Notes
to Condensed Consolidated Financial Statements
(Expressed
in Canadian dollars)
(Unaudited)
These
unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted
in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions for Form
10-Q and from Article 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by
U.S. GAAP for a complete set of annual financial statements. These financial statements should be read in conjunction with the
audited annual consolidated financial statements of the Company filed on Form 10-K for the year ended December 31, 2015. The operating
results for the periods presented are not necessarily indicative of the results that will occur for the year ending December 31,
2016 or for any other period.
The
financial information as of March 31, 2016 and for the three months ended March 31, 2016 and 2015 is unaudited; however, such
financial information includes all adjustments, consisting solely of normal recurring adjustments, which, are necessary for the
fair presentation of the financial information in conformity with U.S. GAAP.
|
2.
|
Nature
of operations and going concern
|
Viscount
Systems, Inc. (the “Company”) was incorporated on May 24, 2001 in the State of Nevada. The Company manufactures, distributes,
and provides services for electronic premises access and security equipment primarily through its wholly owned Canadian subsidiary,
Viscount Communication and Control Systems Inc.
The
Company’s legacy business consists of products and services for high rise residential and office buildings, generally described
as telephone access. These products allow visitors to contact tenants or offices via a lobby device to gain entry. The Company
has various brands in this marketplace, with high end products called MESH, and lower cost products called Enterphone, selling
through dealers in Canada and the United States.
The
Company’s Freedom Access Control software solution (“Freedom”) controls entry doors throughout a business, hospital,
school, or other buildings, and prevents entry by persons unknown or staff attempting to enter at the wrong time of day.
As
of March 31, 2016, the Company has an accumulated deficit of $16,398,136, a working capital deficit of $8,840,286 and reported
a loss of $139,335 for the three months ended March 31, 2016. These factors raise substantial doubt about the ability of the Company
to continue operations as a going concern.
Based
on its current financial position, the Company could be required to fund its operations on a month-to-month basis. The Company
recognizes it will need to raise additional capital in order to fund operations, meet its payment obligations and execute its
business plan. Although management is confident that the Company can access sufficient working capital to maintain operations
and ultimately generate positive cash flows from operations, the ability to sustain the current level of operations is dependent
upon growing sales and achieving sustainable profits. There is no assurance that additional financing will be available when needed
or that management will be able to obtain financing on terms acceptable to the Company and whether the Company will become profitable
and generate positive operating cash flow. If the Company is unable to raise sufficient additional funds, it will have to develop
and implement a plan to further extend payables and reduce overhead until sufficient additional capital is raised to support further
operations. There can be no assurance that such a plan will be successful. If the Company is unable to obtain financing on a timely
basis, the Company could be forced to sell its assets and discontinue its operations.
Accordingly,
the accompanying condensed consolidated financial statements have been prepared in conformity with U.S. GAAP, which contemplates
continuation of the Company as a going concern and the realization of assets and the satisfaction of liabilities in the normal
course of business. The carrying amounts of assets and liabilities presented in the condensed consolidated financial statements
do not necessarily represent realizable or settlement values. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
VISCOUNT
SYSTEMS, INC.
Notes
to Condensed Consolidated Financial Statements
(Expressed
in Canadian dollars)
(Unaudited)
|
3.
|
Significant
accounting policies
|
The
significant accounting policies adopted by the Company are as follows:
|
|
(a)
|
Principles
of consolidation
|
|
|
|
|
|
|
|
The
condensed consolidated financial statements include accounts and results of the Company and its wholly-owned subsidiary, Viscount
Communication and Control Systems Inc. (“VCCS”). Intercompany transactions and balances have been eliminated on
consolidation.
|
|
|
|
|
|
|
(b)
|
Use
of estimates
|
|
|
|
|
|
|
|
Management
has made a number of estimates and judgments relating to the reporting of assets, liabilities, revenues and expenses and the
disclosure of contingent assets and liabilities in order to prepare these consolidated financial statements in conformity
with U.S. GAAP. Significant areas involving estimates include the allowance for doubtful accounts, inventory obsolescence,
the provision for future warranty costs, the estimated useful lives of equipment and intangible assets, the deferred tax valuation
allowance, and assumptions used to determine the fair value of equity instruments, stock-based compensation and derivative
liabilities. Actual results could differ materially from those estimates.
