UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C.  20549
  FORM
10-K
  ýANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
  For the fiscal year ended
September
30, 2010
   ̈TRANSITION
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
  For the transition period
from 
to _______.
  Commission file
number:  000-28793
 
 Teliphone
Corp.
 (Exact name of registrant
as specified in its charter)
  Nevada
                
                84-1491673(State or other
      jurisdiction of
                  incorporation or
      organization)
                
                (I.R.S.
      Employer
                  Identification
      No.)424 St-François-Xavier Street,
      Montreal, Quebec, Canada
                
                H2Y 2S9(Address of
      principal executive
      offices)
                
                (Zip
      Code)
 Registrant’s telephone,
including area code: (514)
313-6000
 
 
 Securities registered
under Section 12(b) of the Exchange Act:  None.
  Securities
registered under Section 12(g) of the Exchange Act:
  Common Stock, $0.001
      par value
              
              Not
      Applicable(Title of
      class)
              
              (Name of each
      exchange on which registered)
 
 Indicate by check mark if
the registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act. Yes   ̈  No ý
  Indicate by check mark if
the registrant is not required to file reports pursuant to Section 13 or Section
15(d) of the Act. Yes   ̈  No ý
  Indicate by check mark
whether the registrant (1) has filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the 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. 
Yes  ý  No  ̈
  Indicate by check mark
whether the registrant has submitted electronically and posted on its corporate
web site, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). 
Yes  ý  No  ̈
  Indicate by check mark if
disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405
of this chapter) is not contained herein, and will be contained, to the best of
registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.   ̈
  Indicate by check mark
whether the registrant is a large accelerated filer, 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  ̈
                Accelerated filer
       ̈Non-accelerated
      filer    ̈ (Do not check if
      a smaller reporting company)
                Smaller
      reporting company ý
 
 Indicate by
check mark whether the registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act). Yes   ̈  No ý
  As of March 31,
2010, the aggregate market value of the Company’s common equity held by
non-affiliates computed by reference to the average bid and ask price ($0.0230)
was:  $863,803
  The number of
shares of our common stock outstanding as of December 29, 2010 was: 37,556,657
  1
 
 TELIPHONE
CORP.
 Report
on Form 10-K
 For the
Fiscal Year Ended September 30, 2010
 
 PagePART
      IItem
      1.
              Business
              4Item
      1A.
              Risk
      Factors
              11Item
      1B.
              Unresolved
      Staff Comments
              21Item
      2.
              Properties
              21Item
      3.
              Legal
      Proceedings
              21Item
      4.
              (Removed
      and Reserved)
              23PART
      IIItem
      5.
              Market
      for Common Equity, Related Stockholder Matters and Issuer Purchases of
      Equity Securities
              23Item
      6.
              Selected
      Financial Data
              24Item
      7.
              Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
              25Item
      7A.
              Quantitative
      and Qualitative Disclosures About Market Risk.
              34Item
      8.
              Financial
      Statements and Supplementary Data
              34Item
      9.
              Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
              34Item
      9A.
              Controls
      and Procedures
              34Item
      9B.
              Other
      Information
              35PART
      IIIItem
      10.
              Directors,
      Executive Officers and Corporate Governance
              35Item
      11.
              Executive
      Compensation
              37Item
      12.
              Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
              38Item
      13.
              Certain
      Relationships and Related Transactions, and Director
      Independence
              39Item
      14
              Principal
      Accountant Fees and Services
              40PART
      IVItem
      15.
              Exhibits,
      Financial Statement Schedules
              41SIGNATURES
              
              43EXHIBIT
      INDEX
              
              44
 
 2
 
 Cautionary
Note Regarding Forward Looking Statements
  This annual
report on Form 10-K contains forward-looking statements as that term is defined
in Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as
amended.  In some cases, you can identify forward-looking statements
by terminology such as “may,” “should,” “expects,” “plans,” “anticipates,”
“believes,” “estimates,” “predicts,” “potential,” “continue,” “intends,” and
other variations of these words or comparable words.  In addition, any
statements that refer to expectations, projections or other characterizations of
events, circumstances or trends and that do not relate to historical matters are
forward-looking statements.  These forward-looking statements are
based largely on our expectations or forecasts of future events, can be affected
by inaccurate assumptions, and are subject to various business risks and known
and unknown uncertainties, a number of which are beyond our
control.  Therefore, actual results could differ materially from the
forward-looking statements contained in this document, and readers are cautioned
not to place undue reliance on such forward-looking statements.  These
statements are only predictions and involve known and unknown risks,
uncertainties and other factors, including the risks in the section entitled
“Risk Factors” that may cause our or our industry’s actual results, levels of
activity, performance or achievements to be materially different from any future
results, levels of activity, performance or achievements expressed or implied by
these forward-looking statements.
 
 Important
factors that may cause the actual results to differ from the forward-looking
statements, projections or other expectations include, but are not limited to,
the following:
 
 ·
              risk that we will
      fail to obtain a meaningful degree of consumer acceptance for our products
      now and in the future
 
 ·
              risk that we will be
      unable to market our products on a global basis at competitive prices now
      and in the future
 
 ·
              risk that we will
      fail to maintain brand-name recognition for our products now and in the
      future
 
 ·
              risk that we will be
      unable to maintain an effective distributors
  network
 
 ·
              risks related to the
      inherent uncertainty of consumer demand and forecasting and the potential
      for unexpected costs and expenses
 
 ·
              risks related to
      product pricing and our inability to maintain competitive pricing and
      thereby maintain adequate profit
margins;
 
 ·
              risks related to
      failure to obtain adequate financing on a timely basis and on acceptable
      terms for and retain sufficient capital for future operations;
      and
 
 ·
              other risks and
      uncertainties related to our prospects, properties and business
      strategy.
 
 Although we
believe that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance
or achievements.  You should not place undue reliance on these
forward-looking statements, which speak only as of the date of this
report.  Except as required by law, we do not undertake to update or
revise any of the forward-looking statements to conform these statements to
actual results, whether as a result of new information, future events or
otherwise.
 
