2
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2004
Commission file number 000-24408
INFINICALL CORPORATION
----------------------
(Exact name of small business issuer as specified in its charter)
DELAWARE 33-0611753
-------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
8447 WILSHIRE BLVD., 5TH FLOOR
BEVERLY HILLS, CALIFORNIA 90211
--------------------------- -----
(Address of Principal Executive Offices) (Zip Code)
(323) 653-6110
--------------
(Issuer's telephone number, including area code)
Check mark whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the last 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes X No ____
------
The number of shares of Common Stock, $0.001 par value, outstanding on
September 30, 2004, was 145,212,289 shares.
Transitional Small Business Disclosure Format (check one):
Yes No X
-----
The Company is required to have its consolidated financial statements reviewed
by its independent accountants prior to filing. As of the date of this report,
we have not submitted our financial statements to our independent accountants
for their review. We will file an amendment to this Form 10-QSB when our
independent accountants complete their review of these financial statements.
ITEM 1. FINANCIAL STATEMENTS
INFINICALL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
ASSETS SEPTEMBER 30, 2004 MARCH 31, 2004
------------------------------------------------------- -------------------- ----------------
(UNAUDITED) (AUDITED)
-------------------- ----------------
CURRENT ASSETS:
Cash and cash equivalents. . . . . . . . . . . . . $ 496 $ 94
Inventory-equipment. . . . . . . . . . . . . . . . 6,000 6,000
-------------------- ----------------
Total current assets. . . . . . . . . . . . . 6,496 6,094
PROPERTY AND EQUIPMENT, NET . . . . . . . . . . . . . . 11,202 12,125
OTHER ASSETS
Technology rights, FoneFriend license. . . . . . . 244,331 262,887
net of amortization
Customer Data Base . . . . . . . . . . . . . . . . 11,781,300 4,561
-------------------- ----------------
$ 12,043,329 $ 285,666
==================== ================
LIABILITIES AND STOCKHOLDERS' DEFICIT
-------------------------------------------------------
CURRENT LIABILITIES:
Accounts payable and Accrued Expenses. . . . . . . $ 307,106 $ 364,204
Consulting contract payable. . . . . . . . . . . . 140,900 105,000
Loans from officer . . . . . . . . . . . . . . . . 15,000
Note payable officer . . . . . . . . . . . . . . . 29,952 21,178
-------------------- ----------------
Notes payable other. . . . . . . . . . . . . . . . 1,777,809
-------------------- ----------------
Total current liabilities . . . . . . . . . . 2,255,767 505,382
Long Term Notes . . . . . . . . . . . . . . . . . . . . - 25,000
-------------------- ----------------
Total Liabilities . . . . . . . . . . . . . . - 530,382
STOCKHOLDERS' DEFICIT
Common stock, $0.001 par value; 200,000,000 shares 145,562
authorized; 119,543,174 shares issued and outstanding . 17,758
Additional paid-in capital . . . . . . . . . . . . 19,095,508 6,428,604
Advance payment for customer data base . . . . . . (1,928,571) -
Shares to be issued. . . . . . . . . . . . . . . . 10,217 -
Prepaid Consulting Expenses. . . . . . . . . . . . (466,320) (776,050)
Accumulated deficit. . . . . . . . . . . . . . . . (7,068,834) (5,915,028)
-------------------- ----------------
Total stockholders' deficit . . . . . . . . . 9,787,562 -244,716
-------------------- ----------------
$ 12,043,329 $ 285,666
==================== ================
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
INFINICALL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
CUMULATIVE
FROM INCEPTION FOR THE
(APRIL 24, SIX MONTH
THREE MONTHS ENDED 2001) TO PERIOD ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
2004 2003 2004 2004
---------------- ----------- ------------- -------------
NET REVENUES . . . . . . . . . . . . . . $ - $ - $ - -
---------------- ----------- ------------- -------------
OPERATING EXPENSES:
General and administrative. . . . . . 133,996 74,344 423,837 94,236
Impairment of investment. . . . . . . - - - -
Impairment of intangible assets . . . - - - -
Consulting expenses . . . . . . . . . 329,980 241,539 707,300 297,104
---------------- ----------- ------------- -------------
OPERATING LOSS . . . . . . . . . . . . . (436,976) (315,883) (1,131,137) (391,340)
---------------- ----------- ------------- -------------
Non-operating income (expense):
Loss on settlement of debt. . . . . . 0 - 16,716 -
Interest expense. . . . . . . . . . . 1,469 - 5,152 -
Litigation settlement . . . . . . . . - - - -
---------------- ----------- ------------- -------------
Total non-operating expense. . . . . . . 1,469 0 -21,868 (391,340)
---------------- ----------- ------------- -------------
LOSS BEFORE INCOME TAX . . . . . . . . . (462,507) (315,883) (1,153,005) (391,340)
Provision for income taxes . . . . . . . 0 0 800 -
---------------- ----------- ------------- -------------
NET LOSS . . . . . . . . . . . . . . . . (462,507) (315,883) (1,153,805) (391,340)
DIVIDEND PAID TO PREFERRED SHAREHOLDERS. 0 0 0 0
---------------- ----------- ------------- -------------
NET LOSS APPLICABLE TO COMMON
SHAREHOLDERS. . . . . . . . . . . . . . (462,507) (315,883) ($1,153,805) (391,340)
================ =========== ============= =============
BASIC AND DILUTED WEIGHTED AVERAGE
NUMBER OF COMMON STOCK OUTSTANDING *. . 139,251,213 8,926,000 80,142,992 8,926,000
================ =========== ============= =============
BASIC AND DILUTED NET LOSS PER SHARE FOR
COMMON STOCK . . . . . . . . . . . . . . ($.03) ($.01) ($.01) ($.01)
================ =========== ============= =============
* Weighted average number of shares used to compute basic and diluted loss per
