U.S.
      SECURITIES AND EXCHANGE COMMISSION


Washington,
      D.C. 20549








FORM
      10-QSB








ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE


SECURITIES
      EXCHANGE ACT OF 1934





**For
      the quarterly period ended March 31, 2006**


OR


 ̈ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE


SECURITIES
      EXCHANGE ACT OF 1934


**Commission
      file number 000-49636**








**VIKING
      SYSTEMS, INC.**


(Name
      of
      Small Business Issuer as specified in its charter)





Nevada
            
            86-0913802(State
                or other jurisdiction of
            
            (I.R.S.
                employerincorporation
                or organization
            
            identification
                No.)





4350,
      La Jolla Village Drive, Suite 900, San Diego, CA 92122


(Address
      of principal executive offices)





Registrant's
      telephone no., including area code: (858) 431-4010





4350
      La
      Jolla Village Drive, Suite 900, San Diego, CA 92122


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





Securities
      registered pursuant to Section 12(b) of the Exchange Act: None





Securities
      registered pursuant to Section 12(g) of the Exchange Act: $.001 Par Value Common
      Stock





Check
      whether the Issuer (1) has filed all reports required to be filed by Section
      13
      or 15(d) of the Exchange Act during the preceding 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. (1) Yes ý No  ̈ (2) Yes ý No  ̈





Indicate
      by check mark whether the registrant is an accelerated filer (as defined in
      rule
      12b-2 of the Exchange Act). Yes  ̈ No ý





Common
      Stock outstanding on April 30, 2006, 35,418,550 shares of $.001 par value Common
      Stock.








DOCUMENTS
      INCORPORATED BY REFERENCE: NONE








**FORM
      10-QSB**





**FINANCIAL
      STATEMENTS AND SCHEDULES**


**VIKING
      SYSTEMS, INC.**





**For
      the Quarter ended March 31, 2006**





The
      following financial statements and schedules of the registrant are submitted
      herewith:





**PART
      I - FINANCIAL INFORMATION**


Page
      of


Form
      10-QSB





Item
                1.
            Financial
                Statements:Balance
                Sheets at March 31, 2006 and December 31, 2005
            3Statements
                of Operations for the Three Months
              Ended
                March 31, 2006 and 2005
            4Statements
                of Cash Flows for the Three Months
              Ended
                March 31, 2006 and 2005
            5
                - 6Notes
                to Financial Statements
            7
                - 12Item
                2.
            Management's
                Discussion and Analysis of Financial Condition and Results of
                Operations
            13Item
                3.
            Controls
                and Procedures, Evaluation of Disclosure Controls and
                Procedures
            21








**PART
      II - OTHER INFORMATION**


Page





Item
                1.
            Legal
                Proceedings
            22Item
                2.
            Unregistered
                Sales of Equity Securities and Use of Proceeds.
            22Item
                3.
            Defaults
                Upon Senior Securities
            22Item
                4.
            Submission
                of Matters to a Vote of Security Holders
            22Item
                5.
            Other
                Information
            22Item
                6.
            Exhibits
            23


2


**PART
      I - FINANCIAL INFORMATION**


**ITEM
      1: FINANCIAL STATEMENTS**


**VIKING
      SYSTEMS, INC.**


**Balance
      Sheets - Unaudited**





**March
                31 2006**
            
            **December
                31, 2005****Assets**Current
                assets:Cash
                and cash equivalents
            
            $
            91,812
            
            $
            434,503Accounts
                receivable, net
            
            
            444,209
            
            
            248,258Inventories
            
            
            618,862
            
            
            567,176Prepaids
                expenses
            
            
            50,362
            
            
            48,148Other
                current assets
            
            
            28,003
            
            
            34,789Total
                current assets
            
            
            1,233,248
            
            
            1,332,874Property
                and equipment, net
            
            
            326,454
            
            
            377,632Total
                Assets
            
            $
            1,559,702
            
            $
            1,710,506**Liabilities
                and Stockholders' Deficit**Current
                liabilities:Accounts
                payable
            
            $
            1,279,627
            
            $
            515,781Accrued
                payroll and related expenses
            
            
            176,577
            
            
            230,773Accrued
                royalties
            
            
            150,000
            
            
            84,658Other
                accrued expenses
            
            
            128,800
            
            
            112,916Deferred
                Revenue
            
            
            15,188
            
            
            -Short-term
                bank borrowings
            
            
            369,905
            
            
            211,200Related
                party notes payable
            
            
            200,000
            
            
            -Related
                party convertible notes payable
            
            
            450,000
            
            
            766,918Convertible
                notes payable (net of unamortized debt discount of $2,980,924 at
                December 31, 2005)
            
            
            4,800,000
            
            
            1,502,158Total
                current liabilities
            
            
            7,570,097
            
            
            3,424,404Stockholders'
                deficit:Preferred
                stock, $.001 par value, 25,000,000 shares authorized, no shares issued
                and
                outstanding
            
            
            -
            
            
            -Common
                stock, $.001 par value, 100,000,000 shares authorized, 34,526,550
                shares
                issued and outstanding at December 31, 2005, and 150,000,000 shares
                authorized, 35,418,550 shares issued and outstanding at March 31,
                2006
            
            
            34,583
            
            
            34,528Additional
                paid-in capital
            
            
            8,274,266
            
            
            8,095,714Accumulated
                deficit
            
            
            (14,319,244
            )
            
            (9,844,140
            )Total
                stockholders' deficit
            
            
            (6,010,395
            )
            
            (1,713,898
            )Total
                Liabilities and stockholders deficit
            
            $
            1,559,702
            
            $
            1,710,506




















See
      accompanying notes to financial statements


3


**VIKING
      SYSTEMS, INC.**


**Statements
      of Operations - Unaudited**








**Three
                Months Ended****March
                31,**
            
            **March
                31,****2006**
            
            **2005**Sales,
                net
            
            $
            1,254,844
            
            $
            876,403Cost
                of sales
            
            
            889,877
            
            
            619,225Gross
                profit
            
            
            364,967
            
            
            257,178Operating
                expenses:General
                and administrative
            
            
            529,190
            
            
            491,767Selling
                and marketing
            
            
            874,368
            
            
            473,816Research
                and development
            
            
            310,224
            
            
            191,376Total
                operating expenses
            
            
            1,713,782
            
            
            1,156,959Operating
                loss
            
            
            (1,348,815
            )
            
