Fsona Systems 10Q 2008 Q1 Quarterly report

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

Form 10-Q

(Mark One)

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

For the quarterly period endedMarch 31, 2008

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________to ____________

Commission file number333-120382

FSONA SYSTEMS CORP.
(Exact name of registrant as specified in its charter)

Nevada	N/A
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

11120 Horseshoe Way, Suite 140, Richmond, British Columbia, Canada V7Q 5H7
(Address of principal executive offices) (zip code)

604.273.6333
(Registrant’s telephone number, including area code)

Not Applicable
(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 [ ]

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 definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	[ ]		Accelerated filer	[ ]
Non-accelerated filer	[ ]	(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 [ ] No [ x ]

- 2 -

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

40,278,905 common shares issued and outstanding as of May 6, 2008

- 3 -

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

It is the opinion of management that the interim consolidated financial statements for the quarter ended March 31, 2008, includes all adjustments necessary in order to ensure that the interim consolidated financial statements are not misleading.

Our interim consolidated financial statements are stated in United States dollars and are prepared in accordance with United States generally accepted accounting principles.

F-1

Consolidated Financial Statements
Fsona Systems Corp.
(expressed in US dollars)
March 31, 2008 and December 31, 2007

F-2

Fsona Systems Corp.

CONSOLIDATED BALANCE SHEETS

(See Basis of Presentation - Note 1)

(expressed in US dollars)

	March 31,		December 31,
	2008		2007
	$		$
	(Unaudited)

ASSETS
Current assets
Cash	11,975		58,860
Accounts receivable	76,929		245,659
Goods and services tax refundable	11,618		6,701
Prepaid and other current assets	29,793		53,897
Inventory[note 4]	582,753		504,910
Total current assets	713,068		870,027
Property, plant and equipment	15,662		18,283
	728,730		888,310

LIABILITIES AND CAPITAL DEFICIT
Current liabilities
Accounts payable	345,979		212,125
Accrued liabilities	444,653		451,922
Deferred royalty payable	68,711		70,029
Current portion of loans payable[note 5]	1,916,193		1,818,801
Customer deposits and deferred revenue	303,361		431,015
Total liabilities	3,078,897		2,983,892

Capital deficit
Capital stock[note 6]	39,779		39,779
Additional paid-in capital	3,840,843		3,840,843
Accumulated other comprehensive loss
-cumulative translation adjustment	(522,797	)	(606,659	)
Accumulated deficit	(5,707,992	)	(5,369,545	)
Total capital deficit	(2,350,167	)	(2,095,582	)
	728,730		888,310

SEE ACCOMPANYING NOTES

F-3

Fsona Systems Corp.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited - expressed in US dollars)

	For the three-month		For the three-month
	period ended		period ended
	March 31,		March
	2008		2007
	$		$

Sales[note 7]	299,490		458,674
Cost of sales	232,470		356,111
Gross profit	67,020		102,563

Operating expenses
Sales and marketing	102,539		168,429
Research and development	167,733		138,786
General and administrative	71,881		152,628
Depreciation of property, plant and equipment	2,038		1,644
Total operating expenses	344,191		461,487

Loss from operations	(277,171	)	(358,924	)

Other income (expense)
Interest income	1,683		1,866
Interest and bank charges	(1,064	)	(1,125	)
Foreign exchange gain (loss)	(61,895	)	39,854
Total other (expense) income	(61,276	)	40,595

Loss for period before income tax	(338,447	)	(318,329	)

Deferred income tax recovery	-		5,447

Loss for the period	(338,447	)	(312,882	)

Foreign currency translation	83,862		(41,248	)

Comprehensive loss	(254,585	)	(354,130	)

Loss per share – basic and diluted	(0.01	)	(0.01	)

Weighted average shares outstanding – basic and diluted	39,778,082		30,633,095

SEE ACCOMPANYING NOTES

F-4

Fsona Systems Corp.

CONSOLIDATED STATEMENT OF CHANGES IN CAPITAL DEFICIT

(Unaudited - expressed in US dollars)

					Additional		Cumulative						Total
	Common stock				paid in		Translation			Accumulated			Capital
	Shares		Amount		Capital		Adjustment			deficit			deficit
	#	$		$		$			$			$

Balance at January 1, 2008	39,778,082		39,779		3,840,843		(606,659	)		(5,369,545	)		(2,095,582	)

Foreign exchange translation adjustment	—		—		—		83,862			—			83,862
Net loss for the period	—		—		—		—			(338,447	)		(338,447	)
Balance at March 31, 2008	39,778,082		39,779		3,840,843		(522,797	)		(5,707,992	)		(2,350,167	)

SEE ACCOMPANYING NOTES

F-5

Fsona Systems Corp.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited - expressed in US dollars)

	For the three-		For the three-
	month period ended		month period ended
	March 31,		March 31,
	2008		2007
	$		$
OPERATING ACTIVITIES
Net loss	(338,447	)	(312,882	)
Adjustments to reconcile net loss to net cash used in operating
activities
Depreciation of property, plant and equipment	2,038		1,644

Deferred income tax recovery	-		(5,447	)
Foreign exchange gain (loss)	61,895		(39,854	)
Changes in operating assets and liabilities
Accounts receivable	172,894		400,054
Goods and services tax refundable	(4,953	)	(2,685	)
Prepaid and other current assets	22,741		64,824
Deferred cost of sales	-		43,313
Inventory	(96,479	)	(102,118	)
Accounts payable	144,072		(159,640	)
Accrued liabilities	10,193		5,313
Customer deposits and deferred revenue	(115,825	)	(83,721	)
Accrued royalty	1,125		1,724
Net cash used in operating activities	(140,746	)	(189.475	)
FINANCING ACTIVITIES
Proceeds from loans payable	97,392		79,212
Net cash provided by financing activities	97,392		79,212
			)
Effect of foreign exchange rate on changes in cash	(3,531	)	(20,181	)
Decrease in cash	(46,885	)	(110,263	)
Cash at the beginning of the period	58,860		187,474
Cash, at the end of the period	11,975		57,030

Supplementary information
Cash interest paid	1,064		1,125
Cash interest received	1,683		1,866
Non-cash investing and financing activities:
Shares issued for recapitalization (note 3)	-		52,800

SEE ACCOMPANYING NOTES

F-6

Fsona Systems Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited - expressed in US dollars)

March 31, 2008 and December 31, 2007

1. NATURE OF BUSINESS AND BASIS OF PRESENTATION

Nature of business

The Company was incorporated under the laws of the State of Nevada, on February 2, 2004 as Matrix Ventures Inc. On February 9, 2007 the Company closed the transaction contemplated in the Share Exchange Agreement (the “Agreement”) dated February 8, 2007 with Fsona Systems Corp. (“Fsona”), a company incorporated under the laws of the state of Nevada on August 10, 2005. Under the Agreement, the Company agreed to acquire all of the issued and outstanding shares of Fsona in exchange for 20,075,835 common shares of the Company. As of the closing date, the former stockholders of Fsona held approximately 51% of the issued and outstanding common shares of the Company. The acquisition of Fsona was recorded as a reverse acquisition for accounting purposes. Fsona, the acquired entity, is regarded as the predecessor entity as of February 9, 2007 and the Company adopted the year end of Fsona, being December 31.

