U.S.
SECURITIES AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
  
 FORM
10-QSB
 
 (Mark
One)
 x
              QUARTERLY
      REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR
THE QUARTERLY PERIOD ENDED MARCH 31, 2007
 OR
  o
              TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934
 For
the transition period from ______to______.
  Commission file number000-51151
 
 TELIPHONE
CORP
 (Name
of small business issuer in its charter)
  Nevada
              84-1491673(State
      or other jurisdiction
                of
      incorporation or organization)
              (IRS
      Employer
                Identification
      No.)
 
 194
St-Paul St. west, Suite 303,
 Montreal, Quebec, Canada,
H2Y 1Z8
 (Address
of principal executive offices)
 
 4150
Ste-Catherine Street West, Suite 200,
 Westmount
(Montreal),
 Quebec, Canada, H3Z
0A1
 (Address
of former principal executive offices)
  (514)
313-6010
 (Issuer’s
telephone number)
 
 Copies of
communications to:
 JOSEPH
I. EMAS
 1224
WASHINGTON AVENUE
 MIAMI
BEACH, FLORIDA 33139
 TELEPHONE
NO.: (305) 531-1174
 FACSIMILE
NO.: (305) 531-1274
 
 Securities
registered under Section 12(b) of the Exchange Act:
  None
 
 Securities
registered under Section 12(g) of the Exchange Act:
 Common
Stock, $0.001 par value per share
  (Title
of Class)
 
 Check
whether the issuer: (i) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the past 12 months (or for such shorter period
that the registrant was required to file such reports), and (ii) has been
subject to such filing requirements for the past 90 days. Yes xNo o
 
 Indicate
by check mark whether the registrant is a shell company (as defined in rule
12b-2 of the Exchange Act).Yes oNo x
  As of
May 16,
2008there were 33,525,024 shares of the registrant's common stock
issued and outstanding.
 
 Transitional
Small Business Disclosure Format. Yes o No x
  1
  TELIPHONE
CORP.
  PagePart
      I.
              Financial
      Information
              3Item
      1.
              Financial
      Statements and Notes to Financial Statements
              3Balance
      Sheets
              F-1Statements
      of Operations
              F-2Statements
      of Cash Flows
              F-3Notes
      to the Financial Statements
              F-4Item
      2.
              Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations2
              4Item
      3
              Controls
      and Procedures
              18Part
      II.
              Other
      Information
              18Item
      1.
              Legal
      Proceedings
              18Item
      2.
              Unregistered
      Sales of Equity Securities and Use of Proceeds
              19Item
      3.
              Defaults
      Upon Senior Securities
              19Item
      4.
              Submission
      of Matters to a Vote of Security Holders
              19Item
      5.
              Other
      Information
              19Item
      6.
              Exhibits
              19Signatures
              
              20
  2
  PART I FINANCIAL
INFORMATION
 
 Item
1.  Financial Statements and Notes to Financial Statements
  General
 
 The
accompanying reviewed financial statements have been prepared in accordance with
the instructions to Form 10 QSB. Therefore, they do not include all information
and footnotes necessary for a complete presentation of financial position,
results of operations, cash flows, and stockholders' equity in conformity with
generally accepted accounting principles. Except as disclosed herein, there has
been no material change in the information disclosed in the notes to the
financial statements included in the Company's annual report on Form 10 KSB for
the year ended September 30, 2007. In the opinion of management, all adjustments
considered necessary for a fair presentation of the results of operations and
financial position have been included and all such adjustments are of a normal
recurring nature. Operating results for the three and six months ended March 31,
2008 are not necessarily indicative of the results that can be expected for the
year ending September 30, 2008.
  TELIPHONE
CORP.
 (FORMERLY
OSK CAPITAL II CORPORATION)
 CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE NINE MONTHS ENDED DECEMBER 31, 2007 AND 2006
 
 
 INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
  Condensed
      Consolidated Balance Sheet as of March 31, 2008 and September 30,
      2007
              F-1Condensed
      Consolidated Statements of Operations and Comprehensive Income (Loss) for
      theThree
      and Six Months Ended  March 31, 2008 and 2007
              F-2Condensed
      Consolidated Statements of Cash Flows for the Six Months Ended March 31,
      2008 and 2007
              F-3Notes
      to Condensed Consolidated Financial Statements
              F-4
  3
  TELIPHONE CORP.
 CONDENSED CONSOLIDATED BALANCE SHEETS
 MARCH 31, 2008 (UNAUDITED) AND SEPTEMBER 30, 2007
(AUDITED)
  ASSETSUS
      $MARCH
      31,
                
                
                SEPTEMBER
      30,2008
                
                
                2007(AUDITED)Current
      Assets:Cash
      and cash equivalents
                
                $
                35,264
                
                
                $
                11,981Accounts
      receivable, net
                
                
                163,131
                
                
                
                58,522Investment
      tax credit receivable
                
                
                -
                
                
                
                16,311Inventory
                
                
                10,014
                
                
                
                6,100Prepaid
      expenses and other current assets
                
                
                114,315
                
                
                
                118,802Total
      Current Assets
                
                
                322,724
                
                
                
                211,716Fixed
      assets, net of depreciation
                
                
                22,535
                
                
                
                63,248Goodwill
                
                
                546,123
                
                
                
                -TOTAL
      ASSETS
                
                $
                891,382
                
                
                $
                274,964LIABILITIES AND
      STOCKHOLDERS' EQUITY (DEFICIT)LIABILITIESCurrent
      Liabilities:Deferred
      revenue
                
                $
                6,932
                
                
                $
                20,015Related
      party loans and advances
                
                
                682,417
                
                
                
                640,795Line
      of credit - Dialek
                
                
                94,497
                
                
                
                -Current
      portion of note payable, Dialek Telecom
                
                
                55,474
                
                
                
                -Accounts
      payable and accrued expenses
                
                
                354,295
                
                
                
                179,884Total
      Current Liabilities
                
                
                1,193,615
                
                
                
                840,694Long
      Term Liabilities:Note
      payable, Dialek Telecom, net of current portion
                
                
                344,394
                
                
                
                -TOTAL
      LIABILITIES
                
                
                1,538,009
                
                
                
                840,694Minority
      interest
                
                
                93,191
                
                
                
                103,241STOCKHOLDERS'
      EQUITY (DEFICIT)Common
      stock, $.001 Par Value; 125,000,000 shares authorizedand
      33,554,024 shares issued and outstanding, respectively
                
                
                33,554
                
                
                
                33,554Additional
      paid-in capital
                
                
                898,156
                
                
                
                898,156Accumulated
      deficit
                
                
                (1,638,650
                )
                
                
                (1,565,404
                )Accumulated
      other comprehensive income (loss)
                
                
                (32,878
                )
                
                
                (35,277
                )Total
      Stockholders' Equity (Deficit)
                
                
                (739,818
                )
                
                
                (668,971
                )TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
                
                $
                891,382
                
                
                $
                274,964
   The accompanying notes are
an integral part of the condensed consolidated financial
statements.
  F-1
 TELIPHONE
CORP.
 CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS FOR
THE SIX AND THREE MONTHS ENDED MARCH 31, 2008 AND 2007 (UNAUDITED)
 US$
                
                
                US$SIX
      MONTHS ENDED
                
                
                THREE
      MONTHS ENDEDMARCH
      31,
                
                
                MARCH
      31,2008
                
                
                2007
                
                
                2008
                
                
                2007OPERATING
      REVENUESRevenues
                
                $
                481,863
                
                
                $
                290,515
                
                
                $
                291,895
                
                
                $
                161,281COST
      OF REVENUESInventory,
      beginning of period
                
                
                6,100
                
                
                
                11,034
                
                
                
                10,705
                
                
                
                17,697Purchases
      and cost of telecommunicatons services
                
                
                293,486
                
                
                
                226,641
                
                
                
                177,530
                
                
                
                117,376Inventory,
      end of period
                
                
                (10,014
                )
                
                
                (10,996
                )
                
                
                (10,014
                )
                
                
                (10,996
                )Total
      Cost of Revenues
                
                
                289,572
                
                
                
                226,679
                
                
                
                178,221
                
                
                
                124,077GROSS
      PROFIT
                
                
                192,291
                
                
                
                63,836
                
                
                
                113,674
                
                
                
                37,204OPERATING
      EXPENSESSelling
      and promotion
                
                
                2,742
                
                
                
                6,714
                
                
                
                1,135
                
                
                
                5,753Administrative
      wages
                
                
                11,467
                
                
                
                107,651
                
                
                
                11,467
                
                
                
                68,844Professional
      and consulting fees
                
                
                157,583
                
                
                
                24,291
                
                
                
                75,579
                
                
                
                15,110Other
      general and administrative expenses
                
                
                22,417
                
                
                
                22,795
                
                
                
                11,115
                
                
                
                10,618Depreciation
                
                
                40,423
                
                
                
                37,939
                
                
                
                20,149
                
                
                
                15,833Total
      Operating Expenses
                
                
                234,632
                
                
                
                199,390
                
                
                
                119,445
                
                
                
                116,158LOSS
      BEFORE OTHER INCOME (EXPENSE)
                
                
                (42,341
                )
                
                
                (135,554
                )
                
                
                (5,771
                )
                
                
                (78,954
                )OTHER
      INCOME (EXPENSE)Interest
      expense
                
                
                (40,955
                )
                
                
                (23,831
                )
                
                
                (24,333
                )
                
                
                (12,844
                )Total
      Other Income (Expense)
                
                
                (40,955
                )
                
                
                (23,831
                )
                
                
                (24,333
                )
                
                
                (12,844
                )NET
      LOSS BEFORE MINORITY INTEREST ANDPROVISION
      FOR INCOME TAXES
                
                
                (83,296
                )
                
                
                (159,385
                )
                
                
                (30,104
                )
                
                
                (91,798
                )Minority
      interest
                
                
                10,050
                
                
                
                31,991
                
                
                
                5,396
                
                
                
                17,988NET
      LOSS BEFORE PROVISION FOR INCOME TAXES
                
                
                (73,246
                )
                
                
                (127,394
                )
                
                
                (24,708
                )
                
                
                (73,810
                )Provision
      for Income Taxes
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -NET
      LOSS APPLICABLE TO COMMON SHARES
                
                $
                (73,246
                )
                
                $
                (127,394
                )
                
                $
                (24,708
                )
                
                $
                (73,810
                )NET
      LOSS PER BASIC AND DILUTED SHARES
                
                $
                (0.00
                )
                
                $
                (0.00
                )
                
                $
                (0.00
                )
                
                $
                (0.00
                )WEIGHTED
      AVERAGE NUMBER OF COMMONSHARES
      OUTSTANDING
                
                
                33,554,014
                
                
                
                33,314,673
                
                
                
                33,554,014
                
                
                
                33,554,014COMPREHENSIVE
      INCOME (LOSS)Net
      loss
                
                $
                (73,246
                )
                
                $
                (127,394
                )
                
                $
                (24,708
                )
                
                $
                (73,810
                )Other
      comprehensive income (loss)Currency
      translation adjustments
                
                
                2,399
                
                
                
                (1,053
                )
                
                
                4,154
                
                
                
                532Comprehensive
      income (loss)
                
                $
                (70,847
                )
                
                $
                (128,447
                )
                
                $
                (20,554
                )
                
                $
                (73,278
                )
   The accompanying notes are
an integral part of the condensed consolidated financial
statements.
 F-2
 TELIPHONE
CORP.
 CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR
THE SIX MONTHS ENDED MARCH 31, 2008 AND 2007 (UNAUDITED)
 US$SIX
      MONTHS ENDEDMARCH
      31,2008
                
                
                2007CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      loss
                
                $
                (73,246
                )
                
                $
                (127,394
                )Adjustments
      to reconcile net loss to net cashused
      in operating activities:Depreciation
                
                
                40,423
                
                
                
                37,939Minority
      interest
                
                
                (10,050
                )
                
                
                (31,991
                )Changes
      in assets and liabilities(Increase)
      decrease in accounts receivable
                
                
                (93,471
                )
                
                
                21,152Decrease
      in investment tax credit receivable
                
                
                11,282
                
                
                
                -(Increase)
      in inventory
                
                
                (4,145
                )
                
                
                (281
                )Decrease
      in prepaid expenses and other current assets
                
                
                2,129
                
                
                
                9,303Increase
      (decrease) in deferred revenues
                
                
                (13,011
                )
                
                
                15,093(Decrease)
      in accounts payable andand
      accrued expenses
                
                
                (7,583
                )
                
                
                (18,858
                )Total
      adjustments
                
                
                (74,426
                )
                
                
                32,357Net
      cash (used in) operating activities
                
                
                (147,672
                )
                
                
                (95,037
                )CASH
      FLOWS FROM INVESTING ACTIVITIESAcquisitions
      of capital assets
                
                
                -
                
                
                
                (4,618
                )Cash
      received in acquisition of net assets of Dialek Telecom
                
                
                74,039
                
                
                
                -Net
      cash (used in) investing activities
                
                
                74,039
                
                
                
                (4,618
                )CASH
      FLOWS FROM FINANCING ACTIVITESIncrease
      in bank overdraft
                
                
                -
                
                
                
                9,733Proceeds
      from loan payable - related parties, net
                
                
                99,471
                
                
                
                90,408Net
      cash provided by financing activities
                
                
                99,471
                
                
                
                100,141Effect
      of foreign currencies
                
                
                (2,555
                )
                
                
                (486
                )NET
      INCREASE INCASH
      AND CASH EQUIVALENTS
                
                
                23,283
                
                
                
                -CASH
      AND CASH EQUIVALENTS -BEGINNING
      OF PERIOD
                
                
                11,981
                
                
                
                -CASH
      AND CASH EQUIVALENTS - END OF PERIOD
                
                $
                35,264
                
                
                $
                -CASH
      PAID DURING THE PERIOD FOR:Interest
      expense
                
                $
                40,955
                
                
                $
                7,291SUPPLEMENTAL
      NONCASH INFORMATION:Common
      stock issued for liability for stock to be issued
                
                $
                -
                
                
                $
                165,000Acquisition
      of Dialek Customers:Accounts
      receivable
                
                $
                9,742
                
                
                $
                -Goodwill
                
                
                546,123
                
                
                
                -Accounts
      payable
                
                
                (220,740
                )
                
                
                -Note
      payable
                
                
                (409,164
                )
                
                
                -Cash
      received in acquisition
                
                $
                (74,039
                )
                
                $
                -
  The accompanying notes are
an integral part of the condensed consolidated financial
statements.
 F-3
 TELIPHONE
CORP.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE SIX MONTHS ENDED MARCH 31, 2008 AND 2007
 
 NOTE
      1-
                ORGANIZATION AND BASIS
      OF PRESENTATION
 
 The
unaudited condensed consolidated financial statements included herein have been
prepared, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission (“SEC”).  The condensed consolidated financial
statements and notes are presented as permitted on Form 10-QSB and do not
contain information included in the Company’s annual consolidated statements and
notes.  Certain information and footnote disclosures normally included
in financial statements prepared in accordance with accounting principles
generally accepted in the United States of America have been condensed or
omitted pursuant to such rules and regulations, although the Company believes
that the disclosures are adequate to make the information presented not
misleading.  It is suggested that these condensed consolidated
financial statements be read in conjunction with the September 30, 2007 audited
financial statements and the accompanying notes thereto.  While
management believes the procedures followed in preparing these condensed
consolidated financial statements are reasonable, the accuracy of the amounts
are in some respects dependent upon the facts that will exist, and procedures
that will be accomplished by the Company later in the year.
 
