UNITED ~~STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549~~ STATES

~~FORM~~SECURITIES AND ~~10-K~~EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, ~~2014~~ 2015

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______ to ______

Commission file number: 000-49746

VISCOUNT SYSTEMS, INC. ~~(Name of registrant as specified in its charter)~~

NEVADA	88-0498181
(State or other jurisdiction of	(I.R.S. Employer Identification No.)
incorporation or organization)
4585 Tillicum Street, Burnaby, British Columbia, Canada	V5J 5K9
(Address of principal executive offices)	(Zip Code)

(Name of registrant as specified in its charter)

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

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

Issuer’s telephone number: (604) 327-9446

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act: Common Stock, Par value $0.001 (Title of class)

Check whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]

Check whether the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes [ ] No [X]

Check whether the registrant (1) filed all reports required to be filed by Section 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 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 if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-K contained in this form, and no disclosure will be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]

Check whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [ ]		Accelerated filer [ ]

Non-accelerated filer [ ] (Do not check if a smaller reporting company)		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 issuer’s revenues for its most recent fiscal year: US $4,~~111~~799,~~109~~516 as at December 31, ~~2014~~2015 ($46,~~769~~137,~~298~~488 in Canadian dollars converted at an exchange rate of US$10.~~1601~~7820/CDN$1.000).

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: US $132,~~861~~983,~~054~~806 as at June 30, ~~2014.~~ 2015.

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: ~~126~~ 130,~~047~~297,236 shares of common stock as at ~~March~~April 1711, 2016. This number includes 4,250,000 restricted common shares the Company issued to its board members during the year of 2015.

2Viscount Systems, Inc.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's Proxy Statement for the Annual Meeting of Stockholders are incorporated by reference into Part III of this Form 10-K, which Proxy Statement will be filed within 120 days after the end of the Registrant's fiscal year ended December 31, 2014.

Form 10-K

Table of Contents

Part	~~Item No.~~	Item No.
I	1	~~Business~~1	Business	2
	1A	~~Risk Factors~~1A	Risk Factors	13
	2	Properties
		1B	Unresolved Staff Comments	13
	3	Legal Proceedings
		2	Properties	13
	4	Mine Safety Disclosures
		3	Legal Proceedings	14
II	5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
		4	Mine Safety Disclosures	14
	6	Select Financial Data
II		5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	15
	7	Management’s Discussion and Analysis of Financial Condition and Results of Operation
		6	Selected Financial Data	16
	7A	Quantitative and Qualitative Disclosures About Market Risk
		7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
	8	Financial Statements and Supplementary Data
		7A	Quantitative and Qualitative Disclosures About Market Risk	23
	9	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
		8	Financial Statements and Supplementary Data	24
	9A	Controls and Procedures
		9	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	24
	9B	Other Information
		9A	Controls and Procedures	24
III	10	Directors, Executive Officers, and Corporate Governance
		9B	Other Information	26
	11	Executive Compensation
III		10	Directors, Executive Officers, and Corporate Governance	26
	12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
		11	Executive Compensation	31
	13	Certain Relationships and Related Transactions, and Director Independence
		12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	33
	14	Principal Accounting Fees and Services
		13	Certain Relationships and Related Transactions, and Director Independence	35
	15	Exhibits, Financial Statement Schedules
		14	Principal Accounting Fees and Services	37
		Signatures
IV		15	Exhibits, Financial Statement Schedules	37
			Signatures	39

FORM 10-K

VISCOUNT SYSTEMS, INC.

PART I.

Forward-Looking Statements

ALL STATEMENTS IN THIS DISCUSSION THAT ARE NOT HISTORICAL ARE FORWARD-LOOKING STATEMENTS. STATEMENTS PRECEDED BY, FOLLOWED BY OR THAT OTHERWISE INCLUDE THE WORDS "“BELIEVES"”, "“EXPECTS"”, "“INTENDS"”, "“PROJECTS"”, " “ESTIMATES"”, " “PLANS"”, "“MAY INCREASE"” AND SIMILAR EXPRESSIONS OF FUTURE OR CONDITIONAL VERBS SUCH AS "“SHOULD"”, " “WOULD"”, "“MAY"” AND "“COULD"” ARE GENERALLY FORWARD-LOOKING IN NATURE AND NOT HISTORICAL FACTS. THESE FORWARD-LOOKING STATEMENTS WERE BASED ON VARIOUS FACTORS AND WERE DERIVED UTILIZING NUMEROUS IMPORTANT ASSUMPTIONS AND OTHER IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN THE FORWARD-LOOKING STATEMENTS. FORWARD-LOOKING STATEMENTS INCLUDE THE INFORMATION CONCERNING OUR FUTURE FINANCIAL PERFORMANCE, BUSINESS STRATEGY, PROJECTED PLANS AND OBJECTIVES. ~~THESE~~ THESE FACTORS INCLUDE, AMONG OTHERS, THE FACTORS SET FORTH BELOW UNDER THE HEADING " “RISK FACTORS."” ALTHOUGH WE BELIEVE THAT THE EXPECTATIONS REFLECTED IN THE FORWARD-LOOKING STATEMENTS ARE REASONABLE, WE CANNOT GUARANTEE FUTURE RESULTS, LEVELS OF ACTIVITY, PERFORMANCE OR ACHIEVEMENTS. MOST OF THESE FACTORS ARE DIFFICULT TO PREDICT ACCURATELY AND ARE GENERALLY BEYOND OUR CONTROL. WE ARE UNDER NO OBLIGATION TO PUBLICLY UPDATE ANY OF THE FORWARD-LOOKING STATEMENTS TO REFLECT EVENTS OR CIRCUMSTANCES AFTER THE DATE HEREOF OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED EVENTS. READERS ARE CAUTIONED NOT TO PLACE UNDUE ~~RELIANCE~~ RELIANCE ON THESE FORWARD-LOOKING STATEMENTS. REFERENCES IN THIS FORM 10-K, UNLESS ANOTHER DATE IS STATED, ARE TO DECEMBER 31, ~~2014~~2015. AS USED HEREIN, THE " “COMPANY,"” "“VISCOUNT,"” "“WE,"” "“US,"” "“OUR"” AND WORDS OF SIMILAR MEANING REFER TO VISCOUNT SYSTEMS, INC.

Currency of Financial Information and Exchange Rate Table

The Company maintains its books of account in Canadian dollars and references to dollar amounts herein are to the lawful currency of Canada unless otherwise indicated.

The following table sets forth, for the periods indicated, certain exchange rates based on the noon buying rate in New York City for ~~cable~~ cable transfers in Canadian dollars. Such rates are the number of U.S. dollars per one (1) Canadian dollar. The high and low exchange rates for each month during the ~~previous~~ 12year ~~months~~of 2015 were as follows:

	High	Low
			High ($)		Low ($)
December 2014	0.8839	0.8568
January				0.8527		0.7863
November 2014	0.8936	0.8732
February				0.8063		0.7915
October 2014	0.9017	0.8783
March				0.8039		0.7811
September 2014	0.9241	0.8913
April				0.8365		0.7929
August 2014	0.9251	0.9103
May				0.8368		0.8010
July 2014	0.9416	0.9149
June				0.8191		0.7968
June 2014	0.9393	0.9122
July				0.7958		0.7657
May 2014	0.9247	0.9085
August				0.7708		0.7517
April 2014	0.9210	0.9046
September				0.7606		0.7455
March 2014	0.9128	0.8866
October				0.7750		0.7552
February 2014	0.9141	0.8932
November				0.7637		0.7485
January 2014	0.9444	0.8909
December				0.7485		0.7148

5Page 1 of 68

The following table sets out the exchange rate information as of and for each of the years ended December 31, ~~2014~~2015 and ~~2013~~2014.

	Year Ended December 31
			2015 $		2014 $
	2014	2013
Rate at end of Period				0.7225		0.8620
Rate at end of Period	0.8620	0.9402
Average Rate during Period				0.7820		0.9054
Average Rate during Period	0.9054	0.9710
Low				0.7148		0.8568
Low	0.8568	0.9314
High				0.8527		0.9444
High	0.9444	0.9815

Item 1. BUSINESS

GENERAL

Viscount Systems, Inc. is a manufacturer of physical access control systems (“PACS” or “Freedom PACS”) and ~~telephone~~ telephone entry products, which protect buildings from unauthorized access. The business consists of ~~four~~three segments.

The newest and fastest growing segment, started in 2011, is our Freedom ~~Access~~PACS ~~Control software~~ solution (“Freedom”). This enterprise-wide access control system secures and controls ~~entry~~ingress ~~doors~~and ~~throughout~~egress apoints ~~business~~including doors, ~~hospital~~elevators, turnstiles, mantraps, vehicle ~~school~~barriers, orgates ~~other~~and ~~buildings~~garage doors throughout an end user’s building, facility or campus and prevents the entry byof persons unknown or staff attempting to ~~enter~~gain access to ingress/egress points at the wrong time or day. This product segment ~~had~~has ~~significant~~experienced significant growth since inception with the highest gross ~~margins~~margin of all of the Company’s segments. It is the focus of the largest percentage of the Company’s spending and efforts.

The legacy business, existing since 1969, ~~consists of two segments,~~ focusing on products and services for high rise residential and office buildings, generally described as telephone ~~access~~entry, such as Enterphone. Enterphone is used to provide intercom and access control functions in buildings. These products allow visitors to contact tenants or offices via a lobby telephone entry device to ~~gain~~request and be granted entry. ~~The~~ The Company has various premier brands in this marketplace, ~~with~~the high end ~~products~~ product is called MESH, and enables a touchscreen user interface experience as well as lower cost products ~~called~~that ~~Enterphone,~~are ~~selling~~sold through dealers ~~for~~ and distributors throughout Canada and the United States. ~~This~~The ~~business~~telephone ~~has~~entry ~~also~~business ~~had~~received some reinvestment in ~~2014~~ ~~with~~2015 to develop new products helping to regain market share. The most recent addition to the family of telephone entry products was “Enterphone iQ” launched in mid-year 2015.

The third ~~last~~ segment of the Viscount business is a service division that ~~covers~~provides coverage to the Province of British Columbia (the “Service Division”). The primary revenue source for the Service Division is derived from 1,~~186~~134 maintenance agreements on supporting Enterphone, EPX and other systems. ~~that~~These maintenance customers are billed on a monthly basis, as well as Time and Material (“T&M”) billings for additional services and installation projects.

BUSINESS OVERVIEW

The Company has been designing, manufacturing and servicing access control and security products, including ~~intercom~~telephone entry, intercom and ~~door~~physical access control systems and emergency communications systems, since 1969. With the release of MESH in 2003 and then the Freedom PACS in 2011 the Company has been migrating away from telecommunications-based systems to large enterprise IP based building access systems. Through this transition, the Company is ~~migrating~~transitioning from a hardware ~~based~~centric business model to software centric ~~based~~model. To this end, the Company is investing heavily in mobile ~~and~~, cloud and cyber secured software based applications for the Freedom platform and developing a ~~professional~~ ~~consulting~~go ~~sales~~to ~~force,~~market ~~focused~~strategy onto ~~creating~~further adevelop ~~commercial~~its share in U.S. federal government (“Federal”) market space and the commercial marketplace for the Freedom PACS. To support its investments, the Company has filed several patents since 2010, with a total of ~~three~~four patents granted and approximately 60 patent ~~claims~~applications ~~currently~~ pending.

~~Freedom~~Page is2 a new building security technology that does not include an embedded decision-making software platform. Traditional systems use controllers that have a capacity to control from 1 to 8 door access points per controller. Each controller has embedded software to create door open commands that are programmed through a PC system user software interface. Freedom represents a departure from traditional access control and security systems. Instead, with Freedom, building security decisions are done in the same PC software, thereby dramatically simplifying the architecture of ~~systems. The hardware piece of Freedom is the Freedom IP encryption bridge. Each bridge includes circuitry to trigger locks and monitor alarms and is connected to networks using switches.~~ 68

6Freedom is a new building security technology that does not include an embedded decision-making software and hardware platform. Traditional systems use distributed controllers that have a capacity to control from 1 to 32 door access points per controller. Each controller has embedded software to create door open commands and other access control decision which reside on the microchip inside the controller. This poses several problems. One is security risk due to physical access to the controller and its installation location throughout a facility that poses risk of compromising the information within the controller. These controllers are proprietary in design and do not have enterprise level security, meaning they cannot be directly protected by the same cyber security programs that an information technology team (“ITT”) department uses to secure and protect other conventional software based applications. The second drawback of traditional control panel based systems is the need to upgrade them as they age and technology advances. These control panels require firmware updates when there are changes made to the upstream software. Freedom represents a departure from traditional physical access control systems. Instead, with Freedom, security decisions are performed in the software which is located on the customer’s dedicated or virtualized servers or in their Internet cloud (the “cloud”), thereby dramatically simplifying the architecture of systems. The hardware piece of Freedom is the Freedom IP encryption bridge, which is considerably less expensive than traditional PACS hardware. Each bridge includes circuitry to control locks and monitor alarms and is connected to the network similarly to any other network device such as voice over IP phone (“VoIP”) system, printer or computer. Having access control software residing on the server allows ITT to manage door access as easily as they would manage a printer on the network or a VoIP phone. Risk of compromising the access codes is reduced dramatically by having access software behind server enterprise level firewall and protected by the end users cyber security best practices. Unlike conventional systems, there is no need to upgrade the hardware or attend to the facility in order to make changes. All changes and upgrades can be made in the Freedom software centrally located on the server and managed by ITT. This significantly reduces the lifetime ownership cost of the system, improves the cyber security position of the end user and better future proofs the investment.

The Company has recognized for several years that the sales of its traditional Enterphone/EPX products would continue to be stagnant or would fall. Enterphone is a building access control system that uses a building’s internal phone wiring, thereby avoiding use of telephone utility services. The reason for the diminished sales of the product mainly relates to new digital ~~telecommunications~~ telecommunications alternatives. The Enterphone technology requires access to a dedicated set of inside wires and is difficult to install and service with the existence of phone over cable or TV over phone systems. Therefore, the popularity of the technology has begun to wane.

COMPANY HISTORY

The Company’s current business is operated primarily through its wholly owned subsidiary Viscount Communication and Control Systems Inc. (“Viscount Communication”). The business of the Company’s subsidiary began operations in 1969 as a manufacturer of video switching equipment. In 1970, the business was acquired by B.C. Telecom Inc. (“BC Tel”), which was acquired by Telus Corporation in 1999. BC Tel was the telephone utility for British Columbia, Canada and was controlled by GTE Corporation (now Verizon Communications Inc.). Under BC Tel, the business operated as an electronics research laboratory and manufacturing facility. Among the products manufactured were central office telephone test equipment, telephone demarcation blocks, ~~and~~ and a satellite-based kiosk system used to provide information at airports and other public facilities.

The Company was incorporated on May 24, 2001 under the laws of the State of Nevada under the name OMW4 Corp. The Company’s subsidiary, ~~Viscount~~ Viscount Communication, was incorporated in 1997 under the laws of British Columbia, Canada, for the purposes of carrying on the present access control business. The Company acquired all of the issued and outstanding shares in the capital of Viscount Communication on July 27, 2001, in exchange for 10,000,000 shares of the Company’s common stock, thereby making it our wholly owned subsidiary. As a result of the acquisition, the former shareholders of Viscount Communication obtained a controlling interest in OMW4 Corp. In connection with the acquisition, the Company changed its name to Viscount Systems, Inc. effective August 27, 2001.

In 2003, the Company acquired certain inventory and 2,165 service agreements from Telus Corporation. The service agreements related to the maintenance of Enterphone installations throughout Western Canada. The inventory was comprised of various products and components for installation and repair of these Enterphone installations. ~~Enterphone is used to provide intercom and access control functions in buildings. It was originally developed by BC Tel in 1965.~~

Freedom was released in 2011 and represents the primary focus for the future, IP-based building security systems. Viscount has also expanded the capabilities of Freedom to focus on US Federal ~~Government~~ opportunities by making Freedom FIPS 201 compliant (as more fully described below) and is now upgrading Freedom further to expand into mobile applications and the cloud.

INDUSTRY OVERVIEW

The Company competes in the building intercom and access control systems industry. The intercom and access control industry is sometimes referred to as a segment of the low-voltage systems industry. The Company’s intercom and access control systems are designed to automate the control of access to buildings or other restricted access areas. Intercom systems and access control systems are complementary; however they can also be used independently depending on user requirements. For example, most modern ~~residential~~ residential apartment or condominium buildings have an intercom system for visitors wishing to communicate with residents. Residents, on the other hand, are issued access cards that can be used in conjunction with card readers installed beside gates, parking garages, doors or elevators in order to gain access.

~~Access~~Page ~~control~~3 systems provide two functions for a building. Building tenants use access cards and readers that control access through doors, gates or elevators, while visitors use telephone intercoms to be granted admission by a building occupant or manager. The systems also provide sophisticated alarm functions such as identifying doors left open or forced entry. The sophistication of ~~systems ranges from controlling a single door where records are kept manually to large enterprise systems covering hundreds of buildings from a dedicated security facility.~~ 68

7Access control systems provide two functions for a building. Building tenants use access cards and readers that control access through doors, gates or elevators, while visitors use telephone intercoms to be granted admission by a building occupant or manager. The systems also provide sophisticated alarm functions such as identifying doors left open or forced entry. The sophistication of systems ranges from controlling a single door where records are kept manually to large enterprise systems covering hundreds of buildings from a dedicated security facility.

Freedom and MESH mark a very different business model from the traditional approach. The building control and security industry has ~~traditionally~~ traditionally been highly segmented based on specific functions designed into proprietary electronic hardware. This has meant that makers of heating/ventilation and air-conditioning systems and security card access systems essentially manufacture input/output systems, while intercom makers manufacture voice systems, and security camera makers manufacture closed-circuit video systems. Stated otherwise, audio, video, environment and access control systems are traditionally all separate building control systems that are ~~independently~~ independently controlled, installed, and maintained. There has been strong convergence of technologies in the computer and telephone-related ~~industries~~ industries based on digital standards; however, the building control industry has not as yet undergone a similar convergence of technologies. Traditionally, where systems need to be compatible, the industry has relied on integration. Integration is the use of a host computer and custom software to tie separate and distinct systems, typically from different manufacturers, together on a common software platform. However, because Freedom and MESH are based on a single software platform and database architecture, different systems such as intercom and building security can be run as a single platform. Furthermore, with Viscount’s new Active Directory platform (as described below), logical and physical security can run as a unified platform that creates much more secure and flexible systems that comport with the integration model.

Along with certain other industry participants, the Company has turned to current high-technology solutions in order to reduce costs of of ownership of security systems while improving functionality. The Company has developed new system platforms that will permit convergence of the control of various building functions, such as access control, intercom, closed-circuit television, and heating/ventilation and air-conditioning. These systems can be operated on a single commercially available host server and can operate using ~~standard~~ standard communications techniques. As a result of using a single full-service system to replace the three or more separate dedicated systems, each requiring its own host server, the overall cost of ownership of a security and control system has been reduced.

Access Control Systems Technology

The enterprise access control industry has traditionally used a communication technology known as Wiegand. Most of the ~~worlds~~ world’s installed access systems are based on Wiegand technology. This also includes most smart card and biometric systems since these devices typically must be converted to some form of Wiegand to be processed on control panels. Today, these systems are commonly found in residential, commercial and industrial buildings in the form of access control cards and card readers. Wiegand was initially developed in 1970 by Sensor Engineering as an access card technology. The card technology used a special patented process whereby wires are imbedded in a plastic access card to encode its data. This data format became a standard for other readers including Radio Frequency Identification Devices (“RFID”). Most access control readers are connected to control panels. Each panel holds a card database and software that creates door unlock and alarm decisions. Panels are typically networked using RS 485, CANBUS or a similar technology. A host controller is programmed to receive information from the card reader in order to permit access to a building.

Each host controller can operate between 1 to 8 doors. Accordingly, a building with a large number of controlled access points could require a large number of host controllers, resulting in greater hardware costs. Host controllers can in turn be connected to a central server that monitors the host controllers and collects information on access point usage. The host server also holds the card holder database to store information and issue cards to users.

The underlying technology that operates these traditional access control systems is approximately 30 years old. The readers are considered “dumb” readers as they simply receive information from the access card and transmit it to a host controller. The host controller processes the information in order to determine whether to grant or deny access. If access is granted, the host controller then transmits a signal to activate a switch to open the access point where the reader is located. This is a simple input/output-type ~~relay~~ relay system which requires a separate host controller for approximately every eight access points.

~~There~~Page ~~are~~4 ~~numerous limitations with the older technology. Systems are proprietary and expensive. In many ways physical and logic access control are identical, but the existence~~ of ~~control hardware has precluded proper unification and convergence. New concerns about the vulnerabilities of control panels to cyber-attack are prompting some end users to look at alternatives.~~68

8There are numerous limitations with the older technology. Systems are proprietary and expensive. In many ways physical and logical access control are identical, but the existence of control hardware has precluded proper unification and convergence for the physical access control industry. New concerns about the vulnerabilities of control panels to cyber-attack are prompting some end users to look at alternatives.

Compliance driven change

The Company is participating in this advance in the access control industry with its proprietary MESH and Freedom intelligent access control and communication technology systems. Viscount believes the answer to the issues with the traditional access control model is the Freedom software application-based approach. After 9-September 11, 2001, the US Department of Homeland Security was created. An evaluation byunder the Federal Information Processing Standards (“FIPS”) concluded that control panels and cards ~~were~~ were not secure. With it came FIPS 201, an expansion of processes and regulations designed to update security. An expanded standard, “FIPS-201-2,” is now in active drafting by FIPS for future implementation. These regulations state that the vast majority of the existing access control infrastructure needs to be replaced or upgraded. This presents an enormous opportunity for new lower-cost and more conformant technologies such as Freedom.

PRODUCTS

The Company is a manufacturer, developer, reseller and service provider of intercom and access control systems. The Company’s intercom and access control systems are installed throughout North America for various applications including: condominium/apartment building access and intercom; residential intercom; gated home/community access and intercom; seniors/government housing access, tracking and intercom; elevator access and tracking; garage or perimeter gate control; and emergency communications.

Enterphone Access Control Products

Historically, the Company’s principal product was the Enterphone intercom and access control system. ~~The model of the current generation of~~ Enterphone is ~~EPX. Enterphone is~~ the Company’s patented building entry control system that uses a building’s internal phone wiring to allow access control for tenants and intercom and access control between visitors and tenants. The use of a building’s internal phone wiring by the Company’s Enterphone system provides an option to using telephone company wiring, thereby bypassing monthly telephone charges. It also does not require tenants to pay for an individual phone line to operate their intercom and door access system and is not affected by interruptions in telephone company service. This makes the Company’s Enterphone system distinct from other “dial-up” telephone entry systems that use telephone company lines.

The Enterphone EPX system is sold as a central control ~~panel~~unit which is installed in a building’s telephone control room. The ~~control panel connects~~EPX connects an intercom panel located at an entrance to the building with the telephone of building tenants. A visitor wishing to gain access to the building dials a one to four digit number at the entrance panel. The call is directed from the entrance panel, through the ~~common~~EPX ~~control~~system ~~equipment~~ and up to the tenant’s telephone. The tenant hears a unique ring and can unlock the entrance door by by pressing a number on the telephone’s numeric key-pad. ~~Each~~EPX ~~control panel~~ can process connections to as many as 840 suites.

The Company also manufactures electronic entry access panels that can operate using either the ~~Enterphone~~EPX system or dial-up telephone company lines. The Company’s panels are manufactured in various sizes and with various features in order to accommodate varying purposes and building types. For example, the Company manufactures panels that provide intercom and access control from one suite to upunlimited tonumber ~~1000~~of ~~suites~~suits; or panels that provide on-screen name search capabilities; or panels that are streamlined in shape or small in size. All panels that the Company manufactures incorporate the Enterphone technology; however, most panels can also be installed to use telephone company lines.

Enterphone panels can also be combined with other technologies such as access tracking and control, closed-circuit monitors, infrared and ~~radio~~ radio frequency remotes, and Wiegand cards and card readers. The Company purchases these technologies from other manufacturers and resells them under the Company’s brand names. Most of the products that the Company resells can be integrated into our Enterphone access control system.

WePage ~~have~~5 noof ~~material principal suppliers with regards to the Enterphone system.~~ 68

Enterphone iQ

In early ~~late 2014~~2015, Viscount completed a new product line, offering a mid-ranged solution based on our MESH technology. This LCD color video screen, housed in a smaller footprint at considerable cost savings, is intended to offer Viscount’s high-quality telephone entry system at a price comparable to our competitors’ black and white, LCD, two to four line display. ~~This~~ ~~product is complete and will be launched in early April 2015.~~ We expect ~~considerable~~ considerable sales growth with this product, capturing a price point for which Viscount had no offering previously. This introduction reflects a re-commitment to the telephone entry market that had previously been allowed to age in its technology.

9MESH and Freedom Access Control Systems

~~MESH and Freedom Access Control Systems~~Overview

~~Overview~~MESH is a software-based building management system designed to replace traditional systems that are more hardware intensive. The Company continues to develop technology that was initially conceptualized in 1998. MESH was commercially released in late 2003. MESH applications include touch-screen intercoms, building directories and physical card access and alarms. The first MESH product releases were touch-screen intercoms designed as an accessory for the Enterphone/EPX product line. Viscount subsequently enhanced MESH to include physical card access. For traditional markets such as high-rise condominiums, MESH intercom systems as well as access control systems have proven to be complementary. However, in 2012, Viscount split MESH into two components: the intercom component will continue to be branded as MESH and the access control component will be branded as Freedom. The purpose of this was to eliminate market confusion whereby end users looking for a highly secure physical access system were presented with MESH, which appeared to be primarily an intercom system.

MESH intercoms isuse a ~~software-based~~regular ~~building~~computer ~~management~~motherboard ~~system~~and ~~designed~~off-the-shelf ~~to replace~~computer ~~traditional~~accessories ~~systems~~such ~~that~~as ~~are~~touch ~~more~~screens ~~hardware~~to ~~intensive.~~create ~~The Company~~computerized ~~continues~~building tointercom ~~develop~~systems ~~technology~~and ~~that~~building ~~was initially conceptualized in 1998~~directories. MESH ~~was~~ ~~commercially~~touch ~~released~~panels inare ~~late~~intercom ~~2003.~~accessories ~~MESH~~for ~~applications~~the ~~include~~MESH ~~touch-screen intercoms,~~access ~~building~~control ~~directories~~ and facility ~~physical~~management ~~card~~system. ~~access~~MESH ~~and~~panels ~~alarms.~~can ~~The~~be ~~first MESH~~surface- ~~product~~or ~~releases~~flush- ~~were~~mounted. ~~touch-screen~~MESH ~~intercoms~~allows ~~designed~~building astenants anto ~~accessory~~communicate ~~for~~with visitors ~~the~~and ~~Enterphone/EPX~~grant ~~product~~or ~~line~~deny entry. ~~Viscount~~Units ~~subsequently~~can ~~enhanced~~display ~~MESH~~residential toor ~~include physical~~commercial ~~card~~building ~~access.~~directory ~~For~~listings ~~traditional~~with ~~markets~~a ~~such as high~~building-~~rise~~specific ~~condominiums,~~screen ~~MESH~~saver. ~~intercom~~Options ~~systems~~include asbuilt-in ~~well~~cameras, ascard access, ~~control~~and ~~systems~~elevator ~~have~~control, ~~proven~~and tointernal ~~be complementary.~~heater ~~However,~~for inextremely ~~2012,~~cold ~~Viscount~~climates. ~~split~~Multiple panels ~~MESH~~can ~~into~~be ~~two~~connected ~~components:~~on ~~the intercom~~a ~~component~~shared ~~will~~database ~~continue~~or to becentral ~~branded~~MESH asservers ~~MESH~~for ~~and~~complete ~~the~~card access ~~control component~~and ~~will~~facility ~~be branded as Freedom~~management. ~~The~~MESH comes ~~purpose~~in of15, ~~this~~19 ~~was~~or to32 ~~eliminate market~~inch ~~confusion~~screen ~~whereby~~sizes ~~end~~with ~~users~~or ~~looking~~without ~~for~~touch ascreens, ~~highly~~black ~~secure~~powder ~~physical~~coated ~~access system~~or ~~were~~stainless ~~presented with MESH~~steel, ~~which~~available ~~appeared~~as towall mounted bepanels ~~primarily~~or anfloor ~~intercom system~~mounted kiosks.

MESH ~~intercoms use a regular computer motherboard and~~ ~~off-the-shelf~~panels, ~~computer~~located ~~accessories~~at ~~such~~entrance asdoors ~~touch~~for ~~screens~~visitor toaccess, ~~create~~can ~~computerized building~~operate ~~intercom~~independently ~~systems~~or ~~and~~as ~~building~~a ~~directories.~~client ~~MESH~~of ~~touch panels are intercom accessories for~~ the MESH ~~access control and facility management system~~server. ~~MESH~~ ~~panels~~The ~~can~~basic ~~be surface- or flush- mounted.~~ MESH ~~allows building tenants to~~ ~~communicate~~panel ~~with~~that ~~visitors~~the ~~and~~Company ~~grant~~has orcommercially ~~deny~~released ~~entry.~~is ~~Units~~a ~~can~~full ~~display~~color ~~residential or~~screen ~~commercial~~industrial ~~building~~computer. ~~directory~~The ~~listings~~MESH ~~with~~panels amay ~~building-specific~~be ~~screen~~located ~~saver.~~at ~~Options~~entrance ~~include~~doors ~~built-in~~for ~~cameras,~~visitor ~~card~~ access, ~~and~~or ~~elevator control. Multiple panels~~ can be ~~connected~~ on-site amanaged ~~shared~~by ~~database~~security orguards toas ~~central~~they ~~MESH~~manage ~~servers~~the ~~for complete~~MESH ~~card~~network. ~~access~~The ~~and~~host/client architecture ~~facility~~of ~~management.~~ MESH panels ~~come~~reduces ~~with 15~~cost, 19simplifies ~~or 32”~~programming, ~~touch screens~~ and ~~can~~improves ~~come~~data ~~for~~base ~~wall mounting or as floor-mounted kiosks~~management.

~~MESH~~In designing ~~panels~~MESH, ~~located~~much atconsideration ~~entrance~~has ~~doors~~been ~~for~~made ~~visitor~~of ~~access,~~the ~~can operate~~many ~~independently~~dissimilar orapplications asrequiring a ~~slave of the~~ MESH ~~server~~network. ~~The~~In ~~basic~~cases ~~MESH panel~~where ~~that~~building ~~the~~control ~~Company~~is ~~has~~accomplished ~~commercially~~with ~~released~~on-site issecurity aand ~~full~~concierge ~~color~~staff, ~~screen~~limited ~~industrial computer. The~~ MESH ~~panels~~hardware ~~may~~or bepossibly ~~located~~only atsoftware ~~entrance doors for visitor access or~~may ~~can~~ be ~~on-site~~needed ~~managed~~to byperform ~~security~~the ~~guards~~required asfunctions. ~~they~~For ~~manage~~example, ~~the~~ MESH ~~network.~~software ~~The master/slave~~may ~~architecture~~be ofsold ~~MESH~~as ~~panels~~a ~~reduces~~simple ~~cost,~~visitor ~~simplifies~~tracking ~~programming, and~~system ~~improves~~for ~~data~~commercial or ~~base~~gated ~~management.~~residential sites.

In general, ~~designing~~ MESH, ~~much consideration~~ has been ~~made~~designed ofto ~~the~~allow ~~many dissimilar~~simple ~~applications~~installations ~~requiring~~to abe ~~MESH~~performed ~~network.~~by Insmall ~~cases~~independent ~~where~~alarm ~~building control~~contractors. ~~is accomplished with on-site security and concierge staff~~However, ~~limited MESH~~ ~~hardware~~provision orhas ~~possibly~~also ~~only~~been ~~software~~made ~~may~~for bedirect ~~needed~~involvement toby ~~perform~~ the ~~required functions.~~Company’s ~~For~~staff ~~example,~~in ~~MESH~~large ~~software~~campus- ~~may~~wide beand ~~sold~~enterprise-wide ~~as a simple visitor tracking system for commercial or gated residential sites~~installations.

~~In general,~~ MESH has ~~been~~many ~~designed~~additional tobenefits, ~~allow~~both ~~simple installations~~in toterms beof ~~performed~~building bysecurity ~~small~~and ~~independent~~particularly ~~alarm~~relative ~~contractors.~~to ~~However, provision has also been made for direct involvement by~~ the ~~Company’s~~legacy ~~staff~~Wiegand ~~in large campus- wide and enterprise-wide installations~~technology.

MESH is ~~has~~a ~~many~~modular ~~additional benefits~~product, ~~both~~meaning inthat ~~terms~~the ofsoftware ~~building~~can accommodate add-on features or upgraded features. The Company has developed ~~security~~various ~~and~~modules ~~particularly~~for ~~relative~~its MESH technology and intends to ~~the~~develop ~~legacy~~further ~~Wiegand~~modules ~~protocol~~which will be released in a series of phases. Some of these product enhancement modules are described below:

~~MESH~~● isThe aMESH ~~modular~~server ~~product,~~provides ~~meaning~~new ~~that~~opportunities ~~the~~to ~~software~~host ~~can accommodate~~video ~~add-~~on ~~features~~the orunified ~~upgraded~~platform ~~features~~with voice and data. ● The ~~Company~~nature ~~has~~of ~~developed various~~the ~~modules~~MESH ~~for~~server ~~our~~makes MESH ~~technology~~telephony ~~and~~products ~~intends~~inherently toInternet-enabled. ~~develop~~Future ~~further~~MESH ~~modules~~ appliances may include the MESH television line, which ~~will~~allows beresidents ~~released~~to inview avisitors ~~series~~at ofthe ~~phases~~door. ~~Some~~MESH ofpanels ~~these~~may ~~product~~be ~~enhancement modules~~able ~~are~~to ~~described~~connect ~~below:~~to web-enabled set-top boxes being promoted as part of the web TV market.

•Page ~~The~~6 ~~MESH~~of ~~server provides new opportunities to host video on the unified platform with voice and data. This product enhancement would represent an entirely new concept in the security industry.~~68

10● The distributed intelligence of MESH makes the product suited to the growing emergency call/nurse call industry. ● MESH networks are built on a proprietary architecture platform which is functional to integrate with any existing automation network.

• The nature of the MESH server makes MESH telephony products inherently Internet-enabled. Future MESH appliances may include the MESH television line, which allows residents to view visitors at the door. MESH panels may be able to connect to web-enabled set-top boxes being promoted as part of the web TV market. MESH may be able to connect to videoconferencing telephones that would compete in the large offshore video intercom business, but at a fraction of the cost by saving on conduit and cable. • The distributed intelligence of MESH makes the product suited to the growing emergency call/nurse call industry. • MESH networks are built on a proprietary architecture platform which is functional to integrate with any existing automation network.Freedom

Freedom is the new internet technology (“IT”) platform developed and released by the Company during the last quarter of 2010. This IT platform can turn any card reader into an internet protocol (“IP”) device by connecting the Freedom IP device with built-in input/output to a Power-Over-Ethernet (“POE”) switch and then every card usage is processed on a redundant MESH server either in a customer’s building or any remote site. Freedom is designed as a highly secure, scalable software solution to ensure that stringent access control is maintained in homeland security applications. The ability to unify physical/logical operations, leverage existing IT infrastructure and ensure high levels of compliance with government regulations enables Freedom to provide significant benefit to integration partners and end customers.

The software component of Freedom is the ~~new~~web ~~internet~~browser ~~technology~~security ~~(“IT”)~~operating platform ~~developed~~. ~~and~~Unlike ~~released~~control bypanels, the ~~Company~~user ~~during~~database and the door ~~last~~control ~~quarter~~software ofis ~~2010.~~written ~~This~~in IT ~~platform~~ ~~can~~language ~~turn~~located ~~any~~on ~~card~~a ~~reader into an internet protocol~~ server(~~“IP”~~s), ~~device~~thereby ~~by connecting~~future-proofing ~~the~~systems ~~Freedom~~from IPthe ~~device~~traditional ~~with~~issue of ~~built-in~~proprietary ~~input/output~~hardware toversion ~~a Power-Over-Ethernet~~obsolescence ~~(“POE”) switch~~ and ~~then~~improving ~~every~~scalability ~~card~~by ~~usage~~eliminating isthe ~~processed~~need onfor ~~a redundant~~additional ~~MESH~~hardware ~~server~~every ~~either in~~ time a ~~customer’s~~reader ~~building~~is oradded ~~any~~to ~~remote~~the ~~site~~system.

~~The~~Viscount has ~~software~~upgraded ~~component~~Freedom ofto ~~Freedom~~include isunified ~~the~~physical/logical ~~web~~access ~~browser~~control ~~security~~using Microsoft Active Directory, both public and private ~~operating~~cloud-hosted ~~platform.~~solutions ~~Unlike~~as ~~control~~well ~~panels~~as mobile solutions. In 2014, ~~the~~Freedom ~~user~~was ~~database~~strengthened and ~~the~~hardened, ~~door~~including receiving a prestigious ~~control~~certification ~~software~~called isFICAM ~~written~~1302 infrom ITthe ~~language~~US ~~located~~Federal onGovernment. aThe ~~server(s)~~Freedom solution is so unique compared to competitors, ~~thereby~~FICAM ~~future-proofing~~1302 ~~systems~~(versus ~~from~~the existing 1301 category) was created just to display the ~~traditional~~unique ~~issue~~offering offrom ~~proprietary~~Viscount. ~~hardware~~Our solution eliminates ~~version~~significant ~~obsolescence~~cost ~~and~~from ~~improving~~existing ~~scalability~~solutions, bywhile ~~eliminating~~still offering the ~~need~~highest ~~for additional~~security ~~hardware~~available. ~~every~~In ~~time~~2015, aViscount ~~reader~~expects isFICAM 1302 ~~added~~certification to ~~the~~drive ~~system.~~penetration into other Federal agencies that was previously blocked until certification.

~~Viscount has upgraded~~ Freedom ~~to include unified~~ ~~physical/logical~~Access ~~access~~Control ~~control~~has ~~using~~been ~~Microsoft~~selected ~~Active Directory, both public and private cloud-hosted solutions~~ as ~~well~~the asBest ~~mobile~~Integrated ~~solutions.~~System Infor ~~2014,~~HSPD-12/FIPS-201 ~~Freedom was~~in ~~strengthened and hardened, including receiving a prestigious certification called FICAM 1302 from~~ the ~~US Federal~~ Government. ~~The~~Security ~~Freedom~~News ~~solution is so unique compared to competitors, FICAM 1302~~ (~~versus the existing 1301 category~~“GSN”) ~~was created just to display the unique offering from Viscount. Our solution eliminates significant cost from existing solutions, while still offering the highest security available. In~~ 2015, ~~Viscount~~Homeland ~~expects~~Security ~~FICAM 1302 certification to drive penetration into other Federal agencies that was previously blocked until certification~~Awards.

~~Liberty~~The GSN Homeland Security Awards honor distinguished vendors of IT and physical security products and solutions, and recognizes federal, state, county and municipal government and law enforcement agencies that implement unique solutions to help mitigate security threats. Now in its seventh year, the awards program highlights innovative technologies, solutions and programs throughout the homeland security market.