The Company previously focused its business efforts on the acquisition, exploration, development and exploitation of mineral and oil and gas properties. In contemplation of the share exchange transaction with Fsona, the Company abandoned its original business plan. As of the closing date of the Agreement, the Company commenced the business of developing, manufacturing and marketing Free Space Optical (“FSO”) communication devices to be used in various communications applications. The Company plans to continue to generate revenues through sales of its’ FSO communication devices.

Effective April 13, 2007, the Company completed a merger with their subsidiary, Fsona Systems Corp. As a result, the Company has changed their name from “Matrix Ventures, Inc.” to “Fsona Systems Corp.” to better reflect the direction and business of the Company subsequent to the closing of the share exchange agreement that was entered into among, the Company, Fsona Systems Corp., and the shareholders of Fsona Systems Corp., as reported on the current report on Form 8-K filed on February 13, 2007.

On April 13, 2007, the Company rolled forward the issued and outstanding shares of the Company on an 8.23 for one basis. The effect of the stock split has been applied on a retroactive basis to all related disclosures and calculations in these consolidated financial statements.

Basis of presentation

These interim consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America, and include the accounts of the Company and its wholly-owned subsidiary, Fsona Systems (Operating) Inc. All significant inter-company transactions have been eliminated on consolidation.

These accompanying interim consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities and commitments in the normal course of business. At March 31, 2008, the Company has negative working capital and has a consolidated accumulated deficit of $5,707,992. The continuation of the Company is dependent upon the continuing financial support of creditors and stockholders obtaining additional long-term financing, as well as achieving and maintaining a profitable level of operations. The Company plans to raise additional equity and debt capital as necessary to finance the operating and capital requirements of the Company.

F-7

Fsona Systems Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited - expressed in US dollars)

March 31, 2008 and December 31, 2007

1. NATURE OF BUSINESS AND BASIS OF PRESENTATION (cont’d…)

The Company had cash on hand of $11,975 at March 31, 2008. Management anticipates that it requires approximately $1,500,000 over the next twelve months ended March 31, 2009 to carry out its plans. While the Company is expending its best efforts to achieve the above plans, there is no assurance that any such activity will generate funds for operations. To the extent that cash needs are not achieved from operating cash flow or existing cash on hand, the Company plans to raise necessary cash through equity issuances and/or debt financing. The Company plans to manage its resources and assets on hand and pursue opportunities for further long-term financing, as well as achieving and maintaining a profitable level of operations. Assets on hand and any additional amounts raised will be used for further development of the Company’s products and for other working capital purposes. There is no assurance that further financing or profitable business will be achieved, accordingly, there is substantial doubt about the Company’s ability to continue as a going concern. The Company’s financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that may be necessary should the Company be unable to continue in existence.

Interim Financial Statements

The interim financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading.

These statements reflect all adjustments, consisting of normal recurring adjustments, which in the opinion of management, are necessary for fair presentation of the information contained therein. It is suggested that these interim financial statements be read in conjunction with the audited financial statements of the Company for the years ended December 31, 2007 and 2006. The Company follows the same accounting policies in the preparation of interim reports.

Results of operations for the interim periods are not necessarily indicative of annual results.

2. SIGNIFICANT ACCOUNTING POLICIES

Recent accounting pronouncements

FAS 141R

In December 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 141 (revised 2007), “Business Combinations” (“FAS 141R”), which replaces FASB statement No. 141. FAS 141R establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any non controlling interest in the acquiree, and the goodwill acquired. FAS 141R also establishes disclosure requirements which will enable users to evaluate the nature and financial effects of the business combination. FAS 141R is effective as of the beginning of an entity’s fiscal year that begins after December 15, 2008, which will be our fiscal year beginning January 1, 2009. We are currently evaluating the impact of the provisions of FAS 141R.

F-8

Fsona Systems Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited - expressed in US dollars)

March 31, 2008 and December 31, 2007

2. SIGNIFICANT ACCOUNTING POLICIES (cont’d…)

SFAS No. 157

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“FAS 157”). FAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. The provisions of FAS 157 are effective fiscal years beginning after November 15, 2007. There was no material impact to the Company’s consolidated financial statements upon adoption of this new pronouncement.

SFAS No. 159

In February 2007, the FASB issued FAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities-Including an amendment of FASB Statement No. 115", ("FAS 159") which permits entities to choose to measure many financial instruments and certain other items at fair value at specified election dates. A business entity is required to report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. This statement is expected to expand the use of fair value measurement. FAS 159 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. There was no material impact to the Company’s consolidated financial statements upon adoption of this new pronouncement.

3. RECAPITALIZATION

On February 8, 2007, the Company entered into a Share Exchange Agreement (the “Agreement”), among the Company, Fsona, and the former stockholders of Fsona.

The closing of the transactions contemplated in the Agreement and the acquisition of all of the issued and outstanding common stock of Fsona occurred on February 9, 2007. In accordance with the closing of the share exchange agreement, the Company issued 20,075,835 common shares to the former stockholders of Fsona for all of the 8,904,860 issued and outstanding common shares of Fsona on the basis of 2.2544805 common shares of the Company for every one common share of Fsona.

The acquisition was accounted for using the purchase method of accounting as applicable to reverse acquisitions, as the former stockholders of Fsona controlled approximately 51% of Matrix's common stock immediately upon conclusion of the transaction, representatives of Fsona are now Matrix's sole directors and officers and the continuing business is that of Fsona. The share exchange is deemed to be a reverse acquisition for accounting purposes. Fsona, the acquired entity, is regarded as the predecessor entity as of February 9, 2007. Matrix was largely inactive prior to the transaction. The post-acquisition entity is accounted for as a recapitalization of Fsona. The value assigned to the common shares was valued based on the fair value of net liabilities of Matrix at the recapitalization date which approximated carry over basis of $52,800.

At the time of the transaction, Fsona Systems Corp. (formerly Matrix Ventures Inc.) had no assets and $52,800 of accounts payable and accrued liabilities (included $28,300 owed to a shareholder of Matrix). The total amount owed to the shareholder of Matrix was repaid during 2007.

