UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM 10-Q

xQUARTERLY REPORT UNDER SECTION 13 OR 15 OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2008

or



 ̈TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from  to ___________________________________

Commission file number: 000-30090



VISIPHOR CORPORATION

(Exact name of registrant 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 V5H 4M2

(Address of principal executive offices)

(604) 684-2449

(Registrants telephone number, including area code)



N/A

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



Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x  No o



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of large accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act.



Large accelerated filer o

Accelerated filer o

Non-accelerated filer   o (Do not check if a smaller reporting company)

Smaller reporting company x



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

Yes o No x



As of May 9, 2008, 45,448,109 common shares of the registrant were issued and outstanding.



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VISIPHOR CORPORATION



FORM 10-Q



For the Quarterly Period Ended March 31, 2008



INDEX





|         |                                                                                       |   
|-------- | ------------------------------------------------------------------------------------- | --
|PART I   | Financial Information                                                                 |   
|Item 1.  | Financial Statements                                                                  | 4 
|Item 2.  | Managements Discussion and Analysis of Financial Condition and Results of Operations | 20
|Item 3.  | Quantitative and Qualitative Disclosures About Market Risk                            | 25
|Item 4.  | Controls and Procedures                                                               | 25
|         |                                                                                      
|PART II  | Other Information                                                                     |   
|Item 1.  | Legal Proceedings                                                                     | 27
|Item 1A. | Risk Factors                                                                          | 27
|Item 2.  | Unregistered Sales of Equity Securities and Use of Proceeds                           | 32
|Item 3.  | Defaults Upon Senior Securities                                                       | 32
|Item 4.  | Submission of Matters to a Vote of Security Holders                                   | 32
|Item 5.  | Other Information                                                                     | 32
|Item 6.  | Exhibits                                                                              | 33





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 ability to gain more professional services customers; the Companys expectation that it will increase its sales organization throughout 2008; the entry into new contracts in the near future; and the Companys ability to continue to reduce future operating and the Companys expectation that it will increase technology development spending.



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; 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 Part II, Item 1 A of 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-month period ended March 31, 2008 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 of Financial Condition and Results of Operations (Part I, Item 2) and other financial information included elsewhere in this Form 10-Q.

VISIPHOR CORPORATION

Consolidated Balance Sheets

(Expressed in Canadian dollars)

(Unaudited)



March 31, 2008 and December 31, 2007

|                                         |                                                   |           |                |           |                   | 
|---------------------------------------- | ------------------------------------------------- | --------- | -------------- | --------- | ----------------- | 
|                                         |                                                   |           | March 31, 2008 |           | December 31, 2007
|Assets                                   |                                                   |           |                |          
|                                         |                                                   |           |                |           |                  
|Current assets:                          |                                                   |           |                |          
|                                         | Cash and cash equivalents (note 3)                | $         | 1,105,679      | $         | 128,423          
|                                         | Accounts receivable                               |           | 528,131        |           | 356,034          
|                                         | Accrued revenue receivable                        |           | 95,362         |           | 24,948           
|                                         | Prepaid expenses and deposit                      |           | 65,136         |           | 65,934           
|                                         |                                                   |           | 1,794,308      |           | 575,339          
|                                         |                                                   |           |                |           |                  
|Equipment, net                           |                                                   | 256,992   |                | 305,539  
|Goodwill                                 |                                                   | 1,684,462 |                | 1,684,462
|Other intangible assets                  |                                                   | 163,137   |                | 198,892  
|                                         |                                                   | $         | 3,898,899      | $         | 2,764,232        
|                                         |                                                   |           |                |           |                  
|Liabilities and Shareholders Deficiency |                                                   |           |                |          
|                                         |                                                   |           |                |           |                  
|Current liabilities:                     |                                                   |           |                |          
|                                         | Accounts payable and accrued liabilities (note 4) | $         | 2,061,115      | $         | 2,328,262        
|                                         | Loans payable (note 5)                            |           | 729,933        |           | 740,853          
|                                         | Deferred revenue                                  |           | 512,362        |           | 539,000          
|                                         | Capital lease obligations (note 6)                |           | 69,978         |           | 87,036           
|                                         |                                                   |           | 3,373,388      |           | 3,695,151        
|                                         |                                                   |           |                |           |                  
|Long-term liabilities:                   |                                                   |           |                |          
|                                         | Capital lease obligations (note 6)                |           | 44,739         |           | 54,229           
|                                         | Convertible debenture (note 7)                    |           | 2,739,783      |           | 1,640,382        
|                                         |                                                   |           | 2,784,522      |           | 1,694,611        
|Shareholders deficiency:                |                                                   |           |                |          
|                                         | Share capital (note 8)                            |           | 35,717,946     |           | 35,717,946       
|                                         | Contributed surplus (note 9)                      |           | 3,684,154      |           | 3,614,633        
|                                         | Conversion rights                                 |           | 954,830        |           | 500,948          
|                                         | Obligation to issue warrants                      |           | 58,000         |           | -                
|                                         | Deficit                                           |           | (42,673,941)   |           | (42,459,057)     
|                                         |                                                   |           | (2,259,011)    |           | (2,625,530)      
|                                         |                                                   |           |                |           |                  
|                                         |                                                   | $         | 3,898,899      | $         | 2,764,232        
|Operations and going concern (note 1)    |                                                   |           |                |          
|                                         |                                                   |           |                |          

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-month periods ended March 31, 2008 and 2007



|                                                             |                                         |              |                |              |                |  | 
|------------------------------------------------------------ | --------------------------------------- | ------------ | -------------- | ------------ | -------------- |  | 
|                                                             |                                         |              | March 31,
2008 |              | March 31,
2007
|                                                             |                                         |              |                |              |               
|Revenue:                                                     |                                         |              |                |             
|                                                             | Software licensing and related services | $            | 458,102        | $            | 376,587       
|                                                             | Professional services                   |              | 905,160        |              | 754,869       
|                                                             | Support                                 |              | 134,331        |              | 143,951       
|                                                             | Other                                   |              | 676            |              | 1,870         
|                                                             |                                         |              | 1,498,269      |              | 1,277,277     
|                                                             |                                         |              |                |              |               
|Expenses:                                                    |                                         |              |                |             
|                                                             | Administration                          |              | 301,595        |              | 311,253       
|                                                             | Amortization                            |              | 110,036        |              | 121,515       
|                                                             | Cost of materials                       |              | -              |              | 22,569        
|                                                             | Financing expense                       |              | 10,750         |              | 6,112         
|                                                             | Interest                                |              | 149,721        |              | 112,196       
|                                                             | Sales and marketing                     |              | 253,255        |              | 259,035       
|                                                             | Professional services                   |              | 586,558        |              | 615,126       
|                                                             | Technology development                  |              | 301,238        |              | 508,740       
|                                                             |                                         |              |                |              |               
|                                                             |                                         |              | 1,713,153      |              | 1,956,546     
|                                                             |                                         |              |                |              |               
|Loss for the period                                          |                                         | (214,884)    |                | (679,269)   
|                                                             |                                         |              |                |              |               
|Deficit, beginning of period                                 |                                         | (42,459,057) |                | (39,968,850)
|                                                             |                                         |              |                |              |               
|Deficit, end of period                                       | $                                       | (42,673,941) | $              | (40,648,119)
|                                                             |                                         |              |                |              |               
|Loss per share  basic and diluted                           | $                                       | (0.00)       | $              | (0.02)      
|                                                             |                                         |              |                |              |               
|Weighted average number of shares outstanding                |                                         | 44,781,442   |                | 44,114,775  
|                                                             |                                         |              |                |              |               
|                                                             |                                         |              |                |              |               
|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-month periods ended March 31, 2008 and 2007