~~Liberty~~The win ismarks aViscount’s ~~derivation~~second ofconsecutive ~~Freedom,~~Homeland ~~using~~Security ~~the~~Award ~~same~~recognition ~~software~~from ~~and hardware, but downsized for~~ the ~~smaller market~~publication, ~~and~~having ~~sold~~received ~~exclusively through~~honors ~~security~~for ~~distribution~~Best ~~channels.~~Platform ~~The~~for ~~functionality~~Physical/Logical isAccess ~~limited~~in to2014. ~~the~~Viscount’s ~~1-12~~Freedom ~~door market, where 80% of~~ access control ~~systems~~solution ~~are~~was ~~sold.~~selected Byas ~~utilizing~~an ~~the exact~~award ~~same~~winner ~~database~~based ~~and~~on ~~software,~~its ~~with~~IT-centric ~~features removed~~architecture, ~~Viscount~~which ~~was~~is ~~able~~designed to ~~easily enter~~integrate ~~the~~physical ~~market~~and ~~without~~logical ~~significant~~access ~~additional~~control ~~support~~functions ~~costs~~in ~~and the ability to~~government ~~upgrade~~installations. ~~and~~Freedom ~~freshen~~is ~~both~~currently ~~Freedom~~being ~~and~~leveraged ~~Liberty~~in ~~with~~a ~~one~~wide ~~set~~variety of ~~software~~government ~~code. Liberty~~applications, ~~was~~including ~~launched~~multiple inUnited ~~the~~States Citizenship ~~fourth~~and ~~quarter~~Immigration ofService ~~2013~~locations.

~~OTHER SERVICES~~ Liberty

InLiberty was ~~addition~~a toderivation ~~sales~~ of the ~~Enterphone,~~Freedom ~~MESH,~~PACS ~~Freedom~~initially intended to address the smaller sized system access control market, and was to be sold exclusively through security distribution channels. Liberty, was initially launched in the ~~Company~~fourth ~~also~~quarter ~~services~~of ~~approximately~~2013 ~~1,344~~but ~~existing~~has since ~~Enterphone~~been discontinued as the resources required to effectively support the product through distribution was deemed no longer ~~installations~~financially ~~within~~and ~~Western~~operationally ~~Canada~~feasible by senior leadership.

~~PRODUCTION~~ OTHER SERVICES

~~Viscount has facilities for circuit board manufacture and~~In ~~mechanical~~addition ~~assembly. The Company uses a range of processes~~ to ~~produce~~sales ~~its products. The Company maintains full facilities to assemble through-hole circuit boards and limited facilities for assembling surface-mount circuits. The Company has a policy~~ of ~~supporting old products as long as parts are available for servicing and replacement. We have designed EPX to be backwards compatible with~~ the ~~2000~~Enterphone, ~~series~~MESH, ~~to improve the longevity~~ and ~~serviceability of both products.~~ Freedom, ~~MESH~~the ~~and~~Company ~~EPX~~also ~~are~~services ~~manufactured~~approximately ~~using~~1,134 ~~surface-mount~~existing ~~technology~~Enterphone ~~so are~~installations ~~outsourced~~within ~~with~~Western ~~final assembly and software installed at Viscount~~Canada. ~~This includes all Freedom IP encryption bridges.~~

11Page 7 of 68

~~Our principal suppliers of card readers are HID Global Corporation and Veridt.~~ PRODUCTION

~~The~~Viscount has ~~MESH~~facilities ~~and~~for ~~Freedom~~circuit ~~software~~board ~~platforms~~manufacture ~~are~~and ~~loaded~~mechanical ~~on standard industrial computer chassis~~assembly. The Company isuses ~~not~~a ~~developing~~range ~~hardware~~of ~~internally for~~processes ~~MESH~~to orproduce ~~Freedom~~its ~~since~~products. The ~~the~~Company ~~required~~maintains ~~hardware~~full ~~controllers~~facilities ~~are~~to ~~commercially available~~assemble atthrough-hole ~~quality~~circuit boards and ~~price~~limited ~~levels~~facilities ~~that~~for ~~make~~assembling ~~internal development~~surface-mount ~~uneconomical~~circuits. InThe ~~addition,~~Company byhas ~~using~~a ~~COTS~~policy ~~components,~~of ~~the~~supporting ~~Company~~old ~~improves~~products ~~time to~~as ~~market,~~long ~~eliminates~~as ~~hardware~~parts ~~debugging~~are available for servicing and ~~increases~~replacement. ~~the~~We have ~~Company’s~~designed ~~ability~~EPX to be ~~technologically~~backwards ~~flexible~~compatible inwith the ~~future.~~Viscount ~~The~~Legacy ~~Company~~products isto ~~primarily~~improve ~~executing final~~the ~~mechanical~~longevity ~~assembly~~and serviceability of both ~~the~~products. Freedom, MESH and EPX are manufactured using surface-mount technology so are outsourced with final assembly and software installed at Viscount. This includes all Freedom ~~systems~~IP encryption bridges.

~~RESEARCH~~Our principal ~~AND~~suppliers ~~DEVELOPMENT~~of card readers are HID Global Corporation and Veridt, Inc.

~~Research~~The MESH and ~~development~~Freedom ~~continues~~software toplatforms beare ~~focused~~loaded on ~~enhancing the~~standard ~~Freedom/MESH~~industrial ~~product~~computer ~~line~~chassis. AThe ~~number~~Company ofis ~~these~~not ~~enhancements~~developing ~~were identified in~~hardware ~~the~~internally “for MESH ~~and~~or Freedom ~~Access~~since ~~Control~~the ~~Systems”,~~required ~~“Freedom”~~hardware ~~and~~controllers ~~“Other~~are ~~Services” section~~commercially ofavailable ~~this~~at ~~document.~~quality ~~Specific~~and ~~custom~~price ~~Freedom/MESH~~levels that ~~applications~~makes ~~are~~internal ~~being considered,~~development ~~evaluated~~uneconomical. ~~and~~In ~~implemented.~~addition, Anby ~~example~~using ofcommercially ~~this~~available ~~process~~off ~~would~~the beshelf (“COTS”) ~~active~~components, ~~directory~~the ~~integration.~~Company ~~Expenditures~~improves intime ~~connection~~to ~~with~~market, ~~research~~eliminates hardware debugging and ~~development~~ ~~for~~increases the ~~years~~Company’s ~~ended~~ability ~~December~~to ~~31,~~be technologically ~~2014~~flexible ~~and~~in ~~2013~~the ~~were~~future. ~~$703,288~~The ~~and $425,016,~~Company ~~netting~~is ~~off~~primarily aexecuting ~~one-time~~final ~~$146,502~~mechanical ~~government~~assembly ~~grant~~of ~~resulting~~the inMESH ~~$278,514 in~~and ~~each~~Freedom ~~such year, respectively~~systems.

~~MARKET~~ RESEARCH AND ~~MARKETING~~DEVELOPMENT

Research and development continues to be focused on enhancing the Freedom/MESH product line. A number of these enhancements were identified in the “MESH and Freedom Access Control Systems”, “Freedom” and “Other Services” section of this document. Specific custom Freedom/MESH applications are being considered, evaluated and implemented. An example of this process is the Freedom active directory (“AD”) integration which enables the Freedom PACS to use an end users AD environment for authenticating a system user logon to Freedom. Freedom can also utilize an end user AD environment for automated physical access control door assignments by referencing specific information assigned to an identity or person in the AD environment which is then correlated by Freedom to make access control door privilege assignments. The ~~Market~~end result is that an end user no longer has to double enter data in to Freedom and is also insured that Freedom is making access control decisions based upon the most current existence of a person in AD. Expenditures in connection with research and development for the years ended December 31, 2015 and 2014 were $885,592 and $703,288 respectively. The research and development (“R&D”) expenditures are eligible for partial Canada Revenue Agency SR&ED tax incentive treatment.

~~MESH~~MARKET AND ~~Market:~~MARKETING

The ~~Company’s traditional market for the Enterphone product was~~ apartment and condominium buildings. While the market for telephone entry-type systems amounts to approximately US$100 million based on internal market research conducted by the Company, in the past 10 years there has been a strong trend towards increased building security resulting in much more sophisticated integrated installations. For example, in 1990, a typical condominium building would be equipped with an intercom to admit visitors. Today, a typical new building installation includes telephone entry, card access, closed-circuit cameras, individual burglar alarms and panic stations. This puts pressure on manufacturers to provide a comprehensive package and represents an opportunity for significant revenue growth per system. MESH is the Company’s first in-house product that addresses these multiple requirements. The modular nature of MESH also provides the Company with an excellent opportunity to design additional products on the MESH platform to provide enhanced options for a comprehensive building security package.Market

~~In addition to apartment entrances,~~ MESH ~~is also designed to~~ provide access control for the rapidly growing gated community market. Monitor-style directory panels are also used in thousands of commercial high-rises. The MESH panel provides features previously unavailable for this market, such as touch screens, multiple language options and color video displays. The overall effect of these system advances has enhanced the Company’s core business, while allowing the Company to find applications where the new features expand the traditional market for such systems. Market:

The Company’s istraditional ~~targeting~~market ~~upgrades~~for ~~and~~the ~~retrofits~~Enterphone toproduct ~~existing apartments~~was apartment and ~~various~~condominium ~~government~~buildings. ~~agencies~~While ~~that~~the ~~use~~market ~~traditional~~for telephone ~~wire~~ ~~intercom~~entry-type ~~access~~systems ~~control~~amounts ~~systems.~~to ~~New~~approximately ~~construction~~US$100 ~~projects~~million ~~are~~based ~~also~~on ~~part~~internal ofmarket research conducted by the Company, in the ~~MESH~~past ~~installation~~10 ~~market.~~years ~~The~~there ~~low~~has ~~hardware~~been ~~costs~~a ~~and~~strong trend towards increased ~~functionality~~building ofsecurity resulting in much more sophisticated integrated ~~the~~installations. ~~MESH~~For ~~system~~example, ~~continue~~in to1990, a typical condominium building would be ~~marketed~~equipped with an intercom to admit visitors. Today, a typical new building ~~management~~installation ~~companies~~includes telephone entry, ~~along~~card access, closed-circuit cameras, individual burglar alarms and ~~with~~panic ~~its~~stations. ~~turnkey~~This ~~installation~~puts aspressure on manufacturers to provide a ~~replacement~~comprehensive package and represents an opportunity for significant revenue growth per system. MESH is the Company’s first in-house product that addresses these multiple requirements. The modular nature of MESH also provides the Company with an excellent opportunity to ~~existing~~design ~~access~~additional ~~control~~products on the MESH platform ~~systems~~to provide enhanced options for ~~most~~a ~~modern~~comprehensive ~~buildings~~building security package.

~~Freedom~~In addition to apartment entrances, MESH is also designed to provide access control for the rapidly growing gated community market:. Monitor-style directory panels are also used in thousands of commercial high-rises. The MESH panel provides features previously unavailable for this market, such as touch screens, multiple language options and color video displays. The overall effect of these system advances has enhanced the Company’s core business, while allowing the Company to find applications where the new features expand the traditional market for such systems.

~~Freedom~~The Company ~~moves~~is ~~Viscount~~targeting ~~into~~upgrades anand ~~entirely~~retrofits ~~new~~to ~~market,~~existing ~~door security~~apartments ~~for~~and ~~enterprise~~various ~~clients.~~government ~~This~~agencies ~~market~~that ~~has~~use ~~been~~traditional ~~estimated at $1.2 billion~~telephone ~~for~~wire intercom access control ~~manufacturers~~systems. ~~(and~~New ~~approximately~~construction ~~$5-10~~projects ~~billion~~are ~~for~~also ~~end~~part ~~users) according~~of to the ~~Freeman~~MESH ~~Report,~~installation ~~and includes a range of technologies for securing facilities, including both RFID and biometrics~~market. The ~~access~~low ~~control~~hardware ~~market~~costs ~~can~~and ~~generally~~increased befunctionality ~~described~~of as the ~~market~~MESH ~~for~~system ~~any~~continue ~~equipment used~~ to ~~control~~ ~~passage~~be ~~through~~marketed ato ~~door,~~building ~~gate,~~management ~~parking garage~~companies, oralong ~~other~~with ~~portal. A portion~~its ofturnkey ~~this~~installation ~~market~~as is comprised of mechanical and electronic door locks that typically control access through single doors. Many of the single door systems have been engineered for low security levels for customers who do not desire a ~~full~~ ~~access~~replacement ~~control~~to ~~host.~~existing ~~The~~ access control ~~market that the Company competes in involves computerized access control~~ systems ~~that~~for ~~typically~~most ~~control~~modern ~~access through multiple access points~~buildings.

12Page 8 of 68

~~The physical access control industry was once highly~~Freedom fragmented, but through a process of consolidation, has come to be generally dominated by a number of multi-nationals, listed below. Physical access control typically involves two groups – the electronic reader suppliers (RFID readers, biometrics) and the control suppliers. The control suppliers are typically the top of the food chain and resell electronic reader devices as part of the control platform. This is the core segment in which Viscount competes. The electronic reader part of this industry grew out of old-fashioned door locks. It is not surprising that at this level the most common companies are ASSA ABLOY and Stanley. ASSA ABLOY has been the most aggressive over the years and is now fairly dominant in the area of door control and “entrance systems.” Key acquisitions included HID Global Corporation (in 2000), which is a leading provider of access control cards and electronic readers. ASSA ABLOY has made over 20 acquisitions in the space and has almost 40,000 employees worldwide. market:

~~Access~~Freedom moves ~~control~~Viscount ~~doors~~into ~~require~~an ~~software~~entirely ~~and~~new ~~hardware~~market toof ~~operate~~door security for enterprise clients. This market has been estimated at $1.2 billion ~~There~~for ~~are~~access ~~specialized~~control ~~companies~~manufacturers in(and ~~this~~approximately ~~segment,~~$5-10 ~~but~~billion ~~most~~for ~~are~~end ~~now~~users) ~~part~~according ~~of massive~~to ~~conglomerates~~the ~~that~~Freeman ~~provide~~Report, and includes a ~~broad~~ range of ~~related~~technologies ~~industrial~~for ~~products~~securing facilities, including both RFID and biometrics. The access control market can generally be ~~Major~~described ~~players~~as ~~include~~the ~~Lenel,~~market ~~which~~for isany ~~part~~equipment ofused ~~United~~to ~~Technologies~~control ~~Corporation (NYSE:~~passage ~~UTX)~~through a door, ~~Software~~gate, ~~House~~parking garage, ~~which~~or other portal. A portion of this market is ~~part~~comprised of ~~Tyco~~mechanical ~~International~~and ~~(NYSE:~~electronic ~~TYC), Honeywell~~door ~~(NYSE:~~locks ~~HON),~~that ~~Schneider~~typically ~~Electric~~control ~~(SU:EN~~access ~~Paris),~~through ~~Johnson~~single ~~Controls~~doors. ~~(NYSE:~~Many of ~~JCI),~~the ~~Cisco~~single ~~(NASDAQ:~~door ~~CSCO),~~systems ~~Stanley~~have ~~Industrial~~been ~~and~~engineered ~~ASSA~~for ~~ABLOY~~low ~~(ASSA-B~~security levels for customers who do not desire a full access control host.~~ST).~~ The access control market that the Company competes in involves computerized access control systems that typically control access through multiple access points.

~~Not~~The physical ~~only~~access ~~does~~control aindustry ~~Freedom-type~~was ~~unified~~once ~~system~~highly ~~represent~~fragmented, abut ~~viable adjacent~~through ~~market~~a ~~opportunity~~process ~~that~~of isconsolidation, ~~large~~has ~~enough~~come to be generally dominated by a number of ~~interest~~multi-nationals, itlisted ~~may~~below. ~~in fact~~Physical ~~become~~access ~~critical~~control ~~that~~typically ~~these~~involves ~~companies~~two ~~move~~groups in– the ~~direction~~electronic reader ofsuppliers ~~Freedom~~(RFID readers, biometrics) and the control panel suppliers. The control panel suppliers are typically the top ~~logic~~of isthe ~~simple:~~food ifchain ~~Freedom~~and ~~can~~resell ~~apply~~electronic ~~logical~~reader ~~security~~devices ~~rules~~as topart ~~physical~~of ~~access,~~the control panel platform. This is the core segment in which itViscount ~~can~~competes. ~~also~~The ~~apply~~electronic ~~physical~~reader ~~security~~part ~~rules~~of tothis ~~logical~~industry ~~access~~grew out of old-fashioned door locks. AsThe ~~unified~~most common companies ~~platforms~~are ~~become~~ASSA ABLOY Group (“ASSA ABLOY”) and Stanley Industrial. ASSA ABLOY has been the ~~trend,~~most ~~any~~aggressive ofover the ~~large~~years and ~~identity~~is ~~management~~now ~~companies~~fairly ~~will~~dominant in the area of door control and “entrance systems.” Key acquisitions by ASSA ABLOY included beHID atGlobal Corporation (in 2000), which is a ~~severe~~leading ~~disadvantage~~provider ifof ~~they~~access ~~don’t~~control ~~enter~~cards and electronic readers. ASSA ABLOY has made over 20 acquisitions in the ~~market~~space and has almost 40,000 employees worldwide.

~~The~~Access control ~~most~~doors ~~clearly~~require ~~focused~~software ~~player~~and sohardware ~~far~~to inoperate. ~~combining~~There ~~logical~~are ~~and physical~~specialized ~~access~~companies isin ~~Microsoft~~this segment, ~~which~~but ismost are now inpart of massive conglomerates that provide a ~~position~~broad torange ~~combine~~of ~~the~~related ~~most popular~~industrial ~~enterprise~~products. ~~user-management~~Major ~~tool,~~players ~~Active~~include ~~Directory~~Lenel, ~~with~~which ~~the~~is ~~cloud~~part ~~(referred~~of toUnited asTechnologies ~~“Azure”~~Corporation by(NYSE: ~~Microsoft~~UTX), toSoftware ~~provide~~House, awhich ~~solution~~is ~~for~~part ~~both~~of ~~logical~~Tyco ~~and~~International (NYSE: TYC), Honeywell (NYSE: ~~physical~~HON), ~~access~~Schneider ~~control~~Electric ~~with~~(SU:EN ~~one~~Paris), ~~infrastructure~~Johnson ~~using~~Controls ~~Freedom.~~(NYSE: JCI), Cisco (NASDAQ: CSCO), Stanley Industrial and ASSA ABLOY.

~~Liberty~~Not only ~~Market~~does a Freedom like unified system represent a viable adjacent market opportunity that is large enough to be of interest, it may in fact become critical that these companies move in the direction of Freedom. The logic is simple: if Freedom can apply logical security rules to physical access, it can also apply physical security rules to logical access. As unified platforms become the trend, any of the large identity management companies will be at a severe disadvantage if they don’t enter the market to address the physical and door control side of security.

~~Liberty is sold through security distributors such as ADI~~INTRUSION ~~Global~~DETECTION ~~Corporation~~SYSTEM (a division of Honeywell) and Tri-Ed North America (now part of Anixter International Inc.). Starting in fourth quarter of 2013, Viscount established long-term contractual relationships with both of these large, first-tier security distributors. Many of their major stocking hubs hold Viscount inventory. INTEGRATION

~~Distribution~~The most ~~Plan~~clearly focused player so far in combining logical and physical access is Microsoft, which is now in a position to combine the most popular enterprise user-management tool, Active Directory, with the cloud (referred to as “Azure” by Microsoft) to provide a solution for both logical and physical access control with one infrastructure using Freedom.

~~The~~Viscount is ~~Company~~actively ~~currently~~pursuing ~~has~~solutions ~~approximately~~to ~~450~~integrate ~~dealers~~with ~~for~~intrusion ~~its existing~~detection ~~products~~systems ~~throughout~~such ~~North~~as ~~America~~DMP and 70DSC. ~~certified~~The ~~integrators~~goal ~~for~~is ~~its~~to design a unified Freedom ~~product~~interface ~~line~~that provides authentication, administration, configuration and monitoring functionalities that satisfy both access control and intrusion detection industries. The ~~Company’s~~ability ~~distribution~~to ~~network~~activate isand ~~not~~monitor ~~static,~~external alarms systems and ~~the~~to share Freedom ~~Company~~administrative isroles ~~constantly~~and ~~seeking~~policies ~~additional~~with ~~sales~~IDS ~~channels~~systems are the major themes of this endeavor.

AsOngoing research ~~previously~~and ~~noted,~~development ~~MESH~~effort ~~can~~has ~~serve~~been ~~several~~invested ~~different~~in ~~markets, and~~Enterprise Video System integration. Due to the ~~type~~diversity of ~~dealer~~Video ~~serving~~Systems in ~~each~~the ~~may~~market, ~~vary.~~Viscount ~~Simple~~is ~~installations~~closely ~~may~~working ~~be performed~~with byindustry ~~small~~experts ~~independent~~to ~~dealers,~~build ~~but~~a asplatform ~~the~~that ~~overall~~can ~~scope~~integrate ofwith ~~the~~most ~~project~~IP based DVR ~~increases,~~systems ~~the~~in ~~technical~~a ~~ability~~unified fashion. The goal is to be able to use any DVR systems of the ~~dealer~~customers’ ~~becomes~~choosing ~~increasingly~~without ~~important.~~investing heavily in proprietary software interface. At the ~~extreme~~same time, ~~employees~~Viscount ~~may~~is bedeveloping ~~directly~~and ~~involved~~improving ~~with~~its’ ~~the~~web ~~customer~~based inmonitoring ~~designing,~~system ~~installing~~that ~~and~~combines ~~servicing~~Access ~~the~~Control, ~~product.~~Video Inand ~~other~~of ~~cases,~~course ~~personnel~~intrusion ~~may be~~detection ~~involved~~into onone aintegrated ~~co-op~~application. ~~basis~~Viscount ~~with~~carefully follows ~~large~~industry ~~national~~design ~~security,~~guidelines ~~building~~in ~~automation and~~order ~~heating/ventilation~~to ~~and~~optimize ~~air-conditioning~~user ~~contractors~~experience.

~~With~~Page ~~the~~9 ~~addition~~ of our Liberty product line, new security distributors were added who sell the Liberty line in the open security market or to smaller dealers on a non-exclusive basis. These new distribution deals, along with the existing dealer base, gave the Company immediate access to the largest networks of dealers in the US, Canada and Mexico. 68

13CYBER SECURITY

~~During~~Cyber Security ~~the~~standards ~~past~~are ~~year,~~becoming ~~the~~more ~~Company~~rigorous ~~has~~and ~~been~~demanding ~~targeting~~each ~~its existing~~year ~~markets~~and asthe ~~well~~guideline asand ~~targeting~~requirements ~~the~~are UScontinuously ~~Federal~~being affected ~~Government~~ and ~~large corporate~~adjusted ~~end~~by ~~users for~~ the ~~sale~~number of ~~Freedom~~cyber ~~technology.~~security ~~The~~breaches ~~Company~~that ~~is concentrating~~are ontaking ~~North~~place ~~America~~throughout atthe ~~this time~~world. ~~All~~In ~~sales~~light ~~remain~~of ~~through~~this, ~~these~~Viscount ~~indirect~~is ~~channels,~~investing ~~with~~in ~~minimal~~a ~~sales~~next togeneration ~~the~~cryptology ~~end~~hardware ~~users~~for of the Freedom Bridge product as described below. ~~First-line~~ ~~installation~~This ~~and~~new ~~technical~~design ~~support~~if ~~are~~developed, will ~~provided~~guarantee byhigh ~~our~~assurance ~~dealers~~data encryption and ~~certified~~ ~~integrators~~efficient tooperation throughput of the ~~end~~entire ~~users.~~architecture of the Freedom PACS.

~~Marketing Strategy~~ OSDP

~~The~~OSDP (Open ~~Company~~Supervised ~~has~~Device ~~been~~Protocol) ~~using~~is ~~its~~an ~~established~~emerging ~~distribution channels,~~standard asfor ~~well~~Access asControl ~~new~~Readers. ~~distribution~~With ~~channels,~~Viscount’s toRS485 ~~access~~equipped ~~its target markets for~~FB-10 ~~the~~Freedom ~~MESH~~Bridge, Freedom, ~~and~~server ~~Liberty~~is ~~technology.~~able Asto amanage ~~unique~~OSDP ~~technology,~~readers ~~however, end-users~~on asTCP/IP ~~well~~networks. asThis ~~dealers~~new ~~must~~generation beof ~~educated~~readers ~~about~~offer ~~Freedom~~more ~~benefits and~~high-end ~~capabilities.~~hardware Itchoices isto ~~the~~users, ~~Company’s~~especially ~~experience~~in ~~that~~Federal aspace. ~~stronger~~Efforts ~~initial~~have ~~emphasis~~been ~~on influencing~~made ~~end-user~~to ~~decision-makers~~evaluate ~~and~~OSDP ~~large~~readers ~~national~~from ~~system~~different ~~integrators will~~manufacturers. beSoftware ~~the~~drivers ~~most~~are ~~effective~~being indeveloped ~~developing~~to ~~the~~work ~~Freedom~~with ~~market~~OSDP protocol. ~~The~~FIPS ~~Company~~support ~~sells through~~is ~~authorized~~also ~~dealers,~~within ~~integrators,~~the ~~value-added-resellers,~~scope ~~and~~of ~~distributors and~~this ~~does not typically sell direct to end users~~development.

~~Webinars~~Freedom-Active Directory development in Viscount has gone through a number of revisions in the last few years. Freedom is enhancing its Access Control model to combine the best of both role based access control (“RBAC”) and attribute based access control (“ABAC”) which are used to regulate an individual’s access to the network or to perform specific tasks such as view, create, modify within applications. Freedom is leveraging these same logical access control models in order to map with Active Directory groups and directories. Because of this very tight link to Active Directory’s architecture, Viscount’s strength in the Enterprise IT space has gained considerable momentum and is peaking the interest of a few very large IT security and cyber security partners.

~~Viscount has been concentrating on webinars to educate the~~Distribution ~~industry about Freedom. The response has been excellent with audiences from several hundred up to 800 registered attendees per webinar.~~ Plan

~~Advertising~~The Company currently has approximately 450 dealers for its existing products throughout North America and 70 certified integrators for its Freedom product line. The Company’s distribution network is not static, and the Company is constantly seeking additional go to market partners, resellers, distributors and alliances.

~~Products~~As previously ~~are~~noted, ~~advertised~~MESH oncan anserve ~~ongoing~~several ~~basis~~different inmarkets ~~various~~and ~~print publications,~~the ~~which~~type ~~the~~of ~~Company~~dealer ~~will~~serving ~~continue~~each tomay dovary. WeSimple ~~have~~installations may ~~been~~be ~~testing~~performed ~~new publications~~by onsmall aindependent ~~regular~~dealers, ~~basis~~but toas ~~evaluate~~the ~~response,~~overall ~~sales~~scope ~~and~~of ~~readership.~~the ~~All leads~~project ~~are~~increases, ~~followed~~the ~~up,~~technical ~~and~~ability ~~magazines~~of ~~are~~the dealer ~~rated~~becomes ~~based~~increasingly onimportant. aAt ~~dollar~~the ~~sale~~extreme, ~~per advertising~~employees ~~dollar~~may ~~spent~~be ~~ratio.~~directly ~~While~~involved with the ~~sales~~customer ~~cycle~~in isdesigning, ~~sometimes~~installing and ~~fairly~~servicing ~~long~~the product. In other cases, ~~this~~ ~~approach~~personnel ~~has~~may ~~given~~be ~~the~~involved ~~Company~~on a ~~very~~co-op ~~accurate~~basis ~~measure~~with oflarge ~~the~~national ~~effectiveness of~~security, ~~various~~building ~~publications~~automation and heating/ventilation and ~~individual~~air-conditioning ~~ads~~contractors.

~~Trade~~During the ~~Shows~~past year, the Company has continued to target its existing markets as well as targeting the Federal and large corporate end users for the sale of Freedom technology. The Company is concentrating on North America for the Freedom product at this time. First-line installation and technical support are provided by our dealers and certified integrators to the end users.

~~During 2014, the Company continued participating in tradeshows~~Marketing ~~to increase the awareness of MESH and Freedom. During 2015, we will continue to attend tradeshows to enhance the exposure for MESH, and Freedom.~~Strategy

~~Direct~~The Company ~~Marketing~~has been using its established distribution channels, as well as new distribution channels, to access its target markets for the MESH, Freedom, and Liberty technology. As a unique technology, however, end-users as well as dealers must be educated about Freedom’s benefits and capabilities. It is the Company’s experience that a stronger initial emphasis on influencing end-user decision-makers and large national system integrators will be the most effective in developing the Freedom market. The Company sells through authorized dealers, integrators, value-added-resellers, and distributors and does not typically sell directly to end users.

~~The Company continued educating customers about Freedom technology by holding Freedom and Liberty training seminars throughout the U.S. and at our head office via the internet.~~Webinars

~~Pricing~~Viscount has ~~Strategy~~continued to concentrate on webinars to educate the industry about Freedom. The response has been excellent with audiences as large as several hundred registered attendees per webinar.

The Freedom technology is built on an architecture which can reduce user costs significantly. The modular nature of the technology amplifies this effect the larger the system becomes. The Company has been actively pursuing a pricing model based on substantive margins, but at a price point that can promote market disruption. Many traditional companies focus on recurring revenue for software licenses. Viscount has chosen to forgo this in the short term with a view to creating recurring revenue through cloud sources. In 2014, the Company introduced a low-cost version of Freedom to address small and mid-size sites. The access control industry is fragmented with a wide variation on pricing depending on the size of system and supplier. The new product will be introduced to allow Viscount to compete for all system sizes. Advertising

~~With~~Our products aare ~~unique~~advertised ~~product~~on ~~and~~an aongoing ~~position~~basis ofin ~~product~~various ~~leadership~~print publications, which the Company ~~has~~will ~~devised~~continue to do. We have been testing new publications on a ~~strategy~~regular ofbasis ~~building~~to ~~market~~evaluate ~~share~~response, sales and readership. ~~With~~All ~~the~~leads ~~telephony component~~are followed up, ~~the~~and ~~Company~~magazines are ~~has~~rated ~~been~~based ~~targeting~~on a ~~price~~dollar ~~which~~sale ~~provides~~per ~~MESH~~advertising ~~panels~~dollar atspent ratio. While the sales cycle is sometimes fairly long, this approach has given the Company a ~~price~~very ~~that~~accurate ismeasure ~~competitive~~of ~~with~~the ~~similar~~effectiveness ~~products,~~of ~~but~~various ~~with~~publications ~~newer~~and ~~enhanced features.~~individual ads.

~~COMPETITION~~Page 10 of 68

~~Competitive Summary~~ Trade Shows

14During 2015, the Company continued participating in tradeshows to increase the awareness of MESH and Freedom. During 2016, we will continue to attend tradeshows to enhance the exposure for MESH/Enterphone, and Freedom products.

~~The security and building control industry is undergoing a~~Direct rapid period of consolidation. Large multi-national companies are integrating vertically by acquiring equipment providers to build house brands. This began with the purchase of Cardkey by Johnson Controls, Guardall by Chubb and ADI/Northern Computers by Honeywell. More recent acquisitions include the purchase of Kantech and Software House by Tyco and the purchase of Lenel and GE Security by UTC. The access control industry is very segmented with no company having a dominant market position. Canada has approximately six access control product manufacturers, while the U.S. has at least fifty. There is a certain amount of vertical integration in the business, and several large multinational companies possess their own house brands. Many branches of these multinational companies often have their own brand preferences and buy outside their internal distribution channels. Marketing

~~Almost~~The Company ~~all~~continued ~~manufacturers~~educating ~~build~~customers ~~control~~about ~~hosts~~Freedom ~~based on Wiegand~~ technology orby ~~smart~~holding ~~card~~Freedom ~~technology~~and ~~that~~Liberty ~~converts~~training ~~data~~seminars tothroughout ~~Wiegand~~the U.S. ~~Due to these limitations, most research~~ and ~~development~~at isour ~~focused~~head onoffice ~~reducing~~via ~~hardware costs and making~~ the ~~control hosts more network capable~~internet. ~~In most cases, the manufacturers using traditional Wiegand technology are limited from 1 to 8 doors per control host.~~

~~Competitive Threats~~ Pricing Strategy

The Freedom technology is built on an architecture which can reduce user costs significantly. The modular nature of the technology amplifies this effect the larger the system becomes. The Company has acontinued ~~strong~~to ~~dealer~~actively ~~and~~pursue ~~distribution~~a ~~plan~~pricing inmodel ~~place,~~based on substantive ~~and~~margins, ~~Freedom~~but at a price point that can promote market disruption. Viscount has ~~positioned~~a itview into creating a ~~market~~recurring ~~dominated~~revenue bymodel ~~much~~for its ~~larger~~software ~~players~~licensing through a subscription license approach as well as cloud sources. The ~~higher~~ ~~security~~access ~~Freedom~~control ~~applications~~industry ~~are~~is ~~also~~fragmented with ~~somewhat~~a ~~outside~~wide ofvariation on pricing depending on the ~~traditional~~ ~~scope~~size of ~~business,~~system and ~~therefore~~supplier. ~~the~~Additionally ~~Company~~in is2015 ~~rapidly~~Viscount ~~trying~~focused ~~to develop~~on a ~~market~~concerted effort ~~for~~to ~~Freedom,~~promote and insell ~~the~~a ~~process,~~Freedom ~~educating~~CUBE ~~users~~concept which prepackages a reduced reader license version of the Freedom software on ~~through~~to ~~training~~PC ~~seminars~~appliance. The ~~Company~~Freedom ~~believes~~CUBE ~~that~~has ~~marketing~~gained ~~strategies~~an ~~and training~~increasing ~~seminars~~level ~~will~~of ~~provide~~adoption ~~benefits~~as ~~that~~it ~~will~~enable ~~help~~Viscount’s itFreedom ~~achieve~~dealers ~~market share~~to ~~that~~sell ~~will~~a ~~allow~~very iteasy to ~~remain~~install configure system at a very competitive price point. ~~There~~The isFreedom noCUBE ~~guarantee~~also ~~that~~enables ~~the~~Viscount ~~Company~~to compete ~~will~~for beall ~~able~~system tosizes ~~successfully~~and ~~compete~~has ~~against~~provided ~~its~~a ~~larger~~very ~~competitors~~strategic replacement for the former Liberty access control system.

~~While~~The Company ~~Freedom~~believes isthat ~~still~~it has a ~~new~~unique product inand ana ~~established~~position ~~growing market,~~of ~~technological~~product ~~change~~leadership ~~can~~that bewill ~~met~~support ~~with~~its ~~resistance.~~strategy ~~Some~~of ~~buyers are nervous~~building ~~about~~market ~~new products and new protocols even more so~~share. ~~Most~~With ~~buyers are familiar with~~ the ~~benefits~~telephonic ~~of IP-based cameras~~component, ~~and~~ the Company has ~~marketed~~been ~~Freedom~~targeting ~~from~~a ~~this point~~price ofwhich ~~view;~~provides ~~that~~MESH ~~is,~~panels toat ~~stress~~a ~~the~~price ~~inevitability~~that is ofcompetitive ~~all~~with ~~access~~similar ~~control systems~~products, ~~evolving~~but ~~this~~with ~~way.~~newer enhanced features.

A key concern is the ability of competitors to imitate the product and the ability of large imitators to more easily commercialize their product. The Company’s senior management, having prior experience working for the Company’s larger competitors, have estimated that the Company still has a three-year market lead based on the research and development schedules of such competitors. Fortunately, the wide range of Freedom software applications should provide the Company with an ongoing lead, as long as it is aggressive with research and development. COMPETITION

~~INTELLECTUAL PROPERTY~~ Competitive Summary

~~Viscount~~The security ~~actively~~and ~~protects~~building ~~its~~control ~~intellectual~~industry ~~property~~is undergoing a rapid period of consolidation. ~~The~~Large multi-national companies are integrating ~~Company~~vertically ~~has~~by ~~filed~~acquiring ~~patents~~equipment ~~since~~providers ~~2010~~to build house brands. This began with the purchase of Cardkey Systems Inc. by Johnson Controls Inc., ~~encompassing~~Guard-All ~~close~~Electronic toSecurity 60Systems, ~~patent~~Inc. ~~claims~~by Chubb Fire and Security and ADI/Northern Computers by Honeywell ~~under~~International, ~~six~~Inc. ~~(6)~~More ~~major~~recent ~~patent~~acquisitions ~~filings~~include the purchase of Kantech and Software House by Tyco Electronics and the purchase of Lenel and GE Security by United Technologies. ~~Viscount~~The ~~was~~access ~~awarded~~control ~~three~~industry USis ~~patents~~segmented inwith no company having a dominant market ~~2014~~position. ~~Other~~Canada ~~patents~~has ~~have~~approximately ~~not~~six ~~yet~~access ~~been~~control ~~awarded~~product manufacturers, ~~but~~while the ~~Company~~U.S. ~~intends~~has toat least fifty. There is a certain ~~vigorously~~amount ~~defend~~of ~~each~~vertical ~~patent~~integration asin ~~they~~the ~~are~~business, ~~awarded~~and several large multinational companies possess their own house brands. Many branches of these multinational companies often have their own brand preferences and buy outside their internal distribution channels.

~~The~~Almost all ~~Company~~manufacturers ~~relies~~build oncontrol ahosts ~~combination~~based ofon ~~non-disclosure~~Wiegand ~~and~~technology ~~other contractual~~or ~~agreements~~smart tocard ~~protect~~technology ~~the~~that ~~confidential~~converts ~~information,~~data ~~know-how,~~to ~~and proprietary~~Wiegand. ~~rights relating~~ Due to ~~Enterphone~~these limitations, ~~MESH~~most research and ~~other~~development ~~Viscount~~is ~~products.~~focused ~~The Company~~on ~~has~~reducing ~~contractual~~hardware ~~rights~~costs ~~with respect to registered North American trademark~~ and ~~trade~~making ~~name~~the ~~for~~control ~~Enterphone~~hosts ~~(word~~more ~~alone)~~network capable. ~~The~~In ~~Company~~most iscases, ~~still considering~~the ormanufacturers inusing ~~the~~traditional ~~process~~Wiegand oftechnology ~~registering~~are ~~North~~limited ~~American~~from ~~trade~~1 ~~names~~to ~~for~~8 ~~MESH and~~doors ~~Freedom.~~per control host.

~~The Company has registered active Internet domain names for~~Competitive ~~www.viscount.com, www.libertyacess.net, www.enterphone.net, and www.enterphone.org.~~ Threats

~~Standard~~The Company ~~employment~~has ~~agreements~~a strong dealer and ~~license~~distribution ~~agreements~~plan ~~contain~~in place, and Freedom has positioned the Company in a market dominated by much ~~provisions~~larger ~~that~~players. ~~protect~~The higher security Freedom applications are also somewhat outside of the ~~confidentiality~~traditional scope of ~~proprietary~~business, ~~technology.~~and ~~All~~therefore the Company is rapidly trying to develop a market for Freedom, and in the process, educating users of Freedom through training ~~our~~seminars. ~~employees~~The Company believes that marketing strategies and ~~sales~~training ~~agents~~seminars ~~are~~will ~~required~~provide benefits that will help it achieve market share that will allow it to ~~sign~~remain ~~these~~competitive. ~~agreements~~There ~~prior~~is no guarantee that the Company will be able to successfully compete ~~their~~against ~~employment~~its orlarger ~~engagement~~competitors.

15Page 11 of 68

~~To date, the Company has not received notification that its~~While ~~services~~Freedom oris ~~products~~still ~~infringe~~a ~~the~~new ~~proprietary~~product ~~rights~~in ofan ~~third~~established ~~parties.~~growing ~~Third parties could~~market, ~~however,~~technological ~~make~~change ~~such~~can ~~claims~~be ofmet ~~infringement~~with ~~in the future~~resistance. ~~The~~Some buyers ~~Company~~are ~~cannot~~nervous beabout ~~certain~~new ~~that~~products ~~others~~and ~~will~~new ~~not~~protocols ~~develop~~even ~~substantially~~more ~~equivalent or~~so. ~~superior~~Most ~~proprietary~~buyers ~~technology,~~are orfamiliar ~~that equivalent services will not be marketed in competition~~ with the ~~Company’s~~benefits ~~services, thereby substantially reducing the value~~ of ~~its~~IP-based ~~proprietary rights. Furthermore, there can be no~~cameras ~~assurance~~and ~~that any confidentiality agreements between~~ the Company ~~and~~has ~~its employees~~marketed orFreedom ~~any~~from ~~license~~this ~~agreements~~point ~~will~~of ~~provide~~view; ~~meaningful~~that ~~protection~~is, ~~for~~to ~~its proprietary~~stress ~~information in~~ the ~~event~~inevitability of ~~any~~all ~~unauthorized~~access ~~use~~control ~~or disclosure of~~systems ~~such~~evolving ~~proprietary~~this ~~information~~way.

