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, 2010
[ ] 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 March 31,
2010 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 March 31, 2010, the foreign exchange rate certified by the
Federal Reserve Bank of New York was CAD$1.0158 for USD$1.0000 or CAD$1.0000 for
USD$0.9844.
Item 1. Financial Statements
2
VISCOUNT SYSTEMS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars)
MARCH 31, 2010
VISCOUNT SYSTEMS, INC.
|
Interim Consolidated Balance Sheets
|
(Expressed in Canadian dollars)
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
Cash
|
$
|
127,798
|
|
$
|
124,378
|
|
Trade accounts receivable, less allowance
for doubtful accounts
|
|
|
|
|
|
|
of $343,951 (2009 - $337,475)
|
|
1,091,859
|
|
|
1,182,434
|
|
Inventory (note 3)
|
|
714,530
|
|
|
626,566
|
|
Total current assets
|
|
1,934,187
|
|
|
1,933,378
|
|
|
|
|
|
|
|
|
Deposits
|
|
5,891
|
|
|
5,891
|
|
Equipment (note 4)
|
|
40,421
|
|
|
42,358
|
|
Intangible assets
(note 5)
|
|
104,461
|
|
|
109,684
|
|
|
|
|
|
|
|
|
Total assets
|
$
|
2,084,960
|
|
$
|
2,091,311
|
|
|
|
|
|
|
|
|
Liablilities and stockholders' equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
Bank indebtedness (note 6)
|
$
|
140,105
|
|
$
|
218,702
|
|
Accounts payable
|
|
189,282
|
|
|
155,840
|
|
Accrued liabilities
|
|
432,366
|
|
|
447,878
|
|
Deferred revenue
|
|
27,789
|
|
|
39,678
|
|
Due to stockholders (note 7)
|
|
292,402
|
|
|
292,402
|
|
Total current liabilities
|
|
1,081,944
|
|
|
1,154,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments (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 common shares (2009
- 17,841,250)
|
|
25,434
|
|
|
25,434
|
|
Additional paid-in capital
|
|
2,372,228
|
|
|
2,372,228
|
|
Accumulated
deficit
|
|
(1,394,646
|
)
|
|
(1,460,851
|
)
|
Total stockholders' equity
|
|
1,003,016
|
|
|
936,811
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' equity
|
$
|
2,084,960
|
|
$
|
2,091,311
|
|
See accompanying notes to interim consolidated financial statements.
VISCOUNT SYSTEMS, INC.
|
Interim Consolidated Statements of Operations
|
(Unaudited)
|
(Expressed in Canadian dollars)
|
|
|
Three months ended
|
|
|
|
March 31
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
$
|
1,011,189
|
|
$
|
1,070,644
|
|
Cost of sales
|
|
359,377
|
|
|
504,208
|
|
Gross profit
|
|
651,812
|
|
|
566,436
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
Selling, general and administrative
|
|
534,062
|
|
|
522,985
|
|
Research and development
|
|
43,570
|
|
|
43,237
|
|
Depreciation
and amortization
|
|
7,160
|
|
|
16,684
|
|
|
|
584,792
|
|
|
582,906
|
|
|
|
|
|
|
|
|
Income (loss) before other items
|
|
67,020
|
|
|
(16,470
|
)
|
|
|
|
|
|
|
|
Other items
|
|
|
|
|
|
|
Interest income
|
|
-
|
|
|
80
|
|
Interest expense
|
|
(815
|
)
|
|
(3,763
|
)
|
|
|
(815
|
)
|
|
(3,683
|
)
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
66,205
|
|
|
(20,153
|
)
|
|
|
|
|
|
|
|
Provision for
income taxes
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
Net income (loss)
|
$
|
66,205
|
|
$
|
(20,153
|
)
|
|
|
|
|
|
|
|
Basic and diluted
income (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 consolidated financial statements.
