UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





FORM 10-Q


(Mark One)


x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934





FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2010





OR





 ̈
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934





Commission file number: 000-28793





TELIPHONE CORP.


(Exact name of Registrant as specified in its charter)





Nevada

30-0651002(State or jurisdiction of

Incorporation or organization)

(IRS Employer

ID Number)





424 St-François-Xavier Street, Montreal, Quebec, Canada H2Y 2S9


(Address of principal executive offices) (Zip Code)





Registrant’s telephone number, including area code: 514-313-6000






Indicate by check mark whether the issuer (1) has 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 (2) has been subject to such filing requirements for the past 90 days. xYes oNo





Indicate by check mark whether the registrant is a large accelerated file, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.





Large accelerated filer
o

Accelerated filer
oNon-accelerated filer
o
(Do not check if a smaller reporting company)
Smaller reporting company
x





Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). oYes xNo




APPLICABLE ONLY TO CORPORATE ISSUERS





State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practical date. As of February 21, 2011, there were 37,556,657 shares of the issuer's $.001 par value common stock issued and outstanding.











TABLE OF CONTENTS





PagePART I - FINANCIAL INFORMATIONItem 1.
Financial Statements.
1Item 2.
Management Discussion and Analysis of Financial Condition and Results of Operations
33Item 4.
Control and Procedures
44PART II – OTHER INFORMATIONItem 1.
Legal Proceedings
44Item 1A.
Risk Factors
45Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
45Item 3.
Defaults its Upon Senior Securities
45Item 4.
(Removed and Reserved)
45Item 5.
Other Information
45Item 6.
Exhibits
45Signatures
46








TELIPHONE CORP.
 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE MONTHS ENDED DECEMBER 31, 2010 AND 2009
 
 1
 
 INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 
 Condensed Consolidated Balance Sheets as of December 31, 2010 (unaudited) and September 30, 2010
 
 Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)for the three months ended December 31,  2010 and 2009 (unaudited)
 
 Condensed Consolidated Statements of Cash Flows for the three months ended December 31, 2010 and 2009 (unaudited)
 
 Notes to Condensed Consolidated Financial Statements (unaudited)




2




TELIPHONE CORP.CONDENSED CONSOLIDATED BALANCE SHEETSDECEMBER 31, 2010 AND SEPTEMBER 30, 2010ASSETSUS $DECEMBER 31,


SEPTEMBER 30,2010


2010(UNAUDITED)Current Assets:Cash and cash equivalents

$
-


$
-Accounts receivable, net


210,424



405,965Inventory


13,281



12,225Prepaid expenses and other current assets


231,723



223,690Total Current Assets


455,428



641,880Fixed assets, net of depreciation


561,051



186,992Goodwill


563,613



544,385TOTAL ASSETS

$
1,580,092


$
1,373,257LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)LIABILITIESCurrent Liabilities:Bank overdraft

$
520,019


$
433,035Deferred revenue


3,195



3,409Current portion of related party convertible debentures


60,326



58,309Current portion of non related party loans


187,711



178,654Current portion of related party loans


1,926



8,000Current portion of obligations under capital lease


23,695



13,165Liability for stock to be issued


19,868



19,868Accounts payable and accrued expenses


838,778



657,196Total Current Liabilities


1,655,518



1,371,636Long Term Liabilities:Obligations under capital lease, net of current portion


15,150



10,971Non related party loans, net of current portion


320,133



355,517Related party loans, net of current portion


70,828



70,828TOTAL LIABILITIES


2,061,629



1,808,952STOCKHOLDERS' EQUITY (DEFICIT)Common stock, $.001 Par Value; 125,000,000 shares authorizedand 37,556,657 shares issued and outstanding


37,557



37,557Additional paid-in capital


1,870,191



1,870,191Accumulated deficit


(2,257,429
)


(2,240,750
)Accumulated other comprehensive income (loss)


(143,880
)


(128,624
)Total Teliphone Corp. Stockholders' Equity (Deficit)


(493,561
)


(461,626
)Noncontrolling interest


12,023



25,931Total Stockholders' Equity (Deficit)


(481,538
)


(435,695
)TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

$
1,580,092


$
1,373,257





3





TELIPHONE CORP.CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)FOR THE THREE MONTHS ENDED DECEMBER 31, 2010 AND 2009(UNAUDITED)US$THREE MONTHS ENDEDDECEMBER 31,2010


2009OPERATING REVENUESRevenues

$
1,039,858


$
1,394,535COST OF REVENUESInventory, beginning of period


12,225



11,819Purchases and cost of services


748,098



848,979Inventory, end of period


(13,281
)


(11,204
)Total Cost of Revenues


747,042



849,594GROSS PROFIT


292,816



544,941OPERATING EXPENSESSelling and promotion


10,713



9,133Administrative wages


153,243



216,798Professional and consulting fees


78,170



225,813Other general and administrative expenses


47,071



52,201Depreciation


22,708



2,789Total Operating Expenses


311,905



506,734NET INCOME (LOSS) BEFORE OTHERINCOME (EXPENSE)


(19,089
)


38,207OTHER INCOME (EXPENSE)Forgiveness of debt


-



114,805Interest expense


(11,498
)


(2,339
)Total Other Income (Expense)


(11,498
)


112,466NET INCOME (LOSS) BEFORE PROVISION FORINCOME TAXES


(30,587
)


150,673Provision for Income Taxes


-



-NET INCOME (LOSS)


(30,587
)


150,673Less: Net earnings attributable to noncontrolling interest


13,908



(6,866
)NET INCOME (LOSS) APPLICABLE TO COMMON SHARES

$
(16,679
)

$
143,807NET INCOME (LOSS) PER BASIC AND DILUTED SHARES

$
(0.00
)

$
0.00WEIGHTED AVERAGE NUMBER OF COMMONSHARES OUTSTANDING


37,556,657



37,376,657COMPREHENSIVE INCOME (LOSS)Net Income (loss)

$
(16,679
)

$
143,807Other comprehensive income (loss)Currency translation adjustments


(15,256
)


(2,027
)Comprehensive income (loss)

$
(31,935
)

$
141,780




4




TELIPHONE CORP.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWSFOR THE THREE MONTHS ENDED DECEMBER 31, 2010 AND 2009(UNAUDITED)US$THREE MONTHS ENDEDDECEMBER 31,2010


2009CASH FLOWS FROM OPERATING ACTIVITIESNet income (loss)

$
(16,679
)

$
143,807Adjustments to reconcile net income (loss) to net cash provided byused in operating activities:Depreciation


22,708



2,789Noncontrolling interest


(13,908
)


6,866Forgiveness of debt


-



(114,809
)Changes in assets and liabilities(Increase) in accounts receivable


209,880



(41,475
)(Increase) decrease in inventory


(624
)


836(Increase) in prepaid expenses and other current assets


(4,272
)


(101,655
)Increase (decrease) in deferred revenues


(334
)


1,589(Decrease) in accounts payable andand accrued expenses


158,799



(142,185
)Total adjustments


372,249



(388,044
)Net cash provided by (used in) operating activities


355,570



(244,237
)CASH FLOWS FROM INVESTING ACTIVITIESAcquisitions of capital assets


(371,744
)


(3,810
)Net cash (used in) investing activities


(371,744
)


(3,810
)CASH FLOWS FROM FINANCING ACTIVITESIncrease in bank overdraft


71,689



266,106Payments of obligations under capital lease


(4,977
)


-Proceeds from debenture payable


2,017



-Repayment of promissory note


-



(8,563
)Proceeds from loan payable


(45,269
)


-Proceeds from loan payable - related parties, net


(6,827
)


-Net cash provided by financing activities


16,633



257,543Effect of foreign currencies


(459
)


(9,496
)NET INCREASE (DECREASE) INCASH AND CASH EQUIVALENTS


-



-CASH AND CASH EQUIVALENTS -BEGINNING OF PERIOD


-



-CASH AND CASH EQUIVALENTS - END OF PERIOD

$
-


$
-CASH PAID DURING THE PERIOD FOR:Interest expense

$
11,498


$
2,339SUPPLEMENTAL NONCASH INFORMATION:Equipment purchased under capital lease

$
18,833


$
-The accompanying notes are an integral part of the condensed consolidated financial statements.




5




TELIPHONE CORP.


CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE MONTHS ENDED DECEMBER 31, 2010 AND 2009 (UNAUDITED)
 
 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-Q 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, 2010 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.
 
 Teliphone Corp. (the “Company”, formerly “OSK Capital II Corp” until it changed its name on August 21, 2006) 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. 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.
 
 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.  In addition to the retail services provided, Teliphone Inc. also sold to wholesalers who re-billed these services to their customers and provided the necessary support to their customers directly.