~~GOVERNMENT~~A key ~~REGULATIONS~~concern is the ability of competitors to imitate the product and the ability of large imitators to more easily commercialize their product. The Company’s senior management, having prior experience working for the Company’s larger competitors, have estimated that the Company still has a three-year market lead based on the research and development schedules of such competitors. The Company believes the wide range of Freedom software applications should provide the Company with an ongoing lead, as long as it is aggressive with research and development.

~~There are a number of regulatory and related issues that affect~~INTELLECTUAL Viscount’s business. In order to comply with Sarbanes-Oxley and other rules and regulations, every large public corporate entity is required to have adequate security measures in place for the purpose of protecting IT data from tampering by unauthorized personnel. A component of this includes properly securing physical facilities as well as IT networks. Unfortunately, since control panels typically use a separate security database from IT, it is very difficult to relate usage of the systems for the purposes of audit and compliance. With the Freedom unified platform using Microsoft Active Directory, audits and compliance issues are simplified using a single set of IT logs. PROPERTY

~~For~~Viscount actively USprotects ~~government~~its ~~facilities,~~intellectual ~~Viscount~~property. ~~must~~The ~~conform~~Company ~~with FIPS-201~~has ~~and~~filed ~~other~~patents ~~federal~~since ~~requirements.~~2010, Aencompassing ~~newer~~close ~~standard~~to of60 ~~FIPS~~patent ~~201-2 is under~~claims ~~final~~under ~~discussion,~~six ~~and~~(6) amajor ~~release~~patent ~~is expected shortly~~filings. ~~The~~Viscount ~~new~~was ~~regulations positively~~awarded ~~impact~~three ~~Viscount~~US ~~through~~patents ~~our~~in ~~ability~~2014. toOther ~~perform~~patents ~~traditional~~have ~~hardware functions~~not ~~with~~yet ~~software~~been ~~and~~awarded, ~~may~~but the ~~negatively~~Company ~~impact~~intends ~~existing~~to ~~suppliers~~vigorously ~~since~~defend ~~their existing~~each ~~technology~~patent ~~and~~as ~~hardware~~they isare ~~non-conformant~~awarded.

InThe Company ~~addition,~~relies ~~some~~on a combination of ~~the~~non-disclosure ~~Company’s~~and ~~Enterphone~~other ~~products~~contractual ~~are still~~agreements ~~under~~to ~~government~~protect ~~regulation.~~the ~~The~~confidential ~~Enterphone~~information, isknow-how, and anproprietary ~~interposition~~rights ~~technology which~~relating to Enterphone, inMESH ~~the~~and ~~U.S.,~~other ~~can~~Viscount ~~only~~products. beThe ~~installed~~Company ~~where~~has ~~the~~contractual ~~local~~rights ~~public~~with ~~service~~respect ~~commission~~to ~~has~~registered ~~designated~~North ~~the~~American ~~original~~trademark ~~point~~and oftrade ~~entry~~name offor aEnterphone ~~building~~(word asalone). The Company is still considering or in the ~~demarcation~~process ~~point~~of ~~between~~registering ~~the~~North ~~telephone~~American ~~company~~trade ~~and~~names ~~the~~for ~~building~~MESH ~~owner’s responsibility~~and Freedom.

~~SOURCES~~The Company OFhas ~~REVENUES~~registered active Internet domain names for www.viscount.com, www.libertyacess.net, www.enterphone.net, and www.enterphone.org.

~~The~~Standard employment ~~majority~~agreements ofand ~~the~~license ~~Company’s~~agreements ~~revenues~~contain ~~were~~provisions ~~derived~~that ~~from~~protect the ~~MESH~~ ~~and~~confidentiality ~~Freedom product lines. In 2014, MESH sales represented 38.7%~~ of ~~total revenue,~~proprietary ~~while Freedom product sales represented 33~~technology.7% ~~of total revenue. The~~All ~~balance~~ of ~~the~~our ~~Company’s~~employees ~~revenue was derived from service agreements~~ and ~~other products~~sales ~~such~~agents asare ~~access~~required ~~tracking~~to ~~and~~sign ~~control,~~these ~~closed-circuit~~agreements ~~video,~~prior ~~infrared~~to ~~and radio~~their ~~frequency~~employment ~~remotes~~or engagement.

~~EMPLOYEES~~To date, the Company has not received notification that its services or products infringe the proprietary rights of third parties. Third parties could, however, make such claims of infringement in the future. The Company cannot be certain that others will not develop substantially equivalent or superior proprietary technology, or that equivalent services will not be marketed in competition with the Company’s services, thereby substantially reducing the value of its proprietary rights. Furthermore, there can be no assurance that any confidentiality agreements between the Company and its employees or any license agreements will provide meaningful protection for its proprietary information in the event of any unauthorized use or disclosure of such proprietary information.

~~Viscount employs 37 staff members at its production facility~~GOVERNMENT ~~and head office located in Burnaby, British Columbia, Canada, as well as sales and support personnel in the United States. Viscount also employs two full-time contract employees.~~ REGULATIONS

~~Board~~There are a number of ~~Directors~~regulatory and related issues that affect Viscount’s business. In order to comply with Sarbanes-Oxley Act of 2002 (“SOX”) and other rules and regulations, every large public corporate entity is required to have adequate security measures in place for the purpose of protecting IT data from tampering by unauthorized personnel. A component of this includes properly securing physical facilities as well as IT networks. Unfortunately, since control panels typically use a separate security database from IT, it is very difficult to relate usage of the systems for the purposes of audit and compliance. With the Freedom unified platform using Active Directory, audits and compliance issues are simplified using a single set of IT logs.

For Federal facilities, Viscount ~~has~~must aconform ~~current~~to ~~board~~FIPS-201 ofand ~~directors~~other ~~(the~~federal ~~“Board”)~~requirements. A newer standard of ~~six~~FIPS 201-2 is under ~~members~~final discussion, and a release is expected shortly. The new regulations positively impact Viscount’s ~~Board~~through isour ~~comprised~~ability ofto ~~its~~perform traditional ~~CEO~~hardware functions with software and ~~independent~~may ~~directors~~negatively ~~with~~impact existing suppliers since their existing technology and ~~security~~hardware ~~industry~~is ~~experience~~non-conformant.

~~Dennis~~The Enterphone ~~Raefield~~is an interposition technology which, in the U.S., can only be installed where the local public service commission has designated the original point of entry of a building as the demarcation point between the telephone company and the building owner’s responsibility.

~~Mr.~~Page ~~Dennis~~12 ~~Raefield, age 67, has served as the President and Chief Executive Officer~~ of Viscount Systems, Inc. since February 2014, as non-executive Chairman of the Board from February 2014 to February 2015, and has served as a director of the Company since November 2011. On February 27, 2015, Mr. Raefield resigned as non-executive Chairman and was replaced by Director Ned L. Siegel, to allow Mr. Raefield to focus on the planned rapid expansion of the Company in 2015. Mr. Raefield remains CEO and President of the Company. Mr. Raefield has a long and distinguished career in the access control and security industry. Most recently, Mr. Raefield was CEO and President of Mace Security International, Inc. (OTC: MACE), a board member of Real Time Immersion, Inc. and an advisory board member for Building Intelligence Inc. Mr. Raefield was President of Honeywell Access Systems, a division of Honeywell International, Inc., which manufactures enterprise-level access control systems for Fortune 100 clients. Prior to that, Mr. Raefield was President of Pinkerton Systems Integration (now Securitas), a security system integration business, installing video, access control and alarms to Fortune 500 clients. During his career, he was CEO or President of the startups Reach Systems, an access control manufacturer, and Ortega InfoSystems, an early Physical Security Information Management (“PSIM”) manufacturer. He was also founder and CEO of Omega Corporate Security, a west coast premier systems integrator based in the San Francisco Bay area. Mr. Raefield holds a BS degree in Mechanical Engineering from Santa Clara University and is a member of various security trade organizations, ASIS, SIA, ESA, ISIO, CAA, and CSAA.68

16SOURCES OF REVENUES

~~Paul~~The majority ~~Goldenberg~~of the Company’s revenues were derived from the MESH/Enterphone and Freedom product lines. In 2015, MESH/Enterphone sales represented 38.6% of total revenue, while Freedom product sales represented 44.1% of total revenue. The balance of the Company’s revenue was derived from service agreements and other products such as access tracking and control, closed-circuit video, infrared and radio frequency remotes.

Mr. Goldenberg, age 60, has served as member of the Board since October 2011. Paul Goldenberg has built a distinguished career as a highly decorated criminal justice executive with extensive and broad-based experience in a wide variety of politically sensitive government and NGO environments. In February 2010, U.S. Department of Homeland Security (“DHS”) Secretary Janet Napolitano appointed Mr. Goldenberg to the President¹s Homeland Security Advisory Council’s Countering Violent Extremism Working Group. He is the creator of the Secure Community Network, which is a DHS-funded organization that advises churches, synagogues and mosques as to security risks and solutions. Mr. Goldenberg is currently the Principal Counterterrorism and Homeland Security Advisor to the American Hotel and Lodging Association, representing over 1,000 hotels in the U.S. and abroad. He is also the Senior Director of National Security for the County Executives of America, representing over 700 county mayors and executives. Mr. Goldenberg is currently the Chairman and CEO of Cardinal Point Strategies, a consulting firm that provides strategic solutions on high-profile and confidential matters for governments and businesses around the world.EMPLOYEES

~~Robert~~Viscount employs ~~Liscouski~~36 staff members at its production facility and corporate headquarters located in Burnaby, British Columbia, Canada, as well as sales and support personnel in the United States.

~~Mr. Liscouski, age 60, has served as member of the Board since~~Members ~~September 2011. Robert Liscouski was the first Assistant Secretary for Infrastructure Protection for the Department~~ of ~~Homeland~~Management ~~Security,~~are serving from March 2003 to February 2005 and reporting directly to then Secretary Tom Ridge. He commanded over a $500 million budget and was responsible for coordinating authority over the protection of all sectors of the nation’s critical infrastructure, including agriculture, food, water, public health, transportation, and hazardous materials as well as key assets such as national monuments, nuclear power plants, and dams. His private sector experience includes Director of Information Assurance for The Coca-Cola Company and V.P., Law Enforcement Division, for ORION Scientific Systems. His government experience includes 11 years with the Diplomatic Security Service of the U.S. Department of State and five years of criminal investigative experience as a homicide and narcotics investigator in Bergen County, N.J. He is a Senior Fellow at the Center of Strategic and International Studies in Washington, D.C. and is an advisor to the U.S. Government on technology matters. Mr. Liscouski holds a B.S. degree in Criminal Justice from John Jay College of Criminal Justice in New York and a Masters of Public Administration from the Kennedy School of Government, Harvard University. follows:

~~Geoffrey~~Scott Sieracki, ~~Arens~~Interim Chief Executive Officer. Mr. Sieracki, was appointed the Company’s Interim Chief Executive Officer on July 16, 2015. Previously, Mr. Sieracki had been the Company’s Vice President of Sales since December 1, 2014. Prior to joining the Company, Mr. Sieracki worked as Vice President of Sales for IDV Solutions, Inc., an enterprise risk visualization company, from October 2012 to October 2014 and Vice President of Sales for Quantum Secure, Inc. part of HID Global, a security and identity technology company, from September 2006 to September 2012. From November 2001 to August 2006, Mr. Sieracki served as Director of Sales North America for Software House, a Tyco International company, and from February 1997 to September 1999, Mr. Sieracki served as President and co-founder of Open Options, a provider of open architecture based access control systems.

~~Mr.~~Zhi Yuan ~~Arens,~~(Yvonne) ~~age 50~~Zheng, ~~has~~Principal ~~served~~Financial ~~as member of the Board since December 2014~~Officer. ~~Mr.~~On ~~Arens~~January ~~has~~18, ~~over~~2016, ~~22 years of investment experience and is currently~~ the ~~Managing~~Company ~~Partner~~appointed ~~and Founder of Dendera Capital LP, a New York-based hedge fund~~Ms. ~~Previously~~Zheng, ~~Mr.~~who ~~Arens~~has ~~served as Managing Director for ING~~been ~~Capital LLC, where he ran~~ the ~~bank~~Company’s ~~proprietary~~Internal ~~investing~~Controller ~~activities~~since ~~including its~~September ~~event-driven~~2015, ~~Global~~its ~~Investment~~Principal ~~Strategies~~Financial ~~group.~~Officer ~~Mr.~~pursuant ~~Arens~~to ~~previously served~~an onemployment ~~the board of directors of California Coastal Communities~~agreement, a ~~residential~~dated ~~land~~January ~~development~~18, ~~and homebuilding company where he was Chair of the Compensation Committee and member of the Audit and Nomination Committees. He has also served on the board of directors of Cadiz Inc.~~2016, abetween ~~California-based water and agricultural resource where he was a member of the Audit and Nomination Committees~~Ms. ~~Mr.~~Zheng ~~Arens holds a Master of Business Administration from Columbia Business School,~~ and ~~a Bachelor of Arts from~~ the ~~University of Virginia~~Company.

17The Company’s website address is www.viscount.com. The Company’s periodic and current reports are available, free of charge, on the Company’s website as soon as reasonably practicable after such material is electronically filed with, or furnished to, the U.S. Securities and Exchange Commission (the “SEC”). Electronic or paper copies of the Company’s filings are also available, free of charge, upon request.

~~Ned~~The public Lmay read and copy any materials filed by the Company with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Room 1580, Washington, DC 20549. ~~Siegel~~The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov. The contents of the websites referred to above are not incorporated into this filing. Further, our references to the URLs for these websites are intended to be inactive textual references only.

~~Mr. Siegel, age 64, has served as member of the Board since~~Item ~~April 2014~~1A. OnRISK February, 27, 2015, Mr. Siegel was unanimously elected as the new non-executive Chairman of the Board, replacing Mr. Raefield, who resigned as Chairman, but remains as CEO and President. Appointed by then President George W. Bush, Mr. Siegel was the U.S. Ambassador to the Commonwealth of the Bahamas from October 2007 to January 2009. He was also appointed by President Bush to serve under Ambassador John R. Bolton at the United Nations in New York, serving as the Senior Advisor to the U.S. Mission and as the United States Representative to the 61st Session of the United Nations General Assembly. Prior to his Ambassadorship, he was appointed to the board of directors of the Overseas Private Investment Corporation. In addition to his public service, Ambassador Siegel has over 30 years of entrepreneurial successes. Presently, he is Chairman of the board of The Siegel Group, a multi-disciplined international business management advisory firm specializing in infrastructure, real estate, ports, energy, financial, cyber security and physical security services. Ambassador Siegel serves on the board of directors and advisory boards of numerous public and private companies as well as private equity groups. He graduated Phi Beta Kappa from the University of Connecticut in 1973 and received a Juris Doctorate from the Dickinson School of Law in 1976. FACTORS

~~Alexander~~The Company ~~Buehler~~is a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and is not required to provide the information under this item.

~~Mr. Buehler, age 39, has served as member of the Board since~~Item ~~May 2014~~1B. ~~Alexander~~Unresolved J.Staff Buehler currently serves as the President and Chief Executive Officer of Energy Maintenance Services USA, Inc. (“EMS”), a private equity-backed company focused on the construction, maintenance, monitoring, and automation of oil & gas pipelines throughout North America. Prior to joining EMS in July of 2014 as the Company’s CFO, Mr. Buehler served as the Chief Financial Officer of Energy Recovery Inc. since May of 2011. Mr. Buehler is a highly impactful business executive with years of experience in general management and strategic planning as well as new product development, sales and marketing, corporate development, operations management, and manufacturing process optimization. He currently serves as a board member of Energy Recovery Inc. (NASDAQ:ERII) and as a director and Chair of the Audit Committee for the Company.Comments

~~Prior to Energy Recovery Inc., Mr. Buehler spent seven years in~~Not ~~executive leadership positions at Insituform Technologies, Inc~~applicable., (now Aegion Corporation; NASDAQ: AEGN), a global, leading supplier of water infrastructure technology and services for municipalities and industry, including oil and gas. While at Insituform, Mr. Buehler held several executive-level positions in the U.S. and abroad, most recently as Vice President of Europe, where he served as general manager with full P&L responsibility for all operations in Europe (spanning 23 countries through wholly-owned subsidiaries, joint ventures, licensees, and product sales) with consolidated revenue of over $200 million and a total of over 600 employees.

~~Prior to joining Insituform, Mr. Buehler worked for five years~~Item ~~in the U~~2.S. Army Corps of Engineers, where he served as project manager in the construction of basecamps to house U.S. peacekeepers in the Balkans. Mr. Buehler received a B.S. in Civil Engineering from the United States Military Academy at West Point and an M.B.A. in Finance from the Wharton School at the University of Pennsylvania. More recently, Mr. Buehler attended Director’s College at the Stanford Law School in preparation for board-level positions. PROPERTIES

~~On February 17, 2014, Mr. Stephen Pineau resigned as the President, Chief Executive Officer, Chief Financial Officer and Corporate Secretary of Viscount Systems, Inc.~~ PROPERTY

OnThe Company’s ~~February~~executive ~~17,~~office ~~2014,~~and ~~Mr.~~central ~~Dennis~~factory ~~Raefield~~is ~~was~~located ~~appointed~~in ~~as the President~~Burnaby, ~~Chief~~British ~~Executive Officer~~Columbia, ~~Chairman,~~where ~~and~~the ~~Corporate~~Company ~~Secretary~~currently ofleases ~~Viscount Systems~~12,040 ~~Inc.~~square Mrfeet. ~~Raefield~~The ~~entered~~Company ~~into~~leases this space under an ~~employment~~industry ~~agreement~~standard ~~with the~~operating ~~Company~~lease ~~pursuant~~with toa ~~which~~term heexpiring ~~will~~May ~~receive~~31, an2017, renewable ~~initial~~at ~~annual~~the ~~salary~~option of Viscount. Current monthly lease obligations are $~~175~~12,~~000~~129, anincluding ~~annual~~maintenance ~~bonus~~and ofinsurance. upThe toCompany believes ~~50%~~that ofits ~~his~~current ~~base~~facilities ~~salary~~are adequate and are suitable for its current use, and ~~stock~~that ~~options~~suitable additional facilities ~~equal~~will tobe ~~3.99%~~available, ofwhen ~~the~~needed, upon commercially reasonable terms. The Company’s ~~issued~~facilities ~~and~~are ~~outstanding~~adequately oninsured against perils in a ~~fully~~manner ~~diluted~~consistent ~~basis~~with industry practice. The Company’s current location is the location for its manufacturing and service divisions.

~~The~~Page ~~Company’s~~13 ~~website address is www.viscount.com. The Company’s periodic and current reports are available, free~~ of charge, on the Company’s website as soon as reasonably practicable after such material is electronically filed with, or furnished to, the U.S. Securities and Exchange Commission (the “SEC”). Electronic or paper copies of the Company’s filings are also available, free of charge, upon request.68

18Item 3. LEGAL PROCEEDINGS

~~The~~Viscount filed ~~public~~a ~~may~~Notice ~~read~~of ~~and~~Civil ~~copy~~Claim ~~any~~in ~~materials~~the ~~filed~~Supreme byCourt ~~the~~of ~~Company with~~British ~~the~~Columbia ~~SEC~~against atStephen ~~the~~Pineau, ~~SEC's~~its ~~Public~~former ~~Reference~~President, ~~Room~~CEO atand ~~100~~director on FNovember ~~Street~~19, ~~NE,~~2014 ~~Room~~alleging ~~1580~~that during the term of his employment, ~~Washington,~~ DCMr. ~~20549~~Pineau had misappropriated certain company funds. The Company ~~public~~sought ~~may~~damages ~~obtain~~for ~~information~~breach onof ~~the~~contract ~~operation~~and fiduciary duty, equitable relief, including restitution and recovery of ~~the~~company ~~Public~~funds ~~Reference~~owed, ~~Room~~special, byaggravated ~~calling~~and ~~the~~punitive ~~SEC~~damages, atas ~~1-800-SEC-0330.~~well ~~The~~as ~~SEC~~interest ~~maintains~~and ~~an Internet~~costs, ~~site~~including ~~that~~special ~~contains~~costs. ~~reports,~~Mr. ~~proxy~~Pineau denied these allegations, and ~~information~~on ~~statements~~January 2, ~~and~~2015, ~~other information~~filed ~~regarding~~a ~~issuers~~counterclaim alleging that ~~file~~the ~~electronically~~Company ~~with~~owed ~~the~~him ~~SEC~~compensation atfor wrongful termination, ~~www.sec.gov.~~bad ~~The~~faith ~~contents~~damages, ofcompensation he claimed he is owed by the ~~websites~~Company, ~~referred~~unpaid todirector’s ~~above~~fees ~~are~~and ~~not~~expenses. ~~incorporated~~Viscount denied ~~into~~these ~~this~~allegations ~~filing~~and asserted that Mr. ~~Further~~Pineau’s termination, ~~our~~while ~~references~~initially towithout ~~the~~cause, ~~URLs~~was changed for ~~these~~cause ~~websites are~~post-termination ~~intended~~once tothe beCompany ~~inactive~~discovered ~~textual~~evidence ~~references~~of ~~only~~Mr. Pineau’s alleged misappropriation.

~~Item~~As of 1ADecember 31, 2015, the Company and its former CEO, Stephen Pineau have come to general terms of an agreement to resolve their outstanding law claim. ~~RISK~~The ~~FACTORS~~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.

~~The~~Both parties ~~Company~~executed isthe aconsent ~~smaller~~order ~~reporting~~dismissing ~~company~~the asclaim ~~defined~~and bycounterclaim ~~Rule 12b-2~~as ofif ~~the~~there ~~Securities~~had ~~Exchange~~been ~~Act~~a oftrial ~~1934,~~on asthe ~~amended~~issues ~~(the~~with ~~“Exchange~~no ~~Act”),~~costs payable to either party and isagreed ~~not~~to ~~required~~take all actions and steps necessary to ~~provide~~have ~~the~~it ~~information~~filed ~~under~~with ~~this~~the ~~item.~~Vancouver Registry.

~~Item~~The 2Company will re-issue 3,000,000 stock options to Mr. ~~DESCRIPTION~~Pineau OFon ~~PROPERTY~~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 using the Black-Scholes Model, and accrued the compensation expense related to the settlement of $24,627 in the year ended December 31, 2015.

~~PROPERTY~~The Company will extend Mr. Pineau’s 3,000,000 warrants exercisable at $0.08 CAD per share, expiring December 23, 2015 until December 23, 2018. Accordingly, the Company valued the 3,000,000 extended warrants using Black-Scholes Model, accrued the compensation expense, related to settlement of $18,476 in the year ended December 31, 2015.

~~The Company’s executive office and central factory is located~~As inof ~~Burnaby,~~December ~~British Columbia, where the Company currently leases 12,040 square feet. The Company leases this space under an industry standard operating lease with a term expiring May~~ 31, ~~2016,~~2015 ~~renewable~~and atthrough the ~~option~~date of ~~Viscount.~~this ~~Current monthly lease obligations are $12~~filing,~~526,~~ ~~including~~such ~~taxes,~~options ~~maintenance~~ and ~~insurance.~~ ~~The~~warrants ~~Company~~have ~~believes~~not ~~that~~been ~~its current facilities are adequate and are suitable for its current use, and that suitable additional facilities will be available, when needed, upon commercially reasonable terms~~issued. The Company’s facilities are adequately insured against perils in a manner consistent with industry practice. The Company’s current location is the location for its manufacturing and service divisions.

Item 3 4. MINE ~~LEGAL~~SAFETY ~~PROCEEDINGS~~DISCLOSURES

~~Viscount filed a Notice of Civil Claim in the Supreme Court of~~Not ~~British Columbia against Stephen Pineau, its former President, CEO and director on November 19, 2014 alleging that during the term of his employment, Mr~~applicable. Pineau had misappropriated more than $200,000 of company funds. The Company is seeking 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 denies these allegations, and on January 2, 2015 he filed a counterclaim alleging that the Company owes him compensation for wrongful termination, bad faith damages, compensation he claims he is owed by the Company, unpaid director’s fees and expenses. Viscount denies these allegations and asserts 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. The case is still on-going.

~~Item~~Page 4.14 ~~MINE~~of ~~SAFETY DISCLOSURES~~68

~~Not applicable~~PART II.

~~PART II~~Item 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

~~Item~~Trades in 5the Company’s common stock, par value $0.001 ~~MARKET~~per ~~FOR~~shares ~~THE~~(the ~~REGISTRANT’S~~“Common ~~COMMON~~Stock”), ~~EQUITY~~are quoted on the Over-the-Counter Bulletin Board (“OTC Bulletin Board”), ~~RELATED~~which ~~STOCKHOLDER~~is ~~MATTERS~~a ~~AND~~quotation ~~ISSUER~~service ~~PURCHASES~~administered OFby ~~EQUITY~~the ~~SECURITIES~~Financial Industry Regulatory Authority (“FINRA”). The Company’s trading symbol on this service is “VSYS”.

~~Trades~~The OTC inBulletin ~~the~~Board ~~Company’s~~has ~~common~~a ~~stock,~~limited ~~par~~and ~~value~~sporadic $0trading market and does not constitute an established trading market.~~001~~ ~~per~~The Company’s shares ~~(the~~began ~~“Common~~trading ~~Stock”)~~on February 12, ~~are~~2002. ~~quoted~~The onfollowing ~~the~~table ~~Over-~~sets forth the~~-Counter~~ ~~Bulletin~~range ~~Board~~of high and low price information of the Common (“Stock as reported on the OTC Bulletin Board~~”),~~ ~~which~~for isthe alast ~~quotation~~two ~~service~~fiscal ~~administered~~years byand the ~~Financial~~ ~~Industry~~subsequent ~~Regulatory~~period ~~Authority~~ending ~~(“FINRA”)~~March 31, 2016. The price ~~Company’s~~information ~~trading~~available ~~symbol on~~reflects ~~this~~inter-dealer ~~service~~prices, iswithout ~~“VSYS”.~~retail mark-up, mark-down or commission and may not represent actual transactions.

The OTC Bulletin Board has a limited and sporadic trading market and does not constitute an established trading market. The Company’s shares began trading on February 12, 2002. The following table sets forth the range of high and low price information of the Common Stock as reported on the OTC Bulletin Board for the last two fiscal years and the subsequent period ending March 31, 2015. The price information available reflects inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.

		High (U.S. $)		Low (U.S. $)

2016	First Quarter (through March 31, 2016)		0.02		0.01
2015	Fourth Quarter		0.04		0.01
	Third Quarter		0.03		0.01
	Second Quarter		0.06		0.02
	First Quarter		0.08		0.04
2014	Fourth Quarter		0.10		0.05
	Third Quarter		0.12		0.08
	Second Quarter		0.14		0.08
	First Quarter		0.15		0.08

19As of April 13, 2016, there were 98 holders of record of the Company’s Common Stock.

		High (U.S. $)	Low (U.S. $)
2014	First Quarter (through March 16, 2015)	$0.08	$0.05
2013	Fourth Quarter	0.12	0.06
	Third Quarter	0.11	0.07
	Second Quarter	0.12	0.08
	First Quarter	0.13	0.06

As of April 13, 2016, there were 1,350,000 stock options fully vested and exercisable into Common Stock under the Company’s 2003 stock option plan. As of April 13, 2016, there were 64,702,128 warrants exercisable into Common Stock.

AsThe Company ofhas ~~March~~declared ~~17,~~quarterly ~~2015,~~dividends ~~there~~(Payment ~~were~~in 97Kind) ~~holders~~on ofits ~~record~~shares of ~~the Company’s~~Series ~~Common~~A Convertible Redeemable Preferred Stock, ~~holding~~par value aUS$0.001 ~~total~~per ofshare ~~126,047,236~~(the ~~shares~~“Series A Shares”), ~~and~~in anthe ~~unknown number~~last offour ~~beneficial~~fiscal ~~holders~~years.

~~As of March 17, 2015, there were 11,752,075 stock options fully~~The ~~vested~~Company’s ~~and~~significant ~~convertible~~liquidity ~~into~~risk ~~Common~~materially ~~Stock.~~limits Asthe ofCompany’s ~~March~~ability ~~17,~~to ~~2015,~~pay ~~there~~future ~~were 82,372,128 warrants convertible into Common Stock~~dividends.

The Company ~~has~~current ~~declared~~policy ~~quarterly~~is ~~dividends~~to ~~(Payment~~not inpay ~~Kind) on~~any ~~its~~cash ~~shares~~dividends ofon ~~Series~~its ACommon ~~Convertible Redeemable Preferred~~ Stock~~, par value US$0~~.~~001 per share (the “Series A Stock”), in the last three fiscal years.~~

The following table sets forth information detailing the Company’s ~~significant~~equity ~~liquidity~~compensation ~~risk~~plans ~~materially~~as ~~limits~~of ~~the~~December 31, 2015, under ~~Company’s~~which ~~ability~~shares toof ~~pay~~our ~~future~~Common ~~dividends.~~Stock are authorized to be issued.

The Company current policy is to not pay any cash dividends on its Common Stock.

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)		Weighted-average exercise price of outstanding options, warrants and rights (b)	Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by security holders		66,052,128	US$0.10		0
Equity compensation plans not approved by security holders		11,441,450	US$0.08		N/A
Total		77,493,578	N/A		0

(1) The ~~following table sets forth information detailing the~~ Company’s ~~equity~~2003 ~~compensation~~Stock ~~plans~~Option asPlan ofexpired ~~December~~on ~~31,~~January ~~2014~~2, ~~under which shares of our Common Stock are authorized to be issued~~2013.

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights (a)	Weighted-average exercise price of outstanding options, warrants and rights (b)	Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by security holders	92,642,876	US$0.09	0
Equity compensation plans not approved by security holders	0	0	N/A
Total	92,642,876	N/A	0

(2) The above table doesn’t include 200,000 stock options the Company granted in January 2016 to Ms. Zheng, the Principal Financial Officer

~~Under Item 701 of Regulation S-K, other than below, no~~All securities ~~were~~ sold by the Company within the past three years ~~which~~that were not registered under the Securities Act of 1933, as amended:, have been disclosed in the Company’s SEC filings on Current Reports on Form 8-K.

OnPage ~~December~~15 ~~30, 2014, the Company issued each~~ of Dennis Raefield, Robert Liscouski, Paul Brisgone and Paul Goldenberg 250,000 compensation warrants, each warrant exercisable to acquire an additional share of Common Stock at an exercise price of USD$0.09 per share for a period of three years from the date of issuance. The warrants may be exercised on a cashless basis.68

~~On January 20, 2015,~~Item ~~Dendera~~6. ~~Capital~~SELECTED ~~Fund~~FINANCIAL LP (whose principal is Geoffrey Arens, the Managing Member of the General Partner) (“Dendera”), purchased a total of 200 shares of Series A Stock for a purchase price of CAD$234,000 to rectify the prior issuance of 2,925,000 shares of Common Stock by the Company to Dendera on January 20, 2015, which Series A Stock was issued by the Company to Dendera as was originally intended. DATA

~~Item 6~~Not applicable. ~~SELECTED FINANCIAL DATA~~

~~Not applicable~~Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

~~Item~~The following 7discusses the Company’s financial condition and results of operations based upon its consolidated financial statements which have been prepared in conformity with accounting principles generally accepted in the United States of America. ~~MANAGEMENT~~It should be read in conjunction with the Company’Ss ~~DISCUSSION~~financial ~~AND~~statements ~~ANALYSIS~~and OFthe ~~FINANCIAL~~notes ~~CONDITION~~thereto ~~AND~~included ~~RESULTS~~elsewhere OFherein. ~~OPERATION~~All dollar amounts are in Canadian dollars unless otherwise noted.

~~The following discusses the Company’s financial condition and~~RESULTS ~~results~~OF of operations based upon its 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 the Company’s financial statements and the notes thereto included elsewhere herein. All dollar amounts are in Canadian dollars unless otherwise noted. OPERATIONS

20Year ended December 31, 2015 compared to the year ended December 31, 2014.

~~RESULTS OF OPERATIONS~~ Overview

~~Sales~~We ~~for~~reported ~~the~~a ~~years~~net ~~ended~~loss ~~December~~of ~~31, 2014 and 2013 were~~ $43,~~769~~597,~~298~~265 ~~and~~for ~~$4,134,886,~~the year ~~respectively,~~ended anDecember ~~increase of $634~~31,~~412~~ or2015 ~~15.3%.~~as ~~This increase~~compared ~~was due~~ to ~~increased~~the ~~Service~~net ~~Division~~loss ~~and~~of ~~Freedom~~$905,919 ~~Sales. Freedom sales~~ for the ~~years~~year ended December 31, 2014. ~~and~~The ~~2013~~increase ~~were~~in net ~~$1,606,114~~loss ~~and~~of $~~883~~2,~~680~~691,346 ~~respectively,~~is anmainly ~~increase of $722,434 or 81.8%. The bulk of this increase was~~ due to the ~~rapid~~loss ~~growth~~on settlement of ~~Freedom~~convertible ~~sales~~notes ~~which~~of ~~were just starting in 2013. MESH sales for the years ended December 31, 2014 and 2013 were~~ $1476,~~846~~918,~~671~~ ~~and~~accrued $1interest,~~974,482,~~ ~~respectively,~~total ~~a decrease~~ of $~~127~~373,~~811 or 6.5%.~~839, ~~MESH~~on ~~continued~~the toSeries ~~provide~~A anand ~~alternative~~B ~~solution~~Demand toNotes ~~Freedom~~(as ~~for~~defined ~~many~~below) ofwe ~~our customers~~issued ~~during~~in ~~2014.~~November ~~Enterphone~~2015, ~~sales for~~ the ~~years~~amortization ~~ended December~~of ~~31,~~debt ~~2014 and 2013 were $399~~discount,~~115~~ ~~and~~total of $~~402~~2,~~709~~251, ~~respectively~~497, amainly ~~decrease of~~related ~~$3,594~~to orfair ~~0.9%.~~value ~~Service~~of ~~Division~~embedded ~~sales~~conversion ~~for~~options ~~the~~of ~~years~~Series ~~ended~~A ~~December~~and 31B Demand Notes, ~~2014~~ and ~~2013~~a ~~were~~gain ~~$917,398~~of ~~and~~fair ~~$874,015,~~value change ~~respectively,~~of anderivative ~~increase~~liabilities, total of $431,~~383 or 5~~003,401.~~0%.~~

For the years ended December 31, 2014 and 2013, Freedom sales were 33.7% and 21.4%, respectively, of total sales. For the years ended December 31, 2014 and 2013, MESH sales were 38.7% and 47.8%, respectively, of total sales.Revenues

OnSales for the ~~legacy~~years ~~business~~ended ~~side~~December 31, ~~MESH~~2015 ~~sales~~and ~~have~~2014 ~~continued~~were ~~their slow~~$6,137,488 ~~decline~~and ~~due~~$4,769,298, torespectively, ~~the~~reflecting ~~age~~an increase of ~~this~~$1,368,190 or ~~low-end~~29%. ~~product~~Freedom sales increased by $1,054,390 ~~and~~or ~~the~~64% ~~lack~~from of$1,650,645 ato ~~mid-range product~~$2,705,035 for the ~~marketplace.~~years ~~Only~~ended ~~our~~December ~~high-end~~31, ~~MESH~~2014 ~~touch~~and ~~screen~~2015, respectively, ~~product~~primarily ~~is continuing~~due to ~~grow.~~a ~~MESH~~contract iswith athe ~~convergent~~United ~~technology~~States ~~developed~~Government. byEnterphone ~~Viscount~~(including ~~that increases~~MESH) ~~security~~sales atfor athe ~~reduced~~years ~~cost~~ended December ~~of hardware~~31, ~~cabling~~2015 and ~~installation~~2014 of $2,371,798 and ~~with~~ ~~simplified~~$1,981,132, ~~database~~respectively, ~~management~~reflecting an increase of $390,666 or 20%.

On During the ~~new~~year ~~product~~ended ~~lines~~December 31, 2015, our ~~Freedom~~high-end ITMESH ~~platform~~touch ~~can~~screen ~~turn~~product ~~any card~~continued ~~reader into an IP device by connecting the Freedom IP device with built-in input/output~~ to agrow. ~~POE~~MESH ~~switch and then every card usage~~ is ~~processed on~~ a ~~redundant~~ ~~Freedom~~convergent ~~server~~technology ~~either in the building or any remote site. The software~~developed ~~component~~by ofViscount ~~Freedom~~that isincreases ~~a web browser~~ security ~~operating~~at ~~platform. Unlike control panels, the user database and the door control software is processed in IT language located on~~ a ~~server(s),~~reduced ~~thereby~~cost ~~future-proofing systems from the traditional issue~~ of ~~proprietary~~ hardware, ~~version~~cabling ~~obsolescence~~ and ~~improving scalability~~installation, byand ~~eliminating~~with ~~the~~simplified ~~need~~database ~~for additional costly hardware every time a reader is added to the system~~management.

~~The~~On the ~~Company~~new ~~also~~product ~~provides~~lines, ~~Enterphone~~our ~~support~~Freedom ~~and~~IT ~~maintenance services~~platform ~~pursuant~~can toturn ~~service~~any ~~contracts~~card ~~that~~reader ~~were~~into ~~assigned~~an toIP usdevice ~~from~~by ~~Telus Corporation~~connecting ~~in 2003. Sales from~~ the ~~1,186~~Freedom ~~existing~~IP ~~service~~device with ~~contracts~~built-in ~~continue~~input/output to ~~decline~~ ~~slowly~~a asPOE ~~older~~switch ~~equipment~~and isthen ~~removed~~every ~~from~~card ~~service.~~usage Onis ~~average,~~processed ~~each service~~on ~~contract~~a ~~represents~~redundant ~~ongoing~~Freedom ~~revenues~~server ofeither ~~approximately~~in ~~$38 per month,~~the ~~inclusive~~building ofor ~~parts~~any ~~and~~remote ~~labor~~site. ~~Monthly~~The ~~fees~~software ~~included~~component ~~equipment~~of ~~sales~~Freedom tois ~~those contracts~~a asweb ~~well.~~browser ~~Typical~~security ~~customers~~operating ~~include~~platform. ~~strata~~Unlike ~~management~~control ~~and building~~panels, ~~owners~~the asuser ~~well~~database ~~as various residential, business~~ and ~~industrial~~the ~~users~~door ~~of Enterphone access~~ control ~~and~~software ~~security~~is ~~systems.~~processed ~~During~~in ~~the~~IT ~~twelve~~language ~~months~~located ~~ended December~~on ~~31,~~a ~~2014 and 2013~~server(s), ~~customer~~thereby ~~service~~future-proofing ~~contracts and new equipment sales~~systems ~~generated~~from ~~aggregate~~the ~~revenues~~traditional ofissue ~~$1,137,521 and $1,083,481, respectively, an increase~~ of ~~$54,040~~proprietary orhardware ~~5.0%.~~version ~~The~~obsolescence ~~decrease~~and inimproving ~~service~~scalability ~~contracts~~by ~~has~~eliminating ~~been~~the ~~offset~~need for byadditional ancostly ~~increase~~hardware inevery time ~~and~~a ~~material~~reader ~~billing~~is ~~and~~added ~~new~~to ~~installations~~the system.

Customer service contracts and new equipment sales revenues decreased by $76,866 or 7%, from $1,137,521 to $1,060,655 from the years ended December 31, 2014 to 2015, respectively. 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,~~186~~134 at December 31, ~~2014~~2015, as compared to 1,~~254~~186 at December 31, ~~2013~~2014. 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 December 31, ~~2014~~ 2015, the cost of the service ~~agreements~~agreement, ~~net~~had ofbeen ~~accumulated~~fully ~~amortization~~amortized. In 2015, ~~was~~on average, each service contract represented ongoing revenues of approximately $543 per month,~~224~~ inclusive of parts and labor. Monthly fees included equipment sales to those contracts as well. Typical customers include strata management and building owners as well as various residential, business and industrial users of Enterphone access control and security systems.

