salaries and benefits and professional fees related to contracting engineers. We have insufficient financing commitments in place to meet our expected cash requirements for 2009, and we cannot assure you that we will be able to obtain financing on favorable terms. If we cannot obtain financing to fund our operations in 2009, then we may be required to reduce our expenses and scale back our operations.

Commitments and Contingent Liabilities

The Company leased office and warehouse space in Baltimore, MD under a three-year non-cancelable operating lease, which expired October 2008. Base rent is $3,300 per month. We have leasing on a month to month basis.

Our total current liabilities decreased to $1,591,101 at December 31, 2008 compared to $2,165,418 at December 31, 2007. Our current total liabilities at December 31, 2008 included accounts payable of $499,409, accrued expenses of $28,650, accrued interest of 126,155, accrued royalties of 225,000, loans from shareholders of $152,794 and notes payable of $559,093.

Our total current liabilities at December 31, 2007 included accounts payable of $505,168, accrued expenses of $80,878, accrued interest of $171,078, accrued royalties of $150,000, loans from shareholder of $299,298 and notes payable of $958,996.

Our notes payable consist of the following:

We issued notes in the aggregate amount of $343,093 pursuant to a Subscription Agreement, dated December 23, 2005, with three accredited investors; Starr Consulting, Inc., Active Stealth, LLC, and KCS Referral Service LLC (the "Subscribers"). We agreed to sale and the Subscribers agreed to purchase convertible promissory notes and warrants. However, on January 6, 2006, the Subscribers consented to the removal of the warrants from the subscription agreement, with the understanding that the warrants would be reinstated after we increased our authorized common stock and the shares underlying the warrants would be registered at a later date. The Subscribers did not receive any other additional consideration for the removal of the warrants. The Subscribers agreed to purchase up to an aggregate of $500,000 of 8% promissory notes convertible into shares of our common stock at a per share conversion price of $0.10. The notes were originally to be due and payable by December 31, 2006.
The Subscribers agreed to purchase the promissory notes over a 5 month period in $100,000 per month installments; however, the investment threshold was never achieved, so the conversion option of the notes was terminated and the loans became due on demand with interest at 8% per annum. As of the date of this report the investors have demanded repayment of these loans. The company has taking steps to negotiate these defaults. In November of 2008 the holders agreed to accept shares of common stock as payment.

Unsecured convertible loans from two stockholders in the principal amount of $216,000. $100,000 of the loans was due in full on November 1, 2007 with interest at 7%. The holder of this note has demanded payment and has chosen not to convert to equity. The holder of the second note of $116,000 has been receiving interest payments irregularly.

Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company's 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

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Estimates of particular significance in our financial statements include annual tests for impairment of our licenses. These estimates could likely be materially different if events beyond our control, such as changes in government regulations that affect the usefulness of our licenses or the introduction of new technologies that compete directly with our licensed technologies affect the value of our licenses.

We first determine the value of the license using a projected cash-flow analysis to determine the present value of cash flows. The test is done using assumptions as to various scenarios of increases and decreases in the revenue stream and applying a discount rate of 6%. If the value achieved under these various methods is less than the carrying value of the assets then it is considered that an impairment has occurred and the asset's carrying value is adjusted to reflect the impairment.

Management also makes estimates on the useful life of our licenses based on the following criteria:

·

Whether other assets or group of assets are related to the useful life of the licenses,

·

Whether any legal, regulatory or contractual provisions will limit the use of the assets,

·

We evaluate the cost of maintaining the license,

·

We consider the possible effects of obsolescence, and

·

Whether there is maintenance or any other costs associated with the license.

Risk Factors

You should carefully consider the risks, uncertainties and other factors described 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 other information contained in or incorporated by reference to this Annual Report on Form 10-K, including our financial statements and the related notes.

WE HAVE EXPERIENCED HISTORICAL LOSSES AND A SUBSTANTIAL ACCUMULATED DEFICIT. IF WE ARE UNABLE TO REVERSE THIS TREND, WE WILL LIKELY BE FORCED TO CEASE OPERATIONS.

We have incurred losses for the past two fiscal years which consists of a net loss of $173,539 for 2008 and had a net loss of $1,075,086 at December 31, 2007. In addition, at December 31, 2008 View Systems, Inc. had a retained earnings deficit of $20,764,422. Our operating results for future periods will include significant expenses, including new product development expenses, potential marketing costs, professional fees and administrative expenses, and will be subject to numerous uncertainties. As a result, we are unable to predict whether we will achieve profitability in the future, or at all.

