UNITED STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended
March 31, 2009
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE
ACT
For the transition period from _________ to _________
Commission File Number:
000-49746
VISCOUNT SYSTEMS,
INC.
(Exact name of registrant as specified in its
charter)
|
Nevada
|
88-0498181
|
|
(State or other jurisdiction of
|
(I.R.S. Employer I.D. No.)
|
|
incorporation or organization)
|
|
4585 Tillicum Street, Burnaby, British Columbia, Canada
V5J 5K9
(Address of principal executive offices)
(604) 327-9446
Registrant’s telephone
number
_________________________________________________________________
Former
name, former address, and former fiscal year, if changed since last report
Check whether the registrant (1) filed all reports required to
be filed by sections 13 or 15(d) of the Exchange Act during the past 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 [ ]
Check 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 [X] No [ ]
Check whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company.
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filed [ ]
Smaller reporting company [X]
Check whether the registrant is a shell company, as defined in
Rule 12b-2 of the Exchange Act. Yes [ ] No [X]
State the number of shares outstanding of each of the issuer’s
classes of common equity, as of the latest practicable date:
As of March 31,
2009 the registrant’s outstanding common stock consisted of 17,841,250
shares.
PART I. FINANCIAL INFORMATION
Safe Harbor Statement
Certain statements in this filing that relate to financial
results, projections, future plans, events, or performance are forward-looking
statements and involve significant risks and uncertainties, including, but not
limited to, the following: competition, promotional costs, and risk of declining
revenues. Terms such as “we believe”, “we expect” or “we project”, and similar
terms, are examples of forward looking statements that we may use in this
report. Such statements also relate to the sales trends of our Enterphone 2000,
EPX, previously named Enterphone 3000, and MESH product lines, general revenues,
income, the number of new construction projects or building upgrades that may
generate sales of our product, and in general the market for our products. Any
projections herein are based solely on management’s views, and were not prepared
in accordance with any accounting guidelines applicable to projections.
Accordingly, these forward looking statements are intended to provide the reader
with insight into management’s proposals, expectations, strategies and general
outlook for our business and products, but because of the risks associated with
those statements, including those described herein and in our annual report,
readers should not rely upon those statements in making an investment decision.
The Company's actual results could differ materially from those anticipated in
such forward-looking statements as a result of a number of factors. These
forward-looking statements are made as of the date of this filing, and the
Company assumes no obligation to update such forward-looking statements.
The following discusses our financial condition and results of
operations based upon our consolidated financial statements which have been
prepared in conformity with accounting principles generally accepted in the
United States of America. It should be read in conjunction with our financial
statements and the notes thereto included elsewhere herein. Unless otherwise
noted as USD or U.S. dollars, all dollar references herein are in Canadian
dollars. As at March 31, 2009, the foreign exchange rate certified by the
Federal Reserve Bank of New York was CAD$1.2613 for USD$1.0000 or CAD$1.0000 for
USD$0. 7929.
Item 1. Financial Statements
2
VISCOUNT SYSTEMS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars)
MARCH 31, 2009
F-1
|
VISCOUNT SYSTEMS, INC.
