10-Q 1 form10q.htm FORM 10-Q Viscount Systems, Inc. - Form 10-Q - Filed by newsfilecorp.com

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 September 30, 2014

[   ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT

For the transition period from __________________ to __________________

Commission File Number: 000-49746

VISCOUNT SYSTEMS, INC.
(Exact name of registrant as specified in its charter)

Nevada 88-0498181
(State or other jurisdiction of (I.R.S. Employer I.D. No.)
incorporation or organization)  

4585 Tillicum Street, Burnaby, British Columbia, Canada V5J 5K9
(Address of principal executive offices)

(604) 327-9446
Registrant’s telephone number

N/A
Former name, former address, and former fiscal year, if changed since last report

Check whether the registrant (1) filed all reports required to be filed by sections 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X]      No [   ]

Check whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes [X]      No [   ]

Check whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
Large accelerated filer [   ]           Accelerated filer [   ]           Non-accelerated filed [   ]           Smaller reporting company [X]

Check whether the registrant is a shell company, as defined in Rule 12b-2 of the Exchange Act.
Yes [   ]       No [X]

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date:
As of November 4, 2014 the registrant’s outstanding common stock consisted of 126,009,581 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, Freedom, Liberty, and MESH product lines, general revenues, income, the number of new construction projects or building upgrades that may generate sales of our product, and in general the market for our products. Any projections herein are based solely on management’s views, and were not prepared in accordance with any accounting guidelines applicable to projections. Accordingly, these forward looking statements are intended to provide the reader with insight into management’s proposals, expectations, strategies and general outlook for our business and products, but because of the risks associated with those statements, including those described herein and in our annual report, readers should not rely upon those statements in making an investment decision. The Company's actual results could differ materially from those anticipated in such forward-looking statements as a result of a number of factors. These forward-looking statements are made as of the date of this filing, and the Company assumes no obligation to update such forward-looking statements.

The following discusses our financial condition and results of operations based upon our consolidated financial statements which have been prepared in conformity with accounting principles generally accepted in the United States of America. It should be read in conjunction with our financial statements and the notes thereto included elsewhere herein. Unless otherwise noted as USD or U.S. dollars, all dollar references herein are in Canadian dollars. As at November 4, 2014, the foreign exchange rate certified by the Federal Reserve Bank of New York was CAD$1.1357 for USD$1.0000 or CAD$1.0000 for USD$0.8805.

Item 1.    Financial Statements


 

 

 

VISCOUNT SYSTEMS, INC.

CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars)

SEPTEMBER 30, 2014

 

 

 


VISCOUNT SYSTEMS, INC.
Interim Consolidated Balance Sheets
(Expressed in Canadian dollars)

    September 30,     December 31,  
    2014     2013  
    (Unaudited)     (Audited)  
             
Assets            
             
Current assets            
  Cash and cash equivalents $  681,487   $  172,684  
  Trade accounts receivable, less allowance for doubtful accounts
        of $209,852 (2013 - $250,458)
  929,350     585,153  
  Inventory (note 2)   345,024     532,798  
Total current assets   1,955,861     1,290,635  
             
Deposits   1,391     1,391  
Equipment (note 3)   181,556     22,229  
Intangible assets   10,447     26,116  
             
Total assets $  2,149,254   $  1,340,371  
    .        
Liabilities and stockholders' deficit            
             
Current liabilities            
  Accounts payable $  226,980   $  254,682  
  Accrued liabilities   539,211     601,270  
  Lease obligation - current   10,068     -  
  Deferred revenue   37,849     37,543  
  Due to related parties (note 4)   4,003     33,727  
  Loans payable (note 5)   114,536     114,536  
Total current liabilities   932,647     1,041,758  
             
Lease obligation - long term   19,836     -  
Derivative financial liabilities (notes 6 and 7)   4,795,689     5,118,454  
    5,748,171     6,160,212  
             
Stockholders' deficit            
  Capital stock (note 8)            

    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:
       126,009,581 common shares (2013 - 97,075,003) (note 8)

  148,787     119,853  
       1,051 preferred shares (2013 - 1,115) (note 8)   -     -  
  Additional paid-in capital   10,269,573     6,731,161  
  Accumulated deficit   (14,017,277 )   (11,670,855 )
Total stockholders' deficit   (3,598,917 )   (4,819,841 )
             
Total liabilities and stockholders' deficit $  2,149,254   $  1,340,371  

Commitments (note 10)

See accompanying notes to interim condensed consolidated financial statements.


VISCOUNT SYSTEMS, INC.
Interim Consolidated Statements of Operations and Comprehensive Loss
(Unaudited)
(Expressed in Canadian dollars)
For the nine months ended September 30, 2014

    Three months ended     Nine months ended  
    September 30     September 30  
    2014     2013     2014     2013  
                         
                         
Sales $  1,419,204   $  1,075,815   $  3,712,240   $ 2,945,223  
Cost of sales   807,422     437,362     2,010,831     1,194,438  
Gross profit   611,782     638,453     1,701,409     1,750,785  
                         
Expenses                        
  Selling, general and administrative   645,323     850,094     4,671,786     2,418,418  
  Research and development   189,555     99,244     481,578     181,018  
  Depreciation and amortization   21,136     5,933     36,337     17,934  
    856,014     955,271     5,189,701     2,617,370  
                         
Loss before other items   (244,232 )   (316,818 )   (3,488,292 )   (866,585 )
                         
Other items                        
  Interest income   2,109     288     3,430     311  
  Fair value adjustment of derivative liabilities (Note 7)   (452,426 )   -     1,203,575     30,098  
    (450,317 )   288     1,207,005     30,409  
                         
Net loss and comprehensive loss $ (694,549 ) $ (316,530 ) $ (2,281,287 ) $ (836,176 )
                         
Basic and diluted loss per common share $  (0.01 ) $  (0.00 ) $  (0.02 $ (0.01 )
                         
Weighted average number of common shares outstanding,
   Basic and diluted
  126,009,581     94,510,000     117,236,991     90,329,940  

See accompanying notes to interim condensed consolidated financial statements.


