Phantom Fiber Corporation

Analyst: Victor Sula, Ph.D. Initial Report October 30th, 2008

10/29/08

PHFB daily

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Phone: 416-703-4007 Fax: 416-703-0900 E-mail (IR): PHFB@firstcapitalinvestors.com Website: www.phantomfiber.com

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Company Introduction

MARKET DATA

Symbol Exchanges Current Price Price Target Rating Outstanding Shares Market Cap. Average 3-m Volume

0.05 volume

Thousands

Phantom Fiber Corporation 144 Front Street West, Suite 580 Toronto, Ontario Canada, M5J 2L7

PHFB OTC BB $0.08 $0.30 Speculative Buy 19.35 Million $1.55 Million 8,682

Source: Yahoo Finance, Analyst Estimates

Phantom Fiber Corporation (OTCBB: PHFB) develops and markets wireless software applications and mobile solutions to offer broad support of the world’s leading mobile platforms and environments.

Using its proprietary data transmission technology - Smart Streaming™ - the Company’s wireless platform software allows customers to extend the transactional capabilities of their Web sites and deliver wireless, fully secured transactions at speeds significantly exceeding browser-based mobile phone applications. The software works with more than 1,500+ different mobile devices, including personal digital assistants (PDA) and mobile phones with Microsoft PocketPC, Palm, Symbian, i-Mode, Blackberry, Research In Motion, Smart Phone and Java platforms. In addition, PHFB currently supports more than 600 network carriers worldwide.

Initial applications for the Company’s mobile solutions were online gaming, such as horse racing, fixed odd game providers, and sports book software companies. These applications required speed, rapid account updates, security and a rich user experience. With an established brand in the gaming and entertainment sector, PHFB’s platform is also being deployed by enterprises seeking to implement high-performance mobile applications in remote video surveillance, banking and brokerage, logistics and distribution.

A number of software providers and clients have signed multi-year exclusive contracts with Company. Some of the top sports book and horse racing software providers partnering with PHFB include: United Tote, Finsoft, Orbis, BetOptions, BidNation, IQ-Ludorum, Kiron Interactive, Digital Gaming Solutions, BoDog, Interactive Gaming & Wagering, and ASI/Extension. The Company has also signed agreements with Scientific Games (p.ari-mutuel), Sports

Phantom Fiber Corporation (OTCBB: PHFB)

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Analyst: Victor Sula, Ph.D. Initial Report October 30th, 2008

Acumen, Churchill Downs, YouBet and Phantom EFX in the U.S., and Swiss Lottery and Electracade in Europe.

PHFB has partnered with key enterprise and e-commerce companies such as AireSurf Networks Inc., Guard Dev, Citadel Commerce, FireOne Group and Navaho Networks, among others.

The Company was founded in 2002 and is based in Toronto, Canada. PHFB conducts its business through its wholly owned subsidiaries Phantom Fiber Corporation and Phantom Fiber Inc.

Investment Highlights Favorable industry outlook According to Gartner research, worldwide mobile phone sales reached 1.15 billion units in 2007 and are forecast to grow 11% to 1.28 billion units by year-end 2008. The mobile phone market is poised for double-digit growth in 2009 as well. This growth is supported by robust demand for mobile content and software solutions.

According to iSuppli Corp., the global market for mobile phone premium content, including music, gaming and video, is expected to expand to more than $43 billion by 2010, rising 42.5% annually from $5.2 billion in 20041.

Further Gartner research shows that worldwide mobile gaming revenues are on-track to increase 16.1% in 2008 to $4.5 billion, and are expected to grow 10.2% annually between 2007 and 2011, with worldwide end-user spending of $6.3 billion in 2011. The North American market is forecast to grow from $845 million currently to approximately $1.2 billion in 2011.

Business model providing wireless data transition solutions PHFB develops and markets wireless software applications and mobile solutions. Its products offer broad support for all of the world’s leading mobile platforms and environments. Using the proprietary data transmission technology - Smart Streaming™ - PHFB wireless platform software allows customers to extend the transactional capabilities of their Web sites and deliver fully secured wireless transactions at higher speeds than browserbased mobile phone applications to more than 1,500+ assorted mobile devices. PHFB also supports more than 600 network carriers worldwide.

Focus on wireless gaming and entrainment sectors PHFB’s applications represent a suite of “game frames” developed to quickly enable wireless gambling solutions in sports betting, including horse racing and team wagering, or in softer games like bingo and poker. Wireless provides a cost-effective alternative to the traditional overhead associated with placing wagers. It gives users access to wagering systems directly from their seats and allows race operators to reduce the number of terminals and cashiers required on race day. The Company has integrated its solution with the world’s leading tote and gaming providers to deliver the best value-added functionality.