share is the same since the effect of dilutive securities is anti-dilutive.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
INFINICALL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED
SEPTEMBER 30,
2004 2003
CASH FLOWS FROM OPERATING ACTIVITIES:
Loss from development stage operation. . . . . . . . . . . . . . . . $ (1,153,805) $(391,340)
Adjustments to loss from development stage operations:
Shares issued for consulting services & prepaid expense . . . . -
Shares issued for legal settlement. . . . . . . . . . . . . . . -
Shares issued for legal fees. . . . . . . . . . . . . . . . . . -
Shares issued for interest expense
Loss on settlement of debt
Shares issued for dividends to preferred shareholders . . . . . - -
Write off of inventory. . . . . . . . . . . . . . . . . . . . . - -
Capitalized development costs . . . . . . . . . . . . . . . . . - -
Impairment of capitalized development costs . . . . . . . . . . - -
Impairment of investment. . . . . . . . . . . . . . . . . . . . - -
Depreciation and Amortization Expense . . . . . . . . . . . . . 19,479 1,746
(Increase) in loan discount
(Increase)/Decrease in Prepaid Expenses. . . . . . . . . . . . - 102,750
Purchase of inventory equipment . . . . . . . . . . . . . . . . - (400)
Increase in Deposits. . . . . . . . . . . . . . . . . . . . . . 4,561 -
Increase in accounts payable. . . . . . . . . . . . . . . . . . (57,106) 27,617
Litigation settlement payable . . . . . . . . . . . . . . . . . - 20,000
Increase in consulting contract payable. . . . . . . . . . . . . 140,900 163,500
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - (14,518)
-------------------- ----------
Net cash provided (used) by development stage operations . (1,045,971) (90,822)
-------------------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of furniture and equipment, net of depreciation. . . . - -
Purchase of technology license from FoneFriend System, Inc. . . - -
Addition to investment - Stock of FoneFriend System . . . . . . - -
Payment to universal broadband. . . . . . . . . . . . . . . . . - -
Advances towards the acquisition of customer list . . . . . . . (11,781,300) -
-------------------- ----------
Net cash used in investing activities . . . . . . . . . . . . . (11,781,300) -
-------------------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from loans payable . . . . . . . . . . . . . . . . . . -
Common stock and paid-in-capital . . . . . . . . . . . . . . . . 12,804,931 80,000
Loan from officers and others . . . . . . . . . . . . . . . . . 1,641,583 1,300
-------------------- ----------
Advance payment for customer data base. . . . . . . . . . . . . (1,928,571)
-------------------- ----------
Prepaid consulting expenses . . . . . . . . . . . . . . . . . . 309,730
Net cash provided by financing activities. . . . . . . . . . . 12,827,673 81,300
Net Increase (decrease) in cash & cash equivalents. . . . . . . . . . . . 402 (9,522)
CASH & CASH EQUIVALENTS, BEGINNING BALANCE. . . . . . . . . . . . . . . . 94 20,378
-------------------- ----------
CASH & CASH EQUIVALENTS, ENDING BALANCE . . . . . . . . . . . . . . . . . $ 496 $ 10,856
==================== ==========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
INFINICALL CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
.NOTE 1 - DESCRIPTION OF BUSINESS & BASIS OF PRESENTATION
A. Description of business
InfiniCall Corporation ("InfiniCall" or the "Company") was incorporated in June
of 1992, under the name of Picomatrix. The Company went through a series of
corporate changes and ultimately changed its name to Universal Broadband
Networks as a public company ("UBN"). UBN went into Chapter 11 in October 2000.
The Company reorganized with FoneFriend, Inc., a Nevada corporation on November
20, 2002. FoneFriend changed its name to InfiniCall after InfiniCom Networks
acquired an 82% equity interest in the Company as a consideration for the sale
of 60,000 VoIP (Voice over Internet Protocol) customers to the Company on July
1, 2004.
The Company is a development stage enterprise and had not generated any revenue
during its history until it was acquired by InfiniCom Networks on July 1, 2004.
The primary business of the Company is Internet Telephony. The Company provides
Voice over Internet Protocol (VoIP) communications and related services to
customers worldwide for a low monthly fee of about $15.00.
B. Basis of Presentation
The accompanying unaudited interim financial statements have been prepared in
accordance with the rules and regulations of the Securities and Exchange
Commission for the presentation of interim financial information and footnotes
required by generally accepted accounting principles for complete financial
statements. The audited financial statements for the year ended March 31, 2004
were filed on July 16, 2004 with the Securities and Exchange Commission and are
hereby incorporated by reference. In the opinion of management, all adjustments
considered necessary for a fair presentation have been included. Operating
results for the three-month period ended September 30, 2004 are not necessarily
indicative of the results that may be expected for the year ending March 31,
2005.
Significant Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles 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 revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Fair Value of Financial Instruments
Statement of financial accounting standard No. 107, Disclosures about fair value
of financial instruments, requires that the Company disclose estimated fair
values of financial instruments. The carrying amounts reported in the statements
of financial position for current assets and current liabilities qualifying as
financial instruments are a reasonable estimate of fair value.
