UNITEDSTATES

SECURITIESAND EXCHANGE COMMISSION

Washington,D.C. 20549

 

 

FORM10-KSB

 

ANNUALREPORT UNDER SECTION 13 OR 15 (d)

OFTHE SECURITIES EXCHANGE ACT OF 1934

 

Forthe fiscal year ended March 31, 2004

 

COMMISSIONFILE NUMBER 0-24408

 

FONEFRIEND,INC.

(ExactName of Filer as Specified in its Charter)

 

| DELAWARE
33-0611753
(State      of Incorporation)
(I.R.S.      Employer ID Number)
 

8447Wilshire Blvd., 5th Floor

BeverlyHills, California 90211

(Addressof Principal Executive Offices)

 

(323)653-6110

(Filer'sTelephone Number, Including Area Code)

 

Securitiesregistered under Section 12(b) of the Exchange Act: None

 

Securitiesregistered under Section 12(g) of the Exchange Act: Common Stock, $.001 parvalue (Title of class)

 

Checkwhether the issuer (1) filed all reports required to be filed by Section 13 or15(d) of the Exchange Act during the past 12 months (or for such shorter periodthat the issuer was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days.

 

Yes[X] No [_]

 

Checkif there is no disclosure of delinquent filers in response to Item 405 ofRegulation S-B contained in this form, and no disclosure will be contained, tothe best of issuer's knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-KSB or any amendment tothis Form 10-KSB. [X]

 

Stateissuer's revenues for its most recent fiscal year: $ 0

 

Asof July 1, 2004, there were no shares of Preferred Stock and 119,543,174 sharesof Common Stock issued and outstanding. The aggregate market value of votingstock held by non-affiliates of 17,270,338 shares outstanding at July 1, 2004was approximately $1,376,587. This amount was computed using the average of thebid and ask price as of July 1, 2004, which was $0.08.

TABLEOF CONTENTS

 

PART      I
PAGE
 

 

 

Item      1.
Description      of Business
1
Item      2.
Description      of Property
13
Item      3.
Legal      Proceedings
13
Item      4.
Submission      of Matters to a Vote of Security Holders
15
 

 

 

PART      II
 

 

 

Item      5.
Market      for Common Equity and Related Stockholder Matters
16
Item      6.
Management's      Discussion and Analysis or Plan of Operation
20
Item      7.
Financial      Statements
31
Item      8.
Changes      in and Disagreements With Accountants on Accounting and Financial      Disclosure
 

32
Item      8A.
Controls      and Procedures
32
 

 

 

PART      III
 

 

 

Item      9.
Directors,      Executive Officers, Promoters and Control Persons; Compliance with Section      16(a) of the Exchange Act
 

33
Item      10.
Executive      Compensation
42
Item      11.
Security      Ownership of Certain Beneficial Owners and Management and Related      Stockholders Matters
 

47
Item      12.
Certain      Relationships and Related Transactions
49
Item      13.
Exhibits      and Reports on Form 8-K
50
Item      14.
Principal      Accountant Fees and Services
51
 

 

 

SIGNATURES
 

52
FORWARD-LOOKINGSTATEMENTS

 

Thisreport contains certain forward-looking statements and information relating toFoneFriend that are based on the beliefs of its management as well asassumptions made by and information currently available to its management. Whenused in this report, the words "anticipate", "believe","estimate", "expect", "intend", "plan"and similar expressions, as they relate to FoneFriend or its management, areintended to identify forward-looking statements. These statements reflectmanagement's current view of FoneFriend concerning future events and are subjectto certain risks, uncertainties and assumptions, including among many others: ageneral economic downturn; a downturn in the securities markets; Securities andExchange Commission regulations which affect trading in the securities of"penny stocks," and other risks and uncertainties. Should any of theserisks or uncertainties materialize, or should underlying assumptions proveincorrect, actual results may vary materially from those described in thisreport as anticipated, estimated or expected. FoneFriend's realization of itsbusiness aims as stated herein will depend in the near future principally on thesuccessful adaptation of the acquired business, as discussed below.

 

Theinformation set forth herein should be read in conjunction with the Company'sfinancial statements and related footnotes included elsewhere herein. TheCompany's actual results could differ materially from those anticipated by itsmanagement.

 
**PARTI

 

ITEM1 - DESCRIPTION OF BUSINESS**
 

FoneFriend,Inc. ("FoneFriend" or the "Company") is a development stagecompany and currently has no revenues. It was originally incorporated in 1992 inDelaware under the name Picometrix, Inc., doing business in an industry otherthan Internet telephony. After the Company's merger with IJNT.Net, it wasengaged in the provision of wireless communications services, including Internetaccess services. Soon thereafter, it became a publicly traded company under thename IJNT.Net. In 1997, it acquired another business and changed its name toUniversal Broadband Networks, Inc. ("UBN"), whose primary business wasthe provision of Internet and related services using microwave technology. OnOctober 31, 2000, UBN filed a voluntary petition for reorganization pursuant toChapter 11, Title 11 of the United States Code, 11 U.S.C. 101 et seq., in theUnited States Bankruptcy Court for the District of Eastern California. Pursuantto an Amended and Restated Plan of Merger dated June 12, 2002, betweenFoneFriend, Inc. a Nevada corporation founded in April, 2001 ("FoneFriendNevada") and UBN, which was approved by the Bankruptcy Court and, onNovember 21, 2002, UBN completed its acquisition of all the assets of FoneFriendNevada. Subsequent to this acquisition, FoneFriend Nevada was dissolved and UBN,a Delaware corporation, changed its name to FoneFriend Inc. ("FoneFriendDelaware" or the "Company"). Shares of FoneFriend's common stockare currently quoted in the Over-The-Counter Bulletin Board market under thestock symbol "FFRD.OB". The Company maintained its corporate officesin the State of California at 14545 Friar Street, Suite 103, Van Nuys,California 91411, prior to year end, and on July 1, 2004 moved its offices to8447 Wilshire Blvd., 5th Floor, Beverly Hills, California. The Company'stelephone number is: (323) 653-6110. The corporate e-mail address is: mail@fonefriend.biz.

Pursuantto the express terms of the Plan of Merger:
-  All of UBN's previously issued and outstanding shares of capital stock      were cancelled and extinguished and the stockholders of UBN prior to the      Merger had no further interest or rights in UBN, post Merger.The Company issued 2,200,000 shares of newly created common stock in favor      of FoneFriend Nevada, in exchange for all of FoneFriend Nevada's assets      and 115,750 shares of newly created common stock in favor of a Liquidating      Trust. As a result, the Company had a total of 2,315,750 shares of newly      created common stock issued and outstanding of which former shareholders      of the dissolved FoneFriend Nevada owned ninety-five percent (95%) and J.      Michael Issa, Esq., as Trustee of the Liquidating Trust (which was created      under the Plan), owned five percent (5%).Additionally, the Liquidating Trust was granted a conditional put option      under the Plan whereby it could sell its shares back to the Company for up      to $3 Million dollars, under certain circumstances, and is entitled to      certain anti-dilution rights with respect to its holdings in the Company's      stock. See "Legal Proceedings".FoneFriend Nevada's management distributed the Company's shares received,      to its shareholders, on a pro-rata basis. Each shareholder of FoneFriend      Nevada received one (1) share of the Company's common stock for every four      (4) shares of FoneFriend Nevada common stock held by him or her.Immediately subsequent to the merger, the Company authorized and issued      820,361 shares of a newly created Series A Preferred Stock (each share of      which is convertible into one share of common stock) to those FoneFriend      Nevada shareholders who held shares of preferred stock prior to the      merger.The Company then issued additional shares of common stock to various      personnel in management and consultant positions in order to hire and/or      retain their services.Following the merger transaction on November 21, 2002, and pursuant to the      Plan of Merger, the Company had 7,646,000 shares of common stock and      820,361 shares of Series A preferred stock (convertible into common stock      on a one for one basis) issued and outstanding.As of March 31, 2004, the Company had 19,008,444 shares of common stock      outstanding and no shares of preferred stock outstanding. On November 22,      2003, the Company's directors declared a special one-time dividend of      three shares of common stock for each one share of preferred and all      shares of Series A preferred stock were converted into shares of common      stock pursuant to the designation of rights and preferences of said      preferred stock.
PURPOSEAND GOAL

 

TheCompany is in the process of becoming a provider of Internet-basedtelecommunications services in the U.S. and worldwide by seizing on the currentand future opportunities in Voice-over-Internet-Protocol ("VoIP")telephony technology and voice-data integrated communications services in thee-commerce market place.

 

Themanagement believes it has the vision, insight, and expertise to develop aunique, highly profitable venture in the Internet telephony marketplace. TheCompany seeks to raise additional capital, using its effective RegistrationStatement for funding its continued operation, as well as its growth/capitalneeds. Subsequent to the Offering, the Company may raise additional fundingthrough succeeding public offerings of its securities, or other sources ofprivate capital and/or debt financing, in the event a further need is discerned.

 

BUSINESSOF THE COMPANY
* *
OVERVIEW

 

Theprimary business of the Company prior to its year end of March 31, 2004 was tomarket an Internet telephony device and related services to consumers andbusinesses worldwide, called the "FoneFriend." The underlyingtechnology of the FoneFriend device was licensed by the Company from FoneFriendSystems, Inc., and was to enable the Company's subscribers to make and receiveunlimited, long-distance telephone calls over the Internet by using theirstandard residential telephone set (without the need for a computer or anysoftware), for one low monthly fee. Due to the low cost of transmitting callsover the Internet, the Company anticipated that it would realize significantprofit margins in excess of those in the traditional telecommunicationsindustry.

 

Oncefunding was obtained, the Company was intending to focus its efforts towardsestablishing contractual relationships with third party suppliers to provide theinfrastructure necessary to support operations of the FoneFriend product,suppliers to handle customer relationship management and product fulfillment,and the development and implementation of a high profile marketing campaign toadvertise the FoneFriend product through direct response television marketingand coordinated radio and print advertising, to quickly penetrate targetedmarkets and create substantial consumer awareness, stimulating demand for theFoneFriend. Accordingly, the Company intended to allocate a large portion of theproceeds from the sale of its common stock to fund marketing activities, topurchase infrastructure required to support the FoneFriend product, enhance itstechnology and corporate overhead.

 

Shortlyafter formation of FoneFriend Nevada in April, 2001, the company entered into acertain "Technology License Agreement", dated April 30, 2001, withFoneFriend Systems, Inc., a District of Columbia corporation ("FSI"),wherein it acquired a license to manufacture, market, sell and utilize in anymanner, a proprietary, patented technology which is commonly referred as the"FoneFriend." Pursuant to said agreement, FSI agreed to provideselected support services, related to the operation of the FoneFriend product,as well as assist the Nevada company in arranging third party suppliers toprovide infrastructure services for the FoneFriend product, such as internetservice providers (ISP) and connectivity to long distance carriers to enable theFoneFriend product to place "gateway" type calls. Additionally, FSIagreed to provide access to its global network servers, which connectFoneFriend-to-FoneFriend calls over the Internet, and coordinate themanufacturing, procurement and quality assurance of the FoneFriend Internettelephone devices. This Technology License Agreement was among the assets ofFoneFriend Nevada which were acquired by the Company for stock in a mergercompleted on November 21, 2002. Under the Technology License Agreement theCompany also has the right to develop its own brand of Internet telephonyappliance using the licensed technology.

Inan effort to perfect the viability of the technology resulting from theTechnology License Agreement, the Company entered into a consulting servicesagreement, dated January 30, 2004, with Dr. Faramarz Vaziri to assist FoneFriendin: (i) deploying its technology infrastructure, (ii) making strategic designmodifications to the FoneFriend product, and (iii) implementing improvements tothe FoneFriend technology and ongoing developments. Dr. Vaziri is the inventorof the "FoneFriend" and co-patent holder of the technology. TheCompany has terminated the agreement with Dr. Vaziri, subsequent to year end;however, he was issued 50,000 shares of common stock in consideration for hispast assistance.

 

INTERNETTELEPHONY INDUSTRY BACKGROUND

 

Inthe past few years, the development of the Internet and the World-Wide Web hasbeen one of the most dynamic, and exciting areas of business and technologydevelopment. The opportunities for business and technology creators are vast.

 

TheVoice over Internet Protocol ("VoIP") industry has grown dramaticallyfrom the early days of calls made through personal computers. According to aresearch study from Insight Research, VoIP-based services will grow from $13.0billion in 2002 to nearly $197.0 billion in 2007, representing a significantopportunity for VoIP providers. Internet telephony ("IT") has emergedas a low cost alternative to traditional long distance telephone services and israpidly catching the attention of the general public as well as corporate users.As quality of service improves, technology matures, e-commerce develops and thecost (savings) become compelling, people worldwide will begin to use theInternet as a primary source for telephony applications. Replacing traditionallong distance telephony with Internet telephony will yield significant costsavings to users worldwide. In fact, these costs have been dropping over time,falling from approximately $0.30 per minute in 1988 to approximately $0.15 perminute in 1998, and it is estimated that these costs will continue to drop as ITtechnology advances. Whereas the IT market was less than 1% in 1997, analystshave predicted that Internet telephony could account for more than 25% by 2005.International Data Corporation projects that the Internet telephony market willgrow rapidly with call minutes from businesses reaching nearly 230 billionminutes in 2005, up from only 328 million minutes in 2000. According to industryresearch conducted by several marketing research firms, such as Frost &Sullivan, International Data Corporation and Probe Research, significant growthis forecasted for the Internet telephony industry. Highlights of recent reportsinclude the following predictions:
-  An estimated Sixty million personal computer (PC) users made one or more    calls over the Internet in 2002.International telephone long-distance revenues were estimated at over $80    Billion worldwide in 2002.Twenty-five percent of the world's phone calls will likely be over the    Internet networks by 2005.Internet telephony sales are forecast to explode to $349 billion in 2006, as    quality and services improve.
Internettelephony has the potential to enable companies to substantially reduce theirtelecommunications costs. Internet telephone calls are less expensive thantraditional international long distance calls primarily because they are routedover the Internet, bypassing a significant portion of international longdistance tariffs. Packet-based networks, unlike circuit-based networks, do notrequire that a fixed amount of bandwidth be reserved for each call. That allowsvoice and data calls to be pooled, which means that packet networks can carrymore calls with the same amount of bandwidth. This greater efficiency createsnetwork cost savings that can be passed onto the consumer in the form of lowerlong distance rates.

 

COMPETITION

 

THEINTERNET TELEPHONY MARKET IS HIGHLY COMPETITIVE.

 

Manyother companies offer products and services similar to the Company's product andrecently acquired service, and many of those companies have already establisheda substantial presence in the IP telephony market. Competitor companiescurrently have substantially greater financial, distribution and marketingresources than the Company. As a result, we may not be able to competesuccessfully in the Internet Telephony market. There is a risk that new productintroductions or enhancements by competitors could reduce the sales or marketacceptance of our product and services, increase price competition or render theCompany's FoneFriend product obsolete. To become and remain competitive, we planto continue to invest significant resources in research and development, salesand marketing and customer support. However, given the formidable competition,the Company continues to run the risk that it will not have sufficient resourcesto withstand these market forces and may seek a consolidation or strategicalliance with one or more of its competitors.
* *
INTERNATIONALCOMMUNICATIONS SERVICES

 

Internationally,the competitive marketplace varies from region to region. In markets where thetelecommunications marketplace has been fully deregulated, the competitioncontinues to increase. Even a newly deregulated market, such as India, allowsfor new entrants to establish a foothold and offer competitive services moreeasily. Competitors include both government- owned phone companies as well asemerging competitive carriers. As consumers and telecommunications providershave come to understand the benefits that may be realized from transmittingvoice over the Internet, a substantial number of companies have emerged toprovide VoIP services. The principal competitive factors in the market include:price, quality of service, breadth of geographic presence, customer service,reliability, network capacity, the availability of enhanced communicationsservices and brand recognition.

COMPETITORS

 

Domesticstate-to-state rates for typical VoIP competitors such as DeltaThree is 1.1cents per minute, and Net2Phone is 2.0 cents per minute and have droppedconsiderably since 2002. These rates are for calls made from a customer'scomputer to a telephone within the continental U.S. Calls made with a VoIPdevice (such as the FoneFriend product) are more expensive; ranging from 2.9cents for DeltaThree to 3.9 cents for Net2Phone. Although these rates do notinclude any access charges or monthly service fees (if any), and the customer isrequired to purchase a VoIP device (and other equipment for broadbandconnections), both Net2Phone and DeltaThree are public companies and have lostmoney in their last quarter filings with their share prices falling below12-month highs. Both companies are branching out in the software sector, whichenables the customer to either place calls through a computer or use a virtualcalling card from any telephone.

 

Dialpadand Skype are two significant startup Internet telephony companies with morethan 10 million registered users each. They carry online advertising to offsettheir free services. Both companies offer software that is downloaded to a user'scomputer and telephone calls are then placed through the computer while the useris online.

 

Overall,the Company's competition is from:
-  incumbent wired PSTN network Providers and resellers.new entrant Internet gateway service providers,Internet telephony software providers, andInternet telephony appliances similar to FoneFriend.
Withrespect to the bulk of all calls made via PSTN (the "telephonecompany"), in 1997, the average domestic toll call cost 17 cents per minuteand the average international call cost 74 cents per minute. Current pricingschemes by the largest providers-AT&T, MCI and Sprint-as well as competitionfrom newer entrants such as Qwest and IXC continue to push pricing downward fordomestic calls, but not dramatically for international calls, which FoneFriendintends to do internationally and domestically. Regarding Internet telephonygateway providers, numerous companies have entered the Internet telephonymarketplace recently, and are focusing on corporate users to whom the costsavings resulting from infrastructure gateway switches are sold, as opposed tothe residential or small home office user. These companies, such as IDT/Net2Phone,AT&T Jens, USA GlobalLink, and next generation telecommunications companieslike Delta Three, Global Net and DotCom, provide a quality of service which iscomparable to that of the Company, however, at a substantially higher cost tothe heavy toll caller or international caller. Internet telephony softwarecompanies, of which Net2Phone is the leading provider, target the technical PCuser. Cost savings are the major benefit to the user who already has incurredthe cost of a PC and only needs to add telephony software and the cost of anInternet service provider (ISP) account.

 

TheCompany's direct competition primarily comes from companies with a stand-aloneVoIP product like Aplio, Inc., a California based company, with offices inParis, France (which was acquired by Net2Phone), Deltathree, a New York basedcompany with offices in Israel, InnoMedia, a San Jose, California company, withoffices in Singapore and Taiwan, Net2Phone and Vonage, both U.S. companies basedin New Jersey. Aplio uses a "meeting" process, whereby users cantransfer calls through the Internet by pushing a button. Deltathree has its ownproprietary network and broadband VoIP product. InnoMedia's InfoTalk employs twodifferent technologies relating to packet compression and recovery to achieveimproved voice quality as Internet traffic conditions and bandwidth constraintschange. Net2Phone uses its own proprietary network infrastructure and Vonage islimited to customers who elect to purchase broadband internet service such asDSL or high-speed internet cable service. For the most part, the Company'scompetitors currently utilize similar technologies. However, they generally havea higher product cost, are higher priced in the consumer market, requireprogramming and/or some computer knowledge and typically market a broadband VoIPproduct.

