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UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-KSB

x ANNUAL REPORT PURSUANT
  TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
  For the fiscal year ended December 31, 2003

 ̈ TRANSITION REPORT
  PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 
  For the transition period from ______ to ______

Commission file number: 000-49746

VISCOUNT SYSTEMS, INC.(Name of small business issuer in its charter)

|NEVADA                                                  | 88-0498783                          
|------------------------------------------------------- | ------------------------------------
|(State or other jurisdiction of                         | (I.R.S. Employer Identification No.)
|incorporation or organization)                          |                                     
|                                                        |                                     
|4585 Tillicum Street, Burnaby, British Columbia, Canada | V5J 3J9                             
|(Address of principal executive offices)                | (Zip Code)                          

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

|Securities registered pursuant to Section 12(b) of the Act: | None                         
|----------------------------------------------------------- | -----------------------------
|                                                            |                              
|Securities registered pursuant to Section 12(g) of the Act: | Common Stock, $.001 per share
|                                                            | (Title of class)             

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 reports),
  and (2) has been subject to such filing requirements for the past 90 days.   Yes
  x      No
   ̈

Check if there is no disclosure of delinquent filers in response
  to Item 405 of Regulation S-B is not contained in this form, and no disclosure
  will be contained, to the best of the registrants knowledge, in definitive
  proxy or information statements incorporated by reference in Part III of this
  Form 10-KSB or any amendment to this Form 10-KSB.  ̈

State issuers revenues for its most recent fiscal year:
  $3,150,477 ($4,084,593 in Canadian dollars converted at an exchange rate
  of US$0.771/CDN$1.000).

State the aggregate market value of the voting and non-voting
  common equity held by non-affiliates computed by reference to the price at which
  the common equity was sold, or the average bid and asked price of such common
  equity, as of a specified date within the past 60 days. (See definition of affiliate
  in Rule 12b-2 of the Exchange Act.): $18,816,476 as at February 18, 2004.

State the number of shares outstanding of each of the issuers
  classes of common equity, as of the latest practicable date: 15,221,250
  shares of common stock as at February 18, 2004.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant's Proxy Statement for the Annual
  Meeting of Stockholders are incorporated by reference into Part III of this
  Form 10-KSB, which Proxy Statement is to be filed within 120 days after the
  end of the Registrant's fiscal year ended December 31, 2003.

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

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|Form 10-KSB
      Table of Contents
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|Part                               
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|I                                  
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|II                                 
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|III                                
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|IV                                 
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1

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FORM 10-KSB

VISCOUNT SYSTEMS, INC.

PART I.

Certain statements in this Form 10-KSB regarding future expectations
  and financial performance should be regarded as forward-looking statements and
  are subject to various risks and uncertainties including those described elsewhere
  in this Form 10-KSB, and in the Companys Securities and Exchange Commission
  filings.

Currency of Financial Information and Exchange Rate Table

We maintain our books of account in Canadian dollars and references
  to the dollar amounts herein are to the lawful currency of Canada unless otherwise
  designated.

The following table sets forth, for the periods indicated,
  certain exchange rates based on the noon buying rate in New York City for cable
  transfers in Canadian dollars. Such rates are the number of Canadian dollars
  per one (1) U.S. dollar and are the inverse of rates quoted by the Federal Reserve
  Bank of New York for U.S. dollars per CDN$1.00. On March 5, 2003, the exchange
  rate was US$1.00 per CDN$1.3191. The high and low exchange rates for each month
  during the previous six months were as follows:

|               | High   | Low   
|-------------- | ------ | ------
|February 2004  | 1.3442 | 1.3108
|January 2004   | 1.3340 | 1.2690
|December 2003  | 1.3405 | 1.2923
|November 2003  | 1.3362 | 1.2973
|October 2003   | 1.3481 | 1.3043
|September 2003 | 1.3876 | 1.3469

The following table sets out the exchange rate information as at each of the years ended December 31, 2002 2003.

|                           | Year Ended December 31
|-------------------------- | ----------------------
|                           | 2002                  
|                           |                       
|Rate at end of Period      | 1.5800                
|Average Rate during Period | 1.5704                
|Low                        | 1.5108                
|High                       | 1.6128                

Item 1. DESCRIPTION OF BUSINESS

GENERAL

We are a provider of access control security products. Our
  current access control product line consists of Enterphone, a building intercom;
  Entercheck, a card access system; RadioClik and InfraClik, radio frequency and
  infrared remote controls; Elektra, liquid crystal display intercom panels; EmerPhone,
  emergency telephone entry systems; and various accessories. In 2003 we commenced
  commercial sales of our MESH product line. MESH (Multi-Embedded Security Hub)
  is a new technology developed by Viscount that uses current high technology,
  including in micro-chip, software and communications, to create an access control
  and management which reduces the cost of installation and operation while increasing
  functionality.

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We were incorporated on May 24, 2001 under the laws of the
  State of Nevada. Our subsidiary, Viscount Communication and Control Systems
  Inc. (Viscount Communication) was incorporated in 1997 under the laws of the
  British Columbia, Canada, for the purposes of carrying on our present access
  control business. We acquired all of the issued and outstanding shares in the
  capital of Viscount Communication on July 27, 2001, thereby making it our wholly
  owned subsidiary. The substantive operations of our business are conducted by
  our subsidiary, while the parent company provides certain administrative and
  strategic decision making functions.

Our website address is www.viscount.com. All periodic
  and current reports are available, free of charge, on our website as soon as
  reasonably practicable after such material is electronically filed with, or
  furnished to, the U.S. Securities and Exchange Commission. Electronic or paper
  copies of our filings are also available, free of charge, upon request.

Except where otherwise indicated, all dollar amounts in this
  annual report on Form 10-KSB are in Canadian dollars, which is our primary operating
  currency.

BUSINESS OVERVIEW

We design, produce and sell intercom and door access control
  systems. These systems use telecommunications wiring to control access to buildings
  and other facilities for security purposes. While much of our current revenues
  are derived from sales of the Enterphone technology and related security products,
  we expect our recently released MESH technology to be a significant new source
  of revenues. We also provide maintenance services to approximately 2,165 Enterphone
  installations in Western Canada.

The Enterphone is a building access control system that uses
  a buildings internal phone wiring thereby avoiding use of telephone utility
  services. Our products include access control panels that use the Enterphone
  technology. Our control panels are typically installed at entrances to apartment
  buildings or other access controlled buildings. The control panels are sold
  in various formats and with varying features and capabilities. Our Enterphone
  technology control panels are sold through an established distribution network,
  and can be found installed in approximately 30,000 buildings throughout North
  America. We also package and sell access control and security products that
  are complementary to our Enterphone product, including card access systems,
  radio frequency remote controls, intercom monitors and closed circuit cameras.

Our recently released MESH technology is based on a proprietary
  software platform that can be used for a variety of security and access control
  applications as well as communications functions. The technology represents
  a departure from traditional access control and security systems. Traditional
  systems use controllers that have a capacity to control from 1 to 8 access points
  per controller. A building access system using the MESH technology can control
  several hundred points of access from a single hardware and software platform.
  The technology also allows several previously independent building control systems
  to be hosted on a single hardware and software platform. Our proprietary MESH
  software is designed to be modular permitting additional applications to be
  added as modules each operating other building and area control systems and
  high technology requirements.

COMPANY HISTORY

Our current business is operated primarily through our wholly
  owned subsidiary Viscount Communication. The business of our subsidiary began
  operations in 1969 as a manufacturer of video switching equipment. In 1970,
  the business was acquired by B.C. Telecom Inc. (BC Tel), recently renamed Telus
  Corporation. BC Tel was the telephone utility for British Columbia, Canada controlled
  by GTE Corporation (now Verizon Communications Inc.). Under BC Tel, the business
  operated as an electronics research laboratory and manufacturing facility. Among
  the products manufactured were central office telephone test equipment, telephone
  demarcation blocks, and a satellite based kiosk system used to provide information
  at airports and other public facilities. Responsibility for the manufacture
  of the Enterphone system was transferred into the business in 1984 from BC Tel.
  BC Tel contracted to sell the business in 1997 to Blue Mountain Technologies
  Inc., a company that purchases and installs our products. Blue Mountain Technologies
  Inc. simultaneously assigned its contractual rights to acquire all of the business
  assets, except for certain leasehold interests, to our subsidiary, Viscount
  Communication. BC Tel consented to the assignment and accordingly the business
  was acquired by our subsidiary, Viscount Communication.

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

In 2002, we acquired the assets of Sigma Data Systems of British
  Columbia, Canada. Sigma Data Systems has been designing and manufacturing electronic
  assemblies for telecommunications and hydroelectric applications since 1993.
  Sigma Data Systems largest customer was BC Hydro, the government owned
  hydro-electric utility for the Province of British Columbia. We have assumed
  their contract with BC Hydro, which runs until mid-2004. Services to BC Hydro
  involve custom manufacturing of communications equipment. Any renewal contract
  with BC Hydro will be subject to a competitive bidding process.

In 2003 we acquired certain inventory and a service contracts
  from Telus Corporation. The service contracts relate to the maintenance of approximately
  2,165 Enterphone installations throughout Western Canada. The inventory is comprised
  of various products and components for installation and repair of our Enterphone
  systems.

Enterphone is a specialized telephone switch used to provide
  intercom and access control functions in high-rise buildings. It was originally
  developed by BC Tel in 1965. Mirroring the increased security awareness in buildings
  over the past few years, we have been providing a more comprehensive package
  of complementary products. Products packaged, using third party technologies
  for this purpose, include card access systems, radio frequency remote controls,
  intercom display panels and closed circuit cameras.

The recently completed MESH, which we have been developing
  since 1998, is a new integrated platform for building access control and management.
  MESH is currently the focus of our corporate development.

INDUSTRY OVERVIEW

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

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

The building control industry has traditionally been highly
  segmented based on function. This has meant that makers of heating/ventilation
  and air-conditioning systems and security card access systems essentially manufacture
  input/output systems, while intercom makers manufacture voice systems, and security
  camera makers manufacture closed circuit video systems. Stated otherwise, audio,
  video, environment and access control systems are traditionally all separate
  building control systems that are independently controlled. There has been strong
  convergence of technologies in the computer and telephone related industries
  based on digital standards, however the building control industry has not as
  yet undergone a similar convergence of technologies. Traditionally, where systems
  need to be compatible, the industry has relied on integration instead of convergence.
  Integration is the use of a host computer to tie separate and distinct systems,
  typically from different manufacturers, together on a common software platform.
  Convergence, in the case of building control systems, is the provision of a
  new service that is designed to operate multiple systems using homogenous control
  parameters. Convergence is generally considered preferable to integration, as
  fewer distinct systems means lower operational and maintenance costs.

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

Access Control Systems Technology

The access control industry has traditionally used a technology
  known as Wiegand. Approximately 90% of the worlds installed access systems
  are based on Wiegand technology. Today, these systems are commonly found in
  residential, commercial and industrial buildings in the form of access control
  cards and card readers. Wiegand was initially developed in 1970 by Senso Engineering
  as an access card technology. The card technology uses a special patented process
  whereby wires are imbedded in a plastic access card to encode its data. When
  passed through a magnetic field generated by a card reader, the card generates
  a signal which is received and interpreted by the card reader. If the signal
  is recognized, the reader will transmit the information to a host controller
  to activate a switch, which for example purposes, may release a lock or open
  an elevator to permit building access to the cardholder. A host controller is
  essentially computer hardware that is programmed to receive information from
  the card reader in order to permit access to a building. Wiegand technology
  has established itself as the industry standard as it is viewed as being reliable
  and difficult to counterfeit the access cards.

Other products that use the Wiegand principals for access
  control are magnetic strip cards and radio frequency cards. These products function
  similarly by providing a card reader with a signal that the reader interprets
  and transmits to a host controller in order to grant or deny access.