|
|
Interim Condensed Consolidated Balance Sheets
|
|
(Expressed in Canadian dollars)
|
|
|
|
March 31,
|
|
|
December
31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
Cash
|
$
|
266,561
|
|
$
|
255,172
|
|
|
Trade accounts receivable, less allowance
for doubtful accounts
|
|
|
|
|
|
|
|
of $311,168 (2008 - $336,776)
|
|
518,444
|
|
|
584,517
|
|
|
Inventory (note 2)
|
|
445,139
|
|
|
556,572
|
|
|
Prepaid expenses
|
|
5,891
|
|
|
10,528
|
|
|
Lease receivable
|
|
660
|
|
|
961
|
|
|
Total current assets
|
|
1,236,695
|
|
|
1,407,750
|
|
|
|
|
|
|
|
|
|
|
Equipment (note 3)
|
|
49,041
|
|
|
60,501
|
|
|
|
|
|
|
|
|
|
|
Intangible assets
(note 4)
|
|
125,353
|
|
|
130,576
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
$
|
1,411,089
|
|
$
|
1,598,827
|
|
|
|
|
|
|
|
|
|
|
Liablilities and stockholders' equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
Bank indebtedness (note 5)
|
$
|
36,864
|
|
$
|
57,775
|
|
|
Accounts payable and accrued liabilities
|
|
467,696
|
|
|
575,257
|
|
|
Deferred revenue
|
|
22,167
|
|
|
31,280
|
|
|
Due to stockholders (note 6)
|
|
392,402
|
|
|
392,402
|
|
|
Notes payable (note 7)
|
|
20,000
|
|
|
50,000
|
|
|
Total current liabilities
|
|
939,129
|
|
|
1,106,714
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (note 10)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity
|
|
|
|
|
|
|
|
Capital stock (note 8)
|
|
|
|
|
|
|
|
Authorized:
|
|
|
|
|
|
|
|
100,000,000 common shares with a
par value of US$0.001 per share
|
|
|
|
|
|
|
|
20,000,000 preferred
shares with a par value of US$0.001 per share
|
|
|
|
|
|
|
|
Issued and outstanding:
|
|
|
|
|
|
|
|
17,841,250 commons
shares (2008 - 17,841,250)
|
|
25,434
|
|
|
25,434
|
|
|
Additional paid-in capital
|
|
2,353,030
|
|
|
2,353,030
|
|
|
Accumulated deficit
|
|
(1,906,504
|
)
|
|
(1,886,351
|
)
|
|
Total stockholders'
equity
|
|
471,960
|
|
|
492,113
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
and stockholders' equity
|
$
|
1,411,089
|
|
$
|
1,598,827
|
|
See accompanying notes to interim condensed consolidated financial
statements.
F-2
|
VISCOUNT SYSTEMS, INC.
|
|
Interim Condensed Consolidated Statements of Operations
|
|
(Unaudited)
|
|
(Expressed in Canadian dollars)
|
|
Three months ended March 31, 2009 and 2008
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
$
|
1,070,644
|
|
$
|
1,307,638
|
|
|
Cost of sales and
services
|
|
504,208
|
|
|
543,696
|
|
|
Gross profit
|
|
566,436
|
|
|
763,942
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
522,985
|
|
|
728,338
|
|
|
Research and development
|
|
43,237
|
|
|
86,321
|
|
|
Depreciation
and amortization
|
|
16,684
|
|
|
8,224
|
|
|
|
|
582,906
|
|
|
822,883
|
|
|
|
|
|
|
|
|
|
|
Loss before other items
|
|
(16,470
|
)
|
|
(58,941
|
)
|
|
|
|
|
|
|
|
|
|
Other items
|
|
|
|
|
|
|
|
Interest income
|
|
80
|
|
|
609
|
|
|
Interest expense
|
|
(3,763
|
)
|
|
(7,012
|
)
|
|
|
|
(3,683
|
)
|
|
(6,403
|
)
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
(20,153
|
)
|
|
(65,344
|
)
|
|
|
|
|
|
|
|
|
|
Provision
for income taxes
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
$
|
(20,153
|
)
|
$
|
(65,344
|
)
|
|
|
|
|
|
|
|
|
|
Basic and diluted
net loss per common share
|
$
|
(0.00
|
)
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding,
|
|
|
|
|
|
|
|
Basic and diluted
|
|
17,841,250
|
|
|
17,841,250
|
|
See accompanying notes to interim condensed consolidated financial
statements.
F-3
|
VISCOUNT SYSTEMS, INC.
|
|
Interim Condensed Consolidated Statement of Stockholders' Equity
|
|
(Unaudited)
|
|
(Expressed in Canadian dollars)
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
paid-in
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
capital
|
|
|
Accumulated deficit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008
|
|
17,841,250
|
|
$
|
25,434
|
|
$
|
2,353,030
|
|
$
|
(1,886,351
|
)
|
$
|
492,113
|
|
|
Net loss
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(20,153
|
)
|
|
(20,153
|
)
|
|
Balance, March 31, 2009
|
|
17,841,250
|
|
$
|
25,434
|
|
$
|
2,353,030
|
|
$
|
(1,906,504
|
)
|
$
|
471,960
|
|
See accompanying notes to interim condensed consolidated financial
statements.