F-9

Fsona Systems Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited - expressed in US dollars)

March 31, 2008 and December 31, 2007

4. INVENTORY

	(Unaudited)
	March 31	December 31
	2008	2007
	$	$

Raw materials	510,042	401,449
Work in progress	40,473	71,528
Finished goods	32,238	31,933
	582,753	504,910

5. LOANS PAYABLE

The loans payable represent amounts outstanding as at:

	(Unaudited)
	March 31	December 31
	2008	2007
	$	$
Loan payable to Everona Limited (the Company’s controlling stockholder)
non-interest bearing, unsecured and no terms of repayment	605,686	605,686

Amounts payable to Crown Capital Partners S.A. (“Crown”)
(former controlling stockholder of the Company), non-interest bearing,
unsecured and no terms of repayment	593,587	496,316

Amounts payable to Key Management S.A., non-interest
bearing, unsecured and no terms of repayment	716,920	716,799
	1,916,193	1,818,801

Less: current portion	1,916,193	1,818,801
Long-term portion	-	-

6. CAPITAL STOCK

Authorized

On April 13, 2007 the Company effected an eight point twenty-three (8.23) for one (1) forward stock split of the authorized, issued and outstanding common stock. As a result, authorized capital has increased from 75,000,000 shares of common stock with a par value of $0.001 to 617,250,000 shares of common stock with a par value of $0.001. The effect of the stock split has been applied on a retroactive basis to all related disclosure and calculations in these consolidated financial statements.

F-10

Fsona Systems Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited - expressed in US dollars)

March 31, 2008 and December 31, 2007

7. SEGMENTED INFORMATION

The Company operates in one primary operating segment, that being the design, manufacture and sale of optical wireless equipment.

	(Unaudited)	(Unaudited)
	For the three	For the three
	months ended	months ended
	March 31,	March 31,
	2008	2007
	$	$
Revenues
United States	127,537	182,204
Asia-Pacific	14,310	91,401
Central and Latin America	28,577	103,705
Middle East and Africa	67,707	66,791
Europe	61,359	14,573
	299,490	458,674

Three customers accounted for 22%, 15%, and 10% of revenue in the three month period ended March 31, 2008 (three customers accounted for 16%, 13%, and 11% of revenue in the three month period ended March 31, 2007). Substantially all of the Company’s assets are located in Canada.

8. COMMITMENTS AND CONTINGENCIES

a] TPC audit

In January 2004, Technologies Partnership Canada (“TPC”) commissioned an audit of Fsona’s predecessor company (fSONA Communications Ltd.) prior claims for TPC funding. TPC indicated that Fsona Communications Ltd. had potentially overstated prior expenditures eligible for funding by approximately $2,171,937 (CDN$2,180,625) which equates to a potential assessment against the Company of $708,038 (CDN$726,801). The Company vigorously disagrees with TPC’s preliminary findings, with the exception of a possible $197,112 (CDN$202,335) overstatement

As the final determination of the TPC audit result has not been made, the likelihood of repayment and the ultimate amount, if any, are not determinable at this time. Accordingly, with the exception of the possible $197,112 (CDN$202,335) overstatement which has been accrued in accrued liabilities, no amount has been recorded in these financial statements. There has been additional $13,546 (CDN$13,905) accrued to the TPC contingency in recognition of fSONA’s portion of cost of the 2004 TPC compliance. Beginning in May 2007 a twelve month payment plan was initiated to pay off the costs accrued for the TPC compliance audit. As of March 31, 2008, $12,749 (CDN$13,087) of the $13,546 (CDN$13,905) has been paid.

F-11

Fsona Systems Corp.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited - expressed in US dollars)

March 31, 2008 and December 31, 2007

8. COMMITMENTS AND CONTINGENCIES (cont’d)

b] Litigation

On November 2, 2005, Arile Technologies Inc. (“Arile”) commenced a lawsuit in the Supreme Court of British Columbia (Vancouver Registry) against the Company claiming a breach of consulting services contract. We filed a Statement of Defence on November 24, 2005. Motion materials for judgement were filed by Arile’s counsel on June 9, 2006 for judgement in the amount of approximately $100,000. The Company provided response materials to Arile’s application for judgement. Arile and the Company are currently in discussions to discontinue the proceeding against the Company, without costs to any party. While the outcome of this matter is subject to future resolution, management's evaluation and analysis of the matter indicates that the probable ultimate resolution will not have a material adverse effect on the Company's financial statements. The outcome is presently indeterminable. Any settlement resulting from resolution of these contingencies will be accounted for in the period of settlement.

9. SUBSEQUENT EVENTS

In April 2008, the Company received $250,000 in connection with a private placement of 500,000 units at $0.50 per unit. Each unit consists of one common share and one share purchase warrant entitling the holder to purchase an additional common share at $0.50 per share. The share purchase warrants expire on April 16, 2010.

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

FORWARD-LOOKING STATEMENTS

This quarterly report contains forward-looking statements as that term is defined in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled “Risk Factors”, which may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

Our interim consolidated financial statements are stated in United States dollars and are prepared in accordance with United States generally accepted accounting principles. The following discussion should be read in conjunction with our interim consolidated financial statements and the related notes that appear elsewhere in this quarterly report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include those discussed below and elsewhere in this quarterly report, particularly in the section entitled “Risk Factors” of this quarterly report.

In this quarterly report, unless otherwise specified, all dollar amounts are expressed in United States dollars. All references to “CDN$” refer to Canadian dollars and all references to “common shares” refer to the common shares in our capital stock.

As used in this quarterly report, the terms “we”, “us” and “our” mean fSONA Systems Corp. and our wholly owned subsidiary fSONA Systems (Operating) Corp., unless otherwise indicated.

Corporate History

Our company was incorporated in the State of Nevada on February 2, 2004. On April 5, 2007, we incorporated a wholly-owned Nevada subsidiary for the sole purpose of effecting a name change through a merger with our subsidiary. On April 13, 2007, we merged our subsidiary with and into our company, with our company continuing on as the surviving corporation under the name fSONA Systems Corp. Our name change was effected with NASDAQ on April 19, 2007 and our common shares became quoted on the OTC Bulletin Board on April 19, 2007 under the new stock symbol of “FSON”. In addition, on April 13, 2007 we effected an eight point twenty-three (8.23) for one (1) forward stock split of our authorized, issued and outstanding common stock. As a result, our authorized capital increased from 75,000,000 shares of common stock to 617,250,000 shares of common stock.

Following incorporation, we were engaged in the business of acquiring and disposing of mineral properties. On April 21, 2004, we obtained an exclusive option to acquire a 100% interest in a mineral claim known as the Wanapitei River Property pursuant to the terms of an agreement with Terry Loney. We were not successful in implementing our business plan as a company engaged in the acquisition and disposition of mineral properties. As management of our company investigated opportunities and challenges in the business of being a mineral based company, management realized that the business did not present the best opportunity for our company to realize value for our shareholders. Accordingly, we abandoned our mineral business and elected not to exercise the option to acquire the interest in the Wanapitei River Property.