|                                                   |                                                |                                                 |                |           |                |        
|-------------------------------------------------- | ---------------------------------------------- | ----------------------------------------------- | -------------- | --------- | -------------- | -------
|                                                   |                                                |                                                 | March 31, 2008 |           | March 31, 2007
|                                                   |                                                |                                                 |                |           |               
|Cash provided by (used for):                       |                                                |                                                 |                |          
|                                                   |                                                |                                                 |                |           |               
|Operations:                                        |                                                |                                                 |                |          
|                                                   | Loss for the period                            | $                                               | (214,884)      | $         | (679,269)     
|                                                   | Items not involving cash:                      |                                                 |                |           |               
|                                                   |                                                | Amortization of equipment and intangible assets |                | 110,036   |                | 121,515
|                                                   |                                                | Share-based compensation                        |                | 69,521    |                | 78,775 
|                                                   |                                                | Accretion of debt                               |                | 78,027    |                | 23,761 
|                                                   |                                                | Amortization of deferred financing expenses     |                | -         |                | 6,112  
|                                                   |                                                | Foreign exchange adjustment on loan payable     |                | 14,080    |                | (4,320)
|                                                   | Changes in non-cash operating working capital: |                                                 |                |           |               
|                                                   |                                                | Accounts receivable                             |                | (172,097) |                | 246,891
|                                                   |                                                | Accrued revenue receivable                      |                | (70,414)  |                | 67,803 
|                                                   |                                                | Prepaid expenses and deposit                    |                | 798       |                | 38,849 
|                                                   |                                                | Accounts payable and accrued liabilities        |                | (267,147) |                | 75,054 
|                                                   |                                                | Deferred revenue                                |                | (26,638)  |                | 202,776
|                                                   |                                                |                                                 | (478,718)      |           | 177,947       
|                                                   |                                                |                                                 |                |           |               
|Investments:                                       |                                                |                                                 |                |          
|                                                   | Purchase of equipment                          |                                                 | (1,822)        |           | 457           
|                                                   | Capitalized Development Cost                   |                                                 | (23,912)       |           | -             
|                                                   |                                                |                                                 | (25,734)       |           | 457           
|                                                   |                                                |                                                 |                |           |               
|Financing:                                         |                                                |                                                 |                |          
|                                                   | Repayment of loan payable                      |                                                 | (25,000)       |           | (100,000)     
|                                                   | Interest prepaid                               |                                                 | (140,000)      |           | -             
|                                                   | Proceeds of convertible debentures             |                                                 | 1,750,000      |           | -             
|                                                   | Financing Costs                                |                                                 | (76,744)       |           | -             
|                                                   | Capital lease repayments                       |                                                 | (26,548)       |           | (22,253)      
|                                                   |                                                |                                                 | 1,481,708      |           | (122,253)     
|                                                   |                                                |                                                 |                |           |               
|Increase in cash                                   |                                                | 977,256                                         |                | 56,151   
|                                                   |                                                |                                                 |                |          
|Cash and cash equivalents, beginning of the period |                                                | 128,423                                         |                | 42,338   
|                                                   |                                                |                                                 |               
|Cash and cash equivalents, end of the period       | $                                              | 1,105,679                                       | $              | 98,489   

See accompanying notes to consolidated financial statements.



6



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VISIPHOR CORPORATION

Consolidated Statements of Cash Flows, Continued

(Expressed in Canadian dollars)

(Unaudited)



For the three-month periods ended March 31, 2008 and 2007



|                                                                          |                                                             |   |                |   |                | 
|------------------------------------------------------------------------- | ----------------------------------------------------------- | - | -------------- | - | -------------- | 
|                                                                          |                                                             |   | March 31, 2008 |   | March 31, 2007
|                                                                          |                                                             |   |                |   |               
|Supplementary information and disclosures:                                |                                                             |   |                |  
|                                                                          | Interest paid                                               | $ | 10,541         | $ | 23,761        
|Non-cash investing and financing transactions not included in cash flows: |                                                             |   |                |  
|                                                                          | Equipment acquired under capital lease                      |   | -              |   | 9,724         
|                                                                          | Issuance of common shares on settlement of accounts payable |   | -              |   | 48,265        
|See accompanying notes to consolidated financial statements.              |                                                             |   |                |  









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VISIPHOR CORPORATION

Notes to Consolidated Financial Statements

(Expressed in Canadian dollars)



Period ended March 31, 2008 (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: (i) the development and sale of software applications and solutions and (ii) 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 March 31, 2008, the Company incurred a loss from operations of $214,884 and a negative operating cash flow of $478,718. At March 31, 2008, the Company had a working capital deficiency $1,579,080. 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. 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.

Summary of Significant accounting policies:

There have been no new policies adopted or changes in the Companys accounting policies during the three months ended March 31, 2008 from those previously disclosed in the Companys audited consolidated financial statements for the year ended December 31, 2007, except as follows:

Development costs

The Company accounts for development costs in accordance with CICA 3450, "Research and Development Costs". Amortization of development costs deferred to future periods would commence with commercial production or use of the product and be charged as an expense on a systematic and rational basis by reference to the sale or use of the products. Deferred development costs are reviewed annually to ensure the criteria, which previously justified the deferral of costs, are still being met. When the criteria for deferment continue to be met but the amount of deferred development costs that can be reasonably regarded as assured for recovery through related future revenues, less relevant costs, is exceeded by the unamortized balance of such costs, the excess is written-off as a charge to income of the period.

3.

Cash and Cash Equivalents:



|                          |  |   |                |   |                  
|------------------------- |  | - | -------------- | - | -----------------
|For the periods ended:    |  |   | March 31, 2008 |   | December 31, 2007
|                          |  |   |                |   |                  
|Cash on deposit           |  | $ | 125,679        | $ | 98,423           
|                          |  |   |                |   |                  
|Short term investments    |  | $ | 980,000        | $ | 30,000           
|                          |  |   |                |   |                  
|Cash and cash equivalents |  | $ | 1,105,679      | $ | 128,423          









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4.

Accounts Payable and Accrued Liabilities

Accounts payable include approximately $259,970 (December 31, 2007 - $282,768) of back payroll taxes and Nil (December 31, 2007 - $107,700) of income taxes related to the Sunaptic acquisition. The tax payables are currently being paid off in accordance with a payment plan with the Canada Revenue Agency under which the balance should be paid off by October 2008. The Company is in compliance with the terms of this payment plan.

5.

Loans Payable

Unsecured loans totaling $66,000 (December 31, 2007 - $66,000) are owed to an unrelated party bearing an interest rate of 12% per annum. These loans are due on demand.



Related party loans totaling $663,933 (December 31, 2007 - $674,853) 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. These loans are due on demand.

6.

Capital lease obligations:



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



|                                               |                |          |                   |         
|---------------------------------------------- | -------------- | -------- | ----------------- | --------
|                                               | March 31,
2008 |          | December 31, 2007
|Due 2008, including buy-out options            | $              | 71,573   | $                 | 104,502 
|Due 2009, including buy-out options            |                | 45,636   |                   | 45,636  
|Due 2010, including buy-out options            |                | 17,030   |                   | 17,030  
|                                               |                | 134,239  |                   | 167,168 
|Implicit interest portion (9% to 21%)          |                | (19,522) |                   | (25,903)
|                                               |                | 114,717  |                   | 141,265 
|Current portion of capital lease obligations   |                | 69,978   |                   | 87,036  
|Long-term portion of capital lease obligations |                | 44,739   |                   | 54,229  



7.

Convertible Debentures

(a)

July 2006 debenture



On July 12, 2006, the Company completed a non-brokered private placement consisting of a secured convertible debenture for $1,600,000. 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 on or before 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. In respect to the under-performance warrants, during the quarter ended March 31, 2008, the Company recorded a warrant obligation of $58,000 as it seems likely that by July 12, 2008 that the Companys common shares will not be trading at greater than $0.45 per share, based on a 30-day weighted average and that the warrants will likely be issued.



9



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7.

Convertible Debentures (contd):

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 $353,000, has been credited to equity and represents the value ascribed to the conversion feature of the debenture with the contingent warrants.  The related financing expenses have been attributed to the equity and debt components at the same ratio as the convertible debenture.  Financing expenses attributed to the debt component have been deducted from the initial carrying value of the debenture and will therefore be charged against income over the term of the debenture as additional interest expense.  Financing costs attributed to the equity component have been treated as a capital transaction and applied against the equity component.

(b)

May 2007 debenture



During the month of May 2007, the Company completed a non-brokered private placement consisting of a secured convertible debenture for $100,000. The lender was the same lender as the July 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 in the case that such warrants are issued. The security is a general charge against the assets of the Company.

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 May 2007 convertible debenture upon issuance to be approximately $80,000 ($62,000 approx. net of costs) using a net present value calculation.  The fair value of the liability portion will be accreted to the convertible debentures face value of $100,000 through interest expense charges computed at 21% per annum through December 15, 2009. The balance of the convertible debenture, approximating $20,000 ($15,000 approx. net of costs), has been credited to equity and represents the values ascribed to the conversion feature of the debenture.  The related financing expenses have been attributed to the equity and debt components at the same ratio as the convertible debenture.  Financing expenses attributed to the debt component have been deducted from the initial carrying value of the debenture and will therefore be charged against income over the term of the debenture as additional interest expense. Financing costs attributed to 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 Canadian or U.S. GAAP purposes.

