**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**Form
      10-QSB**





**QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15 (d)**


**OF
      THE SECURITIES EXCHANGE ACT OF 1934**





**FOR
      THE QUARTERLY PERIOD ENDED** **December
      31, 2006**





**Commission
      File Number** **000-27106**





**VISEON,
      INC.**


(Exact
      name of small business issuer as specified in its charter)





**Nevada**
            
            **41-1767211**(State
                or other jurisdiction of
              incorporation
                or organization)
            
            (IRS
                Employer Identification No.)





**P.
      O. Box 797722, Dallas, Texas 75379-7722**


(Address
      of principal executive offices)





**(972)
      220-1500**


(Issuer's
      telephone number)





Check
      whether the issuer (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 report), and (2) has been subject
      to such filing requirements for the past 90 days. YES x NO  ̈





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act): YES  ̈NOx





State
      the
      number of shares outstanding of each of the issuer’s classes of common equity,
      as of the latest practicable date:





The
      Company had 51,891,180 shares of Common Stock, $ 0.01 par value per share,
      outstanding as of February 2, 2007.





**Transitional
      Small Business Disclosure Format (Check one): Yes** ** ̈** **No** **x**










**INDEX**




**PART
              I.
              FINANCIAL INFORMATION****Item
                1. Financial Statements**Consolidated
                Balance Sheets - December 31, 2006 (unaudited) andJune
                30, 2006 (audited)
            3Consolidated
                Statements of Operations (unaudited) - Three months endedDecember
                31, 2006 and 2005
            4Consolidated
                Statements of Operations (unaudited) - Six months endedDecember
                31, 2006 and 2005
            5Consolidated
                Statements of Cash Flows (unaudited) - Six months endedDecember
                31, 2006 and 2005
            6Notes
                to Unaudited Consolidated Financial Statements
            8





**Item
                2. Management's Discussion and Analysis or Plan of Operation**
            17**Item
                3. Controls and Procedures**
            20**PART
                II OTHER INFORMATION****Item
                1. Legal Proceedings**
            20**Item
                6. Exhibits**
            20Signatures
            21





Certification
      Pursuant to Rule 13a-14(a)


Certification
      Pursuant to Rule 13a-14(a)


Certification
      Pursuant to Section 906


Certification
      Pursuant to Section 906









**PART
      I**


**FINANCIAL
      INFORMATION**





**Item
      1. Financial Statements**





**VISEON,
      INC. AND SUBSIDIARIES**





**Consolidated
      Balance Sheets**





**December
                31,**
              **2006**
              **(Unaudited)**
            
            **June
                30,**
              **2006**
              **(Audited)*****ASSETS*****CURRENT
                ASSETS**Cash
                and cash equivalents
            
            $
            133,175
            
            $
            1,887,585Prepaid
                expenses
            
            
            57,457
            
            
            87,537Total
                Current Assets
            
            
            190,632
            
            
            1,975,122**PROPERTY
                AND EQUIPMENT, NET**
            
            
            106,667
            
            
            122,765**TOTAL
                ASSETS**
            
            $
            297,299
            
            $
            2,097,887***LIABILITIES
                AND STOCKHOLDERS' EQUITY/DEFICIT*****CURRENT
                LIABILITIES**Accounts
                payable
            
            $
            333,350
            
            $
            446,583Accrued
                expenses
            
            
            507,638
            
            
            413,090Net
                liabilities of discontinuedoperations
            
            
            197,828
            
            
            204,976Total
                Current Liabilities
            
            
            1,038,816
            
            
            1,064,649**COMMITMENTS
                AND CONTINGENCIES****STOCKHOLDERS'
                EQUITY (DEFICIT)**Convertible
                preferred stock, $.01 par value per share5,000,000
                shares authorizedSeries
                A convertible preferred stock, 94 and 97 sharesissued
                and outstanding (liquidation preference of$2,350,000
                and $2,425,000)
            
            
            1
            
            
            1Series
                B convertible preferred stock, 376 sharesissued
                and outstanding (liquidation preference of$9,400,000)
            
            
            4
            
            
            4Common
                stock, $.01 par value per share100,000,000
                shares authorized,51,891,180
                and 36,715,081 issued and outstanding
            
            
            518,911
            
            
            367,151Additional
                paid-in capital
            
            
            55,343,347
            
            
            55,000,712Accumulated
                deficit
            
            
            (56,603,780
            )
            
            (54,334,630
            )Total
                Stockholders' Equity (Deficit)
            
            
            (741,517
            )
            
            1,033,238**TOTAL
                LIABILITIES AND****STOCKHOLDERS'
                EQUITY**
            
            $
            297,299
            
            $
            2,097,887


See
      accompanying notes to consolidated financial statements.





3





**VISEON,
      INC. AND SUBSIDIARIES**





**Consolidated
      Statements of Operations**




**Three
                Months Ended December 31, 2006**
            
            **Three
                Months Ended December 31, 2005****(Unaudited)**
            
            **(Unaudited)****NET
                SALES**
            
            $
            -
            
            $
            7,150**COST
                OF GOODS SOLD**
            
            
            -
            
            
            26,226Gross
                Profit (Loss)
            
            
            -
            
            
            (19,076
            )**RESEARCH
                AND DEVELOPMENT**
            
            
            84,808
            
            
            941,728**SELLING,
                GENERAL AND ADMINISTRATIVE**
            
            
            283,138
            
            
            594,554Operating
                Loss
            
            
            (367,946
            )
            
            (1,555,358
            )**OTHER
                INCOME (EXPENSE)**Interest
                income
            
            
            503
            
            
            33,637Interest
                expense
            
            
            -
            
            
            -Other
                Income (Expense), net
            
            
            503
            
            
            33,637**LOSS
                FROM CONTINUING OPERATIONS**
            
            
            (367,443
            )
            
            (1,521,721
            )**GAIN
                FROM DISCONTINUED OPERATIONS**
            
            
            -
            
            
            -**NET
                LOSS**
            
            
            (367,443
            )
            
            (1,521,721
            )Preferred
                Stock Dividends
            
            
            (293,958
            )
            
            (296,694
            )**NET
                LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS**
            
            $
            (661,401
            )
            $
            (1,818,415
            )Basic
                and diluted loss per share:Gain
                from discontinued operations
            
            $
            0.00
            
            $
            0.00Net
                loss attributable to common stockholders
            
            $
            (0.01
            )
            $
            (0.05
            )Weighted
                average common shares outstanding:Basic
                and diluted
            
            
            47,195,943
            
            
            34,980,327


See
      accompanying notes to consolidated financial statements.





4




**VISEON,
      INC. AND SUBSIDIARIES**





**Consolidated
      Statements of Operations**




**Six
                  Months Ended December 31 2006 (Unaudited)**
              
              **Six
                  Months Ended December 31 2005 (Unaudited)****NET
                  SALES**
              
              $
              -
              
              $
              7,150**COST
                  OF GOODS SOLD**
              
              
              -
              
              
              26,226Gross
                  Profit (Loss)
              
              
              -
              
              
              (19,076
              )**RESEARCH
                  AND DEVELOPMENT**
              
              
              410,166
              
              
              1,939,556**SELLING,
                  GENERAL AND ADMINISTRATIVE**
              
              
              1,278.989
              
              
              1,437,507Operating
                  Loss
              
              
              (1,689,155
              )
              
              (3,396,139
              )**OTHER
                  INCOME (EXPENSE)**Interest
                  income
              
              
              9,964
              
              
              51,603Interest
                  expense
              
              
              (1,493
              )
              
              (117,500
              )Other
                  Income (Expense), net
              
              
              8,471
              
              
              (65,897
              )**LOSS
                  FROM CONTINUING OPERATIONS**
              
              
              (1,680,684
              )
              
              (3,462,036
              )**GAIN
                  FROM DISCONTINUED OPERATIONS**
              
              
              347
              
              
              108,640**NET
                  LOSS**
              
              
              (1,680,337
              )
              
              (3,353,396
              )Preferred
                  Stock Dividends
              
              
              (588,472
              )
              
              (5,172,016
              )**NET
                  LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS**
              
              $
              (2,268,809
              )
              $
              (8,525,412
              )Basic
                  and diluted loss per share:Gain
                  from discontinued operations
              
              $
              0.00
              
              $
              0.00Net
                  loss attributable to common stockholders
              
              $
              (0.05
              )
              $
              (0.25
              )Weighted
                  average common shares outstanding:Basic
                  and diluted
              
              
              42,522,461
              
              
              34,213,009


See
      accompanying notes to consolidated financial statements.





