Viper Networks Inc. Amendment No. 2 to Form 10-KSB dated December 31, 2004

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-KSB/A

Amendment No. 2

x Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

For the fiscal year ended December 31, 2004

¨ Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Commission File Number 0032939

Viper Networks, Inc.
(Exact Name of Registrant as specified in its Charter)

Utah		87-0140279
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

10373 Roselle Street, Suite 170 San Diego, California		92121
(Address of Principal Executive Offices)		(Zip Code)

Registrant’s Telephone Number, including area code: (858) 452-8737

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class		Name of Exchange on Which Registered
Common Stock, $.001 par value

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-B is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. ¨

State issuer's revenues for its most recent fiscal year: $4,612,753.

The aggregate market value of the voting stock held by non-affiliates (30,865,678 shares of Common Stock) was $21,021,382 as of December 31, 2004. The stock price for computation purposes was $0.30. This value is not intended to be a representation as to the value or worth of the Registrant's shares of Common Stock. The number of shares of non-affiliates of the Registrant has been calculated by subtracting shares held by persons affiliated with the Registrant from outstanding shares. The number of shares outstanding of the Registrant's Common Stock as of December 31, 2004 was 121,222,899.

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuers classes of common equity, as of the latest practicable date. Number of Common Shares outstanding as of December 31, 2004 was 121,222,899.

Documents Incorporated by Reference:

If the following documents are incorporated by reference, briefly describe them and identify the part of the Form 10-KSB (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) any annual report to security holders; (2) any proxy or information statement; and (3) any prospectus filed pursuant to Rule 424(b) or (c) of the Securities Act of 1933 (“Securities Act”). The listed documents should be clearly described for identification purposes (e.g., annual report to security holders for fiscal year ended December 31, 2004).

Explanatory Note

Viper Networks, Inc. (the “Company”) is filing this amendment to its Annual Report on Form 10-KSB for the year ended December 31, 2004 (the “Amendment”) to expand disclosures and restate the Consolidated Financial Statements in response to comments issued by the Securities and Exchange Commission (the “SEC”). The revised document (items 1 - Description of Business; 2 - Description of Property; 5 – Market for Common Equity and Related Stockholder Matters; 6 - Managements’ Discussion and Analysis of Financial Condition and Results of Operations); 8A – controls and Procedures; and, 9 – Directors, Executives, Officers, Promoters, and Control Persons; and restated financials address comments issued by the SEC as relates to the Company’s Forms 10-KSB Amendment 1 for the year ended December 31, 2004, and 10-QSB Amendment 1 for the quarters ended March 31, 2005 and June 30, 2005. Any reference to facts and circumstances at a “current” date refer to such facts and circumstances as of such original filing date.

INDEX TO ANNUAL REPORT ON FORM 10-KSB/A

		Page No.
PART I

Item 1.	DESCRIPTION OF BUSINESS	3
Item 1A.	FACTORS THAT MAY AFFECT FUTURE RESULTS	17
Item 2.	DESCRIPTION OF PROPERTY	22
Item 3.	LEGAL PROCEEDINGS	22
Item 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	23

PART II

Item 5.	MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS	23
Item 6.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	34
Item 7.	FINANCIAL STATEMENTS	37
Item 8.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	38
Item 8A.	CONTROLS AND PROCEDURES	38

PART III

Item 9.	DIRECTORS, EXECUTIVE OFFICERS AND CONTROL PERSON	40
Item 10.	EXECUTIVE COMPENSATION	42
Item 11.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT	44
Item 12.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS	44
Item 13.	EXHIBITS AND REPORTS ON FORM 8-K	45
Item 14.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	46

SIGNATURES		47

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS		F-1
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS		F-2

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Available Information

Information about our Company is available to the public on our website (www.vipernetworks.com). We file reports with the Securities and Exchange Commission, or SEC, which are available on our website. These reports include annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to such reports, each of which is provided on our website after we electronically file such materials with or furnish them to the SEC. You can also read and copy any materials we file with the SEC at the SEC's Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. You can obtain additional information about the operation of the Public Reference Room by calling the SEC at 1.800.SEC.0330. In addition, the SEC maintains a website (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us.

PART I

THIS FORM 10-KSB CONTAINS "FORWARD-LOOKING STATEMENTS". FORWARD-LOOKING STATEMENTS ARE STATEMENTS CONCERNING PLANS, OBJECTIVES, GOALS, STRATEGIES, EXPECTATIONS, INTENTIONS, PROJECTIONS, DEVELOPMENTS, FUTURE EVENTS, PERFORMANCE OR PRODUCTS, UNDERLYING (EXPRESSED OR IMPLIED) ASUMPTIONS AND OTHER STATEMENTS THAT ARE OTHER THAN HISTORICAL FACTS. IN SOME CASES FORWARD-LOOKING STATEMENTS CAN BE IDENTIFIED BY THE USE OF FORWARD-LOOKING WORDS SUCH AS "BELIEVES," "EXPECTS," "MAY," "WILL," "SHOULD," OR "ANTICIPATES," OR THE NEGATIVE OF THESE WORDS OR OTHER VARIATIONS OF THESE WORDS OR COMPARABLE WORDS, OR BY DISCUSSIONS OF PLANS OR STRATEGY THAT INVOLVE RISKS AND UNCERTAINTIES. MANAGEMENT WISHES TO CAUTION THE READER THAT THESE FORWARD-LOOKING STATEMENTS, INCLUDING, BUT NOT LIMITED TO, STATEMENTS REGARDING THE COMPANY’S MARKETING PLANS, GOALS, COMPETITIVE AND TECHNOLOGY TRENDS AND OTHER MATTERS THAT ARE NOT HISTORICAL FACTS ARE ONLY PREDICTIONS. NO ASSURANCES CAN BE GIVEN THAT SUCH PREDICTIONS WILL PROVE CORRECT OR THAT THE ANTICIPATED FUTURE RESULTS WILL BE ACHIEVED. ACTUAL EVENTS OR RESULTS MAY DIFFER MATERIALLY EITHER BECAUSE ONE OR MORE PREDICTIONS PROVE TO BE ERRONEOUS OR AS A RESULT OF OTHER RISKS FACING THE COMPANY. FORWARD-LOOKING STATEMENTS SHOULD BE READ IN LIGHT OF THE CAUTIONARY STATEMENTS AND IMPORTANT FACTORS DESCRIBED IN THIS FORM 10-KSB, INCLUDING, BUT NOT LIMITED TO "THE FACTORS THAT MAY AFFECT FUTURE RESULTS" SHOWN AS ITEM 1A AND IN MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. THE RISKS INCLUDE, BUT ARE NOT LIMITED TO, THE RISKS ASSOCIATED WITH AN EARLY-STAGE COMPANY THAT HAS ONLY A LIMITED HISTORY OF OPERATIONS, THE COMPARATIVELY LIMITED FINANCIAL RESOURCES OF THE COMPANY, THE INTENSE COMPETITION THE COMPANY FACES FROM OTHER ESTABLISHED COMPETITORS, TECHNOLOGICAL CHANGES THAT MAY LIMIT THE ABILITY OF THE COMPANY TO MARKET AND SELL ITS PRODUCTS AND SERVICES OR ADVERSELY IMPACT THE PRICING OF THESE PRODUCTS AND SERVICES, AND MANAGEMENT THAT HAS ONLY LIMITED EXPERIENCE IN DEVELOPING SYSTEMS AND MANAGEMENT PRACTICES. ANY ONE OR MORE OF THESE OR OTHER RISKS COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE FUTURE RESULTS INDICATED, EXPRESSED, OR IMPLIED IN SUCH FORWARD-LOOKING STATEMENTS. WE UNDERTAKE NO OBLIGATION TO UPDATE OR REVISE ANY FORWARD-LOOKING STATEMENT TO REFLECT EVENTS, CIRCUMSTANCES, OR NEW INFORMATION AFTER THE DATE OF THIS FORM 10-KSB OR TO REFLECT THE OCCURRENCE OF UNANTICIPATED OR OTHER SUBSEQUENT EVENTS.

ITEM 1. DESCRIPTION OF BUSINESS

BACKGROUND

The Company was incorporated under the laws of Utah on February 28, 1983 under the name Tinglefoot Mining, Inc. for the purpose of developing certain mining operations. The Company was unsuccessful in its attempts to acquire the Tinglefoot Mine, was unable to establish an alternative business operation and remained dormant until 1994, when a new management team took office and changed the purpose of the Company’s business to pursue investment opportunities in Mexico in 1995.

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On December 20, 1995, the Company changed its name to Mexico Investment Corporation and effected a reverse split of its common stock on a 1 for 40 basis. On February 26, 1996, the Company changed its name to Baja Pacific International, Inc.

On April 30, 1998, the Company’s shareholders approved the following: (1) the execution of an exclusive agreement with Tri-National Development Corp., a Wyoming corporation headquartered in San Diego, California ("Tri-National") to service all of their telecommunication needs at Tri-National’s Hills of Bajamar resort; (2) the acquisition of a 5% stake in Future Tel Communications, a Vancouver, British Columbia telecommunications company in exchange for 200,000 common shares; and (3) a change in the Company’s name to Taig Ventures, Inc. and the Company’s Articles of Incorporation were amended on October 7, 1998. These actions were taken in furtherance of the Company’s intentions to work with Tri-National to provide a massive upgrade of its existing telecommunication facilities and the Company believed that a new management team would be better suited to execute this new business model as well as pursue other telecommunications projects.

In November 2000, the Company entered into a Securities Purchase Agreement and Plan of Reorganization (the "California Reorganization") with Viper Networks, Inc., a California corporation ("Viper-CA"). Viper-CA was formed on September 14, 2000. Under the terms of the California Reorganization, the Company exchanged 36,000,000 shares of its Common Stock for all of the then-outstanding common shares of Viper-CA and Viper-CA became a wholly-owned subsidiary of the Company. Viper-CA’s business was that of an application service provider. The Company then changed its name to Viper Networks, Inc. and the Company effected a complete change of the Company and its Board of Directors and officers to position the Company to execute a new business strategy as described below.

With these changes, the Company re-focused its attention on providing internet telephony services, the development of an infrastructure for providing services to its Web-based customers (the "Graphic User Interface") and, eventually, the construction of Voice-over-Internet Protocol ("VoIP") network for business, institutions, and Internet Service Providers ("ISPs"). The Company’s management team and Board of Directors determined that the goals for use of the Mexico property purchased from Tri-National and construction of telecommunications facilities to service the Hills of Bajamar resort were not within the Company’s capabilities. Since consideration for the agreement (documented title to the Mexico property) has never been received the Company does not believe it is the owner of the Land and accordingly considers the agreement to be null and void.

In July 2003, the Company acquired Coliance Communications (“Coliance”) in exchange for the Company’s issuance of an aggregate of 17,000,000 shares of the Company’s Common Stock and 450,000 shares of the Company’s Preferred Stock (aggregate purchase price $750,005). All of the Preferred Stock was later converted into notes payable. Coliance was a reseller of USB-enabled VoIP hardware; through this acquisition the Company hoped to acquire knowledge of available VoIP products and suppliers (the vPhone and Internet Phone Adapter were gained through the acquisition), and also management talent relating to the procurement and sale of such products. As a result of this acquisition, Stephen D. Young and Ronald G. Weaver from Coliance became Directors of the Company as Chairman and President and as Chief Executive Officer, respectively.

On October 15, 2003, the Company entered into a Securities Merger Agreement (the “Mid-Atlantic Agreement”) with Farid Shouekani in connection with the purchase of all the common stock (the “Mid-Atlantic Shares”) of Mid-Atlantic International, Inc., a Michigan corporation (“Mid-Atlantic”) from Farid Shouekani. Under the terms of the Mid-Atlantic Agreement, the Company acquired all of Mr. Shouekani’s Mid-Atlantic Shares in exchange for: (1) $50,000 cash within 21 days of Closing; and (2) an aggregate of 7,235,000 shares of the Company’s Common Stock with 4,235,000 of these shares (the “Special Shares”) subject to certain redemption rights (the “Redemption Rights”), at the option of Mr. Shouekani at a redemption price of $0.17 per Special Share as provided by the Mid-Atlantic Agreement (aggregate purchase price $779,700). All of the Redemption Rights expire on January 15, 2003 and are secured by Mid-Atlantic’s assets. As of December 31, 2004, Mr. Shouekani exercised his Redemption Rights over 1,802,000 Special Shares. The remaining 2,433,000 Special Shares were canceled and returned to treasury. Mid-Atlantic owned and operated a global VoIP network, with strong routing capabilities in the Middle East and Africa. In addition, Mid-Atlantic owned the billing servers and associated hardware, plus switching hardware and software, required of a consumer VoIP system provider. Through this acquisition, the Company hoped to quickly establish the network infrastructure needed for it’s consumer VoIP network, acquire the technical talent needed to manage and improve this capability, and obtain and existing revenue stream. As a result of this acquisition, Mr. Shouekani became Chief Technical Officer and a Director of the Company.

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On January 30, 2004, the Company entered into a Securities Merger Agreement (the “Adoria Agreement”) with James R. Balestraci, the sole holder of the membership interests of Adoria Communications, LLC, a Delaware limited liability company (“Adoria”). Under the terms of the Adoria Agreement, the Company acquired all of Mr. Balestraci’s membership interests in Adoria in exchange for: (1) cash payments totaling $500,000 and (2) the Company’s issuance of 2,500,000 shares of the Company’s Common Stock with 500,000 of these shares (the “Performance Shares”) of the Company’s Common Stock subject to the condition that Adoria’s financial results in 2004 must equal or exceed its financial results in 2003 (aggregate purchase price $3,574,500). In the event that Adoria’s financial results in 2004 do not equal or exceed its 2003 results, the Performance Shares are to be cancelled and returned as treasury stock. Adoria’s 2004 financial results exceeded its 2003 results and the Performance Shares were earned. Adoria was a reseller of internet traffic routes and capacity, especially in Europe and Asia. Through this acquisition the Company hoped to acquire the capability for dynamic network routing through the utilization of internet routes routinely exercised by Adoria, and management expertise regarding least cost routing alternatives of international internet-based telephony traffic. As a result of this acquisition, Mr. Balestraci joined the Company as Chief of International Wholesale Operations and a Director.

During May 2004, the Company acquired an aggregate 50% of the membership interests of Brasil Communications, LLC (“Brasil LLC”) in two concurrent transactions with Software Innovations, Inc. (“SII”) and Brasil LLC. As consideration for the purchase, the Company issued 2,000,000 shares of the Company’s common Stock to SII and $350,000 payable in cash to Brasil LLC (aggregate purchase price for 50% ownership interest $1,320,000). Brasil LLC owns and operates a VoIP network with licenses and operations in Brazil and El Salvador. Through this acquisition the Company hoped to gain a foothold for its VoIP business in Brazil and El Salvador (each considered a fertile market). Management also hopes to expand the Company’s global VoIP network and hardware sales into Latin America through this investment.

(As used herein and unless otherwise stated, the term "Company," "we," and "our," refers to the Company, and the subsidiaries Mid-Atlantic, Adoria, and Viper-CA.)

Business of the Company

We are a provider of Voice over Internet Protocol, or VoIP, communications products and services. Since we began VoIP operations in 2000, we have evolved from a pioneer in selling VIPER CONNECT, a “push to talk” technology developed by ITXC, to a next generation provider of high-quality telecommunication services and technology for internet protocol, or IP telephony applications. We utilize our VoIP technology to transmit digital voice communications over data networks and the internet. The Company is located on the internet at www.vipernetworks.com.

We branded and shipped our first VoIP product, the vPhone, in July of 2003, and acquired our first global VoIP network with gateways and a billing server in Detroit, Michigan in October of 2003, through our acquisition of Mid-Atlantic International, Inc. We believe that while VoIP will eventually surplant the existing (“POTS”) telephone system, the more immediate market need exists where telephone costs are high and call quality is low (i.e., developing countries). Our strategy has been to establish a network targeting these markets and to concentrate on customer segments characterized by a disproportionate call volume to such markets (e.g., foreign nationals). However, since customers expect the ability to call anywhere our network also serves all USA destinations and those of most other industrialized countries.

Our gateways are located as follows: four in Brazil, one in El Salvador, one in Egypt, one in Ghana, one in India, one in Israel, one in Lebanon, one in Saudi Arabia, one in Sri Lanka, one in Syria, one in the United Kingdom, six in Western Europe, two in Eastern Europe. No individual gateway is deemed to represent a material investment of the Company’s resources. Developing countries are generally less economically and politically stable than are industrialized countries; business interactions with some (such as Syria or Iran) may be unilaterally restricted by the U.S. government in furtherance of the war on terror or the interests to curb human rights violations. The Company has developed alternate route strategies should existing network facilities become compromised (and will abandon routes that are in conflict with U.S. national interests.

In fiscal 2004 substantially all of the Company's revenues were generated from the sale and provisioning of VoIP products, services and technology with approximately 96% of our sales revenues derived from the sale of services and 4% from the sale of products as described in the section entitled, “Products and Services” below. We

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do not own or hold any proprietary or intellectual property rights to the technology used in its vPhone products. The Company holds no applicable patents, trademarks, or licenses, and derives none of its income from franchises, royalty agreements, or the similar.

Our corporate structure is primarily organized around four wholly-owned operating subsidiaries:

	Viper International LLC, (“Viper International”) formed in August 2004, represents the combination of the capabilities obtained through the acquisitions of Mid-Atlantic (9/03) and Adoria (2/04). Viper International’s network is powered by the Company’s Nextone softswitch and is compatible with most VoIP networks (including Sansay, Cisco, and Nextone). Viper International sells wholesale minutes on our VoIP network to other telecommunications providers through our internal sales force.

	Viper-CA, which we acquired in November 2000, along with Coliance (7/03) offers an alternative to traditional telephone companies through its suite of VoIP products. Our VoIP products allow voice telephone calls to be placed at a substantial savings compared to traditional calling methods to any phone number in the world over our global VoIP network (no special hardware or software, other than a standard telephone, is needed at the destination end of a call). As of December 31, 2004, we had approximately 12,000 active accounts using our suite of VoIP products.

Industry Background

Voice over Internet Protocol (VoIP) technology converts voice (telephone calls) into data packets, transmits the packets over data networks, and reconverts them back into voice at its final destination. Data networks, such as the internet have always utilized data packet technology to transmit information between two communicating devices (such as sending an email between two computers). The most common protocol used for communicating on these packet switched networks is internet protocol, or IP. VoIP allows for the transmission of voice along with other data over these same packet switched networks, and provides an alternative to traditional telephone networks.

VoIP is an alternative technology that can replace services provided by the traditional telephone network. Unlike traditional telephone networks, VoIP does not use dedicated circuits for each telephone call; instead, the same VoIP network can be shared by multiple users for voice, data and video simultaneously. This type of data network is more efficient than a dedicated circuit network because the data network is not restricted by the one-call, one-line limitation of a traditional telephone network. This improved efficiency creates cost savings that can be passed on to the consumer in the form of lower rates or retained by the VoIP provider.

As a result of the potential cost savings and added features of VoIP many view VoIP as the future of telecommunications. VoIP has experienced significant growth in recent years. The traditional telephone networks maintained by many local and long distance telephone companies were designed solely to carry low-fidelity audio signals with a high level of reliability. Although these traditional telephone networks are very reliable for voice communications, these networks are not well suited to service the explosive growth of digital communication applications.

Until recently, traditional telephone companies have avoided the use of packet switched networks for transmitting voice calls due to the potential for poor sound quality attributable to latency issues (delays) and lost packets which can prevent real-time transmission. Recent improvements in packet switch technology, compression and broadband access technologies, as well as improved hardware and provisioning techniques, have significantly improved the quality and usability of packet-switched voice calls.

The exponential growth of the internet in recent years has proven the scalability (or ease of expansion) of these underlying packet switched networks. As broadband connectivity, including cable modem and digital subscriber line, or DSL, has become more available and less expensive, it is now possible for service providers like us to offer voice and video services that run over these IP networks to businesses and consumers. Providing such services has the potential to both substantially lower the cost of telephone service and equipment costs to these customers and to increase the breadth of features available to the end-user. We anticipate that if present technology

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and cost factor trends continue, these cost savings will continue and become more apparent to telecommunications users worldwide.

Our Strategy

Our strategy is to become a profitable, leading provider of VoIP telephony products and services worldwide.

Viper entered the VoIP industry earlier than most current competitors. Thus, even though some companies have experienced much more explosive growth and have a larger installed base of domestic customers, Viper has a good base of knowledge of the business it competes in. The Company has used its time in business to: 1) develop a comprehensive call management and billing system that is fully scalable as the customer base grows; 2) acquire knowledge and contacts in the wholesale VoIP transport industry that complements and expands our own network and provides call termination capability to essentially any location on the planet; 3) acquire technical and marketing talent to support the Company’s’ business needs.

From the beginning the Company targeted international VoIP calls. This in part dictated the characteristics of the network, hardware and software we adopted. Although broadband internet connections have become commonplace in the U.S., they still represent only 45 million subscribers in the U.S. and 179 million worldwide – or 17 % of all internet subscribers (http://www.morganstanley.com/institutional/techresearch/pdfs/GSB112005.pdf). With ‘dial-up’ connections so prevalent in the Company’s target market (international calls), this mandated the Company design and implement its network such that it provides VoIP over low-speed internet connections. Most competitors – including Vonage and the offerings of AOL, Yahoo, MSN, and the internet cable companies – do not have the capability to offer VoIP over a dialup internet connection.

We believe our strategy will lead to a profitable business, even as price competition among VoIP providers intensifies. We plan to develop and offer a ‘flat rate’ service for unlimited domestic calls. The Company will selectively target customers with a disproportionate amount of international calling, such as certain ethnic groups who frequently ‘call home’. Since international calls are billed on a per-minute-of-usage basis on top of any ‘flat-rate’ charges (and, since there is less price competition than in the domestic market, per-minute prices on international calls are generally more profitable), we can afford to treat our flat-rate plans as loss leaders toward customers who will prove profitable through their international calling habits. Competitors who are not effectively positioned in a broad international capability will need to depend on their flat-rate plans as their primary profit generator, since they cannot support the dominant percentage of dial-up customers in other countries. Being less ‘selling-price’ sensitive than our competitors, we therefore believe we will be effective with our flat-rate plans.

Our current network consists of gateways in major population centers from which we currently serve 40 markets on a consistent basis. Our goal, if we are able to expand our VoIP network and successfully implement our Strategy (discussed below), is to serve 108 major population markets worldwide. We also seek to expand our relationships with other providers who can “partner” with us and, if our financial resources allow, to acquire other companies that possess complimentary resources that fit within our overall strategy.

If we are successful in obtaining sufficient additional financial and managerial resources, we intend to implement our Strategy to bring the best possible voice products and services, at an affordable price, to consumers and businesses and enhance the ways in which these customers communicate. The following are key elements of our strategy:

Capitalize on the Growth of VoIP Products and Services.

We believe that if we can implement our Strategy, we will be well positioned to take advantage of the expected growth of the VoIP products and services markets. Technology research firm Jupiter Research predicts that VoIP telephony services will grow to about 400,000 U.S. households by the end of 2004, and to 12.1 million U.S. households by 2009 (http://www.clickz.com/stats/sectors/broadband/article.php/3418651).

Capitalize on our technological expertise to introduce new products and features.

Over the past three years, we have developed or acquired several core technologies that form the backbone of our VoIP service and which we intend to use to develop product enhancements and future products.

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Offer the best possible service and support to our customers with a world class customer support organization.

We have established relationships with several resellers and distributors of telecommunications products. To further accelerate growth of our vPhone and future consumer and enterprise offerings, we intend to build upon our existing relationships and establish new relationships with distributors, value added resellers and system integrators, other service providers and retailers with strong local sales and marketing channels to make our products more readily available and accessible to potential customers of our service.

Focus Viper Networks on Opportunities in Emerging Markets and New Service Offerings.

Viper Networks’ Mid-Atlantic International, Inc. and Adoria Communications LLC targets international markets undergoing telecommunications deregulation, which we believe will provide high margin opportunities. As our financial resources allow, we seek to continue to enhance and expand our global VoIP network into new markets by internal growth, acquisition and strategic alliances. Our plan is to develop, expand and integrate new services into our existing managed platform.

Our ability to implement our Strategy, as described above, is subject to our ability to raise sufficient additional capital, attract and retain additional managerial talents, and meet the many competitive and technological challenges that face us as a small company. Further, while we believe that our technical expertise in integrating VoIP functions and technologies provides us with certain advantages over traditional telecommunications companies, the barriers to entry into the VoIP industry are not high and many of the risks that we face are beyond our control. (See “Factors That May Affect Future Results,” in Item 1a below.)

