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, 2011
[ ] 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,
2011 the registrants outstanding common stock consisted of 25,491,250 shares
(being 76,473,750 shares on a post forward-stock-split basis).
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, 2011, the foreign exchange rate certified by the
Federal Reserve Bank of New York was CAD$1.0314 for USD$1.0000 or CAD$1.0000 for
USD$0.9696.
Item 1.
|
Financial Statements
|
2
VISCOUNT SYSTEMS, INC.
CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars)
MARCH 31, 2011
VISCOUNT SYSTEMS, INC.
|
Interim Consolidated Balance Sheets
|
(Expressed in Canadian dollars)
|
|
|
March 31,
|
|
|
December
31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
(Unaudited)
|
|
|
(Audited)
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
Cash
|
$
|
807,580
|
|
$
|
820,344
|
|
Trade accounts receivable, less allowance
for doubtful accounts of $117,206 (2010 - $97,642)
|
|
541,844
|
|
|
560,727
|
|
Inventory (note
3)
|
|
483,956
|
|
|
539,861
|
|
Total current assets
|
|
1,833,380
|
|
|
1,920,932
|
|
|
|
|
|
|
|
|
Deposits
|
|
5,891
|
|
|
5,891
|
|
Equipment (note 4)
|
|
33,671
|
|
|
35,188
|
|
Intangible assets (note 5)
|
|
83,569
|
|
|
88,792
|
|
|
|
|
|
|
|
|
Total assets
|
$
|
1,956,511
|
|
$
|
2,050,803
|
|
|
|
|
|
|
|
|
Liablilities and stockholders' equity (deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
Accounts payable
|
$
|
175,796
|
|
$
|
203,638
|
|
Accrued liabilities
|
|
429,775
|
|
|
515,611
|
|
Deferred revenue
|
|
37,609
|
|
|
44,297
|
|
Due to stockholders (note 7)
|
|
172,402
|
|
|
172,402
|
|
Total current liabilities
|
|
815,582
|
|
|
935,948
|
|
|
|
|
|
|
|
|
Derivative financial
liabilities (note 8)
|
|
1,887,616
|
|
|
974,297
|
|
|
|
2,703,198
|
|
|
1,910,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' equity (deficit)
|
|
|
|
|
|
|
Capital stock (note 9)
|
|
|
|
|
|
|
Authorized:
300,000,000 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:
76,473,750 common shares (2010 - 65,523,750)
|
|
99,252
|
|
|
29,434
|
|
Additional paid-in capital
|
|
3,147,196
|
|
|
2,996,847
|
|
Accumulated
deficit
|
|
(3,993,135
|
)
|
|
(2,885,723
|
)
|
Total stockholders' equity (deficit)
|
|
(746,687
|
)
|
|
140,558
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' equity (deficit)
|
$
|
1,956,511
|
|
$
|
2,050,803
|
|
Commitments (note 11)
Subsquent events (note 13)
See accompanying notes to interim consolidated financial statements.
VISCOUNT SYSTEMS, INC.