6




TELIPHONE CORP.
 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE MONTHS ENDED DECEMBER 31, 2010 AND 2009 (UNAUDITED)
 
 NOTE 1-                      ORGANIZATION AND BASIS OF PRESENTATION (CONTINUED)
 
 Teliphone Inc. presently provides its telecommunications services provided over its own network, and also re-sells traditional telecommunications services provided over the network of Major Telecommunications Providers across Canada through a direct sales channel.
 
 Going Concern
  As shown in the accompanying condensed consolidated financial statements the Company has a working capital deficiency of ($1,200,090) as of December 31, 2010, and has an accumulated deficit of ($2,257,429) through December 31, 2010. The Company has streamlined their business, and expanded their services throughout Canada which has generated positive gross margins, however, the Company took a write-down of $337,275 as part of the events of February 2010 related to the cancelation of its agreement with 9191-4200 Quebec Inc. (see Note 10) and wrote off some uncollectible accounts receivable and further their accounts receivable as of September 30, 2010 which also contributed to their losses for that year.  For the current year,the Company continues to look to settle some legal disputes (see Note 7), reduce its operating costs and look to increase revenues in order to achieve net profitability.  The Company has utilized their line of credit limits from the bank and their profits have gone to pay down the payables that exist.
  While the Company has demonstrated that it can become profitable, the recent loss from operations, the existence of the working capital deficiency and the net loss for the past year continues to raise substantial doubt about the Company’s ability to continue as a going concern.
 
 The Company reduced approximately $950,000 of related party debt in February 2009 as this was converted into additional shares of the Company’s stock and $22,500 during the year ended September 30, 2010.
 
 On May 1, 2009, the Company entered into a customer assignment contract with 9191-4200 Quebec Inc. where it began to service the customers of Orion Communications Inc., an Ontario, Canada Company.  The transaction is further detailed in Note 10.
 
 There is still no guarantee that the Company will be able to raise additional capital or generate the increase in revenues to sustain its operations.
 
 7
 
 TELIPHONE CORP.
 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE MONTHS ENDED DECEMBER 31, 2010 AND 2009 (UNAUDITED)
 
 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.
 
 The Company’s ability to continue as a going concern for a reasonable period is dependent upon management’s ability to raise additional interim capital.  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.
 
 Effective July 1, 2009, the Company adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 105-10, Generally Accepted Accounting Principles – Overall (“ASC 105-10”). ASC 105-10 establishes the FASB Accounting Standards Codification (the “Codification”) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with U.S. GAAP. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative U.S. GAAP for SEC registrants. All guidance contained in the Codification carries an equal level of authority. The Codification superseded all existing non-SEC accounting and reporting standards.
 
 All other non-grandfathered, non-SEC accounting literature not included in the Codification is non-authoritative. The FASB will not issue new standards in the form of Statements, FASB Positions or Emerging Issue Task Force Abstracts. Instead, it will issue Accounting Standards Updates (“ASUs”).
 
 The FASB will not consider ASUs as authoritative in their own right. ASUs will serve only to update the Codification, provide background information about the guidance and provide the bases for conclusions on the change(s) in the Codification. References made to FASB guidance throughout this document have been updated for the Codification.
  8
 
 TELIPHONE CORP.
 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE MONTHS ENDED DECEMBER 31, 2010 AND 2009 (UNAUDITED)
 
 NOTE 2-                      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 Principles of Consolidation
 
 The condensed consolidated financial statements include the accounts of the Company and its 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.
 
 The Company has available CDN$323,000 in line of credits from the bank. Therefore, the Company can exceed their cash in bank by this amount. The $323,000 CD$ in line of credits is comprised of personal guarantees to the bank from two shareholders. The bank indebtedness relates to the overdraft of the Company’s cash. The Company as of December 31, 2010 has approximately $197,000 overdrawn.
 
 Comprehensive Income
 
 The Company adopted ASC 220-10, “Reporting Comprehensive Income,” (formerly SFAS No. 130). ASC 220-10 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.
  9
 
 TELIPHONE CORP.
 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE MONTHS ENDED DECEMBER 31, 2010 AND 2009 (UNAUDITED)
 
 NOTE 2-                      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(CONTINUED)
 
 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.
 
 Fair Value of 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.
 
 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 month, translates assets and liabilities at year-end exchange rates and equity at historical rates. The Company’s functional currency is the Canadian dollar, while the Company reports its currency in the US dollar. 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.
  Research and Development
 
 The Company occasionally 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 consist of telecommunications services (voice, data and long distance), customer equipment (which enables the Company's telephony services), consulting services and shipping revenue. The point in time at which revenue is recognized is determined in accordance with Revenue Recognition under ASC 605-50, Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor's Products) ("ASC 605-50"), and ASC 605-25, "Revenue Arrangements with Multiple Deliverables" (“ASC 605-25”). When the Company emerged from the development stage with the acquisition of Teliphone Inc. in 2005, they began to recognize revenue from their Telephony services when they are earned, specifically when all the following conditions are met:
 
 10
 
 TELIPHONE CORP.
 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE MONTHS ENDED DECEMBER 31, 2010 AND 2009 (UNAUDITED)
 
 NOTE 2-                      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(CONTINUED)
 
 Revenue Recognition (continued)
 
 ·
Services are provided or products are delivered to customers
 ·
There is clear evidence that an arrangement exists
 ·
Amounts are fixed or can be determined
 ·
The Company’s ability to collect is reasonably assured.
 
 In particular, the Company recognizes:
 ·
Monthly fees for local, long distance and wireless voice services, as well as data services when we provide the services
 o
“Services over the Company’s network” means that a significant portion of the voice or data passes over the Company’s own data network which it controls and
 o
“Services resold from Major Provider’s networks” means that the Company re-sells the services purchased from a Major Provider to its customer, and hence does not control the voice or data flow (represents majority of the Company’s revenues)
 ·
Consulting fees which the Company earns when it sells hourly consulting services.
 o
Consulting services are typically computer software development related, along with any administrative services that occur in the management of those resources (such as project management, accounting, administrative support, etc)
 ·
Other fees, such as network access fees, license fees, hosting fees, maintenance fees and standby fees, over the term of the contract
 ·
Subscriber revenues when customers receive the service
 ·
Revenues from the sale of equipment when the equipment is delivered and accepted by customers
 
 Revenues exclude sales taxes and other taxes we collect from our customers.
 
 Multiple-Element Arrangements
 
 We enter into arrangements that may include the sale of a number of products and services, notably in sales of voice services over our own network.  In all such cases, we separately account for each product or service according to the methods previously described when the following three conditions are met:
  11
 
 TELIPHONE CORP.
 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE MONTHS ENDED DECEMBER 31, 2010 AND 2009 (UNAUDITED)
 
 NOTE 2-                      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(CONTINUED)
 
 Revenue Recognition (continued)
 
 ·
The product or service has value to our customer on a stand-alone basis
 ·
here is objective and reliable evidence of the fair value of any undelivered product or service
 ·
if the sale includes a general right of return relating to a delivered product or service, the delivery or performance of any undelivered product or service is probable and substantially in our control.
 ·
If there is objective and reliable evidence of fair value for all products and services in a sale, the total price to the customer is allocated to each product and service based on its relative fair value. Otherwise, we first allocate a portion of the total price to any undelivered products and services based on their fair value and the remainder to the products and services that have been delivered.
 ·
If the conditions to account separately for each product or service are not met, we recognize revenue pro rata over the term of the customer agreement.
 
 Resellers
 
 We may enter into arrangements with resellers who provide services to our customers. When we act as the principal in these arrangements, we recognize revenue based on the amounts billed to our customers. Otherwise, we recognize as revenue the net amount that we retain.
 
 Sales Returns
 
 We accrue an estimated amount for sales returns, based on our past experience, when revenue is recognized.
 
 Deferred Revenues
 
 We record payments we receive in advance, including upfront non-refundable payments, as deferred revenues until we provide the service or deliver the product to customers. Deferred revenues also include amounts billed under multiple-element sales contracts where the conditions to account separately for each product or service sold have not been met.
  12


TELIPHONE CORP.
 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE MONTHS ENDED DECEMBER 31, 2010 AND 2009 (UNAUDITED)
 
 NOTE 2-                      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(CONTINUED)
 
 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 $47,162 at December 31, 2010.
 
 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.
 
 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 not estimated any amounts for incoming tax credits as of December 31, 2010.
  13
  TELIPHONE CORP.
 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE MONTHS ENDED DECEMBER 31, 2010 AND 2009 (UNAUDITED)
 
 NOTE 2-                      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(CONTINUED)
 
 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.
 