F-4
|
VISCOUNT SYSTEMS, INC.
|
|
Interim Condensed Consolidated Statements of Cash Flows
|
|
(Unaudited)
|
|
(Expressed in Canadian dollars)
|
|
|
|
Three months ended March 31, 2009 and 2008
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
Net loss
|
$
|
(20,153
|
)
|
$
|
(65,344
|
)
|
|
Items not involving cash:
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
16,684
|
|
|
8,224
|
|
|
Changes in non-cash working capital balances (note
9)
|
|
65,769
|
|
|
(198,623
|
)
|
|
Net cash provided by (used in) operating activities
|
|
62,300
|
|
|
(255,743
|
)
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
Purchase of equipment
|
|
-
|
|
|
-
|
|
|
Net cash used in investing activities
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
Proceeds from (repayment of) bank indebtedness
|
|
(20,911
|
)
|
|
139,726
|
|
|
Proceeds from stockholder loan
|
|
-
|
|
|
100,000
|
|
|
Repayment of notes payable
|
|
(30,000
|
)
|
|
-
|
|
|
Net cash provided by (used in) financing activities
|
|
(50,911
|
)
|
|
239,726
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash
|
|
11,389
|
|
|
(16,017
|
)
|
|
|
|
|
|
|
|
|
|
Cash, beginning of
period
|
|
255,172
|
|
|
111,173
|
|
|
|
|
|
|
|
|
|
|
Cash, end of period
|
$
|
266,561
|
|
$
|
95,156
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplementary information:
|
|
|
|
|
|
|
|
Interest paid
|
$
|
3,763
|
|
$
|
7,012
|
|
|
Income taxes paid
|
$
|
-
|
|
$
|
-
|
|
See accompanying notes to interim condensed consolidated financial
statements.
F-5
|
VISCOUNT SYSTEMS, INC.
|
|
Notes to Interim Condensed Consolidated Financial Statements
|
|
(Unaudited)
|
|
(Expressed in Canadian dollars)
|
|
Three months ended March 31, 2009
|
|
|
These unaudited interim condensed consolidated
financial statements have been prepared in conformity with accounting principles
generally accepted in the United States of America for interim financial information
and with instructions for Form 10-Q and by Article 8-03 of Regulation S-X. Accordingly,
they do not include all information and footnotes required by accounting principles
generally accepted in the United States of America for a complete set of annual
financial statements. Readers of these statements should read the audited annual
consolidated financial statements of the Company filed on Form 10-K for the
year ended December 31, 2008 in conjunction therewith. Operating results for
the periods presented are not necessarily indicative of the results that will
occur for the year ending December 31, 2009 or for any other interim period.
The financial information as at March
31, 2009 and for the three month periods ended March 31, 2009 and 2008 is unaudited;
however, such financial information includes all adjustments, consisting solely
of normal recurring adjustments, which, in the opinion of management, are necessary
for the fair presentation of the financial information in conformity with accounting
principles generally accepted in the United States of America. The accompanying
condensed consolidated balance sheet as of December 31, 2008 has been derived
from the audited consolidated balance sheet as of that date included in the
Form 10-K.
These financial statements have been
prepared on a going concern basis, which assumes the Company will be able to
realize assets and discharge liabilities in the normal course of business for
the foreseeable future. These financial statements do not include the adjustments
that would be necessary should the Company be unable to continue as a going
concern.
The Company has incurred losses and the
ability of the Company to continue as a going-concern depends upon its ability
to restore profitable operations and to continue to raise adequate financing.
Management is actively targeting sources of additional financing which would
assure continuation of the Company’s operations.
There can be no assurance that the Company
will be able to restore profitable operations and continue to raise funds in
which case the Company may be unable to meet its obligations. Should the Company
be unable to realize on its assets and discharge its liabilities in the normal
course of business, the net realizable value of its assets may be materially
less than the amounts recorded on the balance sheets.
F-6
|
VISCOUNT SYSTEMS, INC.