~~Cost of sales and services as a percentage of sales was 51.6%~~Gross and 42.1% for the years ended December 31, 2014 and 2013, respectively. 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.profit

21Gross profit for the years ended December 31, 2015 and 2014 were $3,690,084 and $2,307,921, respectively, reflecting an increase of $1,382,163 or 60%. For the years ended December 31, 2015 and 2014, the cost of sales and services were $2,447,404 and $2,461,377 or 40% and 52% of sales, respectively. Cost of sales includes inventory provision cost. During the year ended December 31, 2015 and 2014, total inventory provision cost accrued was $316,677 and $125,000, respectively. As of December 31, 2015 and 2014, total inventory reserve balance resulted from the provision accrual, inventory obsolescence and shrinkage was $586,563 and $317,447, respectively. (Details see Note 2-4 to the Consolidated Financial Statements).

~~Gross~~Page ~~profit~~16 ~~for the years ended December 31, 2014 and 2013 was $2,307,921 and $2,392,609, respectively, a decrease~~ of $84,688 or 3.5%. This decrease was due to an adjustment in obsolete inventory which reduced cost of sales in 2013. The gross margin percentage for the year ended December 31, 2014 of our product categories of MESH, Freedom, Enterphone, and Service Division were 33.8%, 68.5%, 13.5% and 57.6% respectively. The gross margin percentage for the year ended December 31, 2013 of our product categories of MESH, Freedom, Enterphone, and Service Division were 47.7%, 80.2%, 45.0%, and 64.3%, respectively.

~~Selling,~~Gross margin ~~general and administrative expenses~~ for the years ended December 31, ~~2014~~2015 and ~~2013~~2014 were ~~$5,624,312~~60% and $348%,~~064,786,~~ respectively~~, an~~. ~~increase~~The ofhigher ~~$2,559,526~~gross ormargin ~~83.5%. Included~~ in ~~the~~2015 ~~selling,~~is ~~general and~~mainly ~~administrative~~due ~~expenses for the year ended December 31, 2014 was $1,519,950 of non-cash stock compensation expense for the issuance by the Company of warrants and stock options~~ to ~~management,~~a ~~staff and consultants~~U.S. ~~Excluding~~Citizenship ~~this non-cash compensation expense from selling, general~~ and ~~administrative~~Immigration ~~expenses,~~Services ~~the~~(“USCIS”) ~~year ending~~sale ~~December~~which ~~31,~~occurred ~~2014 would result~~ in aMay ~~total~~2015, oftotaling $4726,~~104~~000,~~362,~~ ~~respectively, a~~with ~~significant~~lower ~~reduction~~cost inof ~~true selling, general and administrative expenses, excluding the non-cash charges~~sales. ~~The inclusion of this expense skews the percentages for the year ended December 31~~Also, ~~2014~~in ~~selling~~2015, ~~general~~management ~~and administrative~~has ~~expenses,~~continued ~~as a percentage of sales,~~ to befocus ~~117.9%,~~on ascontrolling ~~compared to~~ the ~~year~~input ~~ended~~costs ~~December~~by ~~31,~~using ~~2013~~multiple ~~being 74.1%. Excluding the non-cash~~suppliers ~~compensation~~to ~~expense~~ensure ~~from~~that the ~~selling,~~best ~~general~~ and ~~administrative~~most ~~expenses~~cost ~~for the~~effective ~~year~~raw ~~ended~~materials ~~December~~are ~~31,~~used ~~2014 would result~~ in ~~selling,~~all ~~general and administrative expense as a percentage~~ of ~~total~~our ~~sales to be 86~~products.~~16%.~~ ~~Consulting fees~~The ~~for~~cost ~~the~~of ~~year~~labor ~~ended December 31, 2014~~ and ~~2013~~travel ~~were~~incurred to ~~$481,875~~generate ~~and~~our ~~$966,776, respectively,~~service adivision ~~decrease~~sales ofhas ~~$484,901~~also orbeen 50reduced.~~2%.~~ ~~This~~Increased ~~decrease~~software ~~was~~sales ~~due~~with zero to ~~some consultants~~minimal ~~becoming~~cost ~~employees~~ of ~~the~~sales ~~Company in 2014 and some consulting~~also ~~services~~increased ~~being~~our ~~discontinued~~gross margin.

~~Research~~The gross ~~and~~margin ~~development~~percentage ~~costs~~ for the year ended December 31, ~~2014~~ ~~and~~2015 ~~2013~~of ~~were~~our ~~gross~~product ~~$703,288~~categories ~~and~~of ~~$425~~Mesh/Enterphone,~~016~~ Freedom, ~~respectively.~~and ~~Government grants~~Service ~~for~~Division ~~the~~were ~~year ended December 31~~35%, ~~2013~~79% ~~totaled $146,502, resulting in net research~~ and ~~development~~66% ~~costs of $278,514~~respectively. ~~Research~~The ~~and~~gross ~~development~~margin ~~costs~~percentage ~~have~~for ~~increased during~~ the year ended December 31, 2014 asof ~~compared~~product tocategories of ~~the~~MESH, ~~year~~Freedom, ~~ended December 31~~Enterphone, ~~2013~~and ~~due~~Service toDivision ~~the~~were ~~hiring~~34%, of64%, ~~three~~14% ~~newly created technical support positions~~ and ~~not~~63%, ~~receiving additional government grants in 2014~~respectively.

~~Loss before other items for the year ended December 31~~Selling, ~~2014~~ ~~was~~general $4,069,977 as compared to a loss before other items of $974,515 for the year ended December 31, 2013, an increased loss of $3,095,462. Included in the net loss for the year ended December 31, 2014 was a non-cash compensation expense of $1,519,950 for the issuance by the Company of warrants and ~~stock~~administrative options to management and staff. Otherwise, excluding this non-cash compensation expense would result in a loss before other items for the year ended December 31, 2014 of $2,550,027. This adjusted loss before other items of $2,550,027 is an increased loss of $1,575,511 as compared to the loss before other items of $974,516 for the year ended December 31, 2013.expenses

~~Total~~Selling, general ~~assets~~and atadministrative expenses for the years ended December 31, 2015 and 2014 were $14,~~597~~009,~~773~~925 and ~~total financial~~$5,674,610, ~~liabilities~~respectively, reflecting ~~including~~a decrease of ~~derivative~~$1,664,685 ~~financial~~or ~~liabilities~~29%, ~~were $3,970,003.~~primarily ~~Total~~due ~~Common~~to ~~Stock~~a ~~issued~~decrease asin stock based compensation expenses. During the ~~dividend~~year ended ~~payment~~December of31, 2014, the Company’s issued 4,940,000 warrants to its board members, and 10,561,450 stock options to its former ~~Series~~CEO Aand ~~Stock~~employees. ~~for~~The Company measured the ~~years~~fair ~~ended~~value ~~December~~of ~~31,~~stock ~~2014~~options and ~~2013~~warrants ~~were~~issued ~~974~~using Black-Scholes Model,~~795~~ ~~and~~recorded stock based compensation expenses total of $1,~~257~~519,~~523~~950. In the year of 2015, the Company issued 4,250,000 restricted shares to its board members and 400,000 stock options to its employees. The Company measured the fair value of ~~Common~~stock ~~Stock~~options and restricted stock issued using Black-Scholes model, ~~respectively~~recorded the stock based compensation expenses total of $106,391 in the year ended December 31, 2015.

~~Liquidity~~2015 Employee salaries and ~~Capital~~benefits ~~Resources~~increased 26% compared to 2014 mainly due to the sales and administration department salaries increase from $1,246,851 to $1,608,648 from the year ended December 31, 2014 to 2015. 2015 Marketing expenditure decreased 22% compared to 2014 due to less marketing activities, general administrative expense decreased 36% comparing to 2014 as management has continued focusing on cost savings for general expenditures. Auditing and legal fees decreased 16% compared to 2014 mainly due to decreased legal proceeding costs.

~~Cash as of December 31, 2014, as compared to December 31, 2013~~Research ~~was $190,309~~ and ~~$172,684, respectively, a decrease of $17,625.~~development

OnResearch and ~~May~~development ~~17,~~costs ~~2013,~~for the ~~Company~~years ~~completed~~ended aDecember ~~private placement of 4~~31,~~750,000~~ ~~units~~2015 atand a2014 ~~price~~were of $~~0.10~~885,592 ~~per~~and ~~unit for total proceeds of~~ $~~475~~703,~~000. On May 21~~288, ~~2013~~respectively, ~~the~~reflecting ~~Company completed~~ an ~~additional private placement~~ increase of 2$182,~~000,000 units~~304 ator ~~a price of $0~~26%.10 ~~per~~Research ~~unit~~and ~~for~~development ~~total~~costs ~~proceeds~~have ofincreased ~~$200,000.~~during ~~Each~~2015 ~~unit consists~~as ofcompared ~~one~~to ~~share~~2014 ofdue ~~Common~~to ~~Stock~~the ~~and~~hiring ~~one-half~~ of ~~one~~new ~~share purchase warrant~~R&D ofconsultants for the ~~Company~~FIPS ~~(“Warrant”),~~project ~~with~~and ~~each~~technical ~~whole~~support ~~Warrant~~personnel. ~~exercisable~~In to2016, ~~acquire~~the ~~an additional~~Company ~~share~~may ofdecrease ~~Common~~the ~~Stock~~R&D atexpenditures adue to ~~price~~the ofshortage ~~$0.20 for a period~~ of ~~three~~cash ~~years from the closing date~~flow.

~~In connection with the May 17, 2013 and May 21, 2013 offerings,~~Operating the Company paid to a registered broker-dealer a cash commission of $7,500 and issued 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. loss

OnOperating loss ~~March~~for ~~11, 2014,~~ the ~~Company~~year ~~completed~~ended aDecember ~~private~~31, ~~placement~~2015 ~~of 8~~was $1,~~333~~205,~~329~~433 ~~shares~~as ofcompared ~~Common~~to ~~Stock at a price of~~ $~~0.09~~4,069,977 ~~per~~for ~~share~~the ~~for~~year ~~total proceeds~~ended ofDecember ~~$750~~31,~~000.~~ ~~The~~2014, ~~Company also issued~~ a ~~total~~ decrease of 4$2,~~166~~864,~~659~~544 ~~Warrants~~or 70%, ~~each~~ ~~Warrant~~primarily ~~exercisable~~due to ~~acquire~~the anincrease ~~additional share~~ of ~~Common~~revenue ~~Stock~~and atgross ~~an exercise~~profit ~~price~~and ofdecrease ~~$0.20 per share for a period~~ of ~~five~~stock-based ~~years~~compensation ~~from the closing~~expenses ~~date~~described above.

22Other income (expense)

InOther ~~connection~~expense ~~with~~was ~~the March 11~~$2, ~~2014 offering~~391,832 for the ~~Company~~year ~~paid~~ended toDecember a31, ~~registered~~2015, ~~broker-dealer~~compared ato ~~commission~~other income of $713,~~000~~164,058 infor ~~cash~~the ~~and~~year ~~Warrants to~~ended ~~acquire~~December ~~788~~31,~~888~~ ~~shares~~2014, ofreflecting ~~Common~~a ~~Stock~~decrease of $5,555,890 primarily due to the ~~Company~~change atin afair ~~price~~value of ~~$0.09~~derivative ~~per~~notes liabilities, loss on conversion from Series A convertible ~~share~~redeemable ~~for~~preferred aA ~~period~~shares ofto ~~five~~Series ~~years~~A ~~from~~Demand ~~the~~Notes ~~closing~~and ~~date.~~PIK ~~The~~(Payment ~~Warrants~~in ~~may~~Kind) ~~be exercised~~interest accrued on aSeries ~~cashless~~A ~~basis.~~and B Demand Notes.

OnDuring ~~March 27, 2014,~~ the ~~Company~~year ~~completed~~ended aDecember ~~private~~31, ~~placement~~2015, ofthe ~~16,502,220~~Company ~~shares~~recorded ~~of Common Stock at~~ a ~~price of $0.09 per share for~~ total ~~proceeds~~ of $12,~~485~~251,~~200.~~497 ~~The~~as ~~Company~~an ~~also~~amortization ~~issued a total~~ of ~~8,251,107~~debt ~~Warrants, each~~discount ~~Warrant~~mainly ~~exercisable~~related to ~~acquire~~the anfair ~~additional~~value ~~share~~ of ~~Common~~the ~~Stock~~embedded ~~at an~~conversion ~~exercise~~options ~~price~~from ofSeries ~~$0.20~~A ~~per~~Demand ~~share~~Notes ~~for~~and aSeries ~~period~~B ofDemand ~~five~~Notes ~~years~~issued ~~from~~in the ~~closing date~~year of 2015.

OnDuring ~~March~~the year ended December 31, ~~2014~~2015, the Company ~~issued~~recorded ana ~~additional~~gain ~~277~~of $1,~~778 shares~~003,401 ofdue ~~Common~~to ~~Stock~~the atchange ain ~~price~~fair value of $0derivative liabilities.09 ~~per~~The ~~share~~derivative ~~for~~liabilities ~~total~~consist of ~~proceeds~~the fair value of ~~$25,000.~~ ~~The~~certain ~~Company~~share ~~also~~purchase warrants that were issued ~~138,888~~in ~~Warrants,~~unit ~~each~~private ~~Warrant~~placements ~~exercisable~~that ~~to acquire~~have an ~~additional~~exercise ~~share~~price ofin a ~~Common~~currency ~~Stock~~other atthan anthe ~~exercise~~functional ~~price~~currency of ~~$0.20~~the ~~per~~Company, as well as embedded conversion options in Series A Shares issued ~~share~~and ~~for~~the aembedded ~~period~~conversion ofoptions ~~five~~in ~~years~~Series ~~from~~A Demand Notes and Series B Demand Notes issued in the ~~closing~~year ~~date.~~of 2015.

InPage ~~connection~~17 ~~with the March 27, 2014 and March 31, 2014 offerings, the Company paid to a registered broker-dealer a commission~~ of ~~$35,604~~ in cash and 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. 68

OnDuring the year ended December 3031, ~~2014~~2015, the Company ~~issued~~recorded ~~each~~$413,594 ofas ~~Dennis Raefield,~~a ~~Robert~~loss ~~Liscouski,~~on ~~Paul~~conversion ~~Brisgone~~from ~~and~~Series ~~Paul~~A ~~Goldenberg~~Shares ~~250,000 compensation~~to ~~warrants,~~Series ~~each~~A ~~warrant~~Demand ~~exercisable~~Notes. toThis ~~acquire~~is anthe ~~additional~~difference ~~share~~ between the total principal amount of ~~Common~~Series ~~Stock~~A atDemand anNotes ~~exercise~~and ~~price~~the ofaggregated ~~USD$0~~Series A Shares redemption value.09 ~~per~~During ~~share~~2015, ~~for~~the Company also recorded $63,324 as a ~~period~~loss on settlement of ~~three~~ ~~years~~the ~~from~~convertible note, related to the ~~date~~interest and penalty of ~~issuance.~~the ~~The~~early ~~warrants~~repayment of ~~may~~the beconvertible ~~exercised~~promissory onnote, ~~a cashless~~the ~~basis~~Company issued in April 2015. (Details see Note 9 to the Consolidated Financial Statements)

~~Subsequent to the year ended~~ At December 31, ~~2014, on January 20,~~ 2015, the Company ~~completed~~revalued athe ~~private~~notes ~~placement~~liability ofrelated ~~2,925,000~~to ~~shares~~the ofSeries ~~Common Stock~~A atDemand aNotes ~~price~~and ofSeries ~~CAD$0.08~~B ~~per~~Demand ~~share for total proceeds of CAD$234~~Notes,~~000.~~ ~~The~~which ~~Company~~were ~~also~~denominated ~~issued~~in aUS$ ~~total of 1~~currency,~~462,500~~ ~~Warrants, each Warrant exercisable to acquire an additional share of Common Stock~~ at ~~an exercise price of CAD$0.16 per share for a period of five years from~~ the ~~closing~~year ~~date.~~end ~~The~~exchange ~~Warrants~~rate, ~~may~~and ~~be exercised~~recorded on a ~~cashless~~foreign ~~basis.~~exchange ~~This~~loss ~~private placement was cancelled~~ on ~~March~~revaluation ~~16, 2015~~of ~~and replaced with Series A Stock as described below~~$178,787.

OnAs of ~~January~~December 2031, 2015, ~~Dendera Capital Fund LP (whose principal is Geoffrey Arens,~~ the ~~Managing~~Company ~~Member~~accrued ~~of the General Partner) (“Dendera”), purchased a~~ total ofpayment ~~200~~in ~~shares~~kind ofinterest ~~Series~~expenses ~~A Stock for a purchase price~~ of ~~CAD~~ $~~234~~373,~~000~~841 related to ~~rectify~~ the ~~prior~~interest ~~issuance of 2,925,000 shares of Common Stock by~~payable ~~the Company to Dendera~~ on ~~January~~the ~~20, 2015, which~~ Series A ~~Stock~~Demand ~~was~~Notes ~~issued~~and ~~by the~~B ~~Company~~Demand ~~to Dendera as was originally intended~~Notes.

~~At December 31, 2014, the Company had working capital (defined~~Assets asand current assets less current liabilities) of $290,951 as compared to working capital of $248,877 at December 31, 2013, an increase of $42,074. The current ratio at December 31, 2014 was 1.27 as compared with 1.24 at December 31, 2013. Liabilities

~~The Company’s financial statements have been prepared on a~~Total ~~going~~assets ~~concern~~at ~~basis~~December 31, ~~which~~2015 ~~assumes the Company will be able to realize its assets~~ and ~~discharge~~2014 ~~its~~were ~~liabilities in the normal course of business for the foreseeable future. The Company has an accumulated deficit of~~ $121,661,~~536, reported~~312 aand ~~loss for the year ended December 31~~$1,597,773, ~~2014~~respectively. ofTotal ~~$990~~liabilities,~~681~~ ~~and~~including ~~has~~derivative ~~working~~financial ~~capital~~liabilities ~~of $290,951~~ at December 31, ~~2014.~~2015 ~~Cash~~and ~~flows used in operating activities for the year ended December 31~~2014, ~~2014~~ were $210,~~123~~231,~~807.~~399 ~~Although management is confident that the Company believes it can access sufficient working capital to maintain operations~~ and ~~ultimately generate positive cash flow from operations~~$3,970,003, ~~the ability to sustain the current level of operations is dependent upon growing sales and achieving profits~~respectively. ~~There~~The ~~can~~increase bein noliabilities ~~assurance that the Company will be successful~~ in ~~obtaining sufficient working capital and~~2015 ~~that~~is ~~actual~~mainly ~~results will not materially differ~~ from ~~expectations.~~Series IfA ~~working capital~~Demand ~~becomes~~Note ~~insufficient,~~and ~~the~~Series ~~Company~~B ~~will~~Demand ~~have~~note toliabilities ~~reduce~~$3,491,802 ~~spending in several key areas including research~~ and ~~development and marketing. This would have a negative impact on~~ the ~~growth~~derivative ~~prospects~~liabilities of ~~the Company. In the event the~~$4,383,668, ~~Company~~mostly ~~hits~~related ~~its~~to ~~sales targets,~~ the ~~Company~~conversion ~~will~~option ~~have sufficient working capital for 2015. Management continues actively seeking new investors and developing customer relationships. These factors raise substantial doubt about the ability~~ of the ~~Company~~Series toA ~~continue~~Demand ~~operations~~Note asand aSeries ~~going~~B ~~concern~~Demand Note.

~~The~~Page ~~outstanding~~18 ~~term~~of for our receivables has been increasing due to a few slower-paying customers. The accounts receivable reserve was $181,529 at December 31, 2014 as compared to $250,458 at December 31, 2013 due to more rigorous collection efforts on difficult accounts. The accounts receivable reserve has decreased by $68,929 or 27.5%, 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.

23Series A Shares Dividends

~~The~~During the ~~Company~~year isended ~~subject to significant liquidity risk. At~~ December 31, 2015 and 2014, ~~the~~contractual ~~Company’s~~dividends ~~current~~were ~~assets~~$28,796 ~~consist~~and ~~principally~~$84,762, ofrespectively, ~~trade accounts~~which ~~receivables~~represented ~~and~~the value ~~inventory.~~of ~~The~~the ~~Company~~embedded ~~intends~~conversion tooptions ~~conduct~~associated ~~capital raises~~with ~~for~~Series ~~Common~~A ~~Stock,~~Shares ~~preferred~~issued ~~shares,~~as ~~convertible~~quarterly ~~debt and factoring~~dividends.

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

~~There~~We had ~~are~~cash noof ~~material~~$250,270 ~~unused~~as ~~sources~~of December 31, 2015 and negative working capital of ~~liquid~~$8,749,314 ~~assets~~as of December 31, 2015. The large amount of negative working capital is mainly due to the notes liability, the derivative notes liability and accrued PIK interest payable on the Series A and B Notes liabilities. We had an accumulated deficit of $16,258,801 as of December 31, 2015 and reported an operating loss for the year ended December 31, 2015 of $1,205,433. Cash flows used in operating activities for the year ended December 31, 2015 were $478,620. Net cash provided by financing activities was $615,829 for the year ended December 31, 2015. We are subject to significant liquidity risk. These factors raise substantial doubt about our ability to raise sufficient working capital and continue operations as a going concern. At December 31, 2015, our current assets consist principally of cash, trade accounts receivables and inventory.

~~For~~Based on our current financial position, we could be required to fund our operations on a month-to-month basis. Based on the ~~year~~cash ~~ended~~flow projection ~~December~~over ~~31,~~the ~~2014~~next twelve months, the Company ~~invested~~ needs average working capital of $~~185~~595,~~714~~000 each month to cover its monthly operations, including monthly payroll expense, research and development expense, selling, general and administration expense and the cash needed to purchase the manufactory raw material. The ability to continue operations is dependent upon raising additional capital and/or growing sales and achieving profits. We will likely require additional funds to support the development and marketing of our new Freedom products. Management is also seeking to sell one of our business units, due to its non-core nature, as an asset sale to raise sufficient capital for business operations. While we continue to actively seek new investors and customer relationships, there can be no assurance that we will be successful in obtaining sufficient working capital on terms that are acceptable or that actual results will not materially differ from expectations. If working capital ~~expenditures~~becomes insufficient, ~~consisting~~we ofwill ~~computers~~have to reduce spending in several key areas including research and development and marketing. This would have a negative impact on our growth prospects, would ~~office~~render ~~furniture~~us unable to take advantage of future opportunities or respond to competitive pressures, and could result in our ~~leasehold~~having ~~improvements~~to curtail operations. The management team will be working diligently to improve collection of accounts receivable and to reduce costs during 2016.

ToOur financial ~~date,~~statements ~~the~~have ~~Company~~been ~~has~~prepared ~~not~~on ~~invested~~a ingoing ~~derivative~~concern ~~securities or~~basis, ~~any~~which ~~other~~assumes ~~financial~~that ~~instruments~~we ~~that~~will ~~involve~~be aable ~~high~~to ~~level~~realize ofour ~~complexity~~assets orand ~~risk.~~discharge ~~The~~our ~~Company~~liabilities ~~expects that~~ in the ~~future,~~normal ~~any~~course ~~excess~~of ~~cash~~business ~~will~~for ~~continue~~the ~~to be~~foreseeable ~~invested~~future. inThe ~~high~~financial ~~credit~~statements ~~quality,~~do ~~interest-bearing~~not ~~securities~~include any adjustment that ismight ~~subject to~~result afrom ~~Board-approved~~the ~~investment~~outcome ~~policy.~~of this uncertainty.

~~The Company will likely require additional funds to support the~~During development and marketing of its new Freedom and Liberty products. 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~~years ~~may~~ended beDecember ~~unable to develop or enhance its products~~31, ~~take~~2015 ~~advantage~~and ~~of future opportunities~~2014, ~~respond to~~our ~~competitive~~sources ~~pressures,~~ and ~~may~~uses ~~have~~of tocash ~~curtail~~were ~~operations.~~as follows:

~~There are no legal or practical restrictions on the ability to~~Net ~~transfer~~Cash ~~funds~~Used ~~between~~in ~~parent~~Operating ~~and subsidiary companies.~~ Activities

~~The~~During ~~Company~~the ~~does~~years ~~not~~ended December 31, 2015 and ~~have~~2014, ~~any~~we ~~material~~experienced ~~commitments~~negative cash flows from operating activities in the amounts of $478,620 and $2,123,807, respectively. The net cash used in operating activities for ~~capital~~the ~~expenditures~~year asended December 31, 2015 was primarily due to net loss of $3,597,265 increased by the adjustment of net non-cash expenses of $3,310,071, offset by the non-cash income of $1,003,401 (the change in fair value of derivative liabilities). Net cash generated from changes in the levels of operating assets and liabilities is $811,975, primarily from an increase in the level of accounts payable and note interest payable, increase of the inventory and decrease of the accounts receivable. The net cash used in operating activities for the year ended December 31, 2014, was primarily due to cash used to fund the net loss of $905,919 and the adjustment of non-cash income of $3,160,272 (the change in the fair value of derivative liabilities), partially offset by the adjustment of non-cash expenses of $1,886,141, plus $56,243 of net cash generated from changes in the levels of operating assets and liabilities, primarily from an increase of accounts payable, increase of the inventory and a decrease of accounts receivable.

~~OFF-BALANCE~~Net Cash ~~SHEET~~Used ~~ARRANGEMENTS~~in Investing Activities

~~There are no off-balance sheet arrangements that have or are~~During ~~reasonably~~the ~~likely~~years toended ~~have~~December a31, ~~current~~2015 orand ~~future~~2014, ~~effect~~$22,247 onand ~~the~~$185,714, ~~Company’s financial condition~~respectively, ~~changes~~of incash ~~financial~~was ~~condition,~~used ~~revenues~~to orpurchase ~~expenses,~~property ~~results~~and ~~of operations~~equipment, consisting ~~liquidity~~of computers, ~~capital~~office ~~expenditures~~furniture orand ~~capital~~leasehold ~~resources that is material to investors~~improvements.

~~Fourth~~Page ~~Quarter~~19 of 68

~~During the fourth quarter of 2014, the Company continued to~~Net ~~experience~~Cash ~~cash~~Provided ~~flow challenges. These problems impacted the Company's ability to perform some marketing activities and were caused~~ by ~~unexpected~~Financing delays in orders or payments from U.S. Federal Government contractors. These orders are expected to be released in the first or second quarter of 2015. The Company’s sales continued to show strength through continued demand for MESH Touch Screens, especially Freedom, U.S. Federal Government deployments, and the addition of several major distributors of its Liberty access control system. The Company diverted significant engineering resources to the final development of its U.S. Government FICAM solution and its targeted submission of its new FICAM topology application, completed in 2014. Activities

~~Critical~~During ~~Accounting~~the ~~estimates~~years ended December 31, 2015 and 2014, ~~judgments:~~$615,829 and $2,327,145, respectively, of cash was provided by financing activities. The net cash provided by financing activities during the year of 2015, resulted from $234,000, $596,501 and $3,050 of proceeds from the issuance of preferred stock, convertible notes and common stock and warrants, respectively, partially offset by payment of $1,472, $5,000, and $211,250 for capital leases, deferred financing costs, and repayment of convertible note, respectively. The net cash provided by financing activities for the year of 2014, resulted from $2,327,145 of proceeds from the issuance of common stock and warrants.

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 estimation 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:Financing

24Series A Preferred Stock

~~Product~~On January ~~revenue~~20, is2015, ~~recognized~~Dendera ~~when~~Capital ~~there~~Fund isLP ~~persuasive~~(whose ~~evidence of~~principal ais ~~sale~~Geoffrey ~~arrangement~~Arens, ~~delivery to~~ the ~~customer~~Managing ~~has~~Member ~~occurred,~~of the ~~fee~~General isPartner ~~fixed~~of Dendera ~~and~~Capital ~~determinable,~~Fund LP and ~~collectability~~a ismember ~~considered~~of ~~probable.~~our ~~Sales~~Board orof ~~transfers to~~Directors) ~~customers~~(“Dendera”), ~~prior~~purchased toa ~~these~~total ~~criteria~~of ~~being~~200 ~~met~~shares ~~are~~of ~~recorded~~Series asA ~~deferred revenue.~~Shares ~~Revenue~~for ~~from~~a purchase price of $234,000 to rectify the ~~installation~~prior issuance of ~~equipment~~2,925,000 isshares ~~recognized~~of ~~when~~Common Stock issued by the ~~installation~~Company to Dendera ~~has~~on ~~been~~January ~~completed~~20, ~~the~~2015 ~~fee~~(See ~~has~~Note ~~been~~11 ~~fixed~~to ~~and~~the ~~collectability~~Consolidated isFinancial ~~considered probable.~~ Statements)

~~The~~As the Company’s ~~follows~~Quarterly Report on Form 10-Q for the ~~cost~~quarter ~~reduction~~ended ~~method~~June of30, ~~accounting~~2015 was not timely filed with the SEC (a “Redemption Event”), the Company was required to redeem the Series A Shares for 150% of their stated value if holders of 10% of the ~~investment~~Stated ~~tax~~Value ~~credits~~(as defined in the Company’s Certificate of Designation, Preferences and ~~recognizes~~Rights of the ~~estimated~~Series ~~net~~A ~~recoverable~~Shares, ~~amount~~as amended ~~when~~(the “Certificate”)) of the Series A Shares provide the Company with a written notice of redemption within ~~reasonable~~sixty ~~assurance~~days ~~exists~~after asthe Redemption Event becomes known to ~~their~~such ~~collectability~~holders (a “Redemption Request”). ~~Investment~~Accordingly, ~~tax~~the ~~credits~~Company ~~claimed~~recorded ~~are~~a ~~ultimately~~$2,010,330 ~~subject~~deemed dividend in order to ~~finalization~~accrete ofthe aSeries ~~review~~A byShares ~~Canada~~up ~~Customs~~to ~~and~~its redemption value (150% of the stated value) ~~Revenue~~in ~~Agency~~the quarter ended September 30, 2015. NoIn ~~assurances~~addition, ~~can~~the bebalance ~~provided~~of ~~that~~the Series A Shares, $16,696, was reclassified from the mezzanine presentation to a current liability. On November 3, 2015, the Company’s ~~investment~~trued ~~tax~~up the deemed dividend to $2,713,707 to accrete the ~~credit~~Series ~~claims~~A ~~will~~Shares beup ~~accepted~~to asits ~~filed.~~redemption value, which brought the total aggregate amount of the Series A Shares to $2,730,403.

~~The~~On November ~~Company~~24, ~~has~~2015, ~~adopted~~some ~~the fair value method~~ of ~~accounting~~the ~~for all~~outstanding ~~stock-based~~Series ~~compensation~~A ~~expense.~~Shares ~~Stock-based~~were ~~compensation~~converted ~~expense~~into ~~is recognized~~Series inA ~~the~~Demand ~~consoldiated~~Notes. ~~financial~~See ~~statements for granted, modified, or~~“—Senior ~~settled~~Secured ~~stock~~Convertible ~~options~~Demand ~~and~~Promissory ~~compensation~~A ~~warrants~~Notes” ~~issued to employees for services~~below.

~~Equipment is stated at cost and depreciated over the estimated~~Senior ~~useful~~Secured ~~lives~~Convertible ofDemand ~~the~~Promissory ~~assets:~~B Notes

Asset	Basis	Rate
Automobile	declining balance	20%
Computer equipment	declining balance	30%
Leasehold improvements	declining balance	20%
Office furniture and equipment	declining balance	20%

On November 24, 2015, in consideration for $300,000, the Company issued Senior Secured Convertible Demand Promissory B Notes (the “Series B Demand Notes”) in the aggregate principal amount of $330,000 with an original issue discount of $30,000. The Series B Demand Notes are due and payable upon receipt of a written demand notice from the holders and failure to repay the Series B Demand Notes upon receipt of a written demand notice constitutes an event of default. The Series B Demand Notes accrue interest at 8% for each 30 days that the Series B Demand Notes remain outstanding and the interest rate will be increased upon an event of default to the lesser of 21% per annum and the highest amount permitted by applicable law. Interest payments must be made quarterly and may be made in cash or in the form of Series B Demand Notes.

~~Intangible~~The ~~assets~~Series ~~consist~~B Demand Notes may be converted (subject to certain beneficial ownership limitations), at the option of ~~intercom~~the ~~service~~holders, ~~agreements~~into ~~that~~shares (the “Conversion Shares”) ~~are~~of ~~considered~~Common Stock at a conversion price equal to ~~have~~sixty percent (60%) multiplied by the lowest bid price (or lowest sale price, as the case may be) of a ~~finite~~share ~~useful~~of ~~life.~~Common ~~They~~Stock ~~are~~during ~~recorded~~the at20 ~~cost~~consecutive trading days prior to the date of any conversion. The Company’s obligations to issue and ~~are~~deliver the Conversion Shares upon a conversion in accordance with the terms of the Series B Demand Notes ~~reviewed~~is ~~annually~~absolute ~~for~~and ~~impairment~~unconditional. OnIf ~~April~~a 1,holder ~~2005~~elects to convert the Series B Demand Note and the Company fails to deliver to the holder a certificate without a restrictive legend, the Company ~~began~~is ~~amortizing~~required to pay the holder, in cash, as liquidated damages, for each $10,000 of conversion amount, $200 per trading day commencing the ~~cost~~day after the date on awhich ~~straight-line~~the ~~basis~~shares ~~over~~were anto ~~estimated~~have been ~~useful~~delivered ~~life~~(increasing to $400 per trading day on the fifth (5th) trading day after such damages begin to accrue) for each trading day until the earlier of 10the ~~years.~~date such certificates are delivered without restrictive legend or the holder rescinds the conversion.

~~The~~Page ~~Company~~20 ~~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 un-collectability of the Company’s trade accounts receivable balances. If the Company determines that the financial conditions of any of its customers have deteriorated, whether due to customer specific or general economic issues, increases in the allowance may be made. 68

The ~~Company reviews its intangible assets on an annual basis~~ ~~for~~conversion ~~impairment.~~price ~~The~~of ~~intangible~~the ~~assets~~Series ~~are~~B ~~comprised~~Demand ofNotes ~~Enterphone~~is ~~service contracts.~~subject ~~Management~~to ~~specifically~~adjustment ~~reviews~~upon ~~the~~issuance ~~number~~ of ~~contracts~~certain ondividends ~~hand~~ and if ~~there~~distributions, ~~will~~reorganization, consolidation beor ~~significant~~merger, ~~future~~stock ~~cash~~splits, ~~flows~~and toissuance beby ~~generated from these contracts. If~~ the Company ~~determines~~of ~~that~~a ~~there~~security isat ~~impairment,~~a ~~then~~lower aprice ~~write-down will~~than bethe ~~made~~conversion price.

~~Raw~~For as ~~materials~~long as any of the Series B Demand Notes remain outstanding, ~~work~~the inCompany ~~process~~must ~~and~~obtain ~~finished~~express ~~goods~~written ~~are~~consent ~~stated~~from atthe holders of at least 50.1% of the ~~lower~~aggregate principal amount of ~~average~~all ~~cost~~of ~~and~~the ~~net~~Series ~~realizable~~B ~~value.~~Demand ~~Cost~~Notes ~~includes~~then ~~direct~~outstanding ~~labor~~to take the certain actions ~~utilized~~including incertain ~~assembly~~actions ~~and~~relating anto ~~allocation~~the Company’s securities and Articles of ~~plant~~Incorporation ~~overhead~~or By-Laws.

The Series B Demand Notes also require the Company ~~maintains~~to anreserve ~~allowance~~from ~~for~~its ~~inventory~~authorized ~~obsolescence~~shares of Common Stock a number of shares of Common Stock sufficient to convert all of the Series B Demand Notes into shares of Common Stock. In order to do so, the Company has covenanted ~~Management~~to ~~reviews~~increase its authorized shares to 3,000,000,000 shares as soon as possible. If the ~~inventory~~Company onis aunable ~~quarterly~~to ~~basis~~satisfy bythis ~~directly~~covenant, the ~~testing~~Company will owe to the holders for each day that the Company has not cured each breach of the covenant including the first ~~obsolete~~date ~~inventory~~of such breach, an amount equal to 2% of such holder’s Series B Demand Notes plus all accrued but unpaid interest.

~~The Company follows the asset and liability method of~~Senior ~~accounting~~Secured ~~for~~Convertible ~~income~~Demand ~~taxes.~~Promissory ~~Under~~A this method, deferred income taxes are recognized for the deferred income tax consequences attributable to differences between the financial statement carrying values of existing assets and liabilities and their respective income tax bases (temporary differences). Deferred income tax assets and liabilities are measured using enacted income tax rates expected to be recovered or settled. The effect on deferred income tax assets and liabiliites of a change in tax rates is included in income in the period in which the change occurs. The amount of deferred income tax assets recognized is limited to the amount that is more likely than not to be realized. Notes

25On November 24, 2015, in consideration for consenting to the issuance of the Series B Demand Notes and in exchange for their outstanding shares of Series A Preferred Shares, the Company issued some of the holders of Senior Secured Convertible Demand Promissory A Notes (the “Series A Demand Notes” and together with the Series B Demand Notes, the “Series A and B Demand Notes”) in the aggregate principal amount of US $2,192,978. The Series A Demand Notes contain substantially the same terms and conditions as the Series B Demand Notes except that interest accrues at 14% per annum if all or any portion of the interest payable on the Series A Demand Notes is paid in cash (increasing to the lesser of 21% per annum and the highest amount permitted by applicable law in case of an event of default) and it accrues at 5% for each 30 days if all or any portion of the interest payable on the Series A Demand Notes is paid in Series A Demand Notes (increasing to 8% for each 30 days in case of an event of default).

~~Derivative~~In addition, ~~financial~~holders ~~instruments~~of ~~that~~50.1% ~~are~~of ~~not~~the ~~classified~~Series asA Demand Notes pursuant to their right to elect directors to the Board, elected Geoffrey ~~equity~~Arens and ~~are~~Jim ~~not~~Cacioppo ~~used~~as indirectors ~~hedging~~and ~~relationships~~all ~~are~~the ~~measured~~Company’s Board of Directors at ~~fair~~the ~~value. These~~time, ~~include~~except ~~derivative~~for ~~warrant~~Mr. ~~liabilities~~Ned Siegel and Mr. ~~derivative~~Alexander ~~conversion~~Buehler, ~~option liabilities~~resigned. ~~Susequent~~The ~~changes~~maximum tonumber of Directors of the ~~estimated~~Company ~~fair~~was ~~value~~set ~~are~~to ~~recorded~~five in(5) ~~the statement~~to consist of ~~operations~~Messrs. Siegel and Buehler and three directors elected by the holders of the Series A and B Demand Notes.

~~Recent~~Series B ~~accounting~~Preferred ~~pronouncements~~ Stock

~~The~~In connection ~~Company~~with ~~has~~the ~~implemented~~issuance ~~all~~of ~~new~~the ~~accounting~~Series ~~pronouncements~~A and B Demand Notes, each holder of Series A Demand Notes or Series B Demand Notes, ~~that~~as ~~are~~applicable, inreceived ~~effect~~one ~~and~~share ~~that~~of ~~may~~Series ~~impact~~B ~~its~~Preferred ~~financial~~Stock ~~statements~~(“B ~~and~~Shares”) ~~does~~for ~~not~~each $50,000 aggregate principal amount ~~believe~~of ~~that~~the ~~there~~applicable notes. As long as the B Shares are issued and outstanding, the B Shares shall be entitled to vote with respect to any ~~other~~matter ~~new~~upon ~~accounting~~which ~~pronouncements~~the ~~that~~holders of the Common Stock have ~~been~~the right to vote (and/or consent if a written consent of shareholders is being sought) with the holders of 50.01% of the then aggregate principal amount of notes and other notes outstanding being entitled to vote all B Shares then outstanding, with the B Shares being entitled to eighty (80%) percent of the total votes of Common Stock at each election and/or written consent of stockholders regardless of how many B Shares and/or shares of Common Stock are then issued ~~that~~and ~~might~~outstanding ~~have~~(and to call and/or to constitute a ~~material~~quorum ~~impact~~for ona ~~its~~shareholders’ ~~financial~~meeting ~~position~~of orthe ~~results~~holders of ~~operations.~~the Common Stock).