            (899,781
            )Other
                income (expense):Interest
                expense
            
            
            (3,126,289
            )
            
            (90,329
            )Net
                loss
            
            $
            (4,475,104
            )
            $
            (990,110
            )Net
                loss per common share - basic and diluted
            
            $
            (0.13
            )
            $
            (0.03
            )Weighted
                average shares - basic and diluted
            
            
            34,850,757
            
            
            30,737,000

































































See
      accompanying notes to financial statements











4


**VIKING
      SYSTEMS, INC.**


**Statements
      of Cash Flows - Unaudited**





**Three
                Months Ended****March
                31 2006**
            
            **March
                31 2005****Cash
                flows from operating activities:**Net
                loss
            
            $
            (4,475,104
            )
            $
            (990,110
            )Adjustment
                to reconcile net loss to net cash used in operating
                activities:Depreciation
                and amortization
            
            
            86,444
            
            
            44,777Common
                stock issued for services
            
            
            21,995
            
            
            -Stock
                based compensation expense
            
            
            156,612
            
            
            -Interest
                expense from debt discount amortization
            
            
            2,980,924
            
            
            66,532Changes
                in operating assets and liabilities:Accounts
                receivable, net
            
            
            (195,951
            )
            
            (187,998
            )Inventories,
                net
            
            
            (51,686
            )
            
            (48,005
            )Prepaid
                expenses
            
            
            48,148
            
            
            29,219Other
                current assets
            
            
            (43,576
            )
            
            -Accounts
                payable
            
            
            763,846
            
            
            (1,249,275
            )Accrued
                expenses
            
            
            27,030
            
            
            129,551Deferred
                revenue
            
            
            15,188
            
            
            (32,650
            )Net
                cash used in operating activities
            
            
            (666,130
            )
            
            (2,237,959
            )**Cash
                flows from investing activities:**Purchase
                of property and equipment
            
            
            (35,266
            )
            
            (41,006
            )Net
                cash used in investing activities
            
            
            (35,266
            )
            
            (41,006
            )**Cash
                flows from financing activities:**Net
                change in short-term bank borrowings
            
            
            158,705
            
            
            302,824Proceeds
                from related party notes
            
            
            200,000
            
            
            100,000Proceeds
                from convertible debt
            
            
            -
            
            
            2,250,000Proceeds
                from related-party convertible note payable
            
            
            -
            
            
            500,000Net
                cash provided by financing activities
            
            
            358,705
            
            
            3,152,824Net
                (decrease) increase in cash and cash equivalents
            
            
            (342,691
            )
            
            873,859Cash
                and cash equivalents at beginning of period
            
            
            434,503
            
            
            139,393Cash
                and cash equivalents at end of period
            
            $
            91,812
            
            $
            1,013,252**Supplemental
                disclosure of cash flow information:**Cash
                paid during the period for:Interest
            
            $
            145,367
            
            $
            23,797Income
                taxes
            
            $
            -
            
            $
            -























See
      accompanying notes to financial statements


5


**Non-Cash
      Investing and Financing Activity**





*Three
      months ended March 31, 2006:*





During
      March 2006, 837,000 shares of common stock were issued pursuant to a cashless
      exercise of 1,000,000 non qualified stock options issued in December
      2003.





*Three
      months ended March 31, 2005:*


During
        the three months ended March 31, 2005 the Company:


·
            Allocated
                $825,000 of the proceeds from a convertible note payable to the value
                of
                the warrants issued, recording it as a debt
                discount.





·
            Converted
                a $500,000 note payable and $16,659 of accrued interest into 1,291,650
                shares of common stock.

























































































See
      accompanying notes to financial statements





6


**VIKING
      SYSTEMS, Inc.**


**Notes
      to Financial Statements (Unaudited)**





**1. INTERIM
      FINANCIAL STATEMENTS**





The
      balance sheet of Viking Systems, Inc. ("Viking" or the "Company") as of
      March 31 2006 and the statements of operations and cash flows for the three
      months ended March 31, 2006 and 2005 are unaudited. However, management, in
      its
      opinion, has made all adjustments (consisting only of normal recurring accruals)
      necessary to present fairly the financial position, results of operations and
      cash flows for the periods presented. The balance sheet as of December 31 2005
      was derived from the company’s audited financial statements. The financial
      statements and notes thereto should be read in conjunction with the financial
      statements and notes for the years ended December 31, 2005, included in
      Viking Systems, Inc’s Form 10-KSB filed on April 17, 2006 with the Securities
      and Exchange Commission. The results of operations and cash flows for the three
      months ended March 31, 2006, are not necessarily indicative of results to be
      expected for the fiscal year ending December 31, 2006.





**2.
      STOCK-BASED COMPENSATION**


On
        January 1, 2006 the Company adopted Statement of Financial Accounting Standards
        (“SFAS”) No.123 (Revised 2004), “Share Based Payment,” (“SFAS 123R”), using the
        modified prospective method. In accordance with SFAS 123R, the Company measures
        the cost of employee services received in exchange for an award of equity
        instruments based on the grant-date fair value of the award. That cost is
        recognized over the period during which an employee is required to provide
        service in exchange for the award - the requisite service period. The Company
        determines the grant-date fair value of employee share options using the
        Black-Scholes option-pricing model.
  
 Under
        the
        modified prospective approach, SFAS 123R applies to new awards and to awards
        that were outstanding on January 1, 2006 that are subsequently modified,
        repurchased or cancelled. Under the modified prospective approach, compensation
        cost recognized for the first quarter of fiscal 2006 includes compensation
        cost
        for all share-based payments granted prior to, but not yet vested on, January
        1,
        2006, based on the grant-date fair value estimated in accordance with the
        pro
        forma provisions of SFAS 123, and compensation cost for all share-based payments
        granted subsequent to January 1, 2006, based on the grant-date fair value
        estimated in accordance with the provisions of SFAS 123R. Prior periods were
        not
        restated to reflect the impact of adopting the new standard. During the period
        ended March 31, 2006, the Company recorded $156,612 in non-cash stock-based
        compensation expense related to the implementation of SFAS 123R. As of March
        31,
        2006, there was approximately $525,156 of total unrecognized compensation
        costs
        related to unvested options, which is expected to be recognized over a weighted
        average period of approximately 1.95 years.