5




**VISEON,
      INC. AND SUBSIDIARIES**




**Consolidated
      Statements of Cash Flows**





**(Unaudited)**





**Six
                Months Ended December 31, 2006**
            
            **Six
                Months Ended December 31, 2005****(Unaudited)**
            
            **(Unaudited)*****Cash
                flows from operating activities:***Net
                loss
            
            $
            (1,680,337
            )
            $
            (3,353,396
            )Adjustments
                to reconcile net loss to netcash
                flows from operating activities:Depreciation
                and amortization
            
            
            30,771
            
            
            32,507Amortization
                of original issue discount
            
            
            -
            
            
            117,500Compensation
                related to stock options
            
            
            85,955Common
                stock issued for services rendered
            
            
            2,500
            
            
            27,500Common
                stock warrants issued for servicesrendered
            
            
            -
            
            
            124,207Gain
                from discontinued operations
            
            
            (347
            )
            
            (108,640
            )Changes
                in operating assets and liabilities:Accounts
                receivable, net
            
            
            -
            
            
            9,392Inventories,
                net
            
            
            -
            
            
            (73,002
            )Prepaid
                expenses
            
            
            30,080
            
            
            59,255Accounts
                payable
            
            
            (120,034
            )
            
            (501,543
            )Accrued
                expenses
            
            
            20,382
            
            
            (141,518
            )Net
                cash flows used in operatingactivities
            
            
            (1,631,030
            )
            
            (3,807,738
            )***Cash
                flows from investing activities:***Purchases
                of property and equipment
            
            
            (14,673
            )
            
            (80,340
            )Payments
                for intangible assets
            
            
            -
            
            
            (66,970
            )Net
                cash flows used in investing activities
            
            
            (14,673
            )
            
            (147,310
            )***Cash
                flows from financing activities:***Payments
                on short-term notes payable
            
            
            -
            
            
            (250,000
            )Proceeds
                from short-term notes payable
            
            
            -
            
            
            250,000


Proceeds
                from exercise of common stock warrants
            
            
            -
            
            
            240,000Proceeds
                from issuance of convertiblepreferred
                stock and warrants
            
            
            -
            
            
            9,400,000Payments
                of convertible preferred stock andwarrant
                issuance costs
            
            
            -
            
            
            (1,182,565
            )Dividends
                on convertible preferred stock
            
            
            (108,707
            )
            
            -Net
                cash flows from financing activities
            
            
            (108,707
            )
            
            8,457,435Change
                in cash and cash equivalents fromdiscontinued
                operations
            
            
            -
            
            
            -**Increase
                (decrease) in cash and cash****equivalents**
            
            
            (1,754,410
            )
            
            4,502,387Cash
                and cash equivalents, beginning of period
            
            
            1,887,585
            
            
            239,383Cash
                and cash equivalents, end of period
            
            $
            133,175
            
            $
            4,741,770




6




**Six
                Months**
              **Ended**
              **December
                31,**
              **2006**
            
            **Six
                Months**
              **Ended**
              **December
                31,**
              **2005****(Unaudited)**
            
            **(Unaudited)*****Supplemental
                cash flow information:***Cash
                paid for interest
            
            $
            -
            
            $
            -Noncash
                investing and financing activities:Net
                liabilities of discontinued operations converted into common stock
                and
                warrants
            
            
            -
            
            
            409,860Accrued
                preferred stock dividends converted to common stock
            
            
            122,919
            
            
            200,166Common
                stock issued for preferred stock dividends
            
            
            161,295
            
            
            426,775Conversion
                of preferred stock to common stock
            
            
            750
            
            
            7,000Cashless
                exercise of warrants
            
            
            -
            
            
            2,619Warrants
                issued to induce exercise of warrants
            
            
            -
            
            
            195,795Accretion
                of beneficial conversion option
            
            
            -
            
            
            4,696,240




7





**VISEON,
      INC. AND SUBSIDIARIES**





**NOTES
      TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS**


**December
      31, 2006 and 2005**





**1.** **DESCRIPTION
      OF THE BUSINESS:**





Viseon,
      Inc. (the "Company"), a Nevada corporation formerly known as "RSI Systems,
      Inc."
      was a developer and reseller of videoconferencing systems from its inception
      in
      1993 until January of 2003. These systems, which delivered near television
      quality audio and video communications over ISDN circuits were sold primarily
      to
      corporate, government and OEM customers including Philips. We changed our focus
      in 2003 to developing next generation broadband telephones for use with Voice
      over Internet Protocol (VoIP) services. Our efforts currently are focused on
      selling or licensing our technology, which represents substantially all of
      our
      assets, to Intellectual Property Holding Companies and IP/PBX vendors and
      consumer electronics manufacturers.





The
      report of our former independent registered public accounting firm for the
      year
      ended June 30, 2006, includes an explanatory paragraph stating that our losses
      from operations and our accumulated deficit of $54,334,630 raise substantial
      doubt about our ability to continue as a going concern. Such an opinion by
      our
      former independent registered public accounting firm may impact our
      relationships with third parties, such as customers, suppliers and creditors,
      because of concerns about our financial condition. Any such impact could have
      a
      material adverse effect on our business, operating results and financial
      condition. No assurances can be given that the issues that led our former
      independent registered public accounting firm to this conclusion will be
      addressed or that our business will continue to operate as a going concern.
      Readers are referred to the caption “Risk Factors” appearing at the end of Item
      1 of our latest Annual Report on Form 10-KSB for additional factors that may
      affect our business and prospects.




We
      have a
      history of operating losses since our inception and have not achieved
      profitability. As of December 31, 2006, we had an accumulated deficit of
      $56,603,780. We expect our operating losses to continue for the foreseeable
      future. The amount of any such loss will depend in part on our ability to
      market or to monetize our intellectual property, and the rate of
      increase or decrease in our expenses. Several factors, including our inability
      to market or monetize our intellectual property and our inability to secure
      a
      license/OEM agreement with a strategic partner, make it impossible to predict
      when or if we will generate revenues or become profitable. Consequently, we
      may
      never generate revenues sufficient to achieve profitability and, even if we
      do,
      we may not sustain or increase profitability on a quarterly or annual basis
      at
      any time thereafter. Our ability to continue in business could be jeopardized
      if
      we are not able to realize a positive cash flow and achieve profitability or
      if
      we are not able to obtain financing on satisfactory terms as may be necessary
      in
      the future.




The
        Company has engaged an investment banker and is evaluating strategic
        alternatives for the business and its assets. The alternatives being considered
        by the Company may include the sale of some or all of its assets, or the
        sale of
        the Company as a going concern. If the Company does proceed with a sale of
        part
        or all of the business under those circumstances, it is possible that the
        net
        proceeds from that transaction will not be sufficient to repay the outstanding
        payables of the Company or the liquidation preferences of the currently
        outstanding shares of preferred stock, even if the transaction represents
        the
        best current or long-term value for the Company's business. In any of those
        circumstances, the persons who hold common stock of the Company at the time
        of
        such a transaction would not receive any proceeds of the sale and would lose
        all
        of their investment in the common stock. The aggregate liquidation preference
        on
        all outstanding shares of preferred stock (including all accrued dividends)
        as
        of February 15, 2007, is $13,962,663. Only after payment of the liquidation
        preference and all outstanding liabilities of the Company would the holders
        of
        common stock receive any proceeds for their shares. There can be no assurance
        that the Company will be able to complete a sale of its business, or that
        it
        will be able to receive an offer for a potential transaction, on terms that
        are
        deemed acceptable to the Company and its directors.
  **2.****BASIS
      OF PRESENTATION:**





The
      unaudited interim consolidated financial statements have been prepared in
      accordance with accounting principles generally accepted in the United States
      of
      America, pursuant to the rules and regulations of the Securities and Exchange
      Commission (“SEC”). Accordingly, certain information and footnote disclosures
      normally included in the consolidated financial statements have been omitted
      or
      condensed pursuant to such rules and regulations. The accompanying unaudited
      consolidated financial statements should be read in conjunction with out June
      30, 2006 audited consolidated financial statements and related footnotes
      included in our most recent Annual Report on Form 10-KSB.





