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

FORM 10-QSB

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2007

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

For the transition period from _______________________ to _____________________

Commission File Number: 000-49746

VISCOUNT SYSTEMS, INC.
(Name of Small Business Issuer in its charter)

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

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

(604) 327-9446
Issuer’s telephone number

_________________________________________________________________
Former name, former address, and former fiscal year, if changed since last report

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

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

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest
practicable date: As of June 30, 2007 the registrant’s outstanding common stock consisted of 17,770,000
shares.

Transitional Small Business Disclosure Format (Check one): Yes [   ]   No [X]

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PART I.     FINANCIAL INFORMATION

Safe Harbor Statement

Certain statements in this filing that relate to financial results, projections, future plans, events, or performance are forward-looking statements and involve significant risks and uncertainties, including, but not limited to, the following: competition, promotional costs, and risk of declining revenues. Terms such as “we believe”, “we expect” or “we project”, and similar terms, are examples of forward looking statements that we may use in this report. Such statements also relate to the sales trends of our Enterphone 2000, EPX, previously named Enterphone 3000, and MESH product lines, general revenues, income, the number of new construction projects or building upgrades that may generate sales of our product, and in general the market for our products. Any projections herein are based solely on management’s views, and were not prepared in accordance with any accounting guidelines applicable to projections. Accordingly, these forward looking statements are intended to provide the reader with insight into managements proposals, expectations, strategies and general outlook for our business and products, but because of the risks associated with those statements, including those described herein and in our annual report, readers should not rely upon those statements in making an investment decision. The Company's actual results could differ materially from those anticipated in such forward-looking statements as a result of a number of factors. These forward-looking statements are made as of the date of this filing, and the Company assumes no obligation to update such forward-looking statements.

The following discusses our financial condition and results of operations based upon our consolidated financial statements which have been prepared in conformity with accounting principles generally accepted in the United States of America. It should be read in conjunction with our financial statements and the notes thereto included elsewhere herein. Unless otherwise noted as USD or U.S. dollars, all dollar references herein are in Canadian dollars. As at June 30, 2007, the foreign exchange rate certified by the Federal Reserve Bank of New York was CAD$1.0000 for USD$0.9386.

Item 1.     Financial Statements

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VISCOUNT SYSTEMS, INC.

CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars)

JUNE 30, 2007

 

 

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

		June 30,			December 31,
		2007			2006
		(Unaudited)			(Audited)
Assets
Current assets
Cash	$	211,290		$	134,552
Trade accounts receivable, less allowance for doubtful accounts
of $195,357 at June 30, 2006 (December 31, 2006 - $164,924)		818,321			887,587
Inventory (note 2)		747,304			792,551
Prepaid expenses		23,603			6,028
Lease receivable		1,002			1,045
Total current assets		1,801,520			1,821,763
Lease receivable		1,458			1,968
Equipment (note 3)		82,853			90,107
Intangible assets (note 4)		161,915			172,360
Total assets	$	2,047,746		$	2,086,198
Liablilities and stockholders' equity
Current liabilities
Bank indebtedness (note 5)	$	-		$	319,687
Accounts payable and accrued liabilities		475,635			455,928
Deferred revenue		30,542			28,491
Due to stockholders (note 6)		292,402			292,402
Notes payable (note 7)		190,000			235,000
Total current liabilities		988,579			1,331,508
Commitments and contingencies (note 10)
Stockholders' equity
Capital stock (note 8)
Authorized:
100,000,000 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:
17,770,000 common shares (December 31, 2006 - 16,082,450)		25,363			23,675
Additional paid-in capital		2,215,565			1,907,432
Accumulated deficit		(1,181,761	)		(1,176,417	)
Total stockholders' equity		1,059,167			754,690
Total liabilities and stockholders' equity	$	2,047,746		$	2,086,198
Subsequent event (Note 12)

See accompanying notes to interim condensed consolidated financial statements.

