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
June 30, 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
Registrants 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 issuers
classes of common equity, as of the latest
practicable date:
As of June
30, 2009 the registrants 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 managements 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 managements 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 June 30, 2009, the foreign exchange rate certified by the Federal
Reserve Bank of New York was CAD$1.1630 for USD$1.0000 or CAD$1.0000 for
USD$0.8599.
Item 1. Financial Statements
2
VISCOUNT SYSTEMS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars)
JUNE 30, 2009
VISCOUNT SYSTEMS, INC.
Interim Condensed Consolidated Balance Sheets
(Expressed in Canadian dollars)
|
|
June 30,
|
|
|
December
31,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
Cash
|
$
|
228,898
|
|
$
|
255,172
|
|
Trade accounts receivable, less allowance
for doubtful accounts
|
|
|
|
|
|
|
of $318,670 (2008 - $336,776)
|
|
866,134
|
|
|
584,517
|
|
Inventory (note 3)
|
|
410,554
|
|
|
556,572
|
|
Prepaid expenses
|
|
5,891
|
|
|
10,528
|
|
Lease receivable
|
|
384
|
|
|
961
|
|
Total current assets
|
|
1,511,861
|
|
|
1,407,750
|
|
|
|
|
|
|
|
|
Equipment (note 4)
|
|
46,692
|
|
|
60,501
|
|
|
|
|
|
|
|
|
Intangible assets
(note 5)
|
|
120,130
|
|
|
130,576
|
|
|
|
|
|
|
|
|
Total assets
|
$
|
1,678,683
|
|
$
|
1,598,827
|
|
|
|
|
|
|
|
|
Liablilities and stockholders' equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
Bank indebtedness (note 6)
|
$
|
207,637
|
|
$
|
57,775
|
|
Accounts payable and accrued liabilities
|
|
538,247
|
|
|
575,257
|
|
Deferred revenue
|
|
37,460
|
|
|
31,280
|
|
Due to stockholders (note 7)
|
|
339,402
|
|
|
392,402
|
|
Note payable (note 8)
|
|
5,000
|
|
|
50,000
|
|
Total current liabilities
|
|
1,127,746
|
|
|
1,106,714
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (note 11)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity
|
|
|
|
|
|
|
Capital stock (note 9)
|
|
|
|
|
|
|
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 common
shares (2008 - 17,841,250)
|
|
25,434
|
|
|
25,434
|
|
Additional paid-in capital
|
|
2,353,030
|
|
|
2,353,030
|
|
Accumulated deficit
|
|
(1,827,527
|
)
|
|
(1,886,351
|
)
|
Total stockholders'
equity
|
|
550,937
|
|
|
492,113
|
|
|
|
|
|
|
|
|
Total liabilities
and stockholders' equity
|
$
|
1,678,683
|
|
$
|
1,598,827
|
|
See accompanying notes to interim condensed consolidated financial
statements.
VISCOUNT SYSTEMS, INC.