Anexample of an internationally based service that is becoming more competitiveis: PeopleCall by PeopleTel, S.A., a Spanish based Internet telephony company,but it is not offering the same value package as FoneFriend to its internationalcallers. Also, it too requires a DSL or cable-modem connection, whereas theFoneFriend product does not. An introductory offer for Internet voicecommunications services (1/10/04 web-advertisement) by PeopleCall, using theirADSL or cable-modem-connected, call-box router, is priced at 159 Euros, with1,000 free minutes per month, and with regular per minute charges ranging from..02 Euros to .90 Euros, for calls within the EU, Spain, and worldwide, plusset-up fee minutes from .02 to .06 Euros per minute.

 

Duringthe past several years, numerous companies have introduced services that makeInternet telephony services available to businesses and consumers. For example,Net2Phone, Microsoft, Deltathree, DialPad, AT&T Jens (a Japanese affiliateof AT&T), ICG Communications, IPVoice.com, ITXC, OzEmail, Skype, ViperNetworks and VIP Calling provide a range of voice-over-the-Internet services.These companies offer PC-to-phone or phone-to-phone services that are similar tothe services the Company offers. Some, such as AT&T Jens and OzEmail, offerthese services within limited geographic areas. Additionally, a number ofcompanies have recently introduced Web-based voice-mail services and voice-chatservices to Internet users. Other companies focus on software that may beinstalled on a user's computer to permit voice communications over the Internet.Representative companies include VocalTec and Netspeak. While Net2Phone andVocalTec are leading providers of IP telephony software, their products areprimarily targeted at the technical PC user. Also, Netspeak focuses ondelivering solutions targeted at traditional call centers that requiresignificant customization.

 

Inaddition, PSTN network companies, including, AT&T, Deutsche Telekom, andQwest, currently maintain, or plan to maintain, packet-switched networks toroute the voice traffic of other telecommunications companies. These companiesare large entities with substantial resources, and large budgets available forresearch and development, which may eventually further enhance the quality andacceptance of voice transmission over the Internet. However, many of thesecompanies are new to the Internet telephony market, and may not build brandrecognition among consumers for these services. These companies also may notprovide the range of products and services that are necessary to independentlyprovide a broad set of voice-enabled web services. AT&T, for example, hasattempted to enter the market but has focused its effort on the cable market andit is unclear if it will continue to pursue voice over the Internet. Qwest hastaken steps to enter the market by building a high capacity network in theUnited States. In addition, Qwest has also entered into a three-year strategicalliance with Netscape to provide one-stop access to Internet services includinglong distance calling, e-mail, voice mail, faxes, Internet access and conferencecalls.

Severalof the world's major providers of telecommunications equipment, such as Alcatel,Cisco, Lucent, Northern Telecom and Dialogic have developed or plan to developnetwork equipment that may be used in connection with providing voice over theWeb services, including routers, servers and related hardware and software.These manufacturers may exert substantial influence over the technology that isused with transmission of voice over the Web, and may develop products thatfacilitate the quality and timely rollout of these networks. However, thesecompanies are dependent both upon the operators of Internet telephony networksto purchase and install their equipment into their networks and, upon hardwareand software developers to market their systems to end-users. Cisco Systemscurrently manufactures Internet telephony equipment for low to medium scalenetworking, but does not manufacture high-end Internet telephony equipment forlarge networks. However, Cisco recently acquired two companies that producedevices to help Internet service providers' transition voice and data traffic topacket networks while maintaining traditional phone usage and network equipment.Lucent has co-developed with VocalTec a set of industry standards that have beenadopted by major competitors and is currently marketing Internet telephonyhardware, including servers that allow the transmission of calls and faxes overthe Internet. Lucent also offers related support products, such as billingcenters and ''Internet call centers,'' which allow Internet access andconversation with a customer support agent on a single line.

 

INTELLECTUALPROPERTY

 

Ascurrently featured on www.fonefriend.com (owned and operated by FSI), theFoneFriend product holds FCC Registration Certificate No. B11 USA-25483-MD-E. Afirst patent application (No. 09/029.839) for the FoneFriend appliance was filedon February 25, 1997, and on February 25, 1998, an improved continuation-in-partapplication, based thereon, was filed as an International Application under thePatent Cooperation Treaty (PCT), providing the right to file applications in theUnited States and Europe. The U.S. application was filed on March 9, 1998, andFoneFriend Systems, Inc., filed its European application on September 22, 1999.Finally, a trademark application for the name "FoneFriend" was filedon March 28, 1998, in the U.S. Patent & Trademark Office ("PTO")for telecommunications devices for long-distance Internet telephony. Thisapplication was cleared by the PTO for publication in the fall of 1998.

 

OnOctober 1, 2001, FoneFriend Systems, Inc. ("FSI") received notice ofallowance from the U.S. Patent Office covering all aspects of the FoneFriendsystem, 47 claims in all. U.S. Patent No. 6377570, covering all 47 claims, wasissued on April 23, 2002. U.S. Patent No. 6671272, covering 11 additionalclaims, was approved on June 30, 2003, and issued to FSI on December 30, 2003. APatent Application covering 42 additional claims (No. 10/621,383) was filed byFSI on July 18, 2003, was published on February 5, 2004, and is pendingissuance.

Subsequentto year end, March 31, 2004, the Company entered into an agreement to transferthe Company's rights in the FoneFriend technology obtained under the TechnologyLicense Agreement. The Company anticipates that the technology will betransferred in the month of July, 2004.

OtherIntellectual Property consists of the Company's agreements, the Services andMarketing Agreement and a Network Carrier Services Agreement with InfiniComNetworks, Inc. ("InfiniCom"). These agreements were executed as theresult of the purchase in July of 2004 of the 60,000 Voice over Internetprotocol customers.

 
**MARKETING**
 

CUSTOMERVALUE PROPOSITION

 

TheCompany's value proposition to its primary targeted customers is that bothdomestic and foreign based international callers can make long distance andinternational calls through the Company's network of partnered systemsworld-wide, as if the calls originated in the United States at much reducedcosts over traditional circuit based telephone systems. By routing calls throughthe Company's Internet web server the caller will avoid the usual very costlydomestic and international phone systems' long distance toll charges, and incurthe lower Internet telephony gateway charges instead. So, no matter where youare calling from, in the World, FoneFriend will enable the customer to pay U.S.long distance rates.

 

MARKETSEGMENTATION AND SIZE OF MARKETS:

 

FoneFriend'smarket is the world. FoneFriend has potential in every country where expensivelong-distance calls are made. Easy and affordable access to the InternetTelephony of FoneFriend would be well received in Asian, European and LatinAmerican countries where millions of dollars are spent each month oninternational calls to the U.S. and elsewhere.

 

However,FoneFriend intends to conduct initial marketing efforts in the U.S., using theInternet first, and lists the following as its primary U.S. market segments:

 
-  Foreign-born U.S. Residents;Heavy interstate and intrastate long-distance users;Current Internet telephony users;U.S. Business travelers;Families separated due to Military or Government service; andFoneFriend user's friends.
FoneFriendwill initially target selected metropolitan areas in the U.S. with the largestpopulation of foreign-born residents such as Los Angeles, New York, Miami, etc.

 

HispanicAmericans account for one-tenth of the U.S. total population and nearlytwo-thirds of all Hispanics in the U.S. are of Mexican origin (65.2%) and willbe one of the key focus group of foreign-born residents for FoneFriend. PuertoRicans, Cubans, and people of Central and South American origin will also betargeted amongst the Hispanic communities.

 

TheAsian and Pacific Islander population is growing rapidly as demographics stateby 2000 the Asian population had grown to over 12 million; representing about 4%of the total population. The largest proportions of Asian Americans were Chinese(24%), Filipino (20%), Japanese (12%), Asian Indian (11.8%), Korean (11.6%), andVietnamese (8.9%). Approximately 75% of Pacific Islanders live in the states ofCalifornia and Hawaii alone, and will be targeted as subscribers by FoneFriend.

REVENUESOURCES

 

Uponimplementation of its marketing campaign, the Company anticipates that it willgenerate revenues from the following sources:

 

MONTHLYSUBSCRIPTION FEE: The Company currently plans to collect subscriber fees of $15per customer as a result of the customers acquired in July of 2004 fromInfiniCom.

 

PAYSITS OWN WAY: Subscriber revenue, from captured areas, will fund subsequentmarket penetrations and further customer acquisitions.

 

SUPPORTSERVICES

 
*CustomerService*
 

TheCompany will outsource major functions such as R&D, manufacturing, networkinfrastructure and services, and Customer Relationship Management (CRM) toeliminate the need for initial capital outlay, and minimize the requirement forin-house resources, facilities, and competencies. As a result of our Servicesand Marketing Agreement and Network Carrier Services Agreement with InfiniCom,the Company has outsourced the infrastructure and services required to serviceits customer base.

 

EMPLOYEES

 

TheCompany currently has two full time and two part time employees. We believe ourrelationships with all personnel are good. The Company plans to hire additionalpersonnel at such time as our business growth demands.

 

NEEDFOR ADDITIONAL FINANCING

 

TheCompany has been challenged by a lack of insufficient capital to meet theCompany's cash needs, to carry out its business plan. The Company isanticipating sufficient revenues from its recently acquired customer basethrough its InfiniCom transaction referenced within this filing to cover itsoperating costs. However; in the event the revenues are insufficient, theCompany will have to seek loans or equity placements to cover such cash needs.Lack of its existing capital may be a sufficient impediment to prevent it fromaccomplishing the goal of completing its business plan.

 

OnFebruary 25, 2004, the Company entered into an agreement, (the "InvestmentAgreement") with Dutchess Private Equities Fund, L.P., a Delaware limitedpartnership ("Dutchess") whereby the Company can place a put toDutchess to acquire the common stock of the Company at a discount to market, fora sum not exceeding $3,000,000. Under the terms of the Investment Agreement theCompany filed a Registration Statement with the Securities and ExchangeCommission, which registration has been deemed effective.

Pursuantto the terms and conditions of the Dutchess transactional documents, the Companymay from time to time during the described Option Period, deliver a Put Noticeto Dutchess which states the Put Amount which the Company intends to sell toDutchess on a specified closing date. The amount that the Company shall beentitled to Put to Dutchess in any single Put Notice (the "PutAmount") shall be equal to, at the Company's election, either: (A) twohundred percent (200%) of the average daily volume (U.S. market only) of theCommon Stock for the twenty (20) Trading Days prior to the applicable Put NoticeDate, multiplied by the average of the three (3) daily closing Best Bid pricesimmediately preceding the Put Date, or (B) twenty five thousand ($25,000);provided that in no event will the Put Amount be more than One Million Dollars($1,000,000) with respect to any single Put. During the Option Period, theCompany shall be entitled to submit a Put Notice until after the previousClosing has been completed. The Purchase Price for the Common Stock identifiedin the Put Notice shall be equal to 94% of the lowest Best Bid price of theCommon Stock during the Pricing Period.

 

Ifany closing bid price during the applicable Pricing Period with respect to thatPut Notice is less than 75% of the lowest closing Best Bid prices of the CommonStock for the fifteen Trading Days prior to the Put Notice Date (the"Minimum Acceptable Price"), the Put Notice will terminate at theCompany's request. In the event that the closing bid price for the applicablePricing Period is less than the minimum Acceptable Price, the Company may electto cancel the Put Notice.

 

FollowingDutchess' receipt of a validly delivered Put Notice, Dutchess shall be requiredto purchase from the Company during the related Pricing Period that number ofShares having an aggregate Purchase Price equal to the lesser of (i) the PutAmount set forth in the Put Notice, and (ii) 20% of the aggregate trading volumeof the Common Stock during the applicable Pricing Period times (x) 94% of thelowest bid prices of the Company's Common Stock during the specified PricingPeriod, but only if said Shares bear no restrictive legend and are not subjectto stop transfer instructions prior to the applicable Closing Date.

TheCompany has reserved for issuance, pursuant to the terms of the Dutchessagreements, a total of Fifteen Million (15,000,000) Shares of Common Stock.

 

Nocommitments to provide additional funds have been made by management or otherstockholders other than pursuant to the terms and conditions of the InvestmentAgreement with Dutchess Private Equities Fund, L.P. Accordingly, there can be noassurance that any additional funds will be available to the Company to allow itto cover its expenses as they may be incurred.

Irrespectiveof whether the Company's cash assets prove to be inadequate to meet theCompany's operational needs, the Company might seek to compensate providers ofservices by issuances of stock in lieu of cash.

 

TheCompany has no plans for any research and development in the next twelve months.The Company has no plans at this time for purchases or sales of fixed assetswhich would occur in the next twelve months.

TheCompany expects to hire about 5 to 10 employees in the next twelve months,however, if it achieves a business growth, it may acquire or add employees of anunknown number in the next twelve months.

 

TheCompany's auditor has issued a "going concern" qualification as partof his opinion in the Audit Report. There is substantial doubt about the abilityof the Company to continue as a "going concern." The Company is astart up business and currently has very limited capital ($6,094 in cash andinventory as of March 31, 2004), and no capital commitments, other than itsequity credit line with Dutchess Private Equities, LP. The effects of suchconditions could easily be to cause the Company's bankruptcy, except there wouldbe no significant assets to liquidate in Bankruptcy.

 
*SUBSEQUENTEVENTS*
 

OnMay 18, 2004, the Company borrowed $118,000 from Dutchess Private Equities Fund,II, L.P. The note was a discount note which resulted in a net proceeds of$100,000. The note is due on August 31, 1004. In addition, the Company had topay $10,000 in legal fees for the preparation of the documentation for thistransaction.

 

OnJune 4, 2004, the Company borrowed $305,000 from Dutchess Private Equities Fund,II, L.P. The note was a discount note which resulted in net proceeds of$260,000. The Note is due on September 1, 2004, and mandatory payments from theexercise of their puts under the terms of The Investment Agreement of February25, 2004. In addition, the Company had to pay $7,500 in legal fees for thepreparation of the documentation for this transaction. The Company issuedDutchess Private Equities Fund, LP, 100,000 shares of restricted common stock.The company entered into a 90-day consulting agreement with Dutchess Advisors,LLC, wherein they issued their principal 200,000 shares of common stockregistered on Form S-8.

 

OnJune 8, 2004, the Company issued to Compass Capital 1,631,659 shares of itscommon stock registered under a SB-2 Registration as conversion of a promissorynote in the principal amount of $100,000, together with interest of $7,500.

 

OnJune 14, 2004, The Company exercised a put to Dutchess Private Equities Fund II,LP for 129,500 shares of common stock from which the Company netted $5,519.

 

OnJuly 1, 2004, the Board of Directors accepted the resignation of two of thedirectors of the Company and the Company appointed three new directors. (See"Item 9")

 

OnJuly 1, 2004, the Company closed its acquisition of 50,000 Voice over InternetProtocol (VoIP) customers from InfiniCom Networks, Inc. The company acquired50,000 customers of $7.5 million, payable $250,000 in cash, promissory note for$500,000 and 96,428,571 shares of restricted common stock. The issuance of stockin this transaction resulted in InfiniCom becoming the majority stockholder ofFoneFriend, owning approximately 81% of the Company's issued and outstandingshare of common stock. In addition to the shares of stock issued in theInfiniCom transaction, Mr. Rasmussen has an anti-dilution clause in hisemployment agreement, which provides for Mr. Rasmussen to maintain Mr. Rasmussen'sownership interest in the Company at 25% of the issued and outstanding shares ofcommon stock. Although we understand that Mr. Rasmussen intends to waive hisanti-dilution provision as it relates to the issuance of shares as the result ofthe InfiniCom transactions (including the July 8 additional issuances below)which would result in the issuance of approximately 28,928,571 additional sharesof restricted common stock to Mr. Rasmussen, the waiver of this provision hasnot been formally documented.

OnJuly 2, 2004, the Company entered into an Asset Purchase agreement with YAPInternational Inc. The Agreement provides for the sale of right, title andinterest in Technology License Agreement with FSI and other tangible andintangible property used in connection with or relating to the sold assets,including, without limitation, the goodwill of the Purchased Assets as a goingconcern, inventory of FoneFriend "beta" devices, Internet servers andrelated equipment and software and 225,000 shares of FSI. The Company willreceive five million (5,000,000) shares of the Purchaser's common stock subjectto restrictions under Rule 144 of the Securities Act of 1933.

 

OnJuly 8, 2004, the Company acquired an additional 10,000 VoIP customers fromInfiniCom. The Company acquired 10,000 customers for $1.5 million, payable inthe form of a promissory note for $150,000 and 19,285,714 shares of restrictedcommon stock.

 

OnJuly 14, 2004, the Company exercised a put to Dutchess Private Equities Fund II,LP for 57,500 shares of common stock from which the company netted $5,819.
** 

ITEM2 - DESCRIPTION OF PROPERTY**
 

TheCompany maintained its corporate offices at 14545 Friar Street, Suite 103, VanNuys, California 91411, from February through June 30, 2004. To date, theCompany has not paid any rent for the premises, consisting of about 625 squarefeet, and is presently negotiating an amount with the landlord estimated to beless than $1,000 per month.

 

OnJuly 1, 2004, the Company relocated its offices to those of InfiniCom, which arelocated at 8447 Wilshire Blvd., 5th Floor, Beverly Hills, California 90211. Thetelephone number is: (323) 653-6110. The first several months of rent are beingwaived and/or included as part of the services provided by InfiniCom Networks,Inc.

 
**ITEM3 - LEGAL PROCEEDINGS**
 

InOctober, 2003, the Company received notice of a lawsuit commenced against itspredecessor company, FoneFriend, Inc., a Nevada corporation ("FoneFriend ofNevada"), seeking past due legal fees of approximately $21,000. The assetsof this predecessor company were acquired by the Company in a stock for assetspurchase transaction and FoneFriend of Nevada was dissolved. Should the Companybecome a party to this litigation, it believes it has an affirmative defense asto the amount sought and will attempt to negotiate a reduced settlement ordefend against such action should it be commenced.

InNovember, 2003, the Company has received a threat of litigation from thebankrupt estate of Allegiance Telecom, seeking approximately $5,000. No lawsuithas yet been commenced. Should the Company become a party to any suchlitigation, it believes it has affirmative defenses to such charges and intendsto defend against any such action should it be commenced.

 

InJanuary, 2003, the Company entered into a settlement agreement with a formerofficer and director of FoneFriend, Inc., a Nevada corporation. As partialconsideration under the settlement agreement, the Company was required to payplaintiff the sum of $20,000 on December 1, 2003. The plaintiff accepted apayment of $10,000 from the Company in December of 2003 and agreed to accept afinal payment of $12,500 on January 4, 2004. The Company has not yet made thefinal payment to plaintiff. In accordance with the terms of the settlement, theplaintiff may, upon the Court's order, file with the Court a "Stipulationfor Entry of Judgment." The Company intends to settle this matter as soonas finances permit. The plaintiff has not yet moved to file or enforce thejudgment.