(c)

December 2007 debenture

During the month of December 2007, the Company completed a non-brokered private placement consisting of a secured convertible debenture of $500,000. The lender was Quorum Investment Pool (QIP).  The convertible debenture matures on December 13, 2012 and interest is payable on the outstanding principal amount at a rate of 8% per annum, payable quarterly beginning in March 2009 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 $0.10 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 at least 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. 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 $15,000 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.



10



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7.

Convertible Debentures (contd):

The Company has determined the fair value of the liability portion of the convertible debenture upon issuance to be approximately $340,000 using a net present value calculation.  The fair value of the liability portion will be accreted to the convertible debenture face value of $500,000 through interest expense charges computed at approximately 20% per annum through December 13, 2012. The balance of the convertible debenture, approximating $163,000 ($134,000 approx. net of costs) has been credited to equity and represents the value ascribed to the conversion feature of the debenture.  The related financing expenses have been attributed to the equity and debt components at the same ratio as the convertible debenture.  Financing expenses attributed to the debt component have been deducted from the initial carrying value of the debenture and will therefore be charged against income over the term of the debenture as additional interest expense. Financing costs attributed to the equity component have been treated as a capital transaction and applied against the equity component.

(d)

March 2008 debenture

During March 2008, the Company completed a non-brokered private placement consisting of a secured convertible debenture of $1,750,000. The lender was QIP.  The convertible debenture matures on March 2012 and interest is payable on the outstanding principal amount at a rate of 8% per annum, payable quarterly beginning in June 2009 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 $0.10 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 at least 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.  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 $52,500 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 $1,185,000 using a net present value calculation.  The fair value of the liability portion will be accreted to the convertible debenture face value of $1,750,000 through interest expense charges computed at approximately 20% per annum through March 14, 2012. The balance of the convertible debenture, approximately $520,000 ($488,000 approx. net of costs) has been credited to equity and represents the value ascribed to the conversion feature of the debenture.  The related financing expenses have been attributed to the equity and debt components at the same ratio as the convertible debenture.  Financing expenses attributed to the debt component have been deducted from the initial carrying value of the debenture and will therefore be charged against income over the term of the debenture as additional interest expense. Financing costs attributed to the equity component have been treated as a capital transaction and applied against the equity component.

At March 31, 2008, the Company was in violation of current ratio covenants in relation to this convertible debenture, however, the Company has obtained a waiver of these covenants from the lender. The covenants apply each quarterly period and are assessed at that time. Under Canadian and US GAAP, if the Company forecasts that it will be in violation of the covenants in future periods, then the Company will be required to reclassify the convertible debentures to current liabilities at that time regardless whether the lender provides a waiver.



11



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7.

Convertible Debentures (contd):

Debenture cash requirements:

The following table summarizes the long-term cash commitments relating to the convertible debentures. The difference between the value of $2,739,783 as per the balance sheet and the $4,824,000 value as per the table below is related to the accretion of the debt and periodic cash interest payments.

|      |   |          
|----- | - | ---------
|Year  |   |          
|2008  |   | 136,000  
|2009  |   | 2,003,000
|2010  |   | 180,000  
|2011  |   | 180,000  
|2012  |   | 2,325,000
|Total | $ | 4,824,000

8.

Share capital:

(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 common shares |   | Amount    
|                                              |                         |   |           
|Balance, March 31, 2008 and December 31  2007 | 44,781,445              | $ | 35,717,946

(c)

Warrants:

At March 31, 2008, and December 31, 2007, the following warrants were outstanding:



|                  |         |           |         |                |                |                  
|----------------- | ------- | --------- | ------- | -------------- | -------------- | -----------------
|December 31, 2007 | Granted | Exercised | Expired | March 31, 2008 | Exercise price | Expiry date      
|120,662           | -       | -         | -       | 120,662        | $0.50          | February 19, 2009



The 120,662 warrants issued on February 19, 2007 for the settlement of an account payable of $48,265, carry an exercise price of $0.50 for the first year and $0.75 in the second year. The warrants expire on February 19, 2009.

Performance warrants:



On July 12, 2006, the Company issued a convertible debenture for proceeds of $1,600,000 (Note 6). Under the terms of the debenture, 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. An amendment in May 2007 changed the warrant exercise price to $0.25. During the quarter ended March 31, 2008, the Company has recognized an obligation to issue warrants in the amount of $58,000 as an estimate of the fair value of the warrants which it now expects will be required to issue.  The related expense has been offset against the carrying value of the convertible debentures and will be amortized to interest expense over the remaining term to maturity.



12



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8.

Share capital (contd):

(d)

Options:



The Company has a stock option plan that was most recently amended at the Companys annual general meeting of shareholders on May 11, 2007.  Under the terms of the plan, the Company may reserve up to 8,956,289 common shares for issuance.   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.



A summary of the status of the Companys stock options at March 31, 2008 and December 31, 2007 and changes during the periods ended on those dates are presented below:





|                                 |                  |                   |                  |      |           |             |                |     
|-------------------------------- | ---------------- | ----------------- | ---------------- | ---- | --------- | ----------- | -------------- | ----
|                                 | March 31, 2008   | December 31, 2007
|                                 | Weighted Average |                   | Weighted Average
|                                 |                  |                   | Exercise Price   |      |           |             | Exercise Price
|Shares                           | Shares          
|Outstanding, beginning of period | 6,879,610        | $                 | 0.20             |      | 8,292,500 | $           | 0.32          
|                                 | Granted          | 1,787,500         |                  | 0.10 |           | 3,755,533   |                | 0.09
|                                 | Exercised        | -                 |                  | -    |           | (666,670)   |                | 0.10
|                                 | Cancelled        | (149,000)         |                  | 0.28 |           | (4,501,753) |                | 0.35
|Outstanding, end of period       | 8,816,110        | $                 | 0.17             |      | 6,879,610 | $           | 0.20          



The weighted average exercise price of employee stock options granted during the period ended March 31, 2008 was $0.10 (2007-$0.10) per share purchase option. The fair value of each stock option grant was estimated on the date of grant using the Black-Scholes option pricing model using the following average inputs:  volatility  135% (2007-59%); risk free interest rate - 5% (2007-5%); option term - 3 years (2007-3 years); and dividend yield  nil (2007-nil).  The total compensation expense of $69,521 has been allocated to the expense account associated with each individual employee expense and credited to contributed surplus.

(e)

Conversion rights



|                                 |   |         |        |        
|-------------------------------- | - | ------- | ------ | -------
|                                 |   |         | Amount
|Balance, December 31, 2007       |   |         | $      | 500,948
|                                 |   |         |        |        
|March 2008 convertible debenture |   | 453,882
|                                 |   |        
|Balance, March 31, 2008          | $ | 954,830



9.

Contributed surplus



|                               |   |           |        |          
|------------------------------ | - | --------- | ------ | ---------
|                               |   |           | Amount
|Balance, December 31, 2007     |   |           |        | 3,614,633
|                               |   |          
|Value of options expensed-2008 |   | 69,521   
|                               |   |           |        |          
|Balance, March 31, 2008        | $ | 3,684,154





13



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10.

Related-party transactions not disclosed elsewhere are as follows:



At March 31, 2008 accounts payable and accrued liabilities included $506,098 (at December 31, 2007 - $441,154) 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 recorded at the exchange amount which is the amount agreed to by the parties.

11.