|
|
|
|
|
|
|
(c)
|
Reportable
segment
|
|
|
|
|
|
|
|
Prior
to January 1, 2016, the Company organized its business into two reportable segments: manufacturing and servicing. The manufacturing
segment designs, produces and sells intercom and door access control systems that utilize telecommunications to control access
to buildings and other facilities for security purposes. The servicing segment provides maintenance to these intercom and
door access control systems. As a result of the Company’s decision to sell its servicing business, the Company will
discontinue its servicing business and operate in one segment, the manufacturing business. During the three months ended March
31, 2016, the Company has reclassified its servicing business as a discontinued operation on the accompanying condensed consolidated
financial statements (see Note 13).
|
|
|
|
|
|
|
(d)
|
Discontinued
operations
|
|
|
|
|
|
|
|
The
Company accounted for its decision to sell its servicing business as discontinued operations in accordance with the guidance
provided in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)
360, “Accounting for Impairment or Disposal of Long-Lived Assets, and ASC 205, Presentation of Financial Statements,”
which requires that only a component of an entity or a group of components of an entity, that represents a strategic shift
that has, or will have, a major effect on the reporting entity’s operations that has been disposed of or is classified
as held for sale and has operations and cash flows that can be clearly distinguished from the rest of the entity be reported
as assets held for sale and discontinued operations. In the period a component of an entity has been disposed of or classified
as held for sale, the results of operations for the periods presented are reclassified into separate line items in the statements
of operations. Assets and liabilities are also reclassified into separate line items on the related balance sheets for the
periods presented. The statements of cash flows for the periods presented are also reclassified to reflect the results of
discontinued operations as separate line items.
|
|
|
|
|
|
|
(e)
|
Foreign
currency translation
|
|
|
|
|
|
|
|
The
functional and reporting currency of the Company and its wholly-owned subsidiary is the Canadian dollar. Accordingly, the
financial statements are presented in Canadian dollars unless otherwise specified. Monetary assets and liabilities denominated
in a foreign currency are translated at the exchange rate in effect at the balance sheet date while non-monetary assets and
liabilities denominated in a foreign currency are translated at historical rates. Revenue and expense items denominated in
a foreign currency are translated at exchange rates prevailing when such items are recognized in the statement of operations
and comprehensive loss. Exchange gains or losses arising on translation of foreign currency items are included in the statement
of operations and comprehensive loss.
|
VISCOUNT
SYSTEMS, INC.
Notes
to Condensed Consolidated Financial Statements
(Expressed
in Canadian dollars)
(Unaudited)
|
3.
|
Significant
accounting policies (continued)
|
|
|
(f)
|
Allowance
for doubtful accounts
|
|
|
|
|
|
|
|
Accounts
receivable are shown net of an allowance for doubtful accounts of $93,467 and $97,249 as of March 31, 2016 and December 31,
2015, respectively. The Company’s management has established an allowance for doubtful accounts sufficient to cover
probable and reasonably estimable losses. The nature of the business is that the majority of the payments are made net 30
days after the product is delivered. If the financial conditions of customers were to materially deteriorate, an increase
in the allowance amount could be required. The allowance for doubtful accounts considers a number of factors, including collection
experience, current economic trends, estimates of forecasted write-offs, aging of the accounts receivable, and other factors.
|
|
|
|
|
|
|
(g)
|
Net
loss per share of common stock
|
|
|
|
|
|
|
|
Basic
net earnings (loss) per share is computed by dividing net earnings (loss) attributable to holders of the Company Common Stock,
par value $0.001(“Common Stock”) by the weighted average number of common shares outstanding during the period.