VISCOUNT SYSTEMS, INC.
|
Interim Consolidated Statement of Stockholders' Equity
|
(Unaudited)
|
(Expressed in Canadian dollars)
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
paid-in
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
capital
|
|
|
deficit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009
|
|
17,841,250
|
|
$
|
25,434
|
|
$
|
2,372,228
|
|
$
|
(1,460,851
|
)
|
$
|
936,811
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
-
|
|
Net income
|
|
-
|
|
|
-
|
|
|
-
|
|
|
66,205
|
|
$
|
66,205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2010
|
|
17,841,250
|
|
$
|
25,434
|
|
$
|
2,372,228
|
|
$
|
(1,394,646
|
)
|
$
|
1,003,016
|
|
See accompanying notes to interim consolidated financial statements.
VISCOUNT SYSTEMS, INC.
|
Interim Consolidated Statements of Cash Flows
|
(Unaudited)
|
(Expressed in Canadian dollars)
|
|
Three months ended March 31
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities:
|
|
|
|
|
|
|
Net income (loss)
|
$
|
66,205
|
|
$
|
(20,153
|
)
|
Items not involving cash:
|
|
|
|
|
|
|
Depreciation and amortization
|
|
7,160
|
|
|
16,684
|
|
Changes in non-cash working capital balances (note 10)
|
|
8,651
|
|
|
65,769
|
|
Net cash provided by (used in) operating activities
|
|
82,016
|
|
|
62,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
Repayment of bank indebtedness
|
|
(78,596
|
)
|
|
(20,911
|
)
|
Repayment of notes payable
|
|
-
|
|
|
(30,000
|
)
|
Net cash used in financing activities
|
|
(78,596
|
)
|
|
(50,911
|
)
|
|
|
|
|
|
|
|
Increase in cash
|
|
3,420
|
|
|
11,389
|
|
|
|
|
|
|
|
|
Cash, beginning of
period
|
|
124,378
|
|
|
255,172
|
|
|
|
|
|
|
|
|
Cash, end of period
|
$
|
127,798
|
|
$
|
266,561
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplementary information:
|
|
|
|
|
|
|
Interest paid
|
$
|
815
|
|
$
|
3,763
|
|
Income taxes paid
|
$
|
-
|
|
$
|
-
|
|
See accompanying notes to interim consolidated financial statements.
VISCOUNT SYSTEMS, INC.
|
Notes to Interim Consolidated Financial Statements
|
(Unaudited)
|
(Expressed in Canadian dollars)
|
Three months ended March 31, 2010 and 2009
|
|
1.
|
Basis of presentation
|
|
|
|
These unaudited interim 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, 2009 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, 2010 or for any other interim period.
|
|
|
|
The financial information as at March 31, 2010 and for
the three month periods ended March 31, 2010 and 2009 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 consolidated balance sheet as of December
31, 2009 has been derived from the audited consolidated balance sheet
as of that date included in the Form 10-K.
|
VISCOUNT SYSTEMS, INC.
|
Notes to Interim Condensed Consolidated Financial Statements
|
(Unaudited)
|
(Expressed in Canadian dollars)
|
Three months ended March 31, 2010 and 2009
|
|
2.
|
New accounting pronouncements
|
In April 2009, the Financial Accounting
Standards Board (FASB) issued authoritative guidance for estimating
the fair value of assets and liabilities when the volume and level of activity
associated with those assets and liabilities has decreased significantly. The
guidance also requires the disclosure of the inputs and valuation technique(s)
used to measure fair value and a discussion of changes in valuation techniques
and related inputs, if any, during the period. The adoption had no material
impact on the Company's financial position, results of operations or cash flows.
In May 2009, the FASB issued guidance
that establishes general standards of accounting for and disclosure of events
that occur subsequent to the balance sheet date but before financial statements
are issued. The statement defines two types of subsequent events (1) recognized
subsequent events, which provide additional evidence about conditions that existed
at the balance sheet date, and (2) non-recognized subsequent events, which provide
evidence about conditions that did not exist at the balance sheet date, but
arose before the financial statements were issued. Recognized subsequent events
are required to be recognized in the financial statements, and non-recognized
subsequent events are required to be disclosed. The guidance requires entities
to disclose the date through which subsequent events have been evaluated and
the basis for the date. The adoption had no material impact on the Company's
financial position, results of operations or cash flows.
In June 2009, the FASB issued The
FASB Accounting Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles a replacement of FASB Statement No. 168.
