REPORT OF INDEPENDENT REGISTERED AUDITORS

To the Board of Directors and Stockholders of

Phantom Fiber Corporation

We have audited the accompanying consolidated balance sheets of Phantom Fiber Corporation and subsidiaries, as of December 31, 2007 and 2006 and the related consolidated statements of operations and comprehensive loss, changes in stockholders' deficiency and cash flows 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 audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also 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 statements presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Phantom Fiber Corporation as at December 31, 2007 and 2006 and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

As described in the Note 1(c), the accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, As at December 31, 2007 the Company had a shareholders’ deficiency of $5,380,909 and reflected losses of $3,659,849 and $2,904,936 for the years ended December 31, 2007 and 2006, respectively. The recurring losses raise substantial doubt about the Company's ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the going concern assumption not being applicable.

	/s/ Lazar Levine & Felix LLP
New York, New York
April 14, 2008

F - 2

Phantom Fiber Corporation

Consolidated Balance Sheets

As at December 31, 2007 and December 31, 2006

	2007			2006
ASSETS

Current Assets:
Cash and cash equivalents	$	44,642		$	29,864
Accounts receivable net of allowance for doubtful accounts of $21,000 for 2007 and 2006, respectively		109,504			35,146
Marketable securities available for sale		—			25,001
Investment tax credit receivable		285,545			376,345
Prepaid expenses and other receivable		7,668			14,026
Total current assets		447,359			480,382

Property and Equipment – net		48,655			55,289

Other Assets:
Security deposits		15,020			12,374
Deferred financing costs net of accumulated amortization of $538,882 and $313,387 for 2007 and 2006, respectively		4,717			242,052

TOTAL ASSETS	$	515,751		$	790,097

LIABILITIES AND STOCKHOLDERS’ DEFICIENCY

Current liabilities:
Accounts payable	$	129,628		$	56,315
Accrued expenses		854,452			578,371
Accounts payable and accrued liabilities to related parties		280,262			152,499
Unearned revenue		129,229			14,163
Short term borrowings		830,000			—
Short term borrowings – related party		305,820			—
Other borrowings		182,300			—
Current portion of obligations under capital leases		14,861			17,758
Derivative instruments		354,344			—
Senior convertible notes		2,807,000			—

Total current liabilities		5,887,896			819,106

Long-Term liabilities:
Obligations under capital leases – net of current portion		8,764			13,098
Derivative instruments		—			2,317,224
Senior convertible notes		—			115,299

Total liabilities		5,896,660			3,264,727

Commitments and Contingencies

Stockholders’ Deficiency:
Preferred stock, $0.001 par value, 10,000,000 shares authorized, none issued and outstanding		—			—
Common stock, $.001 par value, 400,000,000 shares authorized, 17,391,589 shares, issued and outstanding; (16,761,089 shares, December 31, 2006)		17,391			16,761
Additional paid-in capital		6,447,463			5,619,435
Accumulated deficit		(11,786,659	)		(8,126,810	)
Accumulated other comprehensive (loss) income		(59,104	)		15,984

Total stockholders’ deficiency		(5,380,909	)		(2,474,630	)

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY	$	515,751		$	790,097

See notes to consolidated financial statements.

F - 3

Phantom Fiber Corporation

Consolidated Statements of Operations and Comprehensive Loss

Twelve month periods ended December 31, 2007 and December 31, 2006

	2007			2006
Revenue:

Professional services	$	270,027		$	155,657
User fees and royalties		225,258			153,614

		495,285			309,271

Operating expenses:

Research and development		919,952			1,080,682
Sales and marketing		454,884			853,000
General and administrative		871,072			1,424,764

Total operating expenses		2,245,908			3,358,446

Operating loss		(1,750,623	)		(3,049,175	)

Other income (expenses):
Gain (loss) on disposal of marketable securities		2,260			(19,014	)
Gain on settlement and write off of accounts payable		—			35,567
Amortization of deferred financing costs		(538,882	)		(313,387	)
Change in value of derivative instruments		1,962,880			1,182,776
Interest expense		(375,706	)		(218,442	)
Interest on accretion of senior convertible debt		(2,935,201	)		(564,799	)
Interest and other income		5,757			19,857
(Loss) gain on foreign exchange		(30,334	)		21,681
Total other (expense) income – net		(1,909,226	)		144,239

Loss before provision for income taxes		(3,659,849	)		(2,904,936	)

Provision for income taxes		—			—

Net loss		(3,659,849	)		(2,904,936	)

Other comprehensive income (loss):
Unrealized gain (loss) on marketable securities		24,999			(8,985	)
Foreign exchange translation (loss) gain		(100,087	)		33,711

Comprehensive loss	$	(3,734,937	)	$	(2,880,210	)

Net Loss per share (Basic and Diluted):

Net Loss per share – basic and diluted	$	(0.21	)	$	(0.19	)
Weighted average number of common shares outstanding		17,134,345			15,097,612

See notes to consolidated financial statements

F - 4

Phantom Fiber Corporation

Consolidated Statement of Changes in Stockholders’ Deficiency

December 31, 2007 and December 31, 2006

	Common stock Number (post split – see Note 6)			Common stock Par Value			Additional paid-in capital			Accumulated Deficit			Accumulated other comprehensive income (loss)			Total Stockholders’ Equity /(Deficiency)
	(#)			($)			($)			($)			($)			($)
Balance, December 31, 2005		13,890,464			13,890			3,811,881			(5,221,874	)		(8,742	)		(1,404,845	)
Fractional adjustment due to stock split		143,585			144			(144	)
Shares issued for bonuses, services, payroll and settlement of accounts payable		2,017,415			2,017			837,562									839,579
Stock options exercised		20,625			21			6,373									6,394
Shares returned per settlement agreement		(185,000	)		(185	)		16,476									16,291
Shares returned for non performance of services		(25,000	)		(25	)		(19,975	)								(20,000	)
Warrants issued								311,094									311,094
Stock based compensation expense								207,567									207,567
Shares issued for conversion of senior convertible debt		899,000			899			448,601									449,500
Net loss											(2,904,936	)					(2,904,936	)
Adjustment arising from increase in unrealized loss on marketable securities														(8,985	)		(8,985	)
Adjustment arising from foreign exchange translation														33,711			33,711
Balance, December 31, 2006		16,761,089			16,761			5,619,435			(8,126,810	)		15,984			(2,474,630	)
Shares issued for services		140,000			140			41,860									42,000
Warrants issued								301,547									301,547
Stock based compensation expense								239,861									239,861
Shares issued for conversion of senior convertible debt		487,000			487			243,013									243,500
Shares issued for unpaid interest on senior convertible debt		3,500			3			1,747									1,750
Net loss											(3,659,849	)					(3,659,849	)
Adjustment arising from increase in unrealized loss on marketable securities														24,999			24,999
Adjustment arising from foreign exchange translation														(100,087	)		(100,087	)
Balance, December 31, 2007		17,391,589			17,391			6,447,463			(11,786,659	)		(59,104	)		(5,380,909	)

See notes to consolidated financial statements

F - 5

Phantom Fiber Corporation

Consolidated Statements of Cash Flows

Twelve month periods ended December 31, 2007 and December 31, 2006

	2007			2006

Cash Flows From Operating Activities
Loss for the year	$	(3,659,849	)	$	(2,904,936	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		554,220			325,652
(Gain) loss on sale of securities		(2,260	)		19,014
Stock based compensation		239,861			207,567
Bonus paid in stock		—			265,000
Gain on settlement and write off of debt		—			(35,567	)
Market adjustment on derivative instruments		(1,962,880	)		(1,182,776	)
Accretion of interest expense (convertible notes)		2,935,201			564,799
Common stock issued for services		42,000			306,015
Bad debt expense		(1,066	)		(19,836	)
Accounts receivable settled with marketable securities		—			(17,500	)

Increase (decrease) in cash flows as a result of changes in asset and liability account balances:
Accounts receivable		(74,123	)		(5,189	)
Investment tax credit receivable		90,800			(241,686	)
Prepaid expenses and other receivables		3,712			43,236
Accounts payable and accrued liabilities		478,907			129,433
Billings in excess of costs		115,066			(37,800	)
Net cash used in operating activities		(1,240,411	)		(2,584,574	)

Cash Flows From Investing Activities
Proceeds from the sale of marketable securities		52,260			5,000
Purchase of fixed assets		—			(987	)
Purchase of short term investments		—			(516,293	)
Proceeds from the sale of short term investments		—			516,293
Net cash provided by investing activities		52,260			4,013

Cash Flows From Financing Activities
Costs incurred to secure financing		—			(275,280	)
Issuance of senior convertible notes		—			2,642,000
Repayment of capital lease obligations		(15,104	)		(20,639	)
Proceeds from short term borrowing		1,135,820			85,680
Repayment of short term borrowing		—			(130,851	)
Proceeds from exercise of stock options		—			6,394
Securities subscriptions received		182,300			—
Net cash provided by financing activities		1,303,016			2,307,304

Foreign currency translation (gain) loss		(100,087	)		33,711

Increase (decrease) in cash		14,778			(239,546	)

Cash, beginning of year		29,864			269,410

Cash, end of year	$	44,642		$	29,864

See notes to consolidated financial statements

F - 6

Phantom Fiber Corporation

Consolidated Statements of Cash Flows (continued)

Twelve month periods ended December 31, 2007 and December 31, 2006

	2007		2006
Interest paid	$	30,713	$	49,668

Non cash transactions:

Common shares issued on conversion of debenture		245,250		449,500
Common shares received for settlement of receivable		—		57,942
Common shares issued in settlement of accounts payable		—		446,173
Stock-based compensation recorded as deferred finance expense		301,547		187,719
Property, plant and equipment acquired through capital leases		7,873		21,416
Investments marked to market		—		8,985

See notes to consolidated financial statements

F - 7

Phantom Fiber Corporation

Notes to the Consolidated Financial Statements

December 31, 2007 and 2006

Note 1.