If we can implement our Strategy, we seek to make significant upgrades to our existing system infrastructure to enhance the support we can provide to new and existing subscribers, as well as our distribution partners. In an emerging industry with world-changing technologies, we are focused on our customers and their experience with Viper Networks, Inc.

Our Solution

The Company is a provider of high quality cost effective Voice over the Internet solutions for consumers (including businesses). In addition, the Company provides a wholesale VoIP transmission resale capability to other carriers who lack needed capacity to certain destinations, or for whom our network is more cost effective. Our secure, reliable method of communication is growing in demand in the global markets where communication distances are typically great and where costs to communicate are high. The Company’s low rates, high reliability, and good quality connection are the three factors fueling the growth and success.

We believe our products and services help improve the cost, availability, and reliability, of voice communications. Our “vPhone” (and our other consumer VoIP products) provides our customers with rich, robust communications. Our planned global VoIP network consists of gateways in major population centers. The network automatically locates remote servers at the closest point to the end user of each telephone call and routes the call over internet connection to that point – thereby eliminating the high cost of long distance connectivity. With our VoIP network we can terminate (or send) our customers' calls to the proper destination using the most efficient route available.

Consumer Products and Services

The Company offers a full suite of consumer VoIP products and services designed to meet our customers’ diverse global voice communications needs (all products are sourced from third parties, who hold any and all applicable intellectual property rights; none of the Company’s current products is deemed to be available from a single source). The Company has designed its network such that products from different manufacturers will function correctly provided the manufacturer adheres to applicable industry standards. In this way, the Company hopes to avoid sole source dependencies.

Our suite of consumer VoIP Products allows calls to be placed to any phone number in the world over our global VoIP network (no special hardware or software, other than a standard telephone, is needed at the destination end of a call).

vPhone

The vPhone is a USB powered telephone device connected to a personal computer. The vPhone:

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	•	Greatly reduces the cost of telephone calls by routing them over the internet.
	•	Connects and installs in minutes with our proprietary, downloadable vPhone Dialer Software and the included USB cable.
	•	Provides superior voice quality wherever a stable internet connection is present.
	•	Works with Dial-Up or Broadband internet connections.
	•	Allows our customers to pay only for the minutes used without monthly fees, contracts or hidden charges.
	•	Allows customers to purchase additional minutes conveniently online.

IP Phone Adaptor (IPA)

The IP Phone Adaptor is a USB powered device that allows a user to connect any standard telephone to a personal computer. The IP Phone Adaptor:

	•	Greatly reduces the cost of telephone calls by routing them over the internet.
	•	Connects and installs in minutes with our proprietary, downloadable vPhone Dialer Software and the included USB cable.
	•	Connects a standard telephone – or all telephones in a customer’s house or business – to our global VoIP network through their existing internet connection.
	•	Is compatible with both traditional wired telephones and with cordless telephones – allowing the user to make calls from anywhere inside a home or office.
	•	Works with Dial-Up or Broadband internet connections.
	•	Allows our customers to pay only for the minutes used without monthly fees, contracts or hidden charges.
	•	Allows customers to purchase additional minutes conveniently online.

Broadband Phone Adaptor (BPA)

The Broadband Phone Adaptor is a network device that allows a user to connect up to 2 standard telephones (or 1 phone and 1 fax machine) to the internet. The Broadband Phone Adaptor:

	•	Greatly reduces the cost of telephone calls by routing them over the internet.
	•	Connects a standard telephone – or all telephones in a customer’s house or business – to our global VoIP network through their existing internet connection.
	•	Provides 2-line direct connectivity - making it an ideal device for small office/home office (“SOHO”) applications.
	•	Connects and installs in minutes to an existing internet connection (requires a broadband internet connection).
	•	Is compatible with both traditional wired telephones and with cordless telephones – allowing the user to make calls from anywhere inside a home or office.
	•	Eliminates the need for a computer to make or manage calls (does not require our vPhone Dialer Software). Only an internet connection is required.
	•	Allows our customers to pay only for the minutes used without monthly fees, contracts or hidden charges.
	•	Allows customers to purchase additional minutes conveniently online.

Wi-Fi vPhone

The Viper Networks Wi-Fi vPhone is an intelligent IP communications device. The Wi-Fi vPhone:

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	•	Greatly reduces the cost of telephone calls by routing them over the internet.
	•	Operates almost like a cell phone; provides VoIP call capability throughout the world where ever a standard 802.11b wireless network exists.
	•	Can be used in most any 802.11 Wi-Fi “Hot Spot” location in the world (user ID and Password may be required for privately operated networks).
	•	Easily configured and installed in minutes (similar to authentication of a laptop computer for use within your wireless network).
	•	Completely self-contained; does not require a personal computer or our vPhone Dialer Software.
	•	Allows our customers to pay only for the minutes used without monthly fees, contracts or hidden charges.
	•	Allows customers to purchase additional minutes conveniently online.

IP PBX

The Viper Networks IP PBX provides:

	•	Greatly reduces the cost of telephone calls by routing them over the internet.
	•	Provides multi-functional telephone features and calling services to Business users, blending access to the local telephone network, the public internet, and internal communications.
	•	Provides simultaneous voice, text, data and graphics support over standard telephone lines and/or IP connections.
	•	Compatible with existing analog or digital telephones (with optional FXS gateway), or with VoIP-enabled telephones.
	•	Intra-company connectivity either through local network or through existing telephone wiring.
	•	Provides automated attendant, dial by name and spell/say, call history and call detail reports, intercom, full call monitoring, conference calling, voice mail (including voice mail to email), caller ID, call forwarding, music on hold, and most other PBX functions.
	•	Fully scalable from 1 to 1,000 (or more) extensions (depending on hardware selected).
	•	Compatible with a variety of incoming local voice connections (T1, T3, FXO, etc.).
	•	Easily managed and reconfigured through intuitive menu driven interface.
	•	Provided with a pre-programmed server running the PBX functionality.

Calling time

Once a retail customer registers a Viper product and establishes a prepaid account (the “Viper Minutes Account”) they obtain access to the Company’s global VoIP network. Retail calls on our global VoIP network are prepaid by conveniently depositing funds online. The Viper Minutes Account maintains the retail customer’s detailed call records (telephone number, duration, and cost) and remaining prepaid balance.

Wholesale Operations

Viper International LLC, formed in August 2004, represents the combination of the capabilities obtained through the acquisitions of Mid-Atlantic (9/03) and Adoria (2/04). Viper International is responsible for world-wide termination of all calls made by customers using any of the Company’s consumer products. Viper’s worldwide network permits the Company to offer high quality routes and the cost effective pricing in the highly competitive telecommunications industry.

Additionally, Viper International has cooperative agreements with many underlying carriers who provide termination routes to destinations not served by Viper’s own network. By combining the power of its own network with the breadth of affiliates’ networks, Viper is able to offer customers calling capability to anywhere in the world at prices unmatched by any traditional telephone carrier (and, lower than most competitive VoIP providers).

Vipers’ network is powered by the Company’s Nextone softswitch. This state of the art VOIP switching facility allows hundreds of thousands of calls to be directed to specific partnerships and carriers throughout the world. This Nextone switch is compatible with all VOIP networks, including Sansay, Cisco, and Nextone.

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In addition to the termination of consumer calls, Viper International also sells traffic capacity on our VoIP network to a wide variety of wholesale clients. While providing our wholesale customers with a cost-effective alternative for their global traffic needs, this offering also helps us more fully utilize the capacity of our network (and creates another profitable revenue stream). Viper’s wholesale activities have targeted Latin America and the Middle East, including Argentina, Brazil, Uruguay, Egypt, Jordan, Saudi Arabia, Nepal & Mongolia.

Our in-depth, moment-to-moment knowledge of market pricing for destinations around the globe enables us to competitively price usage of our network while maximizing proceeds to the Company.

Sales, Marketing and Promotional Activities

We currently sell and market our VoIP products to retail customers (end users) through our direct sales force, web site and third party distributors. The retail customer is required to 1) register their Viper Product, 2) establish a Viper Minutes Account, and 3) deposit funds into their Minutes Account in advance of utilizing Viper’s global VoIP network. Most agreements require the customer to pre-pay for all products and services. To date, we have not incurred significant advertising and promotional expenses as we have not had the working capital to fund significant mass media advertising expenditures.

Viper’s VoIP products and services are offered to these third parties distributors (“Distributors”) through a standard distributor agreement. These agreements typically provide 20% to 40% in discounted pricing (from approximate retail pricing levels) for product purchases and a residual 20% to 30% commission on funds deposited by retail customers (of the VoIP products sold by the Distributor) into their Minutes Account. Agreements typically are for a one year term and include an option to renew the term for an additional one year period.

We offer businesses the opportunity to become resellers of our products and services through a reseller program. Resellers are able to purchase bulk accounts (the Viper Minutes Account) and/or hardware at additional discounts that they are then able to resell to end users under the Viper Networks brand. In certain circumstances, resellers are able to resell end users under a private brand.

Wholesale minutes on our global VoIP network are sold to other traditional and VoIP telecommunications providers through our internal sales force.

Competition

We face several competitors who each possess significantly greater financial and managerial resources. These competitors include iConnectHere, Net2Phone, Vonage and Packet8 as well as incumbent telephone carriers, cable television providers, and other providers of traditional telephone service.

The market for telecommunications services is intensely competitive. In addition to the competitors listed above, many companies offer products and services like ours and many have a well established presence in major metropolitan centers. We may not be able to compete successfully with these companies and others that may enter the market. In an emerging industry with world-changing technologies brand name recognition is critical to success; we may not be able to compete effectively with competitors who each possess significantly greater financial, distribution, and marketing resources than we do. If we do not succeed in this competitive marketplace, we will lose customers and our revenue will be substantially reduced and our business, financial condition, and results of operations may be materially and adversely affected.

The market for enhanced internet and IP communications services is new and rapidly evolving. We believe that the primary competitive factors determining success in the internet and IP communications market are quality of service, the ability to meet and anticipate customer needs through multiple service offerings, responsive customer care services and price. Future competition could come from a variety of companies both in the internet and telecommunications industries. These industries include major companies who have greater resources and large subscriber bases than we have. We also compete in the growing market of discount telecommunications services including calling cards, prepaid cards, call-back services, dial-around or 10-10 calling and collect calling services. In addition, some internet service providers have begun to aggressively enhance their real-time interactive communications, focusing initially on instant messaging, although we expect them to begin to provide PC-to-phone services.

We anticipate that as markets develop and technology and commercial acceptance of our products and services evolve, other new and likely larger competitors may offer products and services similar to those we offer. In this event we may be facing significant and continuing challenges in implementing our strategy. This may force us to change or alter our strategy or otherwise undertake new and unforeseen actions.

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However, we face substantial competition from a number of larger companies with substantially greater resources and longer operating histories and we may not be able to compete effectively. We also face competition from private and start-up companies given the limited barriers to entry in our business.

While we may experience indirect competition from companies such as Vocaltec, Cisco Systems, Inc. and Net2Phone, which manufacture or market products similar to ours and may offer services similar to us, currently these companies typically only provide their services to companies like ours to sell and market them. As a result, these companies are also potential competitors.

Traditional telecommunications companies, such as AT&T, Sprint, MCI WorldCom and Qwest Communications International, may offer enhanced internet and IP communications services in both the United States and internationally. All of these competitors are significantly larger than we are and have substantially greater financial, technical and marketing resources, larger networks, a broader portfolio of services, stronger name recognition and customer loyalty, well-established relationships with target customers, and an existing user base to which they can cross-sell their services. These and other competitors may be able to bundle services and products that are not offered by us together with enhanced internet and IP communications services, which could place us at a significant competitive disadvantage. Many of these types of competitors enjoy economies of scale that can result in lower costs structure for transmission and related costs, which could cause significant pricing pressures within the industry.

Operations

Key elements of our system include: provisioning, customer access, network security, call routing, call monitoring, call reliability and detailed call records. Our platform monitors our process of digitizing and compressing voice into packets and transmitting these packets over data networks around the world and if additional bandwidth is required, we will expand bandwidth to meet demand.

We maintain a system which is a software-based product that manages call admission, call control and routes calls to an appropriate endpoint. Unless the recipient is using an internet telephony device, the packets are sent to a gateway belonging to Viper Networks or to one of our partner telecommunications carriers where the packets are reassembled and the call is transferred to the PSTN (Public Switched Telephone Network) and directed to a regular telephone anywhere in the world. Our billing and back office systems manage and enroll customers and bill calls as they originate and terminate on the service. If sufficient additional financial resources are available, we may acquire additional gateways in Beijing, Hong Kong, Osaka, Philippines, Seoul, Singapore, and Thailand as market conditions and suitable opportunities arise.

Suppliers

We outsource the manufacturing of our vPhone and other VoIP products to third-party manufacturers. The Company’s primary suppliers are: BCM Advanced Research; Tiger Jet Network, Inc.; and, Shandong Bittel Electronics Co., Ltd. While we believe that relations with our contract manufacture and third party suppliers (collectively “Suppliers”) are good, there can be no assurance that our Suppliers will be able or willing to supply products and services to us in the future or if they are supplied, that they will offer these products and services at prices that allow us to resell them at a profit. While we believe that we could replace our Suppliers if necessary, our ability to provide product and service to our customers would be materially and adversely impacted for a protracted period, and this could have an adverse effect on our business, financial condition and results of operations.

Research and Development

The VoIP market is characterized by rapid technological changes and advances. Accordingly, if sufficient financial resources become available, we plan to make substantial investments in the design and development of new products and services and enhancements and features to existing products and services as well as investments in our global VoIP network. Our future research and development efforts will relate to our vPhone, SOHO

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applications, the 802-11 wireless standard, and our IP PBX products and the acquisition and development of new endpoints for subscribers of our service. The development of new products and the expansion of our global VoIP network are essential to our success.

To date, we have not incurred significant research and development expenses as we have not had the working capital to fund significant development expenditures. Our ability to offer new products or enhanced features has been dependent on our Suppliers, who are free to offer similar or identical products to other of their customers – our competitors. Accordingly, the Company does not possess a competitive advantage with its suite of VoIP products and services.

Industry Overview

Historically, the communications services industry has transmitted voice and data over separate networks using different technologies. Traditional carriers have typically built telephone networks based on circuit switching technology, which establishes and maintains a dedicated path for each telephone call until the call is terminated (sent). With a circuit-switched system a telephone call is placed, a circuit is established, and the circuit remains dedicated for transmission of the call and is unavailable to transmit any other call. This restricted use of transmission capacity has become inefficient in light of the increased demand for voice services and the proliferation of data networks, with their enhanced functionality and efficiency.

Data networks have typically been built utilizing packet switching technology, such as IP, which divides signal into packets that are simultaneously routed over different channels to a final destination where they are reassembled in the original order in which they were transmitted. Packet switching provides for more efficient use of the capacity in the network because the network does not establish dedicated circuits and does not require a fixed amount of bandwidth to be reserved for each transmission. As a result, substantially greater traffic can be transmitted over a packet-switched network, such as the internet, than a circuit-switched network.

Early packet-switched networks suffered from poor sound quality attributable to delays and lost packets. However, recent improvements in packet switching, compression broadband access technologies, hardware and the use of privately-managed networks have allowed for quality, real-time transmission. As a result, packet switching technology now allows service providers to converge their traditional voice and data networks and to carry voice, fax and data traffic over the same network. These improved efficiencies of packet-switching technology create network cost savings that can be passed on to the consumer in the form of lower long distance rates. In addition, international telephone calls carried over the internet or private IP networks are less expensive than similar calls carried over circuit-switched networks primarily because they bypass the international settlement process, which represents a significant portion of international long distance tariffs.

Over the last decade, the volume of traffic on data networks has grown at a faster rate than traditional telephone networks. This growth has been driven by several factors, including technological innovation, high penetration of personal computers and, in particular, by the rapid expansion of the internet as a global medium for communications, information and commerce. International Data Corporation, a market research firm, estimated in 1999 that the number of internet users worldwide would grow from approximately 142 to 399 million between 1998 and 2002 (http://docs.yahoo.com/docs/advertising/research/TheWeb/GrowthOfWeb/GrowthOfWeb.html). Internet usage has continued to accelerate; in March, 2000 the Angus Reid Group predicted internet usage would reach 1 billion by 2005 (http://www.clickz.com/stats/sectors/geographics/article.php/326181). The Computer Industry Almanac confirmed this level of usage in 2004 (http://www.c-i-a.com/pr0904.htm). Morgan Stanley estimated in 2005 that communications over the internet – not browsing, chat and search – accounted for 44% of all U.S. online usage (http://www.morganstanley.com/institutional/techresearch/pdfs/GSB112005.pdf). This increase in data traffic has necessitated additional data network capacity and quality. As a result, businesses have invested billions of dollars in order to meet this need.

We believe that the combination of increasing demand for voice services and the proliferation of data networks, with their enhanced functionality and efficiency, is driving the convergence of voice traffic and data networks, including the internet. We expect this transfer of traffic to accelerate as corporation and network infrastructure providers attach increasing value to data networks and as the functionality of computers and computing devices, such as personal digital assistants, are enhanced by voice capability.

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Voice on Data Networks

Voice on the Internet or voice-over-Internet Protocol (VoIP) consists of both traditional and enhanced voice and fax services between ordinary phones and the addition of interactive voice capability to computers, web sites and e-mail. Voice on the Internet serves both the extensive market of existing phone users and the expanding market of computer users. We believe data networks provide lower cost than the traditional telephone network and are better suited to deliver future enhanced services to both phone users and computer users. Moreover, the internet is the most cost-effective data network for transmitting any type of data worldwide, including voice.

Telephony based on internet protocols emerged in 1995, with the invention of a personal computer program that allowed the transport of voice communications over the internet via a microphone connected to a personal computer. Initial sound quality was poor and the service required that both parties to the conversation use personal computers instead of telephone. In 1996, the advent of the gateway for the first time offered anyone with access to a telephone the ability to complete calls on the internet. A gateway is a device that transfers calls from the traditional telephone network to a network such as the internet, and vice versa.

Despite advances in VoIP technology, Voice over the Internet has only recently improved to the point of allowing quality, real-time voice communications. We believe that, overall, the VoIP marketplace is still in its infancy. Most enterprise customers and consumers still rely on traditional, circuit-switched telephone services. In our opinion, the full advantages of VoIP will not be realized for another two to five years, giving companies like Viper Networks an opportunity to make an early entrance into the market.

The Economics of Internet Telephony

Long distance telephone calls transported over the internet are less expensive than similar calls carried over the traditional telephone network primarily because the cost of using the internet is not determined by the distance those calls need to travel. Also, routing calls over the internet is more cost-effective than routing calls over the traditional telephone network because the technology that enables internet telephony is more efficient than traditional telephone network technology. The great efficiency of the internet creates cost savings that can be passed on to the consumer in the form of lower long distance rates or retained by the carrier as higher margins.

Beyond cost benefits, innovation in the provision of enhanced services is expected to yield increased functionality as well. We believe such enhanced functionality will expand the addressable market for internet services to include anyone with a telephone, and that this market is potentially larger than the market for any other existing internet service which requires a computer for access. Moreover, computer users will benefit from interactive voice being an option in web browsing and other computer-based communications.

Limitations of Existing Internet Telephony Solutions

The growth of voice on the internet has been limited in the past due to poor sound quality caused by technical issues such as delays in packet transmission and bandwidth limitations related to internet network capacity and local access constraints. However, the continuing addition of data network infrastructure, recent improvements in packet-switching and compression technology, new software algorithms and improved hardware have substantially reduced delays in packet transmissions and the effect of these delays.

Several large long distance carriers, including AT&T and Sprint, have announced internet telephony service offerings. Smaller internet telephone service providers have also begun to offer low-cost internet telephony services from personal computers to telephones and from telephones to telephones. Traditional carriers have substantial investments in traditional telephone network technology, and therefore have been slow to embrace internet technology. We believe that these service offerings by large long distance carriers and smaller providers are generally available in limited geographic areas and can only complete calls to a limited number of locations.

In recent years, commercial web sites have grown in popularity. Efforts to enhance these web sites with voice enabled e-commerce features such as click-and-call contact with a customer service agent have been hampered by the early quality problems with voice on the internet described above. In addition, we believe that the infrastructure required for a global network is too expensive for most companies to deploy on their own.

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Increasing Trends Toward Outsourcing Telephony Solutions

We believe that the global reach and functionality of the internet makes it especially suited for enhanced voice services. These services, which may include web-to-phone, phone-to-PC and unified messaging, could be a significant source of additional revenues to internet portals, internet service providers and web sites that are seeking to expand their service offerings. Such voice services require considerable expertise and capital to deploy and may involve execution risk for any internet portal, internet service provider or web site lacking this expertise. We expect that internet portals, internet service providers and web sites will increasingly outsource their communications services to companies, like us, that provide the network and expertise necessary to facilitate those services rather than incurring the risk and delay of developing and deploying an array of communications services themselves and undertaking the task of building a global network.

Government Regulation

The use of the internet and private IP networks to provide telephone service is a recent market development. While we believe that the provision of voice communications services over the internet and private IP networks is currently permitted under United States law, some foreign countries have laws or regulations that may prohibit voice communications over the internet.

United States. We believe that, under U.S. law, the internet-related services that the Company provides constitute information services as opposed to regulated telecommunications services, and, as such, are not currently actively regulated by the FCC or any state agencies charged with regulating telecommunications carriers. Nevertheless, aspects of our operations may be subject to state or federal regulation, including regulation-governing universal service funding, disclosure of confidential communications and excise tax issues. We cannot provide assurances that internet-related services will not be actively regulated in the future. Several efforts have been made in the U.S. to enact federal legislation that would either regulate or exempt from regulation services provided over the internet. Increased regulation of the internet may slow its growth, particularly if other countries also impose regulations. Such regulation may negatively impact the cost of doing business over the internet and materially adversely affect our business, operating results, financial condition and future prospects.

The FCC has considered whether to impose surcharges or other common carrier regulations upon certain providers of internet telephony, primarily those which, unlike the Company, provide internet telephony services directly to end users. While the FCC has presently refrained from such regulation, the regulatory classification of internet telephony remains unresolved.

Specifically, the FCC has expressed an intention to further examine the question of whether certain forms of phone-to-phone internet telephony are information services or telecommunications services. The two are treated differently in several respects, with certain information services being regulated to a lesser degree.

The FCC has noted that certain forms of phone-to-phone internet telephone bear many of the same characteristics as more traditional voice telecommunications services and lack the characteristics that would render them information services.

If the FCC were to determine that certain internet-related services including internet telephony services are subject to FCC regulations as telecommunications services, the FCC could subject providers of such services to traditional common carrier regulation, including requirements to make universal service contributions, and pay access charges to local telephone companies. It is also possible that the FCC may adopt a regulatory framework other than traditional common carrier regulation that would apply to internet telephony providers. Any such determinations could materially adversely affect our business, financial condition, operating results and future prospects to the extent that any such determinations negatively affect the cost of doing business over the internet or otherwise slow the growth of the internet. Congressional dissatisfaction with FCC conclusion could result in requirements that the FCC impose greater or lesser regulation, which in turn could materially adversely affect our business, financial condition, operating results and future prospects.

State regulatory authorities may also retain jurisdiction to regulate certain aspects of the provision of intrastate internet telephony services. Several state regulatory authorities have initiated proceedings to examine the regulation of such services. Others could initiate proceedings to do so.

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International. The regulatory treatment of internet telephony outside of the U.S. varies widely from country to country and is subject to constant change. Until recently, most countries either did not have regulations addressing internet telephony or other VoIP services, classifying these services as unregulated enhanced services. As the internet telephony market has grown and matured, increasing numbers of regulators have begun to reconsider whether to regulate VoIP services. Some countries currently impose little or no regulation on these services, as in the United States. Conversely, other countries that prohibit or limit competition for traditional voice telephony services generally do not permit internet telephony or VoIP services or strictly limit the terms under which it may be provided. Still other countries regulate internet telephony and VoIP services like traditional voice telephony services, requiring internet telephony companies to make universal service contributions and pay other taxes. Countries may also determine on a case-by-case basis whether to regulate internet telephony and VoIP services as voice services, as enhanced services or as another service. The varying and constantly changing regulation of internet telephony and VoIP in the countries in which we currently provide or may provide services may materially adversely affect our business financial condition and results of operations.

The European Commission regulatory regime, for example, distinguishes between voice telephony services and other telecommunications services. The European Commission stated that only phone-to-phone communications reasonably could be considered voice telephony and that, at present, even phone-to-phone internet telephony does not meet all elements of its voice telephone definition. Therefore, the European Commission concluded that, at the present time, voice over internet services cannot be classified as voice telephony. More recently, in September 2000, after requesting comments from interested parties the European Commission issued a subsequent communication in which it reaffirmed that internet telephony is not currently voice telephony.