 These
condensed consolidated unaudited financial statements reflect all adjustments,
including normal recurring adjustments which, in the opinion of management, are
necessary to present fairly the consolidated operations and cash flows for the
periods presented.
 
 Teilphone
Corp. (formerly OSK Capital II Corporation) (the “Company”) was incorporated in
the State of Nevada on March 2, 1999 to serve as a vehicle to effect a merger,
exchange of capital stock, asset acquisition or other business combination with
a domestic or foreign private business. Effective April 28, 2005, the Company
achieved its objectives with the reverse merger and reorganization with
Teliphone Inc., a Canadian company.
 
 Teliphone,
Inc. was founded by its original parent company, United American Corporation, a
publicly traded Florida Corporation, in order to develop a
Voice-over-Internet-Protocol (VoIP) network which enables users to connect an
electronic device to their internet connection at the home or office which
permits them to make telephone calls to any destination phone number anywhere in
the world. VoIP is currently growing in scale significantly in North America.
Industry experts predict the VoIP offering to be one of the fastest growing
sectors from now until 2009. This innovative new approach to telecommunications
has the benefit of drastically reducing the cost of making these calls as the
distances are covered over the Internet instead of over dedicated lines such as
traditional telephony.
  F-4
  TELIPHONE
CORP.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE SIX MONTHS ENDED MARCH 31, 2008 AND 2007
   NOTE
      1-
                ORGANIZATION AND BASIS
      OF PRESENTATION CONTINUED)
 
 Prior to
its acquisition by the Company, Teliphone Inc. had grown primarily in the
Province of Quebec, Canada through the sale of its product offering in retail
stores and over the internet.  For this distribution channel, the
Company typically pays a 25% commission to the distributor who shares this with
the re-seller.
 
 In
addition to the retail services provided, Teliphone Inc. also sells to
wholesalers. Wholesalers typically receive approximately a 35% commission on
such sales, however, the wholesaler re-bills these services to their customers
and provide the necessary customer support to their customers directly. This
sector has grown this year for the Company and the Company will look to add
further distribution channels to other sectors of the world, commencing with
India in fiscal year 2007.
 
 On August
21, 2006, OSK Capital II Corporation formerly changed its name to Teliphone
Corp.
 
 Going
Concern
 
 As shown
in the accompanying condensed consolidated financial statements the Company has
incurred recurring (losses) of $73,246 and $127,394 for the six months ended
March 31, 2008 and 2007, and has a working capital deficiency of $870,891 as of
March 31, 2008.  The Company has been searching for new distribution
channels to wholesale their services to provide additional revenues to support
their operations.
 
 The
Company successfully reduced approximately $400,000 of related party debt as
this was converted into additional shares of the Company’s stock in August 2006.
There is no guarantee that the Company will be able to raise additional capital
or generate the increase in revenues to sustain its operations; however the
Company has gone effective on a registration statement of Form SB-2 by the
Securities and Exchange Commission to raise additional capital.  The
Company has hired a market maker to secure a listing on the Over the Counter
Bulletin Board. There is no guarantee that this will occur, however, the Company
as of the filing of their Form 10-QSB for the second quarter ended March 31,
2008, has one comment to clear with FINRA.
 
 The
Company’s subsidiary, Teliphone Inc. has additionally on February 15, 2008,
finalized a letter of intent with 9151-4877 Quebec Inc (known as Dialek Telecom)
to acquire certain assets and liabilities from this entity. This transaction as
described in Note 9 will assist the Company in achieving profitability in the
future.
 
 The
Company’s management has made strides in the past year; however the continued
losses and working capital deficiency continue to raise substantial doubt about
the Company’s ability to continue as a going concern for a reasonable
period.
  F-5
  TELIPHONE
CORP.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE SIX MONTHS ENDED MARCH 31, 2008 AND 2007
   NOTE
      1-
                ORGANIZATION AND BASIS
      OF PRESENTATION CONTINUED)
 
 Going Concern
(Continued)
 
 Management
believes that the Company’s capital requirements will depend on many factors.
These factors include the increase in sales through existing channels as well as
the Company’s subsidiary Teliphone Inc.’s ability to continue to expand its
distribution points and leveraging its technology into the commercial small
business segments. The Company’s subsidiary Teliphone Inc.’s strategic
relationships with telecommunications interconnection companies, internet
service providers and retail sales outlets has permitted the Company to achieve
consistent monthly growth in acquisition of new customers. Additionally, the
Company sold approximately 25% of its subsidiary Teliphone Inc. to the parent
company of Intelco Communications which will bring further opportunity and
working capital to the Company.
 
 The
Company will look to further develop its existing relationship with its
wholesaler in India in order to take advantage of the strong growth in demand
for its VoIP products worldwide.
 
 There can
be no assurance that management will be able to raise sufficient capital, under
terms satisfactory to the Company, if at all.
 
 The
condensed consolidated financial statements do not include any adjustments
relating to the carrying amounts of recorded assets or the carrying amounts and
classification of recorded liabilities that may be required should the Company
be unable to continue as a going concern.
  F-6
 
 TELIPHONE
CORP.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE SIX MONTHS ENDED MARCH 31, 2008 AND 2007
   NOTE 2-
                SUMMARY
      OF SIGNIFICANT ACCOUNTING
POLICIES
  Principles of
Consolidation
 
 The
condensed consolidated financial statements include the accounts of the Company
and its entire majority owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation. All minority
interests have been reflected herein.
 
 Use of
Estimates
 
 The
preparation of 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 disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period.  On an on-going basis, the Company
evaluates its estimates, including, but not limited to, those related to
investment tax credits, bad debts, income taxes and contingencies. The Company
bases its estimates on historical experience and on various other assumptions
that are believed to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying value of assets and
liabilities that are not readily apparent from other sources. Actual results
could differ from those estimates.
 
 Cash and Cash
Equivalents
 
 The
Company considers all highly liquid debt instruments and other short-term
investments with an initial maturity of three months or less to be cash
equivalents.
 
 Comprehensive
Income
 
 The
Company adopted Statement of Financial Accounting Standards No, 130, “Reporting
Comprehensive Income,” (SFAS No. 130). SFAS No. 130 requires the reporting of
comprehensive income in addition to net income from operations.
 
 Comprehensive
income is a more inclusive financial reporting methodology that includes
disclosure of information that historically has not been recognized in the
calculation of net income.
 
 Inventory
 
 Inventory
is valued at the lower of cost or market determined on a first-in-first-out
basis.  Inventory consisted only of finished goods.
  F-7
 
 TELIPHONE
CORP.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE SIX MONTHS ENDED MARCH 31, 2008 AND 2007
   NOTE
      2-
                SUMMARY OF SIGNIFICANT
      ACCOUNTING POLICIES(CONTINUED)
 
 Fair Value of Financial
Instruments (other than Derivative Financial Instruments)
 
 The
      carrying amounts reported in the condensed consolidated balance sheets for
      cash and cash equivalents, accounts receivable and accounts payable
      approximate fair value because of the immediate or short-term maturity of
      these financial instruments.  For the notes payable, the
      carrying amount reported is based upon the incremental borrowing rates
      otherwise available to the Company for similar borrowings. For the
      convertible debentures, fair values were calculated at net present value
      using the Company’s weighted average borrowing rate for debt instruments
      without conversion features applied to total future cash flows of the
      instruments.
 
 Currency
Translation
  For
subsidiaries outside the United States that prepare financial statements in
currencies other than the U.S. dollar, the Company translates income and expense
amounts at average exchange rates for the year, translates assets and
liabilities at year-end exchange rates and equity at historical rates. The
Company’s functional currency is the Canadian dollar, whiles the Company reports
its currency in the US dollar. The Company records these translation adjustments
as accumulated other comprehensive income (loss). For the six months ended March
31, 2008 and 2007, respectively, the Company recorded approximately $2,399 and
($1,053) in transaction gains (losses) as a result of currency
translation.
  Research and
Development
 
 The
Company annually incurs costs on activities that relate to research and
development of new products. Research and development costs are expensed as
incurred. Certain of these costs are reduced by government grants and investment
tax credits where applicable.
 
 Revenue
Recognition
 
 Operating
revenues consists of telephony services revenue and customer equipment (which
enables the Company's telephony services) and shipping revenue. The point in
time at which revenue is recognized is determined in accordance with Staff
Accounting Bulletin No. 104, Revenue Recognition, and Emerging Issues Task Force
Consensus No. 01-9, Accounting for Consideration Given by a Vendor to a Customer
(Including a Reseller of the Vendor's Products) ("EITF No. 01-9"). When the
Company emerged from the development stage with the acquisition of Teliphone
Inc. and subsequent to their acquisition of the customers of Dialek Telecom (See
Note 9) they began to recognize revenue from their VoIP Telephony and
traditional telecommunications services when the services were rendered and
customer equipment purchased as follows:
  F-8
 
 TELIPHONE
CORP.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE SIX MONTHS ENDED MARCH 31, 2008 AND 2007
   NOTE
      2-
                SUMMARY OF SIGNIFICANT
      ACCOUNTING POLICIES(CONTINUED)
 
 Revenue Recognition
(Continued)
 
 VoIP Telephony Services
Revenue
 
 The
Company realizes VoIP telephony services revenue through sales by two distinct
channels; the Retail Channel (Customer purchases their hardware from a Retail
Distributor and the Company invoices the customer direct) and the Wholesale
Channel (Customer purchases their hardware from the Wholesaler and the Company
invoices the Wholesaler for usage by the Wholesaler’s customers
collectively).
 
 Substantially
all of the Company's operating revenues are telephony services revenue, which is
derived primarily from monthly subscription fees that customers are charged
under the Company's service plans. The Company also derives telephony services
revenue from per minute fees for international calls and for any calling minutes
in excess of a customer's monthly plan limits.
 
 Retail
Channel
 
 Monthly
subscription fees are automatically charged to customers' credit cards in
advance and are recognized over the following month when services are
provided.
 
 Revenue
generated from international calls and from customers exceeding allocated call
minutes under limited minute plans is charged to the customer’s credit cards in
advanced in small increments and are recognized over the following month when
the services are provided.
 
 The
Company generates revenues from shipping equipment direct to customers and our
re-seller partners.  This revenue is considered part of the VoIP
service revenues.
 
 The
Company does not charge initial activation fees associated with the service
contracts in the Retail Channel.  The Company generates revenues from
disconnect fees associated with early termination of service contracts with
Retail Customers. These fees are included in service revenue as they are
considered part of the service component when the service is delivered or
performed.
 
 Prior to
March 31, 2007 the Company generally charged a disconnect fee to Retail
customers who did not return their customer equipment to the Company upon
disconnection of service if the disconnection occurred within the term of the
service contract.  On April 1, 2007, the Company changed its
disconnect policy.  Upon cancellation of the service, no disconnection
fee is charged and there is no refund issued to the customer for any portion of
the unused services as before.  The customer’s service termination
date becomes the next anniversary date of its billing cycle.
  F-9
  TELIPHONE
CORP.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE SIX MONTHS ENDED MARCH 31, 2008 AND 2007
   NOTE
      2-
                SUMMARY OF SIGNIFICANT
      ACCOUNTING POLICIES(CONTINUED)
 
 Revenue Recognition(Continued)
  This
accounting is consistent with the rules set forth in SAB 104 Section A(4)(a)
since there are no rights of returns or refunds that exist for the customer
other than a standard 30-day money-back guarantee.  In the event of a
return within the 30 day guarantee period, the hardware is refunded in its
entirety.  This accounting is also consistent with FASB Statement 48
on “Revenue Recognition When Right of Return Exists” which allows for equipment
revenue to be recognized at the time of sale since there no longer exists a
right of return after the 30 day period.
 