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 and for the quarter ended March 31, 2008



|                               |   |                                     |   |                     |   |          
|------------------------------ | - | ----------------------------------- | - | ------------------- | - | ---------
|                               |   | Software Sales and Related Services |   | Consulting Services |   | Total    
|                               |   |                                     |   |                     |   |          
|Revenue                        | $ | 593,109                             | $ | 905,160             | $ | 1,498,269
|                               |   |                                     |   |                     |   |          
|Operating Expenses             |   | 819,050                             |   | 634,346             |   | 1,453,396
|Interest Expense               |   | 96,514                              |   | 53,207              |   | 149,721  
|Amortization of Capital Assets |   | 61,540                              |   | 48,496              |   | 110,036  
|Total Expenses                 |   | 977,104                             |   | 736,049             |   | 1,713,153
|                               |   |                                     |   |                     |   |          
|Net Profit (Loss)              | $ | (383,995)                           | $ | 169,111             | $ | (214,884)
|                               |   |                                     |   |                     |   |          
|Total Assets                   | $ | 959,408                             | $ | 2,939,491           | $ | 3,898,899
|Intangible Assets              |   |                                     |   |                     |   |          
|Goodwill                       | $ | -                                   | $ | 1,684,462           | $ | 1,684,462
|Other Intangible Assets        |   | 23,912                              |   | 139,225             |   | 163,137  
|Equipment, net                 |   | 143,729                             |   | 113,263             |   | 256,992  





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

For the quarters ended March 31,



|               |  |  |   |           |   |          
|-------------- |  |  | - | --------- | - | ---------
|               |  |  |   | 2008      |   | 2007     
|Canada         |  |  | $ | 1,021,908 | $ | 741,588  
|United States  |  |  |   | 476,361   |   | 529,916  
|United Kingdom |  |  |   | -         |   | 5,773    
|               |  |  |   |           |   |          
|Total          |  |  | $ | 1,498,269 | $ | 1,277,277



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



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

At March 31,



|           |  |  |   |         |   |        
|---------- |  |  | - | ------- | - | -------
|           |  |  |   | 2008    |   | 2007   
|Customer A |  |  | $ | 552,066 | $ | 407,352
|Customer B |  |  |   | 313,549 |   | -      
|           |  |  |   |         |   |        





14



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12.

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)

Stock-based compensation:



As described in note 7, 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 stock-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



·

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.



·

During the years ended December 31, 2001 and 2002, the Company repriced certain options which were accounted for under the intrinsic value method.  The repricing had the effect of increasing the intrinsic value of the options and resulted in the application of variable plan accounting.



·

An enterprise recognizes or, at its option, discloses, the impact on net loss of the fair value of stock options and other forms of stock-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 Account Standards (SFAS), Share-Based Payment (SFAS 123(R)), which requires the expensing of all options issued, modified or settled 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 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 equaled the market price of the underlying stock on the date of the grant.

a)

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.



15



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12.

United States generally accepted accounting principles (contd):



b)

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.

c)

Convertible debentures:



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 total value of the debenture was allocated between debt and equity using the residual method whereby the debt component was fair valued and the residual value was assigned 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.  The conversion feature of the debt did not meet the requirements for bifurcation.



The fair value of the warrants has been estimated to be $129,593 using the Black-Scholes option pricing model using the following average inputs:  volatility - 51%; risk free interest rate - 5% (2007-5%); option term  1 5/12 years; and dividend yield  nil (2007-nil).



The subsequent convertible debentures issued in December 2007 and March 2008 did not have any contingent warrants.



16



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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
March 31,
2008 |   | As at
December 31,
2007
|Contributed Surplus, Canadian GAAP                                  | $                                    | 3,684,154    | $    | 3,614,633           
|Cumulative stock-based compensation (a)                             |                                      |              |      | 1,380,198            |   | 1,380,198              
|Beneficial conversion options (b)                                   |                                      |              |      | 208,200              |   | 208,200                
|Warrants issued for services (c)                                    |                                      |              |      | 722,000              |   | 722,000                
|Contingent warrants (d)                                             |                                      |              |      | 129,593              |   | 129,593                
|Additional paid-in capital, U.S. GAAP                               |                                      |              | $    | 6,124,145            | $ | 6,054,624              
|                                                                    |                                      |              |      |                      |   |                        
|Equity Components of Convertible Debenture, Canadian GAAP           | $                                    | 954,830      | $    | 500,948             
|Equity components of convertible debenture (d)                      |                                      |              |      | (954,830)            |   | (500,948)              
|Equity Components of Convertible Debenture, U.S. GAAP               | $                                    | -            | $    | -                   
|                                                                    |                                      |              |      |                     
|Deferred financing charges, Canadian GAAP                           | $                                    | -            |      | -                   
|Valuation differences (d)                                           |                                      | 258,289      |      | 181,545             
|Accretion differences (d)                                           |                                      | (83,978)     |      | (54,849)            
|Deferred financing charges, U.S. GAAP                               |                                      | 174,311      |      | 126,696             
|                                                                    |                                      |              |      |                     
|Convertible debenture, Canadian GAAP                                | $                                    | 2,739,783    | $    | 1,640,382           
|Valuation differences (d)                                           |                                      |              |      | 1,096,900            |   | 552,813                
|Accretion differences (d)                                           |                                      |              |      | 35,584               |   | (78,582)               
|Convertible debenture, U.S. GAAP                                    |                                      |              | $    | 3,872,267            | $ | 2,114,613              
|                                                                    |                                      |              |      |                     
|Deficit, Canadian GAAP                                              | $                                    | (42,673,941) | $    | (42,459,057)        
|Cumulative stock based compensation (a)                             |                                      |              |      | (1,380,198)          |   | (1,380,198)            
|Beneficial conversion options (b)                                   |                                      |              |      | (208,200)            |   | (208,200)              
|Warrants issued for services (c)                                    |                                      |              |      | (722,000)            |   | (722,000)              
|Transition adjustment (note2a)                                      |                                      |              |      | 11,206               |   | 11,206                 
|Convertible debenture (d)                                           |                                      |              |      | (61,562)             |   | 23,733                 
|Deficit, U.S. GAAP                                                  |                                      |              | $    | (45,034,695)         | $ | (44,734,516)           
|                                                                    | For the three months ended March 31,
|                                                                    | 2008                                 |              | 2007
|Net Loss for the period, Canadian GAAP                              | $                                    | (214,884)    | $    | (679,270)           
|Accretion on convertible debenture Canadian GAAP (d)                |                                      | (46,161)     |      | 23,761              
|Deferred financing expenses deducted under Canadian GAAP (d)        |                                      | -            |      | 6,112               
|                                                                    |                                      |              |      |                      |  
|Accretion on convertible debenture U.S. GAAP (d)                    |                                      | (10,005)     |      | (8,919)             
|Deferred  financing expenses under U.S. GAAP (d)                    |                                      | (29,129)     |      | (8,498)             
|                                                                    |                                      |              |      |                      |  
|Net Loss for the period, U.S. GAAP                                  | $                                    | (300,178)    | $    | (666,813)           
|                                                                    |                                      |              |      |                     
|Net Loss per share, U.S. GAAP and Canadian GAAP  basic and diluted | $                                    | (0.01)       | $    | (0.02)              

13.

Subsequent event

On May 9th, 2008, the Company received shareholder approval for the release of the remaining $950,000 from escrow relating to the March 15, 2008 convertible debt financing.





17



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14.

Recent accounting pronouncements:

CICA Section 3862, Financial Instruments  Disclosure



Section 3862 replaces the disclosure requirements of previous Section 3861 Financial Instruments  Disclosure and Presentation and converges with International Financial Reporting Standards IFRS 7 Financial Instruments: Disclosures.  This Section applies to interim and annual financial statements relating to fiscal years beginning on or after October 1, 2007.  The Company has adopted this Section in fiscal 2008.



CICA Section 3863, Financial Instruments Presentation



Section 3863 is consistent with previous Section 3861 which was based on International Financial Reporting Standard IAS 32 Financial Instruments: Disclosure and Presentation..  This Section applies to interim and annual financial statements relating to fiscal years beginning on or after October 1, 2007.  The Company has adopted this Section is fiscal 2008.



CICA Section 1400, General Standards of Financial Statement Presentation



Handbook Section 1400, General Standards of Financial Statement Presentation, was amended to include the requirements for assessing and disclosing an entitys ability to continue as a going concern from International Financial Reporting Standard IAS 1 Presentation of Financial Statements.



This section is applicable to interim and annual financial statements relating to fiscal years beginning or after January 1, 2008, with earlier adoption encouraged.  The Company has adopted this section in fiscal 2008 but this will not have an impact on the financial statement disclosures as the Company is currently complying with this requirement.



CICA Section 1535, Capital Disclosures



Handbook Section 1535, Capital Disclosures, requires disclosure about capital and is harmonized with recently amended International Financial Reporting Standard IAS 1 Presentation of Financial Statements..  The standard is applicable to all entitles, regardless of whether they have financial instruments.



Entities are required to disclose information about their objectives, policies and processes for managing capital, as well as compliance with any externally imposed capital requirements, where they may exist.



This section is applicable to interim and annual financial statements relating to fiscal years beginning on or after October 1, 2007, with earlier adoption encouraged.  The Company has adopted this Section in fiscal 2008.



CICA Section 3064, Goodwill and Intangible Assets



Handbook Section 3064, Goodwill and Intangible Assets, replaces Handbook Section 3062, Goodwill and Other Intangible Assets.