 

TheCompany recently received a letter from counsel to the court appointedLiquidating Trustee under the Fourth Amended Chapter 11 Plan of Reorganization,as modified (the "Plan of Reorganization"), of Universal Broadband,Inc., a Delaware corporation ("UBN"), which was the predecessorcompany into which FoneFriend, Inc., a Nevada corporation, was merged pursuantto the Amended and Restated Agreement and Plan of Merger (the "MergerAgreement"). As described above in "Item 1 - Description ofBusiness", after the merger, UBN subsequently changed its name toFoneFriend, Inc. and commenced operations. The letter from counsel to theLiquidating Trustee pointed out some material differences between the Plan ofReorganization and the Merger Agreement with respect to the rights of theLiquidating Trustee. In particular, counsel asserted that the LiquidatingTrustee was entitled under the Plan of Reorganization, at any time, to requestFoneFriend, Inc. to redeem its shares of common stock that were receivedpursuant to the Plan of Reorganization for an amount up to $3.0 million. Inaddition, the letter pointed out that the shares issued to the LiquidatingTrustee would be entitled to anti-dilution protection, so that the LiquidatingTrustee would maintain a 5% equity position at all times prior to redemption.

 

Theterms of the Merger Agreement that FoneFriend, Inc., a Nevada corporation,agreed to be bound by included provisions that were directly contradictory tothe position asserted by the Liquidating Trustee. For example, Section 3.14(a)of the Merger Agreement provides, in part, that any right of redemption held bythe Liquidating Trustee is subject to FoneFriend, Inc. having on hand at thetime of such request sufficient surplus capital to pay for the full redemptionprice, and that a redemption is otherwise permitted to be consummated underapplicable law. For example, the Company currently has no surplus capital andthe Liquidating Trustee therefore would not be entitled to any right ofredemption until such time as the Company has $3.0 million in surplus capital.Therefore, the Merger Agreement provides certain protections to the Company fromactions of the Liquidating Trustee that are not included in the Plan ofReorganization. Further, the Merger Agreement can be interpreted in a way thatwould result in the anti-dilution protection of the Liquidating Trustee havingexpired. In addition, the anti-dilution protection as defined in the MergerAgreement does not apply to the issuance of securities that are not dilutivefrom a book value standpoint.

Itis noteworthy that the Merger Agreement provides in its recitals that the termsof such agreement shall be incorporated into the Plan of Reorganization.Inasmuch as the Company was not a party to the Plan of Reorganization and wasnot privy to its terms, and was only a party to the Merger Agreement, theCompany has relied upon the provisions of the Merger Agreement with respect toits dealings with the Liquidating Trustee and the disclosures required in itsfilings with the SEC. The Plan of Reorganization and the Merger Agreement arehereby incorporated by reference from a Current Report on Form 8-K of theCompany, dated December 24, 2002.

 

Althoughthe claims of the Liquidating Trustee may have some merit, the Company'sposition is that counsel for the Debtor failed to include the terms of theMerger Agreement, as required by the Merger Agreement, in its Plan ofReorganization. Further, the Company believes that counsel to the LiquidatingTrust had actual knowledge of the provisions of the Merger Agreement and theconflict between said documents. Moreover, Section 160(a) of the DelawareGeneral Corporation Law, prohibits redemptions of capital stock when the capitalof the corporation is impaired or when such purchase or redemption would causeany impairment of the capital of the corporation. This statute has beeninterpreted by the courts to mean that a corporation can only purchase its ownstock out of surplus. Currently, the Company does not have any surplus, and aredemption of its common stock at this point in time would be prohibited as amatter of law.

 

Accordingly,the Company intends to pursue all remedies available at law or in equity toprotect its rights under the Merger Agreement, which it believes will be deemedto be the controlling document in this matter. Additionally, the Company willevaluate all options and take legal action for damages associated with thematerial misrepresentations made in connection with the Plan of Reorganizationand the Merger Agreement negotiated by and approved by the Official Creditor'sCommittee.

 

Nonetheless,this is a serious matter for the Company. It is a development stage entity thatthrough its recent offering may raise the necessary capital to implement itsintended plan of business. The payment of $3.0 million to the LiquidatingTrustee at this point in time, should the Company receive the full amount of theproceeds from its current offering, could have a material adverse effect on theCompany. Additionally, the Company may not have adequate resources available todefend its position and may be forced to seek the protection under thebankruptcy laws.

 

InMay 2004, the Company cancelled its agreements with RR Inv Holdings and TheBulletin Board Productions. All shares except 400,000 issued to RR Inv Holdingswere held in escrow to ensure performance. All 850,000 shares held in escrowhave been cancelled and returned to treasury. The transfer agent has alsocancelled the 400,000 shares previously held by RR Inv Holdings, which remainsthe subject of a potential legal dispute.

 

Otherthan the legal matters disclosed above, we are not aware of any litigation orpotential litigation affecting us or our assets.
**ITEM4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**
 

Nomatters were submitted by the Company to a vote of the Company's shareholdersthrough the solicitation of proxies or otherwise, during the fiscal year coveredby this report.

 
**PARTII

 

ITEM5 - MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS**
 

(a)Our common stock is currently quoted on the OTC Bulletin Board under the symbol"FFRD.OB". The following table shows the high and low prices of ourcommon stock since we began trading under the name of FoneFriend, Inc. on March6, 2003, as reported by the National Daily Quotation Service and theOver-The-Counter Bulletin Board. Prior to December 5, 2002, our common stock wastraded under the name of our predecessor company, Universal Broadband Networks,Inc. (UBNTQ:OTCBB). For the period beginning with the fiscal year ended March31, 2002, through December 5, 2002, our predecessor corporation was inbankruptcy (under the name of Universal Broadband Networks, Inc.) and its commonstock traded at a high of $.02 (on April 1, 2002) and a low of $.003 (onDecember 5, 2002), under the symbol "UBNTQ" as mentioned before.

FISCAL      2002
HIGH
LOW
First      Quarter
N/A
N/A
Second      Quarter
N/A
N/A
Third      Quarter
N/A
N/A
Fourth      Quarter
$      4.00
$      3.50
 

 

 

FISCAL      2003
HIGH
LOW
First      Quarter
$      3.90
$      2.01
Second      Quarter
$      2.05
$      0.14
Third      Quarter
$      0.45
$      0.13
Fourth      Quarter
$      0.30
$      0.12
 

Therecurrently is a limited public market for FoneFriend's common stock which isquoted on the Over the Counter Bulletin Board, and no assurance can be giventhat a market will develop or that a shareholder ever will be able to liquidatehis investment without considerable delay, if at all. If a market shoulddevelop, the price may be highly volatile. Unless and until FoneFriend's commonshares are quoted on the NASDAQ system or listed on a national securitiesexchange, it is likely that the common shares will be defined as "pennystocks" under the Exchange Act and SEC rules thereunder. The Exchange Actand penny stock rules generally impose additional sales practice and disclosurerequirements upon broker-dealers who sell penny stocks to persons other thancertain "accredited investors" (generally, institutions with assets inexcess of $5,000,000 or individuals with net worth in excess of $1,000,000 orannual income exceeding $200,000, or $300,000 jointly with spouse) or intransactions not recommended by the broker-dealer.

 

Fortransactions covered by the penny stock rules, the broker-dealer must make asuitability determination for each purchaser and receive the purchaser's writtenagreement prior to the sale. In addition, the broker-dealer must make certainmandated disclosures in penny stock transactions, including the actual sale orpurchase price and actual bid and offer quotations, the compensation to bereceived by the broker-dealer and certain associated persons, and delivercertain disclosures required by the SEC. So long as FoneFriend's common sharesare considered "penny stocks", many brokers will be reluctant or willrefuse to effect transactions in FoneFriend's shares, and many lendinginstitutions will not permit the use of penny stocks as collateral for anyloans.

(b)As of March 31, 2004, there were 522 shareholders of record of the Company'scommon stock, par value $.001 per share, and no shareholders of preferred stock.

 

(c)The Filer has neither declared nor paid any cash dividends on its common stock,and it is not anticipated that any such dividend will be declared or paid in theforeseeable future.

 

EffectiveAugust 11, 1993, the Securities and Exchange Commission (the"Commission") adopted Rule 15g-9, which established the definition ofa "penny stock," for purposes relevant to the Company, as any equitysecurity that has a market price of less than $5.00 per share or with anexercise price of less than $5.00 per share, subject to certain exceptions. Forany transaction involving a penny stock, unless exempt, the rules require: (i)that a broker or dealer approve a person's account for transactions in pennystocks; and (ii) that the broker or dealer receive from the investor a writtenagreement to the transaction, setting forth the identity and quantity of thepenny stock to be purchased. In order to approve a person's account fortransactions in penny stocks, the broker or dealer must (i) obtain financialinformation and investment experience and objectives of the person; and (ii)make a reasonable determination that the transactions in penny stocks aresuitable for that person and that person has sufficient knowledge and experiencein financial matters to be capable of evaluating the risks of transactions inpenny stocks. The broker or dealer must also deliver, prior to any transactionin a penny stock, a disclosure schedule prepared by the Commission relating tothe penny stock market, which, in highlight form, (i) sets forth the basis onwhich the broker or dealer made the suitability determination; and (ii) statesthat the broker or dealer received a signed, written agreement from the investorprior to the transaction. Disclosure also has to be made about the risks ofinvesting in penny stock in both public offerings and in secondary trading, andabout commissions payable to both the broker-dealer and the registeredrepresentative, current quotations for the securities and the rights andremedies available to an investor in cases of fraud in penny stock transactions.Finally, monthly statements have to be sent disclosing recent price informationfor the penny stock held in the account and information on the limited market inpenny stocks.

 

Dividends

 

TheCompany has not paid any dividends to date, and has no plans to do so in theimmediate future. Instead, we intend to retain all earnings, if any, for use inthe operation and expansion of our business and marketing plan.

 

RECENTSALES OF SECURITIES

OnJanuary 14, 2004 the Company cancelled 275,000 shares of its common stock thatwas previously issued to five consultants, for failure to perform theirconsulting services.

OnJanuary 14, 2004, the Company cancelled 1,500 that were issued in error.

 

OnJanuary 15, 2004, the Company issued to a consultant, 15,000 shares of itscommon stock that was registered pursuant to an S-8 Registration.

 

OnJanuary 16, 2004, the Company issued to two directors of the Company, a total of4,000,000 shares of restricted common stock pursuant to an anti-dilutionprovision in their Employment agreements. We believe that the issuance of theshares were exempt from the registration and prospectus delivery requirements ofthe Securities Act of 1933 by virtue of Section 4(2).
 

OnJanuary 20, 2004, the Company issued for legal services, 12,500 shares of itscommon stock that was registered pursuant to an S-8 Registration.

 

BetweenJanuary 20, 2004 and February 10, 2004, the Company issued to four consultants atotal of 1,000,000 shares of its common stock. The shares were originally issuedpursuant to Rule 144, but subsequently registered under an SB-2 Registration.

 

OnJanuary 27, 2004, the Company issued to two consultants a total of 1,250,000shares of its restricted common stock. Subsequent to the issuance, the entire1,250,000 shares were cancelled due to a failure to perform by the consultants.

 

OnFebruary 8, 2004, the Company issued 2,443,083 shares of restricted common stockto preferred stockholders as a dividend before conversion. These issuances havebeen valued at the fair market value on the date of issuance amounting to$464,186.

 

OnFebruary 9, 2004 the Company issued 814,361 shares of restricted common stock topreferred stockholders for the conversion from preferred to common stock. Thisissuance is in compliance with the agreement entered into with the preferredstockholders at the time of grant of preferred shares.

 

Webelieve that both the February 8, 2004 and February 9, 2004 issuances of theshares to the Preferred stockholders were exempt from the registration andprospectus delivery requirements of the Securities Act of 1933 by virtue ofSection 4(2) because the stockholders are current stockholders of the Companyand have knowledge of the Company.

 

OnMarch 2, 2004, the Company issued to a consultant 170,000 shares of restrictedcommon stock. We believe that the issuance of the shares were exempt from theregistration and prospectus delivery requirements of the Securities Act of 1933by virtue of Section 4(2).

 

OnMarch 31, 2004, the Company issued to an officer 20,000 shares of its commonstock.

 

OnApril 27, 2004, the Company issued to consultants, 525,000 shares of commonstock which were registered under an S-8 Registration filed April 8, 2004.

 

OnMay 3, 2004, the Company cancelled 350,000 shares of its restricted common stockthat was issued to The Bulletin Board Productions, LLC as part of compensationfor services to be provided. The Company rescinded the agreement subsequent tothe end of the fiscal year and therefore cancelled the shares.

OnMay 10, 2004, the Company issued 10,000 shares of its restricted common stock toiCapital Finance, Inc. to retain their services to assist with businessdevelopment.

 

OnMay 27, 2004, the Company issued to two of its officers and directors a total of350,000 shares of common stock which were registered on the Form S-8Registration filed April 8, 2004.

 

OnJune 8, 2004, the Company issued 300,000 shares of its restricted common stockto one of its directors as a finder's fee in connection with the InfiniComtransaction.

 

OnJune 8, 2004, the Company issued a total of 1,800,000 shares of its restrictedcommon stock to two of its officers and directors.

 

OnJune 8, 2004, the Company issued to a consultant, who is a principal of DutchessAdvisors, LLC, 200,000 shares of its common stock which was registered on theForm S-8 Registration filed April 8, 2004.

 

OnJune 8, 2004, the Company issued to Compass Capital 1,631,659 shares of itscommon stock registered under a SB-2 Registration as conversion of a promissorynote in the principal amount of $100,000, together with interest of $7,500.

 

OnJune 8, 2004, the Company issued 100,000 shares of its restricted common stockto Dutchess Private Equities Fund, LP.

 

OnJune 10, 2004, the Company issued 250,000 shares of its common stock registeredunder an SB-2 registration for consulting services.

 

OnJune 11, 2004, the Company issued to a consultant 60,000 shares of its commonstock which was registered by an S-8 Registration filed April 8, 2004.

 

OnJune 14, 2004, the Company exercised a put to Dutchess Private Equities Fund II,LP for 129,500 shares of common stock from which the company netted $5,519.

 

OnJune 18, the Company cancelled 900,000 shares of its restricted common stockissued to RR INV Holdings, Inc. as part of compensation for services to beprovided. The Company rescinded the agreement subsequent to end of the fiscalyear and therefore cancelled the shares.

 

OnJune 29, 2004, the Company issued 96,428,571 shares of its restricted commonstock to InfiniCom Networks, Inc. to be held in escrow pending the closing ofthe transaction on July 1, 2004.

 

OnJuly 8, 2004, the Company issued 19,285,714 shares of its restricted commonstock to InfiniCom Networks, Inc. as partial compensation for the purchase of10,000 VoIP customers.

OnJuly 14, 2004, the Company exercised a put to Dutchess Private Equities Fund II,LP for 57,500 shares of common stock from which the company netted $5,819.

 

Otherthan the shares of common stock registered pursuant to an effective registrationstatement filed on Form S-8 and SB-2, we believe that the issuance of the shareswere exempt from the registration and prospectus delivery requirements of theSecurities Act of 1933 by virtue of Section 4(2). The shares were issueddirectly by us and did not involve a public offering or general solicitation.The recipient of the shares occupied a privileged position with our company, dueto its preexisting relationship with Mr. Rasmussen, that afforded them anopportunity for effective access to files and records of our company thatcontained the relevant information needed to make their investment decision,including our financial statements and 34 Act reports. We reasonably believedthat the recipient, immediately prior to issuing the shares, had such knowledgeand experience in our financial and business matters that they were capable ofevaluating the merits and risks of their investment. The recipient's managementhad the opportunity to speak with Mr. Rasmussen on several occasions prior totheir investment decision. There were no commissions paid on the issuance of theshares.

 
**ITEM6 - PLAN OF OPERATION**
 
**PLANOF OPERATION

 **
Thediscussions contained in this filing contain "forward-lookingstatements" that involve risk and uncertainties. These statements may beidentified by the use of terminology such as "believes","expects", "may", "should", or"anticipates", or expressing this terminology negatively or similarexpressions or by discussions of strategy. The cautionary statements made inthis filing should be read as being applicable to all related forward-lookingstatements wherever they appear in this filing. Our actual results could differmaterially from those discussed in this filing. Important factors that couldcause or contribute to such differences include those discussed under thecaption entitled "risk factors," as well as those discussed elsewherein this filing.

 
*Background*
 

Wewere originally incorporated in 1992 in Delaware under the name Picometrix Inc,and soon thereafter became a publicly traded company. In 1997, Picometrix, Inc.merged with another business and changed its name to IJNT.Net, and finally toUniversal Broadband Networks, Inc. ("UBN"). On October 31, 2000, UBNfiled a voluntary petition for reorganization pursuant to Chapter 11, Title 11of the United States Code, 11 U.S.C. Section 101 *et seq*., in the UnitedStates Bankruptcy Court for the District of Eastern California. Pursuant to anAmended and Restated Plan of Merger dated as of June 12, 2002, betweenFoneFriend, Inc., a Nevada corporation founded in April, 2001 ("FoneFriendNevada") and UBN, which was approved by the Bankruptcy Court and onNovember 21, 2002, UBN completed its acquisition of all the assets of FoneFriendNevada. Subsequent to this acquisition, FoneFriend Nevada was dissolved and UBN,a Delaware corporation, changed its name to FoneFriend, Inc.
**Overview**
 

Weare a development stage company which currently has no revenues. Our primarybusiness for Fiscal 2004 through July 2004 was to market an Internet telephonydevice called the "FoneFriend" and related services to consumers andbusinesses worldwide. The Internet telephony device was licensed from FoneFriendSystems, Inc. ("FSI") in April 2001. On July 2, 2004, subsequent toour year-end, we entered into an agreement with YAP International, Inc.("YAP") to transfer certain assets and technology relating to the FSIagreement, which assets and technology we determined were unnecessary under ourrevised Plan of Operation, in exchange for 5,000,000 shares of the common stockof YAP. The shares are being held for issuance pending compliance with theSecurities Act of 1933, at which time the shares will be either distributed toour stockholders or held by us as an investment.

 
**InfiniComAcquisition

 **
OnJuly 1, 2004, we completed the acquisition of 50,000 Voice over InternetProtocol ("VoIP") customers from InfiniCom Networks, Inc., aCalifornia corporation, ("InfiniCom") whereby we issued 96,428,571shares of our common stock to InfiniCom, in addition to cash of $250,000 and apromissory note for $500,000. Further, on July 8, 2004, we acquired anadditional 10,000 VoIP customers from InfiniCom in exchange for 19,285,714shares of common stock and a promissory note for $150,000. Both promissory notesbear simple interest at the rate of six (6%) percent per annum and are due upondemand.

 

Priorto the Acquisition, we had approximately 23,114,603 common shares issued andoutstanding. As a result of the Acquisition, our total shares of common stockoutstanding increased to 138,828,888 (on July 8, 2004), of which InfiniComcontrols 83.35%. InfiniCom is 100% owned and controlled by Sean McCann.

 

Asa result of Mr. McCann's sole ownership of InfiniCom, his share control ofFoneFriend and InfiniCom's agreements, we are solely dependent upon Mr. McCann,who is not an officer, director or employee of FoneFriend.

 
*OurNew Plan of Operation*
 

As aresult of the InfiniCom and YAP transactions we have revised our plan ofoperation to focus on the VoIP customers acquired from InfiniCom.