1. www.cellular-news.com/story/16425.php

Phantom Fiber Corporation (OTCBB: PHFB)

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Analyst: Victor Sula, Ph.D. Initial Report October 30th, 2008

Expansion into financial services, healthcare and logistics verticals Over the past year, PHFB has expanded its sales and marketing efforts, and has secured clients in the financial and mobile payments vertical (such as FireOne, Citadel, and Navaho Networks), healthcare, logistics and distribution software providers, as well as in the security and remote-monitoring industries. Last quarter, PHFB successfully rolled out a real-time foreign exchange trading application for FX Solutions and a personal healthcare management system for My Medical Records. The Company has also secured a contract with GTX Corp. to develop a Personal Location System, with numerous applications in pari-mutual, lottery, athletic and personal location tracking.

Client portfolio creates recurring revenues In the last four years, PHFB has built a sizable portfolio of clients in various verticals. These clients include Finsoft PLC, Real-Time Gaming, Bid Nation, Digital Gaming Solutions, Kiron Interactive, Bet Options, Dynamite Ideas, GTS, Orbis, and Parlay Entertainment. The Company recently signed Scientific Games, Sports Acumen, Churchill Downs, YouBet and Phantom EFX in the U.S. Generally, PHFB charges a one-time fee ranging from $50,000 to $250,000 for integration and customization services to match the functionality of the client’s Internet offerings. In addition, on customers with a client base greater than 10,000 mobile users, the Company generates recurring revenues via a revenue-sharing or monthly subscription arrangement.

Expansion into European, Australian and Asian markets During 2008, the Company entered the EU market by signing agreements with Swiss Lottery and Electracade. In October 2008, PHFB announced further expansion into Australia and Asia through an agreement with Smart Ventures and Beach Hut Media. PHFB’s focus in the Australian and Asian markets is initially in three vertical markets: Gaming, Retail and Financial Services. The Asian markets have been recognized for their mobile society and dependence on the latest mobile technologies, eclipsing PC-based alternatives.

Triple-digit revenue growth During the last four years, PHFB has reported impressive revenue growth, confirming increasing market acceptance of offered services.

The Company’s revenue increased 309% year-over-year to $517,678 during the first six months of 2008 because of significant new customer additions. Recently signed agreements support our outlook for 2008 revenues approaching $2 million. Going forward, we expect the latest agreements to drive 100%-200% annual revenue growth through 2010.

Phantom Fiber Corporation (OTCBB: PHFB)

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Analyst: Victor Sula, Ph.D. Initial Report October 30th, 2008

Business Model The Company has created a mobile transaction enablement software business that provides a mobile transport layer and delivers encrypted packets over cellular networks on behalf of hosting clients. PHFB develops wireless software applications and mobile solutions that allow enterprises to experience high-performance functionality on today’s mobile devices and global communication networks. The Company’s wireless data delivery platform allow users to experience Internet-like graphics and Internet-like speed in an end-to-end highly secure solution across 1500+ mobile devices and 600+ network carriers. All applications based on PHFB’s proprietary platform can be applied to any enterprise requiring speed and a rich-user experience in their mobile solutions. Once deployed, the platform utilizes PHFB’s proprietary Smart Streaming™ data transmission technology to deliver high-speed, client-side performance that intuitively adapts to device and network properties.

The Company initially focused on applications in the gaming and entertainment sector (e.g. casinos, sports betting, lottery, racing, poker rooms, etc.). PHFB’s technology provides a suite of “game frames” developed to quickly enable wireless gambling solutions in sports betting where speed and simultaneous delivery matters.

PHFB’s clients represent approximately 300 sports bookings and horse racing sites, or about 75% of the sports wagering and horse racing industries.

In the last two years, the Company has expanded its platform functionality with strong live streaming video technology and wireless financial solutions. PHFB provides an integrated interactive component to existing monitoring systems that allows security companies to remotely access their systems through hundreds of different mobile device types. The Company’s proprietary technology gives customer instant access, via their mobile device, to their business surveillance systems, and also provides a secure connection for monitoring homebased security, child care facilities and other properties.

The Company is expanding into the financial sector and recently signed a multi-year contract to deliver an integrated mobile solution for FX Solutions LLC, a leading U.S. online foreign exchange broker serving both retail and institutional customers. PHFB’s mobile solution will integrate directly into FX Solutions proprietary Global Trading System platform to provide new functionality and features for traders.

The Company combines low implementation costs with a rapid deployment strategy using reusable software objects to reduce initial purchase barriers. PHFB’s business model generates revenues through the sale of proprietary software and custom integration services. The Company typically enters into exclusive multi-year, revenue-sharing agreements with partners who use the Company’s technology to offer services or functions such as games, content and other features.

Phantom Fiber Corporation (OTCBB: PHFB)

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Analyst: Victor Sula, Ph.D. Initial Report October 30th, 2008

PHFB typically charges a one-time fee ranging from $50,000 to $250,000 for integration and customization services. For customers with more than 10,000 mobile users, a service charge or transaction fee applies. The Company also participates in revenue- sharing or monthly subscription arrangements.