The
      consolidated financial statements include the accounts of Viseon, Inc. and
      its
      wholly-owned subsidiaries. All significant intercompany transactions and
      balances have been eliminated in consolidation. The consolidated financial
      statements reflect all adjustments of a normal recurring nature necessary to
      fairly present the results of operations and financial position of the Company
      for the interim periods. Operating results for the three months and six months
      ended December 31, 2006 are not necessarily indicative of the results that
      may
      be expected for the full year.





**3.****SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES:**





The
      Company has adopted EITF 05-4, *The
      Effect of Liquidated Damages Clause on a Freestanding Financial Instrument
      Subject to Issue No. 00-19,* View
      C ** to
      account for its registration rights agreements. The Company has entered into
      registration rights agreements in association with the issuance of preferred
      stock and warrants. View C of EITF 05-4 takes the position that the registration
      rights should be accounted for separately from the financial instrument as
      the
      payoff of the financial instruments is not dependent on the payoff of the
      registration rights agreement, and according to DIG K-1, registration rights
      agreements and the financial instruments do not meet the combining criteria
      as
      they relate to different risks. The Financial Accounting Standards Board (Board)
      has postponed further discussion on EITF 05-4. Since the Board has not reached
      a
      consensus, the Company’s accounting for the registration rights may change when
      the Board reaches a consensus.




8





*Loss
      Per Common Share* .
      Basic
      loss attributable to common stockholders per common share is computed by
      dividing the loss by the weighted average number of common shares outstanding
      for the reporting period. Diluted loss attributable to common stockholders
      per
      common share is computed by dividing the loss by the sum of the weighted average
      number of common shares outstanding plus the number of common share equivalents
      that represent all additional shares of our Common Stock that would have been
      outstanding if all potentially dilutive securities (primarily stock options,
      stock warrants and convertible preferred stock) had been exercised. All options,
      warrants and convertible preferred stock outstanding during the three months
      and
      six months ended December 31, 2006 and 2005 were anti-dilutive to our loss
      per
      share, so basic loss and diluted loss are the same for those
      periods.





*Stock
      Based Compensation* .
      Prior
      to July 1, 2006, the Company accounted for stock option awards granted under
      the
      Company’s employee stock option plan in accordance with the recognition and
      measurement provisions of Accounting Principles Board Opinion No. 25,
“ *Accounting
      for Stock Issued to Employees* ”
(“APB
      25”), and related Interpretations, as permitted by Statement of Financial
      Accounting Standards No. 123, “ *Accounting
      for Stock-Based Compensation* ”
(“SFAS
      123”). Share-based employee compensation expense was not recognized in the
      Company’s consolidated statements of operations prior to July 1, 2006 as
      all stock option awards granted had an exercise price equal to or greater than
      the market value of the Common Stock on the date of the grant (other than for
      certain option modifications and options granted with exercise prices below
      the
      fair market value at the grant date). As permitted by SFAS 123, the Company
      reported pro-forma disclosures presenting results and earnings per share as
      if
      the Company had used the fair value recognition provisions of SFAS 123 in the
      Notes to Consolidated Financial Statements. Stock-based compensation related
      to
      non-employees and modifications of options granted were accounted for based
      on
      the fair value of the related stock or options in accordance with SFAS 123
      and
      its interpretations.




Effective
      July 1, 2006, the Company adopted the provisions of Statement of Financial
      Accounting Standard No. 123 (revised 2004), “ *Share-Based
      Payment”* (“SFAS
      123(R)”), using the modified prospective transition method. See Note 4 for
      further detail on the impact of SFAS 123(R) to the Company’s condensed
      consolidated financial statements.





**4.****RECENT
      ACCOUNTING PRONOUNCEMENTS:**




***Adoption
      of SFAS 123(R)***




Effective
      July 1, 2006, the Company adopted the fair value recognition provisions of
      SFAS 123(R) using the modified prospective transition method. In addition,
      the
      SEC issued Staff Accounting Bulletin No. 107 “ *Share-Based
      Payment* ”
(“SAB
      107”) in March 2005, which provides supplemental SFAS 123(R) application
      guidance based on the views of the SEC. Under the modified prospective
      transition method, compensation cost recognized in the three month and six
      month
      periods ended December 31, 2006 include: (a) compensation cost for all
      share-based payments granted prior to, but not yet vested as of July 1,
      2006, based on the grant date fair value estimated in accordance with the
      original provisions of SFAS 123; and (b) compensation cost for all
      share-based payments granted beginning July 1, 2006, based on the grant
      date fair value estimated in accordance with the provisions of SFAS 123(R).
      In
      accordance with the modified prospective transition method, results for prior
      periods have not been restated.




The
      adoption of SFAS 123(R) resulted in stock compensation expense for the three
      month and six month periods ended December 31, 2006 of $29,799 and $85,955
      respectively to income from continuing operations and income before income
      taxes, all of which was recorded to operating expenses. This expense did not
      reduce basic and diluted earnings per share for the quarter. The Company did
      not
      recognize a tax benefit from the stock compensation expense because the Company
      considers it is more likely than not that the related deferred tax assets,
      which
      have been reduced by a full valuation allowance, will not be realized.




The
      Black-Scholes option-pricing model was used to estimate the option fair values.
      The option-pricing model requires a number of assumptions, of which the most
      significant are, expected stock price volatility, the expected pre-vesting
      forfeiture rate and the expected option term (the amount of time from the grant
      date until the options are exercised or expire). Expected volatility was
      calculated based upon actual historical stock price movements over the most
      recent periods ending December 31, 2006 equal to the expected option term.
      Expected pre-vesting forfeitures were estimated based on actual historical
      pre-vesting forfeitures over the most recent periods ending December 31, 2006
      for the expected option term. The expected option term was calculated using
      the
“simplified” method permitted by SAB 107.




Prior
      to
      the adoption of SFAS 123(R), the Company presented any tax benefits of
      deductions resulting from the exercise of stock options within operating cash
      flows in the consolidated statements of cash flow. SFAS 123(R) requires tax
      benefits resulting from tax deductions in excess of the compensation cost
      recognized for those options (“excess tax benefits”) to be classified and
      reported as both an operating cash outflow and a financing cash inflow upon
      adoption of SFAS 123(R). As a result of the Company’s net operating losses, the
      excess tax benefits that would otherwise be available to reduce income taxes
      payable have the effect of increasing the Company’s net operating loss carry
      forwards. Accordingly, because the Company is not able to realize these excess
      tax benefits, such benefits have not been recognized in the statement of cash
      flows for the six month period ended December 31, 2006.




9




***Pro-Forma
      Stock Compensation Expense for the three months and six months ended December
      31, 2005***




For
      the
      three month and six month periods ended December 31, 2005, the Company applied
      the intrinsic value method of accounting for stock options as prescribed by
      APB
      25. Since all options granted during the three month and six month periods
      ended
      December 31, 2005 had an exercise price equal to the closing market price of
      the
      underlying Common Stock on the grant date, no compensation expense was
      recognized. If compensation expense had been recognized based on the estimated
      fair value of each option granted in accordance with the provisions of SFAS
      123
      as amended by Statement of Financial Accounting Standard 148, our net loss
      and
      net loss per share would have been reduced to the following pro-forma amounts
      (in thousands, except per share amounts):







**Three
                Months ended December 31, 2005**
            
            **Six
                Months ended December 31, 2005**Net
                Loss Attributable to Common Stockholders
            
            $
            (1,818,415
            )
            $
            (8,525,412
            )Deduct:
                Stock-based employee compensation expense, determined under fair
                value
                method for all awards
            
            $
            (473,751
            )
            $
            (816,786
            )Net
                Loss Attributable to Common Stockholders
            
            $
            (2,292,166
            )
            $
            (9,342,198
            )Loss
                per share - basic and diluted , as reported
            
