U.S. Securities and Exchange Commission

Washington, 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, 2002



[  ]  Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 [No fee required] for the

transition period from ______ to ______



000-49746

(Commission File No.)



VISCOUNT SYSTEMS, INC.

(Exact name of registrant as specified in charter)



NEVADA

(State or other jurisdiction of incorporation or organization)



88-0498783

(I.R.S. Employer I.D. No.)



4585 Tillicum Street, Burnaby, British Columbia, Canada, V5J 3J9, Tel: (604) 327-9446

(Address, including zip code, and telephone number of registrant's principal executive offices)



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



Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   Yes [X]   No [  ]



Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-B is not contained herein, and will not 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.

No [  ]



The registrant's consolidated revenues for its most recent fiscal year were USD $2,132,767 (converted from $3,363,985 Canadian dollars using an exchange rate of US$0.634/CDN$1.000).



As of March 31, 2003, the aggregate market value of the voting common equity held by non-affiliates of the registrant was $7,293,000, based on the closing trade reported on the NASD Over-the-Counter Bulletin Board quotation system.  Shares of Common Stock held by each officer and director and by each person who owns 5% or more of the outstanding Common Stock have been excluded from this calculation as such persons may be considered to be affiliated with the Company.



As of March 31, 2003, the registrant's outstanding common stock consisted of 15,181,250 shares.

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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 Report, which Proxy Statement is to be filed within 120 days after the end of the Registrant's fiscal year ended December 31, 2002.





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Form 10-KSB

Table of Contents



|     |          | Form 10-KSB                                                              
|---- | -------- | -------------------------------------------------------------------------
|     |          | Table of Contents                                                        
|     |          |                                                                          
|     |          |                                                                          
|Part | Item No. |                                                                          
|     |          |                                                                          
|     |          |                                                                          
|I    | 1        | Description of Business                                                  
|     | 2        | Description of Property                                                  
|     | 3        | Legal Proceedings                                                        
|     | 4        | Submission of Matters to a Vote of Security Holders                      
|II   | 5        | Market for Common Equity and Related Stockholder Matters                 
|     | 6        | Management's Discussion and Analysis or Plan of Operation                
|     | 7        | Financial Statements                                                     
|     | 8        | Changes in and Disagreements With Accountants on Accounting and          
|     |          |                                                                          
|     |          | Financial Disclosure                                                     
|III  | 9        | Directors, Executive Officers, Promoters, and Control Persons; Compliance
|     |          | With Section 16(a) of the Exchange Act                                   
|     | 10       | Executive Compensation                                                   
|     | 11       | Security Ownership of Certain Beneficial Owners and Management           
|     | 12       | Certain Relationships and Related Transactions                           
|IV   | 13       | Exhibits and Reports on Form 8-K                                         
|     | 14       | Controls and Procedures                                                  
|     |          | Signatures and Certification                                             



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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 may be regarded as
"forward-looking statements" within the meaning of the U.S. Securities Legislation Reform Act.  They are subject to various risks and uncertainties such as those described elsewhere in this Form 10-KSB, and in the Company's Securities and Exchange Commission filings.  Actual results may vary materially.



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 21, 2003, the exchange rate was US$1.00 per CDN$1.4905.  The high and low exchange rates for each month during the previous six months were as follows:



High

Low

February 2003

1.5315

1.4880

January 2003

1.5750

1.5220

December 2002

1.5800

1.5478

November 2002

1.5903

1.5528

October 2002

1.5943

1.5607

September 2002

1.5863

1.5545



The following table sets out the exchange rate information as at each of the years ended December 31, 2001 and 2002.



|                                                          | Year Ended December 31     
|--------------------------------------------------------- | ---------------------------
|                                                          | 2001                       
|Rate at end of Period
Average Rate during Period
Low
High | 1.5925
1.5487
1.4933
1.6023





Item 1.

DESCRIPTION OF BUSINESS



GENERAL



We are a provider of access control security products.  The current access control product line consists of Enterphone 2000, a building intercom; Entercheck, a card access system; RadioClik, radio frequency remote controls; Elektra, liquid crystal display intercom panels; EmerPhone, emergency telephone entry systems; and various accessories.



Due to some changes in design, we were unable to meet our mid-2002 release date for our MESH (Multimedia Embedded Security Hub) technology.  We are currently in the process of working through these changes and developing a working proto-type which we are targeting for release in the second quarter of 2003.  MESH is currently re-scheduled for commercial release during the second or third quarter of 2003.  MESH is a proprietary software based access control security technology.  The MESH technology was previously referred to as JEDI (Java Embedded Distributed Intelligence).



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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. Our primary product is sold under the brand-name Enterphone 2000.  The Enterphone 2000 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 2000 technology.  Our control panels are typically installed at entrances to apartment buildings or other controlled access buildings.  The control panels are sold in various formats and with varying features and capabilities.  Our Enterphone 2000 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 2000 product, including card access systems, radio frequency remote controls, intercom monitors and closed circuit cameras.



While our current revenues are derived from sales of the Enterphone 2000 technology and related security products, we are developing a new building access control and communications technology which we expect will be a significant new source of revenues. This new technology will be marketed under the brand-name MESH (Multimedia Embedded Security Hub).  The 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. The first application of the MESH technology that we are developing is a high security card access control and intercom system.  Our proprietary MESH software is designed to be modular such that additional applications can be added as modules that will permit the operation of 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.



During the quarter ended June 30, 2002, Viscount acquired the assets of Sigma Data Systems of British Columbia. 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 2004.

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.



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



INDUSTRY OVERVIEW



We compete in the building intercom and access control 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.  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 although the industry in general is also referred to as low voltage systems.  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.



As described above, 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 does performs primarily a monitoring and information collection function.



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We are participating in this advance in the access control industry through the development of 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.

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, 2002, approximately 48% of total sales of our products were generated in the United States, and 52% in Canada. This was essentially unchanged from 2001, where sales to the United States and Canada were 50%, respectively.  Information on our existing products can be viewed on our website at www.viscount.com.



We are also continuing our development of our MESH product, which is an intelligent access control and communication system that will permit the integration of various building functions into one system.  We anticipate using existing and new distribution channels in order to market our MESH technology.  The MESH technology can be sold as an upgrade to existing access control systems, or as a new installation.  We will also target other industry participants as potential purchasers of our technology who may resell the technology under their own brand names.



Our Access Control Products



Our current principal product is the Enterphone 2000 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 76.2% of our total sales.



Our Enterphone 2000 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 key-pad.  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.  The following diagram illustrates the system:



We also manufacture electronic entry access panels that can operate using either our Enterphone 2000 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

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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 and are currently completing the development of a fully functional prototype.



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.



