form10k.htm

Mycom Group, Inc. and subsidiary

(prior to merger with Veritas Solutions, Inc.)

Index to

Consolidated Financial Statements

	Page
Report of Independent Registered Public Accounting Firm	F1
Notes to Consolidated Financial Statements	F2
Consolidated Statements of Operations	F3
Consolidated Statement of Stockholders’ Equity	F4
Consolidated Statements of Cash Flows	F5
Notes to Consolidated Financial Statements	F6

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors

Mycom Group, Inc.

Bothell, Washington

We have audited the accompanying consolidated balance sheet of Mycom Group, Inc. (renamed SARS Corporation on September 14, 2007) ("the Company") as of August 28, 2007, and the related statements of operations, stockholders' equity, and cash flows for the period from January 1, 2007, to August 28, 2007. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Mycom Group, Inc. as of August 28, 2007, and the results of its operations and its cash flows for the period from January 1, 2007 to August 28, 2007, in conformity with accounting principles generally accepted in the United States.

As discussed in Note 1, the financial statements referred to above represent those of the Company prior to its acquisition and recapitalization on August 28, 2007.

/s/ PETERSON SULLIVAN PLLC

January 9, 2008

Seattle, Washington

Mycom Group and its subsidiary

Consolidated Balance Sheet

August 28, 2007

(in thousands, except share data)


Total assets				$ -


Total liabilities				$ -
Stockholders' Equity
Preferred stock, $0.01 par value, 10,000,000 shares				-
authorized, none issued and outstanding
Common stock and additional paid-in capital, $0.01 par value,
90,000,000 shares authorized, 1,500,095 shares issued and outstanding				3,725
Accumulated deficit				(3,725)
Total stockholders' equity				-

Total liabilities and stockholders' equity				$ -




See accompanying notes to consolidated financial statements.

Mycom Group, Inc. and its subsidiary

Consolidated Statement of Operations

(in thousands, except share and per share data)

			January 1,2007 through
			August 28, 2007

Revenue			$ -
Operating expenses
General and administrative			45
Total operating expenses			45

Operating loss from continuing operations			(45)
Other expense (income)
Loan fee to related party			(80)
Total other (income) expense			(80)

Loss from operations before income taxes			(125)
Income taxes			-

Net loss			$ (125)

Net loss per share, basic and diluted			$ (0.11)

Weighted average shares used in computing
computing net loss per share, basic and diluted			1,158,845
See accompanying notes to consolidated financial statements.

Mycom Group, Inc. and its subsidiary

Consolidated Statement of Stockholders’ Equity

(in thousands, except share data)

	Common Stock and additional paid-in capital
			Accumulated
	Shares	Amount	Deficit	Total

Balance at January 1, 2007 (after reverse splits)	600,095	$ 3,605	$ (3,600)	$ 5
Issuance of shares as loan fee	900,000	80		80
Increase in additional paid in capital resulting from elimination of obligation to repay notes payable as a condition of completing the aquisition of VSI		40		40
Net loss for the year-to-date period ended August 28, 2007			(125)	(125)

Balance at August 28, 2007	1,500,095	$ 3,725	$ (3,725)	$ -



See accompanying notes to consolidated financial statements.

Mycom Group, Inc. and its subsidiary

Consolidated Statement of Cash Flows

(in thousands)


			January 1,2007 through
			August 28, 2007
Cash flows from operating activities:
Net loss			$ (125)
Adjustments to reconcile net loss to net cash
used by operating activities:
Loan fees paid in common stock to related parties			80
Changes in operating assets and liabilities:
Accounts payable			(3)
Net cash used by operating activities			(48)
Cash flows from investing activities:
Net cash used by investing activities			-
Cash flows from financing activities:
Proceeds from issuance of notes payable to related parties			40
Net cash provided by financing activities			40
Net increase in cash and cash equivalents			(8)
Cash and cash equivalents, beginning of period			8

Cash and cash equivalents, end of period			$ -

Supplemental disclosures of cash flow information:
Cash paid for interest			$ -
Cash paid for income taxes			$ -

Non-cash investing and financing activities
Notes payable to related parties eliminated upon merger			$ 40




See accompanying notes to consolidated financial statements.

Mycom Group, Inc. and its subsidiary

Notes to Consolidated Financial Statements

August 28, 2007

Note 1. Description of Business

Mycom Group, Inc. (“Mycom”) is a Nevada corporation. Since July 2006, Mycom and its inactive wholly owned subsidiary have had no operations. Immediately prior to the acquisition described below, Mycom was a public shell company.

On August 28, 2007, Mycom exchanged, pursuant to an Agreement and Plan of Merger (the “Merger Agreement”) with Veritas Solutions, Inc. (“VSI”), an aggregate of 24,965,945 shares of its common stock for all of the issued and outstanding and issuable equity and voting interests of VSI on a one-for-one basis (the “acquisition” or ”merger”). Outstanding VSI conversion rights and warrants became conversion rights and warrants also on a one-for-one basis. At the merger date, Mycom had no assets or liabilities and its net stockholders’ equity was zero. In September 2007, Mycom’s name was changed to SARS Corporation (“SARS”).

From an accounting perspective, the acquisition is considered a recapitalization, as a result of Mycom not having operations immediately prior to the merger, and following the merger becoming an operating company. After the merger, former Mycom stockholders own approximately 7% of the common stock of the merged company. The board of directors and executive officers of the merged companies are comprised of previous VSI directors and executive officers. In these circumstances, the merger transaction is accounted for as a capital transaction rather than as a business combination, in that the transaction is equivalent to the issuance of stock by VSI for the stock of Mycom, accompanied by a recapitalization. Subsequent to the acquisition, the financial statements of SARS Corporation (formerly Mycom) will include the results of operations of the merged entity after the acquisition and the historical financial statements of VSI for periods prior to August 28, 2007.

The accompanying consolidated balance sheet is for Mycom immediately prior to its acquisition of VSI.The accompanying statements of operations, stockholders’ equity, and cash flows present the consolidated results of Mycom for the period January 1, 2007 up to the acquisition date. These accompanying 2007 consolidated financial statements are considered the final financial reporting of Mycom prior to its acquisition of VSI. Mycom’s 2006 and 2005 audited annual consolidated financial statements are included in its December 31, 2006 Annual Report on Form 10-KSB as filed with the Securities and Exchange Commission and readers of these financial statements are encouraged to refer to those prior year statements for a more full understanding of Mycom’s activities prior to its acquisition of VSI. The financial statements of Mycom, under the name SARS Corporation, for periods after the acquisition of VSI are presented in the September 30, 2007 Annual Report on Form 10-KSB of SARS Corporation

Note 2. Summary of Significant Accounting Policies

As of the balance sheet date, the Company had no assets, liabilities, or operations. A summary of significant accounting policies applicable to the Company as of that date and for the fiscal year-to-date period then ended are set forth below.

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

Principles of Consolidation - The consolidated financial statements include the accounts of Mycom and its inactive wholly-owned subsidiary. Intercompany balances and transactions have been eliminated.

Cash and Cash Equivalents - Cash and cash equivalents consist of cash and short-term investments that are readily convertible to cash and have original maturities of three months or less at the time of acquisition.

Financial Instruments - Immediately prior to the acquisition, Mycom had no financial instruments.

Loss per share - All per share and share information presented has been presented to give effect to the 1 for 30 reverse stock split in February 2007 and the 1 for 5 reverse stock split in May 2007. Basic loss per share is computed by dividing net loss by the weighted average number of common stock shares outstanding during the period. Diluted loss per share, which would include the effect of the conversion or exercise of rights to purchase common stock, is not separately computed because Mycom did not have any such outstanding securities.

Income Taxes - The Company follows the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and on the expected future tax benefits to be derived from net operating loss carryforwards measured using current tax rates. A valuation allowance is established if management is unable to determine that it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Stock-Based Compensation - Mycom accounts for stock issued to other than employees in accordance with the Financial Accounting Standards Board’s Emerging Issue Task Force Abstract, EITF 96-18, Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods and Services (“EITF 96-18”), which results in recording amounts based on estimated fair values of securities issued as of the measurement date.

Recent Accounting Pronouncements– Recent accounting pronouncements will have no effect on these financial statements due to these statements being the final financial statement presentation prior to the acquisition of VSI.