Corporate strategy The Company plans to develop additional products and services, innovative features, and expand distribution to attract new customers while enhancing its value for existing clients. In implementing its initial strategy, PHFB established the following criteria: • • • •

Users were likely to be “early adopters” of wireless technologies; There was no dominant competitor apparent; The Company could implement a stable recurring revenue model; and Focus on consumer-based applications that leverage product portability.

The Company’s goal for next year is to expand geographically and on a product platform basis into the brokerage, banking, trading, logistics and distribution and healthcare markets. PHFB also plans to expand its platform functionality with stronger video streaming technology and other analytical data to further differentiate its competitive offering.

In addition, PHFB intends to further penetrate vertical markets where it has a presence. Each client typically represents several operators or sites licensing the Company’s software. As a result, each partnership agreement results in the deployment of PHFB’s technology across a number of sites and creates backlog. The Company is working through the backlog amassed on existing contracts and is helping its partners market their mobile products. To address this backlog, PHFB is introducing methodologies and product constructs designed to more quickly build brand for the underlying operators.

Technology

The language spoken by the application server must be translated into a format that the mobile device can understand. PHFB’s Advanced Wireless Platform is the module that connects the application server portion to the end-user client. Essentially, the mobile solution may be viewed as just another communication channel from the back-end’s perspective, resembling that of the existing Internet portal.

Since the mobile solution just plugs into the existing application framework, no changes or additional support are required for hosting the mobile solution.

Phantom Fiber Corporation (OTCBB: PHFB)

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Analyst: Victor Sula, Ph.D. Initial Report October 30th, 2008

PHFB’s Advanced Wireless Platform

Source: the Company`s Web site.

The Company’s wireless platform is built using a building block or object approach. This technical architecture was chosen to protect performance and ensure scalability on the device. Some of the primary features of the platform are: • Enhanced user experience: The wireless framework offers a rich graphic experience without compromising performance.

• Cross-platform & network compatibility: The client-side software supports Windows/CE, Palm, Symbian, Apple, i-Mode, RIM Blackberry, SmartPhone and Java-enabled phones (J2ME). This cross-platform compatibility eliminates the need to recompile the application for devices running different operating systems, using different devices and running on different network protocols.

• Performance: The client can deliver Internet-type speed across networks. This approach puts less demand on the server and network and allows the Company to provide the user with improved performance and better graphic presentation.

PHFB’s advanced wireless platform includes several unique and proprietary functions such as: • Secure State Management – Maintains a checkpoint connection in “no signal” areas. Should a user lose signal for a period of time, their mobile device will auto refresh once a connection is re-established.

• Security – The communication component of the Company’s software uniquely delivers an end-to-end enPhantom Fiber Corporation (OTCBB: PHFB)

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Analyst: Victor Sula, Ph.D. Initial Report October 30th, 2008

crypted secure solution over a secure socket layer (SSL) similar to secure Internet sites.

• SmartStream™ – Communications are handled using a proprietary raw data format to provide landline Internet speed on today’s wireless devices. SmartStream also queues and prioritizes transmissions to assure a high quality user experience and application responsiveness.

• Client Libraries - Presentation graphics and animation are stored in local device libraries, eliminating redundant delivery and creating a vivid user experience without compromising performance.

• Store & Forward – Users without wireless connectivity or in a weak signal area can continue to use PHFB’s software through a local storage method. The software incorporates an encrypted database on the device that can be synchronized once a signal is detected. This allows enterprise customers to continue collecting or referencing information from mobile device without hindering the work flow process.

Services Mobile gaming The Company has partnered with the world’s leading content developers and platforms to provide operators with the widest range of content for mobile devices. PHFB’s gaming offering provides superior high-resolution interactivity complemented with speed rivaling the PC experience.

PHFB’s current content offering includes: • • • • • • •

Traditional Casino Games, such as Peer-to-Peer Poker, Blackjack and Roulette; Bonus and Progressive 5 Reel Multi-line; Animated Slots; Lottery, Keno, Bingo and Scratch Tickets; Virtual Horse Racing; Fixed Odd and Skill Games; and Reverse Auction Products.

Mobile pari-mutuel Mobile provides a cost-effective alternative to the traditional overhead associated with placing wagers and giving users access to wagering systems from their seats. It also allows race operators to reduce the number of terminals and cashiers required on race day.

The Company has integrated its solution with the world’s leading tote providers to deliver the following value-added functionality: • Account Access via existing online username/password that provides full transactional capability including cashier access, reward points, integrated customer support and detailed transactional history.

• Program Display in a real time format and detail/summary screens that provide odds, MTP, scratches, last minutes changes, news alerts, program and handicapping informaPhantom Fiber Corporation (OTCBB: PHFB)

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Analyst: Victor Sula, Ph.D. Initial Report October 30th, 2008

tion, and weather conditions.

• Live Alert System/SMS Channel that directs players immediately to the wager window when a user- triggered event occurs.