Interim Condensed Consolidated Statements of Operations
(Unaudited)
(Expressed in Canadian dollars)
|
|
Three
months ended
|
|
|
Six
months ended
|
|
|
|
June
30
|
|
|
June
30
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
$
|
1,289,926
|
|
$
|
1,335,849
|
|
$
|
2,360,570
|
|
$
|
2,643,487
|
|
Cost of sales and
services
|
|
539,135
|
|
|
545,447
|
|
|
1,043,343
|
|
|
1,089,143
|
|
Gross profit
|
|
750,791
|
|
|
790,402
|
|
|
1,317,227
|
|
|
1,554,344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
597,913
|
|
|
728,072
|
|
|
1,120,898
|
|
|
1,456,410
|
|
Research and development
|
|
62,628
|
|
|
86,496
|
|
|
105,865
|
|
|
172,817
|
|
Depreciation
and amortization
|
|
7,571
|
|
|
8,070
|
|
|
24,255
|
|
|
16,294
|
|
|
|
668,112
|
|
|
822,638
|
|
|
1,251,018
|
|
|
1,645,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit (loss) before other items
|
|
82,679
|
|
|
(32,236
|
)
|
|
66,209
|
|
|
(91,177
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other items
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
10
|
|
|
184
|
|
|
90
|
|
|
793
|
|
Interest expense
|
|
(3,712
|
)
|
|
(5,382
|
)
|
|
(7,475
|
)
|
|
(12,394
|
)
|
|
|
(3,702
|
)
|
|
(5,198
|
)
|
|
(7,385
|
)
|
|
(11,601
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit (loss) before income taxes
|
|
78,977
|
|
|
(37,434
|
)
|
|
58,824
|
|
|
(102,778
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for
income taxes
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net profit (loss)
|
$
|
78,977
|
|
$
|
(37,434
|
)
|
$
|
58,824
|
|
$
|
(102,778
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
net profit (loss) per common share
|
$
|
0.00
|
|
$
|
(0.00
|
)
|
$
|
0.00
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding,
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
17,841,250
|
|
|
17,841,250
|
|
|
17,841,250
|
|
|
17,841,250
|
|
See accompanying notes to interim condensed consolidated financial
statements.
VISCOUNT SYSTEMS, INC.
Interim Condensed Consolidated Statement of Stockholders' Equity
(Unaudited)
(Expressed in Canadian dollars)
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
paid-in
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
capital
|
|
|
deficit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008
|
|
17,841,250
|
|
$
|
25,434
|
|
$
|
2,353,030
|
|
$
|
(1,886,351
|
)
|
$
|
492,113
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net profit
|
|
-
|
|
|
-
|
|
|
-
|
|
|
58,824
|
|
|
58,824
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2009
|
|
17,841,250
|
|
$
|
25,434
|
|
$
|
2,353,030
|
|
$
|
(1,827,527
|
)
|
$
|
550,937
|
|
See accompanying notes to interim condensed consolidated financial
statements.
VISCOUNT SYSTEMS, INC.
Interim Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Expressed in Canadian dollars)
Six months ended June 30
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities:
|
|
|
|
|
|
|
Net profit (loss)
|
$
|
58,824
|
|
$
|
(102,778
|
)
|
Items not involving cash:
|
|
|
|
|
|
|
Depreciation and amortization
|
|
24,255
|
|
|
16,294
|
|
Changes in non-cash working capital balances (note 10)
|
|
(161,215
|
)
|
|
(83,514
|
)
|
Net cash used in operating activities
|
|
(78,136
|
)
|
|
(169,998
|
)
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
Purchase of equipment
|
|
-
|
|
|
-
|
|
Net cash used in investing activities
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
Proceeds from bank indebtedness
|
|
149,862
|
|
|
7,129
|
|
Proceeds from (repayment of) stockholder loan
|
|
(53,000
|
)
|
|
100,000
|
|
Repayment of notes payable
|
|
(45,000
|
)
|
|
-
|
|
Net cash provided by financing activities
|
|
51,862
|
|
|
107,129
|
|
|
|
|
|
|
|
|
Decrease in cash
|
|
(26,274
|
)
|
|
(62,869
|
)
|
|
|
|
|
|
|
|
Cash, beginning of
period
|
|
255,172
|
|
|
111,173
|
|
|
|
|
|
|
|
|
Cash, end of period
|
$
|
228,898
|
|
$
|
48,304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplementary information:
|
|
|
|
|
|
|
Interest paid
|
$
|
7,475
|
|
$
|
-
|
|
Income taxes paid
|
$
|
-
|
|
$
|
-
|
|
See accompanying notes to interim condensed consolidated financial
statements.
VISCOUNT SYSTEMS, INC.
|
Notes to Interim Condensed Consolidated Financial Statements
|
(Unaudited)
|
(Expressed in Canadian dollars)
|
Six months ended June 30, 2009 and 2008
|
|
1.
|
Basis of presentation
|
|
|
|
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 June 30, 2009 and for
the three and six month periods ended June 30, 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 primarily incurred losses and the ability
of the Company to continue as a going-concern depends upon its ability
to maintain profitable operations and continue to raise adequate financing.
