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

_______________

FORM 10-QSB

_______________

(Mark One)

x

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2007

OR

 ̈

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE

EXCHANGE ACT

For the transition period from  to

Commission file Number: 000-30090

_______________

VISIPHOR CORPORATION

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

_______________



|                                                                     |  |                                                
|-------------------------------------------------------------------- |  | -----------------------------------------------
|Canada(State or other jurisdiction of
incorporation or organization) |  | Not Applicable(IRS Employer Identification No.)



Suite 1100  4710 Kingsway 
Burnaby, British Columbia

Canada  V5H 4M2(Address of principal executive offices)

(604) 684-2449(Issuer's telephone number)

_______________



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



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

Yes o No x



As of August 10, 2007, 44,781,445 common shares of the Issuer were issued and outstanding.



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







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VISIPHOR CORPORATION



FORM 10-QSB



For the Quarterly Period Ended June 30, 2007



INDEX





PART IFinancial InformationItem 1.Financial Statements4Item 2.Managements Discussion and Analysis or Plan of Operation19Item 3.Controls and Procedures26PART IIOther InformationItem 1.Legal Proceedings28Item 2.Unregistered Sales of Equity Securities and Use of Proceeds28Item 3.Defaults Upon Senior Securities28Item 4.Submission of Matters to a Vote of Security Holders28Item 5.Other Information28Item 6.Exhibits29








2





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NOTE REGARDING FORWARD-LOOKING STATEMENTS



Except for statements of historical fact, certain information contained herein constitutes forward-looking statements, within Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act).  In some cases, you can identify the forward-looking statements by Visiphor Corporations (Visiphor or the Company) use of the words such as may, will, should, could, expect, plan, estimate, predict, potential, continue, believe, anticipate, intend, expect, or the negative or other variations of these words, or other comparable words or phrases.  Forward-looking statements in this report include, but are not limited to, the Companys anticipation that it will experience significant growth in its U.S. sales, the Companys expectation that a substantial portion of its revenue will come from a limited number of customers, the Companys expectation that revenues will increase during 2007 when compared to those of 2006 and that such revenues will continue to increase as newly developed products and solutions continue to gain increasing customer acceptance; managements belief that increased revenues achieved as a result of the sale of products will more than offset increased technology development costs; the Companys ability to fund its operations in the future resulting from current accounts receivable, work in progress and new orders; new contracts to be entered into in the near future; the Companys future operating  and technology development expense levels; and the Companys ability to achieve break-even operations on an operating cash flow basis during the remainder of 2007.



Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results or achievements of the Company to be materially different from any future results or achievements of the Company expressed or implied by such forward-looking statements.  Such factors include, but are not limited to the following: the Companys limited operating history; the Companys need for additional financing; the Companys history of losses; the Companys dependence on a small number of customers; risks involving new product development; competition; the Companys dependence on key personnel; risks related to the Companys reduction in staff levels; risks involving lengthy sales cycles; dependence on marketing relationships; the Companys ability to protect its intellectual property rights; risks associated with exchange rate fluctuations; risks of software defects; risks associated with product liability; risks associated with the Imagis UK partnership; the potential additional disclosure requirements for trades involving the issued common shares; the difficulty of enforcing civil liabilities against the Company or its directors or officers under United States federal securities laws; the volatility of the Companys share price; risks associated with certain shareholders exercising control over certain matters; risks associated with the acquisition of Sunaptic Solutions Incorporated (Sunaptic) and the other risks and uncertainties described in Exhibit 99.1 to this Quarterly Report.



Although the Company believes that expectations reflected in these forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance, achievements or other future events.  Moreover, neither the Company nor anyone else assumes responsibility for the accuracy and completeness of these forward-looking statements.  The Company is under no duty to update any of these forward-looking statements after the date of this report.  You should not place undue reliance on these forward-looking statements.



All dollar amounts in this Quarterly Report are expressed in Canadian dollars, unless otherwise indicated.



3





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PART I  FINANCIAL INFORMATION

Item 1.   Financial Statements

The Companys financial statements for the three and six-month periods ended June 30, 2007 are included in response to Item 1 and have been compiled by the Companys management.  The financial statements should be read in conjunction with Managements Discussion and Analysis or Plan of Operations (Part I, Item 2) and other financial information included elsewhere in this Form 10-QSB.

VISIPHOR CORPORATION

Consolidated Balance Sheets

(Unaudited)

(Expressed in Canadian dollars)



June 30, 2007 and December 31, 2006

|                                         |                                                   |           |               |           |                   | 
|---------------------------------------- | ------------------------------------------------- | --------- | ------------- | --------- | ----------------- | 
|                                         |                                                   |           | June 30, 2007 |           | December 31, 2006
|Assets                                   |                                                   |           |               | (audited)
|                                         |                                                   |           |               |           |                  
|Current assets:                          |                                                   |           |               |          
|                                         | Cash and cash equivalents                         | $         | 113,288       | $         | 42,338           
|                                         | Accounts receivable                               |           | 518,186       |           | 903,243          
|                                         | Accrued revenue receivable                        |           | 33,713        |           | 177,426          
|                                         | Prepaid expenses and deposit                      |           | 72,667        |           | 160,593          
|                                         |                                                   |           | 737,854       |           | 1,283,600        
|                                         |                                                   |           |               |           |                  
|Equipment, net                           |                                                   | 385,796   |               | 414,706  
|Goodwill                                 |                                                   | 1,684,462 |               | 1,684,462
|Other intangible assets                  |                                                   | 318,225   |               | 437,559  
|Deferred financing costs                 |                                                   | 75,241    |               | 71,142   
|Intellectual property                    |                                                   | 11,111    |               | 27,778   
|                                         |                                                   |           |               |           |                  
|                                         |                                                   | $         | 3,212,689     | $         | 3,919,247        
|                                         |                                                   |           |               |           |                  
|Liabilities and Shareholders Deficiency |                                                   |           |               |          
|                                         |                                                   |           |               |           |                  
|Current liabilities:                     |                                                   |           |               |          
|                                         | Accounts payable and accrued liabilities (note 3) | $         | 2,279,455     | $         | 1,896,122        
|                                         | Loans payable (note 3)                            |           | 720,493       |           | 751,160          
|                                         | Deferred revenue                                  |           | 550,724       |           | 453,690          
|                                         | Capital lease obligations (note 4)                |           | 99,077        |           | 89,776           
|                                         |                                                   |           | 3,649,749     |           | 3,190,748        
|                                         |                                                   |           |               |           |                  
|Long-term liabilities:                   |                                                   |           |               |          
|                                         | Capital lease obligations (note 4)                |           | 79,173        |           | 92,507           
|                                         | Convertible debenture (note 5)                    |           | 1,359,444     |           | 1,231,300        
|                                         |                                                   |           | 1,438,617     |           | 1,323,807        
|Shareholders deficiency:                |                                                   |           |               |          
|                                         | Share capital (note 6)                            |           | 35,685,293    |           | 35,570,362       
|                                         | Contributed surplus (note 7)                      |           | 3,624,597     |           | 3,437,431        
|                                         | Conversion rights                                 |           | 380,294       |           | 365,749          
|                                         | Deficit                                           |           | (41,565,861)  |           | (39,968,850)     
|                                         |                                                   |           | (1,875,677)   |           | (595,308)        
|                                         |                                                   |           |               |           |                  
|                                         |                                                   | $         | 3,212,689     | $         | 3,919,247        
|Operations and going concern (note 1)    |                                                   |           |               |          
|Commitments (note 9)                     |                                                   |           |               |          

See accompanying notes to consolidated financial statements.



4





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VISIPHOR CORPORATION

Consolidated Statements of Operations and Deficit

(Expressed in Canadian dollars)

(Unaudited)



For the three- and six-month periods ended June 30, 2007 and 2006



|                                                             |                                         |              |                              |              |                           |              |           |              |           |  | 
|------------------------------------------------------------ | --------------------------------------- | ------------ | ---------------------------- | ------------ | ------------------------- | ------------ | --------- | ------------ | --------- |  | 
|                                                             |                                         |              | Three months ended  June 30, |              | Six months ended June 30,
|                                                             |                                         |              | 2007                         |              | 2006                      |              | 2007      |              | 2006     
|Revenue:                                                     |                                         |              |                              |              |                           |              |           |             
|                                                             | Software licensing and related services | $            | (153,621)                    | $            | 131,310                   | $            | 222,966   | $            | 613,751  
|                                                             | Professional services                   |              | 913,046                      |              | 1,114,381                 |              | 1,667,915 |              | 2,722,063
|                                                             | Support                                 |              | 103,154                      |              | 130,264                   |              | 247,105   |              | 238,745  
|                                                             | Other                                   |              | 1,176                        |              | 112,873                   |              | 3,046     |              | 229,352  
|                                                             |                                         |              | 863,755                      |              | 1,488,828                 |              | 2,141,032 |              | 3,803,911
|                                                             |                                         |              |                              |              |                           |              |           |              |          
|Expenses:                                                    |                                         |              |                              |              |                           |              |           |             
|                                                             | Administration                          |              | 265,333                      |              | 736,282                   |              | 576,585   |              | 1,399,185
|                                                             | Amortization                            |              | 119,096                      |              | 450,875                   |              | 240,612   |              | 1,073,370
|                                                             | Bad debts expense                       |              | 20,191                       |              | 61,988                    |              | 20,191    |              | 61,988   
|                                                             | Cost of materials                       |              | -                            |              | 77,005                    |              | 22,569    |              | 164,910  
|                                                             | Financing expense                       |              | 6,870                        |              | -                         |              | 12,982    |              | -        
|                                                             | Interest                                |              | 99,299                       |              | 46,839                    |              | 211,495   |              | 74,015   
|                                                             | Sales and marketing                     |              | 305,485                      |              | 317,149                   |              | 564,520   |              | 898,229  
|                                                             | Professional services                   |              | 664,105                      |              | 1,335,694                 |              | 1,279,231 |              | 2,618,808
|                                                             | Technology development                  |              | 301,118                      |              | 487,676                   |              | 809,858   |              | 962,724  
|                                                             | Restructuring charge                    |              | -                            |              | -                         |              | -         |              | 102,462  
|                                                             |                                         |              | 1,781,497                    |              | 3,513,508                 |              | 3,738,043 |              | 7,355,691
|                                                             |                                         |              |                              |              |                           |              |           |              |          
|Loss for the period                                          |                                         | (917,742)    |                              | (2,024,680)  |                           | (1,597,011)  |           | (3,551,780) 
|                                                             |                                         |              |                              |              |                           |              |           |              |          
|Deficit, beginning of period                                 |                                         | (40,648,119) |                              | (34,817,579) |                           | (39,968,850) |           | (33,290,479)
|                                                             |                                         |              |                              |              |                           |              |           |              |          
|Deficit, end of period                                       | $                                       | (41,565,861) | $                            | (36,842,259) | $                         | (41,565,861) | $         | (36,842,259)
|                                                             |                                         |              |                              |              |                           |              |           |              |          
|Loss per share  basic and diluted                           | $                                       | (0.02)       | $                            | (0.05)       | $                         | (0.04)       | $         | (0.08)      
|                                                             |                                         |              |                              |              |                           |              |           |              |          
|Weighted average number of shares outstanding                |                                         | 44,649,574   |                              | 43,075,588   |                           | 44,350,986   |           | 42,876,693  
|                                                             |                                         |              |                              |              |                           |              |           |              |          
|                                                             |                                         |              |                              |              |                           |              |           |              |          
|See accompanying notes to consolidated financial statements. |                                         |              |                              |              |                           |             





5





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VISIPHOR CORPORATION

Consolidated Statements of Cash Flows

(Expressed in Canadian dollars)

(Unaudited)



For the three- and six-month periods ended June 30, 2007 and 2006



|                                                   |                                                                                                      |                                                       |                             |                           |             |           |             |           |             |           | 
|-------------------------------------------------- | ---------------------------------------------------------------------------------------------------- | ----------------------------------------------------- | --------------------------- | ------------------------- | ----------- | --------- | ----------- | --------- | ----------- | --------- | 
|                                                   |                                                                                                      |                                                       | Three months ended June 30, | Six months ended June 30,
|                                                   |                                                                                                      |                                                       | 2007                        |                           | 2006        |           | 2007        |           | 2006       
|Cash provided by (used for):                       |                                                                                                      |                                                       |                             |                           |             |           |             |          
|                                                   |                                                                                                      |                                                       |                             |                           |             |           |             |           |            
|Operating Activities:                              |                                                                                                      |                                                       |                             |                           |             |           |             |          
|                                                   | Loss for the period                                                                                  | $                                                     | (917,742)                   | $                         | (2,024,680) |           | (1,597,011) |           | (3,551,780)
|                                                   | Adjustments to reconcile loss for the period to net cash (used in) provided by operating activities: |                                                       |                             |                           |             |           |             |           |            
|                                                   |                                                                                                      | Amortization of equipment and intangible assets       |                             | 119,095                   |             | 450,875   |             | 240,611   |             | 1,073,370
|                                                   |                                                                                                      | Share-based compensation                              |                             | 108,391                   |             | 249,113   |             | 187,165   |             | 501,980  
|                                                   |                                                                                                      | Accretion of debt                                     |                             | 18,929                    |             | -         |             | 42,690    |             | -        
|                                                   |                                                                                                      | Amortization of deferred financing expenses           |                             | 6,870                     |             | -         |             | 12,982    |             | -        
|                                                   |                                                                                                      | Bad debt expense                                      |                             | 20,191                    |             | -         |             | 20,191    |             | -        
|                                                   |                                                                                                      | Foreign exchange adjustment on loan  payable (note 3) |                             | 35,680                    |             | -         |             | 31,360    |             | -        
|                                                   | Changes in non-cash operating working capital:                                                       |                                                       |                             |                           |             |           |             |           |            
|                                                   |                                                                                                      | Accounts receivable                                   |                             | 117,974                   |             | 820,295   |             | 364,866   |             | 357,396  
|                                                   |                                                                                                      | Accrued revenue receivable                            |                             | 75,909                    |             | 191,853   |             | 143,712   |             | 57,731   
|                                                   |                                                                                                      | Prepaid expenses and deposit                          |                             | 49,077                    |             | 124,928   |             | 87,925    |             | 132,577  
|                                                   |                                                                                                      | Accounts payable and accrued liabilities              |                             | 356,544                   |             | (153,818) |             | 431,598   |             | 125,671  
|                                                   |                                                                                                      | Deferred revenue                                      |                             | (105,742)                 |             | (101,821) |             | 97,034    |             | 27,444   
|                                                   |                                                                                                      |                                                       | (114,824)                   |                           | (443,255)   |           | 63,123      |           | (1,275,611)
|                                                   |                                                                                                      |                                                       |                             |                           |             |           |             |           |            
|Investing Activities:                              |                                                                                                      |                                                       |                             |                           |             |           |             |          
|                                                   | Purchase of equipment                                                                                |                                                       | (34,398)                    |                           | (10,448)    |           | (33,941)    |           | (55,071)   
|                                                   |                                                                                                      |                                                       |                             |                           |             |           |             |           |            
|Financing Activities:                              |                                                                                                      |                                                       |                             |                           |             |           |             |          
|                                                   | Issuance of common shares for cash                                                                   |                                                       | 66,666                      |                           | -           |           | 66,666      |           | 202,500    
|                                                   | Share issuance costs                                                                                 |                                                       | -                           |                           | -           |           | -           |           | (25,697)   
|                                                   | Proceeds of loans payable                                                                            |                                                       | 137,973                     |                           | 641,480     |           | 137,973     |           | 941,480    
|                                                   | Repayment of loan payable                                                                            |                                                       | (100,000)                   |                           | (110,000)   |           | (200,000)   |           | (310,000)  
|                                                   | Proceeds of convertible debenture                                                                    |                                                       | 100,000                     |                           | -           |           | 100,000     |           | -          
|                                                   | Capital lease repayments                                                                             |                                                       | (23,536)                    |                           | (16,498)    |           | (45,789)    |           | (31,735)   
|                                                   | Deferred financing costs                                                                             |                                                       | (17,082)                    |                           | (30,000)    |           | (17,082)    |           | (30,000)   
|                                                   |                                                                                                      |                                                       | 164,021                     |                           | 484,982     |           | 41,768      |           | 746,548    
|                                                   |                                                                                                      |                                                       |                             |                           |             |           |             |           |            
|Increase (decrease) in cash                        |                                                                                                      | 14,799                                                |                             | 31,279                    |             | 70,950    |             | (584,134)
|                                                   |                                                                                                      |                                                       |                             |                           |             |           |             |          
|Cash and cash equivalents, beginning of the period |                                                                                                      | 98,489                                                |                             | 174,678                   |             | 42,338    |             | 790,091  
|                                                   |                                                                                                      |                                                       |                             |                           |             |           |            
|Cash and cash equivalents, end of the period       | $                                                                                                    | 113,288                                               | $                           | 205,957                   | $           | 113,288   | $           | 205,957  

See accompanying notes to consolidated financial statements.



