**UNITED
STATES**
 **SECURITIES
AND EXCHANGE COMMISSION**
 **Washington,
DC 20549**
  **FORM
10-KSB**
  **ANNUAL
REPORT UNDER SECTION 13 OR 15(d) OF THE**
 **SECURITIES
EXCHANGE ACT OF 1934**
  **For
the year ended December 31, 2004**
  **Commission
File Number** **000-50051**
  **NETFRAN
DEVELOPMENT CORP.**
 (Exact
name of registrant as specified in charter)
  **(UNDER
NAME CHANGE TO ARIEL WAY, INC.)**
  **FLORIDA**
    
    **65-0983277**(State
      or other jurisdiction of
    
    (I.R.S.
      Employerincorporation
      or organization)
    
    Identification
      No.)**8000
      Towers Crescent Drive, Suite 1220,**
      **Vienna,
      VA**
    
    **22182**(Address
      of principal executive offices)
    
    (Zip
      Code)
  **** **(703)
918-2430**
 (Registrant’s
telephone number, including area code)
  Securities
registered under Section 12(b) of the Exchange Act:
  None.
  Securities
registered under Section 12(g) of the Exchange Act:
  None.
  Check
whether the issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes x    Noo
  Check
if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. x
  Netfran’s
revenue for its most recent fiscal year was $275,330.
  As
of April 11, 2005, the aggregate market value of the shares of common stock held
by non-affiliates (based on the closing price of $0.25 for the common stock as
quoted on that date) was approximately $823,041.
  As
of April 11, 2005, the Company had outstanding 37,986,943 shares
of its common stock, $0.001 par value per share, outstanding.
  
 
 **TABLE
OF CONTENTS**
  **ITEM
      NUMBER AND CAPTION**
    **PAGE****PART
      I**Item
      1.
    Description
      of Business
    3Item
      2.
    Description
      of Property
    12Item
      3.
    Legal
      Proceedings
    13Item
      4.
    Submission
      of Matters to a Vote of Security Holders
    13**PART
      II**Item
      5.
    Market
      for Common Equity and Related Stockholder Matters
    13Item
      6.
    Management’s
      Discussion and Analysis or Plan of Operation
    14Item
      7.
    Financial
      Statements
    19Item
      8.
    Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
    19Item
      8A.
    Controls
      and Procedures
    19**PART
      III******Item
      9.
    Directors,
      Executive Officers, Promoters and Control Persons;Compliance
      with Section 16(a) of the Exchange Act
    20Item
      10.
    Executive
      Compensation
    23Item
      11.
    Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
    24Item
      12.
    Certain
      Relationships and Related Transactions
    26Item
      13.
    Exhibits
      and Reports on Form 8-K
    26Item
      14.
    Principal
      Accountant Fees and Services
    31
  
 ****
 **FORWARD
LOOKING STATEMENTS**
  This
Annual Report on Form 10-KSB contains forward-looking statements that involve
risks and uncertainties. The statements contained in this document that are not
purely historical are forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934, including without limitation statements regarding our expectations,
beliefs, intentions or strategies regarding our business. This Annual Report on
Form 10-KSB includes forward-looking statements about our business including,
but not limited to, the level of our expenditures and savings for various
expense items and our liquidity in future periods. We may identify these
statements by the use of words such as “anticipate,” “believe,” “continue,”
“could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “potential,”
“predict,” “project,” “should,” “will,” “would” and other similar expressions.
All forward-looking statements included in this document are based on
information available to us on the date hereof, and we assume no obligation to
update any such forward-looking statements, except as may otherwise be required
by law. Our actual results could differ materially from those anticipated in
these forward-looking statements.
  **Item
1. Description of Business**
  Netfran
Development Corp. has been a franchisor of Internet web site design, hosting,
updating, maintenance, administration, e-mail publishing and consulting
services, marketing and advertising services and related services under the
registered servicemark "NETSPACE". Our franchisees seek to assist small and
medium size businesses to implement an effective Internet World Wide Web
strategy.
  Our
franchisees sold Internet solutions developed and provided by Netvertise,
including:
  - web
site design and development
 - web
site hosting on NETSPACE(R) name servers and platforms
 - web
site promotion with NGENWARE(R)
 -
web-based advertising
 - e-mail
publishing with NVELOPE(TM)
 -
web-based data back-up, storage, transfer, file sharing and recovery with
BACKVAULT(R)
 -
advanced solutions such as e-commerce
  **THE
NETSPACE(R)FRANCHISE**
  **TARGET
CUSTOMERS OF THE NETSPACE(R)FRANCHISEE**
  The
target customers of our franchisees has been small to medium size business and
professional firms doing business in a local market. We believe that a large
number of such potential customers have not implemented an effective Internet
strategy due to the time, expense and expertise required for the design and
development of a World Wide Web site, hosting and maintenance of the site, and
promotion of the site.
  **SERVICES
OFFERED BY OUR FRANCHISEES:**
  Our
franchisees assisted their clients in developing an Internet marketing strategy
which generally starts with a web site. The services are provided by our
franchises but certain services are performed by Netvertise, such as web
hosting.
  **WEB
SITE PLANNING AND DESIGN**
  Our
franchisees assist their customers in planning the contents of the web site,
choosing the major topics to be addressed in a web site, writing the text and
choosing the graphics to be included in the web site, identifying key words that
a person might use in doing an Internet search for the types of services and
products of the customer.
 
 3
 ****
 **WEB
SITE HOSTING**
  Once a
web site is designed and converted to computer code, it is hosted on a
specialized server computer attached to the Internet. The Netspace server hosts
web sites for a fixed monthly charge based upon the size and functions provided
by the web site and other add on services.
  **WEB
SITE MAINTENANCE**
  Our
franchisees assist their customers in periodic updating of the contents of the
web site to keep the content fresh and relevant.
  **WEB
SITE PROMOTION**
  Customers'
web sites are indexed and registered with major search engines so they are
identified by appropriate key words by search engines that index the contents of
web sites.
  **E-PUBLISHING/MARKETING**
  Distribution
by e-mail of electronic newsletters, announcements or advertisements to
specialized lists of e-mail addresses to targeted users based upon key word or
geographic criteria or from e-mail data collectors placed on customers' web
sites. Our software, named NVELOPE(TM) is employed in solving these internet
marketing problems.
  **WEB-BASED
DATA BACK-UP, STORAGE, TRANSFER, FILE SHARING AND RECOVERY**
  Our
franchisees assist customers in protecting data from catastrophic events by
implementing periodic, automated back-up procedures and customers with special
needs such as architects are helped to better manage large data files which are
difficult to transfer through typical e- mail formats. Our product BACKVAULT(TM)
offers a comprehensive and flexible solution to these problems.
  **ADVANCED
WEB SOLUTIONS**
  For
customers who want to expand their Internet strategy beyond the basic web site,
our franchisees can provide their customers advanced web solutions including
online merchant accounts, shopping carts, data base management, web statistic
reporting and customer loyalty and retention programs.
  **HOW
WE SUPPORT OUR FRANCHISEES**
  The
Netspace franchise program is designed to provide the franchisee with both the
education and technology to enable the franchisee to assist their customers in
implementing an effective Internet World Wide Web strategy for their businesses.
  The
Netfran franchisee is provided with both training and technology to enable him
to market Internet services to clients and to implement and service the clients'
Internet strategy.
  The
technology we provide to our franchisees has been designed as a user-friendly
platform and does not require web mastering or programming experience. Our
franchisees are able to help plan and design web sites and deploy them to the
Netspace web site server for access by any computer connected to the World Wide
Web.
  **TRAINING**
  Netfran
provided extensive training to its franchisees. Each new franchisee attends a
one-week training course at our offices. In this course, our franchisees are
trained to market Internet services to potential customers. We provide our
franchisees with specific examples of how various types of customers such as
merchants, service establishments and professional service providers can utilize
the Internet to communicate with customers, find new customers, sell products
and services and promote their business. Trainees are also instructed in the use
of the Netfran proprietary programs provided to them to help the franchisees
market and implement World Wide Web sites for their customers.
  4
 ****
 **SUPPORT**
  We
support our franchisees with ongoing quarterly training meetings and provide
telephone and e-mail support. Each Netfran franchisee can consult with the
Netvertise marketing director for solutions to a customer's specific situation,
Netvertise website development design team and a sales coach. These services
were provided for the ongoing support of our franchisees.
  **TECHNOLOGY
WE PROVIDED TO OUR FRANCHISEES**
  We
installed on our franchisees' laptop computer our proprietary content to assist
them in finding and servicing their customers.
  **POWER
POINT PRESENTATIONS**
  As part
of their training and on-going support, franchisees are encouraged to make group
presentations, such as with local Chambers Of Commerce, invitational "executive
briefings". As a marketing tool to aid the franchisee with these type
presentations to potential customers, several pre-populated Power Point
Presentations have been designed by the Company and pre- loaded onto their
laptop computers. These colorful and animated presentations, often with sound,
may run in time from as little as ten minutes to a full one-hour "seminar".
  **MARKETING
TEMPLATES**
  We have
designed our own unique database management interface for our franchisees' use.
Included in this program are tabs and templates that navigate the franchisee
through the initial consultation when they first meet with a new client. This
will include a type of question and answer survey that allows both the
franchisee the opportunity of learning and profiling the client, while at the
same time introduces the client to the Web solutions available through the
franchise. The data collected is then stored on the franchisee's laptop and can
be exported to the Netspace Site Server as content to be published on the
clients' websites.
  **THE
NETSPACE SITE SERVER PLATFORM**
  The
Netspace site server platform enabled our franchisees to rapidly deploy a Web
site for their customers after the basic site concept, content, text and
graphics have been selected during the initial Web site planning and development
phase. The program has a template structure so that the specific content and
text of the Web site can be constructed without knowledge of the underlying
computer code required for Web site publishing. The program has customized
templates for 53 different categories of products and services, resulting in
hundreds of website styles and colors.
  **NETSPACE
E-PUBLISHER PLATFORM**
  The
Netspace(R) E-Publisher provides franchisee customers with a direct marketing
system that allows them to manage and execute branded e-mail newsletter
campaigns and announcements directly from the Netspace(R) E-Publisher platform
accessible from their computer. The customer can create and publish scheduled
newsletters and announcements, manage a data base of e-mail addresses that can
be segmented for topicality, and monitor and measure the results of their
campaigns through tracking reports generated by the usage and click-through
habits of each e-mail recipient. Fees are generated by client usage of this
product, or the number of e-mails sent monthly, and franchisees pay us monthly
royalties based on this customer usage.
 5
 ****
 **NGENWARE(TM)SEARCH
ENGINE SUBMISSION SOFTWARE**
  Once a
Web site has been completed, it must be properly indexed and marketed through
the major search engines, such as Altavista, Excite, Yahoo, Overture, Lycos,
MSN, Looksmart, Google and so forth. NGENWARE(R) is an automated submission
system unique to Netspace(R) representing the latest advancements in Internet
based technologies. Through an integrated hands-free process, the software
automatically submits the client Web site to potentially thousands of Internet
portals and directories with a goal of increasing the number of unique visitors
to client Web sites by prioritizing search engine positioning based on certain
criteria, such as keyword density and link popularity. Client's sign up for a
minimum three-month contract and our franchisees generate recurring revenue each
time the product is renewed. A typical contract has a duration of three months.
The Franchisee receives 60 percent of the gross contract price and Netfran
retains 40 percent. Netfran also will receive its royalty and advertising fee of
11% on the amount collected by the franchisee.
  **WEBSITE
HOSTING**
  All
websites designed and published by our franchisees are hosted on Netspace site
servers. The websites are accessed over the Internet utilizing the Internet
address which has been established for each customer's website. The Web sites
are accessible to any computer linked to the Internet and World Wide Web with
software such as Microsoft Internet Explorer.
  The site
servers have been operated at a secure location with 24-hour maintenance and an
array of security to assure that the servers have a high degree of reliability.
These include physical security, fire suppression, back-up power and content
back-up.
  **ADDITIONAL
SERVICES AVAILABLE TO OUR FRANCHISEES FROM NETVERTISE**
  We have
arranged for Netvertise to support our franchisees by making available the
following additional services.
  Although
the Netspace site server platform provided to each franchisee enables the
franchisee to design and publish websites without any further assistance, our
franchisees also have available the services of Netvertise's web design team if
a more customized or elaborate website is desired by the franchisees' customers.
  - Graphic
design and programming
 -
Copywriting
 -
Sales/Marketing Training
 -
Advertising and Media Consultation
  **REVENUES
OF OUR FRANCHISES**
  Our
franchisees charge their customers for Internet services including Web site
design, consulting, Web site hosting, Web site promotion, e-publishing, and
advertising. We suggest retail prices for such services based upon the
complexity of the services provided. For example, a starter Web site has a
suggested retail price of $700 while an e-commerce enabled Web site has a
suggested retail price of $2,500.
  Web site
hosting has suggested retail prices ranging from $50 to $500 per month based on
the size, functions and services of the site.
  Web site
promotion costs $75 to $700 per month. E-publishing programs are $100 per
mailing and up depending on the number and frequency of mailings.
  We
suggest that our franchisees collect at least 50% of the Web site development
and initial hosting fees in advance with the balance due on activation of the
Web site. Other services are generally based on a monthly fee.
  6
 ****
 **NETVERTISE**
  Netvertise
is a website development and hosting company that has provided web development
and hosting applications and solutions since 1997. We were a subsidiary of
Netvertise until November 2002 when Netvertise distributed our stock to the
shareholders of Netvertise.
  Netvertise
offers a comprehensive, cost effective range of web services primarily geared
towards small and medium size business and professional customers. In 2001
Netvertise decided to expand the marketing of its business by franchising and
terminate operations not related to such business. Since 2002 Netvertise limits
its web site development and hosting business to the customers of Netfran's
franchisees. Any potential customers who contract Netvertise directly are
referred to the nearest Netfran franchisee for servicing. These services are
marketed by the Netfran franchisees utilizing the technology provided as part of
the franchise program and our franchisees pay Netvertise for such services based
on a percentage of the suggested list prices established for such services.
Management of Netfran also manages Netvertise.
  **PAYMENTS
TO NETVERTISE BY OUR FRANCHISEES**
  In
addition to the franchise fees, advertising fees and royalties our franchisees
pay to Netfran, our franchisees are also required to pay Netvertise for the
Internet solutions provided to the franchisees customers. These fees are
generally based upon a percentage of the suggested retail prices established for
such products and services. Such compensation arrangements provides the higher
compensation level to Netvertise for activities for which Netvertise is
primarily responsible such as Web site hosting, promotion, publishing and more
sophisticated customer Web site design and the lesser compensation level for
activities for which the franchisee is primarily responsible, such as basic Web
site design and development on the Netspace site server platform without
Netvertise webmaster participation.
  **OUR
AGREEMENT WITH NETVERTISE**
  In order
to assure the continuation of certain services that Netvertise has historically
provided to Netfran and its franchisees, we have entered into an agreement with
Netvertise. The following is a summary of the material provisions of the
agreement between Netfran and Netvertise.
  **SERVICES
TO BE PROVIDED TO NETFRAN BY NETVERTISE**
  Under
this agreement, Netvertise will provide certain shared personnel, including the
services of our officers, office facilities, utilities, office supplies,
insurance and support services. Netfran pays its own direct expenses such as
advertising, trade shows, travel and training expenses and non-shared employees.
  **COMPENSATION
TO NETVERTISE**
  We
reimburse Netvertise for the costs it incurs in providing services and
facilities to us pursuant to the agreement. For personnel which are shared
between Netfran and Netvertise, a reasonable allocation is made by management of
Netfran and Netvertise, during 2004 Messrs. Krasnow and Steinberg, president and
chief financial officer during 2004, respectively of both firms, based upon the
relative time spent by such shared employees working on Netvertise matters or
Netfran matters. During 2004 we paid Netvertise $2,800 per month for use of
office facilities, including rent, utilities, office furnishings and supplies
and the expense of a shared receptionist and office manager which we believe is
a fair allocation of such expenses. Messrs. Krasnow and Steinberg also allocated
other shared expenses incurred by Netvertise on behalf of Netfran, such as
insurance by estimating the cost of such items used by Netfran. Netfran pays
directly and not through Netvertise its direct non-shared expenses such as
advertising, travel, training and non-shared personnel.
  There is
a procedure for arbitrating any disputes concerning allocation of such expense
items in accordance with the rules of the American Arbitration Association.
Either party may initiate an arbitration proceeding to resolve any such disputes
by making a demand for arbitration. The parties agree on an arbitrator who is on
a list of approved arbitrators of the association. Each side presents its
evidence to the arbitrator and the arbitrator makes a determination.
  7
 ****
 **TERM**
  Netvertise
is required to provide such services until the termination of Netfran's last
Franchise Agreement.
  **SERVICES
PROVIDED BY NETVERTISE TO NETFRAN'S FRANCHISEES**
  Netvertise
is required to continue to provide services relative to those currently being
provided including website development, website hosting, website maintenance,
support and upgrading, graphic design, copywriting, training and e-publishing.
Netvertise has agreed that its charges for such services shall be no greater
than it charges to other customers. Charges for such services are paid directly
to Netvertise by our franchisees and Netfran is not involved in billing or
collection for such services or responsible for such payments.
  **STANDARD
OF CARE**
  We have
agreed that in providing such services to Netfran and Netfran's franchisees,
Netvertise will not be liable for damages other than for gross negligence or
willful misconduct.
  **ALTERNATIVE
SOURCES**
  In the
event that Netvertise was unable to provide the facilities and services to
Netfran and its franchisees, Netfran believes it would be able to make
arrangements for alternative suppliers of such facilities and services through
contracting with other providers or directly hiring persons able to provide such
services.
  **TERMS
AND COST OF THE NETSPACE(R)FRANCHISE**
  Initial
franchise fee was in 2004 $39,500 for a specific geographic area containing at
least 2,000 small to medium sized businesses reporting annual gross revenues to
$50,000,000. Our franchisees may accept client accounts outside their defined
territory but may not establish an office or advertise outside of their
territory. The term of the initial franchise agreement is ten (10) years. The
franchisee may acquire a successor franchise for five (5) additional years upon
certain conditions and payment of a $2,500 successor franchise fee. Franchisees
may become Area Developers by purchasing multi-unit franchises in an extended
territory defined as a collection of postal zip codes. Each individual franchise
acquired under an area development plan is documented with a separately signed
franchise agreement and is subject to its own franchise fee obligation.
  Our
franchisees are required to operate their franchises in accordance with
specified methods, techniques and standards within a designated geographic
territory. Our franchisees may not be involved in a competitive business and
must utilize the Netspace site server and hosting facilities.
 Each of
our franchisees is granted an exclusive area to operate their business, which
means that we will not locate another franchise or company owned location within
such territory. Such exclusive area is subject to Netfran's right to deem such
territory as non-exclusive and therefore to locate another franchise or company
owned location within such territory in the event that the franchisee fails to
provide services to a certain number of the potential customers in their
territory that we identify to our franchisees. Such potential customers are
small and medium size businesses with less than 100 employees located in the
territory. We obtain such potential customer lists from standard reference
sources such as Dun & Bradstreet. The following table sets forth the
percentage of identified customers a franchisee must provide services to at the
end of each year following the execution of the franchise agreement in order to
retain exclusivity in their territory.
 8
 Year
      of Franchise Agreement
    