Description of Business and Basis of Presentation

Description of Business

The business of Phantom Fiber Corporation (the “Company”) is conducted through its wholly-owned Canadian subsidiary Phantom Fiber Inc. headquartered in Toronto, Canada.

The Company is engaged in the business of the sale and licensing of its proprietary wireless software platform and integration services. Phantom Fiber uses its software platform to extend the rich multimedia content and user experience of its customers’ existing Internet web sites securely and instantly to the Personal Digital Assistants (“PDA’s”) and cell phones of mobile users.

Phantom Fiber derives its revenue from direct sales of various licensing and revenue sharing plans that allow its revenues to grow based upon the adoption rate of its customer’s end users.

Reverse Acquisition Transaction

On July 7, 2004, Pivotal Self-Service Technologies Inc. (“Pivotal") completed a reverse acquisition of privately held Phantom Fiber Corporation, an Ontario corporation. The merger was effected pursuant to a Share Exchange Agreement dated April 21, 2004 (the " Agreement") by and among the Company and Pivotal. In accordance with the terms of the Agreement, Pivotal merged with and into Phantom Fiber Corporation, with Phantom Fiber Corporation remaining as the surviving corporation.

Pursuant to the Agreement, the outstanding shares of common stock of Phantom Fiber Corporation, converted into an aggregate of 8,370,537 (167,410,735 pre-split, see Note 6(c)) shares of the Company's common stock, which represented 64 percent of the Company's outstanding voting stock after giving effect to the merger. An aggregate of 1,374,107 (pre-split, see Note 6(c)) shares had been placed in escrow for a period of one year following the date of closing of the transaction in support of indemnifications by the pre-merger stockholders of Phantom Fiber Corporation to Pivotal Self-Service Technologies Inc. The transaction was recorded as a reverse acquisition since the Phantom Fiber Corporation stockholders became the controlling stockholders of the Company. Accordingly, the transaction was accounted for as the issuance of stock by Phantom Fiber Corporation for the net monetary assets of the Company accompanied by a recapitalization of Phantom Fiber Corporation and no goodwill or any intangible assets are recorded. Based on the price of the Company's common stock on July 7, 2004 of $1.60 per share (being $0.08 per share restated for a 1 for 20 reverse stock split which became effective May 5, 2005), the purchase price approximated $13,393,000. In connection with the merger, the Company changed its name from "Pivotal Self-Service Technologies Inc." to "Phantom Fiber Corporation".

Pursuant to the terms of the share exchange agreement between the Company and Phantom Fiber, upon Closing on July 7, 2004, the holders of an aggregate of CAD $1,200,000 (approximately $919,750) principal amount of convertible debentures of Phantom Fiber Corporation received warrants exercisable until the second anniversary of the Closing to purchase 750,000 (after consolidation of shares) shares of the Company's common stock at an exercise price of $1.68 per share (being $0.084 per share restated for a 1 for 20 reverse stock split (see Note 6(c)).

The Company also issued stock options to replace 2,000,000 Phantom Fiber Corporation stock options existing prior to the merger. Each stock option will allow the holder to .275 post-merger common shares (550,000 common shares in aggregate) for an exercise price equal to the exercise price of the Phantom Fiber Corporation stock options previously held divided by .275, and with an expiry date and vesting provisions similar to those of the previously outstanding stock options.

F - 8

Phantom Fiber Corporation

Notes to the Consolidated Financial Statements

December 31, 2007 and 2006

Note 1.

Description of Business and Basis of Presentation (continued)

Going Concern and Basis of Presentation

These financial statements have been prepared on the going concern basis, which assumes the realization of assets and liquidation of liabilities in the normal course of business, notwithstanding the continuing operating losses and the accumulated deficit of $11,786,659 as at December 31, 2007. The ability of the Company to continue as a going concern is dependent on the Company's ability to generate future profitable operations and receive continued support from its lenders, shareholders and raise external financing. Management recognizes this and is currently going through the process of securing additional capital to allow the company to continue operations unhindered. During 2008 management has been in discussion with a number of potential investors to provide short term and long term financing to meet the ongoing capital requirements of the Company. Management is currently negotiating with these investors in order to ensure the Company receives the optimal terms on these deals. Management has also taken measures to decrease its monthly ongoing expenses. Management’s efforts have also been directed towards the development and implementation of a plan to generate sufficient ongoing revenues to cover all of its present and future costs and expenses. It has amended its pricing model to increase customization fees and has recently secured a number of contracts which it expects will generate sufficient ongoing revenue to sustain its profitability. These projects will be integrated throughout the upcoming year. These efforts have allowed the Company to greatly reduce its ongoing losses and the Company believes it will be cashflow positive in 2008. Therefore management intends to raise sufficient capital to eliminate or greatly reduce its current debt and provide sufficient working capital to achieve ongoing profitability.

Note 2.

Summary of Significant Accounting Policies

Basis of presentation

The accompanying audited financial statements as of, and for the years ended December 31, 2007 and 2006, have been prepared in conformity with accounting principles generally accepted in the United States of America. These financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions have been eliminated on consolidation. Prior year financial statements have been reclassified to conform with the current year’s presentation.

Use of estimates

The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the year. Actual results may differ from these estimates.

Allowance for doubtful accounts

The Company records an allowance for doubtful accounts based on specifically identified amounts that management believes to be uncollectible. The criteria for allowance provision are determined based on historical experience and the Company’s assessment of the general financial conditions affecting its customer base. If the Company’s actual collections experience changes, revisions to the allowance may be required.

Revenue recognition

The Company recognizes software licensing revenues in accordance with all applicable accounting regulations, including the American Institute of Certified Public Accountants Statement of Position ("SOP") 97-2, "Software Revenue Recognition”, SOP 98-9, "Modification of SOP 97-2 Software Revenue Recognition With Respect to Certain Transactions" and Securities and Exchange Commission Staff Accounting Bulletin (“SAB”) 104. Following the requirements of these accounting pronouncements, the Company recognizes license revenues when all of the following conditions are met:

F - 9

Phantom Fiber Corporation

Notes to the Consolidated Financial Statements

December 31, 2007 and 2006

Note 2.

Summary of Significant Accounting Policies (continued)

· there is a signed license agreement with the customer;

· the software product or defined objective has been delivered to the customer;

· the amount of the fees to be paid by the customer is fixed or determinable; and

· collection of these fees is probable.

The Company generally negotiates formal license agreements with its customers. Each of the license agreements includes provisions for receipt of an up-front license fee and royalties. Generally, service providers pay these royalty fees either in the form of a one-time payment or as an on-going monthly fee. On-going royalties are recognized monthly based on the number of subscribers at month end. One-time royalties are recognized based on the number of new subscribers at the end of each period. . Up-front fees for consulting services are recognized as revenue once the product is delivered to the customer. Up-front license fees are recognized in the period for which the payment was intended.

The Company may also negotiate license agreements that allow for the payment of the initial license fee to be made in future installments over a period of less than a year. Revenues recognized in advance of the installments being due are recorded as unbilled revenues in the balance sheet.

Maintenance and technical support revenues are recognized ratably over the applicable service period, which is usually one year. Revenues derived from professional services are recognized upon performance of the related services. Revenues derived from license agreements containing multiple deliverables, such as product licenses, maintenance and technical support and other services, are allocated among the various deliverables based on the fair value of each deliverable. These are recognized ratably over the period as described in the contracts and may vary from customer to customer. Payments received from customers prior to the completion of services are recorded as unearned revenue.

Investments

The Company’s investment in marketable securities is classified as available for sale securities and is recorded at their fair value. Unrealized gains and losses are reported as a net amount in a separate component of stockholders’ equity until realized.

Income taxes

The Company accounts for income taxes in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 109, Accounting for Income Taxes. Under SFAS No. 109, deferred tax assets and liabilities are determined based on temporary differences between the financial statement and tax bases of assets and liabilities and net operating loss and credit carryforwards using enacted tax rates in effect for the year in which the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. A provision for income tax expense is recognized for income taxes payable for the current period, plus the net changes in deferred tax amounts (see Note 9).

F - 10

Phantom Fiber Corporation

Notes to the Consolidated Financial Statements

December 31, 2007 and 2006

Note 2.

Summary of Significant Accounting Policies (continued)

On January 1, 2007, the Company adopted Financial Accounting Standards Board (FASB) Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (FIN 48). There was no impact on the Company’s consolidated financial position, results of operations or cash flows at December 31, 2007 and for the year then ended as a result of implementing FIN 48. At the adoption date of January 1, 2007 and at December 31, 2007, the Company did not have any unrecognized

tax benefits. The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. As of January 1, 2007 and December 31, 2007, the Company had no accrued interest or penalties. The Company currently has no federal or state tax examinations in progress.

Financial instruments

Fair value

The carrying values of cash, accounts receivable, marketable securities, prepaid expenses and other receivables, accounts payable and accrued liabilities, unearned revenue and short term loans approximate their fair values due to the relatively short periods to maturity of the instruments.