 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 three months ended December 31, 2010 and 2009 are included in selling and promotion 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.
  14
 TELIPHONE CORP.
 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE MONTHS ENDED DECEMBER 31, 2010 AND 2009 (UNAUDITED)
 
 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. During the year ended September 30, 2010, the Company impaired $337,275 of Goodwill (see Note 10).
  Earnings (Loss) Per Share of Common Stock
 
 Basic net income (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:
  December 31,


December 31,2010


2009Net income (loss)

$
(16,679
)

$
143,807Weighted-average common stockOutstanding (Basic)


37,556,657



37,376,657Weighted-average common stockEquivalentsStock Options


-



-Warrants


-



-Weighted-average common stockOutstanding (Diluted)


37,556,657



37,376,657




15
 TELIPHONE CORP.
 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE MONTHS ENDED DECEMBER 31, 2010 AND 2009 (UNAUDITED)
 
 NOTE 2-                      SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(CONTINUED)
 
 Earnings (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 when the Company reported a loss because inclusion would have been antidilutive.
 
 Stock-Based Compensation
 
 In 2006, the Company adopted the provisions of ASC 718-10 “Share Based Payments” for its year ended September 30, 2008. The adoption of this principle had no effect on the Company’s operations.
 
 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. Stock-based compensation expense for all awards granted after January 1, 2006 is based on the grant-date fair values. 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.
 
 The Company measures compensation expense for its non-employee stock-based compensation under ASC 505-50, “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 ASC 280-10, “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.
  16
  TELIPHONE CORP.
 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE MONTHS ENDED DECEMBER 31, 2010 AND 2009 (UNAUDITED)
 
 NOTE 2-
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(CONTINUED)
 
 Reclassifications
 
 The Company has reclassified certain amounts in their condensed consolidated statement of operations for the three months ended December 31, 2009 to conform with the December 31, 2010 presentation. These reclassifications had no effect on the net income for the three months ended December 31, 2009.
 
 Uncertainty in Income Taxes
 
 The Company follows ASC 740-10, “Accounting for Uncertainty in Income Taxes” (“ASC 740-10”). This interpretation requires recognition and measurement of uncertain income tax positions using a “more-likely-than-not” approach. ASC 740-10 is effective for fiscal years beginning after December 15, 2006. Management has adopted ASC 740-10 for 2009, and they evaluate their tax positions on an annual basis, and has determined that as of December 31, 2010, no additional accrual for income taxes other than the federal and state provisions and related interest and estimated penalty accruals is not considered necessary.
 
 Noncontrolling Interests
 
 In accordance with ASC 810-10-45, Noncontrolling Interests in Consolidated Financial Statements,the Company classifies controlling interests as a component of equity within the condensed consolidated balance sheets. The Company has retroactively applied the provisions in ASC 810-10-45 to the financial information for the three months endedDecember 31, 2010. For the three months ended December 31, 2010, net income attributable to noncontrolling interests of $13,908, is included in the Company’s net income.
 
 Recent Accounting Pronouncements
 
 In September 2006, ASC issued 820, Fair Value Measurements. ASC 820 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 ASC 820 is not expected to have a material impact on the financial statements.
  17
 
 TELIPHONE CORP.
 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE MONTHS ENDED DECEMBER 31, 2010 AND 2009 (UNAUDITED)
 
 NOTE 2-
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(CONTINUED)
 
 Recent Accounting Pronouncements (Continued)
 
 In February 2007, ASC issued 825-10, The Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment of ASC 320-10, (“ASC 825-10”) 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. ASC 825-10 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 Company adopted ASC 805,Business Combinations (“ASC 805”). ASC 805 retains the fundamental requirements that the acquisition method of accounting be used for all business combinations and for an acquirer to be identified for each business combination. ASC 805 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.  ASC 805 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.  ASC 805 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.
 
 ASC 805 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, ASC 805 will require an entity to recognize contingent consideration at the date of acquisition, based on the fair value at that date.  This will be effective for business combinations completed on or after the first annual reporting period beginning on or after December 15, 2008.  Early adoption is not permitted and the ASC is to be applied prospectively only.  Upon adoption of this ASC, there would be no impact to the Company’s results of operations and financial condition for acquisitions previously completed.  The adoption of ASC 805 is not expected to have a material effect on the Company’s financial position, results of operations or cash flows.
 
 In March 2008, ASC issued ASC 815, Disclosures about Derivative Instruments and Hedging Activities”, (“ASC 815”). ASC 815 requires enhanced disclosures about an entity’s derivative and hedging activities. These enhanced disclosures will discuss: how and why an entity uses derivative instruments; how derivative instruments and related hedged items are accounted for and its related interpretations; and how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. ASC 815 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The Company does not believe that ASC 815 will have an impact on their results of operations or financial position.
  18
 
 TELIPHONE CORP.
 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE MONTHS ENDED DECEMBER 31, 2010 AND 2009 (UNAUDITED)
 
 NOTE 2-
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(CONTINUED)
 
 Recent Accounting Pronouncements (Continued)
 
 In April 2008, ASC 350-30 was issued, “Determination of the Useful Life of Intangible Assets”. The Company was required to adopt ASC 350-30 on October 1, 2008. The guidance in ASC 350-30 for determining the useful life of a recognized intangible asset shall be applied prospectively to intangible assets acquired after adoption, and the disclosure requirements shall be applied prospectively to all intangible assets recognized as of, and subsequent to, adoption. The Company does not believe ASC 350-30 will materially impact their financial position, results of operations or cash flows.
 
 In May 2008, ASC 470-20 was issued, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)” (“ASC 470-20”). ASC 470-20 requires the issuer of certain convertible debt instruments that may be settled in cash (or other assets) on conversion to separately account for the liability (debt) and equity (conversion option) components of the instrument in a manner that reflects the issuer’s non-convertible debt borrowing rate. ASC 470-20 is effective for fiscal years beginning after December 15, 2008 on a retroactive basis. The Company does not believe that the adoption of ASC 470-20 will have a material effect on its financial position, results of operations or cash flows.
 
 In June 2008, ASC 815-40 was issued, “Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock” (“ASC 815-40”), which supersedes the definition in ASC 605-50 for periods beginning after December 15, 2008. The objective of ASC 815-40 is to provide guidance for determining whether an equity-linked financial instrument (or embedded feature) is indexed to an entity’s own stock and it applies to any freestanding financial instrument or embedded feature that has all the characteristics of a derivative in accordance with ASC 815-20.
 
 ASC 815-40 also applies to any freestanding financial instrument that is potentially settled in an entity’s own stock. The Company believes that ASC 815-40, will not have a material impact on their financial position, results of operations and cash flows.
 
 In June 2008, ASC 470-20-65 was issued, Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios (“ASC 470-20-65”). ASC 470-20-65 is effective for years ending after December 15, 2008. The overall objective of ASC 470-20-65 is to provide for consistency in application of all the standards issued for convertible securities. The Company has computed and recorded a beneficial conversion feature in connection with certain of their prior financing arrangements and does not believe that ASC 470-20-65 will have a material effect on that accounting.
 
 19
 
 TELIPHONE CORP.
 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE MONTHS ENDED DECEMBER 31, 2010 AND 2009 (UNAUDITED)
 
 NOTE 2-
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(CONTINUED)
 
 Recent Accounting Pronouncements (Continued)
 
 Effective April 1, 2009, the Company adopted ASC 855, Subsequent Events (“ASC 855”). ASC 855 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. It requires disclosure of the date through which an entity has evaluated subsequent events and the basis for that date – that is, whether that date represents the date the financial statements were issued or were available to be issued. This disclosure should alert all users of financial statements that an entity has not evaluated subsequent events after that date in the set of financial statements being presented. Adoption of ASC 855 did not have a material impact on the Company’s results of operations or financial condition.
 
 Effective July 1, 2009, the Company adopted FASB ASU No. 2009-05, Fair Value Measurement and Disclosures (Topic 820) (“ASU 2009-05”). ASU 2009-05 provided amendments to ASC 820-10, Fair Value Measurements and Disclosures – Overall, for the fair value measurement of liabilities. ASU 2009-05 provides clarification that in circumstances in which a quoted market price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using certain techniques. ASU 2009-05 also clarifies that when estimating the fair value of a liability, a reporting entity is not required to include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the transfer of a liability. ASU 2009-05 also clarifies that both a quoted price in an active market for the identical liability at the measurement date and the quoted price for the identical liability when traded as an asset in an active market when no adjustments to the quoted price of the asset are required for Level 1 fair value measurements. Adoption of ASU 2009-05 did not have a material impact on the Company’s results of operations or financial condition.
 
 In January 2010, the Company adopted FASB ASU No. 2010-06, Fair Value Measurement and Disclosures (Topic 820)- Improving Disclosures about Fair Value Measurements(“ASU 2010-06”). These standards require new disclosures on the amount and reason for transfers in and out of Level 1 and 2 fair value measurements. The standards also require new disclosures of activities, including purchases, sales, issuances, and settlements within the Level 3 fair value measurements. The standard also clarifies existing disclosure requirements on levels of disaggregation and disclosures about inputs and valuation techniques. These new disclosures are effective beginning with the first interim filing in 2010. The disclosures about the rollforward of information in Level 3 are required for the Company with its first interim filing in 2011. The Company does not believe this standard will impact their financial statements.
 