Note 3. Stockholders’ Equity

Effective February 20, 2007, Mycom’s Board of Directors approved a reverse split of its common stock on the basis of one share for each 30 shares issued and outstanding with any fractional shares to be rounded up to a whole share. On May 29, 2007, Mycom shareholders, at a special meeting, approved a one for five reverse stock split of Mycom common stock, with no change in the number of authorized shares of common stock and with any fractional shares rounded up to a whole share. All historical amounts have been retroactively restated to reflect these stock splits.

In April 2007, Mycom issued 900,000 shares of its common stock to a group of four investors owning a majority of Mycom’s common stock (the “majority shareholders”) as a loan fee in connection with the group providing a revolving credit agreement. The value recorded as loan fees expense of $80,000 was determined in accordance with EITF 96-18. The agreement provided for borrowings up to $250,000 evidenced by unsecured revolving loan notes accruing interest at 7% per annum and all principal and accrued interest payable in full on demand of the lender. Mycom borrowed $40,000 pursuant to this revolving credit agreement. As a condition of the August 28, 2007 merger, the Company's obligation to repay the outstanding notes payable was eliminated, which has been recorded as an increase in additional paid-in capital, and the revolving credit agreement was terminated.

The issuance of Mycom common stock to VSI stockholders is intended to be exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”), pursuant to Section 4(2) thereof. As such, the Mycom common stock received by VSI stockholders pursuant to the merger may not be offered or sold in the United States unless they are registered under the Securities Act, or an exemption from the registration requirements of the Securities Act is available.

Options and Warrants– At August 28, 2007, Mycom did not have a stock option plan and has no outstanding options or warrants to purchase its common stock.

Note 4. Income Taxes

Deferred income taxes arise from temporary differences in the recognition of income and expenses for financial reporting and tax purposes. Mycom’s deferred tax assets consist of the benefit from net operating loss carryforwards and approximated $950,000 at August 28, 2007. The Company’s deferred tax assets are fully offset by a valuation allowance as a result of management not being able to determine that it is more likely than not that deferred tax assets will be realized. The Company’s effective tax rate of 0% differs from the expected statutory rate due to the valuation allowance recorded.

At August 28, 2007, Mycom had available approximately $2.8 million of net operating loss carryforwards available to offset future federal income taxes, which expire 2024 through 2027. Realization is dependent on generating sufficient taxable income prior to expiration of the loss carryforwards. Utilization of these carryforwards is dependent on future taxable income and there are significant Internal Revenue Code Section 382 limitations on annual amounts that can be utilized due to a change in ownership control. At August 28, 2007, the Company has provided a valuation allowance to reduce its net deferred tax asset to zero. The valuation allowance increased by approximately $25,000 during the year-to-date period ended August 28, 2007.

SARS Corporation and subsidiaries

(formerly Mycom Group, Inc., prior to the acquisition of Veritas Solutions, Inc. and its wholly-owned

subsidiary, Secure Asset Reporting Services, Inc., and subsequently renamed)

Index to

Consolidated Financial Statements

	Page
Report of Independent Registered Public Accounting Firm	F7
Notes to Consolidated Financial Statements	F8
Consolidated Statements of Operations	F9
Consolidated Statement of Stockholders’ Equity	F10
Consolidated Statements of Cash Flows	F11
Notes to Consolidated Financial Statements	F12

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors

SARS Corporation

Bothell, Washington

We have audited the accompanying consolidated balance sheets of SARS Corporation ("the Company") as of September 30, 2007 and 2006, and the related statements of operations, stockholders' equity, and cash flows for the year ended September 30, 2007, and for the nine months ended September 30, 2006. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of SARS Corporation as of September 30, 2007 and 2006, and the results of its operations and its cash flows for the year ended September 30, 2007, and for the nine months ended September 30, 2006, in conformity with accounting principles generally accepted in the United States.

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has incurred significant losses and has an accumulated deficit of approximately $20.7 million at September 30, 2007. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans regarding those matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ PETERSON SULLIVAN PLLC

January 9, 2008

Seattle, Washington

SARS Corporation and its subsidiaries

Consolidated Balance Sheets

(in thousands, except share data)

					September 30,
					2007	2006
				ASSETS
Current Assets
	Cash and cash equivalents				$ 31	$ 66
	Receivable for cash in escrow for common stock sold				890	-
	Accounts receivable, net				89	54
	Inventory				142	139
	Prepaid expenses and other current assets				54	14
				Total current assets	1,206	273
Property, equipment and software, net					4,179	4,935
Goodwill					568	568
Advances to and receivables from Andronics (see Note 10)					854	-
Other assets					35	50
				Total Assets	$ 6,842	$ 5,826

				LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
	Accounts payable and other accrued expenses				$ 467	$ 201
	Accounts payable - related party				73	449
	Accrued liabilities				93	73
	Notes payable current portion				40	100
	Deferred revenue				12	12
				Total current liabilities	685	835
Long-Term Liabilities
	Notes payable, net of current portion				83	-
	Redeemable Convertible Preferred Stock -
		Series A - no par value, 1 share authorized, issued and
			outstanding in 2006; liquidation value of $950		-	950
		Series B - no par value, 75,000,000 shares authorized,
			140,000 shares issued and outstanding in 2006		-	140
				Total liabilities	768	1,925

Commitments and Contingencies

Stockholders' Equity
	Preferred Stock - $0.001 par value; 50,000,000 shares authorized;
		Series A Convertible Preferred Stock - 1 share issued and
			outstanding in 2007; liquidation value of $950		950	-
	Common Stock and additional paid-in capital - $0.001 par value (no
		par in 2006), 500,000,000 shares authorized (250,000,000 in 2006),
		30,317,385 shares issued and issuable in 2007 and 18,454,155
		shares issued and outstanding in 2006			25,832	18,324
	Common Stock subscriptions receivable				-	(50)
	Accumulated deficit				(20,708)	(14,373)
				Total Stockholders' Equity	6,074	3,901

				Total Liabilities and Stockholders' Equity	$ 6,842	$ 5,826



				See accompanying notes to consolidated financial statements.

SARS Corporation and its subsidiaries

Consolidated Statements of Operations

(in thousands, except share and per share data)

				Year Ended September 30, 2007	Nine Months Ended September 30, 2006

Revenues				$ 1,049	$ 196
Cost of revenues				867	121
		Gross profit		182	75
Operating Expenses
	Sales and marketing expense			1,236	635
	General and administrative expense			4,387	1,391
	Capital formation, merger, and acquisition expense			195	7,799
		Total operating expenses		5,815	9,825
		Loss from operations		(5,633)	(9,750)
Other Income (Expense)
	Interest expense			(711)	(40)
	Interest and other income			9	-
		Total other income (expense)		(702)	(40)

Loss before income taxes				(6,335)	(9,790)
Income taxes				-	-

Net Loss				(6,335)	(9,790)

Preferred stock dividends				(9)	-

Net loss attributable to holders of common stock				$ (6,344)	$ (9,790)

Basic and diluted net loss attributable to holders
	of common stock per common share			$ (0.28)	$ (0.94)
Weighted average basic and diluted shares outstanding				22,315,825	10,379,978




			See accompanying notes to consolidated financial statements.