    Percentage1
    
    
    1
    %2
    
    
    3
    %3
    
    
    5
    %4
    
    
    8
    %5
    
    
    12
    %6
    
    
    16
    %7
      AND LATER
    
    
    20
    %
 Our right
to deem a territory as non-exclusive in the event a franchisee fails to meet the
minimum is discretionary. We have not declared the territory of any of our
franchisees as non-exclusive as of the date hereof.
  During
the term of the franchise agreement, the franchisee is required to pay (i) a
royalty fee of 10% of gross monthly revenue, and (ii) an advertising fee of 1%
of gross revenue. Thirty (30) days after completing our training program,
franchisees are required to pay minimum monthly royalties to Netfran that
increase each year until the maximum minimum royalty of $500 is payable per
month.
  Franchisees
are also required to engage in local advertising of their services and to budget
a specified amount each month towards such advertising. Each new franchisee is
given an initial training for 5 days which the franchisee is required to
complete.
  **TERMS
OF THE NETSPACE(R)MULTI-UNIT DEVELOPMENT AGREEMENT**
  The
Multi-Unit Development Agreement awards to an area developer multiple franchise
units in a specified geographical area or development territory. Thus, the
multi-unit developer in essence operates multiple franchise units. Each
franchise unit awarded, however, is subject to a separately signed Indivisible
Unit NETSPACE(R) Franchise Agreement that contains the same terms, including
rights, conditions and obligations as does our standard franchise agreement
described above and requires the payment of an individual unit NETSPACE(R)
franchise. The developer purchases the first unit at the full retail unit
franchisee fee price (during 2004 $39,500). Thereafter, the fee is discounted
and the discount increases progressively beginning with the second unit through
the sixth unit and thereafter. In addition, the developer must pay a one-time
development fee based on the number of franchises to be opened under the
development agreement excluding the first franchise unit purchased. The
development fee is then credited against the purchase price of all unit
franchise fees except the first unit franchise fee. There is a development
schedule requiring the developer to open a specified number of units by
scheduled dates. Failure by the developer to comply with the schedule can result
in the termination of his development rights for future units under the
NETSPACE(R) Multi Unit Development Agreement. As previously stated, however, the
Individual Unit NETSPACE(R) Franchise Agreement governs the developer's rights
and obligations regarding franchise units that have already been opened.
  **TERMS
OF THE NETSPACE(R)REGIONAL DIRECTOR AGREEMENT**
  Unlike
the multi-unit developer, the regional director generally owns no individual
NETSPACE(R) franchises. Rather, under this agreement he is granted an exclusive
license to market and sell Individual NETSPACE(R) franchises in a designated
geographic area. The agreement has an initial term of twenty years and may be
renewed for an additional ten years. The regional director pays an initial
non-refundable one-time regional director's license fee equal to $1.00 for each
business located in the development area covered by the agreement. The suggested
area size will contain between 100,000 and 500,000 businesses as defined in the
Individual Unit NETSPACE(R) Franchise Agreement having up to $50,000,000 in
gross revenue. Thus, the minimum initial regional director license fee is
$100,000. Additionally, the regional director must adhere to a development
schedule to open a specified number of new franchise units per year and pay
minimum royalties of $300 in the first year, $400 in the second year, and $500
in the third year times the number of units. The regional director's
compensation includes receiving 70 percent of the initial franchise fee and 5
percent of the each franchisee's gross revenues. The Company and the new
individual unit franchisee execute an Individual Unit NETSPACE(R) Franchise
Agreement for each franchise that the regional director sells. The franchisee
operates like any other individual NETSPACE(R) franchise unit and purchases its
products and services from Netvertise. After the initial training, the regional
director and not The Company provide the bulk of the training and support to the
franchisees.
  9
  **MARKETING
OF THE NETFRAN FRANCHISE**
 
 Our
marketing strategy for franchise sales was based on the sale of individual,
multi-unit and regional franchise territories to business-minded individuals.
The primary lead sources are referrals from Internet franchise consultants who
are paid a commission. We also receive referrals from web-sites, print
advertising, radio, television, and franchise trade shows. We also seek
publicity for our franchise program by actively engaging in public relations
activities. Dellray Lefevere, our Vice President during 2004 was primarily
responsible for our overall franchise marketing operations while Jason Mattes
our Director of Franchise Development worked on attracting new franchisees to
our network.
  **COMPETITION**
  The sale
of franchises is highly competitive. We compete directly with other regional and
national franchisors that are also seeking to sell their franchises to qualified
financially capable franchisees. We believe our franchise program is most
suitable for persons with a white-collar business background who may also be
interested in franchises for business services, personal services and education.
  We have
identified three other franchises of Internet-based services: Quick
International, WSI Internet and AIS Media.
  Our
franchisees face substantial competition in the sale of their services to
customers. Besides the franchisees of the competing franchisors, numerous
companies offer Web site development and hosting in local markets. Internet
service providers and portals such as America Online and Yahoo offer Web site
development tools and hosting. Several computer programs for Web site design and
e-commerce, such as Microsoft Front Page, are available to those who desire to
"do-it-yourself" without professional assistance.
  We
believe that the personalized service provided by our franchisees, including
their willingness to work on-site directly with their customers to plan, develop
and design a Web site for each customer and assist in developing advanced
solutions such as e-commerce, publishing and advertising distinguishes our
franchisees from do-it-yourself and impersonal solutions offered by America
Online and Yahoo and other Internet service providers and portals.
  We
believe that our franchise program competes favorably with other franchises due
to the following attributes:
  -
Relatively modest cost to purchase and operate
 -
Customers are businesses and professionals making for an easy transition for
franchisees coming from the business world
 
 - Large
market of potential customers due to recent growth of Internet as a commercial
media
 - No
specialized certifications are required to become a franchisee
  **TRADEMARKS
AND OTHER PROPRIETARY INFORMATION**
  We have
received a federal servicemark registration for NETSPACE(R) NGENWARE(R) and
BACKVAULT(R). In addition, we hold copyrights in connection with our training
manuals and marketing materials. We provide our franchisees with a laptop
computer programmed with our proprietary programs which include:
  -
Netspace(R) Siteserver Platform
 -
Netspace(R) E-Publisher Platform
 -
NGENWARE(R)Search Engine Submission Software
 -
Marketing templates
 -
Powerpoint presentations, and
 -
BACKVAULT(R) User manuals
  10
  All
intellectual property utilized by Netfran and its franchisees is owned by
Netfran and we are not required to pay royalties or license fees for such use.
We do not have any patents on our technology.
  **REGULATION**
  The offer
and sale of franchises is subject to extensive federal and state laws and
substantial regulation under such laws by government agencies, including the
Federal Trade Commission (the "FTC") and various state authorities. Pursuant to
FTC regulations, we are required to furnish to prospective franchisees a current
franchise offering disclosure document containing information prescribed by the
FTC. We use Uniform Franchise Offering Circulars to satisfy this disclosure
obligation. In addition, we are required to register or file with the states and
to provide prescribed disclosure statements. We were in 2004 authorized to sell
franchises in all 50 states. Such state filings are made annually.
  We are
required to update our offering disclosure documents to reflect the occurrence
of material events within a reasonable time after the occurrence.
  We will
notify the applicable governmental agencies at the time of the distribution and
will amend our offering documents to reflect the distribution within a
reasonable time after the distribution by such regulation.
  We are
also subject to a number of state laws that regulate certain substantive aspects
of the franchisor-franchisee relationship, such as termination, cancellation or
non-renewal of a franchise (including requirements that "good cause" exist as a
basis for such termination and that a franchisee be given advance notice of, and
a right to cure a default prior to termination) and may require the franchisor
to deal with its franchisees in good faith, prohibit interference with the right
of free association among franchisees, and regulate discrimination among
franchisees in charges, royalties or fees. If we are unable to comply with the
franchise laws, rules and regulations of a particular state relating to offers
and sales of franchises, we will generally be unable to engage in offering or
selling franchises in or from such state. Amendments to existing statutes and
regulations, adopting of new statutes and regulations and our expansion into new
states and foreign jurisdictions could require us to continually alter methods
of operations at costs which could be substantial.
  We
believe that we are in substantial compliance with all of the foregoing federal
and state franchising laws and the regulations promulgated there under and have
obtained all licenses and permits necessary for the conduct of our business.
Failure to comply with such laws and regulations in the future could subject us
to civil remedies, including fines or injunctions, as well as possible criminal
sanctions, which would have a material adverse effect on us. Our franchisees are
also subject to various federal, state and local laws affecting their franchise
businesses, including state and local licensing, zoning, labor and various
safety and other standards. The failure of a franchisee to comply with
applicable regulations could interrupt the operations of the affected franchise
or otherwise adversely affect the franchise.
  **CORPORATE
HISTORY**
  Netfran
Development Corp. intends to become a technology company and currently trades on
the Bulletin Board under the stock symbol “NFDV”. The following is a brief
history of Netfran.
  Netfran
Development Corp. was formed in the State of Florida and incorporated in the
State of Florida in January 2000 to market the Netspace Franchise System
provided by Netvertise, Inc., a Florida company, as a franchisor of Internet web
site design, hosting, updating, maintenance, administration, e-mail publishing
and consulting services, marketing and advertising services and related services
under the registered servicemark "NETSPACE". Netfran’s strategy was to support
franchisees to assist small and medium size businesses to implement an effective
Internet World Wide Web strategy. Netfran had a total of 56 franchises in the
United States and United Kingdom as of March 10, 2003. Management of Netfran
also managed Netvertise, Inc. Between year 2000 and end year 2004, substantially
all of Netfran’s revenues were derived from franchise operations, which included
a franchise fee, in an identified territory, revenue sharing with franchisees,
and on-going royalties based on gross retail revenues to the franchisees'
customers, and advertising fees of revenues generated by its franchisees.
Netfran anticipated that the revenues from ongoing royalties would rise as the
franchisees established and built their businesses. Netfran believed that sales
of franchises would continue to generate the bulk of Netfran’s revenues for
several years in view of the large part of the country where Netfran had not
sold franchises. However, when sales of franchises slow or decline Netfran would
become more dependent on ongoing royalties from Netfran’s franchisees. Netfran
supported the franchisees by advertising and training but the level of revenues
achieved from ongoing royalties from Netfran’s franchisees were not adequate to
sustain long-term operation.
  11
 
 On
November 08, 2002 Netfran filed with the Commission a Prospectus Form 424B3
distributing 3,340,088 shares of common stock of Netfran to holders of record of
Netvertise, Inc. common stock as of the close of business on July 18, 2001 (the
"record date"). The shares were distributed on the basis of one share of Netfran
for every share of Netvertise, Inc. held on the record date. The shares of
Netvertise being distributed represented 99% of the total outstanding shares of
Netfran and Netvertise owned no shares of Netfran after the distribution.
Netfran’s common stock began trading on the Over-The-Counter market on February
10, 2003, and was quoted on the NASD Electronic Bulletin Board under the symbol
“NFDV”.
  On
February 2, 2005 Netfran acquired
Ariel Way, Inc., a Delaware corporation (“Ariel Way”), in exchange for the
issuance by Netfran of 33,289,434 shares of Netfran’s common stock to the former
stockholders of Ariel Way. The acquisition was made pursuant to the Share
Exchange Agreement dated January 20, 2005, between Netfran and Ariel Way. Ariel
Way is a technology and services company for highly secure global communications
solutions and technologies. The business is focused on developing innovative and
secure technologies, acquiring and growing profitable advanced technology
companies and global telecommunications service providers and creating strategic
alliances with companies in complementary product lines and service industries.
Ariel Way’s technology development effort for highly secure telecommunications
services is conducted by our wholly-owned subsidiary Enfotec, Inc., “Enfotec”, a
Delaware corporation. Ariel Way intends to acquire various other advanced
technology and software development companies and telecommunications services
companies through an aggressive acquisition and merger strategy. The acquisition
of Ariel Way, Inc. was treated as a reverse acquisition and going forward the
financial statements will be those of Ariel Way with subsidiary.
  On
February 2, 2005, following the Effective Date, Netfran ceased to conduct the
franchise business Netfran conducted prior to the Effective Date in order to
concentrate solely development of its highly secure global communications
business.
  On
February 2, 2005, in connection with the acquisition and pursuant to the
Acquisition Agreement, Netfran’s executive officers resigned and the executive
officers of Ariel Way immediately prior to the Effective Date became Netfran’s
new executive officers.
  **Employees**
  As of
December 31, 2004 we had no full-time employees while as of April 11, 2005, we
employ 5 full-time employees and 1 consultant. We have no collective bargaining
agreements with our employees.
  **Item
2. Property.**
  **** **Property**
  Our
principal headquarters executive offices are located in approximately 900 square
feet of office space at 8000 Towers Crescent Drive, Suite 1220, Vienna, VA
22182. The term of the lease is twelve months at a rent of $2,100 per month that
expires on October 30, 2005. In addition, we currently have a right to use on a
month-by-month basis smaller office spaces for a nominal rental fee in Irvine,
CA; Minneapolis, MN; Shannon, Ireland; and Munich, Germany.
  12
 ****
 **Item
3. Legal Proceedings**
  We are
not a party to any material legal proceedings.
  **Item
4. Submission of Matters to a Vote of Security Holders.**
  Not
applicable.
 