Management is actively targeting sources of additional financing which
would assure continuation of the Companys operations.
|
|
|
|
There can be no assurance that the Company will be able
to maintain 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.
|
VISCOUNT SYSTEMS, INC.
|
Notes to Interim Condensed Consolidated Financial Statements
|
(Unaudited)
|
(Expressed in Canadian dollars)
|
Six months ended June 30, 2009 and 2008
|
|
2.
|
New accounting pronouncements
|
|
|
|
In December 2007, the FASB issued SFAS No. 141R, Business
Combinations which changes how business acquisitions are accounted.
SFAS 141R, requires the acquiring entity in a business combination to
recognize all (and only) the assets acquired and all liabilities assumed
in the transaction and establishes the acquisition-date fair value as
the measurement objective for all assets acquired and liabilities assumed
in a business combination. Certain, provisions of this standard will,
among other things, impact the determination of acquisition-date fair
value of consideration paid in a business combination (including contingent
considerations); exclude transaction costs from acquisition accounting;
and change accounting practices for acquired contingencies, acquisition-related
restructuring costs, inprocess research and development, indemnification
assets and tax benefits. SFAS No. 141R was effective for business combinations
and adjustments to an acquired entitys deferred tax asset and liability
balances beginning January 1, 2009. Management has determined that the
adoption of SFAS No. 141R did not have an impact on its financial position
and results of operations.
|
|
|
|
In December 2007, the FASB issued SFAS No. 160, Noncontrolling
Interests in Consolidated Financial Statement, an amendment of ARB No.
51, which establishes new standards governing the accounting for
and reporting of noncontrolling interests (NCI) in partially owned consolidated
subsidiaries and the loss of control of subsidiaries. Certain provisions
of this standard indicate, among other things, that NCIs (previously referred
to as minority interests) be treated as a separate component of equity,
not as a liability; that increases and decreases in the parents
ownership interest that leave control intact be treated as equity transactions,
rather than as step acquisitions or dilution gains or losses; and that
losses of a partially owned consolidated subsidiary be allocated to the
NCI even when such allocation might result in a deficit balance. This
standard also requires changes to certain presentation and disclosure
requirements. The provisions of the standard are to be applied to all
NCIs prospectively, except for the presentation and disclosure requirements,
which are to be applied retrospectively to all periods presented. SFAS
No. 160 was effective beginning January 1, 2009. Management has determined
that the adoption of SFAS No. 160 did not have an impact on its financial
position and results of operations.
|
VISCOUNT SYSTEMS, INC.
|
Notes to Interim Condensed Consolidated Financial Statements
|
(Unaudited)
|
(Expressed in Canadian dollars)
|
Six months ended June 30, 2009 and 2008
|
|
2.
|
New accounting pronouncements (contd
)
|
|
|
|
In April 2008, the FASB issued FSP No. FAS 142-3, Determination
of the Useful life of Intangible Assets, (FSP FAS 142-3). FSP FAS
142-3 amends the factors that should be considered in developing renewal
or extension assumptions used to determine the useful life of a recognized
intangible asset under FASB Statement No. 142, Goodwill and Other
Intangible Assets, (SFAS No. 142) in order to improve the consistency
between the useful life of a recognized intangible asset under SFAS No.
