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Viscount Systems Inc., (“Viscount”) (OTCQB:VSYS), a manufacturer of physical access control systems (“PACS” or “Freedom PACS”) and telephone entry products, which protect buildings from unauthorized access, announced its second quarter of year 2016 financial results.
Second Quarter of 2016 Highlights:
Three months ended June 30, 2016 compared to the three months ended June 30, 2015
Overview
We reported a net loss of $709,117 for the three months ended June 30, 2016, compared to net income of $2,297,977 for the three months ended June 30, 2015, a decrease of $3,007,094, or 131%. The decrease is mainly attributable to a decrease in sales of $806,342, an increase in interest expense of $697,879 related to notes liabilities PIK interest accrual and Accounts Receivable factoring (the “AR factoring”), a decrease from the change in fair value of derivative liabilities of $1,920,942. The higher sales from the three months ended June 30, 2015 included sales of $726,000 (US $600,000) generated from Freedom software sales to the United States Citizenship and Immigration Service (the “USCIS”) locations. Additionally, net loss for the three months ended June 30, 2015 included a $63,324 loss on the settlement of convertible notes and $47,087 of amortization of debt discount.
Revenues
Sales for the three months ended June 30, 2016 and 2015 were $1,027,583 and $1,833,925, respectively, reflecting a decrease of $806,342 or 44%. Freedom sales for the three months ended June 30, 2016 and 2015 were $366,074 and $1,199,841, respectively, reflecting a decrease of $833,767 or 69%. The higher sales from three months ended June 30, 2015 is mainly due to a sales of $726,000 (US $600,000) generated from Freedom software sales to USCIS locations. Mesh/Enterphone sales for the three months ended June 30, 2016 and 2015 were, $661,509 and $634,084, respectively, an increase of $27,425 or 4%.
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|
Gross profit
Gross profit for the three months ended June 30, 2016 and 2015 was $571,137 and $1,266,876, respectively, a decrease of $695,739 or 55%. For the three months ended June 30, 2016 and 2015, cost of sales were $456,446 and $567,049 or, as a percentage of sales, was 44% and 31%, respectively. Included in cost of sales is a recovery of inventory obsolescence and reserve provision amounting to $104,680 and $0 for the three months ended June 30, 2016 and 2015, respectively.
Gross margin for the three months ended June 30, 2016 and 2015 was 56% and 69%, respectively. The higher margin from second quarter of 2015 is mainly due to the sales of $726,000 (US $600,000) generated from Freedom software sales to the USCIS locations. During the three months ended June 30, 2016, management has continued to focus on controlling costs by using multiple suppliers to ensure that the best and most cost effective raw materials are used in all of our products.
The gross margin percentage for three months ended June 30, 2016 of our product categories of Mesh/Enterphone and Freedom, were 47% and 72%, respectively. The gross margin percentage for the three months ended June 30, 2015 of product categories of MESH/Enterphone and Freedom were 36% and 87%, respectively.
Income from Discontinued Operations
Income from discontinued operations is attributable to the net income related to the Service Division as a result of our decision in January 2016 to sell the Service Division. Income from discontinued operations of $185,598 for the three months ended June 30, 2016 is comprised of sales revenues of $348,191, cost of sales of $113,362 and operating expenses of $49,231. Income from discontinued operations of $115,791 for the three months ended June 30, 2015 is comprised of sales revenues of $245,985, cost of sales of $86,710 and operating expenses of $43,484.
Six months ended June 30, 2016 compared to the six months ended June 30, 2015
Overview
We reported a net loss of $848,452 for the six months ended June 30, 2016, compared to net income of $2,437,830 for the six months ended June 30, 2015, a decrease of $3,286,282 or 135%. The decrease is mainly attributable to a decrease in sales of $878,944, an increase in interest expense of $1,333,336 related to notes liabilities PIK interest accrual and AR factoring, a decrease from the change in fair value of derivative liabilities of $1,785,139, partially offset by a foreign exchange gain of $211,930 on the revaluation of notes liabilities. The higher sales from the six months ended June 30, 2015 included sales of $726,000 (US $600,000) generated from Freedom software sales to USCIS locations.