7


**VIKING
      SYSTEMS, Inc.**


**Notes
      to Financial Statements (Unaudited)**





**2.** **STOCK-BASED
      COMPENSATION** **(continued)**




The
        fair
        value of stock options at date of grant was estimated using the Black-Scholes
        model with the following assumptions: expected volatility of 85.37%, expected
        term of 5.5 years, risk-free interest rate of 4.3 %, and expected dividend
        yield
        of 0%. Expected volatility is based on the historical volatilities of the
        Company’s common stock. The expected life of employee stock options is
        determined using historical data of employee exercises and represents the
        period
        of time that stock options are expected to be outstanding. The risk free
        interest rate is based on U.S. Treasury constant maturing for the expected
        life
        of the stock option.
 
 The
        following table summarizes the stock option transactions during the three
        months
        ended March 31, 2006:


WeightedWeighted
              averageaverage
              contractualNumber
                  of
              exercise
              lifeShares
              price
              (in
                  years)Options
                  outstanding at December 31, 2005
              5,706,000
              $0.38
              4.95Granted
              1,040,000
              $0.37
              9.84Exercised
              (1,000,000)
              $0.02
              -Cancelled
              (40,000)
              $0.53
              -Options
                  outstanding at March 31, 2006
              5,706,000
              $0.45
              6.27Options
                  exercisable at March 31, 2006
              2,140,667
              $0.39
              6.11
 
 Prior
      to
      January 1, 2006, the Company accounted for stock-based compensation using the
      intrinsic value method prescribed in Accounting Principles Board Opinion No.
      25,
“Accounting for Stock Issued to Employees,” and related interpretations. Had
      compensation cost for the plan been determined based on the fair value of the
      options at the grant dates consistent with the method of SFAS No. 148,
“Accounting for Stock-Based Compensation - Transition and Disclosure - an
      Amendment of SFAS No. 123,” the Company’s net earnings and earnings per share
      would have been:


8


**VIKING
      SYSTEMS, Inc.**


**Notes
      to Financial Statements (Unaudited)**





**2.** **STOCK-BASED
      COMPENSATION** **(continued)**





For
                the threemonthsended
                March 31,2005Net
                loss as reported
            
            $
            (990,110
            )Deduct:
                Total stock-based employee compensation expense determined under
                fair
                value based method for all awards, net of related tax
                effects
            
            $
            (15,898
            )Pro
                forma income net loss
            
            $
            (1,006,008
            )Basic
                and diluted loss per share
            
            $
            (0.03
            )Pro
                forma basic and diluted loss per share
            
            $
            (0.03
            )





The
      pro
      forma compensation costs presented above were determined using the weighted
      average fair values of options granted under the Company’s stock option plans.
      The fair value of the grants was estimated using the Black-Scholes option
      pricing model with the following weighted-average assumptions.





Expected
                life
            10
                yearsRisk-free
                interest rate
            4.02-4.65
                %Dividend
                yield
            -Volatility
            67-75%





**3.** **GOING
      CONCERN** ****





The
      accompanying financial statements have been prepared on a going concern basis,
      which contemplates the realization of assets and the satisfaction of liabilities
      in the normal course of business. Historically, the Company has not demonstrated
      the ability to generate sufficient cash flows from operations to satisfy its
      liabilities and sustain operations, and the Company has incurred significant
      losses. These factors raise substantial doubt about the Company’s ability to
      continue as a going concern.





The
      Company’s continuation as a going concern is dependent on its ability to
      generate sufficient income and cash flow to meet its obligations on a timely
      basis and/or obtain additional financing as may be required.


9


**VIKING
      SYSTEMS, Inc.**


**Notes
      to Financial Statements (Unaudited)**





**3.** **GOING
      CONCERN** **(continued)**




During
        the three months ended March 31, 2006, the Company raised approximately $200,000
        through the issuance of notes (the “Notes”) to a related party. The Notes mature
        on June 15, 2006, accrue interest at 10% per annum, and are
        unsecured.
 Subsequent
          to March 31, 2006 the Company raised approximately $7,250,000 through the
          sale
          of its Series B Convertible Preferred stock and $250,000 through the issuance
          of
          a convertible note. In connection with the issuance of the Series B Convertible
          Preferred Shares, the Company also issued a total of 22,222,222 warrants
          to
          purchase common stock. In connection with the issuance of the $250,000
          convertible note Viking also issued a total of 2,500,000 warrants.  Viking
          has agreed to register with the Securities and Exchange Commission and
          applicable state securities agencies, the shares of common stock that are
          issuable upon the conversion of the Series B Preferred, the shares of common
          stock underlying the Warrants and the shares of common stock underlying
          the
          convertible notes. The Company has also agreed to pay annual
          dividends.
 
 **4.** **RECENT
        ACCOUNTING PRONOUNCEMENTS**





In
      February 2006, the Financial Accounting Standards Board (“FASB”) released
      Statement No. 155, Accounting for Certain Hybrid Financial Instruments,
      ("SFAS No. 155"). SFAS No. 155 is an amendment of Statement
      No. 133, Accounting for Derivative Instruments and Hedging Activities, and
      Statement No. 140, Accounting for Transfers and Servicing of Financial
      Assets and Extinguishments of Liabilities. SFAS No. 155 establishes, among
      other items, the accounting for certain derivative instruments embedded within
      other types of financial instruments; and, eliminates a restriction on the
      passive derivative instruments that a qualifying special-purpose entity may
      hold. Effective for the Company beginning January 1, 2007, SFAS
      No. 155 is not expected to have any impact on the Company's financial
      position, results of operations or cash flows.





In
      March 2006, the FASB released Statement No. 156, Accounting for
      Servicing of Financial Assets, an amendment of FASB Statement No. 140,
      ("SFAS No. 156"). SFAS No. 156 amends SFAS No. 140 to require
      that all separately recognized servicing assets and liabilities in accordance
      with SFAS No. 140 be initially measured at fair value, if practicable.
      Furthermore, this standard permits, but does not require, fair value measurement
      for separately recognized servicing assets and liabilities in subsequent
      reporting periods. SFAS No. 156 is also effective for the Company beginning
      January 1, 2007; however, the standard is not expected to have an impact on
      the Company's financial position, results of operation or cash flows.