The Company also has senior convertible notes and derivative financial instruments the fair value of which are estimated for disclosure purposes (below) based upon the present value of the estimated cash flows at market interest rates applicable to similar instruments. At December 31, 2007, estimated fair value and respective carrying values of the Company’s senior convertible notes and derivative instruments are as follows:

Instrument	Note		Fair Value		Carrying Value
Convertible notes payable		7	$	2,807,000	$	2,807,000
Derivative instruments		7		354,344		354,344

Credit risk

Credit risk arises from the potential that a counter party will fail to perform its obligations. The Company’s exposure to credit risk consists principally of cash and accounts receivable. The Company from time to time may maintain cash balances which exceed the Federal Depository Insurance coverage limit. The Company performs reviews of the relative credit rating of its bank to lower its risk. With respect to accounts receivable, the Company constantly monitors its payments from its customers and based on payment trends determines if the full receivable will be paid. Accordingly a 100% reserve is made when there is doubt that customers will not pay the amounts due.

Interest rate risk

Interest rates, maturities and security affecting the interest risk of the Company’s financial assets and liabilities have been disclosed in notes 5, 6 and 7.

Cash and cash equivalents

For purposes of the consolidated financial statements, the Company considers all highly liquid investments with a remaining maturity of three months or less when purchased to be cash equivalents.

F - 11

Phantom Fiber Corporation

Notes to the Consolidated Financial Statements

December 31, 2007 and 2006

Note 2.

Summary of Significant Accounting Policies (continued)

Net loss per share

Basic net loss per share is computed by dividing net loss attributable to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted income (loss) per share reflects the potential dilution from the exercise or conversion of other securities into common stock, but only if dilutive. All per share amounts reflect the effect of the 1 for 20 reverse stock split effective May 5, 2005. Diluted loss per share for the twelve months ended December 31, 2007 and 2006 is the same as basic loss per share, since the effect of including such potential common stock equivalents was anti-dilutive as the Company incurred losses for these periods. Such securities, shown below, presented on a common share equivalent basis and outstanding as at December 31, 2007 and 2006, have been excluded from the per share computations:

	December 31, 2007		December 31, 2006
Stock Options		1,960,603		1,903,471
Warrants		9,602,093		8,852,093
Convertible Notes Payable		5,614,000		6,101,000

Basic and diluted earnings (loss) per common share was calculated for all periods in accordance with the requirements of Statement of Financial Accounting Standards No. 128, “Earnings per Share”. The following table sets forth the computation of the diluted loss per share for the years ended December 31, 2007 and 2006, respectively:

	For the Year Ended December 31,
	2007			2006
Numerator:
Net loss to common shareholders	$	(3,659,849	)	$	(2,904,936	)
(Deduct)/Add:
Mark-to-market gain-derivative liability		1,962,880			1,182,776
Interest on convertible debt		(2,935,201	)		(564,799	)
Net loss to common shareholders and assumed conversion	$	(4,632,170	)	$	(2,286,959	)
Denominator:
Share reconciliation:
Shares used for basic income (loss) per share		17,134,535			15,097,612
Effect of dilutive items:
Stock options		-			-
Convertible securities		-			-
Weighted average shares used for diluted loss per share		17,134,535			15,097,612
Net loss per share:
Basic and diluted:	$	(0.21	)	$	(0.19	)

F - 12

Phantom Fiber Corporation

Notes to the Consolidated Financial Statements

December 31, 2007 and 2006

Note 2.

Summary of Significant Accounting Policies (continued)

Foreign currency

The functional currency of the company is the U.S. dollar and the functional currency of the wholly owned subsidiary located in Canada is the Canadian dollar. Assets and liabilities of this subsidiary are translated to U.S. dollars at year-end exchange rates and income statement items are translated at the average exchange rate for the year. Resulting translation adjustments, if material, are recorded as a separate component of accumulated other comprehensive income, a component of stockholders’ equity/(deficiency).

Investment tax credits

The Company’s subsidiary claims credits from the Canadian government for scientific research and development which are earned as a percentage of eligible research and development expenditures incurred in each taxation year.

Such credits earned relate to research and development expenses and property, plant and equipment purchases and are accounted for as a reduction of the respective expenses and the cost of such assets.

Advertising costs

The Company expenses ordinary advertising and promotion costs as incurred. Advertising and promotion costs were $1,596 and $16,470, for the years ended December 31, 2007 and 2006, respectively.

Comprehensive income (loss)

Comprehensive income (loss) includes the net exchange differences arising from the translation of Canadian dollar denominated subsidiaries into US dollars and accumulated unrealized holding gains and losses on the Company’s available for sale securities.

	Gain (Loss) on Marketable Securities			Foreign Exchange Translation Gain (Loss)			Total Gain (Loss)
Balance January 1, 2006	$	(16,014	)	$	7,272		$	(8,742	)
Realized loss on sale of security		16,014			-			16,014
Unrealized loss		(24,999	)		-			(24,999	)
Foreign exchange translation gain		-			33,711			33,711
Balance, December 31, 2006		(24,999	)		40,983			15,984
Realized loss on sale of security		4,280			-			4,280
Realized loss		20,719			-			20,719
Foreign exchange translation loss		-			(100,087	)		(100,087	)
Balance December 31, 2007	$	-		$	(59,104	)	$	(59,104	)

F - 13

Phantom Fiber Corporation

Notes to the Consolidated Financial Statements

December 31, 2007 and 2006

Note 2.

Summary of Significant Accounting Policies (continued)

Deferred financing costs

Costs directly identifiable with the raising of debt are recorded as deferred financing costs. These deferred costs are amortized over the term of the debt financing to which the costs relate. Deferred financing costs consist primarily of corporate finance fees and legal fees. Amortization expense charged to operations for the years ended December 31, 2007 and 2006 was $538,882 and $313,387, respectively.

Stock options

On January 1, 2006, the Company adopted SFAS No. 123(R), “Share Based Payments” (“SFAS 123(R)”), an amendment to SFAS No. 123 “Accounting for Stock-Based Compensation, (“SFAS 123”), using the modified prospective method. SFAS 123(R) requires the Company to recognize compensation expense in an amount equal to the fair value of share based payments granted to employees. (see note 6(d)).

Recent accounting pronouncements affecting the Company:

FSP FAS 123(R )-5, Amendment of FASB Staff Position FAS 123(R)-1:

FSP FAS 123(R)-5 was issued on October 10, 2006. The FSP provides that instruments that were originally issued as employee compensation and then modified, and that modification is made to the terms of the instrument solely to reflect an equity restructuring that occurs when the holders are no longer employees, no change in the recognition or the measurement (due to a change in classification) of those instruments will result if both of the following conditions are met:

(a). There is no increase in fair value of the award (or the ratio of intrinsic value to the exercise price of the award is preserved, that is, the holder is made whole), or the antidilution provision is not added to the terms of the award in contemplation of an equity restructuring; and

(b). All holders of the same class of equity instruments (for example, stock options) are treated in the same manner. The provisions in this FSP shall be applied in the first reporting period beginning after the date the FSP is posted to the FASB website. We will evaluate whether the adoption will have any impact on our financial statements.

SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (SFAS No. 159)

In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (SFAS No. 159). SFAS No. 159 permits entities to choose to measure, on an item-by-item basis, specified financial instruments and certain other items at fair value. Unrealized gains and losses on items for which the fair value option has been elected are required to be reported in earnings at each reporting date. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007, the provisions of which are required to be applied prospectively. The Company expects to adopt SFAS No. 159 in the first quarter of fiscal 2008.

F - 14

Phantom Fiber Corporation

Notes to the Consolidated Financial Statements

December 31, 2007 and 2006

Note 2.

Summary of Significant Accounting Policies (continued)

SFAS No. 141 (revised 2007), “Business Combinations” (SFAS No 141 (revised 2007))

In December 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 141 (revised 2007), Business Combinations , which replaces SFAS No 141. The statement retains the purchase method of accounting for acquisitions, but requires a number of changes, including changes in the way assets and liabilities are recognized in the purchase accounting. It also changes the recognition of assets acquired and liabilities assumed arising from contingencies, requires the capitalization of in-process research and development at fair value, and requires the expensing of acquisition-related costs as incurred. SFAS No. 141R is effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008.

SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements” (SFAS No 160)

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB 51, which changes the accounting and reporting for minority interests. Minority interests will be recharacterized as noncontrolling interests and will be reported as a component of equity separate from the parent’s equity, and purchases or sales of equity interests that do not result in a change in control will be accounted for as equity transactions. In addition, net income attributable to the noncontrolling interest will be included in consolidated net income on the faceof the income statement and, upon a loss of control, the interest sold, as well as any interest retained, will be recorded at fair value with any gain or loss recognized in earnings. SFAS No. 160 is effective for annual periods beginning after December 15, 2008. We are currently assessing the potential impact that adoption of SFAS No. 160 would have on our financial statements.

SFAS No. 161, “Disclosures about Derivative Instruments and Hedging Activities” (SFAS No. 161)

In March 2008, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 161, Disclosures about Derivative Instruments and Hedging Activities. The new standard is intended to improve financial reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity’s financial position, financial performance, and cash flows. It is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The company is currently evaluating the impact of adopting SFAS. No. 161 on its financial statements.