|
Interim Consolidated Statements of Operations
|
(Unaudited)
|
(Expressed in Canadian dollars)
|
For the three months ended
|
|
|
|
|
|
Restated
|
|
|
|
|
|
|
(Note 2
|
)
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
$
|
861,197
|
|
$
|
1,011,189
|
|
Cost of sales
|
|
414,944
|
|
|
359,377
|
|
Gross profit
|
|
446,253
|
|
|
651,812
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
Selling, general and administrative
|
|
762,918
|
|
|
534,062
|
|
Research and development
|
|
138,054
|
|
|
43,570
|
|
Depreciation
and amortization
|
|
6,740
|
|
|
7,160
|
|
|
|
907,712
|
|
|
584,792
|
|
|
|
|
|
|
|
|
Income (loss) before other items
|
|
(461,459
|
)
|
|
67,020
|
|
|
|
|
|
|
|
|
Other items
|
|
|
|
|
|
|
Interest income
|
|
11
|
|
|
-
|
|
Interest expense
|
|
-
|
|
|
(815
|
)
|
Fair
value adjustment of derivative liability (note 8)
|
|
(645,964
|
)
|
|
49,358
|
|
|
|
(645,953
|
)
|
|
48,543
|
|
|
|
|
|
|
|
|
Net income (loss)
|
$
|
(1,107,412
|
)
|
$
|
115,563
|
|
|
|
|
|
|
|
|
Basic and diluted income (loss) per common share
|
$
|
(0.02
|
)
|
$
|
0.00
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding, Basic and
diluted
|
|
68,968,695
|
|
|
53,523,750
|
|
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
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
capital
|
|
|
Accumulated deficit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009
|
|
53,523,750
|
|
|
76,302
|
|
|
2,180,723
|
|
|
(1,545,670
|
)
|
|
711,355
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units issued for cash from private placement
|
|
12,000,000
|
|
|
12,000
|
|
|
300,609
|
|
|
-
|
|
|
312,609
|
|
Stock-based compensation
|
|
-
|
|
|
-
|
|
|
456,647
|
|
|
-
|
|
|
456,647
|
|
Net loss
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,340,053
|
)
|
|
(1,340,053
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2010
|
|
65,523,750
|
|
$
|
88,302
|
|
$
|
2,937,979
|
|
$
|
(2,885,723
|
)
|
$
|
140,558
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Units issued for cash from private placement
|
|
10,950,000
|
|
|
10,950
|
|
|
209,217
|
|
|
-
|
|
$
|
220,167
|
|
Net loss
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,107,412
|
)
|
$
|
(1,107,412
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31,
2011
|
|
76,473,750
|
|
$
|
99,252
|
|
$
|
3,147,196
|
|
$
|
(3,993,135
|
)
|
$
|
(746,687
|
)
|
See accompanying notes to interim consolidated financial statements.
VISCOUNT SYSTEMS, INC.
|
Interim Consolidated Statements of Cash Flows
|
(Unaudited)
|
(Expressed in Canadian dollars)
|
|
For the three months ended
|
|
|
|
|
|
Restated
|
|
|
|
|
|
|
(Note 2
|
)
|
|
|
March 31,
|
|
|
March 31,
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities:
|
|
|
|
|
|
|
Net income (loss)
|
$
|
(1,107,412
|
)
|
$
|
115,563
|
|
Items not involving cash:
|
|
|
|
|
|
|
Depreciation and amortization
|
|
6,740
|
|
|
7,160
|
|
Fair value adjustment of
derivative liability
|
|
645,964
|
|
|
(49,358
|
)
|
Changes in non-cash
working capital balances (note 10)
|
|
(45,578
|
)
|
|
8,651
|
|
Net cash provided by
(used in) operating activities
|
|
(500,286
|
)
|
|
82,016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
Proceeds from private placement
|
|
487,522
|
|
|
-
|
|
Repayment of
bank indebtedness
|
|
-
|
|
|
(78,596
|
)
|
Net cash provided by
(used in) financing activities
|
|
487,522
|
|
|
(78,596
|
)
|
|
|
|
|
|
|
|
Increase (decrease) in cash
|
|
(12,764
|
)
|
|
3,420
|
|
|
|
|
|
|
|
|
Cash, beginning of period
|
|
820,344
|
|
|
124,378
|
|
|
|
|
|
|
|
|
Cash, end of period
|
$
|
807,580
|
|
$
|
127,798
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplementary information:
|
|
|
|
|
|
|
Interest paid
|
$
|
-
|
|
$
|
815
|
|
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, 2011
|
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 Viscount
Systems, Inc. (the Company) filed on Form 10-K for the year
ended December 31, 2010 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, 2011 or for any other interim
period.
|
|
|
|
The financial information as at March 31, 2011 and for
the three month periods ended March 31, 2011 and 2010 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, 2010 has been derived from the audited consolidated balance sheet
as of that date included in the Form 10-K.
|
|
|
|
Effective April 18, 2011, the Company completed a three
for one forward-split of its common stock. All common stock and related
per share amounts in these unaudited interim consolidated financial statements
are stated on an after-forward-split basis (Note 13).
|
|
|
2.
|
Restatement
|
|
|
|
The interim unaudited consolidated financial statements
for the three month period ended March 31, 2010 have been restated to
correct the accounting for warrants that were issued in connection with
a private placement completed on April 16, 2007. The exercise price of
these warrants is denominated in United States dollars, which differs
from the Companys functional currency (Canadian dollars) and therefore
these warrants cannot be considered to be indexed to the Corporations
own stock and accordingly must be accounted for as a derivative liability
with changes in fair value recorded in the statement of operations.