            $
            0.05
            
            $
            0.25Loss
                per share - basic and diluted, pro-forma
            
            $
            0.07
            
            $
            0.27





In
      determining the compensation cost of options granted during the three and six
      month periods ended December 31, 2005, as specified by SFAS 123, the fair
      value of each option grant was estimated on the date of grant using the
      Black-Scholes option pricing model. During a subsequent period, the Company
      noted an error in its expected volatility calculations. The revised pro forma
      assumptions for the three and six month periods ended December 31, 2005 are
      displayed below. The pro forma results of the corrected volatility calculation
      are displayed in the table above. The impact of the corrected volatility
      calculation on results for periods ended prior to June 30, 2006 are immaterial.
      The volatility percentage and the weighted average assumptions used in these
      calculations are summarized as follows:





**For
                the three months ended December 31,**
            
            **For
                the six months ended**
              **December
                31****2006**
            
            **2005**
            
            **2006**
            
            **2005**Risk-free
                interest rate
            
            
            4.625
            %
            
            4.25
            %
            
            4.625
            %
            
            4.25
            %Expected
                life of options granted
            
            
            7.4
                years
            
            
            8.6
                years
            
            
            7.4
                years
            
            
            8.6
                yearsExpected
                volatility
            
            
            181.74
            %
            
            111.98
            %
            
            181.74
            %
            
            111.98
            %Expected
                dividend yield
            
            
            0
            %
            
            0
            %
            
            0
            %
            
            0
            %





10




***Stock
      Options as of the Three Month and Six Month Periods Ended December 31, 2006***





The
      following table summarizes stock options outstanding and changes during the
      three month and six month periods ended December 31, 2006:





WeightedAverageExercisePrice
                perOptions
            
            ShareOutstanding
                at June 30, 2006
            
            
            7,141,722
            
            $
            0.53Granted
            
            
            0
            
            
            0.00Exercised
            
            
            0
            
            
            0.00Canceled
                or Expired
            
            
            (190,000
            )
            
            0.91Outstanding
                at September 30, 2006
            
            
            6,951,722
            
            $
            0.52Granted
            
            
            0Exercised
            
            
            0Canceled
                or Expired
            
            
            (2,500,722
            )
            $
            0.32Outstanding
                at December 31, 2006
            
            
            4,451,000
            
            $
            0.63Exercisable
                at December 31, 2006
            
            
            4,004,573
            
            $
            0.81




As
      of
      December 31, 2006, the Company had granted 231,000 options outside its stock
      incentive plans with a weighted average exercise price of $2.81 and a weighted
      average remaining contractual life of 1.0 year.





The
      following table summarizes information about stock options outstanding as of
      December 31, 2006, including those issued outside the Company’s stock incentive
      plans:





Options
                Outstanding
            
            Options
                ExercisableWeighted-Average
            
            Weighted-
            
            
            
            Weighted-Range
                of
            
            
            
            Remaining
            
            Average
            
            
            
            AverageExercise
            
            Number
            
            Contractual
            
            Exercise
            
            Number
            
            ExercisePrices
            
            Outstanding
            
            Life
            
            Price
            
            Exercisable
            
            Price$0.22-0.52
            
            
            2,539,750
            
            
            8.93
            
            $
            0.32
            
            
            1,903,573
            
            $
            0.32$0.58-0.75
            
            
            645,000
            
            
            5.78
            
            
            0.66
            
            
            630,000
            
            
            0.66$1.00-1.50
            
            
            1,017,500
            
            
            6.87
            
            
            1.07
            
            
            991,250
            
            
            1.07$1.62-2.19
            
            
            220,000
            
            
            5.46
            
            
            1.83
            
            
            220,000
            
            
            1.83$2.81-3.00
            
            
            259,750
            
            
            1.11
            
            
            2.83
            
            
            259,750
            
            
            2.83$0.22-3.00
            
            
            4,682,000
            
            
            7.45
            
            $
            0.74
            
            
            4,004,573
            
            $
            0.81





11




**5.** **CONVERTIBLE
      PREFERRED STOCK AND WARRANTS:**





*Series
      A Convertible Preferred Stock with Warrants.* In
      the
      months of March and April 2004, we sold, in private placement transactions,
      a
      total of 338 shares of Series A Convertible Preferred Stock, $0.01 par value
      (“Series A Preferred”), in prepackaged units that included one Series A-1
      Warrant and one Series A-2 Warrant for each share of Series A Preferred
      (collectively referred to as the "Series A Securities"). The private placement
      of the Series A Securities resulted in gross proceeds to us of $8,450,000,
      prior
      to offering expenses. In total, holders of the 338 shares of Series A Preferred
      were granted the right to acquire 16,900,000 shares of our Common Stock
      (8,450,000 shares of Common Stock upon conversion and 8,450,000 shares upon
      exercise of the related warrants).





Each
      share of Series A Preferred is convertible, at the initial conversion price
      of
      $1.00, into 25,000 shares of Common Stock, subject to adjustment under certain
      conditions. Holders of the Series A Preferred are entitled to dividends at
      the
      rate of 10% per annum payable quarterly in either cash or, at our option,
      registered shares of Common Stock valued at fair market value. Shares of Series
      A Preferred are convertible into shares of Common Stock at the holders' option
      at any time and will automatically convert to shares of Common Stock if certain
      trading volume and closing price targets on our Common Stock are met. The
      closing price target is $3.00 per share and the trading volume target is an
      average of 125,000 shares per day over a consecutive 20-day period during which
      the applicable closing price target has been met or exceeded. In addition,
      shares of the Series A Preferred participate on an as-if converted basis in
      any
      dividends paid on Common Stock. Holders of shares of Series A Preferred are
      entitled to voting rights together with the Common Stock, on an as-if converted
      basis.





The
      conversion price of the Series A Preferred is subject to appropriate adjustment
      in the event of stock splits, stock dividends, reverse stock splits, capital
      reorganizations, recapitalizations, reclassifications and similar occurrences
      as
      well as the issuance of Common Stock in consideration of an amount less than
      the
      then-effective conversion price.





The
      holder of each Series A-1 Warrant is entitled to purchase 12,500 shares of
      Common Stock at an exercise price of $1.08 per share for a term of five years
      from the date of issuance. The holder of each Series A-2 Warrant is entitled
      to
      purchase 12,500 shares of Common Stock at an exercise price of $1.26 per share
      for a term of five years from the date of issuance. The exercise price of the
      Series A-1 and Series A-2 Warrants is subject to adjustment for the issuance
      of
      Common Stock in consideration of an amount less than the then effective exercise
      price.





The
      shares of Common Stock underlying the Series A Securities are currently subject
      to an effective registration statement under the Securities Act of 1933 (the
      “Securities Act”). We have agreed to cause this registration statement to
      continuously remain effective until all such Common Stock may be sold without
      regard to an effective registration statement. If we fail to maintain a
      continuously effective registration statement, we will be subject to liability
      to certain holders of shares of Series A Preferred in the form of liquidated
      damages totaling as high as $253,500 per month. Liquidated
      damages are payable only to the then current holders of issued and outstanding
      shares of Series A Preferred (or Common Stock received by such holders upon
      the
      conversion of such Series A Preferred) at the time of the occurrence giving
      rise
      to our obligation to pay such liquidated damages and shall be payable thereon
      until such time as, with respect to any such share, we are not required to
      (i)
      file a registration statement or (ii) cause an effective registration statement
      to remain continuously effective.





In
      connection with the offering of the Series A Securities, our placement agent
      received an aggregate placement fee of $845,000 and warrants to purchase
      1,267,500 shares of Common Stock at a purchase price of $1.00 per share for
      a
      term of five years from the date of issuance (the "Series A-1-AGENT Warrants").
      The exercise price of the Series A-1-AGENT Warrants is subject to adjustment
      for
      the issuance of Common Stock in consideration of an amount less than the then
      effective exercise price.





The
      Series A-1 Warrants, Series A-2 Warrants and Series A-1-AGENT Warrants each
      contain provisions allowing us to repurchase the warrants from the holders
      upon
      15 days notice at $0.10 per warrant share if certain trading volume and closing
      price targets on our Common Stock are met at various intervals. The closing
      price target is $3.50 per share. The trading volume target is an average of
      125,000 shares per day over a consecutive 20-day period during which the
      applicable closing price target has been met or exceeded.





