Mr. Jason Allen reports

VIRTUTONE ANNOUNCES CORPORATE UPDATE

Virtutone Networks Inc. is providing an update on the current financial condition and status of the business of the company.

As noted in Virtutone's Jan. 16, 2015, press release, one of Virtutone's biggest clients, based in London, U.K., has been unable to make payments of a total amount of $13.8-million (U.S.). Although Virtutone's management has taken all the necessary steps in order to collect the payment, as of yet it has not received payment. As noted in the Jan. 16 press release, the inability to collect on the payment has resulted in Virtutone having to suspend its operations. To reduce costs, all of Virtutone's staff have been laid off other than Jason Allen, president and chief executive officer, and William N. Woods, chief financial officer.

On Jan. 23, 2015, the company filed a notice of intention to make a proposal under the Bankruptcy and Insolvency Act (Canada) (BIA) and BDO Canada Limited has consented to act as trustee under the proposal to the company's creditors. The filing of the notice of intention will provide protection to the company from its creditors in order to allow the company time to make a formal proposal to its creditors. During the process, BDO is required to monitor the operations of the company and assist management in formulating its proposal within the time frames set out under the BIA and as determined by the courts. If the company is unable to meet any of its deadlines or if the creditors do not accept the proposal, the company will be forced into bankruptcy proceedings. The proposal, as currently contemplated by the company, will allow the company a period of time to attempt to collect its receivables in order to payout debts owing to its creditors.

On Jan. 26, 2015, the company received a demand letter from Royal Bank of Canada demanding repayment of the line of credit and other amounts owing totalling approximately $2.24-million (Canadian). The indebtedness owing to the bank is secured by a general security agreement over all of the assets of the company. The bank's demand will be stayed by the company's filing of its notice of intention to make the proposal.

As at the date hereof, the company has approximately $26-million (U.S.) in accounts receivables, including the amounts owing from the United Kingdom entity, and approximately $17-million (U.S.) in accounts payable. A total of approximately $14.5-million (U.S.) of the accounts receivables, including approximately $12-million (U.S.) of the amounts owing from the United Kingdom entity, is insured by Export Development Canada (EDC). The company has filed an insurance claim with the EDC with respect to amounts owing by the United Kingdom entity. Based on EDC policy, it is estimated that a minimum of four to six months may pass for EDC to either collect the receivables or pay out the insurance.

As the outcome of the company's current plans is uncertain, there is no certainty that the company will resume operations. If the company is able to successfully collect on its receivables or receive insurance proceeds in order to settle the indebtedness owing to its creditors, management and the board of directors of the company will need to assess the company's available options and determine a course of action that is in the best interests of the company given the company's financial conditions and prospects for business at such time.

For further information please contact the company's offices at 780-702-5777 or visit its website.

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