Wewill acquire our customers by direct marketing, virtual marketing andperformance based Internet marketing.  We forecast that much of ourcustomer growth will come from performance based Internet marketingagreements.  The advantage of performance based Internet marketingagreements is that there is no cost to us without compensating revenues.

 

Anexample of one such performance based marketing agreement we have entered intois the agreement with InfiniCom. InfiniCom agrees to supply subscribers at acost of $150 each.   Annual revenue from each subscriber is $180 underthis arrangement.  InfiniCom warrants that it will replace the customer ifany particular customer drops service with us prior to 52 weeks from the datethat customer is delivered.

 

Ourcustomers utilize a proprietary software program, offered by InfiniCom, whichallows each customer to place long distance and international telephone callsdirectly from its desktop or laptop computer. The customer is offered anunlimited calling plan, at a rate of $15 U.S., per month, to selected countriessuch as the U.S., Canada, Western Europe and certain countries in Asia.

Weuse third-party providers to support customer care. After certainsubscriber counts have been achieved, we may decide to support internal customercare operations from cash flow.

 

Weare currently considering offering our customers a stand-alone, Internetappliance device (much like our previous FoneFriend device), which will allowour customers to use their ordinary telephone handset to make calls using ourservice. We plan to offer this product at no cost to our customers (andpotential customers) in exchange for their commitment to a 24-month serviceagreement.  Alternatively, we may offer such product at a charge tothose customers who use our service on a month-to-month basis.

 

Webill and collect money for services at the time the service isoffered directly from a subscriber's credit card or check card.  Since our services include the ability for call termination to points outsidethe unlimited dialing area, we hold a $50 pending authorization as security. Thepending authorization is separate from the monthly service fees charged andcollected. Any additional charges are settled using the pendingauthorization.  If there are no additional charges, the pendingauthorization is released at the end of the subscribers billing cycle.

 

Wecurrently have a $3 million facility with Dutchess that will be used for acombination of future customer acquisition, network build-out and corporatedevelopment. This facility is satisfactory for our current plans.
*Regardingthe disposition of FoneFriend technology related assets:*
Managementevaluated the potential yield from commercializing the "FoneFriend"technology, versus the projected costs of $2 to $3 million to build theFoneFriend infrastructure and implement a marketing campaign to attractcustomers. Management concluded that our financial and personnel resources wouldbe better spent on marketing the new technology and services to the customersbeing acquired from InfiniCom.

 
*Resultsof Operations.*
 

Twelvemonth period ending March 31, 2004 and March 31, 2003

Wehad no revenues in Fiscal 2003 or 2004. Further, we incurred operating expensesof $2,867,646 in fiscal 2004 compared to $1,604,664 in fiscal 2003. The lossfrom operations was $(2,867,646) in fiscal 2004 compared to $(1,604,664) infiscal 2003. Net loss in fiscal 2004 was $(3,424,277) compared to $(1,605,464)in fiscal 2003.

Thelosses can be expected to continue until we are able to generate revenues inexcess of expenses.

 
*Sales*
 

Sinceinception of our current business, we have not generated any revenues. However,subsequent to March 31, 2004, as a result of the July InfiniCom transaction, wehave started to generate revenues. Specifically, we acquired 60,000 customers,generating gross revenues of $15 per customer, per month, or $900,000.

 
*Expenses*
 

Expensesfrom Development Stage Operations for the fiscal periods ended March 31, 2004and March 31, 2003 were $2,867,646 and $1,604,464, respectively, an increase of$1,263,182. The increase in expenses was primarily attributable to consultingfees, which were paid for by issuing shares of our common stock in exchange forservices. Capitalized development costs, which had been written down by $865,108during fiscal 2003, were written down an additional $694,862 to $0 during fiscal2004. Additionally, we wrote off our investment in the stock of FoneFriendSystems, Inc. incurring further expense of $150,000.

 

Weexpect increases in expenses through the fiscal year 2005 as we move towardsimplementing our plan of operation. We expect the increase to be primarily inmarketing related expenses, such as advertising and consulting fees, andadditional salary expense as we increase our personnel commensurate with thegrowth of our operations.

 
*Income/Losses*
 

Netloss attributable to common stockholders for the twelve months ended March 31,2004 was $3,424,277 versus a loss of $1,605,464 for the eleven months endedMarch 31, 2003, an increase of $1,818,813. The increase was primarilyattributable to increased consulting expenses, which were paid for by issuingshares of our common stock, and the write down in value of our investment in thestock of FoneFriend Systems, Inc.
* 

Impactof Inflation*
 

Webelieve that inflation has not had a negative impact on our results ofoperations since inception. Until we are able to sell products and generaterevenue we will be unable to pass on inflationary increases in our expenses fromDevelopment Stage Operations through increases in revenue.

 
*Liquidityand Capital Resources*
 

Cashflows used in operations were $105,417 for the twelve months ended March 31,2004, versus cash flows used in operations of $282,490 for the eleven monthsended March 31, 2003. Net cash flows for 2004 of $(20,127) were primarily from$85,290 from loans from officers and others offset by the cash used for theperiod of $105,417. Net cash flows for the eleven months ended March 31, 2004 of$(207,789), were primarily attributable to proceeds of loans from officers andothers of $81,513, offset by cash used in development stage operations of$282,490.

Netcash flows provided by financing activities were $85,290 for the twelve monthsended March 31, 2004, versus $81,513 during the eleven month period ended March31, 2003.

 
*GoingConcern Opinion*
 

Asshown in our accompanying financial statements, our independent auditors havestated that our losses from initial startup costs and our lack of substantialcapital raise doubt about our ability to continue as a going concern. Theability of our Company to continue as a going concern is dependent on obtainingnew capital, developing our operations, implementing our marketing plan,building our infrastructure, containing our costs and generating revenues fromthe sale of our product and services. Management intends to undertake thefollowing to address these issues: (1) endeavor to obtain equity funding fromnew investors to alleviate our capital deficiency, (2) obtain debt funding fromnew investors to alleviate our capital deficiency, (3) seek vendor financingprograms for equipment and services, (4) pursue letters of credit formanufacturing, (5) implement leasing arrangements to finance the cost of placingour product in the market, and (6) structure equity participation arrangementswith vendors and suppliers in exchange for their services.

 

Weestimate we will need approximately $2,000,000 in additional capital during thenext 12 months to cover overhead and develop our business. Our Dutchess equityline of credit, combined with possible debt or equity financing, is intended toaddress our capital requirements. If we develop revenues from operations during2004 as a result of the InfiniCom transaction, the need for capital at theprojected level will decrease.

 

Overall,we have funded our cash needs from inception through March 31, 2004, with aseries of debt and equity transactions, including an Equity Line of Credit. Thefailure of the Equity Line of Credit or other equity financing to satisfy ourworking capital needs would have a material adverse effect on our operations andfinancial condition.

 

Wehad cash on hand of $94 and a working capital deficit of $499,288 as of March31, 2004. We had cash on hand of $20,221 and working capital of $108,615 as ofMarch 31, 2003. Our current working capital deficit is primarily due to currentobligations in accounts payable and accrued consulting expense. We can not yet,and may never be able to, rely on the existence of revenue from our business,however, we have no current or projected capital reserves that will sustain ourbusiness for any length of time. In addition, there can be no assuranceadditional capital in the future will be available to us when needed oravailable on terms favorable to us.

 

Ona long-term basis, liquidity is dependent on continuation of successfulfinancing activities. The funds raised from this offering will also be used tomarket our product as well as expand operations and contribute to workingcapital. However, there can be no assurance we will be able to obtain additionalequity or debt financing in the future, if at all. If we are unable to raiseadditional capital, our growth potential will be adversely affected and we willhave to significantly modify our plans. For example, if we are unable to raisesufficient capital to develop our business plan, we may need to:
-  Curtail our intended product launchForego or postpone marketing expendituresLimit our future marketing efforts to areas we believewould  be the most efficient and profitable.Outsource goods and services as much as possible.
Demandfor our planned product and current services will be dependent on, among otherthings, market acceptance of our product and services, our ability to buildconsumer awareness and stimulate consumer purchases, the Internet telephonymarket in general, and general economic conditions, all of which are cyclical innature. Overall, our success will be dependent upon implementing our plan ofoperation in an efficient and timely fashion, managing the risks associated withour business, contain our expenses and generate revenues and profits from thesale of our product and related services.

 
**Factorsthat may affect OUR PLAN OF OPERATION
* 

Ourlack of operating history creates substantial uncertainty about future results.***
 

Weare a development stage company with no operating history. We have recentlyswitched our plan of operation and are unsure as to our abilities tosuccessfully support our recently acquired VoIP customers. As a result of ourlack of operating history, prospective investors have no operating and financialdata about us on which to base an evaluation of our performance and aninvestment in our stock. Our ability to provide VoIP services on a widespreadbasis and to generate operating profits and positive operating cash flow willdepend on our ability, among other things, to:
-  market our product and services and generate demand for them among our    targeted client categories;develop, enhance, promote and carefully manage our brand;respond appropriately and timely to competitive developments;develop our operational support and other back office systems;attract and retain an adequate client base;secure additional financing;attract and retain qualified personnel; andenter into and implement long term agreements for leased capacity and other    services with established telephone companies on satisfactory terms.
Wecannot assure you that we will be able to achieve any of these objectives,generate sufficient revenue to achieve or sustain profitability, meet ourworking capital requirements or compete successfully in the telecommunicationsindustry.

 

Inaddition, our success will be particularly dependent on our ability to makefurther enhancements to our products and services, and to market such productsand services in a commercially viable manner, as to which there can be noassurance. Unanticipated problems, expenses and delays are frequentlyencountered in establishing a new business, including, but not limited to, lackof client acceptance, competition and inadequate marketing. Our inability toobtain funds through the Equity Line of Credit will hinder our efforts to fullyimplement our planned marketing activities in connection with our product andservices. As a result we would be required to reduce or curtail operations. Wecan make no assurance that we will be able to generate a profit.
***Ourindependent auditors have expressed doubt as to our ability to continue as agoing concern.***
 

Ourconsolidated financial statements have been prepared assuming we will continueas a going concern. During the year ended March 31, 2003, we experienced a netloss from development stage operations of $1,605,464 and had negative cash flowsof $207,789. During the year ended March 31, 2004, we experienced a net lossfrom development stage operations of $728,502 and had negative cash flows of$15,353. In addition, we had substantial shareholders' equity operating deficitsat March 31, 2003 and March 31, 2004 of $2,490,751 and $3,219,253, respectively.Lastly, we have significant present and future working capital demands, whichwill require substantial equity and debt financing which, with the exception ofthe Equity Line of Credit with Dutchess, have not yet been secured. Thesefactors, among others, raise substantial doubt about our ability to continue asa going concern. Our independent auditors have also expressed doubt as to ourability to continue as a going concern. The consolidated financial statementsincluded elsewhere herein do not include any adjustments that might result fromthe outcome of this uncertainty.

 

Inan effort to reverse the negative financial conditions noted above, we haveentered into the Equity Line of Credit with Dutchess, which allows us access to$3 Million dollars in equity capital during the years 2004 through 2005. Webelieve this financing will help us to further develop our business andfacilitate our development of an operating presence in the Internet telephonymarket.

 

Therecan be no assurances that we will be able to successfully implement our plans,including generating profitable operations, generating positive cash flows fromoperations and obtaining additional capital to meet present and future workingcapital demands.

 
***Thetechnology that allows voice communications over the Internet is in its infancy,and the quality of Internet telephone calls needs improvement. Callers couldexperience delays, errors in transmissions or other interruptions in service,all of which could negatively impact our future revenues, reputation and brand.***
 

Thetechnology that allows voice communications over the Internet is still in itsinfancy. Historically, the sound quality of Internet telephone calls was poor.As the industry has grown, sound quality has improved, but the technologyrequires additional refinement. Additionally, the Internet's capacityconstraints may impede the acceptance of Internet telephony. Callers couldexperience delays, errors in transmissions or other interruptions in servicethat are beyond our control. The quality issues inherent in Internet telephonycould negatively impact our future revenues, reputation and brand. Furthermore,the technology that we have access to through InfiniCom is unproven and has notbeen tested in a commercial environment. Therefore, there can be no assurancesthat our product will function as anticipated when we are able to commencesales.
***Ourfuture performance will depend, in part, on our ability to provide discounteddomestic international long distance communications services with the costsavings of carrying voice traffic over the Internet, as compared to carryingcalls over traditional long distance networks. The price of long distance callsmay decline to a point where we no longer have such a cost advantage, which willbe detrimental to our business prospects.***
 

Ourstrategy for success is based partly on our ability to provide discounteddomestic and international long distance communications services with the costsavings of carrying voice traffic over the internet, as compared to carryingcalls over traditional long distance networks, such as those owned by AT&T,MCI

 
***Weintend to rely upon several unaffiliated, third party companies for computerequipment and software, network services, component parts, manufacturing,systems integration and operational aspects of our business. Our inability tomaintain relationships with, or the loss of one or more of these unaffiliatedcompanies, or the failure of their subcontractors or suppliers to meet ouroperational requirements may force us to reduce or eliminate expenditures fordeveloping our infrastructure, research and development, marketing of ourproduct or otherwise curtail or discontinue operations, all of which may have amaterial adverse effect on our business, financial condition and results ofoperation.***
 

TheCompany intends to rely upon several unaffiliated, third party companies, forcomputer equipment and software, network and telecommunications services,component parts, manufacturing, systems integration and operational aspects ofour business. This outsourcing strategy involves certain risks, including thepotential lack of adequate capacity and reduced control over delivery schedules,manufacturing yield, quality, and costs. In the event that any significantsubcontractor were to become unable or unwilling to continue to supply,manufacture or maintain our product or related services in the required volumes,we would have to identify and qualify acceptable replacements. Findingreplacements could take time, and management cannot be sure that additionalsources would be available on a timely basis. As a result, we are subject to therisk of interruptions in operations or supplies due to changes in market demand,servicing costs, and competitors' prices. Our ability to maintain relationshipswith, or the loss of, these unaffiliated companies, or the failure of theirsubcontractors or suppliers to meet our operational requirements may require usto reduce or eliminate expenditures for developing our infrastructure, researchand development, marketing of our product or otherwise curtail or discontinueoperations, all of which may have a material adverse affect on out business,financial condition and results of operations.
***Ourcommon stock price has been or may continue to be volatile and investors mayfind it difficult to sell their shares for a profit.***
 

Thetrading price of our common stock has been and is likely to continue to behighly volatile. For example, during the 52-week period ended March 31, 2004,the closing price of our common stock ranged from $0.12 to $4.00 per share. Ourstock price could be subject to wide fluctuations in response to factors suchas:
-  actual or anticipated variations in quarterly operating results;announcements of technological innovations, new products or services by usor our potential competitors;changes in our financial estimates or recommendations by securities analysts    regarding us or our potential competitors;the addition or loss of strategic relationships or relationships with our    potential customers, partners or consultants;announcements by us or our potential competitors of significant    acquisitions, strategic partnerships, joint ventures or capital commitments;legal, regulatory or political developments;additions or departures of key personnel;sales of our common stock by insiders or stockholders; andgeneral market conditions.
Inaddition, the stock market in general, and the Over-The-Counter Bulletin Board,as well as the market for Internet telephony services and telecommunicationsrelated companies have experienced extreme price and volume fluctuations thathave often been unrelated or disproportionate to the operating performance ofthese companies. These broad market and industry factors may reduce our stockprice, regardless of our operating performance.
*** 

Existingstockholders will experience significant dilution from our sale of shares toDutchess.***
 

Thesale of shares pursuant to our Investment Agreement with Dutchess may have adilutive impact on our stockholders. As a result, our potential net income pershare could decrease in future periods, and the market price of our common stockcould decline. In addition, the lower our stock price at the time we exerciseour "put" options, the more shares we will have to issue to Dutchessto draw down on the full equity line with Dutchess. If our stock pricedecreases, then our existing stockholders would experience greater dilution.

 
***Becauseour common stock is deemed a low-priced "Penny" stock, an investmentin our common stock should be considered high risk and subject to marketabilityrestrictions.

 ***
Sinceour common stock is a penny stock, as defined in Rule 3a51-1 under theSecurities Exchange Act, it will be more difficult for investors to liquidatetheir investment even if and when a market develops for the common stock. Untilthe trading price of the common stock rises above $5.00 per share, if ever,trading in the common stock is subject to the penny stock rules of theSecurities Exchange Act specified in rules 15g-1 through 15g-10. Those rulesrequire broker-dealers, before effecting transactions in any penny stock, to:
-  Deliver to the customer, and obtain a written receipt for, a disclosure    document;Disclose certain price information about the stock;Disclose the amount of compensation received by the broker-dealer or any    associated person of the broker-dealer;Send monthly statements to customers with market and price information about    the penny stock; andIn some circumstances, approve the purchaser's account under certain    standards and deliver written statements to the customer with information    specified in the rules.
Consequently,the penny stock rules may restrict the ability or willingness of broker-dealersto sell the common stock and may affect the ability of holders to sell theircommon stock in the secondary market and the price at which such holders cansell any such securities. These additional procedures could also limit ourability to raise additional capital in the future.

 
***Ouragreements with InfiniCom, along with its patents, service marks, trademarks,trade secrets and other intellectual property rights are crucial to our success.If InfiniCom defaults on its obligations under its agreements with us, we maynot succeed or be forced to find an alternative Internet voice transmissiontechnology, which may be cost prohibitive.***
 

Weregard InfiniCom's intellectual property as crucial to our success. If InfiniComdefaults in its obligations under its agreements with us, we may not succeed orbe forced to find an alternative Internet voice transmission technology, whichcould be prohibitively expensive.

 
***TheFCC and state regulations may limit the services we can offer and restrict ourintended operation and development of our business.***
 

Ourintended Internet telephony operations are not currently subject to directregulation by the FCC or any federal, state or local governmental agency, otherthan regulations applicable to businesses generally. However, the FCC recentlyindicated that the regulatory status of some services offered over the Internetmay have to be re-examined. New laws or regulations relating to Internetservices, or existing laws found to apply to them, may have a material adverseeffect on our intended plan of business, financial condition or results ofoperations.

 

Ourplanned provision of Internet telephony services could become subject tosignificant regulation at the federal, state and local levels. The costs ofcomplying with these regulations and the delays in receiving required regulatoryapprovals or the enactment of new adverse regulation or regulatory requirementsmay have a material adverse effect on our business, financial condition andoperating results.

 

Wecannot assure you that the FCC or state commissions will continue to refrainfrom taking regulatory action against us upon commencement of our business. Ifthey do, we must fully comply with the rules of the FCC or state regulatoryagencies, or face challenges to our authority to do business. Such challengescould cause us to incur substantial legal and administrative expenses.
***Internettelephony is at an early stage of development, and it is difficult to predictthe size of this market and its growth rate. We believe that our intendedbusiness will not grow without increased use of the Internet. Demand and marketacceptance for recently introduced products and services over the Internet arestill uncertain. The Internet may not prove to be a viable commercialmarketplace for a number of reasons, any of which could adversely affect ourbusiness.***
 

Internettelephony is at an early stage of development, and it is hard to predict thesize of this market and its growth rate. We believe that our intended businesswill not grow without increased use of the Internet. Demand and marketacceptance for recently introduced products and services over the Internet arestill uncertain. We cannot predict whether potential customers will be willingto shift their traditional international or long distance calling activities toan Internet based solution like we intend to offer. The Internet may not proveto be a viable commercial marketplace for a number of reasons, including:
-  concerns about security;Internet congestion;inconsistent service; andlack of cost-effective, high-speed access.
Ifthe use of the Internet as a commercial marketplace does not continue to grow,we may not be able to grow our customer base, which could prevent us fromincreasing revenues or achieving profitability.