~~Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~Other

~~Not~~There are ~~applicable.~~no legal or practical restrictions on the ability to transfer funds between parent and subsidiary companies.

~~Item~~The Company 8.does ~~FINANCIAL~~not ~~STATEMENTS~~have ~~AND~~any ~~SUPPLEMENTARY~~material ~~DATA~~commitments for capital expenditures as of December 31, 2015.

~~The~~Page ~~financial~~21 ~~statements~~of ~~and related notes are attached to this report following the signature page.~~ 68

~~Item~~OFF-BALANCE SHEET ~~9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE~~ARRANGEMENTS

~~Not~~There are ~~applicable.~~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.

~~Item 9A. CONTROLS AND PROCEDURES~~Fourth Quarter

~~Management~~During the fourth quarter of 2015, the Company continued to experience cash flow challenges. These problems impacted the Company’s ability ~~Evaluation~~to perform some marketing and research and development activities. The Company’s sales continued to show strength through continued demand for MESH Touch Screens, especially Freedom, Federal deployments, and the addition of ~~Disclosure~~several ~~Controls~~major distributors of its Liberty access control system. The Company diverted significant engineering resources to the training and ~~Procedures~~deployment phases of its U.S. Government FICAM solution, completed in December 2015. The goal was to allow USCIS internal staff to be self-sufficient in future FICAM deployments.

~~The Company’s management, including its principal executive~~Critical ~~officer~~Accounting ~~who~~estimates ~~was also our principal financial officer in 2014, evaluated the effectiveness of disclosure controls~~ and procedures (as defined in Exchange Act Rule 13a-15(e)) as of the end of the period covered by this report. Based on that evaluation, the principal executive officer and principal financial officer concluded that as of the end of the period covered by this report, the Company has 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 the principal executive officer and principal financial officer, as appropriate to allow for timely decision regarding required disclosure. judgments:

~~There have been no changes in internal control over financial~~Use ~~reporting~~of ~~that occurred during the last fiscal quarter that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.~~ Estimates

~~2013~~The preparation ~~COSO~~of ~~Framework:~~consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Our significant estimates include reserves related to accounts receivable and inventory, the recoverability and useful lives of long-lived assets, the valuation allowance related to deferred tax assets, derivative liabilities, the valuation of equity instruments and debt discounts, and the valuation of acquired assets.

~~The~~Allowance for ~~Company~~doubtful ~~has not transitioned to the 2013 COSO framework.~~accounts

~~Conflict~~The Company ~~Minerals~~maintains ~~Rule:~~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 un-collectability of the Company’s trade accounts receivable balances. If the Company determines that the financial conditions of any of its customers have deteriorated, whether due to customer specific or general economic issues, increases in the allowance may be made.

~~The Company is currently conducting an inquiry to ascertain whether its products contain minerals covered by this rule, and if so, determining the country of origin of these minerals.~~Inventory

Raw materials, work in process and finished goods are stated at the lower of average cost and net realizable value. Cost includes direct labor utilized in assembly and an allocation of plant overhead. The Company maintains an allowance for inventory obsolescence. Management’s ~~Report~~reviews the inventory on ~~Internal~~a ~~Control~~quarterly ~~over~~basis ~~Financial~~by directly testing for obsolete inventory. As part of the valuation process, ~~Reporting~~inventory reserves are established to state excess and slow-moving inventory at its estimated net realizable value.

~~The Company’s management is responsible for establishing and maintaining effective internal control over financial reporting as defined in Rule 13a~~Stock-~~15(f) under the Exchange Act. The Company’s internal control over~~Based financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Compensation

26Stock-based compensation expense for all stock-based payment awards is based on the estimated fair value of the award. For employees and directors, the award is measured on the grant date. For non-employees, the award is measured on the grant date and is then re-measured at each vesting date and financial reporting date. We recognize the estimated fair value of the award as compensation cost over the requisite service period of the award, which is generally the option vesting term.

~~Because of its inherent limitations, internal control over~~Preferred financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Stock

~~Management~~Preferred shares ~~assessed~~subject ~~the~~to ~~effectiveness~~mandatory ofredemption ~~the~~(if ~~Company’s~~any) ~~internal control~~are ~~over~~classified ~~financial~~as ~~reporting~~liability asinstruments ofand ~~December~~are ~~31,~~measured ~~2014~~at ~~using~~fair ~~the~~value. ~~criteria~~The ~~set~~Company ~~forth~~classifies inconditionally ~~Internal~~redeemable ~~Control~~preferred –shares, ~~Integrated~~which ~~Framework~~includes ~~issued~~preferred byshares ~~the~~that ~~Committee~~feature redemption rights that are ofeither ~~Sponsoring~~within ~~Organizations~~the control of the ~~Treadway~~holder ~~Commission.~~or ~~Based~~subject onto ~~this assessment,~~redemption ~~management~~upon ~~believes~~the ~~that~~occurrence of uncertain events not solely within the Company’s control, as oftemporary ~~December~~equity. ~~31,~~At ~~2014~~all other times, the Company classifies its preferred shares in stockholders’s ~~internal~~equity. ~~control~~As ~~over~~of ~~financial~~December ~~reporting~~31, is2015, ~~not~~certain ~~effective.~~preferred ~~Management~~shares ~~is working~~outstanding ~~with~~were ~~the~~segregated ~~audit~~as ~~committee~~a tocurrent ~~put~~liability ~~processes~~on inthe ~~place~~consolidated balance tosheet ~~monitor~~as ~~internal controls~~they ~~and~~were ~~oversee~~subject ~~the~~to ~~reporting~~mandatory ~~process~~redemption. ~~The~~At ~~following~~December ~~are~~31, ~~deficiencies~~2014, ~~that~~since certain of the Company’s preferred ~~management~~shares iscontain ~~aware~~redemption ofrights ~~but~~which doare not ~~believe~~solely ~~compromise~~within the ~~internal~~Company’s ~~controls~~control, orthe issuances of preferred stock have ~~reporting~~been ~~process.~~presented as temporary equity.

~~Deficiencies:~~Page 22 of 68

a.Derivative Financial Roles and responsibilities for the financial reporting process are not documented in a formalized manner. b. All employees have full access to inventories. Inventories are not adequately secured from employees who do not need access; however, cameras are on site to mitigate any risk of theft. c. The accounting department has unrestricted access to all modules of the general ledger, however, the Controller reviews the ledgers regularly.Instruments

~~Management~~Derivative financial isinstruments ~~addressing~~that ~~these~~are ~~deficiencies.~~not Itclassified ~~plans~~as toequity ~~remain~~and are not used in hedging relationships are measured at fair value. ~~vigilant~~These include derivative warrant liabilities and toderivative ~~add~~conversion ~~additional~~option ~~staff~~liabilities. ~~and~~Subsequent ~~system~~changes ~~improvements~~to asthe ~~resources~~estimated ~~permit~~fair value are recorded in the consolidated statements of operations.

~~Item~~Fair Value ~~9B.~~of ~~OTHER~~Financial ~~INFORMATION~~Instruments

~~None~~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.

~~PART~~Fair value ~~III~~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.

~~Items~~Based on ~~10–14~~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:

~~Information~~Level 1 ~~with~~— ~~respect~~Observable toinputs ~~Items~~such 10as ~~through~~quoted 14prices ~~will be set forth~~ in ~~the~~active ~~Proxy Statement that will be filed with the Securities and Exchange Commission on or before April 30, 2014 and is incorporated herein by reference~~markets. If the definitive Proxy Statement cannot be filed on or before April 30, 2014, the issuer will instead file an amendment to this Form 10-K disclosing the information with respect to Items 10 through 14.

~~PART~~Level 2 ~~IV.~~— Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly.

~~Item~~Level 3 ~~15.~~— ~~EXHIBITS~~Unobservable inputs in which there is little or no market data, ~~FINANCIAL~~which ~~STATEMENT~~require ~~SCHEDULES~~the reporting entity to develop its own assumptions.

(a)	The following financial statements are filed as part of this Form 10-K:
	Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets Consolidated Statement of Operations and Comprehensive Loss Consolidated Statement of Stockholders’ Deficit Consolidated Statement of Cash Flows Notes to Consolidated Financial Statements
(b)	Exhibits:

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.

27The 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.

Exhibit No.	Description of Exhibit	Manner of Filing
3.1	Amended and Restated Articles of Incorporation	Filed herewith
3.2	Amended and Restated Bylaws	Filed herewith
4.1	Certificate of Designation, Preferences and Rights of the Series A Convertible Redeemable Preferred Stock	Incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K filed with the SEC on June 11, 2012
4.2	Certificate of Amendment to the Certificate of Designation, Preferences and Rights of the Series A Convertible Redeemable Preferred Stock	Incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K filed with the SEC on October 23, 2012
4.3	Certificate of Second Amendment to the Certificate of Designation, Preferences and Rights of the Series A Convertible Redeemable Preferred Stock	Incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K filed with the SEC on March 26, 2014
4.4	Certificate of Third Amendment to the Certificate of Designation, Preferences and Rights of the Series A Convertible Redeemable Preferred Stock	Incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K filed with the SEC on February 20, 2015
10.1	Employment Agreement with Dennis Raefield, dated as of February 17, 2014	Filed herewith
10.2	2003 Stock Option Plan	Incorporated by reference to Appendix A to the Proxy Statement on Schedule 14A filed with the SEC on April 30, 2003
21.1	Subsidiaries of the registrant	Incorporated by reference to Exhibit 21.1 to the Form SB-2
31.1	Certification Pursuant to Rule 13a-14(a) or 15d-14(a) of the U.S. Securities Exchange Act of 1934	Filed herewith
32.1	Section 1350 Certification of the Principal Executive Officer and Principal Financial Officer	Furnished herewith

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.

28The 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 consolidated statements of operations that are attributable to the change in the fair value of the derivative liabilities.

~~Signatures~~Recent accounting pronouncements

~~Pursuant~~See toSignificant ~~the~~accounting ~~requirements~~policies ofnote ~~Section 13 or 15~~2(dw) to of the ~~Securities~~ ~~Exchange~~consolidated ~~Act~~financial ofstatements ~~1934,~~for the ~~registrant~~year ~~has~~ended ~~duly~~December ~~caused~~31, ~~this~~2015, ~~report~~included ~~to be~~elsewhere ~~signed~~in ~~on its behalf by~~ the ~~undersigned, thereunto duly authorized, on March 26, 2015~~document.

~~VISCOUNT SYSTEMS, INC~~Item 7A. ~~By:~~QUANTITATIVE ~~/s/~~AND ~~Dennis~~QUALITATIVE ~~Raefield~~DISCLOSURES ~~Dennis~~ABOUT ~~Raefield~~MARKET ~~President, Secretary, Principal Executive Officer, Principal Financial Officer, and Director~~RISK

~~Pursuant to the requirements of the Securities Exchange Act of~~Not ~~1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on the dates indicated~~applicable.

	Signature	Title	Date
By:	/s/ Dennis Raefield	President, Secretary,	March 26, 2015
	Dennis Raefield	Principal Executive Officer, Principal Financial Officer and Director
By:	/s/ Les Fong	Controller (Acting as Principal Accounting	March 26, 2015
	Les Fong	Officer)
By:	/s/ Robert Liscouski	Director	March 26, 2015
	Robert Liscouski
By:	/s/ Paul Goldenberg	Director	March 26, 2015
	Paul Goldenberg
By:	/s/ Ned L. Siegel	Director and Non-Executive	March 26, 2015
	Ned L. Siegel	Chairman of the Board
By:	/s/ Alexander Buehler	Director	March 26, 2015
	Alexander Buehler
By:	/s/ Geoffrey Arens	Director	March 26, 2015
	Geoffrey Arens

Page 23 of 68

29Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

~~Supplemental Information to be Furnished With Reports Filed~~The ~~Pursuant~~financial tostatements ~~Section~~and ~~15(d)~~related ofnotes ~~the~~are ~~Act~~attached ~~by Registrants Which Have Not Registered Securities Pursuant~~ to ~~Section~~this 12report offollowing the ~~Act~~signature page.

~~Viscount~~Item ~~Systems, Inc~~9. ~~has~~CHANGES ~~not~~IN ~~registered~~AND ~~securities~~DISAGREEMENTS ~~pursuant to~~WITH ~~Section~~ACCOUNTANTS 12ON ofACCOUNTING ~~the~~AND ~~Securities~~FINANCIAL Act and files reports pursuant to Section 15(d) of the Securities Act. As of the date of filing of this Annual Report on Form 10-K, no annual report or proxy material has been sent to the holders of the securities of Viscount Systems, Inc., however, a copy of this Annual Report will be furnished to the holders of the securities of Viscount Systems, Inc. subsequent to the date of filing of this Annual Report. DISCLOSURE

30In April 28, 2015, the Company dismissed Dale Matheson Carr-Hilton LaBonte LLP (“DMCL”) as its independent registered public accounting firm and engaged Marcum LLP as the Company’s independent registered public accounting firm. DMCL audited the Company’s financial statements for the periods ended December 31, 2014 and 2013. The dismissal of DMCL was approved by the Company’s Audit Committee on April 28, 2015. DMCL did not resign or decline to stand for re-election.

~~VISCOUNT~~Neither the ~~SYSTEMS~~report of DMCL dated March 20, ~~INC.~~2015 on the Company’s consolidated balance sheets as of December 31, 2014 and 2013, and the related consolidated statements of operations and comprehensive loss, stockholders’ deficit and cash flows for the years ended December 31, 2014 and 2013, nor the report of DMCL dated March 24, 2014 on the Company’s consolidated balance sheets as of December 31, 2013 and 2012, and the related consolidated statements of operations and comprehensive loss, stockholders’ deficit and cash flows for the years ended December 31, 2013 and 2012, contained an adverse opinion or a disclaimer of opinion, nor were either such report qualified or modified as to uncertainty, audit scope, or accounting principles, except that each of the reports dated March 20, 2015 and March 24, 2014 contained an explanatory note indicating that there is substantial doubt about the Company’s ability to continue as a going concern.

~~CONSOLIDATED~~During the ~~FINANCIAL~~Company’s ~~STATEMENTS~~two most recent fiscal years and the subsequent interim period preceding the Company’s decision to dismiss ~~(Expressed~~DMCL, the Company had no disagreements with the firm on any matter of accounting principles or practices, financial statement disclosure, or auditing scope of procedure which disagreement if not resolved to the satisfaction of DMCL would have caused it to make reference to the subject matter of the disagreement in ~~Canadian~~connection ~~Dollars~~with its report and no “reportable events” as defined in Item 304(a)(i)(v) of Regulation S-K were communicated.

~~DECEMBER~~During the 31Company’s two most recent fiscal years and the subsequent interim period prior to retaining Marcum LLP (1) neither the Company nor anyone on its behalf consulted Marcum LLP regarding (a) either the application of accounting principles to a specified transaction, ~~2014~~either completed or proposed, or the type of audit opinion that might be rendered on the Company’s financial statements or (b) any matter that was the subject of a disagreement or a reportable event as set forth in Item 304(a)(1)(iv) and (v), respectively, of Regulation S-K, and (2) Marcum LLP did not provide the Company with a written report or oral advice that they concluded was an important factor considered by the Company in reaching a decision as to accounting, auditing or financial reporting issue.

~~REPORT~~Item 9A. OFCONTROLS ~~INDEPENDENT~~AND ~~REGISTERED PUBLIC ACCOUNTING FIRM~~ PROCEDURES

ToManagement’s Evaluation ~~the Stockholders and Board~~ of ~~Directors~~Disclosure ofControls ~~Viscount~~and ~~Systems Inc:~~ Procedures

WeDisclosure Controls ~~have~~and ~~audited~~Procedures. Our management, under the ~~accompanying~~supervision ~~consolidated~~and ~~balance~~with ~~sheets~~the participation of the Company’s Principal ~~Viscount~~Financial ~~Systems~~Officer ~~Inc.~~and ~~(the~~Chief ~~“Company”)~~Executive asOfficer, has evaluated the effectiveness of ~~December~~our ~~31,~~disclosure ~~2014~~controls and ~~2013~~procedures ~~and~~as ~~the~~defined ~~related~~in ~~consolidated~~Rule ~~statements~~13a-15 promulgated under the Exchange Act as of ~~operations~~the ~~and~~end ~~comprehensive~~of ~~loss~~the period covered by this Annual Report. Based on such evaluation, ~~stockholders’~~management ~~deficit~~has ~~and~~concluded ~~cash~~that, ~~flows~~as ~~for~~of the ~~years~~end ~~then~~of ~~ended.~~the ~~These~~period ~~financial~~covered by this Annual Report, our disclosure controls and procedures ~~statements~~were not effective. Disclosure controls and procedures are controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the ~~responsibility~~Exchange ofAct is recorded, processed, summarized and reported within the ~~Company'~~time periods specified in the Commission’s ~~management.~~rules ~~Our~~and forms and include controls and procedures designed to ensure that ~~responsibility~~information iswe are required to ~~express~~disclose anin ~~opinion~~such onreports ~~these~~is ~~financial~~accumulated ~~statements~~and ~~based~~communicated on to management, including our ~~audits.~~Principal Financial Officer and Chief Executive Officer, as appropriate to allow timely decisions regarding required disclosure.

WePage ~~conducted~~24 ~~our audits in accordance with the standards~~ of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. 68

InManagement’s Annual ~~our~~Report ~~opinion,~~on ~~these~~Internal ~~consolidated~~Control ~~financial~~over ~~statements~~Financial ~~present~~Reporting. Our management is responsible for establishing and maintaining ~~fairly,~~adequate ininternal ~~all~~control ~~material~~over ~~respects~~financial reporting, ~~the~~as ~~financial~~such ~~position~~term is defined In Exchange Act Rule 13a-15(f) (under the ~~Company~~Exchange Act as atof the end of the period covered by this Annual Report on Form 10-K). The internal control over financial reporting is ~~December~~a ~~31,~~process ~~2014~~designed ~~and~~by, ~~2013~~or ~~and~~under the ~~results~~supervision of, ~~its~~the ~~operations~~Company’s Principal Financial Officer and ~~its~~Chief ~~cash~~Executive ~~flows~~Officer, ~~for~~to provide reasonable assurance regarding the ~~years~~reliability ~~then~~of ~~ended,~~financial reporting and the preparation of financial statements for external purposes in ~~conformity~~accordance with generally accepted accounting principles ~~generally accepted~~and inincludes ~~the~~those ~~United~~policies ~~States~~and ofprocedures ~~America.~~that:

~~The~~● ~~accompanying~~provide ~~consolidated~~reasonable ~~financial~~assurance ~~statements~~to ~~have~~our ~~been prepared~~management ~~assuming~~and ~~that~~board ~~the~~of ~~Company~~directors ~~will~~regarding ~~continue~~the aspreparation aand ~~going~~fair ~~concern.~~presentation ~~As discussed~~of inpublished ~~Note 1 to the~~ financial statements,; ~~the~~● ~~Company~~provide ~~has~~reasonable ~~incurred~~assurance ~~losses in~~that ~~developing~~transactions ~~its~~are ~~business,~~recorded ~~and~~as ~~further~~necessary ~~losses~~to ~~are~~permit ~~anticipated~~preparation inof ~~the~~financial ~~future. The~~statements ~~Company~~in ~~requires~~accordance ~~additional~~with ~~funds~~generally toaccepted ~~meet~~accounting ~~its~~principles, ~~obligations~~ and ~~the~~that ~~costs~~receipts ~~of its operations~~ and ~~there~~expenditures isof nothe ~~assurance~~registrant ~~that~~are ~~additional~~being ~~financing~~made ~~can~~only bein ~~raised when~~accordance ~~needed.~~with ~~These~~authorizations ~~factors~~of ~~raise~~management ~~substantial~~and ~~doubt~~directors ~~about~~of the ~~Company’s~~registrant; ~~ability to~~and ~~continue~~● asprovide areasonable ~~going~~assurance ~~concern.~~regarding ~~Management’s~~prevention ~~plans~~or intimely ~~this~~detection ~~regard~~of ~~are~~unauthorized ~~described in~~acquisition, ~~Note~~use 1.or ~~The~~disposition ~~financial~~of ~~statements~~the doregistrant’s ~~not~~assets ~~include~~that ~~any~~could ~~adjustments~~have ~~that~~a ~~might result~~material ~~from~~effect on the ~~outcome~~financial ~~of this uncertainty~~statements.

~~/s/~~In designing ~~DALE~~and ~~MATHESON~~evaluating ~~CARR-HILTON~~the ~~LABONTE~~disclosure ~~LLP~~controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, ~~DALE~~the ~~MATHESON~~design ~~CARR-HILTON~~of ~~LABONTE~~disclosure ~~LLP~~controls ~~CHARTERED~~and ~~ACCOUNTANTS~~procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

~~Vancouver,~~The ~~Canada~~Management ~~March~~conducted 20an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2015 using the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) issued in 2013, required for SOX 404 compliance. The management concluded that Company’s internal control over financial reporting was not effective.

~~VISCOUNT SYSTEMS,~~The ~~INC.Consolidated~~specific ~~Balance~~weaknesses ~~Sheets(Expressed~~that management identified in ~~Canadian dollars)As~~our atinternal controls as of December 31, ~~2014~~2015 ~~and~~that ~~2013~~persist are as follows:

		2014			2013
Assets
Current assets
Cash and cash equivalents	$	190,308		$	172,684
Trade accounts receivable, less allowance for doubtful accounts of $181,529 (2013 - $250,458)		661,629			585,153
Inventory (note 3)		533,217			532,798
Total current assets		1,385,154			1,290,635
Deposits		1,391			1,391
Equipment (note 4)		206,004			22,229
Intangible assets (note 5)		5,224			26,116
Total assets	$	1,597,773		$	1,340,371
		.
Liabilities and stockholders' deficit
Current liabilities
Accounts payable	$	362,595		$	254,682
Accrued liabilities		564,466			601,270
Lease obligation - current		10,285			-
Deferred revenue		37,318			37,543
Due to related parties (note 6)		5,003			33,727
Loans payable (note 7)		114,536			114,536
Total current liabilities		1,094,203			1,041,758
Lease obligation - long term		17,182			-
Derivative financial liabilities (notes 8 and 9)		2,858,618			5,118,454
		3,970,003			6,160,212
Stockholders' deficit
Capital stock (note 10)
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 10)		148,787			119,853
1,072 preferred shares (2013 - 1,115) (note 8)		-			-
Additional paid-in capital		10,140,519			6,731,161
Accumulated deficit		(12,661,536	)		(11,670,855	)
Total stockholders' deficit		(2,372,230	)		(4,819,841	)
Total liabilities and stockholders' deficit	$	1,597,773		$	1,340,371
Commitments (note 13)
Subsequent event (note 16)

	a.	Inventories are not adequately secured from employees who do not need access; however, cameras are on site to mitigate any risk of theft.

	b.	We did not maintain a fully integrated financial consolidation and reporting system throughout the year and as a result, extensive manual analysis, reconciliation and adjustments were required in order to produce timely financial statements for external reporting purposes.

	c.	We did not have a sufficient number of adequately trained technical accounting and financial reporting personnel to support standalone financial reporting.

	d.	We did not appropriately segregate all employee duties in connection with the review and approval of certain transactions and accounting reconciliations during the financial closing process

	e.	We did not maintain a fully integrated inventory costing system, and as a result, extensive manual reconciliations were required for financial reporting process

	f.	We did not have sufficient expertise to support financial reporting for income tax accounting and the related disclosures.

~~See~~During ~~accompanying~~the ~~notes~~fourth toquarter ~~consolidated~~of ~~financial~~2015, the management ~~statements~~has implemented policies, procedures and controls to begin to address certain of the above internal control weaknesses.

~~VISCOUNT SYSTEMS,~~Notwithstanding ~~INC.Consolidated~~the ~~Statements~~existence of ~~Operations~~the ~~and~~deficiencies ~~Comprehensive~~described above, our management has concluded that the financial statements included in this ~~Loss(Expressed~~Annual Report on Form 10-K present fairly, in ~~Canadian~~all ~~dollars)Years~~material ~~Ended~~respects, ~~December~~our 31financial position, ~~2014~~results of operations and cash flows ~~2013~~for the periods presented in conformity with U.S. generally accepted accounting principles.

		2014			2013
Sales	$	4,769,298		$	4,134,886
Cost of sales		2,461,377			1,742,277
Gross profit		2,307,921			2,392,609
Expenses
Selling, general and administrative		5,624,312			3,064,786
Research and development		703,288			278,514
Depreciation and amortization		50,298			23,825
		6,377,898			3,367,125
Loss before other items		(4,069,977	)		(974,516	)
Other items
Interest income		3,786			322
Preferred share dividends		(84,762	)		(113,647	)
Fair value adjustment of derivative liabilities (Note 9)		3,160,272			(1,992,659	)
		3,079,296			(2,105,984	)
Net loss and comprehensive loss	$	(990,681	)	$	(3,080,500	)
Basic and diluted loss per common share	$	(0.01	)	$	(0.03	)
Weighted average number of common shares outstanding, Basic and diluted		119,454,239			91,969,573

This Annual Report does not include an attestation report of our registered public accounting firm regarding our internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to the rules of the SEC that permit a smaller reporting company to provide only management’s report in this Annual Report.

~~See~~Changes in ~~accompanying~~Internal ~~notes~~Control toover ~~consolidated~~Financial Reporting. There have not been any changes in our internal control over financial reporting ~~statements~~(as defined in Exchange Act Rule 13a-15(f)) that occurred during the quarter ended December 31, 2015 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

~~VISCOUNT~~Page ~~SYSTEMS,~~25 ~~INC. Consolidated Statement~~ of ~~Stockholders' Deficit(Expressed in Canadian dollars)Years Ended December 31, 2014 and 2013~~68

									Additional
	Common Stock			Preferred Stock					paid-in		Accumulated
	Shares		Amount	Shares			Amount		capital		deficit			Total
Balance, December 31, 2012	86,733,750	$	109,512	1,149		$	-	$	5,979,271	$	(8,590,355.00	)	$	(2,501,572	)
Series A dividends issued or to be issued	-		-	91			-		-		-			-
Conversion of Series A shares	3,071,253		3,071	(125	)		-		192,404		-			195,475
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	-		-	82			-		-		-			-
Conversion of Series A shares	3,071,253		3,071	(125	)				312,525					315,596
Units issued for cash from equity securities, net of costs	25,113,327		25,113	-			-		1,502,633		-			1,527,746
Stock-based compensation - rachet shares issued	749,998		750						74,250					75,000
Stock-based compensation - options and warrants									1,519,950		-			1,519,950
Net loss	-		-	-			-		-		(990,681	)		(990,681	)
Balance, December 31, 2014	126,009,581	$	148,787	1,072		$	-	$	10,140,519	$	(12,661,536	)	$	(2,372,230	)

Item 9B. OTHER INFORMATION

~~See accompanying notes to consolidated financial statements~~None.

~~VISCOUNT SYSTEMS,~~PART ~~INC~~III.~~Consolidated Statements of Cash Flows(Expressed in Canadian dollars)Years Ended December 31, 2014 and 2013~~

		2014			2013
Operating activities:
Net loss	$	(990,681	)	$	(3,080,500	)
Items not involving cash:
Depreciation and amortization		50,298			23,825
Preferred share dividends		84,762			113,647
Fair value adjustment of derivative liability		(3,160,272	)		1,992,659
Stock-based compensation		1,519,950			72,981
Non-cash financing fees		371,221			-
Changes in non-cash working capital balances (note 12)		915			2,670
Net cash used in operating activities		(2,123,807	)		(874,719	)
Investing activities:
Purchase of equipment		(185,714	)		-
Net cash used in investing activities		(185,714	)		-
Financing activities:
Proceeds from private placement, net		2,327,145			681,262
Repayment of short term loans payable		-			(40,366	)
Net cash provided by financing activities		2,327,145			640,896
Increase (decrease) in cash		17,624			(233,823	)
Cash, beginning of period		172,684			406,507
Cash, end of period	$	190,308		$	172,684
Supplementary information:
Interest paid	$	-		$	-
Income taxes paid	$	-		$	-

Item 10. Directors, Executive Officers and Corporate Governance.

~~See~~The following ~~accompanying~~table ~~notes~~sets toforth ~~interim~~certain ~~financial~~information ~~statements~~concerning our executive officers and directors as of March 31, 2016.

Viscount Systems, Inc. Notes to Consolidated Financial Statements (Expressed in Canadian dollars) December 31, 2014

Name	Age	Positions
Scott Sieracki	50	Interim Chief Executive Officer
Ned L. Siegel	65	Chairman of the Board of Directors
Alexander Buehler	40	Director
Geoffrey Arens	51	Director
James Cacioppo	54	Director
Craig Nemiroff	44	Director
Zhi Yuan (Yvonne) Zheng	41	Principal Financial Officer

1.	Nature and continuance of operations
	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.
	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 $12,661,536, reported a loss of $905,919 (2013 - $3,080,501). 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. Management has estimated that the Company will need to raise a minimum of $1,500,000 by way of new debt or equity financing to continue normal operations for the next twelve months. 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 as a going concern.
2.	Significant accounting policies
	These consolidated financial statements have been prepared in conformity with US Generally Accepted Accounting Principles (“GAAP”).
	The significant accounting policies adopted by the Company are as follows:

Scott Sieracki, Interim Chief Executive Officer. Mr. Sieracki, was appointed the Company’s Interim Chief Executive Officer on July 16, 2015. Previously, Mr. Sieracki had been the Company’s Vice President of Sales since December 1, 2014. Prior to joining the Company, Mr. Sieracki worked as Vice President of Sales for IDV Solutions, Inc., an enterprise risk visualization company, from October 2012 to October 2014 and Vice President of Sales for Quantum Secure, Inc., a security and identity technology company, from September 2006 to September 2012. From November 2001 to August 2006, Mr. Sieracki served as Director of Sales North America for Software House, a Tyco International company, and from February 1997 to September 1999, Mr. Sieracki served as President and co-founder of Open Options, a provider of open architecture based access control systems. Scott Sieracki was appointed as the Company’s Interim Chief Executive Officer because his strong background and business experiences from technology industry.

~~(a)~~Alexander Buehler, ~~Principles~~Director. ofMr. ~~consolidation~~Buehler ~~The~~has ~~consolidated~~served ~~financial~~as ~~statements~~member ~~include accounts and results~~ of the Company’s ~~and~~Board ~~its~~of ~~wholly-owned~~Directors ~~subsidiary,~~(the ~~Viscount~~“Board”) since ~~Communication~~May ~~and Control Systems Inc~~2014. ~~(“VCCS”)~~Mr. ~~Intercompany~~Buehler ~~transactions~~also ~~and~~currently ~~balances~~serves ~~have~~as ~~been~~the ~~eliminated~~President onand ~~consolidation.~~Chief ~~(b)~~Executive ~~Use~~Officer of ~~estimates~~Energy ~~Management~~Maintenance ~~has~~Services (EMS), ~~made~~ a ~~number~~private ofequity-backed ~~estimates~~company ~~and~~focused ~~judgments~~on ~~relating to~~ the ~~reporting~~construction, ~~of assets~~maintenance, ~~liabilities~~monitoring, ~~revenues~~ and ~~expenses~~automation ~~and the disclosure~~ of ~~contingent~~oil ~~assets~~& ~~and~~gas ~~liabilities~~pipelines throughout inNorth ~~order~~America. ~~to prepare these consolidated financial statements in conformity with GAAP~~Mr. ~~Significant~~Buehler ~~areas~~previously ~~involving~~served ~~estimate~~as ~~include~~ the ~~allowance~~Chief ~~for~~Financial ~~doubtful~~Officer ~~accounts,~~of ~~inventory~~EMS ~~obsolescence,~~upon ~~the~~joining ~~provision for future warranty costs,~~ the ~~estimated~~Company ~~useful~~in ~~lives~~July 2014. ofPrior ~~equipment~~to ~~and~~joining ~~intangible assets~~EMS, ~~the~~Mr. ~~deferred~~Buehler ~~tax~~served ~~valuation~~as ~~allowance, and assumptions used to determine~~ the ~~fair~~Chief ~~value~~Financial Officer of ~~stock-based~~Energy ~~compensation~~Recovery ~~and derivative liabilities~~Inc. ~~Actual~~since ~~results~~May ~~could~~of ~~differ~~2011. ~~materially from those estimates~~Mr. ~~(c)~~Buehler has ~~Foreign~~several ~~currency~~years ~~translation~~of ~~The~~experience ~~functional~~in ~~and~~general ~~reporting~~management ~~currency of the Company~~ and ~~its~~strategic ~~wholly-owned~~planning ~~subsidiary~~as iswell ~~the~~as ~~Canadian~~new ~~dollar.~~product ~~Accordingly~~development, ~~the~~sales ~~financial statements are presented in Canadian dollars unless otherwise specified. Monetary assets~~ and ~~liabilities~~marketing, corporate ~~denominated~~development, inoperations amanagement, ~~foreign currency are translated at the exchange rate in effect at the balance sheet date while non-monetary assets~~ and ~~liabilities~~manufacturing ~~denominated~~process inoptimization. ~~a foreign currency are translated at historical rates~~Mr. ~~Revenue~~Buehler ~~and~~also ~~expense~~currently ~~items~~serves ~~denominated~~as in a ~~foreign~~board member ~~currency are translated at exchange rates prevailing when such items are recognized in the statement~~ of ~~operations~~Energy ~~and~~Recovery ~~comprehensive loss. Exchange gains or losses arising on translation of foreign currency items are included in the statement of operations and comprehensive loss.~~ (dNASDAQ:ERII) ~~Inventory~~and ~~Raw~~as ~~materials,~~a ~~work~~director ~~in process~~ and ~~finished~~Chair ~~goods~~of ~~are stated at~~ the ~~lower~~Audit ofCommittee ~~average~~for ~~cost~~Viscount ~~and~~Systems ~~net realizable value~~(OTCQB:VSYS). ~~Cost includes direct labor utilized in assembly and an allocation of plant overhead.~~

~~Viscount~~Prior to ~~Systems~~Energy Recovery, Mr. Buehler spent seven years in executive leadership positions at Insituform Technologies, Inc., ~~Notes~~(now toAegion Corporation; ~~Consolidated~~NASDAQ: AEGN), a global, leading supplier of water infrastructure technology and services for municipalities and ~~Financial~~industry, ~~Statements~~including ~~(Expressed~~oil and gas. While at Insituform, Mr. Buehler held several executive-level positions in ~~Canadian~~the ~~dollars)~~U.S ~~December~~and 31abroad, ~~2014~~most recently as Vice President of Europe, where he served as general manager with full P&L responsibility for all operations in Europe (spanning 23 countries through wholly-owned subsidiaries, joint ventures, licensees, and product sales) with consolidated revenue of over $200 million and a total of over 600 employees.

2.	Significant accounting policies (cont’d…)
	(e)	Equipment
		Equipment is stated at cost and depreciated over the estimated useful lives of the assets:

Prior to joining Insituform, Mr. Buehler worked for five years in the U.S. Army Corps of Engineers, where he served as project manager in the construction of basecamps to house U.S. peacekeepers in the Balkans. Mr. Buehler received a B.S. in Civil Engineering from the United States Military Academy at West Point and an M.B.A. in Finance from the Wharton School at the University of Pennsylvania. More recently, Mr. Buehler attended Director’s College at the Stanford Law School in preparation for board-level positions. Mr. Buehler was selected as a director principally because his leadership experience in the technology industry. Mr. Buehler also brings to his role as director extensive experience serving as a board and committee member of complex public companies.

Asset	Basis	Rate
Automobile	declining balance	20%
Computer equipment	declining balance	30%
Leasehold improvements	declining balance	20%
Office furniture and equipment	declining balance	20%

Page 26 of 68

~~(f)~~Geoffrey Arens, ~~Intangible assets Intangible assets consist of intercom service agreements that are considered to have a finite useful life~~Director. ~~They are recorded at cost and are reviewed annually for impairment~~Mr. ~~On April 1~~Arens, ~~2005,~~has ~~the~~served ~~Company~~as ~~began~~member ~~amortizing~~of the ~~cost~~Board onsince aDecember ~~straight-line~~2014. ~~basis over an estimated useful life of 10 years~~Mr. ~~(g)~~Arens ~~Impairment~~was ofappointed ~~long-lived~~to ~~assets Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that~~ the ~~carrying~~Board pursuant ~~amount~~to of an ~~asset~~arrangement ~~may~~that ~~not~~gives ~~be recoverable. Recoverability is measured by a comparison of~~ the ~~carrying~~holders ~~amount~~ of anSeries ~~asset,~~A orShares ~~group~~the ofright ~~assets,~~ to ~~future~~appoint ~~net~~two ~~cash~~directors ~~flows expected~~ to ~~be generated by~~ the ~~asset~~Board. ~~or group of assets~~Mr. IfArens has ~~such~~over ~~assets~~22 ~~are~~years ~~considered~~of toinvestment beexperience ~~impaired,~~and ~~an impairment provision~~ is ~~recorded~~currently ~~for~~ the ~~amount~~Managing byPartner ~~which~~and ~~the~~Founder ~~carrying amount~~ of ~~the~~Dendera ~~assets~~Capital ~~exceeds~~LP, ~~fair~~a ~~value.~~New ~~(h)~~York-based hedge ~~Revenue~~fund, ~~recognition Product revenue is recognized when there is persuasive evidence of~~ a ~~sale~~position ~~arrangement,~~which ~~delivery~~he ~~to the customer~~ has ~~occurred,~~held ~~the~~since ~~fee~~January is2011. ~~fixed~~Prior ~~and~~to ~~determinable~~that, ~~and collectability is considered probable~~Mr. ~~Sales~~Arens orserved ~~transfers~~as toManaging ~~customers~~Director ~~prior~~for toING ~~these~~Capital LLC, ~~criteria~~where ~~being~~he ~~met~~ran ~~are recorded as deferred revenue. Revenue from~~ the ~~installation~~bank’s ofproprietary ~~equipment~~investing isactivities ~~recognized~~including ~~when~~its ~~the installation has been completed~~event-driven, ~~the~~Global ~~fee~~Investment ~~has~~Strategies ~~been fixed and collectability is considered probable~~group. Mr. ~~Service~~Arens ~~revenue~~previously isserved ~~recognized~~ on ~~a straight-line basis over~~ the ~~period~~board ~~covered~~of bydirectors ~~the~~of ~~service~~California ~~agreement~~Coastal ~~only~~Communities, ~~after there is~~ a ~~signed~~residential ~~agreement~~land todevelopment ~~provide service, the service fee is fixed or determinable~~ and ~~collectability~~homebuilding company iswhere ~~probable.~~he ~~Cash~~was ~~received~~Chair ~~from customers, in advance~~ of the ~~service~~Compensation ~~period,~~Committee ~~is recorded as deferred revenue. (i) Research~~ and ~~development~~member ~~costs~~of ~~Research~~the ~~and~~Audit ~~development costs have been expensed as incurred. (j) Derivative financial instruments Derivative financial instruments that are not classified as equity~~ and ~~are~~Nomination ~~not used in hedging relationships are measured at fair value~~Committees. ~~These include derivative warrant liabilities and derivative conversion options liabilities~~Mr. ~~Subsequent~~Arens ~~changes~~has toalso served ~~the~~on ~~estimated fair values are recorded in~~ the ~~statement~~board of ~~operations~~directors ~~and~~of ~~comprehensive~~Cadiz ~~loss~~Inc., ~~(k)~~a ~~Net~~California-based ~~loss~~water ~~per~~and ~~share~~agricultural ~~Net~~resource ~~loss~~where ~~per~~he ~~common~~was ~~share~~a ismember ~~computed~~of ~~by dividing~~ the corporation’s ~~net~~Audit ~~loss~~and byNomination ~~the~~Committees. ~~weighted average number of common shares outstanding for the period~~Mr. ~~Diluted~~Arens ~~net~~holds ~~loss~~a ~~per~~Master ~~common~~of ~~share~~Business ~~reflects~~Administration ~~the~~from ~~potential~~Columbia ~~dilution that could occur if stock options were exercised. For the year ended December 31~~Business School, ~~2014~~ and ~~2013,~~a ~~shares~~Bachelor ~~attributable to the assumed exercise~~ of ~~outstanding~~Arts ~~options and shares attributable to the assumed exercise of outstanding warrants and convertible preferred shares were excluded~~ from the ~~calculation~~University of ~~diluted loss per share because the effect was antidilutive~~Virginia. (l) Stock-based compensation The Company has adopted the fair value method of accounting for all stock-based compensation expense. Stock-based compensation expense is recognized in the consoldiated financial statements for granted, modified, or settled stock options and compensation warrants issued to employees for services.