SARS Corporation and its subsidiaries

Consolidated Statement of Stockholders’ Equity

(in thousands, except share data)

	Series A Preferred Stock			Common Stock and additional paid-in capital		Stock Subscriptions		Accumulated
		Shares	Amount	Shares	Amount	Receivable	Deposits	Deficit	Total

Balance at January 1, 2006		-	$ -	4,857,680	$ 3,636	$ (5)	$ 35	$ (4,583)	$ (917)
Issuance of shares for cash				1,383,533	1,895				1,895
Issuance of shares for services provided and expensed
in 2004 for which share-based payments were accrued				4,088,000	672				672
Issuance of shares and warrants for capital stock of SARS				2,581,010	3,962				3,962
Issuance of shares for capital stock of Sentinela				262,800	360				360
Issuance of shares and warrants for capital formation services				5,281,132	7,799				7,799
Funds received and receivable for common stock subscriptions						(45)	(35)		(80)
Net loss for the nine months ended September 30, 2006								(9,790)	(9,790)
Balance at September 30, 2006		-	-	18,454,155	18,324	(50)	-	(14,373)	3,901
Issuance of shares and warrants for cash				1,551,250	2,126				2,126
Issuance of warrants with bridge debt borrowings					582				582
Increase in additional paid-in capital for change in:
Conversion price of Convertible Preferred Stock					19				19
Exercise price of warrants to purchase common stock					52				52
Issuance of warrants to purchase common stock for services					157				157
Funds received for common stock subscriptions						50			50
Shares and warrants issuable for cash received				4,840,000	4,840				4,840
Shares issuable for cash received				2,096,250	2,096				2,096
Stock issue costs paid in cash					(2,053)				(2,053)
Shares issuable for services provided and recorded as stock issue costs				1,756,302	-				-
Reclassification of Series A Preferred Stock from liabilities to stockholders'		1	950						950
equity as a result of termination of mandatory redemption feature
Cash paid as stock issue costs in connection with reverse merger					(450)				(450)
Mycom shares outstanding at reverse merger date				1,470,095					-
Issuance of common stock upon conversion of Series B Preferred Stock				149,333	148				148
Preferred stock dividends for the period subsequent to reclassification					(9)				(9)
Net loss for the year ended September 30, 2007								(6,335)	(6,335)

Balance at September 30, 2007		1	$ 950	30,317,385	$ 25,832	$ -	$ -	$ (20,708)	$ 6,074



See accompanying notes to consolidated financial statements.

F10

SARS Corporation and its subsidiaries

Consolidated Statements of Cash Flows

(in thousands)

				Year Ended September 30, 2007	Nine Months Ended September 30, 2006
Cash Flows From Operating Activities
	Net loss			$ (6,335)	$ (9,790)
	Adjustments to reconcile net loss to net cash used in
	operating activities
		Depreciation and amortization		1,231	447
		Share-based compensation included in operating expenses		206	7,799
		Non-cash interest expense		604	-
	Changes in operating assets and liabilities
		Accounts receivable		(35)	(1)
		Inventories		(3)	(38)
		Prepaid expenses and other current assets		(40)	(1)
		Receivables from Andronics		(660)	-
		Accounts payable		(110)	3
		Accrued liabilities		20	57
		Other		6	12
			Net cash used in operating activities	(5,116)	(1,512)
Cash Flows From Investing Activities
	Advances to SARS, net of $2 cash acquired upon acquisition			-	(210)
	Advances to Andronics Ltd.			(194)	-
	Purchases of property, equipment, and software			(408)	(64)
			Net cash used in investing activities	(602)	(274)
Cash Flows From Financing Activities
	Borrowings on notes payable			1,022
	Payments on notes payable			(999)	(21)
	Proceeds from sale of common stock and warrants, net of cash fees			8,172	1,815
	Stock issue costs			(2,503)
	Preferred stock dividends			(9)	-
			Net cash provided by financing activities	5,683	1,794
			Net increase (decrease) in cash and cash equivalents	(35)	8
Cash and cash equivalents, beginning of period				66	58

Cash and cash equivalents, end of period				$ 31	$ 66

Supplemental disclosure of cash flow information
	Cash paid for interest			$ 106	$ 9

	Cash paid for income taxes			$ -	$ -
	Non-Cash Investing and Financing Activities
		Preferred stock, common stock and warrants
		issued in connection with acquision of SARS		$ -	$ 4,912

		Preferred stock, common stock and notes payable
		issued in connection with acquision of Sentinela		$ -	$ 600

		Common stock issued for stock-based compensation payable		$ -	$ 672


See accompanying notes to consolidated financial statements.

F11

SARS Corporation and its subsidiaries

Notes to Consolidated Financial Statements

September 30, 2007 and 2006

Note 1. Description of Business, Basis of Presentation and Summary of Significant Accounting Policies

Organization and business –SARS Corporation, a Nevada corporation, (formerly Mycom Group, Inc. prior to the August 2007 acquisition of Veritas Solutions, Inc. (“VSI”) and its wholly-owned subsidiary, Secure Asset Reporting Services, Inc. (“Old SARS”), and subsequently renamed), and together with its subsidiary (the “Company”) is headquartered near Seattle, Washington U.S.A., and provides remote asset management and telematics solutions that deliver business intelligence about fixed and mobile assets anywhere in the world, which includes providing global tracking services of high-value, mobile assets, including vessels, cargo containers, trucks, and aircraft, and the monitoring of high-value fixed assets, including fuel tanks, bridges, and pipelines. As described in Note 10, in December 2007, the Company closed its asset purchase agreement of Andronics Ltd., a company located in Northern Ireland that provides global two-way data solutions for monitoring and controlling remote assets.

Acquisition by public shell company in August 2007 - On August 28, 2007, Mycom Group, Inc. (“Mycom”), through its wholly-owned subsidiary, Mycom Acquisition Corporation, a Nevada corporation (“MergerCo”), agreed to exchange, pursuant to an Agreement and Plan of Merger (the “Merger Agreement”) with VSI, an aggregate of 24,965,945 shares of its common stock for all of the issued and outstanding and issuable equity and voting interests of VSI on a one-for-one basis. Outstanding VSI conversion rights and warrants became conversion rights and warrants also on a one-for-one basis. In connection with the Merger Agreement, VSI merged with and into MergerCo with MergerCo as the surviving corporation. In September 2007, Mycom’s name was changed to “SARS Corporation” and the MergerCo name was changed to “Secure Asset Reporting Services, Inc.”.

From an accounting perspective, the acquisition is considered a recapitalization accompanied by the issuance of stock by VSI for the stock of Mycom, as a result of Mycom not having operations immediately prior to the merger, and following the merger becoming an operating company. After the merger and private placement, as of September 30, 2007, former Mycom stockholders own approximately 7% of the common stock of the merged company, and former VSI stockholders and convertible preferred stock holders own approximately 93% of the merged company. The board of directors and executive officers are comprised of previous VSI directors and executive officers. In these circumstances, the merger transaction is accounted for as a capital transaction rather than as a business combination, in that the transaction is equivalent to the issuance of stock by VSI for the assets and liabilities of Mycom, accompanied by a recapitalization. The accounting is identical to that resulting from a reverse acquisition, except that no goodwill or other intangible is recorded. The assets and liabilities of VSI are presented in the consolidated balance sheets at book value. The historical operations presented in the Company’s Consolidated Statements of Operations are those of VSI. At the merger date, Mycom had no assets or liabilities and its stockholders’ equity was zero, with its accumulated deficit offsetting its capital stock and additional paid in capital, it had no revenues and its net loss for the year-to-date period ended on the merger date was approximately $125,000, which such loss is not included in the Company’s accompanying consolidated statements of operations.

F12

Basis of presentation and liquidity - Since inception, the Company has funded its operations and business development and growth primarily through sales of its common stock and warrants to purchase common stock. In this regard, during the fiscal year ended September 30, 2007 the Company raised approximately $7.0 million of net proceeds pursuant to sales of equity securities (approximately 8.5 million shares of common stock and warrants to purchase approximately 4.6 million shares of common stock) in connection with its private placement offerings. Subsequent to September 30, 2007, the Company received additional net proceeds of approximately $5.6 million through sales of approximately 6.4 million shares of its common stock and closed its private placement offering. Company management intends to continue to be engaged in additional fund-raising activities to fund future operations, capital expenditures, potential acquisitions of businesses, and provide additional working capital. If the Company does not raise additional capital, then the Company may be forced to severely curtail or cease operations. Consequently, the Company is actively working with investment banks and institutional investors to obtain additional capital through various financing options; however, the Company does not have any additional financing agreements. There can be no assurance that additional financing will be available on favorable terms or at all. If the Company raises additional capital through the sale of equity or convertible debt securities, the issuance of such securities may result in dilution to existing stockholders.

The Company’s consolidated financial statements are prepared consistent with accounting principles generally accepted in the United States applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has incurred significant losses since inception, including approximately $6.3 million during the year ended September 30, 2007, and $9.8 million during the nine months ended September 30, 2006, and has an accumulated deficit at September 30, 2007 of $20.7 million, and has relied on proceeds from sales of its common stock and warrants to purchase common stock, as supplemented by bridge loan borrowings, to fund operations and business development and growth. Further, it is expected that the Company will continue to experience net losses throughout most, if not all of the next fiscal year. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company have to curtail operations or be unable to continue in existence.

