UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549





FORM
10-Q





QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE


SECURITIES
EXCHANGE ACT OF 1934





FOR THE
QUARTERLY PERIOD ENDED MARCH 31, 2008





Commission
File Number: #000-51046





SARS
CORPORATION


(Exact
name of registrant as specified in its charter)





Nevada


(State or
other jurisdiction of incorporation or organization)





33-0677545


(IRS
Employer Identification Number)





19119
North Creek Parkway, Suite 201


Bothell,
WA 98011


(Address
of principal executive offices)(Zip Code)





866-276-7277


(Registrant's
telephone no., including area code)





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, a
non-accelerated filer, or a smaller reporting company.  See the
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 [
]    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]





The
number of shares of the Company's common stock issued and outstanding on March
31, 2008 is 38,922,136.


1




SARS
CORPORATION


FORM
10-Q




TABLE OF
CONTENTS




PART
      I
            
            FINANCIAL
      INFORMATIONItem
      1
            
            Financial
      Statements
            3 –
      9Item
      2
            
            Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
            10
      – 14Item
      3
            
            Quantitative
      and Qualitative Disclosures about Market Risk
            14Item
      4T
            
            Controls
      and Procedures
            14
      - 15PART
      II
            
            OTHER
      INFORMATIONItem
      1
            
            Legal
      Proceedings
            16Item
      1A
            
            Risk
      Factors
            16Item
      2
            
            Unregistered
      Sales of Equity Securities and Use of Proceeds
            16Item
      3
            
            Defaults
      Upon Senior Securities
            16Item
      4
            
            Submission
      of Matters to a Vote of Security Holders
            16Item
      5
            
            Other
      Information
            16Item
      6
            
            Exhibits
            16SIGNATURES
            
            
            17


2





PART I - FINANCIAL INFORMATION


Item
1.                                Financial
Statements





SARS
Corporation and its subsidiaries


Condensed
Consolidated Balance Sheets


Unaudited


(in
thousands, except share data)




March
      31,
              
              
              September
      30,2008
              
              
              2007ASSETSCurrent
      AssetsCash
      and cash equivalents
              
              $
              287
              
              
              $
              31Receivable
      for cash in escrow for common stock sold
              
              
              1,279
              
              
              
              890Accounts
      receivable, net
              
              
              104
              
              
              
              89Inventory
              
              
              328
              
              
              
              142Prepaid
      expenses and other current assets
              
              
              765
              
              
              
              54Total
      current sssets
              
              
              2,762
              
              
              
              1,206Property,
      equipment and software, net
              
              
              3,415
              
              
              
              4,179Identifiable
      intangible assets
              
              
              3,685
              
              
              
              -Goodwill
              
              
              -
              
              
              
              568Advances
      to and receivables from Andronics
              
              
              -
              
              
              
              854Other
      assets
              
              
              35
              
              
              
              35Total
      Assets
              
              $
              9,897
              
              
              $
              6,842LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      LiabilitiesAccounts
      payable and other accrued expenses
              
              $
              275
              
              
              $
              467Accounts
      payable - related party
              
              
              135
              
              
              
              420Accrued
      liabilities
              
              
              1,621
              
              
              
              93Notes
      payable current portion
              
              
              43
              
              
              
              40Convertible
      notes payable
              
              
              722
              
              
              
              -Deferred
      revenue
              
              
              14
              
              
              
              12Total
      current liabilities
              
              
              2,809
              
              
              
              1,032Notes
      payable, net of current portion
              
              
              59
              
              
              
              83Other
      non-current liabilities
              
              
              217
              
              
              
              -Total
      Liabilities
              
              
              3,085
              
              
              
              1,115Commitments
      and ContingenciesStockholders'
      EquityPreferred
      Stock - $0.001 par value; 50,000,000 shares authorized;Series
      A Convertible Preferred Stock - 1 share issued andoutstanding;
      liquidation value of $950
              
              
              950
              
              
              
              950Common
      Stock and additional paid-in capital - $0.001 par value,500,000,000
      shares authorized, 38,922,136 and 31,850,198shares
      issued and issuable, respectively
              
              
              34,604
              
              
              
              25,680Other
      comprehensive income
              
              
              37Accumulated
      deficit
              
              
              (28,779
              )
              
              
              (20,903
              )Total
      Stockholders' Equity
              
              
              6,812
              
              
              
              5,727Total
      Liabilities and Stockholders' Equity
              
              $
              9,897
              
              
              $
              6,842See
      accompanying notes to condensed consolidated financial
      statements.
  3




SARS
Corporation and its subsidiaries


Condensed
Consolidated Statements of Operations


Unaudited


(in
thousands, except share and per share data)




Three
      months ended March 31,
                  
                  Six
      months ended March 312008
                  
                  
                  2007
                  
                  
                  2008
                  
                  
                  2007Revenues
                  
                  $
                  197
                  
                  
                  $
                  292
                  
                  
                  $
                  316
                  
                  
                  $
                  384Cost
      of revenues
                  
                  
                  189
                  
                  
                  
                  223
                  
                  
                  
                  276
                  
                  
                  
                  300Gross
      profit
                  
                  
                  8
                  
                  
                  
                  69
                  
                  
                  
                  40
                  
                  
                  
                  84Operating
      ExpensesSales
      and marketing expense
                  
                  
                  200
                  
                  
                  
                  127
                  
                  
                  
                  546
                  
                  
                  
                  733General
      and administrative expense
                  
                  
                  3,066
                  
                  
                  
                  633
                  
                  
                  
                  4,550
                  
                  
                  
                  1,415Impairment
      of intangible assets
                  
                  
                  2,817
                  
                  
                  
                  -
                  
                  
                  
                  2,817
                  
                  
                  
                  -Total
      operating expenses
                  
                  
                  6,083
                  
                  
                  
                  760
                  
                  
                  
                  7,913
                  
                  
                  
                  2,148Loss
      from operations
                  
                  
                  (6,075
                  )
                  
                  
                  (691
                  )
                  
                  
                  (7,873
                  )
                  
                  
                  (2,064
                  )Other
      Income (Expense)Interest
      expense
                  
                  
                  (24
                  )
                  
                  
                  (592
                  )
                  
                  
                  (28
                  )
                  
                  
                  (615
                  )Interest
      income
                  
                  
                  21
                  
                  
                  
                  -
                  
                  
                  
                  25
                  
                  
                  
                  -Total
      other income (expense)
                  
                  
                  (3
                  )
                  
                  
                  (592
                  )
                  
                  
                  (3
                  )
                  
                  
                  (615
                  )Loss
      before income taxes
                  
                  
                  (6,078
                  )
                  
                  
                  (1,282
                  )
                  
                  
                  (7,876
                  )
                  
                  
                  (2,678
                  )Income
      taxes
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Net
      loss
                  
                  
                  (6,078
                  )
                  
                  
                  (1,282
                  )
                  
                  
                  (7,876
                  )
                  
                  
                  (2,678
                  )Preferred
      stock dividends
                  
                  
                  (19
                  )
                  
                  
                  -
                  
                  
                  
                  (38
                  )
                  
                  
                  -Net
      loss attributable to holders of common stock
                  
                  $
                  (6,097
                  )
                  
                  $
                  (1,282
                  )
                  
                  $
                  (7,914
                  )
                  
                  $
                  (2,678
                  )Basic
      and diluted net loss attributable to holdersof
      common stock per common share
                  
                  $
                  (0.16
                  )
                  
                  $
                  (0.06
                  )
                  
                  $
                  (0.22
                  )
                  
                  $
                  (0.13
                  )Weighted
      average basic and diluted shares outstanding
                  
