---

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, 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 ended March 31, 2008

or

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

For the transition period from __________to ____________

Commission file number 333-120382

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 ]

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- 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

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- 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 StatementsFsona 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 threemonths ended
    
    
    months endedMarch 31,
    
    
    March 31,2008
    
    
    2007**$**
    
    
    $RevenuesUnited States
    
    127,537
    
    
    182,204Asia-Pacific
    
    14,310
    
    
    91,401Central and Latin
      America
    
    28,577
    
    
    103,705Middle East and Africa
    
    67,707
    
    
    66,791Europe
    
    61,359
    
    
    14,573299,490
    
    
    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.

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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.

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4

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

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5

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.

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6

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,

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7

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.

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8

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.

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9

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

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

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10

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;

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11

(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.

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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,

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13

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.

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14

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;

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15

- 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.

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16

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

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17

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.

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18

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)                                                                        

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19

|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

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20

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 GrieveAndrew Grieve, President,
Secretary and Treasurer (Principal Executive Officer and Principal Financial
Officer and Principal Accounting Officer) May 20, 2008

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