142 and the period of expected cash flows used to measure the fair value
of the asset under SFAS No. 141(R) and other GAAP. FSP FAS 142-3 was effective
beginning January 1, 2009. Management has determined that the adoption
of FSP FAS 142-3 did not have an impact on its financial position and
results of operations.
|
|
|
3.
|
Inventory
|
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
Raw materials
|
$
|
64,055
|
|
$
|
326,107
|
|
|
Work in process
|
|
43,009
|
|
|
29,830
|
|
|
Finished goods
|
|
303,490
|
|
|
200,635
|
|
|
|
|
|
|
|
|
|
|
|
$
|
410,554
|
|
$
|
556,572
|
|
|
|
|
|
|
|
|
|
VISCOUNT SYSTEMS, INC.
|
Notes to Interim Condensed Consolidated Financial Statements
|
(Unaudited)
|
(Expressed in Canadian dollars)
|
Six months ended June 30, 2009 and 2008
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Net book
|
|
|
June 30, 2009
|
|
Cost
|
|
|
depreciation
|
|
|
value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Computer equipment
|
$
|
110,838
|
|
$
|
91,583
|
|
$
|
19,255
|
|
|
Office furniture and equipment
|
|
77,269
|
|
|
53,105
|
|
|
24,164
|
|
|
Leasehold improvements
|
|
46,814
|
|
|
43,541
|
|
|
3,273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
234,921
|
|
$
|
188,229
|
|
$
|
46,692
|
|
|
|
|
|
|
|
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
|
|
5.
|
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 June 30, 2009, the Company held 1,598 service agreements (December
31, 2008 1,630) at a cost, net of accumulated amortization of $88,791
(December 31, 2008 - $78,345), of $120,130 (December 31, 2008 - $130,576).
|
VISCOUNT SYSTEMS, INC.
|
Notes to Interim Condensed Consolidated Financial Statements
|
(Unaudited)
|
(Expressed in Canadian dollars)
|
Six months ended June 30, 2009 and 2008
|
|
6.
|
Bank indebtedness
|
|
|
|
Bank indebtedness represents cheques written in excess
of funds on deposit of $22,637 (December 31, 2008 - $17,775) and
amounts drawn under a bank credit facility of $185,000 (December 31,
2008 - $40,000) available to a maximum of $500,000. Amounts outstanding
under the bank credit facility bear interest at the banks 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 June 30, 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.
|
|
|
7.
|
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, of which $47,000 remains outstanding. The
loan bears interest at 9.5% per annum, is unsecured and has no fixed terms
of repayment.
|
|
|
8.
|
Note 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.
|
VISCOUNT SYSTEMS, INC.
|
Notes to Interim Condensed Consolidated Financial Statements
|
(Unaudited)
|
(Expressed in Canadian dollars)
|
Six months ended June 30, 2009 and 2008
|
|
9.
|
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 June 30, 2009
|
|
3,363,800
|
|
|
$0.30
|
|
|
|
|
|
|
|
|
|
A summary of the stock options outstanding
and exercisable at June 30, 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
|
4.22 years
|
US$0.12
|
US$ -
|
|
$0.18
|
11,250
|
0.48 years
|
$0.18
|
$ -
|
|
$0.40
|
327,500
|
3.09 years
|
$0.40
|
$ -
|
|
$0.45
|
7,500
|
0.48 years
|
$0.45
|
$ -
|
|
$0.55
|
5,000
|
0.48 years
|
$0.55
|
$ -
|
|
$0.60
|
10,000
|
0.48 years
|
$0.60
|
$ -
|
|
$0.65
|
933,800
|
2.48 years
|
$0.65
|
$ -
|
|
|
|
|
|
|
|
|
3,363,800
|
3.59 years
|
$0.30
|
$ -
|
|
|
|
|
|
|
VISCOUNT SYSTEMS, INC.
|
Notes to Interim Condensed Consolidated Financial Statements
|
(Unaudited)
|
(Expressed in Canadian dollars)
|
Six months ended June 30, 2009 and 2008
|
|
9.