On February 8, 2007, we entered into a share exchange agreement with FSona Systems Corp. (now known as fSONA Systems (Operating) Corp.) and the shareholders of FSona Systems. The share exchange agreement

contemplated our company acquiring all of the issued and outstanding common shares of FSona Systems in exchange for the issuance by our company of 2,439,348 common shares. The closing of the transactions contemplated in the share exchange agreement and the acquisition of all of the issued and outstanding shares of FSona Systems occurred on February 9, 2007. As of the closing date, the former shareholders of FSona Systems held approximately 51.4% of the issued and outstanding common shares of our company. The acquisition of FSona Systems is deemed to be a reverse acquisition for accounting purposes. FSona Systems, the acquired entity, is regarded as the predecessor entity as of February 9, 2007. Starting with the periodic report for the quarter in which the acquisition was consummated, our company is filing annual and quarterly reports based on the December 31 fiscal year end of FSona Systems. Such financial statements depict the operating results of FSona Systems, including the acquisition of our company, from February 9, 2007.

Our Current Business

As of the closing date of the share exchange agreement on February 9, 2007, our company commenced the business of providing point-to-point broadband wireless connectivity solutions. Specifically, we manufacture and sell wireless transceivers that transfer data between two points using infrared laser beams, such as voice, data, video, internet messages and large computer files. Our products offer a point-to-point, line of sight, wireless high-speed communications link established between two transceiver units, which are “linked” wirelessly through the alignment of our SONAbeam™ products which transmit data via a laser beam. Our transceiver units are designed to provide wireless link transmission of data at speeds of up to 2.5 gigabits per second, with transmission similar to those obtained with fibre, and to transmit that data at distances of up to 7 km in clear weather conditions. In addition to being fast, reliable and cost effective, our SONAbeam™ products can be rapidly installed and redeployed. Our business strategy is to generate revenues through the commercialization of our technologies. Our target customers include the military, government, carriers, service providers, private enterprise and other entities seeking wireless communication solutions. Our products operate based on eye-safe 1550 nanometer wavelength free space optics technology, and could potentially be similar in data rates to fibre optic cable. Free space optics operates when a laser transmitter generates focused light waves that carry data through the atmosphere to an optical receiver that recognizes those light waves.

RESULTS OF OPERATIONS

You should read the following discussion of our financial condition and results of operations together with the unaudited interim consolidated financial statements and the notes to the unaudited interim consolidated financial statements included in this quarterly report. This discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results may differ materially from those anticipated in these forward-looking statements.

For the three months ended March 31, 2008 and March 31, 2007

Net Loss

Our net loss for the three months ended March 31, 2008 was $338,447 as compared to a net loss of $318,329 for the three months ended March 31, 2007.

Sales and Cost of Sales

Sales for the three months ended March 31, 2008 were $299,490, which represents a 34.7% decrease from sales of $458,674 for the three months ended March 31, 2007. The decrease in sales revenue during this period was primarily attributable to a lengthening of the sales cycle in the Middle Eastern region and reduction and refocusing of the US sales force in an effort to cut operating costs. Management believes that we will be able to increase our order backlog by raising a modest amount of capital for sales related expenditures. We expect to meet our capital requirements through sales of our equity securities and/or debt financing, if and when available, on commercially acceptable terms.

Cost of sales for the three months ended March 31, 2008 was $232,470 a decrease of 34.7% from cost of sales of $356,111 for the three months ended March 31, 2007. Cost of sales for the three months ended March 31, 2008 was 77.6% of total sales compared with 77.6% of total sales for the three months ended March 31, 2007. Cost of sales reductions are anticipated as we continue to increase our sales backlog and implement purchasing advantages of increased quantities of inventory. Direct labour costs and overhead expenses related to our manufacturing are not expected to increase materially as we believe our current facility has the capacity to meet forecasted demand.

Operating Expenses

Total operating expenses for the three months ended March 31, 2008 were $344,191 which represents a 25.4% decrease in total operating expenses of $461,287 for the three months ended March 31, 2007. Sales and marketing expenses, research and development expenses as well as general and administrative expenses constitute the major components of our total operating expenses.

Sales and marketing expenses for the three months ended March 31, 2008 were $102,539, which represents a 39% decrease in sales and marketing expenses of $168,429 for the three months ended March 31, 2007. These costs were reduced as a result of the reduction in sales force in the U.S., and the elimination of the associated sales expenses. Management anticipates that sales and marketing expenses will increase as we market our products, hire new sales personnel, and support and expand our partner programs.

General and administrative expenses for the three months ended March 31, 2008 were $71,881, which represents a 52.9% decrease in general and administrative expenses of $152,628 for the three months ended March 31, 2007. These costs were also reduced as a result of the downsizing of the US operations, there were some general and administrative positions and associated costs that were absorbed in the Canadian office, Management believes that these costs will rise through the remainder of the fiscal year ended 2008 and into 2009, as we re-build our operations in our Richmond offices.

Research and development expenses for the three months ended March 31, 2008 were $167,733 which represents a 20.9% increase in research and development expenses of $138,786 for the three months ended March 31, 2007. Management anticipates that these costs will increase through the remainder of the 2008 fiscal year and into the 2009 year. We intend to increase research and development expenses to $688,000 and $961,000 for our 2008 and 2009 fiscal years, respectively. Our research and development efforts have been focused on the completion of our 1250 E product this quarter. Other developments, active tracking on our SONAbeam E product line, the development of lower cost, higher bandwidth products in addition to other product and software upgrades, will continue through the remainder of 2008 and into 2009.

Other Income and Expenses

During the three months ended March 31, 2008, we recognized a foreign exchange loss of $61,895, as compared to a foreign exchange gain of $39,854 during the three months ended March 31, 2007. Such losses are principally the result of the fluctuations of the Canadian dollar against the U.S. dollars and their effect on our net liability position.

LIQUIDITY AND CAPITAL RESOURCES

Our company’s principal cash requirements are for operating expenses, including inventory purchases, which we anticipate will rise as a result of the increase in our sales backlog. We anticipate that compensation expense will require a greater percentage of our cash requirements in the future due to our anticipated increase in our sales and marketing efforts.

Capital Resources

As of March 31, 2008, we had cash of $11,975. As of March 31, 2008, we had a working capital deficiency of $2,365,829 compared with a working capital deficiency of $2,113,865 as of December 31, 2007,

which represents an increase in our working capital deficiency of $251,964. The increase in the working capital deficiency is due to the loss from operations during the period ended March 31, 2008.

We have suffered recurring losses. The ability of our company to meet our financial liabilities and commitments is primarily dependent upon the continued extension of credit by our creditors, the continued financial support of our directors and shareholders, the continued issuance of equity to new shareholders, and our ability to achieve and maintain profitable operations.