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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 are developing 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.



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 intend to develop various modules for our MESH technology, which  will be released in a series of phases.  Some of these product enhancement modules that we may explore and develop have been outlined 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;
- 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;
- 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;
- 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.



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OTHER CURRENT RESEARCH AND DEVELOPMENT



In addition to our MESH technology, we have developed two new products called EmerPhone and Entercheck II, which were both commercially available during the second quarter of 2002.  The EmerPhone system consists of a core electronic assembly designed for several separate tasks.  These task applications 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.



PRODUCTION



We currently manufacture the Enterphone 2000 control, entrance panel products, and emergency telephone entry system 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 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.



We have contracted with software developers to develop our MESH software platform.  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.



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MESH Development Schedule



The original MESH program was implemented to develop interactive display panels.  These panels were originally scheduled to be available in March 2000.  However, we subsequently expanded the features of the system and as a result the initial commercial release is currently scheduled to occur in mid 2003.  There is no guarantee that we will be able to meet this commercial release schedule.

Product Development



We have two employees currently dedicated full-time to research, development and product engineering.  In addition, one other employee contributes to research and development on a part-time basis. During fiscal 2002 and 2001, we incurred approximately $449,071 and $223,140 respectively, on research and development, net of investment tax credits, primarily related to the development of the MESH system.



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.



Accordingly, the focus of our marketing initiatives for 2003 will involve our MESH technology.  The first release of MESH will compete in the intercom and access control security system market.



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 2000 system.  Our new MESH product 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 2000 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 will be 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 was 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.

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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 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.  Our existing distribution dealers may be used to market and install the MESH system, however not all existing dealers will meet the profile or qualifications required to understand and install a MESH network.  Accordingly, we will be evaluating various reseller and dealer channels for distribution of our MESH systems.



As MESH is a new technology, we believe it is important that we penetrate the market quickly.  Establishing exclusive dealers would give competitors added incentive to find a solution to the MESH network technology.  For this reason, we see an advantage in adopting a
"shot gun" style marketing plan for MESH.  We will establish large numbers of dealers, primarily based on qualifying for credit and technical ability.  We then intend to sell through qualified distributors as well to expand our market coverage.



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.

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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.



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



We intend to pursue an advertising strategy, which involves a mix of dealer and end-user security and building automation magazines.  The unique nature of MESH places us in a position of having strong editorial leverage.  We have already secured agreements with most major publications to introduce the concept.  This approach will include a full feature story by the editors highlighting the new technology, a story outlining application specific benefits and print advertising relating to the product.



There are approximately 30 magazines worldwide which are credible venues to advertise MESH technology.  We will initially advertise our MESH launch in approximately twelve industry magazines in North America.



Our current products are advertised on an ongoing basis in various print publications, which we will continue to do with our MESH products.  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.



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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.



Insofar as the use of intelligent readers are concerned, the existing industry is relatively new and accordingly is small and only amounts to about $100 million US per year.  There has been some consolidation.  The largest US firm, Sentex Systems, was recently acquired by The Chamberlain Group, Inc., a large manufacturer of industrial products. We see many opportunities for MESH panels outside the traditional visitor entry control function.  Basic panels will be priced to compete favorably with similar low-tech systems to build market share.



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.



OUR SOURCES OF REVENUES



The majority of the Company's revenues are derived from the Enterphone product line.  Historically, the Enterphone sales represented approximately 72% to 80%  of total revenues. 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.  Our MESH technology, if successfully brought to market, will be a new source of revenue for us.  If our initial release of our MESH technology is successful we will be developing additional applications for the technology in order to generate other sources of revenue.

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EMPLOYEES



Viscount employs twenty-four full and part-time staff at its factory 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 $6,773.  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.



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 2000, 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, Emerphone.  We are in the process of filing an application for a North American patent on our MESH technology, and registering North American trademarks and 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 equipment is FCC and IC approved.  Our products are also UL and ADA approved where required by law depending specifically on particular products and place of installation.



Some of our products are still under government regulation.  The Enterphone 2000 is an interposition technology which can only be installed in U.S. states 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.   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.

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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.



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



Our shares are currently eligible for trading 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".



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 since the commencement of trading.  The price information available reflects inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.



|     |                                             | High  | Low  
|---- | ------------------------------------------- | ----- | -----
|2003 | First Quarter (through March 25, 2003)      | $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  March 31, 2003 there were 49 holders of record of our common stock, holding a total of 15,181,250 shares.



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



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, 2002 have increased by $125,467 or 3.9% to $3,363,985, as compared to sales revenues of $3,238,518 for the year ended December 31, 2001.  The lower sales revenues experienced during the first quarter of 2002 have marginally affected total sales for the year ended December 31, 2002.  Specifically, revenues for the three months ended March 31, 2002 were $700,754, a decrease of 16.8% as compared to sales of $842,472 for the three months ended March 31, 2001.  Several factors contributed to lower sales revenues in the first quarter of 2002.  First, we received a large one-time order at the end of 2000 that created backorders that were carried into the first two months of 2001.  These backorders skewed sales revenues for the three months ended March 31, 2001 above historical levels.  Second, we continued our ongoing program of eliminating certain low margin OEM products.  Steps taken to remedy the lower first quarter sales have been successful due to the strong sales of our core Enterphone product line and to a lesser degree, the rollout of new products, primarily Entercheck II.  Core sales growth came from increased new construction sales in certain key markets, notably Chicago, Toronto and Vancouver.  Another reason for the sales increase was the realization of sales to BC Hydro through the second quarter acquisition of Sigma Data Systems.  During the quarter ended June 30, 2002, we acquired the assets of Sigma Data Systems of British Columbia.  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 2004.  Based on current revenue levels, we anticipate that revenues from Sigma Data Systems should increase overall revenues by approximately 10% over revenues from sales of our existing core products over the next two years.  As a result, sales revenues improved throughout 2002.

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The cost of sales as a percentage of sales was 47.1% for the year ended December 31, 2002, as compared with the cost of sales as a percentage of sales of 46.5% for the year ended December 31, 2001.  Costs of sales have increased marginally due to the higher cost of certain limited supply raw materials used in our Enterphone products.  Our policy of managing cost of sales remains the same. We are continuously focusing on controlling costs, and using multiple suppliers to ensure input costs are managed.

Gross profit for the year ended December 31, 2002 was $1,778,092, an increase of 2.7%, as compared to a gross profit of $1,731,506 for the year ended December 31, 2001.  This increase corresponds with the improved sales revenues and consistent cost of sales for the year ended December 31, 2002.