Revenues
Sales for the six months ended June 30, 2016 and 2015 were $2,009,461 and $2,888,405, respectively, reflecting a decrease of $878,944 or 30%. Freedom sales for the six months ended June 30, 2016 and 2015 were $695,781 and $1,640,946, respectively, reflecting a decrease of $945,165 or 58%, which was mostly due to sales of $726,000 (US $600,000) generated from Freedom software sales to USCIS locations during the six months ended June 30, 2015. The decrease in Freedom sales were partially offset by an increase of $66,221, or 5%, from Mesh/Enterphone sales for the six months ended June 30, 2016, compared to 2015. Mesh/Enterphone sales for the six months ended June 30, 2016 and 2015 were, $1,313,680 and $1,247,459, respectively.
Gross profit
Gross profit for the six months ended June 30, 2016 and 2015 was $1,101,216 and $1,757,693, respectively, a decrease of $656,477 or 37%. For the six months ended June 30, 2016 and 2015, cost of sales were $908,245 and $1,130,712 or, as a percentage of sales, was 45% and 39%, respectively. Included in cost of sales is a recovery of inventory obsolescence and reserve provision amounting to $187,126 and $0 for the six months ended June 30, 2016 and 2015, respectively.
Gross margin for the six months ended June 30, 2016 and 2015 was 55% and 61%, respectively. The higher margin from six months ended June 30, 2015 is mainly due to the sales of $726,000 (US $600,000) generated from Freedom software sales to USCIS locations. During the six months ended June 30, 2016, management has continued to focus on controlling costs by using multiple suppliers to ensure that the best and most cost effective raw materials are used in all of our products.
The gross margin percentage for six months ended June 30, 2016 of our product categories of Mesh/Enterphone and Freedom, were 47% and 70%, respectively. The gross margin percentage for the six months ended June 30, 2015 of product categories of MESH/Enterphone and Freedom were 32% and 83%, respectively.
Income from Discontinued Operations
Income from discontinued operations is attributable to the net income related to the Service Division as a result of our decision in January 2016 to sell the Service Division. Income from discontinued operations of $268,591 for the six months ended June 30, 2016 is comprised of sales revenues of $571,156, cost of sales of $202,423 and operating expenses of $100,142. Income from discontinued operations of $212,519 for the six months ended June 30, 2015 is comprised of sales revenues of $516,401, cost of sales of $183,425 and operating expenses of $120,457.
For more information please visit: www.viscount.com
Safe Harbor Statement
Forward looking statements: This press release and other statements by Viscount Systems Inc. may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act with respect to the outlook for earnings and revenues, other future financial or business performance, strategies and expectations. Forward-looking statements are typically identified by words or phrases such as "believe," "expect," "estimate," "position," "assume," "potential," "outlook," "continue," "remain," "maintain," and similar expressions, or future or conditional verbs such as "will," "would," "should," "could," or similar expressions.
VISCOUNT SYSTEMS, INC.