|
|
|
|
The effect of the resulting adjustments on the companys
unaudited interim consolidated financial statements for the three months
ended March 31, 2010 is as follows:
|
|
|
|
As previously
|
|
|
|
|
|
|
|
|
|
|
reported
|
|
|
Adjustment
|
|
|
As restated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value adjustment on derivative liability
|
$
|
-
|
|
$
|
49,358
|
|
$
|
49,358
|
|
|
Net income
|
|
66,205
|
|
|
49,358
|
|
|
115,563
|
|
|
Income per common share basic and diluted
|
|
0.00
|
|
|
0.00
|
|
|
0.00
|
|
VISCOUNT SYSTEMS, INC.
|
Notes to Interim Consolidated Financial Statements
|
(Unaudited)
|
(Expressed in Canadian dollars)
|
Three months ended
March 31, 2011
|
|
|
|
March 31,
|
|
|
December
31,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
Raw materials
|
$
|
108,498
|
|
$
|
210,442
|
|
|
Work in process
|
|
116,806
|
|
|
106,852
|
|
|
Finished goods
|
|
258,652
|
|
|
222,567
|
|
|
|
|
|
|
|
|
|
|
|
$
|
483,956
|
|
$
|
539,861
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Net book
|
|
|
March 31, 2011
|
|
Cost
|
|
|
depreciation
|
|
|
value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Computer equipment
|
$
|
110,838
|
|
$
|
96,659
|
|
$
|
14,179
|
|
|
Office furniture and equipment
|
|
77,269
|
|
|
59,093
|
|
|
18,176
|
|
|
Leasehold improvements
|
|
46,814
|
|
|
45,498
|
|
|
1,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
234,921
|
|
$
|
201,250
|
|
$
|
33,671
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Net book
|
|
|
December 31, 2010
|
|
Cost
|
|
|
depreciation
|
|
|
value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Computer equipment
|
$
|
110,838
|
|
$
|
96,088
|
|
$
|
14,750
|
|
|
Office furniture and equipment
|
|
77,269
|
|
|
58,362
|
|
|
18,907
|
|
|
Leasehold improvements
|
|
46,814
|
|
|
45,283
|
|
|
1,531
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
234,921
|
|
$
|
199,733
|
|
$
|
35,188
|
|
VISCOUNT SYSTEMS, INC.
|
Notes to Interim Consolidated Financial Statements
|
(Unaudited)
|
(Expressed in Canadian dollars)
|
Three months ended
March 31, 2011
|
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 March 31, 2011, the Company held 1,468 service agreements (December
31, 2010 1,482) at a cost, net of accumulated amortization of $125,352
(December 31, 2010 - $120,129), of $83,569 (December 31, 2010 - $88,792).
The aggregate amortization expense for each of the five succeeding fiscal
years is as follows:
|
|
Year ending December
31:
|
|
|
|
|
|
|
|
|
|
2011
|
$
|
20,892
|
|
|
2012
|
|
20,892
|
|
|
2013
|
|
20,892
|
|
|
2014
|
|
20,892
|
|
6.
|
Bank indebtedness
|
|
|
|
The Company has a bank credit facility which allows
it to borrow up to the lesser of $500,000 and 75% of its accounts receivable,
less than 90 days old. 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. At March 31, 2011, the Company was in compliance with debt
covenants. At March 31, 2011 and December 31, 2010, the balance of amounts
drawn under this facility was $Nil.
|
|
|
7.
|
Due to stockholders
|
|
|
|
Amounts due to stockholders in the amount of $172,402
(December 31, 2010 - $172,402) are non- interest bearing, unsecured and
have no fixed terms of repayment. Amounts due to stockholders are subordinated
to amounts due on the companys credit facility.
|
VISCOUNT SYSTEMS, INC.
|
Notes to Interim Consolidated Financial Statements
|
(Unaudited)
|
(Expressed in Canadian dollars)
|
Three months ended
March 31, 2011
|
8.