|
|
Notes to Interim Condensed Consolidated Financial Statements
|
|
(Unaudited)
|
|
(Expressed in Canadian dollars)
|
|
Three months ended March 31, 2009
|
|
|
|
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Raw materials
|
$
|
160,482
|
|
$
|
326,107
|
|
|
|
Work in process
|
|
37,665
|
|
|
29,830
|
|
|
|
Finished goods
|
|
246,992
|
|
|
200,635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
445,139
|
|
$
|
556,572
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Net book
|
|
|
|
March 31, 2009
|
|
Cost
|
|
|
depreciation
|
|
|
value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Computer equipment
|
$
|
110,838
|
|
$
|
90,613
|
|
$
|
20,225
|
|
|
|
Office furniture and equipment
|
|
77,269
|
|
|
52,061
|
|
|
25,208
|
|
|
|
Leasehold improvements
|
|
46,814
|
|
|
43,206
|
|
|
3,608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
234,921
|
|
$
|
185,880
|
|
$
|
49,041
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Net book
|
|
|
|
December 31, 2008
|
|
Cost
|
|
|
depreciation
|
|
|
value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Computer equipment
|
$
|
110,838
|
|
$
|
89,566
|
|
$
|
21,272
|
|
|
|
Office furniture and equipment
|
|
77,269
|
|
|
41,999
|
|
|
35,270
|
|
|
|
Leasehold improvements
|
|
46,814
|
|
|
42,855
|
|
|
3,959
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
234,921
|
|
$
|
174,420
|
|
$
|
60,501
|
|
F-7
|
VISCOUNT SYSTEMS, INC.
|
|
Notes to Interim Condensed Consolidated Financial Statements
|
|
(Unaudited)
|
|
(Expressed in Canadian dollars)
|
|
Three months ended March 31, 2009
|
|
|
|
4.
|
Intangible assets
|
|
|
|
|
|
On May 16, 2003, the Company consummated an agreement
for the purchase of certain assets of Telus Corporation (“Telus”)
comprised primarily of service agreements for a product sold by Telus
known as “Enterphone 2000”. At December 31, 2003, the Company
had acquired 2,215 service agreements for which it paid a total of $208,921.
At March 31, 2009, the Company held 1,615 service agreements (December
31, 2008 – 1,630) at a cost, net of accumulated amortization of $83,568
(December 31, 2008 - $78,345), of $125,353 (December 31, 2008 - $130,576).
|
|
|
|
|
5.
|
Bank indebtedness
|
|
|
|
|
|
Bank indebtedness represents cheques written in excess
of funds on deposit of $21,864 (December 31, 2008 - $17,775) and amounts
drawn under a bank credit facility of $15,000 (December 31, 2008 - $40,000)
available to a maximum of $500,000. Amounts outstanding under the bank
credit facility bear interest at the bank’s prime lending rate plus
1.75% and are repayable on demand. The facility is secured by substantially
all of our assets under a general security agreement. The Company is required
to maintain a current ratio greater than 1.5:1, measured quarterly, and
a debt to tangible net worth ratio less than 1.5:1, measured annually,
under the terms of the demand facility agreement. For purposes of debt
covenant calculations, amounts due to stockholders are considered a component
of equity and not a liability. The Company is also allowed to draw on
the credit facility up to 75% of accounts receivable less than 90 days.
At March 31, 2009, the Company was in compliance with the ratio requirements.
|
|
|
|
|
|
During the year ended December 31, 2006, the bank required
additional security for the credit facility consisting of a pledge of
personal property of a significant shareholder.
|
F-8
|
VISCOUNT SYSTEMS, INC.
|
|
Notes to Interim Condensed Consolidated Financial Statements
|
|
(Unaudited)
|
|
(Expressed in Canadian dollars)
|
|
Three months ended March 31, 2009
|
|
|
|
6.
|
Due to stockholders
|
|
|
|
|
|
Amounts due to stockholders are non-interest bearing,
unsecured and have no fixed terms of repayment.
|
|
|
|
|
|
During the 2008 fiscal year, the President loaned the
Company $100,000. The loan bears interest at 9.5% per annum, is unsecured
and has no fixed terms of repayment.
|
|
|
|
|
7.
|
Notes payable
|
|
|
|
|
|
The note payable to an individual bears interest at
8% per annum, is unsecured, and is due December 31, 2009. Principal prepayments
are made at the discretion of the Board of Directors.
|
|
|
|
|
8.
|
Capital stock
|
|
|
|
|
|
Stock Options
|
|
|
|
|
|
A summary of the stock option activity is as follows:
|
|
|
|
|
Number of
options
|
|
|
Weighted
average
|
|
|
|
|
|
|
|
|
Exercise price
|
|
|
|
Outstanding at December 31, 2008
|
|
3,363,800
|
|
|
US$0.30
|
|
|
|
Granted
|
|
-
|
|
|
-
|
|
|
|
Exercised
|
|
-
|
|
|
-
|
|
|
|
Expired/cancelled
|
|
-
|
|
|
-
|
|
|
|
Outstanding at March 31, 2009
|
|
3,363,800
|
|
$
|
0.30
|
|
F-9
|
VISCOUNT SYSTEMS, INC.