Selling, general and administrative expenses increased by $892,789 or 63.2% for the year ended December 31, 2002 in comparison to the prior year comparative period.  This increase was due to the increase in marketing costs incurred as a result of advertising campaigns, promotions, and tradeshows for our new MESH product.  As a percentage of revenues, selling, general and administrative costs were 68.5% for the year ended December 31, 2002, as compared to 43.6% for the year ended December 31, 2001.

Research and development costs, net of investment tax credits, were $449,071 for the year ended December 31, 2002, as compared to $223,140 for the year ended December 31, 2001.  This increase in research and development expenses was due to our effort to accelerate the development of our new MESH product.

LIQUIDITY AND CAPITAL RESOURCES

Cash and cash equivalents at December 31, 2002 totaled $272,564, as compared with the cash and cash equivalents of $128,720 at December 31, 2001.  No short-term investments were held at December 31, 2002 or December 31, 2001.  Our cash position improved for a few reasons.  The Company raised $1,642,056 in additional equity financing, during the first quarter of 2002 and we received $168,484 in scientific tax funding grants from the Government of Canada for the 2000 fiscal year, during the third quarter of 2002.  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, 2002, $27,412 was drawn on this facility.  The facility is secured by a general security agreement.

As at December 31, 2002 we had a working capital of $722,417 and a current ratio of approximately 1.8 to 1.0.  Due to the additional equity financing and scientific tax funding grants, our working capital position has improved as compared to the working capital position at December 31, 2001 of $162,126, and a current ratio of 1.1 to 1.0.

The accounts receivable turnover ratio for the year ended December 31, 2002 was 74 days as compared to 98 days for the year ended December 31, 2001.  This was an improvement of 24 days.  The accounts receivable reserve has also been reduced from $111,414  to $81,846 for the years ended December 31, 2001 and 2002, respectively.  This reduction in reserve was 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.



We have funded business operations using cash advanced under the bank credit facility, the additional equity financing raised during the first quarter of 2002, and the scientific tax funding grants received during the third quarter of 2002.



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For the year ended December 31, 2002, investing activities consisted primarily of the purchase of the assets of Sigma Data Systems, and purchases of computer equipment and a tradeshow booth. These purchases totaled $135,136.  For the year ended December 31, 2001, there were no capital expenditures.

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

We believe cash from operating activities, and our existing cash resources may not be  sufficient to meet our working capital requirements for the year ending December 31, 2003.  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 in order to continue as a going concern.



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, 2002.



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



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 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.



Related Party Transactions:



Prior to June 1, 2002, the Company sold products for $112,043 in 2002 ($218,632 in 2001) to a company affiliated through common ownership.   After June 1, 2002, the affiliation ceased.





Item 7.

FINANCIAL STATEMENTS

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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.





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 30, 2003 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                                                           
|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                                                    | Filed herewith                                                                                                       
|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 KPMG LLP                                                       | Filed herewith                                                                                                       
|23.2        | Consent of J.H. Cohn LLP                                                  | Filed herewith                                                                                                       
|99.1        | Certification required pursuant to section 906 of the Sarbanes-Oxley Act. | Filed herewith                                                                                                       



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(b)  Reports on Form 8-K

A Form 8-K was filed on January 21, 2003 notifying the change in principal accountants from KPMG LLP to J.H. Cohn LLP.



Item 14.

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.



Within 90 days prior to the date of 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, 2002.



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.

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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, 2003.



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 31, 2003

Stephen Pineau

Chief Executive Officer and

Director



By:

/s/ Greg Shen

Chairman of the Board and

March 31, 2003

Greg Shen

Director





By:

/s/ Les Fong

Chief Financial Officer

March 31, 2003

Les Fong

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SECTION 302 CERTIFICATION

I, Stephen Pineau, certify that:

1.

I have reviewed this annual report of  December 31, 2002 of Viscount Systems Inc.

2.

Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.

Based on my knowledge, the financial statement, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4.

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a)

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which the annual report is being prepared;

b)

evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the
"Evaluation Date"); and

c)

presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation of the Evaluation Date;

5.

The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

a)

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weakness in internal controls; and

b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls, and

1.

The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.



By: /s/ Stephen Pineau

Stephen Pineau, President & CEO



Dated:  March 31, 2003



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SECTION 302 CERTIFICATION



I, Les Fong, certify that:

1.

I have reviewed this annual report of  December 31, 2002 of Viscount Systems Inc.

2.

Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.

Based on my knowledge, the financial statement, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4.

The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a)

designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which the annual report is being prepared;

b)

evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the
"Evaluation Date"); and

c)

presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation of the Evaluation Date;

5.

The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent function):

a)

all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weakness in internal controls; and

b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls, and

1.

The registrant's other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.



By: /s/ Les Fong

Les Fong, Chief Financial Officer



Dated:  March 31, 2003



---

REPORT
OF INDEPENDENT PUBLIC ACCOUNTANTS



To
the Stockholders
Viscount Systems, Inc.

We
have audited the accompanying consolidated balance sheet of VISCOUNT SYSTEMS,
INC. AND SUBSIDIARY as of December 31, 2002, and the related consolidated
statements of operations, stockholders' equity and cash flows for the year
then ended.  These financial statements are the responsibility of the
Company's management.  Our responsibility is to express an opinion on
these consolidated financial statements based on our audit.

We
conducted our audit 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 audit provides 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, 2002, and their results of operations and
cash flows for  the year then ended, in conformity with accounting
principles generally accepted in the United States of America.

The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern.  As more fully described in
Note 1, the Company has incurred recurring operating losses resulting in an
accumulated deficit of $580,007 at December 31, 2002 and had experienced
negative cash flows from operations during the year ended December 31, 2002.
 These conditions raise substantial doubt about the Company's ability to
continue as a going concern.  Management's plans in regard to these
matters are also described in Note 1.  The financial statements do not
include any adjustments that may result from the outcome of this uncertainty.

J.
H. COHN LLP



San
Diego, California
January 28, 2003

---





AUDITORS REPORT

To the Stockholders and Board of Directors

Viscount Systems Inc.



We have audited the consolidated balance sheet of Viscount Systems Inc. (formerly OMW4 Corp.) and subsidiary, as at December 31, 2001 and the consolidated statements of stockholders equity, operations and cash flows for the year then ended.  These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America.  Those standards require that we plan and perform the audits 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 audit provides 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 as at December 31, 2001  and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.







KPMG LLP (signed)

Chartered Accountants



Vancouver, Canada

February 8, 2002

---

VISCOUNT
SYSTEMS INC.