Wiegand access control technology requires card readers that
  are connected to a host controller. Each host controller can operate between
  1 to 8 doors. Accordingly, a building with a large number of controlled access
  points could require a large number of host controllers, resulting in greater
  hardware costs. Host controllers can in turn be connected to a central server
  that monitors the host controllers and collects information on access point
  usage.

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

As a result of the limitations and hardware requirements of
  the traditional access control systems, some security industry manufacturers
  are developing and marketing intelligent access control and communications
  systems. Intelligent systems allow several previously independent building control
  systems, such as intercom, access control, video, and climate control, to be
  controlled by a single server. These systems are based on software designed
  to control hundreds of readers from a single computer server, combined with
  smart chips installed in readers at each control point. Smart chips
  are programmable computer chips that permit access card readers to grant or
  deny access without the need to relay a signal to and from a central host controller.
  Smart chips can be programmed to perform tasks for a diverse range of building
  control systems, such as fire alarm systems, heating/ventilation and air conditioning,
  and building access and elevator controls. As the smart chip is programmed to
  make its own decisions on a given application, this reduces the load on the
  central host computer. The host computer accordingly performs primarily a monitoring
  and information collection function.

We are participating in this advance in the access control
  industry with our proprietary MESH intelligent access control and communication
  technology system. We believe that intelligent systems, including smart chip
  readers and cards will supersede systems based on Wiegand technology.

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PRODUCTS

We are a manufacturer and reseller of intercom and access
  control systems based on telephone and traditional access card and reader technologies.
  Our intercom and access control systems are installed throughout North America
  for various applications including: condominium/apartment building access and
  intercom; residential intercom; gated home/community access and intercom; seniors/government
  housing access, tracking and intercom; elevator access and tracking; garage
  or perimeter gate control, and emergency communications.

For the year ended December 31, 2003, approximately 31% of
  total sales of our products and services were generated in the United States,
  and 69% in Canada. This represents a change from 2002, where sales to the United
  States and Canada were 48% and 52%, respectively. The change is in part due
  to increased sales of products and services in Canada as a result of our acquisition
  of service contracts and inventory from Telus Corporation. Information on our
  existing products can be viewed on our website at www.viscount.com.

Our Enterphone Access Control Products

Our past principal product was the Enterphone intercom and
  access control system. Enterphone is our patented building entry control system
  that uses a buildings internal phone wiring to allow access control for
  tenants and intercom and access control between visitors and tenants. The use
  of a buildings internal phone wiring by our Enterphone system provides
  an option to using telephone company wiring, thereby bypassing monthly telephone
  charges. It also does not require tenants to pay for an individual phone line
  to operate their intercom and door access system and is not affected by interruptions
  in telephone company service. This makes our Enterphone system distinct from
  other dial-up telephone entry systems that use telephone company
  lines. Sales of our products based on the Enterphone system account for approximately
  60% of our total sales in fiscal 2003. This is down from approximately 76% in
  fiscal 2002, due in part to the development of other sources of sales, including
  Enterphone maintenance contracts, new product lines, and our OEM product lines.

Our Enterphone system is sold as a central control panel which
  is installed in a buildings telephone control room. The control panel
  connects an intercom panel located at an entrance to the building with the telephone
  of building tenants. A visitor wishing to gain access to the building dials
  a 1 to 4 digit number at the entrance panel. The call is directed from the entrance
  panel, through the common control equipment and up to the tenants telephone.
  The tenant hears a unique ring and can unlock the entrance door by pressing
  a number on the telephones numeric keypad. The tenant does not need to
  rent a telephone line from the telephone company. Each control panel can process
  connections to as many as 840 suites.

We also manufacture electronic entry access panels that can
  operate using either our Enterphone system, or dial-up telephone company lines.
  Our panels are manufactured in various sizes and with various features in order
  to accommodate varying purposes and building types. For example, we manufacture
  panels that provide intercom and access control from 1 suite to up to 1000 suites;
  or panels that provide on-screen name search capabilities; or panels that are
  streamlined in shape or small in size. All panels that we manufacture incorporate
  the Enterphone technology, however most panels can also be installed to use
  telephone company lines.

Our Enterphone panels can also be combined with other technologies
  such as access tracking and control, closed circuit monitors, infrared and radio
  frequency remotes, and Wiegand cards and card readers. We purchase these technologies
  from other manufacturers and resell them under our brand names. Most of the
  products that we resell can be integrated into our Enterphone access control
  system.

Our MESH Access Control System

Overview

MESH is a new software based building management system designed
  to replace traditional systems that are more hardware intensive. We have been
  developing this new technology since 1998 which was commercially released in
  late 2003.

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MESH is a software platform that communicates with a network
  of intelligent input/output devices, such as card readers or building
  environment sensors. As such the intelligence of the system can
  be said to be distributed among the input/output devices. This is contrasted
  with the traditional access control industry, which uses dumb readers
  that require information to be processed at a central host computer. An intelligent
  reader or input/output device uses a pre-programmed smart chip which
  allows it to process information on its own, and does not require the host computer
  to make action decisions, such as to grant or deny access to a door or to activate
  air-conditioning. The use of intelligent devices accordingly reduces
  the load on the host computer which allows the host computer to allocate its
  resources to a greater number and diversity of tasks. The networked distribution
  of intelligent devices also means reduced cost resulting from reduced
  hardware requirements, easier training of control system operators, and the
  use of commercially available host computer hardware and communication techniques.
  Initially, we will apply the MESH technology for access control system purposes.

The conceptual basis for MESH is simple. Virtually every low
  voltage building technology, except building access, has evolved using intelligent
  addressable network devices. This includes fire alarms and heating/ventilation
  and air-conditioning. An addressable network is one in which devices can constantly
  communicate with a host server controller or can be polled for information.
  For example, if a smoke detector on a non-addressable fire alarm system fails,
  a fire in that location may go undetected since there is no way to identify
  the failure without actually testing the device. In contrast, the smart
  chip in an addressable smoke detector may be able to notify the fire panel
  of a problem immediately and call for service. Access control systems, however,
  continue to be based on a 30-year-old standard called Wiegand. The limitations
  of this standard continue to plague the industry due to the slow data transmission
  speed (9600 baud) between the reader and the host controller, the high cost
  and quantity of specialized and dedicated hardware, and the inability of the
  host computer to process voice or video signals. For example, buildings requiring
  elevator access control have traditionally required a significant amount of
  expensive dedicated hardware. The MESH network with intelligent
  readers can accomplish these functions without dedicated hardware, resulting
  in cost reductions, both in terms of the actual hardware required and the labor,
  cable and conduit costs associated with installation.

The MESH system bypasses the need for specialized and dedicated
  hardware. Instead, MESH provides a software-based platform that operates on
  an industrial computer server connected to intelligent readers transmitting
  data at high speed rates of up to 156,000 baud, while simultaneously running
  voice and video applications. The benefits and functionality derived from this
  approach can be significant.

MESH Structure

The MESH network consists of a main control computer server
  communicating with a series of intelligent readers, panels, and
  input/output devices. The key to the technology is the smart chip
  we use, known as the MPNode computer chip, a programmable chip manufactured
  by Atmel. We purchase the MPNode chips and program them to perform certain functions
  upon detecting certain data. For access control applications, the chip is installed
  into a card reader. When data from an access card is received by the card reader,
  the chip processes the data and makes a decision to grant or deny access. Information
  on the transaction is passed along to the host computer for data storage and
  analysis purposes. Traditional Wiegand style card readers require an intermediate
  controller for every two or three reading devices. An intermediate controller
  is connected between the host computer and the group of readers controlled by
  it. In contrast, the MESH systems allows intelligent readers to
  be installed in series, or daisy-chain fashion, without the need for intermediate
  controllers. Small interface modules are used instead to maintain data flow.
  This reduces hardware costs as only one host computer is required.

MPNode chips are programmable and accordingly can be applied
  to various customized tasks requiring an input and output device. The ability
  of a MESH server to connect directly to a computer network or network of readers,
  without intermediate controllers, provides additional benefits in terms of cost,
  connectivity and programming.

MESH panels, located at entrance doors for visitor access,
  can operate independently or as slaves off the MESH server. The basic MESH panel
  that we have commercially released is a full color screen industrial computer.
  Panels may be located at entrance doors for visitor access or can be on-site
  managed by security guards as they manage the MESH network. The slave/master
  architecture of MESH panels reduces cost, simplifies programming, and improves
  data base management.

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In designing MESH, much consideration has been made of the
  many dissimilar applications requiring a MESH network. In cases where building
  control is accomplished with on-site security and concierge staff, limited MESH
  hardware or possibly only software may be needed to perform the required functions.
  For example, MESH software may be sold as a simple visitor tracking system for
  commercial or gated residential sites.

In general, MESH has been designed to allow simple installations
  to be performed by small independent alarm contractors. However, provision has
  also been made for direct involvement by our staff in large campus wide and
  enterprise wide installations.

MESH has many additional benefits, both in terms of building
  security and particularly relative to the legacy Wiegand protocol. It is our
  belief that addressable networks pose a serious threat to the continued use
  of the Wiegand format.

MESH is a modular product, meaning that the software can accommodate
  add-on features or upgraded features. We have developed various modules for
  our MESH technology, and we intend to develop further modules which will be
  released in a series of phases. Some of these product enhancement modules are
  described below:

- MESH Photo-badging software is being designed to allow
      digital photo-imaging of individuals accessing a building, which can be
      stored in a database; in development
- MESH Time and Attendance software will allow human resources
      personnel to use the card reader database to track employee attendance and
      to automatically adjust card user characteristics based on vacation schedules,
      holiday dates and termination; in development
- MESH has the inherent ability to control other electrical
      circuits. For example, this allows MESH to turn lights on or off based on
      the sections of a building used by a card holder or to interface with air
      conditioning units;
- The MESH server provides new opportunities to host video
      on the unified platform with voice and data. This would represent an entirely
      new concept in the security industry; not full video  capture only
- The nature of the MESH server makes MESH telephony products
      inherently Internet enabled. Future MESH appliances may include the MESH
      television line, which allows residents to view visitors at the door. MESH
      panels will be able to connect to web enabled set top boxes being promoted
      as part of the web TV market. MESH may be able to connect to videoconferencing
      telephones that would compete in the large offshore video intercom business
      but at a fraction of the cost by saving on conduit and cable;
- The distributed intelligence of MESH makes the product
      suited to the growing emergency call/nurse call industry;
- MESH networks are built on an open architecture platform
      which is fully functional to integrate with any existing automation network;
- The initial MESH card reader release will be based on
      proximity technology. We intend to expand the product line to include readers
      based on our own infrared system, biometrics, radio frequency and any other
      reader type which appears to have potential. This may also include the worlds
      first readers with built-in audio and video ability; and
- A new and emerging market segment tracks not just people,
      but equipment. A typical application is the embedding of anti-theft chips
      in computers, which integrate with card reader systems.

Our other products

In addition to our MESH technology, we have developed the
  EmerPhone and revamped our Entercheck products, both of which were commercially
  available during the second quarter of 2003. The EmerPhone is a communications
  system for emergency and assistance applications. The EmerPhone consists of
  core electronic

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assembly designed for several separate tasks. These tasks
  require a variety of mechanical and electronic assemblies. Applications of the
  EmerPhone are as follows:

- Elevator phones these small assemblies
      are required by law to allow people stuck or injured in elevators to call
      for assistance. Options include surface mount, voice activation, voice messaging,
      and call indicators for the disabled.
- Panic phones these units are used primarily
      for parking lots and underground parking. They allow people in distress
      to contact security personnel. Options include strobes and sirens to scare
      away attackers.
- Parking phones these units are designed
      to allow people at a parking gate to contact the parking management office
      if they forget an access card or the gate is broken. Management then has
      the ability to open the gate remotely.
- Information assistance phones are used
      for ATM machines, airports, prisons and other applications where a vandal
      resistant phone is required to allow people to get information on using
      equipment or to make hotel reservations.
- Industrial assistance phones are more ruggedly
      built units for factories, oil platforms and other industrial applications
      where specifications may even require explosion proofing.
- Campus phones are a rapidly growing market
      segment reflecting the heightened sense of security at university and commercial
      campuses. Similar to panic phones, campus phones may be built into housing
      up to 12 feet tall. Strobes, sirens and security cameras may be built into
      the campus phone. A key element of a campus phone is tracking software.
      Similar to caller ID software, tracking software allows campus personnel
      to pinpoint the exact location calling by address or on a map. The systems
      also require automatic system integrity diagnostics.