|
|
Notes to Interim Condensed Consolidated Financial Statements
|
|
(Unaudited)
|
|
(Expressed in Canadian dollars)
|
|
Three months ended March 31, 2009
|
|
|
|
8.
|
Capital stock (cont’d…)
|
|
|
|
|
|
A summary of the stock options outstanding and exercisable
at March 31, 2009 is as follows:
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
Average
|
|
Aggregate
|
|
|
|
Exercise Price
|
|
Number
|
|
|
Contractual
|
|
Exercise
|
|
Intrinsic
|
|
|
|
|
|
|
|
|
Life
|
|
Price
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$0.12
|
|
2,068,750
|
|
|
4.47 years
|
|
US$0.12
|
|
US$ -
|
|
|
|
$0.18
|
|
11,250
|
|
|
0.73 years
|
|
$ 0.18
|
|
$ -
|
|
|
|
$0.40
|
|
327,500
|
|
|
3.34 years
|
|
$ 0.40
|
|
$ -
|
|
|
|
$0.45
|
|
7,500
|
|
|
0.73 years
|
|
$ 0.45
|
|
$ -
|
|
|
|
$0.55
|
|
5,000
|
|
|
0.73 years
|
|
$ 0.55
|
|
$ -
|
|
|
|
$0.60
|
|
10,000
|
|
|
0.73 years
|
|
$ 0.60
|
|
$ -
|
|
|
|
$0.65
|
|
933,800
|
|
|
2.73 years
|
|
$ 0.65
|
|
$ -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,363,800
|
|
|
3.84
years
|
|
$ 0.30
|
|
$ -
|
|
F-10
|
VISCOUNT SYSTEMS, INC.
|
|
Notes to Interim Condensed Consolidated Financial Statements
|
|
(Unaudited)
|
|
(Expressed in Canadian dollars)
|
|
Three months ended March 31, 2009
|
|
|
|
8.
|
Capital stock (cont’d…)
|
|
|
|
|
|
The aggregate intrinsic value in the preceding table
represents the total intrinsic value, based on the Company’s closing
stock price of US$0.05 per share as of March 31, 2009 (December 31, 2008
– US$0.07), which would have been received by the option holders
had all option holders exercised their options as of that date. The total
number of in-the-money options vested and exercisable as of March 31,
2009 was nil (March 31, 2008 – 2,080,000). The total intrinsic value
of options exercised during the quarter ended March 31, 2009 was $nil
(March 31, 2008 - $nil).
|
|
|
|
|
|
Warrants
|
|
|
|
|
|
A summary of warrant activity is as follows:
|
|
|
|
|
Number of
warrants
|
|
|
Weighted
average
|
|
|
|
|
|
|
|
|
Exercise price
|
|
|
|
Outstanding at December 31, 2008
|
|
1,677,550
|
|
|
US$ 0.25
|
|
|
|
Granted
|
|
-
|
|
|
-
|
|
|
|
Exercised
|
|
-
|
|
|
-
|
|
|
|
Expired
|
|
-
|
|
|
-
|
|
|
|
Outstanding at March 31, 2009
|
|
1,677,550
|
|
|
0.25
|
|
A summary of the warrants outstanding
and exercisable at March 31, 2009 is as follows:
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
Average
|
|
|
|
Exercise Price
|
|
Number
|
|
|
Contractual
|
|
|
Exercise
|
|
|
|
|
|
|
|
|
Life
|
|
|
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$0.25
|
|
1,677,550
|
|
|
3.05 years
|
|
|
US$0.25
|
|
F-11
|
VISCOUNT SYSTEMS, INC.
|
|
Notes to Interim Condensed Consolidated Financial Statements
|
|
(Unaudited)
|
|
(Expressed in Canadian dollars)
|
|
Three months ended March 31, 2009
|
|
|
|
9.
|
Changes in non-cash working capital balances
|
|
|
|
|
Three months ended
|
|
|
|
|
|
March 31,
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts receivable
|
$
|
66,073
|
|
$
|
(298,915
|
)
|
|
|
Inventory
|
|
111,433
|
|
|
28,174
|
|
|
|
Prepaid expenses
|
|
4,637
|
|
|
-
|
|
|
|
Lease receivable
|
|
301
|
|
|
253
|
|
|
|
Accounts payable and accrued liabilities
|
|
(107,561
|
)
|
|
81,125
|
|
|
|
Deferred revenue
|
|
(9,114
|
)
|
|
(9,260
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
65,769
|
|
$
|
(198,623
|
)
|
|
10.