                  
                  38,478,234
                  
                  
                  
                  21,358,943
                  
                  
                  
                  36,192,623
                  
                  
                  
                  20,884,785See
      accompanying notes to condensed consolidated financial
      statements.
  4




SARS
Corporation and its subsidiaries


Condensed
Consolidated Statement of Stockholders’ Equity


Unaudited


(in
thousands, except share data)




Common
      Stock
                  
                  
                  OtherSeries
      A Preferred Stock
                  
                  
                  and
      additional paid-in capital
                  
                  
                  Comprehensive
                  
                  
                  AccumulatedShares
                  
                  
                  
                  Amount
                  
                  
                  Shares
                  
                  
                  
                  Amount
                  
                  
                  Income
                  
                  
                  Deficit
                  
                  
                  TotalBalance
      at September 30, 2007
                  
                  
                  1
                  
                  
                  
                  $
                  950
                  
                  
                  
                  31,850,198
                  
                  
                  
                  $
                  25,680
                  
                  
                  $
                  -
                  
                  
                  $
                  (20,903
                  )
                  
                  $
                  5,727Shares
      issuable for cash received
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  6,363,750
                  
                  
                  
                  
                  6,364
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  6,364Stock
      issue costs paid or payable in cash
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (1,449
                  )
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (1,449
                  )Shares
      issuable for services provided recorded as stock issue
    costs
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  308,188Preferred
      stock dividends
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (38
                  )
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (38
                  )Common
      stock and warrants issuable for Andronics purchase
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  50,000
                  
                  
                  
                  
                  2,174
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  2,174Increase
      in paid-in capital relating to fair value of beneficial
      conversionfeature
      of convertible notes payable issued for Andronics purchase
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  780
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  780Shares
      and warrants issued for services
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  350,000
                  
                  
                  
                  
                  1,094
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  1,094Other
      comprehensive income - foreign currency translation gain
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  37
                  
                  
                  
                  
                  
                  
                  
                  37Net
      loss for the six months ended March 31, 2008
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (7,876
                  )
                  
                  
                  (7,876
                  )Balance
      at March 31, 2008
                  
                  
                  1
                  
                  
                  
                  $
                  950
                  
                  
                  
                  38,922,136
                  
                  
                  
                  $
                  34,604
                  
                  
                  $
                  37
                  
                  
                  $
                  (28,779
                  )
                  
                  $
                  6,812See
      accompanying notes to condensed consolidated financial
      statements.
 5


SARS
Corporation and its subsidiaries


Condensed
Consolidated Statements of Cash Flows


Unaudited


(in
thousands)


Six
      months ended March 31,2008
                    
                    
                    2007Cash
      Flows From Operating ActivitiesNet
      loss
                    
                    $
                    (7,876
                    )
                    
                    $
                    (2,678
                    )Adjustments
      to reconcile net loss to net cash used inoperating
      activitiesDepreciation
      and amortization of property,equipment and software
                    
                    
                    716
                    
                    
                    
                    647Amortization
      of intangible assets
                    
                    
                    302
                    
                    
                    
                    -Impairment
      of intangible assets
                    
                    
                    2,817
                    
                    
                    
                    -Non-cash
      interest expense
                    
                    
                    -
                    
                    
                    
                    582Share-based
      payments included in general and administrative expense
                    
                    
                    380
                    
                    
                    
                    157Changes
      in operating assets and liabilities, exclusive of Andronics
      acquisitionAccount
      receivable
                    
                    
                    446
                    
                    
                    
                    (107
                    )Inventories
                    
                    
                    (105
                    )
                    
                    
                    (39
                    )Prepaid
      expenses and other current assets
                    
                    
                    2
                    
                    
                    
                    (23
                    )Accounts
      payable
                    
                    
                    (846
                    )
                    
                    
                    845Accrued
      liabilities
                    
                    
                    (253
                    )
                    
                    
                    (116
                    )Other
                    
                    
                    2
                    
                    
                    
                    84Net
      cash used in operating activities
                    
                    
                    (4,415
                    )
                    
                    
                    (648
                    )Cash
      Flows From Investing ActivitiesAdvances
      to Andronics. Ltd.
                    
                    
                    -
                    
                    
                    
                    (104
                    )Purchases
      of property, equipment, and software
                    
                    
                    (105
                    )
                    
                    
                    (214
                    )Net
      cash used in investing activities
                    
                    
                    (105
                    )
                    
                    
                    (318
                    )Cash
      Flows From Financing ActivitiesBorrowings
      on notes payable
                    
                    
                    -
                    
                    
                    
                    154Payments
      on notes payable
                    
                    
                    (21
                    )
                    
                    
                    (4
                    )Proceeds
      from sale of common stock and warrants, net of cash fees
                    
                    
                    5,396
                    
                    
                    
                    900Preferred
      stock dividends
                    
                    
                    (38
                    )
                    
                    
                    -Stock
      issue costs
                    
                    
                    (562
                    )
                    
                    
                    -Net
      cash provided by financing activities
                    
                    
                    4,775
                    
                    
                    
                    1,050Effect
      of exchange rate changes on cash and cash equivalents
                    
                    
                    1
                    
                    
                    
                    -Net
      increase in cash and cash equivalents
                    
                    
                    256
                    
                    
                    
                    84Cash
      and cash equivalents, beginning of period
                    
                    
                    31
                    
                    
                    
                    66Cash
      and cash equivalents, end of period
                    
                    $
                    287
                    
                    
                    $
                    150Supplemental
      disclosure of cash flow informationCash
      paid for interest
                    
                    $
                    24
                    
                    
                    $
                    38Cash
      paid for income taxes
                    
                    $
                    -
                    
                    
                    $
                    -Non-Cash
      Investing and Financing ActivitiesCommon
      shares issuable for stock issue costs
                    
                    $
                    636
                    
                    
                    $
                    -Warrants
      issued for stock issue costs
                    
                    $
                    2,201
                    
                    
                    $
                    -Amounts
      payable to related party for stock issue costs
                    
                    $
                    308
                    
                    
                    $
                    -Securities
      issued for purchase of Andronics:Convertible
      debentures, net of fair value premiumrecorded
      as an increase in paid-in capital
                    
                    $
                    722
                    
                    
                    $
                    -Common
      stock
                    
                    $
                    104
                    
                    
                    $
                    -Warrants
                    
                    $
                    2,070
                    
                    
                    $
                    -See
      accompanying notes to condensed consolidated financial
      statements.
  6


SARS
Corporation and its subsidiaries


Notes
to Unaudited Condensed Consolidated Financial Statements


March
31, 2008





Note
1. Description of Business


SARS
Corporation, a Nevada corporation, (formerly Mycom Group, Inc. prior to the
August 2007 acquisition of with Veritas Solutions, Inc. (“VSI”) and its
wholly-owned subsidiary, Secure Asset Reporting Services, Inc., and subsequently
renamed), and together with its subsidiary (the “Company”) is headquartered near
Seattle, Washington U.S.A., and provides remote asset management and telematics
solutions that deliver business intelligence about fixed and mobile assets
anywhere in the world, which includes providing global tracking services of
high-value, mobile assets, including vessels, cargo containers, trucks, and
aircraft, and the monitoring of high-value fixed assets, including fuel tanks,
bridges, and pipelines. In December 2007, the Company acquired Andronics Ltd.,
renamed SARS Andronics, a company located in Northern Ireland, which provides
global two-way data solutions for monitoring and controlling remote assets such
as vehicles and liquefied petroleum gas tanks.