VISCOUNT SYSTEMS, INC.
Interim Consolidated Statement of Stockholders' Deficit
(Expressed in Canadian dollars)
(Unaudited)

                            Additional              
    Common Stock     Preferred Stock     paid-in     Accumulated          
    Shares     Amount     Shares     Amount     capital     deficit     Total  
                                           
                                           
                                           
Balance, December 31, 2012   86,733,750   $  109,512.00     1,149     -   $ 5,979,271.00   $  (8,590,355.00 ) $  (2,501,572.00 )
                                           
Series A dividends issued or to be issued   -     -     91     -     -     -     -  
Conversion of Series A shares   3,071,253     3,071     (125 )   -     192,404     -     195,475.00  
Units issued for cash from equity securities, net of costs   6,750,000     6,750     -     -     487,025     -     493,775  
Stock-based compensation - shares for consulting services   520,000     520     -     -     52,374     -     52,894  
Stock-based compensation - warrants   -     -     -     -     20,087     -     20,087  
Net loss   -     -     -     -     -     (3,080,500 )   (3,080,500 )
                                           
Balance, December 31, 2013   97,075,003     119,853     1,115     -     6,731,161     (11,670,855 )   (4,819,841 )
                                           
Series A dividends issued   -     -     61     -     -     (65,135 )   (65,135 )
Units issued for cash from equity securities, net of costs   25,113,327     25,113     -     -     2,341,457     -     2,366,570  
Value of warrant derivative liability   -     -     -     -     (799,399 )   -     (799,399 )
Conversion of Series A shares   3,071,253     3,071     (125 )         312,525           315,596  
Rachet shares issued   749,998     750                 74,250           75,000  
Stock-based compensation                           1,609,579     -     1,609,579  
Net loss   -     -     -     -     -     (2,281,287 )   (2,281,287 )
                                           
Balance, September 30, 2014   126,009,581   $  148,787     1,051   $  -   $ 10,269,573   $  (14,017,277 ) $  (3,598,917 )

See accompanying notes to consolidated financial statements.


VISCOUNT SYSTEMS, INC.
Interim Consolidated Statements of Cash Flows
(Unaudited)
(Expressed in Canadian dollars)

For the nine months ended            
    September 30     September 30  
    2014     2013  
             
Operating activities:            
  Net loss $  (2,281,287 ) $  (836,176 )
  Items not involving cash:            
     Depreciation and amortization   36,337     17,934  
     Fair value adjustment of derivative liability   (1,203,575 )   (30,098 )
     Inventory obsolescence   150,000     -  
     Non-cash selling, general and administrative expenses   1,980,474     72,981  
  Changes in non-cash working capital balances (note 9)   (389,625 )   (82,743 )
           Net cash used in operating activities   (1,707,676 )   (858,102 )
             
             
Investing activities:            
  Purchase of equipment   (150,091 )   -  
           Net cash used in investing activities   (150,091 )   -  
             
             
Financing activities:            
  Proceeds from private placement   2,366,570     681,262  
  Repayment of short term loans payable   -     (30,000 )
           Net cash provided by financing activities   2,366,570     651,262  
             
Increase in cash   508,803     (206,840 )
             
Cash, beginning of period   172,684     406,506  
             
Cash, end of period $  681,487   $  199,666  
             
             
Supplementary information:            
  Interest paid $  -   $  -  
  Income taxes paid $  -   $  -  

See accompanying notes to interim condensed consolidated financial statements.



VISCOUNT SYSTEMS, INC.
Notes to Interim Condensed Consolidated Financial Statements
(Unaudited)
(Expressed in Canadian dollars)
Nine months ended September 30, 2014

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. These financial statements should be read in conjunction with the audited annual consolidated financial statements of Viscount Systems, Inc. (the “Company”) filed on Form 10-K for the year ended December 31, 2013. Operating results for the periods presented are not necessarily indicative of the results that will occur for the year ending December 31, 2014 or for any other interim period.

   

The financial information as at September 30, 2014 and for the three months and nine month periods ended September 30, 2013 and 2014 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.

   

These financial statements have been prepared on a going concern basis, which assumes the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. The Company has an accumulated deficit of $14,017,277 and reported a loss for the nine month period ended September 30, 2014 of $2,281,287. The ability to sustain the current level of operations is dependant on growing sales and achieving profits. These factors raise substantial doubt about the ability of the Company to continue operations as a going concern. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts of liabilities that might be necessary should the Company be unable to continue in existence.

   
2.

Inventory


      September 30,     December 31,  
      2014     2013  
               
  Raw materials $  102,389   $  347,641  
  Work in process   62,609     43,177  
  Finished goods   180,026     141,980  
               
    $  345,024   $  532,798  



3.

Equipment


            Accumulated     Net book  
  September 30, 2014   Cost     depreciation     value  
                     
  Automobile $  25,209   $  5,042   $  20,167  
  Computer equipment   150,431     103,935     46,495  
  Leasehold improvements   58,672     9,994     48,678  
  Office furniture and equipment   133,790     67,573     66,216  
                     
    $  368,102   $  186,546   $  181,556  

            Accumulated     Net book  
  December 31, 2013   Cost     depreciation     value  
                     
  Computer equipment $  110,838   $  100,758   $  10,080  
  Office furniture and equipment   77,269     65,119     12,149  
                     
    $  188,107   $  165,877   $  22,229  

4.

Due to related parties

   

Amounts due to directors for director fees and travel expenses totaled $4,003 at September 30, 2014 (December 31, 2013 - $33,727). These amounts are unsecured, non-interest bearing and have no specified terms of repayment.