 20
 
 TELIPHONE CORP.
 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE MONTHS ENDED DECEMBER 31, 2010 AND 2009 (UNAUDITED)
 
 NOTE 2-
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(CONTINUED)
 
 Recent Accounting Pronouncements (Continued)
 
 In February 2010, the FASB issued ASU 2010-09, “Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure Requirements”. This update addresses both the interaction of the requirements of Topic 855, “Subsequent Events”, with the SEC’s reporting requirements and the intended breadth of the reissuance disclosures provision related to subsequent events (paragraph 855-10-50-4). The amendments in this update have the potential to change reporting by both private and public entities, however, the nature of the change may vary depending on facts and circumstances. Adoption of ASU 2010-09 did not have a material impact on the Company’s consolidated results of operations or financial condition.
 
 Other ASU’s that have been issued or proposed by the FASB ASC that do not require adoption until a future date and are not expected to have a material impact on the financial statements upon adoption.




21




TELIPHONE CORP.
 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE MONTHS ENDED DECEMBER 31, 2010 AND 2009 (UNAUDITED)
 
 NOTE 3-
FIXED ASSETS
 
 Fixed assets as of December 31, 2010 and 2009 were as follows:
 
 Estimated Useful


(unaudited)Lives (Years)


December 31,


September 30,2010


2010Furniture and fixtures


5


$
2,349


$
2,268Computer equipment


3



817,374



412,237819,723



414,505Less: accumulated depreciation






258,672



227,513Property and equipment, net





$
561,051


$
186,992
  There was $22,708and $2,789 charged to operations for depreciation expense for the three months ended December 31, 2010 and 2009, respectively.
  NOTE 4-
RELATED PARTY LOANS
 
 Related Party Credit Facility
 
 On February 26, 2010, the Company’s subsidiary, Teliphone Inc. entered into an Acquisition Line of Credit agreement with a related party to a shareholder of the Company.  The line of credit permits the company to draw up to $1,000,000 for the purposes of business acquisitions in the future.  The loan rate is 5%.  As of December 31, 2010, the Company has not drawn down on any amount of this line of credit.  As a result of the agreement, Teliphone Inc. entered into a General Security Agreement which provides the secured party with first ranked security on all of the assets of Teliphone Inc. for any obligations owed to the secured party in the event of default.
 
 22
 
 TELIPHONE CORP.
 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE MONTHS ENDED DECEMBER 31, 2010 AND 2009 (UNAUDITED)
 
 NOTE 4-
RELATED PARTY LOANS (CONTINUED)
 
 Long Term Related Party Debt
 
 On November 15, 2007, a shareholder of the Company provided a fixed term deposit of $45,000 (US$) with the Company’s bank in order to guarantee an equivalent value operating line of credit for use by the Company.  Until December 31, 2008, the Company provided the shareholder an annual interest rate of 20% payable in common stock of the Company.
 
 On January 29, 2008, a shareholder of the Company provided a fixed term deposit of $30,000 (US$) with the Company’s bank in order to guarantee an equivalent value operating line of credit for use by the Company.
 
 Until December 31, 2008, the Company provided the shareholder an annual interest rate of 20% payable in common stock of the Company.
 
 On December 31, 2008, the Company and the shareholder combined these two figures into a $70,828 loan payable and agreed that the payable would be converted to a long term loan, maturing on December 31, 2013 with interest only payable monthly at an annual rate of 12%.  The Company reserves the right to pay the principal in its entirety at any time without penalty. This amount is outstanding as of December 31, 2010.
 
 The Company has accrued $2,125 in accrued interest on this payable.
 
 Short Term Related Party Debt
 
 As of December 31, 2010, the Company has $2,000 including accrued interest outstanding with shareholders. Interest expense for the three months ended December 31, 2010 was $192. These notes accrue interest at 5% per annum. These related party loans are due on demand and classified as current liabilities on the condensed consolidated balance sheet at December 31,  2010.  On December 31, 2010, the following loans from shareholders remain:
 
 $20,000 loan: Payment was issued for all interest owing up to December 31, 2010 for a total of $192, with no further interest payable  from April 1, 2010 during the repayment period ending January 1, 2011.  As of December 31, 2010 the amount outstanding on this loan $2,000.
 
 In May 2009, the Company entered into a cash advance agreement as part of its agreement for the servicing of the customers of Orion Communications Inc. with 9191-4200 Quebec Inc. (see Note 10) for $5,472.  The amount was non-interest bearing and was fully paid by September 30, 2010.
  23
 
 TELIPHONE CORP.
 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE MONTHS ENDED DECEMBER 31, 2010 AND 2009 (UNAUDITED)
 
 NOTE 4-
RELATED PARTY LOANS (CONTINUED)
  The Company has a liability for stock to be issued on some of these related party debt amounts of $19,868 as of December 31, 2010.
 
 NOTE 5-
PROMISSORY NOTE PAYABLE
 
 The Company entered into a Promissory Note agreement (“Promissory Note”) with Primus Telecommunications Canada Inc. (“Primus”) on April 15, 2009 for a total amount of CDN$40,000, representing the conversion of Primus’ trade payable amount owing into the Promissory Note.  Interest costs had been established at the Bank Prime rate + 2.5%, for a total of 4.25%.  The Company agreed to pay, by way of monthly payments of theprincipal amount outstanding of $3,000 per month commencing on June 1, 2009 and each month thereafter with the final principal balance of $4,000 being paid on June 1, 2010.
 
 NOTE 6-
CONVERTIBLE DEBENTURES
 
 On July 28, 2010, the Company entered into a 5.75% Convertible Debenture (“The Allstream Debenture”) with MTS Allstream, a Telecommunications Service Supplier to the Company’s subsidiary, Teliphone Inc.  The Allstream Debenture has a maturity date of July 28, 2012 and an incurred interest at a rate of 5.75% per annum.  The amount of the debenture is $507,844.  The monthly payment is amortized over a 36 month period for a period of 24 months.  At the 25th month, the balance owing, $198,545 is either payable on demand or can be converted into shares of the common stock of the Company at a price of $0.25 per share.  See NOTE 12, Subsequent Event regarding this debenture.
 
 On February 6, 2009, the Company entered into a 12% Convertible Debenture (the “A Debenture”) with an individual. The A Debenture had a maturity date of February 6, 2010, and incurred interest at a rate of 12% per annum.  On February 6, 2010, the A Debenture was renewed for an additional 12 months at 12% to mature on February 6, 2011.
 
 The A Debenture can either be paid to the holders on February 6, 2011 or converted at the holders’ option any time up to maturity at a conversion price equal to eighty percent (80%) of the average closing price of the common stock as listed on a Principal Market for the five (5) trading days immediately preceding the conversion date. If the common stock is not traded on a Principal Market, the conversion price shall mean the closing bid price as furnished by the National Association of Securities Dealers, Inc.
  24




TELIPHONE CORP.
 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE MONTHS ENDED DECEMBER 31, 2010 AND 2009 (UNAUDITED)
 
 NOTE 6-
CONVERTIBLE DEBENTURES(CONTINUED)
 
 On February 17, 2009, the Company entered into a 12% Convertible Debenture (the “B Debenture”) with an individual. The B Debenture had a maturity date of February 17, 2010, and incurred interest at a rate of 12% per annum.  On February 17, 2010, the B Debenture was renewed for an additional 12 months at 12% to mature on February 17, 2011.
 
 The B Debenture can either be paid to the holders on February 17, 2011 or converted at the holders’ option any time up to maturity at a conversion price equal to eighty percent (80%) of the average closing price of the common stock as listed on a Principal Market for the five (5) trading days immediately preceding the conversion date. If the common stock is not traded on a Principal Market, the conversion price shall mean the closing bid price as furnished by the National Association of Securities Dealers, Inc.
 
 The total amount of the A and B Debentures was $60,326.
 
 The convertible debentures met the definition of hybrid instruments, as defined in ASC 815-10, Accounting for Derivative Instruments and Hedging Activities (ASC 815-10). The hybrid instruments are comprised of a i) a debt instrument, as the host contract and ii) an option to convert the debentures into common stock of the Company, as an embedded derivative. The embedded derivative derives its value based on the underlying fair value of the Company’s common stock. The Embedded Derivative is not clearly and closely related to the underlying host debt instrument since the economic characteristics and risk associated with this derivative are based on the common stock fair value.
 
 The embedded derivative did not qualify as a fair value or cash flow hedge under ASC 815-10.
 
 NOTE 7-
COMMITMENTS / LITIGATION
 
 The Company’s subsidiary Teliphone Inc. had entered into a distribution agreement with one of its distributors in March 2006 for a period of five-years. The distribution agreement stipulated that the Company must pay up to 25% commissions on all new business generated by the distributor. This distributor controlled the areas of Quebec and Ontario in Canada. The agreement was terminated due to a default by the distributor on its terms and conditions.
 