Basic and Diluted Net Loss per Share
Net loss per share is calculated in accordance with the Statement of financial
accounting standards No. 128 (SFAS No. 128), "Earnings per share". SFAS No. 128
superseded Accounting Principles Board Opinion No.15 (APB 15). Net loss per
share for all periods presented has been restated to reflect the adoption of
SFAS No. 128. Basic net loss per share is based upon the weighted average number
of common shares outstanding. Diluted net loss per share is based on the
assumption that all dilative convertible shares and stock options were converted
or exercised. Dilution is computed by applying the treasury stock method. Under
this method, options and warrants are assumed to be exercised at the beginning
of the period (or at the time of issuance, if later), and as if funds obtained
thereby were used to purchase common stock at the average market price during
the period.
Issuance of Shares for Customers
The Company issued shares of its common stock to InfiniCom as partial
consideration for 60,000 VoIP customers.
Issuance of Shares for Service
The Company accounts for the issuance of equity instruments to acquire goods and
services based on the fair value of the goods and services or the fair value of
the equity instrument at the time of issuance, whichever is more reliably
measurable.
Reclassifications
Certain comparative amounts have been reclassified to conform to the current
year's presentation.
Recent Pronouncements
On May 15, 2003, the Financial Accounting Standards Board (FASB) issued FASB
Statement No. 150 (FAS 150), Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity. FAS 150 changes the accounting
for certain financial instruments that, under previous guidance, could be
classified as equity or "mezzanine" equity, by now requiring those instruments
to be classified as liabilities (or assets in some circumstances) in the
statement of financial position. Further, FAS 150 requires disclosure regarding
the terms of those instruments and settlement alternatives. FAS 150 affects an
entity's classification of the following freestanding instruments: a)
Mandatorily redeemable instruments b) Financial instruments to repurchase an
entity's own equity instruments c) Financial instruments embodying obligations
that the issuer must or could choose to settle by issuing a variable number of
its shares or other equity instruments based solely on (i) a fixed monetary
amount known at inception or (ii) something other than changes in its own equity
instruments d) FAS 150 does not apply to features embedded in a financial
instrument that is not a derivative in its entirety. The guidance in FAS 150 is
generally effective for all financial instruments entered into or modified after
May 31, 2003, and is otherwise effective at the beginning of the first interim
period beginning after June 15, 2003. For private companies, mandatorily
redeemable financial instruments are subject to the provisions of FAS 150 for
the fiscal period beginning after December 15, 2003. The adoption of SFAS No.
150 does not have a material impact on the Company's financial position or
results of operations or cash flows.
In December 2003, the Financial Accounting Standards Board (FASB) issued a
revised Interpretation No. 46, "Consolidation of Variable Interest Entities"
(FIN 46R). FIN 46R addresses consolidation by business enterprises of variable
interest entities and significantly changes the consolidation application of
consolidation policies to variable interest entities and, thus improves
comparability between enterprises engaged in similar activities when those
activities are conducted through variable interest entities. The Company does
not hold any variable interest entities.
NOTE 2 - DEPRECIATION AND AMORTIZATION
Property and equipment are stated at cost. Property and equipment at September
30, 2004 consists of the following:
Furniture and office equipment $18,745
Accumulated depreciation . . . 7,493
Total. . . . . . . . . . . . . $11,252
-------
Note 3 - INTANGIBLE ASSETS
Net intangible assets at September 30, 2004 were as follows:
License . . . . . . . . . . . $300,000
=========
Less Accumulated amortization (46,391)
---------
$253,609
---------
Amortization expenses for the Company's intangible assets over the next five
twelve-month periods are estimated to be:
2005 . . . $ 37,113
2006 . . . 37,113
2007 . . . 37,113
2008 . . . 37,113
2009 . . . 37,113
Thereafter 68,044
--------
Total. . . $253,609
========
NOTE 4 - NOTE PAYABLE-OFFICER
The note from the officer of the Company is due on demand. The note is unsecured
and bears the annual interest rates of 10% on the unpaid principal balance.
Interest on this note for the period ended June 30, 2004 amounted to $ 3,008.
NOTE 5 - NOTE PAYABLE-OTHERS
Notes payable -others are comprised of the following:
Unsecured note, interest rate 6%, interest payable on last day of
each month, due on demand . . . . . . . . . . . . . . . . . . . . 5,000
Unsecured note, interest rate 8%, interest payable on last day of
each month, due April 1, 2005 . . . . . . . . . . . . . . . . . . 5,000
Unsecured note, interest rate 8%, interest payable on last day of
each month, due April 1, 2005 . . . . . . . . . . . . . . . . . . 5,000
Unsecured note, interest rate 8%, interest payable on last day of
each month, due April 1, 2005 . . . . . . . . . . . . . . . . . . 5,000
Unsecured note, interest rate 8%, interest payable on last day of
each month, due April 1, 2005 . . . . . . . . . . . . . . . . . . 5,000
Unsecured note, interest rate 8%, interest payable on last day of
each month, due April 1, 2005 . . . . . . . . . . . . . . . . . . 5,000
Interest on these notes for the period ended June 30, 2004, and 2003 was $ 3,683
and $0, respectively. The amortization of loan discount for those loans issued
at less than face value for the period ended June 30, 2004, and 2003 amounted to
$20,517 and $0, respectively.