This Section establishes standards for the recognition, measurement, presentation and disclosure of goodwill and intangible assets.  Certain items are specifically excluded from the scope of the Section including the initial recognition, measurement and disclosure of goodwill and intangible assets acquired in a business combination, the establishment of a new cost basis for intangible assets as part of a comprehensive revaluation, intangible assets held by an entity for sale in the ordinary course of business, non-current intangible assets classified as held for sale or included in a disposal group that is classified as held for sale, etc.



Rights under licensing agreements for items such as patents and copyrights are within the scope of this Section.  This Section also applies to, among other things, expenditure on advertising, training, start-up and research and development activities.  Research and development activities are directed to the development of knowledge.  Therefore, although these activities may result in an asset with physical substance, for example, a prototype, the physical element of the asset is secondary to its intangible component, (i.e., the knowledge embodied in it).



This Section applies to annual and interim financial statements relating to fiscal years beginning on or after October 1, 2008.  Although, earlier adoption is encouraged, the Company will adopt this Section in fiscal 2009.



The impact that this Section will have on the Companys financial position and results of operations is not known.





18



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15.

Capital Disclosure

The Companys objectives when managing capital are:

(a)

To safeguard the Companys ability to obtain financing should the need arise;

(b)

To provide an adequate return to its shareholders;

(c)

To maintain financial flexibility in order to enhance the access to capital in the event of future acquisitions.

The Company defines its capital as follows:

(a)

Shareholders equity;

(b)

Common shares;

(c)

Long-term debt including current portion;

(d)

Capital leases;

(e)

Deferred revenue including the current portion;

(f)

Cash and temporary investments.

The Companys financial strategy is designed and formulated to maintain a flexible capital structure consistent with the objectives stated above and to respond to changes in economic conditions and the risk characteristics of the underlying assets. The Company has limited its investments to short and mid-term assets to ensure their liquidity matches its operational requirements.

The Company monitors its capital on the basis of its net debt to adjusted capital ratio.  The ratios at March 31, 2008 and December 31, 2007 were: 1.58 and 1.95 respectively.

The decrease in the net debt to adjusted capital ratio is the result of the additional debt financing received during  the quarter.  The change in the ratio is not considered significant by Management.



19



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Item 2.  Managements Discussion and Analysis of Financial Condition and Results of Operations

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 provides 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 as well as from the support, training, and ongoing maintenance that results from each software sale and from consulting services revenues. 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 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 contracts 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.



20



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Recent world events and concerns regarding security in the last few years have increased awareness of and interest in products that have law enforcement or other security applications, including the products and services offered by Visiphor.  There can be no assurance, however, that such trends will continue or will result in increased sales of the Companys products and services.

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 completed are to the 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 to date have been nominal, on recognition of revenue.

(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. $23,912 has 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

Capitalized Development Costs

2 years





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; 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 9 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 paying with or using 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-month period ended March 31, 2008 compared to March 31, 2007:

Management believes that presenting results of operations that exclude certain non-cash expenses and certain one-time unusual expenses in addition to results of operations that include these expenses can be helpful to investors in understanding the Company's results of operations. By excluding such items, the Company believes investors are provided with an alternative period-to-period comparison and information regarding cash expenditures in each expense category.  Non-cash expenses that are excluded in various places below include amortization of certain intangible assets that the Company acquired as a result of its acquisition of Sunaptic as well as share-based compensation that does not require cash payments.





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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, generally accepted accounting principles. The Company presents income excluding non-cash items 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, a non-GAAP financial measure, to cash flow used for operations, the most directly comparable financial measure calculated and reported in accordance with GAAP.





| |                                                |                                          |           |           |           |           | 
| | ---------------------------------------------- | ---------------------------------------- | --------- | --------- | --------- | --------- | 
| |                                                | Three months ended
March 31,            
| |                                                |                                          | 2008      |           | 2007     
| |                                                |                                          |           |           |          
| | Loss for the period                            | $                                        | (214,884) | $         | (679,269)
| | Items not involving cash:                      |                                          |           |           |          
| |                                                | Amortization                             |           | 110,036   |           | 121,515  
| |                                                | Stock-based compensation                 |           | 69,521    |           | 78,755   
| | Accretion of convertible debentures            | 78,027                                   |           | 23,761   
| | Deferred financing costs expensed              | -                                        |           | 6,112    
| | Foreign exchange adjustment on loans payable   | 14,080                                   |           | (4,320)  
| | Changes in non-cash operating working capital: |                                          |           |          
| |                                                | Accounts receivable                      |           | (172,097) |           | 246,891  
| |                                                | Accrued revenue receivable               |           | (70,414)  |           | 67,803   
| |                                                | Prepaid expenses and deposit             |           | 798       |           | 38,849   
| |                                                | Accounts payable and accrued liabilities |           | (267,147) |           | 75,054   
| |                                                | Deferred revenue                         |           | (26,638)  |           | 202,776  
| | Cash flow used for operations                  |                                          | (478,718) |           | 177,947  
| | Excluded from non-GAAP measure                 |                                          |           |           |          
| | Changes in non-cash operating working capital: |                                          |           |          
| |                                                | Accounts receivable                      |           | 172,097   |           | (246,891)
| |                                                | Accrued revenue receivable               |           | 70,414    |           | (67,803) 
| |                                                | Prepaid expenses and deposit             |           | (798)     |           | (38,849) 
| |                                                | Accounts payable and accrued liabilities |           | 267,147   |           | (75,054) 
| |                                                | Deferred revenue                         |           | 26,638    |           | (202,776)
| | Non-GAAP operating cash flow                   | $                                        | 56,780    | $         | (453,426)



Based on the non-GAAP financial measure, the Companys revenues generated $56,780 more cash than its expenses required for the quarter ended March 31, 2008, which is $510,206, or 113%, more than for the quarter ended March 31, 2007.

Revenues

Visiphors total revenues for the three-month period ended March 31, 2008 were $1,498,269, which is 17% higher than the amount of $1,277,277 from the same period in 2007. This increase was primarily due to revenue earned from the successful completion of a new contract signed in December 2007.



Revenues from the Companys software licensing and related services for the current three-month period were $458,102 as compared to $376,587 for the same period in 2007, constituting a 22% increase. The increased software licensing and related services revenues were primarily due to the Companys increased focus on product sales. In late 2007, the Company concentrated marketing activities on product related work, primarily the Companys facial recognition and data integration software. These activities involved telephone sales campaigns, attending tradeshows and reaching out to existing channel partners. This resulted in sales in late December 2007 and January 2008 which added to the increase in product revenue this quarter. The Company will continue with these activities in order to increase revenue involving product as it has a higher margin.



Professional services revenues for the three-month period ended March 31, 2008 were $905,160 as compared to $754,869 in 2007, an increase of 20%. The Company has been successful in receiving new contracts and change requests from existing clients to provide additional business integration services. As awareness of the Companys expertise in this area grows, the Company continues to secure new customers and new business relationships.





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Support revenue for the three-month period ended March 31, 2008 decreased by $9,620 since a year ago, a marginal decrease of 7%; the March 31, 2008 amount was $134,331 compared to $143,951 from the same period last year. The revenue from support changed nominally and the decrease is attributable to the weakening of the U.S. dollar against the Canadian dollar as many of the Companys support clients are US based and pay the Company in U.S. dollars.



Other revenues for the three-month period ended March 31, 2008 were $676, whereas other revenues earned in the same period last year amounted to $1,870.

Total Expenses

Total expenses for the three-month period ended March 31, 2008 amounted to $1,713,153 a 12% reduction as compared to total expenses of $1,956,546 for the same period last year. As noted previously on the Companys Form 10-KSB for the fiscal year ended December 31, 2007, the Company has made several positive changes in 2007 that has enabled the Company to achieve significant reduction in expenses. The Company reduced payroll costs significantly by rearranging the management structure, the methods of delivering projects was improved and marketing costs were reduced.

Administration

Administrative costs for the three-month period ended March 31, 2008 were $301,595 which is a reduction of 3% compared with administrative costs of $311,253 in the same period in 2007.  Administrative costs remained similar compared to the same quarter in 2007. The Company believes that they have reduced administrative costs to the maximum possible without negatively affected the Companys performance. Salary reductions achieved in early 2007 have remained in place and the Company does not expect increases in this area in the near future.

Cost of Materials

There was no cost of materials for the three-month period ended March 31, 2008. Cost of materials for the same period last year was $22,569. Generally, the Company produces its products along with products from business partners. During the quarter ended March 31, 2008, there were no third party products sold to our clients and therefore, no costs of materials.