   
5

Short term loans payable

   

Amounts due to third parties totaled $114,536 for outstanding loans and advances (December 31, 2013 - $114,536). These are non-interest bearing, unsecured and have no fixed terms of repayment.

   
6.

Series A convertible redeemable preferred stock

   

On June 7, 2012, the Company completed the sale of 1,000 shares of Series A Convertible Redeemable Preferred Stock (“Series A Shares”), par value US$0.001 per share and stated value of US$1,000 per share, for gross proceeeds of US$1,000,000. The Series A Shares contain certain rights and preferences as follows:


convertible into shares of common stock of the Company at the rate of US$0.0407 per common share or 85% of the previous twenty day volume weighted average pricing.

 

dividends of 8% per annum, payable in cash or Series A Shares quarterly.

voting and conversion rights of up to 4.99% of the outstanding common stock of the Company at the time of conversion per holder; registration rights to the holders of the Series A Shares that may be exercised in certain circumstances.

holders of Series A Shares are entitled to be paid 125% of the stated value of the Series A Shares, plus all accrued, but unpaid dividends on Series A Shares, upon liquidation or dissolution of the Company, including forms of mergers and acquisitions, in priority to any payments to the holders of shares of common stock.

the Series A Shares may be redeemed by the holders for 150% of their stated value, plus all accrued, but unpaid dividends on Series A Shares, upon the occurrence of a default, which includes performance conditions, delisting or late filing with the US Securities and Exchange Commission (“SEC”).



In connection with the Series A Shares issuance, the Company also issued 12,285,012 warrants, each exercisable into one common shares at US$0.08 per share for a period of 5 years. The Company paid a cash comission of US$100,000 and issued 2,457,002 agents warrants. Each agent warrant is exercisable into one common share of the Company at US$0.05 per share for a period of 5 years. The warrants may be exercised on a cashless basis.

On October 19, 2012, the Company completed a sale of 100 shares of Series A Shares for proceeds of $100,000. The Series A Shares contain certain rights and preferences as follows:

convertible into shares of common stock of the Company at the rate of US$0.05 per common share or 85% of the previous twenty day volume weighted average pricing.

 

dividends of 8% per annum, payable in cash or Series A Shares quarterly.

voting and conversion rights of up to 4.99% of the outstanding common stock of the Company at the time of conversion per holder.

 

registration rights to the holders of the Series A Shares that may be exercised in certain circumstances.

holders of Series A Shares are entitled to be paid 125% of the stated value of the Series A Shares, plus all accrued, but unpaid dividends on Series A Shares, upon liquidation or dissolution of the Company, including forms of mergers and acquisitions, in priority to any payments to the holders of shares of common stock.

the Series A Shares may be redeemed by the holders for 150% of their stated value, plus all accrued, but unpaid dividends on Series A Shares, upon the occurrence of a default, which includes performance conditions, delisting or late filing with the SEC.


In connection with the Series A share issuance, the Company also issued to the investors 1,000,000 warrants, each exercisable into one common share at US$0.08 per share for a period of 5 years. The company paid a cash commission of US$10,000 and issued 200,000 agents’ warrants. Each agent warrant is exercisable into one common share of the Company at $0.05 per share for a period of 5 years. The warrants may be exercised on a cashless basis.

   
7.

Derivative liabilities


  Balance, December 31, 2013 $  5,118,454  
  Fair value change of derivative liabilities   (1,203,575 )
  Fair value of preferred shares issued as dividends   101,112  
  Fair value of warrants issued and extended   1,095,294  
  Conversion of preferred shares   (315,596 )
  Balance, September 30, 2014 $  4,795,689  

The derivative liability consists of the fair value of 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 conversion options and dividends on Series A Shares.

The fair value of the warrants and dividends were determined using the Black-Scholes option pricing model and the conversion options were valued using the Binomial Lattice model using the following current market assumptions:

      September 30, 2014     December 31, 2013  
  Volatility   92% - 176%     92% - 186%  
  Risk-free interest rate   0.44% - 1.73%     0.63% - 1.39%  
  Expected life   1.84 – 5.00 yrs     2.19 – 4.75 yrs  

8.

Capital stock

   

On March 11, 2014, the Company completed a private placement of 8,333,329 shares of common stock at a price of US$0.09 per share for total proceeds of US$750,000. The Company also issued a total of 4,166,659 warrants, each warrant exercisable to acquire an additional share of the Company at an exercise price of US$0.20 per share for a period of five years from the closing date.



In connection with the offering, the Company paid to a registered broker-dealer a commission of US$71,000 in cash and share purchase warrants to acquire 788,888 shares of common stock of the Company at a price of US$0.09 per share for a period of five years from the closing date. The warrants may be exercised on a cashless basis.

On March 27, 2014, the Company completed a private placement of 16,502,220 shares of common stock at a price of US$0.09 per share for total proceeds of US$1,485,200. The Company also issued a total of 8,251,107 warrants, each warrant exercisable to acquire an additional share of the Company at an exercise price of US$0.20 per share for a period of five years from the closing date.

On March 31, 2014, the Company issued an additional 277,778 shares of common stock at a price of US$0.09 per share for total proceeds of US$25,000. The Company also issued 138,888 warrants, each warrant exercisable to acquire an additional share of the Company at an exercise price of US$0.20 per share for a period of five years from the closing date.

In connection with the offerings, the Company paid to a registered broker-dealer a commission of US$35,604 in cash and share purchase warrants to acquire 395,599 shares of common stock of the Company at a price of US$0.09 per share for a period of five years from the closing date. The warrants may be exercised on a cashless basis.