|
Capital stock (contd
)
|
|
|
|
The aggregate intrinsic value in the preceding table
represents the total intrinsic value, based on the Companys closing
stock price of US$0.11 per share as of June 30, 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 June 30, 2009
was nil (June 30, 2008 2,080,000). The total intrinsic value of
options exercised during the quarter ended June 30, 2009 was $nil (June
30, 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 June 30, 2009
|
|
1,677,550
|
|
|
0.25
|
|
|
|
|
|
|
|
|
|
A summary of the warrants outstanding
and exercisable at June 30, 2009 is as follows:
|
|
|
Weighted
|
|
|
|
|
|
Average
|
Weighted
|
|
|
|
|
Remaining
|
Average
|
|
|
Exercise Price
|
Number
|
Contractual
|
Exercise
|
|
|
|
|
Life
|
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$0.25
|
1,677,550
|
2.80 years
|
US$0.25
|
|
VISCOUNT SYSTEMS, INC.
|
Notes to Interim Condensed Consolidated Financial Statements
|
(Unaudited)
|
(Expressed in Canadian dollars)
|
Six months ended June 30, 2009 and 2008
|
|
10.
|
Changes in non-cash working capital balances
|
|
|
|
Six months
ended
|
|
|
|
|
June 30,
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts receivable
|
$
|
(281,617
|
)
|
$
|
(273,420
|
)
|
|
Inventory
|
|
146,018
|
|
|
89,590
|
|
|
Prepaid expenses
|
|
4,637
|
|
|
-
|
|
|
Lease receivable
|
|
577
|
|
|
510
|
|
|
Accounts payable and accrued liabilities
|
|
(37,010
|
)
|
|
92,364
|
|
|
Deferred revenue
|
|
6,180
|
|
|
7,442
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(161,215
|
)
|
$
|
(83,514
|
)
|
11.
|
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
|
$
|
98,207
|
|
|
2010
|
|
105,673
|
|
|
2011
|
|
16,519
|
|
|
2012
|
|
1,221
|
|
|
|
|
|
|
Rent expense included in the statements
of operations for the six months ended June 30, 2009 is $65,831 (2008 - $64,025)
and for the three month period ended June 30, 2009 is $33,066 (2008 - $32,163).
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.
VISCOUNT SYSTEMS, INC.
|
Notes to Interim Condensed Consolidated Financial Statements
|
(Unaudited)
|
(Expressed in Canadian dollars)
|
Six months ended June 30, 2009 and 2008
|
|
12.
|
Segment information
|
|
|
|
|
(a)
|
Operating segments:
|
|
|
|
|
|
The Company organizes 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 and six months ended June 30, 2009 and 2008 are as follows:
|
|
For the three months ended June 30, 2009
|
|
Manufacturing
|
|
|
Servicing
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to external customers
|
$
|
960,457
|
|
$
|
329,469
|
|
$
|
1,289,926
|
|
|
Depreciation and amortization
|
|
2,348
|
|
|
5,223
|
|
|
7,571
|
|
|
Interest expense, net
|
|
3,512
|
|
|
200
|
|
|
3,712
|
|
|
Segment income before income taxes
|
|
33,329
|
|
|
45,648
|
|
|
78,977
|
|
|
Total assets
|
|
1,558,553
|
|
|
120,130
|
|
|
1,678,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30, 2008
|
|
Manufacturing
|
|
|
Servicing
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to external customers
|
$
|
914,009
|
|
$
|
421,840
|
|
$
|
1,335,849
|
|
|
Depreciation and amortization
|
|
2,847
|
|
|
5,223
|
|
|
8,070
|
|
|
Interest expense, net
|
|
11,854
|
|
|
1,400
|
|
|
13,254
|
|
|
Segment loss before income taxes
|
|
(35,400
|
)
|
|
(2,035
|
)
|
|
(37,435
|
)
|
|
Total assets
|
|
1,685,637
|
|
|
141,022
|
|
|
1,826,659
|
|
|
|
|
|
|
|
|
|
|
|
|
VISCOUNT SYSTEMS, INC.
|
Notes to Interim Condensed Consolidated Financial Statements
|
(Unaudited)
|
(Expressed in Canadian dollars)
|
Six months ended June 30, 2009 and 2008
|
|
12.