|
Commitments and contingencies
|
|
|
|
|
|
The Company is committed to make minimum annual payments
on its premises, automobiles and office equipment operating leases that
expire in 2012 as follows:
|
|
|
Year or period ending
December 31:
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
$
|
139,231
|
|
|
|
2010
|
|
94,361
|
|
|
|
2011
|
|
15,576
|
|
|
|
2012
|
|
1,221
|
|
Rent expense included in the statements
of operations for the three months ended March 31, 2009 is $32,765 (2008 - $31,862).
The Company was named as the sole defendant
in litigation for wrongful dismissal that involves a former employee. The Company
filed a defense to this claim and is actively defending its position. At this
time, the likelihood of the outcome is not determinable and no provision has
been made for the claim in the accounts.
F-12
|
VISCOUNT SYSTEMS, INC.
|
|
Notes to Interim Condensed Consolidated Financial Statements
|
|
(Unaudited)
|
|
(Expressed in Canadian dollars)
|
|
Three months ended March 31, 2009
|
|
|
|
11.
|
Segment information
|
|
|
|
|
|
|
(a)
|
Operating segments:
|
|
|
|
|
|
|
|
Commencing with the acquisition of the service agreements
from Telus on May 16, 2003, as described in Note 4 herein and Note 6 in
the financial statements in the most recent Form 10-K, the Company has
organized its business into two reportable segments: manufacturing and
servicing. The manufacturing segment designs, produces and sells intercom
and door access control systems that utilize telecommunications wiring
to control access to buildings and other facilities for security purposes.
The servicing segment provides maintenance to these intercom and other
door access control systems.
The segments’ accounting policies are
the same as those described in Note 2 in the financial statements in the
most recent Form 10-K. Management evaluates performance based on profit
or loss from operations before income taxes not including nonrecurring
gains and losses, if any. Retail prices are used to report intersegment
sales.
|
|
|
|
|
|
|
|
Information as to these reportable segments for the
three ended March 31, 2009 and 2008 are as follows:
|
|
|
For the three months ended March 31, 2009
|
|
Manufacturing
|
|
|
Servicing
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to external customers
|
$
|
695,918
|
|
$
|
374,726
|
|
$
|
1,070,644
|
|
|
|
Depreciation and amortization
|
|
11,461
|
|
|
5,223
|
|
|
16,684
|
|
|
|
Interest expense, net
|
|
3,163
|
|
|
600
|
|
|
3,763
|
|
|
|
Segment income (loss) before income taxes
|
|
(115,564
|
)
|
|
95,411
|
|
|
(20,153
|
)
|
|
|
Total assets
|
|
1,285,736
|
|
|
125,353
|
|
|
1,411,089
|
|
|
|
For the three months ended March 31, 2008
|
|
Manufacturing
|
|
|
Servicing
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to external customers
|
$
|
858,196
|
|
$
|
449,442
|
|
$
|
1,307,638
|
|
|
|
Depreciation and amortization
|
|
3,001
|
|
|
5,223
|
|
|
8,224
|
|
|
|
Interest expense, net
|
|
5,612
|
|
|
1,400
|
|
|
7,012
|
|
|
|
Segment income (loss) before income taxes
|
|
(62,462
|
)
|
|
(2,882
|
)
|
|
(65,344
|
)
|
|
|
Total assets
|
|
1,822,503
|
|
|
146,245
|
|
|
1,968,748
|
|
F-13
|
VISCOUNT SYSTEMS, INC.
|
|
Notes to Interim Condensed Consolidated Financial Statements
|
|
(Unaudited)
|
|
(Expressed in Canadian dollars)
|
|
Three months ended March 31, 2009
|
|
|
|
11.
|
Segment information (cont’d…)
|
|
|
|
|
|
|
(b)
|
Of the total revenues for the three months ended March
31, 2009, $196,614 (2008 - $214,030) was derived from U.S.-based customers
and $874,030 (2008 - $1,093,608) from Canadian-based customers.
|
|
|
|
|
|
|
|
Substantially all of the Company's operations, assets
and employees are located in Canada.