Diluted net earnings per share reflects the potential dilution that could occur if securities or other instruments to issue
Common Stock were exercised or converted into Common Stock. Potentially dilutive securities are excluded from the computation
of diluted net earnings per share if their inclusion would be anti-dilutive and consist of the following:
|
|
|
|
March 31
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Warrants
|
|
|
53,752,128
|
|
|
|
82,372,128
|
|
|
Options
|
|
|
12,991,450
|
|
|
|
11,692,075
|
|
|
Series A preferred stock
|
|
|
3,130,695
|
|
|
|
27,156,802
|
|
|
Series A Demand Notes and Series B Demand Notes and accrued interest
|
|
|
546,398,752
|
|
|
|
-
|
|
|
Total potentially dilutive shares
|
|
|
616,273,025
|
|
|
|
121,221,005
|
|
|
|
(h)
|
Sequencing
Policy
|
|
|
|
|
|
|
|
The
Company has adopted a sequencing policy that reclassifies contracts from equity to assets or liabilities for those with the
earliest inception date first. Future issuances of securities will be evaluated as to reclassification as a liability under
the sequencing policy which will take the earliest date first until either all of the Common Stock underlying the Company’s
Series A Convertible Redeemable Preferred Stock, (“Series A Shares”), are settled or expired.
|
|
|
|
|
|
|
(i)
|
Recently
issued accounting pronouncements
|
|
|
|
|
|
|
|
In
March 2016, the FASB issued ASU, No. 2016-09, “Compensation - Stock Compensation (Topic 718): Improvements to Employee
Share-Based Payment Accounting” (“ASU 2016-09”). ASU 2016-09 was issued as part of the FASB’s simplification
initiative and affects all entities that issue share-based payment awards to their employees. The amendments in this update
cover such areas as the recognition of excess tax benefits and deficiencies, the classification of those excess tax benefits
on the statement of cash flows, an accounting policy election for forfeitures, the amount an employer can withhold to cover
income taxes and still qualify for equity classification and the classification of those taxes paid on the statement of cash
flows. ASU 2016-09 is effective for annual and interim periods beginning after December 15, 2016. This guidance can be applied
either prospectively, retrospectively or using a modified retrospective transition method, depending on the area covered in
this update. Early adoption is permitted. The Company is currently evaluating the impact of the new guidance on its condensed
consolidated financial statements.
|
|
|
|
|
|
|
|
In
April 2016, the FASB issued ASU 2016-10, “Revenue from Contracts with Customers (Topic 606): Identifying Performance
Obligations and Licensing” (“ASU 2016-10”). ASU 2016-10 clarifies two aspects of Topic 606: (a) identifying
performance obligations; and (b) the licensing implementation guidance. The update is effective for annual periods beginning
after December 15, 2017 including interim reporting periods therein. The Company is currently evaluating the impact of the
new guidance on its consolidated financial statements.
|
|
|
|
|
|
|
|
There
are other various updates recently issued, most of which represented technical corrections to the accounting literature or
application to specific industries and are not expected to a have a material impact on our consolidated financial position,
results of operations or cash flows.
|
VISCOUNT
SYSTEMS, INC.
Notes
to Condensed Consolidated Financial Statements
(Expressed
in Canadian dollars)
(Unaudited)
|
4.
|
Accounts
Receivable Factoring
|
As
of March 31, 2016, invoices totaling an aggregate of $244,874 had been factored. The Company’s accounts receivable are purchased
by the financing company on a recourse basis. Accordingly, the accounts receivable are retained on the Company’s balance
sheet while advances from the financing company are recorded as accrued liabilities. Discounts provided and interest charged related
to factoring of the accounts receivable totaled $3,494 and have been expensed on the accompanying condensed consolidated statements
of operations as interest expense.
Inventory
consists of the following:
|
|
|
March 31, 2016
|
|
|
December 31, 2015
|
|
|
Raw materials
|
|
$
|
654,941
|
|
|
$
|
806,659
|
|
|
Work in process
|
|
|
59,587
|
|
|
|
88,682
|
|
|
Finished goods
|
|
|
282,237
|
|
|
|
261,018
|
|
|
Sub total
|
|
|
996,765
|
|
|
|
1,156,359
|
|
|
Reserve for obsolescence and shrinkage
|
|
|
(535,076
|
)
|
|
|
(586,563
|
)
|
|
Total
|
|
$
|
461,689
|
|
|
$
|
569,796
|
|
|
6.
|
Due
to Related Parties
|
Amounts
due to directors for consulting fees and travel expenses totaled $134,583 and $91,683 as of March 31, 2016 and December 31, 2015,
respectively.
|
7.
|
Series
A convertible redeemable preferred stock
|
As
the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2015 was not timely filed with the SEC (a “Redemption
Event”), the Company is required to redeem its Series A convertible redeemable preferred stock (the “Series A Shares”)
for 150% of their value if holders of 10% of the Stated Value (as defined in the Company’s Certificate of Designation, Preferences
and Rights of the Series A Shares, as amended (the “Certificate”)) of the Series A Shares provide the Company with
a written notice of redemption within sixty days after the Redemption Event becomes known to such holders (a “Redemption
Request”). Accordingly, the Company has recorded the Series A Shares at its redemption value as of March 31, 2016 and December
31, 2015.