Management believes that our company’s cash and cash equivalents and cash provided by operating activities will not be sufficient to meet our working capital requirements for the next twelve month period. We estimate that we will require approximately $1,500,000 over the next twelve month period ending March 31, 2009 to fund our operating cash shortfall. Our company plans to raise the capital required to satisfy our immediate short-term needs and additional capital required to meet our estimated funding requirements for the next twelve months primarily through the private placement of our equity securities and/or debt financing. There is no assurance that our company will be able to obtain further funds required for our continued working capital requirements.

There is substantial doubt about our ability to continue as a going concern as the continuation of our business is dependent upon obtaining further long-term financing, successful and sufficient market acceptance of our current product offerings and any new product offerings that we may introduce, the continuing successful development of our product offerings and related technologies, and, finally, achieving a profitable level of operations. The issuance of additional equity securities by us could result in a significant dilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments.

Due to the uncertainty of our ability to meet our current operating and capital expenses, in their report on our audited financial statements for the year ended December 31, 2007, our independent auditors included an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern. Our financial statements contain additional note disclosures describing the circumstances that lead to this disclosure by our independent auditors.

Cash Flow Used in Operating Activities

Operating activities used cash of $140,746 for the three months ended March 31, 2008 as compared to $189,475 for the three months ended March 31, 2007. The cash used in operating activities for the three month period ended March 31, 2008, was primarily attributable to our net loss for the period.

We anticipate that operating expenses will increase through the remainder of the 2008 fiscal year and into 2009. We intend to incur higher operating costs to fund increased sales and marketing activities over the next two years.

Cash Flow Provided by Financing Activities

Financing activities provided cash of $97,392 for the three months ended March 31, 2008 as compared to $79,212 for the three months ended March 31, 2007. The cash received during the respective periods were proceeds from certain loans payable.

Capital Expenditures

We do not have any material commitments for capital expenditures and management does not anticipate that our company will spend additional material amounts on capital expenditures in the near future.

Off-Balance Sheet Arrangements

Our company has no outstanding derivative financial instruments, off-balance sheet guarantees, interest rate swap transactions or foreign currency contracts. Our company does not engage in trading activities involving non-exchange traded contracts.

SIGNIFICANT ACCOUNTING POLICIES

Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.

We believe that the estimates, assumptions and judgments involved in the accounting policies described below have the greatest potential impact on our financial statements, so we consider these to be our critical accounting policies. Because of the uncertainty inherent in these matters, actual results could differ from the estimates we use in applying the critical accounting policies. Certain of these critical accounting policies affect working capital account balances, including the policies for revenue recognition, allowance for doubtful accounts, inventory reserves and income taxes. These policies require that we make estimates in the preparation of our financial statements as of a given date.

Within the context of these critical accounting policies, we are not currently aware of any reasonably likely events or circumstances that would result in materially different amounts being reported.

Revenue Recognition

Revenue from the sales of these wireless products, which include hardware and software, is recognized when the complete system including the software is delivered, the fees are fixed and determinable, the resulting receivable is deemed collectible by management and any uncertainties with regard to customer acceptance are insignificant. Products are generally shipped “FOB shipping point” with rights of return and revenues are not recognized until such time that all of the criteria of Statement of Financial Accounting Standard (“SFAS”) 48 “Revenue Recognition When Right of Return Exists” are met. We consider factors including customer type, fees and our ability to reasonably estimate returns in determining whether revenue can be recognized from these sales. Revenues from installation, training and post-contract customer support are insignificant. We generally warrant our products against defects in materials and workmanship. The estimated costs of warranty obligations and sales returns and other allowances are recognized at the time of revenue recognition based on contract terms and prior claims experience. Revenue related to extended warranty and product maintenance contracts is deferred and recognized on a straight-line basis over the extended warranty period.

Allowance for Doubtful Accounts

We make ongoing estimates relating to the collectability of our accounts receivable and maintain a reserve for estimated losses resulting from the inability of specific customers to meet their financial obligations to us. In determining the amount of the reserve, we consider our historical level of credit losses and make judgments about the creditworthiness of significant customers based on ongoing credit evaluations. Since we cannot predict future changes in the financial stability of our customers, actual future losses from uncollectible accounts may differ from our estimates. If the financial condition of our customers were to deteriorate, resulting in their inability to make payments, a larger reserve may be required. In the event we determined that a smaller or larger reserve was appropriate, we would record a credit or a charge to selling and administrative expense in the period in which we made such a determination.

Inventory Reserves

We also make ongoing estimates relating to the market value of inventories, based upon our assumptions about future demand and market conditions. If we estimate that the net realizable value of our inventory is less than the cost of the inventory recorded on our books, we record a reserve equal to the difference between the cost of the inventory and the estimated net realizable market value. This reserve is recorded as a charge to cost of goods sold. If changes in market conditions result in reductions in the estimated market value of our inventory below our previous estimate, we would increase our reserve in the period in which we made such a determination and record a charge to cost of goods sold.

Income Taxes

As part of the process of preparing our financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves us estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items, such as deferred revenue, for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included in our balance sheets. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income and, to the extent we believe that recovery is not likely, we must establish a valuation allowance. To the extent we establish a valuation allowance or increase this allowance in a period, we must include an expense within the tax provision in the Statement of Operations.

Significant management judgment is required in determining our provision for income taxes, deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets. Management continually evaluates our deferred tax asset as to whether it is likely that the deferred tax assets will be realized. If management ever determined that our deferred tax asset was not likely to be realized, a write-down of that asset would be required and would be reflected in the provision for taxes in the accompanying period.

Recently Issued Accounting Standards

FAS 141R

In December 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 141 (revised 2007), ‘‘Business Combinations’’ (‘‘FAS 141R’’), which replaces FASB Statement No. 141. FAS 141R establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any non controlling interest in the acquiree, and the goodwill acquired. FAS 141R also establishes disclosure requirements which will enable users to evaluate the nature and financial effects of the business combination. FAS 141R is effective as of the beginning of an entity’s fiscal year that begins after December 15, 2008, which will be our fiscal year beginning January 1, 2009. We are currently evaluating the impact of the provisions of FAS 141R.

SFAS No. 157

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“FAS 157”). FAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted accounting principles, and expands disclosures about fair value measurements. The provisions of FAS 157 are effective fiscal years beginning after November 15, 2007. There was no material impact to our consolidated financial statements upon adoption of this new pronouncement.

SFAS No. 159

periods within those fiscal years. There was no material impact to our consolidated financial statements upon adoption of this new pronouncement.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not Applicable.

Item 4T. Controls and Procedures.

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our president, secretary and treasurer (who is acting as our principal executive officer, principal financial officer and principle accounting officer) to allow for timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Based on the evaluation, our Chief Executive Officer after evaluating the effectiveness of our “disclosure controls and procedures” (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)), have concluded that, subject to the inherent limitations as noted below and in our annual report on Form 10-KSB, as of March 31, 2008 our disclosure controls and procedures were not effective due to the existence of several material weaknesses in our internal control over financial reporting, as discussed below.