~~Viscount~~James Cacioppo, ~~Systems~~Director. Mr. Cacioppo was appointed to serve on the Board in August 2015. Mr. Cacioppo was appointed to the Board pursuant to an arrangement that gives the holders of Series A Preferred Stock the right to appoint two directors to the Board. A Harvard Business School Graduate, ~~Inc~~Mr. ~~Notes~~Cacioppo has over 30 years of experience in the financial services industry. Mr. Cacioppo has served as co-founder, managing partner and portfolio manager of the investment advisory firm One East Capital Advisors since 2006. Prior to ~~Consolidated~~joining One East Capital Advisors, Mr. Cacioppo held senior management and research positions at ~~Financial~~Sandell ~~Statements~~Asset ~~(Expressed~~Management, a private alternative asset management firm specializing in ~~Canadian~~global ~~dollars)~~event-driven, ~~December~~multi-strategy 31investing. Before that, Mr. Cacioppo served as a senior vice president of Halcyon Management, a global investment firm, and co-head of the distressed debt investments group. Mr. Cacioppo also served as an investment banker at Smith Barney, Banker’s Trust and Wasserstein Perella, and as a Senior Auditor at Dun and Bradstreet. Since 2014, he has served as director of Affinity Gaming, a casino operator. Also, from 2008 to 2012, Mr. Cacioppo was a member of the Board of Directors of Texas Petrochemicals, Inc., a chemical producer.

2.	Significant accounting policies (cont’d…)
	(m)	Comprehensive loss
		The Company has no items of other comprehensive loss in any year presented. Therefore, net loss equals comprehensive loss.
	(n)	Reclassfications
		Certain amounts have been reclassifed in the comparative consolidated balance sheet to conform to the current year’s presentation.
	(o)	Cash and Cash Equivalents
		Cash equivalents consist of cash on deposit and term deposits with original maturities of one year or less at the time of issuance.
	(p)	Recently issued accounting pronouncements
		The Company has reviewed recently issued accounting pronouncements and plans to adopt those that are applicable to it. It does not expect the adoption of these pronouncements to have a material impact on its financial position, results of operations or cash flows.
3.	Inventory

Craig Nemiroff, Director. Mr. Nemiroff was appointed to serve on the Board on November 24, 2015. Mr. Nemiroff was appointed to the Board in connection with the financing consummated on November 24, 2105 and pursuant to an arrangement that gives holders of 50.1% of the Series B Demand Notes the right to appoint three (3) directors to the Board (to hold their positions until all amounts owed under the Series A and Series B Notes are paid in full). Mr. Nemiroff has also served as an analyst at MAK Capital One, LLC a New York based hedge fund, since January 2016. Prior to joining MAK Capital One, LLC, Mr. Nemiroff served as a consultant to One East Partners from May 2015 to November 2015. Prior to that, Mr. Nemiroff worked as an analyst at One East Partners from January 2011 until May 2015. Mr. Nemiroff was selected as a director principally because of his expertise in financial analysis, strategy and business development. Mr. Nemiroff received a Juris Doctor degree from Yale Law School in 1996 and a Bachelor of Arts degree from Princeton University in 1993.

		December 31,		December 31,
		2014		2013
Raw materials	$	289,100	$	347,641
Work in process		25,683		43,177
Finished goods		218,434		141,980
	$	533,217	$	532,798

Ned L. Siegel, Director. Mr. Siegel has served as member of the board of directors of the Company (the “Board”) since April 2014. On February, 27, 2015, Mr. Siegel was unanimously elected as the new non-executive Chairman of the Board, replacing Mr. Raefield, who resigned as Chairman. Prior to his employment with the Company, Mr. Siegel was the U.S. Ambassador to the Commonwealth of the Bahamas from October 2007 to January 2009, a position that he was appointed to by then President George W. Bush. He was also appointed by President Bush to serve under Ambassador John R. Bolton at the United Nations in New York, serving as the Senior Advisor to the U.S. Mission and as the United States Representative to the 61st Session of the United Nations General Assembly. Prior to his Ambassadorship, Mr. Siegel was appointed to the board of directors of the Overseas Private Investment Corporation. In addition to his public service, Mr. Siegel has over 30 years of entrepreneurial experience. Since September 1997, Mr. Siegel has served as the Chairman of the board of directors The Siegel Group, a multi-disciplined international business management advisory firm specializing in infrastructure, real estate, ports, energy, financial, cyber security and physical security services. Mr. Siegel serves on the board of directors and advisory boards of numerous public and private companies as well as private equity groups. Mr. Siegel graduated Phi Beta Kappa from the University of Connecticut in 1973 and received a Juris Doctorate from the Dickinson School of Law in 1976. Mr. Siegel was selected as a director principally because of his experience in international business and relations. Mr. Siegel also brings to his role as director extensive leadership experience from serving on boards and committees of complex public companies.

4.Page ~~Equipment~~27 of 68

				Accumulated		Net book
December 31, 2014		Cost		depreciation		value
Automobile	$	25,209	$	2,521	$	22,688
Computer equipment		171,635		112,941		58,694
Leasehold improvements		69,037		5,867		63,170
Office furniture and equipment		134,660		73,208		61,452
	$	400,541	$	194,538	$	206,004

Zhi Yuan (Yvonne) Zheng, Principal Financial Officer. On January 18, 2016, the Company appointed Ms. Zheng, who had been the Company’s Internal Controller since September 2015, as its Principal Financial Officer pursuant to an employment agreement, dated January 18, 2016, between Ms. Zheng and the Company.

				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

Prior to joining the Company, Ms. Zheng, served as a senior accountant for the global finance team at Colliers International Group Inc., a publicly traded real estate company, from October 2014 to July 2015, and from April 2012 to October 2014, Ms. Zheng served as a lead financial analyst at TIO Networks Corp., a publicly traded bill payment processing company listed on the Toronto Stock Exchange. From February 2012 to April 2012, Ms. Zheng worked as a financial consultant at Gateway Casinos and Entertainment, a Canadian gaming and entertainment operator. From May 2011 to February 2012, Ms. Zheng served as a financial reporting and accounting manager at HSBC Bank Canada, assisting with managing the bank’s financial planning and analysis among its global business units. From April 2007 to May 2011, Ms. Zheng worked as a senior financial accountant in charge of the accounting and internal control departments at Quality Move Management, Inc., a moving company.

~~Viscount~~Ms. Zheng ~~Systems~~has over fifteen years of professional financial accounting and analysis experience. Prior to April 2007, ~~Inc~~Ms. Zheng worked ~~Notes~~in toChina ~~Consolidated~~for six years as a cost control supervisor for Unicom Guomai Communications Co., Ltd., a public telecommunications company ~~Financial~~that ~~Statements~~had ~~(Expressed~~traded inon ~~Canadian~~the ~~dollars)~~Shanghai ~~December~~Stock 31Exchange, and served as a representative on the telecommunications company’s securities ~~2014~~affairs board for two years. Ms. Zheng holds an MBA from Laurentian University and a bachelor’s degree in engineering from Shanghai University. Ms. Zheng is a Chartered Professional Accountant and has been a member of the Certified General Accountants Association of Canada since 2010.

5.Director Independence ~~Intangible assets~~

OnWe are ~~May~~not ~~16,~~subject ~~2003,~~to ~~the~~listing ~~Company~~requirements ~~entered into~~of anany ~~agreement~~national ~~for~~securities ~~the~~exchange ~~purchase~~or ofnational ~~certain~~securities ~~assets~~association ofand, ~~Telus~~as ~~Corporation~~a result, ~~(“Telus”).~~we ~~The~~are ~~assets~~not ~~comprised~~at ~~primarily~~this oftime ~~service~~required ~~agreements~~to ~~for~~have aour ~~product sold~~board bycomprised ~~Telus~~of ~~known~~a asmajority of “~~Enterphone~~independent ~~2000”~~directors.” AtOur ~~December~~determination of ~~31,~~independence ~~2003,~~of ~~the~~directors ~~Company~~is ~~had acquired~~made ~~2,215~~using ~~service~~the ~~agreements~~definition ~~for~~of ~~which~~“independence” itas ~~paid~~set aforth ~~total~~in ofNI ~~$208,921.~~58-101 ~~At December~~and ~~31,~~NP ~~2014~~58-201, which recommends that a majority of the ~~Company~~board ~~held~~of ~~1,186~~directors ~~service~~be ~~agreements~~“independent”. ~~(2013~~In –applying 1this definition,~~254)~~ atthe aBoard ~~carrying~~considers ~~cost,~~all relationships of ~~$5,224~~the ~~(2013~~directors -of ~~$26~~the Company,~~116)~~ including business, ~~net~~family ofand ~~accumulated~~other ~~amortization~~relationships. As of the date ~~$203~~of this report,~~697~~ ~~(2013~~all -of ~~$182,913)~~our directors are considered independent.

~~The expected amortization expense for~~Board ~~the next fiscal year is as follows:~~ Committees

~~Year~~The Board ~~ending~~has ~~December~~established 31an Audit Committee, ~~2015~~a $Compensation 5and Risk Committee,~~224~~ a Nominating Committee, and a Corporate Governance Committee. Each of the Audit Committee, Compensation and Risk Committee, Nominating Committee, and Corporate Governance Committee is responsible to the full Board. The functions performed by these committees are as follows:

6.	Due to related parties
	Amounts due to a director for consulting fees and travel expenses totaled $5,003 at December 31, 2014 (2013 - $33,727). These amounts are unsecured, non-interest bearing and have no fixed terms of repayment.
7	Short term loans payable
	Amounts due to third parties totaled $114,536 for outstanding loans and advances (2013 - $114,536). These are non- interest bearing, unsecured and have no fixed terms of repayment.
8.	Series A convertible redeemable preferred stock
	In 2012, the Company completed the sale of 1,100 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$1,100,000. The Series A Shares contain certain rights and preferences as follows:

Audit Committee. Pursuant to the British Columbia Instrument 51-509 Issuers Quoted in the U.S. Over-the Counter Markets and National Instrument 52-110 Audit Committees of the Canadian Securities Administrators, the Company is required to disclose annually in its Information Circular certain information concerning the constitution of its audit committee and its relationship with its independent auditor. The Audit Committee held 4 meetings during the most recently completed fiscal year.

•The primary ~~convertible~~function ~~into shares~~ of ~~common~~the ~~stock~~Audit ofCommittee ~~the~~is ~~Company~~to atassist the ~~rate~~Board ofin ~~US$0.0407~~fulfilling ~~per~~its ~~common~~financial ~~share~~oversight orresponsibilities ~~85%~~by ofreviewing (a) the ~~previous~~financial ~~twenty~~reports ~~day~~and ~~volume~~other ~~weighted~~financial ~~average~~information ~~pricing.~~provided •by ~~dividends~~the ofCompany 8%to ~~per~~regulatory ~~annum,~~authorities ~~payable in cash or Series A Shares quarterly. • voting~~ and ~~conversion~~shareholders; (b) ~~rights~~the ofsystems upfor tointernal ~~4.99%~~corporate ofcontrols ~~the~~which ~~outstanding~~have ~~common~~been ~~stock~~established ofby the ~~Company~~Board atand ~~the time of conversion per holder~~management; ~~registration~~and ~~rights~~(c) tooverseeing the Company’s ~~holders~~financial ofreporting ~~the~~processes ~~Series A Shares that may be exercised in certain circumstances~~generally. •In ~~holders~~meeting ofthese ~~Series~~responsibilities ~~A Shares are entitled to be paid 125% of~~ the ~~stated~~Committee ~~value~~monitors of the ~~Series~~financial reporting Aprocess ~~Shares,~~and ~~plus~~internal ~~all~~control ~~accrued,~~system; ~~but~~reviews ~~unpaid~~and ~~dividends~~appraises ~~on Series A Shares, upon liquidation or dissolution of~~ the ~~Company,~~work ~~including forms~~ of ~~mergers~~external auditors and ~~acquisitions,~~provides inan ~~priority~~avenue ~~to any payments to the holders~~ of ~~shares~~communication between ~~of common stock. •~~ the ~~Series~~external ~~A Shares may be redeemed by the holders for 150% of their stated value~~auditors, ~~plus~~senior ~~all~~management ~~accrued,~~and ~~but unpaid dividends on Series A Shares, upon~~ the ~~occurrence~~Board. ofThe aCommittee ~~default,~~is ~~which~~also ~~includes~~mandated ~~performance~~to ~~conditions,~~review ~~delisting~~and orapprove ~~late~~all ~~filing~~material related ~~with~~party ~~the US Securities and Exchange Commission (“SEC”)~~transactions.

InPage ~~connection~~28 ~~with the Series A Shares issuance, the Company also issued 13,285,012 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$110,000 and issued 2,657,002 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. 68

~~Viscount Systems, Inc. Notes to Consolidated~~The ~~Financial~~Audit ~~Statements~~Committee’s ~~(Expressed~~Charter ~~in Canadian dollars) December 31, 2014~~

9.The Company ~~Derivative~~adopted ~~liabilities~~the charter for the Audit Committee on October 1, 2008.

Balance, December 31, 2013	$	3,023,161
Fair value change of derivative liabilities		1,992,659
Fair value of preferred shares issued as dividends		113,647
Fair value of warrants issued		184,462
Conversion of preferred shares		(195,475	)
Balance, December 31, 2013		5,118,454
Fair value change of derivative liabilities		(3,160,272	)
Fair value of preferred shares issued as dividends		84,762
Fair value of warrants issued and extended		1,095,294
Other reclassification to derivative liability		35,977
Conversion of preferred shares		(315,596	)
Balance, December 31, 2014	$	2,858,618

Composition of the Audit Committee

The Audit ~~derivative~~Committee ~~liability~~is ~~consists~~comprised of ~~the~~ ~~fair~~Alexander ~~value~~J. ofBuehler ~~share~~(chairman), ~~purchase~~Ned ~~warrants~~Siegel ~~that~~and ~~were~~Geoffrey ~~issued~~W. inArens. ~~unit~~All ~~private~~of the Audit Committee ~~placements~~members ~~and~~are ~~warrants~~considered ~~whose~~to ~~life~~be ~~was~~financially ~~extended~~literate in that ~~have~~each anmember ~~exercise~~has ~~price~~the inability to read and understand a set of financial ~~currency~~statements ~~other~~that ~~than~~present ~~the~~a ~~functional~~breadth ~~currency~~and level of ~~the~~complexity ~~Company,~~of asaccounting ~~well~~issues ~~as conversion~~that ~~options~~are generally comparable to the breadth and complexity ~~dividends~~of onthe ~~Series~~issues Athat ~~Shares~~can ~~where~~presumably be expected to be raised by the ~~conversion~~Company’s ~~price~~financial statements. Alex Buehler is ~~not~~the ~~fixed~~chairman and “financial expert” of the Audit Committee.

~~The fair value of the warrants and~~Relevant ~~dividends~~Education ~~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:~~ Experience

	December 31,	December 31,
	2014	2013
Volatility	79% - 109%	92% - 186%
Risk-free interest rate	0.25% - 1.10%	0.63% - 1.39%
Expected life	0.94 – 5.00 yrs	2.19 – 4.75 yrs

All members of the audit committee have an understanding of the accounting principles used by the Company to prepare financial statements.

	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).
	Certain derivative liabilities contain other provisions such as rachet rights on conversion option prices and warrant exercise prices. Under US GAAP, if the terms of a contingent option do not permit an issuer to compute the number of shares that the holder would receive if the contingent event occurs and the conversion option is adjusted, an issuer shall wait until the contingent event occurs and then compute the resulting liability.
10.	Capital stock
	On May 21, 2013, the Company completed a private placement of 6,750,000 units at a price of US$0.10 per unit, for gross proceeds of US$675,000. Each unit consisted of one common share and one-half share purchase warrant of the Company, with each warrant exercisable to acquire an additional share of the Company at a price of US$0.20 for a period of 3 years, expiring May 17 and 21, 2016. In connection with the offering, the Company paid cash costs of $15,000 and issued share purchase warrants to acquire 675,000 shares of common stock of the Company at a price of US$0.20 per share for a period of 3 years from the closing date. The warrants may be exercised on a cashless basis.
	Upon issuance of the units, $184,462 were allocated to the warrants and recorded as a derivative liability and the balance, net of share issuance costs, was allocated to common stock and additional paid-in capital. The fair value of the warrants was determined using the Black-Scholes option pricing model using the following assumptions; volatility of 155%; a dividend yield rate of 0%; a risk-free interest rate of 0.40% and an expected life of three years and allocated on a relative basis.

Audit Committee Oversight

~~Viscount~~Since the ~~Systems~~commencement of the Company’s most recently completed financial year, ~~Inc.~~the ~~Notes~~Board has not failed to ~~Consolidated~~adopt a recommendation ~~Financial~~of ~~Statements~~the ~~(Expressed~~Audit inCommittee ~~Canadian~~to ~~dollars)~~nominate ~~December~~or ~~31, 2014~~compensate an external auditor.

10.	Capital stock (cont’d)
	On May 15, 2013, the Company issued 520,000 common shares in consideration for consulting services with a fair value of $52,894.
	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.
	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$106,604 in cash and share purchase warrants to acquire 1,184,487 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.
	Upon issuance of the March 2014 units, $799,399 were allocated to the warrants and recorded as a derivative liability and the balance, net of share issuance costs, was allocated to common stock and additional paid-in capital. The fair value of the warrants was determined using the Black-Scholes option pricing model using the following assumptions; volatility of 176%; a dividend yield rate of 0%; a risk-free interest rate of 0.90% and an expected life of five years and allocated on a relative basis.
	Stock Options:
	On July 8, 2014, the board amended the Company’s 2003 Share Option Plan by amending the termination provision and to increase the number of common shares reserved for the issuance under the plan from 2,935,510 to 8,806,530. All other terms of the plan remain unchanged. All stock options granted are exercisable in US$. A summary of the stock option activity is as follows:

Compensation and Risk Committee. The Compensation and Risk Committee reviews and approves the compensation of the Company’s officers and reviews and administers the Company’s stock option plans for employees. The Compensation and Risk Committee does not have a charter. The members of the Compensation and Risk Committee are Geoffrey Arens and James Cacioppo (chairman). A vacancy currently exists on the Compensation and Risk Committee. All members of the Compensation and Risk Committee are independent directors. All decisions regarding compensation are written and subject to approval by all directors. The Compensation and Risk Committee did not hold any meetings during the most recently completed financial year.

			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	10,561,450		US$0.10
Cancelled	(438,750	)	US$0.10
Outstanding at December 31, 2014	11,752,075		US$0.09

Nominating Committee. The Nominating Committee is charged with the responsibility of proposing potential director nominees to the Board of directors for consideration. The Nominating Committee utilizes a variety of sources to identify possible Director candidates, including Board member recommendations. In evaluating candidates to recommend to the Board, the Nominating Committee considers all factors, including, but not limited to, whether the candidate enhances the diversity of the Board. Such diversity includes professional background and capabilities, knowledge of specific industries and geographic experience, as well as the more traditional diversity concepts of race, gender and national origin. The attributes of the current directors and the needs of the Board and the Company are evaluated whenever a Board vacancy occurs, and the effectiveness of the nomination process, including whether that process enhances the Board’s diversity, is evaluated each time a candidate is considered. The Nominating Committee is also responsible for reviewing the qualifications of, and making recommendations to the Board for, Director nominations submitted by our shareholders. All director nominees are evaluated in the same manner by the Nominating Committee, without regard to the source of the nominee recommendation. The Nominating Committee does not have a charter at this time. Ned Siegel is currently the only member and the chairman of the Nominating Committee. Two vacancies currently exist on the Nominating Committee. The Nominating Committee did not hold any meetings during the most recently completed financial year.

Corporate Governance Committee. The ~~fair~~Corporate ~~value~~Governance Committee is charged with the responsibility of reviewing our corporate governance policies. The Corporate Governance Committee does not have a charter. Ned Siegel is currently the ~~options~~only ~~granted~~member and the ~~during~~chairman of the ~~year~~Corporate ~~ended~~Governance ~~December~~Committee. ~~31,~~Two ~~2014~~vacancies ~~were~~currently ~~determined~~exists ~~using~~on the ~~Black-Scholes~~Corporate Governance Committee. The Corporate ~~option~~Governance ~~pricing~~Committee ~~model~~did ~~using~~not hold any meetings during the ~~following~~most ~~current~~recently ~~market~~completed ~~assumptions:~~financial year.

	Volatility	79.5% - 140%
	Risk-free interest rate	0.97% - 1.55%
	Expected life	2 yrs – 3.5 yrs

Compliance with Section 16(a) of the Exchange Act

~~The~~Section 16(a) ~~significant~~of ~~assumptions~~the ~~used~~Securities ~~during~~ Exchange Act of 1934, as amended (the ~~year~~“Exchange Act”) requires our directors, executive officers, and persons who own more than 10% of our Common Stock to ~~estimate~~file ~~the~~reports ~~fair~~of ~~value~~ownership ~~included~~and anchanges ~~expected~~in ~~term~~ownership ~~(based~~of onour ~~the~~Common Stock ~~history~~with the SEC. Based solely on our review of ~~exercises~~Forms 3, 4 and ~~forfeitures)~~5 and ~~volatility~~amendments ~~(based~~thereto onfurnished to the ~~historical~~Company during its most recent ~~volatility~~fiscal ~~with~~year, athe ~~look-back~~following ~~period~~directors, ~~equivalent~~officers toand person beneficially owning greater than 10% of the ~~expected~~Company’s ~~term~~equity securities failed to timely file reports required by Section 16(a). of the Exchange Act during the most recent fiscal year or prior fiscal years:

~~Viscount~~Page ~~Systems,~~29 ~~Inc.~~of ~~Notes to Consolidated Financial Statements (Expressed in Canadian dollars) December 31, 2014~~68

10.	Capital stock (cont’d)
	The weighted average grant date fair value of the options granted during the year ended December 31, 2014 was $0.0789 per option (2013 - $nil).
	A summary of the stock options outstanding and exercisable at December 31, 2014 is as follows:

Paul Goldenberg failed to timely file one Form 4 or a Form 5, covering one transaction, in connection with the issuance to him of a warrant to purchase Common Stock. Paul Goldenberg served as member of the Board from October 2011until his resignation on May 4, 2015.

			Weighted average		Weighted average		Aggregate
	Exercise Price	Number	remaining contractual life		exercise price		intrinsic value
US$	0.04	54,375				$	1,631
	0.08	1,500,000					-
	0.09	10,016,450					-
	0.10	125,000					-
	0.15	56,250					-
		11,752,075	4.06 years	US$	0.09	$	1,631

Dennis Raefield failed to timely file two Form 4’s or a Form 5, covering two transactions, in connection with the issuance to him of shares of Common Stock. Mr. Raefield served as a director of the Company from November 2011 until his resignation on November 9, 2015.

~~The aggregate intrinsic value in the~~Scott ~~preceding~~Sieracki ~~table~~failed ~~represents~~to ~~the~~timely ~~total~~file ~~intrinsic~~a ~~value,~~Form ~~based~~3 onin ~~the~~connection ~~Company’s closing~~with ~~stock~~his ~~price~~appointment ofas ~~US$0.07~~Interim ~~per~~Chief ~~share~~Executive asOfficer of ~~December~~the ~~31,~~Company ~~2014, which would~~and ~~have~~failed ~~been~~to ~~received~~timely ~~from~~file ~~the~~one ~~option~~Form ~~holders~~4 ~~had~~or ~~all~~a ~~option~~Form ~~holders~~5, ~~exercised their~~covering ~~options~~one astransaction, ofin ~~that~~connection ~~date.~~with ~~The total number of in-~~the~~-money~~ ~~options~~issuance ~~vested and~~to ~~exercisable~~him as of ~~December~~an ~~31,~~option ~~2014~~to purchase ~~was~~Common ~~54,375~~Stock.

~~Warrants:~~Zhi Yuan (Yvonne) Zheng failed to timely file a Form 3 in connection with her appointment as Principal Financial Officer of the Company and failed to file one Form 4 or a Form 5, covering one transaction, in connection with the issuance to her of an option to purchase Common Stock.

OnCraig Nemiroff ~~May~~failed ~~30,~~to ~~2013,~~timely ~~the~~file ~~Company~~his ~~issued 230,000~~Form ~~warrants~~3 ~~to a consultant~~ in connection with ahis ~~advisory~~appointment ~~services agreement.~~as ~~These~~a ~~warrants~~director ~~have an exercise price~~ of ~~US$0.20 and expire on May 30, 2016. The grant date fair value of these warrants was $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~~Company.~~49%; and a dividend rate of 0%.~~

OnRobert Liscouski ~~April~~failed 4,to ~~2014,~~timely ~~the~~file ~~Company~~a ~~issued~~Form 4 or a ~~board~~ ~~member~~Form ~~250~~5,~~000~~ ~~compensation~~covering ~~warrants~~one transaction, ~~each~~in ~~warrant~~connection iswith ~~exercisable~~the issuance to ~~acquire~~ ~~one~~him ~~common share~~ of ~~the~~Common Stock. ~~Company~~Mr. atLiscouski anhas ~~exercise~~served ~~price~~as member of ~~US$0.09~~the ~~per share~~Board ~~for~~from aSeptember ~~period~~2011 ofuntil ~~three~~his ~~years~~resignation ~~expiring~~on ~~April~~November 49, ~~2017~~2015.

~~On April 14, 2014, the Company issued~~Alexander ~~board~~Buehler ~~members~~failed ~~2,690,000 compensation warrants, each warrant exercisable~~ to ~~acquire~~ antimely ~~additional~~file ~~share~~a ofForm ~~the~~4 ~~Company~~or ~~at an exercise price of US$0.10 per share for~~ a ~~period~~Form ~~of five years expiring April 14~~5, ~~2019.~~covering ~~The~~one ~~Company also issued to a board member 250~~transaction,~~000~~ ~~warrants,~~in ~~each~~connection ~~warrant~~with ~~exercisable to acquire an additional share of~~ the ~~Company~~issuance atto anhim ~~exercise price~~ of ~~US$0.09 per share for~~Common ~~a period of five years expiring April 14, 2019~~Stock.

OnGeoffrey Arens ~~April~~failed ~~16,~~to ~~2014,~~timely ~~the~~file ~~Company~~Form ~~extended the term of~~ 4~~,162,650~~’s ~~warrants~~or ~~issued as part of~~ a ~~private~~Form ~~placement that closed on April 16~~5, ~~2007~~covering ~~and~~eight ~~expired on April 16~~transactions, ~~2012,~~in ~~for~~connection awith ~~period~~the ofissuance ~~three years expiring April 16, 2017. Each warrant is exercisable~~ to ~~acquire~~him ~~an additional~~and ~~share~~Dendera ofCapital ~~the Company at an exercise price~~ of ~~US$0.09~~Common ~~per~~Stock, ~~share.~~Series ~~The~~A ~~grant~~Stock, ~~date fair~~Series ~~value~~B ~~of these warrants was $366~~Stock,~~120~~ ~~using~~Series ~~the~~A ~~Black-Scholes~~Demand ~~option~~Note ~~pricing model with the following assumptions: expected life of 2 years; volatility of 88%; risk-free interest rate of 0.89%;~~ and aSeries ~~dividend~~B ~~rate~~Demand ~~of 0%~~Note.

~~The~~Jim Cacioppo ~~Company~~failed ~~issued~~to ~~common~~timely ~~shares~~file at a ~~price~~ ofForm ~~US$0.10~~3 ~~per~~or ~~share~~Form ~~and~~5 ~~share~~in ~~purchase~~connection ~~warrants~~with ofhis ~~the~~appointment ~~Company exercisable~~as ata andirector ~~exercise price~~ of ~~US$0.20 per share pursuant to securities purchase agreements entered into between~~ the Company ~~and certain investors~~ in ~~May~~ ~~2013.~~June ~~These~~of ~~May 2013 shares~~ 2015, and ~~and~~failed ~~May 2013 warrants were subject~~ to ~~adjustment~~ ~~due~~timely tofile ~~the~~Form ~~issuance~~4’s ofor ~~common shares at~~ a ~~price~~Form of5, ~~US$0.09~~covering ~~per~~transactions ~~share in~~thereafter ~~the~~until ~~Company’s~~December ~~private placement that closed on March 11~~31, ~~2014~~2015. OnThese ~~May 20,~~filings ~~2014,~~would ~~pursuant~~have tocovered ~~the adjustment, the Company issued to investors of the 2013 Offering~~ a total of ~~749,998~~seventeen ~~shares~~transactions ofgoing ~~common~~back ~~stock~~to ~~with~~his ainitial ~~fair~~stock ~~value~~purchases ofprior ~~$75,000 and 374,996 warrants, each warrant exercisable~~ to ~~acquire~~becoming ana ~~additional~~member ~~share~~ of the board ~~Company at an exercise price~~ of ~~US$0.18~~directors ~~per share for a term~~ of ~~two~~the ~~years expiring May 17~~Company, ~~2016.~~in ~~The~~connection ~~grant~~with ~~date~~the ~~fair~~issuance ~~value~~to ~~of these warrants was $24~~him,~~605 using~~ ~~the~~One ~~Black-Scholes~~East ~~option~~Partners ~~pricing~~and ~~model~~One ~~with~~East ~~the~~Opportunities ~~following~~of ~~assumptions:~~Common ~~expected~~Stock, ~~life~~Series ofA 2Stock, ~~years;~~Series ~~volatility~~B ofStock, ~~81%;~~Series ~~risk-free~~A ~~interest~~Demand ~~rate~~Notes ~~of 0.8%;~~ and aSeries ~~dividend~~B ~~rate~~Demand ~~of 0%~~Notes.

~~Viscount~~Ned Siegel ~~Systems~~failed to timely file Form 4’s or a Form 5, ~~Inc.~~covering ~~Notes~~six totransactions, ~~Consolidated~~in connection with his appointment as a director ~~Financial~~of ~~Statements~~the ~~(Expressed~~Company and in ~~Canadian~~connection ~~dollars)~~with ~~December~~the ~~31, 2014~~issuance to him of Common Stock and warrants to purchase Common Stock.

10.	Capital stock (cont’d)
	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 $181,877 using the Black-Scholes option pricing model with the following assumptions: expected life of 1.4 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 compensation 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.
	On December 19, 2014, the Company issued a board member 250,000 compensation 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 December 19, 2019.
	On December 30, 2014, 250,000 compensation warrants were granted to each of four board members, totalling 1,000,000 warrants, each warrant exercisable to acquire an additional share of the Company at an exercise price of US$0.09 per share for period of three years expiring December 30, 2017. These warrants were issued to replace the 1,000,000 warrants granted to the same board members on December 5, 2011 which had expired on December 5, 2014. These warrants granted on December 5, 2011 had an exercisable price of CDN$0.10 per share for a period of three years.
	The fair values of the compensation warrants granted in the year ended December 31, 2014 were determined using the Black-Scholes option pricing model using the following current market assumptions:

George Birnbaum failed to timely file a Form 3 or Form 5, covering one transaction, in connection with his appointment as a director of the Company and the issuance to him of Common Stock. Mr. Birnbaum served as a director of the Company from May 4, 2015 until his resignation on November 9, 2015.

	Volatility	86% - 163%
	Risk-free interest rate	0.52% - 1.7%
	Expected life	1.4 yrs – 3.5 yrs

Code of Ethics

The ~~significant assumptions used during~~ ~~the~~Board ~~year~~established toa ~~estimate~~Code ~~the fair value~~ of ~~compensation~~Business ~~warrants~~Conduct ~~included~~and ~~an expected~~Ethics ~~term~~ (~~based on~~ the ~~history~~“Code”) ofthat ~~exercises)~~applies ~~and~~to ~~volatility~~our ~~(based~~officers, ondirectors ~~the~~and employees. ~~historical~~Among ~~volatility~~other ~~with~~matters, aCode ~~look-back~~is ~~period~~designed ~~equivalent~~ to ~~the~~deter ~~expected~~wrongdoing ~~term).~~ and to promote:

~~The~~● ~~weighted~~honest ~~average~~and ~~grant~~ethical ~~date~~conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; ● full, fair ~~value~~, accurate, timely and understandable disclosure in our SEC reports and other public communications; ● compliance with applicable laws, rules and regulations; ● prompt internal reporting of violations of the ~~compensation~~code ~~warrants~~to ~~granted~~appropriate ~~during~~persons identified in the ~~year~~code; ~~ended~~and ~~December~~● ~~31, 2014~~accountability ~~was~~for ~~$0.12~~adherence ~~per~~to ~~warrant~~the ~~(2013~~code -of ~~$0.087).~~business conduct and ethics.

APage ~~summary~~30 of ~~warrant activity during the twelve months ended December 31, 2014 is as follows:~~ 68

				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	18,278,787			0.20
Expired	(1,000,000	)		0.10
Issued as compensation warrants	4,940,000			0.09
Outstanding at December 31, 2014	80,890,801		$	0.11

Any waiver of the Code for employees must be approved by the Chief Executive Officer or such officer’s designee. Any waiver of the Code for officers or directors must be approved by the Board. Any such waiver must be promptly disclosed to stockholders as required by applicable laws, rules and regulations.

~~Viscount Systems, Inc~~Item 11. ~~Notes~~Executive toCompensation ~~Consolidated Financial Statements (Expressed in Canadian dollars) December 31, 2014~~

10.	Capital stock (cont’d)
	The value of the private placement warrants have not been separately valued as the value would remain in additional paid in capital, with the exception of warrants classified as derivatives (note 9).
	A summary of the warrants outstanding and exercisable at December 31, 2014 is as follows:

The following table sets forth the compensation paid to our named executive officers at the end of the fiscal years ended December 31, 2015 and 2014. Individuals we refer to as our “named executive officers” include our Chief Executive Officer and our most highly compensated executive officers whose salary and bonus for services rendered in all capacities exceeded $100,000 during the fiscal year ended December 31, 2015. This information includes the dollar value of base salaries, bonus awards and number of stock options granted, and certain other compensation, if any.

			Weighted Average
Weighted Average	Exercise Price	Number	Remaining Contractual Life
US$	0.080	2,499,999	0.93 years
$	0.080	9,500,001	0.93 years
US$	0.080	3,000,000	0.98 years
$	0.080	3,000,000	0.98 years
US$	0.080	3,600,000	1.17 years
$	0.080	7,350,000	1.17 years
$	0.150	2,500,000	1.48 years
US$	0.065	12,285,012	2.43 years
US$	0.050	2,457,002	2.43 years
US$	0.065	1,000,000	2.80 years
US$	0.050	200,000	2.80 years
US$	0.100	5,000,000	2.90 years
US$	0.050	1,000,000	2.90 years
US$	0.200	2,375,000	1.38 years
US$	0.200	675,000	1.39 years
US$	0.200	1,000,000	1.39 years
US$	0.200	230,000	1.41 years
US$	0.200	4,955,547	4.20 years
US$	0.200	8,641,151	4.24 years
US$	0.200	144,443	4.25 years
US$	0.090	250,000	2.26 years
US$	0.090	250,000	4.29 years
US$	0.090	250,000	2.68 years
US$	0.095	250,000	4.52 years
US$	0.100	1,540,000	4.29 years
US$	0.100	1,150,000	4.29 years
US$	0.080	4,162,650	2.29 years
US$	0.180	263,886	1.38 years
US$	0.180	111,110	1.38 years
US$	0.095	250,000	1.24 years
US$	0.10	250,000	4.96 years
US$	0.090	1,000,000	3.00 years
$	0.105	80,890,801	2.27 years

Summary Compensation Table

Viscount Systems, Inc. Notes to Consolidated Financial Statements (Expressed in Canadian dollars) December 31, 2014

											Non-Equity		Nonqualified
											Incentive		Deferred		All
Name and							Stock		Option		Plan		Compensation		Other
Principal			Salary		Bonus		Awards		Awards		Compensation		Earnings		Compensation		Total
Position	Year		($)		($)		($) (4)		($) (4)		($)		($)		($)		($)

Stephen Pineau
Former Chief Executive Officer, Chief Financial Officer and President (1)		2014		47,250		0		0		0		0		0		0		47,250

Dennis Raefield		2015		157,950		-		-		-		-		-		-		157,950
Director and Former Chief Executive Officer, President, Secretary and Chairman (2)		2014		164,184		0		33,333		810,223		0		0		189,358		1,197,098

Scott Sieracki (3)
Interim Chief Executive Officer		2015		236,164		0		0		23,950		0		0		0		260,114

11. Income taxes The provision for income taxes differs from the amount that would have resulted in applying the combined Canadian and United States statutory income tax rates as follows:

(1)	On March 31, 2002, the Company’s wholly owned subsidiary, Viscount Communication & Control Systems Inc. (“Viscount Communication”), entered into an employment agreement with Mr. Stephen Pineau, pursuant to which Mr. Pineau served as President and Chief Executive Officer of Viscount Communication. The agreement provided for an annual base salary of $117,000. The initial term for the agreement was one year with automatic renewal unless a minimum 30 days’ notice is given by Viscount Communication of its intentions not to renew the agreement.

(2)	On February 17, 2014, the Company entered into an employment agreement with Dennis Raefield, pursuant to which Mr. Raefield serves as President, Chief Executive Officer, Chairman, and Secretary of Viscount and Viscount Communication. The agreement provided for an initial annual salary of US $175,000, an annual bonus of up to 50% of Mr. Raefield’s base salary, and stock options equal to 3.99% of the Company’s fully diluted stock list. Mr. Raefield resigned from his position as Chairman of the Board on February 2015, and resigned from his position as Chief Executive Officer, President and Secretary of the Company on July 13, 2015.

(3)	On September 17, 2015, the Company entered into an employment agreement with Scott Sierecki, pursuant to which Mr. Sierecki serves as the Company’s Interim Chief Executive Officer. The agreement provides for an annual base salary of US $200,000, retroactively to July 17, 2015. The agreement also provides Mr. Sierecki a a bonus of 4% of the Company’s net profit before taxes as reported on the Company’s Form 10-Q or 10-K, subject to an annual cap of $200,000. The Company granted Mr. Sierecki 1,000,000 stock options at an exercise price of US$0.02, which shall vest at the rate of 25% after six months after his start date (the “Start Date”), another 25% after one year after the Start Date and the remaining 50% two years after the Start Date.

(4)	The amounts reported in the column represent the grant date fair value of the option awards granted during the year ended December 31, 2015 and 2014, calculated in accordance with FASB ASC Topic 718. For a detailed discussion of the assumptions used in estimating fair values, see Note 16 to the Consolidated Financial Statements.