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

Fiscal year - Subsequent to the August 2007 acquisition, Mycom changed its fiscal year to end September 30, effective September 30, 2007. In 2006, VSI changed its fiscal reporting year from December 31 to September 30.

Principles of Consolidation - The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. Intercompany balances and transactions have been eliminated.

Receivable for cash in escrow for securities sold – In connection with the sale of its securities, cash is received into escrow for the sale of common stock, a portion of which had not been transferred to the Company as of the reporting period date, and which has subsequently been received by the Company.

Concentration of Credit Risk – The Company derives its revenues from certain major customers. The loss of major customers could create a significant financial hardship for the Company. During the year ended September 30, 2007, and the nine months ended September 30, 2006, the Company had revenues of over 10% of total revenue from individual customers as follows (“*” means < 10%):

2007 2006

Customer A 56% *

Customer B 11% *

Customer C 10% 38%

Customer D * 33%

Customer A is Andronics, which the Company acquired in December 2007, as disclosed in Note 10.

Geographic Information– During the year ended September 30, 2007, revenues from other than domestic customers were to Andronics, a Northern Ireland company, which approximated 56% of total revenues. At September 30, 2007, approximately 12% of the Company’s total assets represented advances to and receivables from Andronics.

Allowance for Doubtful Accounts - The Company provides for an allowance for doubtful accounts based on an evaluation of customer account balances past due ninety days or more from the date of invoicing. In determining whether to record an allowance for a specific customer, the Company considers a number of factors, including prior payment history and financial information for the customer, and the condition of the general economy and the industry as a whole. The Company writes off accounts receivable when they become uncollectible, and payments subsequently collected on such accounts are credited to the allowance for doubtful accounts. As of September 30, 2007 and 2006, the allowance for doubtful accounts was approximately $17,000 and $14,000, respectively.

Inventory - Inventory consists of tracking equipment held for resale and is valued at the lower of cost (first-in, first-out basis) or market. The Company regularly evaluates the technological usefulness and anticipated future demand for various inventory components and the expected use of the inventory. When it is determined that these components do not function as intended, or quantities on hand are in excess of estimated requirements, the costs associated with these components are charged to expense.

Financial Instruments - The Company’s financial instruments consist of cash and cash equivalents, accounts and other receivables, accounts payable, accrued expenses and notes payable. The fair value of financial instruments approximates the recorded value based on the short-term nature and market interest rates of these financial instruments.

Property, Equipment and Software – Property, equipment and software are stated at cost less accumulated depreciation and amortization. Maintenance and repairs are expensed as incurred. Depreciation and amortization are calculated on a straight-line basis over the estimated useful lives of the related assets, ranging from three to seven years for furniture, equipment and computer equipment. The costs of acquired software are generally amortized over five years.

Goodwill and Customer List - Goodwill consists of the excess of purchase price over fair value of assets acquired related to the purchase of certain assets of Sentinela, LLC (“Sentinela”) in September 2006. Goodwill is not amortized, but is subject to periodic review for impairment in value. The customer list was purchased in 2005. The customer list, which was included in other assets, was not being amortized due to having an indeterminable life; however it was written off in 2007 due to its value being impaired.

Impairment of Long-Lived Assets - The Company’s long-lived assets, including property, equipment and software, goodwill and customer list, are reviewed for carrying value impairment annually or more frequently when events or changes in circumstances indicate that the carrying amount may not be recoverable. The Company evaluates the recoverability of its goodwill and other intangible assets in accordance with SFAS 142. Due to the migration of VSI customers to Secure Asset Reporting Services, Inc. post-merger, the remaining Customer list was deemed to have no future value and impairment of $50,000 was recognized June 30, 2007 and included in depreciation and amortization expense.

Loss per share - Basic loss per share is computed by dividing net loss attributable to common stockholders by the weighted average number of common stock shares outstanding during the period. Diluted loss per share, which would include the effect of the conversion of unexercised warrants to purchase Common Stock, and convertible Preferred Stock, is not separately computed because inclusion of such is antidilutive. In these cases, basic and diluted loss per share is the same. Common stock equivalent shares excluded from loss per share computations because the effect would be antidilutive include 8,937,101 and 2,013,488 shares for warrants at September 30, 2007 and 2006, respectively, and 949,909 and 1,089,909 shares for convertible preferred stock at September 30, 2007 and 2006, respectively. All per share and share information presented has been presented to give effect to the 0.365 to 1.0 reverse stock split in January 2007.

Revenue Recognition - The Company’s revenues are comprised of monthly recurring software usage fees for access to Intellitrax including long-range identification tracking display, automatic identification system display, alarm notifications and alarm monitoring, airtime and data delivery fees for airtime purchased from service providers, sales from resale of equipment, and fees for operations management, equipment installations and custom programming.

The Company recognizes revenue when it has persuasive evidence of an arrangement, the product has been shipped or the services have been provided to the customer, title and risk of loss for products has passed to the customer, the sale price is fixed and determinable, no significant unfulfilled Company obligations exist, and collectibility is reasonable assured. Revenue from hardware sales is generally recognized when products are shipped and/or the revenue is fully earned and ownership had passed to the customer. Revenue from tracking services are recorded in the month the service is provided. Revenue from custom programming services, which are all short-term, is recognized using the completed-contract method. For multiple-element arrangements, the Company applies Emerging Issues Task Force (“EITF”) Issue 00-21, “Revenue Arrangements with Multiple Deliverables,” that meet the following criteria: the delivered item has value to the customer on a standalone basis; there is objective and reliable evidence of the fair value of undelivered items; and delivery of any undelivered item is probable. Subscription and service fees are recognized as revenue over the respective subscription periods or when services are provided. Revenue from services is generally determined based on time and materials. Deferred revenue is recorded on prepaid subscriptions and on advance billings or cash received for contracts that have undelivered elements, and was approximately $12,000 as of September 30, 2007 and 2006.

Advertising Expense. - Advertising costs are expensed as incurred. Advertising expense, included in sales and marketing expense, was approximately $24,000 for the year ended September 30, 2007, and $4,000 for the nine months ended September 30, 2006.

Research and Development Costs - All expenditures for research and development costs are expensed as incurred. These expenses consist of costs incurred for proprietary research and include related salaries and benefits, contract and other outside service fees, and facilities and overhead costs. Research and development expense, included in general and administrative expense, was approximately $55,000 for the year ended September 30, 2007, and $20,000 for the nine months ended September 30, 2006.

Capital Formation, Merger, and Acquisition Expense - Capital formation, merger, and acquisition expense consists of salaries and travel of senior management in reviewing acquisition targets and payments, primarily in the form of common stock shares and common stock purchase warrants, to lawyers, advisors, and investment funds in connection with raising capital for the Company.

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

Reclassifications – Certain amounts in 2006 financial statements have been reclassified to conform to 2007 presentations.

Recent Accounting Pronouncements - In July 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN No. 48”), which prescribes a recognition threshold and measurement process for recording in the financial statements uncertain tax positions taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition of tax benefits, classification on the balance sheet, interest and penalties, accounting in interim periods, disclosure and transition. The accounting provisions of FIN No. 48 became effective for the Company beginning January 1, 2007. The effect of adoption did not have a material impact on the Company’s consolidated results of operations, financial position or liquidity Based on Company management's evaluation, it has been concluded that there are no significant uncertain tax positions requiring recognition in the Company's financial statements. The evaluation was performed for the tax years ended December 31, 2000 and thereafter, the tax years which remain subject to examination by federal tax jurisdictions since the Company has net operating loss carryforwards for the tax year ended December 31, 2000. The Company does not have significant state income tax jurisdictional presence or tax attributes.

In December 2006, the FASB issued FASB Staff Position No. EITF 00-19-2 “Accounting for Registration Payment Arrangements” (“FSP EITF 00-19-2”), which addresses an issuer’s accounting and disclosures relating to registration payment arrangements. In accordance with FSP EITF 00-19-2, registration payment arrangements are accounted for as an instrument separate and apart from the related securities and will be accounted for in accordance with Statement of Financial Accounting Standards No. 5 “Accounting for Contingencies,” accruing a liability if payment is probable and the amount can be reasonably estimated. Unless the Company enters into agreements providing for payments relating to registration arrangements, this pronouncement will have no effect on the Company’s consolidated results of operation, financial position or liquidity.