 As used in this
annual report, “Teliphone,” the “Company,” “we,” “us,” or “our” refer to
Teliphone Corp., unless otherwise indicated.
  3
 
 PART
I
 ITEM 1.
BUSINESS
 
 Overview
 
 We were
incorporated in the State of Nevada on March 2, 1999 under the name "OSK Capital
II Corp." to serve as a vehicle to effect a merger, exchange of capital stock,
asset acquisition or other business combination with a domestic or foreign
private business. Effective April 28, 2005, we achieved our objective with the
reverse merger and reorganization with Teliphone Inc., a Canadian company. On
August 21, 2006, we changed our name from OSK Capital II Corp. to Teliphone
Corp.  As a result of the merger and re-organization, Teliphone Inc.
became our wholly owned subsidiary and we became a majority owned subsidiary of
Teliphone Inc.'s parent company, United American Corporation, a Florida
Corporation trading on the OTC Bulletin Board under the trading symbol
UAMA.
 
 Effective
August 1, 2006, we entered into a transaction with 3901823 Canada Inc.
("3901823") and issued to 3901823 shares of Teliphone Inc. common stock, which
was equal to a 25% ownership interest, in exchange for access to 3901823’s
operating company Intelco Communications Inc. (“Intelco”) global distribution
channels, cost reduction through usage of Intelco’s network and data center,
along with a credit facility of $75,000.  Subsequently on September
30, 2008, Teliphone Inc. issued additional stock to us representing the
conversion into equity of cash advances made between August 1, 2006 to September
30, 2008.  As a result, we increased own ownership interest in the
outstanding capital stock of Teliphone Inc. to 87.1% as of September 30,
2010.  We do not have any other subsidiary entities.
 
 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.
 
 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.
  4
 
 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.
 
 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.
  5
 
 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.
 
 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.
 
 Competitive
Business Conditions
 
 VoIP technology
is presently used in the backbone of many traditional telephone
networks.  VoIP services are offered to residential and business users
by a wide array of service providers, including established telephone service
providers. These VoIP providers include traditional local and long distance
phone companies, established cable companies, Internet service providers and
alternative voice communications providers such as our company.
  6
 
 While all of
these companies provide residential VoIP communications services, each group
provides those services over a different type of network, resulting in important
differences in the characteristics and features of the VoIP communications
services that they offer. Traditional wireline telephone companies offering VoIP
services to consumers do so using their existing broadband DSL networks.
Similarly, cable companies offering VoIP communications services use their
existing cable broadband networks. Because these companies own and control the
broadband network over which the VoIP traffic is carried between the customer
and public switched telephone network, they have the advantage of controlling a
substantial portion of the call path and therefore being better able to control
call quality. In addition, many of these providers are able to offer their
customers additional bandwidth dedicated solely to the customer's VoIP service,
further enhancing call quality and preserving the customer's existing bandwidth
for other uses. However, these companies typically have high capital
expenditures and operating costs in connection with their networks. In addition,
depending on the structure of their VoIP networks, the VoIP services provided by
some of these companies can only be used from the location at which the
broadband line they provide is connected.
 
 Like
traditional telephone companies and cable companies offering VoIP services, we
also connect our VoIP traffic to the public switched telephone network so that
our customers can make and receive calls to and from non-VoIP users. Unlike
traditional telephone companies and cable companies, alternative voice
communications providers such as our company do not own or operate a private
broadband network. Instead, the VoIP services offered by these providers use the
customer's existing broadband connection to carry call traffic from the customer
to their VoIP networks. These companies do not control the "last mile" of the
broadband connection, and, as a result, they have less control over call quality
than traditional telephone or cable companies do. However, these companies have
the operating advantage of low capital expenditure requirements and operating
costs.
 
 Internet
service providers generally offer or have announced intentions to offer VoIP
services principally on a PC-to-PC basis. These providers generally carry their
VoIP traffic for the most part over the public Internet, with the result that
VoIP services are often offered for free, but can only be used with other users
of that provider's services. Many of these providers offer a premium service
that allows customers to dial directly into a public switched telephone network.
In addition, while no special adapters or gateways are required, often customers
must use special handsets, headsets or embedded microphones through their
computers, rather than traditional telephone handsets.
 
 Competition
 
 The
telecommunications industry is highly competitive, rapidly evolving and subject
to constant technological change and to intense marketing by different providers
of functionally similar services. Since there are few, if any, substantial
barriers to entry, except in those markets that have not been subject to
governmental deregulation, we expect that new competitors are likely to enter
our markets. Most, if not all, of our competitors are significantly larger and
have substantially greater market presence and longer operating history as well
as greater financial, technical, operational, marketing, personnel and other
resources than we do.
 
 Our use of VoIP
technology and our proprietary systems and products enables us to provide
customers with competitive pricing for telecommunications services. Nonetheless,
there can be no assurance that we will be able to successfully compete with
major carriers in present and prospective markets. While there can be no
assurances, we believe that by offering competitive pricing we will be able to
compete in our present and prospective markets.
 
 We rely on
specialized telecommunications and computer technology to meet the needs of our
consumers. We will need to continue to select, invest in and develop new and
enhanced technology to remain competitive. Our future success will also depend
on our operational and financial ability to develop information technology
solutions that keep pace with evolving industry standards and changing client
demands. Our business is highly dependent on our computer and telephone
equipment and software systems, the temporary or permanent loss of which could
materially and adversely affect our business.
  7
 
 Dependence
on One or a Few Customers
 
 We are not
dependent on a few major customers. Our largest wholesale customer,
Horizon-Link, currently produces less than 10% of our monthly
revenues.
 
 Intellectual
Property
 
 We do not
currently hold any patents, trademarks, licences, franchises, concessions or
royalty agreements.
 
 Existing
and Probable Governmental Regulation
 
 The Company has
reviewed all current laws and regulations in its principal markets and is
compliant with its requirements as a telecommunications service provider with
both the Canadian Radio-Television Commission (CRTC) and the Federal
Communications Commission (FCC).
 
 Overview
of Regulatory Environment
 
 Traditional
telephone service has historically been subject to extensive federal and state
regulation, as compared to Internet services that generally have been subject to
less regulation. Because some elements of VoIP resemble the services provided by
traditional telephone companies, and others resemble the services provided by
Internet service providers, the VoIP industry has not fit easily within the
existing framework of telecommunications law and until recently, has developed
in an environment largely free from regulation.
 