 **PART
II**
  **Item
5. Market for Common Equity and Related Stockholder Matters.**
  Our
common stock is quoted on the Over-the-Counter Bulletin Board under the symbol
“NFDV.”
  The
following table sets forth the average high and low bid prices for the common
stock for each calendar quarter since January 1, 2003, as reported by the
National Quotation Bureau, and represent interdealer quotations, without retail
markup, markdown or commission and may not be reflective of actual transactions.
  **Bid
      Price Per Share****High**
    
    **Low****2003**
    
    ****January
      2003 - March 2003
    
    
    
    
    $
    0.85
    
    $
    0.45April
      2003 - June 2003
    
    
    
    
    $
    1.15
    
    $
    0.05July
      2003 - September 2003
    
    
    
    
    $
    1.50
    
    $
    0.05October
      2003 - December 2003
    
    
    
    
    $
    1.25
    
    $
    1.05**2004**
    
    
    ****January
      2004 - March 2004
    
    
    
    
    $
    1.25
    
    $
    0.90April
      2004 - June 2004
    
    
    
    
    $
    0.90
    
    $
    0.06July
      2004 - September 2004
    
    
    
    
    $
    1.04
    
    $
    0.11October
      2004 - December 2004
    
    
    
    
    $
    0.75
    
    $
    0.10
  **Stockholders**
 
 As of
April 11, 2005, we believe there were approximately 340 holders of record of our
common stock.
  **Dividends**
  We have
never declared or paid cash dividends on our common stock. We currently intend
to retain all available funds and any future earnings to fund the development
and growth of our business and do not anticipate declaring or paying any cash
dividends on our common stock in the near future.
  13
 ****
 **Equity
Compensation Plan Information**
  No
stock options or stock appreciation rights were granted during 2004 and no
options were exercised in such year. All prior options were exercised in the
first quarter, 2005.
  **Netfran
Non-Plan Option and Warrant Grants**
 
 No Non-Plan Options and warrants were granted by the Company during year 2004.
  **Recent
Sales Of Unregistered Securities**
  The
following provides information concerning all sales of securities within the
last three years ending December 31, 2004, which were not registered under the
Securities Act of 1933.
  In
January 2003, the Company issued 33,738 shares of its common stock as payment
for legal services rendered to the Company during 2002. The value per share at
the time legal services were rendered was $0.24 per share. These shares were
deemed issuable as of December 31, 2002. The
Company believes the issuance of the stock to be exempt from registration under
Section 4(2) of the Securities Act.
  On
February 11, 2003, pursuant to our 2003 Stock Incentive Plan, we granted to
three executives and directors shares of restricted common stock. Each
participant signed a restricted stock award agreement in connection with such
grant. The awarded shares contain a restrictive legend restricting transfer
without registration under the Securities Act of 1933 or an exemption there
from. Each such participant is an accredited investor under Regulation D. The
grantees were: Elliot Krasnow 200,000 shares; Robert S.Steinberg 100,000 shares;
and Dellray Lefevere 25,000 shares. The value per share at the time the services
were rendered was $0.25 per share. The
Company believes the issuance of the stock to be exempt from registration under
Section 4(2) of the Securities Act.
 
 On July
22, 2003, pursuant to a letter agreement with Stategica Management LLC of Miami,
Florida to provide advisory services designed to generate at least $10 million
of value to Netfran over the next three years. Such value may be in the form of
funding, acquisition transactions, or other business transactions identified by
Strategica. In connection with the agreement, we issued 668,018 shares of common
stock to Strategica. Since there can be no assurance of any level of value we
may receive from such engagement, we have the option to repurchase such shares
to the extent that $10 million of value, as defined in the agreement, has not
been provided by Strategica during the term of the engagement. The value per
share at the time the services were rendered was assumed to be $0.25 per share.
The shares issued to Strategica are held in escrow to facilitate our repurchase
rights. The
Company believes the issuance of the stock to be exempt from registration under
Section 4(2) of the Securities Act.
 
 On August
19, 2004, the Company terminated its advisory agreement with Strategica
Management LLC, as reported on Form 8-K filed with the Commission on August 26,
2004. The 668,018 shares of Netfran common stock issued to Strategica Management
LLC in connection with such agreement were returned to the transfer agent for
cancellation.
 
 On
February 2, 2005, under the terms of the Acquisition Agreement for Netfran’s
acquisition of Ariel Way, Inc., each share of Ariel Way common stock outstanding
immediately prior to February 2, 2005 was converted into 1.6762 shares of our
common stock. Netfran’s outstanding common stock was not affected by the
Acquisition. As a result of the Acquisition, Netfran issued 33,289,434 shares of
common stock to the former stockholders of Ariel Way. In addition to the common
stock issued to the former stockholders of Ariel Way, under the Acquisition
Agreement each outstanding option or warrant to purchase Ariel Way common stock
was converted into an option to purchase the number of shares of Netfran’s
common shares equal to the number of Ariel Way common shares underlying the
option or warrant immediately prior to February 2, 2005 multiplied by 1.6762 and
the exercise price of each option or warrant Netfran issued will equal the
exercise price of the corresponding Ariel Way option or warrant in effect
immediately prior to February 2, 2005 divided by 1.6762. The
Company believes the issuance of the stock to be exempt from registration under
Section 4(2) of the Securities Act.
 
 14
 
 In
connection with the February 2, 2005 acquisition, Ariel Way and Elliot Krasnow,
who was Netfran’s Chief Executive Officer until the Effective Time, entered into
a Stock Purchase and Sale Agreement pursuant to which Mr. Krasnow sold 300,000
shares of Netfran’s common stock to Ariel Way for $300,000. Ariel Way intends to
retire the shares it acquired from Mr. Krasnow. In order to finance the $300,000
payment to Mr. Krasnow and to fund the expenses related to the acquisition,
Ariel Way borrowed $400,000 from Cornell Capital Partners, L.P., one of the
stockholders of Ariel Way. The loan bears interest at the rate of 12% per annum
and is due and payable on May 31, 2005. Cornell Capital is not a controlling
stockholder of Ariel Way, and we believe the terms of the loan are at least as
favorable to us as could be obtained from an unrelated third party. In order to
induce Cornell Capital to make the loan to Ariel Way, Arne Dunhem, the Chairman
and Chief Executive Officer of Ariel Way before the Effective Time and our Chief
Executive Officer after the Effective Time, provided a personal guarantee of
payment to Cornell Capital. We expect to compensate Mr. Dunhem for undertaking
the personal guarantee and pledge on our behalf, but the terms of any such
compensation have not yet been agreed to. Our Compensation Committee of the
Board of Directors will determine the amount and nature of compensation to Mr.
Dunhem, but we do not expect that any compensation to him will be paid in
cash.
 
 On
February 2, 2005, after Netfran’s acquisition of Ariel Way, Inc., Netfran issued
499,341 shares of its common stock to Netfran’s attorney Mr. Joel Bernstein, Esq. for providing legal services in
connection with Netfran’s acquisition of Ariel Way, Inc. and issued 499,342
shares of its common stock to Mr. Michael Jordan for advisory services in
connection with such transaction. Netfran agreed that upon the acquisition the
common stock issued shall be registered on Form S-8 prior to issuance and shall
not be subject to restrictions on transfer.
  Except as
otherwise noted, the securities described in this Item were issued pursuant to
the exemption from registration provided by Section 4(2) of the Securities Act
of 1933. Each such issuance was made pursuant to individual contracts, which are
discrete from one another and are made only with persons who were sophisticated
in such transactions and who had knowledge of and access to sufficient
information about Netfran to make an informed investment decision. Among this
information was the fact that the securities were restricted securities.
  **Item
6. Management’s Discussion and Analysis or Plan of Operation**
  **Business
Strategy**
  The
following discussion of our results of operations and liquidity and capital
resources should be read in conjunction with our Financial Statements and
related Notes thereto appearing elsewhere in this Report.
  **Overview**
  The
Company was formed in the State of Florida and incorporated in the State of
Florida in January 2000 to market the Netspace Franchise System and began
marketing of franchises in May 2000.
  We
derived our revenues from franchise operations, up through December 31, 2004.
Our revenues came from the initial sale of franchises and ongoing royalties from
the sales of our franchisees. In 2004 and 2003 our revenue from sale of
franchises exceeded our royalty revenues. There will be no further revenues
earned from the sale of franchise or royalties since we have changed our
business focus.
 
 Upon
completion of our acquisition of Ariel Way, Inc. on February 2, 2005, the
business strategy, direction and focus of the former Ariel Way became the
dominant operating focus of the new Netfran. From February 2, 2005, we are
focused through our wholly owned subsidiary Enfotec, Inc. to design, manufacture
and market high-speed security appliance solutions with a fully integrated Linux
operating system, which is an open based operating system, that integrate
high-performance Virtual Private Network, “VPN”, firewall, intrusion detection,
anti-virus and management in a single network appliance. Enfotec’s “EN” Security
Appliance and “CSA” Custom Security Appliance products feature certain
hardware-based technology that delivers true wire-line data speed performance
and the highest level of security achievable.
  Since
February 2005, we are pursuing both acquisitions and strategic alliances to
leverage our strategy of creating a technology and services company for highly
secure global communications solutions and technologies. Our objectives are to
create high margin revenues and shareholder value, expand our reach in the
global market for highly secure global communications solutions and technologies
and position the Company to play a more visible role in providing next
generation highly secure communications solutions, products, services and
technologies.
  15
 
 In February
2005, we decided to pursue a strategy of acquiring profitable companies
providing solutions, services and technologies in the area of highly secure
global communication. As a result we completed the acquisition of dbsXmedia,
Inc. with the intent to acquire the proprietary business television operation of
Loral Skynet. These and other potential acquisitions are intended to provide
revenue to us and, to the extent they remain profitable, provide cash to fund
development of the Enfotec technologies for highly secure communications. We
have been engaged in discussions with several other companies for potential
acquisition with the intent to continue to expand the Company’s strategy to
provide additional solutions, products, services and technologies to the
existing and future customer base, all with an intent to fit its
business model and assist the Company in executing its business plan .
  **Financial
Condition and Changes in Financial Condition**
  **Overall
Operating Results:**
  Our
revenues from operations were $275,330 in 2004 compared to $906,051 in 2003, a
decrease of 69.6% from 2003 revenues. Revenues from initial franchise fees
decreased $603,542 from $763,592 in 2003 to $160,050 in 2004 reflecting the sale
of fewer individual U.S. franchises in 2004 versus nine in 2003 and the sale of
fewer U.K. franchises in 2004 versus fifteen in 2003. Revenues from marketing
and business development materials decreased $37,601 from $52,153 in 2003 to
$14,552 in 2004 with fewer U.S. franchises sold. Royalty and advertising fees
increased from $81,665 in 2003 to $100,468 in 2004 representing fees from new
franchisees and existing franchisees as their business increased. The increase
in royalty revenue in 2004 of 23.0% over 2003 reflects increased sales revenues
of our franchisees.
 
 Cost and
expenses were 285% of total revenues in 2004 compared to 118.0% of revenues in
2003. The increase is mainly due to the reduction in salaries and wages from
$382,139 in 2003 to $356,844 in 2004 and to a decrease in commission payments to
outside consultants from $225,812 in 2003 to nil in 2004. Advertising spending
was further reduced from $62,190 in 2003 to $21,345 in 2004 as we concentrated
our sales and marketing efforts on outside consultants, Internet and
telemarketing programs. Convention and seminar expense decreased from $38,475 in
2003 to $22,125 in 2004, while marketing and business development material
expenses decreased from $77,230 in 2003 to $28,052 in 2004. Franchise materials
decreased to nil in 2004 from $6,869 in 2003. Professional fees increased
$45,505 to $143,008 in 2004 from $95,503 in 2003 reflecting the increasing costs
of operating a publicly owned company due to increased regulation and filing
responsibilities.
  As of
December 31, 2004 the Company had $41,004 in cash and cash equivalents compared
to $680,883 as of December 31, 2003. As of December 31, 2004, accounts payable
and accrued liabilities were reduced by 48.8% to $50,011.
  **Operating
Losses**
  We had a
net loss of $508,616 for the year ended December 31, 2004 compared to a loss of
$162,999 for the year ended December 31, 2003. These
losses were incurred primarily as a result of the aforementioned incurred
expenses.
  As
of December 31, 2004 the Company has accumulated $959,682 in operating
losses that may, on a limited basis, be offset against future taxable income.
There are limitations on the amount of net operating loss carryforwards that can
be used due to the change in the control of the ownership as a result of
Netfran’s acquisition on February 2, 2005 of the now wholly-owned Ariel Way
subsidiary. No tax benefit has been reported in the financial
statements.
  **Liquidity
and Capital Resources.**
  Net cash
used by operating activities was $531,282 in 2004 compared with $22,195 in 2003.
The decline in net cash provided from operations is due primarily to the
increase in our operating loss for the year, decrease in notes and accounts
receivable of $28,732, decrease in prepaid expenses of $5,269, decrease in due
to affiliate of $49,180 and payment of Note payable to affiliate of $237,343.
The cash provided by operating revenues in 2003 was primarily attributable to a
decrease in notes and accounts receivable of $31,252 and increase in due to
affiliate of $30,150.
  16
  During
2004, under our agreement with Netvertise, Inc. we paid only for facilities,
personnel, and services that we request from Netvertise. We can adjust our
expenses rapidly to respond to our available funds from operations by reducing
services requested from Netvertise.
  As of
December 31, 2004 we owed Netvertise $96,642 evidenced by an amended and
extended note, dated June 30, 2003, that is due in full with accrued interest at
7 percent on March 26, 2006. Before the note amendment and extension we had owed
Netvertise $250,000 on the note plus interest at 7 percent that was payable
quarterly. We had also owed Netvertise $83,985 on an open account payable. The
open account debt was consolidated into the new amended and extended note.
  As of
December 31, 2004 the Company has accumulated $959,682 in operating losses that
may, on a limited basis, be offset against future taxable income. There are
limitations on the amount of net operating loss carryforwards that can be used
due to the change in the control of the management of the Company. No tax
benefit has been reported in the financial statements, as of December 31, 2004.
Accordingly, the potential tax benefits of the loss carry forwards is offset by
a valuation allowance of the same amount.
  As of
December 31, 2004, we had a total Stockholders’ Deficit of $109,310 compared to
a Stockholders’ Equity of $264,405 as of December 31, 2003. At
December 31, 2004 the Company had net deficit working capital (current assets
minus current liabilities) of approximately $13,841 compared with approximately
$595,513 at the end of 2003.
  **Off-Balance
Sheet Arrangements**
  The
Company has no off-balance sheet arrangements.
  **Critical
Accounting Policies and Estimates**
  Our
Management's Discussion and Analysis of Financial Condition and Results of
Operations section discusses our financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United States
of America. The preparation of these financial statements requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. On an on-going basis,
management evaluates its estimates and judgments, including those related to
revenue recognition, accrued expenses, financing operations, and contingencies
and litigation. Management bases its estimates and judgments on historical
experience and on various other factors that are believed to be reasonable under
the circumstances, the results of which form the basis for making judgments
about the carrying value of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these estimates under
different assumptions or conditions. The most significant accounting estimates
inherent in the preparation of our financial statements include estimates as to
the appropriate carrying value of certain assets and liabilities which are not
readily apparent from other sources. These accounting policies are described at
relevant sections in this discussion and analysis and in the notes to the
financial statements included in this Annual Report.
  17
 ****
 **Inflation**
  The
Company’s results of operations have not been affected by inflation and
management does not expect inflation to have a significant effect on its
operations in the future.
  **REVENUE
RECOGNITION**
  Revenues
from the sale of regional franchise agreements and individual franchises in the
United States are generally recognized when substantially all significant
services to be provided by the Company have been performed. Interest on trade
notes receivable is accrued and recorded as income when due. In situations where
revenue from such sales is collectible over an extended period of time, down
payments are not sufficient and/or collection is not reasonably certain, revenue
is recognized on the cash method as amounts are collected. Interest on trade
notes receivable, resulting from sales recorded on the cash method, is recorded
when received.
  **INCOME
TAXES**
  Deferred
income tax assets and liabilities are computed annually for differences between
the financial statements and tax basis assets and liabilities that will result
in taxable or deductible amounts in the future, based on enacted tax laws and
rates applicable to the periods in which the differences are expected to affect
taxable income. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount expected to be realized. Income tax expense is
the tax payable or refundable for the period, minus the changes during the
period in deferred tax assets and liabilities.
  **RISK
FACTORS**
  We have
identified the following as the some of the factors that could affect our future
results.
  We have
had a history of operating losses.
  We
incurred net losses of $508,616 in 2004, $162,999 in 2003, and $29,475 in 2002.
Our expenses are currently greater than our revenues. Our ability to operate
profitably depends on increasing our sales and achieving sufficient gross profit
margins. We cannot assure you that we will operate profitably.
  We have
no arrangements or sources of additional capital and may have to curtail our
operations if additional capital is not available if we need it.
  We are
currently spending more to operate our business than we receive in revenues.
There can be no assurance that we can obtain additional capital if this pattern
continues. Netvertise has no obligation to provide us with facilities and
personnel if we cannot pay for them. We may have to curtail our operations if we
do not have sufficient funds to pay for the expenses of operating our business.
  We have a
limited operating history, which makes your evaluation of our business
difficult.
  We
commenced operations in March 2000. Our prospects must be considered in light of
the risks, expenses and difficulties frequently encountered by companies in
relatively new and rapidly evolving markets. These risks include:
  o
uncertain commercial acceptance of our franchises; and
 o
competition in the sale of franchises.
  We cannot
assure you that we will succeed in addressing these risks. If we fail to do so,
our revenue and operating results could be materially harmed.
  Our
operations will be subject to conflicts of interest with Netvertise, including
the following:
  18
 