VISCOUNT
SYSTEMS, INC.
Notes
to Condensed Consolidated Financial Statements
(Expressed
in Canadian dollars)
(Unaudited)
During
the three months ended March 31, 2016, the Company issued 2 Series A Shares representing Series A quarterly dividends. The embedded
conversion options associated with the Series A Shares were valued using the Binomial Lattice model as they were denominated in
USD currency and not in the Company’s reporting currency. The embedded conversion options associated with the Series A Shares
were valued at $3,131 and $18,696 as of March 31, 2016 and December 31, 2015, respectively, and recorded as a derivative liability
in the accompanying condensed consolidated financial statement.
As
of March 31, 2016 and December 31, 2015, there were 132 and 130 Series A Shares outstanding. The convertible redeemable preferred
stock balance total of $269,880 is recorded in the condensed consolidated balance sheet as a liability at March 31, 2016 and December
31, 2015, as they are subject to mandatory redemption.
|
8.
|
Notes
Liability – Convertible Debt
|
The
Company’s notes liability consists of Senior Secured Convertible Demand Promissory A Notes and Senior Secured Convertible
Demand Promissory B Notes for which the conversion features were bifurcated and are being classified as a derivative liability,
which is marked-to-market each reporting period. (“Series A and B Demand Notes”).
Notes
liability balance – Convertible Debt
At
March 31, 2016, the Company revalued the US currency denominated notes liability of the Series A and B Demand Notes at the March
31, 2016 exchange rate and recorded a foreign currency exchange gain of $211,930 on the accompanying condensed consolidated statement
of operations.
As
of December 31 2015 and March 31, 2016, the Series A and B Demand Notes liability balance is $3,491,802 and $3,279,871, respectively.
Interest
payable – Convertible Debt
The
Company’s Interest payable – Convertible Debt includes Payment in Kind (“PIK”) interests accrued to the
Series A and B Demand Notes holders in the amount of US $384,539 (CAD $499,901) and US $100,759 (CAD $130,987), respectively,
as of March 31, 2016. These amounts have been recorded as interest expense in the accompanying condensed consolidated statement
of operations during the three months ended March 31, 2016.
At
March 31, 2016, the Company revalued the US currency denominated interest payable balance at the March 31, 2016 exchange rate.
Interest payable amounted to $982,039 and $373,841 at March 31, 2016 and December 31, 2015, respectively.
|
9.
|
Reservation
of Authorized Shares
|
The
Series A Demand Note and Series B Demand Note also require the Company to reserve from its authorized shares of Common Stock a
number of shares of Common Stock sufficient to convert all of the Series A Demand Note and Demand B Note into shares of Common
Stock. In order to do so, the Company has covenanted to increase its authorized shares of Common Stock to 3,000,000,000 shares
as soon as possible. If the Company is unable to satisfy this covenant, the Company will owe to the note holders an amount equal
to 2% of the aggregate principal amount of the Series A Demand Note and Series B Demand Note plus all accrued but unpaid interest.
The Company has not reserved such shares as of March 31, 2016.
On
March 30, 2016, the note holders agreed to waive any rights that they may have to declare a default, and to pursue any remedies
or impose any penalties as applicable to Series A Demand Note and Series B Demand Note, effective December 3, 2015 and thereon,
including the Company’s three months ended March 31, 2016.
VISCOUNT
SYSTEMS, INC.