Interest and Amortization

The interest expense for the three-month period ended March 31, 2008 is $149,721, which is 33% higher than the March 3, 2007 amount of $112,196.  The increase is due to the additional interest expenses that is being expensed in relation to the convertible debenture issued in December 2007 and March 2008.



Amortization expense for the three-month period ended March 31, 2008 was $110,036 as compared to $121,515 in 2007, a decrease of $11,479 or 9%. The decrease is due to the majority of the Companys intangible assets having been fully amortized.

Sales and Marketing

Sales and marketing expenses for the three-month period ended March 31, 2008 were $253,255, a slight decrease of 2% compared to $259,035 from same period last year. Although there was a nominal change this quarter compared to the same quarter in 2007, the Company expects increases throughout the year in sales and marketing activities as new product development may lead to future sales. Marketing costs will be expected to rise slowly throughout the year as the Company attends tradeshows buys advertising space in law enforcement magazines and web sites and produces new marketing materials to promote our new products. The Company plans to also increase the size of the sales organization throughout the year as more products become available for sale.

Professional Services

Costs for the professional services group for the three-month period ended March 31, 2008 were $586,558, a reduction of 5% from $615,126 from the same period last year.  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. 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 the sales increase there will be a rise in the cost to maintain and expand this group. There is a relationship between sales volume and the cost required to deliver on those sales.

Technology Development

The technology development expenses for the three-month period ended March 31, 2008 were $301,238, a 41% reduction from the same period amount of $508,740 from 2007. The reduction is primarily related to the smaller number of development staff in the first quarter of 2008 as compared to the first quarter of 2007. With the financing received in March the Company can invest in technology advancements as it is crucial to the future success of Visiphor, and expects that costs will increase in future periods as new products are developed.





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Net Loss for the Period

Visiphor was able to substantially reduce its net loss by 68% in the current quarter as compared to the same period in 2007. The net loss for the three-month ended March 31, 2008 was $214,884 a substantial reduction of $464,385compared to the net loss of $679,269 from the same period in 2007.



Summary of Quarterly Results



|                           |   |           |           |           |           |           |             |             |            
|-------------------------- | - | --------- | --------- | --------- | --------- | --------- | ----------- | ----------- | -----------
|                           |   | Q1-2008   | Q4-2007   | Q3-2007   | Q2-2007   | Q1-2007   | Q4-2006     | Q3-2006     | Q2-2006    
|                           |   |           |           |           |           |           |             |             |            
|Total Revenue              | $ | 1,498,269 | 1,040,572 | 1,121,492 | 863,755   | 1,277,277 | 1,458,707   | 1,120,766   | 1,488,828  
|Net Loss                   |   | (214,884) | (480,982) | (412,211) | (917,742) | (679,569) | (1,221,734) | (1,904,856) | (2,024,680)
|Net loss per share         |   | (0.00)    | (0.01)    | (0.01)    | (0.02)    | (0.02)    | (0.03)      | (0.04)      | (0.05)     
|Net loss as a %
of revenue |   | (14%)     | (47%)     | (37%)     | (106%)    | (53%)     | (84%)       | (170%)      | (136%)     



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 March 31, 2008 was $128,423. The impact on cash of the loss of $214,884, 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 $478,718. The Company received financing of $1,750,000 during the quarter of which the Company plans to use for the development of new and exciting law enforcement and healthcare related products. During the quarter the Company also repaid capital leases of $26,548. These leases consist primarily of servers and computers. The Company also prepaid interest of $140,000 to the lenders of the convertible debt that was issued during the quarter. Further interest on this particular convertible debt will not be payable until March 2009 and will be payable at 8%. The Company also repaid a $25,000 loan that was borrowed in 2007 from an insider. Overall, the Companys cash position increased by $977,256 to $1,105,679 at March 31, 2008. The Company plans to spend cash on the development of products and therefore predicts the cash balance to decline in future periods.

Off-Balance Sheet Arrangements

At March 31, 2008, the Company did not have any off-balance sheet arrangements.



Item 3.  Quantitative and Qualitative Disclosures About Market Risk



Not applicable



Item 4.  Controls and Procedures



Evaluation of Disclosure Controls and Procedures



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 not 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 accumulated and communicated to the Companys management, including the Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.





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Internal Control Over Financial Reporting



Internal control over financial reporting is a process designed by, or under the supervision of, an issuers principal executive and principal financial officer 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.



The Companys management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) and 15d-15(f) of the Exchange Act. Internal control over financial reporting includes those policies and procedures that:



·

Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the Companys assets;

·

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that the Companys receipts and expenditures are being made only in accordance with authorizations of its management and directors; and

·

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Companys assets that could have a material effect on the financial statements.



Under the supervision and with the participation of the Companys Chief Executive Officer and Chief Financial Officer, management conducted an evaluation of the effectiveness of the Companys internal control over financial reporting for the fiscal year ended December 31, 2007 based on criteria established in theInternal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Management's evaluation included such elements as the design and operating effectiveness of key financial reporting controls, process documentation, accounting policies, and the Companys overall control environment. Based on this evaluation, management concluded that the Companys internal control over financial reporting was not effective as of December 31, 2007. In 2006 and 2007, with internal staff and independent internal control consultants, the Company developed an assessment of then current controls, reviewed existing deficiencies and developed a plan to address all known deficiencies, including issues relating to segregation of duties. As at December 31, 2006, the Company had created a design for internal control over financial reporting. However, at December 31, 2007 the Company was not able to certify the operational effectiveness of internal control over financial reporting. For the Company to certify the operating effectiveness of its internal control, more internal audit and various other procedures needed to be conducted. Due to the financial and staffing constraints throughout 2007, the Company was not able to complete such audits and procedures.



As of March 31, 2008, management continues to believe the Company has an effective design for internal controls over financial reporting however, is not able to certify the operational effectiveness of those designs. Further, management also believes that certain material weaknesses in the Companys internal control over financial reporting continue to exist that the Company will work to correct during the remainder of 2008. The following is a summary of known material weaknesses:



Segregation of Duties



During 2007, the management of the Company believed there were deficiencies in internal control due to the lack of segregation and incompatibility of duties which could result in inaccurate financial reporting. Management continued to address some of these issues during 2007 by using other resources to try to segregate some duties and by strengthening existing controls and procedures. These remediation efforts were hindered by staff turnover during 2007. The Company has a small finance group which has made total segregation of all duties challenging. There are compensating controls which 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 further addressing these issues in 2008 by segregating some duties to different employees and possibly hiring additional staff.



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 Company found 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 to minimize the risk of material misstatements are employed by the Company. However, these compensating controls do not fully mitigate this material weakness.  The Company also uses a spreadsheet to track Company-issued stock options. As the reporting and tracking of these options are a complex process, the use of spreadsheets involves risks, including secure access rights, formula errors, incorrect entries due to complexity, incorrect reporting and other spreadsheet related issues. The Company plans to continue further addressing both of these issues in 2008 by evaluating and/or purchasing different software.





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Other than the foregoing, during the quarter ended March 31, 2008, 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 Commissions rules and forms and 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 the date of this report, 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 1A.  Risk Factors



The Company supplements or amends, as applicable, the risk factors contained in exhibit 99.1 to its Annual Report on Form 10-K for the fiscal year ended December 31, 2007 as follows:

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 $2,490,207 and $6,678,371 in the years ended December 31, 2007 and December 31, 2006, respectively and net losses of $214,884 and $679,269 in the periods ended March 31, 2008 and March 31, 2007 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, 2007 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 September 2007. 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 2006 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.





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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 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, 2007, 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.





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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 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.





30



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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 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 March 31, 2008. 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.





31



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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 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 March 31, 2008 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 March 31, 2008.  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.



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



On January 18, 2008, the Company granted 1,100,000 options to its officers and directors at an exercise price of $0.10, which expire on January 18, 2011.  One-third of the options vested immediately, one-third will vest one year from the date of grant and the final third will vest two years from the dated of grant.



800,000 options were granted to individuals located outside the United States in reliance upon the exclusion from registration provided by Regulation S promulgated under the Securities Act.  The other 300,000 options were granted to individuals in reliance upon the exception from registration provided by Section 4(2) of the Securities Act.



Item 3.  Defaults Upon Senior Securities



None

Item 4.