Consolidated Balance Sheets

(Expressed in Canadian dollars)

|                                                                                                                         |            |            |            |           
|------------------------------------------------------------------------------------------------------------------------ | ---------- | ---------- | ---------- | ----------
|As
      at December 31                                                                                                  |            |            |            |           
|                                                                                                                         |            |            | 2002       | 2001      
|                                                                                                                         |            |            |            |           
|Assets                                                                                                                   |            |            |            |           
|                                                                                                                         |            |            |            |           
|Current
      assets                                                                                                     |            |            |            |           
|Cash
      and cash equivalents                                                                                          |            | $272,564   | $128,720  
|Trade
      accounts receivable, less allowance for doubtful accounts
      of
      $81,846 (2001 - $111,414) (note 12)
|598,687                                                                                                                  | 620,773   
|Inventory
      (note 4)                                                                                                 |            | 595,127    | 561,212   
|Prepaid
      expenses                                                                                                   |            |            | 1,512      | 3,731     
|Income
      taxes recoverable (note 11)                                                                                 |            | 113,059    | 110,430   
|Total
      current assets                                                                                               |            | 1,580,949  | 1,424,866 
|                                                                                                                         |            |            |            |           
|Leases
      receivable (note 5)                                                                                         |            | 25,519     | 50,328    
|                                                                                                                         |            |            |            |           
|Equipment
      (note 6)                                                                                                 |            |            | 144,500    | 68,705    
|                                                                                                                         |            |            |            |           
|Intangible
      asset (note 3)                                                                                          |            | 32,737     | -         
|                                                                                                                         |            |            |            |           
|Deferred
      costs                                                                                                     |            |            | -          | 67,117    
|                                                                                                                         |            |            |            |           
|Total
      assets                                                                                                       |            |            | $1,783,705 | $1,611,016
|                                                                                                                         |            |            |            |           
|Liablilities
      and stockholders' equity                                                                              |            |           
|                                                                                                                         |            |            |            |           
|Current
      liabilities                                                                                                |            |            |            |           
|Bank
      indebtedness (note 7)                                                                                         |            | $27,412    | $343,529  
|Accounts
      payable and accrued liabilities                                                                           | 382,718    | 450,809   
|Note
      payable                                                                                                       |            |            | -          | 20,000    
|Due
      to stockholders (note 8)                                                                                       |            | 448,402    | 448,402   
|Total
      current liabilities                                                                                          |            | 858,532    | 1,262,740 
|                                                                                                                         |            |            |            |           
|Commitments
      (note 13)                                                                                              |            |            |           
|                                                                                                                         |            |            |            |           
|Stockholders'
      equity                                                                                               |            |            |           
|Capital
      stock (note 9)                                                                                             |            |            |           
|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:                                                                                            |            |            |           
|15,181,250
      common shares (2001 - 13,500,000)                                                                       | 22,772     | 20,250    
|Additional
      paid-in capital                                                                                         |            | 1,482,408  | 662       
|Retained
      earnings (accumulated deficit)                                                                            | (580,007)  | 327,364   
|Total
      stockholders' equity                                                                                         |            | 925,173    | 348,276   
|                                                                                                                         |            |            |            |           
|Total
      liabilities and stockholders' equity                                                                         | $1,783,705 | $1,611,016
|                                                                                                                         |            |            |            |           
|                                                                                                                         |            |            |            |           
|                                                                                                                         |            |            |            |           
|See
      accompanying notes to consolidated financial statements.                                                       |            |           



---

VISCOUNT
SYSTEMS INC.

Consolidated Statements of
Operations

(Expressed in Canadian dollars)



|Year
      ended December 31                                       |         |             |           
|------------------------------------------------------------------ | ------- | ----------- | ----------
|                                                                   |         |             |           
|                                                                   |         |             | 2002      
|                                                                   |         |             |           
|                                                                   |         |             |           
|Sales                                                              |         |             | $3,363,985
|Cost
      of sales                                                |         |             | 1,585,893 
|Gross
      profit                                                 |         |             | 1,778,092 
|                                                                   |         |             |           
|Expenses                                                           |         |             |           
|Selling,
      general and administrative                          |         | 2,305,336   | 1,412,547 
|Research
      and development, net (note 10)                      | 449,071 | 223,140    
|Depreciation
      and amortization                                |         | 35,644      | 19,230    
|                                                                   |         |             | 2,790,051 
|                                                                   |         |             |           
|Income
      (loss) before other items                             |         | (1,011,959) | 76,589    
|                                                                   |         |             |           
|Other
      items                                                  |         |             |           
|Other
      income                                                 |         |             | 27,773    
|Interest
      and bank charges                                    |         | (13,519)    | (36,095)  
|Interest
      on long-term debt                                   |         | -           | (3,428)   
|                                                                   |         |             | 14,254    
|                                                                   |         |             |           
|Income
      (loss) before income taxes                            |         | (997,705)   | 46,650    
|                                                                   |         |             |           
|Income
      taxes (note 11)                                       |         |             |           
|Current
      (credit) provision                                   |         | (90,334)    | 108,538   
|Deferred
      (credit)                                            |         |             | -         
|                                                                   |         |             | (90,334)  
|                                                                   |         |             |           
|Loss
      for the year                                            |         |             | $(907,371)
|                                                                   |         |             |           
|Basic
      and diluted loss per common share                      | $(0.06) | $(0.00)    
|                                                                   |         |             |           
|Weighted
      average number of common shares outstanding,        |        
|basic
      and diluted                                            |         |             | 14,878,408
|                                                                   |         |             |           
|                                                                   |         |             |           
|See
      accompanying notes to consolidated financial statements. |        

---

VISCOUNT
SYSTEMS INC.

Consolidated Statements of
Stockholders' Equity

(Expressed in Canadian dollars)

|                                                                   |                    |         |            |                             |          
|------------------------------------------------------------------ | ------------------ | ------- | ---------- | --------------------------- | ---------
|                                                                   |                    |         | Additional | Retained                    |          
|                                                                   | Common
      Stock | paid-in | earnings   |                            
|                                                                   | Shares             | Amount  | capital    | (accumulated
      deficit) | Total    
|                                                                   |                    |         |            |                             |          
|Balance,
      December 31, 2000                                   | 10,000,000         | $100    | $-         | $371,146                    | $371,246 
|                                                                   |                    |         |            |                             |          
|Stock
      issued on                                              |                    |         |            |                             |          
|recapitalization
      (note 1)                                    | 3,300,000          | 19,850  | 14,420     | -                           | 34,270   
|Stock
      issued for cash                                        | 200,000            | 300     | 109,521    | -                           | 109,821  
|Stock
      issue costs                                            | -                  | -       | (123,941)  | -                           | (123,941)
|Fair
      value of options issued to                              |                    |         |            |                             | -        
|non-employees
      for services                                   | -                  | -       | 662        | -                           | 662      
|Loss
      for the year                                            | -                  | -       | -          | (43,782)                    | (43,782) 
|                                                                   |                    |         |            |                             |          
|Balance,
      December 31, 2001                                   | 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   
|Loss
      for the year                                            | -                  | -       | -          | (907,371)                   | (907,371)
|                                                                   |                    |         |            |                             |          
|Balance,
      December 31, 2002                                   | 15,181,250         | $22,772 | $1,482,408 | $(580,007)                  | $925,173 
|                                                                   |                    |         |            |                             |          
|                                                                   |                    |         |            |                             |          
|See
      accompanying notes to consolidated financial statements. |                    |         |           



---

VISCOUNT
SYSTEMS INC.