Notes
to Condensed Consolidated Financial Statements
(Expressed
in Canadian dollars)
(Unaudited)
In
consideration of this waiver, the Company agreed to file an Information Statement on Form 14A or Form 14C, as applicable, with
the U.S. Securities and Exchange Commission and take all and any such action to cure the Subsequent Reserve Deficiency and the
Subsequent Authorized Deficiency for the Notes (i) on or prior to the close of business on May 31, 2016 in the case of an Information
Statement Schedule 14C filing or (ii) on or prior to the close of business on July 29, 2016 in the case of an Information Statement
Schedule 14A filing. The penalties would be retroactive to the initial default date contained in the Notes if the increase of
authorized shares cannot be completed by June 15, 2016, if no SEC comments to the Schedule 14C are received and July 31, 2016,
if SEC comments are received. There can be no assurance that the Company will be able to increase its authorized shares.
|
10.
|
Fair
Value of Financial Instruments
|
The
Company’s financial instruments consist of cash, short-term investments, trade accounts receivable, accounts payable, accrued
liabilities, capital lease obligations, due to related parties and loans payable. The carrying amount of these financial instruments
approximates fair value due either to length of maturity or interest rates that approximate prevailing market rates unless otherwise
disclosed in these financial statements.
Fair
value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. These fair value measurements apply to all financial instruments that are measured and reported
on a fair value basis.
Based
on the observability of the inputs used in the valuation techniques, financial instruments are categorized according to the fair
value hierarchy, which ranks the quality and reliability of the information used to determine fair values. Financial assets and
liabilities carried at fair value are classified and disclosed in one of the following three categories:
|
|
Level
1 —
|
Observable
inputs such as quoted prices in active markets.
|
|
|
|
|
|
|
Level
2 —
|
Inputs,
other than the quoted prices in active markets, that are observable either directly or indirectly.
|
|
|
|
|
|
|
Level
3 —
|
Unobservable
inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
|
Financial
assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or
similar techniques and at least one significant model assumption or input is unobservable.
The
assessed level that a financial asset or liability will carry is determined by the Company’s Principal Financial Officer
under management of the Chief Executive Officer.
In
certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases,
the assignment of an asset or liability within the fair value hierarchy is based on the lowest level of input that is significant
to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement
in its entirety requires judgment, and considers factors specific to the asset or liability.
The
Company uses Level 3 of the fair value hierarchy to measure the fair value of the derivative liabilities and revalues its derivative
liabilities at every reporting period and recognizes gains or losses in the condensed consolidated statements of operations that
are attributable to the change in the fair value of the derivative liabilities.
A
summary of the Company’s Level 3 derivative liabilities for the three months ended March 31, 2016 is as follows:
|
Balance, December 31, 2015
|
|
$
|
4,383,668
|
|
|
Fair value change of derivative liabilities
|
|
|
(757,176
|
)
|
|
Fair value of embedded conversion options in preferred shares issued as dividends
|
|
|
3,131
|
|
|
Fair value of Warrants issued
|
|
|
5,498
|
|
|
Balance, March 31, 2016
|
|
$
|
3,635,121
|
|
VISCOUNT
SYSTEMS, INC.
Notes
to Condensed Consolidated Financial Statements
(Expressed
in Canadian dollars)
(Unaudited)
|
10.
|
Fair
Value of Financial Instruments (continued)
|
Fair
value change of derivative liabilities
The
derivative liabilities consist of fair value of certain share purchase warrants that were issued in unit private placements that
have an exercise price in a currency other than the functional currency of the Company, as well as embedded conversion options
in the Series A and B Demand Notes and Series A Share dividends.
The
fair value of the warrants and embedded conversion options were determined using the Black-Scholes option pricing model and the
Binomial Lattice model depending on their characteristics, using the following current market assumptions for the three months
ended March 31, 2016 and 2015:
|
|
|
March 31
|
|
|
|
2016
|
|
2015
|
|
Volatility
|
|
111.63% - 125.84%
|
|
81% - 104%
|
|
Risk-free interest rate
|
|
0.73% - 1.21%
|
|
0.26% - 1.37%
|
|
Contractual term
|
|
1.18 - 5.00 yrs
|
|
0.69 - 5.00 yrs
|
Stock
Options
On
January 18, 2016, the Company granted its Principal Financial Officer 200,000 stock options at an exercise price of US$0.01, fully
vested at the issuance date and are exercisable for two years unless extended in writing. The options had an aggregate grant date
fair value of $1,823, which was recorded as stock based compensation expense on the accompanying condensed consolidated statement
of operations during the three months ended March 31, 2016.