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VISIPHOR CORPORATION

Consolidated Statements of Cash Flows, Continued

(Expressed in Canadian dollars)

(Unaudited)



For the three- and six-month periods ended June 30, 2007 and 2006



|                                                                          |                                                                            |   |                             |   |                           |   |        |   |        | 
|------------------------------------------------------------------------- | -------------------------------------------------------------------------- | - | --------------------------- | - | ------------------------- | - | ------ | - | ------ | 
|                                                                          |                                                                            |   | Three months ended June 30, |   | Six months ended
June 30,
|                                                                          |                                                                            |   | 2007                        |   | 2006                      |   | 2007   |   | 2006  
|Supplementary information and disclosures:                                |                                                                            |   |                             |   |                           |   |        |  
|                                                                          | Interest paid                                                              | $ | 40,398                      | $ | 20,054                    | $ | 68,075 | $ | 34,750
|Non-cash investing and financing transactions not included in cash flows: |                                                                            |   |                             |   |                           |   |        |  
|                                                                          | Equipment acquired under capital lease                                     |   | 9,724                       |   | 14,599                    |   | 41,756 |   | 22,611
|                                                                          | Issuance of common shares on settlement of accounts payable                |   | 48,265                      |   | -                         |   | 48,265 |   | -     
|                                                                          | Issuance of common shares for share subscriptions received in prior period |   | -                           |   | -                         |   | -      |   | 67,500
|See accompanying notes to consolidated financial statements.             









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VISIPHOR CORPORATION

Notes to Consolidated Financial Statements

(Expressed in Canadian dollars)



Period ended June 30, 2007 (Unaudited)





1.

Operations and going concern:

Visiphor Corporation (the Company or Visiphor) was incorporated under the Company Act (British Columbia) on March 23, 1998 under the name Imagis Technologies Inc. On July 6, 2005, the Company changed its name to Visiphor Corporation and continued under the Canada Business Corporations Act. The Company operates in two segments, the development and sale of software applications and solutions and the provision of business integration consulting services.

These financial statements have been prepared on a going concern basis, which includes the assumption that the Company will be able to realize its assets and settle its liabilities in the normal course of business.  For the period ended June 30, 2007, the Company incurred a loss from operations of $1,597,011 and operating cash flow of $63,123. At June 30, 2007, the Company had a working capital deficiency of $2,911,895. Accordingly, the Company will require continued financial support from its shareholders and creditors until it is able to generate sufficient cash flow from operations on a sustained basis. There is no assurance that funding will be available and at acceptable terms to the Company.  Failure to obtain the ongoing support of its shareholders and creditors may make the going concern basis of accounting inappropriate, in which case the Companys assets and liabilities would need to be recognized at their liquidation values. These financial statements do not include any adjustment due to this going concern uncertainty.

2.

Significant accounting policies:

(a)

Financial instruments  recognition and measurement

On January 1, 2007, the Company adopted Section 3855 of the Canadian Institute of Chartered Accountants (CICA) Handbook, Financial Instruments  Recognition and Measurement.  It establishes the standards for recognizing and measuring financial instruments in the balance sheet and the standards for reporting gains and losses in the financial statements.  Financial assets available for sale, assets and liabilities held for trading and derivative financial instruments have to be measured at fair value.

The Company has made the following classifications:

(i)

Cash and temporary investments are classified as financial assets held for trading and are measured at fair value.  Gains and losses related to periodical revaluation are recorded in net income.

(ii)

Accounts receivable are classified as loans and receivables and are initially measured at fair value and subsequent periodical revaluations are recorded at amortized cost using the effective interest rate method.

(iii)

Accounts payable and accrued liabilities and long-term debt are classified as other liabilities and are initially measured at fair value and subsequent periodical revaluations are recorded at amortized cost using the effective interest rate method.

The Company determined that there was no impact to its financial statements from the adoption of Section 3855 of the CICA Handbook.

(b)

Comprehensive income

On January 1, 2007, the Company adopted Section 1530 of the CICA Handbook, Comprehensive Income.  It describes reporting and disclosure recommendations with respect to comprehensive income and its components.  Comprehensive income is the change in shareholders equity, which results from transactions and events from sources other than the Companys shareholders.



8





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2.

Significant accounting policies contd:

The Company determined that there was no impact to its financial statements from the adoption of Section 1530 of the CICA Handbook.

(c)

Equity

On January 1, 2007, the Company adopted Section 3251 of the CICA Handbook, Equity, replacing Section 3250, Surplus.  It describes standards for the presentation of equity and changes in equity for the reporting period as a result of the application of Section 1530, Comprehensive Income.

The Company determined that there was no impact to its financial statements from the adoption of Section 3251 of the CICA Handbook.

3.

Loans Payable and Taxes Payable:

Unsecured loans totaling $66,000 (December 31, 2006 - $200,000) are owed to an unrelated party bearing an interest rate of 12% per annum. These loans are due on demand.



Related party loans totaling $654,493 (December 31, 2006 - $551,160) are owed to an Officer and a Director. These loans are secured with a general charge against assets and bear interest at a rate of 12% per annum. There are loan payables that are denominated in US dollars and are adjusted for foreign currency gains or losses each quarter.



Accounts payables include approximately $330,000 of back payroll taxes and $309,000 income taxes related to the Sunaptic acquisition. The tax payables are currently being paid off as per a payment plan with Canada Revenue Agency.



4.

Capital lease obligations:

The Company periodically buys or leases computer equipment that includes servers, server components and computer. The following schedule is a list of commitments under the leasing arrangements.



|                                               |               |          |                   |         
|---------------------------------------------- | ------------- | -------- | ----------------- | --------
|                                               | June 30,
2007 |          | December 31, 2006
|Due 2007, including buy-out options            | $             | 66,737   | $                 | 116,099 
|Due 2008, including buy-out options            |               | 97,373   |                   | 79,878  
|Due 2009, including buy-out options            |               | 39,447   |                   | 21,952  
|Due 2010, including buy-out options            |               | 9,473    |                   | -       
|                                               |               | 213,030  |                   | 217,929 
|Implicit interest portion (9% to 21%)          |               | (34,780) |                   | (35,646)
|                                               |               | 178,250  |                   | 182,283 
|Current portion of capital lease obligations   |               | 99,077   |                   | 89,776  
|Long-term portion of capital lease obligations |               | 79,173   |                   | 92,507  





9





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5.

Convertible Debenture:

On July 12, 2006, the Company issued a non-brokered private placement of a secured convertible debenture. The convertible debenture matures on December 15, 2009 and interest is payable on the outstanding principal amount at a rate of 8% per annum, payable quarterly beginning in July 2007 as the first years interest was paid in advance. The convertible debenture is also subject to certain debt covenants.  At the option of the holder, the principal amount outstanding under the convertible debenture may be converted into common shares at any time until maturity at a price of $0.45 per share. The Company has the right to force a conversion at any time after the third anniversary if the holder would receive an internal rate of return of 25%, not including interest paid to the conversion date, and the common shares of the Company are trading on the Toronto Stock Exchange or TSX Venture Exchange with a minimum agreed trading volume.  In addition, the Company will issue 2,350,000 under-performance warrants if after the second anniversary of the debenture, the Companys common shares are not trading at greater than $0.45 per share, based on a 30-day weighted average. Each warrant would entitle the holder to acquire one common share at any time up to December 15, 2009 at $0.30 per share.  The Company's obligations under the convertible debenture are collateralized by a first charge on all of the Companys assets.  The Company agreed to pay the holder a structuring fee of $48,000 in respect of the placement.

The convertible debenture was accounted for as a compound debt instrument and proceeds were allocated between debt and equity using the residual method whereby the debt component was valued and the residual was allocated to equity items.

The Company has determined the fair value of the liability portion of the convertible debenture upon issuance to be approximately $1.2 million using a net present value calculation.  The fair value of the liability portion will be accreted to the convertible debenture face value of $1.6 million through interest expense charges computed at 18% per annum through December 15, 2009. The balance of the convertible debenture, approximating $409,000, has been credited to equity and represents the values ascribed to the convertible feature of the debenture with the contingent warrants.  The financing expenses have also been separated into equity and debt components at the same ratio as the convertible debenture.  The debt component has been classified as deferred financing costs and will be applied against income over the period of the financing, included in interest expense. The financing costs for the equity component have been treated as a capital transaction and applied against the equity component.

During the month of May 2007, the Company issued a non-brokered private placement of a secured convertible debenture of $100,000. The lender was the same lender as the June 12, 2006 private placement. The terms of this debenture called for a conversion price of $0.10 on the $100,000 and also revised the conversion price of the July 2006 debenture to $0.25 and changed the exercise price of the under-performance warrants from $0.30 to $0.25.

The Company has determined the fair value of the liability portion of the convertible debenture upon issuance to be approximately $80,000 using a net present value calculation.  The fair value of the liability portion will be accreted to the convertible debenture face value of $100,000 through interest expense charges computed at 18% per annum through December 15, 2009. The balance of the convertible debenture, approximating $20,000, has been credited to equity and represents the values ascribed to the convertible feature of the debenture.  The financing expenses have also been separated into equity and debt components at the same ratio as the convertible debenture.  The debt component has been classified as deferred financing costs and will be applied against income over the period of the financing, included in interest expense. The financing costs for the equity component have been treated as a capital transaction and applied against the equity component.

The contingent warrant modification had no material impact for CAD or US GAAP reconciliation purposes.

The following table summarizes the long-term cash commitments relating to the convertible debt. The difference between the value of $1,359,444 as per the balance sheet and the $2,028,668 value as per the table below is related to the accretion of the debt and periodic cash interest payments.



10





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5.

Convertible Debenture contd:



Long Term Commitments:

Year
      Long
        Term Debt2007
      $  62,3442008
      136,0002009
      1,830,334Total
      $  
        2,028,000




At June 30, 2007, the Company was in violation of certain debt covenants in relation to this convertible debenture; however the Company has obtained a waiver of these covenants from the lender for the quarter.

6.

Sharecapital:

(a)

Authorized:

100,000,000 common shares without par value

50,000,000 preferred shares without par value, non-voting, issuable in one or more series

(b)

Issued



Number of sharesAmountBalance, March 31, 200744,114,775$35,618,627Issued for exercise of options666,66666,666Balance, June 30, 200744,781,441$35,685,293


(c)

Warrants:

At December 31, 2006, and June 30, 2007, the following warrants were outstanding:



December 31, 2006GrantedExercisedExpiredJune 30, 2007Exercise priceExpiry date2,557,785--(2,557,785)-$0.55January 11, 2007300,000--(300,000)-$0.50March 2, 2007-120,662--120,662$0.50February 9, 20092,857,785120,662-(2,857,785)120,662


(d)

Options:



The Company has a stock option plan that was most recently approved at the Companys annual general meeting of shareholders on May 8, 2006.  Under the terms of the plan, the Company may reserve up to 8,615,118 common shares for issuance under the plan.  The Company has granted stock options under the plan to certain employees, directors, advisors and consultants.  These options are granted for services provided to the Company.  All existing options granted prior to November 25, 2003 expire five years from the date of grant.  All options granted subsequent to November 25, 2003 expire three years from the date of the grant.  All options vest one-third on the date of the grant, one-third on the first anniversary of the date of the grant and one-third on the second anniversary of the date of the grant.





11





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6.

Share Capital contd:



(d)

Options contd:



For options issued in 2003 and previously accounted for under the fair value method, modification accounting was applied.  Under modification accounting, the Company recorded additional expense equal to the difference between the fair value of the original award on the date of the repricing and the fair value of the modified award also on the date of the repricing.



A summary of the status of the Companys stock options at June 30, 2007 and December 31, 2006, and changes during the periods ended on those dates is presented below:



Six months ended
June 30, 2007Year ended
December 31, 2006Weighted averageWeighted averageSharesExercise PriceSharesExercise PriceOutstanding, beginning of period8,292,500$0.325,415,500$0.67Granted2,584,5320.105,246,4680.25Exercised(666,667)0.10--Cancelled(2,875,441)0.34(2,369,468)0.65Outstanding, end of period7,334,926$0.338,292,500$0.32


The following table summarizes information about stock options outstanding at June 30, 2007:



Options OutstandingOptions ExercisableExercise priceNumber
of optionsWeighted average remaining contractual lifeWeighted average exercise priceNumber of optionsWeighted average exercise price$0.085218,5332.57$0.08572,844$0.085$0.101,769,3342.76$0.10145,334$0.10$0.11100,0002.61$0.1133,333$0.11$0.1234,7222.44$0.1211,574$0.12$0.13905,7272.44$0.13330,674$0.13$0.1510,0002.34$0.153,333$0.15$0.165002.34$0.16167$0.16$0.1710,0001.99$0.173,333$0.17$0.20395,5562.18$0.20131,852$0.20$0.21946,6672.13$0.21360,000$0.21$0.2545,0001.91$0.2530,000$0.25$0.297,0000.96$0.294,667$0.29$0.3175,0001.74$0.3150,000$0.31$0.3353,3330.46$0.3353,333$0.33$0.3413,3330.36$0.3413,333$0.34$0.3512,0001.35$0.358,667$0.35$0.367,1100.63$0.367,110$0.36$0.3912,0001.07$0.399,667$0.39$0.40679,7010.14$0.40679,701$0.40$0.4415,0001.36$0.4410,000$0.44$0.452,024,4101.14$0.451,791,521$0.457,334,9261.85$0.333,750,443$0.35






12





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6.

Share capital contd:

(d)

Options contd:



The weighted average fair value of employee stock options granted during the six month period ended June 30, 2007 was $0.10 (six months ended June 30, 2006-$0.44) per share purchase option. The fair value of each stock option award was estimated on the date of grant using the Black-Scholes option pricing model using the following average inputs:  volatility  72.72% (2006-66%); risk free interest rate - 5% (2006-5%); option term - 3 years (2006-3 years); and dividend yield  nil (2006-nil).  The total compensation expense of $187,166 (six months ended June 30, 2006-$501,980) has been allocated to the expense account associated with each individual employee expense and credited to contributed surplus.



(e)

Agents Options



A private placement on November 29, 2005 included non-transferable agents options to purchase 896,307 units on or before November 29, 2007 at a price of $0.45 per unit. Each unit consists of one common share and one-half of one common share purchase warrant, each full warrant exercisable for one common share at $0.50 until November 29, 2007.



A private placement on December 13, 2005 included non-transferable agents options to purchase 11,250 units on or before December 13, 2007 at a price of $0.45 per unit. Each unit consists of one common share and one-half of one common share purchase warrant, each full warrant exercisable for one common share at $0.50 until December 13, 2007.



A summary of the status of the Companys agents options at June 30, 2007 and December 31, 2006 and changes during the periods ended on those dates is presented below:





Six months ended
June 30, 2007Year ended
December 31, 2006Weighted averageWeighted averageSharesExercise PriceSharesExercise PriceOutstanding, beginning of period907,557$0.45907,557$0.45Granted----Exercised----Cancelled----Outstanding, end of period907,557$0.45907,557$0.45




7.

Contributedsurplus:



AmountBalance, December 31, 2006$3,437,431Value of options granted187,166Balance, June 30, 2007$3,624,597




8.

Relatedparty transactions not disclosed elsewhere are as follows:



At June 30, 2007, accounts payable and accrued liabilities included $332,938 (at December 31, 2006 -$230,215) owed by the Company to Directors, Officers and companies controlled by Directors and Officers of the Company. These amounts are unsecured, non-interest bearing and payable on demand and consist of unpaid fees and expenses. The exchange amount was negotiated and established and agreed to by the related parties.



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9.

Commitments:



In addition to the capital lease obligations disclosed in note 4, the Company leases head office space in Burnaby, B.C. under an operating lease expiring on December 30, 2009. The monthly rent is $16,908. The Company also subleases office space in Vancouver, B.C. of 4,128 square feet with monthly rent of $7,000 which expires on September 29, 2008. This space is no longer used by the Company and has been sublet as of March 1, 2007 to cover the Companys costs. The lease to the tenant also expires September 29, 2008.



10.

Subsequent Event:



On July 17, 2007 the Company announced that it had entered into an agreement for a proposed private placement of up to CDN $1,000,000. The price of the private placement units will be at a price of $0.10 per unit. Each unit will consist of one common share and one half common share purchase warrant. Each whole warrant will entitle the holder for one year from the date of issue of the units to acquire one additional common share in the capital of Visiphor at an exercise price of $0.12. The private placement is subject to regulatory approval.

11.