SFAS No. 157, “Fair Value Measurements” (SFAS No.157)

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. This statement does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007, and all interim periods within those fiscal years. In February 2008, the FASB released FASB Staff Position (FSP FAS 157-2 – Effective Date of FASB Statement No. 157) which delays the effective date of SFAS No. 157 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis (at least annually), to fiscal years beginning after November 15, 2008 and interim periods within those fiscal years. We are currently assessing the potential impact that adoption of this statement would have on our financial statements.

F - 15

Phantom Fiber Corporation

Notes to the Consolidated Financial Statements

December 31, 2007 and 2006

Note 2.

Summary of Significant Accounting Policies (continued)

EITF Issue No. 07-3, “Accounting for Advance Payments for Goods and Services to be Used in Future Research and Development (EITF 07-3)

In June 2007, the EITF reached consensus on EITF Issue No. 07-3,Accounting for Advance Payments for Goods and Services to Be Used in Future Research and Development Activities ("EITF 07-3"). EITF 07-3 states that non-refundable advance payments for future research and development activities should be capitalized until the goods have been delivered or the related services have been performed. EITF is effective for fiscal years beginning after December 15, 2007. Entities are to recognize the effects of EITF 07-3 prospectively for new contracts entered into after the effective date. The adoption of EITF 07-3 is not expected to have a material impact on our financial statements.

EITF No. 07-1, “Accounting for Collaborative Arrangements (EITF No. 07-1)

In December 2007, the EITF of the FASB reached a consensus on Issue No. 07-1 , Accounting for Collaborative Arrangements ("EITF 07-1"). The EITF concluded on the definition of a collaborative arrangement and that revenues and costs incurred with third parties in connection with collaborative arrangements would be presented gross or net based on the criteria in EITF 99-19 and other accounting literature. Based on the nature of the arrangement, payments to or from collaborators would be evaluated and its terms, the nature of the entity's business, and whether those payments are within the scope of other accounting literature would be presented. Companies are also required to disclose the nature and

purpose of collaborative arrangements along with the accounting policies and the classification and amounts of significant financial-statement amounts related to the arrangements. Activities in the arrangement conducted in a separate legal entity should be accounted for under other accounting literature; however required disclosure under EITF 07-1 applies to the entire collaborative agreement. EITF 07-1 is effective for annual periods beginning after December 15, 2007 and is to be applied retrospectively to all periods presented for all existing collaborative arrangements. We do not expect the adoption of EITF 07-1 to have a material impact on our financial statements.

Property and equipment

Property and equipment are carried at cost less accumulated depreciation. Depreciation is calculated using the declining-balance method over the following lives:

	Useful Life
Computer equipment	3 years
Office furniture	5 years

Additions during the year are depreciated at one-half the usual rate.

Research and Development

Research and development costs are expensed as incurred. Research and development expenses consist primarily of salaries and related personnel costs, as well as stock compensation related to these costs.

F - 16

Phantom Fiber Corporation

Notes to the Consolidated Financial Statements

December 31, 2007 and 2006

Note 2.

Summary of Significant Accounting Policies (continued)

Business Segment and Geographic Information

The Company operates as one segment. Approximately 95% of the Company’s revenue is derived from international business. The Company’s physical assets are located in its offices in Toronto, Canada. The Company currently has three customers that provided 58% and 27% of its revenue during the years ended December 31, 2007 and 2006, respectively. At December 31, 2007 and 2006, accounts receivable from these customers amounted to $40,857 and $21,364, respectively.

Note 3.

Marketable Securities

The Company’s available for sale marketable securities consist of the following at December 31, 2006:

			Original		Fair		Unrealized
	Number of Shares		Cost		Value		(Loss)

December 31, 2006:
Midland International Corporation		1,000,000	$	50,000	$	25,001	$	(24,999	)
			$	50,000	$	25,001	$	(24,999	)

These securities were sold during 2007 for cash proceeds of $52,260 and resulted in a realized gain of $2,260. There were $24,000 of unrealized losses reclassified out of other comprehensive income into earnings for the period.

Note 4.

Property and Equipment

Property and equipment comprises the following:

	2007			2006

Computer equipment	$	78,035		$	70,559
Office furniture		29,710			29,314
		107,745			99,873
Less: accumulated depreciation and amortization		(59,090	)		(44,584	)
	$	48,655		$	55,289

Depreciation expense charged to operations for the years ended December 31, 2007 and 2006 was $15,338 and $12,265, respectively.

Included in the above property and equipment are computer equipment and office furniture under capital leases with costs of $90,258 (December 31, 2006: $82,385) and accumulated depreciation and amortization of $51,379 (December 31, 2006: $34,930). These leases bear interest at varying rates from 5%-42%. The specific assets covered by the capital leases have been pledged as security to the leasing company until the lease obligation has been repaid.

F - 17

Phantom Fiber Corporation

Notes to the Consolidated Financial Statements

December 31, 2007 and 2006

Note 4.

Property and Equipment (continued)

The future minimum payments due under these capital leases are as follows:

2008	$	18,407
2009		7,539
2010		2,264
	$	28,210
Less interest portion		4,585
Present value of future lease payments		23,625
Less current portion		14,861
	$	8,764

Amortization expense under capital leases is included in depreciation expense and amounted to $14,030 and $11,175 for the years ended December 31, 2007 and 2006, respectively.

Note 5.

Short Term Borrowings

	2007		2006
Term loans from unrelated parties, repayable 180 days from receipt, bearing interest at 10% plus 3 year warrants to purchase 1,150,000 common shares at $0.50 per share with registration rights of unlimited piggyback. Interest rate is 15% if not repaid within the 180 days and an extension fee of 100,000 warrants for each $100,000 increment loaned. As of December 31, 2007, three term loans were not paid within the 180 day period, however, the investor had previously waived his right to the additional warrants and in January 2008 waived the additional interest. In January 2008, $400,000 of these term loans and in March 2008 the remaining $50,000 were settled by issuance of convertible debt as described in Note 12.	$	450,000	$	—

Term loans from unrelated parties, repayable 180 days from receipt, bearing interest at 10%. Interest rate is 15% if not repaid within the 180 days. In January 2008, these term loans were settled by issuance of convertible debt as described in Note 12.		380,000		—
Short term borrowing – related party:	$	830,000	$	—

Advance from a related party, repayable on demand, unsecured, bearing interest at 21.5% per annum		101,940		—

Advance from a related party, repayable 3 months from drawdown date, secured and bearing interest at 2.5% per month. This advance remains outstanding as of March 31, 2008.		203,880		—
	$	305,820	$	—

Note 6.

Capital Structure

Warrants:

The Company has granted 9,602,093 (post reverse split, see Note 6(c)) warrants to purchase an aggregate of 9,602,093 (post reverse split) common shares. All warrants are vested.

F - 18

Phantom Fiber Corporation

Notes to the Consolidated Financial Statements

December 31, 2007 and 2006

Note 6.

Capital Structure (continued)

Warrants:

The composition and exercise prices of the warrants outstanding at December 31, 2007 are as follows:

				Weighted
	Number			average
	of warrants			exercise price			Expiration date
January 1, 2006		1,731,537		$	2.25			–
Warrants granted		7,983,460			1.04			–
Warrants expired		(862,904	)		(1.96	)		–

December 31, 2006		8,852,093		$	1.19			–
Warrants granted		1,150,000			0.50			–
Warrants expired		(400,000	)		(1.50	)		–

December 31, 2007		9,602,093		$	1.09			–

Comprised of:
		18,633			10.00			March 6, 2008
		100,000			1.10			May 25, 2008
		300,000			2.00			July 20, 2008
		250,000			4.00			December 15, 2010 (a)
		3,891,730			0.56			January 9, 2009
		3,891,730			1.50			January 9, 2009
		300,000			0.50			April 18, 2010
		300,000			0.50			May 18, 2010
		300,000			0.50			June 12, 2010
		150,000			0.50			October 10, 2010
		100,000			0.50			October 24, 2010

		9,602,093		$	1.09			–

^(a)

Warrants issued on December 15, 2005 to the President and Chief Executive Officer in connection with satisfaction of terms specified in an employment agreement dated February 4, 2004.

F - 19

Phantom Fiber Corporation

Notes to the Consolidated Financial Statements

December 31, 2007 and 2006

Note 6.

Capital Structure (continued)

(c)

Equity Transactions

Effective May 5, 2005, the Company approved a 1:20 reverse stock split. All transactions described below reflect the post stock split values.

On January 9, 2006, the Company sold (a) $3,500,000 principal amount of senior convertible notes, and (b) warrants to purchase 7,000,000 shares of common stock, to 16 accredited investors. Participants in a private placement which closed on December 8, 2005 for gross proceeds of $858,000 exchanged the securities they previously purchased for an investment in the senior convertible notes and warrants based on the dollar amount of their prior investment, bringing the total gross proceeds from the transactions to $3,500,000. The senior convertible notes bear interest at 1% per annum payable semi-annually, they mature two years from the date of issuance and are convertible into shares of common stock at the investors’ option at $0.50 per share, subject to adjustment. The interest rate becomes 15% per annum for the period in which interest is overdue and reverts back to 1% when payment is made or the notes are converted into common stock. The Company has accrued $415,002 for overdue interest as at December 31, 2007. The warrants are exercisable until three years from the date of issuance. Half of the warrants are exercisable at a purchase price of $1.50 per share and the other half of the warrants are exercisable at a purchase price of $0.56 per share. The investors may exercise the warrants on a cashless basis if the shares of common stock underlying the warrants are not then registered pursuant to an effective registration statement. This transaction was exempt from registration pursuant to Section 4(2) of the Securities Act and Rule 506 promulgated thereunder.