Note
2. Liquidity





Since
inception, the Company has funded its operations and business development and
growth primarily through sales of its common stock and warrants to purchase
common stock. In this regard, during the fiscal year ended September 30, 2007,
the Company raised approximately $7.0 million of net proceeds pursuant to sales
of equity securities, and during the three months ended December 31,
2007, the Company received additional net proceeds of approximately $5.3
million through sales of approximately 6.4 million shares of its common stock
and closed its private placement offering.  Company management
continues to be engaged in additional fund-raising activities to fund future
operations, capital expenditures, potential acquisitions of businesses, and
provide additional working capital.  If the Company does not raise
additional capital, then the Company may be forced to severely curtail or cease
operations. Consequently, the Company is actively working with investment banks
and institutional investors to obtain additional capital through various
financing options; however, the Company does not have any additional financing
agreements. There can be no assurance that additional financing will be
available on favorable terms or at all. If the Company raises additional capital
through the sale of equity or convertible debt securities, the issuance of such
securities may result in dilution to existing stockholders.





The
Company’s consolidated financial statements are prepared consistent with
accounting principles generally accepted in the United States applicable to a
going concern, which contemplates the realization of assets and liquidation of
liabilities in the normal course of business.  The Company has
incurred significant losses since inception, including approximately $7.9
million during the fiscal year-to-date six months ended March 31, 2008 and
approximately $6.3 million during the year ended September 30, 2007, and has an
accumulated deficit at March 31, 2008 of approximately $28.8 million, and has
relied on proceeds from sales of its common stock and warrants to purchase
common stock, as supplemented by bridge loan borrowings, to fund operations and
business development and growth. Further, it is expected that the Company will
continue to experience net losses throughout most, if not all, of this current
fiscal year.  The consolidated financial statements do not include any
adjustments relating to the recoverability and classification of recorded asset
amounts and classification of liabilities that might be necessary should the
Company have to curtail operations or be unable to continue in
existence.





Note
3. Basis of Presentation





The
accompanying unaudited condensed consolidated financial statements include the
accounts of the Company and its majority-owned subsidiaries. All material
intercompany balances and transactions have been eliminated. The unaudited
interim condensed consolidated financial statements and related notes are
presented in accordance with the rules and regulations of the Securities and
Exchange Commission with regard to interim financial information. Accordingly,
the condensed consolidated financial statements do not include all of the
information and notes to financial statements required by accounting principles
generally accepted in the United States of America for complete financial
statements. In the opinion of management, all adjustments, consisting of normal
recurring adjustments, considered necessary for a fair presentation of the
Company’s financial position, results of operations and cash flows for the
interim periods presented have been included. Results of operations for the
March 31, 2008 interim periods are not necessarily indicative of the results to
be expected for the entire fiscal year ending September 30, 2008 or for any
other future interim period. The accompanying unaudited interim condensed
consolidated financial statements should be read in conjunction with the audited
annual financial statements included in the Company’s September 30, 2007 Annual
Report on Form 10-KSB.





Note
4. Summary of Significant Accounting Policies




Significant
accounting policies used in preparation of our audited condensed consolidated
financial statements are disclosed in the notes to our audited annual
consolidated financial statements for the fiscal year ended September 30, 2007.
Updated disclosures regarding such policies are set forth below.





Inventory – Inventory
consists primarily of tracking equipment held for resale and is valued at the
lower of cost (first-in, first-out basis) or market.





Concentration of Credit Risk– The Company derives its revenues from certain major
customers.  The loss of major customers could create a significant
financial hardship for the Company.  During the six months ended March
31, 2008 and 2007, the Company had revenues of over 10% of total revenue from
individual customers as follows (“*” means < 10%):


2008
              
              2007Customer
      A
              25%
              
              18%Customer
      B
              24%
              
              *Customer
      C
              13%
              
              *
  7


Geographic
Information – At March 31, 2008, approximately 61% of the Company’s total
assets represented assets relating to the business of Andronics, which the
Company acquired in December 2007, comprised of current assets of approximately
$308,000 and $5.7 million of non-current assets, primarily software and
identifiable intangible assets.  Approximately 42% of the Company’s
revenues for the six months ended March 31, 2008 were from customers of the
Company’s Northern Ireland subsidiary, which results of operations are included
in the Company’s consolidated operating results for the period December 20, 2007
– March 31, 2008.





Goodwill and Customer
List - Goodwill consists of the excess of purchase price over fair value
of assets acquired related to the purchase of certain assets of Sentinela, LLC
(“Sentinela”) in 2006. Goodwill is not amortized, but is subject to periodic
review for impairment in value.  As described in Note 7, during the
three months ended March 31, 2008, as a result of, among other things, departure
of former Sentinela personnel, the goodwill was written off due to its value
being impaired.





Impairment of Long-Lived
Assets - The Company’s long-lived assets, including property, equipment
and software, goodwill and customer list, are reviewed for carrying value
impairment annually or more frequently when events or changes in circumstances
indicate that the carrying amount may not be recoverable. The Company evaluates
the recoverability of its goodwill and other intangible assets in accordance
with SFAS 142. As described in Note 7, due to the migration of a portion of
previously acquired Veritas software to the software platform utilized by
recently acquired Andronics, the remaining estimated net book value of this
portion of acquired software was deemed to have no future value and the Company
recorded a provision for impairment of intangible assets of approximately $2.25
million during the three months ended March 31, 2008.





Business Combination andIdentifiable
Intangible Assets - In connection with the acquisition in December 2007
of certain assets of Andronics, Ltd., the Company acquired certain identifiable
intangible assets including intellectual property, trademarks and customer-based
intangibles. This acquisition has been accounted for in accordance with
Statement of Financial Accounting Standards No. 141, “Business Combinations”
(“SFAS No. 141”). Amounts allocated to intangible assets were identified by
management and have been valued on a number of factors based upon preliminary
estimates. The estimate of useful lives of each intangible asset was based on an
analysis by management of all pertinent factors, which resulted in an estimated
useful life of two years for each identifiable intangible asset. The
identifiable intangible assets are amortized on a straight-line basis over their
estimated useful lives. At March 31, 2008, these identifiable intangible assets
approximated $3.7 million, net of accumulated amortization of approximately
$604,000.  Amortization expense for these intangible assets will
approximate $1.6 million in the fiscal year ending September 30, 2008, $1.8
million in the fiscal year ending September 30, 2009 and $200,000 in the fiscal
year ending September 30, 2010.





Loss per share
-  Common stock equivalent shares excluded from loss per share
computations because the effect would be antidilutive include 11,642,548 and
6,439,851 shares for warrants at March 31, 2008 and 2007, respectively, and
949,909 and 1,089,909 shares for convertible preferred stock at March 31, 2008
and 2007, respectively.





Note
5.   Advances to and Acquisition of Andronics, Ltd.