|
|
|
|
|
|
|
(c)
|
Major customers:
|
|
|
|
|
|
|
|
No customer represented more than 10% of total revenues
in either of the three months ended March 31, 2009 and 2008.
|
|
|
|
|
|
|
(d)
|
Products and services:
|
|
|
|
|
|
|
|
Enterphone 2000 sales represented 10% of total revenue
during the three months ended March 31, 2009 (2008 – 18%). MESH sales
represented 57% of total revenue during the three months ended March 31,
2009 (2008 – 52%). The balance of the Company’s revenues are
derived from other products such as access tracking and control, closed
circuit monitors, infrared and radio frequency remotes and servicing of
intercom equipment.
|
F-14
Item 2. Management Discussion and Analysis or Plan of
Operation
Results of Operations
Sales for the three months ended March 31, 2009 and 2008 were
$1,070,644 and $1,307,638, respectively, a decrease of $236,994 or 18.1% . This
decrease was due to decreased MESH and Enterphone sales. MESH sales for the
three months ended March 31, 2009 and 2008 were $605,138 and $677,532,
respectively, a decrease of $72,394 or 10.7% . MESH is a convergent technology
developed by Viscount that increases security at a reduced cost of hardware,
cabling and installation, and with simplified database management. Enterphone
2000 sales for the three months ended March 31, 2009 and 2008 were $103,978 and
$236,223, respectively, a decrease of $132,245 or 56%. As an old technology,
Enterphone sales have been dropping for several years and negating much of our
MESH growth. MESH EPX is the replacement for our old Enterphone system. MESH EPX
is the next generation of Enterphone systems but with features that are
compatible with high speed internet and other newer technologies. With MESH EPX,
we can anticipate recovering our lost Enterphone revenue while continuing to
increase our MESH business.
Management believes that sales of the MESH product will
continue to represent an increasing proportion of total sales relative to sales
of our Enterphone products. For the three months ended March 31, 2009 and 2008,
MESH sales were 56.5% and 51.8%, respectively, of total sales.
We also provide Enterphone support and maintenance services
pursuant to service contracts that were assigned to us from Telus Corporation in
2003. Sales from the 1,615 existing service contracts continue to be steady. On
average, each service contract represents ongoing revenues of approximately $38
per month, inclusive of parts and labor. Typical customers include strata
management and building owners as well as various residential, business and
industrial users of Enterphone access control and security systems. During the
three months ended March 31, 2009 and 2008, customer service contracts and new
equipment sales generated aggregate sales revenues of $374,726 and $449,442,
respectively, a decrease of $74,716 or 16.6% . These sales included MESH sales
by the service division.
The intangible assets held by the Company are comprised
primarily of service contracts for our Enterphone 2000 product line. The number
of service agreements held by the Company was 1,615 at March 31, 2009, as
compared to 1,630 and 1,645 at December 31, 2008 and March 31, 2008,
respectively. During the first quarter of 2009, the Company performed a test for
impairment in accordance with Statement of Financial Accounting Standards No.
142, “Goodwill and Other Intangible Assets” (“SFAS 142”) and evaluated the
status of service agreements. Management determined that no charge for
impairment was required but the continuing reduction in the number of service
contracts held, indicated that the intangible asset should be deemed to have a
definitive life based on the provisions of SFAS 142. Accordingly, the Company
continued to amortize the cost of the service agreements on a straight-line
basis over an estimated useful life of 10 years, which became effective as of
April 1, 2005. At March 31, 2009, the cost of the service agreements, net of
accumulated amortization, was $125,353.
Cost of sales and services as a percentage of sales was 47.1
and 41.6% for the three months ended March 31, 2009 and 2008, respectively. Cost
of sales has increased slightly during these two comparative periods, due to the
increased cost of materials. Management continues to focus on controlling the
input costs by using multiple suppliers to ensure that the best and most cost
effective raw materials are used in all of our products.
Gross profit for the three months ended March 31, 2009 and 2008
was $566,436 and $763,942, respectively, a decrease of $197,506 or 25.9% . This
decrease in gross profit corresponds with decreased sales and increased cost of
sales for the three months ended March 31, 2009.
3
Selling, general and administrative expenses for the three
months ended March 31, 2009 and 2008 were $522,985 and $728,338, respectively, a
decrease of $205,353 or 28.2% . This decrease was due to decreases in variable
costs such as advertising, tradeshow and various office expenses. For the three
months ended March 31, 2009 and 2008, selling, general and administrative
expenses, as a percentage of sales, were 48.8% and 55.7%, respectively.