Consolidated Statements
of Cash Flow

(Expressed in Canadian dollars)

|Year
      ended December 31                                             |           |           |           
|------------------------------------------------------------------------ | --------- | --------- | ----------
|                                                                         |           |           | 2002      
|                                                                         |           |           |           
|                                                                         |           |           |           
|Cash
      and cash equivalents provided by (used in):                   |           |          
|                                                                         |           |           |           
|Operating
      activities:                                              |           |           |           
|Loss
      for the year                                                  |           |           | $(907,371)
|Items
      not involving cash:                                          |           |           |           
|Depreciation
      and amortization                                      |           | 35,644    | 19,230    
|Deferred
      income taxes                                              |           | -         | (18,106)  
|Selling,
      general and administrative expenses paid by stock options | 41,940    | 662      
|Changes
      in non-cash working capital balances (note 14)             | (64,541)  | 310,243  
|Net
      cash provided by (used in) operating activities                | (894,328) | 268,247  
|                                                                         |           |           |           
|Investing
      activities:                                              |           |          
|Purchase
      of equipment                                              | (99,546)  | -        
|Purchase
      of net assets on acquisition (note 3)                     | (35,610)  | -        
|Net
      cash used in investing activities                              | (135,156) | -        
|                                                                         |           |           |           
|Financing
      activities:                                              |           |           |           
|Deferred
      costs                                                     |           |           | -         
|Repayment
      of bank indebtedness                                     | (316,117) | (15,459) 
|Repayment
      of note payable                                          | (20,000)  | (5,000)  
|Repayment
      of long-term debt                                        | -         | (80,001) 
|Repayment
      of stockholder's advances                                | -         | (65,000) 
|Issuance
      of capital stock, net of stock issue costs                | 1,509,445 | 20,150   
|Net
      cash provided by (used in) financing activities                | 1,173,328 | (212,427)
|                                                                         |           |           |           
|Increase
      in cash and cash equivalents                              | 143,844   | 55,820   
|                                                                         |           |           |           
|Cash
      and cash equivalents, beginning of year                       | 128,720   | 72,900   
|                                                                         |           |           |           
|Cash
      and cash equivalents, end of year                             | $272,564  | $128,720 
|                                                                         |           |           |           
|                                                                         |           |           |           
|Supplementary
      information:                                         |           |           |           
|Interest
      paid                                                      |           |           | $8,625    
|Income
      taxes paid                                                  |           |           | -         
|                                                                         |           |           |           
|                                                                         |           |           |           
|See
      accompanying notes to consolidated financial statements.       |          



---

VISCOUNT
SYSTEMS INC.

Notes
to Consolidated Financial Statements

(Expressed
in Canadian dollars)



December
31, 2002





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 self-sustaining
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's
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, being the number of common shares issued on the recapitalization.
 Following the acquisition, OMW4 Corp. was renamed Viscount Systems Inc.

These
consolidated financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America with
the on-going assumption that the Company will be able to realize its assets and
discharge its liabilities in the normal course of business.  However,
certain conditions noted below currently exist which raise substantial doubt
about the Company's ability to continue as a going concern.  These
consolidated financial statements do not include any adjustments to the amounts
and classifications of assets and liabilities that might be necessary should the
Company be unable to continue as a going concern.

The
Company has an accumulated deficit of $580,007 at December 31, 2002 and has
experienced negative cash flows from operations during the year ended December
31, 2002.  The Company plans to obtain additional funds through future debt
or equity financings over the twelve months ending December 31, 2003 to offset
future operating cash flow deficiencies.  Such financings may not be
available when required or on reasonable terms.  In addition, management is
reviewing the Company's operating cost expenditure needs.  The resolution
of this going concern issue is dependent on the realization of management's
plans.  If management is unsuccessful in raising future debt or equity
financings, the Company will be required to reduce its operations.



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)

Principles
of consolidation

The
consolidated financial statements include accounts and results of the Company
and its wholly-owned subsidiary, VCCS.  All material intercompany
transactions and balances have been eliminated.

---

VISCOUNT
SYSTEMS INC.

Notes
to Consolidated Financial Statements

(Expressed
in Canadian dollars)



December
31, 2002





2.

Significant
accounting policies (cont'd...)

(a)

Principles
of consolidation (cont'd...)

The
consolidated financial statements for the years ended December 31, 2002 and 2001
reflect the results of operations of VCCS and include the operations carried on
as OMW4 Corp. only from the effective date of the recapitalization on July 27,
2001.

(b)

Use
of estimates

Management
of the Company has made a number of estimates and assumptions relating to the
reporting of assets and liabilities and the disclosure of contingent assets and
liabilities to prepare these consolidated financial statements in conformity
with accounting principles generally accepted in the United States of America.
 Significant areas of estimate are the amount of recoverable investment tax
credits (notes 10 and 11(a)), the allowance for doubtful accounts and the
warranty provisions included in accounts payable and accrued liabilities.
 Actual results could differ from those estimates.

(c)

Foreign
currency translation and transactions

Monetary
items denominated in a foreign currency are translated into Canadian dollars at
exchange rates in effect at the balance sheet date and non-monetary items are
translated at rates of exchange in effect when the assets were acquired or
obligations incurred.  Revenues and expenses, denominated in a foreign
currency, are translated at an average exchange rate for the period.
 During the year ended December 31, 2002, the aggregate foreign currency
transaction gain recognized in determining loss for the year was $58,579 (2001 -
$12,116). Realized foreign exchange gains and losses are included in loss for
the year.

(d)

Cash
and cash equivalents

The
Company considers cash held at banks and all highly liquid investments with
original maturities of three months or less to be cash and cash equivalents.
 At December 31, 2002 and 2001, cash and cash equivalents consisted of cash
held at banks.

(e)

Allowance
for doubtful accounts

The
Company establishes an allowance for doubtful accounts on a specific account
basis based on the credit risk of specific customers, historical trends and
other information that management believes will adequately provide for credit
losses.