Stock Options:

All stock options granted are exercisable in US$. A summary of the stock option activity is as follows:

            Weighted average  
      Number of options     Exercise price  
  Outstanding at December 31, 2012   8,206,875     US$0.05  
  Expired/cancelled   (6,577,500 )   US$0.05  
  Outstanding at December 31, 2013   1,629,375     US$0.08  
  Granted   10,411,450     US$0.10  
  Outstanding at September 30, 2013   12,040,825     US$0.09  

A summary of the stock options outstanding and exercisable at September 30, 2014 is as follows:

                Weighted average       Weighted average     Aggregate  
    Exercise Price     Number     remaining contractual life       exercise price     intrinsic value  
                                 
  US$ 0.04     65,625     1.48 years     US$ 0.04   $  3,281  
    0.06     33,750     1.48 years       0.06     1,013  
    0.08     1,500,000     1.78 years       0.08     15,000  
    0.09     1,105,000     4.88 years       0.09     -  
    0.09     9,161,450     4.88 years       0.09     -  
    0.10     105,000     2.77 years       0.10     -  
    0.10     40,000     2.91 years       0.10     -  
    0.15     22,500     1.48 years       0.15     -  
    0.20     7,500     1.48 years       0.20     -  
          12,040,825     4.15 years     US$ 0.09   $ $ 19,294  

The aggregate intrinsic value in the preceding table represents the total intrinsic value, based on the Company’s closing stock price of US$0.09 per share as of September 30, 2014, which would have been received from 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 September 30, 2014 was 1,599,375 (December 31, 2013 – 1,599,375).

Warrants:

On May 30, 2013, the Company issued 230,000 warrants to a consultant in connection with a advisory services agreement. These warrants have an exercise price of US$0.20 and expire on May 30, 2016. The fair value of these warrants is $20,087 using the Black-Scholes option pricing model with the following assumptions: expected life of 3 years; volatility of 157%; risk-free interest rate of 0.49%; and a dividend rate of 0%.


On April 4, 2014, the Company issued a board member 250,000 warrants, each warrant is exercisable to acquire one common share of the Company at an exercise price of US$0.09 per share for a period of three years expiring April 4, 2017.

On April 14, 2014, the Company issued board members 2,690,000 warrants, each warrant exercisable to acquire an additional share of the Company at an exercise price of US$0.10 per share for a period of five years expiring April 14, 2019. The Company also issued to a board member 250,000 warrants, each warrant exercisable to acquire an additional share of the Company at an exercise price of US$0.09 per share for a period of five years expiring April 14, 2019.

On April 16, 2014, the Company extended the term of 4,162,650 warrants issued as part of a private placement that closed on April 16, 2007 and expired on April 16, 2012, for a period of three years expiring April 16, 2017. Each warrant is exercisable to acquire an additional share of the Company at an exercise price of US$0.25 per share.

The Company issued common shares at a price of US$0.10 per share and share purchase warrants of the Company exercisable at an exercise price of US$0.20 per share pursuant to securities purchase agreements entered into between the Company and certain investors in May 2013. These May 2013 shares and and May 2013 warrants are subject to adjustment due to the issuance of common shares at a price of US$0.09 per share in the Company’s private placement that closed on March 11, 2014. On May 20, 2014, pursuant to the adjustment, the Company issued to investors of the 2013 Offering a total of 749,998 shares of common stock at a price of US$0.09 per share as fully paid and non-assessable and 374,996 warrants, each warrant exercisable to acquire an additional share of the Company at an exercise price of US$0.18 per share for a term of two years expiring May 17, 2016.

On July 4, 2014, the Company extended the term of 2,500,000 warrants issued as part of a professional service agreement in 2011 and expired on June 22, 2014 for a period of a further two years expiring June 22, 2016. Each warrant is exercisable to acquire an additional share of the Company at an exercise price of US$0.065 per share. The fair value of these warrants is $191,631 using the Black-Scholes option pricing model with the following assumptions: expected life of 2 years; volatility of 131%; risk-free interest rate of 0.52%; and a dividend rate of 0%.

On July 8, 2014, the Company issued a board member 250,000 warrants, each warrant exercisable to acquire an additional share of the Company at an exercise price of US$0.095 per share for a period of five years expiring July 8, 2019.

On September 4, 2014, the Company issued a consultant 250,000 compensation warrants, each warrant exercisable to acquire an additional share of the Company at an exercise price of US$0.09 per share for a period of three years expiring September 4, 2017.

A summary of warrant activity during the nine months ended September 30, 2014 is as follows:

            Weighted average  
      Number of warrants     exercise price  
  Outstanding at December 31, 2012   54,392,014   $  0.08  
  Issued as part of private placement   4,050,000     0.20  
  Issued as compensation to consultant   230,000     0.20  
  Outstanding at December 31, 2013   58,672,014     0.09  
  Issued as part of private placements   13,741,141     0.20  
  Issued at compensation warrants   8,227,646     0.09  
  Outstanding at September 30, 2014   80,640,801   $  0.085  

A summary of the warrants outstanding and exercisable at September 30, 2014 is as follows:



                  Weighted Average  
  Weighted Average Exercise Price         Number     Remaining Contractual Life  
             US$   0.080     2,499,999     1.19 years  
             $   0.080     9,500,001     1.19 years  
             US$   0.080     3,000,000     1.23 years  
             $   0.080     3,000,000     1.23 years  
             US$   0.080     3,600,000     1.42 years  
             $   0.080     7,350,000     1.42 years  
             $   0.150     2,500,000     1.73 years  
             $   0.010     1,000,000     0.18 years  
             US$   0.065     12,285,012     2.68 years  
             US$   0.050     2,457,002     2.68 years  
             US$   0.065     1,000,000     3.06 years  
             US$   0.050     200,000     3.06 years  
             US$   0.010     5,000,000     3.15 years  
             US$   0.050     1,000,000     3.15 years  
             US$   0.200     2,375,000     1.63 years  
             US$   0.200     675,000     1.64 years  
             US$   0.200     1,000,000     1.64 years  
             US$   0.200     230,000     1.67 years  
             US$   0.200     4,955,547     4.45 years  
             US$   0.200     8,641,151     4.49 years  
             US$   0.200     144,443     4.50 years  
             US$   0.090     250,000     2.51 years  
             US$   0.090     250,000     4.54 years  
             US$   0.090     250,000     2.93 years  
             US$   0.095     250,000     4.77 years  
             US$   0.100     1,540,000     4.54 years  
             US$   0.100     1,150,000     4.54 years  
             US$   0.080     4,162,650     2.55 years  
             US$   0.180     263,886     1.63 years  
             US$   0.180     111,110     1.63 years  
             $   0.085     80,640,801     2.47 years  

9.