 During
2004, all of our officers and directors were also affiliates of Netvertise.
  During
2004, our president, our chief financial officer and our vice president were
employees of Netvertise and they will remain part-time employees of Netvertise.
  Although
we believe all transactions between Netfran and Netvertise have been and will be
fair, these conflicts may cause our business to be adversely affected.
  For
example:
  - Future
business dealings between Netfran and Netvertise may be on terms less favorable
to us than we could achieve on an arm's length basis and cost us more than could
be obtained elsewhere.
  - We may
have to compete with Netvertise for the time and attention of our officers and
directors for our business or hire additional personnel.
  - The
terms of our agreement with Netvertise may be less favorable to us than we could
have achieved on an arm's length basis.
  **Item
7. Financial Statements**
   **NETFRAN
DEVELOPMENT CORP.**
 **INDEX
TO FINANCIAL STATEMENTS**
 **DECEMBER
31, 2004 AND 2003**
 **Page(s)**Report
      of Independent Registered Public Accounting Firm - 2004
    
    
    1Report
      of Independent Registered Public Accounting Firm - 2003
    
    
    2Financial
      Statements:Balance
      Sheets at December 31, 2004 and 2003
    
    
    3Statements
      of Operation for the Years EndedDecember
      31, 2004 and 2003
    
    
    4Statement
      of Changes in Stockholders’ Equity (Deficit)for
      the Years Ended December 31, 2004 and 2003
    
    
    5Statements
      of Cash Flow for the Years EndedDecember
      31, 2004 and 2003
    
    
    6Notes
      to the Financial Statements
    
    
    7-18
 19
  **REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
  The Board
of Directors and Stockholders
 Netfran
Development Corp.
 Vienna,
Virginia
 
 
 We have
audited the accompanying balance sheet of Netfran Development Corp., (“the
Company”) as of December 31, 2004 and the related statements of operations,
changes in stockholders’ equity (deficit) and cash flows for the year then
ended. These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
 
 We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
  In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Netfran Development Corp. as of
December 31, 2004 and the results of its operations and cash flows for the year
then ended in conformity with accounting principles generally accepted in the
United States.
  ***Bagell
Josephs & Company, LLC***
 
 Bagell
Josephs & Company, LLC
 Gibbsboro,
New Jersey
 
 March 29,
2005
  MEMBER
      OF:
    AMERICAN
      INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTSNEW
      JERSEY SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTSPENNSYLVANIA
      INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTSNEW
      YORK STATE SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS
  F-1
  REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 The
Officers and Directors
 Netfran
Development Corporation
 Vienna,
VA
 
 We have
audited the accompanying balance sheets of Netfran Development Corporation (the
“Company”), as of December 31, 2003, and the related statements of income,
stockholders’ equity (deficit), and cash flows for the year ended December 31,
2003. These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
 
 We
conducted our audits in accordance with auditing standards generally accepted in
the United States of America. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
 
 In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Netfran Development Corporation as
of December 31, 2003 and the results of its operation and cash flows for the
year ended December 31, 2003 in conformity with accounting principles generally
accepted in the United States of America.
  McClain
& Company, LC
 Miami,
Florida
 March 4,
2004
  F-2
 ****
 **NETFRAN
DEVELOPMENT CORP.**
 **BALANCE
SHEETS**
 **DECEMBER
31, 2004 AND 2003**
  **ASSETS****2004**
    
    **2003****CURRENT
      ASSETS**Cash
    
    
    
    
    $
    41,004
    
    $
    680,883Accounts
      receivable, net
    
    
    
    
    
    3,576
    
    
    7,460Prepaid
      expenses and other
    
    
    
    
    
    1,470
    
    
    10,939**Total
      current assets**
    
    
    
    
    
    46,050
    
    
    699,282Property,
      plant and equipment, net
    
    
    
    
    
    9,933
    
    
    2,877**TOTAL
      ASSETS**
    
    
    
    
    $
    55,983
    
    $
    702,159**LIABILITIES
      AND STOCKHOLDERS' EQUITY (DEFICIT)****CURRENT
      LIABILITIES**Accounts
      payable and accrued expenses
    
    
    
    
    $
    50,011
    
    $
    97,614Due
      to affiliate
    
    
    
    
    
    -
    
    
    6,155Refundable
      franchise deposit
    
    
    
    
    
    10,000
    
    
    -Current
      portion of long-term debt
    
    
    
    
    
    2,880
    
    
    -**Total
      current liabilities**
    
    
    
    
    
    62,891
    
    
    103,769**LONG-TERM
      LIABILITIES**Note
      payable to affiliate
    
    
    
    
    
    96,642
    
    
    333,985Loan
      payable - net current portion
    
    
    
    
    
    5,760
    
    
    -**Total
      long-term liabilities**
    
    
    
    
    
    102,402
    
    
    333,985**TOTAL
      LIABILITIES**
    
    
    
    
    
    165,293
    
    
    437,754**STOCKHOLDERS'
      EQUITY (DEFICIT)**Common
      stock, $.001 par value; 50,000,000 shares authorized;3,698,826
      and 3,698,826 shares issued and outstanding at December
31,2004
      and 2003, respectively
    
    
    
    
    
    3,699
    
    
    3,699Additional
      paid-in capital
    
    
    
    
    
    846,673
    
    
    711,772Accumulated
      deficit
    
    
    
    
    
    -959,682
    
    
    -451,066**Total
      stockholders' equity (deficit)**
    
    
    
    
    
    -109,310
    
    
    264,405**TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)**
    
    
    
    
    $
    55,983
    
    $
    702,159
 The
accompanying notes are an integral part of the financial
statements.
  F-3
   **NETFRAN
DEVELOPMENT CORP.**
 **STATEMENTS
OF OPERATIONS**
 **FOR
THE YEARS ENDED DECEMBER 31, 2004 AND 2003**
  **2004**
    
    **2003********REVENUES**Initial
      franchise fees
    
    $
    160,050
    
    $
    763,592Marketing
      and business development materials
    
    
    14,552
    
    
    52,153Royalty
      and advertising fees
    
    
    100,468
    
    
    81,665Interest
      income and other income
    
    
    260
    
    
    8,641**Total
      revenues**
    
    
    275,330
    
    
    906,051**COSTS
      AND EXPENSES**Advertising
    
    
    21,345
    
    
    62,190Bad
      debt expense
    
    
    2,500
    
    
    1,364Commissions
    
    
    -
    
    
    225,812Conventions
      and seminars
    
    
    22,125
    
    
    38,475Depreciation
    
    
    1,584
    
    
    1,618Franchise
      materials
    
    
    -
    
    
    6,869General
      and administrative
    
    
    117,984
    
    
    59,359Interest
      expense and other
    
    
    5,893
    
    
    20,837Licenses,
      permits, and taxes
    
    
    28,421
    
    
    32,977Marketing
      and business development material
    
    
    28,052
    
    
    77,230Overhead
      costs
    
    
    33,600
    
    
    33,600Professional
      fees
    
    
    143,008
    
    
    95,503Salaries
      and wages
    
    
    356,844
    
    
    382,139Travel
    
    
    22,590
    
    
    31,077**Total
      costs and expenses**
    
    
    783,946
    
    
    1,069,050**Loss
      before income taxes**
    
    
    (508,616
    )
    
    (162,999
    )**PROVISION
      FOR INCOME TAXES**
    
    
    -
    
    
    -**NET
      LOSS**
    
    $
    (508,616
    )
    $
    (162,999
    )**BASIC
      LOSS PER COMMON SHARE**
    
    $
    (0.14
    )
    $
    (0.04
    )**WEIGHTED
      AVERAGE COMMON SHARES**
    
    
    3,698,826
    
    
    3,662,319**DILUTED
      LOSS PER COMMON SHARE**
    
    $
    (0.14
    )
    $
    (0.04
    )**WEIGHTED
      AVERAGE DILUTED COMMON SHARES**
    
    
    3,698,826
    
    
    3,662,319
  The
accompanying notes are an integral part of the financial
statements.
  F-4
  **NETFRAN
DEVELOPMENT CORP.**
 **STATEMENTS
OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)**
 **FOR
THE YEARS ENDED DECEMBER 31, 2004 AND 2003**
  **Additional****Common
      Stock**
    
    **Paid-in**
    
    **Accumulated****Shares**
    
    **Amount**
    
    **Capital**
    
    **Deficits**
    
    **Total**Balance,
      December 31, 2002
    
    
    3,373,826
    
    $
    3,374
    
    $
    630,847
    
    $
    (288,067
    )
    $
    346,154Issuance
      of common stock for services
    
    
    325,000
    
    
    325
    
    
    80,925
    
    
    -
    
    
    81,250Net
      loss for the year
    
    
    -
    
    
    -
    
    
    -
    
    
    (162,999
    )
    
    (162,999
    )Balance,
      December 31, 2003
    
    
    3,698,826
    
    
    3,699
    
    
    711,772
    
    
    (451,066
    )
    
    264,405Capital
      contribution from affiliate
    
    
    -
    
    
    -
    
    
    134,901
    
    
    -
    
    
    134,901Net
      loss for the year
    
    
    -
    
    
    -
    
    
    -
    
    
    (508,616
    )
    
    (508,616
    )Balance
      December 31, 2004
    
    
    3,698,826
    
    $
    3,699
    
    $
    846,673
    
    $
    (959,682
    )
    $
    (109,310
    )
  The
accompanying notes are an integral part of the financial
statements.
   F-5
  **NETFRAN
DEVELOPMENT CORP.**
 **STATEMENTS
OF CASH FLOWS**
 **FOR
THE YEARS ENDED DECEMBER 31, 2004 AND 2003**
  **2004**
    
    **2003****CASH
      FLOWS FROM OPERATING ACTIVITIES**Net
      loss
    
    $
    (508,616
    )
    $
    (162,999
    )**Adjustments
      to reconcile net loss to net cash****(used
      in) operating activities**Depreciation
    
    
    1,584
    
    
    1,618Common
      stock issued for services
    
    
    -
    
    
    81,250Bad
      debt expense
    
    
    -
    
    
    1,364**Changes
      in assets and liabilities**Notes
      and accounts receivable
    
    
    3,884
    
    
    31,252Prepaid
      expenses
    
    
    9,469
    
    
    14,738Accounts
      payable and accrued expenses
    
    
    (47,603
    )
    
    10,582Refundable
      franchise deposit
    
    
    10,000
    
    
    -Total
      adjustments
    
    
    (22,666
    )
    
    140,804**Net
      cash (used in) operating activities**
    
    
    (531,282
    )
    
    (22,195
    )**CASH
      FLOWS FROM INVESTING ACTIVITIES**Acquisition
      of property
    
    
    (8,640
    )
    
    (1,605
    )Loss
      on disposal of assets
    
    
    -
    
    
    625**Net
      cash (used in) investing activities**
    
    
    (8,640
    )
    
    (980
    )**CASH
      FLOWS FROM FINANCING ACTIVITIES**Proceeds
      due to affiliate
    
    
    (6,155
    )
    
    (55,335
    )Proceeds
      from loan payable
    
    
    8,640
    
    
    -Note
      payable to affiliate
    
    
    (237,343
    )
    
    83,985Capital
      contributions from an affiliate
    
    
    134,901
    
    
    -**Net
      cash provided by (used in) financing activities**
    
    
    (99,957
    )
    
    28,650**NET
      INCREASE (DECREASE) IN****CASH
      AND CASH EQUIVALENTS**
    
    
    (639,879
    )
    
    5,475**CASH
      AND CASH EQUIVALENTS -****BEGINNING
      OF YEAR**
    
    
    680,883
    
    
    675,408**CASH
      AND CASH EQUIVALENTS - END OF YEAR**
    
    $
    41,004
    
    $
    680,883**SUPPLEMENTAL
      CASH FLOW INFORMATION**Interest
      income
    
    $
    260
    
    $
    1,910Interest
      expense
    
    $
    12,772
    
    $
    20,837**SUPPLEMENTAL
      DISCLOSURE OF NONCASH INFORMATION**Common
      stock issued for services rendered
    
    $
    -
    
    $
    81,250Acquisition
      of transportation equipment
    
    $
    8,640
    
    $
    -
  The
accompanying notes are an integral part of the financial
statements.
  F-6
 
 **NETFRAN
DEVELOPMENT CORP.**
 **NOTES
TO FINANCIAL STATEMENTS**
 **DECEMBER
31, 2004 AND 2003**
 **NOTE
      1-**
    **NATURE
      OF BUSINESS**
 The
Company was formed in the State of Florida in January 2000, commenced operations
on March 7, 2000, and was organized to market Netspace franchises, which
provides Internet web design, hosting, updating, maintenance, and related
services to business and individuals. The Netspace system was developed by
Netvertise, Inc., (“Netvertise”), a related company and the Company’s former
sole shareholder.
 
 For the
period from January 1, 2002 to October 31, 2002, the Company was a wholly-owned
subsidiary of Netvertise. On October 31, 2002, the Company’s issued and
outstanding shares were distributed to the shareholders of Netvertise on a
pro-rata basis. Prior to the distribution, Netvertise made a capital
contribution in the amount of $488,041, equivalent to amounts due to Netvertise
by the Company.
 ****NOTE
      2-**
    **SUMMARY
      OF SIGNIFICANT ACCOUNTING
POLICIES****
 **Cash
and Cash Equivalents**
 
 For
financial statement presentation purposes, the Company will consider short-term,
highly liquid investments with original maturities of three months or less to be
cash and cash equivalents.
 
 **Revenue
Recognition**
 
 Revenues
from the sale of regional franchise agreements and individual franchises in the
United States and Great Britain are generally recognized when substantially all
significant services to be provided by the Company have been performed. Interest
on trade notes receivable is accrued and recorded as income when due. In
situations where revenue from such sales is collectible over an extended period
of time, down payments are not sufficient and/or collection is not reasonably
certain, revenue is recognized on the cash method as amounts are collected.
Interest on trade notes receivable, resulting from sales recorded on the cash
method, is recorded when received.
 
 Revenue
from franchise royalties and advertising fees are recognized when earned.
Expenses are recognized when incurred.
 
 F-7
 ****
 **NETFRAN
DEVELOPMENT CORP.**
 **NOTES
TO FINANCIAL STATEMENTS (CONTINUED)**
 **DECEMBER
31, 2004 AND 2003**
 ****
 **NOTE
      2-**
    **SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES****(CONTINUED)**
 **Long-Lived
Assets**
 
 The
Company reviews its long-lived assets for impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable.
 
 **Income
Taxes**
 
 Deferred
income tax assets and liabilities are computed annually for differences between
the financial statements and tax basis of assets and liabilities that will
result in taxable or deductible amounts in the future, based on enacted tax laws
and rates applicable to the periods in which the differences are expected to be
realized. Income tax expense is the tax payable or refundable for the period,
minus the changes during the period in deferred tax assets and
liabilities.
 
 Income
taxes are provided for on all taxable income included in the financial
statements in the period in which the income is reported for financial
statements purposes. Accordingly, deferred income taxes (benefits) are provided
for timing differences between financial and tax reporting. The principal items
comprising these differences at December 31, 2004 and 2003 are the deferred
recognition of operating losses for tax purposes and the allowance for doubtful
accounts.
 
 **Use
of Estimates**
 
 The
preparation of financial statements in conformity with the accounting principles
generally accepted in the Untied States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those
estimates.
 