• Video and Multi-Media tools that allow players to tap into live video feeds or search archived information to be played on-demand.

Mobile banking PHFB’s mobile banking solution extends a highly personalized offering of timely, relevant information to banking clients.

Some of the features provided by the Company’s platform are: • • • • • • • •

Basic Account access; Bill payments and management; Transfer between accounts; Notifications on service upgrades; Integrated customer care via e-mail and online chat; Access to credit, mortgages and investment accounts; Mobile Trading and investing; and Branch/ATM finder.

Mobile trading PHFB’s mobile trading solution extends a highly personalized offering of timely functionality and reliable information to a client. Features include: • Real-time trading that delivers true real-time quotes with no delays, and the functionality client need to buy, sell, set limits and view trade histories; • Single click trading with the option of confirmation windows to minimize the risk of data entry error and increase customer confidence; • An interface consistent with client’s existing system which enables full, fast and accurate trading without a long learning curve; and • Live graphing of real-time data and market information in a number of formats, including simple trending or comparison charting, or more complex analytical charting such as Bollinger Bands.

Phantom Fiber Corporation (OTCBB: PHFB)

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Analyst: Victor Sula, Ph.D. Initial Report October 30th, 2008

Industry Outlook Mobile phone market According to Gartner research, worldwide mobile phone sales reached 1.15 billion units in 2007 and are expected to approach 1.28 billion units by year-end 2008, an 11% increase2; the market is poised for 10% growth in 2009.

Mobile phone sales growth will increasingly rely on emerging markets as mature regions such as Western Europe, Japan and North America, reach saturation.

Nokia achieved a 37% market share in 2007 when it sold slightly more than 430 million phones worldwide. Although its market share slipped, Motorola maintained second place at 14%, but the gap narrowed between it and third-placed Samsung with 13% market share. Annual worldwide revenues from mobile phone sales surpassed $110 billion in 2007.

Global Mobile Phone Sales, millions units

Source: www.tmcnet.com/usubmit/2006/jan/1278911.htm.

Smart mobile device market With the ongoing development of new Internet services such as YouTube, Facebook, MySpace, Google Maps, Skype, Chat and Gmail, the future of mobile computing lies with devices that are truly mobile, always connected, and able to provide a rich Internet browsing experience. According to ABI Research, the market for Mobile Internet Devices (MIDs) such as ultra-mobile PCs (UMPCs) and netbooks will grow 167% annually over the next five years. ABI expects total revenues generated by vendors in the market to increase from $3.5 billion in 2008 to nearly $27 billion in 20133.

2. www.gartner.com/it/page.jsp?id=736913 3. www.computerweekly.com/Articles/2008/10/13/232636/ultra-mobile-device-market-set-for-rapid-evolu-

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Analyst: Victor Sula, Ph.D. Initial Report October 30th, 2008

At present, smart phones represent 22% of the mobile market, creating demand for Web-based services on the mobile network4. These high-end devices comprised around 10% of the global mobile phone market by units in 2007. With annual growth of 60%, smart phones are the fastest growing segment of the technology market.

In 2007, around 118 million smart phones were sold globally. Nokia shipped more than 60 million of the 118 million-unit total, while Research In Motion (RIM) ranked second with 12 million units shipped5. In the first half of 2008, global smart phone sales to end-users rose to 64 million units, up 22% compared with the first half of 2007. Rounding out the top six smart phone makers behind Nokia and BlackBerry are HTC (4.1% of the market), Sharp (4.1%) and Fujitsu (3.3%). Other smart phone makers made up the remaining 23.6%6.

The smart phone market is still growing at a healthy clip, estimated at 72% year-over-year; and analysts expect sales to approach 200 million smart phones in 2008.

By OS provider, Symbian has the largest share at 57% worldwide, but lags behind other companies in the small but highly visible North American market. RIM OS has the second largest share at 17.4% followed by Windows CE at12%. Smart phones are widely deployed across Asia and enjoy great popularity because of the low barrier to entry for third-party developers to write new applications for the platform.

Operating Systems Used in Smartphones, Q2 2008

Source: http://en.wikipedia.org/wiki/Smartphone#cite_note-13

Smart phone market share, Q2 2008

Source: http://www.cn-c114.net/578/a343562.html

Mobile gaming According to iSuppli Corp., the global market for mobile phone premium content, including music, gaming and video, is expected to expand to more than $43 billion by 2010, rising 42.5% annually from $5.2 billion in 2004 7.

4. www.letsgomobile.org/en/3392/mobile-device-market-trends/ 5. www.allaboutsymbian.com/news/item/6671_The_State_of_the_Smartphone_Ma.php 6. www.cn-c114.net/578/a343562.html 7. www.cellular-news.com/story/16425.php

Phantom Fiber Corporation (OTCBB: PHFB)

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Analyst: Victor Sula, Ph.D. Initial Report October 30th, 2008

Video games in their original versions on PCs and/or consoles represent a form of entertainment recognized across a large population, while portable consoles have moved the market toward gaming on a mobile device.