We expanded our card access family of products by introducing
  Entercheck II, a fully integrated security system that provides total access
  control. It can be programmed to allow access only at certain times and limit
  who can use which doors and when. Cards can be programmed for special applications
  such as handicapped access, and temporary employees or service personnel can
  be issued cards that automatically expire. Entercheck II can also be programmed
  to lock and unlock doors at different times. It can also be expanded to include
  multiple site management. Utilizing Entercheck II software, individual cardholder
  databases may be maintained remotely at a management office via modem, providing
  central control of multiple building applications.

Our other products include RadioClick and InfraClick, which
  are remote control access control products produced using primarily OEM components,
  and are complementary to our Enterphone and Entercheck systems.

OTHER SERVICES

In addition to sales of our Enterphone, MESH and OEM products,
  we also service approximately 2,165 existing Enterphone installations within
  Western Canada, and provide custom communications equipment manufacturing to
  BC Hydro.

PRODUCTION

We currently manufacture the Enterphone and MESH, access control
  and entrance panel products, and emergency telephone entry systems in-house.
  Our card readers, radio-frequency and infra-red access, and tracking systems
  are purchased from other manufacturers and resold under our brand-names. We
  maintain full facilities to assemble through-hole circuit boards and limited
  facilities for assembling surface mount circuits. We have a policy of supporting
  old products for up to 20 years and having an assembly staff that allows us
  the flexibility to produce small runs of high margin legacy products. We plan
  to continue this process for our older products such as previous

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versions of the Enterphone. Any new hardware based product
  designed on a surface mount platform will be produced on a sub-contract basis
  with final mechanical assembly at our facilities.

The MESH software platform is loaded on standard industrial
  computer chassis. We have elected not to develop hardware internally for MESH
  since the required hardware controllers are commercially available at quality
  and price levels that make internal development uneconomical. In addition, by
  using off-the-shelf components, we improve our time to market, eliminate hardware
  debugging and increase our ability to be technologically flexible in the future.
  We will primarily execute final mechanical assembly of the MESH systems.

RESEARCH AND DEVELOPMENT

Our research and development focus continues to be at the
  rollout and enhancement stages for the MESH and Emerphone product lines. A number
  of these enhancements were identified in the MESH Structure and
  Our other products section of this document. Specific custom MESH
  applications are also being designed and considered. These include built-in
  badging printers and a virtual concierge. Ongoing product development includes
  DSL modifications to our existing Enterphone 2000.

MARKET AND MARKETING

The Market

The intercom and access control market is serviced by a number
  of large and small competitors. Our traditional products compete in a mature
  marketplace, that largely uses the 30 year old Wiegand technology. We believe
  that there currently exists an opportunity in the building and access control
  market for innovative products that use current technologies to reduce user
  costs. We have positioned our MESH technology to take advantage of this opportunity.

The access control market can generally be described as the
  market for any equipment used to control passage through a door, gate or other
  portal. A portion of this market is comprised of mechanical and electronic door
  locks that typically control access through single doors. Many of the single
  door systems have been engineered for low security levels for customers who
  do not desire a full access control host. The access control market that we
  compete in involves computerized access control systems that typically control
  access through multiple access points, such as our Enterphone system. MESH was
  designed to present a new technology to this computerized market niche. In particular,
  in large high-rises with a full MESH system, individual tenants may use the
  MESH server to control access to one or two doors.

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

In addition to apartment entrances, MESH is also designed
  to provide access control for the rapidly growing gated community market. Monitor
  style directory panels are also used in thousands of commercial high-rises.
  The MESH panel provides features previously unavailable for this market. The
  overall effect of these system advances will be to enhance our core business,
  while finding applications where the new features expand the traditional market
  for such systems.

We will also target upgrades and retrofits to existing apartments
  and other complexes that use traditional telephone wire intercom access control
  systems. The low hardware costs and increased functionality of the MESH system
  will

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be marketed to building management companies, along with its
  turnkey installation as a replacement to existing access control systems for
  most modern buildings.

While complete MESH networks will typically be installed,
  the modular nature of MESH allows additional segmentation based on product application
  and end-user need. The nature and scope of a MESH installation depends on the
  level of security required, the product alternatives, the number of buildings,
  and the level of system management required. The nature and scope of an installation
  can be described in terms of a user spectrum ranging from price sensitive users
  to users requiring enhanced services. At one end of this spectrum is price.
  For these applications MESH will be competing with traditional Wiegand systems.
  We believe the cost reduction aspects of MESH will provide us with a competitive
  advantage over traditional Wiegand systems. For example, a typical condominium
  developer does not manage a building after construction. Therefore, the developer
  is looking for a very affordable, reliable access control system. Unless a more
  sophisticated product will help sell suites the developer tends to keep the
  system simple. At the middle of the spectrum are customers who will adopt MESH
  mainly due to system benefits. For a commercial high-rise this may be the flexibility
  derived from a new user profile approach MESH uses for programming. On the enhanced
  service end of the spectrum we find customers who need to develop a much closer
  relationship due to the level of sophistication of their needs. At this level,
  we anticipate additional revenue opportunities for custom programming, data
  mining and hosting, and direct installations for national accounts.

While the core function is controlling access/egress, through
  the planned development of various MESH technology modules we will actively
  target all of these segments. For example, a MESH add-on module can be developed
  to provide an asset tracking system to prevent computer theft. The inherent
  alarm functions of MESH allow it to be used as an integrated theft/burglar alarm
  system for large facilities. The MESH telephony video capture function will
  allow government agencies to track alcohol and drug problem tenants of controlled
  housing complexes or other regulatory monitoring functions. Finally, MESH, along
  with our new EmerPhone, can function to combat vandalism and to secure parking
  lots.

We rank controlling access/egress and securing parking facilities
  as the primary concerns of our traditional core multi-residential business.

Distribution Plan

We currently have approximately 500 dealers of our existing
  products throughout North America. When our existing business was acquired from
  BC Tel, we relied primarily on exclusive and semi-exclusive dealers in certain
  major metropolitan areas. Our distribution network is not static and we are
  constantly seeking additional sales channels. In October and November of 2003,
  we signed a distributor deal with Tri Ed, the security distribution subsidiary
  of Tyco. The agreement placed our security products in 27 Canadian and U.S.
  Tyco branches, including Denver, Dallas, Phoenix, Seattle and six locations
  in California.

As previously noted MESH can serve several different markets
  and the type of dealer serving each may vary. Simple installations may be performed
  by small independent dealers, but as the overall scope of the project increases,
  the technical ability of the dealer becomes increasingly important. At the extreme,
  our employees may be directly involved with the customer in designing, installing
  and servicing the product. In other cases, our personnel may be involved on
  a co-op basis with large national security, building automation and heating/ventilation
  and air-conditioning contractors.

These distribution deals, along with our existing dealer base,
  gives us immediate access to the largest networks of dealers in the US, Canada
  and Mexico.

While we will initially be targeting our existing markets
  for the sale of our MESH technology, the market for our MESH product is worldwide.
  MESH is designed to accommodate foreign languages with minimal modifications
  to the software. This is in contrast to other products of its type which require
  a heavy software investment to provide alternative language software. With MESH,
  the core software can be applied in all languages with only the on screen text
  displays needing to be translated. Translation can be accomplished using commercially
  available translation software.

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MESH Marketing Strategy

We will use our established distribution channels as well
  as new distribution channels to access our target markets for the MESH technology.
  As a unique technology, however, end-users as well as dealers must be educated
  about MESH benefits. It is our experience that a stronger initial emphasis on
  end-user decision-makers and large national system integrators will be the most
  effective in developing the MESH market.

Advertising

Our products are advertised on an ongoing basis in various
  print publications, which we will continue to do. We have been testing new publications
  on a regular basis to evaluate response, sales and readership. All leads are
  followed up and magazines are rated based on a dollar sales per advertising
  dollar spent ratio. While the sales cycle is sometimes fairly long, this approach
  has given us a very accurate measure of the effectiveness of various publications
  and individual ads.

Trade Shows

We have experienced that the marginal dollar benefit of trade
  show participation is much less than other promotional media (print ad, direct
  mail etc.). Therefore, we intend to be very selective in introducing MESH this
  way. We intend to focus on end-user targeted shows rather than dealer shows.
  It has also been our experience that trade shows are sometimes too useful in
  educating ones competitors about new advances in technology. The primary
  end-user shows we are considering attending, target corporate and institutional
  security decision-makers, building management and developers, and finally, building
  automation facility managers.

Direct Marketing

One of the most effective ways to market security systems
  is to identify major institutional and corporate users and market directly to
  key individuals. We intend to hire direct marketing staff to market our MESH
  technology and institute an aggressive program to meet key decision making individuals.
  Because of the proprietary nature of MESH, we are flexible to meet customer
  specifications. We will use this approach to push MESH technology into the market.

Pricing Strategy

Our system provides features never before available in a building
  control security system. The MESH technology is built on an architecture which
  can reduce user costs significantly. The modular nature of the technology amplifies
  this effect the larger the system becomes.

With a unique product and a position of product leadership,
  we will have a strategy of building market share. This implies a product sold
  at reasonable 50-60% margins. With the telephony component, we are targeting
  a price which provides MESH panels at a price that is competitive with similar
  products, but with new enhanced features.

COMPETITION

Competitive Summary

The security and building control industry is undergoing a
  rapid period of consolidation. Large multi-national companies are integrating
  vertically by acquiring equipment providers to build house brands. Recent examples
  are the purchase of Cardkey by Johnson Controls, Guardall by Chubb and ADI/Northern
  Computers by Honeywell. The access control industry is very segmented with no
  company having a dominant market position. Canada has approximately six control
  manufacturers, while the US has at least fifty. There is a certain amount of
  vertical integration in the business and several large multinational companies
  own their own house brands. Many branches of these multinational companies often
  have their own brand preferences and buy outside their internal distribution
  channels.

Almost all manufacturers build control hosts based on Wiegand
  technology. Due to these limitations, most research and development is focused
  on cost reducing hardware and making the control hosts more network capable.
  In all cases, the manufacturer using traditional Wiegand technology are limited
  from 1 to 8 doors per host.

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Competitive Threats

While we have a strong dealer and distribution plan in place,
  MESH will position us in a market dominated by much larger players. The higher
  security MESH applications are also somewhat outside of our traditional scope
  of business. We must rapidly develop a market for MESH and educate users of
  the MESH benefits in order to achieve market share that will allow us to be
  competitive in this market. There is no guarantee that we will be able to successfully
  compete against our larger competitors.

While MESH is a new product in an established growing market,
  technological change can be met with resistance. Some buyers are nervous about
  new products, and new protocols even more so. Most buyers are familiar with
  the benefits of addressable fire alarms and we intend to market MESH from this
  point of view; that is to stress the inevitability of all access control systems
  evolving this way.

From an initial commercial point of view, one challenge for
  us is the relatively long sales cycles of security projects. Systems such as
  MESH may take up to 2 years from specification to installation, so sales forecasts
  can be adversely affected by the pace of construction and the general decision
  making process.

Another key concern is the ability of competitors to imitate
  the product and the ability of large imitators to more easily commercialize
  their product. We have estimated that we will have a three-year market lead.
  Fortunately, the wide range of MESH software applications should provide us
  with an ongoing lead as long as we are aggressive with research and development.