In September 2006, the FASB issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (“SFAS 157”). SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements but does not require any new fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. It is expected that adoption of SFAS 157 will not have a material impact on the Company’s consolidated results of operations, financial position or liquidity.

In February 2007, the FASB issued Statement of Financial Accounting Standards No. 159, The Fair Value Option for Financial Assets and Financial Liabilities (“SFAS 159”). SFAS 159 is effective for fiscal years beginning after November 15, 2007. It is expected that adoption of SFAS 159 will not have a material impact on the Company’s consolidated results of operations, financial position or liquidity.

In June 2007, the Emerging Issues Task Force of the FASB issued EITF Issue No. 07-3, Accounting for Nonrefundable Advance Payments for Goods or Services to be Used in Future Research and Development Activities, (“EITF 07-3”) which is effective for fiscal years beginning after December 15, 2007. EITF 07-3 requires that nonrefundable advance payments for future research and development activities be deferred and capitalized. Such amounts will be recognized as an expense as the goods are delivered or the related services are performed. It is expected that adoption of EITF 07-3 will not have a material impact on the Company’s consolidated results of operations, financial position or liquidity.

In. December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (“SFAS 141(R)”), which replaces SFAS No. 141. SFAS No. 141(R) 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. The Statement also establishes disclosure requirements which will enable users to evaluate the nature and financial effects of the business combination. SFAS 141(R) is effective for fiscal years beginning after December 15, 2008. The adoption of SFAS 141(R) will have an impact on accounting for business combinations once adopted, but the effect is dependent upon acquisitions at that time.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements – an amendment of Accounting Research Bulletin No. 51” (“SFAS 160”), which establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the noncontrolling interest, changes in a parent’s ownership interest and the valuation of retained non-controlling equity investments when a subsidiary is deconsolidated. The Statement also establishes reporting requirements that provide sufficient disclosures that clearly identify and distinguish between the interests of the parent and the interests of the non-controlling owners. SFAS 160 is effective for fiscal years beginning after December 15, 2008. The Company has not determined the effect that the application of SFAS 160 will have on its consolidated financial statements.

In accordance with Release No. 8760 of the Securities Act of 1933, commencing with the Company's fiscal year ending September 30, 2008, the Company will become subject to the requirement to include in its annual report management's assessment of internal controls over financial reporting. This assessment will require the Company to document and test its internal control procedures in accordance with Section 404 of the Sarbanes-Oxley Act of 2002. Under current regulations, the Company's independent registered public accountants will be required to attest to the Company's assessment of internal controls for its fiscal year ending September 30, 2009.

Note 2. Property, Equipment and Software

Property, equipment and software consist of the following at September 30 (in thousands):

	2007		2006
Furniture and equipment	$	368	$	170
Software		5,439		5,214
Subtotal		5,807		5,384
Accumulated depreciation and amortization		(1,628)		(449	)
Property, equipment and software, net	$	4,179	$	4,935

Computer equipment and software having a net book value of approximately $114,000 at September 30, 2007, are pledged as collateral for notes payable borrowings.

Note 3. Purchases of Assets and Acquisitions

In May 2006, VSI acquired all of the capital stock of Old SARS for approximately $4.9 million in order to obtain certain key software developed and owned by Old SARS that the Company intends to market. The Company’s Chief Executive Officer, who assumed that role as of the acquisition date, and his parents were the majority owners of Old SARS (together the “majority shareholders”), and they had no interest in VSI prior to the acquisition. The purchase price was paid by issuing 2,581,010 shares of VSI common stock valued at $3.5 million, issuing one share of VSI Series A redeemable convertible preferred stock valued at approximately $950,000 and issuing warrants to purchase 343,978 shares of VSI common stock valued at $426,000. Of this, the majority shareholders received 1,999,282 shares of the common stock valued at approximately $2.7 million, and the one share of the Series A preferred stock share valued at $950,000. VSI advanced operating funds to Old SARS prior to acquiring it, which such advances receivables totaling $240,000 were cancelled upon the acquisition. This acquisition has been accounted for in accordance with Statement of Financial Accounting Standards No. 141, “Business Combinations” (“SFAS No. 141”). The transaction was structured in such a manner as commonly referred to as “non-taxable”, which, among other things, results in a carryover tax basis of assets acquired and other tax attributes of the acquired entity. The total purchase price of approximately $5.2 million was allocated to assets acquired and liabilities assumed based on relative estimated fair values, which resulted in the majority being allocated to software, and which is summarized as follows (in thousands):

Current assets	$	154
Property, equipment and software		5,259
Liabilities assumed		(261)
Total	$	5,152

On September 30, 2006, VSI purchased certain assets from Sentinela for $600,000 in order to enter the South American market. The total purchase price was paid by issuing 262,800 shares of the Company’s common stock valued at $360,000, 140,000 shares of VSI Series B preferred stock valued at $140,000, and $100,000 in non-interest bearing notes payable due December 15, 2006., which were paid on the due date. No liabilities were assumed. This acquisition has been accounted for in accordance with SFAS No. 141. The total purchase price of $600,000 was allocated to assets acquired, which resulted in the majority being allocated to goodwill for both book and tax purposes, and which is summarized as follows (in thousands):

Property and equipment	$	32
Goodwill		568
Total	$	600

Operating results for the acquired businesses are included in the Company’s operating results from the dates of acquisitions. The following supplemental pro forma information has been presented on the basis as if the asset acquisitions had occurred at the beginning of the nine months ended September 30, 2006 (in thousands):

	Pro Forma		As reported
Revenues	$	475	$	196
Net loss	$	9,836	$	9,790
Net loss per share	$	0.86	$	0.94

Note 4. Notes Payable

In November 2006 and March 2007, VSI entered into loan agreements with a financial services business, assignees of Microsoft Capital, for the purchase of computer hardware and software. Total borrowings were approximately $137,000, and are collateralized by a pledge of purchased assets. The terms of the loans are 36 to 42 months and borrowings accrue interest on the unpaid principal at an approximate 9.7% annual percentage rate. Future annual minimum principal payments for the fiscal years ending September 30 approximate $40,000 in each of 2008 and 2009 and $33,000 in 2010.

During 2007, VSI borrowed $725,000 pursuant to bridge loans, due in one year with interest payable at 10%, which were repaid in April 2007 from the proceeds of a private placement sale of Company common stock and warrants. There were amounts outstanding for approximately 3 months with an average outstanding balance of approximately $590,000. The bridge notes were collateralized by a pledge of all of VSI’s assets. VSI issued the lenders five-year warrants to purchase 632,500 shares of its common stock at $1 per share. The warrants expire in 2012, and are valued utilizing the Black-Scholes valuation model as of the dates of warrant issuance at approximately $582,000, which was accounted for as additional interest expense over the loan term.

In connection with the acquisition of Sentinela on September 30, 2006, VSI issued $100,000 of short-term notes payable to the sellers, which were due and paid on December 15, 2006.

Note 5. Preferred Stock

The Company has outstanding one share of $0.001 par value (no par prior to August 2007) Series A 8% Cumulative Convertible Preferred Stock and, prior to conversion in August 2007, had outstanding 140,000 shares of no par value Series B 8% Cumulative Convertible Preferred Stock. Upon the closing of VSI’s acquisition by Mycom in August 2007, the shares of Series B Cumulative Convertible Preferred Stock, together with accrued dividends, automatically, pursuant to their terms, were converted into Company common stock on a one-for-one share basis.

Dividends are cumulative and are payable monthly for both series, in either cash or common stock of equivalent value at the Company’s discretion. Either series is convertible at any time into common stock at the discretion of the stockholder. In the event of conversion, the number of shares of common stock received for each share of preferred stock is determined by dividing the Liquidation Amount by the conversion price. The liquidation amount for the Series A share is approximately $950,000 plus accumulated accrued dividends, and for each Series B share was $1 plus accumulated accrued dividends. The conversion price for both series is $1.00 per share and a stockholder converting shares must convert all shares owned by the stockholder. If the Company issues common stock at less than the Conversion Price, the conversion price is adjusted to such lower price. Neither series has voting rights. If, five years following its date of designation (May 2006 for Series A and September 2006 for Series B), a series had not been otherwise converted to common stock, the stockholders had the option to require the Company to redeem each share of the series at the liquidation amount. In August 2007, certain terms of the Series A Preferred Stock were revised, such that the date upon which the preferred stock is automatically converted into common stock, if not previously converted, became August 16, 2009, and the option to require redemption at the liquidation value was eliminated, as was the requirement that shares of Series A preferred stock would automatically convert to common stock in connection with certain business combinations, mergers, reorganizations or the like.