|
Derivative financial liabilities
|
|
|
|
Derivate financial liabilities consist of warrants that
were originally issued in private placements that have exercise prices
denominated in United States dollars, which differs from the Companys
functional currency. The fair value of these warrants as at March 31,
2011 and December 31, 2010 is as follows:
|
|
|
|
Exercise
|
|
|
March 31,
|
|
|
December 31,
|
|
|
|
|
price
|
|
|
2011
|
|
|
2010
|
|
|
5,032,650 warrants expiring on April 16, 2012
|
|
US$ 0.083
|
|
$
|
244,990
|
|
$
|
282,997
|
|
|
12,000,000 warrants expiring on December 7, 2015
|
|
US$ 0.080
|
|
|
857,925
|
|
|
691,300
|
|
|
10,950,000 warrants expiring on March 3, 2016
|
|
US$ 0.080
|
|
|
784,701
|
|
|
-
|
|
|
|
|
|
|
$
|
1,887,616
|
|
$
|
974,297
|
|
During the three months ended March 31,
2011, the Company recognized a charge to operations of $645,964 (2010
credit of $49,358) being the change in the fair value of the warrants during
the period, or since the warrants were issued.
The fair value of these warrants were
determined using the Black-Scholes option pricing model using the following
assumptions:
|
|
March 31,
|
December 31,
|
|
|
2011
|
2010
|
|
Volatility
|
178% - 187%
|
175% - 201%
|
|
Dividend yield
|
-
|
-
|
|
Risk-free interest rate
|
0.30% - 2.24%
|
0.29% - 2.01%
|
|
Expected life
|
1.04
4.92 yrs
|
1.29
4.94 yrs
|
9.
|
Capital stock
|
|
|
|
Common Stock:
|
|
|
|
On March 3, 2011, the Company completed a private placement
of 10,950,000 units at a price of $0.05 per unit for total proceeds of
US$547,500 (CDN$542,272). Each unit consisted of one common share and
one share purchase warrant of the Company, with each warrant exercisable
to acquire an additional share of the Company at a price of US$0.08 for
a period of 5 years, expiring March 3, 2016. $267,355 of the proceeds
were allocated to the warrants and recorded as a derivative liability
and the balance of $220,167, which is net of share issuance costs of $54,750,
was allocated to common stock and additional paid-in capital. The fair
value was determined using the Black-Scholes option pricing model using
the following assumptions: volatility of 177%; a dividend yield rate of
0%; a risk-free interest rate of 2.24% and an expected life of five years,
adjusted for market liquidity and allocated on a relative basis.
|
VISCOUNT SYSTEMS, INC.
|
Notes to Interim Consolidated Financial Statements
|
(Unaudited)
|
(Expressed in Canadian dollars)
|
Three months ended
March 31, 2011
|
9.
|
Capital stock (contd
)
|
|
|
|
Stock Options:
|
|
|
|
A summary of the stock option activity is as follows:
|
|
|
|
|
|
|
Weighted
average
|
|
|
|
|
Number of options
|
|
|
Exercise price
|
|
|
Outstanding at December 31, 2010
|
|
10,091,400
|
|
|
US$0.10
|
|
|
Expired/cancelled
|
|
(93,900
|
)
|
|
US$0.10
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March
31, 2011
|
|
9,997,500
|
|
|
US$0.10
|
|
A summary of the stock options outstanding
and exercisable at March 31, 2011 is as follows:
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
Average
|
|
|
Aggregate
|
|
|
Exercise
|
|
|
|
|
Contractual
|
|
|
Exercise
|
|
|
Intrinsic
|
|
|
Price
|
|
Number
|
|
|
Life
|
|
|
Price
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$ 0.040
|
|
6,206,250
|
|
|
2.86 years
|
|
|
US$ 0.040
|
|
$
|
351,688
|
|
|
0.060
|
|
33,750
|
|
|
4.73 years
|
|
|
0.060
|
|
|
1,238
|
|
|
0.133
|
|
982,500
|
|
|
1.34 years
|
|
|
0.133
|
|
|
-
|
|
|
0.150
|
|
22,500
|
|
|
4.73 years
|
|
|
0.150
|
|
|
-
|
|
|
0.183
|
|
15,000
|
|
|
4.73 years
|
|
|
0.183
|
|
|
-
|
|
|
0.200
|
|
7,500
|
|
|
4.73 years
|
|
|
0.200
|
|
|
-
|
|
|
0.217
|
|
2,730,000
|
|
|
0.73 years
|
|
|
0.217
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,997,500
|
|
|
2.14 years
|
|
|
US$ 0.10
|
|
$
|
352,926
|
|
The aggregate intrinsic value in the
preceding table represents the total intrinsic value, based on the Companys
closing stock price of US$0.093 per share as of March 31, 2011 (December 31,
2010 US$0.077), which would have been received by the option holders had
all option holders exercised their options as of that date. The total number
of in-the-money options vested and exercisable as of March 31, 2011 was 6,240,000
(December 31, 2010 6,240,000).