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

		Three months ended						Six months ended
		June 30						June 30
		2007			2006			2007			2006
Sales	$	1,324,311		$	1,108,840		$	2,665,921		$	2,250,394
Cost of sales and services		544,474			560,216			1,108,756			1,042,761
Gross profit		779,837			548,624			1,557,165			1,207,633
Expenses
Selling, general and administrative		707,998			662,846			1,357,018			1,303,199
Research and development		81,475			115,753			159,828			222,783
Depreciation and amortization		8,749			9,434			17,699			19,256
		798,222			788,033			1,534,545			1,545,238
Income (loss) before other items		(18,385	)		(239,409	)		22,620			(337,605	)
Other items
Other income		1,321			879			1,942			1,708
Interest and bank charges		(11,640	)		(18,079	)		(29,906	)		(30,770	)
		(10,319	)		(17,200	)		(27,964	)		(29,062	)
Loss before income taxes		(28,704	)		(256,609	)		(5,344	)		(366,667	)
Provision for income taxes		-			-			-			-
Net loss	$	(28,704	)	$	(256,609	)	$	(5,344	)	$	(366,667	)
Basic net loss per common share	$	(0.00	)	$	(0.02	)	$	(0.00	)	$	(0.02	)
Diluted net loss per common share	$	(0.00	)	$	(0.02	)	$	(0.00	)	$	(0.02	)
Weighted average number of common shares outstanding,
Basic		17,486,742			16,080,644			16,784,596			16,078,516
Diluted		17,486,742			16,080,644			16,784,596			16,078,516

See accompanying notes to interim condensed consolidated financial statements.

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VISCOUNT SYSTEMS, INC.
Interim Condensed Consolidated Statements of Stockholders' Equity
(Unaudited)
(Expressed in Canadian dollars)

See accompanying notes to interim condensed consolidated financial statements.

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

Six months ended June 30, 2007 and 2006

		2007			2006
Operating activities:
Net loss	$	(5,344	)	$	(366,667	)
Items not involving cash:
Depreciation and amortization		17,699			19,256
Selling, general and administrative expenses paid by stock options		-			9,770
Changes in non-cash working capital balances (note 9)		119,249			(126,434	)
Net cash provided by (used in) operating activities		131,604			(464,075	)
Investing activities:
Purchase of equipment		-			(8,555	)
Net cash used in investing activities		-			(8,555	)
Financing activities:
Proceeds from (repayment of) bank indebtedness		(319,687	)		356,928
Proceeds from exercise of stock options		1,336			4,057
Proceeds from private placement		308,485			-
Repayment of notes payable		(45,000	)		-
Net cash provided by (used in) financing activities		(54,866	)		360,985
Increase (decrease) in cash		76,738			(111,645	)
Cash, beginning of period		134,552			246,563
Cash, end of period	$	211,290		$	134,918
Supplementary information:
Interest paid	$	14,785		$	16,535
Income taxes paid	$	-		$	-

See accompanying notes to interim condensed consolidated financial statements.

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VISCOUNT SYSTEMS, INC.

Notes to Interim Condensed Consolidated Financial Statements

(Unaudited)

(Expressed in Canadian dollars)

Six months ended June 30, 2007 and 2006

1.	Basis of presentation
	These unaudited interim condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America for interim financial information and with instructions for Form 10-QSB and Item 310 of Regulation S-B. Accordingly, they do not include all information and footnotes required by accounting principles generally accepted in the United States of America for a complete set of annual financial statements. Readers of these statements should read the audited annual consolidated financial statements of the Company filed on Form 10-KSB for the year ended December 31, 2006 in conjunction therewith. Operating results for the periods presented are not necessarily indicative of the results that will occur for the year ending December 31, 2007 or for any other interim period.
	The financial information as at June 30, 2007 and for the six and three month periods ended June 30, 2007 and 2006 is unaudited; however, such financial information includes all adjustments, consisting solely of normal recurring adjustments, which, in the opinion of management, are necessary for the fair presentation of the financial information in conformity with accounting principles generally accepted in the United States of America. The accompanying condensed consolidated balance sheet as of December 31, 2006 has been derived from the audited consolidated balance sheet as of that date included in the Form 10- KSB.

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VISCOUNT SYSTEMS, INC.