 Wholesale
Channel
 
 Monthly
subscription fees are invoiced to Wholesale customers at the end of the month
for the entirety of the services delivered during the month.  Revenue
for this period is therefore recognized at the time the Wholesaler is
billed.
  The
Company recognizes this revenue utilizing the guidance set forth in EITF Issue
00-21, "Revenue Arrangements with Multiple Deliverables".  For the
Wholesale channel, the activation fee is recognized as deferred revenue, and
amortized over the length of the service agreement. If the service is terminated
within the term of the service agreement, the deferred revenue is fully
amortized.  This accounting is consistent with Question 1 of Section
A(3)(f) of SAB 104 because the up-front fee is not in exchange for products
delivered or services performed that represent the culmination of a separate
earnings process, and hence the deferral of revenue is appropriate.
  There is
no disconnection fee associated with a wholesale customer.
  The
Company generates revenues from shipping equipment direct to wholesale
customers.  This revenue is considered part of the VoIP service
revenues.
 
 Customer
Equipment
 
 Retail
Channel
 
 For
retail sales, the equipment is sold to re-sellers at a subsidized price below
that of cost and below that of the retail sales price. The customer purchases
the equipment at the retail price from the retailer.  The Company
recognizes this revenue utilizing the guidance set forth in EITF 00-21, “Revenue
Arrangements with Multiple Deliverables” and EITF Issue 01-9, “Accounting for
Consideration Given by a Vendor to a Customer (Including a Reseller of the
Vendor’s Products)”.
  F-10
  TELIPHONE
CORP.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE SIX MONTHS ENDED MARCH 31, 2008 AND 2007
   NOTE
      2-
                SUMMARY OF SIGNIFICANT
      ACCOUNTING POLICIES(CONTINUED)
 
 Revenue Recognition(Continued)
 
 Under a
retail agreement, the cost of the equipment is recognized as deferred revenue,
and amortized over the length of the service agreement. Upon refund, the
deferred revenue is fully amortized.
 
 Customer
equipment expense is recorded to direct cost of goods sold when the hardware is
initially purchased from our suppliers.
 
 The
Company also provides rebates to retail customers who purchase their customer
equipment from retailers and satisfy minimum service period
requirements.   This minimum service period (e.g. three months)
differs from the length of  the service agreement (e.g. twelve
months).  These rebates are recorded as a reduction of service revenue
over the minimum service period based upon the actual rebate coupons received
from customers and whose accounts are in good standing.  The Company
records a contingent liability to represent the amount of the refund obligation
through earnings on a systematic basis.
 
 Wholesale
Channel
 
 For
wholesale customers, the equipment is sold to wholesalers at the Company’s cost
price plus mark-up.  There are no rebates for equipment sold to
wholesale customers and the Company does not subsidize their equipment
sales.  The Company recognizes revenue from sales of equipment to
wholesale customers as billed.
 
 Commissions Paid to Retail
Distributors
  Commissions
paid to Retail Distributors are based on the recurring revenues recorded by the
company and incurred in the period where the revenue is recognized and paid by
the company to the retail Distributor in the following month.  These
commissions are recorded as cost of sales as they are directly related to the
revenue acquired and are not considered a sales and marketing
expense.  These commissions are payable based on the Distributor’s
servicing of the customer on an on-going basis.  This accounting is
consistent with EITF Issue No. 00-14, “Accounting for Certain Sales
Incentives.”
  F-11
  TELIPHONE
CORP.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE SIX MONTHS ENDED MARCH 31, 2008 AND 2007
   NOTE
      2-
                SUMMARY OF SIGNIFICANT
      ACCOUNTING POLICIES(CONTINUED)
 
 Revenue Recognition(Continued)
 
 Commissions Paid to
Wholesalers
 
 The
Company recognizes this revenue utilizing the guidance set forth in EITF Issue
01-9 “Accounting for Consideration Given by a Vendor to a Customer (Including a
Reseller of the Vendor’s Products)”.  The Company is receiving
identifiable benefits from the Wholesaler (billing and customer support) in
return for the allowance.  These benefits are sufficiently separable
from the Wholesaler’s purchase of the Company’s hardware and
services.  The fair value of those benefits can be reasonably
estimated and therefore the excess consideration is characterized as a reduction
of revenue on the Company’s Statement of Operations.
 
 Resale of Traditional
Telecommunications Services (due to Acquisition of customer base of Dialek
Telecom (see Note 9))
 
 The
Company earns revenue by reselling telecommunications services purchased from
wholesale providers such as Rogers Communications and Videotron
Telecom.  These revenues include monthly network access fees for local
calling and internet access services billed one month in advance and recognized
when earned.  Long Distance and Toll free calling service revenues are
recognized when the service is rendered and included and billed the following
month.   The revenue recognition policies used for these sales
are in accordance with the Securities and Exchange Commission's Staff Accounting
Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements."
 
 Accounts
Receivable
 
 The
Company conducts business and extends credit based on an evaluation of the
customers’ financial condition, generally without requiring
collateral.
 
 Exposure
to losses on receivables is expected to vary by customer due to the financial
condition of each customer. The Company monitors exposure to credit losses and
maintains allowances for anticipated losses considered necessary under the
circumstances. The Company has an allowance for doubtful accounts of $0 at March
31, 2008.
 
 Accounts
receivable are generally due within 30 days and collateral is not required.
Unbilled accounts receivable represents amounts due from customers for which
billing statements have not been generated and sent to the
customers.
  F-12
  TELIPHONE
CORP.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE SIX MONTHS ENDED MARCH 31, 2008 AND 2007
   NOTE
      2-
                SUMMARY OF SIGNIFICANT
      ACCOUNTING POLICIES(CONTINUED)
 
 Income
Taxes
 
 The
Company accounts for income taxes utilizing the liability method of
accounting.  Under the liability method, deferred taxes are determined
based on differences between financial statement and tax bases of assets and
liabilities at enacted tax rates in effect in years in which differences are
expected to reverse.  Valuation allowances are established, when
necessary, to reduce deferred tax assets to amounts that are expected to be
realized.
 
 Investment Tax
Credits
 
 The
Company claims investment tax credits as a result of incurring scientific
research and experimental development expenditures. Investment tax credits are
recognized when the related expenditures are incurred, and there is reasonable
assurance of their realization. Management has made a number of estimates and
assumptions in determining their expenditures eligible for the investment tax
credit claim. It is possible that the allowed amount of the investment tax
credit claim could be materially different from the recorded amount upon
assessment by Revenue Canada and Revenue Quebec. The Company has collected all
of its tax credits for the current period and must apply in the future for
credits relating to its development activities during the fiscal year ended
September 30, 2007.
 
 Convertible
Instruments
 
 The
Company reviews the terms of convertible debt and equity securities for
indications requiring bifurcation, and separate accounting, for the embedded
conversion feature. Generally, embedded conversion features where the ability to
physical or net-share settle the conversion option is not within the control of
the Company are bifurcated and accounted for as a derivative financial
instrument. (See Derivative Financial Instruments below). Bifurcation of the
embedded derivative instrument requires allocation of the proceeds first to the
fair value of the embedded derivative instrument with the residual allocated to
the debt instrument. The resulting discount to the face value of the debt
instrument is amortized through periodic charges to interest expense using the
Effective Interest Method.
  F-13
  TELIPHONE
CORP.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE SIX MONTHS ENDED MARCH 31, 2008 AND 2007
   NOTE
      2-
                SUMMARY OF SIGNIFICANT
      ACCOUNTING POLICIES(CONTINUED)
 
 Derivative Financial
Instruments
 
 The
Company generally does not use derivative financial instruments to hedge
exposures to cash-flow or market risks. However, certain other financial
instruments, such as warrants or options to acquire common stock and the
embedded conversion features of debt and preferred instruments that are indexed
to the Company’s common stock, are classified as liabilities when either (a) the
holder possesses rights to net-cash settlement or (b) physical or net share
settlement is not within the control of the Company. In such instances, net-cash
settlement is assumed for financial accounting and reporting, even when the
terms of the underlying contracts do not provide for net-cash settlement. Such
financial instruments are initially recorded at fair value and subsequently
adjusted to fair value at the close of each reporting period.
 
 Advertising
Costs
 
 The
      Company expenses the costs associated with advertising as
      incurred.  Advertising expenses for the six months ended March
      31, 2008 and 2007 are included in general and administrative expenses in
      the condensed consolidated statements of
  operations.
 
 Fixed
      Assets
 
 Fixed
      assets are stated at cost.  Depreciation is computed using the
      straight-line method over the estimated useful lives of the assets;
      automobiles – 3 years, computer equipment – 3 years, and furniture and
      fixtures – 5 years.
 
 When
      assets are retired or otherwise disposed of, the costs and related
      accumulated depreciation are removed from the accounts, and any resulting
      gain or loss is recognized in income for the period.  The cost
      of maintenance and repairs is charged to income as incurred; significant
      renewals and betterments are capitalized.  Deduction is made for
      retirements resulting from renewals or
  betterments.
 
 F-14
  TELIPHONE
CORP.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE SIX MONTHS ENDED MARCH 31, 2008 AND 2007
   NOTE
      2-
                SUMMARY OF SIGNIFICANT
      ACCOUNTING POLICIES(CONTINUED)
 
 Impairment of Long-Lived
Assets
 
 Long-lived
assets, primarily fixed assets, are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of the assets might
not be recoverable. The Company does perform a periodic assessment of assets for
impairment in the absence of such information or indicators. Conditions that
would necessitate an impairment assessment include a significant decline in the
observable market value of an asset, a significant change in the extent or
manner in which an asset is used, or a significant adverse change that would
indicate that the carrying amount of an asset or group of assets is not
recoverable. For long-lived assets to be held and used, the Company recognizes
an impairment loss only if its carrying amount is not recoverable through its
undiscounted cash flows and measures the impairment loss based on the difference
between the carrying amount and estimated fair value.
 
 (Loss) Per Share of Common
Stock
 
 Basic net
(loss) per common share is computed using the weighted average number of common
shares outstanding.  Diluted earnings per share (EPS) includes
additional dilution from common stock equivalents, such as stock issuable
pursuant to the exercise of stock options and warrants.  Common stock
equivalents were not included in the computation of diluted earnings per share
when the Company reported a loss because to do so would be antidilutive for
periods presented.
 
 The
following is a reconciliation of the computation for basic and diluted
EPS:
 
 March
      31,
                  
                  
                  March
      31,2008
                  
                  
                  2007Net
      loss
                  
                  $
                  (73,246
                  )
                  
                  $
                  (127,394
                  )Weighted-average
      common sharesOutstanding
      (Basic)
                  
                  
                  33,554,014
                  
                  
                  
                  33,314,673Weighted-average
      common stockEquivalentsStock
      options
                  
                  
                  -
                  
                  
                  
                  -Warrants
                  
                  
                  -
                  
                  
                  
                  -Weighted-average
      common sharesOutstanding
      (Diluted)
                  
                  
                  33,554,014
                  
                  
                  
                  33,314,673
  F-15
  TELIPHONE
CORP.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE SIX MONTHS ENDED MARCH 31, 2008 AND 2007
   NOTE
      2-
                SUMMARY OF SIGNIFICANT
      ACCOUNTING POLICIES(CONTINUED)
 
 (Loss) Per Share of Common
Stock (Continued)
 
 The
Company has not issued options or warrants to purchase stock in these periods.
If there were options or warrants outstanding they would not be included in the
computation of diluted EPS because inclusion would have been
antidilutive.
 
 Stock-Based
Compensation
 
 On
December 16, 2004, the Financial Accounting Standards Board (“FASB”) published
Statement of Financial Accounting Standards No. 123 (Revised 2004), “Share-Based Payment” (“SFAS
123R”).  SFAS 123R requires that compensation cost related to
share-based payment transactions be recognized in the financial statements.
Share-based payment transactions within the scope of SFAS 123R include stock
options, restricted stock plans, performance-based awards, stock appreciation
rights, and employee share purchase plans.  The provisions of SFAS
123R, as amended, are effective for small business issuers beginning as of the
next fiscal year after December 15, 2005.  The Company has adopted the
provisions of SFAS 123R for its fiscal year ended September 30, 2006. The
adoption of this principle had no effect on the Company’s
operations.
 
 On
January 1, 2006, the Company adopted the provisions of FAS No. 123R “Share-Based
Payment” (“FAS 123R”) which requires recognition of stock-based compensation
expense for all share-based payments based on fair value. Prior to January 1,
2006, the Company measured compensation expense for all of its share-based
compensation using the intrinsic value method prescribed by Accounting
Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to
Employees” (“APB 25”) and related interpretations. The Company has provided pro
forma disclosure amounts in accordance with FAS No. 148, “Accounting for
Stock-Based Compensation – Transition and Disclosure – an amendment of FASB
Statement No. 123” (“FAS 148”), as if the fair value method defined by FAS No.
123, “Accounting for Stock Based Compensation” (“FAS 123”) had been applied to
its stock-based compensation.
 
 The
Company has elected to use the modified–prospective approach method. Under that
transition method, the calculated expense in 2006 is equivalent to compensation
expense for all awards granted prior to, but not yet vested as of January 1,
2006, based on the grant-date fair values estimated in accordance with the
original provisions of FAS 123. Stock-based compensation expense for all awards
granted after January 1, 2006 is based on the grant-date fair values estimated
in accordance with the provisions of FAS 123R. The Company recognizes these
compensation costs, net of an estimated forfeiture rate, on a pro rata basis
over the requisite service period of each vesting tranche of each award. The
Company considers voluntary termination behavior as well as trends of actual
option forfeitures when estimating the forfeiture rate.
  F-16
 
 TELIPHONE
CORP.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE SIX MONTHS ENDED MARCH 31, 2008 AND 2007
   NOTE
      2-
                SUMMARY OF SIGNIFICANT
      ACCOUNTING POLICIES(CONTINUED)
 
 Stock-Based
Compensation (Continued)
 
 The
Company measures compensation expense for its non-employee stock-based
compensation under the Financial Accounting Standards Board (FASB) Emerging
Issues Task Force (EITF) Issue No. 96-18, “Accounting for Equity Instruments
that are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services”.  The fair value of the option
issued is used to measure the transaction, as this is more reliable than the
fair value of the services received.  The fair value is measured at
the value of the Company’s common stock on the date that the commitment for
performance by the counterparty has been reached or the counterparty’s
performance is complete. The fair value of the equity instrument is charged
directly to compensation expense and additional paid-in capital.
 