10


**VIKING
      SYSTEMS, Inc.**


**Notes
      to Financial Statements (Unaudited)**





**4.** **RECENT
      ACCOUNTING PRONOUNCEMENTS (** **continued)**





In
      the
      first quarter of 2006, the Company adopted Statement No. 154, Accounting
      for Changes and Error Corrections—a replacement of APB Opinion No. 20 and
      FASB Statement No. 3 , ("SFAS No. 154") which changed the requirements
      for the accounting for and reporting of a voluntary change in accounting
      principle. The Company also adopted Statement No. 151, Inventory Costs—an
      amendment of ARB No. 43, Chapter 4 ("SFAS No. 151") which, among other
      changes, requires certain abnormal expenditures to be recognized as expenses
      in
      the current period versus capitalized as a component of inventory. The adoption
      of SFAS No. 154 did not impact the results presented and the impact on any
      future periods will depend on the nature and significance of any future
      accounting changes subject to the provisions of the statement. The adoption
      of
      SFAS No. 151 did not have any impact on the Company's financial position,
      results of operations or cash flows.





**5.** **CONVERTIBLE
      NOTES PAYABLE** ****





During
      the quarter ended March 31, 2006, the convertible note holders approved an
      extension of the term of the notes to April 22, 2006 and subsequently approved
      a
      further extension to May 31, 2006. At March 31, 2006 convertible notes held
      by a
      significant shareholder amount to $450,000.





**6.** **COMMON
      STOCK**




During
        the quarter ended March 31, 2006 the Company increased the number of authorized
        shares of common stock from 100,000,000 to 150,000,000. In addition, during
        the
        quarter, the Company issued 892,000 shares of common stock. Of the total,
        837,000 shares were issued pursuant to a cashless exercise of 1,000,000
        non-qualified stock options granted in December 2003 and 55,000 shares were
        recorded in connection with a consulting agreement entered into in June 2005.
 
 **7.** **SUBSEQUENT
      EVENTS**


On April 22, 2006 the convertible note holders agreed to extend the term
        of the
        notes until May 31, 2006 and convert the notes into common shares at $0.18
        per
        share, instead of $0.20. Viking has agreed to register with the Securities
        and
        Exchange Commission and applicable state securities agencies, the shares
        of
        common stock that are issuable upon the conversion of the Notes and the shares
        of common stock that underline the Warrants.
 
 
 
  11
  **VIKING
        SYSTEMS, Inc.**
 **Notes
        to Financial Statements (Unaudited)**
 
 **7.** **SUBSEQUENT
        EVENTS (** **continued)**
 
 In April 2006, the Company received $250,000 through the issuance of convertible
        notes payable.  The notes accrue interest at 10% per annum and are
        unsecured.  The conversion price is subject to adjustment based on certain
        conditions of the Security Purchase Agreement.  In connection with the
        issuance of the $250,000 of the notes, the Company also issued warrants to
        purchase common stock. Viking has agreed to register with the Securities
        and
        Exchange Commission and applicable state securities agencies, the shares
        of
        preferred stock that are issuable upon the conversion of the Notes and the
        shares of common stock that underline the Warrants.
 
 As of May 23, 2006, the Company raised approximately $7,250,000 through the
        sale
        of its Series B Preferred stock. In connection with the issuance of the 7,250
        shares of the Series B Preferred Shares, the Company also issued warrants
        to
        purchase common stock and converted $750,000 of convertible notes payable
        into
        750 shares of Series B Preferred stock and converted $4,750,000 of convertible
        notes payable into approximately 26,388,888 shares of our common stock. Viking
        has agreed to register with the Securities and Exchange Commission and
        applicable state securities agencies, the Series B Preferred and the shares
        of
        common stock that are issuable upon the conversion of the Series B Preferred
        and
        the shares of common stock that underline the Warrants. The Company has also
        agreed to pay annual dividends.


12


**ITEM
      2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF**


**FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS**





In
      this
      report references to "Viking," "we," "us," and "our" refer to Viking Systems,
      Inc.





**Overview**





Viking
      Systems, Inc. (“Viking” or “Viking Systems”) provides high performance 3D
      endoscopic vision systems to hospitals for minimally invasive surgery. Viking
      intends to leverage that position to become a market leader in bringing
      integrated solutions to the digital surgical environment. We intend to develop
      a
      portfolio of targeted medical technologies and services that serve the current
      and emerging needs of the digital healthcare network. Our focus is to deliver
      integrated information, visualization, and control solutions to the surgical
      team, enhancing their capability and performance in minimally invasive surgery
      (MIS) and complex surgical procedures.





In
      the
      first quarter of 2005, we continued the progress begun in 2004 with investment
      in sales personnel, training, equipment and marketing programs. We expanded
      our
      trade show schedule from four to thirteen in 2005 and tripled the size of our
      direct sales force in the US. We have added two independent sales representative
      firms to supplement our coverage and expect to add several more by year end.
      Our
      international distribution already counts six distributors compared to none
      last
      year.





In
      the
      third quarter of 2005, we continued our progress in the general surgical market
      and started developing new markets. Our primary focus has been in the Urology
      market and we have begun working with several surgeons at top academic
      institutions to validate the efficacy of 3D visualization in surgery, in
      particular the Laparoscopic Radical Prostatectomy (LRP), and surgical training.
      We have signed a Personal Service Agreement with Dr. Gerald Andriole at
      Washington University School of Medicine, in St. Louis, MO. We have also signed
      a Personal Services Agreement with Dr. Camran Nezhat at Stanford School of
      Medicine as part of establishing programs with OB/GYN surgeons in developing
      that specialty. Preliminary results of the first study were published in August
      2005.





We
      are
      the strategic visualization supplier to several leading procedure-specific
      medical device manufacturers such as Aesculap and Richard Wolf. We provide
      high
      resolution 2D cameras to these OEM customers and added new programs with Boston
      Scientific and Medtronic the second quarter. As the procedural business of
      our customers continues to shift to minimally invasive techniques, we
      intend to attempt to introduce new products, services and capabilities to
      respond to this growing business segment. We are committed to the growth of
      our
      OEM business and believe our engineering capabilities and advanced
      technologies make us an attractive strategic partner and supplier to
      various other companies.





We
      believe our investments in our products, technology, new markets and
      organization in 2004 and 2005 will generate a substantial improvement in our
      operations in 2006.