Submission of Matters to a Vote of Security Holders

None



Item 5. Other Information



None



32



---

Item 6.  Exhibits



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



| |         |                                                                                                                                                               
| | ------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 3.1(1)  | Articles of Continuance                                                                                                                                       
| | 3.2(1)  | Bylaw No.1                                                                                                                                                    
| | 10.1(2) | Convertible Secured Debenture of the Company in favor of Quorum Investment Pool Limited Partnership, in the Principal Sum of Cdn$1,750,000, due March 11, 2012
| | 31.1    | Section 302 Certification                                                                                                                                     
| | 31.2    | Section 302 Certification                                                                                                                                     
| | 32.1    | Section 906 Certification                                                                                                                                     
| | 32.2    | Section 906 Certification                                                                                                                                     
| | 99.1    | 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 filed March 19, 2008.



33



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SIGNATURES



Pursuant to the requirements of the Securities Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



VISIPHOR CORPORATION







Date: May 9, 2008

/s/ Sunil Amin

Sunil Amin

Chief Financial Officer

(Principal Financial and Accounting Officer and Duly Authorized Officer)







34



---



Exhibit 31.1

CERTIFICATION

I, Sunil Amin, certify that:



1.

I have reviewed this quarterly report on Form 10-Q 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 registrant as of, and for, the periods presented in this report;



4.

The registrant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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant 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 registrant, 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)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;



(c)

Evaluated the effectiveness of the registrant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



(d)

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



5.

The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrant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 registrant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 registrants internal control over financial reporting.



Date: May 9, 2008

/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-Q 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 registrant as of, and for, the periods presented in this report;



4.

The registrant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)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant 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 registrant, 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)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;



(c)

Evaluated the effectiveness of the registrant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



(d)

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



5.

The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrant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 registrant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 registrants internal control over financial reporting.



Date: May 9, 2008

/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-Q for the period ended March 31, 2008 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)
May 9, 2008





---

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-Q for the period ended March 31, 2008 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)
May 9, 2008





---

Exhibit 99.1



BC FORM 51-102F1





QUARTERLY REPORT







ISSUER DETAILS:



|                         |                                                       
|------------------------ | ------------------------------------------------------
|Name of Issuer           | VISIPHOR CORPORATION                                  
|For Quarter Ended        | March 31, 2008                                        
|Date of Report           | May 9, 2008                                           
|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) | 08/05/09
Date Signed (YY/MM/DD)
|                                  |                                  |                                
|Roy Trivett
Name of Director      | /s/ Roy Trivett
Sign (typed)     | 08/05/09
Date Signed (YY/MM/DD)









---

Supplementary Information to the Financial Statements



Managements Discussion and Analysis

As at May 9, 2008



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 ability to gain more professional services customers; the Companys expectation that it will increase its sales organization throughout 2008; the entry into new contracts in the near future; and the Companys ability to continue to reduce future operating and the Companys expectation that it will increase technology development spending.



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; 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 Part II, Item 1 A of 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.







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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 provides 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 as well as from the support, training, and ongoing maintenance that results from each software sale and from consulting services revenues. 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 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 contracts 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.







---

Recent world events and concerns regarding security in the last few years have increased awareness of and interest in products that have law enforcement or other security applications, including the products and services offered by Visiphor.  There can be no assurance, however, that such trends will continue or will result in increased sales of the Companys products and services.

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 completed are to the 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 to date have been nominal, on recognition of revenue.

(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 asset are capitalized as betterment when the above criteria are met. $23,912 has 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

Capitalized Development Costs

2 years





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; 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 9 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 paying with or using 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-month period ended March 31, 2008 compared to March 31, 2007:

Management believes that presenting results of operations that exclude certain non-cash expenses and certain one-time unusual expenses in addition to results of operations that include these expenses can be helpful to investors in understanding the Company's results of operations. By excluding such items, the Company believes investors are provided with an alternative period-to-period comparison and information regarding cash expenditures in each expense category.  Non-cash expenses that are excluded in various places below include amortization of certain intangible assets that the Company acquired as a result of its acquisition of Sunaptic as well as share-based compensation that does not require cash payments.

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, generally accepted accounting principles. The Company presents income excluding non-cash items 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, a non-GAAP financial measure, to cash flow used for operations, the most directly comparable financial measure calculated and reported in accordance with GAAP.



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| |                                                |                                          |           |           |           |           | 
| | ---------------------------------------------- | ---------------------------------------- | --------- | --------- | --------- | --------- | 
| |                                                | Three months ended
March 31,            
| |                                                |                                          | 2008      |           | 2007     
| |                                                |                                          |           |           |          
| | Loss for the period                            | $                                        | (214,884) | $         | (679,269)
| | Items not involving cash:                      |                                          |           |           |          
| |                                                | Amortization                             |           | 110,036   |           | 121,515  
| |                                                | Stock-based compensation                 |           | 69,521    |           | 78,755   
| | Accretion of convertible debentures            | 78,027                                   |           | 23,761   
| | Deferred financing costs expensed              | -                                        |           | 6,112    
| | Foreign exchange adjustment on loans payable   | 14,080                                   |           | (4,320)  
| | Changes in non-cash operating working capital: |                                          |           |          
| |                                                | Accounts receivable                      |           | (172,097) |           | 246,891  
| |                                                | Accrued revenue receivable               |           | (70,414)  |           | 67,803   
| |                                                | Prepaid expenses and deposit             |           | 798       |           | 38,849   
| |                                                | Accounts payable and accrued liabilities |           | (267,147) |           | 75,054   
| |                                                | Deferred revenue                         |           | (26,638)  |           | 202,776  
| | Cash flow used for operations                  |                                          | (478,718) |           | 177,947  
| | Excluded from non-GAAP measure                 |                                          |           |           |          
| | Changes in non-cash operating working capital: |                                          |           |          
| |                                                | Accounts receivable                      |           | 172,097   |           | (246,891)
| |                                                | Accrued revenue receivable               |           | 70,414    |           | (67,803) 
| |                                                | Prepaid expenses and deposit             |           | (798)     |           | (38,849) 
| |                                                | Accounts payable and accrued liabilities |           | 267,147   |           | (75,054) 
| |                                                | Deferred revenue                         |           | 26,638    |           | (202,776)
| | Non-GAAP operating cash flow                   | $                                        | 56,780    | $         | (453,426)



Based on the non-GAAP financial measure, the Companys revenues generated $56,780 more cash than its expenses required for the quarter ended March 31, 2008, which is $510,206, or 113%, more than for the quarter ended March 31, 2007.

Revenues

Visiphors total revenues for the three-month period ended March 31, 2008 were $1,498,269, which is 17% higher than the amount of $1,277,277 from the same period in 2007. This increase was primarily due to revenue earned from the successful completion of a new contract signed in December 2007.



Revenues from the Companys software licensing and related services for the current three-month period were $458,102 as compared to $376,587 for the same period in 2007, constituting a 22% increase. The increased software licensing and related services revenues were primarily due to the Companys increased focus on product sales. In late 2007, the Company concentrated marketing activities on product related work, primarily the Companys facial recognition and data integration software. These activities involved telephone sales campaigns, attending tradeshows and reaching out to existing channel partners. This resulted in sales in late December 2007 and January 2008 which added to the increase in product revenue this quarter. The Company will continue with these activities in order to increase revenue involving product as it has a higher margin.



Professional services revenues for the three-month period ended March 31, 2008 were $905,160 as compared to $754,869 in 2007, an increase of 20%. The Company has been successful in receiving new contracts and change requests from existing clients to provide additional business integration services. As awareness of the Companys expertise in this area grows, the Company continues to secure new customers and new business relationships.



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Support revenue for the three-month period ended March 31, 2008 decreased by $9,620 since a year ago, a marginal decrease of 7%; the March 31, 2008 amount was $134,331 compared to $143,951 from the same period last year. The revenue from support changed nominally and the decrease is attributable to the weakening of the U.S. dollar against the Canadian dollar as many of the Companys support clients are US based and pay the Company in U.S. dollars.



Other revenues for the three-month period ended March 31, 2008 were $676, whereas other revenues earned in the same period last year amounted to $1,870.

Total Expenses

Total expenses for the three-month period ended March 31, 2008 amounted to $1,713,153 a 12% reduction as compared to total expenses of $1,956,546 for the same period last year. As noted previously on the Companys Form 10-KSB for the fiscal year ended December 31, 2007, the Company has made several positive changes in 2007 that has enabled the Company to achieve significant reduction in expenses. The Company reduced payroll costs significantly by rearranging the management structure, the methods of delivering projects was improved and marketing costs were reduced.

Administration

Administrative costs for the three-month period ended March 31, 2008 were $301,595 which is a reduction of 3% compared with administrative costs of $311,253 in the same period in 2007.  Administrative costs remained similar compared to the same quarter in 2007. The Company believes that they have reduced administrative costs to the maximum possible without negatively affected the Companys performance. Salary reductions achieved in early 2007 have remained in place and the Company does not expect increases in this area in the near future.