Worldwide mobile gaming revenues are on-track to hit $4.5 billion in 2008, a 16.1% increase from 2007 revenues of $3.9 billion. Gartner predicts that mobile gaming revenues will expand 10.2% annually between 2007 and 2011 and reach $6.3 billion in 2011. The North American market is projected to grow from $845 million currently to approximately $1.2 billion in 2011.

Mobile Gaming Revenue, $ billions

Source: www.gartner.com/it/page.jsp?id=706407

Systems integration market In recent years, the worldwide systems integration (SI) services market has experienced its strongest growth since the dot-com boom in the late 1990s. According to a new study published by IDC, after years of sluggish returns and historic lows, the worldwide market experienced 4% growth in 20058.

According to a new IDC study, SI vendors reported a healthy market in 2007 with a slight increase in hourly bill rates as customers continued to turn to SI vendors for integration projects that tie together disparate applications and processes9. According to IDC, 2008 will likely be another strong year.

Accenture and IBM Global Services are the worldwide leaders for SI services. Other major players in the global market are the Japanese SIs, including Fujitsu, Hitachi and NEC Corporation. In 2007, the U.S. market was dominated by companies with a strong presence in the federal government market, namely Lockheed Martin, CSC and SAIC.

8. http://news.top-consultant.com/UK/newsletter161106.htm 9. www.businesswire.com/portal/site/home/permalink/?ndmViewId=news_view&newsId=20081009005045&newsLang=en

Phantom Fiber Corporation (OTCBB: PHFB)

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Analyst: Victor Sula, Ph.D. Initial Report October 30th, 2008

Financial Analysis Revenues In the last four years, PHFB has reported robust revenue growth and increasing market acceptance of its services.

The Company’s revenue increased 309% year-over-year during the first six months of 2008 to a record $517,678, reflecting significant new customer additions. Going forward, the Company is likely to significantly improve on FY2007 results by reporting revenues ranging near $2 million in FY 2008.

Revenue track, $

Source: SEC Filings; fiscal year ending December 31.

Income statement In 2007, the Company’s operating expenses declined by $1.1 million, due mainly to reduced spending on public relations, investor relations and advertising, as well as lower general and administrative expenses because of the absence of bonuses paid in the prior year. Net losses increased, however, because of the recognition of an additional $2.7 million of interest on accretion of senior convertible debt in FY 2007.

During the first six months of FY 2008, PHFB incurred net losses of $509,129, mainly due to the recognition of $1,071,789 of interest on accretion of senior convertible debt. This loss was partially offset by a net gain of $1,1725,332 related to the change in value of derivative instruments associated with the convertible debt issue.

Phantom Fiber Corporation (OTCBB: PHFB)

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Analyst: Victor Sula, Ph.D. Initial Report October 30th, 2008

Operating results, $

Revenue Operating expenses Research and development Sales and marketing General and Administrative Other Income (Expense) Net Income EPS, $

H1 FY07

H1 FY08 % Chg

FY06

FY07

% Chg

309.3 3,358 1,081 853.0 1,425

495.3 2,246 919.9 454.9 871.1

60% -33% -15% -47% -39%

126.6 1,141 502.1 214.3 424.4

517.7 1,213 535.0 184.2 493.9

309% 6% 7% -14% 16%

144.2 (2,905)

(1,909) (3,660)

n/m n/m

399.2 (614.989)

186.3 (509,129)

-53% n/m

(0.19)

(0.21)

n/m

(0.04)

(0.03)

n/m

Source: SEC Filings; year ending December 31.

Despite strong revenue growth, the Company has not yet reached breakeven on an operating basis. PHFB is implementing an aggressive marketing plan to drive revenue growth and position the business for profitability in 2009.

Liquidity and capital resources At June 30, 2008, the Company had a working capital deficit of $2.3 million, down from $5.8 million at year-end 2007. The change in working capital was due to a decline in short term and other borrowings of $825,120, which were converted into convertible debt, a $324,482 reduction in accrued liabilities, a $427,168 increase in accounts payable, a change in value of derivative instruments of $340,692, and a change in senior convertible notes of $2,232,030 due to refinancing.

Balance sheet, $

Cash and equivalents Net Working Capital Total Assets Liabilities, including Debt Equity, including Accumulated deficit

31-Dec-07

31-Mar-08

44,642 (5,839,241) 515,751

12,301 (3,504,637) 409,653

5,896,660 4,320,789 (5,380,909) (11,786,659)

4,769,074 3,637,997 (4,278,421) (11,223,838)

30-Jun-08 (2,317,234) (2,317,234) 561,996 561,996 5,820,892 5,820,892 4,139,831 4,139,831 (5,258,896) (5,258,896) (12,295,788) (12,295,788)

Source: SEC Filings; year ending December 31.