In accordance with Statement of Financial Accounting Statement No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, the Company’s Convertible Preferred Stock was classified as liabilities and related preferred stock dividends classified as interest expense because of the mandatory redemption features. Upon elimination of the redemption feature on August 28, 2007, the Series A preferred stock was reclassified from liabilities to stockholders’ equity, and subsequent dividends are reported as dividends as a decrease in additional paid-in capital.

As a result of the reverse stock split of Common Stock, the conversion price on the Preferred Stock was adjusted to $1.37 per Common Stock share. As a result of the exercise price on Common Stock purchase warrants being reduced, the Preferred Stock conversion price changed to the same price, $1.00 per post-split Common Stock share. The value of the reduction of the conversion price of the Preferred Stock was determined using the Black-Scholes valuation model to be $19,000, which was recorded as non-cash interest expense, with a corresponding increase in Additional Paid-in Capital during the year ended September 30, 2007. The amount of the expense was originally recorded and presented as $294,000 in the Company's interim unaudited June 30, 2007 consolidated financial statements.

Note 6. Common Stock and Warrants

Reverse stock-split - In January 2007, VSI completed a reverse 1 to 0.365 split of its Common Stock. The effect of the reverse split decreased the number of outstanding shares from 54,809,329 pre-split to 20,005,405 post-split. The reverse split did not change the authorized shares for the class. This reverse split also changed the number and exercise price of the warrants to purchase Common stock outstanding at that time. The effect of the reverse split decreased the number of warrant shares and increased the exercise price of the warrants to purchase Common stock outstanding at that date. All share and warrant amounts and prices have been revised to give effect to the reverse split.

Common stock - During the nine months ended September 30, 2006, VSI issued 9,369,132 shares of its common stock to founders, certain early-stage employees, other investors, lawyers, advisors, and investment funds for services and in connection with capital formation activities. The measurement dates for valuing these shares were determined in accordance with EITF 96-18. The values of the shares were based upon comparable cash sales of the Company’s common stock to others at, or near to, the same time as their measurement dates. Included in these shares issued, 4,088,000 were issued in satisfaction of a commitment VSI made in 2004 and were previously accrued as a liability, at the market value of the common stock when accrued. Additionally, during the nine months ended September 30, 2006, VSI sold 1,197,018 shares of its common stock for gross proceeds of approximately $1.6 million.

During October 2006 to January 2007, VSI sold 1,551,250 shares of its common stock under a under a private placement memorandum dated October 2006 for gross proceeds of approximately $2.1 million. These shares included five-year Common Stock Purchase Warrants to purchase 3,793,863 shares of common stock at $1.37 for a five-year term. The value of these warrants was approximately $4.7 million, based on a Black-Scholes pricing model, which is accounted for as stock issue costs, and which has the effect of both increasing common stock and additional paid-in capital for recognition of fair value and decreasing common stock and additional paid-in capital for recognition of the issue costs. As described below, the exercise price on these warrants was changed to $1.00 per share.

In February 2007, VSI entered into an agreement with a placement agent to offer for sale to accredited investors under a private placement memorandum, on an exclusive, best-efforts basis, a minimum of $3 million and up to $10 million of its common stock, with an over-allotment option for an additional $2 million. Pursuant to terms of the placement agreement, for a period of one year following the date of the agreement, the placement agent must approve any additional issuances of capital stock by VSI. The offering presumed that, on or before the closing of the offering, VSI will have effected a reverse merger with a public shell company, which occurred in August 2007. The purchasers of the first $3.2 million of common stock received warrants to purchase the number of common shares equivalent to 25% of the common shares purchased by them under the offering (for a total of 810,000 warrants) at a per share price of $1.25 for three years. The value of these warrants was approximately $740,000, based on a Black-Scholes pricing model, which is accounted for as stock issue costs, which has the effect of both increasing common stock and additional paid-in capital for recognition of fair value and decreasing common stock and additional paid-in capital for recognition of the issue costs. A total of 4,840,000 shares of common stock were sold. The placement agent’s fees were 13% of the gross proceeds of the offering, plus warrants exercisable for five years at the offering price per share to purchase the number of common shares equivalent to 20% of the shares sold in the offering, which resulted in fees deducted from gross proceeds of approximately $629,000, and warrants issued and issuable for 968,000 shares at a per share price of $1.00 for five years. These placement agent fees were for services provided prior to the termination of the placement agent agreement. The value of these warrants was $892,000, based on a Black-Scholes pricing model, which were recorded as stock issue costs.

In July 2007, VSI entered into an agreement (the “July Offering”) appointing an exclusive successor placement agent to continue offering for sale to accredited investors under the February 2007 private placement memorandum (“PPM”) on an exclusive, best-efforts basis, 6,210,000 shares of Common Stock at $1.00 per share for a total of $6,210,000. The Company will also have the option to sell an additional 2,450,000 shares of Common Stock at $1.00 per share for a total of $2,450,000 to cover over-allotments. The terms of the July Offering are identical to the terms contained in the original PPM. The July Offering was open for 90 days from the date the successor placement agent was appointed, with the ability to extend for up to two additional 30-day periods thereafter, and which was extended. As of September 30, 2007, a total of 2,096,250 shares have been sold at $1.00 per share pursuant to this July Offering. The successor placement agent’s fees are 13% of the gross proceeds of the offering, plus warrants exercisable for five years at the offering price per share to purchase the number of common shares equivalent to 20% of the shares sold in the offering, which resulted in fees deducted from gross proceeds of approximately $27,000, and warrants issued and issuable for 419,250 shares at a per share price of $1.00 for five years. The value of these warrants was $277,000, based on a Black-Scholes pricing model, which were recorded as stock issue costs. In addition, in connection with consulting services agreements relating to the July Offering, the Company agreed to issue 1,323,302 shares of Company common stock and potentially an additional 443,000 shares based on total common shares sold. Based on amounts sold through September 30, 2007, total shares issuable are 1,756,302, and which have been determined to have a fair value of $1.00 per share based on recent and contemporaneous sales of common stock, and are considered stock issue costs and accounted for accordingly as previously disclosed. As disclosed in Note 11, during October through December 2007, the Company sold approximately 6,389,000 shares of its common stock for net proceeds of approximately $5.6 million.

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

In connection with the acquisition of VSI by Mycom in August 2007, Mycom’s 1,470,095 common shares outstanding, net of 30,000 shares owned by VSI, is presented as an increase in number of shares outstanding in the accompanying consolidated statement of stockholders’ equity, due to the reverse merger basis of presentation. Cash of $450,000 paid in connection with the acquisition of shares of Mycom, are considered to be a stock issue costs and are presented as a decrease to common stock and additional paid in capital. The fair value of warrants issued in connection with the reverse merger are also considered and accounted for as stock issue costs.

Options - The Company does not have a stock option plan and has not issued stock options to employees or others.

Warrants - In January 2007, VSI completed a reverse 1 to 0.365 split of its Common Stock, which had the effect of increasing the exercise price of warrants outstanding from $0.50 to $1.37 per share. Immediately following the reverse split, VSI reduced the exercise price on these warrants to $1.00 per share, which is also the exercise price for the warrants issued after the split. The reduction in the exercise price of warrants increases their value. This increase in value (an increase in additional paid-in capital) was determined to be approximately $104,000 and constitutes a deemed dividend to the warrant holders, of which approximately $52,000 has been recorded as expense related to warrants that were originally issued in conjunction with consulting and capital formation services and borrowings, the remainder of which is reported as a decrease in additional paid-in capital. The amount of expense was originally recorded and presented as $573,000 in the Company's interim unaudited June 30, 2007 consolidated financial statements.

During the fiscal year ended September 30, 2007, the Company issued warrants to purchase 124,100 shares of Company common stock at a price of $1.00 per share for five years. The value of these warrants was $157,000, based on a Black-Scholes pricing model, which were recorded as expense.