As a result of the European Commission’s conclusion, providers of internet telephony should be subjected to no more than a general authorization or declaration requirement by European Union member countries. However, Viper cannot provide assurances that more stringent regulatory requirements will not be imposed by individual member countries of the European Union, since Commission communications, unlike directives, are not binding on the member states. The member countries therefore are not obligated to reach the same conclusions as the Commission on this subject so long as they adhere to the definition of voice telephony in the Services Directive. Moreover, in its January 1998 IP Telephony Communication, the European Commission state that providers of internet telephony whose services satisfy all elements of the voice telephony definition and whose users can dial out to any telephone number can be considered providers of voice telephony and may be regulated as such by the member states of the European Union.

We will also be providing services in countries where the regulation of internet telephony is more restrictive than in the United States or the European Union. Also, in the event we expand into additional foreign countries, such countries may assert that we are required to qualify to do business in the particular foreign country, that we are otherwise subject to regulation, or that we are prohibited from conducting our business in that country. Our failure to qualify as a foreign corporation in a jurisdiction in which we are required to do so, or to comply with foreign laws and regulations, would materially adversely affect our business, financial condition and results of operations by subjecting us to taxes and penalties and/or by precluding us from, or limiting us in, enforcing contracts in such jurisdictions. In some of those countries, we may be forced to find strategic partners within those countries to help us obtain regulatory approval. Likewise, our customers and partners may be or become subject to requirements to qualify to do business in a particular foreign country, otherwise to comply with regulations, or to cease from conducting business in that country. We cannot be certain that our customers and partners are currently in compliance with regulatory or other legal requirements in their respective countries, that they will be able to comply with existing or future requirements, and/or that they will continue in compliance with any requirements. Changes in the regulatory regimes of countries where we do business, may have the effect of limiting or prohibiting internet telephony services, to one or more countries in which we currently operate or seek to operate in the future or the failure of our customers and partners to comply with these requirements could materially adversely affect our business, financial conditions and results of operations.

Additionally, equipment located in a foreign country with a developing or emerging economy may be materially adversely affected by possible political or economic instability. The risks include, but are not limited to rapid political and legal change, terrorism, military repression, or expropriation of assets. The effect of these factors cannot be accurately predicted but their occurrence could materially adversely affect our business, financial conditions and results of operations.

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Finally, the International Telecommunications Union, or the ITU, an international treaty organization that deals with telecommunications matters, has not taken any action in favor or against internet telephony. In 2000, however, the ITU convened meetings and published reports on the internet and internet telephony issues, partly in response to concerns from some developing countries over internet telephony and tariffing of international internet backbone traffic. The ITU continues to track the regulatory environment in many countries regarding the internet, and may in the future encourage some countries to increase or reduce their regulation of internet telephony (http://www.itu.int/publications/publications.aspx?lang=en&parent=D-REG-TTR&folder=D-REG-TTR-2003). In particular, an ITU study group is examining how international internet backbone providers compensate each other for traffic. These efforts, which may take several years to be completed and which are currently opposed by the United States and some European countries, may eventually result in changes in national or international regulations dealing with financial compensation for international internet traffic which could affect certain of our costs.

Certain Other Regulations Affecting the Internet

United States. Congress has recently adopted legislation that regulates certain aspects of the internet, including online content, user privacy and taxation. In addition, Congress and other federal entities are considering other legislative and regulatory proposals that would further regulate the internet. Congress has, for example, considered legislation on a wide range of issues including internet spamming, database privacy, gambling, pornography and child protection, internet fraud, privacy and digital signatures. Various states have adopted and are considering internet-related legislation. Increased U.S. regulation of the internet may slow its growth, particularly if other governments follow suit, which may negatively impact the cost of doing business over the internet and materially adversely affect our business, financial condition, results of operations and future prospects.

International. The European Union has also enacted several directives relating to the internet. The European Union has, for example, adopted a directive that imposes restrictions on the collection and use of personal data. Under the directive, citizens of the European Union are guaranteed rights to access their data, rights to know where the data originated, rights to have inaccurate data rectified, rights to recourse in the event of unlawful processing and rights to withhold permission to use their data for direct marketing. The directive could, among other things, affect U.S. companies that collect or transmit information over the internet from individuals in European Union member states, and will impose restrictions that are more stringent than current internet privacy standards in the U.S. In particular, companies with offices located in European Union countries will not be allowed to send personal information to countries that do not maintain adequate standards of privacy.

Although Viper does not engage in the collection of data for purposes other than routing its services and billing for its services, the directive is quite broad and the European Union privacy standards are stringent. Accordingly, the potential effect on the development of Viper in this area is uncertain.

As of December 31, 2004, we had a total of 12 employees, of which 10 were full time. In addition, the Company employs independent contractors as required for services not demanding of full-time employment. These services include software development, technical support, and other miscellaneous business support. No independent contractors are deemed to be critical to the business of the Company.

ITEM 1A. FACTORS THAT MAY AFFECT FUTURE RESULTS

The Company’s business organization, the Company’s reliance upon certain technology and third parties, competitive trends in the marketplace, and other factors all involve elements of substantial risk. In many instances, these risks arise from factors over which the Company will have little or no control. Some adverse events may be more likely than others and the consequence of some adverse events may be greater than others. No attempt has been made to rank risks in the order of their likelihood or potential harm. In addition to those general risks enumerated elsewhere, any purchaser of the Company's Common Stock should also consider the following factors.

1. Continued Operating Losses & Early-Stage Company.

The Company has incurred $7,910,925 in losses during the twelve months ending December 31, 2004 and cumulative losses of $11,071,676 since the Company’s inception through December 31, 2004. The Company is an early-stage company and may well incur significant additional losses in the future as well and there can be no assurance that the Company will be successful or that it will be profitable in the future.

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2. Current Financial Structure, Limited Equity, Limited Working Capital & Need for Additional Financing.

While the Company’s management believes that its financial policies have been prudent, the Company has relied, in large part, upon the use of common stock financing to provide a substantial portion of the Company’s financial needs. The Company anticipates that it will need to raise significant additional capital to implement is business plan. While the Company believes that it will be successful, the Company has had only limited discussions with potential investors and there can be no guarantee that the Company will receive additional capital from any investors or, if it does receive sufficient additional capital, that it can obtain additional capital on terms that are reasonable in light of the Company’s current circumstances. Further, the Company has not received any commitments or assurances from any underwriter, investment banker, venture capital fund, or other individual or institutional investor.

3. Auditor's Opinion: Going Concern.

The Company’s independent auditors, Armando C. Ibarra, CPA, P.C., have expressed substantial doubt about the Company's ability to continue as a going concern since the Company is an early-stage company and there exists only a limited history of operations.

4. Subordinate to Existing and Future Debt & Authorized But Unissued Preferred Stock.

All of the Common Stock is subordinate to the claims of the Company's existing and future creditors and the holders of the Company's existing preferred stock and any that may be issued in the future.

5. Dependence & Reliance Upon Others.

Some of our products and services may rely upon hardware, software, and communications systems provided by others. For this reason we may become dependent upon third parties which may materially and adversely affect our ability to offer distinct products and services which may result in adverse pricing pressures on our products with resulting adverse impact on our profits, if any.

6. Recent Acquisitions & Limited History of Operations.

During the fiscal year ending December 31, 2004, we generated $4,612,783 in net sales revenues, primarily through our acquisition of Coliance and Mid-Atlantic in 2003 and our acquisition of Adoria in 2004. We will need to further increase our revenues and successfully develop and implement our business strategy in an ever-changing and challenging marketplace if we are to succeed. In the event that we are not able to successfully develop and implement our business strategy, we may be subject to continuing significant risks and resulting financial volatility. Our limited history and the continuing technological and competitive challenges that we face are beyond our ability to control. For these and other reasons we may incur continuing and protracted losses with the result that an investor may lose all or substantially all of their investment.

7. Losses Due to Customers Fraud.

Customers have obtained access to the Company’s service without prepaying for the service (minutes) by submitting fraudulent credit card information. Losses from unauthorized credit card transactions and theft of service totaled $38,863 during the twelve months ending December 31, 2004. We have implemented new anti-fraud procedures in order to control losses relating to unauthorized credit card use, but these procedures may not be adequate to effectively limit our exposure in the future from customer fraud. If our procedures are not effective, consumer fraud and theft of service could be significant and have a material adverse effect on our business and operating results.

8. Price Competition on Certain Services.

The products and services that we intend to offer may, through changing technology and cost structures, become commodities which result in intense price competition. While we believe that we will be able to distinguish our products and services from competing products, services, and technologies offered by others, if we fail to distinguish ourselves from others, this could hinder market acceptance of our services, force reductions in contemplated sales prices for our products and services, and reduce our overall sales and gross margins. Potential customers may view price as the primary distinguishing characteristic between our products and services and those of our competitors. This could result in the Company incurring significant and protracted losses. Further, we are selling into a market that has a broad range of desired product characteristics and features which may make it difficult for us to develop products that will address a broad enough market to be commercially viable.

9. Absence of Barriers to Entry & Lack of Patent Protection.

Our planned products and services are not unique and others could easily copy our strategy and provide the same or similar services since there are no significant barriers to entering the business of providing internet telephone

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services or VoIP networks and no significant barriers to entry are expected in the future. In addition, we do not hold and do not expect to hold any patent protection on any of our planned products or services. For these reasons we may face continuing financial losses.

10. Limited Customer Base.

While we seek to implement our plans, we have a limited customer base of approximately 12,000 active accounts using our suite of VoIP products and there can be no assurance that we will grow and develop a sufficient customer base that generates sufficient sustainable revenues that provide stable profit margins. The absence of growth at pricing levels that can provide for sustainable revenues and profit margins may greatly inhibit our ability to attract additional capital and otherwise lead to volatile results from operations with consequent adverse and material impact on our financial condition.

11. Customers, Technology/Feature Options & Commercial Viability.

If we are able to implement our business plan, we will be selling our products and services into a marketplace that is experiencing a convergence of competing technologies. Typically, telecommunications providers desire extremely robust products with the expectation of a relatively long effective life. As a result and depending on the outcome of unknown trends in technology, market forces, and other variables, we may not attract a broad enough market to achieve commercial viability.

12. New Technologies May Be Developed.

New products or new technologies may be developed that supplant or provide lower-cost or better-performing alternatives to our planned products and services. This could negatively impact our financial results.

13. Absence of Brand Name Recognition: Limited Ability to Promote.

The market for telecommunications services is intensely competitive; brand name recognition is critical to success. Many companies offer products and services like ours and many have a well established presence in major metropolitan centers. We may not be able to compete successfully with these companies and others that may enter the market. Some of them also have substantially greater financial, distribution, and marketing resources than we do. If we do not succeed in this competitive marketplace, we will lose customers and our revenue will be substantially reduced and our business, financial condition, and results of operations may be materially and adversely affected.

14. Government Regulation.

Our planned operations will likely be subject to extensive telecommunications-based regulation by the United States and foreign laws and international treaties. In the United States we are subject to various Federal Communications Commission ("FCC") rules and regulations. Current FCC regulations suggest that our VoIP will not be unduly burdened by new and expanded regulations. However, there can be no assurance that the occurrence of regulatory changes would not significantly affect our operations by restricting our planned operations or increasing the opportunity of our competitors. In the event that government regulations change, there can be no assurance that the costs and burdens imposed on us will not materially and adversely impact our planned business.

15. Loss of Equipment.

Equipment located in a foreign country with a developing or emerging economy may be materially adversely affected by possible political or economic instability. The risks include, but are not limited to rapid political and legal change, terrorism, military repression, or expropriation of assets. In the event that equipment is damaged or lost our ability to service to our customers will be substantially reduced and our business, financial condition, and results of operations may be materially and adversely affected.

16. Control.

Our officers and directors directly and indirectly hold an aggregate of 40,701,626 shares of the Company’s common stock (before including any shares issuable upon exercise of any options). This represents approximately 33.5% of the Company’s total outstanding shares as of December 31, 2004 and thereby allows the Company’s officers and directors to retain significant influence over the Company.

17. Prior Filing of Form 10-SB.

In June of 2001 we prepared and filed a registration statement on Form 10-SB with the U.S. Securities and Exchange Commission ("SEC"). Subsequently, our then legal counsel delivered a letter (dated November 15, 2001) to the SEC which, by its terms, stated that the SEC had agreed to allow us to withdraw the registration statement. At

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the time the Company’s management believed, in reliance upon assurances from the Company’s then legal counsel, that the Company had been allowed to withdraw the registration statement, notwithstanding that the Securities Exchange Act of 1934 (the "Exchange Act") provides that any withdrawal of a Form 10-SB registration statement (at any time after 60 days from the date at which it is originally filed) requires that the registrant: (a) file Form 15 with the SEC; (b) meet certain requirements that allow the registrant to file Form 15 to terminate the registration of the securities that were previously registered on Form 10-SB; and (c) file such other periodic reports as required to ensure compliance with Section 13(a) of the Exchange Act up to the date at which the Form 15 is filed. Subsequently, in September 2004, the Company received a letter from the SEC (the "SEC Letter") informing the Company that the Company had not satisfied its obligations to file periodic reports required under Section 13(a) of the Exchange Act. While we believed that we had reasonably relied upon the assurances from our legal counsel (that we had effectively withdrawn the Form 10-SB registration statement), we are determined to complete all past and current periodic filings and to comply with the SEC Letter as expeditiously as possible. However, we have not received any assurances from the SEC that we will not be subject to any adverse enforcement action by the SEC. While we did not seek to avoid our obligations under the Exchange Act in any way, our prior actions in mistakenly believing that we had no obligation to file periodic reports required by the Exchange Act exposes us to risk of liability for significant civil fines and the SEC could, among other enforcement actions, suspend trading in our Common Stock. Further, we offered and sold securities in reliance upon exemptions that were predicated on our mistaken belief that the registration statement had been withdrawn. For these and other reasons we may be exposed to liability. We intend to continue a dialogue with the staff of the SEC and, as information is collected and documents are prepared, to complete all filings needed to demonstrate that we are fulfilling our obligations under the Exchange Act with due care and in full observance of our obligations as a "reporting company" thereunder.

18. Dependence Upon Key Personnel and New Employees.

We believe that our success will depend, to a significant extent, on the efforts and abilities of Ronald G. Weaver, Jason A. Sunstein, John L. Castiglione, Farid Shouekani, and James R. Balestraci. The loss of the services of any of them could have a material and continuing adverse effect on the Company. Our success also depends upon our ability to attract and retain qualified employees. Hiring to meet our anticipated operations will require that we assimilate significant numbers of new employees during a relatively short period of time.

19. Absence of Key Man Insurance.

We currently do not maintain any key man life insurance on the life of any of our officers or directors and there are no present plans to obtain any such insurance. In the event that any one or more of them are unable to perform their duties, the Company's business may be adversely impacted and our results of operations and financial condition would be materially and adversely impacted for a protracted period.

20. Lack of Independent Evaluation of Business Plan & Proposed Strategy.

We have not obtained any independent or professional evaluation of our business plan and our business strategy and we have no present plans to obtain any such evaluation. There can be no assurance that we will successfully increase revenues, or if revenues we do, that we can do so at levels that will allow us to achieve or maintain profitability. If we are unsuccessful, our results of operations and financial condition would be materially and adversely impacted and investors would likely lose all or a significant portion of their investment.

21. No Planned Dividends.

We do not anticipate that we will pay any dividends on our Common Stock. Any profits that we may generate, if any, will be reinvested.

22. Potential Dilution.

Funding of our planned business is likely to result in substantial and on-going dilution of our existing stockholders. While there can be no guarantee that we will be successful in raising additional capital, if we are successful in obtaining any additional capital, existing stockholders may incur substantial dilution.

23. Matter of Public Market and Rule 144 Stock Sales.

As of December 31, 2004, there were 86,351,874 shares of the Company’s Common Stock that were “restricted securities” and which may be sold pursuant to Rule 144. Since September 16, 2002, we have had a limited public trading market for our Common Stock in the “Pink Sheets” market. Since that date trading volumes have been volatile with sporadic liquidity levels. Further, our Common Stock is (as of the date of the filing of this Report) a “Penny Stock” and for this reason we face continuing difficulties in our efforts to gain a liquid trading market and there can be no assurance that any liquid trading market will ever develop or, if it does develop, that it can be

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maintained. In the event that we are able to complete the filing of all periodic reports (the “Periodic Reports”) required by Section 13(a) of the Exchange Act, we may be able to avoid any significant adverse enforcement action by the SEC arising out of our lack of compliance with the Exchange Act. Rule 144 provides that a person holding restricted securities for a period of one year may thereafter sell in brokerage transactions, an amount not exceeding in any three month period 1% of our outstanding Common Stock. Further, unless the Company can complete all of the required Periodic Reports and remain current in the filing of all future Periodic Reports, persons holding restricted stock will not be able to avail themselves of the safe harbor provisions of Rule 144. Persons who are not affiliated with the Company and who have held their restricted securities for at least two years are not subject to the volume limitation. In any trading market for our Common Stock, possible or actual sales of our Common Stock by present shareholders under Rule 144 may have a depressive effect on the price of our Common Stock even if a liquid trading market develops.

24. General Risks of Low Priced Stocks.

In any trading market for our Common Stock, we anticipate that our Common Stock will be deemed a "Penny Stock" which will limit trading and liquidity and thereby the retail market for the Common Stock. The limitations are primarily due to the burdens that are imposed on brokers whose customers may wish to acquire our Common Stock.

In that event, a shareholder may find it more difficult to dispose of, or to obtain accurate quotations as to the price of our Common Stock. In the absence of a security being quoted on NASDAQ, or the Company having $2,000,000 in net tangible assets, trading in the Common Stock is covered by Rule 3a51-1 promulgated under the Securities Exchange Act of 1934 for non-NASDAQ and non-exchange listed securities. Under such rules, broker/dealers who recommend such securities to persons other than established customers and accredited investors (generally institutions with assets in excess of $5,000,000 or individuals with net worth in excess of $1,000,000 or an annual income exceeding $200,000 or $300,000 jointly with their spouse) must make a special written suitability determination for the purchaser and receive the purchaser's written agreement to a transaction prior to sale.

Securities are also exempt from this rule if the market price is at least $5.00 per share, or for warrants, if the warrants have an exercise price of at least $5.00 per share. The Securities Enforcement and Penny Stock Reform Act of 1990 requires additional disclosure related to the market for penny stocks and for trades in any stock defined as a penny stock.

The Commission has adopted regulations under such Act which define a penny stock to be any NASDAQ or non-NASDAQ equity security that has a market price or exercise price of less than $5.00 per share and allow for the enforcement against violators of the proposed rules.

In addition, unless exempt, the rules require the delivery, prior to any transaction involving a penny stock, of a disclosure schedule prepared by the Commission explaining important concepts involving a penny stock market, the nature of such market, terms used in such market, the broker/dealer's duties to the customer, a toll-free telephone number for inquiries about the broker/dealer's disciplinary history, and the customer's rights and remedies in case of fraud or abuse in the sale.

Disclosure also must be made about commissions payable to both the broker/dealer and the registered representative, current quotations for the securities, and, if the broker/dealer is the sole market maker, the broker/dealer must disclose this fact and its control over the market. Monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.

While many NASDAQ stocks are covered by the proposed definition of penny stock, transactions in NASDAQ stock are exempt from all but the sole market-maker provision for (i) issuers who have $2,000,000 in tangible assets has been in operation for at least three years ($5,000,000 if the issuer has not been in continuous operation for three years), (ii) transactions in which the customer is an institutional accredited investor, and (iii) transactions that are not recommended by the broker/dealer.

In addition, transactions in a NASDAQ security directly with the NASDAQ market maker for such securities, are subject only to the sole market-maker disclosure, and the disclosure with regard to commissions to be paid to the broker/dealer and the registered representatives. The Company's securities are subject to the above rules

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on penny stocks and the market liquidity for the Company's securities could be severely affected by limiting the ability of broker/dealers to sell the Company's securities.

ITEM 2. DESCRIPTION OF PROPERTY

Principal Office

Our headquarters is located at 2070 Business Center Drive, Suite 210, Irvine, California 92612 at which we have 1477 square feet of space under a twenty-four month lease at a cost of $2437 per month. Previously (from July, 2001 until December 31, 2003) the Company entered into an oral month-to-month lease from a shareholder at a cost of $1,100 per month in payment of all office space and utilities.

We also maintain an administrative office at 10373 Roselle Street, Suite 170, San Diego, California 92121 at which we have 4415 square feet of space under a 2 year lease at a cost of $4239 per month.

Our subsidiary, Mid-Atlantic International, Inc. is located at 49 S. Plaza Blvd, Suite B31, Rochester Hills, Michigan 48307, maintains offices and support facilities totaling approximately 1000 square feet of space under a 12 month lease at a cost of $1000 per month.

Our subsidiary, Adoria Communications, LLC with offices at 140 Wood Road Suite 200, Braintree, Massachusetts 02184, maintains offices and support facilities totaling less than 1000 square feet of space under a month to month lease at a cost of $125 per month.

Hills of Bajamar Commercial/Residential development

During September 1998, we entered into an agreement with a related party to purchase 50 acres of real property known as the Hills of Bajamar, located in Ensenada, Mexico (the “Land”). The Land is valued at a predecessor cost of $125,000. We intended, at the time, to sell lots for residential development and build a communications facility for residents in the surrounding area. As consideration for the Land, the Company issued 3,000,000 shares of our Series B Preferred Stock. On June 30, 2001, all of the Series B Preferred Stock was converted into 400,000 shares of our Common Stock. As of December 31, 2004, the Company had not received documented title to the Land.

The Company's current management team and Board of Directors have determined that the goals for use of the Bajamar property and construction of telecommunications facilities for the Hills of Bajamar are not within the Company's current budget or operational capabilities. The Company and Tri-National did not upgrade the existing telecommunication facilities nor did the Company commence its principal business operations with the Hills of Bajamar. To date Tri-National has not cleared the restrictions from the title to the land nor transferred title to the Company. Since consideration for the agreement (documented title) has never been received the Company does not believe it is the owner of the Land and accordingly considers the agreement to be null and void. We do not believe this property has any value as an asset of the Company.

ITEM 3. LEGAL PROCEEDINGS

Viper Networks, Inc. vs Greenland Corp.

On June 11, 2004 the Company filed an action in Superior Court seeking among other things, rescission of an April 25, 2003 agreement with Greenland Corp. The Company considers the contract it entered into with Greenland (wherein Greenland was to receive 2,500,000 common shares of the Company) to have been obtained by fraud. Greenland made numerous false statements and material omissions regarding Greenland Corp.’s financial condition, and failed to disclose investigations and litigation pending or threatened which would impair the value of Greenland. Indeed, subsequent to entering into this transaction, the Company discovered that Greenland had undisclosed tax liabilities nearing $2,000,000. The Internal Revenue Service had imposed tax liens against the property owned by Greenland. The Company also recently learned that at the time of the contract, Greenland Corp.’s majority shareholder and controlling Board of Directors transferred (“up-streamed”) roughly $1,300,000 from Greenland Corp.

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It is unfortunate that this transaction resulted in litigation, but it is imperative that the Board of Directors of Viper Networks fulfill its fiduciary responsibility and protect its’ shareholders best interests. As such, we intend to take any and all action necessary to protect the rights of our shareholders. In order to minimize legal fees, as of the date of this filing, this case is in Arbitration. Unfortunately, Greenland has been seeking other forums to force the sale of the Viper stock outside of arbitration (which, to date, the Company has thwarted). The Company feels confident that all matters will be resolved in the Company’s favor, and the 2,500,000 common shares will be returned to treasury.

The Company's officers and directors are aware of no other threatened or pending litigation, which would have a material, adverse effect on us. From time to time we are a defendant (actual or threatened) in certain lawsuits encountered in the ordinary course of its business, the resolution of which, in our opinion, should not have a material adverse effect on our financial position, results of operations, or cash flows.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

As of December 31, 2004, the Company's Common Stock traded in the non-Over the Counter "Pink Sheets" listed in the National Daily Quotations Service under the symbol, VPER. Trading in the stock commenced on September 16, 2002 and only a limited and volatile trading market exists with only sporadic and limited interest by market makers.

Stockholders who may seek to sell any Shares of the Common Stock will not likely find any significant liquidity and therefore may not be able to sell any significant volume of the Company’s Common Stock. As of December 31, 2004, the Company had 359 stockholders and several market makers.