Phantom Fiber Corporation (OTCBB: PHFB)

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Analyst: Victor Sula, Ph.D. Initial Report October 30th, 2008

To date, PHFB has financed its operation mainly from private placements of equity and debt instruments; however, this may cause dilution and increase financial risks. The Company plans to raise sufficient additional capital over the next several months to eliminate or significantly reduce its current debt and provide adequate working capital for operating activities.

Outlook and Valuation PHFB has secured many new customer contracts that will favorably impact 2008 and 2009 results. Over the past year, PHFB has expanded its sales and marketing efforts, and has secured clients in the financial and mobile payments vertical (such as FireOne, Citadel, and Navaho Networks), healthcare, logistics and distribution software providers, and the security and remote-monitoring industries. Last quarter, PHFB rolled out a real-time foreign exchange trading application for FX Solutions and a personal healthcare management system for My Medical Records. The Company also secured a contract with GTX Corp. to develop a Personal Location System. Further geographic expansion into Australia and Asia has been accomplished through agreements with Smart Ventures and Beach Hut Media.

During the first half of FY 2008, revenue growth exceeded 300%, and PHFB signed several agreements that support our outlook for FY 2008 revenues approaching $2 million. Going forward, we expect new sales agreements, geographical expansion and new verticals to fuel 100%-200% annual revenue growth through 2010.

Income statement forecast, $ 2006

2007

2008E

309,271

495,285

2,005,904

5,215,351

10,430,702

1,080,682 853,000 1,424,764 3,358,446

919,952 454,884 871,072 2,245,908

1,404,133 501,476 902,657 2,808,266

1,564,605 730,149 1,095,224 3,389,978

1,668,912 938,763 1,147,377 3,755,053

Operating income Other income (expenses): EBT

(3,049,175) 144,239 (2,904,936)

(1,750,623) (1,909,226) (3,659,849)

(802,362) (954,613) (1,756,975)

1,825,373 (1,050,074) 775,299

6,675,649 (1,155,082) 5,520,568

Net income Diluted EPS

(2,904,936) ($0.19)

(3,659,849) ($0.21)

(1,756,975) ($0.08)

542,709 $0.03

3,864,397 $0.19 2009

Revenue: Operating expenses: Research and development Sales and marketing General and administrative Total operating expenses

2009E

2010E

Source: Analyst estimates

We expect the Company to break even in 2009 and report impressive earnings gains as its technology and customer base are further leveraged.

We also think the Company will issue equity to finance its growth plans. Considering also the issued convertible notes, we expect shares outstanding to exceed 30 million by the end of 2010.

Phantom Fiber Corporation (OTCBB: PHFB)

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Analyst: Victor Sula, Ph.D. Initial Report October 30th, 2008

Peer comparisons We looked at companies providing gaming, mobile and wireless software solutions for the gaming and financial services industries as valuation peers for PHFB. Peer companies are trading at 8.65 times forward P/E multiples.

Comparative analysis Company Name 29-Oct-08

Ticker symbol

Price per Mrkt. Cap. P/E Share, $ $ Mn 2008 2009

CryptoLogic Ltd. Sybase Inc. Research In Motion Ltd. Aristocrat Leisure Ltd. THQ Inc. Peers Median

CRYP 4.14 56 SY 25.09 1,990 RIMM 47.82 27,050 ALL.AX AUD 3.96 AUD 2,716 THQI 7.62 509

PHANTOM FIBER CORP

PHFB

0.08

1.55

2008

P/S

2009

20.70 12.36 13.36 9.97 10.89 12.36

7.81 11.56 10.09 8.65 7.86 8.65

0.79 1.76 2.45 2.44 0.45 1.76

0.69 1.70 1.72 2.33 0.41 1.70

n/m

2.70

0.77

0.30

Source: Reuters and analyst Estimates

We value PHFB at a 10 times forward P/E multiple because of the market’s favorable growth outlook, the Company’s revenue momentum and increasing worldwide adoption of its innovative platform. We multiply our 10 times forward P/E multiple by our $0.03 FY 2009 EPS estimate to obtain a $0.30 price target. As a result, we are initiating coverage of PHFB with a Speculative Buy rating and a $0.30 price target.

However, we strongly advise investors to consider the risk factors discussed in the next section which cause us to accentuate the “Speculative” aspect of our rating.

Phantom Fiber Corporation (OTCBB: PHFB)

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Analyst: Victor Sula, Ph.D. Initial Report October 30th, 2008

Investment Risks Limited sales history The Company has a limited sales history in the wireless applications and enterprise mobile market area. As a result, PHFB may experience revenue volatility as its sales order backlog, and project bookings are not at levels to smooth revenues or sustain quarterly growth. If the Company’s projected revenues for a particular period fall below expectations, PHFB may not be able to adjust spending quickly enough to offset revenue declines, and overall results would suffer.

Lack of sufficient capital To date, PHFB has reported losses from operations, negative working capital, and an insignificant cash balance.