As of September 30, 2007, there are 7,827,101 warrants issued and issuable with an exercise price of $1.00 and a weighted average remaining term of approximately 4.0 years and 1,110,000 warrants issued and issuable with an exercise price of $1.25 and a weighted average remaining term of approximately 2.6 years. The aggregate intrinsic value of outstanding warrants is approximately nil, inasmuch as warrant prices are not less than market value at reporting dates.

During the year ended September 30, 2007 and the nine months ended September 30, 2006, warrants to purchase shares of the Company’s common stock were issued to certain purchasers of its common stock, and to various parties for services and in connection with acquisitions and capital formation activities as follows:


					weighted average
	number of	exercise	term	exercise		remaining term
	warrants	price	(in years)	price		(in years)

Outstanding at January 1, 2006	1,103,760	$ 1.00	4.0
Issued in connection with SARS acquisition	343,978	1.00	5.0
Issued to consultants for services	565,750	1.00	5.0
Outstanding at September 30, 2006	2,013,488			$ 1.00		4.0
Issued in connection with bridge loans	632,500	1.00	5.0
Issued to consultants for services	124,100	1.00	5.0
Issued in connection with private placement	3,669,763	1.00	5.0
Issued in connection with private placement	810,000	1.25	3.0
Issued and issuable to placement agents	1,387,250	1.00	5.0
Issued in connection with Mycom merger	300,000	1.25	3.0
Outstanding at September 30, 2007	8,937,101			$ 1.03		3.9

The weighted average fair value of warrants issued during the year ended September 30, 2007 and the nine months ended September 30, 2006, as determined using the Black-Scholes pricing model was approximately $0.82 and $0.45, respectively, utilizing the following assumptions:

	2007	2006
Expected life in years	3.0 to 5.0	5
Volatility	79% to 152%	145%
Interest rate	4.2% to 5.0%	4.40%
Dividend yield rate	0%	0%

The amounts of stock-based compensation included in operating expenses for the year ended September 30, 2007 and the nine months ended September 30, 2006, were approximately $157,000 and $7.8 million, respectively.

Note 7. Income Taxes

In connection with the acquisition of VSI by Mycom, the tax attributes, including net operating loss carryforwards and basis of assets and liabilities of VSI, carryover to and are combined with those of Mycom, the legal predecessor and tax entity, which tax attributes are also unchanged as a result of the merger. Inasmuch as the consolidated financial statements are presented as if VSI is the acquirer, the tax attributes reported for historic periods relate to VSI and upon merger Mycom tax attributes, including net operating loss carryforwards of approximately $2.8 million, are added to VSI reported net operating loss carryforwards. As a result, deferred tax assets relating to net operating loss carryforwards increased, with an offsetting increase in the deferred tax asset valuation allowance account. Deferred income taxes represent the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities and related valuation allowances as of September 30 are as follows (in thousands):

	2007	2006
Deferred tax assets:
Net operating loss carryforwards	$ 3,449	$ 1,642
Stock-based compensation	832	832
Total deferred tax assets	4,281	2,474
Deferred tax liabilities - property, equipment and software	(893)	(1,102)
Deferred tax assets, net of deferred tax liabilities	3,388	1,372
Valuation allowance	(3,388)	(1,372)
Deferred tax assets, net of valuation allowance	$ -	$ -

At September 30, 2007, the Company has available approximately $10.1 million of net operating loss carryforwards available to offset future federal income taxes, which expire 2024 through 2027. Realization is dependent on generating sufficient taxable income prior to expiration of the loss carryforwards. Utilization of these carryforwards is dependent on future taxable income and could be further limited by Internal Revenue Code Section 382 due to a change in ownership control.

At September 30, 2007 and 2006, the Company has provided a valuation allowance to reduce its net deferred tax asset to zero. The valuation allowance increased by approximately $2.2 million during the year ended September 30, 2007 and $850,000 during the nine months ended September 30, 2006.

A reconciliation of the provision for income tax expense with the expected income tax computed by applying the federal statutory income tax rate to loss before provision for income taxes for the year ended September 30, 2007 and nine months ended September 30, 2006 is as follows:

	2007			2006
Income tax benefit computed at statutory rate		(34	%)		(34	%)
Nondeductible stock-based compensation and other		4	%		26	%
Valuation allowance		30	%		8	%
Effective tax rate		0	%		0	%

Note 8. Related Party Transactions

During the nine months ended September 30, 2006, VSI issued 8,063,339 shares of its common stock with an estimated fair value of $11.0 million at issuance to parties able to significantly influence the management of VSI, including principal owners, members of management, and their immediate families.

In connection with the 2006 acquisition of Old SARS, VSI issued 286,675 shares of its common stock valued at approximately $393,000 to its Chief Executive Officer and one share of Series A preferred stock valued at $950,000 and 1,712,607shares of its common stock valued at approximately $2.3 million to the Officer’s parents.

During the year ended September 30, 2007, VSI rented testing and storage space from one of the its beneficial stockholders on a month to month basis with monthly rent of $6,500 and total rent expense of approximately $32,000. The Company no longer leases this space.

One of the Company’s stockholders, a member of the Company’s Board of Directors, and its Secretary, is the managing partner of a law firm, which provides legal services to the Company. The Company incurred approximately $1.0 million and $192,000 in legal fees from this firm during the year ended September 30, 2007 and during the nine months ended September 30, 2006, respectively. Accounts payable to this firm for legal services was $73,000 and $449,000 at September 30, 2007 and 2006, respectively, and reported as accounts payable – related party in the accompanying consolidated balance sheet.

Note 9. Commitments and Contingencies

The Company leased its Port Orchard, Washington office facility for $3,000 per month for a one year term, which expired November 30, 2007. The Company leased its Bellevue, Washington office facility for approximately $5,400 per month for a six month term, which expired November 30, 2007.

The Company leases roof space for receivers in South America pursuant to a lease with four one-year renewal options through December 2011, providing for monthly rents increasing 4% each calendar year with annual rent of approximately $5,000 in 2007.

Pursuant to terms of a sublease entered into in September 2007, the Company leases its facilities in Bothell, Washington for a 2 year and nine month term ending May 2010. Rent expense per month is approximately $13,000 during the first year of the agreement, approximately $14,000 during the second year, and approximately $15,000 for the remainder of the lease term. Lease provisions also require additional payments for maintenance and other expenses. Rent is expensed on a straight-line basis over the term of the lease. The difference between amounts paid and expensed is recorded as a deferred credit.

Minimum future lease payments are as follows for fiscal years ending September 30 (in thousands):

2008	$	162
2009		176
2010		124
2011		6
2012		1
Total	$	469

Rent expense, including rent paid on a month-to-month basis, approximated $117,000 and $16,000 for the year ended September 30, 2007 and the nine months ended September 30, 2006, respectively.

In November 2007, the Company entered into an agreement with a services firm and an individual who is one of firm’s members, whereby the individual shall serve as the Company’s Interim Chief Financial Officer. Termination of this agreement shall occur upon the mutual agreement of the individual and the Company. Pursuant to terms of this agreement, the individual and other firm personnel provide services to the Company for a monthly fee of $30,000.

Note 10. Advances to and Agreements with Andronics, Ltd.

In December 2007, the Company, through its wholly-owned United Kingdom subsidiary, Jinkhold, Ltd., closed a material definitive agreement with Andronics, Ltd., a company formed under the laws of Northern Ireland (“Andronics”), pursuant to which the Company purchased substantially all of the assets of Andronics in exchange for (i) the assumption of substantially all of its liabilities, (ii) 50,000 shares of Company common stock, (iii) $722,000 of convertible debentures, and (iv) options to purchase 1,000,000 shares of Company common stock and the obligation to issue an additional 500,000 options contingent on attaining certain quarterly revenue amounts. Additionally, the Company executed a lease agreement with certain shareholders of Andronics for office space. The convertible debentures bear interest at an annual rate of 10% and are convertible into shares of Company common stock at a conversion price of $1.00 per share. If not converted prior to the maturity date, which is twelve months from date of issuance, the debentures and related accrued interest will automatically convert into shares of Company common stock. The options to purchase Company common stock have a one-year term to purchase stock at $0.01 per share, and vest monthly over a 12-month period.