The following table reflects the high and low prices of the Company's Common Stock for the two years ended December 31, 2004.

Year	Period		High Close		High Bid		Low Close		Low Bid
2004	First Quarter	$	1.55	$	1.55	$	0.35	$	0.35
	Second Quarter	$	0.72	$	0.72	$	0.36	$	0.36
	Third Quarter	$	0.46	$	0.50	$	0.23	$	0.23
	Fourth Quarter	$	0.47	$	0.49	$	0.27	$	0.27
2003	First Quarter	$	0.04	$	0.04	$	0.01	$	0.01
	Second Quarter	$	0.05	$	0.05	$	0.01	$	0.01
	Third Quarter	$	0.18	$	0.18	$	0.02	$	0.02
	Fourth Quarter	$	0.49	$	0.49	$	0.08	$	0.08

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The Company has followed the policy of reinvesting earnings, if any, and, consequently, has not paid any cash dividends. At the present time, no change in this policy is under consideration by the Board of Directors. The payment of cash dividends in the future will be determined by the Board of Directors in light of conditions then existing, including the Company's earnings, financial requirements and condition, opportunities for reinvesting earnings, business conditions and other factors.

In May 2002, the Company offered and sold an aggregate of 1,323,962 shares of the Company’s Common Stock to seven investors at $0.10 per share. Of these shares, 25,000 shares were sold for cash with proceeds of $2,500. The remaining shares, totaling 1,298,962 shares were issued to five persons as follows (each at a value of $0.10 per share): (a) 222,500 shares were issued to two individuals in payment for services; (b) 210,000 shares to James Wray, an officer and director of the Company in payment for services; (c) 430,000 shares to Jason A. Sunstein, an officer and director of the Company in payment for services; and (d) 436,462 shares to John L. Castiglione, an officer and director of the Company in payment for services and in payment of monies owed for funds previously advanced to the Company. All of the shares were offered and sold under a claim of exemption provided by Section 4(2) of the Securities Act of 1933 without the use of an underwriter or NASD registered broker-dealer; no commissions were incurred by the Company in connection with the transaction. The purchaser was an Accredited investor as defined in Rule 501 of Regulation D of the Securities Act of 1933. The purchaser was provided with, or given access to, information about the Company and the offering, including, but not limited to, the Company’s financial statements, business plan, articles of incorporation, by-laws, a description of how the proceeds were to be used, and additional information to assist them in understanding the merits and risks of the investment. The purchaser was further provided the opportunity to ask questions of the Company’s officers and directors and receive answers to their questions. The purchaser was informed the securities purchased were restricted securities and they may have to hold them for an indefinite period of time.

In September 2002, the Company offered and sold an aggregate of 1,387,500 shares of the Company’s Common Stock to nine investors. Of these shares, 120,000 shares were sold to two persons in consideration of the Company’s receipt of $14,000. The remaining shares, totaling 1,267,500 shares, were issued in exchange for the Company’s receipt of services. All of the shares were offered and sold under a claim of exemption provided by Section 4(2) of the Securities Act of 1933 without the use of an underwriter or NASD registered broker-dealer; no commissions were incurred by the Company in connection with the transaction. The purchasers were each sophisticated and experienced in financial, business, and investment matters and otherwise able to evaluate the merits and risks associated with the purchase of the Company’s securities. The purchasers were provided with, or given access to, information about the Company and the offering, including, but not limited to, the Company’s financial statements, business plan, articles of incorporation, by-laws, a description of how the proceeds were to be used, and additional information to assist them in understanding the merits and risks of the investment. The purchasers were further provided the opportunity to ask questions of the Company’s officers and directors and receive answers to their questions. The purchasers were informed the securities purchased were restricted securities and they may have to hold them for an indefinite period of time.

In October 2002, the Company offered and sold an aggregate of 668,376 shares of the Company’s Common Stock to five persons in exchange for services received by the company with all of the shares valued at $0.225 per share. All of the shares were offered and sold under a claim of exemption provided by Section 4(2) of the Securities Act of 1933 without the use of an underwriter or NASD registered broker-dealer; no commissions were incurred by the Company in connection with the transaction. The purchasers were each an Accredited investor as defined in Rule 501 of Regulation D of the Securities Act of 1933. The purchasers were provided with, or given access to, information about the Company and the offering, including, but not limited to, the Company’s financial statements, business plan, articles of incorporation, by-laws, a description of how the proceeds were to be used, and additional information to assist them in understanding the merits and risks of the investment. The purchasers were further provided the opportunity to ask questions of the Company’s officers and directors and receive answers to their questions. The purchasers were informed the securities purchased were restricted securities and they may have to hold them for an indefinite period of time.

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In November 2002, the Company offered and sold 25,000 shares of the Company’s Common Stock to one person in consideration of the Company’s receipt of services. The shares were valued at $0.167 per share. All of the shares were offered and sold under a claim of exemption provided by Section 4(2) of the Securities Act of 1933 without the use of an underwriter or NASD registered broker-dealer; no commissions were incurred by the Company in connection with the transaction. The purchaser was an Accredited investor as defined in Rule 501 of Regulation D of the Securities Act of 1933. The purchaser was provided with, or given access to, information about the Company and the offering, including, but not limited to, the Company’s financial statements, business plan, articles of incorporation, by-laws, a description of how the proceeds were to be used, and additional information to assist them in understanding the merits and risks of the investment. The purchaser was further provided the opportunity to ask questions of the Company’s officers and directors and receive answers to their questions. The purchaser was informed the securities purchased were restricted securities and they may have to hold them for an indefinite period of time.

In February 2003, the Company issued 950,000 shares of the Company’s Common Stock to one person in consideration of the Company’s receipt of services. The shares were valued at $0.03 per share. All of the shares were offered and sold under a claim of exemption provided by Section 4(2) of the Securities Act of 1933 without the use of an underwriter or NASD registered broker-dealer; no commissions were incurred by the Company in connection with the transaction. The purchaser was an Accredited investor as defined in Rule 501 of Regulation D of the Securities Act of 1933. The purchaser was provided with, or given access to, information about the Company and the offering, including, but not limited to, the Company’s financial statements, business plan, articles of incorporation, by-laws, a description of how the proceeds were to be used, and additional information to assist them in understanding the merits and risks of the investment. The purchaser was further provided the opportunity to ask questions of the Company’s officers and directors and receive answers to their questions. The purchaser was informed the securities purchased were restricted securities and they may have to hold them for an indefinite period of time.

In early May 2003, the Company issued 1,100,000 shares of the Company’s Common Stock to one person in consideration of the Company’s receipt of services. The shares were valued at $0.03 per share. All of the shares were offered and sold under a claim of exemption provided by Section 4(2) of the Securities Act of 1933 without the use of an underwriter or NASD registered broker-dealer; no commissions were incurred by the Company in connection with the transaction. The purchaser was an Accredited investor as defined in Rule 501 of Regulation D of the Securities Act of 1933. The purchaser was provided with, or given access to, information about the Company and the offering, including, but not limited to, the Company’s financial statements, business plan, articles of incorporation, by-laws, a description of how the proceeds were to be used, and additional information to assist them in understanding the merits and risks of the investment. The purchaser was further provided the opportunity to ask questions of the Company’s officers and directors and receive answers to their questions. The purchaser was informed the securities purchased were restricted securities and they may have to hold them for an indefinite period of time.

Later in May 2003, the Company issued 11,100,000 shares of the Company’s Common Stock to four investors. Of these shares, 800,000 shares were issued in connection with the acquisition of a 49% interest in PC Mailbox valued at $0.05 per share, 2,500,000 shares were issued in connection with the purchase of certain assets from Greenland Corp. valued at $0.023 per share and all of the remaining 7,800,000 shares were issued in consideration of the Company’s receipt of services. The shares were valued at $0.038 per share. All of the shares were offered and sold under a claim of exemption provided by Section 4(2) of the Securities Act of 1933 without the use of an underwriter or NASD registered broker-dealer; no commissions were incurred by the Company in connection with the transaction. The purchasers were each Accredited investors as defined in Rule 501 of Regulation D of the Securities Act of 1933. The purchasers were provided with, or given access to, information about the Company and the offering, including, but not limited to, the Company’s financial statements, business plan, articles of incorporation, by-laws, a description of how the proceeds were to be used, and additional information to assist them in understanding the merits and risks of the investment. The purchasers were further provided the opportunity to ask questions of the Company’s officers and directors and receive answers to their questions. The purchasers were informed the securities purchased were restricted securities and they may have to hold them for an indefinite period of time.

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Late in May 2003, the Company issued an aggregate of 11,947,966 shares of the Company’s Common Stock as follows: (1) 162,133 shares were issued in connection with the purchase of certain assets; (2) 1,785,833 shares were issued in exchange for an aggregate of $70,045 in cash received by the Company; and (3) 10,000,000 shares were issued to the Company’s Employee Compensation Fund. All of the shares were offered and sold by the Company’s management under a claim of exemption provided by Section 4(2) of the Securities Act of 1933 without the use of an underwriter or NASD registered broker-dealer; no commissions were incurred by the Company in connection with the transaction. The purchasers were each sophisticated and experienced in financial, business, and investment matters and otherwise able to evaluate the merits and risks associated with the purchase of the Company’s securities. The purchasers were provided with, or given access to, information about the Company and the offering, including, but not limited to, the Company’s financial statements, business plan, articles of incorporation, by-laws, a description of how the proceeds were to be used, and additional information to assist them in understanding the merits and risks of the investment. The purchasers were further provided the opportunity to ask questions of the Company’s officers and directors and receive answers to their questions. The purchasers were informed the securities purchased were restricted securities and they may have to hold them for an indefinite period of time.

In June 2003, the Company issued 2,500,000 shares of the Company’s Common Stock in connection with a proposed purchase of assets. The issuance of the shares was later cancelled in August 2003 and the shares were returned to the Company. All of the shares were offered and sold under a claim of exemption provided by Section 4(2) of the Securities Act of 1933 without the use of an underwriter or NASD registered broker-dealer; no commissions were incurred by the Company in connection with the transaction. The purchaser was sophisticated and experienced in financial, business, and investment matters and otherwise able to evaluate the merits and risks associated with the purchase of the Company’s securities. The purchaser was provided with, or given access to, information about the Company and the offering, including, but not limited to, the Company’s financial statements, business plan, articles of incorporation, by-laws, a description of how the proceeds were to be used, and additional information to assist in understanding the merits and risks of the investment. The purchaser was further provided the opportunity to ask questions of the Company’s officers and directors and receive answers to their questions. The purchaser was informed the securities purchased were restricted securities and they may have to hold them for an indefinite period of time.

In July 2003, the Company issued 2,800,000 shares of the Company’s Common Stock to one person in consideration of the Company’s receipt of services. The shares were valued at $0.03 per share. All of the shares were offered and sold by the Company’s management under a claim of exemption provided by Section 4(2) of the Securities Act of 1933 without the use of an underwriter or NASD registered broker-dealer; no commissions were incurred by the Company in connection with the transaction. The purchaser was an Accredited investor as defined in Rule 501 of Regulation D of the Securities Act of 1933. The purchaser was provided with, or given access to, information about the Company and the offering, including, but not limited to, the Company’s financial statements, business plan, articles of incorporation, by-laws, a description of how the proceeds were to be used, and additional information to assist in understanding the merits and risks of the investment. The purchaser was further provided the opportunity to ask questions of the Company’s officers and directors and receive answers to their questions. The purchaser was informed the securities purchased were restricted securities and they may have to hold them for an indefinite period of time.

In August 2003, the Company issued 5,000,000 shares of the Company’s Common Stock plus 450,000 shares of the Company’s Preferred Stock. The 5,000,000 shares were issued to 12 persons in connection with the acquisition of a 40% interest in Coliance Communications with each share valued at $0.05001 per share. The 450,000 shares of Preferred Stock were issued to three purchasers and were converted to notes payable. All of the shares were offered and sold by the Company’s management under a claim of exemption provided by Section 4(2) of the Securities Act of 1933 without the use of an underwriter or NASD registered broker-dealer; no commissions were incurred by the Company in connection with the transaction. The purchasers were each sophisticated and experienced in financial, business, and investment matters and otherwise able to evaluate the merits and risks associated with the purchase of the Company’s securities. The purchasers were provided with, or given access to, information about the Company and the offering, including, but not limited to, the Company’s financial statements, business plan, articles of incorporation, by-laws, a description of how the proceeds were to be used, and additional information to assist them in understanding the merits and risks of the investment. The purchasers were further provided the opportunity to ask questions of the Company’s officers and directors and receive answers to their questions. The purchasers were informed the securities purchased were restricted securities and they may have to hold them for an indefinite period of time.

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Later in August 2003, the Company issued an aggregate of 13,000,000 shares of the Company’s Common Stock as follows: (1) 12,000,000 shares were issued 2 persons in connection with the acquisition of the remaining 60% of Coliance Communications valued at $0.025 per share; and (2) 1,000,000 shares issued to one purchaser in payment for legal services for the period from June 2002 through May 2003 with these shares valued at $0.09 per share. All of the shares were offered and sold by the Company’s management under a claim of exemption provided by Section 4(2) of the Securities Act of 1933 without the use of an underwriter or NASD registered broker-dealer; no commissions were incurred by the Company in connection with the transaction. The purchasers were each sophisticated and experienced in financial, business, and investment matters and otherwise able to evaluate the merits and risks associated with the purchase of the Company’s securities. The purchasers were provided with, or given access to, information about the Company and the offering, including, but not limited to, the Company’s financial statements, business plan, articles of incorporation, by-laws, a description of how the proceeds were to be used, and additional information to assist them in understanding the merits and risks of the investment. The purchasers were further provided the opportunity to ask questions of the Company’s officers and directors and receive answers to their questions. The purchasers were informed the securities purchased were restricted securities and they may have to hold them for an indefinite period of time.

Later, in August 2003, the Company issued 500,000 shares of the Company’s Common Stock to Steven Hanks in payment for services to the Company and in settlement of certain claims. All of the shares were valued at $0.06 per share. All of the shares were offered and sold under a claim of exemption provided by Section 4(2) of the Securities Act of 1933 without the use of an underwriter or NASD registered broker-dealer; no commissions were incurred by the Company in connection with the transaction. The purchaser was sophisticated and experienced in financial, business, and investment matters and otherwise able to evaluate the merits and risks associated with the purchase of the Company’s securities. The purchaser was provided with, or given access to, information about the Company and the offering, including, but not limited to, the Company’s financial statements, business plan, articles of incorporation, by-laws, a description of how the proceeds were to be used, and additional information to assist in understanding the merits and risks of the investment. The purchaser was further provided the opportunity to ask questions of the Company’s officers and directors and receive answers to their questions. The purchaser was informed the securities purchased were restricted securities and they may have to hold them for an indefinite period of time.

In early September 2003, the Company issued 3,250,000 shares of the Company’s Common Stock to one person in consideration of the Company’s receipt of services. The shares were valued at $0.03 per share. All of the shares were offered and sold under a claim of exemption provided by Section 4(2) of the Securities Act of 1933 without the use of an underwriter or NASD registered broker-dealer; no commissions were incurred by the Company in connection with the transaction. The purchaser was an Accredited investor as defined in Rule 501 of Regulation D of the Securities Act of 1933. The purchaser was provided with, or given access to, information about the Company and the offering, including, but not limited to, the Company’s financial statements, business plan, articles of incorporation, by-laws, a description of how the proceeds were to be used, and additional information to assist in understanding the merits and risks of the investment. The purchaser was further provided the opportunity to ask questions of the Company’s officers and directors and receive answers to their questions. The purchaser was informed the securities purchased were restricted securities and they may have to hold them for an indefinite period of time.

In mid September 2003, the Company issued 4,000,000 shares of the Company’s Common Stock to two persons in connection with the purchase of land. All of the shares were valued at $220,000 or $0.055 per share. All of the shares were offered and sold under a claim of exemption provided by Section 4(2) of the Securities Act of 1933 without the use of an underwriter or NASD registered broker-dealer; no commissions were incurred by the Company in connection with the transaction. The purchasers were each sophisticated and experienced in financial, business, and investment matters and otherwise able to evaluate the merits and risks associated with the purchase of the Company’s securities. The purchasers were provided with, or given access to, information about the Company and the offering, including, but not limited to, the Company’s financial statements, business plan, articles of incorporation, by-laws, a description of how the proceeds were to be used, and additional information to assist them in understanding the merits and risks of the investment. The purchasers were further provided the opportunity to ask questions of the Company’s officers and directors and receive answers to their questions. The purchasers were informed the securities purchased were restricted securities and they may have to hold them for an indefinite period of time.

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Later, in September 2003 the Company issued an aggregate of 7,030,000 shares of the Company’s Common Stock to two officers and directors of the Company, as follows: (1) 3,515,000 shares of the Company’s Common Stock were issued to Jason A. Sunstein in payment for labor services; and (2) 3,515,000 shares of the Company’s Common Stock were issued to John L. Castiglione in payment for labor services. All of the shares were valued at $.025 per share. All of the shares were offered and sold under a claim of exemption provided by Section 4(2) of the Securities Act of 1933 without the use of an underwriter or NASD registered broker-dealer; no commissions were incurred by the Company in connection with the transaction. The purchasers were each Accredited investors as defined in Rule 501 of Regulation D of the Securities Act of 1933. The purchasers were provided with, or given access to, information about the Company and the offering, including, but not limited to, the Company’s financial statements, business plan, articles of incorporation, by-laws, a description of how the proceeds were to be used, and additional information to assist them in understanding the merits and risks of the investment. The purchasers were further provided the opportunity to ask questions of the Company’s officers and directors and receive answers to their questions. The purchasers were informed the securities purchased were restricted securities and they may have to hold them for an indefinite period of time.

In mid October 2003, the Company issued 1,491,707 shares of the Company’s Common Stock to fifteen investors and the Company received $30,125 in cash. All of the shares were offered and sold under a claim of exemption provided by Section 4(2) of the Securities Act of 1933 without the use of an underwriter or NASD registered broker-dealer; no commissions were incurred by the Company in connection with the transaction. The purchasers were each sophisticated and experienced in financial, business, and investment matters and otherwise able to evaluate the merits and risks associated with the purchase of the Company’s securities. The purchasers were provided with, or given access to, information about the Company and the offering, including, but not limited to, the Company’s financial statements, business plan, articles of incorporation, by-laws, a description of how the proceeds were to be used, and additional information to assist them in understanding the merits and risks of the investment. The purchasers were further provided the opportunity to ask questions of the Company’s officers and directors and receive answers to their questions. The purchasers were informed the securities purchased were restricted securities and they may have to hold them for an indefinite period of time.

In late October 2003, the Company offered and sold an aggregate of 15,847,500 shares of the Company’s Common Stock as follows:

	(1)	312,500 shares were issued upon the Company’s receipt of $15,625 in cash from one investor;
	(2)	7,535,000 shares were issued in connection with the acquisition of Mid-Atlantic with 3,300,000 shares valued at $0.10 per share and 4,235,000 shares valued at $0.17 per share, which contained certain redemption rights and privileges (the “put option”); and
	(3)	8,000,000 shares were issued to officers and directors of the Company in payment for services in connection with the purchase of Mid-Atlantic valued at $0.04 per share, as follows: (a) 2,000,000 shares were issued to Jason A. Sunstein, an officer and director; (b) 2,000,000 shares were issued to John L. Castiglione, an officer and director; (c) 2,000,000 shares were issued to Ronald G. Weaver, an officer and director; and (d) 2,000,000 shares were issued to Stephen D. Young, an officer and director.

All of the shares were offered and sold under a claim of exemption provided by Section 4(2) of the Securities Act of 1933 without the use of an underwriter or NASD registered broker-dealer; no commissions were incurred by the Company in connection with the transaction. The purchasers were each Accredited investors as defined in Rule 501 of Regulation D of the Securities Act of 1933. The purchasers were provided with, or given access to, information about the Company and the offering, including, but not limited to, the Company’s financial statements, business plan, articles of incorporation, by-laws, a description of how the proceeds were to be used, and additional information to assist them in understanding the merits and risks of the investment. The purchasers were further provided the opportunity to ask questions of the Company’s officers and directors and receive answers to their questions. The purchasers were informed the securities purchased were restricted securities and they may have to hold them for an indefinite period of time.

In January 2004, the Company issued 2,100,000 shares of the Company’s Common Stock to one purchaser in exchange for the Company’s receipt of $210,000 in cash. All of the shares were offered and sold under a claim of exemption provided by Section 4(2) of the Securities Act of 1933 without the use of an underwriter or NASD registered broker-dealer; no commissions were incurred by the Company in connection with the transaction. The purchaser was sophisticated and experienced in financial, business, and investment matters and otherwise able to

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evaluate the merits and risks associated with the purchase of the Company’s securities. The purchaser was provided with, or given access to, information about the Company and the offering, including, but not limited to, the Company’s financial statements, business plan, articles of incorporation, by-laws, a description of how the proceeds were to be used, and additional information to assist in understanding the merits and risks of the investment. The purchaser was further provided the opportunity to ask questions of the Company’s officers and directors and receive answers to their questions. The purchaser was informed the securities purchased were restricted securities and they may have to hold them for an indefinite period of time.

In early February 2004, the Company issued an aggregate of 1,800,000 shares of the Company’s Common Stock to one purchaser in exchange for the Company’s receipt of $450,000 in cash. The shares were valued at $0.25 per share. All of the shares were offered and sold under a claim of exemption provided by Section 4(2) of the Securities Act of 1933 without the use of an underwriter or NASD registered broker-dealer; no commissions were incurred by the Company in connection with the transaction. The purchaser was sophisticated and experienced in financial, business, and investment matters and otherwise able to evaluate the merits and risks associated with the purchase of the Company’s securities. The purchaser was provided with, or given access to, information about the Company and the offering, including, but not limited to, the Company’s financial statements, business plan, articles of incorporation, by-laws, a description of how the proceeds were to be used, and additional information to assist in understanding the merits and risks of the investment. The purchaser was further provided the opportunity to ask questions of the Company’s officers and directors and receive answers to their questions. The purchaser was informed the securities purchased were restricted securities and they may have to hold them for an indefinite period of time.

In early March 2004, in connection with the repurchase rights of common stock issued pursuant to the acquisition of Mid-Atlantic in October, 2003 (see above), the Company reissued 1,802,000 shares of the Company’s Common Stock to nine investors in connection with the acquisition of Mid-Atlantic. The shares were accorded an aggregate value of $450,500. Of the 7,535,000 shares issued at the time of the Mid-Atlantic acquisition, 4,235,000 held a put option. In March, 2004 some of these shares (1,467,648) were repurchased by the Company at the redemption price of $0.17 (a total of $249,500 was paid). Of the remaining 2,767,352 shares, 1,802,000 were reissued to the nine pre-acquisition investors in Mid-Atlantic in accordance with the wishes of the former owner of Mid-Atlantic. The remaining shares (965,353) were returned to treasury without compensation and the put option expired. The re-issued 1,802,000 shares were offered and sold under a claim of exemption provided by Section 4(2) of the Securities Act of 1933 without the use of an underwriter or NASD registered broker-dealer; no commissions were incurred by the Company in connection with the transaction. The purchaser was sophisticated and experienced in financial, business, and investment matters and otherwise able to evaluate the merits and risks associated with the purchase of the Company’s securities. The purchaser was provided with, or given access to, information about the Company and the offering, including, but not limited to, the Company’s financial statements, business plan, articles of incorporation, by-laws, a description of how the proceeds were to be used, and additional information to assist in understanding the merits and risks of the investment. The purchaser was further provided the opportunity to ask questions of the Company’s officers and directors and receive answers to their questions. The purchaser was informed the securities purchased were restricted securities and they may have to hold them for an indefinite period of time.

In mid March 2004, the Company issued an aggregate of 5,000,000 shares of the Company’s Common Stock to five officers and directors of the Company with each share valued at $0.04 per share. The share issuances were as follows: (1) 1,000,000 shares to Farid Shouekani; (2) 1,000,000 shares to Jason A. Sunstein; (3) 1,000,000 shares to John L. Castiglione; (4) 1,000,000 shares to Ronald G. Weaver; and (5) 1,000,000 shares to Stephen D. Young. All of the shares were offered and sold under a claim of exemption provided by Section 4(2) of the Securities Act of 1933 without the use of an underwriter or NASD registered broker-dealer; no commissions were incurred by the Company in connection with the transaction. The purchasers were each Accredited investors as defined in Rule 501 of Regulation D of the Securities Act of 1933. The purchasers were provided with, or given access to, information about the Company and the offering, including, but not limited to, the Company’s financial statements, business plan, articles of incorporation, by-laws, a description of how the proceeds were to be used, and additional information to assist them in understanding the merits and risks of the investment. The purchasers were further provided the opportunity to ask questions of the Company’s officers and directors and receive answers to their questions. The purchasers were informed the securities purchased were restricted securities and they may have to hold them for an indefinite period of time.