In
December 2007, the Company, through its wholly-owned United Kingdom subsidiary,
Jinkhold, Ltd., renamed SARS Andronics, closed a material definitive agreement
with Andronics, Ltd., a company formed under the laws of Northern Ireland
(“Andronics”), pursuant to which the Company purchased substantially all of the
assets of Andronics in exchange for (i) the assumption of substantially all of
its liabilities, (ii) 50,000 shares of Company common stock valued at $104,000,
(iii) $722,000 of 10% convertible debentures, and (iv) options to purchase
1,000,000 shares of Company common stock and the obligation to issue an
additional 500,000 options contingent on attaining certain quarterly revenue
amounts.  The shares of common stock were valued at $2.08 per share,
the weighted average closing/last price quoted during a relatively short period
before and after the December 20, 2007 acquisition date.  The options
to purchase Company common stock have a one-year term to purchase stock at $0.01
per share vesting monthly over a 12-month period, and were valued at
approximately $2.1 million as determined utilizing the Black-Scholes pricing
model with assumptions of a $2.08 market price, volatility of 79%, dividend
yield of 0%, expected term of 1.3 years and a risk-free interest rate of
3.2%.  The convertible debentures are convertible into shares of
Company common stock at a conversion price of $1.00 per share, and if not
converted or repaid prior to the maturity date, which is twelve months from date
of issuance, the debentures and related accrued interest will convert into
shares of Company common stock.  The convertible debentures were
valued at approximately $1.5 million based upon receiving 722,000 shares of
common stock using the acquisition date quoted value of
$2.08.  Additionally, the Company executed a five-year facilities
lease agreement with certain shareholders of Andronics pursuant to which the
Company will pay monthly rent of 10,000 pounds sterling.  To the
extent that contractual lease obligations exceed market rents, the Company has
recorded lease obligations of approximately $215,000 as a liability included in
purchase price consideration.





In
contemplation of the asset acquisition, in February 2007, the Company entered
into an Operating Agreement with Andronics pursuant to which, among other
things, the Company operated the business of Andronics and provided funding to
Andronics for operating expenses and equipment purchases, with such fundings
evidenced with promissory notes payable by Andronics to the Company, and the
Company would receive all proceeds of gross revenues Andronics derived from
providing and operating the services and assets. The Company and Andronics
further entered into a License Agreement for intellectual property, and agreed
to exchange consulting services.  Pursuant to the agreements, the
Company provided management services to Andronics and sold equipment to
Andronics in connection with Andronics sales to its customers.  As of
the acquisition date, the Company had accounts, notes and other advances
receivable from Andronics of approximately $1.0 million resulting from sales and
cash advances, which are included as part of the purchase price allocated in
purchase accounting.





Andronics,
which delivers two-way data solutions for monitoring and managing remote assets
such as vehicles and liquefied petroleum gas tanks, is a part of the Company’s
commitment to deliver real-time business intelligence about fixed and mobile
assets located anywhere in the world.  This acquisition has been
accounted for in accordance with SFAS No. 141.  The total purchase price of
approximately $7.1 million, including liabilities assumed of approximately $2.4
million, has been allocated to assets acquired based on relative preliminary
estimates of fair values, which resulted in the majority being allocated to
identifiable intangible assets, including customer relationships, intellectual
property and trademarks, and to software, and which is summarized as follows (in
thousands):





Current
      assets
              
              $
              565Property,
      equipment and software
              
              
              2,238Identifiable
      intangible assets
              
              
              4,283Total
              
              $
              7,086


8


Operating
results for Andronics are included in the Company’s operating results from the
date of acquisition. The following supplemental pro forma information has been
presented on the basis as if the asset acquisition had occurred at the beginning
of the six months ended March 31, 2008 and 2007 (in thousands):




2008
                
                
                2007Revenues
                
                $
                859
                
                
                $
                2,033Net
      loss
                
                $
                (8,322
                )
                
                $
                (4,341
                )Net
      loss per share
                
                $
                (0.23
                )
                
                $
                (0.21
                )





Note
6.  Common Stock and Warrants




Common
stock – In connection with private placement sales of securities, the
Company agreed to file with the Securities and Exchange Commission a
registration statement covering the resale of common stock and the common stock
issuable upon exercise of warrants no later than 60 days following the closing
of the private placement, which was December 28, 2007.  In addition,
the Company is required to use its best efforts to cause the registration
statement to be declared effective by the Securities and Exchange Commission as
soon as possible and, in any event, within 150 days following the close of the
private placement.  This requirement was subsequently waived by
investors.





Convertible
debentures issued in December 2007 include a conversion price of $1.00 per
common share as compared to the market quoted close/last price during a
relatively short period before and after the issuance date of $2.08 per
share.  In accordance with Accounting Principles Board Opinion No. 14,
the intrinsic value of this beneficial conversion feature of approximately
$780,000 has been recorded as premium, which reduces the carrying value of the
recorded obligation and increases paid-in capital.





Warrants-As of March
31, 2008, there are 1,000,000 warrants issuable with an exercise price of $0.01
and a term of approximately 1.0 year, 9,492,048 warrants issued and issuable
with an exercise price of $1.00 and a weighted average remaining term of
approximately 4.3 years and 1,150,500 warrants issued and issuable with an
exercise price of $1.25 and a weighted average remaining term of approximately
2.2 years.  As of March 31, 2008, the aggregate intrinsic value of
outstanding warrants, based on a closing stock price of $1.10 at that date is
approximately $2.0 million.  Subsequent to March 31, 2008, the closing
stock price of the Company’s common stock has decreased.  Based on a
closing stock price of $0.46 as of May 13, 2008, the intrinsic value of warrants
outstanding as of March 31, 2008 would be approximately $450,000.





Changes
in warrants outstanding during the six months ended March 31, 2008, is as
follows:




weighted
      averagenumber
      of
              
              
              exercise
              
              
              term
              
              
              exercise
              
              
              remaining
      termwarrants
              
              
              price
              
              
              (in
      years)
              
              
              price
              
              
              (in
      years)Outstanding
      at October 1, 2007
              
              
              8,977,601
              
              
              
              
              
              
              
              
              $
              1.03
              
              
              
              3.9Issued
      to placement agents
              
              
              1,364,947
              
              
              $
              1.00
              
              
              
              5.0Issued
      in connection with Andronics acquisition
              
              
              1,000,000
              
              
              
              0.01
              
              
              
              1.3Issued
      for services
              
              
              300,000
              
              
              
              1.00
              
              
              
              10.0Outstanding
      at March 31, 2008
              
              
              11,642,548
              
              
              
              
              
              
              
              
              
              
              $
              0.94
              
              
              
              3.5


The
weighted average fair value of warrants issued during the interim periods ended
March 31, 2008 and 2007, as determined using the Black-Scholes pricing model was
approximately $1.78 and $0.45, respectively, utilizing the following
assumptions:




interim
      periods ended March 31,2008
              
              2007Expected
      life in years
              
              
              
              1.3
      to 5.0
              
              5.0Volatility
              
              
              
              79%
      to 125%
              
              145%Interest
      rate
              
              
              
              3.2%
      to 3.5%
              
              4.5%Dividend
      yield rate
              
              
              
              0%
              
              0%


Share-based
payments included in general and administrative expense for the six months ended
March 31, 2008 and 2007, were $380,000 and $157,000,
respectively.  The value of warrants issued to the placement agents
was approximately $2.2 million, which is accounted for as stock issue costs, and
which has the effect of both increasing common stock and additional paid-in
capital for recognition of fair value and decreasing common stock and additional
paid-in capital for recognition of the issue costs.  The value of
warrants issued in connection with the Andronics acquisition was approximately
$990,000, which is accounted for as an increase in common stock and additional
paid-in capital and as a portion of the Andronics purchase price.





Note
7. Impairment of Intangible Assets





During
the three months ended March 31, 2008, the Company recorded a provision for
impairment of intangible assets of approximately $2.8 million.  The
provision was comprised of approximately $2.25 million recorded as an impairment
provision for the estimated net book value of previously acquired Veritas
software due to the migration from that software platform to that utilized by
recently acquired Andronics, and approximately $568,000 previously recorded as
goodwill related to the purchase of certain assets of Sentinela in September
2006, which was written off due to its value being impaired as a result of,
among other things, departure of former Sentinela personnel.