Upon its adoption, the FASB Accounting Standards Codification (the Codification)
will become the source of authoritative GAAP recognized by the FASB to be applied
to nongovernmental entities. On the effective date, the Codification will supersede
all then-existing non-SEC accounting and reporting standards. Following this,
the FASB will not issue new accounting standards in the form of FASB Statements,
FASB Staff Positions, or Emerging Issues Task Force abstracts. This will also
modify the existing hierarchy of GAAP to include only two levels authoritative
and non-authoritative. This is effective for financial statements issued for
interim and annual periods ending after September 15, 2009, and early adoption
is not permitted. The adoption of this standard did not have a material impact
on its financial position, results of operations or cash flows.
VISCOUNT SYSTEMS, INC.
|
Notes to Interim Condensed Consolidated Financial Statements
|
(Unaudited)
|
(Expressed in Canadian dollars)
|
Three months ended March 31, 2010 and 2009
|
|
2.
|
New accounting pronouncements (contd
)
|
In October 2009, the FASB issued authoritative
guidance on revenue recognition that will become effective beginning July 1,
2010, with earlier adoption permitted. Under the new guidance on arrangements
that include software elements, tangible products that have software components
that are essential to the functionality of the tangible product will no longer
be within the scope of the software revenue recognition guidance, and software-enabled
products will now be subject to other relevant revenue recognition guidance.
Additionally, the FASB issued authoritative guidance on revenue arrangements
with multiple deliverables that are outside the scope of the software revenue
recognition guidance. Under the new guidance, when vendor specific objective
evidence or third party evidence for deliverables in an arrangement cannot be
determined, a best estimate of the selling price is required to separate deliverables
and allocate arrangement consideration using the relative selling price method.
The new guidance includes new disclosure requirements on how the application
of the relative selling price method affects the timing and amount of revenue
recognition. The Company believes the adoption of this new guidance will not
have a material impact on the financial statements.
In June 2009, the FASB issued authoritative
guidance on the consolidation of variable interest entities, which is effective
beginning July 1, 2010. The new guidance requires revised evaluations of whether
entities represent variable interest entities, ongoing assessments of control
over such entities, and additional disclosures for variable interests. The Company
believes adoption of this new guidance will not have a material impact on the
financial statements.
VISCOUNT SYSTEMS, INC.
|
Notes to Interim Condensed Consolidated Financial Statements
|
(Unaudited)
|
(Expressed in Canadian dollars)
|
Three months ended March 31, 2010 and 2009
|
|
|
|
|
March 31, December 31,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
Raw materials
|
$
|
428,665
|
|
$
|
237,463
|
|
|
Work in process
|
|
61,935
|
|
|
106,457
|
|
|
Finished goods
|
|
223,930
|
|
|
282,646
|
|
|
|
|
|
|
|
|
|
|
|
$
|
714,530
|
|
$
|
626,566
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Net book
|
|
|
March 31, 2010
|
|
Cost
|
|
|
depreciation
|
|
|
value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Computer equipment
|
$
|
110,838
|
|
$
|
94,091
|
|
$
|
16,747
|
|
|
Office furniture and equipment
|
|
77,269
|
|
|
55,930
|
|
|
21,339
|
|
|
Leasehold improvements
|
|
46,814
|
|
|
44,479
|
|
|
2,335
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
234,921
|
|
$
|
194,500
|
|
$
|
40,421
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Net book
|
|
|
December 31, 2009
|
|
Cost
|
|
|
depreciation
|
|
|
value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Computer equipment
|
$
|
110,838
|
|
$
|
93,318
|
|
$
|
17,520
|
|
|
Office furniture and equipment
|
|
77,269
|
|
|
55,034
|
|
|
22,235
|
|
|
Leasehold improvements
|
|
46,814
|
|
|
44,211
|
|
|
2,603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
234,921
|
|
$
|
192,563
|
|
$
|
42,358
|
|
VISCOUNT SYSTEMS, INC.
|
Notes to Interim Condensed Consolidated Financial Statements
|
(Unaudited)
|
(Expressed in Canadian dollars)
|
Three months ended March 31, 2010 and 2009
|
|
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,
2010, the Company held 1,559 service agreements (December 31, 2009 1,577)
at a cost, net of accumulated amortization of $104,460 (December 31, 2009 -
$99,237), of $104,461 (December 31, 2009 - $109,684). The estimated aggregate
amortization expense for each of the five succeeding fiscal years is as follows:
|
Year ending December
31:
|
|
|
|
|
|
|
|
|
|
2010
|
$
|
20,892
|
|
|
2011
|
|
20,892
|
|
|
2012
|
|
20,892
|
|
|
2013
|
|
20,892
|
|
|
2014
|
|
20,892
|
|
6.