Changes in non-cash working capital balances


      Nine months ended September 30,  
      2014     2013  
  Trade accounts receivable $  (344,197 ) $  (18,834 )
  Inventory   37,774     (54,069 )
  Accounts payable   8,275     39,891  
  Accrued liabilities   (62,059 )   (56,238 )
  Deferred revenue   306     (5,809 )
  Due to related parties   (29,724 )   12,316  
    $  (389,626 ) $  (82,743 )

10.

Commitments and contingencies

   

The Company is committed to minimum annual payments for leases on its premises, automobiles, and office equipment as follows in each of the next four years:


Balance of year ending December 31, 2014 $  140,094  
Year ending December 31, 2015 $  229,242  
Year ending December 31, 2016 $  139,485  
Year ending December 31, 2017 $  17,218  



Rent expense included in the statements of operations for the three months ended September 30, 2014 is $35,990 (2013 - $35,186) and for the nine months ended September 30, 2014 is $106,362 (2013 - $105,558).

   

The Company has an agreement with a consultant for business development, investor relations and strategic and financial services. As consideration, the Company compensates the consultant at $5,000 per month (subject to increase if funding is raised), and must pay commissions of 10% on funds raised. The agreement may be terminated by 30 days written notice. The commission arrangement shall extend for 12 months beyond termination.

   
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 to control access to buildings and other facilities for security purposes. The servicing segment provides maintenance to these intercom and door access control systems.

     
 

Management evaluates performance based on profit or loss from operations before income taxes and nonrecurring gains and losses, if any. Retail prices are used to report intersegment sales.


For the three month ended September 30, 2014   Manufacturing     Servicing     Total  
Sales to external customers $  1,044,226   $  374,978   $  1,419,204  
Depreciation and amortization   15,913     5,223     21,136  
Segment income (loss) before other items   (324,480 )   80,248     (244,232 )
Total assets $  2,106,063   $  10,447   $  2,116,510  

For the three months ended September 30, 2013   Manufacturing     Servicing     Total  
Sales to external customers $  846,395   $  229,420   $  1,075,815  
Depreciation and amortization   710     5,223     5,933  
Segment income (loss) before other items   (381,189 )   64,371     (316,818 )
Total assets $  1,033,616   $  52,231   $  1,085,847  

For the nine month ended September 30, 2014   Manufacturing     Servicing     Total  
Sales to external customers $  2,842,222   $  870,018   $  3,712,240  
Depreciation and amortization   20,668     15,669     36,337  
Segment income (loss) before other items   (3,278,132 )   210,160     (3,488,292 )
Total assets $  2,106,063   $  10,447   $  2,116,510  

For the nine months ended September 30, 2013   Manufacturing     Servicing     Total  
Sales to external customers $  2,084,430   $  860,793   $  2,945,223  
Depreciation and amortization   2,265     15,669     17,934  
Segment income (loss) before other items   (1,142,204 )   275,619     (866,585 )
Total assets $  1,256,121   $  31,339   $  1,287,460  

  (b)

Of the total sales for the nine months ended September 30, 2014, $947,821 (2013 - $322,496) was derived from U.S.-based customers and $2,764,419 (2013 - $2,338,321) 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 sales in either of the years presented.

     
  (d)

Products:

     
 

MESH sales represented 38.5% of total revenue during the nine months ended September 30, 2014 (2013 – 49.5%). FREEDOM sales represented 34.0% of total revenue during the nine months ended September 30, 2014 (2013 – 19.9%). The balance of the Company’s revenues are derived from other products such as access tracking and control, closed circuit monitors, infrared and radio frequency remotes and servicing of intercom equipment.



Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

Sales for the three months ended September 30, 2014 and 2013 were $1,419,204 and $1,075,815, respectively, an increase of $343,389 or 31.9% . Sales for the quarters ended June 30 and March 31, 2014 were $1,356,163 and $936,873, respectively. This quarter ended September 30, 2014 has increased by $63,041 or 4.6%, as compared to the quarter ended June 30, 2014, and $482,331 or 51.5%, as compared to the first quarter ended March 31, 2014. Sales for the nine months ended September 30, 2014 and 2013 were $3,712,240 and $2,945,223, respectively, an increase of $767,017 or 26.0% . Freedom sales for the three months ended September 30, 2014 and 2013 were $496,838 and $241,454, respectively, an increase of $255,384 or 105.8 %. Freedom sales for the nine months ended September 30, 2014 and 2013 were $1,261,915 and $586,582, respectively, an increase of $675,333 or 115.1% . The bulk of this increase was the rapid growth of Freedom sales which were just starting in 2013. MESH sales for the three months ended September 30, 2014 and 2013 were $546,847 and $546,792, respectively. These two periods were consistent. MESH sales for the nine months ended September 30, 2014 and 2013 were $1,430,501 and $1,457,937, respectively, a decrease of $27,436 or 1.9% . For the nine months ended September 30, 2014 and 2013, Freedom sales were 34.0% and 19.9%, respectively, of total sales. For the nine months ended September 30, 2014 and 2013, MESH sales were 38.5% and 49.5%, respectively, of total sales.

On the legacy business side, MESH sales have continued their slow decline due to the age of our low end product, and a lack of a mid-range product for the marketplace. Only our high-end MESH touch screen product is continuing to grow. 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.