 Segment
Information
 
 The
Company follows the provisions of SFAS No. 131, “Disclosures about Segments of an
Enterprise and Related Information”. This standard requires that
companies disclose operating segments based on the manner in which management
disaggregates the Company in making internal operating decisions. Despite the
Company’s subsidiary, Teliphone, Inc. incurring sales of hardware components for
the VoIP service as well as the service itself, the Company treats these items
as one component, therefore has not segregated their business.
 
 Reclassifications
 
 The
Company has reclassified certain amounts in their condensed consolidated
statement of operations for the six months ended March 31, 2008 to conform with
the March 31, 2007 presentation. These reclassifications had no effect on the
net loss for the six months ended March 31, 2007.
 
 Uncertainty in Income
Taxes
 
 In July
2006, the FASB issued Interpretation No. 48 (FIN No. 48), “Accounting for
Uncertainty in Income Taxes.” This interpretation requires recognition and
measurement of uncertain income tax positions using a “more-likely-than-not”
approach. FIN No. 48 is effective for fiscal years beginning after December 15,
2006. Management has adopted FIN 48 for 2008, and they evaluate their tax
positions on an annual basis, and has determined that as of March 31, 2008, no
additional accrual for income taxes other than the federal and state provisions
and related interest and estimated penalty accruals is not considered
necessary.
  F-17
 
 TELIPHONE
CORP.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE SIX MONTHS ENDED MARCH 31, 2008 AND 2007
   NOTE
      2-
                SUMMARY OF SIGNIFICANT
      ACCOUNTING POLICIES(CONTINUED)
 
 Recent Accounting
Pronouncements
 
 In
September 2006, the FASB issued SFAS 157, “Fair Value Measurements.” This
standard defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles, and expands disclosure about fair
value measurements. This statement is effective for financial statements issued
for fiscal years beginning after November 15, 2007. Early adoption is
encouraged. The adoption of SFAS 157 is not expected to have a material impact
on the financial statements.
 
 In
February 2007, the FASB issued FAS No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities – Including an amendment of FASB Statement No.
115”, (“FAS 159”) which permits entities to choose to measure many financial
instruments and certain other items at fair value at specified election dates. A
business entity is required to report unrealized gains and losses on items for
which the fair value option has been elected in earnings at each subsequent
reporting date. This statement is expected to expand the use of fair value
measurement. FAS 159 is effective for financial statements issued for fiscal
years beginning after November 15, 2007, and interim periods within those fiscal
years.
 
 In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements, an amendment of Accounting Research Bulletin
No 51” (SFAS 160). SFAS 160 establishes accounting and reporting standards for
ownership interests in subsidiaries held by parties other than the parent,
changes in a parent’s ownership of a noncontrolling interest, calculation and
disclosure of the consolidated net income attributable to the parent and the
noncontrolling interest, changes in a parent’s ownership interest while the
parent retains its controlling financial interest and fair value measurement of
any retained noncontrolling equity investment. SFAS 160 is effective for
financial statements issued for fiscal years beginning after December 15, 2008,
and interim periods within those fiscal years. Early adoption is prohibited. The
adoption of SFAS No. 160 is not expected to have a material effect on the
Company’s financial position, results of operations or cash flows.
  F-18
  TELIPHONE
CORP.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE SIX MONTHS ENDED MARCH 31, 2008 AND 2007
   NOTE
      2-
                SUMMARY OF SIGNIFICANT
      ACCOUNTING POLICIES(CONTINUED)
 
 Recent Accounting
Pronouncements (Continued)
 
 In
December 2007, the FASB issued SFAS 141R,Business Combinations (“SFAS
141R”), which replaces FASB SFAS 141,Business
Combinations.  This Statement retains the fundamental
requirements in SFAS 141 that the acquisition method of accounting be used for
all business combinations and for an acquirer to be identified for each business
combination. SFAS 141R defines the acquirer as the entity that obtains control
of one or more businesses in the business combination and establishes the
acquisition date as the date that the acquirer achieves control.  SFAS
141R will require an entity to record separately from the business combination
the direct costs, where previously these costs were included in the total
allocated cost of the acquisition.  SFAS 141R will require an entity
to recognize the assets acquired, liabilities assumed, and any non-controlling
interest in the acquired at the acquisition date, at their fair values as of
that date.  This compares to the cost allocation method previously
required by SFAS No. 141.  SFAS 141R will require an entity to
recognize as an asset or liability at fair value for certain contingencies,
either contractual or non-contractual, if certain criteria are
met.  Finally, SFAS 141R will require an entity to recognize
contingent consideration at the date of acquisition, based on the fair value at
that date.  This Statement will be effective for business combinations
completed on or after the first annual reporting period beginning on or after
December 15, 2008.  Early adoption of this standard is not permitted
and the standards are to be applied prospectively only.  Upon adoption
of this standard, there would be no impact to the Company’s results of
operations and financial condition for acquisitions previously
completed.  The adoption of SFAS No. 141R is not expected to have a
material effect on the Company’s financial position, results of operations or
cash flows.
 
 In
December 2007, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 110, “Use of a
Simplified Method in Developing Expected Term of Share Options” (“SAB
110”). SAB 110 expenses the current view of the staff that it will accept a
company’s election to use the simplified method discussed in Staff Accounting
Bulletin No. 107, “Share Based
Payment”, (“SAB 107”), for estimating the expected term of “plain
vanilla” share options regardless of whether the company has sufficient
information to make more refined estimates. SAB 110 became effective for the
Company on January 1, 2008. The adoption of SAB 110 did not have a material
impact on the Company’s financial position.
 
 Other
accounting standards that have been issued or proposed by the FASB or other
standards-setting bodies that do not require adoption until a future date and
are not expected to have a material impact on the financial statements upon
adoption.
  F-19
 TELIPHONE
CORP.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE SIX MONTHS ENDED MARCH 31, 2008 AND 2007
   NOTE
      3-
                FIXED
      ASSETS
 
 Fixed
assets as of March 31, 2008 and September 30, 2007 were as follows:
 
 Estimated
      Useful
                
                
                March
      31,
                
                
                September
      30,Lives
      (Years)
                
                
                2008
                
                
                2007Furniture
      and fixtures
                
                
                5
                
                
                $
                1,302
                
                
                $
                1,329Computer
      equipment
                
                
                3
                
                
                
                205,144
                
                
                
                209,398Vehicles
                
                
                5
                
                
                
                24,562
                
                
                
                25,071231,008
                
                
                
                235,798Less:
      accumulated depreciation
                
                
                
                
                
                
                208,473
                
                
                
                172,550Property
      and equipment, net
                
                
                
                
                
                $
                22,535
                
                
                $
                63,248
 
 There was
$40,423 and $37,939 charged to operations for depreciation expense for the six
months ended March 31, 2008 and 2007, respectively.
 
 NOTE
      4-
                RELATED PARTY
      LOANS
 
 On August
1, 2006, the Company converted $421,080 of the $721,080 of its loans with United
American Corporation, a related party through common ownership, and majority
shareholder of the Company prior to United American Corporation’s stock dividend
that took place effective October 30, 2006 into 1,699,323 shares of the
Company’s common stock. In December 2006, the Company issued a resolution to
issue the remaining 171 fractional shares related to United American
Corporation’s spin-off of the corporation and pro-rata distribution of United
American Corporation’s holding of the Company’s common stock to its
shareholders. Those shares were issued prior to December 31, 2006 and
distributed to shareholders.  The $300,000 remaining on the loan has
become interest bearing at 12% per annum on August 1, 2006, payable monthly with
a maturity date of August 1, 2009. Interest on this loan for the six months
ended March 31, 2008 and 2007 was $18,000 on this loan.
 
 In
addition, there are approximately $192,479 of non-interest bearing advances that
were incurred from August 2006 from United American Corporation. These advances
were provided for cash flow purposes for the Company to sustain its
operations.
 
 The
Company has also been advanced various amounts from related parties whom are
either officers, shareholders or entities under control by an officer or
shareholder. These amounts bear interest at interest rates ranging between 5%
and 7% per annum as follows:
 
 As of
March 31, 2008, the Company has $38,077 including accrued interest outstanding
with an officer.
  F-20
  TELIPHONE
CORP.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE SIX MONTHS ENDED MARCH 31, 2008 AND 2007
   NOTE
      4-
                RELATED PARTY
      LOANS (CONTINUED)
 
 As of
March 31, 2008, the Company has $131,344 including accrued interest outstanding
with shareholders.
 
 As of
March 31, 2008, the Company has $20,634 including accrued interest outstanding
with companies controlled by an officer of the Company.
 
 The Company must pay the
shareholders of 9151-4877 Quebec Inc. a total of CDN $420,000 for the
acquisition of certain assets and liabilities of 9151-4877 Quebec Inc. (d/b/a
“Dialek Telecom”) (See Note 9). The Company holds the option to pay the entire
amount of the balance due at anytime. The Company is currently
making a minimum monthly payment of CDN $9,992 which equates to the full payment
of the CDN $420,000 over 60 months at 15%annual
interest.
  Maturities
over the next 5 years and in the aggregate (CDN$)as
of March 31, are as follows:
 
 2009
                    
                    $
                    61,7432010
                    
                    
                    71,6692011
                    
                    
                    83,1902012
                    
                    
                    96,5632013
                    
                    
                    97,293Total
                    
                    $
                    410,458
 In
addition, the shareholders of 9151-4877 Quebec Inc. have provided a revolving
line of credit facility of CDN $150,000 18% per annum rate of
interest.  As at March 31, 2008, the Company had drawn down CDN$97,000
of this line of credit.  Subsequently in May 2008, the Company drew
down an additional $3,000.  The Company is making interest payments
only against this line of credit.
 
 All of
these amounts are recorded as current liabilities as they are all due on
demand.
 
 NOTE
      5-
                COMMITMENTS
 
 The
Company’s subsidiary Teliphone Inc. has entered into a distribution agreement
with one of its distributors in March 2006 for a period of five-years. The
distribution agreement stipulates that the Company must pay up to 25%
commissions on all new business generated by the distributor. This distributor
controls the areas of Quebec and Ontario in Canada. The agreement does not
stipulate any minimum commissions due the distributor, only that the distributor
is paid monthly on its business generated. The Company is current with its
commissions to the distributor.
  F-21
 TELIPHONE
CORP.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE SIX MONTHS ENDED MARCH 31, 2008 AND 2007
   NOTE
      5-
                COMMITMENTS(CONTINUED)
 
 On August
23, 2005, The Company’s subsidiary Teliphone, Inc. entered into a marketing and
distribution rights with Podar Infotech Ltd. The five year renewable agreement
grants Podar the exclusive marketing and distribution rights for the Company’s
products and services for India, China, Sri Lanka, Russia and UAE for which the
Company will receive contractually agreed payments.  Podar’s
distribution channel has begun to bring revenues into the Company which are
listed as VoIP service revenues. As a result, commissions are being paid to
Podar at rates of 25%.
 
 On
November 15, 2007, a shareholder of the Company provided a fixed term deposit of
$45,000 with the Company’s bank in order to guarantee an equivalent value
operating line of credit for use by the Company. The Company is providing the
shareholder an annual interest rate of 20% payable in common stock of The
Company. The deposit remains outstanding and the liability to the shareholder is
also outstanding.
 
 On
January 29, 2008, a shareholder of the Company provided a fixed term deposit of
$30,000 with the Company’s bank in order to guarantee an equivalent value
operating line of credit for use by the Company. The Company is providing the
shareholder an annual interest rate of 20% payable in common stock of The
Company. The deposit remains outstanding and the liability to the shareholder is
also outstanding.
 
 NOTE
      6-
                AGREEMENT – INTELCO
      COMMUNICATIONS
 
 Teliphone
Inc., a majority-owned subsidiary of the Company, 3901823 Canada Inc., the
holding company of Intelco Communications (“3901823”), and Intelco
Communications (“Intelco”)  entered into an agreement (the
“Agreement”) on July 14, 2006.  Pursuant to the terms of the
Agreement, Teliphone Inc. agreed to issue 35 class A voting shares of its common
stock representing 25.2% of Teliphone Inc.’s issued shares to 3901823 in
exchange for office rent, use of Intelco’s data center for Teliphone Inc.’s
equipment, and use of Intelco’s broadband telephony network valued at
approximating $144,000 (CDN$) for the period August 1, 2006 through July 31,
2007, a line of credit of $75,000 (CDN$), of which $25,000 (CDN$) was already
drawn upon in July 2006 and repaid in December 2006.
 