Notes to Interim Condensed Consolidated Financial Statements

(Unaudited)

(Expressed in Canadian dollars)

Six months ended June 30, 2007 and 2006

2.

Inventory

			June 30,			December 31,
			2007			2006
	Raw materials	$	433,198		$	546,444
	Work in process		149,140			60,000
	Finished goods		164,966			186,107
		$	747,304		$	792,551

3.

Equipment

						Accumulated			Net book
	June 30, 2007		Cost			depreciation			value
	Computer equipment	$	110,838		$	81,293		$	29,545
	Office furniture and equipment		77,269			30,855			46,414
	Leasehold improvements		46,814			39,920			6,894
		$	234,921		$	152,068		$	82,853

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VISCOUNT SYSTEMS, INC.

Notes to Interim Condensed Consolidated Financial Statements

(Unaudited)

(Expressed in Canadian dollars)

Six months ended June 30, 2007 and 2006

3.	Equipment (cont’d…)

						Accumulated			Net book
	December 31, 2006		Cost			depreciation			value
	Computer equipment	$	110,838		$	77,585		$	33,253
	Office furniture and equipment		77,269			28,422			48,847
	Leasehold improvements		46,814			38,807			8,007
		$	234,921		$	144,814		$	90,107

4.	Intangible assets
	On May 16, 2003, the Company consummated an agreement for the purchase of certain assets of Telus Corporation (“Telus”) comprised primarily of service agreements for a product sold by Telus known as “Enterphone 2000”. At December 31, 2003, the Company had acquired 2,215 service agreements for which it paid a total of $208,921. The cost of the service agreements was included in intangible assets. The service agreements were initially considered to have an indefinite life and were not amortized through March 31, 2005. The number of service agreements held by the Company decreased to 1,868 at December 31, 2004, 1,780 at December 31, 2005 and 1,705 at December 31, 2006. During fiscal 2005, and fiscal 2006, the Company performed a test for impairment in accordance with Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”) and evaluated the status of service agreements. Management determined that no charge for impairment was required but the continuing reduction in the number of service contracts held indicated that the intangible asset should be deemed to have a definitive life based on the provisions of SFAS 142. Accordingly, the Company began, effective as of April 1, 2005, to amortize the cost of the service agreements on a straight-line basis over an estimated useful life of 10 years. At June 30, 2007, the Company held 1,687 service agreements (December 31, 2006 – 1,705) at a cost, net of accumulated amortization of $47,006 (December 31, 2006 - $36,561), of $161,915 (December 31, 2006 - $172,360).

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VISCOUNT SYSTEMS, INC.

Notes to Interim Condensed Consolidated Financial Statements

(Unaudited)

(Expressed in Canadian dollars)

Six months ended June 30, 2007 and 2006

5.	Bank indebtedness
	Bank indebtedness represents cheques written in excess of funds on deposit and amounts drawn under a bank credit facility available to a maximum of $500,000. Amounts outstanding under the bank credit facility bear interest at the bank’s prime lending rate plus 1% and are repayable on demand. The facility is secured by substantially all of the Company’s assets under a general security agreement. The Company is required to maintain a current ratio greater than 1.5:1, measured quarterly, and a debt to tangible net worth ratio less than 1.5:1, measured annually, under the terms of the demand facility agreement. For purposes of debt convent calculations, amounts due to stockholders are considered a component of equity and not a liability.
	During the year ended December 31, 2006, the bank required the Company to secure the credit facility by personal property of a significant shareholder.
6.	Due to stockholders
	Amounts due to stockholders are non-interest bearing, unsecured and have no fixed terms of repayment.
7.	Notes payable
	The notes payable to individuals bear interest at 8% per annum, are unsecured, and are due December 31, 2007. Principal prepayments are made at the discretion of the Board of Directors.
8.	Capital stock
	On April 16, 2007, the Company completed a private placement of 1,677,550 units at a price of US$0.16 per unit for gross proceeds of US$268,408. Each unit consists of one common share of the Company and one warrant. Each warrant entitles the holder to acquire one additional common share of the Company for US$0.25 per share until April 16, 2012.