Financial instruments and risk management:

(a)

Fair values:



The fair value of the Companys financial instruments, represented by cash, accounts receivable, accounts payable, accrued liabilities, and loans payable, approximates the carrying values of these items by their ability to be promptly liquidated or their immediate or short term to maturity.  Based on current interest rates relative to those implicit in the leases, the fair value of capital lease obligations is estimated to approximate their carrying values.

(b)

Credit risk:



The Company is exposed to credit risk only with respect to uncertainty as to timing and amount of collectibility of accounts receivable. The Companys maximum credit risk is the carrying value of accounts receivable.

(c)

Foreign currency risk:



Foreign currency risk is the risk to the Companys earnings and cash flow that arises from fluctuations in foreign currency exchange rates, and the degree of volatility of these rates.  Management has not entered into any foreign exchange contracts to mitigate this risk.







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12.

Segmented information:



The Company operates in two segments: (i) the development and sale of software applications and solutions and related services, and (ii) the provision of business integration consulting services. Management of the Company makes decisions about allocating resources based on these two operating segments.



As at June 30, 2007

Software SalesConsulting ServicesTotalRevenue$458,183$1,682,849$2,141,032Operating Expenses2,335,307950,6293,285,936Interest Expense211,495-211,495Amortization of Capital Assets67,99736,615104,612Amortization of Intangibles16,667119,333136,000Total Expenses2,631,4661,106,5773,738,043Net Profit (Loss)$(2,173,283)$576,272$(1,597,011)Total Assets$636,683$2,576,006$3,212,869Intangible AssetsGoodwill$-$1,684,462$1,684,462Intellectual Property$11,111$-$11,111Other Intangible Assets$-$318,225$318,225Equipment, net$251,049$134,747$385,796Non-cash Share-based Compensation Expense$164,322$22,843$187,165Additions to Capital Assets$22,385$12,013$34,398




Substantially all revenue is derived from sales to customers located in Canada, the United States, and the United Kingdom.  Geographic information is as follows:

June 30,

|               |  |  |   |           |   |          
|-------------- |  |  | - | --------- | - | ---------
|               |  |  |   | 2007      |   | 2006     
|Canada         |  |  | $ | 1,672,337 | $ | 2,512,625
|United States  |  |  |   | 462,206   |   | 1,277,417
|United Kingdom |  |  |   | 6,489     |   | 13,869   
|               |  |  |   |           |   |          
|Total          |  |  | $ | 2,141,032 | $ | 3,803,911



Substantially all of the Companys equipment is in Canada.

Major customers, representing 10% or more of total revenue, are:

June 30,

|           |  |  |   |         |   |        
|---------- |  |  | - | ------- | - | -------
|           |  |  |   | 2007    |   | 2006   
|Customer A |  |  | $ | 889,877 | $ | 537,987
|Customer B |  |  |   | 223,748 |   | 417,793
|Customer C |  |  |   | 212,417 |   | 414,670





15





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13.

United States generally accepted accounting principles:



These financial statements have been prepared in accordance with accounting principles generally accepted in Canada (Canadian GAAP) which differ in certain respects from accounting principles generally accepted in the United States (U.S. GAAP).  Material issues that could give rise to measurement differences to these consolidated financial statements are as follows:

(a)

Share-based compensation:



As described in note 6, the Company has granted stock options to certain employees, directors, advisors, and consultants.  These options are granted for services provided to the Company.  For Canadian GAAP purposes, the Company accounts for all share-based payments to non-employees made subsequent to January 1, 2002 and to employees made subsequent to January 1, 2003 using the fair value based method.



Under U.S. GAAP:



(i)

Options granted to non-employees prior to January 1, 2002 are also required to be measured and recognized at their fair value as the services are provided and the options are earned.



(ii)

During the years ended December 31, 2001 and 2002, the Company repriced certain options which were accounted for as variable options resulting in net increases in the underlying common share market price between repricing and exercise, expiring or forfeiture of the options.



(iii)

An enterprise recognizes or, at its option, discloses the impact on net loss of the fair value of stock options and other forms of share-based compensation awarded to employees.  While the Company has elected under U.S. GAAP to adopt fair value accounting for options awarded to employees on or after January 1, 2003, the Company has elected to continue to measure compensation cost for stock options granted to employees prior to January 1, 2003 by the intrinsic value method.



On January 1, 2006, the Company adopted Statement of Financial Accounting Standards (SFAS) 123(R), Share-Based Payment (SFAS 123(R)), which requires the expensing of all options issued, modified or settled the based on the grant date fair value over the period during which an employee is required to provide service (vesting period).



The Company adopted SFAS 123(R) using the modified prospective approach, which requires application of the standard to all awards granted, modified, repurchased or cancelled on or after January 1, 2006, and to all awards for which the requisite service has not been rendered as at such date.  Since January 1, 2003, the Company has been following the fair value based approach prescribed by SFAS 123, as amended by SFAS 148, for stock option awards granted, modified or settled on or after such date.  As such, the application of SFAS 123(R) on January 1, 2006 to all awards granted prior to its adoption did not have a significant impact on the financial statements.  In accordance with the modified prospective approach, prior period financial statements have not been restated to reflect the impact of SFAS 123(R).  The prospective adoption of this new U.S. GAAP pronouncement creates no new differences with the Companys stock compensation expense reported under Canadian GAAP.



Previously under U.S. GAAP, the Company accounted for its stock option plan under the principles of Accounting Principles Board Opinion No. 25 Accounting for Stock Issued to Employees and Related Interpretations (APB 25).  No compensation expense was recognized under APB 25 because the exercise price of the Companys stock options equals the market price of the underlying stock on the date of the grant.

b)

Beneficial conversion option:



During the year ended December 31, 2000, the Company issued convertible debentures with detachable warrants attached.  For Canadian GAAP purposes, the issuance was considered to be of a compound debt and equity instrument and the proceeds were allocated between the two elements based on their relative fair values.  For U.S. GAAP purposes, the consideration received was allocated between the debt and warrants resulting in a beneficial conversion option as the fair value of the shares issuable on conversion of the debt is in excess of the value at which such shares would be issuable based on the reduced carrying value of the debt element.



16





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13.

United States generally accepted accounting principles contd:

c)

Warrant issuances for services:

During the year ended December 31, 2000, the Company issued 200,000 warrants having an exercise price of $3.50 each for services rendered.  In accordance with the Companys accounting policies at that time, for Canadian GAAP purposes, no value has been assigned to these warrant issuances.  For U.S. GAAP purposes, the fair value of these warrants would be determined based on the Black-Scholes option pricing model and recognized as the services are provided.

d)

Convertible debenture:



During 2006, the Company issued a convertible debenture with detachable contingent warrants.  For Canadian GAAP purposes, the debenture was treated as a compound debt instrument and the debt component was allocated  between debt and equity using the residual method whereby the debt was valued at fair value and the residual value was applied to equity (consisting of the conversion feature and contingent warrants) net of the pro rata issuance costs.



For U.S. GAAP purposes, the relative fair value method was applied to bifurcate the contingent warrants from the debt instrument whereby debt and contingent warrants were fair valued.  Issuance costs were allocated proportionally to each component.  The warrants were evaluated as equity as they contain no net cash settlement terms outside of the control of the Company.  Conversion features of the debt did not meet the requirements for bifurcation.



The fair value of the warrants has been estimated to be $114,871 using the Black-Scholes option pricing model using the following average inputs:  volatility - 51%; risk free interest rate - 5% option term  1 5/12 years; and dividend yield  nil.



During the period, the Company issued an additional convertible debenture.  This debenture has been treated as a compound debt instrument for Canadian GAAP purposes as well.  For US GAAP purposes, the entire debenture has been treated as a liability instrument.



The modification of the contingent warrants during the period did not have a material effect on the estimated fair value of the contingent warrants for US GAAP purposes.



17





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13.

United States generally accepted accounting principles contd:

The effect of these accounting differences on contributed surplus, the equity and debt components of the convertible debenture, deficit, net loss, and net loss per share are as follows:



|                                                                        |                           |              |      |                     |   |                         |  |  |  |  |  |  |  |  |  |  |  | 
|----------------------------------------------------------------------- | ------------------------- | ------------ | ---- | ------------------- | - | ----------------------- |  |  |  |  |  |  |  |  |  |  |  | 
|                                                                        |                           |              |      | As at
June 30, 2007 |   | As at
December 31, 2006
|Contributed Surplus, Canadian GAAP                                      | $                         | 3,624,597    | $    | 3,437,431          
|Cumulative stock based compensation (Note 13 (a))                       |                           |              |      | 1,380,198           |   | 1,380,198              
|Beneficial conversion options  (Note 13 (b))                            |                           |              |      | 208,200             |   | 208,200                
|Warrants issued for services (Note 13 (c))                              |                           |              |      | 722,000             |   | 722,000                
|Contingent warrants  (Note 13 (d))                                      |                           |              |      | 153,767             |   | 129,593                
|Additional paid-in capital, U.S. GAAP                                   |                           |              | $    | 6,088,762           | $ | 5,877,422              
|                                                                        |                           |              |      |                     |   |                        
|Equity Components of Convertible Debenture, Canadian GAAP               | $                         | 379,018      | $    | 365,479            
|Equity components of convertible debenture  (Note13 (d))                |                           |              |      | (379,018)           |   | (365,479)              
|Equity Components of Convertible Debenture, U.S.  GAAP                  | $                         | -            | $    | -                  
|                                                                        |                           |              |      |                    
|Deferred financing charges, Canadian GAAP                               | $                         | 75,241       |      | 71,142             
|Valuation differences  (Note 13 (d))                                    |                           | 32,664       |      | 32,604             
|Accretion differences  (Note 13 (d))                                    |                           | (4,776)      |      | (4,373)            
|Deferred financing charges, U.S. GAAP                                   |                           | 103,129      |      | 99,373             
|                                                                        |                           |              |      |                    
|Convertible debenture, Canadian GAAP                                    | $                         | 1,359,444    | $    | 1,231,300          
|Valuation differences (Note 13 (d))                                     |                           |              |      | 189,219             |   | 268,755                
|Accretion differences (Note 13 (d))                                     |                           |              |      | (55,652)            |   | (25,151)               
|Convertible debenture, U.S. GAAP                                        |                           |              | $    | 1,493,011           | $ | 1,474,904              
|                                                                        |                           |              |      |                    
|Deficit, Canadian GAAP                                                  | $                         | (41,565,861) | $    | (39,924,950)       
|Cumulative stock based compensation (Note 13 (a))                       |                           |              |      | (1,380,198)         |   | (1,380,198)            
|Beneficial conversion options (Note 13 (b))                             |                           |              |      | (208,200)           |   | (208,200)              
|Warrants issued for services (Note 13 (c))                              |                           |              |      | (722,000)           |   | (722,000)              
|Convertible debenture (Note 13 (d))                                     |                           |              |      | 26,906              |   | 20,758                 
|Deficit, U.S. GAAP                                                      |                           |              | $    | (43,852,047)        | $ | (42,214,590)           
|                                                                        | Six months ended
June 30,
|                                                                        | 2007                      |              | 2006
|                                                                        |                           |              |      |                    
|Net Loss for the period, Canadian GAAP                                  | $                         | (1,597,011)  | $    | (3,551,780))       
|Accretion on convertible debenture Canadian GAAP (Note 13 (d))          |                           | 48,608       |      | -                  
|Deferred financing expenses deducted under Canadian GAAP  (Note 13 (d)) | 13,381                    |              | -   
|                                                                        |                           |              |      |                     |  
|Accretion on convertible debenture U.S. GAAP  (Note 13 (d))             |                           | (18,087)     |      | -                  
|Deferred  financing expenses deducted under U.S. GAAP  (Note 13 (d))    |                           | (16,996)     |      | -                  
|                                                                        |                           |              |      |                     |  
|Net Loss for the period, U.S. GAAP                                      | $                         | (1,570,105)  |      | (3,551,780)        
|                                                                        |                           |              |      |                    
|Net Loss per share, U.S. GAAP and Canadian GAAP  basic and diluted     | $                         | (0.04)       | $    | (0.08)             







18





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



About Visiphor

Visiphor is a software product and consulting services company that is in the business of helping enterprises by connecting what matters. The Company specializes in the development and deployment of solutions to the problem of integrating disparate business processes and databases. In so doing, the Company has developed a number of sophisticated products and specialized consulting skills. These have allowed Visiphor to gain industry recognition as a leader in providing advanced solutions to the system disparity problem that permeates the law enforcement, security, health care and financial services industries.



Visiphor provides solutions for:



·

Enterprise Information Integration (EII);

·

Data Migration via Extract, Transform and Load (ETL); and

·

Enterprise Application Integration (EAI).



Visiphors products consist of servers and applications that produce one-time software licensing revenues and recurring support revenues. Its consulting services are highly specialized and focus on facilitating solutions to business integration related problems.



The Company develops and markets software products that simplify, accelerate, and economize the process of connecting existing, disparate databases. The Companys technologies enable information owners to share data securely with internal line of business applications and external stakeholders and business partners using any combination of text or imagery. This includes searching disconnected data repositories for information about an individual using only a facial image.This allows organizations to quickly create regional information sharing networks using any combination of text or imagery.



In addition to a suite of data sharing and integration products Visiphor also has a premier consulting team, Visiphor Consulting Services, that can provide services to organizations ranging from business process management support, development of an integration strategic plan, through to the design, development and implementation of a complete data sharing and integration solution for any combination of internal applications integration, business partner integration, process automation or workflow.



Overview

The Companys Business

The Company derives a substantial portion of its revenues, and it expects to derive a substantial portion of its revenues in the near future, from sales of its software and services to a limited number of customers. Additional revenues are achieved through the implementation and customization of software, from consulting services revenues, as well as from the support, training, and ongoing maintenance that results from each software sale. The Companys success will depend significantly upon the timing and size of future purchase orders from its largest customers as well as from the ability to maintain relationships with its existing customer base.

Typically, the Company enters into a fixed price contract with a customer for the licensing of selected software products and time and materials contracts for the provision of specific services.  The Company generally recognizes total revenue for software and services associated with a contract using the percentage-of-completion method based on the total costs incurred over the total estimated costs to complete the contract or residual multiple element-based accounting.  Standalone services contracts revenues are recognized as the services are delivered.

The Companys revenue is dependent, in large part, on contracts from a limited number of customers.  As a result, any substantial delay in the Companys completion of a contract, the inability of the Company to obtain new contracts or the cancellation of an existing contract by a customer could have a material adverse effect on the Companys results of operations.  The loss of certain material contracts (attached as an exhibit) could have a material adverse effect on the Companys business, financial condition, operating results and cash flows.  As a result of these and other factors, the Companys results of operations have fluctuated in the past and may continue to fluctuate from period to period.



19





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Critical Accounting Polices

Critical accounting policies are those that management believes are both most important to the portrayal of the Companys financial conditions and results, and that require difficult, subjective, or complex judgements, often as a result of the need to make estimates about the effects of matters that involve uncertainty.

Visiphor believes the critical accounting policies it uses in preparation of its financial statements are as follows:

Revenue recognition

(i)

Software sales revenue:

The Company recognizes revenue consistent with the Securities and Exchange Commission Staff Accounting Bulletin No. 104 and Statement of Position 97-2, Software Revenue Recognition. In accordance with this statement, revenue is recognized, except as noted below, when all of the following criteria are met: persuasive evidence of a contractual arrangement exists, title has passed, delivery and customer acceptance has occurred, the sales price is fixed or determinable and collection is reasonably assured.  Cash received in advance of meeting the revenue recognition criteria is recorded as deferred revenue.



When a software product requires significant production, modification or customization, the Company generally accounts for the arrangement using the percentage-of-completion method of contract accounting. Progress to completion is measured by the proportion that activities are completed to the total activities required under each arrangement. When the current estimate on a contract indicates a loss, a provision for the entire loss on the contract is made. In circumstances where amounts recognized as revenue under such arrangements temporarily exceed the amount invoiced, the difference is recorded as accrued revenue receivable.

When software is sold under contractual arrangements that include post contract customer support (PCS), the elements are accounted for separately if vendor specific objective evidence (VSOE) of fair value exists for all undelivered elements. VSOE is identified by reference to renewal arrangements for similar levels of support covering comparable periods. If such evidence does not exist, revenue on the completed arrangement is deferred until the earlier of (a) VSOE being established or (b) all of the undelivered elements being delivered or performed, with the following exceptions: if the only undelivered element is PCS, the entire fee is recognized ratably over the PCS period, and if the only undelivered element is service, the entire fee is recognized as the services are performed.

The Company provides for estimated returns and warranty costs, which in previous quarters has been nominal, on recognition of revenue. This quarter however, there was a reversal of revenue that was unforeseen and in order to maintain a positive relationship with a business partner, the reversal of revenue was required.

(ii)

Support and services revenue:

Up front payments for contract support and services revenue is deferred and is amortized to revenue over the period that the support and services are provided.