PHFB will not generate sufficient cash from operations to fund its business plan in 2008. Its ability to grow may depend on obtaining additional debt or equity financing. If the Company is unable to raise additional cash, its business plan could stall.

Dependence on strategic partners The Company derives a significant portion of its license revenues from sales of its proprietary wireless platform software through strategic partners, systems integrators, value-added resellers and original equipment manufacturers. The loss of any of these third-party relationships could have an adverse impact on PHFB’s operations.

Moreover, if these partners change their business focus or enter into strategic alliances with other companies, their need for PHFB’s service could be reduced or eliminated.

Market competitiveness The wireless applications market is highly competitive and characterized by rapid and significant technological change, frequent product introductions, evolving wireless platforms and industry standards. A number of companies have achieved strong results providing services similar to PHFB’s. These competitors have greater revenues, customer lists, market acceptance, brand recognition and financial resources.

System failure The Company’s business is dependent on PHFB wireless platform’s ability to rapidly and efficiently process substantial quantities of data and transactions. These operations could be interrupted by any damage to, or failure of, mobile device software, hardware or networks. Any system failures, delays or other problems could harm PHFB’s reputation and result in the loss of customers.

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Analyst: Victor Sula, Ph.D. Initial Report October 30th, 2008

Management Mr. Halloran brings to the Company more than 20 years of experience in emerging digital technologies and Jeff Halloran telecommunications. He became CEO, president and chairman of PHFB in January 2002. Mr. Halloran asFounder, President and CEO sumed the positions of principal financial officer and principal accounting officer effective January 1, 2005.

From March 2001 to November 2001, he was CEO of Sona Innovations Inc., a wireless software company.

From March 1989 to February 2001, Mr. Halloran was CEO and president of Relational Solutions Inc., an international consulting firm specializing in information management and strategic information planning.

From August 1987 to March 1989, he was a consulting manager for Oracle Corp., providing database consulting services. Mr. Halloran graduated from St. Clair College in 1982 with a degree in business administration.

Herb Sears Chief Technology Officer

Mr. Halloran brings to the Company more than 20 years of experience in emerging digital technologies and telecommunications. He became CEO, president and chairman of PHFB in January 2002. Mr. Halloran assumed the positions of principal financial officer and principal accounting officer effective January 1, 2005.

From March 2001 to November 2001, he was CEO of Sona Innovations Inc., a wireless software company.

From March 1989 to February 2001, Mr. Halloran was CEO and president of Relational Solutions Inc., an international consulting firm specializing in information management and strategic information planning.

From August 1987 to March 1989, he was a consulting manager for Oracle Corp., providing database consulting services. Mr. Halloran graduated from St. Clair College in 1982 with a degree in business administration.

Shane Lourensse VP Business Development

Mr. Lourensse has more than 10 years experience in sales with software and technology based business solutions. Prior to joining Phantom Fiber, he was a senior account manager in the technology consulting division of Telus, Canada’s second-largest telecom and wireless carrier. Previously, Mr. Lourensse was sales director for a publicly traded company specializing in software solutions for the online gaming market.

Dennis Logan Director

Mr. Logan became a director in September 2007. He currently serves as a managing director of Investment Banking for Desjardins Securities. Prior to joining Desjardins Securities, from May 2005 until June 2007, Mr. Logan was a director in the Investment Banking Group at Westwind Partners where he focused on both corporate finance and merger & acquisition activity in the real estate, technology and special situations sectors. Before that, Mr. Loganheld Investment Banking positions with LOM Ltd from August 2003 to January 2005; CIBC World Markets from April 2000 to May 2003; and TD Securities Inc. from May 1998 to April 2000. He began his career in financial services in September 1994 as a staff accountant with Ernst & Young LLP. Mr. Logan holds both an Honours Bachelor of Art in philosophy & economics (1991), an MBA (1994) from the University of Toronto, and is a Chartered Accountant.

Phantom Fiber Corporation (OTCBB: PHFB)

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Analyst: Victor Sula, Ph.D. Initial Report October 30th, 2008

Shimon Constante Director

Mr. Constante became a director in November 2006. He is the CEO of mPortico, a private mobile distribution and marketing services provider. Prior to founding mPortico, from March 2003 until August 2005, Mr. Constante was the Head of Mobile Business Development at 888.com, an online entertainment company.

Prior to that, from July 2000 until January 2002, Mr. Constante was the head of Technology and Business Research at Aduva, a privately-held technology company. Mr. Constante received a Bachelor of Art in psychology in 1999 and an executive MBA from the Kellogg School of Management at Northwestern University in 2004.

Konstantine Lucas Director

Mr. Lucas became a director in February 2006. He currently serves as executive vice president of Warner Bros. Domestic Cable Distribution. From September 1998 until April 2000, Mr. Lucas was a consultant to the media industry, including cable networks and MGM Studios. From May 1995 to August 1998, Mr. Lucas was president of programming for the Family Channel. Before joining the Family Channel, from August 1986 to September 1993, Mr. Lucas was executive vice president of Viacom Entertainment Group, and president of West Coast Operations and Viacom Productions. Before that, Mr. Lucas held several positions at ABC Entertainment, culminating in his position as vice president and assistant to the president of ABC Entertainment.