(f)

Inventory

Raw
materials and supplies are stated at the lower of cost and replacement cost.
 Cost is generally determined on the first-in, first-out basis.  Work
in process and finished goods are stated at the lower of average cost and net
realizable value.  An inventory reserve is recorded based upon a physical
count of all obsolete inventory.

---

VISCOUNT
SYSTEMS INC.

Notes
to Consolidated Financial Statements

(Expressed
in Canadian dollars)



December
31, 2002





2.

Significant
accounting policies (cont'd...)

(g)

Equipment

Equipment
is stated at cost.  Depreciation is recorded based on the estimated useful
lives of the assets as follows:







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%

(h)

Intangible
assets

Intangible
assets are recorded at cost and amortized over their estimated useful lives
using the straight-line method.  As at December 31, 2002, the intangible
asset consists of a sales contract customer list with a remaining estimated
useful life of 2 years (note 3).

(i)

Deferred
costs

Deferred
costs include specific incremental expenses directly attributable to the equity
offering described in note 9.  These costs have been recognized as a
reduction of additional paid-in capital on completion of the related equity
offering.

(j)

Impairment
of long-lived assets and long-lived assets to be disposed of

Long-lived
assets and certain identifiable intangibles are continually reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.  Recoverability of
assets to be held and used is measured by a comparison of the carrying amount of
an asset to future net cash flows expected to be generated by the asset.
 If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets.  Assets to be disposed of are
reported at the lower of the carrying amount or fair value less costs to sell
and are no longer depreciated if certain criteria are met.

(k)

Revenue
recognition

Revenue
is recognized when there is persuasive evidence of an arrangement and delivery
to the customer has occurred, provided the product does not require significant
customization, the fee is fixed and determinable, and collectibility is
considered probable.  Cash received from customers prior to these criteria
being met is recorded as deferred revenue.

(l)

Research
and development costs

Research
and development costs are expensed as incurred and are shown net of investment
tax credits (note 10).

---

VISCOUNT
SYSTEMS INC.

Notes
to Consolidated Financial Statements

(Expressed
in Canadian dollars)



December
31, 2002





2.

Significant
accounting policies (cont'd...)

(m)

Advertising
costs

Advertising
costs are expensed as incurred.  Advertising costs amounted to $419,847
(2001 - $122,886).

(n)

Government
assistance and investment tax credits

The
Company follows the cost reduction method of accounting for government
assistance and investment tax credits whereby the estimated net recoverable
amount of the benefit of the tax credits is recognized, when reasonable
assurance exists as to their collectibility, as a reduction in the cost of the
related capital asset or expenditure.

(o)

Income
taxes

Income
taxes are accounted for under the asset and liability method.  Deferred
income tax assets and liabilities are recognized for the future tax consequences
attributable to temporary differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards.  Deferred income tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled.  The effect on deferred income tax assets and
liabilities of a change in tax rates is recognized in earnings in the period
that includes the enactment date.  To the extent that it is not more likely
than not that a deferred income tax asset will be recovered, a valuation
allowance is provided.

(p)

Loss
per share

Basic
loss per common share is computed by dividing loss attributable to common
stockholders by the weighted average number of common shares outstanding for the
period.  Diluted loss per common share reflects the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock.

The
weighted average number of common shares outstanding for computing basic and
fully diluted loss per common share was 14,878,408 and 10,632,877 for the years
ended December 31, 2002 and 2001 respectively.  For the year ended December
31, 2002, 1,225,000 (2001 - 1,225,000) shares attributable to the exercise of
outstanding options were excluded from the calculation of diluted loss per
common share because the effect was antidilutive.  No adjustments were made
to the reported loss in the computation of loss attributable to common
stockholders.

---

VISCOUNT
SYSTEMS INC.

Notes
to Consolidated Financial Statements

(Expressed
in Canadian dollars)



December
31, 2002







2.

Significant
accounting policies (cont'd...)

(q)

Stock-based
compensation

The
Company accounts for its employee stock-based compensation arrangements in
accordance with provisions of Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" ("APB 25"), and related interpretations.
 As such, compensation expense would be recorded on the date of grant only
if the market value of the underlying stock at the date of grant exceeded the
exercise price.  The Company recognizes compensation expense for stock
options, common stock and other equity instruments issued to non-employees,
based upon the fair value of the equity instruments issued, as the services are
provided and the options earned. Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" ("SFAS 123"), requires
entities that continue to apply the provisions of APB 25 for transactions with
employees to provide pro forma loss and pro forma loss per share disclosures for
employee stock option grants made as if the fair-value-based method defined in
SFAS 123 had been applied to these transactions.



(r)

Comparative
figures

Certain
comparative figures have been reclassified to conform with the presentation
adopted in the current year.

(s)

New
accounting pronouncements

In
June 2001, the Financial Accounting Standards Board ("FASB") approved the
issuance of Statement of Financial Accounting Standards No. 142, "Goodwill and
Other Intangible Assets" ("SFAS 142").  SFAS 142 requires that
goodwill no longer be amortized to earnings, but instead be reviewed at least
annually for impairment.  The statement was effective for fiscal years
beginning after December 15, 2001.

In
July 2001, FASB issued Statement of Financial Accounting Standards No. 143, "Accounting
for Asset Retirement Obligations" ("SFAS 143"), that requires recording
the fair value of the liability for closure and removal costs associated with
the legal obligations upon retirement
or removal of any tangible long-lived assets in the period the obligation is
incurred and can be reasonably estimated.  The initial recognition of the
liability will be capitalized as part of the asset cost and depreciated over its
estimated useful life.  SFAS 143 is required to be adopted effective
January 1, 2003.



In
October 2001, FASB issued Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment on Disposal of Long-lived Assets" ("SFAS
144"), which supersedes Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-lived Assets and for Long-lived Assets
to be Disposed of".  SFAS 144 requires that long-lived assets that are to
be disposed of by sale be measured at the lower of book value or fair value less
cost to sell.  Additionally, SFAS 144 expands the scope of discontinued
operations to include all components of an entity with operations that (1) can
be distinguished from the rest of the entity and (2) will be eliminated from the
ongoing operations



---

VISCOUNT
SYSTEMS INC.

Notes
to Consolidated Financial Statements

(Expressed
in Canadian dollars)



December
31, 2002







2.

Significant
accounting policies (cont'd...)



of
the entity in a disposal transaction.  SFAS 144 was effective for fiscal
years beginning after December 15, 2001.

In
April 2002, FASB issued Statement of Financial Accounting Standards No. 145, "Rescission
of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and
Technical Corrections" ("SFAS 145").  SFAS 145 eliminates the
requirement that gains and losses from the extinguishment of debt be aggregated
and, if material, classified as an extraordinary item, net of the related income
tax effect and eliminates an inconsistency between the accounting for
sale-leaseback transactions and certain lease modifications that have economic
effects that are similar to sale-leaseback transactions. Generally, SFAS 145 is
effective for transactions occurring after May 15, 2002.