VISCOUNT SYSTEMS, INC.
|
Notes to Interim Consolidated Financial Statements
|
(Unaudited)
|
(Expressed in Canadian dollars)
|
Three months ended
March 31, 2011
|
9.
|
Capital stock (contd
)
|
|
|
|
Warrants
|
|
|
|
A summary of warrant activity is as follows:
|
|
|
|
Number of
warrants
|
|
|
Weighted
average
|
|
|
|
|
|
|
|
Exercise price
|
|
|
Outstanding at December 31, 2010
|
|
23,032,650
|
|
|
US$ 0.08
|
|
|
Issued as part of
private placement
|
|
10,950,000
|
|
|
0.08
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March
31, 2011
|
|
33,982,650
|
|
|
US$ 0.08
|
|
A summary of the warrants outstanding
and exercisable at March 31, 2011 is as follows:
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Weighted
|
|
|
|
|
|
|
|
Remaining
|
|
|
Average
|
|
|
Exercise Price
|
|
Number
|
|
|
Contractual Life
|
|
|
Exercise Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$ 0.083
|
|
5,032,650
|
|
|
1.05 years
|
|
|
US$ 0.083
|
|
|
0.080
|
|
12,000,000
|
|
|
4.69 years
|
|
|
0.080
|
|
|
0.080
|
|
6,000,000
|
|
|
4.73 years
|
|
|
0.080
|
|
|
0.080
|
|
10,950,000
|
|
|
4.92
years
|
|
|
0.080
|
|
|
|
|
33,982,650
|
|
|
|
|
|
US$ 0.080
|
|
10.
|
Changes in non-cash working capital balances
|
|
|
|
Three months ended
|
|
|
|
|
March 31,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
Trade accounts receivable
|
$
|
18,883
|
|
$
|
90,575
|
|
|
Inventory
|
|
55,905
|
|
|
(87,964
|
)
|
|
Accounts payable
|
|
(27,842
|
)
|
|
33,441
|
|
|
Accrued Liabilities
|
|
(85,836
|
)
|
|
(15,512
|
)
|
|
Deferred revenue
|
|
(6,688
|
)
|
|
(11,889
|
)
|
|
|
|
|
|
|
|
|
|
|
$
|
(45,578
|
)
|
$
|
8,651
|
|
VISCOUNT SYSTEMS, INC.
|
Notes to Interim Consolidated Financial Statements
|
(Unaudited)
|
(Expressed in Canadian dollars)
|
Three months ended
March 31, 2011
|
11.
|
Commitments
|
|
|
|
The Company is committed to minimum annual payments
on its premises, automobiles and office equipment operating leases that
expire in 2014 and 2015 as follows:
|
|
Year or period ending
December 31:
|
|
|
|
|
|
|
|
|
|
2011
|
$
|
130,394
|
|
|
2012
|
|
162,433
|
|
|
2013
|
|
80,117
|
|
|
2014
|
|
21,474
|
|
|
2015
|
|
8,365
|
|
Rent expense included in the statements
of operations for the three months ended March 31, 2011 is $34,133 (2010 - $33,668).