Limitations on Effectiveness of Controls

Our Chief Executive Officer does not expect that our disclosure controls or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additional controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Material Weaknesses Identified

In connection with the preparation of our annual consolidated financial statements for the year ended December 31, 2007, certain significant deficiencies in internal control became evident to management that represent material weaknesses as set out below. We have not yet fully addressed, as of March 31, 2008, these weaknesses nor were there additional significant deficiencies noted as a result of our review at March 31, 2008.

(i) Lack of a sufficient number of independent directors for our board and audit committee. We currently only have one independent director on our board, which is comprised of 2 directors, and we do not have a functioning audit committee. As a publicly-traded company, we should strive to have a majority of our board of directors be independent;

(ii) Insufficient segregation of duties in our finance and accounting functions due to limited personnel. As at March 31, 2008 and December 31, 2007, we had limited staff at our executive office in Richmond, British Columbia that performed nearly all aspects of our financial reporting process, including, but not limited to, access to the underlying accounting records and systems, the ability to post and record journal entries and responsibility for the preparation of the financial statements. This creates certain incompatible duties and a lack of review over the financial reporting process that would likely result in a failure to detect errors in spreadsheets, calculations, or assumptions used to compile the financial statements and related disclosures as filed with the SEC. These control deficiencies could result in a material misstatement to our interim or annual consolidated financial statements that would not be prevented or detected;

(iii) There is a lack of sufficient supervision and review by our corporate management;

(iv) Insufficient corporate governance policies. Although we have a code of ethics which provides broad guidelines for corporate governance, our corporate governance activities and processes are not always formally documented. Specifically, decisions made by the board to be carried out by management should be documented and communicated on a timely basis to reduce the likelihood of any misunderstandings regarding key decisions affecting our operations and management; and

(v) Our company's accounting staff does not have sufficient technical accounting knowledge relating to accounting for income taxes and complex US GAAP matters. Management corrected any errors prior to the release of our company's March 31, 2008 interim consolidated interim financial statements.

Plan for Remediation of Material Weaknesses

We intend to take appropriate and reasonable steps to make the necessary improvements to remediate these deficiencies. We intend to consider the results of our remediation efforts and related testing as part of our year-end 2008 assessment of the effectiveness of our internal control over financial reporting.

We have implemented certain remediation measures and are in the process of designing and implementing additional remediation measures for the material weaknesses described in this annual report. Such remediation activities include the following:

(1) We continue to recruit one or more additional independent board members to join our board of directors and will consider the adoption of an audit committee at such time as additional board members are retained; and

(2) We will continue to update the documentation of our internal control processes, including formal risk assessment of our financial reporting processes.

Changes in Internal Controls over Financial Reporting

There were no significant changes in internal control over financial reporting during the quarter ended March 31, 2008 that materially affected, or are reasonably likely to materially affect, our internal control over financing reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

Except as provided below, as of May 15, 2008, our company is not a party to any pending legal proceeding and no legal proceeding is contemplated or threatened as of the date of this quarterly report. No director, officer or affiliate of our company, or any registered or beneficial shareholder, is an adverse party or has a potential interest adverse to our company.

On November 2, 2005, Arile Technologies Inc. commenced a lawsuit in the Supreme Court of British Columbia (Vancouver Registry) against our company claiming a breach of consulting services contract. We filed a Statement of Defence on November 24, 2005. Motion materials for judgement were filed by Arile Technologies’ counsel on June 9, 2006 for judgement in the amount of approximately $100,000. We provided response materials to Arile Technologies’ application for judgement. On April 9, 2008, Arile Technologies signed a Notice of Discontinuance to be filed with the Supreme Court of British Columbia whereby Arile Technologies agreed to discontinue the proceeding against our company, without costs to any party.

Item 1A. Risk Factors.

RISK FACTORS

Much of the information included in this quarterly report includes or is based upon estimates, projections or other “forward looking statements”. Such forward looking statements include any projections or estimates made by us and our management in connection with our business operations. While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested herein.

Such estimates, projections or other “forward looking statements” involve various risks and uncertainties as outlined below. We caution the reader that important factors in some cases have affected and, in the future, could materially affect actual results and cause actual results to differ materially from the results expressed in any such estimates, projections or other “forward looking statements”. Prospective investors should consider carefully the risk factors set out below.

RISKS RELATED TO OUR BUSINESS

We have had negative cash flows from operations since inception. We will require significant additional financing, the availability of which cannot be assured, and if our company is unable to obtain such financing, our business may fail.

To date, we have had negative cash flows from operations and have depended on sales of our equity securities and debt financing to meet our cash requirements. Our ability to develop and commercialize our technologies will be dependent upon our ability to raise significant additional financing. If we are unable to obtain such financing, we will not be able to fully develop our business. Specifically, we will need to raise additional funds to:

support our planned growth and carry out our business plan;
continue progress in our research and development programs;
protect our intellectual property;
hire top quality personnel for all areas of our business;
address competing technological and market developments;
establish additional collaborative relationships; and
market and develop our technologies.

We may not be able to obtain additional equity or debt financing on acceptable terms as required. Even if financing is available, it may not be available on terms that are favorable to us or in sufficient amounts to satisfy our requirements. If we require but are unable to obtain additional financing in the future, we may be unable to implement our business plan and our growth strategies, respond to changing business or economic conditions,

withstand adverse operating results and compete effectively. More importantly, if we are unable to raise further financing when required, we may be forced to scale down our operations and our ability to generate revenues may be negatively affected.

We have a history of losses which raise substantial doubt about our ability to continue as a going concern.

We incurred a net loss of $248,505 for the three months ended March 31, 2008. At March 31, 2008, the accumulated deficit was $5,701,912. We can offer no assurance that we will operate profitably or that we will generate positive cash flow in the future. In addition, our operating results in the future may be subject to significant fluctuations due to many factors not within our control, such as the level of competition and general economic conditions.

Due to the nature of our business and the early stage of our development, our securities must be considered highly speculative. We are engaged in the business of manufacturing and selling SONAbeam systems, or wireless transceivers that transfer data, voice and video between two points using infrared laser beams. The technology is referred to as free space optics or optical wireless. We have not realized a profit from our operations to date and there is little likelihood that we will realize any profits in the near future. Any profitability in the future from our business will be dependent upon the successful commercialization of our core technology, which itself is subject to numerous risk factors as set forth herein.

We expect to continue to incur development costs and operating costs. Consequently, we expect to incur operating losses and negative cash flows until our technology gains market acceptance sufficient to generate a sustainable level of income from the commercialization of our technology. Our history of losses raise substantial doubt about our ability to continue as a going concern, as described in the explanatory paragraph in the independent registered public accounting firm’s report on the financial statements of our company for the year ended December 31, 2007. If the going concern assumption was not appropriate for these financial statements, then adjustments would be necessary to the carrying value of assets and liabilities, the reported loss and the balance sheet classification used.

