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

FORM 10-QSB

[ x ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2006

[           ] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT

For the transition period from __________________ to __________________

Commission File Number: 000-49746

VISCOUNT SYSTEMS, INC.
(Name of Small Business Issuer in its charter)

4585 Tillicum Street, Burnaby, British Columbia, Canada V5J 5K9
(Address of principal executive offices)

(604) 327-9446
Issuer’s telephone number

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

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

Check whether the registrant is a shell company, as defined in Rule 12b-2 of the Exchange Act.
Yes [           ] No [ x ]

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest
practicable date: As of August 9, 2006 the registrant’s outstanding common stock consisted of 16,082,450
shares.

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

PART I.      FINANCIAL INFORMATION

Safe Harbor Statement

Certain statements in this filing that relate to financial results, projections, future plans, events, or performance are forward-looking statements and involve significant risks and uncertainties, including, but not limited to, the following: competition, promotional costs, and risk of declining revenues. Terms such as “we believe”, “we expect” or “we project”, and similar terms, are examples of forward looking statements that we may use in this report. Such statements also relate to the sales trends of our Enterphone 2000, Enterphone 3000 and MESH product lines, general revenues, income, the number of new construction projects or building upgrades that may generate sales of our product, and in general the market for our products. Any projections herein are based solely on management’s views, and were not prepared in accordance with any accounting guidelines applicable to projections. Accordingly, these forward looking statements are intended to provide the reader with insight into managements proposals, expectations, strategies and general outlook for our business and products, but because of the risks associated with those statements, including those described herein and in our annual report, readers should not rely upon those statements in making an investment decision. The Company's actual results could differ materially from those anticipated in such forward-looking statements as a result of a number of factors. These forward-looking statements are made as of the date of this filing, and the Company assumes no obligation to update such forward-looking statements.

The following discusses our financial condition and results of operations based upon our consolidated financial statements which have been prepared in conformity with accounting principles generally accepted in the United States of America. It should be read in conjunction with our financial statements and the notes thereto included elsewhere herein. Unless otherwise noted as USD or U.S. dollars, all dollar references herein are in Canadian dollars. As at June 30, 2006, the foreign exchange rate certified by the Federal Reserve Bank of New York was CAD$1.0000 for USD$0.8959.

Item 1.      Financial Statements

VISCOUNT SYSTEMS, INC.

CONSOLIDATED FINANCIAL STATEMENTS
(Expressed in Canadian Dollars)

JUNE 30, 2006

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

See accompanying notes to interim condensed consolidated financial statements.

VISCOUNT SYSTEMS, INC.
Interim Condensed Consolidated Statements of Operations
(Unaudited)
(Expressed in Canadian dollars)

See accompanying notes to interim condensed consolidated financial statements.

Net Income (loss) per share

The weighted average number of common shares outstanding for computing basic and diluted and net loss per common share for the three and six months ended June 30, 2006 were 16,080,644 and 16,078,516, respectively. The weighted average number of commons shares outstanding for computing basic net income per common share for the three and six months ended June 30, 2005 were 16,001,019 and 15,979,002, respectively. The weighted average number of commons shares outstanding for computing diluted net income per common share for the three and six months ended June 30, 2005 were 18,173,618 and 18,151,601.

For the three and six months ended June 30, 2005, no shares attributable to the assumed exercise of outstanding options were excluded from the calculation of diluted net income per common share.

For the three and six months ended June 30, 2006, 2,172,599 shares attributable to the potential exercise of outstanding options were excluded from the calculation of diluted net income per common share because the effect was antidilutive.

VISCOUNT SYSTEMS, INC.
Interim Condensed Consolidated Statements of Stockholders' Equity
(Unaudited)
(Expressed in Canadian dollars)

See accompanying notes to interim condensed consolidated financial statements.

VISCOUNT SYSTEMS, INC.
Interim Condensed Consolidated Statements of Cash Flows
(Unaudited)
(Expressed in Canadian dollars)

Six months ended June 30, 2006 and 2005

See accompanying notes to interim condensed consolidated financial statements.

Manufacturing equipment was completely depreciated during the period ended March 31, 2006 ($97) and therefore, the cost of $28,360 and accumulated depreciation were removed.

The Company received gross proceeds of $4,057 from the exercise of stock options during the six months ended June 30, 2006.

As a result of the amendments to SFAS 123 (R), the Company was required to expense the fair value of employee stock options over the vesting period beginning with the quarter ended March 31, 2006. The Company recorded the fair value of stock-based compensation expense from the amortization of stock options issued in prior periods to employees of $9,343 and recorded $427 relating to the fair value of stock options issued to non-employees, during the six months ended June 30, 2006. Total stock-based compensation of $9,770 has been recorded in selling, general and administration expenses in the condensed consolidated statement of operations for the six months ended June 30, 2006.

During the six months ended June 30, 2005, the Company recognized stock-based compensation expense from the amortization of the intrinsic value of stock options issued in prior periods to employees of $13,704 and recorded $1,005 relating to the fair value of stock options issued to non-employees. Total stock-based compensation of $14,709 has been recorded in selling, general and administrative expenses in the condensed consolidated statements of operations.

During the six months ended June 30, 2005, the Company accounted for its employee stock-based compensation arrangements using the intrinsic value method in accordance with the provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees” (“APB 25”), and related interpretations. As such, compensation expense would be recorded on the date of grant only if the market value of the underlying stock at the date of grant exceeded the exercise price. Statement of Financial Accounting Standards No. 123, “Accounting for Stock- Based Compensation” (“SFAS 123”), requires entities that continued to apply the provisions of APB 25 for transactions with employees to provide pro forma income (loss) and pro forma income (loss) per share disclosures for employee stock option grants made as if the fair value-based method defined in SFAS 123 had been applied to these transactions.

The Company used the Black-Scholes option pricing model to compute estimated fair value of options granted in 2003 based on the following assumptions: average expected stock price volatility of 131%, expected dividend yield of 0%, risk-free interest rate of 4% an