A
summary of stock option activity for the three months ended March 31, 2016, is as follows:
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
|
Number of
|
|
|
Average
|
|
|
Remaining Life
|
|
|
Intrinsic
|
|
|
|
|
Options
|
|
|
Exercise Price
|
|
|
In Years
|
|
|
Value
|
|
|
Outstanding at January 1, 2016
|
|
|
12,791,450
|
|
|
|
US$0.08
|
|
|
|
|
|
|
|
|
|
|
Employee Options Granted
|
|
|
200,000
|
|
|
|
US$0.01
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2016
|
|
|
12,991,450
|
|
|
|
US$0.08
|
|
|
|
3.45
|
|
|
$
|
-
|
|
|
Exercisable at March 31, 2016
|
|
|
12,241,450
|
|
|
|
US$0.08
|
|
|
|
2.90
|
|
|
$
|
-
|
|
The
Company has computed the fair value of warrants and options granted using the Black-Scholes option pricing model. Option forfeitures
are estimated at the time of valuation and reduce expense ratably over the vesting period. This estimate will be adjusted periodically
based on the extent to which actual option forfeitures differ, or are expected to differ, from the previous estimate, when it
is material. The Company estimated forfeitures related to option grants at annual rates ranging from 0% to 5% for options granted
during the three months ended March 31, 2016. The expected term used for warrants and options issued to non-employees is the contractual
life and the expected term used for options issued to employees is the estimated period of time that options granted are expected
to be outstanding. The Company utilizes the “simplified” method to develop an estimate of the expected term of “plain
vanilla” employee option grants. The Company is utilizing an expected volatility figure based on a review of the historical
volatilities, over a period of time, equivalent to the expected life of the instrument being valued. The risk-free interest rate
was determined from the implied yields from U.S. Treasury zero-coupon bonds with a remaining term consistent with the expected
term of the instrument being valued.
VISCOUNT
SYSTEMS, INC.
Notes
to Condensed Consolidated Financial Statements
(Expressed
in Canadian dollars)
(Unaudited)
|
11.
|
Capital
Stock (continued)
|
The
fair value of the options granted during the three months ended March 31, 2016 were determined using the Black-Scholes option
pricing model using the following current market assumptions:
|
Volatility
|
|
111.63% - 125.84%
|
|
Risk-free interest rate
|
|
0.73% - 1.21%
|
|
Contractual term
|
|
1.30 - 5.00 yrs
|
The
significant assumptions used during the year to estimate the fair value included an expected term (based on the history of exercises
and forfeitures) and volatility (based on the historical volatility with a look-back period equivalent to the expected term).
The
weighted average grant date fair value of the options granted during the three months ended March 31, 2016 and 2015 was US$0.01
and $0.00 per option, respectively.
A
summary of the stock options outstanding and exercisable at March 31, 2016 is as follows:
|
|
|
|
Outstanding
|
|
|
Exercisable
|
|
|
Remaining
|
|
|
|
|
|
Number of
|
|
|
Number of
|
|
|
Contractual Life
|
|
|
Exercise Price
|
|
|
Options
|
|
|
Options
|
|
|
in years
|
|
|
US$
|
0.01
|
|
|
|
200,000
|
|
|
|
200,000
|
|
|
|
1.8
|
|
|
US$
|
0.02
|
|
|
|
1,150,000
|
|
|
|
400,000
|
|
|
|
9.5
|
|
|
US$
|
0.04
|
|
|
|
250,000
|
|
|
|
250,000
|
|
|
|
5.1
|
|
|
US$
|
0.08
|
|
|
|
1,350,000
|
|
|
|
1,350,000
|
|
|
|
0.0
|
|
|
US$
|
0.09
|
|
|
|
10,016,450
|
|
|
|
10,016,450
|
|
|
|
3.1
|
|
|
US$
|
0.10
|
|
|
|
25,000
|
|
|
|
25,000
|
|
|
|
1.3
|
|
|
|
|
|
|
|
12,991,450
|
|
|
|
12,241,450
|
|
|
|
3.45
|
|
During
the three months ended March 31, 2016 and 2015, the Company recorded stock based compensation expense related to the stock options
granted to employees of $14,998, and $908, respectively.