NOTE 6 - COMMON STOCK
During the quarterly period ended September 30, 2004, the Company issued common
stock for various services to following parties:
The Company issued 275,000 shares of common stock for consulting services.
These issuances have been valued at the fair market value on the date of
issuance and amounted to $19,250. Included in above, 275,000 shares were issued
to officers of the Company valued at $19,250.
NOTE 7 - GOING CONCERN
The Company's consolidated financial statements are prepared using the generally
accepted accounting principles applicable to a going concern, which contemplates
the realization of assets and liquidation of liabilities in the normal course of
business. However, the Company has accumulated deficit of $7,068,834 at
September 30, 2004. The Company incurred net losses of $1,153,805 and $391,340
for the periods ended September 30, 2004 and 2003, respectively. In view of the
matters described above, recoverability of a major portion of the recorded asset
amounts shown in the accompanying balance sheets is dependent upon continued
operations of the Company, which in turn is dependent upon the Company's ability
to raise additional capital, obtain financing and to succeed in its future
operations. The financial statements do not include any adjustments relating to
the recoverability and classification of recorded asset amounts or amounts and
classification of liabilities that might be necessary should the Company be
unable to continue as a going concern.
Management has taken the following steps to revise its operating and financial
requirements, which it believes are sufficient to provide the Company with the
ability to continue as a going concern. The Company is actively pursuing
additional funding and potential merger or acquisition candidates and strategic
partners, which would enhance stockholders' investment. Management believes that
the above actions will allow the Company to continue operations through the next
fiscal year.
NOTE 8 - SUBSEQUENT EVENTS
On July 2, 2004, the Company entered into Asset Purchase Agreement with YAP
International, Inc. The Agreement provides for the sale of right, title and
interest in Technology License Agreement with FoneFriend Systems, Inc. (FSI) and
other tangible and intangible property used in connection with or relating to
the sold assets, including, without limitation, the goodwill of the Purchased
Assets as a going concern, inventory of FoneFriend "beta" devices, Internet
servers and related equipment and software and 225,000 shares of FSI. On July
16, 2004, the Company received 5,416,151shares of Yap's common stock, subject to
restrictions under Rule 144 of the Securities Act of 1933, as consideration.
As set forth in the Company's Form 8-K dated October 28, 2004, on Monday,
October 25, 2004, Registrant received a letter ("Yap Letter") from Patrick M.
Passenheim, Esq., counsel to Yap International Corporation ("Yap") which
purported to rescind the Asset Purchase Agreement dated as of July 2, 2004
between Registrant and Yap ("Purchase Agreement") referred to in the preceding
paragraph. The Purchase Agreement transferred to Yap certain tangible and
intangible assets of Registrant relating to the FoneFriend" product and services
("Purchased Assets") in exchange for shares of the common stock of Yap ("Yap
Shares"). The Yap Letter did not specifically rescind any of the collateral
documents which were signed by the parties at the closing of the Yap transaction
nor did Yap return any of the Purchased Assets to Registrant. The Yap shares
delivered to Registrant at the closing were returned to Yap for re-distribution
in the names of certain of Registrant's shareholders. Registrant thereafter
advised Yap to return the Yap Shares to it. Registrant's Board of Directors is
reviewing the Yap Letter with counsel and others and will decide upon an
appropriate response to the Yap Letter within the near future.
FORWARD-LOOKING STATEMENTS
This document contains "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. All statements other than
statements of historical fact are "forward-looking statements" for purposes of
federal and state securities laws, including, but not limited to, any
projections of earnings, revenue or other financial items; any statements of the
plans, strategies and objections of management for future operations; any
statements concerning proposed new services or developments; any statements
regarding future economic conditions or performance; any statements or belief;
and any statements of assumptions underlying any of the foregoing.
Forward-looking statements may include the words "may," "could," "will,"
"estimate," "intend," "continue," "believe," "expect" or "anticipate" or other
similar words. These forward-looking statements present our estimates and
assumptions only as of the date of this report. Except for our ongoing
securities laws, we do not intend, and undertake no obligation, to update any
forward-looking statement.
Although we believe that the expectations reflected in any of our
forward-looking statements are reasonable, actual results could differ
materially from those projected or assumed in any or our forward-looking
statements. Our future financial condition and results of operations, as well
as any forward-looking statements, are subject to change and inherent risks and
uncertainties. The factors impacting these risks and uncertainties include, but
are not limited to:
- our current lack of working capital;
- increased competitive pressures from existing competitors and new
entrants;
- increases in interest rates or our cost of borrowing or a default under
any material debt agreements;
- deterioration in general or regional economic conditions;
- adverse state or federal legislation or regulation that increases the
costs of compliance, or adverse findings by a regulator with respect to
existing operations;
- loss of customers or sales weakness;
- inability to achieve future sales levels or other operating results;
- the unavailability of funds for capital expenditures; and
- operational inefficiencies in distribution or other systems.
For a detailed description of these and other factors that could cause actual
results to differ materially from those expressed in any forward-looking
statement, please see "Factors That May Affect Our Plan of Operation" in this
document and "Risk Factors" in our Annual Report on Form 10-KSB for the year
ended March 31, 2004 and SB-2 filed on March 1, 2004.