Condensed Consolidated Balance Sheets
(Expressed in Canadian dollars)
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June 30, 2016 |
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December 31, 2015 |
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(Unaudited) |
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Assets |
|
|
|
|
|
|
|
|
|
Current Assets |
|
|
|
|
|
|
|
|
|
Cash |
|
$ |
41,946 |
|
|
$ |
250,270 |
|
|
Restricted cash |
|
|
55,000 |
|
|
|
55,000 |
|
|
Trade accounts receivable, net |
|
|
599,924 |
|
|
|
506,264 |
|
|
Prepaid expenses |
|
|
53,751 |
|
|
|
31,791 |
|
|
Inventory |
|
|
343,179 |
|
|
|
569,796 |
|
|
Current assets held for sale |
|
|
144,838 |
|
|
|
59,317 |
|
|
Total Current Assets |
|
|
1,238,638 |
|
|
|
1,472,438 |
|
|
Equipment |
|
|
152,577 |
|
|
|
162,332 |
|
|
Deposits |
|
|
1,391 |
|
|
|
8,391 |
|
|
Assets held for sale – non-current |
|
|
16,336 |
|
|
|
18,151 |
|
|
Total Assets |
|
$ |
1,408,942 |
|
|
$ |
1,661,312 |
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Deficit |
|
|
|
|
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
1,103,115 |
|
|
$ |
900,211 |
|
|
Accrued liabilities |
|
|
583,389 |
|
|
|
532,003 |
|
|
Capital lease obligation - current portion |
|
|
17,048 |
|
|
|
16,348 |
|
|
Deferred revenue |
|
|
24,887 |
|
|
|
47,780 |
|
|
Due to related parties |
|
|
176,462 |
|
|
|
91,683 |
|
|
Loans payable |
|
|
114,536 |
|
|
|
114,536 |
|
|
Interest payable - Convertible Debt |
|
|
1,727,130 |
|
|
|
373,841 |
|
|
Notes liability - Convertible Debt |
|
|
3,279,871 |
|
|
|
3,491,802 |
|
|
Derivative liabilities |
|
|
3,415,475 |
|
|
|
4,383,668 |
|
|
Convertible redeemable preferred stock |
|
|
263,472 |
|
|
|
269,880 |
|
|
Total Current Liabilities |
|
|
10,705,385 |
|
|
|
10,221,752 |
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease obligation - non-current |
|
|
941 |
|
|
|
9,647 |
|
|
Total Liabilities |
|
|
10,706,326 |
|
|
|
10,231,399 |
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
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|
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|
|
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Convertible redeemable preferred stock - US$0.001 par value; 20,000,000 shares authorized: |
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|
|
|
|
|
|
|
Series A convertible redeemable preferred stock, stated value $1,000, 135 and 130 shares outstanding at June 30, 2016 and December 31, 2015, respectively; aggregate liquidation preference of $135,114 and $130,000 as of June 30, 2016 and December 31, 2015, respectively |
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- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Deficit |
|
|
|
|
|
|
|
|
|
Series B Preferred Stock, Par Value US $0.001 Per Share. 50 shares outstanding as of June 30, 2016 and December 31, 2015, respectively. |
|
|
1 |
|
|
|
1 |
|
|
Common stock, par value US$0.001 per share, 300,000,000 shares authorized: 130,297,236 shares issued and outstanding as of June 30, 2016, 130,297,236 shares issued, 126,047,236 shares outstanding at December 31, 2015 |
|
|
130,297 |
|
|
|
130,297 |
|
|
Additional paid-in capital |
|
|
7,679,571 |
|
|
|
7,558,416 |
|
|
Accumulated deficit |
|
|
(17,107,253 |
) |
|
|
(16,258,801 |
) |
|
Total Stockholders’ Deficit |
|
|
(9,297,384 |
) |
|
|
(8,570,087 |
) |
|
Total Liabilities and Stockholders’ Deficit |
|
$ |
1,408,942 |
|
|
$ |
1,661,312 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements
|
|
Condensed Consolidated Statements of Operations
(Expressed in Canadian dollars)
For the three and six months ended June 30, 2016 and 2015
(Unaudited)