Note
8. Related Party Transactions





One of
the Company’s stockholders, a member of the Company’s Board of Directors, and
its Secretary, is the managing partner of a law firm, which provides legal
services to the Company.  The Company incurred approximately $991,000
in legal fees from this firm during the six months ended March 31,
2008.





Note
9. Commitments and Contingencies





In
connection with the December 2007 acquisition of Andronics, the Company entered
into a facilities lease agreement with certain shareholders of Andronics,
pursuant to which the Company will pay monthly rent of 10,000 pounds sterling
(at an exchange rate near year-end of approximately USD $20,000 per month, or
$240,000 per year) for a five year term.


9


Item 2.   Management’s
discussion and analysis of financial condition and results of
operations





FORWARD
LOOKING STATEMENTS CAUTIONARY


This
Item 2 and the March 31, 2008 Quarterly Report on Form 10-Q may contain
"forward-looking statements." In some cases, you can identify forward-looking
statements by terminology such as "may," "will," "should," "could," "expects,"
"plans," "intends," "anticipates," "believes," "estimates," "predicts,"
"potential" or "continue" or the negative of such terms and other comparable
terminology. These forward-looking statements include, without limitation,
statements about our market opportunity, our strategies, competition, expected
activities and expenditures as we pursue our business plan, and the adequacy of
our available cash resources. Although we believe that the expectations
reflected in any forward-looking statements are reasonable, we cannot guarantee
future results, levels of activity, performance or achievements. Actual results
may differ materially from the predictions discussed in these forward-looking
statements. Changes in the circumstances upon which we base our predictions
and/or forward-looking statements could materially affect our actual results.
Additional factors that could materially affect these forward-looking statements
and/or predictions include, among other things: (1) our limited operating
history; (2) our ability to pay down existing debt; (3) our ability to retain
the professional advisors necessary to guide us through our corporate
restructuring; (4) the risks inherent in the investigation, involvement and
acquisition of a new business opportunity; (5) unforeseen costs and expenses;
(6) potential litigation with our shareholders, creditors and/or former or
current investors; (7) the Company's ability to comply with federal, state and
local government regulations; and (8) other factors over which we have little or
no control.





We
do not undertake any obligation to publicly update any forward-looking
statement, whether as a result of new information, future events, or otherwise,
except as required by law. Such forward-looking statements involve known and
unknown risks, uncertainties and other factors which may cause our actual
results or achievements to be materially different from any future results or
achievements expressed or implied by such forward-looking statements. Such
factors include the factors described in our audited consolidated financial
statements and elsewhere in the Company’s September 30, 2007 Annual Report on
Form 10-KSB/A.





Further,
in connection with, and because we desire to take advantage of, the "safe
harbor" provisions of the Private Securities Litigation Reform Act of 1995, we
caution readers regarding certain forward looking statements in the following
discussion and elsewhere in this report and in any other statement made by, or
on our behalf, whether or not in future filings with the Securities and Exchange
Commission. Forward looking statements are statements not based on historical
information and which relate to future operations, strategies, financial results
or other developments. Forward looking statements are necessarily based upon
estimates and assumptions that are inherently subject to significant business,
economic and competitive uncertainties and contingencies, many of which are
beyond our control and many of which, with respect to future business decisions,
are subject to change. These uncertainties and contingencies can affect actual
results and could cause actual results to differ materially from those expressed
in any forward looking statements made by, or on our behalf.





Overview–





Organization–
SARS Corporation, a Nevada corporation, (formerly Mycom Group, Inc. prior to the
August 2007 merger with Veritas Solutions, Inc. and its wholly-owned subsidiary,
Secure Asset Reporting Services, Inc., and subsequently renamed), and together
with its subsidiaries (the “Company”) is headquartered near Seattle, Washington
U.S.A., and provides remote asset management and telematics solutions that
deliver business intelligence about fixed and mobile assets anywhere in the
world, which includes providing global tracking services of high-value, mobile
assets, including vessels, cargo containers, trucks, and aircraft, and the
monitoring of high-value fixed assets, including fuel tanks, bridges, and
pipelines. In December 2007, the Company closed its asset purchase agreement of
Andronics Ltd., a company located in Northern Ireland, and which provides global
two-way data solutions for monitoring and controlling remote
assets.





Business– Veritas
Solutions, Inc. (“VSI” and also known in the industry as VSI Wireless, Secure
Asset Reporting Services and SARS) was formed to capitalize on the
well-established trend toward remote asset management in the tracking and
operation of capital assets. Our mission is to become the leader in this broad,
highly fragmented market. Today, the worldwide infrastructure for the tracking
of assets consists of disparate satellite and cellular communications networks,
VHF radio-based systems, and hardware devices and software applications that
apply predominantly to specific classes of assets (for example, only to ships or
only to road trailers). Within this market, we believe that we offer the only
complete remote asset management solution, one that is both customizable and
independent of the type of communications or hardware. Our solution can track
assets anywhere in the world, providing timely, accurate and pertinent
information to our customers in real time. The Company has initially targeted
asset tracking in four industries: marine, upstream and downstream oil and gas
production, cargo trailers/containers and aviation.


10




SARS’
proprietary business intelligence software tool, Intellitrax, is a centralized
platform for the acquisition, aggregation and dissemination of intelligence on
mobile and fixed assets.  The technology behind the Intellitrax system
is a hardware-indifferent foundation for tracking remote assets that are engaged
in the distribution of goods in commerce, through terrestrial and satellite
communications platforms.  The technology provides for the
acquisition, data warehousing and subsequent presentation of multiple data sets,
including location, maintenance records, security status, control data and state
of goods while in storage or transit.   The Company intends to
seek patent protection for a number of aspects of its proprietary
technology.  With Intellitrax, SARS can gather tracking and other data
from disparate sources on various assets such as ships, planes and containers,
and present them to our customers in one place in an easy-to-use
format.  For these services, SARS customers pay us an ongoing access
fee.  SARS can source data from third-party hardware that the Company
can resell and install, or from hardware that is already in use by the business
operator or government agency.  All of SARS’ pre-packaged remote asset
management solutions, such as ASVTS, SARS Marinetrac and SARS Safetytrax, rely
on the SARS Intellitrax system.  SARS Intellitrax allows our customers
to track their assets anywhere in the world, in real time, 24 hours a
day.





In a
market where most firms utilize a global positioning satellite, or GPS, message
to provide basic information on the location of an asset, the Company
distinguishes its product by going beyond mere asset tracking.  Asset
location is the first piece of data and it becomes the launching point for a
more extensive set of data about the usage and condition of the asset, its
financial impact on the customer’s business and other critical operational
parameters.  SARS believes that taking GPS data, merging it with key
performance expectations and presenting the results to a fleet manager provides
a powerful edge in safety and security, administrative cost reduction and in
revenue and margin enhancement.





The
Company does not manufacture hardware products.  All hardware that is
utilized in the remote asset management solutions is provided by third-party
vendors or directly from manufacturers.  In terms of research and
development, as technology advances and new hardware equipment becomes available
the Company maintains the flexibility to develop essential connection software
to process the data that these new units produce.  The Company also
continues to improve the software displays of its application layer and the
processing of existing data in the core platform layer in order to grow as new
customers and assets come online.





Our
revenue model is comprised of (i) a monthly recurring software usage fee for
access to Intellitrax including long-range identification tracking display,
automatic identification system display, alarm notifications and alarm
monitoring; (ii) a monthly recurring airtime and data delivery fee for the cost
of airtime from our service providers, plus retail mark-ups; and (iii) one-time
fees for hardware, installation, shipping, customization and special programming
requirements. As demand dictates, we resell and install hardware from third
parties to facilitate data flow to Intellitrax and, in turn, we expect revenues
from such resale and installations to be a large part of our initial revenue
base.  Our main objective will be to migrate new customers to a
recurring revenue model, one that imposes a software usage fee for access to
Intellitrax. We expect revenues to continue to increase in most, if not all,
revenue sources. We are adding new customers to our system every month, and with
each new customer comes the potential for an additional recurring revenue
source.