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VISCOUNT SYSTEMS, INC.

Notes to Interim Condensed Consolidated Financial Statements

(Unaudited)

(Expressed in Canadian dollars)

Six months ended June 30, 2007 and 2006

8.	Capital stock (cont’d…)
	Stock Options
	A summary of the stock option activity is as follows:

			Number of options			Weighted average
						Exercise price (US$)
	Outstanding at January 1, 2007		3,117,550		$	0.28
	Granted		-			-
	Exercised		10,000			0.12
	Expired/cancelled		-			-
	Outstanding at June 30, 2007		3,107,550			0.28

As a result of the amendments to SFAS 123 (R), the Company was required to expense the fair value of employee stock options over the vesting period beginning with the quarter ended March 31, 2006 under the modified prospective transition method. The Company recorded the fair value of stock-based compensation expense from the amortization of stock options issued in prior periods to employees of $Nil (June 30, 2006 - $9,343) and recorded $Nil (June 30, 2006 - $427) relating to the fair value of stock options issued to non-employees, during the six months ended June 30, 2007. Total stock-based compensation of $Nil (June 30, 2006 - $9,770) has been recorded in selling, general and administration expenses in the condensed consolidated statement of operations for the six months ended June 30, 2007.

Warrants

A summary of warrant activity is as follows:

			Number of warrants			Weighted average
						Exercise price (US$)
	Outstanding at January 1, 2007		-		$	-
	Granted		1,677,550			0.25
	Exercised		-			-
	Expired		-			-
	Outstanding at June 30, 2007		1,677,550			0.25

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VISCOUNT SYSTEMS, INC.

Notes to Interim Condensed Consolidated Financial Statements

(Unaudited)

(Expressed in Canadian dollars)

Six months ended June 30, 2007 and 2006

9.	Changes in non-cash working capital balances

			Six months ended
			June 30,
			2007			2006
	Trade accounts receivable	$	69,266		$	(37,219	)
	Inventory		45,247			(28,972	)
	Prepaid expenses		(17,575	)		-
	Lease receivable		553			444
	Accounts payable and accrued liabilities		19,707			(62,319	)
	Deferred revenue		2,051			1,632
		$	119,249		$	(126,434	)

10.	Commitments and contingencies
	The Company is committed to make minimum annual payments on its premises, automobile and office equipment operating leases as follows:

	Year or period ending December 31:
	2007	$	115,169
	2008		178,003
	2009		161,427
	2010		69,092
	2011		2,441

Rent expense included in the statements of operations for the six month period ended June 30, 2007 is $61,162 (2006 - $57,841) and for the three month period ended June 30, 2007 is $30,837 (2006 - $29,021).

The Company was named as the sole defendant in litigation for wrongful dismissal that involves a former employee. The Company filed a defense to this claim and is actively defending its position. At this time, the likelihood of the outcome is not determinable and no provision has been made for the claim in the accounts.

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VISCOUNT SYSTEMS, INC.

Notes to Interim Condensed Consolidated Financial Statements

(Unaudited)

(Expressed in Canadian dollars)

Six months ended June 30, 2007 and 2006

11.	Segment information
	(a)	Operating segments:
		Commencing with the acquisition of the service agreements from Telus on May 16, 2003, as described in Note 4 herein and Note 6 in the financial statements in the most recent Form 10-KSB, the Company has organized its business into two reportable segments: manufacturing and servicing. The manufacturing segment designs, produces and sells intercom and door access control systems that utilize telecommunications wiring to control access to buildings and other facilities for security purposes. The servicing segment provides maintenance to these intercom and other door access control systems. The segments’ accounting policies are the same as those described in Note 2 in the financial statements in the most recent Form 10-KSB. Management evaluates performance based on profit or loss from operations before income taxes not including nonrecurring gains and losses, if any. Retail prices are used to report intersegment sales.
		Information as to these reportable segments for the three and six months ended June 30, 2007 and 2006 are as follows:

	For the three months ended June 30, 2007	Manufacturing	Servicing	Total
	Sales to external customers	$825,301	$499,010	$1,324,311
	Depreciation and amortization	3,527	5,222	8,749
	Interest expense, net	7,540	4,100	11,640
	Segment income (loss) before income taxes	(153,854)	125,150	(28,704)
	Total assets	1,885,831	161,915	2,047,746
	For the three months ended June 30, 2006	Manufacturing	Servicing	Total
	Sales to external customers	$735,721	$373,119	$1,108,840
	Depreciation and amortization	4,210	5,223	9,433
	Interest expense, net	13,379	4,700	18,079
	Segment income (loss) before income taxes	(321,609)	64,999	(256,610)
	Total assets	1,987,194	182,806	2,170,000

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VISCOUNT SYSTEMS, INC.

Notes to Interim Condensed Consolidated Financial Statements

(Unaudited)

(Expressed in Canadian dollars)

Six months ended June 30, 2007 and 2006

11.	Segment information (cont’d…)

	For the six months ended June 30, 2007		Manufacturing			Servicing			Total
	Sales to external customers	$	1,769,972		$	895,949		$	2,665,921
	Depreciation and amortization		7,254			10,445			17,699
	Interest expense, net		21,106			8,800			29,906
	Segment income (loss) before income taxes		(177,344	)		172,000			(5,344	)
	Total assets		1,885,831			161,915			2,047,746
	For the six months ended June 30, 2006		Manufacturing			Servicing			Total
	Sales to external customers	$	1,466,937		$	783,457		$	2,250,394
	Depreciation and amortization		8,810			10,446			19,256
	Interest expense, net		21,370			9,400			30,770
	Segment income (loss) before income taxes		(539,543	)		172,876			(366,667	)
	Total assets		1,987,194			182,806			2,170,000

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VISCOUNT SYSTEMS, INC.

Notes to Interim Condensed Consolidated Financial Statements

(Unaudited)

(Expressed in Canadian dollars)

Six months ended June 30, 2007 and 2006

11.	Segment information (cont’d…)
	(b)	Of the total revenues for the six months ended June 30, 2007, $566,989 (2006 - $463,947) was derived from U.S.-based customers and $2,098,932 (2006 - $1,786,447) 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 revenues in either of the six months ended June 30, 2007 and 2006.
	(d)	Products:
		Enterphone 2000 sales represented 30% of total revenue during the six months ended June 30, 2007 (2006 – 30%). 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.

12.	Subsequent event
	Subsequent to June 30, 2007, the Company granted 327,500 stock options exercisable at a price of US$0.40 per share until August 1, 2012.

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Item 2.     Management Discussion and Analysis or Plan of Operation

Results of Operations

Sales for the three months ended June 30, 2007 and 2006 were $1,324,311 and $1,108,840, respectively, an increase of $215,471 or 19.4% . Sales for the six months ended June 30, 2007 and 2006 were $2,665,921 and $2,250,394, respectively, an increase of $415,527 or 18.5% . Sales increased during these comparative periods due to increased MESH sales. MESH sales for the three months ended June 30, 2007 and 2006 were $511,826 and $240,179, respectively, an increase of $271,647 or 113.1% . MESH sales for the six months ended June 30, 2007 and 2006 were $1,093,010 and $606,497, respectively, an increase of $486,513, or 80.2% . MESH is a convergent technology developed by Viscount that increases security at a reduced cost of hardware, cabling and installation, and with simplified database management. Enterphone 2000 sales for the three months ended June 30, 2007 and 2006 were $352,828 and $379,432, respectively, a decrease of $26,604 or 7%. Enterphone 2000 sales for the six months ended June 30, 2007 and 2006 were $708,138 and $664,970, respectively, an increase of $43,168 or 6.5% . Enterphone 2000 sales have remained consistent.

Management believes that sales of the MESH product will continue to represent an increasing proportion of total sales relative to sales of our Enterphone products. The Enterphone 2000 is a 15 year old technology and management believes the introduction of the next generation of Enterphone systems, EPX, which was introduced during the second quarter of 2007, will improve Enterphone sales. Similar to the Enterphone 2000 product line, the EPX does not require the use of external phone lines. EPX product line is designed to be more cost effective as it requires less assembly and material input costs. In addition, we have designed the EPX to provide improved compatibility with our MESH system, as well as with other newer telephony technologies.