INTELLECTUAL PROPERTY

We will rely on a combination of patent laws (if applicable),
  trade secret laws, non-disclosure and other contractual agreements, and technical
  measures to protect the confidential information, know-how, and proprietary
  rights relating to our Enterphone, MESH and other Viscount products. We have
  contractual rights with respect to registered North American trademarks and
  tradenames including the following: Viscount, Enterphone, Enterchek, InfraClick,
  RadioClick, and EmerPhone. We are in the process of preparing a North American
  patent application for our MESH technology, and registering North American tradenames
  for MESH.

We have registered active Internet domain names for www.viscount.com
  and www.enterphone.com.

Our standard employment agreements and license agreements
  contain provisions that protect the confidentiality of our proprietary property.
  All our employees and sales agents are required to sign these agreements prior
  to their employment or engagement.

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

GOVERNMENT REGULATIONS

All of our Enterphone and OEM products are FCC and IC approved
  as well as ADA approved where required by law depending specifically on particular
  products and place of installation. We are in the process of obtaining UL certifications
  for our MESH products.

Some of our products are still under government regulation.
  The Enterphone is an interposition technology which in U.S. states can only
  be installed where the local public service commission has designated the original
  point of entry of a building as the demarcation point between the telephone
  company and building owners responsibility.

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Conversely, it can also be installed where the telephone company
  has given consent to allow Enterphoneto share the telephone backbone.

The history of government deregulation for us mainly relates
  to the demarcation point in a building. Until government deregulation came to
  the access control industry, Enterphone type systems could only be installed
  by telephone companies.

Historically, Enterphone was approved by MA Bell. After the
  break-up each regional telephone company began to make its own decisions. As
  a result of this, Chicago, New York, and Boston became strong markets for the
  Enterphone. Another result of government deregulation was that many telephone
  companies withdrew from the access control systems industry, which resulted
  in our using direct dealers in those regions.

OUR SOURCES OF REVENUES

The majority of the Companys revenues are derived from
  the Enterphone product line. Historically, the Enterphone product sales represented
  approximately 72% to 80% of total revenues. In fiscal 2003 this percentage decreased
  to 60% due in part to new sources of revenues, including maintenance contracts
  purchased from Telus Corporation, and the commercial launch of MESH, which collectively
  represented 21.32% of revenues in fiscal 2003. The balance of the Companys
  revenues are derived from other products such as access tracking and control,
  closed circuit monitors, infrared and radio frequency remotes.

EMPLOYEES

Viscount employs twenty-six full time staff at its production
  facility and head office located in Burnaby, British Columbia.

Item 2. DESCRIPTION OF PROPERTY

PROPERTY

Our executive office and central factory is located in Burnaby,
  British Columbia, where we currently lease 12,040 square feet. We lease this
  space under an industry standard operating lease with a term expiring May 31,
  2004, renewable at the option of Viscount. Current monthly lease obligations
  are $7,023. We believe that our current facilities are adequate and are suitable
  for our current use, and that suitable additional facilities will be available,
  when needed, upon commercially reasonable terms. Our facilities are adequately
  insured against perils in a manner consistent with industry practice.

Item 3. LEGAL PROCEEDINGS

To the best of our knowledge, there are no legal actions pending,
  threatened, or contemplated against us.

Item 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS

None.

PART II.

Item 5. MARKET FOR THE REGISTRANTS COMMON EQUITY
  AND RELATED STOCKHOLDER MATTERS

Trades in our common shares are quoted on the Over-the-Counter
  Bulletin Board (OTC Bulletin Board) which is a quotation service administered
  by the National Association of Securities Dealers (NASD). Our trading symbol
  on this service is VSYS.

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The OTC Bulletin Board has a limited and sporadic trading
  market and does not constitute an established trading market. Our shares began
  trading on February 12, 2002. The following table sets forth the range of high
  and low price information of the common shares as reported on the OTC Bulletin
  Board for the last two fiscal years and the subsequent period ending March 9,
  2004. The price information available reflects inter-dealer prices, without
  retail mark-up, mark-down or commission and may not represent actual transactions.

|     |                                             | High (U.S. $) | Low (U.S. $) | 
|---- | ------------------------------------------- | ------------- | ------------ | 
|2004 | First Quarter (through March 09, 2003)      | $2.05         | $0.59        | 
|2003 | Fourth Quarter                              | 0.73          | 0.22         | 
|     | Third Quarter                               | 0.29          | 0.20         | 
|     | Second Quarter                              | 0.34          | 0.20         | 
|     | First Quarter                               | 0.44          | 0.12         | 
|2002 | Fourth Quarter                              | 0.45          | 0.12         | 
|     | Third Quarter                               | 1.28          | 0.34         | 
|     | Second Quarter                              | 3.15          | 0.90         | 
|     | First Quarter (beginning February 12, 2002) | 1.75          | 0.74         | 

As of February 18, 2004 there were 51 holders of record of
  our common stock, holding a total of 15,221,250 shares, and an unknown number
  of beneficial holders.

We have not declared any dividends in the last two fiscal
  years.

The following table sets forth information respecting our
  compensation plans as at December 31, 2003, under which shares of our common
  stock are authorized to be issued.

|Plan Category                                              | Number of securities tobe issued upon exerciseof outstanding options,warrants and rights(a) | Weighted-averageexercise price ofoutstanding
      options,warrants and rights(b) | Number of securitiesremaining available forfuture issuance underequity compensationplans (excludingsecurities reflected incolumn (a))(c)
|---------------------------------------------------------- | ------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------
|Equity compensation plans approved by security holders     | 3,998,750                                                                                   | US$0.27                                                                           | 0                                                                                                                                       
|Equity compensation plans not approved by security holders | N/a                                                                                         | N/a                                                                               | N/a                                                                                                                                     
|Total                                                      | 3,998,750                                                                                   | --                                                                                | 0                                                                                                                                       

Item 6. MANAGEMENTS DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

The following discusses our financial condition and results
  of operations based upon our consolidated financial statements which have been
  prepared in conformity with accounting principles generally accepted in the
  United States of America. It should be read in conjunction with our financial
  statements and the notes thereto included elsewhere herein. All dollar amounts
  are in Canadian dollars unless otherwise noted.

RESULTS OF OPERATIONS

Sales revenues for the year ended December 31, 2003 have increased
  by $720,608 or 21.4% to $4,084,593, as compared to sales revenues of $3,363,985
  for the year ended December 31, 2002. Sales have improved due to several reasons.
  Sales from our core Enterphone product lines have continued to be stable and
  show steady growth. These sales included sales of our new MESH and Emerphone
  products. In addition, the previously announced

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acquisition of customer service contracts, acquired from TELUS
  Corporation (Telus) on May 16, 2003, was completed on September
  15, 2003, with a total of 2,215 assigned service contracts. On average, each
  service contract acquired represents ongoing revenues of approximately CAD$33
  per month, inclusive of parts and labour. These contracts will allow us to provide
  Enterphone support and maintenance services to these assigned customers. Typical
  customers include strata management and building owners as well as various residential,
  business and industrial users of Enterphone access control and security systems.
  During 2003, these service contracts generated aggregate sales revenues of $428,567.

The cost of sales as a percentage of sales was 42.4% for the
  year ended December 31, 2003, as compared with the cost of sales as a percentage
  of sales of 47.1% for the year ended December 31, 2002. Costs of sales as a
  percentage of sales has decreased due to managements commitment of reviewing
  input costs regularly. Our policy of managing cost of sales remains the same.
  We are continuously focusing on controlling costs, by using multiple suppliers
  to ensure that the best and most inexpensive raw materials are used in our products.

Gross profit for the year ended December 31, 2003 was $2,353,544,
  an increase of 32.4%, as compared to a gross profit of $1,778,092 for the year
  ended December 31, 2002. This increase corresponds with the improved sales revenues
  and reduced cost of sales percentage for the year ended December 31, 2003.

Selling, general and administrative expenses decreased by
  $523,812 or (22.7)% for the year ended December 31, 2003 in comparison to the
  prior year comparative period. This decrease was due to the Companys on-going
  program to reduce costs, while maintaining an adequate level of operation. As
  a percentage of revenues, selling, general and administrative costs were 43.6%
  for the year ended December 31, 2003, as compared to 68.5% for the year ended
  December 31, 2002.

Research and development costs were $281,487 for the year
  ended December 31, 2003, as compared to $449,071 for the year ended December
  31, 2002. This reduction in cost reflects the decreased research and development
  costs incurred due the completion of the initial stages of the MESH project.

Income before tax for the year ended December 31, 2003 was
  $222,633, as compared to the loss before tax, of $(997,705) for the year ended
  December 31, 2002. This is an increase of $1,220,338.

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents at December 31, 2003 totaled $411,447,
  as compared with the cash and cash equivalents of $272,564 at December 31, 2002.
  No short-term investments were held at December 31, 2003 or 2002. Our cash position
  improved for a few reasons. During the quarter ended March 31, 2003, we received
  $46,318 in scientific tax funding grants from the Government of Canada for the
  2001 fiscal year. We are also receiving approximately $100,000 per month of
  cash receipts from the customer service contracts we acquired from Telus on
  May 16, 2003. We have a bank credit facility available for an operating loan
  of up to a maximum of $300,000 at the prime lending rate plus 0.50%. At December
  31, 2003, $86,115 was drawn on this facility. The facility is secured by a general
  security agreement.

At December 31, 2003, the working capital was $1,132,224,
  as compared to a working capital of $722,417 at December 31, 2002. This is an
  improvement of $409,807. Working capital improved because $310,000 was borrowed
  on a long-term basis to acquire the servicing agreements from Telus on May 16,
  2003. The current ratio at December 31, 2003 was 2.2 to 1.0 as compared with
  1.8 to 1.0 at December 31, 2002. The increased current ratio reflects our improved
  working capital position.

The accounts receivable turnover ratio for the year ended December
  31, 2003 was 69 days, as compared to 74 days for the year ended December 31,
  2002. This ratio has improved by 5 days since the year ended December 31, 2002.
  The accounts receivable reserve has also been reduced to $72,902 for the year
  ended December 31, 2003, as compared to $81,846 for the year ended December
  31, 2002. This ratio and reserve reduction were due to the recognition and removal
  of older doubtful customer accounts from the accounts receivable ledger, as
  well as more consistent follow-up by management on certain customer accounts.
  There has been no significant or material business conditions that would warrant
  an increase to the reserve at this time.

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We have funded business operations using cash advanced under
  the bank credit facility, incurring additional debt through notes payable, and
  the scientific tax funding grants received during the first quarter of 2003.
  Proceeds from notes payable were used to finance the asset purchase agreement
  with Telus on May 16, 2003, of which we were obligated to pay a total of $208,920.
  This total amount has been paid.

For the year ended December 31, 2003, there were no capital
  expenditures other than the purchase of equipment and the payment of $208,920
  for the acquisition of customer service contracts from Telus.

For the years ended December 31, 2003 and 2002, we have not
  invested in derivative securities or any other financial instruments that involve
  a high level of complexity or risk. We expect that in the future, any excess
  cash will continue to be invested in high credit quality, interest-bearing securities.

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

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

We do not have any material commitments for capital expenditures
  as of December 31, 2003.

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

Related Party Transactions

For the year ended December 31, 2003, we sold $Nil ($112,043
  for the year ended December 31, 2002) to a company affiliated through common
  ownership. After June 1, 2002, the affiliation ceased.

Critical Accounting Policies:

The Companys discussion and analysis of its financial
  condition and results of operations, including the discussion on liquidity and
  capital resources, are based upon the Companys financial statements, which
  have been prepared in accordance with accounting principles generally accepted
  in the United States. The preparation of these financial statements requires
  the Company to make estimates and judgments that affect the reported amounts
  of assets, liabilities, revenues and expenses, and related disclosure of contingent
  assets and liabilities. On an ongoing basis, management re-evaluates its estimates
  and judgments, particularly those related to the determination of the estimated
  recoverable amounts of investment tax credits, trade accounts receivable, and
  deferred tax assets. The Company believes the following critical accounting
  policies require its more significant judgment and estimates used in the preparation
  of the consolidated financial statements.