In
June 2002, FASB issued Statement of Financial Accounting Standards No. 146, "Accounting
for Costs Associated with Exit or Disposal Activities" ("SFAS 146"), that
nullifies Emerging Issues Task Force No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(Including Certain Costs Incurred in a Restructuring)" ("EITF 94-3").
 SFAS 146 requires that a liability for a cost associated with an
exit or disposal activity be recognized when the liability is incurred, whereby
EITF 94-3 had recognized the liability at the commitment date to an exit plan.
 The provisions of this statement are effective for exit or disposal
activities that are initiated after December 31, 2002 with earlier application
encouraged.

In
December 2002, FASB issued Statement of Financial Accounting Standards No. 148, "Accounting for Stock-Based Compensation
- Transition and Disclosure - an
amendment of FASB Statement No. 123" ("SFAS 148").  SFAS 148 amends
FASB Statement No. 123 to provide alternative methods of transition for a
voluntary change to the fair value based method of accounting for stock-based
employee compensation.  In addition, SFAS 148 amends the disclosure
requirements of FASB Statement No. 123 to require prominent disclosures in both
annual and interim financial statements about the method of accounting for
stock-based employee compensation and the effect of the method used on reported
results.  SFAS 148 is effective for fiscal years beginning after December
15, 2002.

The
adoption of these new pronouncements did not have or is not expected to have a
material effect on the Company's consolidated financial position or results of
operations.

---

VISCOUNT
SYSTEMS INC.

Notes
to Consolidated Financial Statements

(Expressed
in Canadian dollars)



December
31, 2002







3.

Acquisition

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



The
sales contract is being amortized using the straight-line method to the
consolidated statements of operations over its estimated useful life of 2.5
years.  As at December 31, 2002, the sales contract, with a cost of
$40,920, has been amortized by $8,183, leaving a net book value of $32,737.

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, 2001 has not been
presented because such amounts would not differ materially from the related
historical amounts.



4.

Inventory





2002

2001



Raw
materials

$

453,068

$

402,565

Work
in process

35,646

40,587

Finished
goods

106,413

118,060



$

595,127

$

561,212







5.

Leases
receivable

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



---

VISCOUNT
SYSTEMS INC.

Notes
to Consolidated Financial Statements

(Expressed
in Canadian dollars)



December
31, 2002





6.

Equipment





2002

Accumulated

Net
book

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







2001

Accumulated

Net
book

Cost

amortization

value



Computer
equipment

$

52,022

$

20,898

$

31,124

Office
furniture and equipment

2,792

1,484

1,308

Manufacturing
equipment

24,651

17,235

7,416

Leasehold
improvements

46,814

17,957

28,857



$

126,279

$

57,574

$

68,705





7.

Bank
indebtedness

Bank
indebtedness represent 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.  Drawings under the bank
credit facility totaled $27,412 at December 31, 2002.

8.

Due
to stockholders

Amounts
due to stockholders are non-interest bearing, unsecured and have no fixed terms
of repayment.

9.

Capital
stock

(a)

Each
share of common stock has the same rights, privileges and preferences.  The
holders of the outstanding common stock are entitled, in the event of
liquidation, to a pro rata share of net assets, subject to any preferences that
may be applicable on any preferred stock.  The Board of Directors has the
authority to determine and amend the designation, preferences, limitations and
relative rights of preferred stock.  There is no preferred stock issued and
outstanding at December 31, 2002 (2001 - nil).

---

VISCOUNT
SYSTEMS INC.

Notes
to Consolidated Financial Statements

(Expressed
in Canadian dollars)



December
31, 2002





(b)

During
the year ended December 31, 2002, the Company issued 1,600,000 shares of common
stock for gross proceeds of $1,642,056.  Total professional fees and
commissions related to this offering were $281,866, of which $67,117 were paid
during the year ended December 31, 2001, resulting in net proceeds to the
Company of $1,360,190.  The Company also issued 81,250 shares of common
stock on the exercise of stock options for gross proceeds of $82,138.
 During the year ended December 31, 2001, the Company issued 3,300,000
shares of common stock to acquire all of the voting shares of VCCS.  The
Company issued 200,000 shares of common stock for gross proceeds of $109,821
less stock issue costs, consisting of professional fees and commissions, related
to this offering of $56,824.

(c)

Stock-based
compensation plan

(i)

The
2001 Stock Option Plan (the "Plan") serves as an equity incentive program
for management, qualified employees, members of the Board of Directors and
independent advisors or consultants.  The Plan became effective on December
21, 2001 and it allows, at any one time, for up to 1,500,000 shares of common
stock to be reserved for issuance.  The maximum term during which a vested
option may be exercised is ten years from the date of grant.

The
vesting period and the option price are determined by the compensation
committee.  The option price may be set at a discount to the closing price
on the date of grant unless it is an incentive stock option.

(ii)

During
the year ended December 31, 2001, the Company granted 1,255,000 options under
the Plan.  The options all have a contractual life of 10 years, an exercise
price of $0.65 and vest 25% on each subsequent anniversary of the original grant
date.  The Company granted 1,180,000 options to eligible employees under
the Plan and no compensation expense was recognized on the grant of these
options as the market value of the Company's stock at the date of grant was
equal to the exercise price.  The Company also granted 75,000 options to
non-employees and recognized non-cash compensation expense of $662 related to
the issuance of these options in selling, general and administrative expenses in
the 2001 consolidated statement of operations.  The fair value of each
non-employee option was estimated at $0.58 based on the Black-Scholes
option-pricing model.  The total fair value of these options was $43,770
which is being charged to expense over a period of four years. As at December
31, 2001, no options had vested or expired and no options were exercised or
forfeited in the year.

During
the year ended December 31, 2002, one quarter of the 1,255,000 options granted
during the year ended December 31, 2001 vested, 150,000 options awarded to
eligible employees were forfeited and 81,250 options awarded to eligible
employees were exercised for gross proceeds of $82,138.  During the year
ended December 31, 2002, the Company also recognized non-cash compensation
expense of $41,940 related to the options granted to non-employees during the
year ended December 31, 2001 in selling, general and administrative expenses in
the 2002 consolidated statement of operations.  No options had expired as
at December 31, 2002 and the Company did not grant any stock options under the
Plan during the year ended December 31, 2002.