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Later, in March 2004, the Company issued 2,500,000 shares of the Company’s Common Stock in connection with the acquisition of Adoria Communications. The shares were accorded an aggregate value of $3,074,500 and were issued to one purchaser. All of the shares were offered and sold under a claim of exemption provided by Section 4(2) of the Securities Act of 1933 without the use of an underwriter or NASD registered broker-dealer; no commissions were incurred by the Company in connection with the transaction. The purchaser was an Accredited investor as defined in Rule 501 of Regulation D of the Securities Act of 1933. The purchaser was provided with, or given access to, information about the Company and the offering, including, but not limited to, the Company’s financial statements, business plan, articles of incorporation, by-laws, a description of how the proceeds were to be used, and additional information to assist in understanding the merits and risks of the investment. The purchaser was further provided the opportunity to ask questions of the Company’s officers and directors and receive answers to their questions. The purchaser was informed the securities purchased were restricted securities and they may have to hold them for an indefinite period of time.

Later, in March 2004, the Company issued an aggregate of 1,295,000 shares of the Company’s Common Stock to nine purchasers in exchange for the Company’s receipt of an aggregate of $323,750 in cash. All of the shares were offered and sold by the Company’s management without the use of an underwriter or NASD registered broker-dealer, however All of the shares were offered and sold under a claim of exemption provided by Section 4(2) of the Securities Act of 1933 without the use of an underwriter or NASD registered broker-dealer. The Company paid a finder’s fee equal to 8% of the aggregate amount received, with 7% paid in cash and 1% paid by the issuance of the Company’s Common Stock. Apart from the payment of a finder’s fee, no commissions were incurred by the Company in connection with the transaction. The purchasers were each sophisticated and experienced in financial, business, and investment matters and otherwise able to evaluate the merits and risks associated with the purchase of the Company’s securities. The purchasers were provided with, or given access to, information about the Company and the offering, including, but not limited to, the Company’s financial statements, business plan, articles of incorporation, by-laws, a description of how the proceeds were to be used, and additional information to assist them in understanding the merits and risks of the investment. The purchasers were further provided the opportunity to ask questions of the Company’s officers and directors and receive answers to their questions. The purchasers were informed the securities purchased were restricted securities and they may have to hold them for an indefinite period of time.

In late March 2004, the Company issued an aggregate of 1,669,184 shares of the Company’s Common Stock to 34 investors in exchange for the Company’s receipt of an aggregate of $310,500 in cash. All of the shares were offered and sold under a claim of exemption provided by Section 4(2) of the Securities Act of 1933 without the use of an underwriter or NASD registered broker-dealer. The Company paid 150,000 shares of the Company’s Common Stock as a finder’s fee in connection with the Company’s issuance of 1,062,500 of these shares. However, apart from the issuance of these shares to a finder, no other fees or commissions were incurred by the Company in connection with the transaction. The purchasers were each sophisticated and experienced in financial, business, and investment matters and otherwise able to evaluate the merits and risks associated with the purchase of the Company’s securities. The purchasers were provided with, or given access to, information about the Company and the offering, including, but not limited to, the Company’s financial statements, business plan, articles of incorporation, by-laws, a description of how the proceeds were to be used, and additional information to assist them in understanding the merits and risks of the investment. The purchasers were further provided the opportunity to ask questions of the Company’s officers and directors and receive answers to their questions. The purchasers were informed the securities purchased were restricted securities and they may have to hold them for an indefinite period of time.

In early April 2004, the Company issued 95,000 shares of the Company’s Common Stock to three purchasers in exchange for the Company’s receipt of an aggregate of $17,500 in cash. All of the shares were offered and sold under a claim of exemption provided by Section 4(2) of the Securities Act of 1933 without the use of an underwriter or NASD registered broker-dealer. The Company paid a finder’s fee equal to 8% of the aggregate amount received, with 7% paid in cash and 1% paid by the issuance of the Company’s Common Stock. Apart from the payment of a finder’s fee, no commissions were incurred by the Company in connection with the transaction. The purchasers were each sophisticated and experienced in financial, business, and investment matters and otherwise able to evaluate the merits and risks associated with the purchase of the Company’s securities. The purchasers were provided with, or given access to, information about the Company and the offering, including, but not limited to, the Company’s financial statements, business plan, articles of incorporation, by-laws, a description of how the proceeds were to be used, and additional information to assist them in understanding the merits and risks of

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the investment. The purchasers were further provided the opportunity to ask questions of the Company’s officers and directors and receive answers to their questions. The purchasers were informed the securities purchased were restricted securities and they may have to hold them for an indefinite period of time.

Later in April, the Company issued additional shares of the Company’s Common Stock as follows:

	(1)	10,000 shares to one purchaser in exchange for the Company’s receipt of cash of $1,000;
	(2)	240,000 shares to two purchasers in exchange for the Company’s receipt of cash of $60,000; and
	(3)	110,000 shares to two purchasers in exchange for the Company’s receipt of cash of $27,500.

All of the shares were offered and sold under a claim of exemption provided by Section 4(2) of the Securities Act of 1933 without the use of an underwriter or NASD registered broker-dealer. In each transaction, the Company paid a finder’s fee equal to 8% of the aggregate amount received, with 7% paid in cash and 1% paid by the issuance of the Company’s Common Stock. The finder merely introduced the Company to each purchaser and apart from the payment of a finder’s fee no commissions were incurred by the Company in connection with the transaction. The purchasers were each sophisticated and experienced in financial, business, and investment matters and otherwise able to evaluate the merits and risks associated with the purchase of the Company’s securities. The purchasers were provided with, or given access to, information about the Company and the offering, including, but not limited to, the Company’s financial statements, business plan, articles of incorporation, by-laws, a description of how the proceeds were to be used, and additional information to assist them in understanding the merits and risks of the investment. The purchasers were further provided the opportunity to ask questions of the Company’s officers and directors and receive answers to their questions. The purchasers were informed the securities purchased were restricted securities and they may have to hold them for an indefinite period of time.

In May 2004, the Company issued an aggregate of 610,000 shares of the Company’s Common Stock to five investors in exchange for the Company’s receipt of an aggregate of $152,500 in cash. All of the shares were offered and sold under a claim of exemption provided by Section 4(2) of the Securities Act of 1933 without the use of an underwriter or NASD registered broker-dealer. The Company paid a finder’s fee equal to 13% of the aggregate amount received, with 7% paid in cash and 6% paid by the issuance of the Company’s Common Stock. The finder merely introduced the Company to each purchaser and apart from the payment of a finder’s fee no commissions were incurred by the Company in connection with the transaction. The purchasers were each sophisticated and experienced in financial, business, and investment matters and otherwise able to evaluate the merits and risks associated with the purchase of the Company’s securities. The purchasers were provided with, or given access to, information about the Company and the offering, including, but not limited to, the Company’s financial statements, business plan, articles of incorporation, by-laws, a description of how the proceeds were to be used, and additional information to assist them in understanding the merits and risks of the investment. The purchasers were further provided the opportunity to ask questions of the Company’s officers and directors and receive answers to their questions. The purchasers were informed the securities purchased were restricted securities and they may have to hold them for an indefinite period of time.

In late June 2004, the Company issued 575,000 shares of the Company’s Common Stock to one investor in exchange for the Company’s receipt of $115,000 in cash. All of the shares were offered and sold under a claim of exemption provided by Section 4(2) of the Securities Act of 1933 without the use of an underwriter or NASD registered broker-dealer; no commissions were incurred by the Company in connection with the transaction. The purchaser was sophisticated and experienced in financial, business, and investment matters and otherwise able to evaluate the merits and risks associated with the purchase of the Company’s securities. The purchaser was provided with, or given access to, information about the Company and the offering, including, but not limited to, the Company’s financial statements, business plan, articles of incorporation, by-laws, a description of how the proceeds were to be used, and additional information to assist in understanding the merits and risks of the investment. The purchaser was further provided the opportunity to ask questions of the Company’s officers and directors and receive answers to their questions. The purchaser was informed the securities purchased were restricted securities and they may have to hold them for an indefinite period of time.

Later in June 2004, the Company issued 2,000,000 shares of the Company’s Common Stock in connection with the acquisition of a 37.5% interest in Brasil Communications, LLC. The shares were valued at $0.46 per share. All of the shares were offered and sold under a claim of exemption provided by Section 4(2) of the Securities Act of 1933 without the use of an underwriter or NASD registered broker-dealer; no commissions were incurred by the Company in connection with the transaction. The purchaser was an Accredited investor as defined in Rule 501 of

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Regulation D of the Securities Act of 1933. The purchaser was provided with, or given access to, information about the Company and the offering, including, but not limited to, the Company’s financial statements, business plan, articles of incorporation, by-laws, a description of how the proceeds were to be used, and additional information to assist in understanding the merits and risks of the investment. The purchaser was further provided the opportunity to ask questions of the Company’s officers and directors and receive answers to their questions. The purchaser was informed the securities purchased were restricted securities and they may have to hold them for an indefinite period of time.

In July 2004, the Company issued 187,500 shares of the Company’s Common Stock to one purchaser in consideration of the Company’s receipt of cash of $9,375. All of the shares were offered and sold under a claim of exemption provided by Section 4(2) of the Securities Act of 1933 without the use of an underwriter or NASD registered broker-dealer; no commissions were incurred by the Company in connection with the transaction. The purchaser was sophisticated and experienced in financial, business, and investment matters and otherwise able to evaluate the merits and risks associated with the purchase of the Company’s securities. The purchaser was provided with, or given access to, information about the Company and the offering, including, but not limited to, the Company’s financial statements, business plan, articles of incorporation, by-laws, a description of how the proceeds were to be used, and additional information to assist in understanding the merits and risks of the investment. The purchaser was further provided the opportunity to ask questions of the Company’s officers and directors and receive answers to their questions. The purchaser was informed the securities purchased were restricted securities and they may have to hold them for an indefinite period of time.

In early August 2004, the Company issued an aggregate of 545,000 shares of the Company’s Common Stock to five investors in exchange for the Company’s receipt of cash of $136,250. All of the shares were offered and sold under a claim of exemption provided by Section 4(2) of the Securities Act of 1933 without the use of an underwriter or NASD registered broker-dealer. The Company paid a finder’s fee equal to 13% of the aggregate amount received, with 7% paid in cash and 6% paid by the issuance of the Company’s Common Stock. The finder merely introduced the Company to each purchaser and apart from the payment of a finder’s fee no commissions were incurred by the Company in connection with the transaction. The purchasers were each sophisticated and experienced in financial, business, and investment matters and otherwise able to evaluate the merits and risks associated with the purchase of the Company’s securities. The purchasers were provided with, or given access to, information about the Company and the offering, including, but not limited to, the Company’s financial statements, business plan, articles of incorporation, by-laws, a description of how the proceeds were to be used, and additional information to assist them in understanding the merits and risks of the investment. The purchasers were further provided the opportunity to ask questions of the Company’s officers and directors and receive answers to their questions. The purchasers were informed the securities purchased were restricted securities and they may have to hold them for an indefinite period of time.

Later in August 2004, the Company issued 1,800,000 shares of the Company’s Common Stock to one investor in exchange for the Company’s receipt of $180,000 in cash. All of the shares were offered and sold under a claim of exemption provided by Section 4(2) of the Securities Act of 1933 without the use of an underwriter or NASD registered broker-dealer; no commissions were incurred by the Company in connection with the transaction. The purchaser was sophisticated and experienced in financial, business, and investment matters and otherwise able to evaluate the merits and risks associated with the purchase of the Company’s securities. The purchaser was provided with, or given access to, information about the Company and the offering, including, but not limited to, the Company’s financial statements, business plan, articles of incorporation, by-laws, a description of how the proceeds were to be used, and additional information to assist in understanding the merits and risks of the investment. The purchaser was further provided the opportunity to ask questions of the Company’s officers and directors and receive answers to their questions. The purchaser was informed the securities purchased were restricted securities and they may have to hold them for an indefinite period of time.

In September 2004, the Company issued shares of the Company’s Common Stock as follows:

	(1)	A total of 45,192 shares of the Company’s Common Stock were issued in payment of legal services. All of these shares were valued at aggregate of $0.6425 per share;
	(2)	A total of 100,000 shares of the Company’s Common Stock were issued to Paul E. Atkiss, an officer and director of the Company in payment for services. All of these shares were valued at aggregate of $0.4175 per share;

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	(3)	An aggregate of 6,000,000 shares of the Company’s Common Stock were issued in payment for services by the following officers and directors with each receiving 1,000,000 shares: (a) Farid Shouekani; (b) Jason A. Sunstein; (c) James R. Balestraci; (d) John L. Castiglione; (e) Ronald G. Weaver; and (f) Stephen D. Young. All of these shares were valued at $0.04 per share;
	(4)	A total of 250,000 shares were issued in settlement of a dispute with all of the shares issued to one purchaser. All of these shares were valued at $0.51 per share;
	(5)	A total of 20,000 shares were issued to one purchaser in consideration of the Company’s receipt of cash $10,000 for a value of $0.50 per share;
	(6)	A total of 50,000 shares were issued to one purchaser in payment of certain accrued and unpaid interest on a Company debt. These shares were valued at $0.06 per share;
	(7)	An aggregate of 503,893 shares were issued to three purchasers in connection with the conversion of notes aggregating $150,000 previously issued to them by the Company plus accrued interest of $1,168. These shares were valued at $0.30 per share;
	(8)	A total of 225,000 shares were issued to two purchasers in payment for services received by the Company. These shares were valued at aggregate of $0.45 per share; and
	(9)	A total of 76,333 shares were issued to one purchaser in payment for services. These shares were valued at aggregate of $0.4569 per share.

All of the shares were offered and sold by the Company’s management under a claim of exemption provided by Section 4(2) of the Securities Act of 1933 without the use of an underwriter or NASD registered broker-dealer; no commissions were incurred by the Company in connection with the transaction. The purchasers were each Accredited investors as defined in Rule 501 of Regulation D of the Securities Act of 1933. The purchasers were provided with, or given access to, information about the Company and the offering, including, but not limited to, the Company’s financial statements, business plan, articles of incorporation, by-laws, a description of how the proceeds were to be used, and additional information to assist them in understanding the merits and risks of the investment. The purchasers were further provided the opportunity to ask questions of the Company’s officers and directors and receive answers to their questions. The purchasers were informed the securities purchased were restricted securities and they may have to hold them for an indefinite period of time.

On October 17, 2004, the Company effected a forward split of the Company’s Common Stock so that, as effected, each stockholder received one share of the Company’s Common Stock for every ten share of the Company’s Common Stock held as of the record date.

The following table summarizes the 2000 Equity Plan and 2002 Employee Compensation Plan as of December 31, 2004:

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted average exercise price of outstanding options, warrants and rights	Number of securities remaining available for future issuance.
	(a)	(b)	(c)


Equity Issuances pursuant to 2000 Equity Plan*	3,600,000	$0.234	8,400,000

Equity Issuances Pursuant to 2002 Employee Compensation Plan*	0	$0.00	10,450,000

Equity compensation plans not approved by security holders	0	0	0

Total	3,600,000	$0.234	18,850,000

* Approved by security holders

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ITEM 6. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Company’s discussion and analysis of its financial condition and results of operations are based upon its consolidated financial statements, which have been prepared in conformity with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses and related disclosures of contingent liabilities. On an ongoing basis, management evaluates its estimates, including, but not limited to, those related to bad debts, product returns, warranties, inventory reserves, long-lived assets, income taxes, litigation, and other contingencies. Management bases its estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Although, we believe our judgments and estimates are appropriate, actual future results may be different; if different assumptions or conditions were to prevail, the results could be materially different from our reported results. If actual results significantly differ from management's estimates, the Company's financial condition and results of operations could be materially impaired.

Comparison of Fiscal Year Ending December 31, 2004 and Fiscal Year Ending December 31, 2003

During the fiscal year ending December 31, 2004 (“Fiscal 2004”), we recorded $4,612,783 as net revenues. This compares to the fiscal year ending December 31, 2003 ("Fiscal 2003") when we recorded $433,376 as net revenue. Net revenues of consumer products and services (“Consumer”) approximately tripled, increasing from $77,310 in 2003 to $222,941 in 2004. This increase was the result of growth from the initial market introduction of the Company’s VoIP products. Wholesale operations (“Wholesale”) net revenues (on a consolidated basis) increased from $356,066 to $4,389,843. However, this is primarily the result of zero revenues in 2003 from the former Adoria operations to $2,698,638 in 2004 (the acquisition of Adoria did not occur until January, 2004) and the result of only the fourth quarter of the former Mid-Atlantic revenues in 2003 ($356,066) compared to a full years’ of Mid Atlantic revenues ($1,335,139) in 2004 (the acquisition of Mid-Atlantic occurred in October, 2003). If pre-acquisition revenues of those operations were included, Mid-Atlantics proforma revenues would have decreased from $3,157,864 in 2003 to $1,335,139 in 2004, and Adoria proforma revenues would have increased from $2,028,076 in 2003 to $2,906,355 in 2004. Similarly, wholesale proforma revenues would have decreased from $5,185,940 in 2003 to $4,241,494 in 2004. This proforma decrease is the result of Mid-Atlantic sales and marketing efforts being redirected to testing and quality management of vPhone products.

During Fiscal 2004, our Cost of revenues was $4,108,185 which resulted in a gross margin as a percentage of net sales revenues of approximately 11%. This compares to Fiscal 2003 where our Cost of revenues was $296,853 which resulted in a gross margin percentage of net sales revenues was approximately 31.5%. Consumer cost of revenues as a percentage of net sales revenues increased from 47% in 2003 to 117% in 2004, caused by the addition of new traffic routes in 2004 that, as of the end of the year, were not yet fully utilized. Wholesale cost of revenues as a percentage of revenues increased from 73% to 88%, the result of lower margins in the newly acquired Adoria operation. Competitive conditions, product and sales mix, and technology trends impacted our gross margin in both of these years. Net revenues and cost of revenues resulted in gross margins as a percentage of sales diminishing from 32% in 2003 to 11% in 2004 (Consumer decreased from +53% to -17% while Wholesale decreased from 27% to 12%, respectively). The Consumer gross margin was significantly influenced by the initial cost of new routes relative to the small revenue base. The Wholesale gross margin reduction is reflective of tighter margins resulting from competitive pressures.

During Fiscal 2004 we incurred $3,660,801 in general and administrative expenses. This compares to Fiscal 2003 when we incurred $1,462,566 in general and administrative expenses. General and administrative expenses as a percent of net sales revenues decreased both for Consumer (1,761% in 2003; $1,207% in 2004) and for Wholesale (28% in 2003; 22% in 2004). The improvement in Consumer was due to large marketing expenses in 2003 associated with product launch activities not repeated in 2004, plus better absorption of fixed expenses as revenues increased. The improvement in Wholesale was the result of generally lower General and administrative expenses incurred within the newly acquired Adoria operations (General and administrative expenses as a percent of sales for the Mid-Atlantic operation increased from 28% in 2003 to 34% in 2004). Overall, general and administrative expenses were primarily made up of wages and salaries, office expenses, fees and costs incurred for legal and accounting services, and other administrative costs.

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The single largest factor distinguishing profitability in 2004 compared to 2003 was the impairment of purchased intangibles, for which we recorded a charge in 2004 of $3,396,138 related to the Adoria acquisition compared to a charge in 2003 of $792,440 related to the Coliance acquisition. Both write downs occurred after a post-acquisition analysis of the fair market value of purchased intangibles showed them to be significantly less than their book value. In addition, during 2004 we recorded a charge of $1,092,100 for the impairment of purchased assets compared to zero in 2003. The impairment was a non-temporary impairment in Brasil LLC resulting from an analysis of the fair market value of the assets and liabilities held by Brasil LLC.

During Fiscal 2004, we had bad debt expense of $83,712 (split almost evenly between Wholesale (Mid-Atlantic) and Consumer) compared to Fiscal 2003 when we $0 in bad debt expense. During Fiscal 2004, we recorded an equity loss from unconsolidated subsidiaries of $181,067 (associated with the Brasil LLC investment) compared to Fiscal 2003 when we recorded $29,400.

As a result of these margins and expenses, we incurred an operating loss of $7,909,220 in 2004 compared to an operating loss of $2,145,484 in 2003. Most of the loss ($7,436,829) was within Consumer, which incurred the large charge for impairment of purchased intangibles and impairment of purchased assets and the bulk of the general and administrative costs. As a percent of sales, the operating loss in Consumer increased from 2,720% to 3,312% and the loss in Wholesale increased from 1% to 11%.

During Fiscal 2004 we had $15,761 in realized gain on marketable securities compared to Fiscal 2003 gain of $8,173. In addition, in Fiscal 2004, we incurred interest expense of $73,060 (2% of revenues) compared to $60,495 (14% of revenues) in interest expense during Fiscal 2003.

As a result, during Fiscal 2004 we had a net loss of $7,964,192 compared to Fiscal 2003 when we had a net loss of $2,200,854. The increase in net loss was predominantly within Consumer (94%). The operating loss in Wholesale increased from 1% in 2003 to 11% in 2004.

Basic loss per share for Fiscal 2004 was $.08 compared to Fiscal 2003 when we had a basic loss per share of $.06. During Fiscal 2004, we had 101,961,298 weighted average shares outstanding. By comparison, during Fiscal 2003 we had 37,243,157 weighted average shares outstanding.

Liquidity and Capital Resources

At December 31, 2004, we had $46,956 in cash. At the same time, we had $121,948 in net accounts receivable, $72,020 in inventories, and $59,324 in other current assets for a total of $305,248 of total current assets. Total current assets compared to 2003 are a reduction of $49,645; the significant components are: cash ($123,384); short term investments ($48,200); net accounts receivable $31,044; and, inventories $72,020. The inventory increase was the result of minimum inventory purchases (mostly from the USB vPhone device). We expect inventory needs to grow in proportion to product sales growth; cash will be negatively impacted by this need.

In contrast, as of December 31, 2004, our total current liabilities were $1,308,326 which consisted primarily of the following material amounts: $375,564 in accounts payable; $61,915 in accrued liabilities; $607,094 in related party obligations; $82,103 in deferred revenues; $97,647 in short term debt; and, $81,380 in stock subscription deposit. Total current liabilities compared to 2003 are an increase of $618,060; the significant components are: accounts payable $305,117; accrued liabilities $56,756; related party obligations $595,436; deferred revenue $82,103; and, short term debt ($431,902).

Net Working Capital as of December 31, 2004 was ($1,003,078). During Fiscal 2004, our cash needs were met primarily by the sale of common stock and loans from certain of our shareholders. Cash flows prior to the sale of common stock and loans from certain of our shareholders was ($3,074,079); comprised of ($2,701,671) for Consumer and ($372,408) for Wholesale. Consumer cash consumption includes aggregate cash payments of $800,000 for acquisitions and $269,500 on acquisition notes (related to 2003 acquisitions). The Company anticipates that it will consume cash within Consumer as revenues increase, products are added to inventories, and we implement our business plan. In addition, Wholesale will consume cash as it competes against lower gross margins and it supports implementation of our business plan. We can not be assured that we will continue to obtain funds from these or any other sources to meet our need for additional capital resources.

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The Companies’ cash as of December 31, 2004 ($46,956) is insufficient to continue operations for more than a very short period of time; the Company will need to raise significant capital for both its continuing operations and to implement its business plan. As of December 31, 2004, the Company expects that it will need to raise at least $1,300,000 in cash to cover our anticipated operating expenses for the twelve month period thereafter.

Overall, our liquidity and access to capital is very limited. We have not received any commitment for additional financing and given the size of our company, we may be limited to loans and other cash infusions from officers, directors, existing stockholders, and persons affiliated or associated with one or more of them. If we are to implement our business plan, we will need to raise significant amounts of additional capital and during the period ending December 31, 2004 we had not received any commitment that any such additional financing would be forthcoming or, if could be obtained, that it can be obtained on reasonable terms in light of our circumstances at that time. In addition, if any financing should be obtained, existing shareholders will likely incur substantial, immediate, and permanent dilution of their existing investment.

Critical Accounting Policies

The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, requires us 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 periods. We are required to make judgments and estimates about the effect of matters that are inherently uncertain. .Although, we believe our judgments and estimates are appropriate, actual future results may be different; if different assumptions or conditions were to prevail, the results could be materially different from our reported results.