On the new product lines, our Freedom 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 Freedom server either in the building or anywhere in the world. The software component of Freedom is a web browser security operating platform. Unlike control panels, the user database and the door control software is processed 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 costly hardware every time a reader is added to the system.

The Company also provides legacy Enterphone support and maintenance services pursuant to service contracts that were assigned to us from Telus Corporation in 2003. Sales from the 1,206 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 (condominium) property management and building owners as well as various residential, business and industrial users of Enterphone access control and security systems. During the nine months ended September 30, 2014 and 2013, customer service contracts and new equipment sales generated aggregate sales revenues of $870,018 and $860,793, respectively, an increase of $9,225 or 1.1% .

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 1,206 at September 30, 2014, as compared to 1,267 at September 30, 2013. Service contracts continue to decrease at approximately 1% per quarter due to contract expirations, as customers switch from the older Enterphone units, under contract, to new products under warranty. The Company continues 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 September 30, 2014, the cost of the service agreements, net of accumulated amortization, was $10,447.


Cost of sales and services as a percentage of sales was 56.9% and 40.6% for the three months ended September 30, 2014 and 2013, respectively. Cost of sales and services as a percentage of sales was 54.3% and 46.6% for the nine months ended September 30, 2014 and 2013, respectively. Cost of sales increased due the inclusion of our Service Division cost, during the quarters of 2014 which was previously included in selling, general and administration expenses during the quarters of 2013. Management has continued to focus on controlling the input costs by using multiple suppliers to ensure that the best and most cost effective raw materials are used in all of our products.

Gross profit for the three months ended September 30, 2014 and 2013 was $611,782 and $638,453, respectively, a decrease of $26,671 or 4.2% . Gross profit for the nine months ended September 30, 2014 and 2013 was $1,701,409 and $1,750,785, respectively, a decrease of $46,376 or 2.8% . This corresponds with a reclassification of cost of sales for the three and nine months ended September 30, 2014, as compared to three and nine months ended September 30, 2013.

Selling, general and administrative expenses for the three months ended September 30, 2014 and 2013 were $645,323 and $850,094, respectively, a decrease of $204,771 or 24.1% . Selling, general and administrative expenses for the nine months ended September 30, 2014 and 2013 were $4,671,786 and $2,418,418, respectively, an increase of $2,253,368 or 93.2% . Included in the selling, general and administrative expenses for the three and nine months ended September 30, 2014 was $238,019 and $1,905,474 of non-cash stock compensation expense for the issuance of warrants and stock options to private placement investors, management, and staff. Excluding this compensation expense from selling, general and administrative expenses, the three and nine months periods ending September 30, 2014 would result in totals of $407,304 and $2,766,312, respectively, a significant reduction in true SG&A expenses, excluding the non-cash charges. This non-cash compensation expense inclusion skews the percentages for the nine months ended September 30, 2014 selling, general and administrative expenses, as a percentage of sales, to be 125.8%, as compared to the nine months ended September 30, 2013 being 82.1% . Excluding the compensation expense from the selling, general and administrative expenses for the nine months ended September 30, 2014 would result in selling, general and administrative expense as a percentage of total sales to be 74.5% . Consulting fees for the nine months ended September 30, 2014 and 2013 were $425,513 and $682,787, respectively, a decrease of $257,274 or 37.7% . This decrease was due to some consultants becoming employees of the Company and some consulting services being discontinued.

Research and development costs for the three and nine months ended September 30, 2014 were $189,555 and $481,578, respectively. Research and development costs for the three and nine months ended September 30, 2013 were $99,244 and $181,018, respectively. Research and development costs for the quarter ended September 30, 2014 increased by $90,311 over the quarter ended September 30, 2013 due to the hiring of three newly created technical support positions. Government grants for the nine months ended September 30, 2013 totaled $146,502, resulting in net research and development costs of $181,018.

Loss before other items for the three month period ended September 30, 2014 was $244,232, as compared to a loss before other items of $316,818 for the three month period ended September 30, 2013, a decreased loss of $72,586. Included in the net loss for the three month period ended September 30, 2014 was a non-cash compensation expense of $238,019 for the issuance of warrants and stock options to management and staff. Otherwise, excluding this compensation expense would result in a loss before other items for the three months ended September 30, 2014 of $6,213. This adjusted loss before other items of $(450,317) is a decreased loss of $310,605, as compared to the loss before other items of $316,818 for the three months ended September 30, 2013. Loss before other items for the nine month period ended September 30, 2014 was $3,488,292, as compared to a loss before other items of $866,585 for the nine month period ended September 30, 2013, an increased loss of $2,621,707. Included in the loss for the nine months ended September 30, 2014 was a non-cash compensation expense of $1,905,474 for the issuance of warrants and stock options to private placement investors, management, and staff. Otherwise, excluding this compensation expense would result in a loss before other items of $1,582,818 for the nine months ended September 30, 2014. This adjusted loss before other items of $1,207,005 shows an increased loss of $716,233 for the nine months ended September 30, 2014, as compared to the loss before other items of $866,585 for the nine months ended September 30, 2013.


Liquidity and Capital Resources

Cash as of September 30, 2014, as compared to December 31, 2013 was $681,487 and $172,684, respectively, an increase of $508,803. The Increase was mainly due to completing three private placements in March 2014, raising a gross aggregate of US$2,260,200. Net proceeds after placement fees, legal costs, and operational costs resulted in a net cash raise of approximately $1,986,952.