 Teliphone
Inc. also agreed to make available to the customers of Intelco certain
proprietary software for broadband telephony use.  In lieu of
receiving cash for the licensing of this software, Teliphone Inc. will apply $1
per customer per month at a minimum of $5,000 per month.  Following a
twelve month period, Intelco will receive additional shares of class A voting
common stock of Teliphone Inc. for the difference in the value between $144,000
and the total payments credited back to Teliphone Inc.  The maximum
amount of additional shares that can be issued to Intelco after the twelve month
period is an additional 8.34% of Teliphone Inc.’s issued and outstanding
shares.  In the event that the total payments credited back to
Teliphone Inc. exceeds $144,000, Intelco will not be entitled to the issuance of
any additional shares of Teliphone Inc. common stock.
  F-22
  TELIPHONE
CORP.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE SIX MONTHS ENDED MARCH 31, 2008 AND 2007
   NOTE
      6-
                AGREEMENT – INTELCO
      COMMUNICATIONS (CONTINUED)
 
 Teliphone
Inc. recognized a prepaid expense for the fair value of the shares issued to
Intelco. The value of the prepaid expense was determined based on the estimated
cost of the services that Teliphone Inc. is to receive under the Joint Venture
Agreement entered into for a one-year period of time. The cost was estimated at
$12,000 (CDN$) per month. Teliphone Inc. up through December 31, 2007 has not
used the $12,000 (CDN$) per month. As of March 31, 2008, the balance remaining
in the prepaid expense for Intelco is $111,717 (US$).  Teliphone Inc.
is currently negotiating with Intelco as to how the credit position is to be
treated going forward.
 
 NOTE
      7-
                STOCKHOLDERS’
      DEFICIT
 
 Common
Stock
 
 As of
March 31, 2008, the Company has 125,000,000 shares of common stock authorized
with a par value of $.001.
 
 The
Company has 33,554,024 shares issued and outstanding as of March 31,
2008.
 
 On
September 30, 2004, the Company had 3,216,000 shares issued and outstanding. On
April 28, 2005, the Company entered into a reverse merger upon the acquisition
of Teliphone, Inc. and issued 27,010,000 shares of common stock to the
shareholders of Teliphone, Inc. in exchange for all of the outstanding shares of
stock of Teliphone, Inc. Thus the Company had 30,426,000 shares issued and
outstanding.
 
 On August
31, 2005, the Company issued 663,520 shares of common stock in conversion of the
Company’s convertible debentures in the amount of $331,760.
 
 On August
22, 2006, the Company issued 1,699,323 shares of common stock to United American
Corporation in conversion of related party debt in the amount of $421,080 (see
Note 4). An additional 171 fractional shares were issued in December
2006.
 
 On August
22, 2006, the Company issued 105,000 shares of common stock for consulting
services. These services have been valued at $0.25 per share, the price at which
the Company’s offering will be. The value of $26,250 was reflected in the
consolidated statement of operation for the year ended September 30,
2006.
 
 In
December 2006, the Company issued 660,000 shares of common stock representing a
value in the amount of $165,000, for consulting services that occurred during
the year ended September 30, 2006. The Company recognized the expense in the
year ended September 30, 2006 as the services were provided in this time frame.
The Company used the $0.25 price for valuation purposes.
  F-23
  TELIPHONE
CORP.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE SIX MONTHS ENDED MARCH 31, 2008 AND 2007
   NOTE
      8-
                PROVISION FOR INCOME
      TAXES
 
 Deferred
income taxes are determined using the liability method for the temporary
differences between the financial reporting basis and income tax basis of the
Company’s assets and liabilities.  Deferred income taxes are measured
based on the tax rates expected to be in effect when the temporary differences
are included in the Company’s tax return.  Deferred tax assets and
liabilities are recognized based on anticipated future tax consequences
attributable to differences between financial statement carrying amounts of
assets and liabilities and their respective tax bases.
 
 At March
31, 2008, deferred tax assets consist of the
following:
 
 Net
      operating losses
                
                $
                557,141Valuation
      allowance
                
                
                (557,141
                )$
                -
  At March
31, 2008, the Company had a net operating loss carryforward in the amount of
$1,638,650, available to offset future taxable income through
2028.  The Company established valuation allowances equal to the full
amount of the deferred tax assets due to the uncertainty of the utilization of
the operating losses in future periods.
 
 A
reconciliation of the Company’s effective tax rate as a percentage of income
before taxes and federal statutory rate for the periods ended March 31, 2008 and
2007 is summarized as follows:
 
 2008
                
                
                2007Federal
      statutory rate
                
                
                (34.0
                )%
                
                
                (34.0
                )%State
      income taxes, net of federal benefits
                
                
                3.3
                
                
                
                3.3Valuation
      allowance
                
                
                30.7
                
                
                
                30.70
                %
                
                
                0
                %
 
 F-24
 TELIPHONE
CORP.
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR
THE SIX MONTHS ENDED MARCH 31, 2008 AND 2007
   NOTE
      9-
                ACQUISITION OF CERTAIN
      ASSETS AND LIABILITIES
 
 On
February 14, 2008, the Company entered into a Letter of Intent for the
acquisition of certain assets and liabilities of 9151-4877 Quebec Inc.
(Operating as “Dialek Telecom”).  As a result of the letter of intent,
effective February 15, 2008, the Company acquired the following:
 
 ASSETS
 
 Active
Customer Base totaling in and around 2,000 clients.
 
 Accounts
      Receivable
                
                $
                9,742Cash
      in Bank
                
                
                74,039Goodwill
                
                
                546,123Total
      Assets: US
                
                $
                629,904
 
 LIABILITIES
 Current
      supplier payables
                
                $
                220,740Total
      Liabilities: US
                
                $
                220,740
  The
Company entered into a note payable for $409,164 (US$) for the acquisition of
these net assets (see Note 4).
 
 DIFFERENCE BETWEEN ACTUAL
AND PURCHASE PRICE
 
 After
fully accounting for the actual results of operations since the acquisition on
February 14, 2008, the Company, through external confirmation by suppliers and
the Bank of Dialek Telecom, along with conservative estimates of the accounts
receivable and credits/write-offs as described in the Letter of Intent, the
Company has concluded that the difference between the assets and liabilities is
CDN$177,122 and not CDN$140,586 as originally agreed upon, a difference of
CDN$36,536 and has recorded this amount as goodwill.  According to the
Letter of Intent entered, this would reduce the value of the acquisition from
CDN$420,000 to CDN$383,464.  The Company is currently in negotiation
to clarify this situation with the shareholders of Dialek Telecom in
anticipation of the definitive agreement being finalized.
 
 LINE OF CREDIT
FACILITY
 
 The
shareholders of 9151-4877 Quebec Inc. have provided a revolving line of credit
facility of CDN $150,000 18% per annum rate of interest.  As at March
31, 2008, the Company had drawn down CDN$97,000 ($94,497 US$) of this line of
credit.  Subsequently in May 2008, the Company drew down an additional
$3,000.  The Company is making interest payments only against this
line of credit.
 
 F-25
  Item
2. Management’s Discussion and Analysis of Financial Condition and Results of
Operations
  Management’s
Discussion and Analysis contains various “forward looking statements” within the
meaning of Section 21E of the Securities Exchange Act of 1934, as amended,
regarding future events or the future financial performance of the Company that
involve risks and uncertainties. Certain statements included in this Form
10-QSB, including, without limitation, statements related to anticipated cash
flow sources and uses, and words including but not limited to “anticipates”,
“believes”, “plans”, “expects”, “future” and similar statements or expressions,
identify forward looking statements. Examples of forward-looking statements
include, but are not limited to:  (a) projections of our revenues,
capital expenditures, growth, prospects, dividends, capital structure and other
financial matters; (b) statements of our plans and objectives; (c) statements of
our future economic performance; (d) statements of assumptions underlying other
statements and statements about us and our business relating to the future; and
(e) any statements using the words "believes," "budget," "target," "goal,"
"anticipate," "expect," "plan," "outlook," "objective," "may," "project,"
"intend," "estimate," or similar expressions. Any forward-looking statements
herein are subject to certain risks and uncertainties in the Company’s business,
including but not limited to, reliance on key customers and competition in its
markets, market demand, product performance, technological developments,
maintenance of relationships with key suppliers, difficulties of hiring or
retaining key personnel and any changes in current accounting rules, all of
which may be beyond the control of the Company. The Company’s actual results
could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set forth
therein.
  Management’s
Discussion and Analysis of Results of Financial Condition and Results of
Operations (“MD&A”) should be read in conjunction with the financial
statements included herein. Further, this quarterly report on Form 10-QSB should
be read in conjunction with the Company’s Financial Statements and Notes to
Financial Statements included in its 2007 Annual Report on Form
10-KSB.
  The
Company's financial statements have been prepared in accordance with United
States generally accepted accounting principles.  We urge you to read
this report in conjunction with the risk factors described herein.
  BACKGROUND
  Company
Overview
  As used
in this annual report, "we", "us", "our", “Teliphone”, the "Group", "Company" or
"our company" refers to Teliphone Corp., a Nevada corporation, together with our
majority-owned subsidiary Teliphone Inc., a Canadian corporation.
 
 History
 
 Teliphone
Corp was incorporated in the State of Nevada on March 2, 1999 under the name
"OSK Capital II Corp." to serve as a vehicle to effect a merger, exchange of
capital stock, asset acquisition or other business combination with a domestic
or foreign private business. Effective April 28, 2005, the Company achieved its
objectives with the reverse merger and reorganization with Teliphone Inc., a
Canadian company. On August 21, 2006, we changed our name from OSK Capital II
Corp. to Teliphone Corp.
  As a
result of the merger and re-organization, Teliphone Inc. became our wholly owned
subsidiary and we became a majority owned subsidiary of Teliphone Inc.'s parent
company, United American Corporation, a Florida Corporation trading on the NASD
OTCBB under the symbol UAMA.
  The
merger and re-organization of April 28, 2005 was a business combination between
Teliphone Inc. and OSK Capital II Corp. As a result, Teliphone Inc. became a
wholly-owned subsidiary of OSK Capital II Corp.
  The
Principal terms of the combination were that a recapitalization occurred as a
result of the reverse merger. The shareholder's equity of OSK Capital II Corp.
became that of Teliphone Inc. Original shareholders of OSK Capital II Corp.
maintained their shareholdings of OSK Capital II Corp. and new treasury shares
of OSK Capital II Corp. were issued to shareholders of Teliphone Inc
 
 On July
14th, 2006 the Company entered into a Letter of Intent with 3901823 Canada Inc.
("3901823") whereby Teliphone Inc. will issue 3901823 new shares from its
treasury such that 3901823 will become a 25% owner of our subsidiary Teliphone
Inc. in return for additional investment in the company. As a result of this
transaction, Teliphone Inc. remains a majority-owned subsidiary of the Company.
The Company does not have any other subsidiaries.
  4
  On
October 30, 2006, United American Corporation spun off their share position in
our Company through the pro rata distribution of their 25,737,956 shares to
their shareholders. Although there were no contractual obligations on the part
of the company or United American Corporation, this spin off was part of a long
term strategy of United American Corporation.
 
 On
February 15, 2008, the Company entered into a Letter of Intent with 9191-4200
Quebec Inc., owners of 9151-4877 Quebec Inc. (d/b/a “Dialek Telecom”) for the
acquisition of certain assets and liabilities of Dialek Telecom.  As a
result, the Company acquired an additional 2,000 customers for
telecommunications services in Canada, along with other assets valued at
CDN$86,000 and liabilities valued at CDN$227,000 and access to an operating line
of credit of CDN$150,000 at an annualized interest rate of 18%.
  History
of Key Agreements
  At the
time of the merger and re-organization, the Company, through its subsidiary
Teliphone Inc., was able to offer its services to customers in Canada only. This
was achieved through the signing of a retail distribution agreement on March 1,
2005, with BR Communications Inc. ("BR") for the purpose accessing the retail
consumer portion of our target market through retail and Internet-based sales.
Under the terms of this agreement, BR was granted the exclusive right to
distribute Teliphone Inc.’s VoIP services via Internet-based sales or direct
sales to retail establishments in the territory consisting of the Province of
Quebec in Canada exclusive of Sherbrooke, Quebec for a 5 year term. The
agreement includes a commitment by Teliphone Inc. to pay BR 25% of the recurring
revenues derived from clients in the territory. BR then utilizes this 25% to
distribute a portion of the recurring revenues to their base of re-sellers.
Teliphone Inc. provides the hardware necessary for the delivery of their VoIP
services directly to the re-sellers, and therefore BR does not receive any
commission on the sale of, nor distribution of, the hardware. Recurring revenues
from paying customers include unlimited local and long distance calling
services. This agreement was later expanded to include the city of Ottawa within
the Province of Ontario and to remove the restriction of Sherbrooke,
Quebec.
 