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.
|
|
|
|
|
|
Each of 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.
|
VISCOUNT SYSTEMS, INC.
|
Notes to Interim Consolidated Financial Statements
|
(Unaudited)
|
(Expressed in Canadian dollars)
|
Three months ended
March 31, 2011
|
12.
|
Segment information (contd
)
|
|
For the three months ended March 31, 2011
|
|
Manufacturing
|
|
|
Servicing
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales to external customers
|
$
|
577,712
|
|
$
|
283,485
|
|
$
|
861,197
|
|
|
Depreciation and amortization
|
|
1,517
|
|
|
5,223
|
|
|
6,740
|
|
|
Interest expense
|
|
-
|
|
|
-
|
|
|
-
|
|
|
Segment income(loss) before income taxes
|
|
(1,177,888
|
)
|
|
70,476
|
|
|
(1,107,412
|
)
|
|
Total assets
|
|
1,872,942
|
|
|
83,569
|
|
|
1,956,511
|
|
|
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
|
|
815
|
|
|
-
|
|
|
815
|
|
|
Segment income(loss)
before income taxes
|
|
11,358
|
|
|
104,205
|
|
|
115,563
|
|
|
As at December 31, 2010
|
|
Manufacturing
|
|
|
Servicing
|
|
|
Total
|
|
|
Total assets
|
$
|
1,962,011
|
|
$
|
88,792
|
|
$
|
2,050,803
|
|
|
(b)
|
Of the total revenues for the three months ended March
31, 2011, $108,759 (2010 - $146,800) was derived from U.S.-based customers
and $752,438 (2010 - $864,389) 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 three months ended March 31, 2011 or 2010.
|
VISCOUNT SYSTEMS, INC.
|
Notes to Interim Consolidated Financial Statements
|
(Unaudited)
|
(Expressed in Canadian dollars)
|
Three months ended
March 31, 2011
|
12.
|
Segment information (contd
)
|
|
|
|
|
(d)
|
Products and services:
|
|
|
|
|
|
Enterphone 2000 sales represented 9.8% of total revenue
during the three months ended March 31, 2011 (2010 6.5%). MESH
sales represented 49.6% of total revenue during the three months ended
March 31, 2011 (2010 61.3%). 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.
|
|
|
|
13.
|
Subsequent events
|
|
|
|
|
On April 11, 2011, the Company granted 2,325,000
stock options to various employees. The options have an exercise price
of US$0.08 and expire on April 11, 2016.
|
|
|
|
|
Effective April 18, 2011, the Company completed
a three for one forward-stock-split of its common stock with a corresponding
increase in its authorized common stock from 100,000,000 shares of common
stock to 300,000,000 shares of common stock. All common stock and per
share amounts are stated on an after forward-stock-split basis.
|
Item 2.
|
Management Discussion and Analysis or Plan
of Operation
|
Results of Operations
Sales for the three months ended March 31, 2011 and 2010 were
$861,197 and $1,011,189, respectively, a decrease of $149,992 or 14.8% . This
decrease was due to decreased MESH sales. MESH sales for the three months ended
March 31, 2011 and 2010 were $427,179 and $619,420, respectively, a decrease of
$192,241 or 31.0% . 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, 2011 and 2010 were $84,074 and $65,639, respectively, an
increase of $18,435 or 28.1% . As an older technology, Enterphone sales are no
longer a significant part of our total sales. 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. The Company has also introduced MESH Freedom, the new IT platform,
developed and released during the last quarter of 2010. This IT platform can
turn any card reader into an IP device by connecting the Freedom IP device with
built-in I/O to a POE switch and then every card usage is processed on a
redundant MESH server either in your building or anywhere in the world. The
software component of MESH Freedom is the MESH web browser security operating
platform. Unlike control panels, the user database and the door control software
is written in IT language located on a server(s), thereby future proofing
systems from the traditional issue of proprietary hardware version obsolescence
and improving scalability by eliminating the need for additional hardware every
time a reader is added to the system.
For the three months ended March 31, 2011 and 2010, MESH sales
were 49.6% and 61.3%, 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 1,468 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, 2011 and 2010, customer service contracts and new
equipment sales generated aggregate sales revenues of $283,485 and $347,014,
respectively, a decrease of $63,529 or 18.3% . This decrease was due to the
slower local economy.
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 1,468 at March 31, 2011, as
compared to 1,482 and 1,559 at December 31, 2010 and March 31, 2010,
respectively. During the first quarter of 2011, 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, 2011, the cost of the service agreements, net of accumulated amortization,
was $83,569.