 The Federal
Communications Commission, or FCC, the U.S. Congress and various regulatory
bodies in the states and in foreign countries have begun to assert regulatory
authority over VoIP providers and are continuing to evaluate how VoIP will be
regulated in the future. In addition, while some of the existing regulation
concerning VoIP is applicable to the entire industry, many rulings are limited
to individual companies or categories of service. As a result, both the
application of existing rules to us and our competitors and the effects of
future regulatory developments are uncertain.
 
 Regulatory
Classification of VoIP Services
 
 On February 12,
2004, the FCC initiated a rulemaking proceeding concerning the provision of VoIP
and other services, and applications utilizing Internet Protocol technology. As
part of this proceeding, the FCC is considering whether VoIP services like ours
should be classified as information services, or telecommunications services. We
believe our service should be classified as information services. If the FCC
decides to classify VoIP services like ours as telecommunications services, we
could become subject to rules and regulations that apply to providers of
traditional telephony services. This could require us to restructure our service
offering or raise the price of our service, or could otherwise significantly
harm our business.
 
 While the FCC
has not reached a decision on the classification of VoIP services like ours, it
has ruled on the classification of specific VoIP services offered by other VoIP
providers. The FCC has drawn distinctions among different types of VoIP services
and has concluded that some VoIP services are telecommunications services while
others are information services. The FCC's conclusions in those proceedings do
not determine the classification of our service, but they likely will inform the
FCC's decision regarding VoIP services like ours.
 
 In Canada, the
Canadian Radio-Television Commission (CRTC) is the regulating body who has set
guidelines that our subsidiary, Teliphone Inc., must meet. These guidelines
center around 9-1-1 calling services and other services that are normally
available to subscribers of traditional telephony services. Teliphone has met
these requirements in its product offering.
  8
 
 An additional
element of Canadian regulation is that the incumbent providers, Bell Canada
(Central and Eastern Canada) and Telus (Western Canada), who in 2004 controlled
over 75% of the business and residential phone lines, are not able to reduce
their prices to meet the newly offered reduced price options of independent VoIP
and cable phone companies. This regulation permitted independents such as us to
provide our VoIP phone service without fear of anti-competitive activity by the
incumbents. The CRTC has recently ruled that incumbent phone providers are
permitted to reduce pricing now that a 25% market share has been attained by the
upstart phone service providers.  We view our long term strategy
outside of just residential phone service, through the availability of
international phone numbers to global clients, thereby creating an international
product offering, a strategy that is very different from the geographically
limited incumbent carriers.
 
 Customer
Access to Broadband Services
 
 Our customers
must have broadband access to the Internet in order to use our service. In the
case of the Canadian market, our principal market, the Canadian Radio-Television
Telecommunications Commission (CRTC) has ordered that Internet Service Providers
and Incumbent Exchange Carriers have a legal obligation as per Order 2000-789 to
provide their services without interference to other service providers in
conjunction with to section 27(2) of the Telecommunications Act.
 
 However,
anti-competitive behavior in our market can still occur. For example, a Canadian
cable provider recently began offering an optional Cdn$10 per month "quality of
service premium" to customers who use third-party VoIP services over its
facilities. However, customers who purchase VoIP services directly from this
cable provider are not required to pay this additional fee. Based on this
example, some providers of broadband access may take measures that affect their
customers' ability to use our service, such as degrading the quality of the data
packets we transmit over their lines, giving those packets low priority, giving
other packets higher priority than ours, blocking our packets entirely, or
attempting to charge their customers more for also using our
services.
  VoIP
E-911 Matters
 
 On June 3,
2005, the FCC released an order and notice of proposed rulemaking concerning
VoIP emergency services. The order set forth two primary requirements for
providers of "interconnected VoIP services" such as ours, meaning VoIP services
that can be used to send or receive calls to or from users on the public
switched telephone network.
 
 First, the
order requires us to notify our customers of the differences between the
emergency services available through us and those available through traditional
telephony providers. We also must receive affirmative acknowledgment from all of
our customers that they understand the nature of the emergency services
available through our service. Second, the order requires us to provide enhanced
emergency dialing capabilities, or E-911, to all of our customers by November
28, 2005. Under the terms of the order, we are required to use the dedicated
wireline E-911 network to transmit customers' 911 calls, callback number and
customer-provided location information to the emergency authority serving the
customer's specified location.
 
 In July of
2005, the CRTC required us to offer enhanced emergency calling services, or
E-911. The FCC followed suit with a deadline of November 28, 2005. The
requirement meant that we had to offer enhanced emergency calling services, or
E-911, to all of our customers located in areas where E-911 service is available
from their traditional wireline telephone company. E-911 service allows
emergency calls from our customers to be routed directly to an emergency
dispatcher in a customer's registered location and gives the dispatcher
automatic access to the customer's telephone number and registered location
information. We complied with both these requirements through our agreement with
Northern Communications Inc., which calls for Northern Communications to provide
and operate a 9-1-1 dispatch center for caller address verification and call
transfer to the emergency services department closest to the customer's location
on our behalf.
 
 We believe that
we are currently in compliance with all of these FCC requirements.
  9
 
 International
Regulation
 
 The regulation
of VoIP services is evolving throughout the world. The introduction and
proliferation of VoIP services have prompted many countries to reexamine their
regulatory policies. Some countries do not regulate VoIP services, others have
taken a light-handed approach to regulation, and still others regulate VoIP
services the same as traditional telephony. In some countries, VoIP services are
prohibited. Several countries have recently completed or are actively holding
consultations on how to regulate VoIP providers and services. We primarily
provide VoIP services internationally in Canada.
 
 Canadian
Regulation
 
 Classification
and Regulation of VoIP Services.
 
 The
Telecommunications Act governs the regulation of providers of telecommunications
services in Canada. We are considered a telecommunications service provider
rather than a telecommunications common carrier. Telecommunications service
providers are subject to less regulation than telecommunications common
carriers, but do have to comply with various regulatory requirements depending
on the nature of their business.
 