		Year ended			Year ended
		December 31,			December 31,
		2014			2013
Net loss before income tax	$	(990,682	)	$	(3,080,500	)
Statutory income tax rate		26%			25.75%
Expected income tax recovery at statutory income tax rate		(257,577	)		(793,229	)
Non-deductible expenses and other items		(542,844	)		493,400
Change in valuation allowance		800,421			299,829
Income tax expense	$	-		$	-

Page 31 of 68

~~Temporary differences that give rise to~~Director ~~the following deferred income tax assets are as follows:~~ Compensation

			December 31, 2014			December 31, 2013
		Fees earned			Stock					Option		All other
	Equipment	$	30,496		$	22,850
		or paid in cash			awards			Bonus		Awards		Compensation		Total
	Intangible assets		25,679			24,470
Name		($) (1)			($) (2)			($)		($)		($)		($)
	Investment tax credits (non-refundable)		1,371,512			1,051,751
Dennis Raefield		US $	7,500		US $	15,000			0		0		0	US $	22,500
	Losses		1,385,279			616,264
Robert Liscouski		US $	7,500		US $	15,000			0		0		0	US $	22,500
	Research and development costs		872,644			791,797
Paul Goldenberg		US $	3,407			0			0		0		0	US $	3,407
	Warranty provision		(323,162	)		54,712
James Cacioppo		US $	15,000		US $	15,000			0		0		0	US $	30,000
			3,362,447			2,562,026
Alexander Buehler		US $	25,000		US $	22,500			0		0		0	US $	47,500
	Valuation allowance		(3,362,447	)		(2,562,026	)
Geoffrey Arens		US $	17,500		US $	15,000			0		0		0	US $	32,500
	Net deferred income tax assets	$	-		$	-
Ned Siegel		US $	40,000		US $	30,000			0		0		0	US $	70,000
Craig Nemiroff		US $	3,333			0			0		0		0	US $	3,333
Paul Brisgone		US $	1,140			0			0		0		0	US $	1,140
George Birnbaum		US $	2,802		US $	15,000			0		0		0	US $	17,802

The Company has loss carry-forwards of approximately $5,328,000 which will expire over a period up to 2034.

(1)	Directors of the Company are compensated $10,000 per year and be reimbursed all related travel expenses for services provided as a director or members of committees of the Board. On May 19, 2015, the Compensation Committee approved the new directors’ compensation. Each Board member (excluding Ambassador Ned L. Siegel and Alex Buehler) receives US $20,000 per year (paid quarterly) with the Board member having the option of receiving cash or stock. If the choice is stock, then the stock is restricted stock and valued at the date of issuance. Ambassador Siegel as Chairman of the Board received 2 times the regular Board member’s amount or US $40,000 (paid quarterly). Mr. Buehler as the Audit Committee Chair received 1.5 times the regular Board member’s amount or US $30,000 (paid quarterly). The above compensation amounts take effect for the 2^nd quarter of 2015, except for Chairman Siegel, whose compensation is retroactive to January 1, 2015.

(2)	On May 19, 2015, the Compensation Committee approved the new directors’ compensation. Each Board member (excluding Ambassador Siegel and Alex Buehler) received: 500,000 shares of restricted stock that vest one year from the date of issuance. Mr. Siegel as Chairman of the Board receives 2 times the regular board members amount or 1,000,000 shares of restricted stock that vest one year from the date of issuance. Mr. Buehler as the Audit Committee Chair receives 1.5 times the regular board members amount or 750,000 shares of restricted stock that vest one year from the date of issuance.

~~The~~Page ~~Company~~32 ~~has non-refundable federal investment tax credits~~ of ~~approximately $872,000 which will expire over a period up to 2034 and provincial investment tax credits of approximately $499,000, which will expire over a period up to 2024.~~ 68

The Company has unutilized scientific research and development costs of approximately $3,356,000 which may be available to reduce taxable income and income taxes payable in future years.

(3)	Paul Goldenberg, Former Director. Paul Goldenberg served as member of the Board from October 2011until his resignation on May 4, 2015.

(4)	Dennis Raefield, Former Director. Mr. Raefield served as a director of the Company from November 2011 until his resignation on November 9, 2015.

(5)	Robert Liscouski, Former Director. Mr. Liscouski has served as member of the Board from September 2011 until his resignation on November 9, 2015.

(6)	*George Birnbaum, Former Director.* Mr. Birnbaum served as a director of the Company from May 4, 2015 until his resignation on November 9, 2015.

~~Management~~Item 12. ~~has~~Security ~~determined~~Ownership ~~that the realization~~ of ~~the~~Certain ~~potential~~Beneficial ~~deferred~~Owners ~~tax assets resulting from these tax pools~~ and ~~other~~Management ~~temporary differences is uncertain at this time,~~ and ~~cannot~~Related beStockholder ~~viewed as more likely than not~~Matters. ~~Accordingly, the Company has recorded a full valuation allowance for the potential deferred tax asset.~~

The following ~~Company~~table ~~files~~sets ~~income~~forth ~~tax~~certain ~~returns~~information ~~in Canada~~with ~~and~~respect to the ~~United~~beneficial ~~States~~ownership of ~~America.~~Common ~~The~~Stock, ~~Company’s~~warrants, ~~Canadian~~stock ~~income tax~~options, ~~returns~~Series ~~for~~A ~~2007~~Preferred ~~through~~Stock ~~2013~~and ~~are~~Series ~~open~~B ~~tax~~Preferred ~~years.~~Stock, ~~The~~Series ~~Company’s~~A ~~United~~and ~~States tax~~Series ~~returns~~B ~~are~~Demand ~~open~~Notes ~~from~~as ~~2008~~of ~~through~~March ~~2013.~~31, ~~The~~2016 ~~Company~~for: ~~has~~(i) ~~reviewed~~each ~~its tax~~of ~~filings~~our ~~for~~directors; ~~these~~(ii) ~~years~~each toof ~~identify~~our ~~the~~executive ~~existence~~officers; of(iii) ~~any~~all ~~uncertain~~of ~~tax~~our ~~positions that~~directors ~~would~~and ~~require~~executive ~~recognition~~officers inas ~~the~~a ~~Company’s~~group; ~~financial~~and ~~statements.~~(iv) ~~The~~all ~~Company~~persons, ~~may~~to ~~from~~our ~~time~~knowledge, toare ~~time~~the bebeneficial ~~assesed~~owners ~~interest~~of ormore ~~penalties~~than byfive ~~tax~~percent ~~filing~~(5%) of the outstanding shares. Beneficial ownership ~~jurisdictions,~~is ~~although~~determined ~~any~~in ~~such~~accordance ~~assessments~~with ~~historically~~the ~~have~~rules ~~been~~of ~~minimal~~the SEC, and ~~immaterial~~ toincludes ~~the~~voting ~~Company’s~~or ~~financial~~investment ~~results~~power with respect to the securities.

~~Viscount~~The Common ~~Systems~~Stock percentage ownership information shown in the table below is based upon 756,320,261 ~~Inc~~shares of Common Stock, which includes shares of Common Stock issuable upon (i) conversion of (a) 132.436 shares of Series A Preferred Stock, (b) 14% Senior Secured Convertible Demand Promissory A Notes to(“Series ~~Consolidated~~A Demand Notes”), and (c) Senior Secured Convertible Demand ~~Financial~~Promissory ~~Statements~~B Notes (~~Expressed~~“Series inB ~~Canadian~~Demand ~~dollars~~Notes”) ~~December~~issued and outstanding, and (ii) exercise of issued and outstanding options and warrants to purchase Common Stock, and 130,297,236 common shares issued as of March 31, 2016. The Series B Preferred Stock ~~2014~~percentage ownership information shown in the table below is based upon 50.46 shares of Series B Preferred Stock issued and outstanding. The tables also set forth the total voting percentage our Common Stock and Series B Preferred Stock for these beneficial owners.

12. Changes in non-cash working capital balances

	Shares of Common Stock Beneficially owned
Name of Beneficial Owner	Number		Percent
One East Partners Master, L.P.⁽¹⁾		212,769,297		28.1	%
One East Partners Opportunities, L.P.⁽²⁾		214,445,038		28.4	%
Dendera Capital Fund LP⁽³⁾		122,274,222		16.2	%
Dennis Raefield⁽⁴⁾		12,502,006		1.7	%
James Cacioppo⁽⁵⁾		427,714,335		56.6	%
Geoffrey W. Arens⁽⁶⁾		123,024,222		16.3	%
Ned L. Siegel⁽⁷⁾		2,618,202		*
Alexander Buehler⁽⁸⁾		1,000,000		*
Craig Nemiroff⁽⁹⁾		416,667		*
Scott Sieracki⁽¹⁰⁾		-		-
Zhi Yuan (Yvonne) Zheng⁽¹⁰⁾		-		-
All directors and named executive officers as a group (7 persons)⁽¹⁰⁾		567,275,432		75.0	%

		Years ended December 31,
		2014			2013
Trade accounts receivable	$	(76,476	)	$	26,134
Inventory		(419	)		(184,820	)
Accounts payable		143,563			103,825
Accrued liabilities		(36,804	)		31,985
Deferred revenue		(225	)		(713	)
Due to related parties		(28,724	)		26,259
	$	915		$	2,670

* Less than 1%.

13(1) One East Partners Master, L.P., ~~Commitments~~is ~~and~~a ~~contingencies~~Cayman Islands limited partnership (“OEP Partners”). The ~~Company~~business address of OEP Partners is ~~committed~~225 NE Mizner Blvd, Suite 720, Boca Raton, FL 33432. James Cacioppo is the Managing Principal of One East Capital Advisors, which is the investment advisor to ~~minimum~~OEP ~~annual~~Partners ~~payments~~which ~~for~~is ~~leases~~an oninvestment ~~its~~limited ~~premises~~partnership. Includes (1) 4,182,363 ~~automobiles~~shares of Common Stock issuable to OEP Partners upon exercise of warrants held by OEP Partners, (2) 152,220,501 shares of Common Stock issuable to OEP Partners upon conversion of two Series A Demand Notes, and ~~office~~(3) ~~equipment~~53,752,270 asshares ~~follows~~of inCommon ~~each~~Stock issuable to OEP Partners upon conversion of a Series B Demand Note held by OEP Partners. Excludes Series B Preferred Stock held by OEP Partners. See ” – Series B Preferred Stock” below. Mr. Cacioppo holds the ~~next~~voting ~~three~~power ~~years:~~and dispositive power with respect to all such shares.

Year ending December 31, 2015	$	162,786
Year ending December 31, 2016	$	73,029
Year ending December 31, 2017	$	8,254

Page 33 of 68

Rent expense included in the statements of operations is $142,151 (2013 - $140,744).

(2)	One East Opportunities, L.P., a Delaware limited partnership (“OEP Opps”). The business address of OEP Opps is 225 NE Mizner Blvd, Suite 720, Boca Raton, FL 33432. James Cacioppo is the Managing Principal of One East Capital Advisors, which is the investment advisor to OEP Opps, which is an investment limited partnership. Includes (1) 6,142,506 shares of Common Stock issuable to OEP Opps upon exercise of warrants held by OEP Opps and (2) 208,302,532 shares of Common Stock issuable to OEP Opps upon conversion of a Series A Demand Note held by OEP Opps. Mr. Cacioppo holds the voting power and dispositive power with respect to such shares. Excludes Series B Preferred Stock held by OEP Opps. See ” – Series B Preferred Stock” below.

(3)	Dendera Capital Fund LP, a Delaware limited partnership (“Dendera Capital”). The business address of Dendera Capital is 1345 Avenue of the Americas, 2nd Floor, New York, New York 10105. Geoffrey Arens is the Managing Partner of Dendera Capital. Includes (1) 2,018,055 shares of Common Stock issuable to Dendera Capital upon exercise of warrants held by Dendera Capital, (2) 92,018,921 shares of Common Stock issuable to Dendera Capital upon conversion of two Series A Demand Notes held by Dendera Capital, and (3) 26,876,135 shares of Common Stock issuable to Dendera Capital upon conversion of a Series B Demand Note.

(4)	Includes (i) 9,161,450 shares of Common Stock issuable to Mr. Raefield upon exercise of stock options held by Mr. Raefield; (ii) 1,785,000 shares of Common Stock issuable to Mr. Raefield upon exercise of warrants held by Mr. Raefield; and (iii) 500,000 shares of Common Stock issued to Mr. Raefield on May 19, 2015, which Common Stock shall fully vest one year from the date of grant.

(5)	Includes shares held by OEP Partners and OEP Opps. See footnotes (1) and (2). And 500,000 shares of Common Stock issued to Mr. Cacioppo on May 19, 2015, which Common Stock shall fully vest one year from the date of grant.

(6)	Includes (1) 250,000 shares of Common Stock issuable to Mr. Arens upon exercise of warrants held by Mr. Arens, (2) 2,018,055 shares of Common Stock issuable to Dendera Capital upon exercise of warrants held by Dendera Capital and (3) shares of Common Stock held by Dendera Capital upon conversion of the Series A Demand Notes and Series B Demand Note held by Dendera Capital. See footnote (3). (4) 500,000 shares of Common Stock issued to Mr. Arens on May 19, 2015, which fully vest one year from the date of grant.

(7)	Includes (i) 785,752 shares of Common Stock issuable to Mr. Siegel upon exercise of warrants held by Mr. Siegel; and (iii) 1,000,000 shares of Common Stock issued to Mr. Siegel on May 19, 2015, which fully vest one year from the date of grant.

(8)	Includes 250,000 shares of Common Stock issuable to Mr. Buehler upon exercise of warrants held by Mr. Buehler.

(9)	Includes 138,889 shares of Common Stock issuable to Mr. Nemiroff upon exercise of a warrant held by Mr. Nemiroff.

(10)	See footnotes (5), (6), (7), (8) and (9). Excludes shares issuable to Mr. Sieracki and Ms. Zheng upon exercise of options to purchase 1,000,000 and 200,000 shares of Common Stock, respectively.

~~The Company has an agreement with its~~Series ~~CEO~~A ~~for~~Preferred ~~services.~~Stock ~~As consideration, the Company is obligated to a yearly salary of US$175,000 plus a housing allowance of US$5,000 per month. The agreement is for a three year term commencing March 1, 2014.~~

~~The~~As of ~~Company~~March ~~has~~31, an2016, ~~agreement~~there ~~with~~were ~~a consultant~~132.436 ~~for~~shares ~~business~~of ~~development,~~Series ~~investor~~A ~~relations~~Preferred ~~and~~Stock ~~strategic and financial services~~outstanding. AsEach ~~consideration,~~share ~~the~~of ~~Company~~Series ~~compensates~~A ~~the~~Preferred ~~consultant~~Stock atis ~~$2,250~~able ~~per~~to ~~month~~vote ~~(subject~~at toone ~~increase~~vote ifper ~~funding~~share ison ~~raised),~~any ~~and~~matter ~~must~~brought ~~pay commissions~~before the holders of ~~10%~~our onCommon ~~funds~~Stock ~~raised~~for a vote. ~~The~~No ~~agreement~~director, ~~may~~officer or bebeneficial ~~terminated~~owner byof 30more ~~days written~~than ~~notice.~~five ~~The~~percent ~~commission~~(5%) ~~arrangement~~of ~~shall~~the ~~extend~~outstanding ~~for~~shares 12of ~~months~~Series ~~beyond~~A Preferred Stock holds Series A Preferred ~~termination~~Stock.

~~The~~Page ~~Company~~34 ~~has retained U.S. legal representation for all general corporate and U.S. securities work. As consideration, the Company will remit a monthly retainer at $5,000 per month for work within the scope~~ of ~~the agreement for 6 months from January to June 2015, after which, the monthly retainer is subject to adjustment.~~ 68

~~The Company has an agreement with a~~Series ~~consultant~~B ~~for~~Preferred ~~public~~Stock and investor relations. As consideration, the Company will remit a monthly fee at $12,500, of which $7,500 per month in cash and $5,000 per month in restricted stock. The agreement will be for an initial period of 6 months from January to June 2015. The agreement may be terminated by 30 days written notice. (1)

In response to a Civil Claim filed by the Company against its former President and CEO, the former President and CEO has filed a counterclaim on January 2, 2015, alleging that he is owed compensation for various reasons. The Company denies that he is entitled to any of these amounts, and takes the position that his termination was for cause. The outcome of the claims cannot be determined at this time and as a result no contingent liability has been recorded.

	Shares of Series B Preferred Stock Beneficially owned
Name of Beneficial Owner	Number			Percent ⁽²⁾
One East Partners Master, L.P		18.734	⁽³⁾		37.1	%
One East Partners Opportunities, L.P.		19.615	⁽³⁾		38.9	%
Dendera Capital Fund LP		10.865			21.5	%
Scott Sieracki		-			-
Ned L. Siegel		-			-
Alexander Buehler		-			-
Geoffrey W. Arens		10.865	⁽⁴⁾		21.5	%
James Cacioppo		38.349	⁽⁵⁾		76.0	%
Craig Nemiroff		-			-
Zhi Yuan (Yvonne) Zheng		-			-
Dennis Raefield		-			-
All directors and named executive officers as a group (7 persons)		49.214	⁽⁶⁾		97.5	%

Viscount Systems, Inc. Notes to Consolidated Financial Statements (Expressed in Canadian dollars) December 31, 2014

(1)	As of March 31, 2016, there were 50.46 shares of Series B Preferred Stock outstanding. Each share of Series B Preferred Stock is able to vote an amount equal to 80% of the total votes on any matter brought before the holders of Common Stock for a vote.

(2)	Calculated based on 50.46 shares of Series B Preferred Stock, which shall vote an amount equal to 80% of the total votes on all matters that the holders of shares of Common Stock have the right to vote on and/or consent to, no matter how many shares of Common Stock are outstanding.

(3)	Mr. Cacioppo holds the voting power and dispositive power with respect to such shares.

(4)	Represents shares of Series B Preferred Stock held by Dendera Capital. Mr. Arens holds the voting power and dispositive power with respect to such shares.

(5)	Represents shares of Series B Preferred Stock held by OEP Partners and OEP Opps. See (3).

(6)	Includes shares of Series B Preferred Stock held by OEP Partners, OEP Opps and Dendera Capital. See (3), (4) and (5).

14.	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.

Securities Authorized for Issuance under Equity Compensation Plans

2014		Manufacturing			Servicing		Total
Sales to external customers	$	3,631,777		$	1,137,521	$	4,769,298
Depreciation and amortization		29,406			20,892		50,298
Segment income (loss) before other items		(4,306,758	)		236,781		(4,069,977	)
Total assets	$	1,592,549		$	5,224	$	1,597,773

Details see Item 5.

2013		Manufacturing			Servicing		Total
Sales to external customers	$	3,051,405		$	1,083,481	$	4,134,886
Depreciation and amortization		2,933			20,892		23,825
Segment income (loss) before other items		(1,306,229	)		331,713		(974,516	)
Total assets	$	1,314,255		$	26,116	$	1,340,371

Item 13. Certain Relationships and Related Transactions, and Director Independence.

(b) Of the total sales for the twelve months ended December 31, 2014, $1,194,401 (2013 - $502,155) was derived from U.S.-based customers and $3,574,897 (2013 - $3,632,731) 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 38.7% of total revenue during the twelve months ended December 31, 2014 (2013 – 47.8%). FREEDOM sales represented 33.7% of total revenue during the twelve months ended December 31, 2014 (2013 – 24.0%). 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.FINANCING

15.	Financial instruments
	The Company’s financial instruments include cash, trade accounts receivable, accounts payable, loans payable, and amounts due to related parties. It is management’s opinion that the Company is not exposed to significant interest, currency, or business concentration arising from these financial instruments. The Company’s financial instruments also include derivative liabilities which are measured at fair value and are impacted by changes in interest rates, foreign exchange rates and the price of the Company’s shares.
	The fair values of all other financial instruments approximate their carrying values based on their liquidity and short- term nature.

Series A Preferred Stock

~~Viscount~~On January ~~Systems~~20, ~~Inc~~2015, Dendera Capital Fund LP (“Dendera”), purchased a total of 200 shares of Series A Preferred Stock for a purchase price of $234,000 to rectify the prior issuance of 2,925,000 shares of Common Stock by the Company to Dendera on January 20, 2015, which Series A Preferred Stock was issued by the Company to Dendera as was originally intended. ~~Notes~~(See Note 11 to the Consolidated Financial Statements) ~~(Expressed~~Mr. inGeoffrey ~~Canadian~~Arens, ~~dollars)~~a ~~December~~member 31of our Board, is the Managing Member of the General Partner ~~2014~~of Dendera. See also “Management’s Discussion and Analysis of Financial Condition and Results of Operation—Liquidity and Capital Resources—Financing”.

15.	Financial instruments (cont’d)
	The Company is subject to significant liquidity risk. At December 31, 2014, the Company’s current assets consist principally of trade accounts receivables and inventory. The Company must liquidate inventories and rapidly increase collection periods on its receivables to ensure that sufficient cash is available to settle payables and operating costs as they come due.
	Fair value
	Financial instruments measured at fair value are classified into one of three levels in the fair value hierarchy according to the relative reliability of the inputs used to estimate the fair values. The three levels of the fair value hierarchy are:
	Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities;
	Level 2 – Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly; and
	Level 3 – Inputs that are not based on observable market data.
	The Company recognizes its derivative liabilities at fair value determined using Level 3 inputs.
16.	Subsequent Event
	On January 20, 2015, the Company completed a private placement of 200 Series A Convertible Redeemable Preferred Stock with a stated value of US$1,000 per share for total proceeds of CAD$234,000.
	Commending March, 2014, the Company entered into a one year agreement with a financing company to factor its trade accounts receivables. The financing company offered a CDN$1,000,000 credit facility by the purchase of eligible accounts receivable at a discount rate of 3.65% of the face value of the purchased receivable plus 1/10% per day on any receivable outstanding after 35 days from the date of invoice purchase. Any amounts that remain unpaid 90 days after the initial invoice date, or any dispute raised by the customer will be repurchased by the Company or replaced by eligible receivables.

Demand Notes

On November 24, 2015 (the “Closing Date”), the Company consummated a series of transactions with three of its current preferred equity holders (the “Purchasers”), who are also members of the Company’s Board of Directors, to raise $300,000 for the Company (the “Financing”).

Series B Demand Notes

On the Closing Date, in consideration for $300,000, the Company issued to the Purchasers Series B Demand Notes in the aggregate principal amount of $330,000 with an original issue discount of $30,000. Demand Notes accrue interest at 8% for each 30 days that the Series B Demand Notes remain outstanding and the interest rate will be increased upon an event of default to the lesser of 21% per annum and the highest amount permitted by applicable law. Interest payments must be made quarterly and may be made in cash or in the form of Series B Demand Notes.

Page 35 of 68

The Series B Demand Notes may be converted (subject to certain beneficial ownership limitations), at the option of the holder, into shares (the “Conversion Shares”) of the Company’s Common Stock. The conversion price of the Series B Demand Notes is subject to adjustment upon issuance of certain dividends and distributions, reorganization, consolidation or merger, stock splits, and issuance by the Company of a security at a lower price than the conversion price.

The Series B Demand Notes further provide that all of the Company’s directors except for Mr. Ned L. Siegel and Mr. Alexander Buehler resign from their positions on the Board, that the maximum number of directors to be appointed to the Board be decrease from seven (7) to five (5) and that the holders owning 50.1% of the Notes have the right to appoint three (3) directors to the Board (to hold their positions until all amounts owed under the Notes and related Transaction Documents are paid in full, the “Note Directors”). In the event that the required holders of the Notes elect to replace any one of the three Note Directors during the period in which they have a right to do so and the replacement does not occur within five business days, the Company must pay to each Note holder $2,500 per day until the Note Directors are replaced. The Series B Demand Notes also provide that the Purchasers will have the right to appoint an observer to the Board. The maximum number of Directors of the Company was set to five (5) to consist of Messrs. Siegel and Buehler and three directors elected by the holders of the Series A and B Notes.

The Purchasers pursuant to their right to elect directors to the Board, elected Geoffrey Arens and Jim Cacioppo as directors and all the Company’s Board of Directors at the time, except for Mr. Ned Siegel and Mr. Alexander Buehler resigned. The Purchasers included (i) Denderra, for which Geoffrey Arens, a member of our Board, is the Managing Member of the General Partner of Dendera, and (ii) One East Partners Master, L.P. (“OEP Partners”) and One East Partners Opportunities, L.P. (“OEP Opps”), for which James Cacioppo is the Managing Principal of One East Capital Advisors, which is the investment advisor to OEP Partners and OEP Opps.

On March 30, 2016, the Series B Demand Note holders agreed to waive any rights that they may have to declare a default, and to pursue any remedies or impose any penalties relating to the Company’s obligation to reserve and keep available out of its authorized and unissued Common Stock the number of Common Stock required to be reserved and available under the Series A and B Notes. The waiver is effective as of December 3. In consideration of this waiver, the Company agreed to file an Information Statement on Form 14A or Form 14C, as applicable, with the SEC and take all and any such action to cure the default (i) on or prior to 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 related to the default set forth above will accrue back to the initial default date contained in the Series A and B Notes if the required increased of authorized Common Stock 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.

Series A Demand Notes

On the Closing Date, in consideration for consenting to the Financing and in exchange for their outstanding shares of Series A Preferred Stock, the Company issued to the Purchasers Series A Demand Notes in the aggregate principal amount of US $2,192,978. The Series A Demand Notes contain substantially the same terms and conditions as the Series B Demand Notes except that interest accrues at 14% per annum if all or any portion of the interest payable on the Series A Demand Notes is paid in cash (increasing to the lesser of 21% per annum and the highest amount permitted by applicable law in case of an event of default) and it accrues at 5% for each 30 days if all or any portion of the interest payable on the Series A Demand Notes is paid in Series A Demand Notes (increasing to 8% for each 30 days in case of an event of default).

Security Interests in the Company’s Assets

On the Closing Date and in connection with the Financing, the Company and its subsidiary entered into a Security and Pledge Agreement (the “Security Agreement”) and an Intellectual Property Security Agreement (the “IP Security Agreement”) with the Purchasers pursuant to which the Purchasers received a security interest in all of the Company’s assets, including its intellectual property. Upon any event of default under the Notes or related Transaction Documents, the Purchasers are entitled to take possession of the Company’s assets. The Company also entered into a Subsidiary Guarantee (the “Subsidiary Guarantee”) with its subsidiary pursuant to which the Company’s subsidiary agreed to guaranty the obligations of the Company with respect to Financing.

Page 36 of 68

Item 14. Principal Accounting Fees and Services

The aggregate fees billed for the fiscal years ended December 31, 2015 and 2014 for (i) professional services rendered by the principal accountant, Marcum LLP and Dale Matheson Carr-Hilton Labonte LLP, respectively, for the audit of its annual financial and review of financial statements included in Form 10-K (“Audit Fees”), (ii) assurance and related services by the principal accountant that are reasonably related to the performance of the audit or review of the financial statements and not reportable under Audit Fees (“Audit Related Fees”) (iii) tax compliance, advice, and planning (“Tax Fees”), and (iv) other products or services provided (“Other Fees”):

	Years ended December 31,
	2015		2014
Audit Fees	$	192,986	$	85,230
Audit Related Fees		-		-
Tax Fees		6,500		6,500
All Other Fees (1)		-		-
Total	$	199,486	$	91,730

(1)

Other Fees – These fees are for financial statement audits of acquired and targeted companies.

Reliance on Certain Exemptions

The Company has not relied on the exemptions contained in sections 2.4 or 8 of NI 52-110. Section 2.4 provides an exemption from the requirement that the audit committee must pre-approve all non-audit services to be provided by the auditor, where the total amount of fees related to the non-audit services are not expected to exceed 5% of the total fees payable to the auditor in the fiscal year in which the non-audit services were provided. Section 8 permits a company to apply to a securities regulatory authority for an exemption from the requirements of NI 52-110, in whole or in part.

Pre-Approval Policies and Procedure for Audit Services

The Audit Committee is responsible for the appointment, compensation and oversight of the work of the independent registered public accountants, and approves in advance any services to be performed by the independent registered public accountants, whether audit-related or not. The Audit Committee reviews each proposed engagement to determine whether the provision of services is compatible with maintaining the independence of the independent registered public accountants. The fees shown above were pre-approved either by our Board or our Audit Committee.

PART IV.

Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

(a)	The following financial statements are filed as part of this Form 10-K:

Reports of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations
Consolidated Statements of Stockholders’ Deficit
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements

(2)	Financial Statement Schedule

All financial statement schedules are omitted because they are not applicable or the amounts are immaterial, not required, or the required information is presented in the financial statements and notes thereto in Item 8 of Part II

Page 37 of 68

(b)

Exhibits:

3.1	Amended and Restated Articles of Incorporation	Incorporated by reference to Exhibit 3.1 to the Company’s Form 10-K filed with the SEC on March 26, 2015 (the “2015 10K”).

3.2	Amended and Restated Bylaws	Incorporated by reference to Exhibit 3.2 to the Company’s Form 10-K filed with the 2015 10K.

4.1	Certificate of Designation, Preferences and Rights of the Series A Convertible Redeemable Preferred Stock	Incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K filed with the SEC on June 11, 2012.

4.2	Certificate of Amendment to the Certificate of Designation, Preferences and Rights of the Series A Convertible Redeemable Preferred Stock	Incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K filed with the SEC on October 23, 2012.

4.3	Certificate of Second Amendment to the Certificate of Designation, Preferences and Rights of the Series A Convertible Redeemable Preferred Stock	Incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K filed with the SEC on March 26, 2014.

4.4	Certificate of Third Amendment to the Certificate of Designation, Preferences and Rights of the Series A Convertible Redeemable Preferred Stock	Incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K filed with the SEC on February 20, 2015.

4.5	Certificate of Fourth Amendment to the Certificate of Designation, Preferences and Rights of the Series A Convertible Redeemable Preferred Stock of Viscount Systems, Inc.	Incorporated by reference to Exhibit 3.2 to the Company’s Form 8-K filed with the SEC on December 1, 2015.

4.6	Certificate of Designation of Viscount Systems, Inc. Establishing the Designations, Preferences, Limitations and Relative Rights of its Series B Preferred Stock	Incorporated by reference to Exhibit 3.1 to the Company’s Form 8-K filed with the SEC on December 1, 2015.

4.7	Senior Secured Convertible Demand Promissory B Notes	Incorporated by reference to Exhibit 4.1 to the Company’s Form 8-K filed with the SEC on December 1, 2015.

4.8	Senior Secured Convertible Demand Promissory A Notes	Incorporated by reference to Exhibit 4.2 to the Company’s Form 8-K filed with the SEC on December 1, 2015.

10.1	Employment Agreement with Scott Sieracki	*

10.2	Employment Agreement, dated January 18, 2016, by and between Viscount Systems, Inc. and Zhi Yuan (Yvonne) Zheng.	Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed with the SEC on January 22, 2016.

10.3	2003 Stock Option Plan	Incorporated by reference to Appendix A to the Proxy Statement on Schedule 14A filed with the SEC on April 30, 2003.

10.4	Full Factoring Agreement, dated March 24, 2015, between Viscount Communication & Control Systems Inc. and Liquid Capital Exchange Corp.	Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed with the SEC on March 31, 2015.

10.5	Purchase and Sale Agreement, dated March 24, 2015, between Viscount Systems, Inc. and Liquid Capital Exchange Inc.	Incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed with the SEC on March 31, 2015.

10.6	Security and Pledge Agreement	Incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed with the SEC on December 1, 2015.

10.7	Intellectual Property Security Agreement	Incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed with the SEC on December 1, 2015.

10.8	Subsidiary Guarantee	Incorporated by reference to Exhibit 10.3 to the Company’s Form 8-K filed with the SEC on December 1, 2015.

21.1	Subsidiaries of the registrant	Incorporated by reference to Exhibit 21.2 to the Form SB-2 filed with the SEC on September 5, 2001.

31.1	Certification by the Interim Chief Executive Officer Pursuant to Rule 13a-14(a) or 15d-14(a) of the U.S. Securities Exchange Act of 1934	*

31.2	Certification by the 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 Interim Chief Executive Officer	**

32.2	Section 1350 Certification of the Principal Financial Officer	**

101.INS XBRL Instance Document*

101.SCH XBRL Taxonomy Extension Schema Document*

101.CAL XBRL Taxonomy Extension Calculation Linkbase Document*

101.DEF XBRL Taxonomy Extension Definition Linkbase Document*

101.LAB XBRL Taxonomy Extension Label Linkbase Document*

101.PRE XBRL Taxonomy Extension Presentation Linkbase Document*

* Filed herewith

** Furnished herewith

Page 38 of 68

Signatures

Pursuant to the requirements of Section13 or 51(d) 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: April 14, 2016	VISCOUNT SYSTEMS, INC.

	By:	/s/ Scott Sieracki
		Scott Sieracki
		Interim Chief Executive Officer

	By:	/s/ Zhi Yuan Zheng
		Zhi Yuan Zheng
		Principal Financial Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature	Title	Date

/s/ Scott Sieracki
Scott Sieracki	Interim Chief Executive Officer	April 14, 2016

/s/ Ned L. Siegel
Ned L. Siegel	Chairman of the Board of Directors	April 14, 2016

/s/ Alexander Buehler
Alexander Buehler	Director	April 14, 2016

/s/ Geoffrey Arens
Geoffrey Arens	Director	April 14, 2016

/s/ James Cacioppo
James Cacioppo	Director	April 14, 2016

/s/ Craig Nemiroff
Craig Nemiroff	Director	April 14, 2016

/s/ Zhi Yuan (Yvonne) Zheng
Zhi Yuan (Yvonne) Zheng	Principal Financial Officer	April 14, 2016

Page 39 of 68

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Audit Committee of the

Board of Directors and Stockholders

of Viscount Systems, Inc.

We have audited the accompanying consolidated balance sheet of Viscount Systems, Inc. (the “Company”) as of December 31, 2015, and the related consolidated statements of operations, stockholders’ deficit and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Viscount Systems, Inc., as of December 31, 2015, and the consolidated results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As more fully disclosed in Note 1 to the consolidated financial statements, the Company has a significant working capital deficiency, has incurred net losses and needs to raise additional funds to meet its obligations and sustain its operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Marcum llp
Marcum llp
New York, NY
April 14, 2016

Page 40 of 68

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors of Viscount Systems Inc:

We have audited the accompanying consolidated balance sheet of Viscount Systems Inc. (the “Company”) as of December 31, 2014 and the related consolidated statements of operations and comprehensive loss, stockholders’ deficit and cash flows for the year then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, these consolidated financial statements present fairly, in all material respects, the financial position the Company as at December 31, 2014 and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has incurred losses in developing its business, and further losses are anticipated in the future. The Company requires additional funds to meet its obligations and the costs of its operations and there is no assurance that additional financing can be raised when needed. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in this regard are described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.


	DALE MATHESON CARR-HILTON LABONTE LLP
	CHARTERED ACCOUNTANTS

Vancouver, Canada

March 20, 2015

Page 41 of 68

VISCOUNT SYSTEMS, INC.

Consolidated Balance Sheets

(Expressed in Canadian Dollars)

As at December 31, 2015 and 2014

	2015			2014

Assets
Current Assets
Cash	$	250,270		$	135,308
Short term investments		55,000			55,000
Trade accounts receivable, net		565,581			661,629
Inventory		569,796			533,217
Prepaid expenses		31,791			-
Total Current Assets		1,472,438			1,385,154
Equipment		180,483			206,004
Deposits		8,391			1,391
Intangible assets, net		-			5,224
Total Assets	$	1,661,312		$	1,597,773

Liabilities and Stockholders’ Deficit
Current Liabilities
Accounts payable	$	900,211		$	362,595
Accrued liabilities		532,003			564,466
Accrued interest payable		373,841			-
Capital lease obligation - current portion		16,348			10,285
Deferred revenue		47,780			37,318
Due to related parties		91,683			5,003
Loans payable		114,536			114,536
Convertible notes payable		3,491,802			-
Derivative liabilities		4,383,668			2,858,618
Series A Convertible redeemable preferred stock		269,880			-
Total Current Liabilities		10,221,752			3,952,821
Capital lease obligation - non-current		9,647			17,182
Total Liabilities		10,231,399			3,970,003

Commitments and contingencies

Convertible redeemable preferred stock - US$0.001 par value; 20,000,000 shares authorized:
Series A convertible redeemable preferred stock, stated value $1,000,130 and 1,072 shares issued and outstanding at December 31, 2015 and December 31, 2014, respectively; aggregate liquidation preference of $130,000 and $1,072,000 as of December 31, 2015 and December 31, 2014, respectively		-			1
Stockholders’ Deficit:
Series B Preferred Stock, Par Value $0.001 Per Share. 50 shares issued and outstanding at December 31, 2015 and 0 shares issued and outstanding at December 31, 2014		1			-
Common stock, par value US$0.001 per share, 300,000,000 shares authorized: 130,297,236 shares issued, 126,047,236 shares outstanding at December 31, 2015, and 126,009,581 shares issued and outstanding at December 31, 2014		130,297			126,009
Additional paid-in capital		7,558,416			10,163,296
Accumulated deficit		(16,258,801	)		(12,661,536	)
Total Stockholders’ Deficit		(8,570,087	)		(2,372,231	)
Total Liabilities and Stockholders’ Deficit	$	1,661,312		$	1,597,773

The accompanying notes are an integral part of these consolidated financial statements

Page 42 of 68

VISCOUNT SYSTEMS, INC.

Consolidated Statements of Operations

(Expressed in Canadian Dollars)

For the years ended December 31, 2015 and 2014

	2015			2014

Sales	$	6,137,488		$	4,769,298
Cost of sales		2,447,404			2,461,377
Gross profit		3,690,084			2,307,921

Operating expenses:
Selling, general and administrative		4,009,925			5,674,610
Research and development		885,592			703,288
Total operating expenses		4,895,517			6,377,898

Operating loss		(1,205,433	)		(4,069,977	)

Other income (expense):
Interest income		33			3,786
Interest expense		(488,064	)		-
Foreign currency loss on revaluation of notes liability		(178,787	)		-
Loss on settlement of convertible note and preferred stock		(476,918	)		-
Amortization of debt discount		(2,251,497	)		-
Change in fair value of derivative liabilities		1,003,401			3,160,272
		(2,391,832	)		3,164,058

Net loss	$	(3,597,265	)	$	(905,919	)
Preferred stock:
Series A convertible - contractual dividends		(28,796	)		(84,762	)
Series A convertible - deemed dividends		(2,713,707	)		-

Net loss attributable to common stockholders	$	(6,339,768	)	$	(990,681	)

Per share data:
Net loss attributable to common stockholders - basic and diluted	$	(0.05	)	$	(0.01	)

Weighted average number of shares of common stock outstanding:
Basic and diluted		126,042,491			119,454,239

The accompanying notes are an integral part of these consolidated financial statements

Page 43 of 68

VISCOUNT SYSTEMS, INC.

Consolidated Statements of Stockholders’ Deficit

(Expressed in Canadian Dollars)

As at December 31, 2015 and 2014

	Series A & B												Additional
	Preferred Stock						Common Stock						paid-in			Accumulated
	Shares			Amount			Shares			Amount			capital			deficit			Total

Balance, December 31, 2013		1,115			-			97,075,003		$	97,075		$	6,753,938		$	(11,670,855	)	$	(4,819,842	)

Series A dividend issued		82			-			-			-						-			-
Conversion of Series A shares		(125	)					3,071,253			3,071			312,525			-			315,596
Units issued for cash from equity securities, net of costs					-			25,113,327			25,113			1,502,633						1,527,746
Stock-based compensation - ratchet shares issued								749,998			750			74,250			-			75,000
Stock-based compensation - Options and warrants								-			-			1,519,950			-			1,519,950
Net loss								-			-						(990,681	)		(990,681	)

Balance, December 31, 2014 (revised-see note 10)		1,072			-			126,009,581		$	126,009		$	10,163,296		$	(12,661,536	)	$	(2,372,231	)
Sale of common shares for cash								2,925,000			2,925									2,925
Common shares cancelled								(2,925,000	)		(2,925	)								(2,925	)
Series A shares issued for cancellation of common shares		200			16,696															16,696
Series A dividend issued and recorded as a derivative liability		82			-			-			-			(28,796	)		-			(28,796	)
Proceeds from sale of common stock and warrants								37,655			38			3,012			-			3,050
Restricted Common Stock issued to Directors for Board Services								4,250,000			4,250			(4,250	)		-			-
Stock-based compensation								-			-			106,391			-			106,391
Warrants issued in connection with Series A convertible redeemable preferred stock issuance								-			-			32,470			-			32,470
Deemed dividend in connection with exchange of Convertible redeemable preferred A share to Series A Demand note		(1,224	)		(16,696	)		-			-			(2,713,707	)		-			(2,730,403	)
Series B Preferred Stock, issued with Series B Demand Note		50			1															1
Net loss								-			-			-			(3,597,265	)		(3,597,265	)

Balance, December 31, 2015		180		$	1			130,297,236		$	130,297		$	7,558,416		$	(16,258,801	)	$	(8,570,087	)

The accompanying notes are an integral part of these consolidated financial statements

Page 44 of 68

VISCOUNT SYSTEMS, INC.