On an on-going basis, we evaluate our estimates, including, but not limited to, those related to bad debts, product returns, warranties, inventory reserves, long-lived assets, income taxes, litigation, and other contingencies. We base our estimates on historical experience and various other assumptions we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.

The Company recognizes revenues and the related costs for voice, data and other services along with product sales when persuasive evidence of an arrangement exists, delivery and acceptance has occurred or service has been rendered, the price is fixed or determinable, and collection of the resulting receivable is probable and not contingent. Service revenue from monthly and per minute fee agreements is recognized gross, consistent with Emerging Issues Task Force (EITF) No. 99-19 “Reporting Revenues Gross as a Principal Versus Net as an Agent”, as the Company is the primary obligor in its transaction, has all credit risk, maintains all risk and rewards, and established pricing. Amounts invoiced or collected in advance of product delivery or providing services are recorded as deferred revenue. The Company accrues for warranty costs, sales returns, bad debts and other allowances based on its historical experience.

The Company’s property and equipment and purchased intangible assets represent a significant component of our consolidated assets. We depreciate property and equipment on a straight-line basis over the estimated useful life of the assets. Changes in the remaining useful lives of assets as a result of technological change or other changes in circumstances, including competitive factors in the VoIP market, can have a significant impact on asset balances, recoverability, or depreciation expense. Purchased intangible assets with indefinite useful lives are not amortized but are evaluated for impairment at least annually, as required by Statement of Financial Accounting Standards, No.142 “Goodwill and Other Intangible Assets”. Any impairment loss is determined by comparing the fair value of the Intangible Assets with the carrying value. Fair value is estimated using discounted future cash flows. There is inherent subjectivity involved in estimating discounted future cash flows, which can have a material impact on the amount of any impairment.

Forward-Looking Statements

This Form 10-KSB contains forward-looking statements. Forward-looking statements are statements concerning plans, objectives, goals, strategies, expectations, intentions, projections, developments, future events, performance or products, underlying (express or implied) assumptions and other statements which are other than historical facts. In some cases forward-looking statements can be identified by the use of forward-looking words such as “believes”, “expects”, "ma,", "will", "should", "could", "intends", "plan,", "anticipates", "contemplates",

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"estimates", "predicts", "projects", and other similar terminology or the negative of these terms or by discussions of plans or strategy that involve risks or uncertainties Management wishes to caution the reader that these forward-looking statements including, but not limited to, statements regarding the Company’s marketing –plans, goals, competitive and technology trends, and other matters that are not historical facts are only predictions. No assurances can be given that such predictions will prove correct or that the anticipated future results will be achieved. Actual events or results may differ materially either because one or more predictions prove to be erroneous or as a result of other risks facing the Company. Forward-looking statements should be read in light of the cautionary statements and important factors described in this Form 10-KSB, including, but not limited to, the Sections titled “The Factors That May Affect Future Results” shown as Item 1A and in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. The risks include, but are not limited to, the risks associated with an early-stage company that has only a limited history of operations, the comparatively limited financial resources of the Company, the intense competition the Company faces from other established competitors, technological changes that may limit the ability of the company to market and sell its products and services or adversely affect the pricing of these products or services, and management that has only limited experience in developing systems and management practices. Any one or more of these or other risks could cause actual results to differ materially from the future results indicated, expressed, or implied in such forward-looking statements. We undertake no obligation to update or revise any forward-looking statement to reflect events, circumstances, or new information after the date of this Form 10-KSB or to reflect the occurrence of unanticipated or other subsequent events, and we disclaim any such obligation.

Impact of Inflation

Because of the nature of its services, the Company does not believe that inflation had a significant impact on its sales or profits.

Recent Accounting Pronouncements

In July 2002, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 146 – Accounting for Costs Associated with Exit or Disposal Activities. SFAS No. 146 provides guidance on the recognition and measurement of liabilities associated with exit or disposal activities. Under SFAS No. 146, liabilities or costs associated with exit or disposal activities should be recognized when the liabilities are incurred and measured at fair value. This statement is effective prospectively for exit ort disposal activities initiated after December 31, 2002. The adoption is not expected to have a material effect on the Company’s results of operation or financial condition.

In November 2002, the FASB issued FASB issued FASB Interpretation No. 45 (“FIN 45”), -- Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others,” FIN 45 requires that a liability be recorded in the guarantor’s balance sheet upon issuance of a guarantee. In addition, FIN 45 requires disclosures about the guarantees that an entity has issued, including a rollforward of the entity’s product warranty liabilities. The Company will apply the recognition provisions of FIN 45 prospectively to guarantees issued after December 31, 2002. The disclosure provisions of FIN 45 are effective for, and are reflected in, the 2002 financial statements. The adoption of FIN 45 is not expected to have a material effect on the Company’s results of operation or financial condition.

In November 2002, the Emerging Issues Task Force (EITF) issued Issue No. 00-21, “Accounting for Revenue Arrangements with Multiple Deliverables.” This Issue addresses determination of whether an arrangement involving more than one deliverable contains more than one unit of accounting and how arrangement consideration should be measured and allocated to the separate units of accounting. EITF Issue No. 00-21 will be effective for revenue arrangements entered into in fiscal periods beginning after June 15, 2003 or the Company may elect to report the change in accounting as a cumulative-effect adjustment. The Company is reviewing EITF Issue No. 00-21 and has not yet determined the impact that this issue will have on its operating results and financial condition.

ITEM 7. FINANCIAL STATEMENTS

The financial statements and related financial information required to be filed hereunder are indexed on page F-1 of this report and are incorporated herein by reference.

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ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUTANTS

None.

ITEM 8A. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

The Company’s management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective in recording, processing, summarizing and reporting information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act, but that such disclosure controls and procedures are not effective to insure reporting is on a timely basis. In addition, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate but that such disclosure controls and procedures are not effective to insure information is communicated to allow for timely decisions regarding required disclosure.

Changes in Internal Controls Over Financial Reporting

There have not been any changes in the Company’s internal controls over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

Management’s Report on Internal Control Over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Company’s internal control over financial reporting has been designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States of America.

The Company’s internal control over financial reporting includes policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect transactions and dispositions of assets of the Company; provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures are being made only in accordance with authorization of management and directors of the Company; and provide reasonable assurance regarding prevention or detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the Company’s financial statements. Management believes the internal control policies and procedures have been and are likely to continue to be effective in meeting these needs.

In addition, the Company’s internal control over financial reporting also includes policies and procedures that pertain to the timeliness of information and reporting, both to management and to the public. These policies and procedures are important to support Management’s decision making processes, to quickly identify inappropriate activities and minimize loss, and to empower investors with timely information in support of their investment decisions. Management has determined that these internal control policies and procedures have not been effective to ensure that financial statements for internal and external reporting purposes are prepared on a timely basis. In addition, management does not believe the necessary changes to these control policies and procedures to rectify this

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deficiency have been implemented. As such, management believes financial statements may continue to suffer from lack of timely preparation and dissemination, and that this condition will continue until adequate changes have been designed and implemented.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

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PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS

Directors and Executive Officers

The members of the Board of Directors of the Company serve until the next annual meeting of stockholders, or until their successors have been elected. The Company’s by-laws provide for four authorized directors. Currently, the Company has only three directors and intends, as opportunities become available, to identify one additional director to serve on the Company’s Board of Directors.

The officers serve at the pleasure of the Board of Directors. Information as to the directors and executive officers of the Company is as follows:

Name	Age	Position	Date Elected

Ronald G. Weaver	59	President, Chief Executive Officer & Director	2003
John L. Castiglione	33	Treasurer and Director	2000
Farid Shouekani	40	Chief Technical Officer & Director	2003
Jason A. Sunstein	33	V.P. Finance, Secretary and Director	2000
Paul E. Atkiss	49	Chief Financial Officer and Director	2004
James R. Balestraci	39	Chief of International Wholesale Operations & Director	2004

Each of the foregoing persons may be deemed a "promoter" of the Company, as that term is defined in the rules and regulations promulgated under the Securities Act of 1933.

Ronald G. Weaver, age 59, is President, Chief Executive Officer, and Director of the Company and has held these positions since June 2003. From 1999 to 2002, Mr. Weaver served as Chief Operating Officer of Digital Services Group, Inc. where he created a multi-year business plan while directing overall revenue growth of 47% in China and Taiwan and in Europe and :Latin America. From 1997 to 1999, Mr. Weaver served as Vice President of World Wide Sales of Global VoIP Sound. From 1994 to 1997, Mr. Weaver served as Vice President of World Wide Sales and Marketing at Franklin Telecom where he created turnkey VoIP sales systems for Latin America, Europe, Asia, and the Pacific Rim and opened up nine new telecom markets and established the NATO satellite communications services backbone. From 1984 to 1997, Mr. Weaver served as National Distribution Sales Manager at Panasonic AOG. From 1980 to 1984, Mr. Weaver served as National Sales and Marketing Manager at Western Digital. Mr. Weaver received his Bachelor of Arts (degree) in Business Administration and Economics from the University of California at Los Angeles (1973), completed studies at New Mexico State University in Organizational Psychology (1975), completed studies in French at California State University (1988), and completed studies at MSU in Russian.

John L. Castiglione, age 32, is Treasurer and Director of the Company and has held these positions since September 2000. Prior to joining the Company, Mr. Castiglione held marketing positions with Fujitsu Business Communications Systems (1999), Starbucks Specialty Sales (1998), TSR Wireless (1996-1998), and ICG Communications (1998-2000). Mr. Castiglione attended San Diego State University where he studied Business as well as Industrial and Organizational Psychology (non-degreed).

Farid Shouekani, age 40, is Chief Technical Officer and Director of the Company and has held these positions since October 2003. For the past 10 years Mr. Shouekani has held positions in VoIP, telecommunications and engineering with such Companies as TEC Cellular, Robotron and Crescent International. Most recently he helped design, build and deploy Mid Atlantic International's World Wide VoIP (Voice over Internet Protocol) network which was acquired by Viper Networks in 2003. Mr. Shouekani has a Bachelor of Science Degree in Electrical Engineering and a Masters of Science Degree in Computer Engineering from Florida Tech.

Jason A. Sunstein, age 32, is Vice President Finance and Secretary and Director and has held these positions since 2000. Prior to joining the Company, Mr. Sunstein was a V.P. and Secretary of Tri-National Development Corp., formerly a publicly-traded real estate company. In October of 2001, Tri-National filed for

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bankruptcy reorganization. Mr. Sunstein resigned from Tri-National in May of 2002. During 1998 and 1999 while Mr. Sunstein was corporate secretary at Tri-National, Tri-National retained the services of a finder to introduce it to potential investors. It was later discovered that the finder had violated certain Wisconsin securities laws. With the result that Tri-National refunded and rescinded the investments made by these investors. Mr. Sunstein attended the School of Business at San Diego State University where he majored in Finance (non-degreed).

Paul E. Atkiss, age 49, is Chief Financial Officer and Director of the Company and has held these positions since June 2004. Mr. Atkiss brings to the Company over 25 years of accounting and finance experience with privately held and publicly traded corporations. Mr. Atkiss spent 12 years with Jaycor, most recently as Controller, where he was responsible for the accounting systems, consolidated reporting, financial and tax audits, banking, and insurance. Mr. Atkiss holds a Bachelor of Science degree from San Diego State University and is a California CPA.

James R. Balestraci, age 39, is Chief of International Wholesale Operations and Director and has held this position since January 2004. Prior to joining the Company, Mr. Balestraci was the President and founder of Adoria Communications, LLC and served in that capacity for 2 years. Mr. Balestraci joins Viper Networks with over 11 years of successful telephony engineering and sales experience having worked for some of the premier firms in the industry. This includes 9 years immediately prior to founding Adoria Communications with Network Plus, Inc., where he held various sales and marketing positions. Mr. Balestraci holds a Bachelors of Science degree from Plymouth State University with an emphasis in marketing.

Advisory Board Member

The Company has established an Advisory Board. Currently the Company has only one Advisory Board Member but the Company may increase the size of the Board if opportunities arise. The Advisory Board provides advice to the Company’s management from time to time and as requested. The Company has not established any compensation arrangements for the services it receives from persons who provide advice in their capacity as Advisory Board Members.

Paul Goss, age 61, is an Advisory Board Member of the Company. Mr. Goss has been legal counsel to the Company since September 2000. Mr. Goss had been the Executive Vice President and General Counsel for One Capital Corporation, a private merchant bank with offices in New York and Denver from 1990 until 2005. Prior to joining Capital One, Corporation, Mr. Goss was engaged in the private practice of law in Denver, Colorado with a concentration in real estate, corporate, and merger and acquisition law both domestic and international. He is a member of the Denver and Colorado Bar Associations. Mr. Goss has a Masters in Business Administration (degree) in addition to his Juris Doctor (degree) from the University of Denver.

Compliance with Section 16(a) of the Exchange Act

Section 16(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) requires that the Company’s directors, executive officers, and persons who own more than 10% of the Company’s Common Stock (collectively, “Covered Persons”) to file reports of ownership (Form 3) and reports changes in ownership of Common Stock (Forms 4 and Forms 5) with the Securities and Exchange Commission as well as the Company and any exchange upon which the Company's Common Stock is listed.

The Company is required to identify Covered Persons that the Company knows have failed to file or filed late Section 16(a) reports during the previous fiscal year. To the Company's knowledge, the following Covered Persons during the fiscal year ended December 31, 2004 failed to file on a timely basis reports required by Section 16(a) of the Exchange Act:

Name	Position	No. of Reports Not Filed on a Timely Basis⁽¹⁾
NONE

Footnote:
(1)	To the Company's knowledge, based solely on a review of the copies of the reports furnished to the Company by such persons, in the fiscal year ended December 31, 2004 such persons have subsequently filed the reports required by Section 16(a) of the Exchange Act.

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ITEM 10. EXECUTIVE CONPENSATION

The Company's Board of Directors has authorized the compensation of its officers with the following annual cash salaries:

SUMMARY COMPENSATION TABLE

		Annual Compensation			Long-Term Compensation

					Awards Payouts

Name and Principal Position (a)	Year (b)	Salary ($)(c)	Bonus ($)(d)	Other Annual Compen- sation ($)(e)*	Restricted Stock Awards (s)($)(f)	Securities Underlying Options/ SARs (#)(g)	LTIP Payouts ($)(h)	All Other Compen- sation (1)($)(i)

Ronald G. Weaver, President, CEO and Director (2)	2002 2003 2004	$ 0 $ 13,846 $140,885	$ 0 $ 0 $ 0	$ 0 $ 0 $ 9,000	$ 0 $ 80,000 $ 80,000	0 750,000 0	$ 0 $ 0 $ 0	$ 0 $ 0 $ 0
John L. Castiglione, V.P. Marketing, Treasurer, and Director	2002 2003 2004	$ 0 $ 13,846 $140,885	$ 0 $ 0 $ 0	$ 0 $ 0 $ 9,000	$179,301 $167,875 $ 80,000	250,000 250,000 0	$ 0 $ 0 $ 0	$ 0 $ 0 $ 0
Farid Shouekani, Chief Technical Officer and Director (3)	2002 2003 2004	$ 0 $ 24,000 $120,000	$ 0 $ 0 $ 0	$ 0 $ 1,831 $ 8,787	$ 0 $ 0 $ 80,000	0 250,000 0	$ 0 $ 0 $ 0	$ 0 $ 0 $ 0
Jason A. Sunstein, V.P. Finance, Secretary & Director	2002 2003 2004	$ 0 $ 13,846 $140,885	$ 0 $ 0 $ 0	$ 0 $ 0 $ 9,000	$179,301 $167,875 $ 80,000	250,000 250,000 0	$ 0 $ 0 $ 0	$ 0 $ 0 $ 0
Paul E. Atkiss, CFO & Director (4)	2002 2003 2004	$ 0 $ 0 $ 75,077	$ 0 $ 0 $ 0	$ 0	$ 0 $ 0 $ 76,750	0 0 1,000,000	$ 0	$ 0
James R. Balestraci Chief of International Wholesale Operations & Director (5)	2002 2003 2004	$ 0 $ 0 $132,353	$ 0 $ 0 $ 0	$ 0 $ 0 $ 0	$ 0 $ 0 $ 40,000	0 0 0	$ 0 $ 0 $ 0	$ 0 $ 0 $ 6,753
Stephen D. Young, CEO and Director (6)	2002 2003 2004	$ 0 $ 9,231 $ 77,423	$ 0 $ 0 $ 0	$ 0 $ 0 $ 5,192	$ 0 $ 80,000 $ 80,000	0 750,000 0	$ 0 $ 0	$ 0 $ 0 $ 0

All Directors as a Group (7 persons)	2002 2003 2004	$ 0 $ 74,769 $827,508	$ 0 $ 0 $ 0	$ 0 $ 1,831 $40,979	$358,602 $495,750 $516,750	500,000 2,250,000 1,000,000	$ 0 $ 0 $ 0	$ 0 $ 0 $ 6,753

Footnote:
(1)	Amount includes payment by subsidiary of 2003 contribution to qualified retirement plan.
(2)	Mr. Weaver became an officer of the Company in July 2003.

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(3)	Mr. Shouekani became an officer of the Company in October 2003.
(4)	Mr. Atkiss became an officer of the Company in June 2004.
(5)	Mr. Balestraci became an officer of the Company in January 2004.
(6)	Mr. Young became an officer of the Company in July 2003 and resigned from the Company in October 2004.

The Company does not currently compensate its Directors for their services as directors. The Board of Directors did not include any independent directors as of December 31, 2004. Such Directors will be added as needed and at the same time such directors are appointed or elected, the Company may institute a system of compensation either in the form of attendance fees or option awards.

With respect to cash salaries, the Company may change or increase salaries as the Company's profits and cash flow allow. The amount of any increase in salaries and compensation for existing officers has not been determined at this time and the number and dollar amount to be paid to additional management staff that will likely be employed has not been determined.

OPTION/SAR GRANTS IN 2004 FISCAL YEAR
(Fiscal Year Individual Grants)

Name
(a)

No. of
Securities
Underlying
Options/SARs
Granted
(#) (b)

Percent of
Total Options/
SARs
Granted to
Employees in
Fiscal Year
(c)

Exercise of
Base Price
($/Sh)
(d)

Expiration
Date
(e) (1)

Paul E. Atkiss

500,000
500,000

100%
100%

$(.526)
$(.450)

06/02/2009
09/17/2006

Footnote:

(1)

During the calendar year ending December 31, 2004, Mr. Atkiss was awarded the following as stock options: (a) an option to purchase 500,000 shares of the Company’s common stock at an exercise price of $0.526 per share with the option expiring on June 2, 2014; and (b) an option to purchase 500,000 shares of the Company’s common stock at an exercise price of $0.450 per share with the option expiring on September 17, 2014.

There were no options exercised during the 2004 fiscal year and 650,000 unvested options were forfeited upon the resignation of an officer.

A summary of Executive and Officer option holdings as of December 31, 2004 are shown below:

SUMMARY - EXECUTIVE OPTION HOLDINGS, 12/31/04
	OUTSTANDING	IN THE MONEY
NAME	as of	SHARES		EXERCISE		MARKET
	12/31/05			COST		VALUE*
Ron Weaver	750,000	750,000	$	79,000	$	225,000
John Castiglione	750,000	750,000	$	105,000	$	225,000
Farid Shouekani	250,000	250,000	$	62,000	$	75,000
Jason Sunstein	750,000	750,000	$	105,000	$	225,000
Paul Atkiss	1,000,000	0	$	0	$	0
Stephen Young	100,000	100,000	$	3,400.	$	30,000

TOTAL	3,600,000	2,600,000	$	354,400	$	780,000
		* At the 12/31/04 closing price of $0.30

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ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information relating to the beneficial ownership of Company common stock by those persons beneficially holding more than 5% of the Company's Common Stock, by the Company's directors and executive officers, and by all of the Company's directors and executive officers as a group as of December 31, 2004.


(1) Title Of Class	(2) Name And Address Of Beneficial Owner	(3) Amount And Nature Of Beneficial Owner (1)	(4) Percent Of Class (1) (2)

Common Stock	Ronald G. Weaver 10373 Roselle Street Suite 170 San Diego, California 92121	9,000,000	7.21%
Common Stock	John L. Castiglione 10373 Roselle Street Suite 170 San Diego, California 92121	12,766,684	10.23%
Common Stock	Farid Shouekani 10373 Roselle Street Suite 170 San Diego, California 92121	5,480,000	4.39%
Common Stock	Jason A. Sunstein 10373 Roselle Street Suite 170 San Diego, California 92121	11,994,942	9.61%
Common Stock	James R. Balestraci 10373 Roselle Street Suite 170 San Diego, California 92121	4,600,000	3.69%
Common Stock	Paul E. Atkiss 10373 Roselle Street Suite 170 San Diego, California 92121	1,110,000	0.89%

Officers and Directors as a group (6 persons)		44,951,626	36.01%

Footnote:
(1)	"Beneficial Owner" means having or sharing, directly or indirectly (i) voting power, which includes the power to vote or to direct the voting, or (ii) investment power, which includes the power to dispose or to direct the disposition, of shares of the common stock of an issuer. The definition of beneficial ownership includes shares underlying options or warrants to purchase common stock, or other securities convertible into common stock, that currently are exercisable or convertible or that will become exercisable or convertible within 60 days. Unless otherwise indicated, the beneficial owner has sole voting and investment power.
(2)	Percentages are based on 121,222,899 shares outstanding on December 31, 2004 and an aggregate of 3,600,000 shares purchasable upon exercise of certain Common Stock Purchase Options granted to the Company’s officers and directors, including 1,000,000 granted and 650,000 forfeited in fiscal 2004 (See “Option/SAR Grants in Last Fiscal Year” table shown above).

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

As a result of several transactions, Jason A. Sunstein, an officer and director of the Company, paid certain of the Company’s expenses which totaled $10,330 during the twelve months ending December 31, 2002, totaling $16,737 as of December 31, 2002. The Company subsequently repaid Mr. Sunstein all of these amounts.

-44-

As a result of several transactions, John L. Castiglione, an officer and director of the Company, paid certain of the Company’s expenses which totaled $23,251 during the twelve months ending December 31, 2002, totaling $26,603 as of December 31, 2002. The Company subsequently repaid Mr. Castiglione all of these amounts.

In July, 2001 (and continuing thru December 31, 2003) the Company entered into an oral month-to-month lease for the rental of office space from Jason A. Sunstein, an officer and director of the Company, which required that the Company pay Mr. Sunstein the sum of $1,100 per month in payment of all office space and utilities. While the Company believes that the office arrangement with Mr. Sunstein was undertaken on terms that were no different than those the Company could have obtained in an arms-length transaction with an unrelated party, the Company completed only a limited evaluation of other alternatives.

During June and July 2003, the Company’s Board of Directors approved the acquisition of Coliance Communications (“Coliance”) which included the purchase of the shares of Coliance acquired from Ronald G. Weaver and Stephen D. Young. In this transaction, the Company issued 6,000,000 shares of the Company’s Common Stock to Ronald G. Weaver, who became the Company’s Chief Executive Officer and a Director and 6,000,000 shares of the Company’s Common Stock to Stephen D. Young, who became the Company’s Chairman of the Board and President.

On October 15, 2003, the Company’s Board of Directors approved the acquisition of Mid-Atlantic International, Inc., a Michigan corporation (“Mid-Atlantic”) from Farid Shouekani. Under the terms of the Mid-Atlantic Agreement, the Company acquired all of Mr. Shouekani’s Mid-Atlantic Shares in exchange for: (1) $50,000 cash within 21 days of Closing; and (2) an aggregate of 7,235,000 shares of the Company’s Common Stock with 4,235,000 of these shares (the “Special Shares”) subject to certain redemption rights (the “Redemption Rights”), at the option of Mr. Shouekani at a redemption price of $0.17 per Special Share as provided by the Mid-Atlantic Agreement. All of the Redemption Rights expire on January 15, 2003 and are secured by Mid-Atlantic’s assets. As of December 31, 2004, Mr. Shouekani exercised his Redemption Rights over 1,802,000 Special Shares. The remaining 2,433,000 Special Shares were canceled and returned to treasury. Mr. Shouekani also became Chief Technical Officer and a Director of the Company.

On January 30, 2004, the Company entered into a Securities Merger Agreement (the “Adoria Agreement”) with James R. Balestraci, the sole holder of the membership interests of Adoria Communications, LLC, a Delaware limited liability company (“Adoria”). Under the terms of the Adoria Agreement, the Company acquired all of Mr. Balestraci’s membership interests in Adoria in exchange for: (1) cash payments totaling $500,000 and (2) the Company’s issuance of 2,500,000 shares of the Company’s Common Stock with 500,000 of these shares (the “Performance Shares”) of the Company’s Common Stock subject to the condition that Adoria’s financial results in 2004 must equal or exceed its financial results in 2003. In the event that Adoria’s financial results in 2004 do not equal or exceed its 2003 results, the Performance Shares are to be cancelled and returned as treasury stock. Adoria’s 2004 financial results exceeded its 2003 results and the Performance Shares were earned. Mr. Balestraci also became Chief of International Wholesale Operations and a Director of the Company.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a)	The following Exhibits are attached or incorporated by reference, as stated below.