Stephen Gesner Director

Mr. Gesner became a director on February, 2006. Mr. Gesner currently serves as the executive vice president and CIO of Resolve Corporation. He previously served as chief information officer of Meridian Credit Union from April 2005 to December 2007. From May 2004 to March 2005, Mr. Gesner was the vice president of financial services of marketing for TELUS Communications. During the period May 2003 to December 2003, he served as the CTO for Cap Gemini Ernst and Young Canada. Before that, Mr. Gesner worked for 14 years at TD Bank Financial Group. Mr. Gesner began his career with Ford Motor Company of Canada in September 1979 and held several positions in finance, treasury, production planning and industrial relations through December 1988. Mr. Gesner holds an Honours Bachelor of Science from York University (1977) and an MBA from the Schulich School of Business (1979).

Phantom Fiber Corporation (OTCBB: PHFB)

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Analyst: Victor Sula, Ph.D. Initial Report October 30th, 2008

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The report is a service of BlueWave Advisors, LLC, a financial public relations firm that has been compensated by the companies profiled. All direct and third party compensation received has been disclosed within each individual profile in accordance with section 17(b) of the Securities Act of 1933. This compensation constitutes a conflict of interest as to our ability to remain objective in our communication regarding the profiled companies. BlueWave Advisors, LLC, and/or its affiliated will hold, buy, and sell securities in the companies profiled. When compensated in shares, all readers should be aware that is our policy to liquidate all shares immediately. We reserve the right to buy or sell the shares of any the companies mentioned in any materials we produce at any time. This compensation constitutes a conflict of interest as to our ability to remain objective in our communication regarding the profiled companies. BeaconEquity.com is a Web site wholly-owned by BlueWave Advisors, LLC. BlueWave Advisors, LLC has been compensated fifty thousand dollars from Pine Mountain Ventures, a shareholder of PHFB, as a marketing budget to manage a comprehensive investor awareness program including the creation and distribution of this report as well as other investor relations efforts.

Information contained in our report will contain “forward looking statements” as defined under Section 27A of the Securities Act of 1933 and Section 21B of the Securities Exchange Act of 1934. Subscribers are cautioned not to place undue reliance upon these forward looking statements. These forward looking statements are subject to a number of known and unknown risks and uncertainties outside of our control that could cause actual operations or results to differ materially from those anticipated. Factors that could affect performance include, but are not limited to, those factors that are discussed in each profiled company’s most recent reports or registration statements filed with the SEC. You should consider these factors in evaluating the forward looking statements included in the report and not place undue reliance upon such statements.

We are committed to providing factual information on the companies that are profiled. However, we do not provide any assurance as to the accuracy or completeness of the information provided, including information regarding a profiled company’s plans or ability to effect any planned or proposed actions. We have no first-hand knowledge of any profiled company’s operations and therefore cannot comment on their capabilities, intent, resources, nor experience and we make no attempt to do so. Statistical information, dollar amounts, and market size data was provided by the subject company and related sources which we believe to be reliable.

To the fullest extent of the law, we will not be liable to any person or entity for the quality, accuracy, completeness, reliability, or timeliness of the information provided in the report, or for any direct, indirect, consequential, incidental, special or punitive damages that may arise out of the use of information we provide to any person or entity (including, but not limited to, lost profits, loss of opportunities, trading losses, and damages that may result from any inaccuracy or incompleteness of this information).

We encourage you to invest carefully and read investment information available at the websites of the SEC at http://www.sec.gov and FINRA at http://www. finra.org.

All decisions are made solely by the analyst and independent of outside parties or influence.

I, Victor Sula, Ph.D, the author of this report, certify that the material and views presented herein represent my personal opinion regarding the content and securities included in this report. In no way has my opinion been influenced by outside parties, nor has my compensation been either directly or indirectly tied to the performance of any security listed. I certify that I do not currently own, nor will own and shares or securities in any of the companies featured in this report.

Victor Sula, Ph.D. - Senior Analyst Victor Sula, Ph.D. has held the position of Senior Analyst with several independent investment research firms since 2004. Prior to 2004, Mr. Sula held Senior Financial Consultant positions within the World Bank sponsored Agency for Restructuring and Enterprise Assistance and TACIS sponsored Center for Productivity and Competitiveness of Moldova, where he was involved in corporate reorganization and liquidation. He is also employed as Associate Professor at the Academy of Economic Studies of Moldova. Mr. Sula earned his Ph.D. degree in 2001 and bachelor’s degree in Finance in 1997 from the Academy of Economic Studies of Moldova. Mr. Sula is currently a level III candidate in the CFA program.

Phantom Fiber Corporation (OTCBB: PHFB)

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