Intangible Assets:

Intangible assets acquired either individually or with a group of other assets are initially recognized and measured at cost.  The cost of a group of intangible assets acquired in a transaction, including those acquired in a business combination that meet the specified criteria for recognition apart from goodwill, is allocated to the individual assets acquired based on their relative fair values.  The cost of internally developed intangible assets is capitalized only when technological feasibility has been established, the asset is clearly defined and costs can be reliably measured, management has both the intent and ability to produce or use the intangible asset, adequate technical and financial resources exist to complete the development, and management can demonstrate the existence of an external market or internal need for the completed product or asset. Costs incurred to enhance the service potential of an intangible asset are capitalized as betterment when the above criteria are met. No amounts have been capitalized to date in connection with internally developed intangible assets.



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Intangible assets with finite useful lives are amortized over their useful lives.  The assets are amortized on a straight-line basis over the following terms, which are reviewed annually:



Asset

Term



Patents

3 years

License

3 years

Customer relationships

3 years

Contract backlog

4 months





Intangible assets with indefinite useful lives are not amortized and are tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired.  The impairment test compares the carrying amount of the intangible asset with its fair value, and an impairment loss is recognized in income for the excess, if any.

Use of estimates

The preparation of financial statements in accordance with accounting principles generally accepted in Canada requires management to make estimates and assumptions that affect the amounts reported or disclosed in the financial statements.  Actual amounts may differ from these estimates.  Areas of significant estimate include, but are not limited to: valuation of accounts receivable; progress towards completion on certain fixed prime contracts; estimated useful lives of equipment and intangible assets; returns due to disputes; valuation of acquired intangible assets; valuation of share-based awards; and the valuation allowance of future income tax assets.

Share-based compensation

The Company has a share-based compensation plan, which is described in note 6 of the Notes to the Consolidated Financial Statements.  Subsequent to January 1, 2003, the Company accounts for all share-based payments to employees and non-employees using the fair value based method.  Under the fair value based method, share-based payments are measured at the fair value of the consideration received, or the fair value of the equity instruments issued, whichever is more reliably measured.



The fair value of share-based payments to non-employees is periodically re-measured until counterparty performance is complete, and any change therein is recognized over the period and in the same manner as if the Company had paid cash instead of issuing equity instruments.  The cost of share-based payments to non-employees that are fully vested and non-forfeitable at the grant date is measured and recognized at that date.



Under the fair value based method, compensation cost attributable to employee awards is measured at fair value at the grant date and recognized over the vesting period.  Compensation cost attributable to awards to employees that call for settlement in cash or other assets is measured at intrinsic value and recognized over the vesting period.  Changes in intrinsic value between the grant date and the measurement date result in a change in the measure of compensation cost.  For awards that vest at the end of the vesting period, compensation cost is recognized on a straight-line basis; for awards that vest on a graded basis, compensation cost is recognized on a pro-rata basis over the vesting period.

Results of Operations for the three months ended June 30, 2007 as compared to the three months ended June 30, 2006:

Non-GAAP Operating Cash Flow



The Company presents income excluding non-cash items and one-time unusual expenses which is a supplemental financial measure that is not required by, or presented in accordance with Canadian or U.S. generally accepted accounting principles. The Company presents income excluding non-cash items and one-time unusual expenses because the Company considers it an important supplemental measure of its operations as it provides an indicator of the Companys progress towards achieving a cash flow from revenues that is equal to or greater than the cash expense level, and it enhances period-to-period comparability of the cash flow of the Companys operations. This non-GAAP financial measure may not be comparable to the calculation of similar measures reported by other companies. This measure has limitations as an analytical tool. It should not be considered in isolation, as an alternative to, or more meaningful than financial measures calculated and reported in accordance with GAAP. It should not be considered as an alternative to cash flow from operations determined in accordance with GAAP. Included below is a reconciliation of income excluding non-cash items and one-time unusual expenses, a non-GAAP



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financial measure, to cash flow from operations, the most directly comparable financial measure calculated and reported in accordance with GAAP.



| |                                                                                                      |                                          |           |           |             |          
| | ---------------------------------------------------------------------------------------------------- | ---------------------------------------- | --------- | --------- | ----------- | ---------
| |                                                                                                      | For the three months ended June 30,     
| |                                                                                                      |                                          | 2007      |           | 2006       
| |                                                                                                      |                                          |           |           |            
| | Loss for the period                                                                                  | $                                        | (917,742) | $         | (2,024,680)
| | Adjustments to reconcile loss for the period to net cash (used in) provided by operating activities: |                                          |           |           |            
| |                                                                                                      | Amortization                             |           | 119,095   |             | 450,875  
| |                                                                                                      | Stock-based compensation                 |           | 108,391   |             | 249,113  
| | Accretion of convertible debenture                                                                   | 18,929                                   |           | -        
| | Deferred financing costs expensed                                                                    | 6,870                                    |           | -        
| | Bad debt expense                                                                                     | 20,191                                   |           | -        
| | Foreign exchange adjustment on loan payable                                                          | 35,680                                   |           | -        
| | Changes in non-cash operating working capital:                                                       |                                          |           |          
| |                                                                                                      | Accounts receivable                      |           | 117,974   |             | 820,295  
| |                                                                                                      | Accrued revenue receivable               |           | 75,909    |             | 191,853  
| |                                                                                                      | Prepaid expenses and deposits            |           | 49,077    |             | 124,928  
| |                                                                                                      | Accounts payable and accrued liabilities |           | 356,544   |             | (153,818)
| |                                                                                                      | Deferred revenue                         |           | (105,742) |             | (101,821)
| | Cash used for operating activities                                                                   |                                          | (114,824) |           | (443,255)  
| | Excluded from non-GAAP measure                                                                       |                                          |           |           |            
| | Changes in non-cash operating working capital:                                                       |                                          |           |          
| |                                                                                                      | Accounts receivable                      |           | (117,974) |             | (820,295)
| |                                                                                                      | Accrued revenue receivable               |           | (75,909)  |             | (191,853)
| |                                                                                                      | Prepaid expenses and deposit             |           | (49,077)  |             | (124,928)
| |                                                                                                      | Accounts payable and accrued liabilities |           | (356,544) |             | 153,818  
| |                                                                                                      | Deferred revenue                         |           | 105,742   |             | 101,821  
| |                                                                                                      |                                          |           |          
| |                                                                                                      |                                          |           |           |            
| | Non-GAAP operating cash flow                                                                         | $                                        | (608,586) | $         | (1,324,692)
| |                                                                                                      |                                          |           |           |            



Based on the non-GAAP financial measure the Companys revenues generated or will generate $608,586 less cash than its expenses required for the three-month period ended June 30, 2007, which is $716,106 or 54.0% more than for the three-month period ended June 30, 2006.

Revenues

Visiphors total revenues for the three-month period ended June 30, 2007 were $863,755, which is 42.0% lower than the prior year level of $1,488,828. Total revenues for the six-month period ended June 30, 2007 were $2,141,032 compared with $3,803,911, or a decrease of 43.7% compared with the same period in 2006. These decreases were primarily due to customer delays in projects which have delayed the recognition of revenue from those projects. The Company has also hired a new Vice President of Sales in order to increase sales and to seek out new opportunities.



Revenues from the Companys software products and related services were $(153,621) for the current three-month period as compared to $131,310 for the three-month period ended June 30, 2006, a decrease of 217.0%.There was a product return on one of the current projects that required a change in estimate and therefore affected revenue. This type of change was a one time event and will most likely not happen again with any other project. Software products and related services revenues for the six-month period ended June 30, 2007 were $222,966 compared with $613,751 a decrease of 63.7% compared with the same period in 2006. The decreased software licensing and related services revenues were primarily due to lower sales volumes combined with delays in customer delivery acceptance schedules, the complexities of the projects and the change in estimate for one project.



Professional services revenues for the three-month period ended June 30, 2007 were $913,046 as compared to $1,114,381 for the three-month period ended June 30, 2006, a decrease of 18.1%. The three months ended June 30 results from 2006 included revenue earned from contracts entered into prior to the acquisition of Sunaptic Professional services revenues for the six-month period ended June 30, 2007 were $1,667,915 compared with



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$2,722,063, for the six-month period ended June 30, 2006, a decrease of 38.7% compared with the same period in 2006. The first six months in 2006 were higher due to the work completed on pre-acquisition contracts from 2005. The first six months results from 2006 included revenue earned from contracts entered into prior to the acquisition of Sunaptic.



Support revenue for the three-month period ended June 30, 2007 decreased by 20.8% to $103,154 compared to $130,264 for three-month period ended June 30, 2006. The 2006 support amount was higher than this year due to an amount that was recognized in full in Q2 2006 as apposed to being amortized over 12 months. The payment was thought to be uncollectible however when the client paid, the earned amount was recognized. Support revenues for the six-month period ended June 30, 2007 were $247,105 compared with $238,745 compared with the same period in 2006, an increase of 3.5%



Other revenues for the three-month period ended June 30, 2007 were $1,176, whereas other revenues of $112,873 were earned for the three-month period ended June 30, 2006. Other revenues for the six-month period ended June 30, 2007 were $3,046 compared with $229,352. The comparative figure in 2006 included $103,064 recognized for the security assessments for the King County RAIN project.



As of June 30, 2007, Visiphor had contracted orders totalling approximately $1.8 million that are not recorded in the financial statements as at June 30, 2007, however, the time frame for the revenue recognition of this backlog cannot be estimated as it is dependant on project delivery and susceptible to delays. The Company has been attracting new business opportunities in the U.S. market and anticipates growth in the U.S. There can be no assurance; however, that such future revenue or future growth will materialize or if such revenue or future growth does materialize that it will be significant.

Total Expenses

Total expenses were $1,781,497 for the three-month period ended June 30, 2007, which is 49.3% less than the 2006 total expenses of $3,513,508 for the same period. Total expenses were $3,738,043 for the six-month period ended June 30, 2007, which is 49.2% less than the 2006 total expenses of $7,355,691 for the same period The decreased costs were primarily due to the reduction in salary expenses and the overall cost reduction effort of the Company. Operating expenses net of amortization and interest for the same periods decreased 48.2% to $1,563,102 from $3,015,794.



The Company continued to improve its operational efficiencies during 2006 and into the first two quarters in 2007. During 2006, the Company consolidated its Vancouver and Burnaby, B.C. offices into the Burnaby head office location, changed its executive compensation structure and implemented general cost saving measures.

Administration

Administrative costs for the three-month period ended June 30, 2007 were $265,333, which is a reduction of 64.0% compared with administrative costs of $736,282 in 2006 due to recent reductions in staffing levels. Administrative costs include staff salaries and related benefits and travel, consulting and professional fees, facility and support costs, and shareholder, regulatory and investor relations costs. Administrative expenses were $576,585 for the six-month period ended June 30, 2007, which is 58.8% less than the 2006 total expenses of $1,399,185 for the same period.

Cost of Materials

Cost of materials for the three-month period ended June 30, 2007 were $nil and $77,005 for the three-month period ended June 30, 2006. Cost of materials for the six-month period ended June 30, 2007 were $22,569 and $164,910 for the six-month period ended June 30, 2006. The 2006 comparative figure was for sub-contracted services required for the security assessments for the King County RAIN project.

Interest and Amortization

The interest expense for the three-month period ended June 30, 2007 is $99,299 which is 112.0% higher than the three-month period ended June 30, 2006 of $46,839. Interest expenses were $211,495 for the six-month period ended June 30, 2007, which is 185.7% more than the 2006 total expenses of $74,015 for the same period. The increase is primarily due to the interest expense on the convertible debenture which the Company did not have in the first and second quarters of 2006 and interest on the loans payable. The amortization expense for the three-month period ended June 30, 2007 was $119,096 compared to $450,875 for the three-month period ended June 30, 2006. Amortization expenses were $240,611 for the six-month period ended June 30, 2007, which are 77.6% less than the 2006 total expenses of $1,073,370 for the same period. The decrease is due to the majority of the Companys intangible assets having been fully amortized during 2006.





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Sales and Marketing

Sales and marketing expenses for the three-month period ended June 30, 2007 were $305,485 compared to $317,149 for the three-month period ended June 30, 2006, which represents a 4.0% decrease. Sales and marketing expenses for the six-month period ended June 30, 2007 were $564,520 compared to $898,229 for 2006, which represents a 37.2% decrease. Overall, the expenses related to sales and marketing decreased as the Company continued to concentrate on building sales and relationships rather than on general marketing activities and due to some layoffs in early 2006. As part of the Companys overall cost-cutting efforts, there were reductions to the marketing salary expenses and general marketing activities for the period.

Professional Services

Costs for the professional services group for the three-month period ended June 30, 2007 were $664,105 which is 50.0% less than costs for the professional services group for the three-month period ended June 30, 2006 of $1,335,694. Professional services expenses for the six-month period ended June 30, 2007 were $1,279,231 compared to $2,618,808 six-month period ended June 30, 2006, which represents a 51.1% decrease. The professional services group is responsible for the installation of Visiphors products and training of Visiphors customers and business partners in the use of the Companys products. It also includes the business integration consulting services division added through the acquisition of Sunaptic. The costs include salaries, travel and general overhead expenses. Costs for future periods will be dependent on the sales levels achieved by the Company as increased sales will create a need to increase technical resourcing.

Technology Development

The technology development expenses for the three-month period ended June 30, 2007 were $301,118, which is 38.0% less than the costs of $487,676 for the three-month period ended June 30, 2006. Technology development expenses for the six-month period ended June 30, 2007 were $809,858 compared to $962,724 for the six-month period ended June 30, 2006, which represents a 15.9% decrease. The Company has spent many years developing the technologies used in the current projects. The Company has recently invested less on development of technologies and more on the delivery of these technologies to clients.

Net Loss for the Period

The Company's current operating net loss (total loss excluding amortization and interest, which is a non-GAAP measure) for the three-month period ended June 30, 2007 was $699,347, a 54.2% improvement compared with $1,526,966 from the same period in 2006. The Company's current operating net loss (total loss excluding amortization and interest, which is a non-GAAP measure) for the six-month period ended June 30, 2007 was $1,144,904 a 52.4% improvement compared with $2,404,395 for the six-month period ended June 30, 2006. The Company provides reconciliation to GAAP at the beginning of the MD&A section.



Overall, the Company incurred a net loss for the three-month period ended June 30, 2007 of $917,742 or $0.02  per share, which is 54.7% lower than the net loss incurred during the three-months ended June 30, 2006 of $2,024,680 or $0.05 per share.  For the six-month period ended June 30, 2007, the Company incurred a net loss of $1,597,011 or $0.04 per share, which is 55.0% lower than the net loss incurred during the six-month ended June 30, 2006 of $3,551,780 or $0.08 per share.



In the Company's most recent Form 10-KSB, management stated that it believed that the Company would be able to achieve break-even operations on a cash operating basis by the end of the first quarter of 2007. The company subsequently revised this guidance in its first quarter Form 10-QSB to communicate that management believed break-even from operations on a cash operating basis would be achieved by the end of the second quarter. The company has struggled to achieve this goal due to project delays and lower than anticipated sales. The Company has decided that it will not provide further guidance on this matter in the near future, because these estimates have historically been missed due to such factors and the Company has historically had difficulty predicting when contracts may be recorded as revenue. The Companys goal, however, of achieving break even from operations remains unchanged.



Summary of Quarterly Results



|                           |  |           |            |             |             |             |             |             |            
|-------------------------- |  | --------- | ---------- | ----------- | ----------- | ----------- | ----------- | ----------- | -----------
|                           |  | Q2-2007   | Q1-2007    | Q4-2006     | Q3-2006     | Q2-2006     | Q1-2006     | Q4-2005     | Q3-2005    
|                           |  |           |            |             |             |             |             |             |            
|Total Revenue              |  | $863,755  | $1,277,277 | $1,458,707  | $1,120,766  | $1,488,828  | $2,315,083  | $1,076,312  | $1,008,581 
|Net Loss                   |  | (917,742) | (679,270)  | (1,221,734) | (1,904,856) | (2,024,680) | (1,527,100) | (1,890,400) | (1,650,764)
|Net Loss per Share         |  | (0.02)    | (0.02)     | (0.03)      | (0.04)      | (0.05)      | (0.04)      | (0.05)      | (0.06)     
|Net Loss as a %
of Revenue |  | (106%)    | (53%)      | (84%)       | (170%)      | (136%)      | (66%)       | (176%)      | (164%)     





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The Companys changes in its net losses per quarter fluctuate according to the volume of sales. To date, there has been no consistency from one quarter to the next. Past quarterly performance is not considered to be indicative of future results. The Company is not aware of any significant seasonality affecting its sales.