WE HAVE A WORKING CAPITAL DEFICIT AND SIGNIFICANT CAPITAL REQUIREMENTS. SINCE WE WILL CONTINUE TO INCUR LOSSES UNTIL WE ARE ABLE TO GENERATE SUFFICIENT REVENUES TO OFFSET OUR EXPENSES, INVESTORS MAY BE UNABLE TO SELL OUR SHARES AT A PROFIT OR AT ALL.

The Company has a net loss of $173,539 for the fiscal year ended December 31, 2008 and net cash used in operations of $18,313 for the fiscal year ended December 31, 2008. Because the Company has not yet achieved or acquired sufficient operating capital and given these financial results along with the Company's expected cash requirements in 2009, additional capital investment will be necessary to develop and sustain the Company's operations.

OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM HAS RAISED DOUBT OVER OUR CONTINUED EXISTENCE AS A GOING CONCERN.

We have incurred substantial operating and net losses, as well as negative operating cash flow and do not have financing commitments in place to meet expected cash requirements for the next twelve months.

Our net loss for the year ended December 31, 2008 was $173,539 and our net loss for the year ended December 31, 2007 was $1,075,086. Our retained deficit was $20,590,883 at December 31, 2007. We are unable to fund our day-to-day operations through revenues alone and management believes we will incur operating losses for the near future while we expand our sales channels. While we have expanded our product line and expect to establish new sales channels, we may be unable to increase revenues to the point that we attain and are able to maintain profitability. As a result we rely on private financing to cover cash shortfalls.

As a result, we continue to have significant working capital and stockholders' deficits including a substantial accumulated deficit at December 31, 2008. In recognition of such, our independent registered public accounting firm has included an explanatory paragraph in its report on our consolidated financial statements for the fiscal years ended December 31, 2008 and December 31, 2007 that expressed substantial doubt regarding our ability to continue as a going concern.

WE NEED ADDITIONAL EXTERNAL CAPITAL AND IF WE ARE UNABLE TO RAISE SUFFICIENT CAPITAL TO FUND OUR PLANS, WE MAY BE FORCED TO DELAY OR CEASE OPERATIONS.

Based on our current growth plan we believe we may require approximately $1,200,000 in additional financing within the next twelve months to develop our sales channels. Our success will depend upon our ability to access equity capital markets and borrow on terms that are financially advantageous to us. However, we may not be able to obtain additional funds on acceptable terms. If we fail to obtain funds on acceptable terms, then we might be forced to delay or abandon some or all of our business plans or may not have sufficient working capital to develop products, finance acquisitions, or pursue business opportunities. If we borrow funds, then we could be forced to use a large portion of our cash reserves, if any, to repay principal and interest on those loans. If we issue our securities for capital, then the interests of investors and stockholders will be diluted.

WE ARE CURRENTLY DEPENDENT ON THE EFFORTS OF RESELLERS FOR OUR CONTINUED GROWTH AND MUST EXPAND OUR SALES CHANNELS TO INCREASE OUR REVENUES AND FURTHER DEVELOP OUR BUSINESS PLANS.

We are in the process of developing and expanding our sales channels, but we expect overall sales to remain down as we develop these sales channels. We are actively recruiting additional resellers and dealers and have hired in-house sales personnel for regional and national sales. We must continue to find other methods of distribution to increase our sales. If we are unsuccessful in developing sales channels we may have to abandon our business plan.

WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY IN OUR MARKET BECAUSE WE HAVE A SMALL MARKET SHARE AND COMPETE WITH LARGE NATIONAL AND INTERNATIONAL COMPANIES.

We estimate that we have less than a 1% market share of the surveillance and weapons detection market. We compete with many companies that have greater brand name recognition and significantly greater financial, technical, marketing, and managerial resources. The position of these competitors in the market may prevent us from capturing more market share. We intend to remain competitive by increasing our existing business through marketing efforts, selectively acquiring complementary technologies or businesses and services, increasing our efficiency, and reducing costs.

WE MUST SUCCESSFULLY INTRODUCE NEW OR ENHANCED PRODUCTS AND MANAGE THE COSTS ASSOCIATED WITH PRODUCING SEVERAL PRODUCT LINES TO BE SUCCESSFUL.

Our future success depends on our ability to continue to improve our existing products and to develop new products using the latest technology that can satisfy customer needs. For example, our short term success will depend on the . . .