ITEM 2. PLAN OF OPERATION
OVERVIEW
Background
----------
We were originally incorporated in 1992 in Delaware under the name Picometrix
Inc, and soon thereafter became a publicly traded company. In 1997, Picometrix,
Inc. merged with another business and changed its name to IJNT.Net, and finally
to Universal Broadband Networks, Inc. ("UBN"). On October 31, 2000, UBN filed
a voluntary petition for reorganization pursuant to Chapter 11, Title 11 of the
United States Code, 11 U.S.C. 101 et seq., in the United States Bankruptcy
Court for the District of Eastern California. Pursuant to an Amended and
Restated Plan of Merger, dated as of June 12, 2002 (and subsequently approved by
the Bankruptcy Court), between FoneFriend, Inc., a Nevada corporation founded in
April, 2001 ("FoneFriend Nevada") and UBN on November 21, 2002, UBN completed
its acquisition of all the assets of FoneFriend Nevada. Subsequent to this
acquisition, FoneFriend Nevada was dissolved and UBN, a Delaware corporation,
changed its name to FoneFriend, Inc. On October , 2004, FoneFriend's name was
changed to Infinicall Corporation.
OVERVIEW
We are a development stage company which currently has no revenues until we
acquired Voice over Internet Protocol customers as described below under the
caption "Infinicall Corporation" below. Our primary business for Fiscal 2004
through June 2004 was to market an Internet telephony device called the
"FoneFriend" and related services to consumers and businesses worldwide. The
Internet telephony device was licensed from FoneFriend Systems, Inc. ("FSI") in
April 2001. On July 2, 2004, subsequent to our year-end, we entered into an
agreement with YAP International, Inc. ("YAP") to transfer certain assets and
technology relating to the FoneFriend technology and related assets, which
assets and technology we determined were unnecessary under our revised Plan of
Operation, in exchange for 5,416,151 shares of the common stock of YAP. As set
forth in the Company's Form 8-K dated October 28, 2004, on Monday, October 25,
2004, Registrant received a letter ("Yap Letter") from Patrick M. Passenheim,
Esq., counsel to Yap International Corporation ("Yap") which purported to
rescind that certain Asset Purchase Agreement dated as of July 2, 2004 between
Registrant and Yap ("Purchase Agreement"). The Purchase Agreement transferred
to Yap certain tangible and intangible assets of Registrant relating to the
FoneFriend" product and services ("Purchased Assets") in exchange for shares of
the common stock of Yap ("Yap Shares"). The Yap Letter did not specifically
rescind any of the collateral documents which were signed by the parties at the
closing of the Yap transaction nor did Yap return any of the Purchased Assets to
Registrant. The Yap shares delivered to Registrant at the closing were returned
to Yap for re-distribution in the names of certain of Registrant's shareholders.
Registrant thereafter advised Yap to return the Yap Shares to it. Registrant's
Board of Directors is reviewing the Yap Letter with counsel and others and will
decide upon an appropriate response to the Yap Letter within the near future.
INFINICOM ACQUISITION
On July 1, 2004, we completed the acquisition of 50,000 Voice over Internet
Protocol ("VoIP") customers from InfiniCom Networks, Inc., a California
corporation, ("InfiniCom") whereby we issued 96,428,571 shares of our common
stock to InfiniCom, in addition to cash of $250,000 and a promissory note for
$500,000. Further, on July 8, 2004, we acquired an additional 10,000 VoIP
customers from InfiniCom in exchange for 19,285,714 shares of common stock and a
promissory note for $150,000. Both promissory notes bear simple interest at the
rate of six (6%) percent per annum and are due upon demand.
Prior to the acquisition of the 60,000 VoIP customers, we had approximately
23,114,603 common shares issued and outstanding. As a result of the acquisition,
our total shares of common stock outstanding increased to 138,828,888 (on July
8, 2004), of which InfiniCom controls 83.35%. InfiniCom is 100% owned and
controlled by Sean McCann. At September 30, 2004, there were 145,212,289 shares
outstanding.
As a result of Mr. McCann's sole ownership of InfiniCom, his share control of
FoneFriend and InfiniCom's agreements, we are solely dependent upon Mr. McCann,
who is not an officer, director or employee of FoneFriend.
OUR NEW PLAN OF OPERATION
As a result of the InfiniCom transaction we have revised our plan of operation
to focus on the VoIP customers acquired from InfiniCom.
We will acquire our customers by direct marketing, virtual marketing and
performance based Internet marketing. We forecast that much of our customer
growth will come from performance based Internet marketing agreements. The
advantage of performance based Internet marketing agreements is that there is no
cost to us without compensating revenues.
An example of one such performance based marketing agreement we have entered
into is the Agreement with InfiniCom. InfiniCom agreed to supply subscribers at
a cost of $150 each. Annual revenue from each subscriber is $180 under this
arrangement, after payment to InfiniCom, under our servicing agreement
guarantees that we will receive a minimum of 10% of the subscriber revenues,
and we estimate that we will receive approximately 15% of the subscriber
revenues, or greater, depending on the number of subscribers. InfiniCom
warrants that it will replace the customer if any particular customer drops
service with us prior to 52 weeks from the date that the customer is delivered.
Our customers utilize a proprietary software program, offered by InfiniCom,
which allows each customer to place long distance and international telephone
calls directly from its desktop or laptop computer. The customer is offered an
unlimited calling plan, at a rate of $15 U.S., per month, to the U.S., Canada,
most of Europe and certain countries in Asia.
We use third-party providers to support customer care. After certain subscriber
counts have been achieved, we may decide to support internal customer care
operations from cash flow.