Oberon Securities, LLC acted as placement agent in connection with the sale of $2,642,000 principal amount of the senior convertible notes and related warrants on January 9, 2006 and was paid $224,618 cash compensation and issued 483,460 non-assignable compensation warrants in March 2006 valued at $187,719, exercisable until three years after the date of issuance, with one-half of such compensation warrants entitling the holder to purchase shares of common stock at $1.50 per share and the other half of the compensation warrants entitling the holder to purchase shares of common stock at a purchase price of $0.56 per share. The Company also granted other placement agents in connection with the sale of $858,000 principal amount of the senior convertible notes and related warrants compensation in the form of 72,000 restricted shares of common stock. These shares were issued on June 22, 2006 and were valued at $43,200. These issuances were exempt from registration requirement pursuant to Section 4(2) of the Securities Act.

In February and March, 2006, the Company issued 632,043 restricted common shares for the settlement of professional services, accrued payroll expenses and prepaid services. These services included 61,593 restricted common shares issued on February 17, 2006 for in-house accounting services, 25,000 restricted common shares were issued on March 27, 2006 for management consulting fees, 500,000 restricted common shares were issued for accrued employee bonuses to the CEO for milestones met through 2004 and 2005, and 45,450 restricted common shares were issued on March 13, 2006 for public document filing services. These shares were valued at the fair market value on the date of grant. A total of $358,139 was charged to operations with a corresponding credit to equity.

On March 27, 2006, the Company issued 500,000 restricted common shares to the CEO in fulfillment of a bonus stemming from previous efforts. These shares were valued at the fair market value of $0.53 per share and were charged to operations with a corresponding credit to equity.

On February 17, 2006 a previous employee exercised his option agreement to purchase 20,625 restricted common shares which had previously vested. A total of $6,394 was received with a corresponding credit to equity.

F - 20

Phantom Fiber Corporation

Notes to the Consolidated Financial Statements

December 31, 2007 and 2006

Note 6.

Capital Structure (continued)

(c)

Equity Transactions (continued)

In March, 2006, as part of an agreement for public relations services, investor relations services and document filing services the Company issued warrants to purchase 500,000 restricted common shares. The warrants which were valued at $123,375, range in exercise prices from $0.56 to $2.00 and expire in 1 to 10 years.

On June 23, 2006, at a duly held Annual Meeting of the shareholders of the Company, the shareholders approved the authorization of 10,000,000 preferred shares. None of these shares have been issued or are outstanding.

On June 27, 2006, for full and final consideration of a receivable owing in the amount of approximately $54,575 and a payable of $70,866, the Company accepted the return of 185,000 common shares of the Company which were then returned to the transfer agent and removed from circulation.

On June 27, 2006, the Company returned 25,000 shares of its common stock to the transfer agent and they were removed from circulation. The shares were being held as final payment for consulting services originating from an agreement signed in August, 2005. The agreement has expired and therefore the shares have been returned to the transfer agent.

In September 2006, as part of an agreement to settle amounts due for legal services of $14,240, the Company recorded the issuance of 17,800 shares.

In November 2006, the Company issued 899,000 restricted shares to senior convertible debt holders who exercised their right to convert to common shares at $0.50 per share.

In December 2006, as part of an agreement for public relations services valued at $159,000, the Company issued 600,572 restricted shares and 195,000 unrestricted shares.

In February 2007, the Company issued 80,000 unrestricted common shares as part of an agreement for document filing services for the next twelve months. The shares were valued at the market price at date of issuance aggregating $21,600.

In February and March, 2007, the Company issued 265,000 unrestricted common shares to senior convertible debt holders who exercised their right to convert to common shares at $0.50 per share.

In April, May, June and July 2007, the Company issued a total of 1,150,000 warrants to purchase common shares at $0.50 per share. The warrants were issued as part of the cost of financing short term loans from an unrelated party and valued at $301,547 in the aggregate.

In June 2007, the Company issued 22,000 unrestricted common shares to senior convertible debt holder who exercised their right to convert to common shares at $0.50 per share.

In September 2007, the Company issued 203,500 unrestricted common shares at $0.50 per share, in exchange for the conversion of $100,000 in senior convertible debt and $1,750 of unpaid interest.

In October 2007, the Company issued 60,000 as part of an agreement for investor relation services. The shares were valued at $20,400.

F - 21

Phantom Fiber Corporation

Notes to the Consolidated Financial Statements

December 31, 2007 and 2006

Note 6.

Capital Structure (continued)

(d)

Share – Based Payments:

In connection with the Reverse Acquisition described in note 1(b), the Company’s stock option plan was amended to increase the number of options to be issued under the plan from a maximum of 150,000 (post reverse split, see Note 6(c)) options to a maximum of 2,000,000 (post reverse split) options.

Effective January 1, 2006, the Company’s Plan is accounted for in accordance with the recognition and measurement provisions of Statement of Financial Accounting Standards ("FAS") No. 123 (revised 2004), Share-Based Payment ("FAS 123(R)"), which replaces FAS No. 123, Accounting for Stock-Based Compensation, and supersedes Accounting Principles Board Opinion ("APB") No. 25, Accounting for Stock Issued to Employees, and related interpretations. FAS 123 (R) requires compensation costs related to share-based payment transactions, including employee stock options, to be recognized in the financial statements. In addition, the Company adheres to the guidance set forth within Securities and Exchange Commission ("SEC") Staff Accounting Bulletin ("SAB") No. 107, which provides the Staff's views regarding the interaction between SFAS No. 123(R) and certain SEC rules and regulations and provides interpretations with respect to the valuation of share-based payments for public companies.

In adopting FAS 123(R), the Company applied the modified prospective approach to transition. Under the modified prospective approach, the provisions of FAS 123 (R) are to be applied to new awards and to awards modified, repurchased, or cancelled after the required effective date. Additionally, compensation cost for the portion of awards for which the requisite service has not been rendered that are outstanding as of the required effective date shall be recognized as the requisite service is rendered on or after the required effective date. The compensation cost for that portion of awards shall be based on the grant-date fair value of those awards as calculated for either recognition or pro-forma disclosures under FAS 123.

The Company's results for the year ended December 31, 2007 include share-based compensation expense totaling approximately $239,861. Of this amount, $110,656 represents the expense related to options granted to employees. The options were granted on July 14, 2006 and the vesting period ranges from immediately to 3 years. These amounts have been included in the Consolidated Statements of Operations within operating expenses. No income tax benefit has been recognized in the income statement for share-based compensation arrangements due to a history of operating losses

Stock option compensation expense in 2007 is the estimated fair value of options granted amortized on a straight-line basis over the requisite service period for the entire portion of the award.

F - 22

Phantom Fiber Corporation

Notes to the Consolidated Financial Statements

December 31, 2007 and 2006

Note 6.

Capital Structure (continued)

(d)

Share – Based Payments (continued):

During 2007, the Company took into consideration guidance under FAS 123(R) and SEC Staff Accounting Bulletin No. 107 (SAB 107) when reviewing and updating assumptions. The expected volatility is based upon historical volatility of our stock and other contributing factors. The expected term is based upon observation of actual time elapsed between date of grant and exercise of options for all employees. The fair value of options granted during the twelve month periods was estimated using the Black-Scholes option pricing model with the following assumptions:

	Year ended December 31, 2007	Year ended December 31, 2006
Expected term (in years)	4.00	1.33 to 3.50
Expected stock price volatility	130% to 133%	113% to 157%
Risk free interest rate	4.13% to 4.54%	4.76% to 5.29%
Expected dividend yield	0%	0%

A summary of the changes in the Company’s stock option plan for the years ended December 31, 2007 and December 31, 2006 is as follows:

	Number of shares			Weighted average exercise price			Weighted Average Remaining Contractual Term (years)		Aggregate Intrinsic Value
Balance at January 1, 2006		567,500		$	0.41			3.43	$	62,282
Options granted		1,641,862	(a)		0.51			5.65		—
Options cancelled		(285,266	)		0.61			—		—
Options exercised		(20,625	)		(0.31	)		—		—
Balance at December 31, 2006		1,903,471			0.47			4.78	$	62,282
Options granted		376,857			0.50			5.65		—
Options cancelled		(319,725	)		0.52			—		—

Balance, December 31, 2007		1,960,603			0.47			4.49		33,600

Exercisable, December 31, 2007		932,442		$	0.42			3.07	$	33,600

(a) The fair value of the 1,641,862 employee stock options granted during the year ended December 31, 2006 was $487,193. As of December 31, 2007, there was $84,216 of unamortized compensation costs, net of estimated forfeitures, related to non vested stock options, which is expected to be recognized over a weighted average period of approximately 1.75 years.

F - 23

Phantom Fiber Corporation

Notes to the Consolidated Financial Statements

December 31, 2007 and 2006

Note 6.

Capital Structure (continued)

(d)

Share – Based Payments (continued):

Exercise Price		Number of options outstanding			Average remaining life (years)		Weighted average exercise price		Weighted Number of options exercisable		Weighted average exercise price
$	0.23		409,750			1.12	$	0.23		409,750	$	0.23
	0.50		730,846	^(a)		4.37		0.50		284,894		0.50
	0.51		795,007	^(b)		4.99		0.51		212,798		0.51
	2.00		25,000			3.66		2.00		25,000		2.00
$	0.23 - 2.00		1, 960,603			4.49	$	0.47		932,442	$	0.42

(a)

Reflects 225,000 options issued on May 1, 2006 to an employee and 505,846 options were issued to directors.