 The default is now in dispute, as the Company received notice on February 11, 2009 from 9164-4898 Quebec Inc (known as “BR Communications Inc.”). The notice claims that the Company owes BR Communications Inc. unpaid commissions totaling CDN$ 158,275.25 ($160,135 US$) based on the Company’s increase in sales due to its Dialek acquisition.
 
 25
 
 TELIPHONE CORP.
 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE MONTHS ENDED DECEMBER 31, 2010 AND 2009 (UNAUDITED)
 
 NOTE 7-                      COMMITMENTS / LITIGATION(CONTINUED)
 
 In the executed agreement with BR Communications Inc, it is specifically stated that sales from Dialek are excluded from the commission calculation due to BR Communications Inc.
 
 The Company evaluated this dispute and filed counterclaims against BR Communications Inc. for lost sales due to BR’s default of their distribution agreement with the Company. BR Communications, Inc. filed a lawsuit against the Company in December of 2009, claiming damages of Cdn$410,255.
 
 On April 30, 2010, BR Communications Inc. amended its statement of claim for a total of Cdn$286,000 for commissions owed to the end of the contract period, February 28, 2011, claiming a disagreement with the Company for the termination of the agreement.
 
 The Company does not believe that the dispute brought on by BR Communications Inc. has any merit, and has not accrued a liability for the amounts BR Communications Inc., claims are due them.
 
 The Company’s subsidiary Teliphone Inc. had entered into a lease agreement for its Montreal, Canada offices, which is set to expire on May 31, 2011. In May 2009, Teliphone Inc. added additional offices to this lease without extending the lease any further, only increasing the monthly rental. On September 13, 2010, the Company terminated that lease early and entered into a new lease at a different location. That lease commences December 1, 2010 through November 30, 2013. The Company anticipates paying approximately $51,000, $52,000 and $54,000 over the next three years on this lease. Rent expense for this lease for the three months ended December 31, 2010 was $4,507.
 
 The Company’s subsidiary Teliphone Inc. has entered into a lease agreement for its Toronto, Canada offices, which is set to expire on August 31, 2014. The Company pays approximately $47,000 (CND$) for the year ending September 30, 2011 and 2012 and $49,000 for the year ending September 30, 2013 and 2014 for an aggregate total of $192,000. Rent expense for this lease for the three months ended December 31, 2010 was $10,938.
 
 The Company’s subsidiary Teliphone Inc. has entered into various lease agreements for computer equipment with Dell Financial Services Canada Limited, both operating and capital leases.  The Company pays approximately $1,500 (CDN$) per month on their operating leases.   The Company’s operating leases are set to expire during the year ended September 30, 2011. All new leases the Company has entered into have been capital leases, see Note 11.
 
 26
 
 TELIPHONE CORP.
 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE MONTHS ENDED DECEMBER 31, 2010 AND 2009 (UNAUDITED)
 
 NOTE 7-                      COMMITMENTS / LITIGATION(CONTINUED)
 
 On April 29, 2009, 9191-4200 Quebec Inc. (“9191”) entered into a purchase agreement with 3 individuals residing in the Province of Ontario, Canada for all of the issued and outstanding shares of Orion Communications Inc. (“Orion”).  On April 30, 2009, Orion, under management of 9191, had executed a services agreement with the Company’s subsidiary, Teliphone Inc. to provide telecommunications services to the customers of Orion.  On January 18, 2010, 9191 filed a Statement of Claim in Superior Court of Justice in the Province of Ontario, Canada for rescission due to overpayment and damages totaling CDN$1,000,000 claiming misrepresentation of financial statements made by the former owners.
 
 As a result of the claim for rescission, the Company’s subsidiary, Teliphone Inc.’s employment agreement with a former owner of Orion was likewise rescinded.
 
 On February 18, 2010, the Former owners of Orion filed their defense and counterclaim against 9191, naming the Company, its subsidiary Teliphone Inc., George Metrakos, the Company’s President and CEO and other individuals as third party claimants for a total of CDN$4,000,000.  The Former Owners of Orion claim that the Company, its subsidiary and President are third party claimants due to its agreements with 9191 to provide services to the clients of Orion.
 
 The Former owners of Orion are also pursuing the Company’s subsidiary Teliphone Inc. for $150,000 for the early termination of the employment agreement.
 
 The Company is currently negotiating potential settlements however, nothing has been formally agreed to at this time. The Company has not accrued any liability as any potential settlement would be for the Company to acquire the customer base. No amounts have been agreed to at this time.
 
 On March 10, 2010, Bank of Montreal (“BMO”), a Canadian financial institution and creditor of Orion has filed a claim against the Company’s subsidiary Teliphone Inc. requesting payment of Orion’s outstanding debt of CDN$778,607.  BMO stands as a secured creditor of Orion based on its issuance of a credit line to Orion in 2007.  BMO claims that as a secured creditor holding a General Security Agreement, it has rights to the receivables of Orion and claims that these receivables are being collected by Teliphone Inc.  Management has attempted to explain to BMO that it is a service provider and hence has a right to collect fees for services provided and as such has began to prepare a defense demonstrating that Teliphone Inc. is providing a paid service to Orion’s clients.
 
 27
 
 TELIPHONE CORP.
 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE MONTHS ENDED DECEMBER 31, 2010 AND 2009 (UNAUDITED)
 
 NOTE 7-                      COMMITMENTS / LITIGATION(CONTINUED)
 
 The Company has not accrued a liability for any amounts of the claims made by BMO on its balance sheet as no settlement has occurred as of yet and counsel cannot estimate any liability if there is a liability at this time.
 
 
 NOTE 8-                      STOCKHOLDERS’ EQUITY (DEFICIT)
 
 Common Stock
 
 As of December, 2010, the Company has 125,000,000 shares of common stock authorized with a par value of $.001.
 
 The Company has 37,556,657 shares issued and outstanding as of December 31, 2010  2009.
 
 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.
  28




TELIPHONE CORP.
 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE MONTHS ENDED DECEMBER 31, 2010 AND 2009 (UNAUDITED)
 
 NOTE 8-                      STOCKHOLDERS’ EQUITY (DEFICIT) (CONTINUED)
 
 Common Stock (Continued)
 
 The Company issued 3,812,633 shares of common stock of the Company in February 2009 as part of the debt conversion agreement with related parties on December 31, 2008. The Company also issued 10,000 shares of stock for services rendered at a value of $.038 per share ($380).
 
 The Company issued 180,000 shares of common stock to convert related party notes in the amount of $22,500 ($0.125 per share) on March 31, 2010.
 
 The Company has issued no shares for the three months ended December 31, 2010.
 
 The Company agreed to issue 489,871 shares on March 31, 2010 as part of an interest payment to shareholders in order to solidify personal guarantees in conjunction with an extension of the Company’s operating line of credit facility with its Bank.  The stock has not been issued, however the Company has booked a liability for stock to be issued of $19,868 as of December 31, 2010.
 
 NOTE 9-                      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 December 31, 2010, deferred tax assets consist of the following:




Net operating losses

$
653,422Valuation allowance


(653,422
)$
-




At December 31, 2010, the Company had a net operating loss carryforward in the approximate amount of $1,921,828, available to offset future taxable income through 2030.  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.
 
 29
 
 TELIPHONE CORP.
 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE MONTHS ENDED DECEMBER 31, 2010 AND 2009 (UNAUDITED)
 
 NOTE 9-
PROVISION FOR INCOME TAXES (CONTINUED)
 
 A reconciliation of the Company’s effective tax rate as a percentage of income before taxes and federal statutory rate for the periods ended December 31, 2010 and 2009 is summarized as follows:
 
 2010


2009Federal statutory rate


(34.0
)%


(34.0
)%State income taxes, net of federal benefits


3.3



3.3Valuation allowance


30.7



30.70
%


0
%
  NOTE 10-
SERVICING CONTRACT FOR THE CUSTOMERS OF ORION COMMUNICATIONS INC.
 
 On May 7, 2009, the Company entered into an assignment agreement with 9191-4200 Quebec Inc. (“9191”) in order to have the customer contracts of Orion Communications Inc., (“Orion”) an Ontario, Canada Company assigned to the Company for its management.  No consideration was paid however the Company and 9191 had agreed to share 50% each of the gross benefits received from the customer base. The consideration would have taken effect upon the customer base achieving $767,840 in profits ($767,840 @ 50% = $393,920, which was the goodwill on the transaction). Upon achievement of this threshold, the Company would have paid 9191 a monthly commission that approximates 50% of the net profit generated by this customer base.
 
 9191 had provided to the Company a cash deposit of CDN$260,000 in order to have the Company facilitate an extension to its line of credit in order to assist with the management of the newly assigned customers.  As of September 30, 2010, the Company had repaid 9191 the entire amount.  The amount was considered as a cash advance and was not interest bearing.
 