We are currently considering offering our customers a stand-alone, Internet
appliance device (much like our previous FoneFriend device), which will allow
our customers to use their ordinary telephone handset to make calls using our
service. We plan to offer this product at no cost to our customers (and
potential customers) in exchange for their commitment to a long-term service
agreement. Alternatively, we may offer such product at a charge to those
customers who use our service on a month-to-month basis.
Through InfiniCom as our agent, we bill and collect money for services at the
time the service is offered directly from a subscriber's credit card or check
card. Since our services include the ability for call termination to points
outside the unlimited dialing area, we hold a $50 pending authorization as
security. The pending authorization is separate from the monthly service fees
charged and collected. Any additional charges are settled using the pending
authorization. If there are no additional charges, the pending authorization is
released at the end of the subscribers billing cycle.
We currently have a $3,000,000 facility with Dutchess Private Equities Fund,
L.P. that may be used for a combination of future customer acquisition, network
build-out and corporate development. This facility is satisfactory for our
current plans. See "Need for Additional Financing" below.
REGARDING THE DISPOSITION OF FONEFRIEND TECHNOLOGY RELATED ASSETS:
Management evaluated the potential yield from commercializing the "FoneFriend"
technology, versus the projected costs of $2 to $3 million to build the
FoneFriend infrastructure and implement a marketing campaign to attract
customers. Management concluded that our financial and personnel resources would
be better spent on marketing the new technology and services to the customers
being acquired from InfiniCom. See Note 8 to the Company's Financial Statements
for additional information regarding the sale and subsequent attempted
rescission thereof, of the FoneFriend technology.
RESULTS OF OPERATIONS.
Three month period ending September 30, 2004 and September 30, 2003:
We had revenues in the three months ended September 30, 2004. Further, we
incurred operating expenses of $1,131,137 in three months ended September 30,
2004 compared to $391,340 in the three months ended September 30, 2004. The net
loss was $1,153,805 in the three months ended September 30, 2004 compared to
$391,340 in the three months ended September 30, 2003.
The losses can be expected to continue until we are able to generate revenues in
excess of expenses from our recently acquired subscriber base, which sufficient
revenues are anticipated to commence during the next quarter.
REVENUES
Since inception of our current business, we have not generated any revenues
through June 30, 2004 and $ for the three months ended September 30, 2004.
Subsequent to June 30, 2004, as a result of the July InfiniCom transaction, we
have started to generate revenues. Specifically, we acquired 60,000 customers,
which should generate gross revenues of $15 per customer, per month, or
$900,000, of which we anticipate retaining approximately $130,000 of net
proceeds after payment to InfiniCom under our servicing agreement. As of
September 30, 2004, we have not received revenues from this transaction.
EXPENSES
Expenses for the three months ended September 30, 2004 and 2003 were $1,131,137
and $391,340, respectively, an increase of $739,797. The increase in expenses
was primarily attributable to consulting fees, which were paid for by issuing
shares of our common stock in exchange for services. Additionally, we wrote off
our investment in the stock of FoneFriend Systems, Inc. incurring further
expense of $150,000. This write-off was reversed in October, 2004.
We expect increases in expenses through the fiscal year ending March 30, 2005 as
we move towards implementing our plan of operation. We expect the increase to
be primarily in marketing related expenses, such as advertising and consulting
fees, and additional salary expense as we increase our personnel commensurate
with the growth of our operations.
INCOME/LOSSES
Net loss attributable to common stockholders for the three months ended
September 30, 2004 was $1,153,805 versus a loss of $391,340 for the three months
ended September 30, 2003, an increase of $762,465. The increase was primarily
attributable to increased consulting expenses, which were paid for by issuing
shares of our common stock, and the write down in value of our investment in the
stock of FoneFriend Systems, Inc., which write down was reversed in October
2004.
IMPACT OF INFLATION
We believe that inflation has not had a negative impact on our results of
operations since inception. Until we are able to sell products and generate
revenue we will be unable to pass on inflationary increases in our expenses from
Development Stage Operations through increases in revenue.
LIQUIDITY AND CAPITAL RESOURCES
Cash flows used in operations were $(1,045,971) for the three months ended
September 30, 2004, versus cash flows used in operations of $(90,822) for the
three months ended September 30, 2003.
Net cash flows provided by financing activities were $12,827,673 for the three
months ended September 30, 2004, versus $81,300 during the three months ended
June 30, 2003.
FACTORS THAT MAY AFFECT OUR PLAN OF OPERATION
OUR INDEPENDENT AUDITORS HAVE EXPRESSED DOUBT AS TO OUR ABILITY TO CONTINUE AS A
GOING CONCERN.
Our consolidated financial statements have been prepared assuming we will
continue as a going concern. During the three months ended September 30, 2004,
we experienced a net loss from development stage operations were negative.
During the three months ended September 30, 2004, we experienced a net loss from
development stage operations of and had negative cash flows. In addition, we
had substantial shareholders' equity operating deficits for the three months
ended September 30, 2004 and September 30, 2004, respectively. Lastly, we have
significant present and future working capital demands, which will require
substantial equity and debt financing which, with the exception of the Equity
Line of Credit with Dutchess, have not yet been secured. These factors, among
others, raise substantial doubt about our ability to continue as a going
concern. Our independent auditors have also expressed doubt as to our ability to
continue as a going concern. The consolidated financial statements included
elsewhere herein do not include any adjustments that might result from the
outcome of this uncertainty.