The
following table illustrates the effect on net loss and loss per common share as
if the Company had applied the fair value recognition provisions of SFAS 123 to
the options granted to employees in 2001:







2002                          
2001



Net
loss, as reported

$(907,371)

$(43,782)

Add:
Total stock-based employee compensation expense

included
in net loss, as reported, determined under

APB
25, net of related tax effects

-

-

Deduct:
Total stock-based employee compensation

expense
determined under fair value based

method
for all awards, net of related tax effects                                             
(82,846)                              
(2,288)





Proforma
net loss

$(990,217)

$(46,070)









Loss
per common share -

Basic
and diluted, as reported
                                                                $(0.06)
               $
(0.00)



Loss
per common share -

Basic
and diluted, proforma
                                                                 
 $(0.07)
                $(0.00)









The
Company has estimated the fair value of each option on the respective dates of
the grant using the Black-Scholes option-pricing model with the following
weighted average assumptions used for the options granted in 2001:



2001

Employee
options

Non-employee
options



Expected
dividend yield

-

-

Expected
stock price volatility

-

35%

Risk-free
interest rate

4.04%

5.44%

Expected
life of options

3.5
years

10
years



The
weighted average fair value of options granted to employees during the year
ended December 31, 2001 was $0.16.







---

VISCOUNT
SYSTEMS INC.

Notes
to Consolidated Financial Statements

(Expressed
in Canadian dollars)



December
31, 2002











10.

Research
and development

Research
and development expenditures are recorded net of investment tax credits
recognized totaling $123,282 (2001 - $142,796).



11.

Income
taxes

(a)

Income
taxes recoverable:

Income
taxes recoverable include federal and provincial income taxes, offset by claims
for investment tax credits based on qualifying research and development activity
as follows:





2002

2001



Federal
and provincial income taxes recoverable (payable)

$

67,352

$

(108,538)

Investment
tax credits recognized

45,707

218,968



Income
taxes recoverable

$

113,059

$

110,430



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



Income
taxes broken down federally and provincially are as follows:





2002

2001

Current
(credit) provision

Federal

$ (59,952)           $

70,674

Provincial

(30,382)

37,864

(90,334)

108,538



Deferred
(credit)



Federal

-

(11,807)

Provincial

-

(6,299)

-

$

(18,106)

Total

$(90,334)
                  
$     90,432



---

VISCOUNT
SYSTEMS INC.

Notes
to Consolidated Financial Statements

(Expressed
in Canadian dollars)



December
31, 2002







(b)

A
 reconciliation of income tax recovery at statutory rates with the reported
income tax recovery is as follows:





2002

2001





Income
(loss) before income
taxes

$ (997,705)
              $
      46,650







Income
tax recovery at statutory rates

$
 359,319                   
$      17,776

Non
deductible expenses and other items

(149,288)

(15,303)

Unrecognized
benefit of operating losses

(210,031)

(2,473)

Recognized
income tax credits

45,707

218,968

Federal
and provincial income tax recoverable

67,352

(108,538)





Total
income tax recovery

$
113,059

$
110,430





(c)

Temporary
differences that give rise to the following deferred income tax assets and
liabilities are as follows:





2002

2001



Deferred
income tax assets:

Warranty
provision

$

3,872

$

3,720

Unrecognized
investment tax credits (non-refundable)

229,575

-

Unrecognized
benefit of operating losses

210,031

-



Gross
deferred income tax assets

443,478

3,720



Valuation
allowance

(434,099)

(3,338)



Net
deferred income tax assets

9,379

382



Deferred
income tax liabilities:

Equipment

(9,379)

(382)



$

-

$

-



The
Company has unutilized operating loss carryforwards of $361,400 (2001 - $Nil)
which will begin to expire in 2008.

The
Company has non-refundable federal investment tax credits of $151,978 (2001 -
$Nil) and provincial investment tax credits of $77,597 which will begin to
expire in 2011.



---

VISCOUNT
SYSTEMS INC.

Notes
to Consolidated Financial Statements

(Expressed
in Canadian dollars)



December
31, 2002





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.

(d)
 As a result of the recapitalization and the acquisition of control of VCCS
by the Company on

July
27,2001 (note 1), VCCS is deemed to have had a taxation year end on July 26,
2001.  The figures above reflect the taxes related to both taxation periods
in the financial year.



12.

Related
party transactions:

Trade
accounts receivable includes $87,770 (December 31, 2001 - $115,456) 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, 2002, the Company sold products for $112,043
(December 31, 2001 - $218,632) to an affiliated company with common ownership.

These
transactions were recorded at the agreed exchange amount between the related
parties.



13.

Commitments

The
Company is committed to minimum annual payments on its premises and automobile
leases as follows:





Year
ending December 31:



2003                                                                                       
$140,973

2004                                                                                       
    53,083

2005                                                                                       
    16,636

2006                                                                                       
      5,652

2007                                                                                       
      2,355





Rent
expense included in the statements of operations is $106,867 (2001 - $77,006).



14.

Changes
in non-cash working capital balances





2002

2001



Trade
accounts receivable

$

22,086

$

402,217

Inventory
(note 3)

(27,288)

(26,620)

Prepaid
expenses

2,219

2,760

Income
taxes recoverable

(2,629)

(48,592)

Leases
receivable

24,809

(2,032)

Accounts
payable and accrued liabilities (note 3)

(83,738)

(17,490)



$

(64,541)

$

310,243





---

VISCOUNT
SYSTEMS INC.

Notes
to Consolidated Financial Statements

(Expressed
in Canadian dollars)



December
31, 2002





15.

Segmented
information

(a)

Management
has determined that the Company operates in one dominant industry segment, which
involves the manufacturing and distribution of electronic premises access
equipment.

Of
the total revenues, $1,624,140 (2001 - $1,611,183) was derived from U.S.-based
customers and $1,739,845 (2001 - $1,627,335) from Canadian-based customers.

Substantially
all of the Company's operations, assets and employees are located in Canada.

(b)

Major
customers:

No
customer represented more than 10% total revenues in either of the two years
ended December 31, 2002.

(c)

Products:

Enterphone
sales represented 76% of total revenue in 2002 (2001 - 74%).  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.



16.
Financial instruments

The
Company's financial instruments consist of cash and cash equivalents, trade
accounts receivable, leases receivable, bank indebtedness, accounts payable and
accrued liabilities and due to stockholders.  Unless otherwise noted, 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.  At December 31, 2002, the largest individual account
receivable was 14.6% (2001 - 13.6%) of the total balance.  The fair
values of these financial instruments approximate their carrying values.



17.

Subsequent
event

Subsequent
to December 31, 2002, the 2003 Stock Option Plan (the "2003 Plan") became
effective.  The 2003 Plan allows for up to 2,600,000 shares of common stock
to be reserved for issuance.  The Company granted 2,575,000 options on
January 2, 2003.