 **Reclassification**
 
 For
comparative purposes, certain items in the prior years’ financial statements
have been reclassified to conform to current year’s
presentation.
 F-8
 ****
 **NETFRAN
DEVELOPMENT CORP.**
 **NOTES
TO FINANCIAL STATEMENTS (CONTINUED)**
 **DECEMBER
31, 2004 AND 2003**
  ****
 **NOTE
      2-**
    **SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES****(CONTINUED)**
 **Business
Segment Reporting**
 
 Financial
Accounting Standards Board (“FASB”) Statement of Financial Accounting Standard
(“SFAS”) No. 131, “DISCLOSURE ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION,” requires companies to report information about operating segments
in financial statements. Operating segments are defined as components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker, or decision making
group, in deciding how to allocate resources and/or assess performance. The
operating segments are managed separately because each operating segment
represents a strategic business unit that offers different product services. At
December 31, 2004 and 2003, the Company had one reportable segment: franchise
sales.
 
 Property
and Equipment
 
 Property
and equipment are stated at cost and depreciated using straight-line and
accelerated methods over the following estimated useful lives of the
assets:
 
 Computer
      equipment
      Automobile
    3 - 5 years
      3 - 5 years
 
 Differences
between the straight-line method of depreciation and the tax-accelerated method
of depreciation are immaterial.
 
 Advertising
 
 Costs of
advertising and marketing are expensed as incurred and the Company incurred
advertising cost in the amounts of $21,345 and $62,190 for the years ended
December 31, 2004 and 2003, respectively.
 
 **Recent
Accounting Pronouncements**
 
 In May
2003, the FASB issued SFAS No. 150, *Accounting
for Certain Financial Instruments with Characteristics of both Liabilities and
Equity* , to
establish standards for how an issuer classifies and measurers certain financial
instruments with characteristics of both liabilities and equity. The Company
does not have any financial instruments with characteristics of both liabilities
and equity. The adoption of this standard will not have impact on the Company’s
financial condition or results of operations.
 F-9
 ****
 **NETFRAN
DEVELOPMENT CORP.**
 **NOTES
TO FINANCIAL STATEMENTS (CONTINUED)**
 **DECEMBER
31, 2004 AND 2003**
 
 **NOTE
      2-**
    **SUMMARY
      OF SIGNIFICANT ACCOUNTING POLICIES****(CONTINUED)**
 
 **Recent
Accounting Pronouncements (continued)**
 
 In
December 2002, the FASB issued SFAS No. 148, *Accounting
for Stock-Based Compensation-Transition and Disclosure* , (“SFAS
148”). SFAS No. 148 amends SFAS No. 123, Accounting for Stock-Based
Compensation, to provide alternative methods of transition to SFAS 123’s fair
value method of accounting for stock-based employee compensation.
 
 In July
2002, the FASB issued SFAS No. 146, *Accounting
for Costs Associated with Exit or Disposal Activities* , (“SFAS
146”), which supercedes Emerging Issues Task Force No. 94-3, Liability
Recognition for Certain Employment Termination Benefits and Other Costs to Exit
an Activity. SFAS No. 146 requires companies to record liabilities for costs
associated with exit or disposal activities to be recognized only when the
liability is incurred instead of at the date of commitment to an exit or
disposal activity. Adoption of this standard is effective for exit or disposal
activities that are initiated after December 31, 2002. The adoption of this
standard will not have an impact on the Company’s financial condition or results
of operations.
 
 In August
2001, the FASB issued SFAS No. 144, “Accounting for the Impairment of Disposal
of Long-Lived Assets” (“SFAS 144”). This statement addresses financial
accounting and reporting for the impairment or disposal of long-lived assets.
The new guidance resolves significant implementation issues related to SFAS 121.
“Accounting for the impairment of long-lived assets to be disposed of.” SFAS 144
is affected for fiscal years beginning after December 21, 2001. Currently, the
Company is assessing but has not determined how the adoption of SFAS 144 will
impact its financial position and results of operation.
 
 In June
2001, the FASB issued Statement No. 142, *Goodwill
and Other Intangible Assets* . This
Statement addresses financial accounting and reporting for acquired goodwill and
other intangible assets and supersedes APB Opinion No. 17, Intangible Assets. It
addresses how intangible assets that are acquired individually or with a group
of other assets (but not those acquired in a business combination) should be
accounted for in financial statements upon their acquisition. This Statement
also addresses how goodwill and other intangible assets should be accounted for
after they have been initially recognized in the statements.
 F-10
 ****
 **NETFRAN
DEVELOPMENT CORP.**
 **NOTES
TO FINANCIAL STATEMENTS (CONTINUED)**
 **DECEMBER
31, 2004 AND 2003**
   **NOTE
      3-**
    **ACCOUNTS
      RECEIVABLE - NET**
 Following
is a summary of accounts receivable:
 
 **2004**
    
    **2003**Accounts
      receivable
    
    $
    7,195
    
    $
    11,079Less
      allowance for doubtful accounts
    
    
    (3,619
    )
    
    (3,619
    )$
    3,576
    
    $
    7,460
 **NOTE
      4-**
    **PROPERTY
      AND EQUIPMENT**
 At
December 31, 2004 and 2003, property and equipment consisted of the
following:
 2004
    
    2003Computer
      equipment
    
    $
    6,263
    
    $
    6,263Automobile
    
    
    8,640
    
    
    -Less
      accumulated depreciation
    
    
    (4,970
    )
    
    (3,386
    )$
    9,933
    
    $
    2,877
 Depreciation
expense charged to operations for the year ended December 31, 2004 and 2003 was
$1,584 and $1,618, respectively.
 **NOTE
      5-**
    **LONG-TERM
      DEBT**
 
 The
Company has a loan payable which was originally $8,640 as of December 18, 2004,
of which $8,640 was outstanding as of December 31, 2004. Interest is payable
monthly at an annual rate of 5.25%. The term of the note is for three years, and
the principal balance is payable in monthly installments of principal plus
accrued interest at which time the final installment equal to the remaining
balance shall be due and payable. The maturities over the next three years and
in the aggregate are as follows:
 
  Fiscal
      year ending December
      31, 2005
    
    
    
    
    $
    2,880December
      31, 2006
    
    
    
    
    
    2,880December
      31, 2007
    
    
    
    
    
    2,880$
    8,640
 F-11
 
 **NETFRAN
DEVELOPMENT CORP.**
 **NOTES
TO FINANCIAL STATEMENTS (CONTINUED)**
 **DECEMBER
31, 2004 AND 2003**
 
 **NOTE
      6-**
    **NOTE
      PAYABLE TO AFFILIATE**
  On March
6, 2002, Netvertise made a loan to the Company in the amount of $250,000 to fund
operations. The note was to bear interest at 7% per year, payments of
interest-only on a quarterly basis, ballooning in two years.
 
 During
2002, the Company did not make the required quarterly payments on the note and
was in technical default. Netvertise advised the Company that it would not
demand immediate payment on the note and extended the due date on the past due
interest to March 6, 2003. Prior to March 6, 2003, the past due interest had
been paid in full.
 
 On
September 30, 2003, the note payable to Netvertise was amended and extended. The
new note is in the amount of $333,985, which represents the original principal
balance plus $83,985, which represented the balance due to affiliate. The due to
affiliate was an open account with Netvertise that did not bear interest. The
amended note bears interest at 7% per year, payments of interest-only on a
quarterly basis, ballooning on March 6, 2006.
 
 On
January 31, 2004, the Company paid down $237,343 of the note
payable. ****


**NOTE
      7-**
    **EARNING
      (LOSS) PER SHARE OF COMMON
STOCK**
 
 Historical
net income (loss) per common share is computed using the weighted average number
of common shares outstanding. Diluted earnings per share (EPS) include
additional dilution from common stock equivalents, such as stock issuable
pursuant to the exercise of stock options and warrants. Common stock equivalents
were not included in the computation of diluted earnings per share when the
Company reported a loss because to do so would be antidilutive for periods
presented.
  F-12
  **NETFRAN
DEVELOPMENT CORP.**
 **NOTES
TO FINANCIAL STATEMENTS (CONTINUED)**
 **DECEMBER
31, 2004 AND 2003**
 
 ****NOTE
      7-**
    **EARNING
      (LOSS) PER SHARE OF COMMON STOCK
  (CONTINUED)****
 The
following is a reconciliation of the computation for basic and diluted
EPS:
 Net
      loss
    
    $
    (508,616
    )
    $
    (162,999
    )Weighted-average
      common sharesOutstanding
      (Basic)
    
    
    3,698,826
    
    
    3,662,319Weighted-average
      common stockEquivalentsStock
      options
    
    
    -
    
    
    -Warrants
    
    
    -
    
    
    -Weighted-average
      common sharesOutstanding
      (Diluted)
    
    
    3,698,826
    
    
    3,662,319
 Options
and warrants outstanding to purchase stock were not included in the computation
of diluted EPS for December 31, 2004 because inclusion would have been
antidilutive.
 ****
 **NOTE
      8-**
    **COMMITMENTS**
 The
Company derives its revenue primarily from the sale of the Netscape franchises
and from royalties paid by the franchise holders. Netvertise expects to profit
from the sale of services to the ultimate users of the Netscape system. The
Company did not compensate Netvertise for the right to sell the franchise, and
prior to October 20, 2001, there was no written agreement between the two
companies. Effective October 20, 2001, the Company and Netvertise entered into a
written agreement whereas Netvertise shall provide services to the Company’s
franchisees. The services shall consist of website development, website hosting,
maintenance support and upgrading, graphic design, copy writing, training, and
e-publishing. The agreement also stipulates that Netvertise will provide its
personnel, office space, facilities, and support services as may be requested by
the Company. The costs of these services are to be reimbursed to Netvertise on a
monthly basis.
 F-13
 ****
 **NETFRAN
DEVELOPMENT CORP.**
 **NOTES
TO FINANCIAL STATEMENTS (CONTINUED)**
 **DECEMBER
31, 2004 AND 2003**
  ****NOTE
      9-**
    **INITIAL
      MATERIALS FRANCHISE FEE REVENUE AND MARKETING AND BUSINESS DEVELOPMENT
      REVENUE****
 From
inception, March 7, 2000 to November 2002, all franchise fee sales were derived
from initial franchise fees for individual franchise sales. In December 2002,
the Company re-sold its first franchise. Additionally, it sold a master
franchise covering the United Kingdom. In 2003, it sold three master franchises
covering three regions in the United States. When a franchise is sold, the
Company agrees to provide certain services to the franchisee. Generally, these
services include initial training and support services, and are usually
performed within the first six months of selling the franchise.
 
 Any
additional services required by the franchisee are provided by Netvertise. At
December 31, 2004 and 2003, the Company had substantially provided all necessary
training and support services to existing franchisees.
 
 The
Company requires it franchisees to purchase from the Company certain marketing
and business development materials. For years ended December 31, 2004 and 2003,
the Company derived revenues in the amount of $14,552 and $52,153, respectively,
from the sale of such materials to its franchisees.
 ****NOTE
      10-**
    **RELATED
      PARTY TRANSACTIONS****
 The
Company shares its facilities and certain personnel with Netvertise, and
accordingly, overhead costs are allocated between the two companies. For the
years ended December 31, 2004 and 2003, the Company incurred shared overhead
costs in the amount of $33,600 and $33,600, respectively.
 
 At
December 31, 2004 and 2003, included on the balance sheet under the caption “due
to affiliate” are $0 and $6,155, respectively, of various expenditures paid by
Netvertise on behalf of the Company.
 F-14
 ****
 **NETFRAN
DEVELOPMENT CORP.**
 **NOTES
TO FINANCIAL STATEMENTS (CONTINUED)**
 **DECEMBER
31, 2004 AND 2003**
  ****
 ****NOTE
      11-**
    **STOCKHOLDERS’
      EQUITY (DEFICIT)****
 **Common
Stock**
 
 As of
December 31, 2004 and 2003, the Company has 50,000,000 shares of common stock
authorized and 3,698,826 shares of common stock issued and
outstanding.
 
 On
November 8, 2002, Netfran filed with the Commission a Prospectus Form 424b3,
distributing 3,340,088 shares of common stock of Netfran to holders of record of
Netvertise, Inc., common stock as of the close of business on July 18, 2001 (the
“record date”). The shares were distributed on the basis of one share of Netfran
for every share of Netvertise, Inc., held on the record date.
 
 In
January 2003, the Company issued 33,738 shares as a payment for legal services
rendered to the Company during 2002. The value per share at the time the legal
services were rendered was $.024 per share. These shares were deemed issuable as
of December 31, 2002.
 
 In
February 2003, the Company issued 325,000 shares as payment for officer
compensations during 2003. The value per share at the time the services were
rendered was $0.25 per share.
 
 The
Company in anticipation of the reverse acquisition with Ariel Way, Inc., (see
Note 15), capitalized $134,901 into Additional paid-in capital.
 ****
 ****NOTE
      12-**
    **PROVISION
      FOR INCOME TAXES****
 Deferred
income taxes will be determined using the liability method for the temporary
differences between the financial reporting basis and income tax basis of the
Company’s assets and liabilities. Deferred income taxes will be measured based
on the tax rates expected to be in effect when the temporary differences are
included in the Company’s tax return. Deferred tax assets and liabilities are
recognized based on anticipated future tax consequences attributable to
differences between financial statement carrying amounts of assets and
liabilities and their respective tax bases.
 F-15
 ****
 **NETFRAN
DEVELOPMENT CORP.**
 **NOTES
TO FINANCIAL STATEMENTS (CONTINUED)**
 **DECEMBER
31, 2004 AND 2003**
  ********
 ****NOTE
      12-**
    **PROVISION
      FOR INCOME TAXES (CONTINUED)****
 At
December 31, 2004 and 2003, approximate deferred tax assets of the
following:
 2004
    
    2003Net
      deferred tax assets
    
    $
    332,319
    
    $
    84,629Less:
      valuation allowance
    
    
    (332,319
    )
    
    (84,629
    )$
    -0-
    
    $
    -0-
 At
December 31, 2004 and 2003 carryforwards in the approximate amounts of $959,682
and $451,066, respectively are available to offset future taxable income through
2019. The Company established valuation allowances equal to the full amount of
the deferred tax assets as of December 31, 2004 and 2003.


************
 ****NOTE
      13-**
    **STOCK
      INCENTIVE PLAN****
 In 2003,
the Company established a Stock Incentive Plan (“Stock Plan”), which provides
eligible employees, consultants, and non-employee directors of the Company and
its affiliates, stock-based incentives in the Company, thereby creating a means
to raise the level of stock ownership by such individuals in order to attract,
retain and reward such individuals. Under the Stock Plan, a maximum of 600,000
shares may be awarded. The options awarded are subject to an option term
determined by a Committee. However, no option shall be exercisable more than 10
years after the date of grant. Options shall be exercisable at such time and
subject to such terms and conditions as shall be determined by the Committee at
grant.
 
 On
February 11, 2003, the Company granted 325,000 shares of restricted stock, in
accordance with the Stock Plan, to three of its officers. The restricted stock
had a fair value of $0.25 per share and was recorded as compensation for the
three-month period ended March 31, 2003.
 
 This
restricted stock was fully vested on February 11, 2003. In the event the
participant engages in detrimental activity as defined in the Stock Plan prior
to, or during the one-year period after vesting of the restricted stock, the
Committee may direct (at any time within two years thereafter) that the
participant shall pay over to Netfran an amount equal to the fair market value
at the time of vesting of any restricted stock, which had vested in the period
referred to above.
  F-16
  **NETFRAN
DEVELOPMENT CORP.**
 **NOTES
TO FINANCIAL STATEMENTS (CONTINUED)**
 **DECEMBER
31, 2004 AND 2003**
  ****************
 ****NOTE
      13-**
    **STOCK
      INCENTIVE PLAN (CONTINUED)****
 Furthermore,
in accordance with the Stock Plan, the Company granted 90,000 stock options as
follows:
 
 **Number**
    
    **Vesting****Grantee**
    
    **of
      shares**
    
    **Schedule**
    
    **Term**
    
    **Price**Two
      officers
    
    
    80,000
    
    
    1/3
      each year
    
    
    10
      years
    
    $
    0.25Non-officers
    
    
    10,000
    
    
    1/3
      each year
    
    
    10
      years
    
    $
    0.25
 ********************
 ****NOTE
      14-**
    **STRATEGIC
      VENTURE****
 On July
22, 2003, the Company entered into a three-year agreement with Strategic
Management, LLC (“SM”). SM is to provide financial advisory services that would
include endeavoring to arrange or provide up to $10 million in value to the
Company by arranging financing, merger and acquisition transactions, obtaining
customers, or other transactions that may be identified by SM and proposed to
the Company. As part of the agreement, SM received $5,000 and was issued in
escrow, 668,018 shares of the Company’s stock. The Company has not recorded
these shares as outstanding in the accompanying condensed balance sheets as SM
has not completed its performance under this agreement, nor has any performance
commitment been reached as of December 31, 2004. The agreement with Strategic
Management, LLC was terminated on August 19, 2004 as disclosed in the Company’s
Form 10-QSB for the period ending September 30, 2004.
 ************************
 ****NOTE
      15-**
    **SUBSEQUENT
      EVENTS****
 On
January 20, 2005, the Company signed an agreement to acquire all issued and
outstanding shares of common stock of Ariel Way, Inc. in exchange for
approximately 33,289,434 shares of common stock of Netfran in a transaction that
will result in a change in control of the Company.
 