The Company follows the cost reduction method of accounting
  for investment tax credits and recognizes the estimated net recoverable amount
  when reasonable assurance exists as to their collectability. Investment tax
  credits claimed are ultimately subject to finalization of a review by Canada
  Customs and Revenue Agency. No assurances can be provided that the Companys
  investment tax credit claims will be accepted as filed.

The Company maintains an allowance for doubtful accounts for
  estimated losses that may arise if any of its customers are unable to make required
  payments. Management specifically analyzes the age of customer balances, historical
  bad debt experience, customer credit-worthiness, and changes in customer payment
  terms when making estimates of the uncollectability of the Companys trade
  accounts receivable balances. If the Company determines that the financial conditions
  of any of its customers deteriorated, whether due to customer specific or general
  economic issues, increases in the allowance may be made.

Income taxes are accounted for under the asset and liability
  method. Under this method, to the extent that it is not more likely than not
  that a deferred tax asset will be recovered, a valuation allowance is provided.
  In making this

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determination, the Company considers estimated future taxable
  income and taxable timing differences expected to reverse in the future. Actual
  results may differ from those estimates

Item 7. FINANCIAL STATEMENTS

The financial statements are attached to this report following
  the signature page.

Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
  ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.

Item 8A. CONTROLS AND PROCEDURES

We maintain disclosure controls and procedures that are designed
  to ensure that information required to be disclosed in our reports filed pursuant
  to the Securities Exchange Act of 1934 are recorded, processed, summarized and
  reported within the time periods specified in the rules and forms promulgated
  under such Act, and that such information is accumulated and communicated to
  management, including its Chief Executive Officer and Chief Financial Officer,
  as appropriate, to allow timely decisions regarding required disclosure.

As of the end of the period covered by this report, management
  carried out an evaluation, under the supervision and with the participation
  of the management, including the Chief Executive Officer and Chief Financial
  Officer, of the effectiveness of the design and operation of our disclosure
  controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon the
  foregoing, the Chief Executive Officer and Chief Financial Officer concluded
  that our disclosure controls and procedures are effective in connection with
  the filing of this Annual Report on Form 10-KSB for the year ended December
  31, 2003.

There were no significant changes in our internal controls
  or in other factors that could significantly affect these controls subsequent
  to the date of their evaluation, including any significant deficiencies or material
  weaknesses of internal controls that would require corrective action.

PART III.

Items 9 - 12

Information with respect to Items 9 - 12 is set forth in the
  Proxy Statement to be filed with the Securities and Exchange Commission on or
  before April 29, 2004 and is incorporated herein by reference.

Item 13.EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

|Exhibit No. | Description of Exhibit                                                   | Manner of Filing                                                                                                       
|----------- | ------------------------------------------------------------------------ | -----------------------------------------------------------------------------------------------------------------------
|            |                                                                          |                                                                                                                        
|3.1         | Articles of Incorporation                                                | Incorporated by reference to Exhibit 3.1 to the Form SB-2 of the Company,
      SEC File No. 333-68998 (the Form SB-2)
|            |                                                                          |                                                                                                                        
|3.2         | Amendment to the Articles of Incorporation                               | Incorporated by reference to Exhibit 3.2 to the Form SB-2                                                              
|            |                                                                          |                                                                                                                        
|3.3         | Bylaws                                                                   | Incorporated by reference to Exhibit 3.1 to the Form SB-2                                                              
|            |                                                                          |                                                                                                                        
|10.1        | Stock Acquisition Agreement with OMW 4 Corp., 
      dated July 18, 2001 | Incorporated by reference to Exhibit 10.1 to the Form SB-2                                                             

18

---

|10.2 | Employment Agreement with Stephen Pineau                                                                                          | Incorporated by reference to Exhibit 10.2 to the Form SB-2                                                              
|---- | --------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------------------
|     |                                                                                                                                   |                                                                                                                         
|10.3 | Employment Agreement with Greg Chen                                                                                               | Incorporated by reference to Exhibit 10.3 to the Form SB-2                                                              
|     |                                                                                                                                   |                                                                                                                         
|10.4 | 2001 Stock Option Plan                                                                                                            | Incorporated by reference to Exhibit A to the Proxy Statement on Schedule
      14A filed with the SEC on April 30, 2002
|     |                                                                                                                                   |                                                                                                                         
|10.5 | 2003 Stock Option Plan                                                                                                            | Incorporated by reference to Exhibit A to the Proxy Statement on Schedule
      14A filed with the SEC on April 30, 2003
|     |                                                                                                                                   |                                                                                                                         
|10.6 | Asset Purchase Agreement between Viscount Communication and
      Control Systems Inc. and TELUS Corporation dated April 15, 2003 | Incorporated by reference to Exhibit 10.1 to the Form 8-K filed with the
      SEC on May 28, 2003                      
|     |                                                                                                                                   |                                                                                                                         
|10.7 | Amending Agreement between Viscount Communication and Control
      Systems Inc. and TELUS Corporation dated April 30, 2003       | Incorporated by reference to Exhibit 10.2 to the Form 8-K filed with the
      SEC on May 28, 2003                      
|     |                                                                                                                                   |                                                                                                                         
|16.1 | Letter from KPMG LLP on change in certifying accountant                                                                           | Incorporated by reference to Exhibit 16 to the Form 8-K filed with the
      SEC on January 21, 2003                    
|     |                                                                                                                                   |                                                                                                                         
|21.1 | Subsidiaries of the registrant                                                                                                    | Incorporated by reference to Exhibit 21.1 to the Form SB-2                                                              
|     |                                                                                                                                   |                                                                                                                         
|23.1 | Consent of J.H. Cohn LLP                                                                                                          | Filed herewith                                                                                                          
|     |                                                                                                                                   |                                                                                                                         
|31.1 | Section 302 certification of the
      Chief Executive Officer                                                                    | Filed herewith                                                                                                          
|     |                                                                                                                                   |                                                                                                                         
|31.2 | Section 302 certification of the Chief Financial
      Officer                                                                    | Filed herewith                                                                                                          
|     |                                                                                                                                   |                                                                                                                         
|32.1 | Section 906 certification of the
      Chief Executive and Chief Financial Officer                                                | Filed herewith                                                                                                          

(b) Reports on Form 8-K

None.

Item 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information with respect to Item 14 is set forth in the Proxy
  Statement to be filed with the Securities and Exchange Commission on or before
  April 29, 2004 and is incorporated herein by reference.

19

---

Signatures

In accordance with Section 13 or 15(d) of the Exchange Act,
  the registrant caused this report to be signed on its behalf by the undersigned,
  thereunto duly authorized, on March 31, 2004.

VISCOUNT SYSTEMS, INC. By: /s/ Stephen Pineau 
  Stephen Pineau 
  President and Chief Executive Officer

In accordance with the requirements of the Exchange Act, this
  report has been signed by the following persons on behalf of the registrant
  and in the capacities indicated on the dates indicated.

|    | Signature          | Title                       | Date          
|--- | ------------------ | --------------------------- | --------------
|    |                    |                             |               
|By: | /s/ Stephen Pineau | President, Secretary,       | March 30, 2004
|    | Stephen Pineau     | Chief Executive Officer and |               
|    |                    | Director                    |               
|    |                    |                             |               
|By: | /s/ Greg Shen      | Chairman of the Board and   | March 30, 2004
|    | Greg Shen          | Director                    |               
|    |                    |                             |               
|    |                    |                             |               
|By: | /s/ Les Fong       | Chief Financial Officer     | March 30, 2004
|    | Les Fong           |                             |               

20

---

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Stockholders 
  Viscount Systems, Inc.

We have audited the accompanying consolidated balance sheets
  of Viscount Systems, Inc. and Subsidiary as of December 31, 2003 and 2002, and
  the related consolidated statements of operations, stockholders equity
  and cash flows for the years then ended. These financial statements are the
  responsibility of the Companys management. Our responsibility is to express
  an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards
  generally accepted in the United States of America. Those standards require
  that we plan and perform the audit to obtain reasonable assurance about whether
  the financial statements are free of material misstatement. An audit includes
  examining, on a test basis, evidence supporting the amounts and disclosures
  in the financial statements. An audit also includes assessing the accounting
  principles used and significant estimates made by management, as well as evaluating
  the overall financial statement presentation. We believe that our audits provide
  a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred
  to above present fairly, in all material respects, the financial position of
  Viscount Systems, Inc. and Subsidiary at December 31, 2003 and 2002, and their
  results of operations and cash flows for the years then ended, in conformity
  with accounting principles generally accepted in the United States of America.

/s/ J. H. Cohn LLP
  J. H. Cohn LLP 
  San Diego, California 
  March 11, 2004

---

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

|                                                                                 | December 31, |           | December 31, |  
|-------------------------------------------------------------------------------- | ------------ | --------- | ------------ | -
|                                                                                 | 2003         |           | 2002         |  
|                                                                                 |              |           |              |  
|                                                                                 |              |           |              |  
|Assets                                                                           |              |           |              |  
|                                                                                 |              |           |              |  
|Current assets                                                                   |              |           |              |  
|Cash and cash equivalents                                                        | $            | 411,447   |              | $
|Trade accounts receivable, less allowance for doubtful accounts                  |              |           |              |  
|of $72,902 at December 31, 2003 and $81,846 at
      December 31, 2002 (note 13) |              | 744,309   |              |  
|Inventory (note 3)                                                               |              | 857,133   |              |  
|Prepaid expenses                                                                 |              | 1,391     |              |  
|Income taxes recoverable (note 12)                                               |              | 67,352    |              |  
|Total current assets                                                             |              | 2,081,632 |              |  
|                                                                                 |              |           |              |  
|Leases receivable (note 4)                                                       |              | 16,778    |              |  
|                                                                                 |              |           |              |  
|Equipment, net (note 5)                                                          |              | 121,425   |              |  
|                                                                                 |              |           |              |  
|Intangible assets (note 6)                                                       |              | 225,289   |              |  
|                                                                                 |              |           |              |  
|Total assets                                                                     | $            | 2,445,124 |              | $
|                                                                                 |              |           |              |  
|Liablilities and stockholders' equity                                            |              |           |              |  
|                                                                                 |              |           |              |  
|Current liabilities                                                              |              |           |              |  
|Bank indebtedness (note 7)                                                       | $            | 86,115    |              | $
|Accounts payable and accrued liabilities                                         |              | 387,463   |              |  
|Deferred revenue                                                                 |              | 27,428    |              |  
|Due to stockholders (note 8)                                                     |              | 448,402   |              |  
|Total current liabilities                                                        |              | 949,408   |              |  
|                                                                                 |              |           |              |  
|Notes payable (note 9)                                                           |              | 265,000   |              |  
|Total liabilities                                                                |              | 1,214,408 |              |  
|                                                                                 |              |           |              |  
|Commitments (note 14)                                                            |              |           |              |  
|                                                                                 |              |           |              |  
|Stockholders' equity                                                             |              |           |              |  
|Capital stock (note 10)                                                          |              |           |              |  
|Authorized:                                                                      |              |           |              |  
|100,000,000 common shares with a par value
      of US$0.001 per share           |              |           |              |  
|20,000,000 preferred shares with a par value
      of US$0.001 per share         |              |           |              |  
|Issued and outstanding:                                                          |              |           |              |  
|15,201,250 common shares (2002 - 15,181,250)                                     |              | 22,792    |              |  
|Additional paid-in capital                                                       |              | 1,552,419 |              |  
|Accumulated deficit                                                              |              | (344,495  | )            |  
|Total stockholders' equity                                                       |              | 1,230,716 |              |  
|                                                                                 |              |           |              |  
|Total liabilities and stockholders' equity                                       | $            | 2,445,124 |              | $

See accompanying notes to consolidated financial statements.