Warrants
A
summary of warrant activity during the three months ended March 31, 2016 is as follows:
|
|
|
|
|
|
[1]
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
|
Number of
|
|
|
Average
|
|
|
Remaining Life
|
|
|
Intrinsic
|
|
|
|
|
Warrants
|
|
|
Exercise Price
|
|
|
In Years
|
|
|
Value
|
|
|
Outstanding at January 1, 2016
|
|
|
64,702,128
|
|
|
CAD$
|
0.15
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(10,950,000
|
)
|
|
CAD$
|
0.10
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2016
|
|
|
53,752,128
|
|
|
CAD$
|
0.15
|
|
|
|
1.73
|
|
|
$
|
-
|
|
|
Exercisable at March 31, 2016
|
|
|
53,752,128
|
|
|
CAD$
|
0.15
|
|
|
|
1.73
|
|
|
$
|
-
|
|
[1]
US$ denominated warrants are reflected in their CAD$ equivalents.
VISCOUNT
SYSTEMS, INC.
Notes
to Condensed Consolidated Financial Statements
(Expressed
in Canadian dollars)
(Unaudited)
|
11.
|
Capital
Stock (continued)
|
A
summary of the warrants outstanding and exercisable at March 31, 2016 is as follows:
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
|
|
Remaining
|
|
|
Weighted Average
|
|
|
|
|
|
Contractual Life
|
|
|
Exercise Price
|
|
|
Warrants
|
|
|
in years
|
|
|
CAD$
|
0.065
|
|
|
|
2,500,000
|
|
|
|
0.23
|
|
|
CAD$
|
0.090
|
|
|
|
975,000
|
|
|
|
1.04
|
|
|
CAD$
|
0.160
|
|
|
|
1,481,327
|
|
|
|
3.76
|
|
|
US$
|
0.050
|
|
|
|
17,272,014
|
|
|
|
1.29
|
|
|
US$
|
0.090
|
|
|
|
4,937,650
|
|
|
|
1.30
|
|
|
US$
|
0.095
|
|
|
|
500,000
|
|
|
|
3.49
|
|
|
US$
|
0.100
|
|
|
|
7,690,000
|
|
|
|
2.13
|
|
|
US$
|
0.180
|
|
|
|
3,749,996
|
|
|
|
0.13
|
|
|
US$
|
0.200
|
|
|
|
14,646,141
|
|
|
|
2.63
|
|
|
CAD$
|
0.147
|
|
|
|
53,752,128
|
|
|
|
1.73
|
|
The
warrants outstanding have no aggregate intrinsic value as of March 31, 2016.
|
12.
|
Commitments
and Contingencies
|
Litigation
In
the normal course of business, the Company may be involved in legal proceedings, claims and assessments arising in the ordinary
course of business. Such matters are subject to many uncertainties, and outcomes are not predictable with assurance. There are
no such matters that are deemed material to the condensed consolidated financial statements as of March 31, 2016 and 2015.
Legal
Case
Viscount
filed a Notice of Civil Claim in the Supreme Court of British Columbia against Stephen Pineau, its former President, CEO and director
on November 19, 2014 alleging that during the term of his employment, Mr. Pineau had misappropriated certain company funds. The
Company sought damages for breach of contract and fiduciary duty, equitable relief, including restitution and recovery of Company
funds owed, special, aggravated and punitive damages, as well as interest and costs, including special costs. Mr. Pineau denied
these allegations, and on January 2, 2015, filed a counterclaim alleging that the Company owed him compensation for wrongful termination,
bad faith damages, compensation he claimed he is owed by the Company, unpaid director’s fees and expenses. Viscount denied
these allegations and asserted that Mr. Pineau’s termination, while initially without cause, was changed for cause post-termination
once the Company discovered evidence of Mr. Pineau’s alleged misappropriation.
VISCOUNT
SYSTEMS, INC.