3.1(a)	Articles of Amendment to Articles of Incorporation of Tinglefoot Mining, Inc.*
3.1(b)	Articles of Amendment to Articles of Incorporation of Mexico Investment Corporation*
3.1(c)	Articles of Amendment to the Articles of Incorporation of Baja Pacific International, Inc.*
3.1(d)	Articles of Incorporation of Taig Ventures, Inc.**
3.1(e)	Articles of Incorporation for Coliance Communications, Inc.#*
3.1(f)	Articles of Incorporation for Mid-Atlantic International, Inc.#*
3.1(g)	Articles of Organization for Adoria Communications, LLC#**
3.3	By-Laws for Viper Networks, Inc.*
3.3(a)	By-Laws for Coliance Communications, Inc. #**
3.3(b)	By-Laws for Mid-Atlantic International, Inc. #**
10.1	Securities Purchase Agreement and Plan of Reorganization*
10.2	Viper Networks, Inc. 2000 Equity Incentive Plan*

-45-


10.3	Employment Agreement (Wray)*
10.4	Employment Agreement (Castiglione)*
10.5	Employment Agreement (Sunstein)*
10.6	Agreement of Purchase and Sale of Assets (between Viper Networks, Inc. And Tri-National Development Corporation)*
10.7	Addendum to the Agreement of Purchase and Sale of Assets Between Viper Networks, Inc. And Tri-National Development Corporation*
10.8	Settlement Agreement And General Release of Claims (between Viper Networks, Inc. And Tri-National Development Corporation)*
10.9	Month-to-Month Industrial Lease**
10.10	Month-to-Month Industrial Lease***
10.11	Securities Merger Agreement (Mid-Atlantic)#**
10.12	Amendment to Securities Merger Agreement (Mid-Atlantic) #**
10.13	Securities Merger Agreement (Adoria) #**
10.14	Push to Talk Services Reseller Billing Direct Agreement with ITXC, Inc.
14	Code of business Conduct and Ethics
23.1	Consent of Independent Accountants, Armando C. Ibarra, C.P.A., P.C.
31.1	Certification Pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification Pursuant to Rule 13a-14(a) or 15d-14(a) of the Exchange Act, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002




	*Previously filed with Form 10-SB or 10-SB-Amendment No. 1 and incorporated herein by reference.
	**Previously filed with 2001 Form 10-KSB and incorporated herein by reference.
	***Previously filed with 2002 Form 10-KSB and incorporated by reference herein.
	#*Previously filed with 2003 Form 10-KSB and incorporated by reference herein.
	#**Previously filed with 2004 Form 10-KSB and incorporated by reference herein.

(b)	The Company filed the following Reports on Form 8-K during the year ending December 31, 2004:
	- Form 8K December 30, 2004

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Audit Fees

The anticipated aggregate fees to Armando C. Ibarra, CPA, P.C., for professional services rendered for the audit of the Company’s annual financial statements for the fiscal year ended December 31, 2003 and for the reviews of the financial statements included in the Company’s Quarterly Reports on Form 10-QSB for that fiscal year are estimated at $ 10,000. The aggregate fees to Armando C. Ibarra, CPA, P.C., for professional services rendered for the audit of the Company’s annual financial statements for the fiscal year ended December 31, 2004 and for the reviews of the financial statements included in the Company’s Quarterly Reports on Form 10-QSB for that fiscal year were $ 11,800. Audit related services generally include fees for accounting consultations, business acquisitions, and work related thereto. No audit-related fees for assurance and related services were billed by or paid to Armando C. Ibarra, CPA, P.C. in 2003 or in 2004.

Tax Fees

An aggregate of $0 was spent for Tax Fees (as defined in Item 14(3) of Form 10-KSB of the Securities and Exchange Commission) during the last two fiscal years ended December 31, 2004.

-46-

Other Fees

No other fees for audit-related services or products were billed by or paid to Armando C. Ibarra, CPA, P.C. in 2003 or in 2004.

Audit Committee Charter

The Company intends to establish an Audit Committee of the Company’s Board of Directors and thereby to establish a Charter for the Audit Committee. For the year ending December 31, 2004 and due to limited financial resources, the Company has delayed the implementation of these plans until such later date at which the Company may have the financial resources available.

Audit Committee Report

Since the Company did not establish an Audit Committee for the year ending December 31, 2004, no Audit Committee Report for that period is available.

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Viper Networks, Inc.

By: /s/ Farid Shouekani Farid Shouekani Chief Executive Officer		Date: May 5, 2006

By: /s/Paul E. Atkiss Paul E. Atkiss Chief Financial Officer/Principal Accounting Officer		Date: May 5, 2006

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

By: /s/ Farid Shouekani Farid Shouekani Chief Executive Officer & Director		Date: May 5, 2006

By: /s/Paul E. Atkiss Paul E. Atkiss Chief Financial Officer, Secretary & Director		Date: May 5, 2006

By: /s/ Ronald G. Weaver Ronald G. Weaver Chief Executive Officer & Director		Date: May 5, 2006

-47-

Index to Financial Statements

Report of Independent Registered Public Accounting Firm	F-2

Consolidated Balance Sheet as of December 31, 2004	F-3

Consolidated Statements of Operations for the Years Ended December 31, 2004 and 2003	F-4

Consolidated Statements of Stockholders’ Deficit for the Years Ended December 31, 2004 and 2003	F-5

Consolidated Statements of Cash Flows for the Years Ended December 31, 2004 and 2003	F-6 – F-7

Notes to the Consolidated Financial Statements	F-8 – F-25

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors
Viper Networks, Inc.
10373 Roselle Street, Suite 170
San Diego, CA 92121

We have audited the accompanying consolidated balance sheet of Viper Networks, Inc. and subsidiaries of December 31, 2004 and 2003 and the related consolidated statements of operations, changes in shareholders’ equity and cash flow for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Viper Networks, Inc., and subsidiaries as of December 31, 2004 and 2003, and the results of their operations and its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company’s losses from operations raise doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Armando C. Ibarra

ARMANDO C. IBARRA, CPA
May 5, 2006 – restated see note 15
April 14, 2005
Chula Vista, Ca. 91910

F-2

VIPER NETWORKS, INC. AND SUBSIDIARIES

Consolidated Balance Sheet


		December 31,
		2004

ASSETS
Current Assets:
Cash	$	46,956
Sort-term investments		5,000
Accounts receivable, net of allowance for doubtful accounts and sales returns (Note 4)		121,948
Inventories		72,020
Other current assets (Note 4)		59,324

Total current assets		305,248

Property and equipment, net (Note 4)		497,226
Investments in unconsolidated businesses (Note 3)		46,833
Goodwill (Note 5)		424,541


Total assets	$	1,273,8485



LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	375,564
Accrued liabilities (Note 4)		61,915
Loans from related party (Note 7)		607,094
Taxes payable		2,623
Deferred revenues		82,103
Short term debt		97,647
Stock subscription deposit (Note 8)		81,380

Total current liabilities		1,308,326


Commitments and Contingencies (Note 10)		-

Stockholders equity:
Preferred stock: Class A, authorized 100,000 shares at $1.00 par value, -0- shares issued and outstanding (Note 11)		-
Preferred stock: Class B, authorized 10,000,000 shares at $1.00 par value, -0- shares issued and outstanding (Note 11)		-
Common stock: 250,000,000 shares authorized of $0.001 par value, 121,222,899 shares issued and outstanding		121,223
Additional paid-in capital		11,425,685
Stock subscription receivable (Note 6)		(125,000	)
Unearned stock-based compensation		(253,318	)
Accumulated deficit		(11,124,943	)
Accumulated comprehensive loss		(78,125	)

Total stockholders’ equity		(34,478	)


Total liabilities and stockholders’ equity	$	1,273,848

The accompanying notes are an integral part of these consolidated financial statements.
F-3

VIPER NETWORKS, INC. AND SUBSIDIARIES

Consolidated Statements of Operations

		Year ended Dece			mber 31,
		2004			2003


Net Revenues	$	4,612,783		$	433,376
Cost of revenues		4,108,185			296,853

Gross Margin		504,598			136,523

Operating Expenses:
General and administrative		3,660,801			1,462,566
Bad debt expense		83,712			-
Equity loss from unconsolidated subsidiaries		181,067			27,001
Impairment of purchased intangibles		3,396,138			792,440
Impairment of purchased assets		1,092,100			-

		8,413,818			2,282,007

Loss from operations		(7, 909,220	)		(2,145,484	)


Other income (expenses)
Realized gain on marketable securities		15,761			8,173
Interest expense		(73,060	)		(60,495	)
Other income (expense)		2,327			(3,048	)

Total other income (expenses)		(54,972	)		(55,370	)


Net loss	$	(7,964,192	)	$	(2,200,854	)


Basic loss per share	$	(0.08	)	$	(0.06	)


Weighted average number of shares outstanding		101,961,298			37,243,157

The accompanying notes are an integral part of these consolidated financial statements.

F-4

VIPER NETWORKS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

	Year Ended December 31,

	2004			2003


Cash flows from operating activities:
Net loss	$	(7, 964,192	)	$	(2,200,854	)
Adjustments to reconcile net loss to net cash used in operations:
Depreciation		291,549			54,052
Allowance for doubtful accounts and sales returns		76,272			-
Amortization of stock-based compensation		65,931			4,426
Amortization of stock-based interest		19,944			32,381
Equity loss from unconsolidated subsidiaries		181,067			2,498
Impairment of purchased intangibles		3,396,138			792,440
Impairment of purchased assets		1,092,100			-
Stock based compensation		948,163			950,081
Interest accrual		(1,446	)		14,347
(Gain) on sale of marketable securities		(15,761	)		(13,173	)
Changes in assets and liabilities:
Accounts receivable		(52,736	)		(42,993	)
Inventories		(72,020	)		-
Prepaid expenses		739			(17,941	)
Other current assets		(35,039	)		(1,750	)
Accounts payable		240,061			18,458
Accrued liabilities		22,268			2,047
Accounts payable related party		-			(58,618	)
Taxes payable		(885	)		1,746
Deferred revenues		79,625			-

Net cash used in operating activities		(1,728,222	)		(462,853	)

Cash flows from investing activities:
Acquisitions, net of cash acquired		(757,091	)		15,436
Purchases of property and equipment		(182,594	)		(13,931	)
Proceeds from sale of property and equipment		5,056
Purchases of marketable securities		-			(43,515	)
Sales of marketable securities		-			13,595

Net cash used in investing activities		(935,629)			(28,415	)

The accompanying notes are an integral part of these consolidated financial statements.

F-6

VIPER NETWORKS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Continued)

Cash flows from financing activities:
Proceeds from issuance of common stock		2,355,398			463,215
Net borrowing (repayments) under revolving credit lines		(107,661	)		(72	)
Repayment of debt from acquisition		(269,500	)		-
Proceeds from short term debt		143			40,850
Repayments of short term debt		(15,000	)		(27,000	)
Proceeds from shareholder loans		753,041			136,158
Repayments of shareholder loans		(228,303	)		(107,960	)
Proceeds from convertible loans		150,000			175,000
Repayments of convertible loans		(75,000	)		(75,000	)
Payments on capital lease obligations		(35,086	)		(9,695	)
Stock subscription deposits		11,435			61,415

Net cash provided by financing activities		2,539,467			656,911

Net increase in cash		(123,384	)		165,643
Cash at the beginning of the year		170,340			4,697

Cash at the end of the year	$	46,956		$	170,340

Supplemental schedule of cash flow activities
Cash paid for:
Interest	$	20,839		$	126,465
Income taxes	$	800		$	800
Non-cash investing and financial activities:
Common stock issued for business acquisition	$	4,094,500		$	1,118,330
Common stock issued in payment of services	$	920,161		$	958,225
Common stock issued in payment of convertible loans	$	201,973		$	-
Common stock issued in payment of convertible loan interest	$	-		$	52,325

The accompanying notes are an integral part of these consolidated financial statements.
F-7

VIPER NETWORKS, INC. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

NOTE 1 -	ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

	a. Organization

	The consolidated financial statements presented are those of Viper Networks, Inc. and its wholly-owned Subsidiaries (the “Company”).

	We are a provider of Voice over Internet Protocol, or VoIP, communications products and services. The company has evolved from a pioneer in selling VIPER CONNECT, a “push to talk” technology developed by ITXC, to a next generation provider of high-quality telecommunication services and technology for internet protocol, or IP telephony applications. We utilize our VoIP technology to transmit digital voice communications over data networks and the internet.

	Viper Networks, Inc. (“Viper-CA”) was incorporated on September 14, 2000 under the laws of the State of California. Taig Ventures, Inc. (“Taig”) was incorporated under the laws of the State of Utah on February 28, 1983.

	On November 15, 2000, Taig and Viper-CA completed a Securities Purchase Agreement and Plan of Reorganization whereby Taig issued 36,000,000 pre-split or 3,000,000 post-split shares of its common stock in exchange for all of the outstanding common stock of Viper-CA. Immediately prior to the Securities Purchase Agreement and Plan of Reorganization, Taig had 6,788,507 pre-split or 565,786 post-split shares of common stock and 3,000,000 shares of non-voting preferred stock issued and outstanding. For accounting purposes, the acquisition has been treated as a recapitalization of Viper-CA with Viper-CA as the acquirer (reverse acquisition). Viper-CA was treated as the acquirer for accounting purposes because the shareholders of Viper-CA controlled Taig after the acquisition. The historical financial statements prior to November 15, 2000 are those of Viper-CA.

	On December 29, 2000, Taig changed its name to Viper Networks, Inc. (“Viper-UT”) and authorized a reverse split of the Company’s common stock on a 1-for-12 basis.

	b. Basis of presentation

	The Company’s consolidated financial statements are prepared using the accrual method of accounting and include Viper-CA and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. Investments in businesses which the Company does not control, but has the ability to exercise significant influence over operating and financial policies are accounted for using the equity method and are included in Investments in Unconsolidated Businesses on the consolidated balance sheet.

	c. Inventories

	Inventories are stated at the lower of cost or market using the first-in first-out method. Inventory costs include international inbound freight, duty and custom fees.

	d. Estimates

	The preparation of financial statements in conformity with generally accepted accounting principles requires the Company 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. The Company is required to make judgments and estimates about the effect of matters that are inherently uncertain. Although, we believe our judgments and estimates are appropriate, actual future results may be different; if different assumptions or conditions were to prevail, the results could be materially different from our reported results.

F-8

VIPER NETWORKS, INC. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

NOTE 1 -	ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

	d. Estimates (continued)

	On an on-going basis, the Company evaluates our estimates, including, but not limited to, those related to bad debts, product returns, warranties, inventory reserves, long-lived assets, income taxes, litigation, and other contingencies. The Company bases our estimates on historical experience and various other assumptions we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.

	e. Property and equipment

	Property and equipment are stated at cost and are depreciated over their estimated useful lives using the straight-line method. Useful lives range from three to five years for office furniture and equipment. Additions to property and equipment together with major renewals and betterments are capitalized. Maintenance, repairs and minor renewals and betterments are charged to expense as incurred.

	f. Goodwill and Other Intangible Assets

	Goodwill represents the excess of the cost of businesses acquired over the fair value of the identifiable net assets at the date of acquisition. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful lives are not amortized, but instead are evaluated for impairment annually and if events or changes in circumstances indicate that the carrying amount may be impaired per Statement of Financial Accounting Standards, No.142 (“SFAS 142”), “Goodwill and Other Intangible Assets”. An impairment loss would generally be recognized when the carrying amount of the reporting unit’s net assets exceeds the estimated fair value of the reporting unit. The estimated fair value is determined using a discounted cash flow analysis. SFAS 142 also requires that intangible assets with estimable useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 144, “Accounting for Impairment or Disposal of Long-Lived Assets”.

	g. Long lived assets

	Long-lived assets, such as property and equipment and purchased intangibles subject to amortization, are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable per SFAS 144, “Accounting for Impairment or Disposal of Long-Lived Assets”. Recoverability of assets is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by an asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized as the amount by which the carrying amount exceeds the estimated fair value of the asset. The estimated fair value is determined using a discounted cash flow analysis. Any impairment in value is recognized as an expense in the period when the impairment occurs.

F-9

VIPER NETWORKS, INC. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

NOTE 1 -	ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

	h. Revenue recognition

	The Company recognizes revenues and the related costs for voice, data and other services along with product sales when persuasive evidence of an arrangement exists, delivery and acceptance has occurred or service has been rendered, the price is fixed or determinable, and collection of the resulting receivable is reasonably assured. Service revenue from monthly and per minute fee agreements is recognized gross, consistent with Emerging Issues Task Force (EITF) No. 99-19 “Reporting Revenues Gross as a Principal Versus Net as an Agent”, as the Company is the primary obligor in its transaction, has all credit risk, maintains all risk and rewards, and establishes pricing. Combined product and service agreements are allocated consistent with EITF No. 00-21 “Accounting for Revenue Arrangements with Multiple Deliverables” with the multiple deliverables divided into separate units of accounting. Revenue is allocated among the separate units of accounting based on their relative fair value. Support and maintenance sales are recognized over the contract term. Amounts invoiced or collected in advance of product delivery or providing services are recorded as deferred revenue.

	The Company accrues for warranty costs, sales returns, bad debts, and other allowances based on its historical experience.

	i. Stock-based compensation

	Statement of Financial Accounting Standards No. 123 (“SFAS 123”), “Accounting for Stock-Based Compensation”, provides for the use of a fair value based method of accounting for stock-based compensation. However, SFAS 123 allows the measurement of compensation cost for stock options granted to employees using the intrinsic value method of accounting prescribed by Accounting Principles Board Opinion No. 25 (“APB 25”), “Accounting for Stock Issued to Employees”, which only requires charges to compensation expense for the excess, if any, of the fair value of the underlying stock at the date a stock option is granted (or at an appropriate subsequent measurement date) over the amount the employee must pay to acquire the stock. The Company has elected to account for employee stock options using the intrinsic value method under APB 25. By making that election, the Company is required by SFAS 123 to provide pro forma disclosures of net loss as if a fair value based method of accounting had been applied.

	In accordance with the provisions of SFAS 123, all other issuances of stock, stock options or other equity instruments to employees and non-employees as the consideration for goods or services received by the Company are accounted for based on the fair value of the equity instrument issued (unless the fair value of the consideration received can be more reliably measured). During the year ended December 31, 2004 and 2003, the Company recognized $323,005 and $549,557 and $468,856 and $495,750 of expense relating to the grant of common stock to non-employees and employees, respectively, for services which are included in the accompanying consolidated statements of operations. The value of these shares was determined based upon over the counter closing prices.

F-10

VIPER NETWORKS, INC. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

NOTE 1 -	ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

	j. Income taxes

	Current income tax expense (benefit) is the amount of income taxes expected to be payable (receivable) for the current year. A deferred tax asset and/or liability is computed for both the expected future impact of differences between the financial statement and tax bases of assets and liabilities and for the expected future tax benefit to be derived from tax loss and tax credit carry forwards. Deferred income tax expense is generally the net change during the year in the deferred income tax asset and liability. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be “more likely then not” realized in future tax returns. Tax rate changes are reflected in income in the period such changes are enacted.

	k. Net loss per share

	Basic net loss per share is computed using the weighted average number of common shares outstanding during the periods presented. Diluted loss per share has not been presented because the assumed exercise of the Company’s outstanding options and warrants would have been antidilutive. Options and/or warrants will have a dilutive effect only when the average market price of the common stock during the period exceeds the exercise price of the options and/or warrants. There were options to purchase 4,250,000 shares of common stock and 20,019,150 warrants potentially issuable at December 31, 2002 which were not included in the computation of net loss per share.

	Year Ended December 31,

	2004			2003


Net loss (numerator)	$	(7,964,192	)	$	(2,220,854	)
Weighted average shares outstanding for basic net loss per share (denominator)		101,961,298			37,243,157

Per share amount	$	(0.08	)	$	(0.06	)

F-11

VIPER NETWORKS, INC. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

NOTE 1 -	ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

	l. Concentrations of Risk

	The Company entered into an agreement during September 1998 to acquire 50 acres of real property known as the Hills of Bajamar, located in Ensenada, Mexico (the “Land”) with the intent, at the time, to sell lots for residential development and build a communications facility for residents in the surrounding area. As of the date of these financial statements, the Company had not received documented title to the Land. Since consideration for the agreement (documented title) has never been received the Company does not believe it is the owner of the Land. If the Company was determined to be the owner of the Land the Company could be subject to the following risks. The property is located in Mexico which has a developing economy. Hyperinflation, volatile exchange rates and rapid political and legal change, often accompanied by military insurrection, have been common in this and certain other emerging markets in which the Company may conduct operations. The Company may be materially adversely affected by possible political or economic instability in Mexico. The risks include, but are not limited to terrorism, military repression, expropriation, changing fiscal regimes, extreme fluctuations in currency exchange rates, high rates of inflation and the absence of industrial and economic infrastructure. Changes in land development or investment policies or shifts in the prevailing political climate in Mexico in which the Company plans to sell lots for residential development and build a communications facility could adversely affect the Company’s business. Operations may be affected in varying degrees by government regulations with respect to development restrictions, price controls, export controls, income and other taxes, expropriation of property, maintenance of claims, environmental legislation, labor, welfare, benefit policies, land use, land claims of local residents, water use and mine safety. The effect of these factors cannot be accurately predicted.

	m. New Accounting Pronouncements

	In November 2004, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards No.151, Inventory Costs – an amendment of ARB No. 43, Chapter 4 (“SFAS 151”). This Statement amends the guidance in ARB No. 43, Chapter 4, “Inventory Pricing,” to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). Paragraph 5 of ARB 43, Chapter 4, previously stated that “… under some circumstances, items such as idle facility expense, excessive spoilage, double freight, and rehandling costs may be so abnormal as to require treatment as current period charges…” This Statement requires that those items be recognized as current-period charges regardless of whether they meet the criterion of “so abnormal.” In addition, this Statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. This Statement is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The adoption is not expected to have a material effect on the Company’s results of operations or financial conditions.

	In December 2004, the FASB issued SFAS No. 152, “Accounting for Real Estate Time-Sharing Transactions—an amendment of FASB Statements No. 66 and 67” (“SFAS 152”). This Statement amends FASB Statement No. 66, Accounting for Sales of Real Estate, to reference the financial accounting and reporting guidance for real estate time-sharing transactions that is provided in AICPA Statement of Position (SOP) 04-2, Accounting No. 67, Accounting for Costs and Initial Rental Operations of Real Estate Projects, to state that the guidance for (a) incidental operations and (b) costs incurred to sell real estate projects does not apply to real estate time-sharing transactions. The accounting for those operations and costs is subject to the guidance in SOP 04-2. This Statement is effective for financial statements for fiscal years beginning after June 15, 2005, with earlier application encouraged. The adoption is not expected to have a material effect on the Company’s results of operations or financial conditions.

F-12

VIPER NETWORKS, INC. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

NOTE 1 -	ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

	m. New Accounting Pronouncements (continued)

	In December 2004, the FASB issued SFAS No. 123 (Revised 2004), Shared-Based Payment (“SFAS 123R). SFAS 123R requires that compensation cost related to share-based payment transactions, including grants of employee stock options, be recognized in the financial statements based on their fair value. Share-based payment transactions within the scope of SFAS 123R include stock options, restricted stock plans, performance-based awards, stock appreciation rights, and employee share purchase plans. The provisions of SFAS 123R are effective as of the first interim period that begins after June 15, 2005. Accordingly, the Company will implement the revised standard in the third quarter of fiscal year 2005. Currently, the Company accounts for its share-based payment transactions under the provisions of APB 25, which does not necessarily require the recognition of compensation cost in the financial statements. Management is assessing the implications of this revised standard, which may materially impact the Company’s results of operations in the third quarter of fiscal year 2005 and thereafter.

	On December 16, 2004, FASB issued Statement of Financial Accounting Standards No. 153, Exchanges of Non-monetary Assets, an amendment of APB Opinion No. 29, Accounting for Non-monetary transactions (“SFAS 153”). This statement amends APB Opinion 29 to eliminate the exception for non-monetary exchanges of similar productive assets and replaces it with a general exception of exchanges of non-monetary assets that do not have commercial substance. Under SFAS 153, if a non-monetary exchange of similar productive assets meets a commercial-substance criterion and fair value is determinable, the transaction must be accounted for at fair value resulting in recognition of any gain or loss. SFAS 153 is effective for non-monetary transactions in fiscal periods that begin after June 15, 2005. The adoption is not expected to have a material effect on the Company’s results of operations or financial conditions.