During
      the six months ended December 31, 2006, holders of three shares of the Series
      A
      Preferred elected to convert their shares to Common Stock, resulting in the
      issuance of 75,000 shares of Common Stock.





The
      Company is obligated to pay dividends payable on its Series A Preferred. Such
      dividends may be paid in shares of Common Stock at the option of the Company.
      The current amount of dividends payable on the outstanding shares of Series
      A
      Preferred is $235,000 per year, payable quarterly.




12





On
      February 1, 2007, quarterly dividends for the Series A Preferred in the amount
      of $58,750 were due and payable to the holders of those outstanding shares.
      However, we determined that we did not have sufficient funds at that time to
      pay
      the dividends in cash, nor a sufficient number of authorized shares of our
      Common Stock to pay those dividends by the issuance of shares. As a result,
      we
      did not make the required February 1 dividend payments on the outstanding shares
      of Series A Preferred. We do not anticipate having sufficient funds available
      to
      make the February 1 dividend payment, or any upcoming dividend payments, in
      cash
      at any time in the foreseeable future. Additionally, we have not requested
      that
      our shareholders approve the authorization of additional shares, and until
      additional shares of our common stock are authorized for issuance, we will
      not
      be able to pay any future Series A Preferred dividends through the issuance
      of
      shares of Common Stock. Therefore, we do not anticipate making any dividend
      payments, whether in cash or in shares of Common Stock, in the foreseeable
      future. If we fail to make two dividend payments to the holders of the
      outstanding shares of Series A Preferred, then those shareholders will have
      the
      right to elect their own director to serve on our board of directors pursuant
      to
      the certificate of designation for the Series A Preferred.





*Series
      B Convertible Preferred Stock with Warrants.* In
      August
      2005, we completed the private placement of an aggregate 376 shares of our
      Series B Convertible Preferred Stock, $0.01 par value (“Series B
      Preferred”), and five-year common stock purchase warrants (“Series B
      Warrants”, and, together with the Series B Preferred, the “Series B Securities”)
      exercisable for an aggregate 9,400,000 shares of our Common Stock. The sale
      of
      the Series B Securities was made pursuant to a series of Securities Purchase
      Agreements that were entered into by us and certain accredited investors on
      or
      about August 22, 2005. We issued 376 units of the Series B Securities in
      the offering at a purchase price equal to $25,000 per unit, resulting in gross
      proceeds of $9,400,000 prior to offering expenses.




Each
      share of Series B Preferred is convertible, at the initial conversion price
      of
      $1.00, into 25,000 shares of Common Stock, subject to adjustment under certain
      conditions. Holders of the Series B Preferred are entitled to dividends at
      the
      rate of 10% per annum payable quarterly in either cash or, at our option,
      registered shares of Common Stock valued at fair market value. Shares of Series
      B Preferred Stock are convertible into shares of Common Stock at the holders'
      option at any time and will automatically convert to shares of Common Stock
      if
      certain trading volume and a closing price target on our Common Stock are met.
      The closing price target is $3.00 per share and the trading volume target is
      an
      average of 100,000 shares per day over a consecutive 20-day period during which
      the applicable closing price target has been met or exceeded. In addition,
      shares of the Series B Preferred participate on an as-if converted basis in
      any
      dividends paid on Common Stock. Holders of shares of Series B Preferred are
      entitled to voting rights together with the Common Stock, on an as-if converted
      basis.





The
      conversion price of the Series B Preferred is subject to appropriate adjustment
      in the event of stock splits, stock dividends, reverse stock splits, capital
      reorganizations, recapitalizations, reclassifications and similar occurrences
      as
      well as the issuance of Common Stock in consideration of an amount less than
      the
      then-effective conversion price.





The
      holder of each Series B Warrant is entitled to purchase 25,000 shares of Common
      Stock at an exercise price of $1.15 per share for a term of five years from
      the
      date of issuance. The exercise price of the Series B Warrants is subject to
      adjustment for the issuance of Common Stock in consideration of an amount less
      than the then-effective exercise price.





The
      shares of Common Stock underlying the Series B Securities are currently subject
      to an effective registration statement under the Securities Act. We have agreed
      to cause this registration statement to continuously remain effective until
      the
      earlier of (i) the sale pursuant to a registration statement of all of the
      Common Stock receivable as dividends or upon conversion or exercise of all
      of
      the Series B Securities, or (ii) August 21, 2012. If we fail to
      maintain a continuously effective registration statement, we will be subject
      to
      liability to certain holders of shares of Series B Preferred in the form of
      liquidated damages totaling as high as $282,000 per month. Liquidated
      damages are payable only to the then current holders of issued and outstanding
      shares of Series B Preferred (or Common Stock received by such holders upon
      the
      conversion of such Series B Preferred) at the time of the occurrence giving
      rise
      to our obligation to pay such liquidated damages and shall be payable thereon
      until such time as, with respect to any such share, we are not required to
      (i)
      file a registration statement or (ii) cause an effective registration statement
      to remain continuously effective.





In
      connection with the offering, we issued our placement agent a warrant to
      purchase 282,000 shares of Common Stock at an exercise price of $1.15 per share
      with a term of five years from the date of issuance (the "Series B-AGENT
      Warrants") and paid it a placement fee equal to $658,000, plus the reimbursement
      of certain expenses. The exercise price of the Series B-AGENT Warrants is
      subject to adjustment for the issuance of Common Stock in consideration of
      an
      amount less than the then effective exercise price.





The
      Series B Warrants and Series B-AGENT Warrants each contain provisions allowing
      us to repurchase the warrants from the holders upon 15 days notice at $0.10
      per
      warrant share if certain trading volume and closing price targets on our Common
      Stock are met. The closing price target is $3.00 per share and the trading
      volume target is an average of 100,000 shares per day over a consecutive 20-day
      period during which the applicable closing price target has been met or
      exceeded.




13





The
      Company is obligated to pay dividends payable on its Series B Preferred. Such
      dividends may be paid in shares of Common Stock at the option of the Company.
      The current amount of dividends payable on the outstanding shares of Series
      B
      Preferred is $940,000 per year, payable quarterly.





On
      February 1, 2007, quarterly dividends for the Series B Preferred in the amount
      of $235,000 were due and payable to the holders of those outstanding shares.
      However, we determined that we did not have sufficient funds at that time to
      pay
      the dividends in cash, nor a sufficient number of authorized shares of our
      Common Stock to pay those dividends by the issuance of shares. As a result,
      we
      did not make the required February 1 dividend payments on the outstanding shares
      of Series B Preferred. We do not anticipate having sufficient funds available
      to
      make the February 1 dividend payment, or any upcoming dividend payments, in
      cash
      at any time in the foreseeable future. Additionally, we have not requested
      that
      our shareholders approve the authorization of additional shares, and until
      additional shares of our common stock are authorized for issuance, we will
      not
      be able to pay any future Series B Preferred dividends through the issuance
      of
      shares of Common Stock. Therefore, we do not anticipate making any dividend
      payments, whether in cash or in shares of Common Stock, in the foreseeable
      future.





6. **COMMITMENTS
      AND CONTINGENCIES:**





*Legal
      Proceedings*





There
      is
      no litigation known to be currently pending against us. We do not have any
      litigation pending against any defendants. We are occasionally subject to
      certain litigation and claims arising in the ordinary course of business. We
      do not
      expect costs related to these claims, either individually or in the aggregate,
      to have a material adverse effect on our consolidated financial position or
      our
      results of operations.