|
Segment information (contd
)
|
|
For the six months ended June 30, 2009
|
|
Manufacturing
|
|
|
Servicing
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to external customers
|
$
|
1,656,375
|
|
$
|
704,195
|
|
$
|
2,360,570
|
|
|
Depreciation and amortization
|
|
13,809
|
|
|
10,446
|
|
|
24,255
|
|
|
Interest expense, net
|
|
6,675
|
|
|
800
|
|
|
7,475
|
|
|
Segment income (loss) before income taxes
|
|
(82,235
|
)
|
|
141,059
|
|
|
58,824
|
|
|
Total assets
|
|
1,558,553
|
|
|
120,130
|
|
|
1,678,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30, 2008
|
|
Manufacturing
|
|
|
Servicing
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to external customers
|
$
|
1,772,205
|
|
$
|
871,282
|
|
$
|
2,643,487
|
|
|
Depreciation and amortization
|
|
5,848
|
|
|
10,446
|
|
|
16,294
|
|
|
Interest expense, net
|
|
24,403
|
|
|
2,800
|
|
|
27,203
|
|
|
Segment loss before income taxes
|
|
(97,862
|
)
|
|
(4,916
|
)
|
|
(102,778
|
)
|
|
Total assets
|
|
1,685,637
|
|
|
141,022
|
|
|
1,826,659
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(b)
|
Of the total revenues for the six months ended June
30, 2009, $430,285 (2008 - $440,258) was derived from U.S.-based customers
and $1,930,285 (2008 - $2,203,229) 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 six months ended June 30, 2009 and 2008.
|
VISCOUNT SYSTEMS, INC.
|
Notes to Interim Condensed Consolidated Financial Statements
|
(Unaudited)
|
(Expressed in Canadian dollars)
|
Six months ended June 30, 2009 and 2008
|
|
12.
|
Segment information (contd
)
|
|
|
|
|
(d)
|
Products and services:
|
|
|
|
|
|
Enterphone 2000 sales represented 10.1% of total revenue
during the six months ended June 30, 2009 (2008 18%). MESH sales
represented 59% of total revenue during the six months ended June 30,
2009 (2008 52%). The balance of the Companys 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.
|
Item 2. Management Discussion
and Analysis or Plan of Operation
Results of Operations
Sales for the three months ended June 30, 2009 and 2008 were
$1,289,926 and $1,335,849, respectively, a decrease of $45,923 or 3.5% . Sales
for the six months ended June 30, 2009 and 2008 were $2,360,570 and $2,643,487,
respectively, a decrease of $282,917 or 10.7% . MESH sales for the three months
ended June 30, 2009 and 2008 were $797,803 and $701,243, respectively, an
increase of $96,560 or 13.8% . Mesh sales for the six months ended June 30, 2009
and 2008 were $1,402,941 and $1,378,775, respectively, an increase of $24,166 or
1.76% . 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
June 30, 2009 and 2008 were $134,476 and $246,463, respectively, a decrease of
$111,987 or 45.5% . Enterphone sales for the six months ended June 30, 2009 and
2008 were $238,454 and $482,686, a decrease of $244,232 or 50.6% . 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 six months ended June 30, 2009 and 2008,
MESH sales were 59.4% and 52.2%, 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 1,598 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
six months ended June 30, 2009 and 2008, customer service contracts and new
equipment sales generated aggregate sales revenues of $704,195 and $871,282,
respectively, a decrease of $167,087 or 19.2% . 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 1,598 at June 30, 2009, as
compared to 1,630 and 1,634 at December 31, 2008 and June 30, 2008,
respectively. During the first and second 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 June 30, 2009, the cost of the service
agreements, net of accumulated amortization, was $120,130.
Cost of sales and services as a percentage of sales was 41.8%
and 40.8% for the three months ended June 30, 2009 and 2008, respectively. Cost
of sales and service for the six months ended June 30, 2009 and 2008 was 44.2%
and 41.2%, 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.