|
Bank indebtedness
|
|
|
|
Bank indebtedness represents cheques written in excess
of funds on deposit of $5,105 (December 31, 2009 - $18,703) and amounts
drawn under a bank credit facility of $135,000 (December 31, 2009 - $200,000)
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 and a pledge of personal
property of a significant shareholder. 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, 2010, the Company was in compliance with debt covenants.
|
VISCOUNT SYSTEMS, INC.
|
Notes to Interim Condensed Consolidated Financial Statements
|
(Unaudited)
|
(Expressed in Canadian dollars)
|
Three months ended March 31, 2010 and 2009
|
|
7.
|
Due to stockholders
|
|
|
|
Amounts due to stockholders in the amount of $292,402
(2009, $292,402) are non-interest bearing, unsecured and have no fixed
terms of repayment. Amounts due to stockholders are subordinated to amounts
due on the companys credit facility.
During the 2008 fiscal year, the President loaned the
Company $100,000. The loan carried interest at 9.5% per annum, was unsecured
and had no fixed terms of repayment. The loan was repaid during the fourth
quarter of 2009.
|
VISCOUNT SYSTEMS, INC.
|
Notes to Interim Condensed Consolidated Financial Statements
|
(Unaudited)
|
(Expressed in Canadian dollars)
|
Three months ended March 31, 2010 and 2009
|
|
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, 2009
|
|
3,363,800
|
|
US$0.30
|
|
|
Granted
|
|
-
|
|
-
|
|
|
Exercised
|
|
-
|
|
-
|
|
|
Expired/cancelled
|
|
-
|
|
-
|
|
|
Outstanding at March 31, 2010
|
|
3,363,800
|
|
$0.30
|
|
A summary of the stock options outstanding
and exercisable at March 31, 2010 is as follows:
|
|
Weighted
|
|
|
|
|
Average
|
Weighted
|
|
|
|
Remaining
|
Average
|
Aggregate
|
Exercise Price
|
Number
|
Contractual
|
Exercise
|
Intrinsic
|
|
|
Life
|
Price
|
Value
|
|
|
|
|
|
US$0.12
|
2,068,750
|
3.86 years
|
US$0.12
|
US$82,750
|
$0.18
|
11,250
|
5.73 years
|
$0.18
|
$ -
|
$0.40
|
327,500
|
2.34 years
|
$0.40
|
$ -
|
$0.45
|
7,500
|
5.73 years
|
$0.45
|
$ -
|
$0.55
|
5,000
|
5.73 years
|
$0.55
|
$ -
|
$0.60
|
10,000
|
5.73 years
|
$0.60
|
$ -
|
$0.65
|
933,800
|
1.73 years
|
$0.65
|
$ -
|
|
|
|
|
|
|
3,363,800
|
3.14 years
|
$0.30
|
$82,750
|
VISCOUNT SYSTEMS, INC.
|
Notes to Interim Condensed Consolidated Financial Statements
|
(Unaudited)
|
(Expressed in Canadian dollars)
|
Three months ended March 31, 2010 and 2009
|
|
8.
|
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$0.16 per share as of March 31, 2010 (December 31, 2009
US$0.19), which would have been received by the option holders
had all option holders exercised their options as of that date. The total
number of in-the-money options vested and exercisable as of March 31,
2010 was 2,068,750 (March 31, 2009 nil).