*Employment
      Agreements*





On
      July
      24, 2006, John C. Harris and the Company agreed to modify the terms of Mr.
      Harris’ existing employment agreement by reducing the severance amounts that are
      payable by the Company following certain termination events. The terms of the
      employment agreement were revised such that the Company is no longer required
      to
      pay 12 months of Mr. Harris’ base salary upon a termination of his employment
      (a) by the Company for any reason other than “cause,” “disability,” voluntary
      resignation or death, or (b) by Mr. Harris for “good reason.” If Mr. Harris’
employment is terminated for any of those reasons, then the Company would still
      be obligated to make payments to Mr. Harris equal to a prorated amount of any
      bonuses earned, plus all accrued but unused vacation, sick and personal days,
      and all stock options granted to him would become fully vested. The Company
      paid
      Mr. Harris approximately $72,700 in consideration for his agreement to modify
      the severance payments under the employment agreement. In addition, the Company
      agreed to pay another $64,816.78 to Mr. Harris upon the earlier of (i) the
      Company completing a “qualified financing” transaction, and (ii) the date on
      which his employment is terminated without “cause” or as a result of his death
      or disability. The Company shall have no obligation to pay the additional amount
      to Mr. Harris if his employment is terminated for “cause” prior to the closing
      of a qualified financing.




On
      July
      31, 2006, Brian R. Day and the Company agreed to modify the terms of Mr. Day’s
      existing employment agreement by reducing the severance amounts that are payable
      by the Company following certain termination events. The terms of the employment
      agreement were revised such that the Company is no longer required to pay 12
      months of Mr. Day’s base salary upon a termination of his employment (a) by the
      Company for any reason other than “cause,” “disability,” voluntary resignation
      or death, or (b) by Mr. Day for “good reason.” If Mr. Day’s employment is
      terminated for any of those reasons, then the Company would still be obligated
      to make payments to Mr. Day equal to a prorated amount of any bonuses earned,
      plus all accrued but unused vacation, sick and personal days, and all stock
      options granted to him would become fully vested. The Company paid Mr. Day
      approximately $75,000 in consideration for his agreement to modify the severance
      payments under the employment agreement. In addition, the Company agreed to
      pay
      another $62,500 to Mr. Day if his employment is terminated without “cause” or as
      a result of his death or disability.





On
      August
      25, 2006, the Company accepted the resignation of Sean Belanger from its Board
      of Directors and as the President and Chief Executive Officer of the
      Company.  In connection with Mr. Belanger’s resignation, he and the
      Company entered into the Separation, Release and Consulting Agreement (the
      “Separation Agreement”), in order to provide for the termination of his
      employment agreement and his compensation under that agreement, which was made
      effective as of July 31, 2006, and to set forth the parties’ agreement with
      respect to the termination of his employment. The Separation Agreement includes
      a release by Mr. Belanger of claims that he may have against the Company in
      connection with his employment and under the terms of his employment agreement.
      The parties also agreed in the Separation Agreement that Mr. Belanger would
      provide certain advisory and consulting services to the Company for a period
      of
      up to one year after July 31, 2006, which is the effective date for the
      termination of his employment agreement.




14




As
      consideration for Mr. Belanger’s release, consulting services and other
      commitments under the Separation Agreement, the Company agreed to pay him
      $300,000 in twenty-four installments during the twelve month period beginning
      July 31, 2006, with the first four months of payments, in the amount of $100,000
      (less any salary paid to him in August 2006), being paid in a lump sum within
      two business days after the parties signed the Separation Agreement.  
This entire amount was recorded as compensation expense for the three months
      ended September 30, 2006.




In
      addition, the Company caused the 2,861,472 options granted to Mr. Belanger
      in
      May 2006, which have an exercise price of $0.32 per share, to be fully vested
      immediately. Per the terms of the underlying Stock Option Agreements, 2,500,722
      of the vested options must be exercised on or before the date which is 90 days
      following the termination date and the remaining 360,750 of the vested options
      must be exercised on or before the date which is three years following the
      termination date. Mr. Belanger’s options will continue to be subject to the
      remaining terms of the relevant option agreements and company stock option
      plans.  After the modification to the stock options, the Company was
      required to recognize a total expense of $80,434 related to the above stock
      options.   Of this expense, $71,648 was accounted for during the
      year ended June 30, 2006 under SFAS 123 using the proforma method of
      disclosure.  The remaining amount of $8,786 was recognized as compensation
      expense in the statement of operations in accordance with SFAS 123(R) during
      the
      three months ended September 30, 2006.





On
      December 15, 2006, the Company and Mr. Belanger entered into a Settlement
      Agreement wherein Mr. Belanger agreed to a forego the remaining $200,000 due
      to
      him under the Separation Agreement in exchange for a one-time payment of
      $30,000. The Company and Mr. Belanger also agreed that the period of time during
      which Mr. Belanger would be obligated to provide advisory and consulting
      services to the Company would be shortened from a period of up to one year
      after
      July 31, 2006 to a period of up to four months after July 31, 2006. As a result
      of the settlement, the Company realized a credit to compensation expense of
      $170,000 during the three month period ended December 31, 2006.





**7.** **STOCKHOLDERS'
      EQUITY (DEFICIT):**





For
      the
      six months ended December 31, 2006, we issued 4,250,020 shares of Common Stock
      valued at $111,466 and 10,839,436 shares of Common Stock valued at $293,163
      for
      payment of dividends on our Series A Preferred and our Series B Preferred,
      respectively.





For
      the
      six months ended December 31, 2006, three shares of Series A Preferred with
      a
      liquidation preference of $75,000 were converted into 75,000 shares of Common
      Stock.





**8.** **DISCONTINUED
      OPERATIONS:**





In
      January 2003, we changed our focus from being a group videoconferencing
      manufacturer and reseller to a desktop and consumer video communications
      manufacturer and reseller. This was accomplished by the transfer to a third
      party of our group videoconferencing services contract portfolio and the
      liquidation of our remaining group videoconferencing assets. The only measurable
      revenues we are now receiving result from the sales of the VisiFone. Therefore,
      we classified the net assets and operations related to the group
      videoconferencing business as discontinued operations in the accompanying
      consolidated financial statements.





**9.****SUBSEQUENT
      EVENTS:**




On
      February 2, 2007, our audit committee received notice from Virchow, Krause
&
Company, LLP, (“Virchow”), stating that Virchow intended to resign as our
      principal accountants. On February 8, 2007, we filed on form 8-K an announcement
      of a change in our certifying public accountant.




15





Other
      than going concern qualifications, the reports of Virchow on our consolidated
      financial statements as of and for the fiscal years ended June 30, 2006 and
      2005
      did not contain an adverse opinion or disclaimer of opinion, nor were they
      qualified or modified as to uncertainty, audit scope or accounting
      principles.





During
      the fiscal years ended June 30, 2006 and 2005, and through February 2, 2007,
      we
      had no disagreements with Virchow on any matter of accounting principles or
      practices, financial statement disclosure or auditing scope or procedure, which
      disagreements, if not resolved to Virchow’s satisfaction, would have caused
      Virchow to make reference to the subject matter of the disagreement in its
      reports on our consolidated financial statements for such periods.





On
      February 2, 2007, upon the approval and authorization of our Board and the Audit
      Committee of the Board, we engaged Carver Moquist and O’Connor, LLC (“CMO”) as
      our principal public accountants. No consultations occurred between us and
      CMO
      during the fiscal years ended June 30, 2006 or 2005 or through February 2,
      2007
      regarding either (i) the application of accounting principles to a specific
      completed or contemplated transaction, the type of audit opinion that might
      be
      rendered on our consolidated financial statements or other information that
      CMO
      concluded was an important factor considered by us in reaching a decision as
      to
      an accounting, auditing or financial reporting issue, or (ii) any matter that
      was the subject of disagreement or a reportable event requiring disclosure
      under
      Item 304(a)(1)(iv) of Regulation S-B.





16


**Item
      2. Management's Discussion and Analysis or Plan of Operation**




CAUTIONARY
      STATEMENT IDENTIFYING IMPORTANT FACTORS THAT COULD CAUSE THE COMPANY'S ACTUAL
      RESULTS TO DIFFER FROM THOSE PROJECTED IN FORWARD LOOKING
      STATEMENTS





All
      statements other than statements of historical facts contained in this report,
      including statements regarding our future financial position, business strategy,
      budgets, projected costs and plans and objectives of management for future
      operations, are considered to be forward-looking statements. We express our
      expectations, beliefs and projections in good faith and believe our expectations
      reflected in these forward-looking statements are based on reasonable
      assumptions; however, we cannot assure you that these expectations, beliefs
      or
      projections will prove to have been correct. Risks, uncertainties and
      assumptions that could cause actual results to differ materially from the
      expectations reflected in the forward-looking statements include, among other
      things: (i) projections of revenues, income or loss, earnings or loss per share,
      capital expenditures, dividends, capital structure and other financial items;
      (ii) statements of the plans and objectives of the Company or its management
      or
      Board of Directors, including the introduction of new products, or estimates
      or
      predictions of actions by customers, suppliers, competitors or regulatory
      authorities; (iii) statements of future economic performance; and (iv)
      statements of assumptions underlying other statements and statements about
      the
      Company or its business.