Liquidity and Capital Resources

The Companys aggregated cash on hand at the beginning of the three-month period ended June 30, 2007 was $98,489. The impact on cash of the loss of $917,742, after adjustment for non-cash items and changes to other working capital accounts in the period, resulted in a negative cash flow from operations of $114,824. The Company repaid capital leases of $23,536, purchased capital assets of $34,398, and repaid a $100,000 loan that was borrowed in 2006 and received an additional $100,000 in financing. Overall, the Companys cash position increased by $14,799 to $113,288 at June 30, 2007.



The Companys aggregated cash on hand at the beginning of the six-month period ended June 30, 2007 was $42,338. The impact on cash of the loss of $1,597,011, after adjustment for non-cash items and changes to other working capital accounts in the period, resulted in a positive cash flow from operations of $63,123. The Company repaid capital leases of $45,789, purchased capital assets of $33,941, and repaid $200,000 in loans that were borrowed in 2006 and received an additional $100,000 in financing. Overall, the Companys cash position increased by $70,950 to $113,288 at June 30, 2007.



The Company believes it currently has cash, accounts receivable, and work in progress and contracted orders that, if completed, will generate cash sufficient to fund its operations through January 2008. If the accounts receivable are not collected, certain of the contracts are not completed, or the expected sales are not received, the Company may need to raise additional funds through private placements of its securities or seek other forms of financing during the 2007 financial year. There can be no assurance that such financing will be available to the Company on terms acceptable to it, if at all. Failure to obtain adequate financing, if necessary, could result in significant delays in development of new products and a substantial curtailment of the Companys operations. If the Companys operations are substantially curtailed, it may have difficulty fulfilling its current and future contractual obligations.

Contractual Obligations

The Company is committed to the following payments for  (i) operating lease payments on the office lease, (ii) capital lease payments for equipment under lease (excluding interest) and (iii) long term debt payments over the next three years:



|     |                |           |           |        |         |       |         |   |          
|---- | -------------- | --------- | --------- | ------ | ------- | ----- | ------- | - | ---------
|Year | Long Term Debt | Equipment |           | Office |         | Total
|2007 |                | $         | 62,334    | $      | 66,737  | $     | 148,597 | $ | 277,668  
|2008 |                |           | 136,000   |        | 97,373  |       | 267,410 |   | 500,783  
|2009 |                |           | 1,830,334 |        | 39,447  |       | 201,478 |   | 2,071,259
|2010 |                |           | -         |        | 9,473   |       | -       |   | 9,473    
|     |                | $         | 2,028,668 | $      | 213,030 | $     | 617,485 | $ | 2,859,183



The Company also subleases 4,128 square feet of office space in Vancouver, B.C. with monthly rent of $7,000 which expires on September 29, 2008. This space is no longer used by the Company and has been sublet as of March 1, 2007 to cover the Companys costs. The lease to the tenant also expires September 29, 2008.



Off-Balance Sheet Arrangements

At June 30, 2007, the Company did not have any off-balance sheet arrangements.





















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Item 3.  Controls and Procedures



Disclosure Controls and Internal Controls Over Financial Reporting

Disclosure Controls



Under the supervision and with the participation of the Companys management, including the Companys Chief Executive Officer and Chief Financial Officer, the Company evaluated the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of the end of the period covered by this report (the Evaluation Date).  Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of the Evaluation Date, the Companys disclosure controls and procedures were effective to ensure that information required to be disclosed in reports the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the periods specified in the Securities and Exchange Commissions rules and forms, and is accumulated and communicated to the Companys management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.



In its assessment of the effectiveness of disclosure controls and procedures as of June 30, 2007, management of the Company, including the Chief Executive Officer and Chief Financial Officer, assessed what potential impact different possible material weaknesses as described below could have on the effectiveness of the Companys disclosure controls and procedures. Management, including the Chief Executive Officer and Chief Financial Officer, determined that due to the small size of the Company, the Chief Executive Officer and Chief Financial Officer have knowledge of all aspects of the Companys operations at a detailed level sufficient to ensure that the Companys disclosure controls and procedures were effective in timely alerting them to the material information related to the Company required to be included in the Companys filings. This level of knowledge is considered by the certifying officers to be a compensating control and procedure that is adequate to eliminate the risk of a material error or omission in disclosure requirements.



Internal Control Over Financial Reporting



The Companys management is responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Management is also responsible for certifying the design of internal controls over financial reporting.



During the audit of the December 31, 2005 and 2006, financial statements, the Companys independent auditors, Grant Thornton LLP, advised management and the audit committee of the Companys Board of matters that they considered to be material weaknesses in the Companys internal control.  The weaknesses were comprised of: insufficient systems and controls in place to evaluate the Companys internal control; insufficient segregation of duties; and inadequate preventive controls with too much reliance on detective and manual controls.  In order to remediate the matters that the Companys management and later the independent auditors considered to be material weaknesses in the Companys internal control, during August of 2006 the Company hired a new controller who has significantly more experience and knowledge of internal control environments than the previous controller.  During the third quarter of 2006, the Company engaged an outside consulting group that specializes in internal control over financial reporting and the Sarbanes-Oxley Act of 2002. The consultants provided additional guidance in improving the Company's system of internal control over financial reporting and provided guidance on effective design of internal controls. During the third and fourth quarter of 2006, the Company addressed some of the weaknesses relating to segregation of duties reported by the auditors from the 2005 audit.  A significant number of the deficiencies relate to the Company's segregation of duties, so the Company has developed procedures to utilize additional staff and reassign duties of existing accounting department staff in order to address these deficiencies.  The Company continues to take steps to correct these weaknesses.





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The management of the Company has evaluated the design of internal controls over financial reporting as outlined in the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, (COSO). This included an assessment of the Companys internal control over financial reporting, in particular the design of those internal controls. With the guidance of external and internal control consultants, the Company developed an assessment of current controls, reviewed existing deficiencies and developed a plan to address all known deficiencies, in particular issues relating to segregation of duties. As at December 31, 2006, the Company had created a design for internal controls over financial reporting. By December 31, 2007, the Company is required to certify the effectiveness of internal controls over financial reporting. This will be completed throughout the year by testing the operational effectiveness of internal controls over financial reporting.



Management believes the Company has an effective design for internal controls over financial reporting however, the Company is continuing to address certain material weaknesses during 2007. The following is a summary of known material weaknesses:



Segregation of Duties



The management of the Company was advised by the auditors during the 2005 and 2006 year end audit, they believed there were deficiencies in internal controls due to the lack of segregation and incompatibility of duties which could result in inaccurate financial reporting. Management addressed some of these issues during the 2006 and continues to address any issues during 2007 by using other resources to segregate some duties and by strengthening existing controls and procedures. Total segregation of all duties is a challenge, due to the small size of the Companys finance group.  There are compensating controls that the Company relies on to reduce the likelihood that material weaknesses will occur. The Company relies on managers to review certain transactions; the Chief Financial Officer reviews all material transactions.  Also, due to the relatively small size of the business, all transactions that may be material are known to the senior management as they are aware of all activities that are occurring in the business. However, these compensating controls do not fully mitigate this material weakness.  The Company plans to continue addressing these issues in 2007.



Controls relating to Technology



Due to the relatively small size of the Companys finance team, the Company uses accounting software that is off the shelf and common for a business of its size. The auditors noted that certain security and access features of the program were not being used. The Company realizes the importance of segregation of duties and limiting access of parts of the accounting software for different employees; however, due to the limited size of the finance team the Company cannot do so without negatively affecting the efficiency of the department. Compensating controls such as frequent reviews minimize the risk of material misstatements from occurring. However, these compensating controls do not fully mitigate this material weakness.  The Company plans to continue addressing this issue in 2007.



Other than the foregoing, during the quarter ended June 30, 2007, there were no changes in the Companys internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.



Notwithstanding the foregoing, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that the Companys disclosure controls and procedures will detect or uncover every situation involving the failure of persons within the Company and its subsidiaries to disclose material information otherwise required to be set forth in the Companys periodic reports; however, the Companys disclosure controls and procedures are designed to provide reasonable assurance that they will achieve their objective of ensuring that information required to be disclosed in the reports the Company files or submits under the Exchange Act is  recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commissions rules and forms and is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.





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PART II  OTHER INFORMATION



Item 1.  Legal Proceedings



The Company is not a party to any legal proceedings as of June 30, 2007, the adverse outcome of which in managements opinion, individually or in the aggregate, would have a material effect on the Companys results of operations or financial position.



Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds



For information on unregistered sales of equity securities, refer to the Companys current report on Form 8-K filed May 23, 2007.





Item 3.  Defaults Upon Senior Securities



None



Item 4.

Submission of Matters to a Vote of Security Holders

The Companys 2007 Annual and Special General Meeting of Shareholders was held on May 11, 2007.  The shareholders voted on three items, with results as indicated below.



(1)

The election of the following persons as Directors of the Company, to serve until the 2008 Annual and Special General Meeting of Shareholders, having received the following votes:



|                     |  |           |  |         
|-------------------- |  | --------- |  | --------
|Name                 |  | For       |  | Withheld
|Oliver Buck Revell |  | 7,686,857 |  | 44,413  
|Roy Trivett          |  | 7,688,680 |  | 42,590  
|Clyde Farnsworth     |  | 7,688,757 |  | 42,513  
|Al Kassam            |  | 7,686,347 |  | 44,923  
|Keith Kretschmer     |  | 7,686,635 |  | 44,635  
|Michael C. Volker    |  | 7,698,902 |  | 32,368  
|Wanda Dorosz         |  | 7,696,358 |  | 34,912  



(2)

The selection of Grant Thornton LLP, Chartered Accountants, as independent registered public accounting firm of the Company for 2007 and the authorization of the Companys Board of Directors to fix the auditors remuneration:



|              |               |             |          
|------------- | ------------- | ----------- | ---------
|              |               |             | No. of   
|No. of Shares | No. of Shares | No. of      | Broker   
|Voted For     | Voted Against | Abstentions | Non-votes
|7,684,004     | 0             | 47,265      | 288      













(3)

The approval of certain transactions in connection with the Companys incentive share options to increase the number of shares issuable under the Companys incentive share option plan:



|              |               |             |          
|------------- | ------------- | ----------- | ---------
|              |               |             | No. of   
|No. of Shares | No. of Shares | No. of      | Broker   
|Voted For     | Voted Against | Abstentions | Non-votes
|3,850,497     | 1,461,868     | 38,543      | 2,380,649



No other matters were voted on during the meeting.



Item 5. Other Information



None



28





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Item 6.  Exhibits



The following exhibits are filed (or incorporated by reference herein) as part of this Form 10-QSB:



| |         |                                                                                                                                                         
| | ------- | --------------------------------------------------------------------------------------------------------------------------------------------------------
| | 3.1(1)  | Articles of Continuance                                                                                                                                 
| | 3.2(1)  | Bylaw No.1                                                                                                                                              
| | 10.1(2) | Form of Loan Agreement between the Company and Certain Investors                                                                                        
| | 10.2(3) | Convertible Secured Debenture of the Company in favor of Quorum Secured Equity Trust in the Principal Sum of Cdn$100,000, due September 15 2009         
| | 10.3(3) | Amended Convertible Secured Debenture of the Company in favor of Quorum Secured Equity Trust in the Principal Sum of Cdn$1,600,000 due December 15, 2009
| | 10.4(3) | Amended and Restated Performance Warrant to purchase up to 2,350,000 common shares of the Company at a price of Cdn$0.25 per common share               
| | 10.5(3) | Amended Postponement and Subordination Agreement dated May 16, 2007 between Roy Trivett, Quorum Secured Equity Trust and the Company                    
| | 10.6(3) | Amended Postponement and Subordination Agreement dated May 16, 2007 between Keith Kretschmer, Quorum Secured Equity Trust and the Company               
| | 31.1    | Section 302 Certification                                                                                                                               
| | 31.2    | Section 302 Certification                                                                                                                               
| | 32.1    | Section 906 Certification                                                                                                                               
| | 32.2    | Section 906 Certification                                                                                                                               
| | 99.1    | Risk Factors                                                                                                                                            
| | 99.2    | Form 51-9Form 51-901F as required by the British Columbia Securities Commission                                                                         

_______________________



(1)

Previously filed as part of Visiphors Current Report on Form 8-K filed July 18, 2005.

(2)

Previously filed as part of Visiphors Current Report on Form 8-K/A filed April 27, 2007.

(3)

Previously filed as part of Visiphors Current Report on Form 8-K filed May 23, 2007.





29





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SIGNATURES



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



VISIPHOR CORPORATION







Date: August 10, 2007

/s/ Sunil Amin

Sunil Amin

Chief Financial Officer

(Principal Financial and Accounting Officer and Duly Authorized Officer)







30





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Exhibit 31.1

CERTIFICATION

I, Sunil Amin, certify that:



1.

I have reviewed this quarterly report on Form 10-QSB of Visiphor Corporation;



2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary 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 report;



3.

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



4.

The small business issuer's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have:



(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;



(b)

Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and



(c)

Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and



5.

The small business issuer's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions):



(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and



(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting.



Date: August 10, 2007

/s/ Sunil Amin

Sunil Amin

Chief Financial Officer

(Principal Financial and Accounting Officer)









---

Exhibit 31.2



CERTIFICATION



I, Roy Trivett, certify that:



1.

I have reviewed this quarterly report on Form 10-QSB of Visiphor Corporation;



2.

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary 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 report;



3.

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



4.

The small business issuer's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have:



(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;



(b)

Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and



(c)

Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and



5.

The small business issuer's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions):



(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and



(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting.



Date: August 10, 2007

/s/ Roy Trivett

Roy Trivett

Chief Executive
Officer

(Principal Executive Officer)









---

Exhibit 32.1



CERTIFICATION PURSUANT TO
18 U.S.C. § 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Visiphor Corporation (the Company) on Form 10-QSB for the period ended June 30, 2007 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Sunil Amin, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

| |     |                                                                                                                      
| | --- | ---------------------------------------------------------------------------------------------------------------------
| | (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and



| |     |                                                                                                                                                     
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------
| | (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



| |                                                                                                              
| | -------------------------------------------------------------------------------------------------------------
| | /s/ Sunil AminSunil Amin
Chief Financial Officer
(Principal Financial and Accounting Officer)
August 10, 2007









---

Exhibit 32.2



CERTIFICATION PURSUANT TO
18 U.S.C. § 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Visiphor Corporation (the Company) on Form 10-QSB for the period ended June 30, 2007 as filed with the Securities and Exchange Commission on the date hereof (the Report), I, Roy Trivett, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

| |     |                                                                                                                      
| | --- | ---------------------------------------------------------------------------------------------------------------------
| | (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and



| |     |                                                                                                                                                     
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------
| | (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.



| |                                                                                                 
| | ------------------------------------------------------------------------------------------------
| | /s/ Roy TrivettRoy Trivett
Chief Executive Officer
(Principal Executive Officer)
August 10, 2007









































---

Exhibit 99.1

Risk Factors

The price of the Companys common shares is subject to the risks and uncertainty inherent in the Companys business.  You should consider the following factors as well as other information set forth in this Quarterly Report, in connection with any investment in the Companys common shares.  If any of the risks described below occurs, the Companys business, results of operations and financial condition could be adversely affected.  In such cases, the price of the Companys common shares could decline, and you could lose all or part of your investment.

History of Losses; Ability to Continue as a Going Concern

The Company commenced operations in March 1998. The Company incurred net losses of $6,678,371 and $6,631,656 in the years ended December 31, 2006 and December 31, 2005, respectively and net losses of $1,597,011 and $3,551,780 in the periods ended June 30, 2007 and June 30, 2006 respectively.  The Company has never been profitable and there can be no assurance that, in the future, the Company will be profitable on a quarterly or annual basis.

The Report of the Independent Registered Chartered Accountants on the Companys December 31, 2006 Financial Statements includes an explanatory paragraph that indicates the financial statements are affected by conditions and events that cast substantial doubt on the Companys ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.



Need for Additional Financing

Management believes that the revenues from the Companys future sales combined with current accounts receivable, work in progress, and contracted orders will be sufficient to fund its consolidated operations. The Company believes it currently has cash, accounts receivable, and work in progress and contracted orders that, if completed, will generate cash sufficient to fund its operations through January 2008. If the accounts receivable are not collected, certain of the contracts are not completed, or the expected sales are not received, the Company may need to raise additional funds through private placements of its securities or seek other forms of financing during the 2007 financial year. There can be no assurance that such financing will be available to the Company on terms acceptable to it, if at all. Failure to obtain adequate financing if necessary could result in significant delays in development of new products and a substantial curtailment of the Companys operations. If the Companys operations are substantially curtailed, it may have difficulty fulfilling its current and future contractual obligations.



Potential Fluctuations in Quarterly Financial Results



The Companys financial results may vary from quarter to quarter based on factors such as the timing of significant orders and contract completions.  The Companys revenues are not predictable with any significant degree of certainty and future revenues may differ from historical patterns. If customers cancel or delay orders, it can have a material adverse impact on the Companys revenues and results of operations from quarter to quarter. Because the Companys results of operations may fluctuate from quarter to quarter, you should not assume that you can predict results of operations in future periods based on results of operations in past periods.