 On April
22, 2005, the Company, through its subsidiary Teliphone Inc., entered into a
Wholesale distribution agreement with 9151-4877 Quebec Inc., also known as
"Dialek Telecom". Teliphone Inc. supplies Dialek Telecom with VoIP services to
Dialek's Canadian and US customers, permitting Dialek Telecom to brand the
service "Dialek VoIP" instead of "Teliphone VoIP". The agreement also permits
Dialek Telecom to invoice and support its clients directly. The term of the
agreement is for one year renewable to successive one year terms upon 30 days
written notice.
  On June
1, 2005, the Company, through its subsidiary Teliphone Inc., signed an Agreement
with Northern Communication Services Inc. ("Northern") such that Northern would
supply the company with Emergency 9-1-1 caller address verification and call
transfer services to the necessary Municipal Emergency Services Department
associated with the caller's location. This service is required for Teliphone
Inc.'s customers located in North America. The term of the agreement is for 3
years, renewable automatically for an additional 3 years with a termination
clause of 90 days written notice.
  The
Company sought to further expand its distribution reach internationally and on
August 23, 2005, we entered into a marketing and distribution agreement with
Podar Enterprise ("Podar") of Mumbai, India. Podar is focused on building a
distribution network to sell to consumers in Central, South, and East Asia,
Eastern Europe, and parts of the Middle East. Under the terms of this agreement,
Podar was granted the exclusive marketing and distribution rights for our
products and services in India, China, Sri Lanka, United Arab Emirates, and
Russia. The agreement stipulated that Podar was to receive 25% of the recurring
revenues sold to clients in the territory. The agreement does not deal with any
hardware sales, as the intent of the agreement was to have clients source the
necessary hardware locally in their country. Recurring revenues from paying
customers include long distance calling services outside of the customer’s
geographic location. The term of this agreement is five (5) years subject to
early termination with 60 days notice following any default under the
agreement.
  5
 
 On
December 2, 2005, the Company, through it's subsidiary Teliphone Inc. signed a
Co-Location and Bandwidth Services Agreement with Peer 1. The agreement
stipulates that the Company houses its telecommunications and computer server
hardware within the Peer 1 Montreal Data center, located at 1080 Beaver Hall,
suite 1512, Montreal, Quebec, Canada. Likewise, Teliphone Inc. agrees to
purchase Peer 1 bandwidth services and internet access across its worldwide
network. The term of the contract was for 12 months, renewable for successive 30
day terms.
  The
Company sought to expand its product offering in order to offer its broadband
phone services to US customers as well. The Company singed an agreement with RNK
Telecom Inc, a New Jersey company, in December of 2005 which permitted the
company to interconnect with RNK's network of US cities. This agreement has a
term of one year renewable month to month at the end of the term.
  On
December 7, 2005, the Company entered into, in conjunction with United American
Corporation, a related party, a Customer and Asset Acquisition and Software
Licensing Agreement with Iphonia, Inc., a Quebec corporation. However, on July
6th, 2006, the agreement with iPhonia Inc. was terminated by both parties. The
original agreement was to set forth the rights and obligations pertaining to the
transfer of Iphonia's clients and services to Teliphone Inc., the Company's
subsidiary, along with the sale of various telecommunications and equipment. The
term of the agreement was to be 24 months.
  On April
6, 2006, the Company, through its subsidiary Teliphone Inc. signed a Master
Services Agreement with Rogers Business Solutions ("Rogers"). This agreement
permits Teliphone Inc. to purchase voice channel capacity for its Canadian
Network. The majority of its current voice channel capacity already exists with
Rogers, however, the current agreements are still between Rogers and the
Company's former parent company, United American Corporation. It is anticipate
that all of the capacity will transfer under the Teliphone Inc.-Rogers agreement
by June 30, 2007. The term of the agreement is for 2 years, with no specific
renewal conditions.
  Teliphone
Inc., a majority-owned subsidiary of the Company, 3901823 Canada Inc., the
holding company of Intelco Communications ("3901823"), and Intelco
Communications ("Intelco") entered into an agreement on July 14, 2006. Pursuant
to the terms of the Agreement, Teliphone Inc. agreed to issue 35 class A voting
shares of its common stock representing 25.2% of Teliphone Inc.'s issued shares
to 3901823 in exchange for office rent, use of Intelco's data center for
Teliphone Inc.'s equipment, and use of Intelco's broadband telephony network
valued at approximating $144,000 (CDN$) for the period August 1, 2006 through
July 31, 2007, a line of credit of $75,000 (CDN$), of which $25,000 (CDN$) was
already drawn upon in July 2006 and paid back in December 2006.
  Teliphone
Inc. also agreed to make available to the customers of Intelco certain
proprietary software for broadband telephony use. In lieu of receiving cash for
the licensing of this software, Teliphone Inc. will apply $1 per customer per
month at a minimum of $5,000 per month. Following a twelve month period, Intelco
will receive additional shares of class A voting common stock of Teliphone Inc.
for the difference in the value between $144,000 and the total payments credited
back to Teliphone Inc. The maximum amount of additional shares that can be
issued to Intelco after the twelve month period is an additional 8.34% of
Teliphone Inc.'s issued and outstanding shares. In the event that the total
payments credited back to Teliphone Inc. exceeds $144,000, Intelco will not be
entitled to the issuance of any additional shares of Teliphone Inc. common
stock.
 
 On
February 15 2008, the Company’s majority-owned subsidiary Teliphone Inc. entered
into a Letter of Intent with 9191-4200 Quebec Inc. to acquire certain assets and
liabilities of 9151-4877 Quebec Inc. (Operating as “Dialek
Telecom”).  The assets included contracts of sale to 2,000 customers
for telephony, internet and long distance services, and cash in bank and
accounts receivable valued at $86,000.  Liabilities included amounts
owed to suppliers delivering the services to those clients totaling
$226,586.  The transaction also provided for Teliphone Inc. a $150,000
operating line of credit at an annual interest rate of 18%.  The
transaction was valued at CDN$420,000.  9191-4200 Quebec Inc. has
financed the transaction over 60 months at an annualized interest at of
15%.  The Company may pay the remaining balance at any
time.
  6
  Description
of Business
 
 Trends
in Our Industry and Business
  A number
of trends in our industry and business have a significant effect on our results
of operations and are important to an understanding of our financial statements.
These trends include:
  Broadband adoption. The
number of households with broadband Internet access in our core markets of
Canada and India has grown significantly. We expect this trend to continue. We
benefit from this trend because our service requires a broadband Internet
connection and our potential addressable market increases as broadband adoption
increases.
  Changing competitive
landscape. We are facing increasing competition from other
companies that offer multiple services such as cable television, voice and
broadband Internet service. Several of these competitors are offering VoIP or
other voice services as part of a bundle, in which they offer voice services at
a lower price than we do to new subscribers. In addition, several of these
competitors are working to develop new integrated offerings that we cannot
provide and that could make their services more attractive to customers. We also
compete against established alternative voice communication providers and
independent VoIP service providers. Some of these service providers may choose
to sacrifice revenue in order to gain market share and have offered their
services at lower prices or for free. These offerings could negatively affect
our ability to acquire new customers or retain our existing
customers.
  Consumer adoption of new VoIP
technology.  The development of our Teliphone VoIP service permits
us to sell telecommunications services to consumers who have a broadband
internet connection. Our technology permits customers to continue to use their
traditional phone devices to make and receive calls at a lower cost than
traditional phone services. One of the key challenges in the adoption of this
new technology is the customer’s acceptance of potential loss of service when
their internet connection goes down or they lose electrical power in their home
or office. The Company has mitigated this risk for their customers by providing
telephone call fail-over methods in case of loss of service. Management believes
that even though this adoption risk exists, the reduction of cost for the
services will negate the impact of occasional service loss much like how
consumers accepted at times lower call quality in their worldwide adoption of
mobile phones due to increased convenience.
  The
development of our callona.com website seeks to attract consumers on the
internet who will look to utilize our web-based communications services, which
will permit us to generate advertising and promotional revenues from other
companies looking to advertise and promote their products to our callona.com
users. We have not as yet realized any revenue from our callona.com prototype.
  Principal
products or services and their markets
  Our
Company has invested in the research and development of our VoIP
telecommunications technology which permits the control, forwarding, storing and
billing of phone calls made or received by our customers. Our technology
consists of proprietary software programming and specific hardware
configurations, however, we have no specific legal entitlement that does not
permit someone else from utilizing the same base software languages and same
hardware in order to produce similar telephony service offerings. We therefore
cannot be certain that others will not gain access to our technology. In order
to protect this proprietary technology, we hold non-disclosure and
confidentiality agreements and understandings with our employees, consultants,
re-sellers, distributors, wholesalers and technology partners. We cannot
guarantee that our technology and trade secrets will not be stolen, challenged,
invalidated or circumvented. If any of these were to occur, we would suffer from
a decreased competitive advantage, resulting in lower profitability due to
decreased sales.
  7
  The
Company offers the following products and services to customers utilizing its
VoIP technology platform:
  ·
                Residential
      phone service. Customers purchase a VoIP adaptor from a re-seller and
      install it in their home. This allows all of their traditional phones in
      their home to have their inbound and outbound calls redirected to
      Teliphone. As a result, the residential customer purchases their choice of
      unlimited local or long distance calling services, with pay-per-minute
      long distance calling services.
 
 ·
                Business
      phone service. Customers purchase multiple VoIP adaptors from re-sellers
      and install them in their business. Similar to Residential phone service,
      customers purchase various local and long distance calling services from
      the Company.
 
 For
Residential and Business phone services, the Company, through its subsidiary
Teliphone Inc., invoices and collects funds directly from the end-user customer
and pays a commission to their re-sellers and distributors upon receipt of the
funds. The customer can also purchase the VoIP adaptors and calling services
directly with Teliphone Inc. via its website www.teliphone.us for
US customers, www.teliphone.ca for
Canadian customers and www.teliphone.in for
India customers.
  The
Company also sells VoIP calling services to Wholesalers who re-sell these
services to their customers. In this case, the Company’s subsidiary Teliphone
Inc. provides the services to the end-user customers, however invoices and
collects funds from the Wholesaler, who invoices their customers and provides
technical support to their customers directly.
  The VoIP
adaptors are manufactured by Linksys-Cisco and purchased by the Company directly
from the manufacturer and re-sold to the re-sellers and wholesalers. The
Company’s subsidiary Teliphone Inc. is a Linksys-Cisco Internet Telephony
Services approved supplier based on their agreement signed in October
2005.
  Distribution
methods of the products or services
  Retail
Sales.
  We
distribute our products and services through our retail partners' stores. Our
retail partners have existing public retail outlets where they typically sell
telecommunications or computer related products and services such as other
telecommunications services (cellular phones) or computer hardware and
software.
  The
Company does not own or rent any retail space for the purpose of distribution,
rather, it relies on its re-seller partners to display and promote the Company's
products and services within their existing retail stores. Our agreement with BR
Communications Inc. has permitted us to establish our retail sales
channel.
  Our
relationship to the retail outlets is on of a supplier. We supply the hardware
to the retail outlet owners, who have a re-seller agreement with our
distributor, BR Communications Inc. We ship these products direct to the stores
based on their requirements. All shipments are Cash On Delivery payment
terms.
  For a
retail sale to occur, our re-sellers purchase hardware from us and hold
inventory of our hardware at their store. In some cases, we may sell the
hardware to our re-sellers below cost in order to subsidize the customer's
purchase of the hardware from the re-seller. Upon the sale of hardware to the
customer, the retail partner activates the service on our website while in-store
with the customer.
  8
  Internet
Sales.
  We
likewise distribute our products through the sale of hardware on our website,
www.teliphone.us. The customer purchases the necessary hardware from our on-line
catalog. Upon receipt of the hardware from us, the customer returns to the
company's website to activate their services.
  Wholesale
Sales.
  We
likewise distribute our products and services through Wholesalers. A Wholesaler
is a business partner who purchases our products and services "unbranded", that
is, with no reference to our Company on the hardware or within the service, and
re-bills the services to their end-user customers. In the case of a sale to our
Wholesalers, we do not sell the hardware below cost.
  Status of any publicly announced new product or
service;
  TeliPhone
VoIP services were officially launched to the public in the Province of Quebec
in December of 2004.
  teliPhone
Residential VoIP service
  The
Company currently offers a residential VoIP phone service to customers in the
provinces of Ontario and Quebec. Average revenues per customer are $30.00 per
month. The customer can also purchase virtual numbers from other cities in North
America and Internationally, permitting the customer to provide a local phone
number to their calling party who is in another area or country that normally
would represent a long distance call. These services cost from 5$ to 30$ per
month depending on the country.
  teliPhone
Small business VoIP services
  During
2005Q3, The Company began to target Small and Medium sized business clients with
an expanded version of its offering. Average revenues per customer in this
segment are $400. The Company markets these services primarily through its
telecom interconnection resellers, who have existing customer relationships in
this segment.
  Teliphone
has also developed and integrated new software permitting the replacement of
traditional auto-attendant and office telephony systems. The Company is
currently finalizing its beta trials and will introduce to the market through
its interconnection re-seller base in 2007Q4.
  CallOnA.com
  We are
currently testing our CallOnA.com service, which permits users to execute free
calls to certain international destinations by initiating a call from our
website. This service has not been fully tested as of yet and we anticipate
launching the service in a preliminary form in fiscal year end
2008.
  teliPhone
Mobile VoIP and Single Point of Contact services (MobilNation)
  This
service is an entry-level service targeting both residential and business mobile
phone users. This end-user customer does not require broadband internet access
nor any additional equipment to utilize this service. Users pay a fixed monthly
fee of $9.95 per month and receive a phone number where they are provided
options to re-direct the incoming call to numerous phones, enhanced voice-mail,
as well as the ability to add virtual numbers from other cities ($4.95 per
month), eliminating inbound long distance charges to their calling
parties.
  9
  Customers
of MobilNation are provided with multiple dial-up numbers from various cities in
the US & Canada. This permits the customer to make long distance calls on
their home or cellular phone by purchasing the long distance call from the
Company instead of their existing service provider. Our rates are typically up
to 50% less than existing suppliers, thereby reducing our customer's overall
monthly phone bill.
  The
MobilNation services are currently in the final stages of development. They will
be marketed primarily over the Internet and will be introduced in fiscal year
2008 to The Company's Retail sales channel as well. As described above, the
Company does not own or rent any retail space for the purpose of distribution,
rather, it relies on its re-seller partners to display and promote the Company's
products and services within their existing retail stores.
  Competitive
Business Conditions
  Today,
VoIP technology is used in the backbone of many traditional telephone networks,
and VoIP services are offered to residential and business users by a wide array
of service providers, including established telephone service providers. These
VoIP providers include traditional local and long distance phone companies,
established cable companies, Internet service providers and alternative voice
communications providers such as Teliphone.
 