 
***Ourprincipal stockholders control our business affairs in which case minoritystockholders will have little or no participation in our business affairs.***
 

Currently,our principal stockholders, InfiniCom, Jackelyn Giroux and Gary A. Rasmussen,own or control in excess of 80% of our common stock. In addition, our agreementswith Jackelyn Giroux and Gary A. Rasmussen, as amended, contain anti-dilutionclauses which entitle them to maintain their equity positions in the Company at21.2% and 25%, respectively. Although we understand that Mr. Rasmussen intendsto waive his anti-dilution provision as it relates to the issuance of shares asthe result of the InfiniCom transaction, which would result in the issuance ofapproximately 28,928,571 additional shares of restricted common stock to Mr.Rasmussen, the waiver of this provision has not been formally documented. As aresult, these individuals have significant influence over all matters requiringapproval by our stockholders without the approval of minority stockholders. Inaddition, they are able to elect all of the members of our Board of Directors,which allows them to significantly control our affairs and management. They arealso able to affect most corporate matters requiring stockholder approval bywritten consent, without the need for a duly noticed and duly-held meeting ofstockholders. Accordingly, you will be limited in your ability to affect changein how we conduct our business.
***Theliquidating trustee under the plan of reorganization and subsequent merger ofFoneFriend, Inc. with Universal Broadband, Inc. may have the right to require usto redeem our 5% stockholder interest in the Company at its option, at any time,for $3.0 million. Such a redemption may have a material adverse effect on us andforce us to seek protection under the bankruptcy laws.***
 

TheLiquidating Trustee under the Plan of Reorganization and subsequent merger ofFoneFriend, Inc. with Universal Broadband, Inc. may have the right to require usto redeem our 5% shareholder interest in the Company at its option, at any time,for $3.0 million. Such a redemption may have a material adverse effect on us andforce us to seek protection under the bankruptcy laws. Furthermore, we may havean obligation to issue additional shares to the Liquidating Trustee pursuant toan anti-dilution provision contained in the Plan of Reorganization. This maycause additional dilution to our stockholders. Finally, all of the shares in thepossession of the Liquidating Trustee may be deemed to be "freetrading" within the meaning of the Securities Act of 1933, as amended.Accordingly, such shares would trade in the open market and the dilutive effectcould have a negative impact on the market for our common stock. We intend tocontest the position of the Liquidating Trustee and the terms of the Plan ofReorganization, and believe that the Liquidating Trustee is only entitled to aredemption out of surplus capital. In addition, Section 160(a) of the DelawareGeneral Corporation Law prohibits redemptions of capital stock when the capitalof the corporation is impaired or when such purchase or redemption would causeany impairment of the capital of the corporation. This statute has beeninterpreted by the courts to mean that a corporation can only purchase its ownstock out of surplus. Currently, we do not have any surplus, and a redemption ofour common stock at this point in time would be prohibited as a matter of law.

 
***Weare highly dependent upon Sean McCaan and his abilities to operate InfiniCom

 ***
Asa result of our agreements with InfiniCom, and the ownership by InfiniCom ofapproximately 83.35% of our common restricted stock, and the ownership of 100%of InfiniCom by Sean McCaan, we are highly dependent upon InfiniCom and Mr.McCaan and his ability to serve our customers and produce our revenues.

 
**Off-BalanceSheet Arrangements

 **
Wedo not have any off-balance sheet arrangements, as defined in Item303(a)(4)(ii), that have or are reasonably likely to have a current or futureeffect on our financial condition, changes in financial condition, revenues orexpenses, results of operations, liquidity, capital expenditures or capitalresources that is material to investors.
**ITEM7 - FINANCIAL STATEMENTS**
 

Theresponse to this item is submitted as a separate section of this reportbeginning on page F-1.
**ITEM8 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIALDISCLOSURE**
 

OnMay 25, 2004, the Board of Directors of the Company dismissed Henry Schiffer,C.P.A., an accountancy corporation, as the Company's independent accountants andappointed the firm of Kabani & Company, Inc., to serve as independent publicaccountants of the Company for the fiscal year ending March 31, 2004.

 

HenrySchiffer's report on the Company's consolidated financial statements for thefiscal years ended March 31, 2003 and April 30, 2002, did not contain an adverseopinion or disclaimer of opinion, or was modified as to uncertainty, audit scopeor accounting principles; however, they were modified to include an explanatoryparagraph wherein they expressed substantial doubt about the Company's abilityto continue as a going concern.

 

Duringthe years ended December 31, 2003 and 2002 and through May 25, 2004, there wereno disagreements with Henry Schiffer on any matter of accounting principles orpractices, financial statement disclosure, or auditing scope or procedure which,if not resolved to Henry Schiffer's satisfaction, would have caused them to makereference to the subject matter of such disagreements in connection with theirreport on the Company's consolidated financial statements for such years.

 

TheCompany provided Henry Schiffer with a copy of the foregoing disclosures. A copyof Henry Schiffer's letter stating its agreement with such statements isincorporated herein by reference from Exhibit 16.1 of our Form 8-K dated May 26,2004 and filed May 27, 2004.

 

Duringthe years ended December 31, 2003 and 2002, and through the date hereof, theCompany did not consult with Kabani & Company, Inc. with respect to theapplication of accounting principles to a specified transaction, eithercompleted or proposed, or the type of audit opinion that might be rendered onthe Company's financial statements. The Board of Directors of the Companyapproved the change in accountants described herein.

 
**ITEM8A - CONTROLS AND PROCEDURES**
 

Weare a development stage company with no revenues and during 2003 our Board ofDirectors had responsibility for our internal controls and procedures over ourfinancial reporting.

 

Wehave implemented and maintain disclosure controls and procedures which consistof: the control environment, risk assessment, control activities, informationand communication and monitoring. Our scope of internal control thereforeextends to policies, plans procedures, processes, systems, activities,initiatives, and endeavors required of a company with our limited transactions,revenues, expenses, and operations. These controls and procedures are designedto ensure that the information required to be disclosed in our Exchange Actreports is recorded, processed, summarized and reported within the time periodsspecified in the SEC's rules.

 

Therehave been no significant changes (including corrective actions with regard tosignificant deficiencies or material weaknesses) in our internal controls or inother factors that could significantly affect the controls subsequent to thedate of the evaluation referenced below.

 

Within90 days prior to the date of this report, we carried out an evaluation, underthe supervision of Mr. Rasmussen, of the effectiveness of the design andoperation of the Company's disclosure controls and procedures. Based on theforegoing, Mr. Rasmussen concluded that, given the Company's limited operations,our disclosure controls and procedures were effective.
**PARTIII**
 
**ITEM9 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCEWITH SECTION 16(A) OF THE EXCHANGE ACT**
 

Thecurrent Executive officers and directors of the Company at March 31, 2004 were:

 

NAME
AGE
POSITION
Gary      A. Rasmussen
52
Chairman      and Senior Business Consultant
Jackelyn      Giroux
46
President
Edward      N. Jones
67
Chief      Financial Officer
Dennis      H. Johnston
50
Secretary
 
*BusinessExperience*
 

Thefollowing is a brief account of the business experience during at least the pastfive years of the persons designated to be officers of the Company, indicatingthe principal occupation and employment during that period by each, and the nameand principal business of the organizations by which they were employed.

 

GARYA. RASMUSSEN, is a founder of the predecessor company (FoneFriend, Inc., aNevada corporation) and has served as our Senior Business Consultant sinceNovember 2002, helping to guide the Company through its development stage andinitial operations as a publicly held company. He was appointed our Chairman onJanuary 27, 2004 by our Board of Directors. Mr. Rasmussen has an extensivebackground spanning over 25 years as an entrepreneur with vast experience in allphases of business development, having been a founder, chief executive officeror director of several publicly-held corporations in the areas of cabletelevision, investment banking, mortgage banking and motion pictures. He hasextensive experience in raising debt and equity capital for both public andprivate enterprises, implementing short and long term business planning andstrategic concepts, acquisitions and divestitures, and has played a key role inspearheading several publicly held corporations from their inception through theearly capital raising stages. In October 2000, Mr. Rasmussen was convicted in afederal court for violation of Environmental Protection Laws regarding thetransportation of hazardous waste without a permit, and received a sentence often months. Mr. Rasmussen continues to deny the factual basis for his convictionand believes he was wrongfully convicted. Furthermore, he vehemently denies anyculpability in the matter. In the opinion of his legal counsel and management ofthe Company, this conviction has no bearing on Mr. Rasmussen's honesty, veracityor his engagement with FoneFriend and does not adversely affect his ability todiligently perform his duties. Mr. Rasmussen. Mr. Rasmussen is a graduate ofWestern Michigan University.

JACKELYNGIROUX, is a director and serves as the Company's President. Ms. Giroux is alsothe President of Global Universal Limited, a film production and distributioncompany. Prior to joining FoneFriend in August, 2001, Ms. Giroux has been awriter, producer and director of feature films since 1985. Jackelyn Giroux won ascholarship to the New York American Academy of Dramatic Arts, and has appearedin many off Broadway and Broadway plays. Her career in films was launched with alead role in "The Cross and the Switch Blade", starring Pat Boone andEric Estrada. She has appeared in fifteen feature films and several TV series.Since 1987, she has written and produced ten feature films and two "Moviesof the Week." Ms. Giroux has extensive experience in structuring financingand co-production deals, having successfully arranged for co-productions betweenCanada, France and Germany, as well as Canada, France and Australia. In 2000,she wrote and directed "Coo Coo Cafe ", a satire on the medianetworks, which prominently features the "FoneFriend" product beingused by the main characters. The film "Coo Coo Cafe " was exhibited atthe Cannes Film Festival in May of 2001.

 

EDWARDN. JONES serves as the Company's Chief Financial Officer. Mr. Jones has overthirty-five years experience as a practicing certified public accountant, chieffinancial officer, chief executive officer, corporate board member and as aconsultant to corporate management and legal counsel. Mr. Jones began his careerat KPMG. He progressed rapidly at KPMG and left to work as a chief financialofficer and chief executive officer at various companies. In 1986, he began anew phase of his career, consulting for corporate management and legal counselon matters involving finance and litigation. His past board of directoraffiliations include the following prestigious companies: Founders LifeInsurance Company, Presidio Insurance Company, Massachusetts Life Insurance& Indemnity Company, First Nevada Corporation, Camino Real Savings Bank,Real Estate Management Trust, Inc. (REIT), Sherman Oaks Savings Bank, as well asthe Gawzner Corporation.

 

Inaddition to the foregoing, Mr. Jones was responsible for listing the stock ofNevada Savings and Loan Association on the New York Stock Exchange and growingthe institution from $600 million plus in assets to over $1.1 billion in assetsby early 1984, all the while maintaining exceptional profitability and superiorasset quality. Thereafter, while continuing his practice as a forensicaccountant and analyst, Mr. Jones was retained to act as the accounting expertfor counsel to the State of Rhode Island in the simultaneous, massive failure of72 credit unions based in that state. Mr. Jones is a fully licensed CertifiedPublic Accountant in the State of California and is a member of both theAmerican Institute of Certified Public Accountants and the California Society ofCertified Public Accountants. Mr. Jones has a Bachelor of Sciences degree inbusiness and finance, graduating from California State University, Northridge in

1963.He was awarded the Wall Street Journal Outstanding Business Student Award in1961.

 

DENNISH. JOHNSTON, ESQ. serves as the Company's Corporate Secretary, and is also anindependent director. Mr. Johnston has more than 20 years of experience as apracticing attorney specializing in the representation of corporations andfinancial institutions. He has assisted in organizing and financing numerousprivate and publicly traded companies and has handled mergers and acquisitionswith a total value in excess of $3 billion. Mr. Johnston received undergraduatedegrees in business and economics from UCLA and a law degree with Dean's List Honorsfrom Loyola University of Los Angeles, where he was an Editor of The Loyola LawReview. He is a former partner at the nationally recognized law firms of Manatt,Phelps, Rothenberg, & Tunney, and Wyman, Bautzer, Kuchel & Silbert.

Thepersons who are directors of the Company at March 31, 2004 are:

 

NAME
AGE
Gary      A. Rasmussen
52
Jackelyn      Giroux
46
Virginia      Perfili
52
Dennis      H. Johnston
50
 
*BusinessExperience*
 

Thefollowing is a brief account of the business experience during at least the pastfive years of the persons designated to be directors of the Filer, indicatingthe principal occupation and employment during that period by each, and the nameand principal business of the organizations by which they were employed.

 

GARYA. RASMUSSEN - See above.

 

JACKELYNGIROUX - See above.

 

VIRGINIAPERFILI, was appointed as a director of the Company to fill a vacancy on theboard of directors. Ms. Perfili is an independent film producer and director andis currently the President and founder of EM3, Inc., a film production andentertainment company in Hollywood, California. From 1982 through 1997, Ms.Perfili was the President, CEO and a Director of Orphan, Inc., a publicly heldcompany engaged in the film production and record industries. During her tenurewith Orphan, Ms. Perfili produced and directed several film projects in additionto her responsibilities for the overall management and promotion of the company.Ms. Perfili is a graduate of Wayne State University in Detroit, Michigan.

 

DENNISH. JOHNSTON - See above.

 

Otherthan Mr. Rasmussen, as described above, no appointee for a director position hasbeen found guilty of any civil regulatory or criminal offense or is currentlythe subject of any civil regulatory proceeding or any criminal proceeding.

 
*SubsequentEvents*
 

Asa result of the July 1, 2004 agreement between FoneFriend and InfiniCom, two ofFoneFriend's directors were replaced with three directors determined byInfiniCom. Jackelyn Giroux resigned as President, CEO and a director, andVirginia Perfili resigned as a director. James A. Trodden, Joseph Weaver, andRobin Glanzl were elected to FoneFriend's board by its remaining board membersDennis Johnston and Gary Rasmussen. Ms. Glanzl was also appointed as InterimPresident of FoneFriend to serve until the next annual meeting of stockholdersor until her successor is duly elected and qualified.
*JamesA. Trodden, Esq. Age (69), director. Mr. Trodden has practiced law for overforty years. During his career, Mr. Trodden has represented national andinternational corporate clients. Over the past five years, Mr. Trodden has beenengaged in representing clients before the Securities and Exchange Commission,the National Association of Securities Dealers and other federal and stateagencies.

 
*JosephWeaver, Age (52), Mr. Weaver is a telecommunication and technology executivewith sales, marketing, and 27 years of management experience; a problem-solver,leader, and motivator with a history of outstanding performance.

 

Product& technology expertise includes hardware & software tools, platforms,application solutions, and networks. Skill sets include financial and processoptimization, strategic planning, business development, alliances, contracts,and operations. Additional experience includes management consulting,development of advanced network products and services, and implementation ofmulti-tiered domestic and international sales and distribution channels innumerous industries.

 

Mr.Weaver has worked for leading edge companies such as the Microelectronics andComputer Technology Corporation, a research consortium, Bell Laboratories andAT&T, as well as held senior management positions in a number oftelecommunications companies over the past 10 years. He has provided managementconsulting for companies entering new markets in the U.S., C.I.S., China, HongKong, Taiwan, Philippines, Central and South America and Europe. In addition, hehas provided consulting services to Fortune100 Companies that include IBM, andPhillip Morris.

 

Mr.Weaver has extensive international business experience having spent 10 years inHong Kong as Managing Director of a 60-year-old international company where hewas responsible for reengineering the Company's strategic direction resulting ina revenue increase from $200 million to $1.25 billion in less than 3 years. Inthis position Weaver directly managed the activities of 1,152 employees and fourinternational business offices.

 

Mr.Weaver's background includes significant experience in technologies including;telephony (IP, ATM, wireless protocols as well as legacy networks), billing,network design, network management, enterprise applications, business processreengineering, object-oriented software, database technology, client-servernetworks, computer graphics, and video.

 

Mr.Weaver has authored Business Plans, Pro Forma(s), Private Placement Memorandum(s),and Marketing and Sales Plans that have raised over $152 million from privateand institutional investors during the past 51/2 years.

Overthe past seven years Mr. Weaver has served as an analyst to a number oftelecommunication companies, as well as to technology and venture funds in theUnited States, South America, Russia and the Pacific Rim.

 

Mr.Weaver holds BS/Business and BA/English degrees.

 
*RobinGlanzl, Age (62), Ms. Robin Glanzl received her Bachelor of Arts degree andher Juris Doctor degree from the University of Southern California.  In herearly years as an attorney she was affiliated with the United States Departmentof State through the Federal Trade Commission where she investigated andprosecuted alleged violations of the federal anti-trust laws throughout thecountry, covering unfair competition, predatory pricing practices, falseadvertising and franchising.  She helped to develop the first  federalstandards for broadcast advertising.

 

Duringthe last twenty-five years of her legal career she has engaged primarily incorporate development and transactional law in a broad range of matters such asmergers, acquisitions, securities, international oil and gas engineering andleases, franchise development, the entertainment industry covering film,television and record projects as well as  labor union dispute resolution.She wrote procedure manuals on copyright and trademark law and held seminars forsenior management  and major private developers in the franchiseindustry.  She helped to take a national franchise company to significantinternational status.

 

Shehas worked with large, multinational corporations such as Fluor Corporation,Carnation Company, Burger King, Inc., ABC Television, Inc, and CapitolIndustries (Records), Inc as well as regional and private local corporations.Whether as general counsel, assistant general counsel or corporate counsel Mrs.Glanzl worked closely with top management in helping operations, sales andmarketing departments to plan meaningful goals within the framework ofapplicable statutes and regulations. She has been recognized for making significant contributions in evaluating or reconciling the reliability andconsistency between financial records and operational reports and other datawhen companies she worked with contemplated buying out or associating with otherbusinesses or companies. Mrs. Glanzl taught anti-trust and contract andbusiness law at USC's School of Business, Whittier College School of Law andWoodbury University.

 

Shehas served on the board of several small companies as secretary and kept thecorporate minutes books.  She has also done the regulatory work andcorporate bookkeeping for large domestic and international companies. During the last fourteen years she has worked significantly in the telephonyindustry assisting in the purchase, development and reshaping of troubledcompanies, especially in the areas of report and document reconciliation andevaluation as well as operationally in the initial post acquisition periods.