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Three months ended |
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Six months ended |
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June 30, |
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June 30, |
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|
|
|
2016 |
|
|
2015 |
|
|
2016 |
|
|
2015 |
| ||||
|
Sales |
|
$ |
1,027,583 |
|
|
$ |
1,833,925 |
|
|
$ |
2,009,461 |
|
|
$ |
2,888,405 |
|
|
Cost of sales |
|
|
456,446 |
|
|
|
567,049 |
|
|
|
908,245 |
|
|
|
1,130,712 |
|
|
Gross profit |
|
|
571,137 |
|
|
|
1,266,876 |
|
|
|
1,101,216 |
|
|
|
1,757,693 |
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative |
|
|
717,630 |
|
|
|
853,589 |
|
|
|
1,567,184 |
|
|
|
1,733,449 |
|
|
Research and development |
|
|
218,891 |
|
|
|
210,188 |
|
|
|
455,393 |
|
|
|
399,403 |
|
|
Total operating expenses |
|
|
936,521 |
|
|
|
1,063,777 |
|
|
|
2,022,577 |
|
|
|
2,132,852 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income |
|
|
(365,384 |
) |
|
|
203,099 |
|
|
|
(921,361 |
) |
|
|
(375,159 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
|
|
|
|
|
8 |
|
|
|
|
|
|
|
18 |
|
|
Interest expense |
|
|
(753,763 |
) |
|
|
(55,884 |
) |
|
|
(1,389,220 |
) |
|
|
(55,884 |
) |
|
Loss on settlement of convertible note |
|
|
- |
|
|
|
(63,324 |
) |
|
|
- |
|
|
|
(63,324 |
) |
|
Foreign exchange gain on revaluation of notes liability |
|
|
- |
|
|
|
- |
|
|
|
211,930 |
|
|
|
|
|
|
Amortization of debt discount |
|
|
- |
|
|
|
(47,087 |
) |
|
|
- |
|
|
|
(47,087 |
) |
|
Change in fair value of derivative liabilities |
|
|
224,432 |
|
|
|
2,145,374 |
|
|
|
981,608 |
|
|
|
2,766,747 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense) |
|
|
(529,331 |
) |
|
|
1,979,087 |
|
|
|
(195,682 |
) |
|
|
2,600,470 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) Income from continuing operations |
|
|
(894,715 |
) |
|
|
2,182,186 |
|
|
|
(1,117,043 |
) |
|
|
2,225,311 |
|
|
Income from discontinued operations of servicing business, net of tax |
|
|
185,598 |
|
|
|
115,791 |
|
|
|
268,591 |
|
|
|
212,519 |
|
|
Net (loss) income |
|
|
(709,117 |
) |
|
|
2,297,977 |
|
|
|
(848,452 |
) |
|
|
2,437,830 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A convertible - contractual dividends |
|
|
(4,786 |
) |
|
|
(25,953 |
) |
|
|
(7,917 |
) |
|
|
(44,649 |
) |
|
Series A convertible - deemed dividends |
|
|
6,409 |
|
|
|
- |
|
|
|
6,409 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to common stockholders |
|
$ |
(707,494 |
) |
|
$ |
2,272,024 |
|
|
$ |
(849,960 |
) |
|
$ |
2,393,181 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per share data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
(0.01 |
) |
|
$ |
0.02 |
|
|
$ |
(0.01 |
) |
|
$ |
0.02 |
|
|
Discontinued operations |
|
$ |
0.00 |
|
|
$ |
0.00 |
|
|
$ |
0.00 |
|
|
$ |
0.00 |
|
|
Net (loss) income attributable to common stockholders – basic and diluted |
|
$ |
(0.01 |
) |
|
$ |
0.02 |
|
|
$ |
(0.01 |
) |
|
$ |
0.02 |
|
|
Weighted average number of shares of common stock outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted |
|
|
128,008,775 |
|
|
|
126,082,043 |
|
|
|
127,028,005 |
|
|
|
126,184,235 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements
|
|
Condensed Consolidated Statements of Cash Flows
(Expressed in Canadian dollars)
For the Six Months Ended June 30, 2016 and 2015
(Unaudited)
|
|
|
For the six months ended: |
| |||||
|
|
|
June 30, 2016 |
|
|
June 30, 2015 |
| ||
|
Cash Flow From Operating Activities |
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
(848,452 |
) |
|
$ |
2,437,830 |
|
|
Adjustments to reconcile net (loss) income to net cash used in operating activities: |