Notes
to Condensed Consolidated Financial Statements
(Expressed
in Canadian dollars)
(Unaudited)
|
12.
|
Commitments
and Contingencies (continued)
|
As
of March 31, 2016, the Company and its former CEO, Stephen Pineau came to general terms of an agreement to resolve their outstanding
claim. The parties fully and finally settle all issues between them, including but not limited to Mr. Pineau’s employment
and its termination, directorship and its termination, options and shareholdings, as well as the facts and matters plead in the
action referenced above, on a mutual and without-costs basis.
Both
parties executed the consent order dismissing the claim and counterclaim as if there had been a trial on the issues with no costs
payable to either party and agreed to take all actions and steps necessary to have it filed with the Vancouver Registry.
The
Company agreed to re-issue 3,000,000 stock options to Mr. Pineau on the same terms and at the same exercise price as those that
expired in December 2013, being $0.04 CAD, except with the expiry date extended by five years (expiring in December, 2018). Accordingly,
the Company valued the 3,000,000 stock options at $24,627, using the Black-Scholes Model. As of March 31, 2016, the stock options
related litigation liability was $24,627.
The
Company agreed to extend Mr. Pineau’s 3,000,000 warrants exercisable at $0.08 CAD per share, which expired December 23,
2015 until December 23, 2018. Accordingly, the Company valued the 3,000,000 extended warrants at $18,476, using the Black-Scholes
Model. As of March 31, 2016, the warrants related to litigation liability was $18,476.
As
of March 31, 2016, such options and warrants have not been issued.
Subsequent
to the first quarter of 2016, the Company and its former CEO, Stephen Pineau have executed the consent order and the law case
has been dismissed. The Company issued Mr. Pineau 3,000,000 stock options and 3,000,000 warrants as disclosed above.
Operating
Leases
Rent
expense, including the insurance charge, included in the condensed consolidated statements of operations for the three months
ended March 31, 2016 and 2015 was $36,390 and $35,789, respectively. The Company has renewed the lease agreement from June 1,
2016 to May 31, 2017.
VISCOUNT
SYSTEMS, INC.
Notes
to Condensed Consolidated Financial Statements
(Expressed
in Canadian dollars)
(Unaudited)
|
13.
|
Results of
Discontinued
Operations
|
Discontinued
operations represent the Company’s servicing business, as a result of the Company’s decision to sell this line of
business.
A
summary of the Company’s results of discontinued operations of its servicing business for the three months ended March 31,
2016 and 2015 and the Company’s assets and liabilities from discontinued operations of its servicing business as of March
31, 2016 and December 31, 2015 is as follows:
Results
of discontinued servicing business operations:
|
|
|
Three
Months Ended
March
31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Sales
|
|
$
|
222,965
|
|
|
$
|
270,416
|
|
|
Cost of sales
|
|
|
89,061
|
|
|
|
96,715
|
|
|
Operating expenses
|
|
|
50,911
|
|
|
|
76,973
|
|
|
Income from discontinued operations, net of tax
|
|
$
|
82,993
|
|
|
$
|
96,728
|
|
|
|
|
|
|
|
|
|
|
|
|
Income per share from discontinued operations, basic and diluted
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding, basic and diluted
|
|
|
126,047,236
|
|
|
|
126,026,928
|
|
Assets
and liabilities of discontinued operations:
|
|
|
March 31, 2016
|
|
|
December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
37,135
|
|
|
$
|
59,317
|
|
|
Equipment, net
|
|
$
|
17,243
|
|
|
$
|
18,151
|
|
|
|
(a)
|
Of
the total sales for the three months ended March 31, 2016 and 2015, $368,632 and $487,979, respectively, were derived from
U.S.-based customers. Total sales of $613,246 and $566,501, respectively, were derived from Canadian-based customers. Substantially
all of the Company’s operations, assets and employees are located in Canada.
|
|
|
|
|
|
|
(b)
|
Products:
|
|
|
|
Enterphone/MESH
sales represented 66% and 58% of total revenue during the three months ended March 31, 2016 and 2015, respectively. Freedom
sales represented 34% and 42% of total revenue during the three months ended March 31, 2016 and 2015, respectively.
|
Management
has evaluated subsequent events or transactions occurring through the date on which the financial statements were issued. Based
upon that evaluation, the Company did not identify any recognized or non- recognized subsequent events that would have required
adjustment or disclosure in the condensed consolidated financial statements, except as disclosed.