Even though the Companys revenues are difficult to predict, it bases its expense levels in part on future revenue projections. Many of the Companys expenses are fixed, and it cannot quickly reduce spending if revenues are lower than expected. This could result in significantly lower income or greater loss than the Company anticipates for any given period. The Company will react accordingly to minimize any such impact.



New Product Development



The Company expects that a significant portion of its future revenue will be derived from the sale of newly introduced products and from enhancement of existing products. The Companys success will depend, in part, upon its ability to enhance its current products and to install such products in end-user applications on a timely and cost-effective basis. In addition, the Company must develop new products that meet changing market conditions, including changing customer needs, new competitive product offerings and enhanced technology. There can be no assurance that the Company will be successful in developing and marketing - on a timely and cost-effective basis - new products and enhancements that respond to such changing market conditions. If the Company is unable to anticipate or adequately respond on a timely or cost-effective basis to changing market conditions, to develop new software products and enhancements to existing products, to correct errors on a timely basis or to complete products currently under development, or if such new products or enhancements do not achieve market acceptance, the Companys business, financial condition, operating results and cash flows could be materially adversely affected. In



1



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light of the difficulties inherent in software development, the Company expects that it will experience delays in the completion and introduction of new software products.



Lengthy Sales Cycles



The purchase of any of the Companys software systems is often an enterprise-wide decision for prospective customers and requires the Company (directly or through its business partners) to engage in sales efforts over an extended period of time and to provide a significant level of education to prospective customers regarding the use and benefits of such systems. In addition, an installation generally requires approval of a governmental body such as municipal, county or state government, which can be a time-intensive process and require months before a decision is to be made. Due in part to the significant impact that the application of the Companys products has on the operations of a business and the significant commitment of capital required by such a system, potential customers tend to be cautious in making acquisition decisions. As a result, the Companys products generally have a lengthy sales cycle ranging from six (6) to twelve (12) months. Consequently, if sales forecasts from a specific customer for a particular quarter are not realized in that quarter, the Company may not be able to generate revenue from alternative sources in time to compensate for the shortfall. The loss or delay of a large contract could have a material adverse effect on the Companys financial condition, operating results and cash flows.  Moreover, to the extent that significant contracts are entered into and required to be performed earlier than expected, the Companys future operating results may be adversely affected.



Dependence on a Small Number of Customers



The Company derives a substantial portion of its revenues, and it expects to continue to derive a substantial portion of its revenues in the near future, from sales to a limited number of customers. Unless and until the Company further diversifies and expands its customer base, the Companys success will depend significantly upon the timing and size of future purchase orders, if any, from its largest customers, as well as their product requirements, financial situation, and, in particular, the successful deployment of services using the Companys products. The loss of any one or more of these customers, significant changes in their product requirements, or delays of significant orders could have a material adverse effect upon the Companys business, operating results and financial condition.



Dependence on Key Personnel



The Companys performance and future operating results are substantially dependent on the continued service and performance of its senior management and key technical and sales personnel. The Company may need to hire a number of technical and sales personnel. Competition for such personnel is intense, and there can be no assurance that the Company can retain its key technical, sales and managerial employees or that it will be able to attract or retain highly qualified technical and managerial personnel in the future.



The loss of the services of any of the Companys senior management or other key employees, or the inability to attract and retain the necessary technical, sales and managerial personnel could have a material adverse effect upon its business, financial condition, operating results and cash flows. The Company does not currently maintain key man insurance for any senior management or other key employees.



Reduction in Staff Levels



During the fiscal year ended December 31, 2006, the Company reduced its staff levels from approximately 100 to 55 employees.  There have been and may continue to be substantial costs associated with this staff level reduction related to severance and other employee-related costs and the Companys streamlining efforts may yield unanticipated consequences, such as attrition beyond its planned reduction in staff levels.  This workforce reduction has placed an increased burden on the Companys administrative, operational and financial resources and has resulted in increased responsibilities for each of its management personnel.  As a result, the Companys ability to respond to unexpected challenges may be impaired and it may be unable to take advantage of new opportunities.



In addition, many of the employees who were terminated possessed specific knowledge or expertise, and that knowledge or expertise may prove to have been important to the Companys operations.  In that case, their absence may create significant difficulties.  Further, the reduction in staff levels may reduce employee morale and may create concern among potential and existing employees about job security at the Company, which may lead to difficulty in hiring and increased turnover in its current workforce, and divert managements attention.  In addition, this headcount reduction may subject costs to it and could divert managements time and attention away from business operations.  Any failure by the Company to properly manage this rapid change in workforce could impair its ability to efficiently manage its business to maintain and develop important relationships with third parties and to



2



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attract and retain customers.  It could also cause the Company to incur higher operating costs and delays in the execution of its business plan or in the reporting or tracking of its financial results.



Dependence on Marketing Relationships



The Companys products are also marketed by its business partners. The Companys existing agreements with business partners are nonexclusive and may be terminated by either party without cause at any time. Such organizations are not within the control of the Company, are not obligated to purchase products from the Company and may also represent and sell competing products. There can be no assurance that the Companys existing business partners will continue to provide the level of services and technical support necessary to provide a complete solution to its customers or that they will not emphasize their own or third-party products to the detriment of the Companys products. The loss of these business partners, the failure of such parties to perform under agreements with the Company or the inability of the Company to attract and retain new business with the technical, industry and application experience required to market the Companys products successfully could have a material adverse effect on the Companys business, financial condition, operating results and cash flows.



Additionally, the Company supplies products and services to customers through a third-party supplier acting as a project manager or systems integrator. In such circumstances, the Company has a sub-contract to supply its products and services to the customer through the prime contractor. In these circumstances, the Company is at risk that situations may arise outside of its control that could lead to a delay, cost over-run or cancellation of the prime contract which could also result in a delay, cost over-run or cancellation of the Companys sub-contract. The failure of a third-party supplier to supply its products and services or to perform its contractual obligations to the customer in a timely manner could have a material adverse effect on the Companys financial condition, results of operations and cash flows



Competition

The markets for the Companys products are highly competitive. Numerous factors affect the Companys competitive position, including supplier competency, product functionality, performance and reliability of technology, depth and experience in distribution and operations, ease of implementation, rapid deployment, customer service and price.

Certain of the Companys competitors have substantially greater financial, technical, marketing and distribution resources than the Company. As a result, they may be able to respond more quickly to new or emerging technologies and changing customer requirements, or to devote greater resources to the development and distribution of existing products. There can be no assurance that the Company will be able to compete successfully against current or future competitors or alliances of such competitors, or that competitive pressures faced by it will not materially adversely affect its business, financial condition, operating results and cash flows.

Proprietary Technology

The Companys success will be dependent upon its ability to protect its intellectual property rights. The Company relies principally upon a combination of copyright, patent and trade secret laws, non-disclosure agreements and other contractual provisions to establish and maintain its rights. The source codes for the Companys products and technology are protected both as trade secrets and as unpublished copyrighted works. As part of its confidentiality procedures, the Company enters into nondisclosure and confidentiality agreements with each of its key employees, consultants, distributors, customers and corporate partners, to limit access to and distribution of its software, documentation and other proprietary information. There can be no assurance that the Companys efforts to protect its intellectual property rights will be successful. Despite the Companys efforts to protect its intellectual property rights, unauthorized third parties, including competitors, may be able to copy or reverse engineer certain portions of the Companys software products, and use such copies to create competitive products.

Policing the unauthorized use of the Companys products is difficult and, while the Company is unable to determine the extent to which piracy of its software products exists; software piracy can be expected to continue. In addition, the laws of certain countries in which the Companys products are or may be licensed do not protect its products and intellectual property rights to the same extent as do the laws of Canada and the United States. As a result, sales of products by the Company in such countries may increase the likelihood that its proprietary technology is infringed upon by unauthorized third parties.

In addition, because third parties may attempt to develop similar technologies independently, the Company expects that software product developers will be increasingly subject to infringement claims as the number of products and competitors in the Companys industry segments grow and the functionality of products in different industry segments overlaps. There can be no assurance that third parties will not bring infringement claims (or claims for



3



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indemnification resulting from infringement claims) against the Company with respect to copyrights, trademarks, patents and other proprietary rights. Any such claims, whether with or without merit, could be time consuming, result in costly litigation and diversion of resources, cause product shipment delays or require the Company to enter into royalty or licensing agreements. Such royalty or licensing agreements, if required, may not be available on terms acceptable to the Company or at all. A claim of product infringement against the Company and failure or inability of the Company to license the infringed or similar technology could have a material adverse effect on its business, financial condition, operating results and cash flows.

Exchange Rate Fluctuations

Because the Companys reporting currency is the Canadian dollar, its operations outside Canada face additional risks, including fluctuating currency values and exchange rates, hard currency shortages and controls on currency exchange. The Company does not currently engage in hedging activities or enter into foreign currency contracts in an attempt to reduce the Companys exposure to foreign exchange risks. In addition, to the extent the Company has operations outside Canada, it is subject to the impact of foreign currency fluctuations and exchange rate changes on the Companys reporting in its financial statements of the results from such operations outside Canada. Since such financial statements are prepared utilizing Canadian dollars as the basis for presentation, results from operations outside Canada reported in the financial statements must be restated in Canadian dollars utilizing the appropriate foreign currency exchange rate, thereby subjecting such results to the impact of currency and exchange rate fluctuations.

Risk of Software Defects

Software products as complex as those offered by the Company frequently contain errors or defects, especially when first introduced or when new versions or enhancements are released. Despite product testing, the Company has in the past released products with defects in certain of its new versions after introduction and experienced delays or lost revenue during the period required to correct these errors. For example, the Company regularly introduces new versions of its software. There can be no assurance that, despite testing by the Company and its customers, defects and errors will not be found in existing products or in new products, releases, versions or enhancements after commencement of commercial shipments. Any such defects and errors could result in adverse customer reactions, negative publicity regarding the Company and its products, harm to the Companys reputation, loss or delay in market acceptance or required product changes, any of which could have a material adverse effect upon its business, results of operations, financial condition and cash flows.

Product Liability

The license and support of products by the Company may entail the risk of exposure to product liability claims. A product liability claim brought against the Company or a third-party that the Company is required to indemnify, whether with or without merit, could have a material adverse effect on the Companys business, financial condition, operating results and cash flows.

Volatility of the Company's Share Price

The Companys share price has fluctuated substantially since the Companys common shares were listed for trading on the TSX Venture Exchange and quoted on the Over-The-Counter Bulletin Board (OTCBB). The trading price of the Companys common shares is subject to significant fluctuations in response to variations in quarterly operating results, the gain or loss of significant orders, announcements of technological innovations, strategic alliances or new products by the Company or its competitors, general conditions in the securities industries and other events or factors. In addition, the stock market in general has experienced extreme price and volume fluctuations that have affected the market price for many companies in industries similar or related to the Company and have been unrelated to the operating performance of these companies. These market fluctuations may adversely affect the market price of the Companys common shares.

Certain Shareholders May Exercise Control over Matters Voted Upon by the Company's Shareholders

Certain of the Companys officers, directors and entities affiliated with the Company together beneficially owned a significant portion of the Companys outstanding common shares as of June 30, 2007. While these shareholders do not hold a majority of the Companys outstanding common shares, they will be able to exercise significant influence over matters requiring shareholder approval, including the election of directors and the approval of mergers, consolidations and sales of the Companys assets. This may prevent or discourage tender offers for the Companys common shares.

Additional Disclosure Requirements Imposed on Penny Stock Trades



Since the trading price of Visiphors common shares is less than US$5.00 per share, trading in its common shares may be subject to the requirements of certain rules promulgated under the Exchange Act, which require additional disclosure by broker-dealers in connection with any trades involving a stock defined as a penny stock.  Such



4



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additional disclosure includes, but is not limited to, U.S. broker-dealers delivering to customers certain information regarding the risks and requirements of investing in penny stocks, the offer and bid prices for the penny stock and the amount of compensation received by the broker-dealer with respect to any proposed transaction. The additional burdens imposed upon broker-dealers may discourage broker-dealers from effecting transactions in Visiphors common shares, which could reduce the liquidity of Visiphors common shares and thereby have a material adverse effect on the trading market for Visiphors securities.



Enforcement of Civil Liabilities



Visiphor is a corporation incorporated under the laws of Canada.  A number of the Companys directors and officers reside in Canada or outside of the United States.  All or a substantial portion of the assets of such persons are or may be located outside of the United States.  It may be difficult to effect service of process within the United States upon the Company or upon its directors or officers or to realize in the United States upon judgments of United States courts predicated upon civil liability of the Company or such persons under United States federal securities laws. The Company has been advised that there is doubt as to whether Canadian courts would (i) enforce judgments of United States courts obtained against the Company or such directors or officers predicated solely upon the civil liabilities provisions of United States federal securities laws, or (ii) impose liability in original actions against the Company or such directors and officers predicated solely upon such United States laws.  However, a judgment against the Company predicated solely upon civil liabilities provisions of such United States federal securities laws may be enforceable in Canada if the United States court in which such judgment was obtained has a basis for jurisdiction in that matter that would be recognized by a Canadian court.



Material weaknesses related to the operational ineffectiveness of internal control over financial reporting at June 30, 2007 that could impact the Companys ability to report its results of operations and financial condition accurately



The Company identified material weakness in the operational effectiveness of its internal control over financial reporting as at December 31, 2007.  The Company continues to identify, develop and implement remedial measures and compensating procedures to address these material weaknesses.  These material weaknesses, unless addressed, could potentially result in accounting errors.



5



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BC FORM 51-102F1





QUARTERLY REPORT







ISSUER DETAILS:



|                         |                                                       
|------------------------ | ------------------------------------------------------
|Name of Issuer           | VISIPHOR CORPORATION                                  
|For Quarter Ended        | June 30, 2007                                         
|Date of Report           | August 10, 2007                                       
|Issuer Address           | 1100  4710 Kingsway
Burnaby, British Columbia
V5H 4M2
|Issuer Fax Number        | (604) 684-9314                                        
|Issuer Telephone Number  | (604) 684-2449                                        
|Contact Name             | Sunil Amin                                            
|Contact Position         | Chief Financial Officer                               
|Contact Telephone Number | (604) 684-2449                                        
|Contact Email Address    | Sunil.amin@visiphor.com                               
|Web Site Address         | www.visiphor.com                                      







CERTIFICATE





THE THREE SCHEDULES REQUIRED TO COMPLETE THIS REPORT ARE ATTACHED AND THE DISCLOSURE CONTAINED THEREIN HAS BEEN APPROVED BY THE BOARD OF DIRECTORS.  A COPY OF THIS REPORT WILL BE PROVIDED TO ANY SHAREHOLDER WHO REQUESTS IT.



|                                  |                                  |                                
|--------------------------------- | -------------------------------- | -------------------------------
|Clyde Farnsworth
Name of Director | /s/Clyde Farnsworth
Sign (typed) | 08/10/08
Date Signed (YY/MM/DD)
|                                  |                                  |                                
|Roy Trivett
Name of Director      | /s/ Roy Trivett
Sign (typed)     | 08/10/08
Date Signed (YY/MM/DD)









---

Supplementary Information to the Financial Statements



Managements Discussion and Analysis

As at August 10, 2007



Forward-looking information



Except for statements of historical fact, certain information contained herein constitutes forward-looking statements, within Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act).  In some cases, you can identify the forward-looking statements by Visiphor Corporations (Visiphor or the Company) use of the words such as may, will, should, could, expect, plan, estimate, predict, potential, continue, believe, anticipate, intend, expect, or the negative or other variations of these words, or other comparable words or phrases.  Forward-looking statements in this report include, but are not limited to, the Companys anticipation that it will experience significant growth in its U.S. sales, the Companys expectation that a substantial portion of its revenue will come from a limited number of customers, the Companys expectation that revenues will increase during 2007 when compared to those of 2006 and that such revenues will continue to increase as newly developed products and solutions continue to gain increasing customer acceptance; managements belief that increased revenues achieved as a result of the sale of products will more than offset increased technology development costs; the Companys ability to fund its operations in the future resulting from current accounts receivable, work in progress and new orders; new contracts to be entered into in the near future; the Companys future operating  and technology development expense levels; and the Companys ability to achieve break-even operations on an operating cash flow basis during the remainder of 2007.



Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results or achievements of the Company to be materially different from any future results or achievements of the Company expressed or implied by such forward-looking statements.  Such factors include, but are not limited to the following: the Companys limited operating history; the Companys need for additional financing; the Companys history of losses; the Companys dependence on a small number of customers; risks involving new product development; competition; the Companys dependence on key personnel; risks related to the Companys reduction in staff levels; risks involving lengthy sales cycles; dependence on marketing relationships; the Companys ability to protect its intellectual property rights; risks associated with exchange rate fluctuations; risks of software defects; risks associated with product liability; risks associated with the Imagis UK partnership; the potential additional disclosure requirements for trades involving the issued common shares; the difficulty of enforcing civil liabilities against the Company or its directors or officers under United States federal securities laws; the volatility of the Companys share price; risks associated with certain shareholders exercising control over certain matters; risks associated with the acquisition of Sunaptic Solutions Incorporated (Sunaptic) and the other risks and uncertainties described in Exhibit 99.1 to this Quarterly Report.



Although the Company believes that expectations reflected in these forward-looking statements are reasonable, the Company cannot guarantee future results, levels of activity, performance, achievements or other future events.  Moreover, neither the Company nor anyone else assumes responsibility for the accuracy and completeness of these forward-looking statements.  The Company is under no duty to update any of these forward-looking statements after the date of this report.  You should not place undue reliance on these forward-looking statements.



About Visiphor

The Company derives a substantial portion of its revenues, and it expects to derive a substantial portion of its revenues in the near future, from sales of its software and services to a limited number of customers. Additional revenues are achieved through the implementation and customization of software, from consulting services revenues, as well as from the support, training, and ongoing maintenance that results from each software sale. The Companys success will depend significantly upon the timing and size of future purchase orders from its largest customers as well as from the ability to maintain relationships with its existing customer base.

Typically, the Company enters into a fixed price contract with a customer for the licensing of selected software products and time and materials contracts for the provision of specific services.  The Company generally recognizes total revenue for software and services associated with a contract using the percentage-of-completion method based on the total costs incurred over the total estimated costs to complete the contract or residual multiple element-based accounting.  Standalone services contracts revenues are recognized as the services are delivered.



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The Companys revenue is dependent, in large part, on contracts from a limited number of customers.  As a result, any substantial delay in the Companys completion of a contract, the inability of the Company to obtain new contracts or the cancellation of an existing contract by a customer could have a material adverse effect on the Companys results of operations.  The loss of certain material contracts (attached as an exhibit) could have a material adverse effect on the Companys business, financial condition, operating results and cash flows.  As a result of these and other factors, the Companys results of operations have fluctuated in the past and may continue to fluctuate from period to period.

Critical Accounting Polices

Critical accounting policies are those that management believes are both most important to the portrayal of the Companys financial conditions and results, and that require difficult, subjective, or complex judgements, often as a result of the need to make estimates about the effects of matters that involve uncertainty.

Visiphor believes the critical accounting policies it uses in preparation of its financial statements are as follows:

Revenue recognition

(ii)

Software sales revenue:

The Company recognizes revenue consistent with the Securities and Exchange Commission Staff Accounting Bulletin No. 104 and Statement of Position 97-2, Software Revenue Recognition. In accordance with this statement, revenue is recognized, except as noted below, when all of the following criteria are met: persuasive evidence of a contractual arrangement exists, title has passed, delivery and customer acceptance has occurred, the sales price is fixed or determinable and collection is reasonably assured.  Cash received in advance of meeting the revenue recognition criteria is recorded as deferred revenue.



When a software product requires significant production, modification or customization, the Company generally accounts for the arrangement using the percentage-of-completion method of contract accounting. Progress to completion is measured by the proportion that activities are completed to the total activities required under each arrangement. When the current estimate on a contract indicates a loss, a provision for the entire loss on the contract is made. In circumstances where amounts recognized as revenue under such arrangements temporarily exceed the amount invoiced, the difference is recorded as accrued revenue receivable.

When software is sold under contractual arrangements that include post contract customer support (PCS), the elements are accounted for separately if vendor specific objective evidence (VSOE) of fair value exists for all undelivered elements. VSOE is identified by reference to renewal arrangements for similar levels of support covering comparable periods. If such evidence does not exist, revenue on the completed arrangement is deferred until the earlier of (a) VSOE being established or (b) all of the undelivered elements being delivered or performed, with the following exceptions: if the only undelivered element is PCS, the entire fee is recognized ratably over the PCS period, and if the only undelivered element is service, the entire fee is recognized as the services are performed.

The Company provides for estimated returns and warranty costs, which in previous quarters has been nominal, on recognition of revenue. This quarter however, there was a reversal of revenue that was unforeseen and in order to maintain a positive relationship with a business partner, the reversal of revenue was required.

(iii)

Support and services revenue:

Up front payments for contract support and services revenue is deferred and is amortized to revenue over the period that the support and services are provided.

Intangible Assets:

Intangible assets acquired either individually or with a group of other assets are initially recognized and measured at cost.  The cost of a group of intangible assets acquired in a transaction, including those acquired in a business combination that meet the specified criteria for recognition apart from goodwill, is allocated to the individual assets acquired based on their relative fair values.  The cost of internally developed intangible assets is capitalized only when technological feasibility has been established, the asset is clearly defined and costs can be reliably measured, management has both the intent and ability to produce or use the intangible asset, adequate technical and financial resources exist to complete the development, and management can demonstrate the existence of an external market or internal need for the completed product or asset. Costs incurred to enhance the service potential of an intangible



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asset are capitalized as betterment when the above criteria are met. No amounts have been capitalized to date in connection with internally developed intangible assets.



Intangible assets with finite useful lives are amortized over their useful lives.  The assets are amortized on a straight-line basis over the following terms, which are reviewed annually:



Asset

Term



Patents

3 years

License

3 years

Customer relationships

3 years

Contract backlog

4 months





Intangible assets with indefinite useful lives are not amortized and are tested for impairment annually or more frequently if events or changes in circumstances indicate that the asset might be impaired.  The impairment test compares the carrying amount of the intangible asset with its fair value, and an impairment loss is recognized in income for the excess, if any.

Use of estimates

The preparation of financial statements in accordance with accounting principles generally accepted in Canada requires management to make estimates and assumptions that affect the amounts reported or disclosed in the financial statements.  Actual amounts may differ from these estimates.  Areas of significant estimate include, but are not limited to: valuation of accounts receivable; progress towards completion on certain fixed prime contracts; estimated useful lives of equipment and intangible assets; returns due to disputes; valuation of acquired intangible assets; valuation of share-based awards; and the valuation allowance of future income tax assets.

Share-based compensation

The Company has a share-based compensation plan, which is described in note 6 of the Notes to the Consolidated Financial Statements.  Subsequent to January 1, 2003, the Company accounts for all share-based payments to employees and non-employees using the fair value based method.  Under the fair value based method, share-based payments are measured at the fair value of the consideration received, or the fair value of the equity instruments issued, whichever is more reliably measured.



The fair value of share-based payments to non-employees is periodically re-measured until counterparty performance is complete, and any change therein is recognized over the period and in the same manner as if the Company had paid cash instead of issuing equity instruments.  The cost of share-based payments to non-employees that are fully vested and non-forfeitable at the grant date is measured and recognized at that date.



Under the fair value based method, compensation cost attributable to employee awards is measured at fair value at the grant date and recognized over the vesting period.  Compensation cost attributable to awards to employees that call for settlement in cash or other assets is measured at intrinsic value and recognized over the vesting period.  Changes in intrinsic value between the grant date and the measurement date result in a change in the measure of compensation cost.  For awards that vest at the end of the vesting period, compensation cost is recognized on a straight-line basis; for awards that vest on a graded basis, compensation cost is recognized on a pro-rata basis over the vesting period.

Results of Operations for the three months ended June 30, 2007 as compared to the three months ended June 30, 2006:

Non-GAAP Operating Cash Flow



The Company presents income excluding non-cash items and one-time unusual expenses which is a supplemental financial measure that is not required by, or presented in accordance with, Canadian or U.S. generally accepted accounting principles. The Company presents income excluding non-cash items and one-time unusual expenses because the Company considers it an important supplemental measure of its operations as it provides an indicator of the Companys progress towards achieving a cash flow from revenues that is equal to or greater than the cash expense level, and it enhances period-to-period comparability of the cash flow of the Companys operations. This non-GAAP financial measure may not be comparable to the calculation of similar measures reported by other companies. This measure has limitations as an analytical tool. It should not be considered in isolation, as an alternative to, or more meaningful than financial measures calculated and reported in accordance with GAAP. It



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should not be considered as an alternative to cash flow from operations determined in accordance with GAAP. Included below is a reconciliation of income excluding non-cash items and one-time unusual expenses, a non-GAAP financial measure, to cash flow from operations, the most directly comparable financial measure calculated and reported in accordance with GAAP.



| |                                                                                                      |                                          |           |           |             |          
| | ---------------------------------------------------------------------------------------------------- | ---------------------------------------- | --------- | --------- | ----------- | ---------
| |                                                                                                      | For the three months ended June 30,     
| |                                                                                                      |                                          | 2007      |           | 2006       
| |                                                                                                      |                                          |           |           |            
| | Loss for the period                                                                                  | $                                        | (917,742) | $         | (2,024,680)
| | Adjustments to reconcile loss for the period to net cash (used in) provided by operating activities: |                                          |           |           |            
| |                                                                                                      | Amortization                             |           | 119,095   |             | 450,875  
| |                                                                                                      | Stock-based compensation                 |           | 108,391   |             | 249,113  
| | Accretion of convertible debenture                                                                   | 18,929                                   |           | -        
| | Deferred financing costs expensed                                                                    | 6,870                                    |           | -        
| | Bad debt expense                                                                                     | 20,191                                   |           | -        
| | Foreign exchange adjustment on loan payable                                                          | 35,680                                   |           | -        
| | Changes in non-cash operating working capital:                                                       |                                          |           |          
| |                                                                                                      | Accounts receivable                      |           | 117,974   |             | 820,295  
| |                                                                                                      | Accrued revenue receivable               |           | 75,909    |             | 191,853  
| |                                                                                                      | Prepaid expenses and deposits            |           | 49,077    |             | 124,928  
| |                                                                                                      | Accounts payable and accrued liabilities |           | 356,544   |             | (153,818)
| |                                                                                                      | Deferred revenue                         |           | (105,742) |             | (101,821)
| | Cash used for operating activities                                                                   |                                          | (114,824) |           | (443,255)  
| | Excluded from non-GAAP measure                                                                       |                                          |           |           |            
| | Changes in non-cash operating working capital:                                                       |                                          |           |          
| |                                                                                                      | Accounts receivable                      |           | (117,974) |             | (820,295)
| |                                                                                                      | Accrued revenue receivable               |           | (75,909)  |             | (191,853)
| |                                                                                                      | Prepaid expenses and deposit             |           | (49,077)  |             | (124,928)
| |                                                                                                      | Accounts payable and accrued liabilities |           | (356,544) |             | 153,818  
| |                                                                                                      | Deferred revenue                         |           | 105,742   |             | 101,821  
| |                                                                                                      |                                          |           |          
| |                                                                                                      |                                          |           |           |            
| | Non-GAAP operating cash flow                                                                         | $                                        | (608,586) | $         | (1,324,692)
| |                                                                                                      |                                          |           |           |            



Based on the non-GAAP financial measure the Companys revenues generated or will generate $608,586 less cash than its expenses required for the three-month period ended June 30, 2007, which is $716,106 or 54.0% more than for the three-month period ended June 30, 2006.

Revenues

Visiphors total revenues for the three-month period ended June 30, 2007 were $863,755, which is 42.0% lower than the prior year level of $1,488,828. Total revenues for the six-month period ended June 30, 2007 were $2,141,032 compared with $3,803,911, or a decrease of 43.7% compared with the same period in 2006. These decreases were primarily due to customer delays in projects which have delayed the recognition of revenue from those projects. The Company has also hired a new Vice President of Sales in order to increase sales and to seek out new opportunities.



Revenues from the Companys software products and related services were $(153,621) for the current three-month period as compared to $131,310 for the three-month period ended June 30, 2006, a decrease of 217.0%.There was a product return on one of the current projects that required a change in estimate and therefore affected revenue. This type of change was a one time event and will most likely not happen again with any other project. Software products and related services revenues for the six-month period ended June 30, 2007 were $222,966 compared with $613,751 a decrease of 63.7% compared with the same period in 2006. The decreased software licensing and related services revenues were primarily due to lower sales volumes combined with delays in customer delivery acceptance schedules, the complexities of the projects and the change in estimate for one project.



Professional services revenues for the three-month period ended June 30, 2007 were $913,046 as compared to $1,114,381 for the three-month period ended June 30, 2006, a decrease of 18.1%. The three months ended June 30



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results from 2006 included revenue earned from contracts entered into prior to the acquisition of Sunaptic Professional services revenues for the six-month period ended June 30, 2007 were $1,667,915 compared with $2,722,063, for the six-month period ended June 30, 2006, a decrease of 38.7% compared with the same period in 2006. The first six months in 2006 were higher due to the work completed on pre-acquisition contracts from 2005. The first six months results from 2006 included revenue earned from contracts entered into prior to the acquisition of Sunaptic.



Support revenue for the three-month period ended June 30, 2007 decreased by 20.8% to $103,154 compared to $130,264 for three-month period ended June 30, 2006. The 2006 support amount was higher than this year due to an amount that was recognized in full in Q2 2006 as apposed to being amortized over 12 months. The payment was thought to be uncollectible however when the client paid, the earned amount was recognized. Support revenues for the six-month period ended June 30, 2007 were $247,105 compared with $238,745 compared with the same period in 2006, an increase of 3.5%



Other revenues for the three-month period ended June 30, 2007 were $1,176, whereas other revenues of $112,873 were earned for the three-month period ended June 30, 2006. Other revenues for the six-month period ended June 30, 2007 were $3,046 compared with $229,352. The comparative figure in 2006 included $103,064 recognized for the security assessments for the King County RAIN project.



As of June 30, 2007, Visiphor had contracted orders totalling approximately $1.8 million that are not recorded in the financial statements as at June 30, 2007, however, the time frame for the revenue recognition of this backlog cannot be estimated as it is dependant on project delivery and susceptible to delays. The Company has been attracting new business opportunities in the U.S. market and anticipates significant growth in the U.S. There can be no assurance; however, that such future revenue or future growth will materialize or if such revenue or future growth does materialize that it will be significant.

Total Expenses

Total expenses were $1,781,497 for the three-month period ended June 30, 2007, which is 49.3% less than the 2006 total expenses of $3,513,508 for the same period. Total expenses were $3,738,043 for the six-month period ended June 30, 2007, which is 49.2% less than the 2006 total expenses of $7,355,691 for the same period The decreased costs were primarily due to the reduction in salary expenses and the overall cost reduction effort of the Company. Operating expenses net of amortization and interest for the same periods decreased 48.2% to $1,563,102 from $3,015,794.



The Company continued to improve its operational efficiencies during 2006 and into the first two quarters in 2007. During 2006, the Company consolidated its Vancouver and Burnaby, B.C. offices into the Burnaby head office location, changed its executive compensation structure and implemented general cost saving measures.

Administration

Administrative costs for the three-month period ended June 30, 2007 were $265,333, which is a reduction of 64.0% compared with administrative costs of $736,282 in 2006 due to recent reductions in staffing levels. Administrative costs include staff salaries and related benefits and travel, consulting and professional fees, facility and support costs, and shareholder, regulatory and investor relations costs. Administrative expenses were $576,585 for the six-month period ended June 30, 2007, which is 58.8% less than the 2006 total expenses of $1,399,185 for the same period.

Cost of Materials

Cost of materials for the three-month period ended June 30, 2007 were $nil and $77,005 for the three-month period ended June 30, 2006. Cost of materials for the six-month period ended June 30, 2007 were $22,569 and $164,910 for the six-month period ended June 30, 2006. The 2006 comparative figure was for sub-contracted services required for the security assessments for the King County RAIN project.

Interest and Amortization

The interest expense for the three-month period ended June 30, 2007 is $99,299 which is 112.0% higher than the three-month period ended June 30, 2006 of $46,839. Interest expenses were $211,495 for the six-month period ended June 30, 2007, which is 185.7% more than the 2006 total expenses of $74,015 for the same period. The increase is primarily due to the interest expense on the convertible debenture which the Company did not have in the first and second quarters of 2006 and interest on the loans payable. The amortization expense for the three-month period ended June 30, 2007 was $119,096 compared to $450,875 for the three-month period ended June 30, 2006. Amortization expenses were $240,611 for the six-month period ended June 30, 2007, which are 77.6% less than the



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2006 total expenses of $1,073,370 for the same period. The decrease is due to the majority of the Companys intangible assets having been fully amortized during 2006.

Sales and Marketing

Sales and marketing expenses for the three-month period ended June 30, 2007 were $305,485 compared to $317,149 for the three-month period ended June 30, 2006, which represents a 4.0% decrease. Sales and marketing expenses for the six-month period ended June 30, 2007 were $564,520 compared to $898,229 for 2006, which represents a 37.2% decrease. Overall, the expenses related to sales and marketing decreased as the Company continued to concentrate on building sales and relationships rather than on general marketing activities and due to some layoffs in early 2006. As part of the Companys overall cost-cutting efforts, there were reductions to the marketing salary expenses and general marketing activities for the period.