Technological changes in the broadband wireless industry could render our optical wireless products uncompetitive or obsolete, which could prevent us from achieving market share and sales.

Failure to refine our technology and to develop and introduce new products could cause our products to become uncompetitive or obsolete, which could prevent us from achieving market share and sales. The broadband and optical wireless industry is rapidly evolving and highly competitive. We will need to invest significant financial resources in research and development to keep pace with technological advances in the industry and to compete in the future and we may be unable to secure such financing. We believe that a variety of competing broadband and optical wireless technologies may be under development by other companies that could result in lower manufacturing costs or higher product performance than those expected for our products. Our development efforts may be rendered obsolete by the technological advances of others, and other technologies may prove more advantageous for the commercialization of such products.

Our company relies upon the successful research and development of new products and technologies but we can offer no assurance that our research and development efforts will produce positive results or keep pace with our competitors.

Research and development activities are inherently uncertain, and we could encounter practical difficulties in commercializing our research and development results. Our expenditures on research and development may not produce corresponding benefits. Other companies are developing a variety of competing technologies that could produce products that prove more cost-effective or have better performance than our current or future SONAbeam™ products. As a result, our technology may be rendered obsolete by the technological advances of others, which could reduce our net sales and market share.

The rate at which potential customers are willing to purchase our products could be slowed by negative prior experiences they may have had with previously existing point-to-point wireless technologies.

Potential customers within our target market may have had negative prior experiences with previously existing wireless point-to-point technologies, such as inadequate transmission capacity or service outages due to weather conditions. Accordingly, it could take significant time to educate the market as to the unique attributes of our products that enable our products to overcome the types of problems that prevented prior wireless technologies from serving as viable alternatives to traditional communication methods.

Our customers’ failure to obtain the access rights necessary to install our equipment could adversely affect our ability to expand our business.

Our customers may not be able to obtain, from building owners or managers, access rights to buildings, rooftops or towers to successfully install and service our equipment as planned. If our customers do not have access to a window from which to transmit, our customers will require access rights to the building and rooftop where our products will be placed in order to install our equipment. Our customers’ failure to obtain access rights at the pace and locations necessary could have an adverse affect on our business and financial condition. In addition, customers may need to obtain zoning or other governmental approvals in order to place our products on a particular building or in a particular area. They may not be able to obtain these approvals in a timely manner, or at all.

It could prove costly for us to effectively compete in the intensely competitive telecommunications equipment industry, which failure could negatively impact our financial results.

Both the telecommunications equipment industry in general and the wireless communications equipment industry in particular are intensely competitive. Companies operating in the telecommunications equipment industry are always seeking to develop viable wireline and wireless high-speed communications products and services, whether it is by:

developing technologies that improve the performance of existing copper alternatives;
developing methods for lowering the cost of fiber optic cable; or
developing new and improved point-to-point and wide area wireless solutions.

The wireless communications industry in which we principally compete has attracted substantial media and other attention in recent years in part due to the ability of newly developed equipment to provide wireless connectivity simply, quickly, and efficiently. These factors have led numerous companies to develop or commence developing products that compete or could compete with ours. The large number of companies offering products that may be perceived to be similar or even interchangeable with our products could have the effect of reducing the prices at which we are able to sell our products. In turn, this could reduce our gross margins and negatively impact our general financial results.

Exchange rate risk may negatively affect our cost of sales and gross margins, and could result in exchange losses.

Although our reporting currency is the United States dollar, we manufacture and incur costs in the currency of the Canadian dollar. As a result, we are subject to exchange rate risk. Changes in exchange rates between the United States dollar and the Canadian dollar could affect our cost of sales and gross margins, and could result in exchange losses. We cannot accurately predict the impact of future exchange rate fluctuations on our results of operations. Currently, we do not engage in any exchange rate hedging activities and, as a result, any volatility in currency exchange rates may have an immediate adverse effect on our financial condition and results of operations.

Our international operations subject us to a number of risks, including unfavourable political, regulatory, labor and tax conditions in foreign countries.

Our international operations subject us to the legal, political, social and regulatory requirements and economic conditions of many jurisdictions. Risks inherent to international operations include the following:

difficulty in enforcing agreements in foreign legal systems;

foreign countries may impose additional withholding taxes or otherwise tax our foreign income, impose tariffs or adopt other restrictions on foreign trade and investment, including currency exchange controls;
fluctuations in exchange rates may affect product demand and may adversely affect our profitability in United States dollars to the extent the price of our products and cost of raw materials is denominated in a foreign currency;
inability to obtain, maintain or enforce intellectual property rights;
changes in general economic and political conditions in the countries in which we operate;
unexpected adverse changes in foreign laws or regulatory requirements, including those with respect to export duties and quotas;
difficulty with staffing and managing widespread operations;
trade barriers such as export requirements, tariffs, taxes and other restrictions and expenses, which could increase the prices of our products and make us less competitive in some countries; and
difficulty of and costs relating to compliance with the different commercial and legal requirements of the overseas markets in which we offer and sell our products.

Our international operations require us to respond to rapid changes in market conditions in these countries. The success of our international operations depends, in part, on our ability to succeed in differing legal, regulatory, economic, social and political conditions. We may not be able to develop and implement policies and strategies that will be effective in each location where we do business.

We may lose our competitiveness if we are not able to protect our proprietary technology and intellectual property rights against infringement, and any related litigation may be time-consuming and costly.

Our success and ability to compete depends to a significant degree on our proprietary technology. If any of our competitors copy or otherwise gain access to our proprietary technology or develop similar technologies independently, we may not be able to compete as effectively. The measures we have implemented to protect our proprietary technology and other intellectual property rights are currently based upon a combination of provisional patent applications, patents, trademarks and trade secrets. These measures, however, may not be adequate to prevent the unauthorized use of our proprietary technology and our other intellectual property rights. Further, the laws of foreign countries may provide inadequate protection of such intellectual property rights. We may need to bring legal claims to enforce or protect such intellectual property rights. Any litigation, whether successful or unsuccessful, may result in substantial costs and a diversion of our company’s resources. In addition, notwithstanding our rights to our intellectual property, other persons may bring claims against us alleging that we have infringed on their intellectual property rights or claims that our intellectual property rights are not valid. Any claims against us, with or without merit, could be time consuming and costly to defend or litigate, divert our attention and resources, result in the loss of goodwill associated with our business or require us to make changes to our technology.

Our products may subject us to product liability exposure and our product liability insurance may not be sufficient to cover these claims.

Use of our products may expose us to product liability claims in the event they cause injury or harm our customers or third parties’ businesses. Although we have product liability insurance, it is possible that our insurance coverage could be insufficient to fully cover potential claims. Due to our limited financial resources, we may not be able to satisfy any liability resulting from these claims, which would negatively affect our financial condition.