There can be no assurances that we will be able to successfully implement our
plans, including generating profitable operations, generating positive cash
flows from operations and obtaining additional capital to meet present and
future working capital demands.
The technology that allows voice communications over the Internet is in its
infancy, and the quality of Internet telephone calls needs improvement. Callers
could experience delays, errors in transmissions or other interruptions in
service, all of which could negatively impact our future revenues, reputation
and brand.
Our future performance will depend, in part, on our ability to provide
discounted domestic international long distance communications services with the
cost savings of carrying voice traffic over the Internet, as compared to
carrying calls over traditional long distance networks. The price of long
distance calls may decline to a point where we no longer have such a cost
advantage, which will be detrimental to our business prospects.
We intend to rely upon several unaffiliated, third party companies for computer
equipment and software, network services, component parts, manufacturing,
systems integration and operational aspects of our business. Our inability to
maintain relationships with, or the loss of one or more of these unaffiliated
companies, or the failure of their subcontractors or suppliers to meet our
operational requirements may force us to reduce or eliminate expenditures for
developing our infrastructure, research and development, marketing of our
product or otherwise curtail or discontinue operations, all of which may have a
material adverse effect on our business, financial condition and results of
operation.
Our common stock price has been or may continue to be volatile and investors may
find it difficult to sell their shares for a profit.
- The trading price of our common stock has been and is likely to continue
to be highly volatile. For example, during the 52-week period ended November 12,
2004, the closing price of our common stock ranged from $0.04 to $0.43 per
share.
Existing stockholders will experience significant dilution from our sale of
shares to Dutchess.
Because our common stock is deemed a low-priced "Penny" stock, an investment in
our common stock should be considered high risk and subject to marketability
restrictions.
Our agreements with InfiniCom, along with its patents, service marks,
trademarks, trade secrets and other intellectual property rights are crucial to
our success. If InfiniCom defaults on its obligations under its agreements with
us, we may not succeed or be forced to find an alternative Internet voice
transmission technology, which may be cost prohibitive.
The FCC and state regulations may limit the services we can offer and restrict
our intended operation and development of our business.
Internet telephony is at an early stage of development, and it is difficult to
predict the size of this market and its growth rate. We believe that our
intended business will not grow without increased use of the Internet. Demand
and market acceptance for recently introduced products and services over the
Internet are still uncertain. The Internet may not prove to be a viable
commercial marketplace for a number of reasons, any of which could adversely
affect our business.
The Liquidating Trustee under the plan of reorganization and subsequent merger
of FoneFriend, Inc. with Universal Broadband, Inc. may have the right to require
us to redeem their 5% stockholder interest in the Company at its option, at any
time, for $3.0 million. Such redemption may have a material adverse effect on us
and force us to seek protection under the bankruptcy laws. Additionally, the
liquidating trustee may be entitled to receive additional stock pursuant to an
anti-dilution clause contained in the plan of reorganization. The Company
intends to issue the Liquidating Trustee additional shares of common stock in
full payment of such anti-dilution clause.
We are highly dependent upon Sean McCaan and his abilities to operate InfiniCom
As a result of our agreements with InfiniCom, and the ownership by InfiniCom of
approximately 83.35% of our common restricted stock, and the ownership of 100%
of InfiniCom by Sean McCaan, we are highly dependent upon InfiniCom and Mr.
McCaan to properly serve our customers and produce our revenues.
NEED FOR ADDITIONAL FINANCING
On February 25, 2004, the Company entered into an agreement, (the "Investment
Agreement") with Dutchess Private Equities Fund, L.P., a Delaware limited
partnership ("Dutchess") whereby the Company can place a put to Dutchess to
acquire the common stock of the Company at a discount to market, for a sum not
exceeding $3,000,000. Under the terms of the Investment Agreement the Company
filed a Registration Statement with the Securities and Exchange Commission,
which registration has been deemed effective. See the Company's Form 10-KSB for
the fiscal year ended March 31, 2004. On May 18, 2004, the Company borrowed
$118,000 from Dutchess Private Equities Fund, II, L.P. The note was a discount
note which resulted in net proceeds of $100,000. The note was due on August 31,
1004 and has been paid in full. In addition, the Company had to pay $10,000 in
legal fees for the preparation of the documentation for this transaction.
On June 4, 2004, the Company borrowed $305,000 from Dutchess Private Equities
Fund, II, L.P. The note was a discount note which resulted in net proceeds of
$260,000. The Note was due on September 1, 2004, and has been paid in full. In
addition, the Company had to pay $7,500 in legal fees for the preparation of the
documentation for this transaction. The Company issued Dutchess 100,000 shares
of restricted common stock. The Company entered into a 90-day consulting
agreement with Dutchess Advisors, LLC, wherein they issued their principal
200,000 shares of common stock registered on Form S-8.
On June 8, 2004, the Company issued to Compass Capital 1,631,659 shares of its
common stock registered under a SB-2 Registration as conversion of a promissory
note in the principal amount of $100,000, together with interest of $7,500.
On June 14, 2004, The Company exercised a put to Dutchess ("Dutchess") for
129,500 SB-2 shares of common stock from which the Company netted $5,519.