Readers
      are referred to the caption "Risk Factors" appearing at the end of Item 1 of
      our
      latest Annual Report on Form 10-KSB for additional factors that may affect
      our
      forward-looking statements. In light of these risks, uncertainties and
      assumptions, the forward-looking events discussed in this report might not
      occur. We undertake no obligation to update or revise our forward-looking
      statements, whether as a result of new information, future events or
      otherwise.





**Overview**





Viseon
      was founded in 1993, and changed its name from RSI Systems, Inc. to Viseon,
      Inc.
      on May 23, 2001. Historically, we had been a developer and reseller of
      videoconferencing systems. These systems, which delivered near television
      quality audio and video communications over ISDN circuits were sold primarily
      to
      corporate, government and OEM customers including Philips.





We
      changed our focus in 2003 to developing next generation broadband telephones
      for
      use with Voice over Internet Protocol (VoIP) services. These multi-media
      telephones, marketed under the VisiFone TM name,
      have been designed to provide consumers, corporate and government users of
      high
      speed internet connections with new features and functions not previously
      possible on low speed analog telephone networks. In addition to providing two
      way live video communications, the VisiFone provides users with new levels
      of
      digital audio quality, on-screen feature controls and enables network based
      services such as video mail and the ability to receive streamed content.





Our
      efforts currently are focused on selling or licensing our technology to
      Intellectual Property Holding Companies, IP/PBX vendors and consumer electronics
      manufacturers to lower their cost of entry into the videotelephone marketplace.





**Results
      Of Operations**





***Three
      Months Ended December 31, 2006 Compared to Three Months Ended December 31,
      2005.***





*Net
      Sales.* Net
      sales for the second quarter of fiscal year 2007 were $0 compared with $7,150
      in
      the second quarter of fiscal 2006. The revenue in fiscal 2006 was related to
      the
      sale of lab units of the VisiFone to a carrier customer. No such sales occurred
      in the second quarter of fiscal 2007.





*Gross
      Profit (Loss).* Gross
      profit for the second quarter of fiscal 2007 was $0 compared to a gross loss
      of
      ($19,076) in the second quarter of fiscal 2006. The gross loss in the second
      quarter of fiscal 2006 was attributable to the sale of units below our cost
      for
      the purpose of testing adoption of the VisiFone by carriers.





*Research
      and Development Expenses.* Research
      and development expenses were $84,808 for the second quarter of fiscal 2007
      compared to $941,728 for the second quarter of fiscal 2006. The decline in
      expenditures in the three months ended December 31, 2006 was due to our
      conscious decision to phase out the relationship with our outsourced development
      partner and a subsequent reduction in technology employees as a result of the
      substantial completion of the design of our product and our shift to an
      Intellectual Property business model.




17





*Selling,
      General and Administrative Expenses.* Selling,
      general and administrative expenses were $283,138 for the second quarter of
      fiscal 2007 compared to $594,554 for the second quarter of fiscal 2006. Included
      within selling, general and administrative expenses during the three months
      ended December 31, 2006 is $29,799 in non-cash expenses related to the expensing
      of stock options pursuant to SFAS 123R. Additionally, we realized a credit
      to
      compensation expense of $170,000 due to a revised settlement with our former
      CEO
      in December, 2006.





*Other
      Income (Expense).* Other
      income was $503 for the second quarter of fiscal 2007 compared to other income
      of $33,637 for the second quarter of fiscal 2006. Other income consisted solely
      of interest earned on our cash funds. The decrease is due to significantly
      reduced cash reserves from a year ago.





*Preferred
      Stock Dividends.* The
      results of operations for the three months ended December 31, 2006 reflect
      a
      charge of $293,958 compared to a charge of $296,694 for the three months ended
      December 31, 2005 for dividends on our convertible preferred stock. Dividends
      on
      both our Series A Preferred and Series B Preferred accrue at a rate of 10%
      per
      annum. Dividends in the three months ended December 31, 2006 were comprised
      of
      dividends on our Series A Preferred of $58,958, of which $56,028 was paid in
      our
      Common Stock and $2,930 was paid in cash, and dividends on our Series B
      Preferred of $235,000, of which $133,163 was paid in our Common Stock and
      $26,837 was paid in cash and $75,000 was added to accrued
      expenses.





***Six
      Months Ended December 31, 2006 Compared to Six Months Ended December 31,
      2005.***





*Net
      Sales.* Net
      sales for the first six months of fiscal year 2007 were $0 compared with $7,150
      in the first six months of fiscal year 2006. The revenue in fiscal 2006 was
      related to the sale of lab units of the VisiFone to a carrier customer. No
      such
      sales occurred in the second quarter of fiscal 2007.




*Gross
      Profit (Loss).* Gross
      profit was $0 in the first half of fiscal year 2007 compared to a gross loss
      of
      ($19,076) during the first half of fiscal year 2006. The gross loss in the
      first
      half of fiscal year 2006 was attributable to the sale of units below our cost
      for the purpose of testing adoption of the VisiFone by carriers.





*Research
      and Development Expenses.* Research
      and development expenses were $410,166 in the first half of fiscal year 2007
      compared to $1,939,556 for the first half of fiscal year 2006. The decline
      in
      expenditures in the six months ended December 31, 2006 was due to our conscious
      decision to phase out the relationship with our outsourced development partner
      and a subsequent reduction in technology employees as a result of the
      substantial completion of the design of our product and our shift to an
      Intellectual Property business model.




*Selling,
      General and Administrative Expenses.* Selling,
      general and administrative expenses were $1,278,989 for the first half of fiscal
      year 2007 compared to $1,437,507 for the first half of fiscal year 2006.
      Included within selling, general and administrative costs during the first
      half
      of fiscal year 2006 were legal expenses totaling $124,207. These expenses were
      paid with a five year warrant to purchase 344,827 shares of our Common Stock
      at
      $1.00 per share. Excluding this item, selling, general and administrative
      expenses remained relatively constant between periods, reflecting a consistent
      level of expenditures in our administrative operations.





*Other
      Income (Expense).* Other
      income was $8,471 in the first half of fiscal year 2007, compared to other
      expense of ($65,897) in the first half of fiscal year 2006. Other income
      consisted solely of interest earned on our cash funds. We recorded interest
      expense of $117,500 during the first half of fiscal year 2006. This interest
      expense related to the issuance of a five year warrant to purchase 250,000
      shares of our common stock at $1.26 as consideration for the granting of a
      short
      term loan in the amount of $250,000 during the quarter. The loan was repaid
      during the quarter and the entire amount of the original issue discount was
      charged to interest expense as a result.





*Gain
      from Discontinued Operations.* On September
      30, 2005 we entered into a settlement agreement with a former supplier in order
      to settle a dispute regarding amounts that we allegedly owed to that entity.
      The
      terms of the settlement included our agreement to issue 350,000 shares of our
      common stock and a four year warrant to purchase 600,000 shares of our common
      stock at $1.26 per share in full and final settlement of the disputed debt.
      The
      value of the settlement, valuing the common stock at the September 29, 2005
      closing price of $0.87 and valuing the warrant using the Black-Scholes pricing
      method was $409,860. Our previously accrued liability for this matter was
      $518,500. As a result of the settlement, we recognized a gain from discontinued
      operations of $108,640. During
      the first half of fiscal 2007, we negotiated discounted repayments related
      to
      amounts owed to certain creditors. Based on these discounts, we recorded a
      gain
      from discontinued operations of $347 during that six month period.