(b)

Options issued on July 14, 2006 to employees and directors.

Note 7.

Senior Convertible Notes

On December 8, 2005, the Company received subscriptions of $858,000 for the sale of 1,560,000 shares of common stock and warrants from accredited investors. The common stock and warrants were sold as units, with each unit consisting of one share of common stock and a warrant to purchase one share of common stock, for a per unit purchase price of $0.55. Each warrant entitles the holder to purchase one share of common stock at $1.10 per share, exercisable for a period of three years. Each of the investors had the right to exchange their units for any equity securities or other security which may be sold by the Company during the period ending 45 days after closing of the transaction. Each of the investors exercised their right to exchange their units for securities sold by the Company in a private placement (see below) which closed on January 9, 2006. The rights to the warrants described in this note were also exchanged in favor of warrants attached to the January 9, 2006 financing. At December 31, 2005 these funds were recorded as securities subscriptions pending completion of the January 5, 2006 transaction.

On January 5, 2006, the Company entered into a Securities Purchase Agreement with accredited investors for the sale of (i) $3,500,000 principal amount of senior convertible notes (the “notes”) and (ii) warrants to purchase up to 7,000,000 shares of common stock. The sale of the senior convertible notes and warrants closed on January 9, 2006. Participants in the private placement which closed on December 8, 2005 for gross proceeds of $858,000 exchanged the securities they previously purchased for an investment in the senior convertible notes and warrants based on the dollar amount of their prior investment, bringing the total gross proceeds from this private placement to $3,500,000.

The notes totaling $3,500,000 have a stated maturity date of January 9, 2008 with an option to the holder to extend the date in case of an event of default (as specified) and on change of control as defined. These notes are convertible into common shares at $0.50 with a reset provision to 75% of the conversion rate in the event that certain performance targets and stock price levels specified in the notes agreement are not met by December 31, 2006. The notes are redeemable earlier at the option of the holder in case any of the specified events of default occur or on change of control. The redemption amount is to be calculated in accordance with the formula specified in the notes agreement. The notes bear interest at 1% per annum. The interest rate becomes 15% per annum for the period in which interest is overdue and reverts back to 1% when payment is made or the notes are converted into common stock. The Company has accrued $35,083 representing the 1% interest due and $379,919 for overdue interest at 14% per annum as of December 31, 2007. The notes also have two separate warrants to purchase common stock of the Company. Warrant A entitles the holders to purchase up to 3,500,000 common shares at $1.50 per share and Warrant B entitles the holders to purchase up to 3,500,000 common shares at $0.56 per share. These warrants are exercisable until January 9, 2009.

F - 24

Phantom Fiber Corporation

Notes to the Consolidated Financial Statements

December 31, 2007 and 2006

Note 7.

Senior Convertible Notes (continued)

The Company paid $241,730 cash compensation to the placement agent and a lawyer in connection with the sale of $2,642,000 principal amount portion of the senior convertible notes and related warrants and issued 483,460 non-assignable compensation warrants exercisable until three years after the date of issuance, with one-half of such compensation warrants entitling the holder to purchase shares of common stock at $1.50 per share and the other half of the compensation warrants entitling the holder to purchase shares of common stock at a purchase price of $0.56 per share. The Company also compensated other placement agents and a lawyer in connection with the sale of the $858,000 principal amount portion of the senior convertible notes and related warrants, compensation in the form of 72,000 restricted shares valued at $43,200.

Registration Rights Agreements require the Company to register and maintain the registration of the shares underlying the aforementioned notes and the warrants. The Company will incur cash penalties if it fails to do so.

The Company has accounted for the conversion option in the notes as an embedded derivative under the provisions of FAS 133: Accounting for Derivative Instruments and Hedging Activities. Pursuant to the provisions of Statement of Financial Accounting Standards No. 133, and EITF 00-19: “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock” (“EITF 00-19”), the Company has recorded initially the value of the warrants and conversion option at $3,042,290 and $2,983,856, respectively. As the proceeds of the notes of $3,500,000 are less than the combined fair value of the warrants and the conversion option, the initial difference of $2,526,146 has been charged to interest expense on derivative instruments, a non-operating expense, in the consolidated statements of operations. The note is determined to have no value and has been recorded with a debt discount of $3,500,000, the value of the notes. The debt discount is being amortized using the effective interest rate method over the life of the underlying debt accordingly; the effective interest rate for the debt is 507%. The cash paid of $300,720, the value of the warrants of $211,519 and the shares issued of $43,200 to the private agents and lawyers have been accounted as deferred financing cost and the warrants have been accounted as additional paid in capital. The deferred financing costs are being amortized on a straight line basis over the life of the underlying convertible note.

The Company revalued the conversion option and the warrants as of December 31, 2007 at $0 and $354,344, respectively. During the twelve months ended December 31, 2007, the Company has recorded income of $1,962,880 from the change in value of these derivative instruments. Conversions during 2007 amounted to $243,500 resulting in an outstanding principal balance of $2,807,000 as at December 31, 2007.

Note 8.

Related Party Transactions

Included in accounts payable and accruals to related parties is an amount of $164,596 ($137,671 – December 31, 2006) due to an officer for unpaid compensation due to the officer. Also included in accrued liabilities to related parties at December 31, 2007 is an amount of $36,542 owing to a company directly controlled by the spouse of the CEO for consulting services rendered. The Company incurred consulting fees of $46,836 in 2006. The remaining amount owing as of December 31, 2007 is $36,541.

A person related to the CEO provided the Company with a short term loan amounting to $101,940, unsecured, payable upon demand and bearing interest at 21.5% per annum. This same person also provided a second short term loan for $203,880, secured by accounts receivables and a general security agreement, with a term of 3 months from drawdown date and interest of 2.5% per month. The Company recorded interest expense of $79,124 on these borrowings during the year ended December 31, 2007.

F - 25

Phantom Fiber Corporation

Notes to the Consolidated Financial Statements

December 31, 2007 and 2006

Note 9.

Income Taxes

The Company files US Federal income tax returns for its US operations. Separate income tax returns are filed, as locally required, for each of its foreign subsidiaries.

There was no benefit from income taxes for the years ended December 31, 2007 and 2006 as the Company’s net loss carryforward are fully offset with a valuation allowance.

The total provision for income taxes differs from that amount which would be computed by applying the income tax rate to income (loss) before provision for income taxes. The reasons for these differences are as follows:

	2007						2006
	Amount			%			Amount			%
Statutory income tax rate (recovery)	$	(1,321,900	)		(36	)	$	(1,049,300	)		(36	)
Non-deductible items and temporary differences		636,400			17			988,300			35
Other, including valuation Allowance adjustment		685,500			19			61,000			1
Net taxes (recovery) and effective rate	$	—			—		$	—			—

The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities and net operating loss carry-forwards. Temporary differences and carry-forwards, which give rise to deferred tax assets and liabilities are as follows:

	2007						2006
	Component			Tax Effect			Component			Tax Effect
Net operating losses – domestic	$	3,919,000		$	1,333,000		$	2,392,000		$	813,000
Less valuation allowance		(3,919,000	)		(1,333,000	)		(2,392,000	)		(813,000	)
Net deferred tax asset	$	—		$	—		$	—		$	—

Net operating losses – foreign	$	9,638,000		$	3,481,000		$	7,326,000		$	2,646,000
Less valuation allowance		(9,638,000	)		(3,481,000	)		(7,326,000	)		(2,646,000	)
Net deferred tax asset	$	—		$	—		$	—		$	—

As December 31, 2007, the Company had cumulative net operating loss carry-forwards of approximately $3,919,000 and $9,638,000 in the United States and Canada respectively. These amounts will expire in various years through 2028. The related deferred tax assets have been completely offset by a valuation allowance. The Company has no significant deferred tax liabilities.

F - 26

Phantom Fiber Corporation

Notes to the Consolidated Financial Statements

December 31, 2007 and 2006

Note 10.

Accrued liabilities

The composition of accrued liabilities is as follows:

	2007		2006
Professional fees	$	252,263	$	260,871
Director compensation		38,529		69,583
Interest on senior convertible debt		415,002		194,891
Salary and related costs		34,264		36,252
Payroll taxes		48,151		0
Other		66,243		16,774
Total	$	854,452	$	578,371

The Company is delinquent in the remittance of payroll taxes withheld to the proper authorities as of December 31, 2007 and through the date of issuance of these financial statements.

Note 11.

Commitments

(a)

The Company leases its corporate executive office in Toronto, Canada and a sales office in Costa Rica under operating leases which expire in various years through October 31, 2009. In addition, the Company has an office in New York which it rents on a monthly basis for $285 per month. The future minimum payments under these leases for each of the years ended December 31, and in the aggregate are as follows:

2008	$	89,000
2009		40,000
	$	129,000

Rent expense (including other charges) charged to operations for the years ended December 31, 2007 and 2006 amounted to $143,116 and $128,787, respectively.