Professional Services

Costs for the professional services group for the three-month period ended June 30, 2007 were $664,105 which is 50.0% less than costs for the professional services group for the three-month period ended June 30, 2006 of $1,335,694. Professional services expenses for the six-month period ended June 30, 2007 were $1,279,231 compared to $2,618,808 six-month period ended June 30, 2006, which represents a 51.1% decrease. The professional services group is responsible for the installation of Visiphors products and training of Visiphors customers and business partners in the use of the Companys products. It also includes the business integration consulting services division added through the acquisition of Sunaptic. The costs include salaries, travel and general overhead expenses. Costs for future periods will be dependent on the sales levels achieved by the Company as increased sales will create a need to increase technical resourcing.

Technology Development

The technology development expenses for the three-month period ended June 30, 2007 were $301,118, which is 38.0% less than the costs of $487,676 for the three-month period ended June 30, 2006. Technology development expenses for the six-month period ended June 30, 2007 were $809,858 compared to $962,724 for the six-month period ended June 30, 2006, which represents a 15.9% decrease. The Company has spent many years developing the technologies used in the current projects. The Company has recently invested less on development of technologies and more on the delivery of these technologies to clients.

Net Loss for the Period

The Company's current operating net loss (total loss excluding amortization and interest, which is a non-GAAP measure) for the three-month period ended June 30, 2007 was $699,347, a 54.2% improvement compared with $1,526,966 from the same period in 2006. The Company's current operating net loss (total loss excluding amortization and interest, which is a non-GAAP measure) for the six-month period ended June 30, 2007 was $1,144,904 a 52.4% improvement compared with $2,404,395 for the six-month period ended June 30, 2006. The Company provides reconciliation to GAAP at the beginning of the MD&A section.



Overall, the Company incurred a net loss for the three-month period ended June 30, 2007 of $917,742 or $0.02  per share, which is 54.7% lower than the net loss incurred during the three-months ended June 30, 2006 of $2,024,680 or $0.05 per share.  For the six-month period ended June 30, 2007, the Company incurred a net loss of $1,597,011 or $0.04 per share, which is 55.0% lower than the net loss incurred during the six-month ended June 30, 2006 of $3,551,780 or $0.08 per share.



In the Company's most recent Form 10-KSB, management stated that it believed that the Company would be able to achieve break-even operations on a cash operating basis by the end of the first quarter of 2007. The company subsequently revised this guidance in its first quarter Form 10-QSB to communicate that management believed break-even from operations on a cash operating basis would be achieved by the end of the second quarter. The company has struggled to achieve this goal due to project delays and lower than anticipated sales. The Company has decided that it will not provide further guidance on this matter in the near future, because these estimates have historically been missed due to such factors and the Company has historically had difficulty predicting when contracts may be recorded as revenue. The Companys goal, however, of achieving break even from operations remains unchanged.



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Summary of Quarterly Results



|                           |  |           |            |             |             |             |             |             |            
|-------------------------- |  | --------- | ---------- | ----------- | ----------- | ----------- | ----------- | ----------- | -----------
|                           |  | Q2-2007   | Q1-2007    | Q4-2006     | Q3-2006     | Q2-2006     | Q1-2006     | Q4-2005     | Q3-2005    
|                           |  |           |            |             |             |             |             |             |            
|Total Revenue              |  | $863,755  | $1,277,277 | $1,458,707  | $1,120,766  | $1,488,828  | $2,315,083  | $1,076,312  | $1,008,581 
|Net Loss                   |  | (917,742) | (679,270)  | (1,221,734) | (1,904,856) | (2,024,680) | (1,527,100) | (1,890,400) | (1,650,764)
|Net Loss per Share         |  | (0.02)    | (0.02)     | (0.03)      | (0.04)      | (0.05)      | (0.04)      | (0.05)      | (0.06)     
|Net Loss as a %
of Revenue |  | (106%)    | (53%)      | (84%)       | (170%)      | (136%)      | (66%)       | (176%)      | (164%)     



The Companys changes in its net losses per quarter fluctuate according to the volume of sales. To date, there has been no consistency from one quarter to the next. Past quarterly performance is not considered to be indicative of future results. The Company is not aware of any significant seasonality affecting its sales.

Liquidity and Capital Resources

The Companys aggregated cash on hand at the beginning of the three-month period ended June 30, 2007 was $98,489. The impact on cash of the loss of $917,742, after adjustment for non-cash items and changes to other working capital accounts in the period, resulted in a negative cash flow from operations of $114,824. The Company repaid capital leases of $23,536, purchased capital assets of $34,398, and repaid a $100,000 loan that was borrowed in 2006 and received an additional $100,000 in financing. Overall, the Companys cash position increased by $14,799 to $113,288 at June 30, 2007.



The Companys aggregated cash on hand at the beginning of the six-month period ended June 30, 2007 was $42,338. The impact on cash of the loss of $1,597,011, after adjustment for non-cash items and changes to other working capital accounts in the period, resulted in a positive cash flow from operations of $63,123. The Company repaid capital leases of $45,789, purchased capital assets of $33,941, and repaid $200,000 in loans that were borrowed in 2006 and received an additional $100,000 in financing. Overall, the Companys cash position increased by $70,950 to $113,288 at June 30, 2007.



The Company believes it currently has cash, accounts receivable, and work in progress and contracted orders that, if completed, will generate cash sufficient to fund its operations through January 2008. If the accounts receivable are not collected, certain of the contracts are not completed, or the expected sales are not received, the Company may need to raise additional funds through private placements of its securities or seek other forms of financing during the 2007 financial year. There can be no assurance that such financing will be available to the Company on terms acceptable to it, if at all. Failure to obtain adequate financing, if necessary, could result in significant delays in development of new products and a substantial curtailment of the Companys operations. If the Companys operations are substantially curtailed, it may have difficulty fulfilling its current and future contractual obligations.



Contractual Obligations

The Company is committed to the following payments for  (i) operating lease payments on the office lease, (ii) capital lease payments for equipment under lease (excluding interest) and (iii) long term debt payments over the next three years:



|     |                |           |           |        |         |       |         |   |          
|---- | -------------- | --------- | --------- | ------ | ------- | ----- | ------- | - | ---------
|Year | Long Term Debt | Equipment |           | Office |         | Total
|2007 |                | $         | 62,334    | $      | 66,737  | $     | 148,597 | $ | 277,668  
|2008 |                |           | 136,000   |        | 97,373  |       | 267,410 |   | 500,783  
|2009 |                |           | 1,830,334 |        | 39,447  |       | 201,478 |   | 2,071,259
|2010 |                |           | -         |        | 9,473   |       | -       |   | 9,473    
|     |                | $         | 2,028,668 | $      | 213,030 | $     | 617,485 | $ | 2,859,183



The Company also subleases 4,128 square feet of office space in Vancouver, B.C. with monthly rent of $7,000 which expires on September 29, 2008. This space is no longer used by the Company and has been sublet as of March 1, 2007 to cover the Companys costs. The lease to the tenant also expires September 29, 2008.





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Off-Balance Sheet Arrangements

At June 30, 2007, the Company did not have any off-balance sheet arrangements.



Related-party transactions not disclosed elsewhere are as follows:



At June 30, 2007, accounts payable and accrued liabilities included $332,938 (at December 31, 2006 -$230,215) owed by the Company to Directors, Officers and companies controlled by Directors and Officers of the Company. These amounts are unsecured, non-interest bearing and payable on demand and consist of unpaid fees and expenses. The exchange amount was negotiated and established and agreed to by the related parties.



Other Management Discussion & Analysis Requirements



i.

Additional information relating to the Company, including the Companys Annual Information Form, is on available on SEDAR at www.sedar.com.



ii.

Share Capital at August 10, 2007

(a)

Authorized:

100,000,000 common shares without par value

50,000,000 preferred shares without par value, non-voting, issuable in one or more series

(b)

Issued



|                               |                  |   |           
|------------------------------ | ---------------- | - | ----------
|                               | Number of shares |   | Amount    
|Balance, December 31, 2007     | 44,114,775       | $ | 35,618,627
|                               |                  |   |           
|Issued for exercise of options | 666,666          |   | 66,666    
|                               |                  |   |           
|Balance, August 10, 2007       | 44,781,441       | $ | 35,685,293
|                               |                  |   |           

(c)

Warrants:

At December 31, 2006, and August 10, 2007, the following warrants were outstanding:



|                  |         |           |             |                 |                |                 
|----------------- | ------- | --------- | ----------- | --------------- | -------------- | ----------------
|December 31, 2006 | Granted | Exercised | Expired     | August 10, 2007 | Exercise price | Expiry date     
|2,557,785         | -       | -         | (2,557,785) | -               | $0.55          | January 11, 2007
|300,000           | -       | -         | (300,000)   | -               | $0.50          | March 2, 2007   
|-                 | 120,662 | -         | -           | 120,662         | $0.50          | February 9, 2009
|2,857,785         | 120,662 | -         | (2,857,785) | 120,662         |                |                 



(d)

Options:



The Company has a stock option plan that was most recently approved at the Companys annual general meeting of shareholders on May 8, 2006.  Under the terms of the plan, the Company may reserve up to 8,615,118 common shares for issuance under the plan.  The Company has granted stock options under the plan to certain employees, directors, advisors and consultants.  These options are granted for services provided to the Company.  All existing options granted prior to November 25, 2003 expire five years from the date of grant.  All options granted subsequent to November 25, 2003 expire three years from the date of the grant.  All options vest one-third on the date of the grant, one-third on the first anniversary of the date of the grant and one-third on the second anniversary of the date of the grant.



For options issued in 2003 and previously accounted for under the fair value method, modification accounting was applied.  Under modification accounting, the Company recorded additional expense equal



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to the difference between the fair value of the original award on the date of the repricing and the fair value of the modified award also on the date of the repricing.



A summary of the status of the Companys stock options at August 10, 2007 and December 31, 2006, and changes during the periods ended on those dates is presented below:



|                                 |                  |                              |                  |      |           |             |                |     
|-------------------------------- | ---------------- | ---------------------------- | ---------------- | ---- | --------- | ----------- | -------------- | ----
|                                 | August 10, 2007  | Year-ended
December 31, 2006
|                                 | Weighted average |                              | Weighted average
|                                 | Shares           |                              | Exercise Price   |      | Shares    |             | Exercise Price
|Outstanding, beginning of period | 8,292,500        | $                            | 0.32             |      | 5,415,500 | $           | 0.67          
|                                 | Granted          | 2,474,533                    |                  | 0.10 |           | 5,246,468   |                | 0.25
|                                 | Exercised        | (666,670)                    |                  | 0.10 |           | -           |                | -   
|                                 | Cancelled        | (1,590,774)                  |                  | 0.37 |           | (2,369,468) |                | 0.65
|Outstanding, end of period       | 8,509,589        | $                            | 0.27             |      | 8,292,500 | $           | 0.32          

The following table summarizes information about stock options outstanding at August 10, 2007:



|               |                   |                                             |      |                                 |                   |           |                                 |        |  |  |  |  |  |  | 
|-------------- | ----------------- | ------------------------------------------- | ---- | ------------------------------- | ----------------- | --------- | ------------------------------- | ------ |  |  |  |  |  |  | 
|               |                   | Options Outstanding                         |      | Options Exercisable            
|Exercise price | Number
of options | Weighted average remaining contractual life |      | Weighted average exercise price | Number of options |           | Weighted average exercise price
|               | $0.07             | 7,500                                       | 2.93 |                                 | $0.07             | 2,500     |                                 | $0.07 
|               | $0.085            | 218,533                                     | 2.57 |                                 | $0.085            | 72,844    |                                 | $0.085
|               | $0.10             | 1,769,334                                   | 2.76 |                                 | $0.10             | 145,334   |                                 | $0.10 
|               | $0.11             | 100,000                                     | 2.61 |                                 | $0.11             | 33,333    |                                 | $0.11 
|               | $0.12             | 34,722                                      | 2.44 |                                 | $0.12             | 11,574    |                                 | $0.12 
|               | $0.13             | 905,727                                     | 2.44 |                                 | $0.13             | 330,674   |                                 | $0.13 
|               | $0.15             | 10,000                                      | 2.34 |                                 | $0.15             | 3,333     |                                 | $0.15 
|               | $0.16             | 500                                         | 2.34 |                                 | $0.16             | 167       |                                 | $0.16 
|               | $0.17             | 10,000                                      | 1.99 |                                 | $0.17             | 3,333     |                                 | $0.17 
|               | $0.20             | 395,556                                     | 2.18 |                                 | $0.20             | 131,852   |                                 | $0.20 
|               | $0.21             | 946,667                                     | 2.13 |                                 | $0.21             | 360,000   |                                 | $0.21 
|               | $0.25             | 45,000                                      | 1.91 |                                 | $0.25             | 30,000    |                                 | $0.25 
|               | $0.29             | 7,000                                       | 0.96 |                                 | $0.29             | 4,667     |                                 | $0.29 
|               | $0.31             | 75,000                                      | 1.74 |                                 | $0.31             | 50,000    |                                 | $0.31 
|               | $0.33             | 53,333                                      | 0.46 |                                 | $0.33             | 53,333    |                                 | $0.33 
|               | $0.34             | 13,333                                      | 0.36 |                                 | $0.34             | 13,333    |                                 | $0.34 
|               | $0.35             | 12,000                                      | 1.35 |                                 | $0.35             | 8,667     |                                 | $0.35 
|               | $0.36             | 7,110                                       | 0.63 |                                 | $0.36             | 7,110     |                                 | $0.36 
|               | $0.39             | 12,000                                      | 1.07 |                                 | $0.39             | 9,667     |                                 | $0.39 
|               | $0.40             | 679,701                                     | 0.14 |                                 | $0.40             | 679,701   |                                 | $0.40 
|               | $0.44             | 15,000                                      | 1.36 |                                 | $0.44             | 10,000    |                                 | $0.44 
|               | $0.45             | 2,024,410                                   | 1.14 |                                 | $0.45             | 1,791,521 |                                 | $0.45 
|              
|               |                   | 7,342,426                                   | 1.74 |                                 | $0.33             | 3,752,943 |                                 | $0.35 



The weighted average fair value of employee stock options granted during the period from January 1, 2007 to August 10, 2007 was $0.10 (six months ended June 30, 2006-$0.44) per share purchase option. The fair value of each stock option award was estimated on the date of grant using the Black-Scholes option pricing model using the following average inputs:  volatility  72.72% (2006-66%); risk free interest rate - 5% (2006-5%); option term - 3 years (2006-3 years); and dividend yield  nil (2006-nil).  The total compensation expense of $187,423 (six months ended June 30, 2006-$501,980) has been allocated to the expense account associated with each individual employee expense and credited to contributed surplus.





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(f)

Agents Options



A November 29, 2005 private placement included non-transferable agents options to purchase 896,307 units on or before November 29, 2007 at a price of $0.45 per unit. Each unit consists of one common share and one-half of one common share purchase warrant, each full warrant exercisable for one common share at $0.50 until November 29, 2007.



A December 13, 2005 private placement included non-transferable agents options to purchase 11,250 units on or before December 13, 2007 at a price of $0.45 per unit. Each unit consists of one common share and one-half of one common share purchase warrant, each full warrant was exercisable for one common share at $0.50 until December 13, 2007.



A summary of the status of the Companys Agents Options at August 10, 2007 and December 31, 2006 and changes during the periods ended on those dates is presented below:





|                                 |                                   |                              |                  |   |         |   |                |  
|-------------------------------- | --------------------------------- | ---------------------------- | ---------------- | - | ------- | - | -------------- | -
|                                 | March 31, 2007 to
August 10, 2007 | Year-ended
December 31, 2006
|                                 | Weighted average                  |                              | Weighted average
|                                 | Shares                            |                              | Exercise Price   |   | Shares  |   | Exercise Price
|Outstanding, beginning of period | 907,557                           | $                            | 0.45             |   | 907,557 | $ | 0.45          
|                                 | Granted                           | -                            |                  | - |         | - |                | -
|                                 | Exercised                         | -                            |                  | - |         | - |                | -
|                                 | Cancelled                         | -                            |                  | - |         | - |                | -
|Outstanding, end of period       | 907,557                           | $                            | 0.45             |   | 907,557 | $ | 0.45          

Contributed surplus



|                           |   |           |       
|-------------------------- | - | --------- | ------
|                           |   |           | Amount
|Balance, December 31, 2006 | $ | 3,437,431
|Value of options granted   |   | 187,423  
|Balance, August 10, 2007   | $ | 3,624,854







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