18





*Preferred
      Stock Dividends.* The
      results of operations for the first half of fiscal 2007 reflect a charge of
      $588,472 compared to $5,172,016 in the first half of fiscal 2006 for dividends
      on our convertible preferred stock. Dividends on both our Series A Preferred
      and
      Series B Preferred accrue at a rate of 10% per annum. Substantially all
      dividends have been paid by the issuance of Common Stock. Dividends in the
      six
      months ended December 31, 2006 were comprised of dividends on our Series A
      Preferred of $117,500, of which $110,216 was paid in our Common Stock and $7,284
      was paid in cash, and dividends on our Series B Preferred of $470,000, of which
      $368,163 was paid in our Common Stock, $26,837 was paid in cash and $75,000
      was
      added to accrued expenses. Dividends in the first six months of fiscal 2006
      were
      comprised of dividends on our Series A Preferred of $138,943 and dividends
      on
      our Series B Preferred of $5,033,073. Series B Preferred dividends include
      a
      charge of $4,696,240 attributable to the beneficial conversion option on our
      Series B Preferred.




**Liquidity
      And Capital Resources**




Historically,
      we have generated losses from operations and negative cash flows. We plan to
      improve operating results through initiatives to monetize our intellectual
      property rights. There can be no assurance that we will be successful in
      achieving these objectives, nor is there any assurance that these activities
      will generate sufficient cash for us to remain in business.




As
      of
      December 31, 2006, our primary source of liquidity consisted of cash and cash
      equivalents that are highly liquid, are of high quality investment grade and
      have original maturities of less than three months.




At
      December 31, 2006, we had cash and cash equivalents of $133,175 as compared
      to
      cash and equivalents of $1,887,585 at June 30, 2006. For the six month period
      ended December 31, 2006, we incurred a net loss attributable to common
      stockholders of $2,268,809. For the same period, we used $1,631,030 in operating
      activities, used $14,673 in investing activities, and used $108,707 in financing
      activities.




The
      report of our registered independent public accounting firm for the year ended
      June 30, 2006 included an explanatory paragraph stating that the Company had
      suffered recurring losses from operations and had an accumulated deficit of
      $54,334,630, and these issues raised substantial doubt about the Company’s
      ability to continue as a going concern. Our short term cash requirements and
      obligations include accounts payable from continuing operations, operating
      expenses, and the quarterly dividends on our outstanding preferred
      stock.




To
      date,
      we have funded operations primarily through private sales of equity securities.
      As of December 31, 2006, we had no outstanding debt and none of our assets
      were
      pledged as collateral. We continue to evaluate the possibilities of obtaining
      additional financing through public or private equity or debt offerings, bank
      debt financing, asset securitizations, or from other sources. Such additional
      financing would be subject to the risk of availability, may be dilutive to
      our shareholders, or could impose restrictions on operating activities. There
      can be no assurance that this additional financing will be available on terms
      acceptable to us, if at all.




Our
      ability to generate cash is dependent upon our ability to sell or license our
      technology and/or patents and obtain cash through capital markets. We are
      focusing our efforts on selling or licensing our technology and patents to
      intellectual property holding companies and IP/PBX manufacturers.




The
        Company has engaged an investment banker and is evaluating strategic
        alternatives for the business and its assets. The alternatives being considered
        by the Company may include the sale of some or all of its assets, or the
        sale of
        the Company as a going concern. If the Company does proceed with a sale of
        part
        or all of the business under those circumstances, it is possible that the
        net
        proceeds from that transaction will not be sufficient to repay the outstanding
        payables of the Company or the liquidation preferences of the currently
        outstanding shares of preferred stock, even if the transaction represents
        the
        best current or long-term value for the Company's business. In any of those
        circumstances, the persons who hold common stock of the Company at the time
        of
        such a transaction would not receive any proceeds of the sale and would lose
        all
        of their investment in the common stock. The aggregate liquidation preference
        on
        all outstanding shares of preferred stock (including all accrued dividends)
        as
        of February 15, 2007, is $13,962,663. Only after payment of the liquidation
        preference and all outstanding liabilities of the Company would the holders
        of
        common stock receive any proceeds for their shares. There can be no assurance
        that the Company will be able to complete a sale of its business, or that
        it
        will be able to receive an offer for a potential transaction, on terms that
        are
        deemed acceptable to the Company and its directors.


**Critical
      Accounting Policies And Estimates**





The
      preparation of financial statements in accordance with accounting principles
      generally accepted in the United States requires us to make estimates and
      assumptions that affect the reported amounts of assets and liabilities at the
      date of the financial statements and the reported amounts of net revenues and
      expenses during the reporting period. We regularly evaluate our estimates and
      assumptions related to net revenues, allowance for doubtful accounts, sales
      returns and allowances and accounting for income taxes. We base our estimates
      and assumptions on historical experience and on various other factors that
      we
      believe to be reasonable under the circumstances, the results of which form
      the
      basis for making judgments about the carrying values of assets and liabilities
      that are not readily apparent from other sources. To the extent there are
      material differences between our estimates and the actual results, our future
      results of operations will be affected.




19





We
      believe the following critical accounting policies require us to make
      significant judgments and estimates in the preparation of our consolidated
      financial statements:





***Accounting
      for Income Taxes***





We
      account for income taxes using the asset and liability method. Under the asset
      and liability method, deferred tax assets and liabilities are recognized at
      the
      enacted rates for the future tax consequences attributable to differences
      between the financial statement carrying amounts of existing tax assets and
      liabilities and their respective tax basis. The effect on deferred tax assets
      and liabilities of a change in tax rate is recognized in income in the period
      that includes the enactment date. Valuation allowances are established when
      necessary to reduce deferred tax assets to the amounts expected to be
      realized.





**Off-Balance
      Sheet Arrangements**





As
      of
      December 31, 2006, we had no off-balance sheet arrangements.





**Item
      3. Controls and Procedures**





As
      of the
      end of the period covered by this report, we carried out an evaluation, under
      the supervision and with the participation of our management, including our
      Chief Executive Officer and Chief Financial Officer, of the effectiveness of
      the
      design and operation of our disclosure controls and procedures. Based upon
      that
      evaluation, our Chief Executive Officer and Chief Financial Officer concluded
      that our disclosure controls and procedures were effective, as of such date,
      to
      ensure that information required to be disclosed in reports filed under the
      Securities Exchange Act of 1934 is recorded, processed, summarized and reported
      within the required time period, including to ensure that information required
      to be disclosed is accumulated and communicated to management, including our
      Chief Executive Officer and Chief Financial Officer, as appropriate to allow
      timely decisions regarding required disclosure. There have been no changes
      in
      our internal controls over financial reporting that materially affected, or
      are
      reasonably likely to materially affect, our internal controls over financial
      reporting during the quarter ended December 31, 2006.




**PART
      II**


**OTHER
      INFORMATION**





**Item
      1. Legal Proceedings**





There
      is
      no litigation known to be currently pending against us. We do not have any
      litigation pending against any defendants. We are occasionally subject to
      certain litigation and claims arising in the ordinary course of business. We
      do not
      expect costs related to these claims, either individually or in the aggregate,
      to have a material adverse effect on our consolidated financial position or
      our
      results of operations.





**Item
      6. Exhibits**





The
      following exhibits are filed with this report:





**31.01**
            Certification
                pursuant to Rule 13a-14(a) of the Securities Exchange Act of
                1934.**31.02**
            Certification
                pursuant to Rule 13a-14(a) of the Securities Exchange Act of
                1934.**32.01**
            Certification
                Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002.**32.02**
            Certification
                Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002.





20


**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.


**VISEON,
              INC.**Dated:
              February 19, 2007
            By:
            /s/
              John
              C. HarrisJohn
              C. HarrisPresident
              and
              Chief Executive Officer




Dated:
              February 19, 2007
            By:
            /s/
              Brian R. DayBrian
              R. DayChief
              Financial Officer


21


**EXHIBIT
      INDEX**





**31.01**
            Certification
                pursuant to Rule 13a-14(a) of the Securities Exchange Act of
                1934.**31.02**
            Certification
                pursuant to Rule 13a-14(a) of the Securities Exchange Act of
                1934.**32.01**
            Certification
                Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002.**32.02**
            Certification
                Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002.





22