|
|
|
|
Warrants
|
|
|
|
A summary of warrant activity is as follows:
|
|
|
|
Number
of warrants
|
|
|
Weighted average
|
|
|
|
|
|
|
|
Exercise price
|
|
|
Outstanding at December 31, 2009
|
|
1,677,550
|
|
|
US$ 0.25
|
|
|
Granted
|
|
-
|
|
|
-
|
|
|
Exercised
|
|
-
|
|
|
-
|
|
|
Expired
|
|
-
|
|
|
-
|
|
|
Outstanding at March 31, 2010
|
|
1,677,550
|
|
|
0.25
|
|
A summary of the warrants outstanding
and exercisable at March 31, 2010 is as follows:
|
|
Weighted
|
|
|
|
Average
|
Weighted
|
|
|
Remaining
|
Average
|
Exercise Price
|
Number
|
Contractual
|
Exercise
|
|
|
Life
|
Price
|
|
|
|
|
US$0.25
|
1,677,550
|
2.05 years
|
US$0.25
|
VISCOUNT SYSTEMS, INC.
|
Notes to Interim Condensed Consolidated Financial Statements
|
(Unaudited)
|
(Expressed in Canadian dollars)
|
Three months ended March 31, 2010 and 2009
|
|
9.
|
Changes in non-cash working capital balances
|
|
|
|
Three months ended
|
|
|
|
|
March 31,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts receivable
|
$
|
90,575
|
|
$
|
66,073
|
|
|
Inventory
|
|
(87,964
|
)
|
|
111,433
|
|
|
Prepaid expenses
|
|
-
|
|
|
4,637
|
|
|
Lease receivable
|
|
-
|
|
|
301
|
|
|
Accounts payable
|
|
33,441
|
|
|
55,454
|
|
|
Accrued Liabilities
|
|
(15,512
|
)
|
|
(163,016
|
)
|
|
Deferred revenue
|
|
(11,889
|
)
|
|
(9,113
|
)
|
|
|
|
|
|
|
|
|
|
|
$
|
8,651
|
|
$
|
65,769
|
|
10.
|
Commitments
|
|
|
|
The Company is committed to make minimum annual payments
on its premises, automobiles and office equipment operating leases that
expire in 2014 as follows:
|
|
Year or period ending
December 31:
|
|
|
|
|
|
|
|
|
|
2010
|
$
|
139,188
|
|
|
2011
|
|
160,482
|
|
|
2012
|
|
147,341
|
|
|
2013
|
|
65,025
|
|
|
2014
|
|
6,381
|
|
Rent expense included in the statements
of operations for the three months ended March 31, 2010 is $33,668 (2009 - $32,765).
VISCOUNT SYSTEMS, INC.
|
Notes to Interim Condensed Consolidated Financial Statements
|
(Unaudited)
|
(Expressed in Canadian dollars)
|
Three months ended March 31, 2010 and 2009
|
|
11.
|
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.
|
|
For the three months ended March 31, 2010
|
|
Manufacturing
|
|
|
Servicing
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to external customers
|
$
|
664,175
|
|
$
|
347,014
|
|
$
|
1,011,189
|
|
|
Depreciation and amortization
|
|
1,937
|
|
|
5,223
|
|
|
7,160
|
|
|
Interest expense, net
|
|
815
|
|
|
-
|
|
|
815
|
|
|
Segment income(loss) before income taxes
|
|
(38,000
|
)
|
|
104,205
|
|
|
66,205
|
|
|
Total assets
|
|
1,980,498
|
|
|
104,462
|
|
|
2,084,960
|
|
|
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
|
|
VISCOUNT SYSTEMS, INC.
|
Notes to Interim Condensed Consolidated Financial Statements
|
(Unaudited)
|
(Expressed in Canadian dollars)
|
Three months ended March 31, 2010 and 2009
|
|
12.
|
Segment information (contd
)
|
|
|
|
|
(b)
|
Of the total revenues for the three months ended March
31, 2010, $146,800 (2009 - $196,614) was derived from U.S.-based customers
and $864,389 (2009 - $874,030) from Canadian-based customers.
|
|
|
|
|
|
Substantially all of the Company's operations, assets
and employees are located in Canada.
|
|
|
|
|
(c)
|
Major customers:
|
|
|
|
|
|
One customer represented approximately 11% of total
revenues in the three months ended March 31, 2010. No customer represented
more than 10% of total revenues in the three months ended March 31, 2009.