13


**Critical
      Accounting Policies**





This
      Management’s Discussion and Analysis of Financial Condition and Results of
      Operations discuss Viking Systems’ Financial Statements, which have been
      prepared in accordance with accounting principles generally accepted in the
      United States.





The
      preparation of our financial statements requires management to make estimates
      and assumptions that affect reported amounts of assets and liabilities and
      the
      disclosure of contingent assets and liabilities at the date of the financial
      statements and the reported amounts of revenues and expenses during the
      reporting period. On an ongoing basis, management evaluates its estimates and
      assumptions, including those related to inventory, income taxes, long lived
      asset valuation, revenue recognition and stock based compensation. Management
      bases its estimates and judgments on historical experience of the operations
      and
      on various other factors that are believed to be reasonable under the
      circumstances, the results of which form the basis for making judgments about
      the carrying value of assets and liabilities that are not readily apparent
      from
      other sources. Actual results may differ from these estimates under different
      assumptions or conditions.





Management
      believes the following critical accounting policies, among others, will affect
      its more significant judgments and estimates used in the preparation of our
      Financial Statements.





***Inventory.*** Viking
      Systems reduces the stated value of its inventory for obsolescence or impairment
      in an amount equal to the difference between the cost of the inventory and
      the
      estimated market value, based upon assumptions about future demand and market
      conditions. If actual future demand or market conditions are less favorable
      than
      those projected by management, additional reductions in stated value may be
      required.





***Income
      Taxes.*** In
      determining the carrying value of Viking Systems’ net deferred tax assets,
      Viking Systems must assess the likelihood of sufficient future taxable income
      in
      certain tax jurisdictions, based on estimates and assumptions, to realize the
      benefit of these assets. If these estimates and assumptions change in the
      future, Viking Systems may record a reduction in the valuation allowance,
      resulting in an income tax benefit in Viking Systems’ Statements of Operations.
      Management evaluates the realizability of the deferred tax assets and assesses
      the valuation allowance quarterly.





***Other
      Long-Lived Asset Valuations.*** Long-lived
      assets such as property, equipment and definite-lived intangibles are reviewed
      for impairment whenever events or changes in circumstances indicate that the
      carrying value of an asset may not be recoverable. If the carrying amount of
      an
      asset exceeds its estimated fair value, an impairment charge is recognized
      for
      the amount by which the carrying amount exceeds the estimated fair value of
      the
      asset.  Assets to be disposed of are reported at the lower of the carrying
      amount or fair value, less the estimated costs to sell. In addition,
      depreciation of the asset ceases. During the quarter ended march 31, 2006 no
      impairment of long-lived assets was recorded.





14


***Revenue
      Recognition*** .
      Viking
      Systems’ revenues are derived from the sale of surgical visualization technology
      products to end users, distributors and original equipment manufactures. Revenue
      from the sale of products is recognized when a purchase order has been received,
      the system has been shipped, the selling price is fixed or determinable, and
      collection is reasonably assured. Most system sales are F.O.B. shipping point,
      therefore shipment is deemed to have occurred when the product is delivered
      to
      the transportation carrier. Most of Viking Systems’ sales through March 31, 2006
      have been for products that did not include installation services. If
      installation is included as part of the contract, revenue is not recognized
      until installation has occurred, or until any remaining installation obligation
      is deemed to be perfunctory. Some sales of systems may include training as
      part
      of the sale. In such cases, the portion of the revenue related to the training,
      calculated based on the amount that would be charged for training on a
      stand-alone basis, is deferred and recognized when the training has been
      provided. The sales of products do not require specific customer acceptance
      provisions and do not include the right of return except in cases where the
      product does not function as guaranteed by Viking Systems. To date, returns
      have
      not been significant. Shipping and handling costs are included in cost of
      sales. 
 ***Stock-Based
        Compensation.*** On
        January 1, 2006 the Company adopted Statement of Financial Accounting Standards
        (“SFAS”) No.123 (Revised 2004), “Share Based Payment,” (“SFAS 123”), using the
        modified prospective method. In accordance with SFAS 123, the Company measures
        the cost of employee services received in exchange for an award of equity
        instruments based on the grant-date fair value of the award. That cost is
        recognized over the period during which an employee is required to provide
        service in exchange for the award - the requisite service period. The Company
        determines the grant-date fair value of employee share options using the
        Black-Scholes option-pricing model.


**Recent
      Accounting Pronouncements**





In
      February 2006, the Financial Accounting Standards Board (“FASB”) released
      Statement No. 155, Accounting for Certain Hybrid Financial Instruments,
      ("SFAS No. 155"). SFAS No.155 is an amendment of Statement
      No. 133, Accounting for Derivative Instruments and Hedging Activities, and
      Statement No. 140, Accounting for Transfers and Servicing of Financial
      Assets and Extinguishments of Liabilities. SFAS No. 155 establishes, among
      other items, the accounting for certain derivative instruments embedded within
      other types of financial instruments; and, eliminates a restriction on the
      passive derivative instruments that a qualifying special-purpose entity may
      hold. Effective for the Company beginning January 1, 2007, SFAS
      No. 155 is not expected to have any impact on the Company's financial
      position, results of operations or cash flows.





In
      March 2006, the FASB released Statement No. 156, Accounting for
      Servicing of Financial Assets, an amendment of FASB Statement No. 140,
      ("SFAS No. 156"). SFAS No. 156 amends SFAS No. 140 to require
      that all separately recognized servicing assets and liabilities in accordance
      with SFAS No. 140 be initially measured at fair value, if practicable.
      Furthermore, this standard permits, but does not require, fair value measurement
      for separately recognized servicing assets and liabilities in subsequent
      reporting periods. SFAS No. 156 is also effective for the Company beginning
      January 1, 2007; however, the standard is not expected to have an impact on
      the Company's financial position, results of operation or cash flows.


15


In
      the
      first quarter of 2006, the Company adopted Statement No. 154, Accounting
      for Changes and Error Corrections—a replacement of APB Opinion No. 20 and
      FASB Statement No. 3 , ("SFAS No. 154") which changed the requirements
      for the accounting for and reporting of a voluntary change in accounting
      principle. The Company also adopted Statement No. 151, Inventory Costs—an
      amendment of ARB No. 43, Chapter 4 ("SFAS No. 151") which, among other
      changes, requires certain abnormal expenditures to be recognized as expenses
      in
      the current period versus capitalized as a component of inventory. The adoption
      of SFAS No. 154 did not impact the results presented and the impact on any
      future periods will depend on the nature and significance of any future
      accounting changes subject to the provisions of the statement. The adoption
      of
      SFAS No. 151 did not have any impact on the Company's financial position,
      results of operations or cash flows.