Consolidated Statements of Cash Flows

(Expressed in Canadian Dollars)

For the years ended December 31, 2015 and 2014

	2015			2014

Cash Flows from Operating Activities
Net loss	$	(3,597,265	)	$	(905,919	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		52,992			50,298
Provision for uncollectible receivables		(84,280	)		(181,529	)
Provision for inventory obsolescence		269,116			126,201
Change in fair value of derivative liabilities		(1,003,401	)		(3,160,272	)
Stock based compensation		106,391			1,519,950
Foreign exchange loss on revaluation of notes liability		178,787
Original issue discount on convertible debt		58,650			-
Loss on settlement of convertible debt and Preferred Stock		476,918			-
Amortization of debt discount		2,251,497			-
Non-cash financing fees		-			371,221
Changes in operating assets and liabilities:
Accounts receivable		180,328			105,053
Inventory		(305,695	)		(126,620	)
Prepaid expenses		(31,791	)		-
Deposits		(7,000	)		-
Accounts payable		537,619			143,563
Accrued liabilities		(32,467	)		(36,804	)
Accrued interest payable		373,839			-
Deferred revenue		10,462			(225	)
Due to related parties		86,680			(28,724	)
Net Cash used in Operating Activities		(478,620	)		(2,123,807	)

Cash Flows from Investing Activities
Purchases of equipment		(22,247	)		(185,714	)
Net Cash used in Investing Activities		(22,247	)		(185,714	)

Cash Flows From Financing Activities
Capital lease payments		(1,472	)		-
Proceeds from issuance of convertible notes		596,501			-
Payment of deferred financing costs		(5,000	)		-
Repayment of convertible note		(211,250	)		-
Proceeds from sale of common stock and warrants		3,050			2,327,145
Proceeds from sale of preferred stock		234,000			-
Net cash provided by Financing Activities		615,829			2,327,145

Increase in cash		114,962			17,624
Cash, beginning of year		135,308			117,684
Cash, end of year	$	250,270		$	135,308

The accompanying notes are an integral part of these consolidated financial statements

Page 45 of 68

VISCOUNT SYSTEMS, INC.

Consolidated Statements of Cash Flows, continued

(Expressed in Canadian Dollars)

For the years ended December 31, 2015 and 2014

	2015		2014

Supplementary Information:
Interest paid	$	55,575	$	-
Income taxes paid		-		-

Non-cash investing and financing activities:
Fair value of preferred shares issued as dividends	$	28,796	$	84,762
Unvested common stock issued to board members	$	4,250	$	-
Fair value on embedded conversion option from Series A share	$	184,835
Fair value adjustment on Convertible Debt	$	110,411
Common Shares cancelled and replace with Series A shares issued	$	16,696
Deemed dividend in connection with exchange Convertible redeemable prefer A share to Convertible Demand A note	$	2,713,707
Accretion of Series A convertible preferred stock to redemption value	$	2,730,403	$	-
Conversion from Series A shares to Series A Demand Notes	$	3,035,082
Fair value of embedded conversion option from Series A Demand Notes	$	1,916,078
Fair value of embedded conversion option from Series B Demand Notes	$	288,332
Conversion of Series A shares to Common Stock	$	-	$	315,596

The accompanying notes are an integral part of these consolidated financial statements

Page 46 of 68

VISCOUNT SYSTEMS, INC.

Notes to Consolidated Financial Statements

(Expressed in Canadian dollars)

1.	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 December 31, 2015, the Company has an accumulated deficit of $16,258,801, a significant working capital deficit of $8,749,314, and reported a loss of $3,597,265. 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 consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, (“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 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.

2.	Significant accounting policies

The significant accounting policies adopted by the Company are as follows:

	(a)	Principles of consolidation

		The 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.

Page 47 of 68

VISCOUNT SYSTEMS, INC.

Notes to Consolidated Financial Statements

(Expressed in Canadian dollars)

2.	Significant accounting policies (continued)

	(c)	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.

	(d)	Concentration of Credit Risk

		The Company maintains deposits in financial institutions which are insured by the Federal Deposit Insurance Corporation (“FDIC”). At various times, the Company has deposits in these financial institutions in excess of the amount insured by the FDIC.

	(e)	Cash and Cash Equivalents

		The Company considers all highly liquid investments with an original maturity in three months or less when purchased to be cash equivalents. As of December 31, 2015 and 2014, the Company does not have any cash equivalents. As of December 31, 2015 and 2014, the short term investment with TD Canada bank was $55,000, held as collateral for the Company’s business credit cards contingency and classifies such amount as restricted cash on the accompanying consolidated balance sheet.

	(f)	Allowance for Doubtful Accounts Receivable

		Accounts receivable are shown net of an allowance for doubtful accounts of $97,249 and $181,529 as of December 31, 2015 and 2014, 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)	Accounts Receivable Factoring

		On March 24, 2015, the Company entered into a one year agreement with a financing company to factor its trade accounts receivables on a recourse basis. The financing company offered a credit facility not to exceed $1,000,000 through the purchase of eligible accounts receivable at a discount rate of 3.65% of the face value of the purchased receivable plus 1/10% per day on any receivable outstanding after 35 days from the invoice date. Any amounts that remain unpaid 90 days after the initial invoice date, or any dispute raised by the customer will be repurchased by the Company or replaced by eligible receivables. 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, have been expensed on the accompanying consolidated statements of operations as interest expense. The factored invoices’ accounts receivable balance and its related accrued liabilities are cleared when the Company receives payment statements from the financing company.

	(h)	Inventory

		Raw materials, work in process and finished goods are stated at the lower of average cost and net realizable value. Cost includes direct labor utilized in production and an allocation of plant overhead.

		As part of the valuation process, inventory reserves are established to state excess and slow-moving inventory at their estimated net realizable value. The valuation process for excess or slow-moving inventory contains uncertainty because management must use judgment to estimate when the inventory will be sold and the quantities and prices at which the inventory will be sold in the normal course of business. Inventory reserves are periodically reviewed, reflecting current risks, trends and changes in industry conditions. When preparing these estimates, management considers historical results, inventory levels and current operating trends. In the event the estimates differ from actual results, inventory-related reserves may be adjusted and could materially impact the results of operations.

Page 48 of 68

VISCOUNT SYSTEMS, INC.

Notes to Consolidated Financial Statements

(Expressed in Canadian dollars)

2.	Significant accounting policies (continued)

(i)

Equipment

Equipment is stated at cost and depreciated over the estimated useful lives of the assets:

Asset	Basis	Rate
Automobile	declining balance		20	%
Computer equipment	declining balance		30	%
Leasehold improvements	declining balance		20	%
Office furniture and equipment	declining balance		20	%

	(j)	Intangible assets

		Intangible assets consist of intercom service agreements that are considered to have a finite useful life. They are recorded at cost, amortized on a straight line basis, and are reviewed annually for impairment. As of December 31, 2015, the intangible assets were fully amortized.

	(k)	Impairment of long-lived assets

		Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability is measured by a comparison of the carrying amount of an asset, or group of assets, to future net cash flows expected to be generated by the asset or group of assets. If such assets are considered to be impaired, an impairment provision is recorded for the amount by which the carrying amount of the assets exceeds fair value.

	(l)	Revenue recognition

		Product revenue is recognized when there is persuasive evidence of a sale arrangement, delivery to the customer has occurred, the fee is fixed and determinable, and collectability is considered probable. Sales or transfers to customers prior to these criteria being met are recorded as deferred revenue. Revenue from the installation of equipment is recognized when the installation has been completed, the fee has been fixed and collectability is considered probable.

		Service revenue is recognized on a straight-line basis over the period covered by the service agreement only after there is a signed agreement to provide service, the service fee is fixed or determinable and collectability is probable. Cash received from customers, in advance of the service period, is recorded as deferred revenue.

	(m)	Research and development costs

		Research and development costs have been expensed as incurred.

	(n)	Derivative financial instruments

		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. Subsequent changes to the estimated fair values are recorded in the consolidated statements of operations.

	(o)	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:

Page 49 of 68

VISCOUNT SYSTEMS, INC.

Notes to Consolidated Financial Statements

(Expressed in Canadian dollars)

2.	Significant accounting policies (continued)

	December 31
	2015		2014
Warrants		64,702,128		80,890,801
Options		12,791,450		11,752,075
Series A preferred stock		2,832,400		23,719,967
Series A Demand Notes and Series B Demand Notes and accrued interest		384,723,694		-
Total potentially dilutive shares		465,049,672		116,362,843

	(p)	Stock-based compensation

		Stock-based compensation expense for all stock-based payment awards is based on the estimated fair value of the award. For employees and directors, the award is measured on the grant date. For non-employees, the award is measured on the grant date and is then re-measured at each vesting date and financial reporting date. The Company recognize the estimated fair value of the award as compensation cost over the requisite service period of the award, which is generally the option vesting term. See “Sequencing Policy” below.

	(q)	Preferred Stock

		Preferred shares subject to mandatory redemption (if any) are classified as liability instruments and are measured at fair value. The Company classifies conditionally redeemable preferred shares, which includes preferred shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control, as temporary equity. At all other times, the Company classifies its preferred shares in stockholders’ equity. As of December 31, 2015, certain preferred shares outstanding were segregated from derivatives on the Company’s consolidated Balance Sheet as they were subject to mandatory redemption. At December 31, 2014, since certain of the Company’s preferred shares contain redemption rights which were not solely within the Company’s control, the issuances of preferred stock were presented as temporary equity.

	(r)	Common Stock Warrants and Other Derivative Financial Instruments

		The Company classifies as equity any contracts that (i) require physical settlement or net-share settlement or (ii) provide the Company with a choice of net-cash settlement or settlement in its own Common Stock (physical settlement or net-share settlement) providing that such contracts are indexed to the Company’s own Common Stock. The Company classifies as assets or liabilities any contracts that (i) require net-cash settlement (including a requirement to net cash settle the contract if an event occurs and if that event is outside the Company’s control) or (ii) gives the counterparty a choice of net-cash settlement or settlement in Common Stock (physical settlement or net-share settlement).

		The Company assesses classification of its Common Stock warrants and other free standing derivatives at each reporting date to determine whether a change in classification between assets, liabilities and equity is required. The Company evaluated its free standing warrants to purchase Common Stock to assess their proper classification in the consolidated balance sheets as of December 31, 2015 and 2014 using the applicable classification criteria enumerated under U.S. GAAP and determined that the Common Stock purchase warrants should be classified as a derivative liability, as these warrants were denominated in U.S. dollars, while the functional currency of the Company is Canadian dollars. Therefore, each period, these U.S. denominated warrants must be re-valued.

	(s)	Advertising

		The Company expenses all advertising costs as incurred. Advertising expense for the years ended December 31, 2015 and 2014 were $32,161 and $11,980, respectively.

	(t)	Shipping and Handling Costs

		The Company policy is to provide free standard shipping and handling for most orders shipped during the year. Shipping and handling costs incurred are recognized in cost of sales. Such amounts aggregated $101,554 and $103,200 for the years ended December 31, 2015 and 2014, respectively. In certain circumstances, shipping and handling costs are charged to the customer and recognized in revenues. The amounts recognized in revenues for the years ended December 31, 2015 and 2014 were $85,939 and $67,100, respectively.

Page 50 of 68

VISCOUNT SYSTEMS, INC.

Notes to Consolidated Financial Statements

(Expressed in Canadian dollars)

2.	Significant accounting policies (continued)

	(u)	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.

	(v)	Reclassifications

		Certain accounts in the prior period consolidated financial statements have been reclassified for comparison purposes to conform to the presentation of the current period consolidated financial statements. These reclassifications had no effect on the previously reported net loss.

	(w)	Recently issued accounting pronouncements

		In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. This ASU supersedes the revenue recognition requirements in Accounting Standards Codification 605 - Revenue Recognition and most industry-specific guidance throughout the Codification. The standard requires that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This ASU is effective on January 1, 2017 and should be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying the ASU recognized at the date of initial application. We have not yet determined the effect of the adoption of this standard and its impact on our consolidated financial position and results of operations.

		In August 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-15, “Presentation of Financial Statements – Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entitiy’s Ability to Continue as a Going Concern” (“ASU 2014-15”). ASU 2014-15 requires management to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern for each annual and interim reporting period. If substantial doubt exists, additional disclosure is required. This new standard will be effective for the Company for annual and interim periods beginning after December 15, 2016. Early adoption is permitted. Adoption of this pronouncement is not expected to have a material impact on its consolidated financial statements.

		In July 2015, the FASB issued Accounting Standards Update No. 2015-11, Simplifying the Measurement of Inventory (“ASU 2015-11”). Under ASU 2015-11 entities should measure inventory that is not measured using last-in, first-out (LIFO) or the retail inventory method, including inventory that is measured using first-in, first-out (FIFO) or average cost, at the lower of cost or net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. ASU 2015-11 is effective for reporting periods beginning after December 15, 2016 and is to be applied prospectively. We are currently evaluating the impact the adoption of ASU 2015-11 will have on our consolidated financial position, results of operations and cash flows.

		The FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 requires that a lessee recognize the assets and liabilities that arise from operating leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. In transition, lessees and lessors are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. Public business entities should apply the amendments in ASU 2016-02 for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years (i.e., January 1, 2019, for a calendar year filer). Early application is permitted. The Company has not yet determined the effect of the adoption of this standard on the Company’s consolidated financial position and results of operations.

		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.

Page 51 of 68

VISCOUNT SYSTEMS, INC.

Notes to Consolidated Financial Statements

(Expressed in Canadian dollars)

3.	Accounts Receivable Factoring

As of December 31, 2015, invoices totaling, an aggregate of $205,164 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 $11,321 have been expensed on the accompanying consolidated statements of operations as interest expense.

4.	Inventory

The Company’s inventory consists of the following:

	December 31, 2015			December 31, 2014
Raw materials	$	806,659		$	606,547
Work in process		88,682			25,683
Finished goods		261,018			218,434
Sub total		1,156,359			850,664
Allowance for obsolescence and shrinkage		(586,563	)		(317,447	)

Total	$	569,796		$	533,217

5.	Equipment

The Company’s equipment consists of the following:

December 31, 2015	Cost		Accumulated depreciation		Net book value

Automobile	$	25,209	$	7,059	$	18,151
Computer equipment		178,860		130,803		48,056
Leasehold improvements		69,037		18,501		50,536
Office furniture and equipment		149,683		85,943		63,740
	$	422,789	$	242,306	$	180,483

			Accumulated		Net book
December 31, 2014	Cost		depreciation		value

Automobile	$	25,209	$	2,521	$	22,688
Computer equipment		171,635		112,941		58,694
Leasehold improvements		69,037		5,867		63,170
Office furniture and equipment		134,660		73,208		61,452
	$	400,541	$	194,538	$	206,004

Page 52 of 68

VISCOUNT SYSTEMS, INC.

Notes to Consolidated Financial Statements

(Expressed in Canadian dollars)

6.	Intangible assets

	On May 16, 2003, the Company entered into an agreement for the purchase of certain assets of Telus Corporation (“Telus”). The assets comprised primarily of service agreements for a product sold by Telus known as “Enterphone 2000”. The Company had acquired certain service agreements for which it paid a total of $208,921. As at December 31, 2015 and 2014, the Company’s intangible assets net carrying value was $0 and $5,224, respectively.

7.	Due to related parties

	Amounts due to directors for consulting fees and travel expenses totaled $91,683 and $5,003 as of December 31, 2015 and 2014, respectively.

8.	Short term loans payable

	Amounts due to third parties totaled $114,536 for outstanding loans and advances as of December 31, 2015 and 2014. These are non-interest bearing, unsecured and have no fixed terms of repayment. Imputed interest on the notes is de minimis to the consolidated financial statements.

9.	Convertible Debt

	On April 2, 2015, the Company received proceeds from the issuance of an 8% Convertible Promissory Note (the “Note”) aggregating approximately US $154,000 (CAD $192,500) after payment of deferred financing costs of US $4,000 (CAD $5,000). The Note matures in one year and had a principal amount of US $169,000 (CAD$211,250) and was convertible 180 days from the date of the Note at a conversion price equal to a 35% discount rate to the market price, subject to certain adjustments, including dilutive issuances. The Note was recorded net of an original issue discount of US $15,000 (CAD $18,750). The Note also contained certain early payment penalties, based on the date of prepayment. The Company determined that (a) the conversion option of the Note contained an anti-dilution provision whereby the exercise price can be adjusted based on certain new issuances; and (b) the Note is denominated in a currency other than the functional currency of the Company, the conversion option was valued using a binomial model and marked-to-market through June 30, 2015 with a change in fair value of CAD $110,411. The Company recorded amortization of the debt discount of US $37,699 (CAD $47,087) for the three months ended June 30, 2015. On June 30, 2015, the Company repaid the Note, accrued interest and a 20% prepayment penalty on the Note, with the total repayment aggregating US $206,133 (CAD $248,384). On the date of the repayment, the remaining debt discount and conversion option liability were marked to market and charged to earnings, resulting in a loss on settlement of the Note of US $53,101 (CAD $63,324).

10.	Revised Consolidated Financial Statements

	During the preparation of the Form 10-Q for the three months ended March 31, 2015, the Company identified an issue with the presentation of the Series A convertible redeemable preferred stock (“Series A Shares”) as of December 31, 2014. The Series A Shares should be presented on the consolidated balance sheet outside of permanent equity since they are contingently redeemable for cash. There was no error in the accounting for the Series A Shares, other than the classification, and we believe this change in presentation has no material effect on the Company’s financial statements.

	In accordance with SEC Staff Accounting Bulletin No 108 (“SAB 108”), the Company has evaluated this error, based on an analysis of quantitative and qualitative factors, as to whether it was material to the consolidated balance sheet as of December 31, 2014 and if amendments of previously filed financial statements with the SEC are required. The Company has determined that quantitatively and qualitatively, the classification error has no material impact to the consolidated balance sheet as of December 31, 2014, or prior periods.

	During the preparation of the Form 10-K for the year ended December 31, 2015, the Company identified an error with the number of restricted common stock issued to directors for services, total of 4,500,000 shares were presented on 10-Q for the six months ended June 30, 2015 and nine months ended September 30, 2015. The total actual number of restricted common shares issued to directors was 4,250,000 and total amount is $4,250. The Company has determined that quantitatively and qualitatively, the error has no material impact to the consolidated balance sheet as of December 31, 2015.

Page 53 of 68

VISCOUNT SYSTEMS, INC.

Notes to Consolidated Financial Statements

(Expressed in Canadian dollars)

11.	Series A convertible redeemable preferred stock and Senior Secured Convertible Demand Promissory A Note

	On January 20, 2015, the Company erroneously issued 2,925,000 shares of common stock to an entity whose general partner is managed by a member of the Company’s Board of Directors (the “Board”) and the shares were then cancelled in February 2015 and replaced with 200 Series A convertible redeemable preferred stock (the “Series A Shares”) in exchange for cash proceeds of US$200,000 (CAD$234,000). The Series A Shares contain certain rights and preferences as follows:

	● convertible into shares of common stock at the lower of US$0.07 per share, 85% of the previous twenty day volume weighted average pricing or 85% of the previous ten day volume weighted average pricing.

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

	● a holder of Series A Shares may not convert such Series A Shares into common stock exceeding either (i) 4.99% or (ii) 9.99% of the common stock outstanding unless such holder provides the Company with 61 days’ notice that this limitation shall be waived.

	● no holder of Series A Shares shall be entitled to exercise more than 4.99% of the voting power of all of the Company’s outstanding common stock.

	● 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.

	● holders of the Series A Shares may cause the Company to redeem the Series A Shares for 150% of their stated value, plus all accrued, but unpaid dividends on Series A Shares, upon the occurrence of a default, which includes being in default on any material contracts, securities, indebtedness, Articles of Incorporation and/or By-laws, delisting or late filing with the U.S. Securities and Exchange Commission.

	Since the Series A Shares are redeemable in certain circumstances which are considered to be outside the control of the Company, such shares were classified as temporary equity at December 31, 2014. The Series A Shares were assessed under ASC 480 and the Company determined that the contingent redemption provisions associated with the financial instruments made them more akin to debt than equity. The Series A Shares are deemed to be a debt host contract because the embedded conversion option is not clearly and closely related to the host contract and, accordingly, the embedded conversion option is subject to bifurcation and separate evaluation. The conversion option has been bifurcated and the Company recorded its issuance date fair value of $184,835 (valued using the Binomial Lattice model) with the change in fair value recorded in the consolidated statements of operations at each reporting period.

	In conjunction with this issuance of Series A Shares, the Company also issued 1,462,500 warrants, each exercisable into one share of common stock at CAD$0.16 per share for a period of five years, which are exercisable on a cashless basis. The Company determined that these warrants should be classified as equity and, accordingly, they were valued using the Black-Scholes model and the relative fair value of such warrants of $32,470 was allocated to additional paid-in capital and the residual proceeds associated with the Series A Shares were allocated to temporary equity because the preferred stock is contingently redeemable.

	During the year ended December 31, 2015, the Company issued 82 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 $28,796 and was recorded as a derivative liability.

	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 the Series A Shares for 150% of their stated 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 recorded a $2,010,330 deemed dividend in order to accrete the Series A Shares up to its redemption value (150% of the stated value) in the quarter ended September 30, 2015. In addition, the balance of the Series A Shares of $16,696 was reclassified from the mezzanine presentation to a current liability. On November 3, 2015, the Company trued up the deemed dividend to $2,713,707 to accrete the Series A Shares up to their redemption value, which brought the total Convertible redeemable preferred stock balance to $2,730,403.

Page 54 of 68

VISCOUNT SYSTEMS, INC.

Notes to Consolidated Financial Statements

(Expressed in Canadian dollars)

11.

Series A convertible redeemable preferred stock and Senior Secured Convertible Demand Promissory A Note (continued)

	On November 24, 2015 (the “Closing Date”), the Company consummated a series of transactions with three of its current preferred equity holders (the “Purchasers”) to raise $300,000 for the Company (the “Financing”). On the Closing Date, in consideration for consenting to the Financing and in exchange for their outstanding shares of Series A Shares, the Company issued to the Purchasers Senior Secured Convertible Demand Promissory A Notes (the “Series A Demand Notes”) in the aggregate principal amount of US $2,192,978 (CAD $2,874,117). As a result of the conversion from Series A Shares to Series A Demand Notes, the difference of $413,594 between the principal amount of Series A Demand Notes and the Convertible redeemable preferred stock balance as of November 3, 2015, was recognized as a loss of conversion on the consolidated statement of operations. At December 31, 2015, the Company revalued the note liability at the year end exchange rate and recorded a foreign currency exchange loss of $160,965.

	As of December 31, 2015, 130 Series A Shares remained outstanding. The convertible redeemable preferred stock balance on the consolidated balance sheet was $269,880.

	As of December 31, 2015, the balance of Series A Demand Note liability is $3,035,082. The following table presents a reconciliation to the balance of Series A Demand Note liability as of December 31, 2015.

Accretion of Series A convertible preferred stock to redemption value	$	2,730,403
Convertible redeemable preferred stock balance	$	(269,880	)
Loss on conversion to Series A Demand notes	$	413,594
Foreign currency loss on revaluation of note liability	$	160,965
Balance of Series A Demand Notes as of December 31, 2015	$	3,035,082

The interest rate of the Series A Demand Notes accrues at 14% per annum if all or any portion of the interest payable on the Series A Demand Notes is paid in cash (increasing to the lesser of 21% per annum and the highest amount permitted by applicable law in case of an event of default - refer to Note 13 about default penalty and waiver agreement), and it accrues at 5% for each 30 days if all or any portion of the interest payable on the Series A Demand Notes is paid in Series A Demand Note (increasing to 8% for each 30 days in case of an event of default); All principal, accrued, but unpaid interest and all other amounts due may be converted at the sole option of the holder, at a conversion price equal to sixty (60%) percent multiplied by (y) the lowest bid price (or sale price) of a share of Common Stock during the 20 consecutive Trading Days prior to the date of any conversion with the last Trading Day being the Trading Day immediately prior to the Trading Day the Holder informs the Company in writing by a Conversion Notice (as defined).

As of December 31, 2015, the Company accrued US $217,105 (CAD $300,473) interest payable to Series A Demand Note holders, at 5% for each 30 days on a compounded basis.

Due to the terms of the Series A Demand Note conversion option, the Company has determined that there is no expected life of the conversion option and accordingly the fair value of the conversion option is equal to the intrinsic value on the note issuance date. The conversion option has been revalued using the intrinsic value on December 31, 2015. During the year ended December 31, 2015, the Company recorded a total of $1,916,078 as a fair value of derivative liability on embedded conversion options from Series A Demand Notes issued in 2015.

Page 55 of 68

VISCOUNT SYSTEMS, INC.

Notes to Consolidated Financial Statements

(Expressed in Canadian dollars)

12.	Senior Secured Convertible Demand Promissory B Note - Financing

On November 9, 2015, the Company consummated a series of transactions with two of its current preferred equity holders (the “Purchasers”) to raise US $300,000 (CAD $399,000) for the Company. In consideration for US $300,000, the Company issued to the Purchasers Senior Secured Convertible Demand Promissory B Notes (the “Series B Demand Notes”) in the aggregate principal amount of US $330,000 with an original issue discount of US $30,000 (CAD $39,900) recorded as interest expense on the consolidated statement of operations. The associated legal and counsel fee of US $11,981 (CAD $15,934) was expensed on the consolidated statement of operations since the notes are due on demand. At December 31, 2015, the Company revalued the note liability at the year end exchange rate and recorded a foreign exchange loss of $17,820. As of December 31, 2015, the balance of Series B Demand Note liability is $456,720. The following table presents a reconciliation of the balance of Series B Demand Notes as of December 31, 2015.

Original cash proceeds from financing	$	399,000
Original issue discount	$	39,900
Foreign currency loss on revaluation of note liability	$	17,820
Balance of Series B Demand Notes as of December 31, 2015	$	456,720

The note is due and payable upon receipt of a written demand notice from the Purchasers and failure to repay the Series B Demand Note upon receipt of a written demand notice constitutes an event of default. The interest rate of the Series B Demand Note accrues at 8% for each 30 days that the Series B Demand Notes remain outstanding and the interest rate will be increased upon an event of default to the lesser of 21% per annum and the highest amount permitted by applicable law. Interest payments must be made quarterly and may be made in cash or in the form of Series B Demand Notes.

The Series B Demand Notes may be converted (subject to certain beneficial ownership limitations), at the option of the holder, into shares of the Company’s common stock at a conversion price equal to sixty percent (60%) multiplied by the lowest bid price (or lowest sale price, as the case may be) of a share of Common Stock during the 20 consecutive trading days prior to the date of any conversion. If a holder elects to convert the Series B Demand Note and the Company fails to deliver to the holder a certificate without a restrictive legend, the Company is required to pay the holder, in cash, as liquidated damages, for each $10,000 of conversion amount, $200 per trading day commencing the day after the date on which the shares were to have been delivered (increasing to $400 per trading day on the fifth (5th) trading day after such damages begin to accrue) for each trading day until the earlier of the date such certificates are delivered without restrictive legend or the holder rescinds the conversion.

As of December 31 2015, total payment in kind interest payable accrued is US $53,011 (CAD $73,366) recorded on the consolidated balance sheet and consolidated statement of operations.

Due to the terms of the Series B Demand Note conversion option, the Company has determined that there is no expected life of the conversion option and accordingly the fair value of the conversion option is equal to the intrinsic value on the note issuance date. The conversion option has been revalued using the intrinsic value on December 31, 2015. During the year ended December 31, 2015, the Company recorded total of $288,332 as the fair value of derivative liability on embedded conversion options from Series B Demand Notes issued in 2015.

Page 56 of 68

VISCOUNT SYSTEMS, INC.

Notes to Consolidated Financial Statements

(Expressed in Canadian dollars)

13.	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 for each day that the Company has not cured each Breach including the first date of any Breach, 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.

	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 year ended December 31, 2015.

	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 Schedule14C 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.

14.	Series B Preferred Stock

	In connection with the issuance of the Series A and B Demand Notes, each holder of Series A Demand Notes or Series B Demand Notes, as applicable, received one share of Series B Preferred Stock (“B Shares”) for each $50,000 aggregate principal amount of the applicable notes. As long as the B Shares are issued and outstanding, the B Shares shall be entitled to vote with respect to any matter upon which the holders of the Common Stock have the right to vote (and/or consent if a written consent of shareholders is being sought) with the holders of 50.01% of the then aggregate principal amount of Notes and Other Notes outstanding being entitled to vote all Series B Stock then outstanding, with the Series B Stock being entitled to eighty (80%) percent of the total votes of Common Stock at each election and/or written consent of stockholders regardless of how many Series B Stock and/or shares of Common Stock are then issued and outstanding (and to call and/or to constitute a quorum for a shareholders’ meeting of the holders of the Common Stock).

	As of December 31, 2015, the Company issued total of 50.46 shares of Series B Preferred Stock, par value $0.001 per share. Per the Certificate of Designation these shares are not entitled to dividends, have no liquidation preference, are not convertible and have no other special rights other than to provide voting control to the note holders. Furthermore, there was no separate consideration received by the Company that could be measured. The Company has determined that the value of any debt discount would be de minimus to the consolidated financial statements.

15.	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.

Page 57 of 68

VISCOUNT SYSTEMS, INC.

Notes to Consolidated Financial Statements

(Expressed in Canadian dollars)

	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 Principal 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.

15.	Fair Value of Financial Instruments (Continued)

	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 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 years ended December 31, 2015 and 2014 is as follows:

Balance, December 31, 2013	$	5,118,453
Fair value change of derivative liabilities		(3,160,272	)
Fair value of embedded conversion options in preferred shares issued as dividends		84,762
Fair value of warrants issued and extended		1,095,294
Other reclassification to derivative liability		35,977
Conversion of preferred shares to Common Stock		(315,596	)
Balance, December 31, 2014		2,858,618
Fair value change of derivative liabilities		(1,003,401	)
Fair value of embedded conversion option from Series A Demand Notes issued in 2015		1,916,078
Fair value of embedded conversion option from Series B Demand Notes issued in 2015		288,332
Fair value of embedded conversion option from 200 Series A Preferred Shares issued in February 2015		184,835
Fair value of embedded conversion options in preferred shares issued as dividends		28,796
Fair value adjustment on Convertible Debt		110,410

Balance, December 31, 2015	$	4,383,668

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 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 years ended December 31, 2015 and 2014:

	December 31,
	2015	2014
Volatility	99.97% - 125.76%	92% - 176%
Risk-free interest rate	0.65% - 1.76%	0.44% - 1.73%
Contractual term	0.17 - 5.00 yrs	1.84 - 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).

Certain derivative liabilities contain other provisions such as ratchet rights on conversion option prices and warrant exercise prices. Under US GAAP, if the terms of a contingent option do not permit an issuer to compute the number

of shares that the holder would receive if the contingent event occurs and the conversion option is adjusted, an issuer shall wait until the contingent event occurs and then compute the resulting liability.

Page 58 of 68

VISCOUNT SYSTEMS, INC.

Notes to Consolidated Financial Statements

(Expressed in Canadian dollars)

For the years ended December 31, 2015 and 2014

16.	Capital stock

	During the year ended December 31, 2014, the Company issued total common shares of 25,113,327 at a price of US$0.09 per share for total cash proceeds of US $2,260,200. The Company also issued a total of 12,556,654 warrants, each warrant exercisable to acquire an additional share of the Common Stock 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$106,604 in cash and share purchase warrants to acquire 1,184,487 shares of Common Stock 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. Upon issuance of the common stock and warrants, $799,399 were allocated to the warrants and recorded as a derivative liability and the balance, net of share issuance costs, was allocated to Common Stock and additional paid-in capital. The fair value of the warrants was determined using the Black-Scholes option pricing model using the following assumptions; volatility of 176%; a dividend yield rate of 0%; a risk-free interest rate of 0.90% and an expected life of five years and allocated on a relative basis.

	On March 6, 2015, the Company completed a private placement of 37,655 shares of common stock at a price of CAD$0.08 per share for proceeds of CAD$3,050.

	On May 19 2015, members of the Board were awarded shares of Common Stock, (the “Restricted Common Stock”) valued as compensation for performing Board activities. The Restricted Common Stock will vest one year from the issuance date. Total number of Resticted Common Stock aggregate of 4,250,000 shares valued at the stock price on May 19, 2015, and the valued amount of $159,211 are to be expensed over the vesting period. As of December 31, 2015, total of $98,166 valued amount was amortized to the stock based compensation expense, the unamortized value of the Restricted Common Stock is $61,045, which will be expensed over the remaining amortization period of 4.6 months.

	Stock Options

	On January 2, 2013, the Company’s 2003 Stock Option Plan expired. 1,350,000 shares of Common Stock are issuable pursuant to those options issued under the 2003 Stock Option Plan. As of December 31, 2015, 11,441,450 stock options were granted after January 2, 2013.

	On May 19, 2015, the Company granted ten-year options to two employees, one to purchase an aggregate of 150,000 shares of Common Stock at an exercise price of US$0.02 vested upon grant date and the other to purchase an aggregate of 250,000 shares of Common Stock at an exercise price of US$0.04, vesting six months from the grant date. The options had an aggregate grant date fair value of $8,225 which will be recognized proportionate to the vesting period.

	On September 30, 2015, the Company granted its interim CEO 1,000,000 stock options at an exercise price of US$0.02, which shall vest at the rate of 25% after six months after his start date (the “Start Date”), another 25% after one year after the Start Date and the remaining 50% two years after the Start Date. The options had an aggregate grant date fair value of $23,950 which will be recognized proportionate to the vesting period.

	A summary of stock option activity is as follows:

				Weighted		Weighted
	Number of			Average Exercise		Average Remaining Life		Aggregate Intrinsic
	Options			Price		In Years		Value
Outstanding at January 1, 2014		1,629,375		US$	0.08
Employee Options Granted		10,561,450		US$	0.10
Cancelled		(438,750	)	US$	0.10
Outstanding at December 31, 2014		11,752,075		US$	0.09
Employee Options Granted		1,400,000		US$	0.02
Forfeited		(250,000	)	US$	0.09
Expired		(110,625	)	US$	0.10
Outstanding at December 31, 2015		12,791,450		US$	0.08		3.73	$	-

Exercisable at December 31, 2015		11,791,450		US$	0.09		2.96	$	-

Page 59 of 68

VISCOUNT SYSTEMS, INC.

Notes to Consolidated Financial Statements

(Expressed in Canadian dollars)

December 31, 2015

16.	Capital stock (Continued)

	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 years ended December 31, 2015 and 2014. 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.

	The fair value of the options granted during the years ended December 31, 2015 and 2014 were determined using the Black-Scholes option pricing model using the following current market assumptions:

	2015	2014
Volatility	80% - 140%	79.5% - 140%
Risk free interest rate	0.28% - 0.98%	0.97% - 1.55%
Expected life	1.5yrs - 9.5yrs	2yrs - 3.5yrs

The weighted average grant date fair value of the options granted during the years ended December 31, 2015 and 2014 were $0.02 and $0.08 per option, respectively.

A summary of the stock options outstanding and exercisable at December 31, 2015 is as follows:

		Outstanding		Exercisable		Remaining
		Number of		Number of		Contractual Life
Exercise Price		Options		Options		in years
US$	$0.02		1,150,000		150,000		9.4
US$	$0.04		250,000		250,000		9.4
US$	$0.08		1,350,000		1,350,000		0.3
US$	$0.09		10,016,450		10,016,450		3.4
US$	$0.10		25,000		25,000		1.5
			12,791,450		11,791,450		2.96

Page 60 of 68

VISCOUNT SYSTEMS, INC.

Notes to Consolidated Financial Statements

(Expressed in Canadian dollars)

December 31, 2015

16.	Capital stock (continued)

	During the years ended December 31, 2015 and 2014, the Company recorded stock based compensation expense related to the stock options granted to employees of $8,225, and $924,189, respectively.

	Warrants:

	On April 4, 2014, the Company issued a board member 250,000 compensation 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 compensation 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$0.09 per share. The grant date fair value of these warrants was $366,120 using the Black-Scholes option pricing model.

	On May 20, 2014, pursuant to the adjustment, the Company issued to investors of an Offering a total of 749,998 shares of common stock with a fair value of $75,000 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. The grant date fair value of these warrants was $24,605 using the Black-Scholes option pricing model with the following assumptions: expected life of 2 years; volatility of 81%; risk-free interest rate of 0.8%; and a dividend rate of 0%.

	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 $181,877 using the Black-Scholes option pricing model.

	On July 8, 2014, the Company issued a board member 250,000 compensation 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.

	On December 19, 2014, the Company issued a board member 250,000 compensation 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 December 19, 2019.

	On December 30, 2014, 250,000 compensation warrants were granted to each of four board members, totalling 1,000,000 warrants, each warrant exercisable to acquire an additional share of the Company at an exercise price of US$0.09 per share for period of three years expiring December 30, 2017. These warrants were issued to replace the 1,000,000 warrants granted to the same board members on December 5, 2011 which had expired on December 5, 2014. These warrants granted on December 5, 2011 had an exercisable price of CDN$0.10 per share for a period of three years.

Page 61 of 68

VISCOUNT SYSTEMS, INC.

Notes to Consolidated Financial Statements

(Expressed in Canadian dollars)

December 31, 2015

16.	Capital stock (continued)

	On January 20, 2015, the Company issued 1,462,500 warrants in conjunction with the issuance of Series A shares, each exercisable into one share of common stock at CAD$0.16 per share for a period of five years, which are exercisable on a cashless basis. The Company determined that these warrants should be classified as equity and, accordingly, they were valued using the Black-Scholes model and the relative fair value of such warrants of $32,470 was allocated to additional paid-in capital and the residual proceeds associated with the Series A Shares were allocated to temporary equity because the preferred stock is contingently redeemable.

	On February 18, 2015, the Company issued a total of 18,827 warrants of which 10,852 warrants were issued to an investor in connection with the common stock and 7,975 warrants to a Board member, to acquire Company stock at an exercise price of CAD$0.16 per share for a period of five years from the closing date. The warrants may be exercised on a cashless basis. These warrants were valued using a Binomial Model resulting in a compensation expense of $909.

	On May 1, 2015, the Company entered into a six month engagement agreement with a service provider pursuant to which the Company issued an immediately vested, five year warrant to purchase 330,000 shares of common stock at an exercise price of US $0.05 per share, valued using Binominal option pricing model, valued at $4,272.

	The fair values of the warrants granted in the years ended December 31, 2015 and 2014 were determined using the Black-Scholes option pricing model or Binomial option pricing model using the following current market assumptions:

	2015	2014
Volatility	99.97% - 125.76%	86% - 163%
Risk free interest rate	0.65% - 1.76%	0.52% - 1.7%
Expected life	0.17 yrs - 5 yrs	1.4 yrs - 3.55 yrs

The significant assumptions used during the year to estimate the fair value of compensation warrants included an expected term (based on the history of exercises) 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 compensation warrants granted during the years ended December 31, 2015 and 2014 was $0.14 and $0.12 per warrant, respectively.

A summary of warrant activity is as follows:

[1]

Weighted

Average

Aggregate

Number of

Average

Remaining Life

Intrinsic

Warrants

Exercise Price

In Years

Value

Outstanding at January 1, 2014

58,672,014

US$

0.09

Issued in private placement transactions

18,278,787

US$

0.20

Issued as compensation warrants

4,940,000

US$

0.09

Expired

(1,000,000

)

CAD$

0.10

Outstanding at December 31, 2014

80,890,801

CAD$

0.12

Issued in private placement transactions

1,462,500

CAD$

0.16

Issued as compensation warrants

348,827

CAD$

0.14

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