 While all
of these companies provide residential VoIP communications services, each group
provides those services over a different type of network, resulting in important
differences in the characteristics and features of the VoIP communications
services that they offer. Traditional wireline telephone companies offering VoIP
services to consumers do so using their existing broadband DSL networks.
Similarly, cable companies offering VoIP communications services use their
existing cable broadband networks. Because these companies own and control the
broadband network over which the VoIP traffic is carried between the customer
and public switched telephone network, they have the advantage of controlling a
substantial portion of the call path and therefore being better able to control
call quality. In addition, many of these providers are able to offer their
customers additional bandwidth dedicated solely to the customer's VoIP service,
further enhancing call quality and preserving the customer's existing bandwidth
for other uses. However, these companies typically have high capital
expenditures and operating costs in connection with their networks. In addition,
depending on the structure of their VoIP networks, the VoIP services provided by
some of these companies can only be used from the location at which the
broadband line they provide is connected.
  Like
traditional telephone companies and cable companies offering VoIP services, the
Company also connects its VoIP traffic to the public switched telephone network
so that their customers can make and receive calls to and from non-VoIP users.
Unlike traditional telephone companies and cable companies, however, alternative
voice communications providers such as Teliphone do not own or operate a private
broadband network. Instead, the VoIP services offered by these providers use the
customer's existing broadband connection to carry call traffic from the customer
to their VoIP networks. These companies do not control the "last mile" of the
broadband connection, and, as a result, they have less control over call quality
than traditional telephone or cable companies do. However, these companies have
the operating advantage of low capital expenditure requirements and operating
costs.
  Internet
service providers generally offer or have announced intentions to offer VoIP
services principally on a PC-to-PC basis. These providers generally carry their
VoIP traffic for the most part over the public Internet, with the result that
VoIP services are often offered for free, but can only be used with other users
of that provider's services. Many of these providers offer a premium service
that allows customers to dial directly into a public switched telephone network.
In addition, while no special adapters or gateways are required, often customers
must use special handsets, headsets or embedded microphones through their
computers, rather than traditional telephone handsets.
  10
  Competition
  The
telecommunications industry is highly competitive, rapidly evolving and subject
to constant technological change and to intense marketing by different providers
of functionally similar services. Since there are few, if any, substantial
barriers to entry, except in those markets that have not been subject to
governmental deregulation, we expect that new competitors are likely to enter
our markets. Most, if not all, of our competitors are significantly larger and
have substantially greater market presence and longer operating history as well
as greater financial, technical, operational, marketing, personnel and other
resources than we do.
  Our use
of VoIP technology and our proprietary systems and products enables us to
provide customers with competitive pricing for telecommunications services.
Nonetheless, there can be no assurance that we will be able to successfully
compete with major carriers in present and prospective markets. While there can
be no assurances, we believe that by offering competitive pricing we will be
able to compete in our present and prospective markets.
  We rely
on specialized telecommunications and computer technology to meet the needs of
our consumers. We will need to continue to select, invest in and develop new and
enhanced technology to remain competitive. Our future success will also depend
on our operational and financial ability to develop information technology
solutions that keep pace with evolving industry standards and changing client
demands. Our business is highly dependent on our computer and telephone
equipment and software systems, the temporary or permanent loss of which could
materially and adversely affect our business.
  The
Company is provided its phone numbers and interconnection with the existing
public switched telephone network in Canada by Rogers Business Solutions. This
agreement was originally signed in 2004 under Teliphone's former parent company
United American Corporation and has since been updated to the current agreement
with Teliphone and Rogers Business Solutions signed on April 25th, 2006. In the
US and internationally, this service is provided by RNK Telecom
Inc.
  We are
not dependent on a few major customers. Our largest Wholesale customer, Dialek
Telecom, currently produces less than 10% of our monthly revenues.
  We do not
currently hold any patents, trademarks, liences, franchises, concessions or
royalty agreements.
  Existing
and Probable Governmental Regulation
  Overview
of Regulatory Environment
  Traditional
telephone service has historically been subject to extensive federal and state
regulation, while Internet services generally have been subject to less
regulation. Because some elements of VoIP resemble the services provided by
traditional telephone companies, and others resemble the services provided by
Internet service providers, the VoIP industry has not fit easily within the
existing framework of telecommunications law and until recently, has developed
in an environment largely free from regulation.
  The
Federal Communications Commission, or FCC, the U.S. Congress and various
regulatory bodies in the states and in foreign countries have begun to assert
regulatory authority over VoIP providers and are continuing to evaluate how VoIP
will be regulated in the future. In addition, while some of the existing
regulation concerning VoIP is applicable to the entire industry, many rulings
are limited to individual companies or categories of service. As a result, both
the application of existing rules to us and our competitors and the effects of
future regulatory developments are uncertain.
  11
  Regulatory
Classification of VoIP Services
  On
February 12, 2004, the FCC initiated a rulemaking proceeding concerning the
provision of VoIP and other services, and applications utilizing Internet
Protocol technology. As part of this proceeding, the FCC is considering whether
VoIP services like ours should be classified as information services, or
telecommunications services. We believe our service should be classified as
information services. If the FCC decides to classify VoIP services like ours as
telecommunications services, we could become subject to rules and regulations
that apply to providers of traditional telephony services. This could require us
to restructure our service offering or raise the price of our service, or could
otherwise significantly harm our business.
  While the
FCC has not reached a decision on the classification of VoIP services like ours,
it has ruled on the classification of specific VoIP services offered by other
VoIP providers. The FCC has drawn distinctions among different types of VoIP
services, and has concluded that some VoIP services are telecommunications
services while others are information services. The FCC's conclusions in those
proceedings do not determine the classification of our service, but they likely
will inform the FCC's decision regarding VoIP services like ours.
  In
Canada, the Canadian Radio-Television Commission (CRTC) is the regulating body
who has set guidelines that our subsidiary, Teliphone, must meet. These
guidelines center around 9-1-1 calling services and other services that are
normally available to subscribers of traditional telephony services. Teliphone
has met these requirements in its product offering.
  An
additional element of Canadian regulation is that the incumbent providers, Bell
Canada (Central and Eastern Canada) and Telus (Western Canada), who in 2004
controlled over 98% of the Business and Residential phone lines, are not able to
reduce their prices to meet the newly offered reduced price options of
independent VoIP and Cable phone companies. This regulation permitted
independents such as Teliphone to provide their VoIP phone service without fear
of anti-competitive activity by the incumbents. The CRTC has recently ruled that
they will permit the reduction of pricing by the incumbent carriers once a 25%
market share has been attained by the upstart phone service providers. Effective
March 2005, there is a penetration of 10% of phone services by up-start VoIP
providers. Teliphone views its long term strategy outside of just residential
phone service, through the availability of international phone numbers to global
clients, thereby creating an international product offering, a strategy that is
very different from the geographically limited incumbent carriers.
  Customer
Access to Broadband Services
  Our
customers must have broadband access to the Internet in order to use our
service. In the case of the Canadian market, our principal market, the Canadian
Radio-Television Telecommunications Commission (CRTC) has ordered that Internet
Service Providers and Incumbent Exchange Carriers have a legal obligation as per
Order 2000-789 to provide their services without interference to other service
providers in conjunction with to section 27(2) of the Telecommunications
Act.
  However,
anti-competitive behaviour in our market can still occur. For example, a
Canadian cable provider recently began offering an optional Cdn$10 per month
"quality of service premium" to customers who use third-party VoIP services over
its facilities. However, customers who purchase VoIP services directly from this
cable provider are not required to pay this additional fee. Based on this
example, some providers of broadband access may take measures that affect their
customers' ability to use our service, such as degrading the quality of the data
packets we transmit over their lines, giving those packets low priority, giving
other packets higher priority than ours, blocking our packets entirely, or
attempting to charge their customers more for also using our
services.
  VoIP
E-911 Matters
  On June
3, 2005, the FCC released an order and notice of proposed rulemaking concerning
VoIP emergency services. The order set forth two primary requirements for
providers of "interconnected VoIP services" such as ours, meaning VoIP services
that can be used to send or receive calls to or from users on the public
switched telephone network.
  12
  First,
the order requires us to notify our customers of the differences between the
emergency services available through us and those available through traditional
telephony providers. We also must receive affirmative acknowledgment from all of
our customers that they understand the nature of the emergency services
available through our service. Second, the order requires us to provide enhanced
emergency dialing capabilities, or E-911, to all of our customers by November
28, 2005. Under the terms of the order, we are required to use the dedicated
wireline E-911 network to transmit customers' 911 calls, callback number and
customer-provided location information to the emergency authority serving the
customer's specified location.
  In July
of 2005, the CRTC required us to offer enhanced emergency calling services, or
E-911. The FCC followed suit with a deadline of November 28, 2005. The
requirement meant that we had to offer enhanced emergency calling services, or
E-911, to all of our customers located in areas where E-911 service is available
from their traditional wireline telephone company. E-911 service allows
emergency calls from our customers to be routed directly to an emergency
dispatcher in a customer's registered location and gives the dispatcher
automatic access to the customer's telephone number and registered location
information. We complied with both these requirements through our agreement with
Northern Communications Inc., which calls for Northern Communications to provide
and operate a 9-1-1 dispatch center for caller address verification and call
transfer to the emergency services department closest to the customer's location
on behalf of the Company.
  Effective
the filing of this report, we have complied with all of these FCC
requirements.
  International
Regulation
  The
regulation of VoIP services is evolving throughout the world. The introduction
and proliferation of VoIP services have prompted many countries to reexamine
their regulatory policies. Some countries do not regulate VoIP services, others
have taken a light-handed approach to regulation, and still others regulate VoIP
services the same as traditional telephony. In some countries, VoIP services are
prohibited. Several countries have recently completed or are actively holding
consultations on how to regulate VoIP providers and services. We primarily
provide VoIP services internationally in Canada.
  Canadian
Regulation
  Classification
and Regulation of VoIP Services.
  The
Telecommunications Act governs the regulation of providers of telecommunications
services in Canada. We are considered a telecommunications service provider
rather than a telecommunications common carrier. Telecommunications service
providers are subject to less regulation than telecommunications common
carriers, but do have to comply with various regulatory requirements depending
on the nature of their business.
  On May
12, 2005, the Canadian regulator, the CRTC, stated that VoIP services permitting
users to make local calls over the public switched telephone networks will be
regulated by the same rules that apply to traditional local telephone services.
Because we are not a telecommunications common carrier, we will not be subject
to such regulation. Under the CRTC's decision, however, we are required to
register as a local VoIP reseller in order to obtain access to certain services
from other telecommunications providers.
  13
  The
CRTC's May 12, 2005 decision provided that VoIP providers who are registered as
local VoIP resellers will be able to obtain numbers and portability from
Canadian local exchange carriers, but will not be able to obtain numbers
directly from the Canadian Numbering Administrator or to have direct access to
the local number portability database. The CRTC's decision also identified other
obligations of VoIP providers, such as contributing to a national service fund,
complying with consumer protection, data and privacy requirements, and providing
access for the disabled. The details of these requirements have been referred to
industry groups for further study. Certain aspects of the decision are the
subject of pending appeals by other Canadian VoIP providers. We do not know what
requirements will ultimately be imposed nor the potential cost that compliance
may entail. The CRTC found that it is technically feasible for VoIP providers to
support special services for hearing-impaired customers.
  Effective
the filing of this report, we have complied with all CRTC
requirements.
  Provision
for 911 Services.
  On April
4, 2005, the CRTC released a ruling requiring certain providers of VoIP
services, like us, to provide interim access to emergency services at a level
comparable to traditional basic 911 services by July 3, 2005 or such later date
as the CRTC may approve on application by a service provider. Under the interim
solution adopted by the regulator for the provision of VoIP 911 services,
customers of local VoIP services who dial 911 will generally be routed to a call
center, where agents answer the call, verbally determine the location of the
caller, and transfer the call to the appropriate emergency services agency. VoIP
service providers are also required to notify their customers about any
limitations on their ability to provide 911 services in a manner to be
determined.
  Since
July 2005, Teliphone has complied with these regulations by partnering with a
PSAP (Primary Service Access Point) which serves to verify the customer location
and forward the call to the respective Municipal 9-1-1 center for assistance.
This service therefore permits Teliphone's customers to have access to 9-1-1
services irrespective of their physical location, anywhere in the Continental US
& Canada. This service is of significance as VoIP permits customers to
utilize their phone anywhere a high-speed internet connection exists and can
therefore be located outside of their local city when requiring 9-1-1
services.
  Other
Foreign Jurisdictions
  Our
operations in foreign countries must comply with applicable local laws in each
country we serve. The communications carriers with which we associate in each
country is licensed to handle international call traffic, and takes
responsibility for all local law compliance. For that reason we do not believe
that compliance with the laws of foreign jurisdictions will affect our
operations or require us to incur any significant expense
 
 Going
Concern
 
 As shown
in the accompanying condensed consolidated financial statements the Company has
incurred recurring losses of $73,246 and $127,394 for the six months ended March
31, 2008 and 2007, and has a working capital deficiency of $870,891 as of March
31, 2008.  The Company has been searching for new distribution
channels to wholesale their services to provide additional revenues to support
their operations. In addition, the Company entered into a letter of intent with
Intelco Communications that can save them operating costs in addition to
providing support services; however, this has not had an impact on the current
year operations.
 
 The
Company successfully reduced approximately $400,000 of related party debt as
this was converted into additional shares of the Company’s stock in August 2006.
There is no guarantee that the Company will be able to raise additional capital
or generate the increase in revenues to sustain its operations, however the
Company has recently gone effective on a registration statement of Form SB-2 by
the Securities and Exchange Commission to raise additional
capital.  The Company has hired a market maker to secure a listing on
the Over the Counter Bulletin Board. There is no guarantee that this will occur,
however, the Company as of the filing of their Form 10-QSB for the first quarter
ended December 31, 2007, has one comment to clear with FINRA.
  14
 
 The
Company’s subsidiary, Teliphone Inc. has additionally on February 15, 2008,
finalized a letter of intent with 9151-4877 Quebec Inc (known as Dialek Telecom)
to acquire certain assets and liabilities from this entity. This transaction
will assist the Company in achieving profitability in the future.
 
 The
Company’s management has made strides in the past year however the continued
losses and working capital deficiency continue to raise substantial doubt about
the Company’s ability to continue as a going concern for a reasonable
period.
 