 The
transaction closed on February 2, 2005 and the current shareholders of Ariel Way
own approximately 88% of the Company’s 37,986,943 shares of
common stock, after issuance of approximately 33,289,434 shares of common stock
to the Ariel Way current shareholders. The Company’s Board of Directors
recommended and the majority of the Netfran shareholders approved on February
23, 2005 to change the name from Netfran Development Corp. to Ariel Way, Inc. In
addition, the Netfran shareholders also approved the action to amending our
Articles of Incorporation to increase the total number of authorized shares of
our capital stock from 50,000,000 shares, consisting solely of our common stock,
to a total of 250,000,000 shares of our capital stock, consisting of 245,000,000
shares of our common stock and 5,000,000 shares of “blank
check” preferred stock. Ariel Way’s management team, lead by CEO Arne Dunhem, on
February 2, 2005 assumed control and responsibility for the direction of the
Company.
  F-17
 ****
 **NETFRAN
DEVELOPMENT CORP.**
 **NOTES
TO FINANCIAL STATEMENTS (CONTINUED)**
 **DECEMBER
31, 2004 AND 2003**
 **************************
****NOTE
      15-**
    **SUBSEQUENT
      EVENTS (CONTINUED)******
 Ariel
Way, Inc., is a technology and services company providing highly secure global
communications solutions and technologies. The Company is focused on developing
innovative and secure technologies, acquiring and growing profitable advanced
technology companies and global communications service providers. The company
also intends to create strategic alliances with companies with complementary
product lines and service industries. The technology development effort for
highly secure communications solutions and services is conducted by a wholly
owned subsidiary, Enfotec, Inc.
 
 On
February 18, 2005 the Company completed the acquisition of dbsXmedia, Inc., a
Delaware corporation (“dbsXmedia”), with offices in Washington, D.C. and United
Kingdom, and as a result of this acquisition dbsXmedia became a subsidiary.
dbsXmedia, Inc. provides satellite-based services for Business Television,
digital signage, training and multimedia. Netfran purchased from dbsXmedia 1,500
shares of the common stock, par value $0.001 per share. After this transaction
the total shares issued and outstanding will be 2,500 shares of common stock of
which Netfran will own 60% of dbsXmedia’s stock and Zygot, LLC, a Wyoming
corporation, held by the management of dbsXmedia, will become the minority 40%
shareholder. On February 18, 2005, dbsXmedia entered into an Asset Purchase
Agreement by and among Loral Skynet Services, Inc., a Delaware corporation,
CyberStar, L.P., a Delaware limited partnership, CyberStar, L.L.C.
(collectively, “Sellers”) and dbsXmedia. Pursuant to the terms of the Asset
Purchase Agreement, dbsXmedia will purchase certain assets related to business
television services. dbsXmedia will assume certain liabilities associated with
the business and will enter into certain support and transition services
agreements related to the future conduct of the business.
  F-18
  **Item
8. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure**
 
 Not
applicable.
  **Item
8A. Controls and Procedures**
  a)
Evaluation of Disclosure Controls and Procedures
 
 The term
"disclosure controls and procedures" is defined in Rules 13a-15(e) and 15d-15(e)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). This
term refers to the controls and procedures of a company that are designed to
ensure that information required to be disclosed by a company in the reports
that it files under the Exchange Act is recorded, processed, summarized, and
reported within the required time periods. Our Chief Executive Officer and our
Chief Financial Officer have evaluated the effectiveness of our disclosure
controls and procedures as of the end of the period covered by this annual
report. They have concluded that, as of that date, our disclosure controls and
procedures were effective at ensuring that required information will be
disclosed on a timely basis in our reports filed under the Exchange
Act.
 
 (b)
Changes in Internal Control over Financial Reporting
 
 No change
in our internal control over financial reporting (as defined in Rules 13a-15(f)
and 15d-15(f) under the Exchange Act) occurred during the period covered by this
report that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
  19
  **PART
III**
  **Item
9. Directors, Executive Officers, Promoters and Control Persons; Compliance with
Section 16(a) of the Exchange Act**
  **DIRECTORS
AND EXECUTIVE OFFICERS**
 
 The
following table sets forth the directors and officers during 2004 of Netfran and
their respective ages and positions:
  Name
    Age
    PositionElliot
      Krasnow
    56
    President,
      CEO and directorDellray
      Lefevere
    57
    Vice
      president of franchise development and directorRobert
      Steinberg
    60
    Chief
      financial officer and director
 Elliot
Krasnow has been the president, CEO and director from March 2000 through
February 2, 2005. From 1992 to 1994 he was president of Sandler Sales Institute
of South Florida, a national sales training organization. From 1994 to 1995, Mr.
Krasnow was co-producer for Mako Films International, Inc., an independent film
production company. From 1995 to 1997, he was founder and president of Netspace,
Inc. the predecessor company of Netvertise, Inc. d/b/a/ Netspace. Since 1997 he
has been president and director of Netvertise, Inc., an Internet solutions
company that provides services to Netfran's franchisees.
  Dellray
Lefevere has been our vice president of franchise development from January 2000
through February 2, 2005 and a director from September 2001 through February 2,
2005. He also serves as Vice President of Netvertise since January 2002. He was
director of sales for Uniglobe Travel, a franchise travel company, from
1997-1999. He was vice-president, franchising, with Leadership Management, Inc.
from 1988 to 1992. From 1992 to 1997, he was executive vice president for
General Business Services, a business tax/accounting franchise company, a
division of Don Dwyer Group of Companies, a franchise development enterprise.
  Robert S.
Steinberg, CPA, has been our chief financial officer from October 2000 through
February 2, 2005 and a director from September 2001 through February 2, 2005. He
has also served as chief financial officer of Netvertise since October 2000. He
has been a certified public accountant in private practice in South Miami,
Florida since June 1977. Mr. Steinberg has been chief financial officer of
Netfran since October, 2000. His professional experience extends over 34 years
of diverse public practice. He is a CPA in NY and Florida. He is also an
attorney admitted to the Bars of NY, Florida, The US Tax Court, the US Supreme
Court and various US District and Circuit Courts of Appeal. Mr. Steinberg is
also a credential business valuation expert who has testified in many court
cases. He has lectured and published extensively including recently,
"Identifying Valuing and Dividing Employee Stock Options," American Bar
Association, Family Division Spring Session, Providence, Rhode Island (April,
2002). He is a member of numerous professional organizations and serves on two
charity boards of directors.
  20
 
 Directors
are elected annually and hold office until the next annual meeting of our
stockholders and until their successors are elected and qualified. The Board has
not established any committees. All executive officers are chosen by the board
of directors and serve at the board's discretion.
  We plan
to reimburse directors for any expenses incurred in attending board of directors
meetings.
  Our new
directors and executive officers and their ages from February 2, 2005 and as of
April 11, 2005 are as follows:
  **Name**
    **Age**
    **Position**Arne
      Dunhem
    55
    Chairman,
      President and Chief Executive OfficerVoula
      Kanellias
    42
    Chief
      Financial OfficerAnand
      Kumar
    61
    Director,
      Executive Vice PresidentLeif
      T. Carlsson
    62
    DirectorBob
      Bova
    46
    President
      and Chief Executive Officer, Enfotec, Inc.
 
 The
following is a brief description of the background of our new directors and
executive officers.
  **Background
Information**
  ***Arne
Dunhem.*** Mr. Arne
Dunhem, who serves as Netfran’s Chairman, President and Chief Executive Officer
since February 2, 2005 and was the Chairman, President and Chief Executive
Officer of Ariel Way, Inc. from the founding of Ariel Way on February 10, 2004,
has over thirty years of executive management and engineering experience with
large complex multinational corporations, large international organizations as
well as early stage technology companies. He has over the years been
instrumental in arranging more than $300 million in investor and vendor
financing commitments and is knowledgeable in all aspects of international
business, finance, management, information systems, network operations and
engineering for both publicly traded and privately held corporations. Between
February 2004 and February 2, 2005, Mr. Dunhem was the Chairman, President and
CEO of Ariel Way, Inc., a company focused on the build-up of a publicly traded
highly secure global communications solutions and technology company
headquartered in the metropolitan Washington, D.C. area, USA. Between December
2003 and February 2004, Mr. Dunhem was a consultant providing executive
management and merger and acquisition support services. Between January 2002 and
November 2003, Mr. Dunhem was the Chairman, President and CEO of MobilePro
Corp., a publicly traded technology company in Rockville, MD. He was
instrumental in merging the private Neoreach, Inc., a development stage company
developing third generation wireless modem and semiconductor systems, with the
publicly traded MobilePro Corp. Between July 2001 and January 2002 Mr. Dunhem
was working as a strategic business consultant and was in January 2002 hired by
Neoreach, Inc. as its President & CEO. Mr. Dunhem was between November 1998
and June 2001 the Chairman & CEO of erbia, Inc. a U.S. domestic
long-distance communications company where he took the company from its start-up
phase through the sale of the operation to a U.S. publicly traded company. He
was working between January 1998 and October 1998 as a strategic business
consultant for various private companies. Prior to this he was between July 1993
and September 1997 the Chairman of Tele8 Kontakt AB, a Swedish nationwide
start-up cell-phone operator and also between January 1993 and December 1997 the
Chairman of Nordiska Tele8 AB of Sweden, an international long distance and
local telephone services company. Here again, he took the company from its
start-up phase through full operation and eventually the sale of both companies.
Mr. Dunhem was between May 1991 and January 1993 the President for CruiseComm, a
company developing high-speed satellite communications for voice and data for
large passenger cruise ships sailing in the Baltic Sea, the Mediterranean and in
the Caribbean. Mr. Dunhem was between September 1989 and April 1991 the
Executive Vice President, Engineering & Operations of Comvik Skyport AB, a
Swedish telecommunications company providing satellite and data communications
services, now the European Tele2 telecommunications operator, which has grown
into one of Europe’s biggest telecom operators. During the period September 1978
and July 1989 Mr. Dunhem was with INTELSAT, Washington, D.C., an international
satellite communications organization in a capacity growing from staff engineer
to program manager where he had responsibilities for building-up some of the
world’s largest command, control and monitoring networks. He previously was with
the Saab-Scania Aerospace Corporation and the Swedish Telecom. Mr. Dunhem earned
his M.S. in 1974 in space telecommunications from Chalmers University of
Technology, Sweden. Mr. Dunhem is the Chairman of the Swedish Lutheran Church of
Washington, D.C., is active with several community organizations, is the founder
of a Swedish-American Community Center in Washington, D.C. and has over many
years been active with the Boy Scouts of America. Mr. Dunhem is a U.S. citizen
and has lived in the Washington, D. C. area since 1978.
  21
 ******
 ***Voula
Kanellias.*** Ms.
Kanellias, who serves as Netfran’s Chief Financial Officer since February 2,
2005 and joined Ariel Way, Inc. on September 2, 2004 serving as Ariel Way’s
Chief Financial Officer, has extensive experience as a Chief Financial Officer
in private companies, pre-IPOs, international operations, acquisitions,
manufacturing operations and turnarounds. Ms. Kanellias served 2000 - 2004 as
Chief Financial Officer for HeliOss Communications Inc. of Waltham, MA, a
pre-IPO wireless point-to-point equipment company; 2000- 2001 as the Chief
Financial Officer for Reach Internet Incubator, Reach Venture Partners LLC of
Boston, MA; 1998-2000 as Chief Financial Officer and Vice President of Finance
and Administration for MarketOne Associates, Inc. of Maynard, MA; 1997-1998 as
Chief Financial Officer and Vice President of Finance and Administration for
Impole, Inc. of Waltham, MA; 1996-1997 as associate with KPMG Peat Marwick in
Moscow, Russia; 1986-1995 as principal with Kosmos Enterprises of Needham, MA;
1987-1989 as financial analyst with Fidelity Investments of Boston, MA. Ms.
Kanellias has a Masters in Business Administration, Magna Cum Laude, from Babson
College, Wellesley, MA and Double Majors in Economics and Applied Mathematics
from University of California, Berkeley, CA with graduate level work and
recommendation from Nobel Prize Laureate Gerald Debrieu.
  ***Anand
Kumar*** .
Mr. Kumar, who serves as Director and Netfran’s Executive Vice President
since February 2, 2005 and joined Ariel Way on August 10, 2004 serving as Ariel
Way’s Director and Executive Vice President, has during his professional career,
spanning almost 35 years, founded and operated a number of companies to include
the founding in 1992 of an international consulting company called
Communications Strategies Group, advising foreign telecommunications
administrations such as among others Iceland Telecom, Andorra Telecom, Cyprus
Telecom, Bangladesh Telecom Board and U.S. domestic carriers including Cable
& Wireless, Comsat RSI, AT&T, Sprint, MCI, Startec Global Communications
and various others. During this period Mr. Kumar also helped build a European
based telecommunications carrier called Esprit Telecom, later acquired by Global
TeleSystems, and an international satellite teleport, Satellite Media Services,
operating in the U.K. In January 1999, Mr. Kumar established Global
TeleSolutions, Inc. for the origination and termination of multiple types of
international telephony and data traffic. Prior to this, Mr. Kumar co-founded
and participated in building the international operating locations for an
international telecommunications carrier called Facilicom International, Inc. in
Washington, D.C. In addition to establishing multiple gateway telecommunications
switch locations and offices in more than 12 foreign locations, Mr. Kumar was
also part of the raising of $300 million in high-yield debt financing. In 1986,
Mr. Kumar co-founded and served as the President until 1992 of Washington
International Teleport, WIT, an international satellite teleport in Alexandria,
Virginia. WIT evolved to operate 30 large satellite antennas for multiple
satellites for a diverse group of customers from MCI to CNN. It was built to
offer both back haul services on optical fiber and microwave connections and
diverse types of satellite based services for full time and ad-hoc users. Mr.
Kumar was previous to these activities also for a number of years in various
managerial capacities within the Bell operating company environment, such as
Bell Canada, Bell Northern Research, and AT&T. Mr. Kumar is trained as an
Electrical Engineer both at the undergraduate and graduate levels in the U.S.
and was a doctorate candidate in communications studying under the guidance of
professors from MIT.
  ***Leif
T. Carlsson*** .
Mr. Carlsson, who since February 2, 2005 serves as an independent Director
of Netfran’s Board and served on Ariel Way’s Board since October 11, 2005, is a
senior European executive who since 2003 has been working with Arrow Capital, a
European Venture Capital firm based in Stockholm, Sweden. Mr. Carlsson has over
the years been a President & CEO of a number of European corporations to
include during 2001 - 2002 with Scanfood AB, currently part of Swedish Meats AB;
during 1992 - 2000 with Scandic Hotels Europe AB, currently part of the global
Hilton Hotel-Group; during 1990 - 1992 with FFV Aerotech AB and FFV Aerotech
Ltd, currently part of the Saab Group and FL Schmidt; during 1988 - 1990 with
the Kinnevik AB Group establishing Comvik Skyport/TELE2; and during 1974 - 1988
with the Nobel Industries AB, now AkzoNobel for several of their corporations.
Comvik Skyport/TELE2 became in 1990 the second only private telecommunications
company in Europe while telecommunications services in Europe were still
dominated by government monopolies. Mr. Carlsson has been the executive for a
number of companies in several different countries to include the U.S., the
U.K., Sweden and in Asia and has also been on several different Board of
Directors to include IAHI, International Association of Holiday Inns, Inc., and
Tele8, an American telecommunications operator active in Europe. Mr. Carlsson
has through his corporate career been active on a global basis and has
experience in the European corporate world. With his base out of Europe and with
his European experience, Mr. Carlsson will assist the Company if the Company
proceeds with the corporate strategy to establish European and other overseas
operations. Mr. Carlsson earned his M.S. degree in 1969 in Civil Engineering
from Chalmers University of Technology, Sweden and has completed several
graduate studies in corporate finance, national economy and legal studies from
the University of Uppsala, Sweden. Mr. Carlsson is a Swedish citizen and lives
in Stockholm, Sweden.
  ***Bob
Bova*** .
Mr. Bova, who since February 2, 2005 serves the President & CEO of
Netfran’s subsidiary Enfotec. Mr. Bova, who joined Enfotec on February 4, 2002,
has over 20 years’ experience in the Information Technology field, works with
the engineering team to provide the open systems vision of Enfotec for the
future of securing corporate data. Mr. Bova has experience working in the
venture capital, entrepreneurial and analyst communities in Southern California.
As a previous Director at U.S. Bank/Oliver Allen Corp., Mr. Bova started the
Secure Networking Division and grew it to over $12 million in revenues within
two years. He developed a worldwide scope of business and services by partnering
with companies such as IBM, Memorex/Telex, HP and others. In 1997, Mr. Bova left
U.S. Bank/Oliver Allen Corp. to start the ISG division, SSL Technology, at
Rainbow Technologies and grew that from $0 to $37 million in revenues in just
under three years. Key development relationships here included Intel, Sun
Microsystems, HP, Dell, F5 and Nortel. As the Executive Vice President of Asita
Technologies, Mr. Bova was responsible for developing the sales, marketing,
administration, support, and finance infrastructures as well as raising $24
million in funding for the organization. In addition to developing and staffing
Asita Technologies’ worldwide headquarters in Irvine, California, he established
the organization in the Pacific Rim, Europe and North America. In the local
community of Southern California, Mr. Bova has received special commendation
awards from Concept 7 Foster Family Agency, The Red Cloud Indian Society as well
as captaining the local Neighborhood Watch organization in partnership with the
Irvine Police Department. Mr. Bova holds an MBA in Marketing from National
University and an Undergraduate degree from Syracuse
University.
  22
  **Section
16(a) Beneficial Ownership Reporting Compliance**
  Based
solely upon a review of the copies of Forms 3 and 4 and 5 thereto furnished to
the Company, or written representations that no annual Form 5 reports were
required, the Company believes that all filing requirements under
  Section
16(a) of the Securities Act of 1934, as amended (the "Exchange Act") applicable
to its directors, officers and any persons holding ten percent (10%) or more of
the Company's Common Stock were made with respect to the Company's fiscal year
ended December 31, 2004, except Strategica Management, LLC failed to file a Form
3 concerning the acquisition of over 10% of our common stock.
  **Audit
Committee Financial Expert**
  The Board
during year 2004 determined that the previous Director Robert Steinberg was an
audit committee financial expert as defined by Item 401(e)(2) of Regulation S-B
of the Securities exchange Act of 1934. Mr. Steinberg was not independent within
the meaning of Item 7(d)(iv) of Schedule 14A under the Exchange Act.
  **Code
of Ethics**
  The
Company has adopted a code of business conduct and ethics for its directors,
officers and management employees. The Company’s Code of Ethics with Business
Ethics and Conduct Policy was disclosed as part of the Company’s
Form 10-KSB filing December 31, 2003.
  **Change
of Control Arrangements**
 