---

|Years ended December 31                                    |   |            |   |   |            |  
|---------------------------------------------------------- | - | ---------- | - | - | ---------- | -
|                                                           |   |            |   |   |            |  
|                                                           |   |            |   |   |            |  
|                                                           |   | 2003       |   |   | 2002       |  
|                                                           |   |            |   |   |            |  
|                                                           |   |            |   |   |            |  
|Sales                                                      | $ | 4,084,593  |   | $ | 3,363,985  |  
|Cost of sales                                              |   | 1,731,049  |   |   | 1,585,893  |  
|Gross profit                                               |   | 2,353,544  |   |   | 1,778,092  |  
|                                                           |   |            |   |   |            |  
|Expenses                                                   |   |            |   |   |            |  
|Selling, general and administrative                        |   | 1,781,525  |   |   | 2,305,336  |  
|Research and development, net (note
      10)              |   | 281,487    |   |   | 449,071    |  
|Depreciation
      and amortization                        |   | 42,357     |   |   | 35,644     |  
|                                                           |   | 2,105,369  |   |   | 2,790,051  |  
|                                                           |   |            |   |   |            |  
|Income (loss) before other items                           |   | 248,175    |   |   | (1,011,959 | )
|                                                           |   |            |   |   |            |  
|Other items                                                |   |            |   |   |            |  
|Other income                                               |   | 4,110      |   |   | 27,773     |  
|Interest and
      bank charges                            |   | (29,652    | ) |   | (13,519    | )
|                                                           |   | (25,542    | ) |   | 14,254     |  
|                                                           |   |            |   |   |            |  
|Income (loss) before income taxes                          |   | 222,633    |   |   | (997,705   | )
|                                                           |   |            |   |   |            |  
|Current credit for income taxes (note 12)                  |   | (12,879    | ) |   | (90,334    | )
|                                                           |   |            |   |   |            |  
|Net income (loss)                                          | $ | 235,512    |   | $ | (907,371   | )
|                                                           |   |            |   |   |            |  
|Basic and diluted net income (loss) per common
      share | $ | 0.02       |   | $ | (0.06      | )
|                                                           |   |            |   |   |            |  
|Weighted average number of common shares outstanding       |   |            |   |   |            |  
|Basic                                                      |   | 15,183,551 |   |   | 14,878,408 |  
|Diluted                                                    |   | 15,446,761 |   |   | 14,878,408 |  

See accompanying notes to consolidated financial statements.

---

|                                |              |  |   |         |  |                   |            |   |                       |          |   |       |           |  
|------------------------------- | ------------ |  | - | ------- |  | ----------------- | ---------- | - | --------------------- | -------- | - | ----- | --------- | -
|                                |              |  |   |         |  |                   |            |   |                       |          |   |       |           |  
|                                |              |  |   |         |  |                   | Additional |   |                       |          |   |       |           |  
|                                | Common Stock |  |   | paid-in |  | Retained earnings |            |   |                       |         
|                                | Shares       |  |   | Amount  |  |                   | capital    |   | (Accumulated deficit) |          |   | Total |          
|                                |              |  |   |         |  |                   |            |   |                       |          |   |       |           |  
|                                |              |  |   |         |  |                   |            |   |                       |          |   |       |           |  
|Balance, January 1, 2002        | 13,500,000   |  | $ | 20,250  |  | $                 | 662        |   | $                     | 327,364  |   | $     | 348,276   |  
|                                |              |  |   |         |  |                   |            |   |                       |          |   |       |           |  
|Stock issued for cash           | 1,600,000    |  |   | 2,400   |  |                   | 1,639,656  |   |                       | -        |   |       | 1,642,056 |  
|Stock issued for cash upon      |              |  |   |         |  |                   |            |   |                       |          |   |       |           |  
|exercise of stock options       | 81,250       |  |   | 122     |  |                   | 82,016     |   |                       | -        |   |       | 82,138    |  
|Stock issue costs               | -            |  |   | -       |  |                   | (281,866   | ) |                       | -        |   |       | (281,866  | )
|Fair value of options issued to |              |  |   |         |  |                   |            |   |                       |          |   |       |           |  
|non-employees for services      | -            |  |   | -       |  |                   | 41,940     |   |                       |          |   |       | 41,940    |  
|Net loss                        | -            |  |   | -       |  |                   | -          |   |                       | (907,371 | ) |       | (907,371  | )
|                                |              |  |   |         |  |                   |            |   |                       |          |   |       |           |  
|Balance, December 31, 2002      | 15,181,250   |  |   | 22,772  |  |                   | 1,482,408  |   |                       | (580,007 | ) |       | 925,173   |  
|                                |              |  |   |         |  |                   |            |   |                       |          |   |       |           |  
|Stock issued for cash upon      |              |  |   |         |  |                   |            |   |                       |          |   |       |           |  
|exercise of stock options       | 20,000       |  |   | 20      |  |                   | 3,157      |   |                       |          |   |       | 3,177     |  
|Fair value of options issued to |              |  |   |         |  |                   |            |   |                       |          |   |       |           |  
|non-employees for services      | -            |  |   | -       |  |                   | 66,854     |   |                       | -        |   |       | 66,854    |  
|Net income                      |              |  |   |         |  |                   |            |   |                       | 235,512  |   |       | 235,512   |  
|                                |              |  |   |         |  |                   |            |   |                       |          |   |       |           |  
|Balance, December 31, 2003      | 15,201,250   |  | $ | 22,792  |  | $                 | 1,552,419  |   | $                     | (344,495 | ) | $     | 1,230,716 |  

See accompanying notes to consolidated financial statements.

---

|Years ended December 31                                                  |   |          |   |   |           |  
|------------------------------------------------------------------------ | - | -------- | - | - | --------- | -
|                                                                         |   | 2003     |   |   | 2002      |  
|                                                                         |   |          |   |   |           |  
|                                                                         |   |          |   |   |           |  
|                                                                         |   |          |   |   |           |  
|Operating activities:                                                    |   |          |   |   |           |  
|Net income (loss)                                                        | $ | 235,512  |   | $ | (907,371  | )
|Items not involving cash:                                                |   |          |   |   |           |  
|Depreciation and amortization                                            |   | 42,357   |   |   | 35,644    |  
|Selling, general and administrative
      expenses paid by stock options |   | 66,854   |   |   | 41,940    |  
|Changes in non-cash working capital
      balances (note 15)             |   | (320,886 | ) |   | (64,541   | )
|Net
      cash provided by (used in) operating activities                |   | 23,837   |   |   | (894,328  | )
|                                                                         |   |          |   |   |           |  
|Investing activities:                                                    |   |          |   |   |           |  
|Purchase of equipment                                                    |   | (2,914   | ) |   | (99,546   | )
|Purchase of net assets of acquired business                              |   | -        |   |   | (35,610   | )
|Purchase of service agreements                                           |   | (208,920 | ) |   | -         |  
|Net
      cash used in investing activities                              |   | (211,834 | ) |   | (135,156  | )
|                                                                         |   |          |   |   |           |  
|Financing activities:                                                    |   |          |   |   |           |  
|Proceeds from (repayment of) bank indebtedness                           |   | 58,703   |   |   | (316,117  | )
|Proceeds from notes payable                                              |   | 310,000  |   |   | -         |  
|Repayment of notes payable                                               |   | (45,000  | ) |   | (20,000   | )
|Issuance of capital stock, net
      of stock issue costs                |   | 3,177    |   |   | 1,509,445 |  
|Net
      cash provided by financing activities                          |   | 326,880  |   |   | 1,173,328 |  
|                                                                         |   |          |   |   |           |  
|Increase in cash and cash equivalents                                    |   | 138,883  |   |   | 143,844   |  
|                                                                         |   |          |   |   |           |  
|Cash and cash equivalents, beginning of year                             |   | 272,564  |   |   | 128,720   |  
|                                                                         |   |          |   |   |           |  
|Cash and cash equivalents, end of year                                   | $ | 411,447  |   | $ | 272,564   |  
|                                                                         |   |          |   |   |           |  
|                                                                         |   |          |   |   |           |  
|Supplementary information:                                               |   |          |   |   |           |  
|Interest paid                                                            | $ | 11,414   |   | $ | 8,625     |  
|Income taxes recovered                                                   |   | (12,879  | ) |   | -         |  

See accompanying notes to consolidated financial statements.

---

|
|

|1. | Operations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|-- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | Viscount Systems Inc. (the
        Company) was incorporated on May 24, 2001. The Company manufactures
        and distributes electronic premises access and security equipment. The
        functional currency for the Company and its wholly-owned subsidiary is
        the Canadian dollar.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | Effective July 27, 2001,
        the Company, formerly OMW4 Corp., underwent a corporate reorganization
        which culminated in the acquisition of all the voting shares of Viscount
        Communication and Control System Inc. (VCCS). This acquisition
        was accounted for as a recapitalization. Capital stock on the consolidated
        balance sheets and consolidated statements of stockholder equity have
        been retroactively restated to reflect the authorized and issued common
        shares related to VCCSs stockholders after the recapitalization
        effectively as if the recapitalization resulted in a stock split of VCCSs
        capital. The net income (loss) per share for the periods prior to July
        27, 2001 have been calculated using a weighted average number of 10,000,000
        shares outstanding, which was the number of common shares issued on completion
        of the recapitalization. Following the acquisition, OMW4 Corp. was renamed
        Viscount Systems Inc.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|2. | Significant accounting policies                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|  
|   | These consolidated financial
        statements have been prepared in conformity with accounting principles
        generally accepted in the United States of America. The significant accounting
        policies adopted by the Company are as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | (a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   | (b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

---

|
|

|2. | Significant accounting policies (contd)
|-- | -----------------------------------------
|   |                                          
|   | (c)                                      
|   |                                          
|   | (d)                                      
|   |                                          
|   | (e)                                      
|   |                                          
|   | (f)                                      
|   |                                          
|   | (g)                                      
|   |                                          

| |  |                                |                   |     
| |  | ------------------------------ | ----------------- | ----
| |  | Asset                          | Basis             | Rate
| |  | Computer equipment             | declining balance | 30% 
| |  | Office furniture and equipment | declining balance | 20% 
| |  | Manufacturing equipment        | declining balance | 20% 
| |  | Leasehold improvements         | straight-line     | 20% 
| |  |                                |                   |     

---

|
|

|2. | Significant accounting policies (contd)
|-- | -----------------------------------------
|   | (h)                                      
|   |                                          
|   |                                          
|   |                                          
|   |                                          
|   |                                          
|   | (i)                                      
|   |                                          
|   | (j)                                      
|   |                                          
|   | (k)                                      
|   |                                          
|   | (l)                                      

---

|
|

|2. | Significant accounting policies (contd)
|-- | -----------------------------------------
|   |                                          
|   | (m)                                      
|   |                                          
|   | (n)                                      
|   |                                          
|   | (o)                                      

---

|
|

|2. | Significant accounting policies (contd)
|-- | -----------------------------------------
|   |                                          
|   | (p)                                      
|   |                                          
|   | (q)                                      