Andronics, which delivers two-way data solutions for monitoring and managing remote assets such as vehicles and liquefied petroleum gas tanks, is a part of the Company’s commitment to deliver real-time business intelligence about fixed and mobile assets located anywhere in the world. The acquisition of Andronics will be accounted for in accordance with SFAS No. 141. The Company is in the process of obtaining information as to fair values of assets acquired. The total purchase price, which is estimated to approximate $4.5 million, including assumed liabilities, will be allocated to assets acquired based on relative estimated fair values, which is expected to result in the majority being allocated to identifiable intangible assets.

In contemplation of the asset acquisition, in February 2007, VSI entered into an Operating Agreement with Andronics pursuant to which, among other things, VSI operated the business of Andronics and provided funding to Andronics for operating expenses and equipment purchases, with such fundings evidenced with promissory notes payable by Andronics, and would receive all proceeds of gross revenues Andronics derived from providing and operating the services and assets. VSI and Andronics further entered into a License Agreement for intellectual property, and agreed to exchange consulting services. During February through September 2007, the Company provided management services to Andronics and sold equipment to Andronics in connection with Andronics sales to its customers. Included in revenues and cost of revenues for the year ended September 30, 2007 is approximately $155,000 and $140,000, respectively, relating to services provided, and approximately $426,000 and $371,000, respectively, relating to equipment sales. As of September 30, 2007, the Company had accounts and notes receivable from Andronics of approximately $854,000 resulting from sales and cash advances, which are reported as non-current assets in the accompanying consolidated balance sheet, and which will be included as part of the purchase price to be allocated in purchase accounting.

Note 11. Subsequent Events

During October through December 2007, the Company sold approximately 6,389,000 shares of its common stock for net proceeds of approximately $5.6 million under the July Offering.

FISCAL QUARTER ENDING		HIGH BID		LOW BID
September 30, 2007	$	2.17	$	1.99
June 30, 2007	$	1.93	$	1.93
March 31, 2007 (1)	$	--	$	--
December 31, 2006	$	0.04	$	0.01
September 30, 2006	$	0.08	$	0.04
June 30, 2006	$	0.12	$	0.04
March 31, 2006	$	0.14	$	0.055
December 31, 2005	$	0.06	$	0.06
September 30, 2005	$	0.06	$	0.06

Name	Age	Position
David M. Otto	49	Director and Secretary
Stephen K. Bannon	53	Director
Clayton Shelver	42	Director and Chief Executive Officer
Robert Lear	47	Chief Operating Officer
Alan Chaffee	42	Interim Chief Financial Officer

Title of Class:	Name and Address of Beneficial Holder:	Amount and Nature of Beneficial Ownership:	Percent of Class:
Common, $.01 par value	Clayton Shelver, Director & CEO 19119 North Creek Parkway, Suite 201 Bothell, WA 98011	377,925	1.6%
Common, $.01 par value	David M. Otto, Director & Secretary 601 Union Street, Suite 4500 Seattle, WA 98101	3,621,750 (1)	15%
Common, $.01 par value	Stephen K. Bannon, Director 11601 Wilshire Blvd., Suite 2040 Los Angeles, CA 90025	547,500	2.3%
Common, $.01 par value	Robert Lear, COO 19119 North Creek Parkway, Suite 201 Bothell, WA 98011	93,075	<1%
Common, $.01 par value	Alan Chaffee, Interim CFO 19119 North Creek Parkway, Suite 201 Bothell, WA 98011	0	0%
Common, $.01 par value	Laurence and Artha Shelver 19119 North Creek Parkway, Suite 201 Bothell, WA 98011	1,712,607 (2)	7%
Common, $.01 par value	Capital Group Communications, Inc. 1750 Bridgeway, Suite #A200 Sausalito, CA 94965	1,753,025 (3)	7%
Common, $.01 par value	Constance Lautieri 19119 North Creek Parkway, Suite 201 Bothell, WA 98011	2,284,170 (4)	10%
Common, $.01 par value	Joseph Martin, LLC 601 Union Street, Suite 4500 Seattle, WA 98101	1,743,024	7%
Common, $.01 par value	James A. Schroeder 7245 SE Overa Road Port Orchard, WA 98366	1,310,350	6%
Total Held by Officers and Directors:		4,340,250
Total Held by Officers, Directors and Certain Beneficial Owners:		13,443,426

Fee Category	Fiscal Year 2007		Fiscal Year 2006
Audit Fees	$	111,900	$	31,000
Audit-Related Fees	$	35,600	$	0
Tax Fees	$	4,000	$	0
All Other Fees	$	0	$	0
Total:	$	151,500	$	31,000

Exhibit No.	Description	Location
3.1(i)	Articles of Incorporation.	Incorporated by reference to Exhibit 3.0 filed with Form 10-SB12G filed by the Company on 2/24/99.
	Articles of Incorporation, as amended.	Incorporated by reference to Exhibit 3.1.1 filed with Form 10-QSB filed by the Company on 8/13/07.
3.2(i)	Articles of Incorporation, as amended.	Incorporated by reference to Exhibit 2.01 to the 10-KSB filed by the Company on 3/30/07.
3.3(i)	Articles of Incorporation, as amended.	Attached.
3.4(ii)	Bylaws.	Incorporated by reference to Exhibit 2.02 to the 10-KSB filed by the Company on 3/30/07.
4.1	Series A Preferred Certificate of Designation, Second Amended	Attached.
10.1	Agreement and Plan of Merger with Veritas Solutions, Inc.	Incorporated by reference to Exhibit 10.1 to the 8-K filed by the Company on 8/31/07.
10.2	Andronics Asset Purchase Agreement	Incorporated by referenced to Exhibit 10.1 to the 8-K filed by the Company on 12/21/07.
10.3	First Amendment to Asset Purchase Agreement	Incorporated by referenced to Exhibit 10.2 to the 8-K filed by the Company on 12/21/07.
14.1	Code of Ethics.	Incorporated by reference to Exhibit 14.1 to the 10-KSB filed by the Company on 3/30/07.
31.1	Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act.	Attached.
31.2	Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act	Attached.
32.1	Certification of CEO pursuant to Section 906 of the Sarbanes-Oxley Act.	Attached.
32.2	Certification of CFO pursuant to Section 906 of the Sarbanes-Oxley Act.	Attached.
99.1	Revolving Credit Agreement.	Incorporated by reference to Exhibit 99.1 to the 8-K filed by the Company on 4/5/07.
99.2	Revolving Loan Note	Incorporated by reference to Exhibit 99.2 to the 8-K filed by the Company on 4/5/07.

Name and principal position	Year	Salary	Bonus	Stock Awards	Option Awards	Nonequity incentive plan compensation	Nonqualified deferred compensation earnings	All other compensation	Total:
Clayton Shelver, CEO Appointed Aug. 2007 (1)	2007	$195,000	$0	$0	$0	$0	$0	$5,840	$205,840
	2006	$173,571	$0	$0	$0	$0	$0	$0	$173,571
	2005	$95,000	$0	$0	$0	$0	$0	$0	$95,000

Robert Lear, COO Appointed Aug. 2007 (2)	2007	$160,000	$0	$0	$0	$0	$0	$2,000	$162,000
	2006	$75,000	$0	$0	$0	$0	$0	$0	$75,000
	2005	$10,000	$0	$0	$0	$0	$0	$0	10,000

Cecil Whitlock Former CFO (3)	2007	$100,000	$0	$0	$0	$0	$0	$0	$100,000
	2006	$17,604	$0	$0	$0	$0	$0	$0	$17,604
	2005	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A

Jeremy Johnson, Former CTO (4)	2007	$145,000	$0	$0	$0	$0	$0	$3,587	$148,587
	2006	$75,833	$0	$0	$0	$0	$0	$0	$75,833
	2005	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A

Earnest Mathis, Former Director and CEO (5)	2007	$0	$0	$0	$0	$0	$0	$18,000	$18,000
	2006	$0	$0	$0	$0	$0	$0	$18,000	$18,000
	2005	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A

Judy Henry Former Interim CFO (6)	2007	$149,000	$0	$0	$0	$0	$0	$981	$149,981
	2006	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A
	2005	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A

Alan Chaffee Interim CFO (7)	2007	$150,000	$0	$0	$0	$0	$0	$0	$150,000
	2006	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A
	2005	N/A	N/A	N/A	N/A	N/A	N/A	N/A	N/A