Major Customers– The
Company derives its revenues from certain major customers.  The loss
of major customers could create a significant financial hardship for the
Company.  During the six months ended March 31, 2008, revenues from
three customers represented approximately 62% of total revenues.





Basis of presentation and
liquidity- Since inception, the Company has funded its operations and
business development and growth primarily through sales of its common stock and
warrants to purchase common stock. In this regard, during the fiscal year ended
September 30, 2007, the Company received approximately $7.0 million of net
proceeds pursuant to sales of equity securities in connection with its private
placement offerings. During the three months ended December 31, 2007, the
Company raised an additional $5.3 million through sales of approximately 6.4
million shares of its common stock.  Company management continues to
be engaged in additional fund-raising activities to fund future capital
expenditures, potential acquisitions of businesses, and provide additional
working capital.  If the Company does not raise additional capital, then
the Company may be forced to severely curtail or cease operations. Consequently,
the Company is actively working with investment banks and institutional
investors to obtain additional capital through various financing options;
however, the Company does not have any additional financing agreements. There is
no assurance that such financing will be obtained in sufficient amounts
necessary to meet the Company's needs. In view of these matters, continuation as
a going concern is dependent upon the Company's ability to meet its financing
requirements, raise additional capital, and the success of its future operations
or completion of a successful business combination.





The
Company’s consolidated financial statements are prepared consistent with
accounting principles generally accepted in the United States applicable to a
going concern, which contemplates the realization of assets and liquidation of
liabilities in the normal course of business.  The Company has
incurred significant losses since inception, including approximately $7.9
million during the fiscal year-to-date six months ended March 31, 2008 and $6.3
million during the year ended September 30, 2007, and has an accumulated deficit
at March 31, 2008 of $28.8 million, and has relied on proceeds from sales of its
common stock and warrants to purchase common stock, as supplemented by bridge
loan borrowings, to fund operations and business development and growth.
Further, we expect to continue to experience net losses throughout most, if not
all, of this current fiscal year.  The consolidated financial
statements do not include any adjustments relating to the recoverability and
classification of recorded asset amounts and classification of liabilities that
might be necessary should the Company have to curtail operations or be unable to
continue in existence.


11




Critical
Accounting Policies and Estimates




Management's
discussion and analysis of financial condition and results of operations are
based on our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires our management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements, as well as the reported net revenues and
expenses during the reporting periods. On an ongoing basis, estimates and
assumptions are evaluated. Estimates are based on historical experience and on
various other factors believed reasonable under the circumstances, the results
of which form the basis for making judgments about the carrying value of assets
and liabilities that are not readily apparent from other sources. Actual results
may differ from these estimates under different assumptions or conditions. A
summary of significant accounting policies is presented in Note 1 to our
consolidated financial statements included in our September 30, 2007 Annual
Report on Form 10-KSB. The following accounting policies are considered the more
critical to aid in understanding and evaluating our results of operations and
financial condition.





Use of estimates in the
preparation of financial statements- Preparation of financial statements
in conformity with generally accepted accounting principles in the United States
of America requires management to make estimates and assumptions that affect
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and reported amounts of
revenue and expenses during the reporting period. Actual results could differ
from those estimates. The more significant accounting estimates inherent in the
preparation of the Company's financial statements include estimates as to the
depreciable lives of property, equipment and software, recoverability of
receivables, valuation and recoverability of inventories, recoverability of
long-lived assets, valuation of intangible assets and allocation of purchase
price, valuation of equity related instruments issued, and valuation allowance
for deferred income tax assets.





Revenue Recognition -
The Company recognizes revenue when it has persuasive evidence of an
arrangement, the product has been shipped or the services have been provided to
the customer, title and risk of loss for products has passed to the customer,
the sale price is fixed and determinable, no significant unfulfilled Company
obligations exist, and collectability is reasonable
assured.   Revenue from hardware sales is generally recognized
when products are shipped and/or the revenue is fully earned and ownership had
passed to the customer. Revenue from tracking services are recorded in the month
the service is provided. Revenue from custom programming services, which are all
short-term, is recognized using the completed-contract method.





Share-Based
Payments-
The Company has granted shares and warrants to purchase shares of the Company’s
Common stock to various parties for consulting services and in connection with
fund raising activities. The fair values of the warrants issued have been
estimated using the Black-Scholes option valuation model in accordance with the
Financial Accounting Standards Board’s Emerging Issue Task Force Abstract, EITF
96-18, Accounting for Equity
Instruments that are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods and Services (“EITF 96-18”).





Impairment of Long-lived
Assets - The Company’s long-lived assets, including property, equipment
and software, goodwill and customer list, are reviewed for carrying value
impairment annually or more frequently when events or changes in circumstances
indicate that the carrying amount may not be recoverable. The Company evaluates
the recoverability of its goodwill and other intangible assets in accordance
with SFAS 142. As described in Note 7, due to the migration of a portion of
previously acquired Veritas software to the software platform utilized by
recently acquired Andronics, the remaining estimated net book value of this
portion of acquired software was deemed to have no future value and the Company
recorded a provision for impairment of intangible assets of approximately $2.25
million during the three months ended March 31, 2008. Additionally, as described
in Note 7, during the three months ended March 31, 2008, as a result of, among
other things, departure of personnel from a prior business acquisition pursuant
to which goodwill was recorded, the goodwill was written off due to its value
being impaired.





Results
of Operations





Three
months ended March 31, 2008 and 2007




Revenues–Revenues for the three months
ended March 31, 2008 decreased $95,000 to $197,000 as compared to $292,000 for
the comparative prior year period.  Revenues are comprised primarily
of sales of equipment and revenues from tracking and other services provided to
customers.  The
decrease in revenues was due to decreased SARS sales primarily due to sales to
Andronics in the 2007 period and none in 2008, offset by Andronics revenues for
the current year period, as compared to no Andronics revenues during the prior
year before the December 2007 acquisition.




Cost of
revenue -Cost
of revenues includes the cost of equipment sold and of services provided, which
includes compensation costs.  Cost of revenues for the three months
ended March 31, 2008 decreased to $189,000 as compared to $223,000 for the
comparative prior year period due to decreased revenues.  Cost of
revenues for the three months ended March 31, 2008 approximated 96% as a percent
of revenues as compared to 76% during the comparative prior year period. The
increase in cost of revenues as a percent of revenues was due primarily to lower
than normal sales at Andronics, which due to having certain more fixed than
variable costs resulted in a higher cost of revenues.


Gross
Profit - Gross profit decreased to $8,000 for the three months ended March 31,
2008 as compared to $69,000 for the comparative prior year period. The decrease
in gross profit was due primarily to decreased revenue volumes.
  12




Sales and
marketing expenses – Sales and marketing expenses for the three months ended
March 31, 2008 increased approximately $73,000 to $200,000 as compared to
$127,000 for the comparative prior year period.  Sales and marketing
expenses increased due primarily to additional costs relating to
Andronics.





General
and administrative expenses – General and administrative expenses increased $2.4
million for the three months ended March 31, 2008 as compared to the prior year
period primarily due to, among other things, approximately $1.2 million incurred
at Andronics during 2008 as compared to none in the 2007 period, as well as
increases in consulting expenses, including legal, accounting and public
relations costs, partially due to the Company's expanded operations and to
increased costs relating to being a public company.