On June 7, 2012, Viscount Systems, Inc. completed a sale of 1,000 shares of Series A Convertible Redeemable Preferred Stock, par value US$0.001 per share, at a purchase price of US$1,000 and a stated value of US$1,000 per A Share, and for no additional consideration, an issuance of 12,285,012 share purchase warrants of the Company for gross proceeds of US$1,000,000. Each Warrant is exercisable to acquire a common share of the Company at a price of US$0.08 per share for a period of 5 years from the closing date. The Warrants may be exercised on a cashless basis. The A Shares are convertible, at the option of the holders, into 24,570,024 shares of common stock of the Company at a conversion price of US$0.0407 per share, subject to adjustment provisions.

In connection with the offering, the Company paid to a registered broker-dealer a cash commission of US$100,000 and issued share purchase warrants to acquire 2,457,002 shares of common stock of the Company. Each Agent Warrant is exercisable to acquire one common share of the Company at a price of US$0.05 per share for a period of 5 years from the closing date. The warrants may be exercised on a cashless basis.

On October 19, 2012, Viscount Systems, Inc. completed a sale of 100 shares of Series A Convertible Redeemable Preferred Stock, par value $0.001 per share, at a purchase price of $1,000 and a stated value of $1,000 per A Share, and for no additional consideration, an issuance of 1,000,000 share purchase warrants of the Company for gross proceeds of $100,000. Each Warrant is exercisable to acquire a common share of the Company at a price of $0.08 per share for a period of 5 years from the closing date. The Warrants may be exercised on a cashless basis. The A Shares are convertible, at the option of the holders, into 2,000,000 shares of common stock of the Company at a conversion price of $0.05 per share, subject to adjustment provisions.

In connection with the offering, the Company paid to a registered broker-dealer a cash commission of $10,000 and issued share purchase warrants to acquire 200,000 shares of common stock of the Company. Each Agent Warrant is exercisable to acquire one common share of the Company at a price of $0.05 per share for a period of 5 years from the closing date. The warrants may be exercised on a cashless basis.

On November 26, 2012, Viscount Systems, Inc. completed a private placement of 10,000,000 units at a price of $0.05 per unit for total proceeds of $500,000. Each unit consists of one common share and one-half of one share purchase warrant of Viscount, with each whole warrant exercisable to acquire an additional share of Viscount at a price of $0.10 for a period of 5 years from the closing date.


In connection with the offering, the Company paid to a registered broker-dealer a cash commission of $50,000 and issued share purchase warrants to acquire 1,000,000 shares of common stock of the Company at a price of $0.05 per share for a period of 5 years from the closing date. The warrants may be exercised on a cashless basis.

On May 17, 2013, Viscount Systems, Inc. completed a private placement of 4,750,000 units at a price of $0.10 per unit for total proceeds of $475,000. On May 21, 2013, the Company completed an additional private placement of 2,000,000 units at a price of $0.10 per unit for total proceeds of $200,000. Each unit consists of one common share and one-half of one share purchase warrant of the Company, with each whole warrant exercisable to acquire an additional share of the Company at a price of $0.20 for a period of three years from the closing date.

In connection with the offerings, the Company paid to a registered broker-dealer a cash commission of $7,500 and issued share purchase warrants to acquire 675,000 shares of common stock of the Company at a price of $0.20 per share for a period of three years from the closing date. The warrants may be exercised on a cashless basis.

On March 11, 2014, Viscount Systems, Inc. completed a private placement of 8,333,329 shares of common stock at a price of $0.09 per share for total proceeds of $750,000. The Company also issued a total of 4,166,659 warrants, each warrant exercisable to acquire an additional share of the Company at an exercise price of $0.20 per share for a period of five years from the closing date.

In connection with the offering, the Company paid to a registered broker-dealer a commission of $71,000 in cash and share purchase warrants to acquire 788,888 shares of common stock of the Company at a price of $0.09 per share for a period of five years from the closing date. The warrants may be exercised on a cashless basis.

On March 27, 2014, Viscount Systems, Inc. completed a private placement of 16,502,220 shares of common stock at a price of $0.09 per share for total proceeds of $1,485,200. The Company also issued a total of 8,251,107 warrants, each warrant exercisable to acquire an additional share of the Company at an exercise price of $0.20 per share for a period of five years from the closing date.

On March 31, 2014, the Company issued an additional 277,778 shares of common stock at a price of $0.09 per share for total proceeds of $25,000. The Company also issued 138,888 warrants, each warrant exercisable to acquire an additional share of the Company at an exercise price of $0.20 per share for a period of five years from the closing date.

In connection with the offerings, the Company paid to a registered broker-dealer a commission of $35,604 in cash and share purchase warrants to acquire 395,599 shares of common stock of the Company at a price of $0.09 per share for a period of five years from the closing date. The warrants may be exercised on a cashless basis.

At September 30, 2014, the Company had a working capital of $1,023,214, as compared to working capital of $248,877 at December 31, 2013. Working capital had increased by $774,337. This increase was due to completing three private placements in March 2014, raising a gross aggregate of US$2,260,200. The current ratio at September 30, 2014 was 2.09, as compared with 1.24 at December 31, 2013.


The Company’s financial statements have been prepared on a going concern basis, which assumes the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. The Company has an accumulated deficit of $14,017,277, reported a loss for the nine months ended September 30, 2014 of $2,281,287 and has working capital of $1,023,214 at September 30, 2014. Cash flows used in operating activities for the nine months ended September 30, 2014 were $1,707,676. Although management is confident that the company can access sufficient working capital to maintain operations and ultimately generate positive cash flow from operations, the ability to sustain the current level of operations is dependent upon growing sales and achieving profits. Management has determined that the Company will not need to raise anymore capital to continue normal operations for the next twelve months. If working capital becomes insufficient, the Company will have to reduce spending in several key areas including research and development and marketing. This would have a negative impact on the growth prospects of the Company. In the event the Company hits its sales targets, the Company will have sufficient working capital for 2014. Management continues actively seeking new investors and developing customer relationships. These factors raise substantial doubt about the ability of the Company to continue operations as a going concern.