**RESULTS
      OF OPERATIONS**





**Three
      Month Period Ended March 31, 2006 Compared to the Three Month Period Ended
      March
      31, 2005**





***Revenues.*** ** For
      the
      three months ended March 31, 2006, we had product sales $1,254,844 compared
      to
      product sales of $876,403 for the three months ended March 31, 2005. This
      represents an increase of $378,441 or 43.2%. Sales to individual customers
      exceeding 10% or more of revenues in the three months ended March 31, 2006
      were
      to four customers who accounted for 25%, 19%, 16%, and 10% of revenues,
      respectively. The increase in sales was due to increase sales of $152,330 in
      our
      3Di products and $226,111 in our OEM products.





***Gross
      Profit.*** We had
      gross profit of $364,967 or 29% of total revenues for the three months ended
      March 31, 2006 and gross profit of $257,178 or 29.4% of total revenues for
      the
      three months ended March 31, 2005, representing an increase of $107,789. The
      increase in gross profit during 2006 was due to increased sales. We expect
      our
      gross profit, as a percentage of revenues, to improve as we increase our 3Di
      System sales.





***Sales
      and Marketing Expenses*** **.** Selling
      and Marketing expenses were $874,368 for the three months ended March 31, 2006
      and $473,816 for the three months ended March 31, 2005. The increase in sales
      and marketing expenses was due to the increased efforts to develop market
      awareness and to build our sales organization for our 3Di products. We expect
      that our selling and marketing expenses will continue to increase as we
      establish our 3Di Systems business.





***Research
      and Development Expenses.*** ** Research
      and Development expenses were $310,224 for the three months ended March 31,
      2006
      and $191,376 for the three months ended March 31, 2005. The increase is due
      to
      the continued development of our 3Di product line. We expect that our research
      and development expenses will remain at their current levels as we continue
      to
      develop, maintain and support our current products.







16


***General
      and Administrative Expenses.*** ** We had
      General and Administrative expenses of $529,190 for the three months ended
      March
      31, 2006 and $491,767 for the three months ended March 31, 2005. We expect
      that
      our General and Administrative expenses will increase from their current levels
      as we hire additional personnel, implement and document internal controls in
      connection with our efforts to become compliant with requirements of Section
      404
      of The Oxley Act of 2002 and implementation of a new ERP system.





***Other
      Expenses.*** We
      had
      other expenses of $3,126,289 for the three months ended in March 31, 2006 and
      other expenses of $90,329 for the three months ended March 31, 2005,
      representing an increase of $3,035,960. The increase is due primarily to the
      inclusion in 2006 of $2,980,924 in non-cash interest expense related to the
      amortization of the debt discount on our convertible notes.





***Net
      Income (Loss).*** We had a
      net loss of $4,475,104 for the three months ended March 31, 2006 and a net
      loss
      of $990,110 for the three months ended March 31, 2005, representing a decrease
      of $3,484,994. We incurred significant costs implementing our sales and
      marketing plan, developing and improving our 3Di products line, and maintaining
      operations of the Visualization business. We also incurred $2,980,924 in
      non-cash interest expense related to the amortization of the debt discount
      on
      the Convertible Notes. Our net loss for the three months ended March 31, 2006
      was the result of us having revenues of $1,254,844, costs of sales of $889,887,
      operating expenses $1,713,782 and interest and debt discount expense of
      $3,126,289.





**LIQUIDITY
      AND CAPITAL RESOURCES**





We
      have
      financed our operations principally through private sales of equity securities
      and convertible notes. From January 1, 2004 through March 31, 2006, we have
      raised net proceeds of $900,000 through the sale of common and preferred stock
      in private placements, and $5,450,000 through the issuance of convertible
      promissory notes. As of March 31, 2006, we had cash, cash equivalents and
      short-term investments of $91,812 compared to $434,503 as of December 31, 2005.
      We incurred operating losses in 2006 and 2005, and at March 31, 2006, had an
      accumulated deficit of approximately $14,319,244





Net
      cash
      used in operating activities was $666,130 **** and
      $2,237,959 during the three months ended March 31, 2006 and March 31, 2005,
      respectively. The decrease in net cash used in operating activities during
      2006
      compared to 2005 was attributable primarily to the significant increase in
      accounts payable and other changes in operating assets and liabilities .





Net
      cash
      used in investing activities was $35,266 and $41,006 during the three months
      ended March 31, 2006 and March 31, 2005, respectively. We expect our usage
      to
      increase in cash used in investing activities in 2006 was attributable to
      increased purchases of equipment needed for demonstration equipment of our
      new
      3Di product line as we expand our sales and marketing efforts.




17





Cash
      flow
      provided by financing activities was $358,705 and $3,152,824 during the three
      months ended March 31, 2006 and March 31, 2005, respectively. The cash flows
      from financing activities in 2006 were attributable to proceeds from proceeds
      from short-term bank borrowings of $158,705, and proceeds from related party
      notes payable of $200,000, in 2005 we received proceeds from convertible notes
      payable.


In
      March
      2006, we received $200,000 from a related party note payable. In April 2006
      we
      received $250,000 in convertible notes payable. In addition, we have a bank
      line
      of credit facility equal to 80% of our outstanding receivables up to a maximum
      of $400,000, which expires in September 2006 and is subject to annual renewals.
      As of March 31, 2006, outstanding borrowing under this credit facility was
      approximately $370,000. Our monthly overhead currently ranges from $400,000
      to
      $500,000. Subsequent to March 31, 2006 we completed a private placement pursuant
      to which we received $7,250,000 through the sale of our Series B Preferred
      stock. In addition, as part of this private placement we converted $750,000
      of
      convertible notes payable into 750 shares of Series B Preferred stock and
      converted $4,750,000 of convertible notes payable into 26,388,888 shares of
      our common stock. Additionally, we are continuing our efforts to achieve
      profitability through increased sales and profit margins. There can be no
      assurance that we will be successful in our efforts to achieve profitable
      operations. If we are unable to do so we may be required to reduce operations,
      reduce or discontinue further research and development, and/or reduce or
      eliminate further acquisition activities.