We also provide Enterphone support and maintenance services pursuant to service contracts that were assigned to us from Telus Corporation in 2003. Sales from the 1,687 existing service contracts continue to be steady. On average, each service contract represents ongoing revenues of approximately $33 per month, inclusive of parts and labor. Typical customers include strata management and building owners as well as various residential, business and industrial users of Enterphone access control and security systems. During the six months ended June 30, 2007 and 2006, customer service contracts and new equipment sales generated aggregate sales revenues of $895,949 and $783,457, respectively, an increase of $112,492 or 14.4% . These sales included MESH sales by the service division.

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 1,687 at June 30, 2007, as compared to 1,705 and 1,745 at December 31, 2006 and June 30, 2006, respectively. During the first and second quarter of 2007, the Company performed a test for impairment in accordance with Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”) and evaluated the status of service agreements. Management determined that no charge for impairment was required but the continuing reduction in the number of service contracts held, indicated that the intangible asset should be deemed to have a definitive life based on the provisions of SFAS 142. Accordingly, the Company continued 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 June 30, 2007, the cost of the service agreements, net of accumulated amortization, was $161,915.

Cost of sales and services as a percentage of sales was 41.1% and 50.5% for the three months ended June 30, 2007 and 2006, respectively. For the six months ended June 30, 2007 and 2006, cost of sales and services as a percentage of sales was 41.6% and 46.3%, respectively. Cost of sales has decreased during these two comparative periods. Management continues to focus on controlling the input costs by using multiple suppliers to ensure that the best and most cost effective raw materials are used in all of our products.

Gross profit for the three months ended June 30, 2007 and 2006 was $779,837 and 548,624, respectively, an increase of $231,213 or 42.1% . For the six months ended June 30, 2007 and 2006, gross profit was

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$1,557,165 and $1,207,633, an increase of $349,532 or 28.9% . The increase in gross profit corresponds with the increase in sales and decrease in cost of sales for the three and six months ended June 30, 2007.

Selling, general and administrative expenses for the three months ended June 30, 2007 and 2006 were $707,998 and $662,846, respectively, an increase of $45,152 or 6.8% . For six months ended June 30, 2007 and 2006, selling, general and administrative expenses were $1,357,018 and $1,303,199, respectively, an increase of $53,819 or 4.1% . The increase during these two comparative periods were due to increases in variable costs such as advertising, tradeshow and various office expenses. For the six months ended June 30, 2007 and 2006, selling, general and administrative expenses, as a percentage of sales, were 50.9% and 57.9%, respectively.

Research and development costs for the three months ended June 30, 2007 and 2006 were $81,475 and $115,753, respectively, a decrease of $34,278 or 29.6% . For the six months ended June 30, 2007 and 2006, research and development costs were $159,828 and $222,783, a decrease of $62,955 or 28.3% . Research and development costs decreased due to decreased costs in developing our EPX unit and next phase of MESH.

Net loss for the quarters ended June 30, 2007 and 2006 were $28,704 and $256,609, respectively, a reduction in net loss of $227,905. Net loss for the six months ended June 30, 2007 and 2006 were $5,344 and $366,667, respectively, a reduction in net loss of $361,323. The reduction in net loss during these two comparative periods was the result of increased sales, decreased cost of sales and consistent selling, general and administrative expenses.

Liquidity and Capital Resources

Cash increased as of June 30, 2007, as compared to December 31, 2006. At June 30, 2007, cash totaled $211,290, as compared with the cash of $134,552 at December 31, 2006. This represented an increase of $76,738. We have a bank credit facility available for an operating loan of up to a maximum of $500,000 at the prime lending rate plus 1.0% . Amounts drawn are repayable on demand. At June 30, 2007, $nil was drawn on this facility. The facility is secured by substantially all of our assets under a general security agreement.

During the three months ended June 30, 2007, the Company completed a private placement of 1,677,550 units at a price of US$0.16 per unit for gross proceeds of US$268,408. Each unit consists of one common share and one warrant. Each warrant is exerciseable at a price of US$0.25 per share until April 16, 2012 to acquire an additional share of common stock.