Research and development costs for the three months ended March
31, 2009 and 2008 were $43,237 and $86,321, respectively, a decrease of $43,084
or 49.9% . Research and development costs decreased during the first quarter of
2009, due to several completed stages of MESH development.
Net loss for the quarters ended March 31, 2009 and 2008 were
$20,153 and $65,344, respectively, a decrease in net loss of $45,191. The
decrease in net loss during the first quarter of 2009 was the result of
decreased variable costs such as tradeshow, traveling, and various office
expenses.
Liquidity and Capital Resources
Cash as of March 31, 2009, as compared to December 31, 2008 was
$266,561 and $255,172, respectively. Cash as of March 31, 2008 was $95,156. We
have a bank credit facility available for an operating loan of up to a maximum
of $500,000 at the prime lending rate plus 1.75% . Amounts drawn are repayable
on demand. At March 31, 2009, $36,864 was drawn on this facility. The facility
is secured by substantially all of our assets under a general security
agreement.
At March 31, 2009, working capital was $297,566, as compared to
a working capital of $301,036 at December 31, 2008. Working capital has
decreased by $3,470. The current ratio at March 31, 2009 was 1.32 to 1.0, as
compared with 1.27 to 1.0 at December 31, 2008.
The accounts receivable turnover ratio at March 31, 2009 was 42
days, as compared 61 days at December 31, 2008 and 63 days at March 31, 2008.
The accounts receivable reserve was $311,168 at March 31, 2009, as compared to
$336,776 at December 31, 2008. The accounts receivable reserve has decreased by
$25,608 or 7.6%, since the year ended December 31, 2008. Management continues to
follow-up on customer accounts to improve cash flow and to minimize bad debts.
There had been no significant or material business conditions that would warrant
further increases to the reserve at this time.
For the three months ended March 31, 2009, there were minimal
capital expenditures.
To date, we have not invested in derivative securities or any
other financial instruments that involve a high level of complexity or risk. We
expect that in the future, any excess cash will continue to be invested in high
credit quality, interest-bearing securities.
We will likely require additional funds to support the
development and marketing of our new MESH product. There can be no assurance
that additional financing will be available on acceptable terms, if at all. If
adequate funds are not available, we may be unable to develop or enhance our
products, take advantage of future opportunities, respond to competitive
pressures, and may have to curtail operations.
There are no legal or practical restrictions on the ability to
transfer funds between parent and subsidiary companies.
We do not have any material commitments for capital
expenditures as of March 31, 2009.
There are no known trends or uncertainties that will have a
material impact on revenues.
4
Related Party Transactions
In February of 2008, Stephen Pineau, president of Viscount,
loaned the Company $100,000. The loan bears interest at 9.5% per annum, is
unsecured and has no fixed terms of repayment.
Recently Issued Accounting Standards
There were no new accounting standards issued during this
period ended March 31, 2009.
Item 4(T). Controls and Procedures
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Our management, including our principal executive officer and
principal financial officer, evaluated the effectiveness of our disclosure
controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of March
31, 2009. Based on that evaluation, our principal executive officer and
principal financial officer have concluded that as of March 31, 2009, we have
maintained effective disclosure controls and procedures in all material
respects, including those necessary to ensure that information required to be
disclosed in reports filed or submitted with the SEC (i) is recorded, processed,
and reported within the time periods specified by the SEC, and (ii) is
accumulated and communicated to management, including our principal executive
officer and principal financial officer, as appropriate to allow for timely
decision regarding required disclosure.
There have been no changes in our internal control over
financial reporting that occurred during the last fiscal quarter that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.
|
|
|
PART II – OTHER INFORMATION
|
Item 6. Exhibits
5
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
|
Date: May 15, 2009
|
VISCOUNT SYSTEMS, INC.
|
|
|
(Registrant)
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|
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By:
/s/ Stephen Pineau
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Stephen Pineau,
President
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Principal Executive
Officer
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and
Principal Financial Officer
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6
Viscount Systems (CE) (USOTC:VSYS)
Historical Stock Chart
From May 2024 to Jun 2024
Viscount Systems (CE) (USOTC:VSYS)
Historical Stock Chart
From Jun 2023 to Jun 2024