 As part of the agreement, the Company was able to utilize the bank accounts of Orion for its daily transactions until the Company can establish its own banking facilities in Ontario.  The following highlights the summary of the amounts from May 1, 2009 to September 30, 2009:
  Opening Balance on May 1, 2009:
CDN

$
628,462Adjustment for payment on 9191 services:
CDN

$
19,248Closing Balance on September 30, 2009:
CDN

$
(696,537
)Balance:
CDN

$
(48,827
)
 
 The $48,827 CD$ represents the net cash paid by the Company in the acquisition of the customer base through December 31, 2010.




30




TELIPHONE CORP.
 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE MONTHS ENDED DECEMBER 31, 2010 AND 2009 (UNAUDITED)
 
 NOTE 10-
SERVICING CONTRACT FOR THE CUSTOMERS OF ORION COMMUNICATIONS INC.(CONTINUED)
 
 As part of the agreement, the Company acquired certain supplier contracts in order to continue delivery of services to the assigned clients.  These suppliers had trade payables totaling CDN$487,046 as of May 1, 2009 and hence these became trade payables of the Company.
 
 As part of the agreement, the Company acquired certain receivables from the customers assigned, totaling CDN$54,299 as of May 1, 2009 and hence these became trade receivables of the Company.
 
 As a result, the following demonstrates the details of the assets and liabilities acquired:
 
 AssetsGoodwill (Difference between Assets and Liabilities acquired)


$327,901Accounts Receivable


$46,686TOTAL ASSETS:


$376,781LiabilitiesCurrent Supplier Payables


$420,191TOTAL LIABILITIES:Net cash paid through September 30, 2009


$45,604
 
 On February 23, 2010, the Company’s agreement of assignment with 9191 was cancelled due to a default of the assignor.  As a result of the default, immediate payment for all amounts owed by 9191 was requested, however 9191 did not comply.  The delivery of services to Orion clients was suspended, and the clients were permitted to request delivery of service directly from the Company.  As a result of the cancellation of the contract, the Company took a write-down (fully impaired) of $337,275 previously listed as Goodwill.
 
 31


TELIPHONE CORP.
 CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE THREE MONTHS ENDED DECEMBER 31, 2010 AND 2009 (UNAUDITED)
 
 NOTE 11-                      OBLIGATIONS UNDER CAPITAL LEASE
 
 The Company leases some of its computer equipment pursuant to capital leases. At December 31, 2010, minimum future annual lease obligations are as follows:
  Year EndingDecember 31, 2011

$
25,741December 31, 2012


17,80343,544Less: Amounts representing interest


(4,699
)Total


38,845Current portion


(23,695
)Long-term portion

$
15,150
  NOTE 12-                      SUBSEQUENT EVENTS
 
 On January 28, 2011, The Company entered into a debt forgiveness agreement with MTS Allstream (the “Agreement”).  The Agreement negates the Company’s Convertible Debenture entered into effect on July 28, 2010 and provides debt forgiveness totaling $292,844 since the Company agreed to a one-time payment of $215,000 against the total amount previously owed of $507,844.  The Company will report this item as debt foregiveness in its statement of operations for the six month period ending March 31, 2011.




32





ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS





PRELIMINARY NOTE REGARDING FORWARD-LOOKING STATEMENTS




This Quarterly Report on Form 10-Q contains forward-looking statements regarding our business, financial condition, results of operations and prospects.  Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates” and similar expressions or variations of such words are intended to identify forward-looking statements, but are not deemed to represent an all-inclusive means of identifying forward-looking statements as denoted in this Quarterly Report on Form 10-Q.  Additionally, statements concerning future matters are forward-looking statements.
 
 Although forward-looking statements in this Quarterly Report on Form 10-Q reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by us. Consequently, forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements.  We caution the reader that numerous important factors, including those factors discussed in our Annual Report on Form 10-K for the fiscal year ended September 30, 2010, which are incorporated herein by reference, could affect our actual results and could cause our actual consolidated results to differ materially from those expressed in any forward-looking statement made by, or on behalf of, the Company.  Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q.  We file reports with the Securities and Exchange Commission (the “SEC” or “Commission”).  You can read and copy any materials we file with the SEC at the SEC's Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. You can obtain additional information about the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.  In addition, the SEC maintains an internet site (www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, including us.
 
 We undertake no obligation to revise or update any forward-looking statements in order to reflect any event or circumstance that may arise after the date of this Quarterly Report on Form 10-Q. Readers are urged to carefully review and consider the various disclosures made throughout the entirety of this Quarterly Report, which attempt to advise interested parties of the risks and factors that may affect our business, financial condition, results of operations and prospects.
 
 As used in this Quarterly Report, the terms “we,” “us,” “our,” and “Teliphone” mean Teliphone Corp. and our subsidiaries unless otherwise indicated.





GENERAL OVERVIEW





BACKGROUND





We are a telecommunications company engaged in the business of providing broadband telephone services utilizing our innovative Voice over Internet Protocol, or VoIP, technology platform.


33





On February 15, 2008, we entered into a letter of intent to acquire certain assets and liabilities of the business operating as "Dialek Telecom" and complemented the offering of voice services over our own network with the resale of voice and data services over the networks of major providers. The Company entered into a definitive agreement with 9191-4200 Quebec Inc., owners of Dialek Telecom, on June 30, 2008  and the transaction was deemed to have an effective date as of February 15, 2008.  As a result of this transaction, we acquired an additional 2,000 customers for telecommunications services in Canada, along with other assets valued at CDN$86,000, 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%.





In June 2008, we commenced trading of our common stock on the OTC Bulletin Board and our common stock is currently quoted on the OTC pink sheets (OTCQB) electronic quotation system under the trading symbol TLPH.





On May 7, 2009, we entered into a customer assignment agreement with the owners of Orion Communications Inc.  As a result of this transaction, we acquired an additional 580 business customers for telecommunications services in Canada, along with other assets valued at CDN$376,781 and liabilities valued at CDN$418,762.  We and the owner of Orion Communications, 9191-4200 Quebec Inc., agreed to a gross benefit sharing arrangement of 50%-50% for any potential future benefits derived from the customer base.





Description of Business





Principal products or services and their markets





We are a telecommunications company engaged in the business of providing broadband telephone services utilizing our innovative Voice over Internet Protocol, ("VoIP") technology platform.  We offer feature-rich, low-cost communications services to our customers, thus providing them what we believe is an experience similar to traditional telephone services at a reduced cost. VoIP means that the technology used to send data over the Internet (example, an e-mail or web site page display) is used to transmit voice as well. The technology is known as packet switching. Instead of establishing a dedicated connection between two devices (computers, telephones, etc.) and sending the message "in one piece," this technology divides the message into smaller fragments, called 'packets'. These packets are transmitted separately over the internet and when they reach the final destination, they are reassembled into the original message.





We have 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 would prohibit a third party from utilizing the same base software languages and same hardware in order to produce similar telephony service offerings adversely impacted our business.





Base software languages are the language building blocks used by programmers to translate the desired logic sequences into a message that the computer can understand and execute.  An example of a logic sequence is “if the user dials “011” before the number, the software should then treat this as an international call and invoice the client accordingly”.  The combination and use of these building blocks is known as "software code”, and hence this combination, created by our programmers, along with “off-the-shelf” computer and telecommunications hardware (i.e. equipment that is readily available by computer, networking and telecommunications companies) is collectively referred to as “our technology and trade secrets”.





Examples of “off-the-shelf” hardware utilized include the desktop phones and handsets, computer servers used to store such things as account information and voice mail, and telecommunications hardware that permit the routing of telephone voice calls between various points across the internet and the world’s Public Switched Telephone Network (PSTN), the global wired and wireless connections between every land and mobile phone.





We can provide no assurance that others will not gain access to our technology. In order to protect this proprietary technology, we enter into non-disclosure and confidentiality agreements and understandings with our employees, consultants, re-sellers, distributors, wholesalers and technology partners. We can provide no assurance 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.




34





We offer the following products and services to customers utilizing our 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 our technology platform. 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 from us various local and long distance calling services.





For residential and business phone services, we, through our subsidiary Teliphone Inc., invoice and collect funds directly from the end-user customer and pay 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 from Teliphone Inc. via our website www.teliphone.us for US customers, www.teliphone.ca for Canadian customers and www.teliphone.in for India customers.





·
We also sell VoIP calling services to wholesalers who re-sell these services to their customers. In this case, our subsidiary Teliphone Inc. provides the services to the end-user customers;, but 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 us directly from the manufacturer and re-sold to the re-sellers and wholesalers. 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.





We do not own or rent any retail space for the purpose of distribution, but instead rely on our re-seller partners to display and promote our products and services within their existing retail stores.





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.





Internet Sales.