Depreciation
and amortization – Depreciation and amortization expense, which is included in
general and administrative expenses, for the three months ended March 31, 2008
increased to approximately $656,000 as compared to $273,000 for the comparative
prior year period, due to having more assets in service.





Impairment
of intangible assets – During the three months ended March 31, 2008, the Company
recorded a provision for impairment of intangible assets of approximately $2.8
million.  The provision was comprised of approximately $2.25 million
recorded as an impairment provision for the estimated net book value of a
portion of previously acquired Veritas software due to the migration from that
software platform to that utilized by recently acquired Andronics, and
approximately $568,000 previously recorded as goodwill related to the purchase
of certain assets of Sentinela in September 2006, which was written off due to
its value being impaired as a result of, among other things, departure of former
Sentinela personnel.





Net Loss
– Net loss for the three months ended March 31, 2008 increased to approximately
$6.1 million as compared to $1.3 million for the comparative prior year
period.  The increase in net loss is primarily due to the provision
for asset impairment of approximately $2.8 million and increased general and
administrative costs.





Six
months ended March 31, 2008 and 2007




Revenues– Revenues for the six
months ended March 31, 2008 decreased $68,000 to $316,000 as compared to
$384,000 for the comparative prior year period.  Revenues are
comprised primarily of sales of equipment and revenues from tracking and other
services provided to customers.  The decrease in revenues was
primarily due to decreased SARS sales of approximately $205,000 as a result of
decreased sales during the three months ended March 31, 2008 for reasons as
described above, offset by Andronics revenues for the current year period, as
compared to no Andronics revenues during the prior year before the December 2007
acquisition.




Cost of
revenue -Cost
of revenues includes the cost of equipment sold and of services provided, which
includes compensation costs.  Cost of revenues for the six months
ended March 31, 2008 decreased to $276,000 as compared to $300,000 for the
comparative prior year period due to descreased revenues.  Cost of
revenues for the six months ended March 31, 2008 approximated 87% as a percent
of revenues as compared to 78% during the comparative prior year period. The
increase in cost of revenues as a percent of revenues was due primarily to lower
than normal sales at Andronics, which due to having certain more fixed than
variable costs resulted in a higher cost of revenues.
 
 Gross
Profit - Gross profit decreased to $40,000 for the six months ended March 31,
2008 as compared to $84,000 for the comparative prior year period. The decrease
in gross profit was due primarily to decreased revenue volumes.


Sales and
marketing expenses – Sales and marketing expenses for the six months ended March
31, 2008 decreased approximately $287,000 to $546,000 as compared to $733,000
for the comparative prior year period.  Sales and marketing expenses
decreased due primarily to the 2007 period having advertising and marketing
related consulting fees of approximately $627,000 as compared to $101,000 in
2008.





General
and administrative expenses – General and administrative expenses increased $3.1
million for the six months ended March 31, 2008 as compared to the prior year
period primarily due to, among other things, approximately $1.4 million incurred
at Andronics during 2008 as compared to none in the 2007 period, as well as
increases in consulting expenses, including legal, accounting and public
relations costs, partially due to the Company's expanded operations and to
increased costs relating to being a public company.





Depreciation
and amortization – Depreciation and amortization expense, which is included in
general and administrative expenses, for the six months ended March 31, 2008
increased to approximately $1.0 million as compared to $647,000 for the
comparative prior year period, due to having more assets in
service.





Impairment
of intangible assets – During the three months ended March 31, 2008, the Company
recorded a provision for impairment of intangible assets of approximately $2.8
million.  The provision was comprised of approximately $2.25 million
recorded as an impairment provision for the estimated net book value of a
portion of previously acquired Veritas software due to the migration from that
software platform to that utilized by recently acquired Andronics, and
approximately $568,000 previously recorded as goodwill related to the purchase
of certain assets of Sentinela in September 2006, which was written off due to
its value being impaired as a result of, among other things, departure of former
Sentinela personnel.





Net Loss
– Net loss for the six months ended March 31, 2008 increased to approximately
$7.9 million as compared to $2.7 million for the comparative prior year
period.  The increase in net loss is primarily due to the provision
for asset impairment of approximately $2.8 million and increased general and
administrative expenses.


13




Liquidity
and Capital Resources





Since
inception, the Company has funded its operations and business development and
growth primarily through sales of its common stock and warrants to purchase
common stock. In this regard, during the fiscal year ended September 30, 2007,
the Company received approximately $7.0 million of net proceeds pursuant to
sales of equity securities in connection with its private placement offerings,
and during the six months ended March 31, 2008, the Company received an
additional $5.3 million.  Company management intends to continue to be
engaged in additional fund-raising activities to fund future capital
expenditures, potential acquisitions of businesses, and provide additional
working capital, and in this regard is actively working with investment banks
and institutional investors to obtain additional capital through various
financing options; however, the Company does not have any additional financing
agreements.





Net cash
used by operating activities was approximately $4.4 million during the six
months ended March 31, 2008 and $648,000 in the comparative prior year period.
The increase in cash used by operating activities of approximately $3.8 million
was due primarily to the $2.3 million increase in net loss as adjusted for
depreciation and amortization, impairment and other non-cash expenses relating
to share-based payments to approximately $3.7 million in the six months ended
March 31, 2008 from $1.4 million during the comparative prior year period, as
well as the increase in cash used for payment of accounts payable and accrued
liabilities primarily related to Andronics liabilities assumed.





Net cash
used in investing activities was approximately $105,000 for purchases of
property, equipment and software during the six months ended March 31, 2008, and
$318,000 during the comparative prior year period related to purchases of
property, equipment and software of $214,000 and advances to Andronics of
$104,000.





Net cash
provided by financing activities was $4.8 million during the six months ended
March 31, 2008 and $1.0 million in the comparative prior year
period.  The increase of net cash provided during the current fiscal
year was primarily due to an increase in proceeds, net of issuance costs, from
sales of the Company’s common stock and warrants to purchase common
stock.





Inflation -Although our
operations are influenced by general economic conditions, we do not believe that
inflation had a material effect on our results of operations.





Contractual
Obligations and Off-Balance Sheet Arrangements –





In
connection with the acquisition of Andronics, the Company entered into a
facilities lease agreement with certain shareholders of Andronics, pursuant to
which the Company will pay monthly rent of ten thousand pounds sterling (at an
exchange rate near period-end of approximately USD $20,000 per month, or
$240,000 per year) for a five year term.





Regarding
Off-Balance Sheet Arrangements, the Company has not entered into any other
financial guarantees or other commitments to guarantee the payment obligations
of any third parties, nor entered into any derivative contracts that are indexed
to Company shares and classified as shareholder’s equity or that are not
reflected in the Company’s financial statements. Furthermore, the Company does
not have any retained or contingent interest in assets transferred to an
unconsolidated entity that serves as credit, liquidity or market risk support to
such entity.  The Company does not have any variable interest in any
unconsolidated entity that provides financing, liquidity, market risk or credit
support to the Company or engages in leasing, hedging or research and
development services with the Company.





Item
3.                                Quantitative and Qualitative
Disclosures about Market Risk





We are
exposed to financial market risk resulting from changes in interest rates. We do
not engage in speculative or leveraged transactions, nor do we utilize
derivative financial instruments. Based on our cash and cash equivalents,
balances at March 31, 2008, a 100 basis point increase or decrease in interest
rates would result in an immaterial increase or decrease in interest income on
an annual basis.