 On May 12,
2005, the Canadian regulator, the CRTC, stated that VoIP services permitting
users to make local calls over the public switched telephone networks will be
regulated by the same rules that apply to traditional local telephone services.
Because we are not a telecommunications common carrier, we will not be subject
to such regulation. Under the CRTC's decision, we are required to register as a
local VoIP reseller in order to obtain access to certain services from other
telecommunications providers.
  The CRTC's May
12, 2005 decision provided that VoIP providers who are registered as local VoIP
resellers will be able to obtain numbers and portability from Canadian local
exchange carriers, but will not be able to obtain numbers directly from the
Canadian Numbering Administrator or to have direct access to the local number
portability database. The CRTC's decision also identified other obligations of
VoIP providers, such as contributing to a national service fund, complying with
consumer protection, data and privacy requirements, and providing access for the
disabled. The details of these requirements have been referred to industry
groups for further study. Certain aspects of the decision are the subject of
pending appeals by other Canadian VoIP providers. We do not know what
requirements will ultimately be imposed nor the potential cost that compliance
may entail. The CRTC found that it is technically feasible for VoIP providers to
support special services for hearing-impaired customers.
 
 Effective the
filing of this report, we have complied with all CRTC requirements.
 
 Provision
of 911 Services.
 
 On April 4,
2005, the CRTC released a ruling requiring certain providers of VoIP services,
like us, to provide interim access to emergency services at a level comparable
to traditional basic 911 services by July 3, 2005 or such later date as the CRTC
may approve on application by a service provider. Under the interim solution
adopted by the regulator for the provision of VoIP 911 services, customers of
local VoIP services who dial 911 will generally be routed to a call center,
where agents answer the call, verbally determine the location of the caller, and
transfer the call to the appropriate emergency services agency. VoIP service
providers are also required to notify their customers about any limitations on
their ability to provide 911 services in a manner to be determined.
 
 Since July
2005, we believe we have complied with these regulations by partnering with a
PSAP (Primary Service Access Point) which serves to verify the customer location
and forward the call to the respective Municipal 9-1-1 center for assistance.
This service therefore permits our customers to have access to 9-1-1 services
irrespective of their physical location, anywhere in the Continental US &
Canada.. This service is of significance as VoIP permits customers to utilize
their phone anywhere a high-speed internet connection exists and can therefore
be located outside of their local city when requiring 9-1-1
services.
  10
 
 Other
Foreign Jurisdictions
 
 Our operations
in foreign countries must comply with applicable local laws in each country we
serve. The communications carriers with which we associate in each country are
licensed to handle international call traffic, and takes responsibility for all
local law compliance. For that reason, we do not believe that compliance with
the laws of foreign jurisdictions will affect our operations or require us to
incur any significant expense.
 
 Research
and Development
 
 We spent
$158,331 in research and development activities during the year ended September
30, 2010 and did not incur any research and development expenditures during the
year ended September 30, 2009..
 
 Compliance
with Environmental Laws
 
 We did not
incur any costs in connection with the compliance with any federal, state, or
local environmental laws.
 
 Employees
 
 We currently
have 15 employees. We utilize the services of various consultants who provide,
among other things, accounting services, technological development services and
sales services to us.
  Corporate
Offices
 
 The mailing
address of our principal executive office is424 St-François-Xavier Street,
Montreal, Quebec, Canada, H2Y 2S9. Our telephone number is (514) 313-6000 and
our fax number is (514) 313-6001. Our e-mail address is info@teliphone.caand our
company website is www.teliphone.us. Our operational offices are located in
Montreal, Quebec and our data and collocation center is located in Montreal,
Quebec.
 
 ITEM
1A. RISK
FACTORS
 
 You should
carefully consider the following risk factors in evaluating our business and
us.  The factors listed below represent certain important factors that
we believe could cause our business results to differ.  These factors
are not intended to represent a complete list of the general or specific risks
that may affect us.  It should be recognized that other risks may be
significant, presently or in the future, and the risks set forth below may
affect us to a greater extent than indicated.  If any of the following
risks occur, our business, financial condition or results of operations could be
materially and adversely affected.  You should also consider the other
information included in this Annual Report and subsequent quarterly reports
filed with the SEC.
 
 A.
Risks Related To Our Financial Condition
 
 A.1. Our
accountants have raised substantial doubt with respect to our ability to
continue as a going concern
  11
 
 As noted in our
financial statements, we incurred a net loss of $590,041 for the year ended
September 30, 2010 and had a working capital deficit of $729,756 as of September
30, 2010.  For the year ended September 30, 2010, we had negative cash
flows from operating activities of $510,304.  The audit report of KBL,
LLP for the fiscal year ended September 30, 2010 contained a paragraph that
emphasizes the substantial doubt as to our continuance as a going
concern.  This is a significant risk that we may not be able to
generate or raise enough capital to remain operational for an indefinite period
of time.
 
 The success of our
business operations depends upon our ability to generate increased sales and
obtain further financing in order to attain recurring and sustaining profitable
operations. It is not possible at this time for us to predict with assurance the
outcome of these matters. If we are not able to attain sustainable profitable
operations, then we may be required to discontinue our operations.
  A.2. We Require
Additional Financing to Grow Our Operations
 
 We require
additional financing to grow our operations and in acquiring such additional
financing new investors and current shareholders may suffer substantial
consequences such as dilution or a loss of seniority in preferences and
privileges. There can be no assurance that any additional funds will be
available to us upon terms acceptable to us or at all.  Because of our
past significant losses and our limited tangible assets, we do not fit
traditional credit lending criteria, which, in particular, could make it
difficult for us to obtain loans or to access the capital markets.  If
we are unable to obtain additional financing we might be required to delay,
scale back, or eliminate certain aspects of our research and product development
programs or 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. The value of our common shares would therefore be
affected, and our shareholders could even lose their entire
investment.
 
 B.
Risks Related To Our Business
 
 B.1. Decreasing
market prices for our products and services may cause us to lower our prices to
remain competitive, which could delay or prevent our future
profitability.
 
 Currently, our
prices are lower than those of many of our competitors for comparable services.
However, market prices for local calling and international long distance calling
have decreased significantly over the last few years, and we anticipate that
prices will continue to decrease. This information is based on the experience of
our management working in the telecommunications industry. Users who select our
service offerings to take advantage of our prices may switch to another service
provider as the difference between prices diminishes or disappears. In this
instance, we may be unable to use our price as a distinguishing feature to
attract new customers in the future. Such competition or continued price
decreases may require us to lower our prices to remain competitive, may result
in reduced revenue, a loss of customers, or a decrease in our subscriber line
growth and may delay or prevent our future profitability. The value of our
common shares would therefore be affected, and our shareholders could even lose
their entire investment.
 