 The
Company's 2003 Stock Incentive Plan provides that in the event of a change in
control as defined in the plan, all outstanding options under the plan will
immediately become exercisable 100% for each participant and the restrictions on
any restricted stock issued under the Plan will cease.
  **Item
10. Executive Compensation**
  **Executive
Compensation**
  ***Summary
Compensation Table*** . The
following table sets forth the annual and long-term compensation for services in
all capacities for the fiscal years ended December 31, 2004, 2003 and 2002,
paid to our most highly compensated executive officers. No officer earned over
$100,000 in such fiscal year. We had no written employment contract with Mr.
Elliot Krasnow who was the Chief Executive Officer from the inception of the
Company until February 2, 2005. Mr. Arne Dunhem became the Chief Executive
Officer, President and Chairman on February 2, 2005. We had no written
employment agreement with Mr. Dunhem.
  **Summary
Compensation Table**
 **Annual
      Compensation**
    
    
    **Long
      Term Compensation****Awards**
    
    **Payouts****Securities****Underlying****Other**
    
    **Restricted**
    
    **Options****Annual**
    
    **Stock**
    
    **LTIP**
    
    **All
      Other****Year**
    
    **Salary**
    
    **Bonus**
    
    **Compensation**
    
    **Award(s)**
    
    **Payouts
      ($)**
    
    **Compensation**Elliot
      Krasnow
    
    
    2004
    
    
    
    
    
    -
    
    
    
    
    
    -
    
    
    -
    
    $
    0(Until
      February 2, 2005) Chief Executive Officer
    
    
    2003
    
    $
    75,000
    
    
    -
    
    
    
    
    
    50,000
    
    
    40,000
    
    $
    02002
    
    $
    75,000
    
    
    -
    
    
    
    
    
    -
    
    
    -
    
    $
    0Arne
      Dunhem
    
    
    2004
    
    $
    0
    
    
    -
    
    
    
    
    
    -
    
    
    -
    
    $
    0(After
      February 2, 2005)Chief Executive Officer,
    
    
    2003
    
    $
    0
    
    
    -
    
    
    
    
    
    -
    
    
    -
    
    $
    0President
      and Chairman
    
    
    2002
    
    $
    0
    
    
    -
    
    
    
    
    
    -
    
    
    -
    
    $
    0Anand
      Kumar
    
    
    2004
    
    $
    0
    
    
    -
    
    
    
    
    
    -
    
    
    -
    
    $
    0(After
      February 2, 2005) Executive Vice President,
    
    
    2003
    
    $
    0
    
    
    -
    
    
    
    
    
    -
    
    
    -
    
    $
    0Director
    
    
    2002
    
    $
    0
    
    
    -
    
    
    
    
    
    -
    
    
    -
    
    $
    0Voula
      Kanellias
    
    
    2004
    
    $
    0
    
    
    -
    
    
    
    
    
    -
    
    
    -
    
    $
    0(After
      February 2, 2005) Chief Financial Officer
    
    
    2003
    
    $
    0
    
    
    -
    
    
    
    
    
    -
    
    
    -
    
    $
    02002
    
    $
    0
    
    
    -
    
    
    
    
    
    -
    
    
    -
    
    $
    0Magdy
      Battikha
    
    
    2004
    
    $
    0
    
    
    -
    
    
    
    
    
    -
    
    
    -
    
    $
    0(After
      February 2, 2005) Senior Vice President, Engineering
      Development
    
    
    2003
    
    $
    0
    
    
    -
    
    
    
    
    
    -
    
    
    -
    
    $
    02002
    
    $
    0
    
    
    -
    
    
    
    
    
    -
    
    
    -
    
    $
    0Aziz
      Bennani
    
    
    2004
    
    $
    0
    
    
    -
    
    
    
    
    
    -
    
    
    -
    
    $
    0(After
      February 2, 2005) Senior Vice President, Global Marketing &
      Sales
    
    
    2003
    
    $
    0
    
    
    -
    
    
    
    
    
    -
    
    
    -
    
    $
    02002
    
    $
    0
    
    
    -
    
    
    
    
    
    -
    
    
    -
    
    $
    0Bob
      Bova
    
    
    2004
    
    $
    0
    
    
    -
    
    
    
    
    
    -
    
    
    -
    
    $
    0(After
      February 2, 2005) President & CEO, Enfotec, Inc.
    
    
    2003
    
    $
    0
    
    
    -
    
    
    
    
    
    -
    
    
    -
    
    $
    02002
    
    $
    0
    
    
    -
    
    
    
    
    
    -
    
    
    -
    
    $
    0
 
 
 (1)
    Mr.
      Dunhem, Mr. Kumar, Ms. Kanellias, Mr. Battikha, Mr. Bennani, each joined
      Ariel Way during the Fiscal Year ended December 31, 2004. No formal
      employment agreements have yet been provided besides a right to be granted
      warrants as described below.(2)
    The
      amounts listed represent the fair market value of the stock on the date of
      grant.(3)
    As
      a result of the Netfran Stock Exchange Agreement dated February 2, 2005,all
      issued and outstanding warrants to purchase shares of Ariel Way Stock were
      exchanged for warrants to purchase shares of our common stock, at a ratio
      of 1.6762 shares of our common stock for each share of Ariel Way Stock,
      and the exercise price of each such warrant was adjusted to equal the
      existing exercise price divided by 1.6762.(4)
    Mr.
      Dunhem, Mr. Kumar, Ms. Kanellias, Mr. Battikha, and Mr. Bennani each
      received during 2004 Ariel Way Warrant Agreements to receive a right to
      warrants of Ariel Way common stock. As a result of the Netfran Stock
      Exchange Agreement dated February 2, 2005, warrants to acquire Ariel Way
      common stock were exchanged to warrants of Netfran common stock. Mr.
      Dunhem, Mr. Kumar, Ms. Kanellias, Mr. Battikha, and Mr. Bennani each after
      an amendment dated March 21, 2005 to their respective year 2004 Ariel Way
      Warrant Agreements and after the warrant exchange received warrants to
      purchase 1,150,000 shares of Netfran common stockat
      an exercise price of $0.010 per share (the “Warrant Shares”) to vest as
      follows: (i) 60,000 Warrant Shares shall vest monthly each month
      after February 2, 2005 during the term of an employment agreement or
      immediately if their employment is terminated without cause or for good
      reason or due to a change in control, sale of a majority of the common
      stock or substantially all of the assets of the Company or merger of the
      Company into or with another company (unless such company is less than
      fifty percent (50%) of the size (measured by market value) of the Company)
      or reverse merger with another company; and (ii) 430,000 Warrant Shares
      will vest immediately upon the Company achieving a $20 million market cap
      for ten (10) consecutive trading days and a price per share of not
      less than $0.50.Mr.
      Dunhem, Mr. Kumar, Ms. Kanellias, Mr. Battikha, and Mr. Bennani each have
      agreed with the Company to receive fewer warrants than actually were the
      result of the exchange.
 
 23
  **Compensation
Of Directors**
  We have
no standard arrangement pursuant to which our Directors are compensated for
services provided as a Director. During 2004, e ach of
our directors was also an employee of the Company and received salary for such
services. No compensation was paid for service as a director.
  **Item
11. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters.**
  ****  **Netfran
Non-Plan Option and Warrant Grants**
  No Non-Plan Options and warrants were granted by the Company during year 2004.
  **Beneficial
Owners**
  As of
April 11, 2005, other than the directors and executive officers (including our
former executive officers) identified in the table under “Directors and
Executive Officers” section below, only two persons owned beneficially more than
five percent (5%) of our common stock as presented below:
  
 **Name
      and Address of Beneficial Owner**
    **Number
      of Shares**
      **Beneficially
      Owned (1)**
    
    **Percentage
      of Shares**
      **Outstanding**Market
      Central, Inc. (2)
      1650A
      Gum Branch Road
      Jacksonville,
      NC 28540
    3,352,400
    
    9.1%Cornell
      Capital Partners, LP (3)
      101
      Hudson Street, Suite 3700
      Jersey
      City, NJ 07302
    3,318,876
    
    9.0%(1)
    Applicable
      percentage of ownership based on 37,986,943 shares of common stock
      outstanding, together with applicable options for each stockholder.
      Beneficial ownership is determined in accordance with the rules of the
      Securities and Exchange Commission and generally includes voting or
      investment power with respect to securities. Shares of common stock
      subject to options that will be exercisable within sixty days of April 11,
      2005 are deemed to be beneficially owned by the person holding such
      options for the purpose of computing the percentage ownership of such
      person, but are not treated as outstanding for the purpose of computing
      the percentage ownership of any other person.(2)
    Doyal
      Bryant, the President and CEO of Market Central, Inc., makes all
      investment decisions on behalf of Market Central, Inc.(3)
    All
      investment decisions of Cornell Capital Partners are made by its general
      partner, Yorkville Advisors, LLC. Mark Angelo, the managing member of
      Yorkville Advisors, LLC, makes the investment decisions on behalf of
      Yorkville Advisors, LLC.
  24
   **Directors
And Executive Officers**
  The
following table shows the amount of our capital common stock beneficially owned
by the directors and executive officers named in the Summary Compensation Table
above and by all directors and executive officers as a group as of April 11,
2005. Unless otherwise indicated, beneficial ownership is direct and the person
indicated has sole voting and investment power. As of April 11, 2005, we had 37,986,943 shares
of common stock outstanding. The
information as to each person or entity has been furnished by such person or
group.
 
 **Name
      and Address of Beneficial Owner**
    **Number
      of Shares**
      **Beneficially
      Owned (1)**
    
    **Percentage
      of Shares**
      **Outstanding**Elliot
      Krasnow (2)
      2801
      NE 208thTerr, 2ndFloor
      Miami,
      FL 33180
    1,270,340
    
    3.3%Arne
      Dunhem (3)
      8000
      Towers Crescent Drive, Suite 1220
      Vienna,
      VA 22182
    12,739,120
    
    33.5%Anand
      Kumar
      3408
      Waples Glen Court
      Oakton,
      VA 22124
    4,693,360
    
    12.4%Voula
      Kanellias
      2
      Hancock Road
      Needham,
      MA 02492
    1,508,580
    
    4.0%Leif
      T. Carlsson
      8000
      Towers Crescent Drive, Suite 1220
      Vienna,
      VA 22182
    310,097
    
    *Bob
      Bova
      5
      Silver Crescent
      Irvine,
      CA 92612
    239,965
    
    *All
      current directors and executive officers as a group
    19,491,122
    
    51.3%*
    Less
      than 1%(1)
    Applicable
      percentage of ownership based on 37,986,943 shares of common stock
      outstanding, together with applicable options for each stockholder.
      Beneficial ownership is determined in accordance with the rules of the
      Securities and Exchange Commission and generally includes voting or
      investment power with respect to securities. Shares of common stock
      subject to options that will be exercisable within sixty days of April 11,
      2005 are deemed to be beneficially owned by the person holding such
      options for the purpose of computing the percentage ownership of such
      person, but are not treated as outstanding for the purpose of computing
      the percentage ownership of any other person.(2)
    Mr.
      Elliot Krasnow was our Chief Executive Officer from the inception of the
      Company through February 2, 2005.(3)
    Represents
      6,369,560 shares held directly by Mr. Dunhem and 6,369,560 shares held
      privately by the Dunhem Family Partnership. Arne Dunhem, the Chairman,
      President and Chief Executive Officer of the Company, and his wife Eva
      jointly and equally make all investment decisions of The Dunhem Family
      Partnership.
  25
  **Item
12. Certain Relationships and Related Transactions.**
  The
Company was founded in March 2000 to engage in the franchise business. At that
time Elliot Krasnow funded its operations by purchasing shares of common stock
from the Company for $75,000. These shares were contributed by Mr. Krasnow to
Netvertise, Inc. in 2001. In November 2002, Netvertise, Inc. distributed to its
shareholders all of the 3,340,088 shares of the Company's common stock it then
owned.
  During
the period from inception through December 31, 2004, the Company's directors and
executive officers, Elliot Krasnow and Robert Steinberg, were also executive
officers of Netvertise, Inc. The Company shared office space, other personnel
and expenses with Netvertise, Inc. pursuant to an agreement under which the
Company and Netvertise, Inc. attempted to make a reasonable good faith
allocation of the shared personnel, facilities and expenses. In fiscal year 2003
and 2004 the Company incurred shared overhead costs in the amount of $33,600.
  Netvertise,
Inc. has paid certain costs on behalf of the Company from time-to-time which the
Company accrued on its balance sheet as a current liability due to affiliate. In
November 2002 Netvertise, Inc. contributed $488,041 of the amount the Company
owed Netvertise, Inc. to the Company's capital thereby converting this liability
into stockholder's equity of the Company. As of December 31, 2004 the amount the
Company owed to Netvertise, Inc. was $96,642. No repayment schedule for such
amount has been established. On March 6, 2002, the Company borrowed $250,000
from Netvertise and issued to Netvertise a promissory note providing for
repayment on March 6, 2004 with interest at 7%. On June 30, 2003, Netvertise had
agreed to extend and amend the note. The new note was in the amount of $333,985,
which was comprised of the principal balance from the previous note, plus
$83,985 of an open trade account with Netvertise that was non-interest bearing.
The new note bears interest at 7 %. Interest is payable annually and principal
is due at maturity on March 6, 2006. With the repayment of $250,000, as of
September 30, 2004 the Company owed Netvertise $96,642 plus additional accrued
interest on the note. Netvertise guaranteed the cash flow needs of the Company
up to $500,000 for the period beginning October 1, 2004, and ending September
30, 2005, by agreeing to make capital contributions up to that amount.
  The
Company's agreement with Netvertise, Inc. also requires Netvertise, Inc. to
provide certain Internet solutions, such as Web site design, hosting, promotion
and publishing, to the Company's franchisees. The Company's franchisees are
required to pay Netvertise, Inc. for such services at prices generally based on
a percentage of the suggested retail price of such services. Netvertise, Inc. is
obligated to provide such services to the Company's franchisees at prices no
greater than suggested retail Netvertise, Inc. charges to its other
customers.
  We
believe that each of the above referenced transactions was made on terms no less
favorable to us than could have been obtained from an unaffiliated third party.
Furthermore, any future transactions or loans between us and our officers,
directors, principal stockholders or affiliates, and any forgiveness of such
loans, will be on terms no less favorable to us than could be obtained from an
unaffiliated third party, and will be approved by a majority of our directors.
  **Item
13. Exhibits and Reports on Form 8-K.**
 
