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: December 31, 2004
Commission file number 000-24408
INFINICALL CORPORATION
----------------------
(Exact name of small business issuer as specified in its charter)
DELAWARE 33-0611753
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(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)
(310) 289-2338
--------------
(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 December
31, 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
SEPTEMBER 30, 2004
(UNAUDITED)
ASSETS
---------------------
CURRENT ASSETS:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . $ 309
PROPERTY AND EQUIPMENT, NET . . . . . . . . . . . . . . . . . . 11,202
OTHER ASSETS
Technology rights, FoneFriend license net of amortization . . 244,331
---------------------
$ 255,842
=====================
LIABILITIES AND STOCKHOLDERS' DEFICIT
-----------------------------------------------------------------
CURRENT LIABILITIES:
Accounts payable and accrued expenses . . . . . . . . . . . . $ 268,703
Consulting contract payable . . . . . . . . . . . . . . . . . 120,141
Notes payable . . . . . . . . . . . . . . . . . . . . . . . . 802,200
---------------------
Total current liabilities . . . . . . . . . . . . . . . . . 1,191,044
STOCKHOLDERS' DEFICIT
Common stock, $0.001par value ;200,000,000 shares authorized;
145,212,289 shares issued and outstanding . . . . . . . . . . 145,212
Additional paid-in capital. . . . . . . . . . . . . . . . . . 18,109,527
Prepaid consulting expenses . . . . . . . . . . . . . . . . . (388,024)
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . (18,801,916)
Total stockholders' deficit . . . . . . . . . . . . . . . . (935,202)
---------------------
$ 255,842
=====================
FOR THE THREE MONTH PERIOD
ENDED DECEMBER 31,
2004 2003
REVENUES $ - $ -
OPERATING EXPENSES:
General and administrative 383,590 74,344
Impairment of investment - -
Impairment of long-lived assets 11,314,285 -
Consulting expenses 489,017 241,539
------------------------------
TOTAL OPERATING LOSS (12,186,892) (315,883)
------------------------------
Non-operating expense:
Loss on settlement of debt - -
Interest expense 11,635 -
Total non-operating expense 11,635 -
------------------------------
LOSS BEFORE INCOME TAX (12,175,257) (315,883)
Provision for income taxes - -
------------------------------
NET LOSS (12,175,257) (315,883)
DIVIDEND PAID TO PREFERRED SHAREHOLDERS - -
------------------------------
NET LOSS APPLICABLE TO COMMON SHAREHOLDERS $ (12,175,257) $ (315,883)
==============================
BASIC AND DILUTED WEIGHTED AVERAGE NUMBER OF
COMMON STOCK OUTSTANDING * 138,973,087 9,386,000
==============================
BASIC AND DILUTED NET LOSS PER SHARE FOR
COMMON STOCK $ (0.09) $ (0.03)
==============================
* 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.