Cost of Materials

There was no cost of materials for the three-month period ended March 31, 2008. Cost of materials for the same period last year was $22,569. Generally, the Company produces its products along with products from business partners. During the quarter ended March 31, 2008, there were no third party products sold to our clients and therefore, no costs of materials.

Interest and Amortization

The interest expense for the three-month period ended March 31, 2008 is $149,721, which is 33% higher than the March 3, 2007 amount of $112,196.  The increase is due to the additional interest expenses that is being expensed in relation to the convertible debenture issued in December 2007 and March 2008.

Amortization expense for the three-month period ended March 31, 2008 was $110,036 as compared to $121,515 in 2007, a decrease of $11,479 or 9%. The decrease is due to the majority of the Companys intangible assets having been fully amortized.

Sales and Marketing

Sales and marketing expenses for the three-month period ended March 31, 2008 were $253,255, a slight decrease of 2% compared to $259,035 from same period last year. Although there was a nominal change this quarter compared to the same quarter in 2007, the Company expects increases throughout the year in sales and marketing activities as new product development may lead to future sales. Marketing costs will be expected to rise slowly throughout the year as the Company attends tradeshows buys advertising space in law enforcement magazines and web sites and produces new marketing materials to promote our new products. The Company plans to also increase the size of the sales organization throughout the year as more products become available for sale.

Professional Services

Costs for the professional services group for the three-month period ended March 31, 2008 were $586,558, a reduction of 5% from $615,126 from the same period last year.  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. 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 the sales increase there will be a rise in the cost to maintain and expand this group. There is a relationship between sales volume and the cost required to deliver on those sales.



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Technology Development

The technology development expenses for the three-month period ended March 31, 2008 were $301,238, a 41% reduction from the same period amount of $508,740 from 2007. The reduction is primarily related to the smaller number of development staff in the first quarter of 2008 as compared to the first quarter of 2007. With the financing received in March the Company can invest in technology advancements as it is crucial to the future success of Visiphor, and expects that costs will increase in future periods as new products are developed.

Net Loss for the Period

Visiphor was able to substantially reduce its net loss by 68% in the current quarter as compared to the same period in 2007. The net loss for the three-month ended March 31, 2008 was $214,884 a substantial reduction of $464,385compared to the net loss of $679,269 from the same period in 2007.



Summary of Quarterly Results



|                           |   |           |           |           |           |           |             |             |            
|-------------------------- | - | --------- | --------- | --------- | --------- | --------- | ----------- | ----------- | -----------
|                           |   | Q1-2008   | Q4-2007   | Q3-2007   | Q2-2007   | Q1-2007   | Q4-2006     | Q3-2006     | Q2-2006    
|                           |   |           |           |           |           |           |             |             |            
|Total Revenue              | $ | 1,498,269 | 1,040,572 | 1,121,492 | 863,755   | 1,277,277 | 1,458,707   | 1,120,766   | 1,488,828  
|Net Loss                   |   | (214,884) | (480,982) | (412,211) | (917,742) | (679,569) | (1,221,734) | (1,904,856) | (2,024,680)
|Net loss per share         |   | (0.00)    | (0.01)    | (0.01)    | (0.02)    | (0.02)    | (0.03)      | (0.04)      | (0.05)     
|Net loss as a %
of revenue |   | (14%)     | (47%)     | (37%)     | (106%)    | (53%)     | (84%)       | (170%)      | (136%)     



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 March 31, 2008 was $128,423. The impact on cash of the loss of $214,884, 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 $478,718. The Company received financing of $1,750,000 during the quarter of which the Company plans to use for the development of new and exciting law enforcement and healthcare related products. During the quarter the Company also repaid capital leases of $26,548. These leases consist primarily of servers and computers. The Company also prepaid interest of $140,000 to the lenders of the convertible debt that was issued during the quarter. Further interest on this particular convertible debt will not be payable until March 2009 and will be payable at 8%. The Company also repaid a $25,000 loan that was borrowed in 2007 from an insider. Overall, the Companys cash position increased by $977,256 to $1,105,679 at March 31, 2008. The Company plans to spend cash on the development of products and therefore predicts the cash balance to decline in future periods.

Off-Balance Sheet Arrangements

At March 31, 2008, the Company did not have any off-balance sheet arrangements.









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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 May 9, 2008

(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

(d)

Issued



|                                                             |                         |   |                   
|------------------------------------------------------------ | ----------------------- | - | ------------------
|                                                             | Number of common shares |   | Amount            
|Balance, December 31,  2007

Issuance on exercise of options | 44,781,445

666,664     | $ | 35,717,946

66,666
|                                                             |                         |   |                   
|Balance, May 9, 2008                                         | 45,448,109              | $ | 35,784,612        

(e)

Warrants:

At May 9, 2008, and December 31, 2007, the following warrants were outstanding:



|                  |         |           |         |             |                |                  
|----------------- | ------- | --------- | ------- | ----------- | -------------- | -----------------
|December 31, 2007 | Granted | Exercised | Expired | May 9, 2008 | Exercise price | Expiry date      
|120,662           | -       | -         | -       | 120,662     | $0.50          | February 19, 2009



The 120,662 warrants issued on February 19, 2007 for the settlement of an account payable of $48,265, carry an exercise price of $0.50 for the first year and $0.75 in the second year. The warrants expire on February 19, 2009.

Performance warrants:



On July 12, 2006, the Company issued a convertible debenture for proceeds of $1,600,000 (Note 6). Under the terms of the debenture, 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. An amendment in May 2007 changed the warrant exercise price to $0.25. During the quarter ended March 31, 2008, the Company has recognized an obligation to issue warrants in the amount of $58,000 as an estimate of the fair value of the warrants which it now expects will be required to issue.  The related expense has been offset against the carrying value of the convertible debentures and will be amortized to interest expense over the remaining term to maturity.

(d)

Options:



The Company has a stock option plan that was most recently amended at the Companys annual general meeting of shareholders on May 11, 2007.  Under the terms of the plan, the Company may reserve up to 8,956,289 common shares for issuance.   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.



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A summary of the status of the Companys stock options at May 9, 2008 and December 31, 2007 and changes during the periods ended on those dates are presented below:





|                                 |                  |                   |                  |      |           |             |                |      | 
|-------------------------------- | ---------------- | ----------------- | ---------------- | ---- | --------- | ----------- | -------------- | ---- | 
|                                 | May 9, 2008      | December 31, 2007
|                                 | Weighted Average |                   | Weighted Average
|                                 |                  |                   | Exercise Price   |      |           |             | Exercise Price
|Shares                           | Shares          
|Outstanding, beginning of period | 6,879,610        | $                 | 0.20             |      | 8,292,500 | $           | 0.32          
|                                 | Granted          | 1,852,500         |                  | 0.10 |           | 3,755,533   |                | 0.09
|                                 | Exercised        | (666,664)         |                  | 0.10 |           | (666,670)   |                | 0.10
|                                 | Cancelled        | (149,000)         |                  | 0.28 |           | (4,501,753) |                | 0.35
|Outstanding, end of period       | 8,214,446        | $                 | 0.17             |      | 6,879,610 | $           | 0.20          



The weighted average exercise price of employee stock options granted during the period ended May 9, 2008 was $0.10 (2007-$0.10) per share purchase option. The fair value of each stock option grant was estimated on the date of grant using the Black-Scholes option pricing model using the following average inputs:  volatility  135% (2007-59%); risk free interest rate - 5% (2007-5%); option term - 3 years (2007-3 years); and dividend yield  nil (2007-nil).  The total compensation expense of $84,338 has been allocated to the expense account associated with each individual employee expense and credited to contributed surplus.

(e)

Conversion rights



|                                 |   |         |        |        
|-------------------------------- | - | ------- | ------ | -------
|                                 |   |         | Amount
|Balance, December 31, 2007       |   |         | $      | 500,948
|                                 |   |         |        |        
|March 2008 convertible debenture |   | 453,882
|                                 |   |        
|Balance, May 9, 2008             | $ | 954,830



Contributed surplus



|                               |   |           |        |          
|------------------------------ | - | --------- | ------ | ---------
|                               |   |           | Amount
|Balance, December 31, 2007     |   |           |        | 3,614,633
|                               |   |          
|Value of options expensed-2008 |   | 84,338   
|                               |   |           |        |          
|Balance, May 9, 2008           | $ | 3,698,971