The accounts receivable turnover ratio was 48 days at September 30, 2014, 61 days at December 31, 2013 and 64 days at September 30, 2013. The outstanding term for our receivables has been decreasing due to more aggressive collection efforts from a few slower paying customers. The accounts receivable reserve was $209,852 at September 30, 2014, as compared to $250,458 at December 31, 2013. The accounts receivable reserve has decreased by $40,606 or 16.2% since the year ended December 31, 2013. 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.

The Company is subject to significant liquidity risk. At September 30, 2014, the Company’s current assets consist principally of cash, trade accounts receivables, and inventory.

As the Company’s liquidity increases, we will be purchasing more inventory and hiring more sales and technical staff to accommodate the expected increased future sales.

There are no material unused sources of liquid assets.

For the nine months ended September 30, 2014, capital expenditures totalled $150,091 which included the acquisition of office equipment and furniture, leasehold improvements, a tradeshow booth and a service vehicle.

To date, the Company has not invested in derivative securities or any other financial instruments that involve a high level of complexity or risk. The Company expects that in the future, any excess cash will continue to be invested in high credit quality, interest-bearing securities.

The Company will likely require additional funds to support the development and marketing of its new Freedom product. There can be no assurance that additional financing will be available on acceptable terms, if at all. If adequate funds are not available, the Company may be unable to develop or enhance its 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.

The Company does not have any material commitments for capital expenditures as of September 30, 2014.


OFF-BALANCE SHEET ARRANGEMENTS

There are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

Related Party Transactions

During the period ended September 30, 2014 a total of CDN $42,438 was paid to related parties for director fees. An additional CDN $64,565 was paid to related parties as consulting fees during the period.

Critical Accounting estimates and judgments:

The Company’s discussion and analysis of its financial condition and results of operations, including the discussion on liquidity and capital resources, are based upon the Company’s financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, management re-evaluates its estimates and judgments, particularly those related to the determination of 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 stock-based compensation. Details are provided for critical estimates are as follows:

The Company follows the cost reduction method of accounting for investment tax credits and recognizes the estimated net recoverable amount when reasonable assurance exists as to their collectability. Investment tax credits claimed are ultimately subject to finalization of a review by Canada Customs and Revenue Agency. No assurances can be provided that the Company’s investment tax credit claims will be accepted as filed.

The Company maintains an allowance for doubtful accounts for estimated losses that may arise if any of its customers are unable to make required payments. Management specifically analyzes the age of customer balances, historical bad debt experience, customer credit-worthiness, and changes in customer payment terms when making estimates of the uncollectability of the Company’s trade accounts receivable balances. If the Company determines that the financial conditions of any of its customers deteriorated, whether due to customer specific or general economic issues, increases in the allowance may be made.

The Company reviews its intangible assets on an annual basis for impairment. The intangible assets are comprised of Enterphone service contracts. Management specifically reviews the number of contracts on hand and if there will be significant future cash flows to be generated from these contracts. If the Company determines that there is impairment, then a write-down will be made.

The Company maintains an allowance for inventory obsolescence. Management reviews the inventory on a quarterly basis by directly testing for obsolete inventory. The Company increased its provision for obsolete inventory by $100,000 during the first quarter of 2014, as a result of a revised estimate by management. There was also a $25,000 adjustment to the provision for obsolete inventory during the second and third quarter of 2014.

Income taxes are accounted for under the asset and liability method. Under this method, to the extent that it is not more likely than not that a deferred tax asset will be recovered, a valuation allowance is provided.


In making this determination, the Company considers estimated future taxable income and taxable timing differences expected to reverse in the future. Actual results may differ from those estimates.

Derivative financial instruments that are not classified as equity and are not used in hedging relationships are measured at fair value. These include derivative warrant liabilities and derivative conversion option liabilities. Susequent changes to the estimated fair value are recorded in the statement of operations.

Recent accounting pronouncements

The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.

Item 4.    Controls and Procedures

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

The term “disclosure controls and procedures” is defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, or the “Exchange Act.” These rules refer to the controls and other procedures of a company that are designed to ensure that the information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the required time periods. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our Exchange Act reports is accumulated and communicated to management, including our chief executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. It is management’s responsibility to establish and maintain adequate internal control over financial reporting for the Company.

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 September 30, 2014. Based on that evaluation, our principal executive officer and principal financial officer have concluded that as of September 30, 2014, 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.

Our management is responsible for establishing and maintaining effective internal control over financial reporting. Under the supervision of our chief executive officer and principal financial officer, the Company conducted an evaluation of the effectiveness of our internal control over financial reporting as of September 30, 2014 using the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) issued in 1992. In 2013, COSO released an updated framework that becomes effective for year-ends beginning on December 15, 2014. Management is working to be compliant with the new framework by its annual assessment for the year ended December 31, 2014.

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. In its assessment of the effectiveness of internal control over financial reporting as of September 30, 2014, the Company determined that there were no deficiencies that constituted material weaknesses.


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

31.1

Certification of the Principal Executive Officer and Principal Financial Officer Pursuant to Rule 13a-14(a) or 15d-14(a) of the U.S. Securities Exchange Act of 1934

   
32.1

Section 1350 Certification of the Principal Executive Officer and Principal Financial Officer

   
101.INS XBRL Instance Document
   
101.SCH XBRL Taxonomy Extension Schema
   
101.CAL XBRL Taxonomy Extension Calculation Linkbase
   
101.DEF XBRL Taxonomy Extension Definition Linkbase
   
101.LAB XBRL Taxonomy Extension Label Linkbase
   
101.PRE XBRL Taxonomy Extension Presentation Linkbase

 

 

SIGNATURES

Pursuant to 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: November 12, 2014 VISCOUNT SYSTEMS, INC.
  (Registrant)

 

  By: /s/ Dennis Raefield
    Dennis Raefield, President
    Principal Executive Officer
    and Principal Financial Officer