***Off-Balance
      Sheet Arrangements.*** We do
      not have any off balance sheet arrangements that are reasonably likely to have
      a
      current or future effect on our financial condition, revenues, results of
      operation, liquidity or capital expenditures.





**Forward
      Outlook and Risks**





This
      Form
      10-QSB contains and incorporates by reference certain “forward-looking
      statements” within the meaning of Section 27A of the Securities Act and Section
      21E of the Exchange Act with respect to results of our operations and
      businesses. All statements, other than statements of historical facts, included
      in this Form 10-QSB, including those regarding market trends, our financial
      position, business strategy, projected costs, and plans and objectives of
      management for future operations, are forward-looking statements. In general,
      such statements are identified by the use of forward- looking words or phrases
      including, but not limited to, “intended,” “will,” “should,” “may,” “expects,”
“expected,” “anticipates,” and “anticipated” or the negative thereof or
      variations thereon or similar terminology. These forward-looking statements
      are
      based on our current expectations. Although we believe that the expectations
      reflected in such forward-looking statements are reasonable, there can be no
      assurance that such expectations will prove to be correct. Because
      forward-looking statements involve risks and uncertainties, our actual results
      could differ materially. Important factors that could cause actual results
      to
      differ materially from our expectations are disclosed hereunder and elsewhere
      in
      this Form 10-QSB. These forward-looking statements represent our judgment as
      of
      the date of this Form 10-QSB. All subsequent written and oral forward-looking
      statements attributable to Viking are expressly qualified in their entirety
      by
      the Cautionary Statements. We disclaim, however, any intent or obligation to
      update our forward-looking statements.


18





***Possibility
      of Total Loss of Investment.*** An
      investment in the Company is an extremely high risk investment, and should
      not
      be made unless the investor has no need for current income from the invested
      funds and unless the investor can afford a total loss of his or her investment.




***Additional
      Financing Requirements.*** We will
      likely be required to seek additional financing in order to fund our operations
      and carry out our business plan. In order to fund our operations and effect
      additional acquisitions, we will be required to obtained additional capital.
      There can be no assurance that such financing will be available on acceptable
      terms, or at all, and there can be no assurance that any such arrangement,
      if
      required or otherwise sought, would be available on terms deemed to be
      commercially acceptable and in our best interests.





***Report
      of Independent Registered Public Accounting Firm includes a Going Concern
      Explanatory Paragraph*** The
      report of our Independent Registered Public Accounting Firm dated March 20,
      2006
      for the year ended December 31, 2005, included a going concern explanatory
      paragraph which stated that our significant operating losses and working capital
      deficit at December 31 2005 raise substantial doubt about our ability to
      continue as a going concern subsequent to the date of their report. We sold
      $6,500,000 of our Series B Preferred shares and expect to sell an additional
      $750,000. In addition, in connection with this financing, holders of our
      convertible notes payable converted notes into shares of common and preferred
      stock. We believe these transactions address the near-term liquidity concerns
      raised by our Independent Registered Public Accounting Firm.





**Medical
      Operations Risks**





***We
      Operate in a Competitive Market.*** The
      market for medical products and services is competitive and new offerings and
      technologies are becoming available regularly. We cannot guarantee that we
      will compete successfully against our potential competitors, especially those
      with significantly greater financial resources or brand name
      recognition.





***If
      We Fail to Retain Key Personnel and Hire, Train and Retain Additional Qualified
      and Experienced Employees, We May Not Be Able to Compete
      Effectively.*** **** Our
      future success will depend to a large extent on retaining our employees and
      recruiting sufficient qualified employees to fill vacancies created by attrition
      or expansion of our operations. There is likely to be a competitive labor market
      for such staff and there is no assurance that we will be able to attract and
      retain an adequate number of suitable employees.




19


***We
      Are Subject To Significant Domestic and International Regulation and May Not
      Be
      Able To Obtain Necessary Regulatory Clearances to Sell Our Products.*** **** We sell
      medical devices **.** The
      manufacture and sale of medical devices intended for commercial distribution
      are
      subject to extensive governmental regulation.  Our failure to comply with
      regulatory +requirements would jeopardize our ability to market our
      products.  Noncompliance with applicable requirements can result in failure
      of the regulatory agency to grant pre-market clearance or approval for devices,
      withdrawal or suspension of approval, total or partial suspension of production,
      fines, injunctions, civil penalties, refunds, recall or seizure of products
      and
      criminal prosecution. Medical devices are regulated in the United States
      primarily by the FDA and, to a lesser extent, by state agencies.  Sales of
      medical device products outside the United States are subject to foreign
      regulatory requirements that vary from country to country.  Generally,
      medical devices require pre-market clearance or pre-market approval prior to
      commercial distribution.  A determination that information available on the
      medical device is not sufficient to grant the needed clearance or approval
      will
      delay market introduction of the product.  In addition, material changes or
      modifications to, and changes in intended use of, medical devices also are
      subject to FDA review and clearance or approval.  The FDA regulates the
      research, testing, manufacture, safety, effectiveness, labeling, storage, record
      keeping, promotion and distribution of medical devices in the United States
      and
      the export of unapproved medical devices from the United States to other
      countries.  The time required to obtain approvals required by foreign
      countries may be longer or shorter than that required for FDA clearance, and
      requirements for licensing may differ from FDA requirements.  The current
      regulatory environment in Europe for medical devices differs significantly
      from
      that in the United States.




***We
      Expect to Encounter Rapid Technological Change and Significant Competition.*** The
      medical device market in which we compete is characterized by intensive
      development efforts and rapidly advancing technology.  Our future success
      will depend, in large part, upon our ability to anticipate and keep pace with
      advancing technology and competing innovations.  We may not be successful
      in identifying, developing and marketing new products or enhancing our existing
      products. We believe that a number of large companies, with significantly
      greater financial, manufacturing, marketing, distribution and technical
      resources and experience than ours, are focusing on the development of
      visualization products for minimally invasive microsurgery.