INFINICALL CORPORATION.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
2004 2003
---------------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (Loss). . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (12,886,887) $ (391,340)
Adjustments to reconcile loss from development stage operations
to net cash used in operating activities
Shares issued for consulting services & prepaid expense . . . . . 603,283 80,000
Shares issued for legal settlement. . . . . . . . . . . . . . . . - -
Shares issued for legal fees. . . . . . . . . . . . . . . . . . . 18,000 -
Shares issued for interest expense. . . . . . . . . . . . . . . . 7,500 -
Shares issued for expenses. . . . . . . . . . . . . . . . . . . . 195,577 195,577
Loss on settlement of debt. . . . . . . . . . . . . . . . . . . . 16,716 -
Shares issued for dividends to preferred shareholders . . . . . . - -
Write off of inventory. . . . . . . . . . . . . . . . . . . . . . 6,000 -
Capitalized development costs . . . . . . . . . . . . . . . . . . - -
Impairment of capitalized development costs . . . . . . . . . . . - -
Impairment of long lived assets . . . . . . . . . . . . . . . . . 11,314,285 11,314,285
Impairment of investment. . . . . . . . . . . . . . . . . . . . . - -
Depreciation and amortization expense . . . . . . . . . . . . . . 277,358 1,746
(Increase) decrease in current assets:
(Increase)/Decrease in prepaid expenses. . . . . . . . . . . - 102,750
Purchase of inventory equipment. . . . . . . . . . . . . . . - (400)
Decrease/(Increase) in Deposits. . . . . . . . . . . . . . . 4,561 -
Increase (decrease) in current liabilities:
(Decrease) in accounts payable and accrued expenses. . . . . (18,036) 27,617
Litigation settlement payable. . . . . . . . . . . . . . . . - 20,000
Increase in consulting contract payable. . . . . . . . . . . 120,141 163,500
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . - (14,695)
-----------------------------
Total adjustments . . . . . . . . . . . . . . . . . . . . 12,545,385 380,518
-----------------------------
Net cash provided (used) by development stage operations. (341,502) (10,822)
-----------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment. . . . . . . . . . . . . . . . - -
Acquisition of technology license . . . . . . . . . . . . . . . . - -
Acquisition of investment . . . . . . . . . . . . . . . . . . . . - -
Payment to universal broadband. . . . . . . . . . . . . . . . . . - -
Payments towards the acquisition of customer list . . . . . . . . (250,000) -
-----------------------------
Net cash used in investing activities . . . . . . . . . . (250,000) -
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from loans payable . . . . . . . . . . . . . . . . . . . 423,000 -
Loan from officers and others . . . . . . . . . . . . . . . . . . (5,226) 1,300
Issuance of stock for cash. . . . . . . . . . . . . . . . . . . . 168,424 -
Issuance of preferred stock for cash. . . . . . . . . . . . . . . 5,519 -
-----------------------------
Net cash provided by financing activities . . . . . . . . 591,717 1,300
-----------------------------
Net increase (decrease) in cash & cash equivalents . . . . . . 215 (9,522)
CASH & CASH EQUIVALENTS, BEGINNING BALANCE . . . . . . . . . . 94 20,221
-----------------------------
CASH & CASH EQUIVALENTS, ENDING BALANCE. . . . . . . . . . . . $ 309 $ 10,699
=============================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . $ - -
=============================
Income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ - -
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 f/k/a/ FoneFriend, Inc. ("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 in
October, 2004.
The Company is a development stage enterprise and had not generated any revenue
during its history until a majority stock position was acquired by InfiniCom
Networks, Inc. ("InfiniCom") 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 per month.
B. Basis of Presentation
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 December 31, 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
On July 1, 2004, the Company issued 50,000 shares of its common stock to
InfiniCom as partial consideration for 50,000 VoIP customers. In addition, the
Company paid InfiniCom $250,000 and issued a Promissory Note, due upon demand,
for $500,000. Additional customers were purchased by InfiniCall from Infinicom
during the last few months resulting in a present customer base of approximately
120,000 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 $19,611
Accumulated depreciation . . . 8,409
Total. . . . . . . . . . . . . $11,205
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NOTE 3 - INTANGIBLE ASSETS
Net intangible assets at December 31, 2004 were as follows:
License . . . . . . . . . . . $300,000
=========
Less Accumulated amortization (55,669)
$244,331
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 58,766
--------
Total. . . $244,331
========
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 December 31, 2004 amounted to $
3,008.
NOTE 5 - NOTE PAYABLE-OTHERS
Notes payable -others are comprised of the following:
Unsecured Note face value of $168,000 issued at a discounted price of $140,000,
interest free, due December 1, 2004. The note was paid in full in October 2004.
Unsecured note, interest rate 6%, payable on demand to acquire the
customer data base
650,000
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
-------
680,000
=======
Interest on these notes for the period ended December 3, 2004 was $
10,275.