 Three and Six Months
Ended March  31, 2008 Compared to Three and Six Months Ended March 31,
2007
 
 The
Company's condensed consolidated balance sheet as of the three months ended
March 31, 2008, had assets consisting of accounts receivable in the amount of
$163,131, inventory of $10,014 and prepaid expenses of $114,315, fixed assets of
$22,535 and $35,264 in cash. The Company has expended its cash in furtherance of
its business plan, including expenditure of funds to pay legal and accounting
expenses. Consequently, the Company's condensed consolidated balance sheet as of
the period ended March 31, 2008 reflects an accumulated deficit of ($1,638,650)
and a stockholders' deficit of ($739,818).
 
 The
Company recorded sales of $481,863 for the six months ended March 31, 2008 as
compared to $290,515 for the six months ended March 31, 2007.  The Company
recorded sales of $291,895 for the three months ended March 31, 2008 as compared
to $161,281 for the three months ended March 31, 2007.   The
increase in sales is primarily due to the acquisition of the customer base of
Dialek Telecom.
 
 The
Company's cost of sales were $289,572 for the six months ended March 31, 2008 as
compared to $178,221 for the six months ended March 31, 2007, primarily as a
consequence of increased sales, as well as a decrease in the cost of purchasing
inventory. We have moved to outsourced fulfillment and provisioning of our
device hardware and therefore stock inventory on an as needed basis in order to
fulfill our re-seller demand.  The Company's cost of sales were
$178,221 for the three months ended March 31, 2008 as compared to $124,077 for
the three months ended March 31, 2007.
 
 The
Company's aggregate operating expenses were $234,632 for the six months ended
March 31, 2008 as compared to $199,390 for the six months ended March 31,
2007.  In particular, there was a decrease in Selling and Promotion
expenses from $6,714 to $2,742 as the company decreased its sales travel to
markets outside of the city of Montreal, Canada as well as having a lower
requirement for sales and promotion expenses as the company focuses on
converting customers acquired through Dialek Telecom to their VoIP services.
Administrative wages and Professional and consulting fees were grouped as the
company moved to outsource its development costs in order to reduce
salaries.  Likewise, there was an increase in professional fees
associated with its initial public offering prospectus.  The net
result was an increase in Professional and consulting fees from $24,291 to
$157,583 for the six months ended March 31, 2008.   There was a
slight decrease in General and Administrative Expenses from $22,795 to
$22,417.  There was slight increase in Depreciation Expenses from
$37,939 to $40,423 attributed to the Company not requiring additional equipment
acquisitions during the period.
 
 The
Company had a net loss for the six months ended March 31, 2008 of $73,246 as
compared to a net loss of $127,394 for the six months ended March 31,
2007.  The Company had a net loss of $24,708 compared with $73,810 for
the three months ending March 31, 2008 and March 31, 2007
respectively.  The reduction of the loss over the comparative periods
are primarily due to the acquisition of the customer base of Dialek Telecom, as
well as further reduction of costs attributed to our telecommunications network
and our operating expenses along with an increase in sales in our domestic
market.
  15
 
 Plan of Operations and Need
for Additional Financing
 
 The
Company's plan of operations for most of 2008 is to build a subscriber base of
both residential and business customers who purchase telecommunications services
on a monthly basis, as well as wholesale technology and telecommunications
solutions to Tier 1 & Tier 2 telecommunications companies and international
reseller partners.
 
 The
Company will require additional capital in order to pay the costs associated
with developing its business plan. Even though we have secured adequate funding,
no assurances can be provided that our business activities will generate
sufficient revenues which may result in net profits for the Company. Our
auditors have raised substantial doubt as to our ability to continue as a going
concern. The financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
 
 ACCOUNTING
POLICIES SUBJECT TO ESTIMATION AND JUDGMENT
 
 Management's
Discussion and Analysis of Financial Condition and Results of Operations are
based upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
When preparing our financial statements, we make estimates and judgments that
affect the reported amounts on our balance sheets and income statements, and our
related disclosure about contingent assets and liabilities. We continually
evaluate our estimates, including those related to revenue, allowance for
doubtful accounts, reserves for income taxes, and litigation. We base our
estimates on historical experience and on various other assumptions, which we
believe to be reasonable in order to form the basis for making judgments about
the carrying values of assets and liabilities that are not readily ascertained
from other sources. Actual results may deviate from these estimates if
alternative assumptions or condition are used.
 
 USE
OF ESTIMATES
 
 The
preparation of 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 disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. On an on-going basis, the Company evaluates its
estimates, including, but not limited to, those related to investment tax
credits, bad debts, income taxes and contingencies. The Company bases its
estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying value of assets and liabilities
that are not readily apparent from other sources. Actual results could differ
from those estimates.
 
 INVENTORIES
 
 Inventories
are stated at the lower of cost to purchase and/or manufacture the inventory or
the current estimated market value of the inventory. We regularly review our
inventory quantities on hand and record a provision for excess and obsolete
inventory based primarily on our estimated forecast of product demand and/or our
ability to sell the products and production requirements. Demand for the our
products can fluctuate significantly. Factors which could affect demand for our
products include unanticipated changes in consumer preferences, general market
conditions or other factors, which may result in cancellations of advance orders
or a reduction in the rate of reorders placed by customers and/or continued
weakening of economic conditions. Additionally, our estimates of future product
demand may be inaccurate, which could result in an understated or overstated
provision required for excess and obsolete inventory. Our estimates are based
upon our understanding of historical relationships which can change at
anytime.
 
 CURRENCY
TRANSLATION
 
 For
subsidiaries outside the United States that prepare financial statements in
currencies other than the U.S. dollar, the Company translates income and expense
amounts at average exchange rates for the year, translates assets and
liabilities at year-end exchange rates and equity at historical rates. The
Company records these translation adjustments as accumulated other comprehensive
income (loss). Gains and losses from foreign currency transactions are included
in other income (expense) in the results of operations.
  16
 
 RESEARCH
AND DEVELOPMENT
 
 The
Company annually incurs costs on activities that relate to research and
development of new products. Research and development costs are expensed as
incurred. Certain of these costs are reduced by government grants and investment
tax credits where applicable.
 
 INCOME
TAXES
 
 The
Company accounts for income taxes utilizing the liability method of accounting.
Under the liability method, deferred taxes are determined based on differences
between financial statement and tax bases of assets and liabilities at enacted
tax rates in effect in years in which differences are expected to reverse.
Valuation allowances are established, when necessary, to reduce deferred tax
assets to amounts that are expected to be realized.
 
 STOCK-BASED
COMPENSATION
 
 The
Company measures compensation expense for its employee stock-based compensation
using the intrinsic-value method. Under the intrinsic-value method of accounting
for stock-based compensation, when the exercise price of options granted to
employees and common stock issuances are less than the estimated fair value of
the underlying stock on the date of grant, deferred compensation is recognized
and is amortized to compensation expense over the applicable vesting period. In
each of the periods presented, the vesting period was the period in which the
options were granted. All options were expensed to compensation in the period
granted rather than the exercise date.
 
 SEGMENT
INFORMATION
 
 The
Company follows the provisions of SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information". This standard requires that companies
disclose operating segments based on the manner in which management
disaggregates the Company in making internal operating decisions. Despite the
Company's subsidiary, Teliphone, Inc. incurring sales of hardware components for
the VoiP service as well as the service itself, the hardware sales are only
necessary to receive the service. The Company does not consider this a separate
segment of their business. In less than 5% of the cases is Teliphone, Inc.
selling hardware without service or service without the hardware, therefore has
not segregated their business.
  Off-balance
sheet arrangements
  We have
no off-balance sheet arrangements including arrangements that would effect our
liquidity, capital resources, market risk support and credit risk support or
other benefits.
  RECENT
ACCOUNTING PRONOUNCEMENTS
 
 In
November 2004, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 151 "Inventory Costs -
an amendment of ARB No. 43, Chapter 4" ("SFAS 151"). This statement amends the
guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify the
accounting for abnormal amounts of idle facility expense, freight, handling
costs, and wasted material (spoilage). SFAS 151 requires that those items be
recognized as current-period charges. In addition, this Statement requires that
allocation of fixed production overheads to costs of conversion be based upon
the normal capacity of the production facilities. The provisions of SFAS 151 are
effective for fiscal years beginning after June 15, 2005. As such, the Company
is required to adopt these provisions at the beginning of the fiscal year ended
March 31, 2007. The Company has adopted SFAS 151 and believes that
the  impact on its consolidated financial statements is immaterial for
the quarter ended June 30, 2006.
  17
 
 In
December 2004, the FASB issued SFAS No. 153, "Exchanges of Nonmonetary Assets -
- an amendment of APB Opinion No. 29" ("SFAS 153"). SFAS 153 replaces the
exception from fair value measurement in APB Opinion No. 29 for nonmonetary
exchanges of similar productive assets with a general exception from fair value
measurement for exchanges of nonmonetary assets that do not have commercial
substance. A nonmonetary exchange has commercial substance if the future cash
flows of the entity are expected to change significantly as a result of the
exchange. SFAS 153 is effective for fiscal years beginning after June 15, 2005.
As such, the Company is required to adopt these provisions at the beginning of
the fiscal year ended March 31, 2007. The Company has adopted SFAS 153 and
believes that the impact on its consolidated financial statements is immaterial
for the current quarter.
  Item
3. Controls and Procedures
  Evaluation of Disclosure Controls and Procedures
  As of the
end of the period covered by this report, we carried out an evaluation, under
the supervision and with the participation of our management, including our
Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures, as defined in
Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 as of the
end of the period covered by this report. Based on that evaluation, our Chief
Executive Officer and Chief Financial Officer have concluded that our disclosure
controls and procedures as of December 31, 2007 were effective to ensure that
information required tobe disclosed by us in reports that we file or
submit under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commission’s rules and forms.  Management, however, has
identified certain limitations in specific critical controls in their
accounting system which are increasingly resulting in lengthier time lapses
required in order for the company to accurately disclose its financial
statements.  In particular, these lengthier time lapses occur for the
following reasons:
  ·
              Lack
      of dedicated resources to track and keep records of supplier invoices on a
      daily basis·
              Lack
      of dedicated resources to track and keep records of daily disbursements
      against these invoices
 ·
              Surplus
      accounting entries required to track intercompany expenses, post spin-off
      of the Company from its former parent company·
              Lack
      of a dedicated resource person to oversee daily record
      keeping
  Management
will look to dedicate resources to these tasks in the coming months in order to
accelerate the reporting of our financial statements.  This resource
dedication will result in the Company incurring additional costs which will
affect the Company’s profitability going forward.  The Company's
management anticipates that these costs will be up to $50,000 per year in order
to maintain compliance with timely financial reporting
requirements.
  Changes
in Internal Controls
  There
have been no changes in our internal controls over financial reporting or in
other factors that could materially affect, or are reasonably likely to affect,
our internal controls over financial reporting during the three months ended
December 31, 2007. There have not been any significant changes in the Company’s
critical accounting policies identified since the Company filed its Form 10-KSB
as of September 30, 2007.
  PART II OTHER
INFORMATION
  Item
1.  Legal Proceedings
  There are
no material currently pending legal proceedings to which the Company is a party
and, to the Company's knowledge, no proceedings are contemplated against the
Company.
  18
  Item
2.  Unregistered Sales of Equity Securities and Use of
Proceeds
  The offer
and sale of the securities above were effected in reliance on the exemptions for
sales of securities not involving a public offering, as set forth in Rule 506
promulgated under the Securities Act of 1933, as amended (the "Securities Act")
and in Section 4(2) and Section 4(6) of the Securities Act and/or Rule 506 of
Regulation D.
  The offer
and sale of such shares of our common stock were effected in reliance on the
exemptions for sales of securities not involving a public offering, as set forth
in Rule 504 and 506 promulgated under the Securities Act and in Section 4(2) and
in reliance upon Regulation S of the Securities Act, based on the following: (a)
the investors confirmed to us that they were "accredited investors," as defined
in Rule 501 of Regulation D promulgated under the Securities Act and had such
background, education and experience in financial and business matters as to be
able to evaluate the merits and risks of an investment in the securities; (b)
there was no public offering or general solicitation with respect to the
offering; (c) the investors were provided with certain disclosure materials and
all other information requested with respect to our company; (d) the investors
acknowledged that all securities being purchased were "restricted securities"
for purposes of the Securities Act, and agreed to transfer such securities only
in a transaction registered under the Securities Act or exempt from registration
under the Securities Act; and (e) a legend was placed on the certificates
representing each such security stating that it was restricted and could only be
transferred if subsequent registered under the Securities Act or transferred in
a transaction exempt from registration under the Securities Act.
 
 Item
3.  Defaults upon Senior Securities
 
 There
were no defaults upon senior securities during the period ended March 31,
2008.
  Item
4.  Submission of Matters to a Vote of Security Holders
 
 There
were no matters submitted to the vote of securities holders during the quarter
ended March 31, 2008.
 
 Item
5.  Other Information
  There is
no information with respect to which information is not otherwise called for by
this form.
  Item
6.  Exhibits
  A.
Exhibits:
 
 31.1
              Certification
      pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act
      of 1934, as amended.
 
 31.2
              Certification
      pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act
      of 1934, as amended.
 
 32.1
              Certification
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002.
 
 32.2
              Certification
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002.
  19
  SIGNATURES
 
 Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934 the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
  Teliphone
      Corp.
                a
      Nevada CorporationDate: May16,2008
              By:
              /s/ George
      MetrakosName:
      George MetrakosTitle:
      Chief Executive Officer
 
 Date: May16, 2008
              By:
              /s/ George
      MetrakosName:
      George MetrakosTitle:
      Principal Accounting Officer
    20