***Our
      Profitability is Directly Related to the Level Of Reimbursements for Surgical
      Procedures Using the Offered Products.*** **** Our
      profitability will be directly related to the level of payments for the surgical
      procedures, in which our products will be involved, either by Medicare or
      private insurance companies.  We could be adversely affected by changes in
      payment policies of government or private health care payors, particularly
      to
      the extent any such changes affect payment for the procedure in which our
      products are intended to be used.  It is a continuing trend in U.S. health
      care for such payments to be under continual scrutiny and downward
      pressure.  We believe that reimbursement in the future will be subject to
      increased restrictions, both in the United States and in foreign markets and
      that the overall escalating cost of medical products and services has led to
      and
      will continue to lead to increased pressures on the health care industry, both
      foreign and domestic, to reduce the cost of products and services, including
      products which we offer.


20


We
      expect
      that our products typically will be used by hospitals and surgical centers,
      which bill various third-party payors, such as governmental programs and private
      insurance plans, for the health care services provided to their patients. 
Third-party payors carefully review and increasingly challenge the prices
      charged for medical products and services or negotiate a flat rate fee in
      advance.  Payment rates from private companies also vary depending on the
      procedure performed, the third-party payor, the insurance plan and other
      factors.  Medicare compensates hospitals at a predetermined fixed amount
      for the costs associated with an in-patient hospitalization based on the
      patient’s discharge diagnosis and compensates physicians at a pre-determined
      fixed amount based on the procedure performed, regardless of the actual costs
      incurred by the hospital or physician in furnishing the care and unrelated
      to
      the specific devices or systems used in that procedure.  Medicare and other
      third-party payors are increasingly scrutinizing whether to cover new products
      and the level of payment for new procedures.  The flat fee reimbursement
      trend is causing hospitals to control costs strictly in the context of a managed
      care system in which health care providers contract to provide comprehensive
      health care for a fixed cost per person.  We are unable to predict what
      changes will be made in the reimbursement methods utilized by such third-party
      payors.




If
      we
      obtain the necessary foreign regulatory registrations or approvals, market
      acceptance of our products in international markets would be dependent, in
      part,
      upon the acceptance by the prevailing health care financing system in each
      country.  Health care financing systems in international markets vary
      significantly by country and include both government sponsored health care
      programs and private insurance.  We cannot assure you that these financing
      systems will endorse the use of our products.




***We
      May Be Subject To Product Liability Claims And Have Limited Insurance
      Coverage.*** **** By
      engaging in the medical devices business, we will face an inherent and
      significant business risk of exposure to product liability claims in the event
      that the use of our products results in personal injury or death.  Also, in
      the event that any of our products proves to be defective, we may be required
      to
      recall or redesign such products. We will need to maintain adequate product
      liability insurance coverage.  If we are able to maintain insurance, of
      which there can be no assurance, our coverage limits may not be adequate to
      protect us from any liabilities we might incur in connection with the
      development, manufacture and sale of our products.  Product liability
      insurance is expensive and in the future may not be available to us on
      acceptable terms, if at all.  A successful product liability claim or
      series of claims brought against us in excess of our insurance coverage or
      a
      product recall would negatively impact our business.





**ITEM
      3. CONTROLS AND PROCEDURES**


**EVALUATION
      OF DISCLOSURE CONTROLS AND PROCEDURES**





(a)
            Evaluation
                of Disclosure Controls and
                Procedures





21


Based
      on
      their evaluations as of March 31, 2006, the principal executive officer and
      principal financial officer of the Company have concluded that the Company's
      disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
      under the Securities Exchange Act) are not effective to ensure that
      information required to be disclosed by the Company in reports that the Company
      files or submits under the Securities Exchange Act is recorded, processed,
      summarized and reported within the time periods specified in the rules and
      forms
      of the SEC.


(b)
              Changes
                  in Internal Controls


There
      were no significant changes in the Company's internal controls over financial
      reporting or in other factors that could significantly affect these internal
      controls subsequent to the date of their most recent evaluation, including
      any
      corrective actions with regard to significant deficiencies and material
      weaknesses.





**PART
      II - OTHER INFORMATION**





Item
      1.  Legal
      Proceedings .
      We are
      not a party to any legal proceeding.





Item
      2.  Unregistered
      Sales of Equity Securities .
      During
      the quarter ended March 31, 2006, we issued 837,000 shares of our common stock
      in an unregistered transaction. Such shares were issued pursuant to a cashless
      exercise of a non-qualified stock option issued in December 2003. Such shares
      were not registered in reliance on Section 4(2) of the Securities Act of 1933,
      as amended.





Item
      3.  Defaults
      by the Company on its Senior Securities .
      None





Item
      4.  Submission
      of Matters to Vote of Security Holders .
      On
      February 21, 2006 the holder of 27,121,150 shares of our common stock out of
      the
      34,639,050 shares of common stock issued and outstanding consented in writing
      to
      a proposal to amend our Articles of Incorporation to increase the number of
      shares of common stock which we are authorized to issue from 100,000,000 to
      150,000,000. This consent was obtained in lieu of holding a Meeting of
      Shareholders. A Preliminary Information Statement and a Final Information
      Statement on Schedule 14(c) were filed with the Securities and Exchange
      Commission in connection with such written consent and we effected the amendment
      to increase our authorized shares.





Item
      5.  Other
      Information .





**Loan
      Guarantee Collateral**





On
      January 27, 2005, we entered into a Loan and Security Agreement with Silicon
      Valley Bank. The Loan Agreement provides for a maximum borrowing of $200,000.
      The loan is secured by the assets of the Company. The loan is also secured
      by a
      $200,000 certificate of deposit owned by Donald Tucker. This Loan and Security
      Agreement expires in September, 2006.


22





Item
                6. Exhibits.
            31.1
                Certification by the Chief Executive Officer
                pursuant to Section 302 of the Sarbanes-Oxley Act of
                2002.31.2
                Certification by the Chief Financial Officer
                pursuant to Section 302 of the Sarbanes-Oxley Act of
                2002.





32.1
                Certification by the Chief Executive Officer
                pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002.32.2
                Certification by the Chief Financial Officer
                pursuant to Section 906 of the Sarbanes-Oxley Act of
                2002.








SIGNATURE





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





Dated:
                May 24, 2006
            VIKING
                SYSTEMS, INC.By/s/
                Donald TuckerChief
                Executive Officer, PresidentBy/s/
                Joseph WarrinoChief
                Financial Officer





23