|
|
|
|
|
(d)
|
Products and services:
|
|
|
|
|
|
Enterphone 2000 sales represented 6.5% of total revenue
during the three months ended March 31, 2010 (2009 10%). MESH sales
represented 61.3% of total revenue during the three months ended March
31, 2010 (2009 57%). 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 March 31, 2010 and 2009 were
$1,011,189 and $1,070,644, respectively, a decrease of $59,455 or 5.5% . This
decrease was due to decreased Enterphone sales. MESH sales for the three months
ended March 31, 2010 and 2009 were $619,420 and $605,138, respectively, an
increase of $14,282 or 2.4% . 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, 2010 and 2009 were $65,639 and $103,978,
respectively, a decrease of $38,339 or 36.9% . As an older 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, 2010 and 2009,
MESH sales were 61.3% and 56.5%, 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 1,559 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, 2010 and 2009, customer service contracts and new
equipment sales generated aggregate sales revenues of $347,014 and $374,726,
respectively, a decrease of $27,712 or 7.4% . 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 1,559 at March 31, 2010, as
compared to 1,577 and 1,615 at December 31, 2009 and March 31, 2009,
respectively. During the first quarter of 2010, the Company performed a test for
impairment 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. 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, 2010, the cost of the service agreements, net of accumulated amortization,
was $104,461.
Cost of sales and services as a percentage of sales was 35.5%
and 47.1% for the three months ended March 31, 2010 and 2009, respectively. Cost
of sales has decreased considerably during these two comparative periods due to
a combination of decreases in the overall costs for many MESH component parts
and managements continued 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, 2010 and 2009
was $651,812 and $566,436, respectively, an increase of $85,376 or 15.1% . This
increase in gross profit corresponds with consistent sales and decreased cost of
sales for the three months ended March 31, 2010.
3
Selling, general and administrative expenses for the three
months ended March 31, 2010 and 2009 were $534,062 and $522,985, respectively,
an increase of $11,077 or 2.1% . These two comparative periods were consistent.
For the three months ended March 31, 2010 and 2009, selling, general and
administrative expenses, as a percentage of sales, were 52.8% and 48.8%,
respectively.
Research and development costs for the three months ended March
31, 2010 and 2009 were $43,570 and $43,237, respectively. These two comparative
periods were consistent.
Income before income tax for the quarter ended March 31, 2010
was $66,205, as compared to loss before income tax of $(20,153) for the quarter
ended March 31, 2009. This equates to an increase in quarter over quarter income
of $86,358. The increase in profitability is the result of reductions in
staffing costs, advertising, travel, tradeshow, various office expenses and the
aforementioned reductions in input prices.
Liquidity and Capital Resources
Cash as of March 31, 2010, as compared to December 31, 2009 was
$127,798 and $124,378, respectively. Cash as of March 31, 2009 was $266,561. 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, 2010, $140,105 was drawn on this facility. The facility
is secured by substantially all of our assets under a general security
agreement.
At March 31, 2010, working capital was $852,243, as compared to
a working capital of $778,879 at December 31, 2009. Working capital has
increased by $73,366. The current ratio at March 31, 2010 was 1.79 to 1.0, as
compared with 1.67 to 1.0 at December 31, 2009.
The accounts receivable turnover ratio at March 31, 2010 was 91
days, as compared 61 days at December 31, 2009 and 42 days at March 31, 2009.
The increase at March 31, 2010 and December 31, 2009 is caused in its entirety
by one large accounts receivable from a large customer. Ignoring this
receivable, the turnover ratio at March 31, 2010 would have been 51 days, which
is more consistent with the 42 days at March 31, 2009. This consistency was due
to consistent follow up and monitoring of slower paying accounts on a monthly
basis by management. The accounts receivable reserve was $343,951 at March 31,
2010, as compared to $337,475 at December 31, 2009. The accounts receivable
reserve has increased by $6,476 or 1.9%, since the year ended December 31, 2009.
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, 2010, there were no
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, 2010.
4
There are no known trends or uncertainties that will have a
material impact on revenues.
Related Party Transactions
None.
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, 2010. Based on that evaluation, our principal executive officer and
principal financial officer have concluded that as of March 31, 2010, 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 12, 2010
|
VISCOUNT SYSTEMS,
INC.
|
|
(Registrant)
|
|
|
|
|
|
|
|
By:
|
/s/
Stephen Pineau
|
|
|
Stephen Pineau, President
|
|
|
Principal Executive Officer
|
|
|
and Principal Financial Officer
|
6
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