 

Mrs.Glanzl serves on the board of two charities in the greater Los Angeles areadealing with battered women and medical research and treatment.  She haslong been involved in a national charity combating child abuse. She has been anarbitrator with the American Arbitration Association and is certified in feemediation dispute by the California State Bar.  She is certified topractice law before the United States Supreme Court, the federal courts andCalifornia state courts.
*Compliancewith Section 16(a) of the Exchange Act*
 

Section16(a) of the Securities Exchange Act of 1934 (the "Exchange Act")requires that the Company's officers and directors, and persons who own morethan ten percent of the registered class of the Company's equity securities,file reports of ownership and changes in ownership with the Securities andExchange Commission. Officers, directors and greater than ten percentstockholders are required by regulation to furnish to the Company copies of allSection 16(a) forms they file. The Company is unaware of any persons who failedto file forms on a timely basis during the past two fiscal years as requiredunder Section 16(a)

 
*Conflictsof Interest*
 

Membersof the Company's management are associated with other firms involved in a rangeof business activities. Consequently, there are potential inherent conflicts ofinterest in their acting as officers and directors of the Company. Insofar asmost of the officers and directors are engaged in other business activities,management anticipates it will devote substantially less than full time to theCompany's affairs. There can be no assurance that management will resolve allconflicts of interest in favor of the Company.

 
**AuditCommittee**
 

Wedo not have an Audit Committee, our board of directors during 2003, performedsome of the same functions of an Audit Committee, such as: recommending a firmof independent certified public accountants to audit the annual financialstatements; reviewing the independent auditors independence, the financialstatements and their audit report; and reviewing management's administration ofthe system of internal accounting controls. The Company does not currently havea written audit committee charter or similar document.

 
**Codeof Ethics**
 

Acode of ethics relates to written standards that are reasonably designed todeter wrongdoing and to promote:
-  Honest and ethical conduct, including the ethical handling of actual or      apparent conflicts of interest between personal and professional      relationships;Full, fair, accurate, timely and understandable disclosure in reports and      documents that are filed with, or submitted to, the Commission and in      other public communications made by an issuer;Compliance with applicable governmental laws, rules and regulations;The prompt internal reporting of violations of the code to an appropriate      person or persons identified in the code; andAccountability for adherence to the code.
Wehave not adopted a corporate code of ethics that applies to our principalexecutive officer, principal financial officer, principal accounting officer orcontroller, or persons performing similar functions in that in the past we hadminimal operational activities and a limited staff.
**NominatingCommittee**
 

Wedo not have a Nominating Committee or Nominating Committee Charter. Our board ofdirectors performed some of the functions associated with a NominatingCommittee. We have elected not to have a Nominating Committee in that we are adevelopment stage company with limited operations and resources.

 

EMPLOYMENTAGREEMENTS WITH KEY PERSONS

 

Weentered into a formal written Employment Agreement with Jackelyn Giroux, ourPresident, dated November 20, 2002, as amended by an Amendment to EmploymentAgreement dated November 22, 2003 (together being the "EmploymentAgreement"), which provided for, among other employment benefits, an annualsalary of $90,000 with an accrued amount aggregating $82,500 paid ininstallments over twelve months with 10% interest, the right to purchase 2.8million shares of common stock at a price of $.001 per share, and ananti-dilution clause to maintain Ms. Giroux's ownership interest in the Companyat 21.2% of the issued and outstanding shares of common stock. The shares havebeen purchased under the Employment Agreement by Ms. Giroux. However, payment ofboth current and accrued salary amounts have been suspended and continue toaccrue due to a lack of revenues, and may be reinstated in the future. Inaddition, Ms. Giroux's Employment Agreement granted her an option to purchase350,000 shares of our common stock at a price of $.01 per share. This option isvested but has not been exercised as of the date of this filing. On July 1,2004, the employment relationship with Ms. Giroux ended with her resignation.The Company remains obligated for payment of her accrued salary due and owingunder her agreement.

 

Weentered into a formal written Consulting Services Agreement with Gary Rasmussen,then our Senior Business Consultant and now also our Chairman, dated November20, 2002, as amended by an Amendment to Consulting Services Agreement datedNovember 22, 2003 (together being the "Consulting ServicesAgreement"), which provided for, among other benefits, an annual salary of$120,000 (increasing to $180,000 under certain conditions) with an accruedamount aggregating $86,000 paid in installments over twelve months with 10%interest, the right to purchase 4.5 million shares of common stock at a price of$.001 per share, and an anti-dilution clause to maintain Mr. Rasmussen'sownership interest in the Company at 25% of the issued and outstanding shares ofcommon stock. Although we understand that Mr. Rasmussen intends to waive hisanti-dilution provision as it relates to the issuance of shares as the result ofthe InfiniCom transaction, which would result in the issuance of approximately28,928,571 additional shares to Mr. Rasmussen the waiver of this provision hasnot been formally documented. The shares have been purchased under theConsulting Services Agreement by Mr. Rasmussen. However, payment of both currentand accrued consulting fees have been suspended and continue to accrue due to alack of revenues, and may be reinstated in the future. In addition, Mr.Rasmussen's consulting agreement granted him an option to purchase 350,000shares of our common stock at a price of $.10 per share; provided, however, thatthe amount of shares and terms of such option shall not be less favorable thanany other grantee of options. Accordingly, the exercise price was adjusted to$.01 per share in order to match the exercise price granted the Company'sPresident. This option is vested but has not been exercised as of the date ofthis filing.

Weentered into a formal written Consultancy Agreement with Edward N. Jones, ourChief Financial Officer, dated November 15, 2002, as amended by an Amendment toConsultancy Agreement dated November 16, 2003, and as amended by a SecondAmendment to Consultancy Agreement dated March 1, 2004 (together being the"Consultancy Agreement"), which provide for, among other consultingbenefits, payment in the amount of 85,000 shares over the term of the ConsultingAgreement, which commenced on November 20, 2002, and ends on June 30, 2004.These shares have been delivered to Mr. Jones. Mr. Jones has sold some of theseshares in the open market.

PROMOTERS.

 

InJanuary 2004, we engaged the firm of RR Inv Holdings, Inc. for investorrelations and public relations services for our Company. As consideration fortheir services, we agreed to issue RR Inv Holdings, Inc. 900,000 shares of ourcommon stock.

 

OnMay 4, 2004, we terminated our agreement with RR Inv Holdings, Inc. due to theirlack of performance. Accordingly, we instructed the escrow agent to return allshares held in the name of RR Inv Holdings. We received 500,000 shares from theescrow agent. We then instructed our transfer agent to cancel the returnedcertificates and place a "stop transfer" order on the remaining400,000 shares. Our transfer agent has since received the remaining shares andhas effected their cancellation.

 

OnMay 17, 2004, we engaged Equity Market Information Systems, Inc. (EMIS) forinvestor relations and public relations services for our Company. Our engagementwith them provides that they will profile our Company to broker dealers and theinvestment community via press releases, production of promotional materials,publication of corporate information on web sites and emails, telephoneconference calls, internet news dissemination and other media forms. We havepaid EMIS $35,000 in cash and have agreed to issue them 500,000 shares ofregistered common stock, of which 250,000 shares were issued in June, 2004, and250,000 shares are to be issued in July, 2004. Additionally, EMIS was granted anoption to acquire an additional 150,000 shares of our registered common stock atprices substantially above our current market price. A further condition of theAgreement prohibits EMIS from acquiring or trading in any additional shares ofFoneFriend for the 3 month term of their agreement.

 

LIMITATIONSON DIRECTOR AND OFFICER LIABILITY; POSITION OF THE COMMISSION ON INDEMNIFICATION

 

Section145 of the Delaware General Corporation Law ("DGCL") provides that acorporation may indemnify such person who was or is a party or is threatened tobe made a party to any threatened, pending or completed action or proceeding,whether civil, criminal, administrative or investigative, by reason of the factthat such person is or was a director, officer, employee or agent of thecorporation or is or was serving at its request in such capacity in anothercorporation or business association, against expenses (including attorneys'fees), judgments, fines and amounts paid in settlement actually and reasonablyincurred by him in connection with such action, suit or proceeding if suchperson acted in good faith and in a manner such person reasonably believed to bein or not opposed to the best interests of the corporation, and, with respect toany criminal action or proceeding, had no reasonable cause to believe hisconduct was unlawful.

Aspermitted by Section 145 of the DGCL, the Company's Bylaws provide that, to thefullest extent permitted by the DGCL, directors, officers and certain otherpersons who are made, or are threatened to be made, parties to, or are involvedin, any action, suit or proceeding will be indemnified by the company withrespect thereto. Article V of the Company's Bylaws provides for theindemnification of officers, directors, employees and agents of the corporationif such person acted in good faith and in a manner reasonably believed to be inand not opposed to the best interest of the corporation, and, with respect toany criminal action or proceeding the indemnified party had no reason to believehis conduct was unlawful.

 

Section102(b)(7) of the DGCL permits a corporation to provide in its Certificate ofIncorporation that a director of the corporation shall not be personally liableto the corporation or its stockholders for monetary damages for breach offiduciary duty as a director, expect for liability (i) for any breach of thedirector's duty of loyalty to the corporation or its stockholders, (ii) for actsor omissions not in good faith or which involve intentional misconduct or aknowing violation of law, (iii) under section 174 of the DGCL, or (iv) for anytransaction from which the director derived an improper personal benefit.

 

Aspermitted by Section 102(b)(7) of the DGCL, our Amended and Restated Certificateof Incorporation includes a provision that limits a director's personalliability to the company or its stockholders for monetary damages for breachesof his or her fiduciary duty as a director. Article IX of the Company's Amendedand Restated Certificate of Incorporation provides that no director or thecompany shall be personally liable to the company or its stockholders formonetary damages for breach of fiduciary duty to the fullest extent permitted byDGLC.

 

OnFebruary 25, 2004, we entered into an Investment Agreement with Dutchess PrivateEquities Fund, L.P., in which we agreed to defend, protect, indemnify and holdharmless Dutchess' officers, directors, employees, counsel, and direct orindirect investors, agents or other representatives, from and against any andall actions, causes of action, suits, claims, losses, costs, penalties, fees,liabilities and damages, and reasonable expenses including reasonable attorneys'fees and disbursements incurred by Dutchess as a result of, or arising out of,or relating to (i) any misrepresentation or breach of any representation orwarranty made by us or any other certificate, instrument or document; (II) anybreach of any of our covenants, agreements or obligations or (III) any cause ofaction, suite or claim brought or made against Dutchess by a third party, exceptinsofar as any such misrepresentation, breach or any untrue statement, allegeduntrue statement, omission or alleged omission is made in reliance upon and inconformity with information furnished to Dutchess which is specifically intendedfor use in the preparation of any such registration statement, preliminaryfiling, filing or amends to the filing.

 

OnFebruary 25, 2004, we entered into a Registration Rights Agreement with Dutchess,in which we agreed to indemnify, hold harmless and defend Dutchess and itsofficers, partners, employees, counsel, agents and representatives against anylosses, claims, damages, liabilities, judgments, fines, penalties, charges,costs, attorneys' fees, amounts paid in settlement or expenses, joint orseveral, incurred in investigating, preparing or defending any action, claim,suit, inquiry, proceeding, investigation or appeal taken from the foregoing byor before any court or governmental, administrative or other regulatory agency,body or the SEC, whether pending or threatened, whether or not Dutchess is ormay be a party thereto, to which any of them may become subject insofar as suchclaims or actions or proceedings, whether commenced or threatened, arise out ofor are based upon: (I) any untrue statement or alleged untrue statement of amaterial fact in a registration statement or any post-effective amendmentthereto or in any filing made in connection with the qualification of theoffering under the securities or other "blue sky" laws of anyjurisdiction in which Dutchess has requested in writing that we register orqualify the common stock, or the omission or alleged omission to state amaterial fact required to be stated therein or necessary to make the statementstherein, in light of the circumstances under which the statements therein weremade, not misleading, (II) any untrue statement or alleged untrue statement of amaterial fact contained in the final filing or the omission or alleged omissionto state therein any material fact necessary to make the statements madetherein, in light of the circumstances under which the statements therein weremade, not misleading, or (III) any violation or alleged violation by us of theSecurities Act, the Securities Exchange Act, or any other law, including,without limitation, any state securities law, or any rule or regulationthereunder relating to the offer or sale of the common stock pursuant to aregistration statement. The indemnification agreements (I) shall not apply to aclaim arising out of or based upon a violation which is due to the inclusion inthe registration of the information furnished to us by Dutchess expressly foruse in connection with the preparation of the registration or any such amendmentthereof or supplement thereto; (II) shall not be available to the extent suchclaim is based on (A) a failure of Dutchess to deliver or to cause to bedelivered the filing made available by us or (B) Dutchess' use of an incorrectfiling despite being promptly advised in advance by us in writing not to usesuch incorrect filing; (III) any claims based on the manner of sale of thecommon stock by Dutchess or of Durchess' failure to register as a dealer underapplicable securities; (IV) any omission of Dutchess to notify us of anymaterial fact that should be stated in the registration statement or filingrelating to Dutchess or the manner of sale; and (V) any amounts paid insettlement of any claim if such settlement is effected without the prior writtenconsent, which consent shall not be unreasonably withheld.

Insofaras indemnification for liabilities arising under the Securities Act may bepermitted to director, officers or persons controlling us under the foregoingprovisions, we have been advised that in the opinion of the Commission suchindemnification is against public policy as expressed in the Securities Act, andis unenforceable for that reason.

 
**ITEM10- EXECUTIVE COMPENSATION**
 

EXECUTIVECOMPENSATION

 

CashCompensation.

 

TheSummary Compensation Table and the accompanying notes set forth below providesummary information for each of the last three fiscal years ended March 31st,concerning cash and non-cash compensation earned, paid or accrued by our ChiefExecutive Officer and each of our most highly compensated executive officers orconsultants whose total compensation exceeded $100,000. Information for ourfiscal year ended March 31, 2004, is provided through March 31, 2004.

SummaryCompensation Table

 

 

 

Annual      Compensation
Awards
Payout
 

Name      and Principal Position
 

 

 

Year
 

 

Salary      ($)
 

 

Bonus      ($)
 

Other      Compensation ($)
Restricted      Stock Award(s) ($)
Securities      Underlying Options SARs (#)
 

LTIP      Payouts (S)
 

Other      ($)      Jackelyn GirouxPresident-CEO (1)
2004
90,000
0
0
0
0
0
0
2003
32,500
0
0
0
350,000
0
0
2002
0
0
0
0
0
0
0      Gary A. Rasmussen Chairman and Consultant
2004
120,000
0
0
0
0
0
0
2003
43,333
0
0
0
350,000
0
0
2002
0
0
0
0
0
0
0      Brandon Powell Exec. Vice President
2004
0
0
0
0
0
0
0
2003
115,606
0
0
0
0
0
0
2002
184,969
0
0
0
0
0
0
 

1.Ms. Giroux's annual base salary is $90,000 and is payable to Global UniversalLimited, a corporation owned and controlled by her. Fiscal year 2004 reflectssalary earned for the period April 1, 2003 through March 31, 2004, of which$11,382 was paid in cash and the balance was accrued. Fiscal year 2003 reflectssalary earned for the period November 20, 2002 (commencement of her employment)through March 31, 2003, of which $17,500 was paid in cash and the balance wasaccrued. Prior to November 20, 2002, Ms. Giroux served as the President of ourpredecessor company, FoneFriend, Inc., a Nevada corporation, where she receivedan additional $59,000 for the period April 1, 2002 through November 19, 2002.Ms. Giroux's employment agreement with the Company granted her an option toacquire 350,000 shares of the Company's common stock at a price of $.01 pershare. Additionally, her agreement provides for an auto allowance, healthinsurance and other perks, as well as bonus compensation in the amount of onepercent (1.0%) of net revenues realized by the Company. No perks or bonuscompensation has been paid to date.

 

2.Mr. Rasmussen's annual base compensation as our consultant is presently $120,000and will increase to $180,000 upon the Company's receipt of minimum financing inthe amount of $1 Million. Fiscal year 2004 reflects consulting fees earned forthe period April 1, 2003 through March 31, 2004, of which $41,000 was paid incash and the balance was accrued. Fiscal year 2003 reflects consulting feesearned for the period November 20, 2002 through March 31, 2003, of which $8,000was paid in cash and the balance was accrued. Prior to November 20, 2002, Mr.Rasmussen served as a consultant to our predecessor company, FoneFriend, Inc., aNevada corporation, where he received an additional $29,142 for the period April1, 2002 through November 19, 2002. Mr. Rasmussen's consulting agreement with theCompany granted him option to acquire a minimum of 350,000 shares of theCompany's common stock at a price of $.10 per share; provided, however, that theamount and terms of such option shall be no less favorable than granted to anyother person by the Company. Accordingly, the exercise price of his option hasbeen adjusted to $.01, in order to match the exercise price granted theCompany's President. Additionally, his agreement provides for an auto allowance,health insurance and other perks, as well as bonus compensation in the amount ofone and one-half percent (1.5%) of any private financing received by the Companyand one percent (1.0%) of revenues realized. No perks or bonus compensation hasbeen paid to date and Mr. Rasmussen has not yet received any compensation forhis role as our Chairman.

3.Mr. Powell's salary for fiscal year 2002 is based upon information reported inUniversal Broadband Network's annual report on Form 10-K for the year endedMarch 31, 2002. His salary for fiscal year 2003 is estimated and reflects theperiod April 1, 2002 through November 15, 2002, when Mr. Powell resigned. Mr.Powell was the sole executive officer during the bankruptcy.

 

SUMMARYCOMPENSATION TABLE OF DIRECTORS

(toMarch 31, 2004)

 

 

 

Name
 

 

Year
Annual      Retainer Fees ($)
 

 

Meeting      Fees ($)
Consulting      Fees/Other Fees ($)
Number      of Option Shares Exercised
Securities      Underlying Options/SARs (#)      Gary Rasmussen,
2001
0
0
0
0
0      Director
2002
0
0
0
0
0
2003
0
0
0
0
0      Jackelyn Giroux
2001
0
0
0
0
0      Director
2002
0
0
0
0
0
2003
0
0
0
0
0      Virginia Perfili,
2001
0
0
0
0
0      Director
2002
0
0
0
0
0
2003
$500
0
0
0
0      Dennis H. Johnston
2001
0
0
0
0
0      Director
2002
0
0
0
0
0
2003
0
0
0
0
0
 

Ourpolicy is that directors are entitled to be compensated at the rate of $500 permeeting. Only one director, Virginia Perfili, has received any such compensationto date, because of our cash position. However, we intend to pay all of ourdirectors at this rate in the future when cash flow permits us to do so. Inaddition to the aforementioned compensation, Ms. Perfili, who worked as acontract employee during 2002, was granted 100,000 award shares pursuant to theCompany's 2002 Stock Plan in January 2003 for her services. It is intended thatMs. Perfili will receive additional shares of common stock for her services asdirector and for her services as a contract employee. Dennis H. Johnston, Esq.,our Corporate Secretary and Director, was granted options to purchase 300,000shares of common stock at a purchase price of $.10 cents per share on May 20,2003 for his service.

 

OPTIONSAND AWARD SHARES

 

Wehave a 2002 Non-Employee, Director and Consultant Retainer Stock Plan andEmployee Stock Incentive Plan (the "Plan"), which is more fullydiscussed below. The Plan was adopted to award shares and options toNon-Employees, Directors, Consultants and Employees for their service and toprovide them with an equity stake in our Company.
**OptionGrants*** 

StockOption*
 

OnDecember 6, 2002, The Board of Directors of the Company adopted the -2002Non-employee Director and Consultant Retainer Stock Plan and Employee StockIncentive Plan. The Plan provides for the granting of incentive stock options,in accordance with the terms and provisions thereof, by the Board to SelectedPersons (as that term is defined under the Plan) who are expected to makesignificant and extraordinary contributions to the long-term performance andgrowth of the Company.