(b)

Under an employment agreement dated February 4, 2004, Jeff Halloran was engaged as President and Chief Executive Officer at an annual base salary of $250,000 per annum, plus other benefits including a monthly car allowance of $500 and a monthly office expense allowance of $500. Should the company choose to terminate the employment agreement, Mr. Halloran is entitled to receive two times his base salary. All outstanding options are to immediately vest and all extended health care premiums will remain in full effect for a one-year period. Mr. Halloran is required to enter into a non-compete agreement with the Company.

Note 12.

Subsequent Events

In January 2008, the Company issued 330,000 unrestricted common shares to a senior convertible debt holder who exercised their right to convert to common shares at $0.50 per share.

In January 2008, the Company negotiated short term financing of $50,000. Interest of 10% per annum is payable upon expiry of the note or repayment date. The term of the loan is 180 days from receipt with interest of 15% should repayment not be made within this time frame.

On January 15, 2008, the Company issued (a) $973,583 principal amount of new senior convertible notes, and (b) warrants to purchase 2,165,674 shares of common stock, to 7 accredited investors. These convertible notes were paid by means of other borrowings received amounting to $182,300, the settlement of short term loans payable of $780,000 and settlement of director dividends payable in the amount of $11,283. The senior convertible notes bear interest at 1% per annum payable semi-annually. The notes mature two years from the date of issuance and are convertible into shares of common stock at the investors’ option at $0.50 per share for one investor and $0.42 per share for the remaining investors, subject to adjustment. The warrants are exercisable until three years from the date of issuance at a purchase price of $0.50 per share. This transaction was exempt from registration requirement pursuant to Section 4(2) of the Securities Act and Rule 506 promulgated there under.

F - 27

Phantom Fiber Corporation

Notes to the Consolidated Financial Statements

December 31, 2007 and 2006

Note 12.

Subsequent Events (continued)

On January 31, 2008, the Registrant concluded the negotiations for the extension of its Senior Secured Note and on February 11, 2008, the final agreements were delivered to the Holder. The amendments are to its outstanding Senior Unsecured Note (the “Amended Note”) in the principal amount of $2,642,000 originally entered into on January 6, 2006. The Holder of the Amended Note, Victory Park Master Fund, Ltd., (the “Holder”) agreed to an extension of the due date until May 31, 2008. In exchange for waiving interest due and any technical defaults of the original Registration Rights Agreement and in exchange for the extension of the due date and the cancellation of the Class A Warrants to purchase up to 2,642,000 $0.001 par value common stock of the Registrant for an exercise price of $1.50 per share, the Registrant agreed to issue 900,000 restricted common shares to the Holder. The agreements also provide for the early prepayment of the Amended Note at a discount under certain circumstances. The revised interest rate of the Amended Note is 12% annually and the amendment also provides for the Holder to be granted a security interest in all of the Registrant’s assets.

On February 11, 2008, certain employees exercised their option agreement to purchase 90,749 restricted common shares which had previously vested. The options were exercised at $0.228 per share

On March 25, 2008, the Company issued (a) $100,000 principal amount of senior convertible notes, and (b) warrants to purchase 238,095 shares of common stock, to an accredited investor. These convertible notes were paid by settlement of $50,000 of short term borrowings existing as of December 31, 2007 and an additional $50,000 of short term borrowings received in January 2008. The senior convertible notes bear interest at 1% per annum payable semi-annually. The notes mature on January 15, 2010 and are convertible into shares of common stock at the investors’ option at $0.42 per share, subject to adjustment. The warrants are exercisable for three years from the date of issuance at a purchase price of $0.50 per share. This transaction was exempt from registration requirement pursuant to Section 4(2) of the Securities Act and Rule 506 promulgated there under.

On March 26, 2008, the Company issued 238,095 restricted common shares to this investor who exercised his right to convert to common shares at $0.50 per share.

F - 28

DELAWARE		04-2451506
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

		Page
	PART I

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

	PART II

Item 5.	Market for Common Equity and Related Stockholder Matters and Small Business Issuer Purchases of Equity Securities	5
Item 6.	Management’s Discussion and Analysis or Plan of Operation	7
Item 7.	Financial Statements	15
Item 8.	Changes In and Disagreements with Accountants on Accounting and Financial Disclosure	15
Item 8A(T)	Controls and Procedures	15
Item 8B.	Other Information	15

	PART III

Item 9.	Directors, Executive Officers, Promoters and Control Persons and Corporate Governance: Compliance With Section 16(a) of the Exchange Act	16
Item 10.	Executive Compensation	18
Item 11.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	22
Item 12.	Certain Relationships and Related Transactions and Director Independence	24
Item 13.	Exhibits	25
Item 14.	Principal Accountant Fees and Services	26

SIGNATURES		28

	2008				2007				2006
Quarter Ended	High		Low		High		Low		High		Low
March 31	$	0.38	$	0.22	$	0.57	$	0.19	$	0.70	$	0.45
June 30		—		—	$	0.42	$	0.23	$	0.62	$	0.35
September 30		—		—	$	0.50	$	0.31	$	0.58	$	0.30
December 31		—		—	$	0.49	$	0.28	$	0.47	$	0.20

Name	Age	Position
Jeffrey T. Halloran	46	Chief Executive Officer, President, Principal Financial Officer, Principal Accounting Officer and Chairman
Herbert C. Sears	39	Chief Technology Officer
Dennis Logan	40	Director
Shimon Constante	35	Director
Konstantine (Gus) Lucas	60	Director
Stephen Gesner	52	Director

		Annual Compensation						Long-Term Compensation
								Awards					Payouts
Name and Principal Position	Year		Salary ($)	Bonus ($)		Other Annual Compen- sation ($)			Restricted Stock Award(s) ($)		Securities Underlying Options/ SARs (#)			LTIP Payouts ($)	All Other Compen- sation ($)
Jeffrey T. Halloran,	2007	$	250,000	-0-	$	9,200	(1)		-0-		-0-			-0-	-0-
Chief Executive	2006	$	250,000	-0-	$	6,000	(1)		-0-		300,000	(2)		-0-	-0-
Officer, President,	2005	$	250,000	-0-	$	6,000	(1)	$	270,000	(3)	250,000	(4)		-0-	-0-
and Principal
Financial Officer

Herb Sears,	2007	$	132,315	-0-	$	5,293	(5)		-0-		-0-			-0-	-0-
Chief Technology	2006	$	132,315	-0-	$	5,293	(5)		-0-		100,000	(6)		-0-	-0-
Officer	2005	$	132,195	-0-		-0-			-0-		-0-			-0-	-0-

Konstantine Lucas,	2007		-0-	-0-	$	6,000	(7)		-0-		80,905	(8)		-0-	-0-
Director	2006		-0-	-0-	$	5,283	(7)		-0-		52,817	(8)		-0-	-0-
	2005		-0-	-0-		-0-			-0-		-0-			-0-	-0-

Stephen Gesner,	2007		-0-	-0-	$	6,000	(7)		-0-		80,905	(8)		-0-	-0-
Director	2006		-0-	-0-	$	5,283	(7)		-0-		52,817	(8)		-0-	-0-
	2005		-0-	-0-		-0-			-0-		-0-			-0-	-0-

Dennis Logan	2007		-0-	-0-	$	1,761	(7)		-0-		53,237	(8)		-0-	-0-
Director	2006		-0-	-0-		-0-			-0-		-0-			-0-	-0-
	2005		-0-	-0-		-0-			-0-		-0-			-0-	-0-

Shimon Constante,	2007		-0-	-0-	$	6,000	(7)		-0-		80,905	(8)		-0-	-0-
Director	2006		-0-	-0-	$	913	(7)		-0-		59,340	(8 )		-0-	-0-
	2005		-0-	-0-		-0-			-0-		-0-			-0-	-0-

Chris Carmichael,	2007		-0-	-0-	$	4,240	(7)		-0-		-0-			-0-	-0-
Former Director	2006		-0-	-0-	$	3,049	(7)		-0-		44,920	(8)		-0-	-0-
	2005		-0-	-0-		-0-			-0-		-0-			-0-	-0-

Gordon Fowler	2007		-0-	-0-		-0-			-0-		-0-			-0-	-0-
Former Director	2006		-0-	-0-	$	6,000	(7)		-0-		119,410	(9)		-0-	-0-
	2005		-0-	-0-	$	40,000	(10)		20,000	(11)	75,000	(12)		-0-	-0-

Graham Simmonds	2007		-0-	-0-		-0-			-0-		-0-			-0-	-0-
Former Director	2006		-0-	-0-	$	6,000	(7)		-0-		119,410	(9)		-0-	-0-
	2005		-0-	-0-		-0-			-0-		-0-			-0-	-0-

·	Cash increased by $14,778.
·	Accounts receivable net of allowance for doubtful accounts, increased by $74,358 due to increased revenues. The allowance for doubtful accounts increased $573 in fiscal 2007. Uncollectible accounts were written off in the amount of $17,776.
·	Marketable securities decreased by $25,001 due to the sale of all holdings.
·	Investment tax credits receivable decreased by $90,800 as a result of previous years credits having been collected offset by estimated credits for the last half of 2007.
·	Prepaid expenses decreased $3,712.
·	Property and equipment decreased by $6,634 as a result of new computer equipment valued at $7,873, exchange rate changes accounting for $831 offset by depreciation of $15,338 for the period.
·	Deferred financing costs decreased by $237,335 as a result of warrants issued for short term financing valued at $301,547 offset by amortization of $538,882 for the period.