---

|
|

|2. | Significant accounting policies (contd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|   | and Hedging Activities. SFAS 149
        was generally effective for contracts entered into or modified after June
        30, 2003.
        In May 2003, FASB issued Statements of Financial Accounting Standards
        No. 150 Accounting for Certain Financial Instruments with Characteristics
        of both Liabilities and Equity (SFAS 150). SFAS 150
        establishes standards for how an issuer classifies and measures certain
        financial instruments with characteristics of both liabilities and equity.
        SFAS 150 was effective for financial instruments entered into or modified
        after May 31, 2003.
        The adoption of these new pronouncements did not have and is not expected
        to have a material effect on the Company's consolidated financial position
        or results of operations.
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|3. | Inventory                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    

| |                 |   |         |  |   |         | 
| | --------------- | - | ------- |  | - | ------- | 
| |                 |   | 2003    |  |   | 2002    | 
| |                 |   |         |  |   |         | 
| |                 |   |         |  |   |         | 
| | Raw materials   | $ | 567,665 |  | $ | 453,068 | 
| | Work in process |   | 65,615  |  |   | 35,646  | 
| | Finished goods  |   | 223,853 |  |   | 106,413 | 
| |                 |   |         |  |   |         | 
| |                 | $ | 857,133 |  | $ | 595,127 | 

|   |                                                                                                                                                                                                                                                   
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|4. | Leases receivable                                                                                                                                                                                                                                 
|   |                                                                                                                                                                                                                                                   
|   | Leases receivable include amounts due
        from customers in monthly installments on five-year leasing contracts
        expiring in 2005. Contracts bear interest rates of 12% per annum and are
        secured by the equipment under lease.
|   |                                                                                                                                                                                                                                                   
|5. | Equipment                                                                                                                                                                                                                                         
|   |                                                                                                                                                                                                                                                   

| |                                |   |         |  | Accumulated      |         |          |   |        
| | ------------------------------ | - | ------- |  | ---------------- | ------- | -------- | - | -------
| |                                |   |         |  | depreciation and |         | Net book |  
| | 2003                           |   | Cost    |  | amortization     |         | value    |  
| |                                |   |         |  |                  |         |          |   |        
| | Computer equipment             | $ | 88,562  |  | $                | 45,366  |          | $ | 43,196 
| | Office furniture and equipment |   | 68,713  |  |                  | 13,435  |          |   | 55,278 
| | Manufacturing equipment        |   | 28,360  |  |                  | 23,716  |          |   | 4,644  
| | Leasehold improvements         |   | 46,814  |  |                  | 28,507  |          |   | 18,307 
| |                                |   |         |  |                  |         |          |   |        
| |                                | $ | 232,449 |  | $                | 111,024 |          | $ | 121,425

---

|
|

|5. | Equipment (contd)
|-- | -------------------

| |                                |   |         |  |                  |        |  |          |         | 
| | ------------------------------ | - | ------- |  | ---------------- | ------ |  | -------- | ------- | 
| |                                |   |         |  | Accumulated      |        |  |          |        
| |                                |   |         |  | depreciation and |        |  | Net book |        
| | 2002                           |   | Cost    |  | amortization     |        |  | value    |        
| |                                |   |         |  |                  |        |  |          |         | 
| | Computer equipment             | $ | 85,648  |  | $                | 33,134 |  | $        | 52,514  | 
| | Office furniture and equipment |   | 68,713  |  |                  | 7,488  |  |          | 61,225  | 
| | Manufacturing equipment        |   | 28,360  |  |                  | 20,655 |  |          | 7,705   | 
| | Leasehold improvements         |   | 46,814  |  |                  | 23,758 |  |          | 23,056  | 
| |                                | $ | 229,535 |  | $                | 85,035 |  | $        | 144,500 | 

|6. | Acquistions of intangible assets                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|   | On May 16, 2003, the Company consummated an agreement
        for the purchase of certain assets of Telus Corporation (Telus)
        comprised primarily of service agreements for a product sold by Telus
        known as Enterphone 2000. The Enterphone 2000 is a building
        access control system that uses a buildings internal phone wiring
        thereby avoiding the use of telephone utility services. Each customer
        that entered into a service agreement with Telus must agree to assign
        the service agreement to the Company. The Company had agreed to pay Telus
        a specified amount from time to time based on the number of customers
        that agreed to assign service agreements to it and, accordingly, the aggregate
        purchase price would vary based on the number of assignments. At December
        31, 2003, the Company had acquired 2,215 service agreements for which
        it was obligated to pay a total of $208,920 of which all has been paid
        and included in intangible assets.
      During June 2002, the Company acquired certain net assets
        and business operations of Sigma Data Systems, an unrelated company, for
        cash consideration of $35,610. This business combination has been accounted
        for by the purchase method. The consideration has been allocated to the
        fair value of the net assets acquired as follows:
|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

| | Inventory                 | $ | 6,627   |  
| | ------------------------- | - | ------- | -
| | Equipment                 |   | 3,710   |  
| | Sales contract            |   | 40,920  |  
| | Liabilities
      assumed |   | (15,647 | )
| |                           |   |         |  
| |                           | $ | 35,610  |  

---

|
|

|6. | Intangible assets (contd)                                                                                                                                                                                                                                                                                     
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                 
|   | The sales contract is being amortized using the straight-line
        method over its estimated useful life of 2.5 years. As at December 31,
        2003, the sales contract, with a cost of $40,920, has been amortized by
        $24,552, leaving a net book value of $16,368 included in intangible assets.

| | Unaudited pro forma information as to the Companys
        net loss and net loss per share assuming the acquisition had been consummated
        on January 1, 2002 has not been presented because such amounts would not
        differ materially from the related historical amounts.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|7. | Bank indebtedness                                                                                                                                                                                                                                                                                                                                                                                             
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                                                                                               
|   | Bank indebtedness represents cheques
        written in excess of funds on deposit and amounts drawn under a bank credit
        facility available to a maximum of $300,000. Amounts outstanding under
        the bank credit facility bear interest at the banks prime lending
        rate plus 0.50%, are repayable on demand and are secured by personal property
        of a significant stockholder.
|   |                                                                                                                                                                                                                                                                                                                                                                                                               
|8. | Due to stockholders                                                                                                                                                                                                                                                                                                                                                                                           
|   |                                                                                                                                                                                                                                                                                                                                                                                                               
|   | Amounts due to stockholders are non-interest
        bearing, unsecured and have no fixed terms of repayment.                                                                                                                                                                                                                                                                                                 

---

|
|

|9.  | Notes payable                                                                                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                        
|    | The notes payable bear interest
        at 8% per annum, are unsecured, and are due April 30, 2005. Potential
        prepayments are made at the discretion of the Board of Directors.
|    |                                                                                                                                                                                        
|10. | Capital stock                                                                                                                                                                          
|    |                                                                                                                                                                                        
|    | (a)                                                                                                                                                                                    
|    |                                                                                                                                                                                        
|    | (b)                                                                                                                                                                                    

---

|
|

|10. | Capital stock (contd)
|--- | -----------------------
|    |                        
|    | (c)                    
|    |                        
|    |                        
|    |                        
|    |                        

---

|
|

|10. | Capital stock (contd)
|--- | -----------------------

| |  | A summary of the stock option activity is as follows:
| |  | -----------------------------------------------------

| |                                        |                   |   |                  |      | 
| | -------------------------------------- | ----------------- | - | ---------------- | ---- | 
| |                                        |                   |   |                  |      | 
| |                                        | Number of options |   | Weighted average |     
| |                                        |                   |   | Exercise price   |     
| | Outstanding at January 1, 2002         | 1,255,000         |   | $                | 0.65 | 
| | Granted                                | -                 |   |                  | -    | 
| | Exercised                              | (81,250           | ) |                  | 0.65 | 
| | Expired/cancelled                      | (100,000          | ) |                  | 0.65 | 
| | Outstanding at December 31, 2002       | 1,073,750         |   |                  | 0.65 | 
| | Granted                                | 3,062,500         |   |                  | 0.13 | 
| | Exercised                              | (20,000           | ) |                  | 0.12 | 
| | Expired/cancelled                      | (117,500          | ) |                  | 0.31 | 
| | Outstanding at December 31,
      2003 | 3,998,750         |   |                  | 0.27 | 
| | Weighted average grant-date fair value |                   |   | $                | -    | 
| | during 2002                            |                   |   |                  |      | 
| | Weighted average grant-date fair value |                   |   |                  |      | 
| | during 2003                            |                   |   | $                | 0.09 | 
| |                                        |                   |   |                  |      | 

| |  | During the year ended December 31, 2003, the Company
        recognized stock-based compensation expense on the issuance of stock options
        to employees of $62,388 (2002 -$Nil) and recorded $4,466 (2002 - $41,940)
        relating to the fair value of stock options issued to non-employees. Total
        stock-based compensation of $66,854 (2002  $41,940) has been recorded
        in selling, general and administrative expenses in the consolidated statements
        of operations.
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

|
|

|10. | Capital stock (contd)
|--- | -----------------------
|    |                        
|    |                        

| |                |                           |                           |          |           |               
| | -------------- | ------------------------- | ------------------------- | -------- | --------- | --------------
| |                | Outstanding
      Options | Exercisable
      Options
| |                |                           | Weighted                  |          |           |               
| |                |                           | Average                   | Weighted |           |               
| |                |                           | Remaining                 | Average  |           | Weighted      
| | Exercise Price | Number                    | Contractual               | Exercise | Number    | Average       
| |                |                           | Life                      | Price    |           | Exercise Price
| |                |                           |                           |          |           |               
| |                |                           |                           |          |           |               
| | 2001 Plan:     |                           |                           |          |           |               
| | $0.12          | 245,000                   | 9.98 years                | $0.12    | 245,000   | $0.12         
| | $0.18          | 30,000                    | 3.98 years                | $0.18    | 7,500     | $0.18         
| | $0.26          | 100,000                   | 3.98 years                | $0.26    | 50,000    | $0.26         
| | $0.45          | 7,500                     | 3.98 years                | $0.45    | 1,875     | $0.45         
| | $0.55          | 5,000                     | 3.98 years                | $0.55    | 1,250     | $0.55         
| | $0.65          | 1,031,250                 | 7.98 years                | $0.65    | 566,875   | $0.65         
| |                |                           |                           |          |           |               
| | 2003 Plan:     |                           |                           |          |           |               
| | $0.12          | 2,455,000                 | 9.09 years                | $0.12    | 712,500   | $0.12         
| | $0.20          | 7,500                     | 3.98 years                | $0.20    | 43,750    | $0.20         
| | $0.26          | 105,000                   | 3.98 years                | $0.26    | 17,500    | $0.26         
| | $0.60          | 12,500                    | 3.98 years                | $0.60    | 3,125     | $0.60         
| |                |                           |                           |          |           |               
| |                | 3,998,750                 | 8.51 years                | $0.27    | 1,649,375 | $0.31         

---

|
|

|10. | Capital stock (contd)
|--- | -----------------------

| |  | The Company used the Black-Scholes option pricing
        model to compute estimated fair value based on the following assumptions:
| |  | -----------------------------------------------------------------------------------------------------------------------------------

| |                  |           |  |           | 
| | ---------------- | --------- |  | --------- | 
| |                  | 2003      |  | 2002      | 
| |                  |           |  |           | 
| | Expected         |           |  |           | 
| | dividend yield   | -         |  | -         | 
| | Average          |           |  |           | 
| | expected stock   |           |  |           | 
| | price volatility | 87%       |  | 119%      | 
| | Risk-free        | 3.26%     |  |           | 
| | interest rate    | 5.10%     |  | 4.04%     | 
| | Expected life of |           |  |           | 
| | options          | 1-4 years |  | 3.5 years | 

---

|
|

|**10.** | Capital stock (contd)
|------- | -----------------------

| |  | The following table illustrates the pro forma effect
        on net income (loss) and net income (loss) per common share as if the
        Company had applied the fair value recognition provisions of SFAS 123
        to the options granted to employees under the Companys stock option
        plans which assumes that compensation cost had been determined based on
        the fair value of the options at the date of grant and amortized over
        the vesting period.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |                                                                    |          |   |           |  
| | ------------------------------------------------------------------ | -------- | - | --------- | -
| |                                                                    |          |   |           |  
| |                                                                    | 2003     |   | 2002      |  
| |                                                                    |          |   |           |  
| | Net income (loss), as reported                                     | $235,512 |   | $(907,371 | )
| | Add: Total stock-based employee compensation expense               |          |   |           |  
| | included in net
      income (loss), as reported, determined under |          |   |           |  
| | APB 25, net of related
      tax effects                           | 62,388   |   | -         |  
| | Deduct: Total stock-based employee compensation                    |          |   |           |  
| | expense determined under fair value
      based                    |          |   |           |  
| | method for
      all awards, net of related tax effects            | (253,996 | ) | (82,846   | )
| | Pro forma net income (loss)                                        | $43,904  |   | $(990,217 | )
| |                                                                    |          |   |           |  
| |                                                                    |          |   |           |  
| | Net income (loss) per common share                                |          |   |           |  
| | Basic, as reported                                                 | $0.02    |   | $(0.06    | )
| | Basic, pro forma                                                   | 0.00     |   | (0.07     | )
| |                                                                    |          |   |           |  
| |                                                                    |          |   |           |  
| |                                                                    |          |   |           |  
| | Net income (loss) per common share                                |          |   |           |  
| | Diluted, as reported                                               | $0.02    |   | $(0.06    | )
| | Diluted, pro forma                                                 | 0.00     |   | (0.07     | )