NOTE 2 -	GOING CONCERN

	The Company’s consolidated financial statements are prepared using 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. The Company has incurred a loss from inception on September 14, 2000 through December 31, 2004, which has resulted in an accumulated deficit of $11,124,943 at December 31, 2004 which raises doubt about the Company’s ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result from the outcome of this uncertainty.

	It is the intent of management to continue to develop its voice and data services to Web-based customers and expand its Voice-over-Internet Protocol networks for businesses, institutions, and Internet Service Providers (ISP).

	Company management will seek additional financing through new stock issuances and lines of credit.

F-13

VIPER NETWORKS, INC. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

NOTE 3 -	ACQUISTIONS

	During June and July 2003, the Company purchased 100% of the stock in Worldlink-C.com, Inc. doing business as Coliance Communications, Inc. (“Coliance”), a seller of VoIP hardware. As consideration for the purchase, the Company issued to Coliance shareholder’s an aggregate of 17,000,000 shares of the Company’s Common Stock and 200,000 shares of the Company’s Preferred Stock for an aggregate purchase price of $750,005. All of the Preferred Stock was later converted into two notes payable aggregating $200,000. As part of the transaction, Mr. Stephen Young and Mr. Ronald Weaver joined the Company’s management team and Board of Directors as Chairman and President and as Chief Executive Officer, respectively. Management intends to add Coliance’s VoIP products to the Company’s existing VoIP business strategy. Goodwill of $754,940 was recognized upon the acquisition as the excess of the aggregate purchase price over the fair value of Coliance’s identifiable net liabilities. There were no purchased research and development assets. Based on a discounted cash flow model the entire goodwill balance was considered to be impaired and accordingly a non-cash expense was charged to income during 2003 as an Impairment of Purchased Intangibles.

	During October 2003, the Company purchased 100% of the stock in Mid-Atlantic International, Inc. (“Mid-Atlantic) from Mr. Farid Shouekani. Mid-Atlantic owns and operates a global VoIP network and billing servers in Rochester Hills, Michigan. As consideration for the purchase, the Company issued 5,102,000 shares of the Company’s Common Stock and $269,500 payable in cash for an aggregate purchase price of $779,700. Mr. Shouekani became Chief Technical Officer and a Director of the Company. Management intends to deploy its VoIP products over the Mid-Atlantic network to capture recurring monthly revenue. Goodwill of $338,441 was recognized upon the acquisition as the excess of the aggregate purchase price over the fair value of Mid-Atlantic’s identifiable net assets. There were no purchased research and development assets.

	The acquisitions during 2003 were accounted for using the purchase method and, accordingly, results of operations of the acquired companies are included in the Company’s operating results as of the date of purchase. The following condensed balance sheet represents the major asset captions.

	Coliance		Mid-Atlantic


Current assets	$	315		63,594
Fixed assets		-	$	541,200
Other intangible assets		-	$	-
Goodwill upon acquisition		754,940		338,441
Current liabilities		5,250		47,875
Long-term liabilities	$	-	$	115,660

Aggregate purchase price	$	750,005	$	779,700

F-14

VIPER NETWORKS, INC. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

NOTE 3 -	ACQUISTIONS (continued)

	During January 2004, the Company acquired 100% of the membership interest in Adoria Communications, LLC (“Adoria”) from Mr. James Balestraci, the sole member. Adoria owns and operates a global VoIP network with operations in Boston, Mass. As consideration for the purchase, the Company issued an aggregate of 2,500,000 shares of the Company’s Common Stock, with 500,000 of these shares (the “Performance Shares”) subject to the condition that Adoria’s financial results in 2004 must equal or exceed its financial results in 2003, and $500,000 payable in cash for an aggregate purchase price of $3,574,500. The Performance Shares were contingent on Adoria’s 2004 financial results being equal to or exceeding its 2003 results; the Performance Shares were earned. Mr. Balestraci joined the Company as Chief of International Wholesale Operations and a Director. Management intends to consolidate the wholesale VoIP operations of Mid-Atlantic and Adoria and expand the Company’s global network into India and Europe through this investment. Goodwill of $3,482,238 was recognized upon the acquisition as the excess of the aggregate purchase price over the fair value of Adoria’s identifiable net assets. There were no purchased research and development assets. Based on a discounted cash flow model the goodwill balance was considered to be significantly impaired. A non-cash impairment loss of $3,396,138 was charged to income during 2004 as an Impairment of Purchased Intangibles.

	The Adoria acquisition was were accounted for using the purchase method and, accordingly, results of operations of the acquired company are included in the Company’s operating results as of the date of purchase.

	Adoria


Current assets	$	101,972
Fixed assets		72,515
Other intangible assets		-
Goodwill upon acquisition		3,482,238
Current liabilities		82,225
Long-term liabilities		-

Aggregate purchase price	$	3,574,500

	During May 2004, the Company acquired an aggregate 50% of the membership interests of Brasil Communications, LLC (“Brasil LLC”) in two concurrent transactions with Software Innovations, Inc. (“SII”) and Brasil LLC. Brasil LLC owns and operates a VoIP network with licenses and operations in Brazil and El Salvador. As consideration for the purchase, the Company issued 2,000,000 shares of the Company’s Common Stock to SII and $300,000 payable in cash to Brasil LLC for an aggregate purchase price of $1,320,000, recorded on the consolidated balance sheet as an in investment in unconsolidated businesses. Management intends to expand the Company’s global VoIP network and hardware sales into Latin America through this investment.

	Subsequently, the Company evaluated the fair market value of the assets and liabilities held by Brasil LLC, as shown below, and determined its investment to be impaired:

F-15

VIPER NETWORKS, INC. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

NOTE 3 -	ACQUISTIONS (continued)

	Brasil LLC FMV


Fixed assets	$	130,000
Other intangible assets (license)		100,100
Net current assets (liabilities)		(2,200	)

Aggregate FMV of purchased Assets	$	227,900

Since the Company determined this to be other than a temporary impairment, a charge against earnings was taken in the amount of $1,092,100 for Impairment of Purchased Assets. Following this charge, the book value of Brasil LLC investment was $227,900. For the year ended December 31, 2004 the Company recorded $181,067 as its 50% equity share in Brasil LLC operating loss subsequent to the Company’s investment. At December 31, 2004 the Company’s equity investment was $46,833.

F-16

VIPER NETWORKS, INC. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

NOTE 4 -	COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS

	December 31,
	2004


Accounts receivable, net of allowance for doubtful accounts and sales returns:
Accounts receivable	$	198,220
Allowance for doubtful accounts		(73,245	)
Allowance for sales returns		(3,027	)

	$	121,948



Other current assets:
Prepaid expenses	$	17,764
Employee travel and payroll advances		16,207
Arbitration bond with the courts		15,000
Deposits		10,353

	$	59,324



Property and equipment, net:
Routing and networking systems	$	742,763
Computers and office equipment		111,786

		854,549
Less accumulated depreciation		(357,323	)

	$	497,226



Accrued Liabilities:
Wages and payroll tax	$	26,352
Stock based bonuses		20,400
Other accruals		15,163

	$	61,915

F-17

VIPER NETWORKS, INC. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

NOTE 5 -	GOODWILL

	Goodwill represents the excess of the cost of businesses acquired over the fair value of the identifiable net assets at the date of acquisition. Goodwill is evaluated in accordance with SFAS 142 for impairment annually and if events or changes in circumstances indicate that the carrying amount may be impaired. An impairment loss is the amount that the carrying amount of the reporting unit’s net assets exceeds the estimated fair value of the reporting unit. The estimated fair value is determined using a discounted cash flow analysis. The changes in the carrying amount of goodwill is as follows:

	December 31,
	2004


Balance at beginning of year	$	338,441
Goodwill from acquisitions		3,482,238
Impairment losses		(3,396,138	)

Balance at end of year	$	424,541


NOTE 6 -	STOCK SUBSCRIPTION RECEIVABLE

	During September 1998, the Company entered into an agreement with a related party to purchase 50 acres of real property known as the Hills of Bajamar, located in Ensenada, Mexico (the “Land) that is valued at the predecessor cost of $125,000. The Company intended, at the time, to sell lots for residential development and build a communications facility for residents in the surrounding area.

	As consideration for the Land, the Company issued 3,000,000 shares of its series B Preferred Stock and stock warrants to purchase 1,000,000 shares of Common Stock. During June 2001, the Company negotiated a settlement and release with the Class B preferred stockholder whereby the Preferred Stock and stock warrants were exchanged for 400,000 shares of the Company’s Common Stock and the cumulative undeclared dividend was not declared.

	As of the date of these financial statements, the Company had not received documented title to the Land. Since consideration for the agreement (documented title) has never been received the Company does not believe it is the owner of the Land. Accordingly, the value of the Land has been classified as a stock subscription receivable. The 400,000 share certificate is being held by the Company.

NOTE 7 -	RELATED PARTY TRANSACTIONS

	During Fiscal 2004, the Company’s shareholders incurred expenses on behalf of the Company in the amount of $120,912, which will be repaid in the normal course of business.

	During Fiscal 2003, the company’s shareholders incurred expenses on behalf of the Company in the amount of $89,094 which will be repaid in the normal course of business. During Fiscal 2003, the company agreed to reimburse a stockholder $12,000 and $1,200 for office rental and utilities, respectively, as the use of the stockholder’s personal residence.

	During Fiscal 2004, certain of the Company’s shareholders advanced the Company $753,041 under short term promissory notes. At December 31, 2004, outstanding advances plus accrued interest from these shareholders were $607,094.

	The following individuals advanced funds to the Company in 2004:

F-18

VIPER NETWORKS, INC. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

NOTE 7 -	RELATED PARTY TRANSACTIONS (Continued)

Shareholder	Funds Advanced during 2004		December 31, 2004


Sunstein	$	153,070	$	100,571
Castiglione		153,075		100,575
Balestraci		25,000		25,139
Shouekani		421,896		380,808

TOTAL	$	753,041	$	607,094

The terms of the unsecured Notes carried full payment of principal and accrued interest as of the end of the following fiscal year. All loans were rolled forward into similarly termed notes in 2005, payable at the end of 2006. Interest on the Notes accrued at a rate equal to the Treasury Bills annual rate of interest announced monthly by the U.S. Government for one year Treasury Constant Maturities.

F-19

VIPER NETWORKS, INC. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

NOTE 8 –	STOCK SUBSCRIPTION DEPOSIT

	As of December 31, 2004, the company had received a total of $81,380 for the purchase of 904,000 shares of common stock. The shares were issued subsequent to December 31, 2004. The $81,380 is recorded as a stock subscription deposit at December 31, 2004.

NOTE 9 -	INCOME TAXES

	Due to the Company’s net loss position from inception on September 14, 2000 to December 31, 2004, there was no provision for income taxes recorded. The following is a reconciliation of the statutory federal income tax rate to the Company’s effective tax rate:

	Year ended December 31,

	2004			2003


Tax provision (benefit) at statutory rate	(35	)	%	(35	)	%
State tax, net of federal benefit	(4	)	%	(2	)	%
Permanent differences	8		%	19		%
Valuation allowance	31		%	18		%

	-		%	-		%

The components of net deferred tax assets are as follows:

	December 31,
	2004


Deferred tax assets:
Net operating loss carryforward	$	3,418,382
Other assets		1,391

		3,419,774
Less valuation allowance		(3, 419,774	)

	$	-

	As a result of the Company’s losses to date, there exists doubt as to the ultimate realization of the deferred tax assets. Accordingly, a valuation allowance equal to the total deferred tax assets has been recorded at December 31, 2004.

	At December 31, 2004, the Company had federal and state net operating loss carryforwards for tax purposes of approximately $8,389,000 and $7,647,000 which may be available to offset future taxable income and which, if not used, begin to expire in 2010 and 2012, respectively.

NOTE 10 -	COMMITMENTS AND CONTINGENCIES

	Operating Lease Obligation

	In July, 2004 the Company entered into a twenty-four month lease agreement for office space housing its corporate headquarters and sales; monthly rent for this space is $2,474. In August, 2004 the Company entered into a forty lease agreement for administrative and warehouse space; monthly rent for this space is $3,969 with an option to terminate the lease after twenty-four months upon payment of certain unamortized lease costs. Rent expense for the year ended December 31, 2004 and 2003 was $43,328 and $44,483, respectively.

F-20

VIPER NETWORKS, INC. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

NOTE 10 -	COMMITMENTS AND CONTINGENCIES (continued)

	Equity Incentive Plan

	In December 2000, the Company’s shareholders adopted the 2000 equity incentive plan (the “2000 Plan”) for the benefit of employees, directors, advisors and consultants of the Company. In December 2002, the Company’s shareholders increased the shares authorized within the 2000 Plan by 10,500,000 shares. Under the plan, the Company may grant stock options or awards at a maximum of 12,000,000 shares. At December 31, 2004, there were 8,400,000 shares of the Company’s Common Stock available for grant under the 2000 Plan.

NOTE 11 -	PREFERRED STOCK

	a. Preferred Stock - Class A

	The Company has authorized 100,000 shares of non-voting Class A preferred stock, at a par value of $1.00 per share. These shares are convertible into common stock at a ratio of 500 shares of common stock for each share of Class A preferred stock. There were no shares issued and outstanding at December 31, 2004.

	b. Preferred Stock - Class B

	The Company has authorized 10,000,000 shares of non-voting Class B preferred stock, at a par value of $1.00 per share. These shares accumulate dividends at a rate of 15% per annum and are convertible into common stock at a $1.00 per share or the market price for the 10 day average prior to the date of conversion, whichever is less, but in no event less than 75 cents per share. There were no shares issued and outstanding at December 31, 2004.

NOTE 12 -	COMMON STOCK TRANSACTIONS

	On December 29, 2000, the Company approved a reverse-split of its Common Stock on a 1-for-12 basis leaving 3,565,786 shares issued and outstanding. All references to common stock have been retroactively restated.

	During March 2002, the Company created the Viper Networks Compensation Fund to provide compensation to employees and consultants. The Company authorized the issuance of up to 10,000,000 shares of Common Stock.

	During Fiscal 2004, the Company issued 14,244,836, 12,113,382, 4,500,000, 646,322, and 10,632,213 shares for cash, in payment of services, for acquisitions, in conversion of notes and accrued interest, and a stock dividend, respectively.

NOTE 13 -	STOCK OPTIONS

	During December 2000, the Company adopted the 2000 Plan which provides for the issuance of the Company’s Common Stock to employees and directors of the Company and its affiliates. The Company has reserved 12,000,000 shares of Common Stock for which incentive stock options and non-statutory stock options to purchase shares of the Company’s Common Stock, limited rights, and stock awards may be granted.

F-21

VIPER NETWORKS, INC. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

NOTE 13 -	STOCK OPTIONS (continued)

	Options and limited rights granted under the 2000 Plan shall be exercisable at such time or upon such events and subject to the terms, conditions, vesting, and restrictions as determined by the board of directors or the compensation committee (the “Plan Committee”) of the Company provided however that no option shall be exercisable after the expiration of ten years from the date of grant. The exercise price of options granted under the 2000 Plan will be equal to the fair market value of the Company’s Common Stock as determined by the Plan Committee on the date of grant. If, at the time of grant, an incentive stock option is granted to a 10% beneficial owner, as defined, the exercise price will not be less than to 110% of the fair market value of the Company’s Common Stock and the option shall not be exercisable after the expiration of five years.

	Stock awards granted under the 2000 Plan shall be subject to the terms, conditions, vesting, and restrictions as determined by the Plan Committee.

	At December 31, 2004, there were 8,400,000 shares of the Company’s Common Stock available for future grant under the 2000 Plan.

	A summary of the Company’s stock options as of December 31, 2004 and 2003 and changes during the periods is as follows:

	Year ended December 31,

	2004				2003

	Options		Weighted average exercise price		Options	Weighted average exercise price


Outstanding at the beginning of the period	3,250,000		$	0.132	1,000,000	$	0.074
Granted	1,000,000			0.488	2,250,000		0.158
Exercised	-			-	-		-
Cancelled	(650,000	)		0.116	-		-

Outstanding at the end of the period	3,600,000		$	0.234	3,250,000	$	0.132


Vested at the end of the period	990,000				340,000
Exercisable at the end of period	3,600,000				3,250,000
Weighted average fair value per option of options granted during the period			$	0.4880		$	0.1514

F-22

VIPER NETWORKS, INC. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

NOTE 13 -	STOCK OPTIONS (continued)

	The following table summarizes information regarding employee stock options outstanding at December 31, 2004.

			Options Outstanding				Options Exercisable

Exercise prices		Number Outstanding		Weighted average remaining contractual life (years)	Weighted average exercise price		Number exercisable	Weighted average exercise price


$	0.034	600,000		3.6	$	0.034	600,000	$	0.034
$	0.037	500,000		3.0	$	0.037	500,000	$	0.037
$	0.110	500,000		1.7	$	0.110	500,000	$	0.110
$	0.248 - 0.273	1,000,000		4.0	$	0.261	1,000,000	$	0.261
$	0.450 - 0.526	1,000,000		4.6	$	0.488	1,000,000	$	0.488

		3,600,000		6.5	$	0.234	3,600,000	$	0.234

	Stock-based compensation is recognized using the intrinsic value method. In connection with the grant of stock options to employees, the company recorded unearned stock-based compensation within stockholders’ deficit of $50,000 during the year ended December 31, 2004 representing the difference between the estimated fair value of the common stock determined for financial reporting purposes and the exercise price of these options at the date of grant. Amortization of unearned stock-based compensation, net of any charges reversed during the period for the forfeiture of unvested options, was $65,931 and $4,426 for the years ended December 31, 2004 and 2003, respectively.

	At December 31, 2004, the unearned stock-based compensation of $253,318 will be amortized as follows: $62,448 in 2005, $62,448 in 2006, $62,448 in 2007, $58,891 in 2008, and $7,083 in 2009. The amount of stock-based compensation expense to be recorded in future periods could decrease if options for which accrued but unvested compensation has been recorded are forfeited.

	The Company estimated the fair value of each option grant at the grant date by using the Black-Scholes option pricing model with the following weighted average assumptions used for grants during the years ended December 31, 2004 and 2003; no dividend yield, expected volatility of 200.7% and 331.1%, risk-free interest rates of 4.43% and 3.43%, and expected lives of 10.0 and 6.7 years, respectively.

F-23

VIPER NETWORKS, INC. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

NOTE 13 -	STOCK OPTIONS (continued)

	Had compensation cost for the Company’s stock-based compensation plan been determined based on the fair value at the grant dates for awards under those plans consistent with the method described in SFAS 123, the Company’s net loss would have been as follows:

	Year Ended December 31,

	2004			2003


Net loss:
As reported	$	(7, 964,192	)	$	(2,200,854	)
Pro forma	$	(8, 080,696	)	$	(2,211,813	)

Basic loss per share:
As reported	$	(0.08	)	$	(0.06	)
Pro forma	$	(0.08	)	$	(0.06	)

NOTE 14 -	SUBSEQUENT EVENTS

	On February 4, 2005, the Company entered into five stock subscription agreements for an aggregate of 33,333,335 shares of the Company’s Common Stock in exchange for $5,000,000 in US Treasury Bonds, with both the Company’s shares and the $5,000,000 being placed into escrow. On August 8, 2005, by mutual agreement, the five stock subscription agreements and all associated agreements (as described below) were rescinded; the escrow was closed with the 33,333,335 shares of the Company’s Common Stock and the $5,000,000 in US Treasury Bonds returned to the Company and the five subscribers, respectively. Concurrent with the execution of the agreements, the Company purchased from Cogent Capital for $1 a call option to repurchase at the end of two years 80% of the shares of Common Stock sold at the then current market price. Also concurrent with the agreements, the Company entered into an equity swap arrangement with Cogent Capital for $50,000 and 3,333,333 shares of the Company’s Common Stock that entitles the Company to receive and obligate the Company to pay the price return of 75% of the shares issued in two years, or sooner if the shares are registered for sale under the Securities Act of 1933. The equity swap also provides for the exchange of certain cash flows, as defined in the agreement.

	On January 31, 2005, the Company granted stock options from the 2000 Plan to Officers for an aggregate of 5,150,000 shares and to an employee for 100,000 shares exercisable at $0.200; the options expire on January 31, 2015

	During February 2005, the Company closed an $180,000 private placement resulting in the issuance of an aggregate of 3,000,000 shares of the Company’s Common Stock.

	Also during February 2005, the Company entered into a one year services agreement with Rhino Capital, Inc. (“Rhino”) to assist the Company in obtaining a listing on a national stock exchange, raising capitol, and investor relations. The services are payable with an aggregate of 1,250,000 shares of the Company’s Common Stock and an aggregate of $30,000 in cash.

	On March 8, 2005, the Company granted stock options from the 2000 Plan to an officer for 3,000,000 shares exercisable at $0.230; the options expire on March 8, 2015.

F-24

VIPER NETWORKS, INC. AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

NOTE 14 -	SUBSEQUENT EVENTS (continued)

	Also during March 2005, the Company closed a $271,000 private placement resulting in the issuance of an aggregate of 3,011,111 shares of the Company’s Common Stock.

	At various times during 2005, the Company borrowed an aggregate of $115,000 form Officers and Directors to fund operations; the amounts will be repaid from available cash flows. During 2005, the Company repaid an aggregate of $60,000.

NOTE 15 -	RESTATEMENT

	The restatement includes additional disclosures regarding; business investments (Balance Sheet, Statements of Operations, and Statements of Cash Flows, captions and footnote 3), goodwill (Balance Sheet, Statements of Operations, Statements of Cash Flows, and footnotes 3 and 5), related party transactions (Statements of Cash Flows and Footnote 7), and footnote disclosures (footnotes, 1-h, 1-k, 9, 10, and 13).

	The accompanying audited financial statements as of December 31, 2004, along with the auditors report dated April 14, 2005, have been restated as of May 5, 2006 to solely address the items noted above.

F-25

	Common Stock			Additional Paid-In Capital			Stock Subscriptions			Unearned stock-based			Accumulated			Other Comprehensive			Total Stockholders’
	Shares	Amount		(Deficit)			Receivable			Compensation			Deficit			Loss			Deficit


Balance, December 31, 2002	17,640,689	$	17,641	$	1,046,165		$	(125,000	)	$	(4,700	)	$	(959,897	)	$	-		$	(25,791	)
Issuance of common stock for cash	7,538,457		7,538		400,722			-			-			-			-			408,260
Issuance of common stock for services received	28,130,000		28,130		930,095			-			-			-			-			958,225
Issuance of common stock loan interest	675,000		675		51,650			-			-			-			-			52,325
Issuance of common stock for acquisition	24,602,000		24,602		1,093,728			-			-			-			-			1,118,330
Employee compensation fund	210,000		210		54,745			-			-			-			-			54,955
Stock-based compensation	-		-		324,274			-			(319,848	)		-			-			4,426
Comprehensive loss	-		-		-			-			-			-			(48,018	)		(48,018	)
Net loss for the year ended December 31, 2003	-		-		-			-			-			(2,200,854	)		-			(2,200,854	)

Balance, December 31, 2003	78,796,146		78,796		3,901,379			(125,000	)		(324,548	)		(3,160,751	)		(48,018	)		321,858
Issuance of common stock for cash	14,244,836		14,245		2,127,218			-			-			-			-			2,141,463
Issuance of common stock for services received	12,113,382		12,114		908,047			-			-			-			-			920,161
Issuance of common stock loan interest	-		-		-			-			-						-
Issuance of common stock for acquisition	4,500,000		4,500		4,090,000			-			-			-			-			4,094,500
Conversion of notes payable and interest	646,322		646		201,327			-			-			-			-			201,973
Issuance of common stock for stock dividend	10,632,213		10,632		(10,632	)		-			-			-			-
Employee Compensation Fund	290,000		290		213,645			-			-			-			-			213,935
Stock-based compensation	-		-		(5,299	)					71,230			-			-			65,931
Comprehensive loss	-		--		-			-			--			-			(30,107)			(30,107	)
Net Loss for the year ended December 31, 2004	-		-		-			-			-			(7,964,192	)		-			(7, 964,192	)

Balance, December 31, 2004	121,222,899	$	121,223	$	11,425,685		$	(125,000	)	$	(253,318	)	$	(11, 124,943	)	$	(78,125	)	$	(34,478	)