·	An increase in trade accounts payable of $73,313 from December 31, 2006 to December 31, 2007, principally due to accrued taxes and audit fees,
·	an increase in accrued liabilities due to related parties for services provided and interest on loans of $127,763,
·	an increase in accrued liabilities of $276,081 due to interest on convertible debt of $220,111, interest on loans of $43,366, increase in franchise taxes of $13,833, increase in public relations of $17,000, offset by a decrease in director fees of $32,999,
·	unearned revenue increased $115,066 due to new accounts,
·	an increase in short term borrowings of $1,135,820,
·	an increase of $182,300 in other borrowings,
·	a decrease in obligations under capital leases due to two new leases of $7,873 offset by payments during the period
·	a decrease of $1,962,880 attributable to the accounting for derivative instruments relating to convertible notes,
·	an increase in interest due on senior convertible debt borrowings of $2,691,701 net of conversions.

Option/SAR Grants in Last Fiscal Year

Individual Grants											Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Option Term				Alternative to (f) and (g): Grant Date Value
(a) Name	(b) Number of Securities Underlying Options/ SARs Granted (#)			(c) % of Total Options/ SARs Granted to Employees in Fiscal Year			(d) Exercise or Base Price ($/Sh)		(e) Expiration Date		(f) 5% ($)		(g) 10% ($)		(h) Grant Date Present Value ($) (1)
Konstantine Lucas		80,905	(2)		21.5	%	$	0.50		April 9, 2011		—		—	$	19,000
Stephen Gesner		80,905	(2)		21.5	%	$	0.50		April 9, 2011		—		—	$	19,000
Chris Carmichael		80,905	(2)		21.5	%	$	0.50		April 9, 2011		—		—	$	19,000
Shimon Constante		80,905	(2)		21.5	%	$	0.50		April 9, 2011		—		—	$	19,000
Dennis Logan		53,237	(2)		14.0	%	$	0.50		September 14, 2011		—		—	$	19,000

	Number of Securities Underlying Unexercised Options at December 31, 2006 (#)(1)		Value of Unexercised In-the-Money Options at December 31, 2006 ($)(2)
	(Exercisable/Unexercisable)		(Exercisable/Unexercisable)
Jeffrey T. Halloran		206,250/0		$ 31,350/$0
Herb Sears		118,250/0		$ 17,974/$0
Gordon Fowler		19,250/0		$ 2,926/$0

Name and Address of Beneficial Owner	Number of Shares of Common Stock Beneficially Owned (1)			Percentage of Outstanding Shares of Common Stock (1)
Jeffrey T. Halloran		5,612,050	(2)		29.0	%
c/o Phantom Fiber Corporation
144 Front Street West
Toronto, Ontario M5J 2L7

Lorraine Halloran		825,000			4.4	%
c/o Phantom Fiber Corporation
144 Front Street West
Toronto, Ontario M5J 2L7

Herbert C. Sears		118,250	(3)		*
45 Roberson Drive
Ajax, Ontario, Canada L1T 4K1

Shimon Constante		140,245	(4)		*
10 Kshani #39
Tel-Aviv 69499, Israel

Konstantine (Gus) Lucas		4,039,642	(5)		19.3	%
17428 Oak Creek Court
Encino, CA 91316

Stephen Gesner		339,972	(6)		1.8	%
395 March Crescent
Oakville, Ontario, Canada L6H 5X7

Howard Shapiro		3,978,573	(7)		18.8	%
199 Logtown Road
Port Jervis, NY 12771

Ron Sunderland		1,125,334	(8)		5.6	%
3728 Regal Vista Drive
Sherman Oaks, CA 91403

Victory Park Master Fund Ltd.		3,542,000	(9)		16.4	%

All Directors and Executive Officers as a Group (5 persons)		10,250,159			37.3	%

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 under equity compensation plans (excluding securities reflected in column (a)
	(a)		(b)		(c)
Equity compensation plans approved by security holders		2,210,603	$	0.87		39,397

Equity compensation plans not approved by security holders		-0-		-0-		-0-

Total		2,210,603	$	0.87		39,397

Exhibit Number		Description
3.1		Certificate of Incorporation of the Company (Incorporated by reference to Amendment No. 1 to the Company’s Registration Statement on Form 10-SB/A (File No. 001-15627), filed with the Securities and Exchange Commission on February 17, 2000)
3.2		Certificate of Merger of Hycomp, Inc. Into Eieihome.com Inc. filed with the Delaware Secretary of State on March 3, 2000 (Incorporated by reference to the Company’s Registration Statement on Form SB-2 (File No. 333-131808), filed with the Securities and Exchange Commission on February 13, 2006)
3.3		Certificate of Amendment to the Company’s Certificate of Incorporation filed with the Delaware Secretary of State on September 26, 2000 (Incorporated by reference to the Company’s Registration Statement on Form SB-2 (File No. 333-131808), filed with the Securities and Exchange Commission on February 13, 2006)
3.4		Amended and Restated Certificate of Incorporation of the Company filed with the Delaware Secretary of State on October 2, 2001 (Incorporated by reference to the Company’s Registration Statement on Form SB-2 (File No. 333-131808), filed with the Securities and Exchange Commission on February 13, 2006)
3.5		Certificate of Amendment to the Company’s Amended and Restated Certificate of Incorporation filed with the Delaware Secretary of State on July 2, 2004 (Incorporated by reference to the Company’s Registration Statement on Form SB-2 (File No. 333-131808), filed with the Securities and Exchange Commission on February 13, 2006)
3.6		By-laws of the Company (Incorporated by reference to Amendment No. 1 to the Company’s Registration Statement on Form 10-SB/A (File No. 001-15627), filed with the Securities and Exchange Commission on February 17, 2000)
4.1		Form of Senior Convertible Note (Incorporated by reference to the Company’s Form 8-K filed with the Securities and Exchange Commission on January 10, 2006)
4.2		Form of $1.50/$0.56 Warrants (Incorporated by reference to the Company’s Form 8-K filed with the Securities and Exchange Commission on January 10, 2006)

10.1		Amended and Restated 2000 Stock Option Plan (Incorporated by reference to Appendix A to the Company’s Preliminary Schedule 14C filed with the Securities and Exchange Commission on December 19, 2005)
10.2		2005 Stock Option, SAR and Stock Bonus Consultant Plan (Incorporated by reference to the Company’s Registration Statement on Form S-8 (File No. 333-122730) filed with the Securities and Exchange Commission on February 11, 2005)
10.3		Subscription Agreement effective December 8, 2005 between Phantom Fiber Corporation and the subscribers thereto (Incorporated by reference to the Company’s 8-K filed with the Securities and Exchange Commission on December 14, 2005)
10.4		Securities Purchase Agreement dated January 5, 2006 by and among Phantom Fiber Corporation and the investors listed on the Schedule of Buyers attached thereto (Incorporated by reference to the Company’s Form 8-K filed with the Securities and Exchange Commission on January 10, 2006)
10.5		Agreements of December 8, 2005 investors to exchange securities (Incorporated by reference to the Company’s Form 8-K filed with the Securities and Exchange Commission on January 10, 2006)
10.6		Registration Rights Agreement dated January 5, 2006 by and among Phantom Fiber Corporation and the Buyers signatory thereto (Incorporated by reference to the Company’s Form 8-K filed with the Securities and Exchange Commission on January 10, 2006)
10.7		Transfer Agent Instructions dated January 4, 2006 (Incorporated by reference to the Company’s Form 8-K filed with the Securities and Exchange Commission on January 10, 2006)
21.1		Subsidiaries of the Company (Incorporated by reference to the Company’s Registration Statement on Form SB-2 (File No. 333-131808), filed with the Securities and Exchange Commission on February 13, 2006)
14.1*		Code of Ethics
21.1		List of Subsidiaries (Incorporated by reference to the Company’s Registration Statement on Form SB-2 (File No. 333-131808), filed with the Securities and Exchange Commission on February 13, 2006)
31.1*		Certification by Chief Executive Officer and Principal Financial Officer, required by Rule 13a-14(a) or Rule 15d-14(a) of the Exchange Act
32.1*		Certification by Chief Executive Officer and Principal Financial Officer, required by Rule 13a-14(b) or Rule 15d-14(b) of the Exchange Act and Section 1350 of Chapter 63 of Title 18 of the United States Code

Dated: April 14, 2008		PHANTOM FIBER CORPORATION

	By:
		Jeffrey T. Halloran
		Chief Executive Officer, President,
		Principal Financial Officer, Principal
		Accounting Officer and Director

Signature	Title	Date

____________________________ Jeffrey T. Halloran	Chief Executive Officer, President, Principal Financial Officer, Principal Accounting Officer and Director	April 14, 2008

____________________________ Konstantine (Gus) Lucas	Director	April 14, 2008

____________________________ Stephen Gesner	Director	April 14, 2008

____________________________ Dennis Logan	Director	April 14, 2008

____________________________ Shimon Constante	Director	April 14, 2008

CONSOLIDATED FINANCIAL STATEMENTS:

Report of Independent Registered Public Accounting Firm	F – 2

Consolidated Balance Sheets as at December 31, 2007 and 2006	F – 3

Consolidated Statements of Operations For the Years Ended December 31, 2007 and 2006	F – 4

Consolidated Statement of Stockholders’ Deficiency For the Years Ended December 31, 2006 and 2007	F – 5

Consolidated Statements of Cash Flows For the Years Ended December 31, 2007 and 2006	F – 6 – F – 7

Notes to Consolidated Financial Statements	F – 8 – F – 28