If we fail to effectively manage the growth of our company and the commercialization of our technology, our future business results could be harmed and our managerial and operational resources may be strained.

As we proceed with the development of our technology and the expansion of our marketing and commercialization efforts, we expect to experience significant growth in the scope and complexity of our business. We will need to add staff to market our services, manage operations, handle sales and marketing efforts and perform finance and accounting functions. We anticipate that we will be required to hire additional personnel in order to successfully advance our operations. This growth is likely to place a strain on our management and operational resources. The failure to develop and implement effective systems, or to hire and retain sufficient personnel for the performance of all of the functions necessary to effectively service and manage our potential business, or the failure to manage growth effectively, could have a material adverse effect on our business and financial condition.

RISKS RELATED TO OUR COMMON STOCK

A decline in the price of our common stock could affect our ability to raise further working capital and adversely impact our ability to continue operations.

A prolonged decline in the price of our common stock could result in a reduction in the liquidity of our common stock and a reduction in our ability to raise capital. Because a significant portion of our operations have been and will be financed through the sale of equity securities, a decline in the price of our common stock could be especially detrimental to our liquidity and our operations. Such reductions may force us to reallocate funds from other planned uses and may have a significant negative effect on our business plan and operations, including our ability to develop new products and continue our current operations. If our stock price declines, we can offer no assurance that we will be able to raise additional capital or generate funds from operations sufficient to meet our obligations. If we are unable to raise sufficient capital in the future, we may not be able to have the resources to continue our normal operations.

The market price for our common stock may also be affected by our ability to meet or exceed expectations of analysts or investors. Any failure to meet these expectations, even if minor, may have a material adverse effect on the market price of our common stock.

If we issue additional shares in the future, it will result in the dilution of our existing shareholders.

Our certificate of incorporation, as amended, authorizes the issuance of up to 617,250,000 shares of common stock with a par value of $0.001. Our board of directors may choose to issue some or all of such shares to acquire one or more businesses or to provide additional financing in the future. The issuance of any such shares will result in a reduction of the book value and market price of the outstanding shares of our common stock. If we issue any such additional shares, such issuance will cause a reduction in the proportionate ownership and voting power of all current shareholders. Further, such issuance may result in a change of control of our corporation.

Trading of our stock may be restricted by the Securities Exchange Commission’s penny stock regulations, which may limit a stockholder’s ability to buy and sell our stock.

The Securities and Exchange Commission has adopted regulations which generally define “penny stock” to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and “accredited investors”. The term “accredited investor” refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny

stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the Securities and Exchange Commission, which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit the marketability of our common stock.

The Financial Industry Regulatory Authority, or FINRA, has adopted sales practice requirements which may also limit a stockholder’s ability to buy and sell our stock.

In addition to the “penny stock” rules described above, FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.

Our common stock is illiquid and the price of our common stock may be negatively impacted by factors which are unrelated to our operations.

Our common stock currently trades on a limited basis on the OTC Bulletin Board. Trading of our stock through the OTC Bulletin Board is frequently thin and highly volatile. There is no assurance that a sufficient market will develop in our stock, in which case it could be difficult for shareholders to sell their stock. The market price of our common stock could fluctuate substantially due to a variety of factors, including market perception of our ability to achieve our planned growth, quarterly operating results of our competitors, trading volume in our common stock, changes in general conditions in the economy and the financial markets or other developments affecting our competitors or us. In addition, the stock market is subject to extreme price and volume fluctuations. This volatility has had a significant effect on the market price of securities issued by many companies for reasons unrelated to their operating performance and could have the same effect on our common stock.

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

We did not sell any equity securities, that were not registered under the Securities Act of 1933, as amended, during the three month period ended March 31, 2008, that were not otherwise disclosed in our current reports on Form 8-K.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Submission of Matters to a Vote of Security Holders.

None.

Item 5. Other Information

None.

Item 6. Exhibits

Exhibit
Number	Description

(2)	Plan of Purchase, Sale, Reorganization, Arrangement, Liquidation or Succession

2.1	Share Exchange Agreement dated February 8, 2007, among our company, FSona Systems and the former shareholders of FSona Systems (incorporated by reference from our Current Report on Form 8- K filed on February 1, 2007)

(3)	Articles of Incorporation and Bylaws

3.1	Articles of Incorporation (incorporated by reference from our Registration Statement on Form SB-2 filed on November 12, 2004)

3.2	Bylaws (incorporated by reference from our Registration Statement on Form SB-2 filed on November 12, 2004)

3.3	Articles of Merger filed with the Secretary of State of Nevada on April 10, 2007 and which is effective April 13, 2007 (incorporated by reference from our Current Report on Form 8-K filed on May 11, 2007)

3.4	Certificate of Change filed with the Secretary of State of Nevada on April 10, 2007 and which is effective April 13, 2007 (incorporated by reference from our Current Report on Form 8-K filed on May 11, 2007)

(10)	Material Contracts

10.1	Property Option Agreement dated April 21, 2004 (incorporated by reference from our Registration Statement on Form SB-2/A filed on January 10, 2005)

10.2	Property Option Amending Agreement dated December 31, 2005 (incorporated by reference from our Registration Statement on Form SB-2/A filed on January 20, 2005)

10.3	Loan Agreement (incorporated by reference from our Registration Statement on Form SB-2/A filed on January 20, 2005)

10.4	Employment Agreement dated March 22, 2005 between FSona Systems and Sunny Taylor (incorporated by reference from our Current Report on Form 8-K filed on February 1, 2007)

10.5	Private Placement Subscription Agreement dated October 16, 2007 with Affaires Financieres S.A. (incorporated by reference from our Annual Report on Form 10-KSB filed on May 16, 2008)

10.6	Private Placement Subscription Agreement dated November 14, 2007 with Affaires Financieres S.A. (incorporated by reference from our Annual Report on Form 10-KSB filed on May 16, 2008)

(14)	Code of Ethics

14.1	Code of Ethics (incorporated by reference from our Current Report on Form 8-K filed on February 1, 2007)

(21)	Subsidiaries of the Small Business Issuer

	FSona Systems (Operating) Corp., a private Nevada corporation (incorporated by reference from our Current Report on Form 8-K filed on February 1, 2007)

Exhibit
Number	Description

(31)	Rule 13a-14(a)/15d-14(a) Certifications

31.1*	Section 302 Certification under Sarbanes-Oxley Act of 2002 of Andrew Grieve

(32)	Section 1350 Certifications

32.1*	Section 906 Certification under Sarbanes-Oxley Act of 2002 of Andrew Grieve

* Filed herewith

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

FSONA SYSTEMS CORP.

By: /s/ Andrew Grieve
Andrew Grieve, President, Secretary and Treasurer
(Principal Executive Officer and Principal Financial
Officer and Principal Accounting Officer)
May 20, 2008

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Fsona Systems (FSON) Inactive 10-Q2008 Q1 Quarterly report

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