 B.2. VoIP
technology may fail to gain acceptance among mainstream consumers and hence the
growth of the business will be limited, lowering the profitability of the
business.
 
 If VoIP
technology fails to gain acceptance among mainstream consumers, our ability to
grow our business will be limited, which could affect the profitability of our
business. The market for VoIP services has only recently begun to develop and is
rapidly evolving. We currently generate all of our revenue from the sale of VoIP
services and related products to residential, small office or home office
customers and wholesale partners.
  12
 
 For our current
residential user base, a significant portion of our revenue currently is derived
from consumers who are early adopters of VoIP technology. However, in order for
our business to continue to grow and to become profitable, VoIP technology must
gain acceptance among mainstream consumers, who tend to be less technically
knowledgeable and more resistant to new technology or unfamiliar services.
Because potential VoIP customers need to connect additional hardware at their
location and take other technical steps not required for the use of traditional
telephone service, mainstream consumers may be reluctant to use our service. If
mainstream consumers choose not to adopt our technology, our ability to grow our
business will be limited. As a result, our business, operating results and
financial condition will be materially and adversely affected..
 
 Certain aspects
of our service are not the same as traditional telephone service, which may
limit the acceptance of our services by mainstream consumers and our potential
for growth which could affect the profitability and operations of our business.
Our continued growth is dependent on the adoption of our services by mainstream
customers, so these differences are becoming increasingly important. For
example:
 
 ·
              Our
      customers may experience lower call quality than they are used to from
      traditional wireline telephone companies, including static, echoes,
      dropped calls and delays in
transmissions;
 
 ·
              In the
      event of a power loss or Internet access interruption experienced by a
      customer, our service is interrupted. Unlike some of our competitors, we
      have not installed batteries at customer premises to provide emergency
      power for our customers' equipment if they lose power, although we do have
      backup power systems for our network equipment and service
      platform.
 
 ·
              Our
      emergency and new E-911 calling services are different from those offered
      by traditional wireline telephone companies and may expose us to
      significant liability.
 
 B3. Our service
will not function in a power outage or a network failure and hence the
profitability of our business due to potential litigation could reduce as
customers would not be able to reach an emergency services
provider.
 
 If one of our
customers experiences a broadband or power outage, or if a network failure were
to occur, the customer will not be able to reach an emergency services provider
which could increase the expenses and reduce the revenues of our
business.  The delays our customers encounter when making emergency
services calls and any inability of the answering point to automatically
recognize the caller's location or telephone number can have devastating
consequences. Customers have attempted, and may in the future attempt, to hold
us responsible for any loss, damage, personal injury or death suffered as a
result. Some traditional phone companies also may be unable to provide the
precise location or the caller's telephone number when their customers place
emergency calls. However, traditional phone companies are covered by legislation
exempting them from liability for failures of emergency calling services and we
are not. This liability could be significant. In addition, we believe we have
lost, and may in the future lose, existing and prospective customers because of
the limitations inherent in our emergency calling services. Any of these factors
could cause us to lose revenues, incur greater expenses or cause our reputation
or financial results to suffer.
 
 B4. Our
technology and systems may have flaws which could result in a reduction of
customer appeal for our products and hence reduce the profitability of our
operations.
 
 Flaws in our
technology and systems could cause delays or interruptions of service, damage
our reputation, cause us to lose customers and limit our growth which could
affect the profitability and operations of our business.
 
 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. This technology has been developed by
our employees and consultants and we own entirely. The calls are transmitted
over our network to the Public Switched Telephone Network (PSTN), that is, the
traditional wireline network that links all telephone devices around the world.
Our network consists of leased bandwidth from numerous telecommunications and
internet service providers. Bandwidth is defined as the passage of the call over
the internet. The configuration of our technology together with this leased
bandwidth and the telecommunications and computer hardware required for our
services to function is proprietary to our company. We do not own any fibre
optic cabling or other types of physical data and voice transmission links, we
lease dedicated capacity from our suppliers.
  13
 
 Although we
have designed our service network to reduce the possibility of disruptions or
other outages, our service may be disrupted by problems with our technology and
systems, such as malfunctions in our software or other facilities, and
overloading of our network. Our customers have experienced interruptions in the
past, and may experience interruptions in the future as a result of these types
of problems. Interruptions have in the past, and may in the future, cause us to
lose customers and sometimes require us to offer substantial customer credits,
which could adversely affect our revenue and profitability. Such an effect would
result in the value our common shares to be affected, and our shareholders could
even lose their entire investment.
 
 B.5. Our
ability to provide our service is dependent upon third-party facilities and
equipment and hence our services could be interrupted due to our partner’s
inability to provide continuous service, resulting in reduced profitability due
to lost customers.
 
 Our ability to
provide our service is dependent upon third-party facilities and equipment, the
failure of which could cause delays or interruptions of our service, damage our
reputation, cause us to lose customers and limit our growth which could affect
the future growth of our business.
 
 Our success
depends on our ability to provide quality and reliable service, which is in part
dependent upon the proper functioning of facilities and equipment owned and
operated by third parties and is, therefore, beyond our control. Unlike
traditional wireline telephone service or wireless service, our service requires
our customers to have an operative broadband Internet connection and an
electrical power supply, which are provided by the customer's Internet service
provider and electric utility company, respectively, not by us. The quality of
some broadband Internet connections may be too poor for customers to use our
services properly. In addition, if there is any interruption to a customer's
broadband Internet service or electrical power supply, that customer will be
unable to make or receive calls, including emergency calls, using our service.
We also outsource several of our network functions to third-party providers. For
example, we outsource the maintenance of our regional data connection points,
which are the facilities at which our network interconnects with the public
switched telephone network. If our third-party service providers fail to
maintain these facilities properly, or fail to respond quickly to problems, our
customers may experience service interruptions. Our customers have experienced
such interruptions in the past and will experience interruptions in the future.
In addition, our new E-911 service is currently dependent upon several
third-party providers. Interruptions in service from these vendors could cause
failures in our customers' access to E-911 services. We believe interruptions in
our service caused by third-party facilities have in the past caused, and may in
the future, cause us to lose customers, or cause us to offer substantial
customer credits, which could adversely affect our revenue and profitability. If
interruptions adversely affect the perceived reliability of our service, we may
have difficulty attracting new customers and our brand, reputation, and growth
will be negatively impacted. As a result, we would incur extra expense to
acquire new customers to replace those which have been affected by such a
service issue, decreasing our profitability as expenses would increase. As a
result, the value of our common shares would be affected, and our shareholders
could even lose their entire investment.
 