We distribute our products through the sale of hardware on our website, www.teliphone.us. The customer purchases the necessary hardware from our on-line catalogue. Upon receipt of the hardware from us, the customer returns to our website to activate their services.




35





Wholesale Sales.





We distribute our products and services through wholesalers. A wholesaler is a business partner who purchases our products and services "unbranded" or on a private label basis 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.





Direct Sales.





We distribute our products and services directly to customers via our own sales force.  We currently employ 2 people in this capacity, providing sales solutions directly to larger business clients throughout Canada.





The agreements between our wholesalers and our customers are similar to those that we have with our retail customers. The wholesalers provide monthly calling services to their customers and invoice them on a monthly basis on their usage. Our form of general conditions for use of our telecommunications products and services is the agreement that we hold with our wholesalers. While product and professional liability cannot be entirely eliminated, the conditions set forth in terms and conditions of sale serve to forewarn wholesalers that should a stoppage of service occur, we cannot be held liable.  Since we do not currently hold product and professional liability insurance coverage, this does not protect us from potential litigation.





Status of any publicly announced new product or service





teliPhone Residential IP-Television services





We are presently launching an internet-based television service for residential clients that will include traditional cable television and network media, as well as a full suite of pay-per-view listings.  The service is currently in beta testing and we have completed the necessary upgrades to our network in order to accommodate these new services.




Results of Operations - Three Months Ended December 31, 2010, Compared to Three Months Ended December 31, 2009





We generate revenues from the sale of telecommunications services to our customers, along with the hardware required for our customers to utilize these services. Our cost of sales includes all of the necessary purchases required for us to deliver these services. This includes the use of broadband internet access required for our servers to be in communication with our customers’ VoIP devices at the customer’s location, our rental of voice channels connected to the Public-Switched-Telephone-Network; that is the traditional phone network which currently links all phone numbers worldwide as well as the cost to purchase the telecommunications services from Major Carriers that we re-sell to our customers.





For the three month period ended December 31, 2010, we recorded sales of $1,039,858, an decrease of 25%, as compared to $1,394,535 for the same period in 2009.  The decrease is primarily due to the loss of a consulting services contract that realized $124,309 of revenue during the three months ended December 31, 2010.  The balance is due to a reduction of revenue from the resale of telecommunication services due to contract renewals with our customers occurring at lower rates due to competitive forces.  The revenues were derived entirely from the sale of telecommunications services to residential and business clients, as compared to the prior year which consisted of $124,309 of consulting services and $1,270,226 of sales of telecommunications services to residential and business clients.





Our cost of sales were $747,042 for the three month period ended December 31, 2010, a 12% decrease as compared to $849,594 in the prior year, primarily due to the decrease in revenues and related costs, specifically the cost of repurchasing services from major providers’ networks did not decrease as much as that of our net margins to our clients.  Our cost of sales also includes our commissions paid to our re-sellers as we are distributing a portion of recurring revenues to the re-seller after the sale has been consummated. Our cost of sales also includes any variable costs of service delivery that we may have, including our per-minute costs for terminating our customers’ calls on another carrier’s network.  Gross margin for the period was $292,816, a 46% decrease as compared to $544,941 in the prior year.  The decrease in gross margin is primarily due to the decreasing margins achieved from the resale of certain telecommunications services to our customers.  Our objective is to work with these re-sale customers to commence the transfer of a portion of our telecommunications over our network, thereby increasing gross margins on the same revenue.




36





The following table presents an analysis of operating revenues and gross margin based on our two operating offices—in Montreal, Quebec and in Toronto, Ontario.  This supplemental information is provided for information purposes only; the totals provided below are for operations only and do not match our financial statements due to inter-company charges netted out in consolidation.





Analysis of Operating Revenues




Montreal, Quebec


Toronto, OntarioThree month period ended December 31

2010


2009


% Change


2010


2009


% ChangeRevenues

$
269,230


$
437,888



-39
%

$
770,627


$
877,377



-12
%Cost of Sales

$
195,196


$
181,284



-8
%

$
560,239


$
682,556



-18
%Gross Margin ($)

$
73,304


$
256,603



-7
%

$
210,388


$
194,821



8
%Gross Margin %


27
%


59
%






27
%


22
%% of total Gross Margin


26
%


57
%






74
%


43
%





Our aggregate operating expenses for the three month period ended December 31, 2010, were $311,905, a 38% decrease as compared to $506,734 for the prior year.  The period over period decrease in operating expenses was driven primarily by a $63,555 decrease in administrative wages resulting from a decrease in salary from our senior management and a $147,643 decrease in professional and consulting fees as we decreased our professional service and legal fees compared to the same period the prior year.  The Company increased its depreciation expenses from $2,780 for the three month period to $22,708 as the company acquired additional computer equipment and development related to its IPTV offering.





As a result, we had net loss of $15,697 for the three month period ended December 31, 2010 (including a minority interest of $13,908), as compared to a net income of $143,807 for the same period in the prior year (when considering a minority interest of ($6,866).  The operating loss is primarily due to the decreasing gross margins attainable in our re-sale business as well as the unusually high legal fees that we have incurred due to ongoing litigation.





Liquidity and Capital Resources





For the three month period ended December 31, 2010:





On our balance sheet as of December 31, 2010, we had assets consisting of accounts receivable in the amount of $210,424, inventory of $13,281, prepaid expenses of $231,723 and no cash. We have expended our cash in furtherance of our business plan.  We also show fixed assets, net of depreciation of $561,051 which includes office and computer equipment for new services to be offered over our own network.  Our balance sheet reflects an accumulated deficit of $2,257,429 and total stockholder’s deficit of $481,538.





We were provided $355,570 of cash from operating activities during the three month period ended December 31, 2010 compared to using $244,237 for the same period in 2009. This change was attributable in large part due to the decrease in accounts receivable of $209,880 and an increase in accounts payable of $158,799 as compared to an increase of $41,475 in accounts receivable and a decrease in accounts payable of $142,185 for the same period in 2009.





For the three month period ended December 31, 2010, we used cash in investing activities of $371,744 compared to a use of $3,810 for the same period in 2009. This change was primarily attributable to the acquisition of capital assets to invest in our new IP-Television servicing offering to be launched in 2011.





We had net cash provided by financing activities of $16,633 during the three month period ended December 31, 2010 compared to being provided $257,543 during the same period in 2009.  The majority of this provision comes from a reduction in proceeds of bank overdraft in the period, from $266,106 in 2009 and only $71,689 in 2010.





37





In pursuing our business strategy, we will require additional cash for growing our operating and investing activities.  We will continue to borrow money through our operating line of credit at our subsidiary’s bank when such cash for growth purposes is required.  In order to increase this operating line, we rely on collateral guarantees from shareholders and related parties.  We continue to search for ways to reduce costs and increase revenues of our VoIP and telecommunications resell services.





We anticipate raising funds in order to increase our base of customers through the acquisition of telecommunications resellers.  We signed a $1,000,000 acquisition line of credit with a related party at 5% interest.  Funds are available to us should an appropriate acquisition target be identified.  Likewise, we continues to pursue and carry out our business plan, which includes marketing programs aimed at the promotion of our services, hiring additional staff to distribute and find additional distribution channels, enhance the current services we are providing and maintain our compliance with Sarbanes - Oxley Section 404.





Other than current requirements from our suppliers, and the maintenance of our current level of operating expenses, we do not have any commitments for capital expenditures or other known or reasonably likely cash requirements.





We have classified related party loans on our balance sheet as of December 31, 2010 of $2,000 as a current liability. These loans were issued as advances to us to be repaid when we can raise adequate funds through the sale of equity.  We have classified an additional $70,828 of related party loans as a long term liability due to the requirement of repayment of interest only over the next 5 years.





The accompanying financial statements have been prepared assuming we will continue as a going concern. We have suffered recurring losses from operations from our inception in 2004 to our fiscal year ended September 30, 2008.  We had emerged from the recurring losses and has posted a net income for the year ended September 30, 2009 and the interim three month period ended December 31, 2009 and positive income from operations (not counting a non-cash impairment) for the nine month period ended June 30, 2010.  However, with the bad debt expenses that we had to write-off during the end of fiscal year September 30, 2010, we posted a significant loss applicable to common shares of $590,041 for the year ended September 30, 2010.  We continue to have a working capital deficit of $1,200,090. The financial statements do not include any adjustments that might result from the outcome of any uncertainty that may arise due to this working capital deficit. We have been searching for new distribution channels to wholesale their services to provide additional revenues to support their operations.  There is no guarantee that we will be able to raise additional capital or generate the increase in revenues to sustain our operations. Should the financing we require to sustain our working capital needs be unavailable or prohibitively expensive, the consequences would be a material adverse effect on our business, operating results, financial condition and prospects.  These conditions raise substantial doubt about our ability to continue as a going concern for a reasonable period.