Item
4T.                                Controls and
Procedures




(a)
Disclosure controls and procedures.





Out
management is responsible for establishing and maintaining adequate control over
financial reporting, as defined in Rules 13a-15(f) and 15d-15(0) under the
Exchange Act. The Company maintains disclosure controls and procedures that
are designed to ensure that information required to be disclosed in the
Company’s Exchange Act reports 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 the Company’s management,
including its Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions in accordance with the required
"disclosure controls and  procedures" as defined in Rule
13a-15(e).  The Company’s disclosure and control procedures are
designed to provide reasonable assurance of achieving their
objectives.


14




On
February 15, 2008, our management after discussion with the Company’s
independent registered public accounting firm, decided to restate certain
of  the Company’s previously filed consolidated financial statements
for the correction of errors. The Company’s management, who participated in the
discussion, includes those officers and directors who are responsible for the
adequacy and accuracy of disclosures in the Company’s filings. Consolidated
financial statements as of (i) September 30, 2006 and December 31, 2005 and for
the fiscal years then ended included as Exhibit 99.1 in the Company’s Current
Report on Form 8-K date of report August 28, 2007, (ii) June 30, 2007 and 2006
and for the nine months then ended included as Exhibit 99.3 in the
Company’s  Current Report on Form 8-K/A date of report August 28,
2007, and (iii) September 30, 2007 and 2006 and for the fiscal years then ended
included in the Company’s Annual Report on Form 10-KSB for the year ended
September 30, 2007 (collectively, the “Original Financial Statements” and
“Original Reports”) have been restated.
 
 The
restatements were required to correct errors relating to recording
amounts due for services pursuant to a March 2004 agreement, which previously
were not recorded.  Company management believes that the errors, both
of which relate to the same agreement, were inadvertent and
unintentional.  Subsequent to the filing of the Original Reports and
issuance of the Original Financial Statements, the Company determined that
shares of its common stock were, upon execution of a March 2004 engagement
agreement, due to a related party for deferral of payment of legal fees, and
that fees were due to this firm in connection with the Company’s fund raising
activities, specifically with respect to its February 2007 private placement
offering of equity securities during the year ended September 30, 2007. The
effect of restatements as of June 30, 2007 and September 30, 2007 is that
liabilities, amounts due related parties, increased by $242,000 and $347,000,
respectively, and additional paid-in capital decreased by like amounts to record
stock issue costs.  Other than restatements to the Company’s loss per
share, which decreased as a result from restatements to the number of shares
outstanding for the restated periods, there was no effect on the Company’s
results of operations or cash flows included in the Original Financial
Statements.
  The
restated consolidated financial statements as of  (i) September 30, 2006
and December 31, 2005 and for the fiscal years then ended and (ii) June 30, 2007
and 2006 and for the nine months then ended are included as Exhibit 99.1 and
Exhibit 99.3, respectively, in the Company’s Current Report on Form 8-K/A date
of report August 28, 2007, filed February 19, 2008, and (iii) September 30, 2007
and 2006 and for the fiscal years then ended are included in the Company’s
September 30, 2007 Annual Report on Form 10-KSB/A, filed February 19,
2008.
  Our
management, with the participation of our Chief Executive Officer and Interim
Chief Financial Officer, assessed the effectiveness of the Company’s disclosure
controls and procedures (as defined in the rules and regulations of the SEC
under the Exchange Act) as of March 31, 2008 (the “Evaluation
Date”).   Management determined that its controls over assuring
that all material agreements, obligations and commitments have been disclosed to
personnel responsible for preparation of financial statements were ineffective,
and accordingly, has concluded that the Company’s disclosure controls over
financial reporting were not effective as of the Evaluation
Date.   Upon identification of this material weakness, the
Company initiated a review of its internal controls and processes with respect
to whether all existing material agreements and obligations have been
identified, monitored and reported, and to determine what changes, if any, are
required to prevent recurrence of this type of error.
  As
for the material weakness identified, management has implemented the following
remedial actions:
 
 ·
                Obtaining
      representations in writing from directors and officers regarding full
      disclosure of agreements, and
 
 ·
                Initiated
      the process the of forming a financial reporting disclosure committee and
      processes.


(b)
Changes in internal control over financial reporting.





We are
assessing the effectiveness of our internal controls over financial reporting on
an account by account basis as a part of our on-going accounting and financial
reporting review process in order to comply with Section 404 of the
Sarbanes-Oxley Act of 2002, which requires our management to assess the
effectiveness of our existing internal controls for the fiscal year ended
September 30, 2008.  This effort includes documenting, evaluating the
design of and testing the effectiveness of our internal controls over financial
reporting.  We intend to continue to refine and improve our internal
controls on an ongoing basis.  During this process, we may identify
items for review or deficiencies in our system of internal controls over
financial reporting that may require strengthening or remediation, such as those
described in (a) above.




There
have been no changes in our internal controls over financial reporting during
our most recent fiscal quarter that have materially affected, or are reasonably
likely to materially affect, our internal controls over financial
reporting.


15




PART II -
OTHER INFORMATION




Item
1. Legal
Proceedings





None.  The Company is unaware of any
other threatened or pending litigation against it not in the ordinary course of
business and that has not previously been disclosed.







Item
1A. Risk
Factors




·
            We
      have no substantial history of having meaningful revenues or profitable
      operations and may incur future losses, which will likely impair our
      future stock price.





·
            Most
      of our end-users are subject to budgetary and political constraints which
      may delay or limit purchases of our products, and we will have no control
      over those decisions.





·
            We
      are dependent on a few of our larger customers and are vulnerable to
      changes in their asset tracking
requirements.





·
            Currently,
      a significant part of our revenue is attributable to contracts with
      government agencies, particularly the U.S. Coast Guard.  Changes
      in the priorities of the government may affect the level of funding
      allocated towards U.S. Coast Guard programs.  We may benefit if
      greater funds are allocated toward asset tracking to the extent that our
      business is engaged for such use.   However, changes in
      priorities in government spending may diminish the U.S. Coast Guard’s
      capacity to engage our services.




·
            Our
      revenue sources are presently concentrated in the maritime market and not
      yet diversified in other segments, which may adversely affect our business
      in an industry slump.





·
            Our
      business and operations would suffer in the event of system
      failures.




·
            From
      time to time, we install new or upgraded business management systems. To
      the extent such systems fail or are not properly implemented, we may
      experience material disruptions to our business, delays in our external
      financial reporting or failures in our system of internal controls, that
      could have a material adverse effect on our results of
      operations.




·
            The
      market price for our common stock, shares of which underlie our preferred
      stock, may be particularly volatile given our status as a relatively
      unknown company with a small and thinly traded public float, limited
      operating history and lack of profits which could lead to wide
      fluctuations in our share price.




·
            Our
      executive officers, directors and insider shareholders, and parties
      related to them, will own or control approximately 26%
      of our outstanding common stock, which may limit the ability of our other
      shareholders, whether acting alone or together, to propose or direct the
      management or overall direction of our company.  Additionally,
      this concentration of ownership could discourage or prevent a potential
      takeover that might otherwise result in receiving a premium over the
      market price of your shares.








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





None.





Item
3. Defaults Upon
Senior Securities





Not
applicable.





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





Not
applicable.





Item
5. Other
Information





Not
applicable.





Item
6.Exhibits





[See
Exhibit Index attached]


16





SIGNATURES








Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, this
report has been signed by the following persons on behalf of the Registrant in
the capacities and on the dates indicated.








SARS CORPORATION





/s/ Clayton
Shelver


Clayton Shelver


Director and Chief Executive
Officer





DATE  May 15,
2008





17