 B.6.If we are
unable to improve our process for local number portability provisioning, our
growth may be negatively impacted which could affect the profitability and
operations of our business.
 
 We support
local number portability for our customers allowing our customers to retain
their existing telephone numbers when subscribing to our services. Transferring
numbers is a manual process that in the past has taken us 20 business days or
longer. Although we have taken steps to automate this process to reduce the
delay, a new customer must maintain both service and the customer's existing
telephone service during the transferring process. By comparison, transferring
wireless telephone numbers among wireless service providers generally takes
several hours, and transferring wireline telephone numbers among traditional
wireline service providers generally takes a few days. The additional delay that
we experience is due to our reliance on the telephone company from which the
customer is transferring and to the lack of full automation in our process.
Further, because we are not a regulated telecommunications provider, we must
rely on the telephone companies, over whom we have no control, to transfer
numbers. This slows the process of acquiring new customers, which could create a
higher rate of early defection of new clients. This would cause our business,
operating results and financial condition to be materially and adversely
affected.
  14
 
 B.7. Because
much of our potential success and value lies in our use of internally developed
systems and software, if we fail to protect them, it could affect the
profitability and operations of our business.
 
 Our ability to
compete effectively is dependent in large part upon the maintenance and
protection of internally developed systems and software. To date, we have relied
on trade secret laws, as well as confidentiality procedures and licensing
arrangements, to establish and protect our rights to our technology. We
typically enter into confidentiality or license agreements with our employees,
consultants, customers and vendors in an effort to control access to, and
distribution of, technology, software, documentation and other information.
Despite these precautions, it may be possible for a third party to copy or
otherwise obtain and use this technology without authorization.
 
 Policing
unauthorized use of this technology is difficult. The steps we take may not
prevent misappropriation of the technology we rely on. In addition, effective
protection may be unavailable or limited in some jurisdictions outside the
United States and Canada. Litigation may be necessary in the future to enforce
or protect our rights, or to determine the validity and scope of the rights of
others. That litigation could cause us to incur substantial costs and divert
resources away from our daily business, which in turn could materially adversely
affect our business through decreasing profitability and negative corporate
image to our customers, causing a higher rate of customer defection. As a
result, the value our common shares would be affected, and our shareholders
could even lose their entire investment.
 
 B.8.The
adoption of broadband may not progress as expected which would negatively impact
our growth rate and reduce our profitability.
 
 Our most
significant market segment, that is TeliPhone VoIP services, requires an
operative broadband connection. If the adoption of broadband does not progress
as expected, the market for our services will not grow and we may not be able to
develop our business and increase our revenue.
 
 Use of our
service requires that the user be a subscriber to an existing broadband Internet
service, most typically provided through a cable or digital subscriber line, or
DSL, connection. Although the number of broadband subscribers worldwide has
grown significantly over the last five years, this service has not yet been
adopted by a majority of consumers. If the adoption of broadband services does
not continue to grow, the market for our services may not grow. As a result, we
may not be able to increase our revenue and become profitable, which would
adversely affect the value of our common shares.
 
 B.9. Future new
technologies could render us less competitive than the industry standard,
resulting in lower profitability due to decreased sales.
 
 VoIP
technology, which our business is based upon, did not exist and was not
commercially viable until relatively recently. VoIP technology is having a
disruptive effect on traditional telephone companies, whose businesses are based
on other technologies. We also are subject to the risk of future disruptive
technologies. If new technologies develop that are able to deliver competing
voice services at lower prices, better or more conveniently, it could have a
material adverse effect on us by causing a higher rate of customer defection to
companies with this new technology, reducing our profitability due to decreased
sales.
 
 B.10. We cannot
guarantee that our technology and trade secrets will not be stolen, decreasing
our competitive advantage, resulting in lower profitability due to decreased
sales.
  15
 
 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. This technology has been developed by
our employees and consultants and is owned entirely by us. The calls are
transmitted over our network to the Public Switched Telephone Network (PSTN),
that is, the traditional wireline network that links all telephone devices
around the world. Our network consists of leased bandwidth from numerous
telecommunications and internet service providers. Bandwidth is defined as the
passage of the call over the internet. The configuration of our technology
together with this leased bandwidth and the telecommunications and computer
hardware required for our services to function is proprietary to our company. We
do not own any fibre optic cabling or other types of physical data and voice
transmission links as we lease dedicated capacity from our suppliers. We rely on
trade secrets and proprietary know-how to protect this technology. We cannot
assure you that our technology will not be breached, that we will have adequate
remedies for any breach, or that our trade secrets and proprietary know-how will
not otherwise become known or be independently discovered by others. If such a
breach were to occur, our brand, reputation, and growth will be negatively
impacted. As a result, we would incur extra expense to acquire new customers to
replace those which have been acquired by the increased competitive presence,
decreasing our profitability as expenses would increase.
 
 B.11.  We are
dependent on key personnel.
 
 Our success
will be largely dependent upon the efforts of our sole executive officers, Mr.
Lawry Trevor-Deutsch.  We do not have employment agreements with Mr.
Trevor-Deutsch.  The loss of the services of Mr. Trevor-Deutsch could
have a material adverse effect on our business and prospects.  There
can be no assurance that we will be able to retain the services of Mr.
Trevor-Deutsch in the future.  We have not obtained key-man life
insurance policies on Mr. Trevor-Deutsch.  We are also dependent to a
substantial degree on our technical and development staff.  Our
success will be dependent upon our ability to hire and retain additional
qualified technical, research, marketing and sales personnel.  We will
compete with other companies with greater financial and other resources for such
personnel.  Although we have not experienced difficulty in attracting
qualified personnel to date, there can be no assurance that we will be able to
retain our present personnel or acquire additional qualified personnel as and
when needed.
 
 B.12  Our
officers and directors are located outside of the United States, you may have no
effective recourse against our us or our management for misconduct and may not
be able to enforce judgment and civil liabilities against our officers,
directors, experts and agents.
 