NOTE 6 - COMMON STOCK
During the quarterly period ended December 31, 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 a deficit of $18,801,916 December
31, 2004. The Company incurred net losses of $12,198,527 and $526,100 for the
periods ended December 31, 2004 and 2003, respectively. In view of 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 provided 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 5,416,151 shares of Yap's common stock as
consideration. As set forth in the Company's Form 8-K dated October 28, 2004, on
Monday, October 25, 2004, the Company received a letter from Yap International
Corporation ("Yap") which purported to rescind the Asset Purchase Agreement
dated as of July 2, 2004 between the Company and Yap ("Purchase Agreement")
referred to in the preceding paragraph. The Purchase Agreement transferred to
Yap certain tangible and intangible assets of the Company 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
the Company.The Yap shares which were delivered to Yap's transfer agent
specified the number of Yap shares to be issued to the Company's shareholders
without regards to the Liquidating Trust which should have been addressed. The
Company thereafter advised Yap that it would not consent to a distribution
negating the Liquidating Trust stock position.
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.
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. In October 2004, FoneFriend's name was
changed to Infinicall Corporation.
OVERVIEW
We are a development stage company which currently had no revenues until we
acquired Voice over Internet Protocol customers as described below under the
caption "Infinicon Acquisition" 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, the Company received a letter ("Yap Letter") from Yap International
Corporation ("Yap") which purported to rescind that certain Asset Purchase
Agreement dated as of July 2, 2004 between The Company and Yap ("Purchase
Agreement"). The Purchase Agreement transferred to Yap certain tangible and
intangible assets of the company 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 the Company. .The Yap shares
which were delivered to Yap's transfer agent specified the number of Yap shares
to be issued to the Company's shareholders without regards to the Liquidating
Trust which should have been a addressed. The Company thereafter advised Yap
that it would not consent to a distribution negating the Liquidating Trust stock
position.
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 of which
InfiniCom controls 83.35%. At December 31, 2004, there were 145,212,289 shares
outstanding.
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 anticipated to be
$180 under this arrangement. After payment to InfiniCom, under our servicing
agreement it is anticipated that we will receive approximately 10% of the
subscriber revenues. 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 which will allow our customers to use their ordinary telephone
handset to make calls using our service. We plan to offer this product at
minimal 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 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
RESULTS OF OPERATIONS.
Three month period ending December 31, 2004 and December 31, 2003:
The Compant did not realize any revenues in the three months ended December 31,
2004. Further, we incurred operating expenses of $12,186,893 in three months
ended December 31, 2004 compared to $134,760 in the three months ended December
31, 2004. The net loss was $12,198,527 in the three months ended December 31,
2004 compared to $134,760 in the three months ended December 31, 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 have not realized any revenues for the three months
ended December 31, 2004.
EXPENSES
Expenses for the three months ended December 31, 2004 and 2003 were $12,186,893
and $134,760 respectively.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 December
31, 2004 was $12,198,527 versus a loss of $526,100 for the three months ended
December 31, 2003. 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 $12,886,887 for the three months ended
December 31, 2004 versus cash flows used in operations of $526,100 for the three
months ended December 31, 2003..
FACTORS THAT MAY AFFECT OUR PLAN OF OPERATION
Our consolidated financial statements have been prepared assuming we will
continue as a going concern. During the three months ended December 31, 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 December 31, 2004. 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. 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. 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.
We intend to rely upon several unaffiliated, third party companies for computer
equipment and software, network services, component parts, 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 December 31, 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 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.The Company
intends to issue the Liquidating Trustee additional shares of common stock in
full payment of such anti-dilution clause.
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 September 10, 2004, the Company borrowed $168,000 from Dutchess Private
Equities Fund, II, L.P. The note was a discount note which resulted in net
proceeds of $135,000. The Note was due on December, 2004 but was totally prepaid
in October, 2004.
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.
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.
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 $309 and a stockholders' deficit of $18,801,916 as of
December 31, 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.
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 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, the Company issued 19,285,714 shares of its restricted common
stock to InfiniCom Networks, Inc. as partial compensation for the purchase of an
aggregate of 10,000 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: February 22, 2005