 **Exhibit******
      **No.**
    
    **Description**
    
    **Location**2.1
    
    Share
      Exchange Agreement, by and among Netfran Development Corp., Ariel Way,
      Inc., and the shareholders of Ariel Way common stock, dated as of December
      29, 2004.****
    
    Incorporated
      by reference to Exhibit 2.1 to the Registrant’s
      Current Report on Form 8-K filed on February 8, 2005****2.2
    
    Amendment
      to Share Exchange Agreement, by and among Netfran Development Corp., Ariel
      Way, Inc., and the shareholders of Ariel Way common stock, dated as of
      January 20, 2005.****
    
    Incorporated
      by reference to Exhibit 2.2 to the Registrant’s
      Current Report on Form 8-K filed on February 8, 2005****2.3
    
    Stock
      Purchase Agreement among Ariel Way, Inc. and dbsXmedia, Inc., dated
      February 15, 2005.****
    
    Incorporated
      by reference to Exhibit 99.3 to the Registrant’s
      Current Report on Form 8-K filed on February 28, 2004****2.4
    
    Stockholders
      Agreement by and among dbsXmedia, Inc., Netfran Development Corp., and
      Zygot, LLC, dated February 21, 2005****
    
    Incorporated
      by reference to Exhibit 99.4 to the Registrant’s
      Current Report on Form 8-K filed on February 28, 2004****2.5
    
    Agreement
      and Plan of Merger between Ariel Way, Inc. and Enfotec, Inc., dated
      September 30, 2004
    
    Provided
      herewith
  26
  **Exhibit******
      **No.**
    
    **Description**
    
    **Location**3.1
    
    Articles
      of Incorporation, dated January 24**,**2000,
      of Registrant
    
    Incorporated
      by reference to Exhibit 3.1 to the Company's registration statement on
      Form SB-2 (file no. 333-102894)filed
      onJuly 26, 2001.3.2
    
    By-laws
      of Registrant, dated January 24**,**2000.
    
    Incorporated
      by reference to Exhibit 3.2 to the Company's registration statement on
      Form SB-2 (file no. 333-102894)filed onJuly 26, 2001.****3.3
    
    2003
      Stock Incentive Plan, dated March 23, 2004 *
    
    Incorporated
      by reference to Exhibit 3.2 to the Registrant’s
      Annual Report on Form 10-KSB filed on March 23, 200410.1
    
    Standard
      Franchise Agreement,
      dated July 26, 2001.
    
    Incorporated
      by reference to Exhibit 10.4 to the Company's registration statement on
      Form SB-2 (file no. 333-102894)filed
      on July 26, 2001.10.2
    
    Agreement
      between Registrant and Netvertise, Inc., dated October 20, 2001.
    
    Incorporated
      by reference to Exhibit 10.1 to the Company's registration statement on
      Form SB-2/A-1 (file no. 333-102894)filed
      on December 14, 2001.10.3
    
    Commission
      agreement with Dellray Lefevere, dated February 15, 2002.
    
    Incorporated
      by reference to Exhibit 10.3 to the Company's registration statement on
      Form SB-2/A-2 (file no. 333-102894)filed
      on April 3, 2002.10.4
    
    Revised
      Standard Franchise Agreement [portions omitted pursuant to a request for
      confidentiality],
      dated October 17, 2002.
    
    Incorporated
      by reference to Exhibit 10.4 to the Company's registration statement on
      Form SB-2/A-5 (file no. 333-102894)filed
      on October 17, 200210.5
    
    Agreement
      between Registrant and Netvertise concerning contribution to capital,
      dated January 10, 2002.
    
    Incorporated
      by reference to Exhibit 10.4 to the Company's registration statement on
      Form SB-2/A-3 (file no. 333-102894)filed
      on June 27, 200210.6
    
    Promissory
      Note made by Registrant to Netvertise, Inc.,
      dated March 6, 2002.
    
    Incorporated
      by reference to Exhibit 10.6 to the Company's registration statement on
      Form SB-2/A-3 (file no. 333-102894)filed on June 27, 2002.10.7
    
    Agreement
      dated as of July 22, 2003 between Registrant and Strategica Management
      LLC.
    
    Incorporated
      by reference to Exhibit 10 to the Company's report on Form 8-K filed
      August 14, 2003
  27
  **Exhibit******
      **No.**
    
    **Description**
    
    **Location**10.8
    
    Independent
      Contractor Consulting Agreement between Securities Counseling and
      Management, Inc. and Ariel Way, Inc. dated August 16th,
      2004
    
    Provided
      herewith10.9
    
    Promissory
      Note by Ariel Way, Inc. and Cornell Capital Partners, LP, dated February
      1, 2005
    
    Provided
      herewith10.10
    
    Guaranty
      given by Arne Dunhem in Favor of Cornell Capital Partners, LP, dated
      February 1, 2005
    
    Provided
      herewith10.11
    
    Pledge
      and Escrow Agreement by and among Cornell Capital Partners, LP, dated
      February 1, 2005, Ariel Way, Inc., Arne Dunhem and David Gonzalez, Esq.,
      dated February 1, 2005
    
    Provided
      herewith10.12
    
    Warrant
      Agreement between Ariel Way, Inc. and Arne Dunhem dated August 1, 2004 and
      Amendment No. 1 to Warrant Agreement between Arne Dunhem and Netfran
      Development Corp., dated March 21, 2005.
    
    Provided
      herewith10.13
    
    Warrant
      Agreement between Ariel Way, Inc. and Anand Kumar dated August 10, 2004
      and Amendment No. 1 to Warrant Agreement between Anand Kumar and Netfran
      Development Corp., dated March 21, 2005.
    
    Provided
      herewith10.14
    
    Warrant
      Agreement between Ariel Way, Inc. and Voula Kanellias dated August 10,
      2004 and Amendment No. 1 to Warrant Agreement between Voula Kanellias and
      Netfran Development Corp., dated March 21, 2005.
    
    Provided
      herewith10.15
    
    Warrant
      Agreement between Ariel Way, Inc. and Magdy Battikha dated November 1,
      2004 and Amendment No. 1 to Warrant Agreement between Magdy Battikha and
      Netfran Development Corp., dated March 21, 2005.
    
    Provided
      herewith10.16
    
    Warrant
      Agreement between Ariel Way, Inc. andAziz
      Bennanidated November 1, 2004 and Amendment No. 1 to Warrant Agreement between
      Aziz Bennani and Netfran Development Corp., dated March 21,
      2005.
    
    Provided
      herewith10.17
    
    Consulting
      Services Agreement between Michael Jordan and Ariel Way, Inc., dated
      December 28, 2004
    
    Incorporated
      by reference to Exhibit 99.5 to the Registrant’s Current Report on
      Form 8-K filed on February 28, 200410.18
    
    Legal
      Services Agreement between Joel Bernstein, Esq. and Ariel Way, Inc., dated
      December 28, 2004
    
    Incorporated
      by reference to Exhibit 99.6 to the Registrant’s Current Report on
      Form 8-K filed on February 28, 2004
  28
  **Exhibit******
      **No.**
    
    **Description**
    
    **Location**14.
    
    Code
      of Ethics
    
    Incorporated
      by reference to Exhibit 14. to the Registrant’s Annual Report on Form
      10-KSB filed on March 23, 200420.1
    
    Letter
      from Arne Dunhem, President and Chief Executive Officer of the Company to
      the Stockholders, dated February 7, 2005
    
    Provided
      herewith20.2
    
    Report
      of Independent Registered Public Accounting Firm, McClain & Company,
      L.C., dated March 4, 2004
    
    Provided
      herewith31.1
    
    Certification
      by Arne Dunhem, Chief Executive Officer, pursuant to Rule 13a-14(a).
    
    Provided
      herewith31.2
    
    Certification
      by Voula Kanellias, Chief Financial Officer, pursuant to Rule 13a-14(a).
    
    Provided
      herewith32.1
    
    Certification
      by Arne Dunhem and Voula Kanellias, pursuant to 18 U.S.C. Section 1350, as
      adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
    
    Provided
      herewith
  *
Indicates a management contract or compensatory plan or arrangement.
  29
 ****
 **b)** **** **Reports
on Form 8-K**
  During
the year ended December 31, 2004, we filed with the Securities and Exchange
Commission the following reports on Form 8-K:
  On
January 8, 2004, we filed a Current Report on Form 8-K pursuant to Items 5 and 7
to report that we had
awarded a master franchise for our Netspace ® Internet consulting franchise for
the Metropolitan New York/Connecticut region.
  On August
26, 2004, we filed a Current Report on Form 8-K pursuant to Item 8.01 to report
that we had terminated our advisory agreement with Strategica Management LLC. The 668,018
shares of Netfran common stock issued to Strategica Management LLC in connection
with such agreement were returned to the transfer agent for
cancellation.
  During
the period from January 1, 2005 through April 11, 2005, we filed with the
Securities and Exchange Commission the following reports on Form
8-K:
  On
January 25, 2005, we filed a Current Report on Form 8-K pursuant to Items 1.01
and 3.02 to report that we
had entered into a definitive share exchange agreement with Ariel Way, Inc. and
the shareholders of Ariel Way, Inc., pursuant to which we will, subject to
satisfaction or waiver of certain conditions to closing set forth in the
agreement, acquire all of the outstanding shares of Ariel Way, Inc. which will
then become a wholly owned subsidiary of Netfran.
  On
February 8, 2005, we filed a Current Report on Form 8-K pursuant to Items 2.01,
3.02 and 5.01 to report that we c ompleted
our acquisition of Ariel Way, Inc., on February 2, 2005.
  On
February 28, 2005, we filed a Current Report on Form 8-K pursuant to Item 1.01
to report that we our 60% owned subsidiary, dbsXmedia entered into an Asset
Purchase Agreement by and among Loral Skynet Network Services, Inc., CyberStar
L.P., CyberStar, LLC (the “Sellers”) and dbsXmedia. Pursuant to the terms of the
Asset Purchase Agreement, dbsXmedia will purchase certain assets related to the
business television services conducted by Sellers, as a going concern and that
dbsXmedia will enter into certain support and transition services agreements
related to the future conduct of the business television services. Pursuant to
Item 2.01 we also reported that we had c ompleted
our acquisition o f
dbsXmedia, Inc. Finally, pursuant to Item 8.01 we reported that on December 28,
2004 we agreed to issue 499,341 shares of our common stock to our previous
attorney Joel Bernstein, Esq. for providing legal services in connection with
our acquisition of Ariel Way, Inc. and upon consummation of the transaction on
February 2, 2005 we issued 499,341 shares of our common stock to Joel Bernstein,
Esq. On December 28, 2004 we also agreed to issue 499,342 shares of our common
stock to Mr. Michael Jordan for services in connection with such transaction and
upon the consummation of the transaction on February 2, 2005 we issued 499,342
shares of our common stock to Mr. Michael Jordan.
 
 On March
02, 2005, we filed a Current Report on Form 8-K
pursuant to Item 4.01 to report, that our Board of Directors dismissed its
independent auditors, McClain & Company, L.C. and engaged the services of
Bagell, Josephs & Company, L.L.C., as our new independent
auditors.
 
 On March
17, 2005, we filed a Current Report on Form 8-K
pursuant to Item 4.01 to report, that on March 14, 2005, Lloyd Griffiths and
Todd Rowley resigned from our Board of Directors. Each of Mr. Griffiths and Mr.
Rowley were independent Board members. We did not name replacements for Mr.
Griffiths or Mr. Rowley, although we reported that we are committed to
appointing additional independent members to our Board of
Directors.
  On April
4, 2005, we filed a Current Report on Form 8-K
pursuant to Item 4.01 to report, that on March 21, 2005, Bob Bova resigned from
our Board of Directors. Mr. Bova was an employee Board members. We did not name
replacements for Mr. Bova, although we reported that we are committed to
appointing additional both employee and independent members to our Board of
Directors.
 
 30
 
 We will
furnish a copy of any of these exhibits to a shareholder upon written request to
Netfran Development Corp., 8000 Towers Crescent Drive, Suite 1220, Vienna, VA
22182, Att: President.
  **Item
14. Principal Accountant Fees and Services.**
  During
the fiscal year ended December 31, 2004, the aggregate fees billed by Bagell
Josephs & Company, L.L.C.
  **2004**Audit
      Fees
    $15,000Audit
      Related Fees
    $0Tax
      Fees
    $0All
      Other Fees
    $0
  *Audit
Fees.* Consists
of fees billed for professional services rendered for the audit of our annual
consolidated financial statements and review of the quarterly condensed
consolidated financial statements and services that are normally provided by
Bagell, Josephs & Company, in connection with statutory and regulatory
filings or engagements.
  *Audit-Related
Fees.* Consists
of fees billed for assurance and related services that are reasonably related to
the performance of the audit or review of our consolidated financial statements
and are not reported under “Audit Fees.”
  *Tax
Fees.* Consists
of fees billed for professional services for tax compliance, tax advice and tax
planning.
  *All
Other Fees.* Consists
of fees for products and services other than the services reported above.
  The Board
of Directors has reviewed and discussed with the Company's management and Bagell,
Josephs & Company the
audited financial statements of the Company contained in the Company's Annual
Report on Form 10-KSB for the Company's 2004 fiscal year. The Board has also
discussed with Bagell,
Josephs & Company the
matters required to be discussed pursuant to SAS No. 61 (Codification of
Statements on Auditing Standards, AU Section 380), which includes, among other
items, matters related to the conduct of the audit of the Company's financial
statements.
  The Board
has received and reviewed the written disclosures and the letter from Bagell,
Josephs & Company required
by Independence Standards Board Standard No. 1 (Independence Discussions with
Audit Committees), and has discussed with Bagell,
Josephs & Company its
independence from the Company.
  The Board
has considered whether the provision of services other than audit services is
compatible with maintaining auditor independence.
  Based on
the review and discussions referred to above, the Board approved the inclusion
of the audited financial statements be included in the Company's Annual Report
on Form 10-KSB for its 2004 fiscal year for filing with the SEC.
  31
 ****
 **Audit
Committee's Pre-Approval Policies**
  The
Board's policy is now to pre-approve all audit services and all permitted
non-audit services (including the fees and terms thereof) to be provided by the
Company's independent auditor; provided, however, pre-approval requirements for
non-audit services are not required if all such services (1) do not aggregate to
more than five percent of total revenues paid by the Company to its accountant
in the fiscal year when services are provided; (2) were not recognized as
non-audit services at the time of the engagement; and (3) are promptly brought
to the attention of the Board and approved prior to the completion of the audit.
  The Board
pre-approved all of Bagell,
Josephs & Company 's fees
described above.
 
 32
  **SIGNATURES**
  Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this Report to be signed on its behalf by
the undersigned, thereunto duly authorized.
  **NETFRAN
      DEVELOPMENT CORP.******By:
    /s/ Arne DunhemTitle: President and Chief Executive Officer,Date: April 15, 2005
  Pursuant
to the requirements of the Securities Exchange Act of 1934, this Report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.
  **SIGNATURE**
    
    **TITLE**
    **DATE***/s/
      Arne Dunhem*
    
    President
      and Chief Executive Officer,
    April
      15, 2005Arne
      Dunhem
    
    Chairman
      of the Board and PrincipalExecutive
      Officer*/s/
      Anand Kumar*
    
    Director
      and Executive Vice President
    April
      15, 2005Anand
      Kumar*/s/
      Leif T. Carlsson*
    
    Director
    April
      15, 2005Leif
      T. Carlsson*/s/
      Voula Kanellias*
    
    Chief
      Financial Officer, Principal
    April
      15, 2005Voula
      Kanellias
    
    Financial
      and Principal AccountingOfficer
  33