3
Gross profit for the three months ended June 30, 2009 and 2008
was $750,791 and $790,402, respectively, a decrease of $39,611 or 5.1% . For the
six months ended June 30, 2009 and 2008, gross profit was $1,317,227 and
$1,554,344, respectively, a decrease of $237,117 or 15.3% . This marginal gross
profit decrease corresponds with the decreased sales and increased cost of sales
for the three and six months ended June 30, 2009.
Selling, general and administrative expenses for the three
months ended June 30, 2009 and 2008 were $597,913 and $728,072, respectively, a
decrease of $130,159 or 17.9% . Selling, general and administrative expenses for
the six months ended June 30, 2009 and 2008 were $1,120,898 and $1,456,410
respectively, a decrease of $335,512 or 23.1% . The decrease during these two
comparative periods was due to decreases in variable costs such as advertising,
tradeshow and various office expenses. For the six months ended June 30, 2009
and 2008, selling, general and administrative expenses, as a percentage of
sales, were 47.5% and 55.1%, respectively.
Research and development costs for the three months ended June
30, 2009 and 2008 were $62,628 and $86,496, respectively, a decrease of $23,868
or 27.6% . Research and development costs for the six months ended June 30, 2009
and 2008 were $105,865 and $172,817, respectively, a decrease of $66,952 or
38.8% . Research and development costs have decreased during these two
comparative periods, as more MESH project phases have been completed.
Net profit for the quarter ended June 30, 2009 was $78,977 and
net loss for the quarter ended June 30, 2008 was $37,434, an increase in
profitability of $116,411. Net profit for the six months ended June 30, 2009 was
$58,824 and net loss for the six months ended June 30, 2008 was $102,778, an
increase in profitability of $161,602. The increase in profitability during the
six months ended June 30, 2009 was the result of decreased variable costs such
as tradeshow, traveling, and various office expenses.
Liquidity and Capital Resources
Cash as of June 30, 2009, as compared to December 31, 2008 was
$228,898 and $255,172, respectively. Cash as of June 30, 2008 was $48,304. 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 June 30, 2009, $207,637 was drawn on this facility. The facility
is secured by substantially all of our assets under a general security
agreement.
At June 30, 2009, working capital was $384,115, as compared to
a working capital of $301,036 at December 31, 2008. Working capital has
increased by $83,079. The current ratio at June 30, 2009 was 1.34 to 1.0, as
compared with 1.28 to 1.0 at December 31, 2008.
The accounts receivable turnover ratio at June 30, 2009 was 46
days, as compared 61 days at December 31, 2008 and 60 days at June 30, 2008. The
accounts receivable reserve was $318,670 at June 30, 2009, as compared to
$336,776 at December 31, 2008. The accounts receivable reserve has decreased by
$18,106 or 5.4%, 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 six months ended June 30, 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.
4
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 June 30, 2009.
There are no known trends or uncertainties that will have a
material impact on revenues.
Related Party Transactions
In February of 2008, Stephen Pineau, president of Viscount,
loaned the Company $100,000, of which $47,000 remains outstanding. 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 June 30, 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 June
30, 2009. Based on that evaluation, our principal executive officer and
principal financial officer have concluded that as of June 30, 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 4. Submission of Matters
to a Vote of Security Holders
At the Annual General Meeting of the holders of Common Shares
of the Company held on May 20, 2009, the shareholders voted on the following
matters:
5
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1.
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Election of Directors.
The following nominees
were elected as directors to serve until the next annual general meeting
of the shareholders:
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Greg Shen
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For: 8,964,503
(80.21%)
Withheld: 2,211,595 (19.79%)
|
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Stephen Pineau
|
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For: 8,942,743
(80.02%)
Withheld: 2,233,445 (19.98%)
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2.
|
Appointment of Auditors.
The shareholders approved
the reappointment of Davidson & Company LLP as auditor of the Company
until the next annual general shareholder meeting.
|
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|
|
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For: 11,139,860
(99.68%)
Withheld: 36,238 (0.32%)
|
Item 6. Exhibits
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: August 7, 2009
|
VISCOUNT SYSTEMS, INC.
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(Registrant)
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By:
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/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
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