At June 30, 2007, working capital was $812,941, as compared to a working capital of $490,255 at December 31, 2006. Working capital has increased by $322,686. This increase was due primarily to the private placement. The current ratio at June 30, 2007 was 1.82 to 1.0, as compared with 1.37 to 1.0 at December 31, 2006.

The accounts receivable turnover ratio at June 30, 2007 was 63 days, as compared 66 days at December 31, 2006 and June 30, 2006. This reflected an increase of 3 days. The accounts receivable reserve was $195,357 at June 30, 2007, as compared to $164,924 at December 31, 2006. The accounts receivable reserve has increased by $30,433 or 18.5%, since the year ended December 31, 2006. Management identified more slower paying accounts to be conservative. 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.

For the six months ended June 30, 2007 there were minimal capital expenditures.

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

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We will likely require additional funds to support the development and marketing of our new MESH product. There can be no assurance that additional financing will be available on acceptable terms, if at all. If adequate funds are not available, we may be unable to develop or enhance our products, take advantage of future opportunities, respond to competitive pressures, and may have to curtail operations.

There are no legal or practical restrictions on the ability to transfer funds between parent and subsidiary companies.

We do not have any material commitments for capital expenditures as of June 30, 2007.

There are no known trends or uncertainties that will have a material impact on revenues.

Related Party Transactions

There were no related party transactions for the period covered by this report.

Recently Issued Accounting Standards

In September 2006, FASB issued SFAS No. 157 (“SFAS 157”), “Fair Value Measurements.” Among other requirements, SFAS 157 defines fair value and establishes a framework for measuring fair value and also expands disclosure about the use of fair value to measure assets and liabilities. SFAS 157 is effective for fiscal years beginning after November 15, 2007.

The adoption of this new pronouncement is not expected to have a material effect on the Company’s consolidated financial position or results of operations.

Other recently issued pronouncements are not expected to be applicable to the Company or have significant impact on the Company’s financial statements.

Item 3.     Controls and Procedures

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

The Company’s management, with the participation of the Company’s Chief Executive Officer has evaluated the effectiveness of the Company’s disclosure controls and procedures as of June 30, 2007. Based on this evaluation, the Company’s Chief Executive Officer concluded that the Company’s disclosure controls and procedures are effective for gathering, analyzing and disclosing the information the Company is required to disclose in the reports it files under the Securities Exchange Act of 1934, within the time periods specified in the SEC’s rules and forms. Such evaluation did not identify any change in the Company’s internal control over financial reporting that occurred during the six months ended June 30, 2007 that has materially affected or is reasonably likely to materially affect the Company’s internal control over financial reporting.

PART II – OTHER INFORMATION

Item 4.     Submission of matters to a Vote of Security Holders

At the annual general meeting of the holders of shares of common stock of the Company held on May 30, 2007, the shareholders voted on the following matters:

1.	Election of Directors. The following nominees were elected as directors to serve until the next annual general meeting of the stockholders:
	Greg Shen
	For: 7,724,902 (76.52%) Withheld: 2,370,264 (23.48%)

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	Broker non-votes/Abstentions: N/A
	Steven Pineau
	For: 7,724,902 (76.52%) Withheld: 2,370,264 (23.48%) Broker non-votes/Abstentions: N/A
2.	Appointment of Independent Accountants. The stockholders approved the appointment of Davidson & Company as independent accountant of the Company for the fiscal year ending December 31, 2007.
	For: 10,094,073 (99.99%) Against or Withheld: 1,093 (0.01%) Broker non-votes/Abstentions: N/A

Item 6.      Exhibits

31.1	Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer
31.2	Rule 13a-14(a)/15d-14(a) Certification of Principal Accounting Officer
32.1	Section 1350 Certifications

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SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date:  August 14, 2007	VISCOUNT SYSTEMS, INC.
	(Registrant)
	By:	/s/ Stephen Pineau
		Stephen Pineau, President
		and Principal Accounting Officer

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