 

Pursuantto the Corporate Stock Option Plan, the Company granted 350,000 options each totwo key employees and 300,000 options to another key employee during the yearended March 31, 2003. The Options have an expiry that is 5-1/2 years from thegrant date.

 

Followingis a summary of the stock option activity:

Outstanding      at March 31, 2002
 

Granted
1,000,000
Forfeited
-
Exercised
-
Outstanding      at March 31, 2003
1,000,000
 

 

Granted
500,000
Forfeited
-
Exercised
(500,000)
Outstanding      at March 31, 2004
1,000,000
 

Followingis a summary of the status of options outstanding at March 31, 2004:

 

 

Outstanding      Options
Exercisable      Options
 

 

Exercise      Price
 

 

Number
Weighted      Average Remaining Contractual Life
 

Weighted      Average Exercise Price
 

 

Number
 

Weighted      Average Exercise Price
$0.01
700,000
5-1/2
$      0.01
700,000
$      0.01
$0.10
300,000
5-1/2
$      0.10
300,000
$      0.10
 

Stock-basedcompensations recognized during the year ending March 31, 2004 and for the 11month period ending March 2003 were $ 27,000 and $ 0, respectively.

Theassumptions used in calculating the fair value of options granted using theBlack-Scholes option- pricing model are as follows:

 

2004
Risk-free      interest rate
3.25%
Expected      life of the options
5      years
Expected      volatility
879%      Expected dividend yield
0* 

Warrants*
 

Thecompany issued warrants during the year ending March 31, 2004.

 

Followingis a summary of the warrant activity:

Outstanding      at March 31, 2003
-
Granted
200,000
Forfeited
-
Exercised
-
Outstanding      at March 31, 2004
200,000
 

Followingis a summary of the status of warrants outstanding at March 31, 2004:

 

 

Outstanding      Options
Exercisable      Options
 

 

Exercise      Price
 

 

Number
Weighted      Average Remaining Contractual Life
 

Weighted      Average Exercise Price
 

 

Number
 

Weighted      Average Exercise Price
$0.20
200,000
1
$0.20
200,000
$0.20
 

Stock-basedcompensations recognized during the year ending March 31, 2004 and for the 11month period ending March 2003 were $ 36,800 and $ 0, respectively.

 

Theassumptions used in calculating the fair value of warrants granted using theBlack-Scholes option- pricing model are as follows:

 

2004
Risk-free      interest rate
5.00%
Expected      life of the options
1      years
Expected      volatility
100%      Expected dividend yield
0
 

TheCompany did not issued any warrants in the 11 month period ended March 31, 2003.

 

Todate, Mr. Perfili was awarded 100,000 shares in 2003, and Ms. Giroux, Mr.Rasmussen and Mr. Johnston were awarded options to purchase 350,000, 350,000 and300,000 shares of common stock, respectively, in 2003. The options awarded toMs. Giroux and Mr. Rasmussen have fully vested, while half of the optionsawarded to Mr. Johnston have vested.

InJuly, 2003, we issued an option to a consultant to acquire 200,000 shares at$.20 (current market). The option was exercised in August. In September, 2003,we issued an option to a consultant to acquire 200,000 shares at $.15 (currentmarket). This option was exercised in October. In October, 2003, we issued anoption to a consultant to acquire 100,000 shares at $.15 (current market). Thisoption was exercised.

 

InJanuary, 2004, we gave 15,000 shares of registered common stock to Edward Jones,our CFO, as consideration for the renewal of his agreement to serve as CFOthrough February 29, 2004. His original agreement had expired November 15, 2003.Just recently, on March 1, 2004, we entered into an amended agreement to give EdJones an additional 20,000 shares of registered common stock to renew hiscontract until June 30, 2004.

 

TheCompensation Committee of the Board of Directors issues award stock and stockoptions, as the case may be, to employees, directors, officers, consultants,advisors and other persons associated with our company. The 2002 plan isintended to provide a method whereby our company may be stimulated by thepersonal involvement of our employees, directors, officers, consultants,advisors and other persons in our business and reward such involvement, therebyadvancing the interests of our company and all of its shareholders.

 

Asof the date of this Report, a total of 1,095,000 shares of common stock and1,500,000 options have been issued pursuant to our 2002 Plan. Of this amount65,000 shares of common stock and 1,000,000 options were issued to ourmanagement.

 

Subsequentto year end, on April 8, 2004, the Company filed a new -2004 Non-QualifiedStock Compensation Plan', pursuant to which it registered 4,000,000 sharesof common stock and 2,000,000 options to purchase shares of common stock. Theseshares and options may be granted to qualified employees, directors, officers,consultants, advisors and other persons associated with the Company. As of thedate of this filing, the Board has issued 725,000 shares to three consultants,300,000 shares to a director and 50,000 shares to an officer under the terms ofthe 2004 Plan.

 
**ITEM11 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATEDSTOCKHOLDERS MATTERS**
 

Thefollowing table sets forth, to our knowledge, certain information regarding thebeneficial ownership of the common stock, and the address of such beneficialowner, as of March 31, 2004, for (i) each person known by the Company to be thebeneficial owner of 5% or more of the outstanding common stock, (ii) each of theCompany's officers, directors and consultants, and (iii) all of the Company'sexecutive officers, directors, consultants and Principal Stockholders as agroup. The notes accompanying the information in the table below are necessaryfor a complete understanding of the figures provided below. The number of commonshares owned includes shares of common stock issuable upon the exercise ofoptions that are currently exercisable or will become exercisable within 60 daysof the date of this filing. For each beneficial owner, officer, director orconsultant, his or her percentage of shares outstanding is based upon 19,008,444shares outstanding as of March 31, 2004, plus 865,000 additional shares thatsuch beneficial owners have the right to acquire within 60 days of the date ofthis Report (i.e., a total of 19,873,444).

 

SHAREHOLDER      NAME AND ADDRESS
RELATIONSHIP      TO COMPANY
 

SHARES      OWNED
PERCENTAGE      OF SHARES OUTSTANDING
Jackelyn      Giroux
President      and
3,297,900
16.18%
14545      Friar St, #103
Director
(1)
 

Van      Nuys, CA 91411
 

 

 

 

 

 

 

Gary      Rasmussen
Chairman      and
4,808,225
23.59%
14545      Friar St, #103
Senior      Business
(2)
 

Van      Nuys, CA 91411
Consultant
 

 

 

 

 

 

Dennis      Johnston
Secretary      and
478,140
2.36%
2895      Woodwardia Dr
Director
(3)
 

Los      Angeles, CA 90077
 

 

 

 

 

 

 

Edward      N. Jones
Chief      Financial
75,500
0.35%
13331      Moorpark St, #346
Officer
(4)
 

Sherman      Oaks, CA 91423
 

 

 

 

 

 

 

Virginia      Perfili
Director
55,000
0.27%
14545      Friar St, #103
 

(5)
 

Van      Nuys, CA 91411
 

 

 

 

 

 

 

Francois      Van Der Hoeven
Former      Officer
1,800,000
8.83%
1404      Eastview Ct.
and      Director
(6)
 

Oceanside,      CA 92056
 

 

 

 

 

 

 

Officers,      directors,
(5      persons)
8,714,765
42.75%
and      consultants
 

 

 

as      a group
 

 

 

 

 

 

 

Officers,      directors
(6      persons)
10,514,765
51.58%
and      all beneficial
 

 

 

owners,      as a group
 

 

 
-  Amount consists of (a) 2,700,000 shares owned directly by Ms. Giroux, (b)    options to purchase up to 350,000 shares of common stock on or before May    20, 2008 at an exercise price of $0.01 per share, and (c) 247,900 shares    held in the name of Global Universal Limited, Inc., a corporation controlled    by Ms. Giroux as its President and majority shareholder.-  Amount consists of (a) 4,267,500 shares owned directly by Mr. Rasmussen, (b)    options to purchase up to 350,000 shares of common stock on or before May    20, 2008 at an exercise price of $0.01 per share, (c) 105,000 shares owned    by Mr. Rasmussen as custodian for the benefit of his minor children under    the Michigan Uniform Gift to Minors Act, (d) 85,725 shares of the 428,625    shares owned by Rochester Capital Partners, a limited partnership, of which    Mr. Rasmussen is the general partner and a beneficial owner of 20% of its    equity. Although he has sole dispositive power as general partner, Mr.    Rasmussen disclaims any beneficial ownership in the remaining 80% equity of    the partnership, representing 342,900 shares owned by Rochester Capital    Partners, as such equity and corresponding shares are beneficially owned by    Mr. Rasmussen's minor children and former spouse. Additionally, the amount    does not include 75,000 shares of common stock owned by an irrevocable    children's trust for the benefit of Mr. Rasmussen's minor children for which    he is not the trustee.
Although    we understand that Mr. Rasmussen intends to waive his anti-dilution    provision as it relates to the issuance of shares as the result of the    InfiniCom transaction, which would result in the issuance of approximately    28,928,571 additional shares of restricted common stock to Mr. Rasmussen,    the waiver of this provision has not been formally documented.
-  Amount consists of 328,140 shares owned directly by Mr. Johnston, plus    150,000 shares that may be acquired by him through the exercise of stock    options within sixty days from the date of this filing. In connection with    his employment as Secretary, Mr. Johnston was granted a stock option, which    vests pro-ratably over a 3-year period, to purchase up to 300,000 shares of    common stock on or before May 20, 2006, at an exercise price of $0.10 per    share.Amount consists of 75,500 shares owned directly by Mr. Jones, which were    given to him in connection with his employment as our Chief Financial    Officer.Amount consists of 55,000 shares owned directly by Ms.    Perfili.Amount consists of 1,800,000 shares owned directly by Mr. Van Der Hoeven.    The Company has placed a stop-transfer order on 1,300,000 of these common    shares due to Mr. Van Der Hoeven's voluntary departure from the Company in    mid-February, 2003. He was granted the right to acquire these shares in    consideration for a 3-year employment agreement, of which he served less    than 3 months. He resigned as a director on July 30, 2003.**ITEM12. - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

 **
Duringthe calendar year of 2003, Jackelyn Giroux, the Company's President, along witha member of her family, and Gary Rasmussen, then a consultant to the Company,made several short term loans of various amounts to the Company to cover itsoperating expenses. The aggregate amount of such loans from each individual didnot total over $60,000, and were repaid to these individuals without interest inDecember, 2003. The effects of the imputed interest on the shareholders loanswere immaterial.

OnJuly 1, 2004 we completed a transaction with InfiniCom wherein we issued96,428,571 shares of our restricted common stock. In addition, on July 8, 2004we issued an additional 19,285,714 shares of our restricted common stock toInfiniCom, which represents, as of this filing approximately 83.35% or theCompany's issued and outstanding shares. InfiniCom is 100% owned by Sean McCann.Concurrent with the transaction with InfiniCom, the Company executed a Servicesand Marketing Agreement and a Network Carrier Agreement creating an outsourcingrelationship between the Company and InfiniCom wherein InfiniCom is operatingour day to day operations.

 

Additionally,as a result of the agreements with InfiniCom, we moved our offices to officessupplied by InfiniCom at not additional costs to the Company.

Weentered into a formal written employment agreement (See section entitledEMPLOYMENT AGREEMENTS WITH KEY PERSONS) with Jackelyn Giroux, our President,prior to termination, which employment was terminated on July 1, 2004. Until thetermination of the employment, Ms. Girous was entitled to an anti-dilutionclause to maintain Ms. Giroux's ownership interest in the Company at 21.2%.

Weentered into a formal written employment agreement (See section entitledEMPLOYMENT AGREEMENTS WITH KEY PERSONS) with Gary Rasmussen, our Chief ExecutiveOfficer, which employment agreement includes an anti-dilution clause to maintainMr. Rasmussen's ownership interest in the Company at 25%. Although we understandthat Mr. Rasmussen intends to waive his anti-dilution provision as it relates tothe issuance of shares as the result of the InfiniCom transaction, which wouldresult in the issuance of approximately 28,928,571 additional shares ofrestricted common stock to Mr. Rasmussen, the waiver of this provision has notbeen formally documented.

 
**ITEM 13- EXHIBITS AND REPORTS ON FORM 8-K

 **
(a)Exhibits filed with this annual report.

ExhibitNo.   

 Description

10.24   

 Asset Purchase Agreement with YAP International

31.1   

 Section 302 Certification (CEO)

31.2   

 Section 302 Certification (CFO)

32.1   

 Section 906 Certification (CEO)

32.2   

 Section 906 Certification (CFO)

 

(b)Reports on Form 8-K

 

TheCompany filed reports on Form 8Ks in 2003 as follows:

 

8Kfiled April 9, 2003

8Kfiled February 27, 2004

8Kfiled March 26, 2004
**ITEM 14- PRINCIPAL ACCOUNTANT FEES AND SERVICES

 **
General.Kabani & Company, Inc. ("Kabani") is the Company's principalauditing accountant firm. The Company's Board of Directors has consideredwhether the provision of audit services is compatible with maintaining Kabani'sindependence.

 

AuditFees. Henry Schiffer ("Schiffer") billed for the followingprofessional services:

 

A$22,500 retainer (paid in December 2001) for the audit of the annual financialstatement of the Company for the fiscal years ended April 30, 2002 and March 31,2003, and review of the interim financial statements included in quarterlyreports on Form 10-QSB for the periods ended June 30, 2003, September 30, 2003,and December 31, 2003.

 

Kabani& Company, Inc. ("Kabani") billed the Company for the followingprofessional services:

 

A$10,000 retainer, subject to a maximum fee of $20,000, for the audit of theannual financial statement of the Company for the fiscal year ended March 31,2004, and review of the annual report on Form 10-KSB for the fiscal year endedMarch 31, 2004. We are waiting for an invoice.

 

AuditRelated Fees. Schiffer's retainer included the review of the interimfinancial statements included in quarterly reports on Form 10-QSB for theperiods ended June 30, 2003, September 30, 2003, and December 31, 2003.

 

AllOther Fees. There were no tax fees or other fees in 2001, 2002 or 2003charged by any Auditing or other accounting firm.

TheCompany's Board acts as the audit committee and had no "pre-approvalpolicies and procedures" in effect for the auditors' engagement for theaudit year 2002 and 2003.

 

Theauditors' full time employees performed all audit work.
**SIGNATURES**
Pursuantto the requirements of Section 13 or 15(d) of the Securities Exchange Act of1934, the Filer has duly caused this report to be signed on its behalf by theundersigned, thereunto duly authorized.

 

   

FoneFriend,                        Inc.

Date:July 14, 2004   

 By:/s/      Robin Glanzl                          

   

Robin                          Glanzl, President

   

and                      Director

 

Pursuantto the requirements of the Securities Exchange Act of 1934, this report has beensigned below by the following persons on behalf of the Filer and in thecapacities and on the dates indicated.

 

/s/      Robin Glanzl                                        

July14, 2004

RobinGlanzl, President and Director

/s/DennisJohnston                                   

July14, 2004

DennisJohnston

Secretary,Director

/s/      Edward N.      Jones                                 

July14, 2004

EdwardN. Jones

ChiefFinancial Officer

/s/GaryRasmussen                                   

July14, 2004

GaryRasmussen

Chairmanand Director

/s/      James A.      Trodden                                

July14, 2004

JamesA. Trodden

Director

/s/JosephWeaver                                   

July14, 2004

JosephWeaver

Director

INDEXTO FINANCIAL STATEMENTS

INDEPENDENT      AUDITOR'S REPORT
F-1
 

 

BALANCE      SHEET as of March 31, 2004
F-2
 

 

STATEMENTS      OF OPERATIONS for fiscal years ended March 31, 2004 and 2003 and from      Inception through March 31, 2004
F-3
 

 

STATEMENT      OF CHANGES IN STOCKHOLDERS' EQUITY from Inception through March 31, 2004
F-4      to F-5
 

 

STATEMENTS      OF CASH FLOWS for fiscal years ended March 31, 2004 and 2003 and from      Inception through March 31, 2004
F-6
 

 

NOTES      TO FINANCIAL STATEMENTS
F-7      to F-22**REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
 

To theStockholders and Board of Directors

FoneFriend,Inc.

 

Wehave audited the accompanying balance sheet of FoneFriend, Inc. (the"Company") as of March 31, 2004 and the related statements ofoperations, stockholders' deficit and cash flows for the year ended March 31,2004. These financial statements are the responsibility of the Company'smanagement. Our responsibility is to express an opinion on these financialstatements based on our audit.

 

Weconducted our audit of these statements in accordance with the standards of thePublic Company Accounting Oversight Board (United States). Those standardsrequire that we plan and perform the audit to obtain reasonable assurance aboutwhether the financial statements are free of material misstatement. An auditincludes examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements. An audit also includes assessing theaccounting principles used and significant estimates made by management, as wellas evaluating the overall financial statement presentation. We believe that ouraudit provide a reasonable basis for our opinion.

 

Inour opinion, the financial statements referred to above present fairly, in allmaterial respects, the financial position of FoneFriend, Inc. as of March 31,2004 and the results of its operations and its cash flows for the year endedMarch 31, 2004 in conformity with accounting principles generally accepted inthe United States of America.

 

Theaccompanying financial statements have been prepared assuming that the Companywill continue as a going concern. As discussed in Note 13 to the financialstatements, the Company's significant operating losses and insufficient capitalraise substantial doubt about its ability to continue as a going concern.Management's plans regarding those matters also are described in Note 13. Thefinancial statements do not include any adjustments that might result from theoutcome of this uncertainty.

 

 

 

 

KABANI& COMPANY, INC.

 

FountainValley, California

July7, 2004
**FONEFRIEND.INC.

(ADevelopment Stage Company)

BALANCESHEET

March31, 2004

 ****ASSETS**CURRENT      ASSETS:
          Cash      and cash equivalents
$      94
          Inventory-equipment
6,000
               Total      current assets
6,094**PROPERTY      AND EQUIPMENT, net
12,125**OTHER      ASSETS
          Technology      rights, FoneFriend license net of amortization
262,887
          Deposits
4,561
$      285,666**LIABILITIES      AND STOCKHOLDERS' DEFICIT**CURRENT      LIABILITIES:
          Accounts      payable and Accrued Expenses
$      364,204
          Loans      from others
105,000
          Note      from officer
15,000
          Loan      from officer
21,178
               Total      current liabilities
505,382
Long      Term Notes
25,000
               Total      Liabilities
530,382**STOCKHOLDERS'      DEFICIT
          Common      stock, $0.001 par value; 200,000,000 shares authorized; 17,758,444 shares      issued and outstanding
17,758
          Additional      paid-in capital
6,428,604
          Prepaid      Consulting Expenses
(776,050)
          Accumulated      deficit
(5,915,028)
               Total      stockholders' deficit
(244,716)
$      285,666** 

Theaccompanying notes are an integral part of these financial statements.