GOING CONCERN OPINION
As shown in our accompanying financial statements, our independent auditors have
stated that our losses from initial startup costs and our lack of substantial
capital raise doubt about our ability to continue as a going concern. The
ability of our Company to continue as a going concern is dependent on obtaining
new capital, developing our operations, implementing our marketing plan,
building our infrastructure, containing our costs and generating revenues from
the sale of our product and services. Management intends to undertake the
following to address these issues: (1) endeavor to obtain equity funding from
new investors to alleviate our capital deficiency, (2) obtain debt funding from
new investors to alleviate our capital deficiency, (3) seek vendor financing
programs for equipment and services, (4) pursue letters of credit for
manufacturing, (5) implement leasing arrangements to finance the cost of placing
our product in the market, and (6) structure equity participation arrangements
with vendors and suppliers in exchange for their services.
We estimate we will need approximately $2,000,000 in additional capital during
the next 12 months to cover overhead and develop our business. Our Dutchess
equity line of credit, combined with possible debt or equity financing, is
intended to address our capital requirements. If we develop revenues from
operations during 2004 and early 2005, as a result of the InfiniCom transaction,
the need for capital at the projected level will decrease.
Overall, we have funded our cash needs from inception through September 30,
2004, with a series of debt and equity transactions, including an Equity Line of
Credit with Dutchess. The failure of the Equity Line of Credit or other equity
financing to satisfy our working capital needs would have a material adverse
effect on our operations and financial condition.
We had cash on hand of $496 and a stockholders' deficit of $(7,068,834) as of
September 30, 2004. We had cash on hand of $94 and stockholders' deficit of
$5,915,028 as of June 30, 2004. Our current working capital deficit is primarily
due to current obligations in accounts payable and accrued consulting expense.
We can not yet, and may never be able to, rely on the existence of revenue from
our business, however, we have no current or projected capital reserves that
will sustain our business for any length of time. In addition, there can be no
assurance additional capital in the future will be available to us when needed
or available on terms favorable to us.
On a long-term basis, liquidity is dependent on continuation of successful
financing activities. The funds raised from this offering will also be used to
market our product as well as expand operations and contribute to working
capital. However, there can be no assurance we will be able to obtain
additional equity or debt financing in the future, if at all. If we are unable
to raise additional capital, our growth potential will be adversely affected and
we will have to significantly modify our plans. For example, if we are unable to
raise sufficient capital to develop our business plan, we may need to:
- Curtail our intended product launch
- Forego or postpone marketing expenditures
- Limit our future marketing efforts to areas we believe
would be the most efficient and profitable.
- Outsource goods and services as much as possible.
Demand for our planned product and current services will be dependent on, among
other things, market acceptance of our product and services, our ability to
build consumer awareness and stimulate consumer purchases, the Internet
telephony market in general, and general economic conditions, all of which are
cyclical in nature. Overall, our success will be dependent upon implementing
our plan of operation in an efficient and timely fashion, managing the risks
associated with our business, contain our expenses and generate revenues and
profits from the sale of our product and related services.
ITEM 3. CONTROLS AND PROCEDURES
We are a development stage company with no revenues and during the period
covered by this quarterly report, our board of directors had responsibility for
our internal controls and procedures over our financial reporting.
We have implemented and maintain disclosure controls and procedures which
consist of: the control environment, risk assessment, control activities,
information and communication and monitoring. Our scope of internal control
therefore extends to policies, plans procedures, processes, systems, activities,
initiatives, and endeavors required of a company with our limited transactions,
expenses, and operations. These controls and procedures are designed to ensure
that the information required to be disclosed in our Exchange Act reports is
recorded, processed, summarized and reported within the time periods specified
in the SEC's rules.
There have been no significant changes (including corrective actions with regard
to significant deficiencies or material weaknesses) in our internal controls or
in other factors that could significantly affect the controls subsequent to the
date of the evaluation referenced below. However, as a result of our agreement
with InfiniCom we anticipate enhancements in our third and fourth quarter in our
internal controls.
Within 90 days prior to the date of this report, we carried out an evaluation,
under the supervision of Robin Glanzl, our President, of the effectiveness of
the design and operation of the Company's disclosure controls and procedures.
Based on the foregoing, Ms. Glanzl concluded that, given the Company's limited
operations, our disclosure controls and procedures were effective.
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
RECENT SALES OF SECURITIES
On July 1, 2004, the Company issued 96,428,571 shares of its restricted common
stock to InfiniCom Networks, Inc. in exchange for 50,000 VoIP customers.
On July 8, 2004 and October 20, 3004, the Company issued 19,285,714 and 12,714
shares of its restricted common stock to InfiniCom Networks, Inc. as partial
compensation for the purchase of an aggregate of 22,714 VoIP customers.
ITEM 3. DEFAULTS BY THE COMPANY UPON ITS SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
SUBSEQUENT TO QUARTER END
----------------------------
None
ITEM 6. EXHIBITS AND REPORTS OF FORM 8-K
(a) Exhibits
--------
31.1* Certification of Robin Glanzl pursuant to Section 302 of the
Sarbanes-Oxley Act
31.2* Certification of James. A Trodden pursuant to Section 302 of the
Sarbanes-Oxley Act
32.1* Certification of Robin Glanzl pursuant to Section 906 of the
Sarbanes-Oxley Act
32.2* Certification of James A. Trodden pursuant to Section 906 of the
Sarbanes-Oxley Act
* Filed herewith
(b) Form 8-K subsequent to Quarter End
---------------------------------------
8-K Report filed on August 31, 2004.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
INFINICALL CORPORATION
By: /s/ Robin Glanzl
Robin Glanzl, President
Date: November 22, 2004