Cost of sales and services as a percentage of sales was 48.2%
and 35.5% for the three months ended March 31, 2011 and 2010, respectively. Cost
of sales has increased during these two comparative periods due to a combination
of increases in the overall costs for many MESH component parts. However,
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 March 31, 2011 and 2010
was $446,253 and $651,812, respectively, a decrease of $205,559 or 31.5% . This
decrease in gross profit corresponds with consistent decreased sales and
increased cost of sales for the three months ended March 31, 2011.
Selling, general and administrative expenses for the three
months ended March 31, 2011 and 2010 were $762,918 and $534,062, respectively,
an increase of $228,856 or 42.9% . This increase was mainly due to increased
marketing expenses to promote the new MESH Freedom product and various selling,
general and administrative expenses. For the three months ended March 31, 2011
and 2010, selling, general and administrative expenses, as a percentage of
sales, were 88.6% and 52.8%, respectively.
Research and development costs for the three months ended March
31, 2011 and 2010 were $138,054 and $43,570, respectively, an increase of
$94,484. This increase was due to increased engineering expenses to produce and
develop the MESH Freedom product.
Net loss for the quarter ended March 31, 2011 was $1,107,412,
as compared to net income of $115,563 for the quarter ended March 31, 2010. This
equates to an increase in quarter over quarter loss of $1,222,975. This increase
in loss was the result of increased advertising, travel, tradeshow, consulting
fees, and various office expenses. The increase in loss was also a result of a
fair value adjustment of certain outstanding warrants that are accounted for as
derivative financial instruments. The fair value adjustment has no cash flow
impact and the charge to net loss for the three months ended March 31, 2011 was
$645,964 compared to $49,358 credited to net income for the three months ended
March 31, 2010.
Liquidity and Capital Resources
Cash as of March 31, 2011, as compared to December 31, 2010 was
$807,580 and $820,344, respectively. These two periods were consistent. Cash as
of March 31, 2010 was $127,798. Cash increased by $679,782 at March 31, 2011, as
compared to March 31, 2010. On December 7, 2010, the Company completed a private
placement of 4,000,000 units (12,000,000 units on a post 3:1 forward-stock-split
basis) at a price of $0.15 per unit for total proceeds of $600,000. Each unit
consisted of one common share and one share purchase warrant of the Company,
with each warrant exercisable to acquire an additional share of the Company at a
price of $0.24 ($0.08 on a post forward-stock-split basis) for a period of 5
years, expiring December 7, 2015. On March 3, 2011, the Company completed a
private placement of 3,650,000 units (10,950,000 units on a post 3:1
forward-stock-split basis) at a price of $0.15 per unit for total proceeds of
$547,500. Each unit consisted of one common share and one share purchase warrant
of the Company, with each warrant exercisable to acquire an additional share of
the Company at a price of $0.24 ($0.08 on a post forward-stock-split basis) for
a period of 5 years, expiring March 3, 2016. In addition to cash on hand, the
Company has a credit facility that can be drawn upon to the lesser of $500,000
or 75% of accounts receivable less than 90 days at the prime lending rate plus
1.75% . Amounts drawn are repayable on demand. At March 31, 2011, $nil was drawn
on this facility. The facility is secured by substantially all of our assets
under a general security agreement.
At March 31, 2011, working capital was $1,017,798, as compared
to a working capital of $984,984 at December 31, 2010. Working capital has
increased by $32,814. The current ratio at March 31, 2011 was 2.25 to 1.0, as
compared with 2.05 to 1.0 at December 31, 2010.
The accounts receivable turnover ratio at March 31, 2010 was 51
days, as compared 73 days at December 31, 2010 and 91 days at March 31, 2010.
The decrease at March 31, 2011 was the result of receiving payment 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 comparable to March 31, 2011.
4
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 $117,206 at March 31, 2011, as compared to $97,642 at
December 31, 2010. The accounts receivable reserve has increased by $19,564 or
20.0%, since the year ended December 31, 2010. 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, 2011, 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, 2011.
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, 2011 that have or are expected to have a material impact
on the Company.
Item 4.
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Controls and Procedures
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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, 2011. Based on that evaluation, our principal executive officer and
principal financial officer have concluded that as of March 31, 2011, 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.
5
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.
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PART II OTHER INFORMATION
SIGNATURES
In accordance with the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: May 12, 2011
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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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