---

|
|

|11. | Research and development                                                                                                                                                    
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                             
|    | Research and development
        expenditures are recorded net of investment tax credits, which totaled
        $nil for the year ended December 31, 2003 (2002 - $123,282).
|    |                                                                                                                                                                             
|12. | Income taxes                                                                                                                                                                
|    |                                                                                                                                                                             
|    | (a)                                                                                                                                                                         
|    |                                                                                                                                                                             

| |  |                                                 |   |        |  |   |         | 
| |  | ----------------------------------------------- | - | ------ |  | - | ------- | 
| |  |                                                 |   |        |  |   |         | 
| |  |                                                 |   | 2003   |  |   | 2002    | 
| |  | Federal and provincial income taxes recoverable | $ | 67,352 |  | $ | 67,352  | 
| |  | Investment tax credits recognized               |   | -      |  |   | 45,707  | 
| |  |                                                 |   |        |  |   |         | 
| |  | Income taxes recoverable                        | $ | 67,352 |  | $ | 113,059 | 

| |  | Investment tax credits claimed are ultimately
        subject to the finalization of the review by the Canada Revenue Agency.
| |  | -----------------------------------------------------------------------------------------------------------------------------

| | Income taxes broken down federally and provincially
        are as follows:
| | ---------------------------------------------------------------------------

| |  |                            |   |         |   |   |         |  
| |  | -------------------------- | - | ------- | - | - | ------- | -
| |  |                            |   |         |   |   |         |  
| |  |                            |   | 2003    |   |   | 2002    |  
| |  | Current (credit) provision |   |         |   |   |         |  
| |  | Federal                    | $ | (8,255  | ) | $ | (59,952 | )
| |  | Provincial                 |   | (4,624  | ) |   | (30,382 | )
| |  | Total                      | $ | (12,879 | ) | $ | (90,334 | )

---

|
|

|12. | Income taxes (contd)
|--- | ----------------------

| |     |                                                                                                                      
| | --- | ---------------------------------------------------------------------------------------------------------------------
| | (b) | A reconciliation of income tax recovery at statutory rates with the reported
      income tax recovery is as follows:

| |  |                                                  |   |          |   |   |          |  
| |  | ------------------------------------------------ | - | -------- | - | - | -------- | -
| |  |                                                  |   | 2003     |   |   | 2002     |  
| |  |                                                  |   |          |   |   |          |  
| |  | Income (loss) before income taxes                | $ | 222,633  |   | $ | (997,705 | )
| |  |                                                  |   |          |   |   |          |  
| |  | Income tax expense (recovery) at statutory rates | $ | 83,710   |   | $ | (395,091 | )
| |  | Non deductible expenses and other items          |   | 118,286  |   |   | 240,373  |  
| |  | Recognized operating losses                      |   | (61,132  | ) |   | -        |  
| |  | Recognized investment tax credits                |   | (153,743 | ) |   | -        |  
| |  | Unrecognized benefit of operating losses         |   | -        |   |   | 64,384   |  
| |  |                                                  |   |          |   |   |          |  
| |  |                                                  |   |          |   |   |          |  
| |  | Total income tax recovery                        | $ | (12,879  | ) | $ | (90,334  | )

| | (c) | Temporary differences that give rise to the following deferred income
      tax assets and liabilities are as follows:
| | --- | ----------------------------------------------------------------------------------------------------------------------

| |  |                                                              |   |          |   |   |          |  
| |  | ------------------------------------------------------------ | - | -------- | - | - | -------- | -
| |  |                                                              |   | 2003     |   |   | 2002     |  
| |  | Deferred income tax assets:                                  |   |          |   |   |          |  
| |  | Warranty provision                                           | $ | 7,431    |   | $ | 3,872    |  
| |  | Intangible assets                                            |   | 1,373    |   |   | -        |  
| |  | Unrecognized investment tax credits (non-refundable)         |   | 169,809  |   |   | 238,004  |  
| |  | Unrecognized benefit of research and
      development costs |   | 271,961  |   |   | 188,916  |  
| |  | Unrecognized benefit of operating
      losses               |   | -        |   |   | 57,881   |  
| |  |                                                              |   |          |   |   |          |  
| |  | Gross deferred income tax assets                             |   | 450,574  |   |   | 488,673  |  
| |  | Valuation allowance                                          |   | (446,779 | ) |   | (488,673 | )
| |  |                                                              |   |          |   |   |          |  
| |  | Net deferred income tax assets                               |   | 3,795    |   |   | -        |  
| |  | Deferred income tax liabilities:                             |   |          |   |   |          |  
| |  | Equipment                                                    |   | (3,795   | ) |   | -        |  
| |  |                                                              |   |          |   |   |          |  
| |  |                                                              | $ | -        |   | $ | -        |  

---

|
|

|12. | Income taxes (contd)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | The Company has unutilized operating
        loss carryforwards of $Nil (2002 - $162,586). The Company has non-refundable
        federal investment tax credits of $112,811 (2002 -$156,398) and provincial
        investment tax credits of $56,998 which will begin to expire in 2012.
        The Company has unutilized scientific research and development costs of
        $763,935 (2002 - $530,664) which are available to reduce taxable income
        and income taxes payable in future years.
        A valuation allowance is applied to the deferred tax asset because it
        is not more likely than not that the benefits of the future income tax
        asset will be available to the Company. The Company has a valuation allowance
        of $446,779 (2002 - $488,673). This represents a decrease of $41,894 and
        an increase of $443,441, as compared to December 31, 2002 and 2001.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|13. | Related party transactions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | As at December 31, 2003, trade accounts
        receivable includes $13,815 (December 31, 2002 - $87,770) that is due
        from a company that, prior to June 1, 2002, had common stockholders. The
        amounts due are non-interest bearing, unsecured and have no fixed terms
        of repayment. 
        During the year ended December 31, 2003, the Company sold products for
        $nil (December 31, 2002 - $112,043) to an affiliated company with common
        ownership.
        These transactions were recorded at the agreed exchange amount between
        the related parties.                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|14. | Commitments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | The Company is committed to make minimum annual payments
      on its premises and automobile operating leases that expire in 2008 as follows:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

| |                                                                                            |          | 
| | ------------------------------------------------------------------------------------------ | -------- | 
| |                                                                                            |          | 
| | Year ending December 31:                                                                   |          | 
| |                                                                                            |          | 
| | 2004                                                                                       | $128,797 | 
| | 2005                                                                                       | 102,772  | 
| | 2006                                                                                       | 66,142   | 
| | 2007                                                                                       | 47,486   | 
| | 2008                                                                                       | 21,653   | 
| |                                                                                            |          | 
| |                                                                                            |          | 
| | Rent expense included in the statements of operations is $107,886 (2002
      - $106,867). |          | 

---

|
|

|15. | Changes in non-cash working capital balances
|--- | --------------------------------------------

| |                                          |   |          |   |   |         |  
| | ---------------------------------------- | - | -------- | - | - | ------- | -
| |                                          |   |          |   |   |         |  
| |                                          |   | 2003     |   |   | 2002    |  
| |                                          |   |          |   |   |         |  
| | Trade accounts receivable                | $ | (145,622 | ) | $ | 22,086  |  
| | Inventory                                |   | (262,006 | ) |   | (27,288 | )
| | Prepaid expenses                         |   | 121      |   |   | 2,219   |  
| | Income taxes recoverable                 |   | 45,707   |   |   | (2,629  | )
| | Leases receivable                        |   | 8,741    |   |   | 24,809  |  
| | Accounts payable and accrued liabilities |   | 4,745    |   |   | (83,738 | )
| | Deferred revenue                         |   | 27,428   |   |   | -       |  
| |                                          |   |          |   |   |         |  
| |                                          | $ | (320,886 | ) | $ | (64,541 | )

|16. | Segment information
|--- | -------------------

| | (a) | Operating segments:                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| | --- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |     | Commencing with the acquisition of the servicing agreements
        from Telus on May 16, 2003, as described in Note 6, the Company has organized
        its business into two reportable segments: manufacturing and servicing.
        The manufacturing segment designs, produces and sells intercom and door
        access control systems that utilize telecommunications wiring to control
        access to buildings and other facilities for security purposes. The servicing
        segment provides maintenance to these intercom and door access control
        systems.
      The segments accounting policies are the same
        as those described in Note 2. The Company evaluates performance based
        on profit or loss from operations before income taxes not including nonrecurring
        gains and losses, if any. Retail prices are used to report intersegment
        sales. Depreciation and amortization are not allocated to the operating
        segments.

---

|
|

|16. | Segment information (contd)
|--- | -----------------------------

| |                                           |   |               |   |   |           |  |   |           | 
| | ----------------------------------------- | - | ------------- | - | - | --------- |  | - | --------- | 
| |                                           |   |               |   |   |           |  |   |           | 
| | December 31, 2003                         |   | Manufacturing |   |   | Servicing |  |   | Total     | 
| |                                           |   |               |   |   |           |  |   |           | 
| |                                           |   |               |   |   |           |  |   |           | 
| | Sales to external customers               | $ | 3,311,947     |   | $ | 772,646   |  | $ | 4,084,593 | 
| | Depreciation and amortization             |   | 42,357        |   |   | -         |  |   | 42,357    | 
| | Interest expense, net                     |   | 13,456        |   |   | 16,196    |  |   | 29,652    | 
| | Segment income (loss) before income taxes |   | (128,109      | ) |   | 350,742   |  |   | 222,633   | 
| | Total assets                              |   | 2,445,124     |   |   | -         |  |   | 2,445,124 | 
| |                                           |   |               |   |   |           |  |   |           | 

| |                                  |   |               |   |  |           |  |   |           |  
| | -------------------------------- | - | ------------- | - |  | --------- |  | - | --------- | -
| |                                  |   |               |   |  |           |  |   |           |  
| | December 31, 2002                |   | Manufacturing |   |  | Servicing |  |   | Total     |  
| |                                  |   |               |   |  |           |  |   |           |  
| |                                  |   |               |   |  |           |  |   |           |  
| | Sales to external customers      | $ | 3,363,985     |   |  | -         |  | $ | 3,363,985 |  
| | Depreciation and amortization    |   | 35,644        |   |  | -         |  |   | 35,644    |  
| | Interest expense, net            |   | 13,519        |   |  | -         |  |   | 13,519    |  
| | Segment loss before income taxes |   | (997,705      | ) |  | -         |  |   | (997,705  | )
| | Total assets                     |   | 1,783,705     |   |  | -         |  |   | 1,783,705 |  
| |                                  |   |               |   |  |           |  |   |           |  

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|
|

|16. | Segment information (contd.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | (b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | (c)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | (d)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|17. | Financial instruments                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    | The Company's financial
        instruments consist of cash and cash equivalents, trade accounts receivable,
        leases receivable, bank indebtedness, accounts payable, accrued liabilities,
        due to stockholders, and notes payable. It is management's opinion that
        the Company is not exposed to significant interest, currency, business
        concentration or credit risks arising from these financial instruments.
        The fair values of these financial instruments approximate their carrying
        values based on their liquidity and short-term nature.

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