FONEFRIENDCORPORATION

(ADevelopment Stage Company)

STATEMENTSOF OPERATIONS

YEARENDED MARCH 31, 2004 AND 11 MONTH PERIOD ENDED MARCH 31, 2003

ANDTHE PERIOD FROM APRIL 24, 2001 (INCEPTION) TO MARCH 31, 2004

 **** 

 

Year      ended

March      31, 2004** 

11-      month period ended

March      31, 2003**Cumulative

from      inception

(April      24, 2001) to

March      31, 2004**Net      revenues
$      -
$      -
$      -**Operating      expenses:
General      and administrative
206,588
416,134
1,133,922
Impairment      of investment
150,000
-
150,000
Impairment      of intangible assets
694,862
865,108
1,559,969
Consulting      expenses
1,816,196
323,422
2,513,706
2,867,646
1,604,664
5,357,597**Operating      loss
(2,867,646)
(1,604,664)
(5,357,597)
Non-operating      income (expense):
Interest      expense
9,705
-
9,705
Litigation      settlement
81,940
-
81,940
Total      non-operating expense
(91,645)
-
(91,645)**Loss      before income tax
(2,959,291)
(1,604,664)
(5,449,242)
Provision      for income taxes
800
800
1,600**Net      Loss
(2,960,091)
(1,605,464)
(5,450,842)**Dividend      paid to preferred shareholders
464,186
-
464,186**Net      loss applicable to common shareholders
$      (3,424,277)
$      (1,605,464)
$      (5,915,028)**Basic      and diluted weighted average number of common stock outstanding *
10,825,173
8,471,000**Basic      & diluted loss per share for dividends for preferred stock
$      0.04
$      0.00**Basic      and diluted net loss per share for common stock
$      (0.32)
$      (0.19)
 

*Weighted average number of shares used to compute basic and diluted loss pershare is the same since the effect of dilutive securities is anti-dilutive.
** 

Theaccompanying notes are an integral part of these financial statements.

FONEFRIEND,INC.

STATEMENTOF STOCKHOLDER' EQUITY (DEFICIT)

FORTHE PERIOD APRIL 24, 2001 (INCEPTION) TO MARCH 31, 2004

 **** 

Preferred      shares

No.      shares Par Value** 

Common      shares

No.      shares Par Value**Additional

Paid      - In

Capital**Unamortized

prepaid

consulting      fees** 

Accumulated

Deficit**Total

Stockholders'

Equity      (deficit)
Balance      at July 1, 2002
$      -
8,956,361
$      8,956
$      3,069,182
$      -
$      (1,036,686)
$      2,041,452
-
Loss      from operations
(211,316)
(211,316)
Common      Shares issued on 9/30/2002
85,500
86
427,415
427,501
Balance      at September 30, 2002
9,041,861
9,042
3,496,597
(1,248,002)
2,257,637
Loss      from Operations
(118,281)
(118,281)
Common      Shares cancelled
(300,000)
(300)
(300)
Common      shares issued on 11/21/2002
58,139
58
29,942
30,000
Total      common shareholders'
equity      pre-merger, 11/21/2002
8,800,000
8,800
3,526,539
(1,366,283)
2,169,056
Merger      of FoneFriend, Inc. (Nevada Corporation) on November 21, 2002 with and      into FoneFriend, Inc. (Delaware Corp.):
Exchange      of Nevada shares for Delaware shares
2,200,000
2,200
Issued      new Delaware shares to management consultants and Liquidating Trust for      Creditors
5,446,000
5,446
1,154
Shares      issued for consulting
825,000
825
213,675
214,500
Loss      from operations from 11/21/2002 to 3/31/2003
(1,124,468)
(1,124,468)**Balance      at March 31, 2003
820,361
820
8,471,000
8,471
3,741,368
(2,490,751)
1,259,088**Theaccompanying notes are an integral part of these financial statements.

FONEFRIEND,INC.

STATEMENTOF STOCKHOLDER' EQUITY (DEFICIT)

FORTHE PERIOD APRIL 24, 2001 (INCEPTION) TO MARCH 31, 2004

(Continued)

 **** 

Preferred      shares

No.      shares Par Value** 

Common      shares

No.      shares Par Value**Additional

Paid      - In

Capital**Unamortized

prepaid

consulting      fees** 

Accumulated

Deficit**Total

Stockholders'

Equity      (deficit)
Preferred      Shares Cancelled
(6,000)
(6)
6
-
Shares      issued for consulting & prepaid consulting
6,225,000
6,225
2,170,064
(776,050)
1,400,239
Shares      issued for legal settlement
60,000
60
41,940
42,000
Conversion      of preferred stock to common stock
(814,361)
(814)
814,361
814
-
Shares      issued for dividend to preferred shareholders
2,443,083
2,443
461,743
464,186
Shares      issued for legal fees
17,500
17
13,483
13,500
Shares      cancelled
(272,500)
(272)
-
(272)
Loss      for the year ending March 31, 2004
(3,424,277)
(3,424,277)**Balance      at March 31, 2004
-
$      -
17,758,444
$      17,758
$      6,428,604
$      (776,050)
$      (5,915,028)
$      (245,536)** 

Theaccompanying notes are an integral part of these financial statements.

FONEFRIEND,INC.

(ADevelopment Stage Company)

STATEMENTSOF CASH FLOWS

YEARENDED MARCH 31, 2004 AND 11 MONTH PERIOD ENDED MARCH 31, 2003

ANDTHE PERIOD FROM APRIL 24, 2001 (INCEPTION) TO MARCH 31, 2004**
 ** 

 

Year      ended

March      31, 2004** 

11-      month period ended

March      31, 2003**Cumulative

from      inception

(April      24, 2001)

to      Mar. 31, 2004**CASH      FLOWS FROM OPERATING ACTIVITIES:
          Loss      from development stage operation
$      (3,424,277)
$      (1,605,464)
$      (5,915,028)
          Adjustments      to loss from development stage operations:
               Shares      issued for consulting services & prepaid expense
2,176,289
671,701
5,926,128
               Shares      issued for legal settlement
42,000
-
42,000
               Shares      issued for legal fees
13,500
-
13,500
               Shares      issued for dividends to preferred shareholders
464,186
-
464,186
               Write      off of inventory
10,000
-
10,000
               Capitalized      development costs
-
(296,814)
(1,626,305)
               Impairment      of capitalized development costs
694,862
865,108
1,559,969
               Impairment      of investment
150,000
-
150,000
               Depreciation      and Amortization Expense
37,821
3,202
42,673
               (Increase)/Decrease      in Prepaid Consulting Expenses
(619,453)
8,903
(633,050)
               Purchase      of inventory equipment
-
(10,000)
(16,000)
               Increase      in Deposits
(4,561)
-
(4,561)
               Increase      in accounts payable
354,216
4,303
358,519
               Stock      subscriptions receivable
-
61,066
-
               Other
-
15,505
(23,095)
                         Net      adjustment to loss from development stage operations
3,318,860
1,322,974
6,263,964
                         Net      cash provided (used) by development stage operations
(105,417)
(282,490)
348,936**CASH      FLOWS FROM INVESTING ACTIVITIES
               Purchase      of furniture and equipment, net of depreciation
-
(6,812)
(15,840)
               Purchase      of technology license from FoneFriend System, Inc.
-
-
(300,000)
               Addition      to investment - Stock of FoneFriend System
-
-
(150,000)
               Payment      to universal broadband
-
-
(50,000)
               Net      cash used in investing activities
-
(6,812)
(515,840)**CASH      FLOWS FROM FINANCING ACTIVITIES:
               Proceeds      from loans payable
105,300
80,693
186,188
               Loans      paid during the year
(20,010)
-
(20,010)
               Issuance      of preferred stock for cash
-
820
820
               Net      cash provided by financing activities
85,290
81,513
166,998
Net      Increase (decrease) in cash & cash equivalents
(20,127)
(207,789)
94**CASH      & CASH EQUIVALENTS, BEGINNING BALANCE
20,221
228,010
-**CASH      & CASH EQUIVALENTS, ENDING BALANCE
$      94
$      20,221
$      94**SUPPLEMENTAL      DISCLOSURE OF CASH FLOW INFORMATION:
Interest      paid
$      -
$      -
$      -
Income      taxes
$      -
$      -
$      -**Theaccompanying notes are an integral part of these financial statements.

NOTE1 - ORGANIZATION AND DESCRIPTION OF BUSINESS**
 

FoneFriend,Inc. ("FoneFriend" or the "Company") was incorporated onApril 24,2001, under the laws of the State of Nevada, and on November 21, 2002,was merged with and into FoneFriend, Inc., a Delaware corporation. The Companymaintains corporate offices at 8447 Wilshire Blvd., 5th Floor, Beverly Hills,California 90211. The Company's telephone number is: (323) 653-6110.

 

TheCompany is a development stage enterprise, as defined in Financial AccountingStandards Board No. 7. The Company's planned principal operations have notcommenced. The primary business of the Company is to market an Internettelephony device and related services to customers worldwide, called the"FoneFriend". The underlying technology of FoneFriend has beenlicensed by the Company from FoneFriend Systems, Inc. and will enable theCompany's subscribers to make and receive unlimited long distance telephonecalls over the Internet, using only their standard residential telephone set(without the need for a computer), for a low monthly fee. Due to the small costof transmitting calls over the Internet, the Company anticipates that it willrealize significant profit margins, in excess of the traditionaltelecommunications industry.

 
**NOTE2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Changein Fiscal Year End**
 

TheCompany's fiscal year is March 31 (after the above-described merger ofFoneFriend, Inc. of Nevada with and into FoneFriend, Inc. of Delaware). Theaccompanying audited financial statements are for the twelve month ended March31, 2004 and for 11 month period ended March 31, 2003. The Company changed itsfiscal year end in 2003, from April 30 to March 31.

 
**Useof Estimates**
 

Thepreparation of financial statements in conformity with generally acceptedaccounting principles requires management to make estimates and assumptions thataffect the reported amounts of assets and liabilities and disclosure ofcontingent assets and liabilities at the date of the financial statements andthe reported amounts of revenues and expenses during the reporting period.Actual results could differ from those estimates.

 
**Cashand Cash Equivalents**
 

Cashand cash equivalents include cash in hand and cash in time deposits,certificates of deposit and all highly liquid debt instruments with originalmaturities of three months or less.

 
**Inventories- Equipment**
 

Inventories- equipment are valued at the lower of cost (determined on a weighted averagebasis) or market. The Management compares the cost of inventories with themarket value and allowance is made for writing down the inventories to theremarket value, if lower.
**Investment- Stock in FoneFriend Systems, Inc.**
 

TheCompany purchased stock in FoneFriend Systems, Inc. as a long-term investment.Such investment was carried at cost. The company evaluated the value of theinvestment and recorded an impairment charge equal to the value of theinvestment (note 11).
** 

Property& Equipment**
 

Propertyand equipment, comprising of furniture and office equipment, are stated at cost.Expenditures for maintenance and repairs are charged to earnings as incurred;additions, renewals and betterments are capitalized. When property and equipmentare retired or otherwise disposed of, the related cost and accumulateddepreciation are removed from the respective accounts, and any gain or loss isincluded in operations. Depreciation of property and equipment is provided usingthe straight-line method for substantially all assets with estimated lives of 5years.

 
**CapitalizedDevelopment Costs**
 

Capitalizeddevelopment costs consisted of expenditures made by the Company to improve theproduct and develop marketing channels for the product, and which were deemed bymanagement to have future value to the Company. Such capitalized developmentcosts were being amortized over their useful lives. The company evaluated thevalue of the Capitalized development costs and recorded an impairment chargeequal to the value of the Capitalized development costs (note 11).

 
**TechnologyRights, FoneFriend License**
 

TheCompany purchased a license to use the FoneFriend technology for a period of tenyears from FoneFriend Systems, Inc. under a license agreement dated April 30,2001. This license agreement allows the Company to manufacture market andutilize a proprietary technology referred to as FoneFriend.

 
**Long-LivedAssets**
 

EffectiveJanuary 1, 2002, the Company adopted Statement of Financial Accounting StandardsNo. 144, "Accounting for the Impairment or Disposal of Long-LivedAssets" ("SFAS 144"), which addresses financial accounting andreporting for the impairment or disposal of long-lived assets and supersedesSFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and forLong-Lived Assets to be Disposed Of," and the accounting and reportingprovisions of APB Opinion No. 30, "Reporting the Results of Operations fora Disposal of a Segment of a Business." The Company periodically evaluatesthe carrying value of long-lived assets to be held and used in accordance withSFAS 144. SFAS 144 requires impairment losses to be recorded on long-livedassets used in operations when indicators of impairment are present and theundiscounted cash flows estimated to be generated by those assets are less thanthe assets' carrying amounts. In that event, a loss is recognized based on theamount by which the carrying amount exceeds the fair market value of thelong-lived assets. Loss on long-lived assets to be disposed of is determined ina similar manner, except that fair market values are reduced for the cost ofdisposal.
**AccountsPayable & Accrued Expenses**
 

Accountspayable and accrued expenses consist of the following on March 31, 2004:

 

Accounts      payable
$      33,408
Accrued      consulting
264,875
Accrued      expenses- other
65,921
 

$      364,204
 
**RevenueRecognition**
 

TheCompany's revenue recognition policies are in compliance with Staff accountingbulletin (SAB) 104. Revenue is recognized when services are rendered, theservice cost is fixed or determinable, the service is delivered, no othersignificant obligations of the Company exist and collectibility is reasonablyassured. Generally, the Company will extend credit to its customers/clients andwould not require collateral. The Company will perform ongoing creditevaluations of its customers/clients. The company did not earn any revenuethrough March 31, 2004.

 
**Stock-BasedCompensation**
 

FASNo. 123 prescribes accounting and reporting standards for all stock-basedcompensation plans, including employee stock options, restricted stock, employeestock purchase plans and stock appreciation rights. SFAS No. 123 requirescompensation expense to be recorded (i) using the new fair value method or (ii)using the existing accounting rules prescribed by Accounting Principles BoardOpinion No. 25, "Accounting for stock issued to employees" (APB 25)and related interpretations with proforma disclosure of what net income andearnings per share would have been had the Company adopted the new fair valuemethod. The Company has chosen to account for stock-based compensation usingAccounting Principles Board Opinion No. 25, "Accounting for Stock Issued toEmployees" and has adopted the disclosure only provisions of SFAS 123.Accordingly, compensation cost for stock options is measured as the excess, ifany, of the quoted market price of the Company's stock at the date of the grantover the amount an employee is required to pay for the stock.

 

TheCompany accounts for stock-based compensation issued to non-employees andconsultants in accordance with the provisions of SFAS 123 and the EmergingIssues Task Force consensus in Issue No. 96-18 ("EITF 96-18"),"Accounting for Equity Instruments that are Issued to Other Than Employeesfor Acquiring or in Conjunction with Selling, Goods or Services". Valuationof shares for services is based on the estimated fair market value of theservices performed.
**Researchand Development**
 

Expendituresfor software development costs and research are expensed as incurred. Such costsare required to be expensed until the point that technological feasibility isestablished. The period between achieving technological feasibility and thegeneral availability of such software has been short. Consequently, costsotherwise capitalizable after technological feasibility is achieved aregenerally expensed because they are insignificant.

 
**IncomeTaxes**
 

Deferredtaxes are provided for on a liability method for temporary differences betweenthe financial reporting and tax basis of assets and liabilities that will resultin taxable or deductible amounts in the future. Deferred tax assets andliabilities are adjusted for the effects of changes in tax laws and rates on thedate of enactment. Deferred tax assets are reduced by a valuation allowancewhen, in the opinion of management, it is more likely than not that some portionor all of the deferred tax assets will be realized.

 
**FairValue of Financial Instruments**
 

Statementof financial accounting standard No. 107, Disclosures about fair value offinancial instruments, requires that the Company disclose estimated fair valuesof financial instruments. The carrying amounts reported in the statements offinancial position for current assets and current liabilities qualifying asfinancial instruments are a reasonable estimate of fair value.

 
**Basicand Diluted Net Loss per Share**
 

Netloss per share is calculated in accordance with the Statement of financialaccounting standards No. 128 (SFAS No. 128), "Earnings per share".SFAS No. 128 superseded Accounting Principles Board Opinion No.15 (APB 15). Netloss per share for all periods presented has been restated to reflect theadoption of SFAS No. 128. Basic net loss per share is based upon the weightedaverage number of common shares outstanding. Diluted net loss per share is basedon the assumption that all dilutive convertible shares and stock options wereconverted or exercised. Dilution is computed by applying the treasury stockmethod. Under this method, options and warrants are assumed to be exercised atthe beginning of the period (or at the time of issuance, if later), and as iffunds obtained thereby were used to purchase common stock at the average marketprice during the period.

 
**Statementof Cash Flows**
 

Inaccordance with Statement of Financial Accounting Standards No. 95,"Statement of Cash Flows," cash flows from the Company's operations iscalculated based upon the local currencies. As a result, amounts related toassets and liabilities reported on the statement of cash flows will notnecessarily agree with changes in the corresponding balances on the balancesheet.
**SegmentReporting**
 

Statementof Financial Accounting Standards No. 131 ("SFAS 131"),"Disclosure About Segments of an Enterprise and Related Information"requires use of the "management approach" model for segment reporting.The management approach model is based on the way a company's managementorganizes segments within the company for making operating decisions andassessing performance. Reportable segments are based on products and services,geography, legal structure, management structure, or any other manner in whichmanagement disaggregates a company. SFAS 131 has no effect on the Company'sconsolidated financial statements as substantially all of the Company'soperations are conducted in one industry segment.

 
**Issuanceof Shares for Service**
 

TheCompany accounts for the issuance of equity instruments to acquire goods andservices based on the fair value of the goods and services or the fair value ofthe equity instrument at the time of issuance, whichever is more reliablymeasurable.

 
**Reclassifications**
 

Certaincomparative amounts have been reclassified to conform with the current year'spresentation.

 
**RecentPronouncements**
 

InDecember 2002, the FASB issued SFAS No. 148 "Accounting for Stock BasedCompensation-Transition and Disclosure". SFAS No. 148 amends SFAS No. 123,"Accounting for Stock Based Compensation", to provide alternativemethods of transition for a voluntary change to the fair value based method ofaccounting for stock-based employee compensation. In addition, this Statementamends the disclosure requirements of Statement 123 to require prominentdisclosures in both annual and interim financial statements about the method ofaccounting for stock-based employee compensation and the effect of the methodused, on reported results. The Statement is effective for the Companies' interimreporting period ending January 31, 2003.

 

Incompliance with FAS No. 148, the Company has elected to continue to follow theintrinsic value method in accounting for its stock-based employee compensationplan as defined by APB No. 25 and has made the applicable disclosures below.

 

Hadthe Company determined employee stock based compensation cost based on a fairvalue model at the grant date for its stock options under SFAS 123, theCompany's net earnings per share would have been adjusted to the pro formaamounts for the year ended March 31, 2004 as follows ($ in thousands, except pershare amounts):

Net      loss - as reported
$      (3,424)
Stock-Based      employee compensation
 

expense      included in reported net
 

income,      net of tax
-
 

 

Total      stock-based employee
 

compensation      expense determined
 

under      fair-value-based method for all
 

rewards,      net of tax
(63)
 

 

Pro      forma net loss
$      (3,487)
 

 

 

 

Earnings      per share:***************************************************************************************** |
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