|
|
|
|
|
|
|
|
|
Income from discontinued operations |
|
|
(268,591 |
) |
|
|
(212,519 |
) |
|
Depreciation and amortization |
|
|
19,356 |
|
|
|
21,372 |
|
|
Recovery of uncollectible receivables |
|
|
(3,005 |
) |
|
|
(66,607 |
) |
|
Recovery of inventory obsolescence |
|
|
(187,126 |
) |
|
|
- |
|
|
Change in fair value of derivative liabilities |
|
|
(981,608 |
) |
|
|
(2,766,747 |
) |
|
Stock based compensation |
|
|
79,561 |
|
|
|
32,324 |
|
|
Foreign exchange gain on revaluation of notes liability |
|
|
(211,930 |
) |
|
|
- |
|
|
Fair value of warrants issued as compensation |
|
|
5,498 |
|
|
|
- |
|
|
Original issue discount on convertible debt |
|
|
- |
|
|
|
18,750 |
|
|
Loss on settlement of convertible debt |
|
|
- |
|
|
|
63,324 |
|
|
Amortization of debt discount |
|
|
- |
|
|
|
47,087 |
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(90,655 |
) |
|
|
(215,559 |
) |
|
Inventory |
|
|
413,743 |
|
|
|
51,296 |
|
|
Prepaid expenses |
|
|
(21,960 |
) |
|
|
- |
|
|
Deposits |
|
|
7,000 |
|
|
|
- |
|
|
Accounts payable |
|
|
202,904 |
|
|
|
82,608 |
|
|
Accrued liabilities |
|
|
94,488 |
|
|
|
37,271 |
|
|
Interest payable |
|
|
1,353,289 |
|
|
|
- |
|
|
Deferred revenue |
|
|
(22,893 |
) |
|
|
75,421 |
|
|
Due to related parties |
|
|
84,779 |
|
|
|
7,610 |
|
|
Net Cash used in operating activities from continuing operations |
|
|
(375,602 |
) |
|
|
(386,539 |
) |
|
Net Cash provided by operating activities from discontinuing operations |
|
|
184,885 |
|
|
|
217,751 |
|
|
Net Cash used in operating activities |
|
|
(190,717 |
) |
|
|
(168,788 |
) |
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities |
|
|
|
|
|
|
|
|
|
Purchase of property and equipment |
|
|
(9,601 |
) |
|
|
(1,371 |
) |
|
Net cash used in investing activities |
|
|
(9,601 |
) |
|
|
(1,371 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net Cash used in Financing Activities |
|
|
|
|
|
|
|
|
|
Capital lease payments |
|
|
(8,006 |
) |
|
|
(5,015 |
) |
|
Proceeds from issuance of convertible note |
|
|
- |
|
|
|
197,500 |
|
|
Payment of deferred financing costs |
|
|
- |
|
|
|
(5,000 |
) |
|
Repayment of convertible note |
|
|
- |
|
|
|
(211,250 |
) |
|
Proceeds from sale of common stock and warrants |
|
|
- |
|
|
|
3,050 |
|
|
Proceeds from sale of preferred stock |
|
|
- |
|
|
|
234,000 |
|
|
Net cash (used in) provided by financing activities |
|
|
(8,006 |
) |
|
|
213,285 |
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease) increase in cash |
|
|
(208,324 |
) |
|
|
43,126 |
|
|
Cash, beginning of period |
|
|
250,270 |
|
|
|
135,308 |
|
|
Cash, end of period |
|
$ |
41,946 |
|
|
$ |
178,434 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements
|
|
VISCOUNT SYSTEMS, INC.
Condensed Consolidated Statements of Cash Flows, continued
(Expressed in Canadian dollars)
For the Six Months Ended June 30, 2016 and 2015
(Unaudited)
|
|
|
For the six months ended: |
| |||||
|
|
|
June 30, 2016 |
|
|
June 30, 2015 |
| ||
|
|
|
|
|
|
|
| ||
|
Supplementary Information: |
|
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
19,254 |
|
|
$ |
37,134 |
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
|
Fair value of preferred shares issued as dividends |
|
$ |
7,917 |
|
|
$ |
44,649 |
|
|
Unvested common stock issued to board members |
|
$ |
- |
|
|
$ |
4,250 |
|
|
Fair value on embedded conversion option from Series A share |
|
$ |
- |
|
|
$ |
373,184 |
|
|
Litigation liability settled to APIC |
|
$ |
43,102 |
|
|
$ |
- |
|
|
Series A convertible - deemed dividends |
|
$ |
6,409 |
|
|
$ |
- |
|
The accompanying notes are an integral part of these condensed consolidated financial statements