Off Balance Sheet Arrangements





We do not have any off-balance sheet debt nor did we have any transactions, arrangements, obligations (including contingent obligations) or other relationships with any unconsolidated entities or other persons that may have material current or future effect on financial conditions, changes in the financial conditions, results of operations, liquidity, capital expenditures, capital resources, or significant components of revenue or expenses.





Going Concern





We have incurred net losses for the period from inception.  The continuity of our future operations is dependent upon management's ability to raise additional interim capital.  There can be no assurance that management will be able to raise sufficient capital, under terms satisfactory to us, if at all.  These conditions raise substantial doubt about our ability to continue as a going concern.


Critical Accounting Policies
 
 Our significant accounting policies are summarized in note 2 to our consolidated financial statements included in Item 8 “Financial Statements” of this report.  While the selection and application of any accounting policy may involve some level of subjective judgments and estimates, we believe the following accounting policies are the most critical to our financial statements, potentially involve the most subjective judgments in their selection and application, and are the most susceptible to uncertainties and changing conditions:
 
 38
 Principles of Consolidation
 
 The consolidated financial statements include our accounts and our majority owned subsidiary. 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 ASC 220-10, “Reporting Comprehensive Income,” (formerly SFAS No. 130). ASC 220-10 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.
 
 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, while the Company reports its currency in the US dollar. 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.
 
 Research and Development
 
 The Company occasionally 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.
 
 39
 
 Revenue Recognition
 
 Operating revenues consist of telecommunications services (voice, data and long distance), customer equipment (which enables the Company's telephony services), consulting services and shipping revenue. The point in time at which revenue is recognized is determined in accordance with Revenue Recognition under ASC 605-50, Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor's Products) ("ASC 605-50"), and ASC 605-25, "Revenue Arrangements with Multiple Deliverables" (“ASC 605-25”). When the Company emerged from the development stage with the acquisition of Teliphone Inc. in 2005, they began to recognize revenue from their Telephony services when they are earned, specifically when all the following conditions are met:
 
 ·
Services are provided or products are delivered to customers·
There is clear evidence that an arrangement exists
 ·
Amounts are fixed or can be determined·
The Company’s ability to collect is reasonably assured.
 
 In particular, the Company recognizes:
 
 ·
Monthly fees for local, long distance and wireless voice services, as well as data services when we provide the serviceso
“Services over the Company’s network” means that a significant portion of the voice or data passes over the Company’s own data network which it controls and
 o
“Services resold from Major Provider’s networks” means that the Company re-sells the services purchased from a Major Provider to its customer, and hence does not control the voice or data flow (represents majority of the Company’s revenues)·
Consulting fees which the Company earns when it sells hourly consulting services.
 o
Consulting services are typically computer software development related, along with any administrative services that occur in the management of those resources (such as project management, accounting, administrative support, etc)·
Other fees, such as network access fees, license fees, hosting fees, maintenance fees and standby fees, over the term of the contract
 ·
Subscriber revenues when customers receive the service·
Revenues from the sale of equipment when the equipment is delivered and accepted by customers
 
 Revenues exclude sales taxes and other taxes we collect from our customers.
 
 Multiple-Element Arrangements
 
 We enter into arrangements that may include the sale of a number of products and services, notably in sales of voice services over our own network.  In all such cases, we separately account for each product or service according to the methods previously described when the following three conditions are met:
 
 ·
The product or service has value to our customer on a stand-alone basis·
here is objective and reliable evidence of the fair value of any undelivered product or service
 ·
if the sale includes a general right of return relating to a delivered product or service, the delivery or performance of any undelivered product or service is probable and substantially in our control.·
If there is objective and reliable evidence of fair value for all products and services in a sale, the total price to the customer is allocated to each product and service based on its relative fair value. Otherwise, we first allocate a portion of the total price to any undelivered products and services based on their fair value and the remainder to the products and services that have been delivered.
 ·
If the conditions to account separately for each product or service are not met, we recognize revenue pro rata over the term of the customer agreement.
 
 40
 
 Resellers
 
 We may enter into arrangements with resellers who provide services to our customers. When we act as the principal in these arrangements, we recognize revenue based on the amounts billed to our customers. Otherwise, we recognize as revenue the net amount that we retain.
 
 Sales Returns
 
 We accrue an estimated amount for sales returns, based on our past experience, when revenue is recognized.
 
 Deferred Revenues
 
 We record payments we receive in advance, including upfront non-refundable payments, as deferred revenues until we provide the service or deliver the product to customers. Deferred revenues also include amounts billed under multiple-element sales contracts where the conditions to account separately for each product or service sold have not been met.
 
 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.
 
 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.
 
 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.
 
 41
 
 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.
 
 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.
 
 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.
 
 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.
 
 Earnings (Loss) Per Share of Common Stock
 
 Basic net income (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.
 
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 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 when the Company reported a loss because inclusion would have been antidilutive.
 
 Stock-Based Compensation
 
 In 2006, the Company adopted the provisions of ASC 718-10 “Share Based Payments” for its year ended December 31, 2008. The adoption of this principle had no effect on the Company’s operations.
 
 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. Stock-based compensation expense for all awards granted after January 1, 2006 is based on the grant-date fair values. 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.
 
 The Company measures compensation expense for its non-employee stock-based compensation under ASC 505-50, “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 ASC 280-10, “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.
 
 Uncertainty in Income Taxes
 
 The Company follows ASC 740-10, “Accounting for Uncertainty in Income Taxes” (“ASC 740-10”). This interpretation requires recognition and measurement of uncertain income tax positions using a “more-likely-than-not” approach. ASC 740-10 is effective for fiscal years beginning after December 15, 2006. Management has adopted ASC 740-10 for 2009, and they evaluate their tax positions on an annual basis.
 
 Noncontrolling Interests
 
 In accordance with ASC 810-10-45, Noncontrolling Interests in Consolidated Financial Statements,the Company classifies controlling interests as a component of equity within the consolidated balance sheets.
 
 Recent Accounting Pronouncements
 
 In September 2006, ASC issued 820, Fair Value Measurements. ASC 820 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 ASC 820 is not expected to have a material impact on the financial statements.
 
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ITEM 4. CONTROL AND PROCEDURES.





Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures





Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934.  Based on this evaluation as of December 31, 2010, the end of the period covered by this Quarterly Report on Form 10-Q, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective at a reasonable assurance level to ensure that the information required to be disclosed in reports filed or submitted under the Securities Exchange Act of 1934, including this Quarterly Report, were recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and was accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.  Our conclusion is based primarily on our inadvertent failure to file management's assessment of internal controls over financial reporting in connection with the filing of our Annual Report on Form 10-K for the period ending September 30, 2009, which failure stems, we believe, primarily from the fact that we have limited personnel on our accounting and financial staff.  We are in the process of considering changes in our disclosure controls and procedures in order to address the aforementioned failure to timely file the assessment, but have made no changes in our disclosure controls and procedures as of the date of this report.





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, 2010.





PART II - OTHER INFORMATION


ITEM 1 - LEGAL PROCEEDINGS





BR Communications Inc.





During the three months ended December 31, 2010, there have been no material developments in the legal proceedings discussed in our annual report filed on form 10-K for the year ended September 30, 2010, filed on December 29, 2010.


Former Owners of Orion Communications Inc.





During the three months ended December 31, 2010, there have been no material developments in the legal proceedings discussed in our annual report filed on form 10-K for the year ended September 30, 2010, filed on December 29, 2010.


Bank of Montreal, related to Former Owners of Orion Communications Inc.





During the three months ended December 31, 2010, there have been no material developments in the legal proceedings discussed in our annual report filed on form 10-K for the year ended September 30, 2010, filed on December 29, 2010.
 
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ITEM 1A - RISK FACTORS





Not Applicable.





ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS





None.





ITEM 3 - DEFAULTS UPON SENIOR SECURITIES





There have been no material defaults.





ITEM 4 - (REMOVED AND RESERVED)









ITEM 5 - OTHER INFORMATION





None.





ITEM 6 - EXHIBITS





31.1

Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act.31.2

Certification of Principal Financial and Accounting Officer Pursuant to Section 302 of the Sarbanes-Oxley Act.32.1

Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act.32.2

Certification of Principal Financial and Accounting Officer Pursuant to Section 906 of the Sarbanes-Oxley Act.





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SIGNATURES





Pursuant to the requirements of Section 13 or 15(b) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Montreal, Quebec, Canada.





Dated: February 21, 2011


TELIPHONE CORP./s/ Lawry Trevor-DeutschLawry Trevor-Deutsch

Chief Executive Officer and President





TELIPHONE CORP./s/ Lawry Trevor-DeutschLawry Trevor-Deutsch

Principal Financial Officer





TELIPHONE CORP./s/ Lawry Trevor-DeutschLawry Trevor-Deutsch

Principal Accounting Officer








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