 Our directors
and officers are nationals and/or residents of countries other than the United
States, and all or a substantial portion of such persons’ assets are located
outside the United States.  As a result, it may be difficult for
investors to enforce within the United States any judgments obtained against our
officers or directors, including judgments predicated upon the civil liability
provisions of the securities laws of the United States or any state
thereof.
 
 B.
13  Our business will be harmed if we are unable to manage
growth.
 
 Our business
may experience periods of rapid growth that will place significant demands on
our managerial, operational and financial resources.  In order to
manage this possible growth, we must continue to improve and expand our
management, operational and financial systems and controls.  We will
need to hire, train and manage our employee base.  No assurance can be
given that we will be able to timely and effectively meet such
demands.
 
 B.
14  We have determined that our disclosure controls and procedures are
currently not effective. The lack of effective disclosure controls and
procedures could materially adversely affect our financial condition and ability
to carry out our business plan.
  16
 
 As discussed in
Item 9A, “Controls and Procedures”, our management, under the supervision
and with the participation of our Chief Executive Officer and Chief Financial
Officer, conducted an evaluation of the effectiveness of the design and
operation of our disclosure controls and procedures. At September 30, 2010,
because of our inadvertent failure to file our management's assessment of
internal controls over financial reporting in connection with the filing of
Original 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, our Chief Executive Officer and
Chief Financial Officer concluded that our disclosure controls and procedures
were not effective. Ineffective disclosure controls and procedures may
materially adversely affect our ability to report accurately our financial
condition and results of operations in the future in a timely and reliable
manner. In addition, we cannot assure you that we will not discover additional
weaknesses in our disclosure controls and procedures. Any such additional
weakness or failure to remediate the existing weakness could adversely affect
our financial condition or ability to comply with applicable financial reporting
requirements.
 
 C.
Risks Related to Regulation
 
 C.1. Regulation
of VoIP services is developing and therefore uncertain, and future legislative,
regulatory, or judicial actions could adversely impact our business by exposing
us to liability, which could affect the profitability and operations of our
business.
 
 Our business
has developed in an environment largely free from government regulation.
However, the United States and other countries have begun to assert regulatory
authority over VoIP and are continuing to evaluate how VoIP will be regulated in
the future. Both the application of existing rules to us and our competitors and
the effects of future regulatory developments are uncertain.
 
 Future
legislative, judicial, or other regulatory actions could have a negative effect
on our business. If we become subject to the rules and regulations applicable to
telecommunications providers in individual states and provinces, we may incur
significant litigation and compliance costs, and we may have to restructure our
service offerings, exit certain markets, or raise the price of our services, any
of which could cause our services to be less attractive to customers. In
addition, future regulatory developments could increase our cost of doing
business and limit our growth.
 
 Our
international operations are also subject to regulatory risks, including the
risk that regulations in some jurisdictions will prohibit us from providing our
services cost-effectively, or at all, which could limit our growth. Currently,
there are several countries where regulations prohibit us from offering service.
In addition, because customers can use our services almost anywhere that a
broadband Internet connection is available, including countries where providing
VoIP services is illegal, the governments of those countries may attempt to
assert jurisdiction over us, which could expose us to significant liability and
regulation. These increased liabilities will adversely affect the value of our
common shares, and our shareholders could lose their entire
investment.
 
 C.2.
Telecommunications is a Regulated Industry, Particularly in Canada, the Main
Market Segment of our Business, and Future Regulation May Impede us from
Achieving the Necessary Market Share to Succeed.
 
 The current
regulated environment in North America is extremely favorable for new, start-up
companies, to enter the marketplace with new and innovative technologies and
value added services. In Canada, our principal market, the telecommunications
regulator, Canadian-Radio and Telecommunications Commission (CRTC), has
regulated the incumbent Telecommunications companies such that they cannot
reduce their elevated pricing for residential phone service. This regulation has
provided us with a competitive advantage to sell our products and acquire
customers from the incumbents. However, the CRTC has decided that once they feel
that adequate competition is present in the Canadian market, and that start-ups,
such as our company, have achieved a significant market presence, they will lift
the regulation, allowing the incumbent Telecommunications companies to similarly
lower their prices. This will slow the growth of the acquisition of customers,
reducing profitability and adversely affecting our growth
prospects.
 
 17
 
 C.3. Our
customers may not have continued and unimpeded access to broadband. The success
of our business relies on customers' continued and unimpeded access to broadband
service.
 
 The success of
our business relies on customers' continued and unimpeded access to broadband
service. Providers of broadband services may be able to block our services, or
charge their customers more for using our services in addition to the broadband,
which could adversely affect our revenue and growth.
 
 It is not clear
whether suppliers of broadband Internet access have a legal obligation to allow
their customers to access and use our service without interference in the United
States. As a result of recent decisions by the U.S. Supreme Court and the FCC,
providers of broadband services are subject to relatively light regulation by
the FCC. Consequently, federal and state regulators might not prohibit broadband
providers from limiting their customers' access to VoIP, or otherwise
discriminating against VoIP providers. Interference with our service or higher
charges for using our service as an additional service to their broadband could
cause us to lose existing customers, impair our ability to attract new
customers, and harm our revenue and growth, which would adversely affect the
value of our common shares.
 
 C.4. We may
fail to comply with FCC and CRTC regulations such as requiring us to provide
E-911 emergency calling services which would increase our costs through the levy
of fines and penalties, reducing our profitability.
 
 If we fail to
comply with FCC and CRTC regulations such as requiring us to provide E-911
emergency calling services, we may be subject to fines or penalties, which could
include disconnection of our service for certain customers or prohibitions on
marketing of our services and accepting new customers in certain
areas.
 
 The FCC
released an order on June 3, 2005 requiring us to notify our customers of any
differences between our emergency calling services and those available through
traditional telephone providers and obtain affirmative acknowledgments from our
customers of those notifications. We believe we have complied with this order by
notifying all of our US customers of the differences in emergency calling
services and we obtained affirmative acknowledgments from most of our customers.
We had a limited number of US customers at the time (<20). New customers
activated after this date are well aware of the limitations of our 9-1-1
services as it is clearly listed in our service agreement.
 
 While we
believe we have complied with all the current requirements imposed by both the
FCC and the CRTC, we cannot guarantee that we will be capable of compliance with
future requirements. We anticipate that the FCC and the CRTC will continue to
impose new requirements due to the evolving nature of our industry's technology
and usage. The result of non-compliance will have an adverse effect on our
ability to continue to operate in our current markets, therefore we would lose
existing customers, impair our ability to attract new customers, and harm our
revenue and growth.
 
 C.5. The Level
of Competition is Increasing at a Fast Rate due to the Relative Low Barriers to
Entry and Anticipated Market Growth over the Next 5 Years could affect the
profitability and operations of our business.
 
 Land-based
telecommunications technology has not evolved considerably over the past 125
years. However, the breakthrough of standardized, internet-based communications
is revolutionizing the entire industry. In the past, significant investments
were required in order to construct the infrastructure required for
telecommunications, however, now that the infrastructure is in place, smaller
investments are required in order to successfully transmit a voice call using
Internet data transfer and sharing protocols. A new entry, for as little as
$100,000, could purchase the necessary equipment in order to make such a voice
call function. Numerous smaller players have entered the market.
  18
 
 Management's
experience in the telecommunications industry has permitted the registrant to
identify that while barriers to entry to the marketplace exist including the
requirement of further investment to build a successful company around the
technology, the data from VoIP Action suggests that competition is increasing
significantly. This increase can result in price erosion pricing, which could
contribute to the reduction of our profitability and growth. While numerous
providers have entered the market, we have not yet seen as yet pricing erosion
in our market segments, however, this will be a factor over the next 3-4 years.
This prediction is based on the our experience in the industry.
 
 C.6. We Do Not
Currently Hold a Professional or Product Liability Insurance Policy Required to
Sufficiently Protect Us and We Remain Exposed To Potential Liability
Claims.
 
 We do not
currently hold a professional or product liability insurance policy. We intend
to purchase a professional and product liability insurance policy from the
proceeds of this offering. Professional and product liability insurance coverage
is specifically tailored to the delivery of our phone services to the end user.
For example, a customer whose phone service is not functional due to a service
outage may sue us for damages related to the customer's inability to make or
receive a phone call (such as inability to call 9-1-1). Professional liability
insurance exists to cover us for any costs associated with the legal defense, or
any penalties awarded to the plaintiff in such cases where judgment could be
rendered against us in case of loss in court.. Such penalties could be large
monetary funds that a judge could force us to pay in the event where damages
have been awarded to the plaintiff.
 
 Our business
exposes us to potential professional liability which is prevalent in the
telecommunications industry. While we have adequate service level agreements
which indicate that we cannot guarantee 100% up time, these service level
agreements cannot guarantee that we will not be sued for damages. We currently
have no specific professional or product liability insurance. Our current
insurance policies cover theft and liability in our offices only. We intend to
purchase professional and product liability insurance which will help to defray
costs to us for defense against damage claims. We do not foresee any
difficulties in obtaining such a policy, as we have already been approved and a
quotation submitted for such coverage by a Canadian Insurance Company. In this
proposal, the Insurance Company is aware of the geographical locations of our
client base, which is predominantly in Canada however includes a small amount in
the US and International. There can be no assurance that the coverage the
commercial general liability insurance policy provides will be adequate to
satisfy all claims that may arise. Regardless of merit or eventual outcome, such
claims may result in decreased demand for a product, injury to our reputation
and loss of revenues. Thus, a product liability claim may result in losses that
could be material, affecting the value of the common shares of the company, and
our shareholders could even lose their entire investment.
 
 D.
Risks Related To Our Common Stock
 
 D.1. Coalitions
of a few of our larger stockholders have sufficient voting power to make
corporate governance decisions that could have significant effect on us and the
other stockholders
 
 Our officers,
directors and principal stockholders (greater than five percent stockholders)
together control approximately 40%, including options vested or to vest within
sixty days, of our outstanding common stock.  As a result, these
stockholders, if they act together, will be able to exert a significant degree
of influence over our management and affairs and over matters requiring
stockholder approval, including the election of directors and approval of
significant corporate transactions.  In addition, this concentration
of ownership may delay or prevent a change in our control and might affect the
market price of our common stock, even when a change in control may be in the
best interest of all stockholders.  Furthermore, the interests of this
concentration of ownership may not always coincide with our interests or the
interests of other stockholders.  Accordingly, these stockholders
could cause us to enter into transactions or agreements that we would not
otherwise consider.
 
 
 D.2. To date,
we have not paid any cash dividends and no cash dividends will be paid in the
foreseeable future.
  19
 
 Holders of
shares of our common stock are entitled to receive such dividends as may be
declared by our board of directors.  To date, we have paid no cash
dividends on our shares of common stock and we do not expect to pay cash
dividends on our common stock in the foreseeable future.  We intend to
retain future earnings, if any, to provide funds for operation of our
business.  Therefore, any return investors in our common stock will
have to be in the form of appreciation, if any, in the market value of their
shares of common stock.
 
 D.3. Trading on
the OTC pink sheetsmay
be volatile and sporadic, which could depress the market price of our common
stock and make it difficult for our stockholders to resell their shares.
 
 Our common
stock is quoted on the OTC pink sheets electronic quotation
system.  Trading in stock quoted on the OTC pink sheets is often thin
and characterized by wide fluctuations in trading prices, due to many factors
that may have little to do with our operations or business
prospects.  This volatility could depress the market price of our
common stock for reasons unrelated to operating
performance.  Moreover, the OTC pink sheets is not a stock exchange,
and trading of securities on the OTC pink sheets is often more sporadic than the
trading of securities listed on a quotation system like Nasdaq or a stock
exchange like Amex.  These factors may result in investors having
difficulty reselling any shares of our common stock.
 
 D.4  Because our
common stock is quoted and traded on the OTC pink sheets, short selling could
increase the volatility of our stock price
 
 Short selling
occurs when a person sells shares of stock which the person does not yet own and
promises to buy stock in the future to cover the sale.  The general
objective of the person selling the shares short is to make a profit by buying
the shares later, at a lower price, to cover the sale.  Significant
amounts of short selling, or the perception that a significant amount of short
sales could occur, could depress the market price of our common stock. In
contrast, purchases to cover a short position may have the effect of preventing
or retarding a decline in the market price of our common stock, and together
with the imposition of the penalty bid, may stabilize, maintain or otherwise
affect the market price of our common stock.  As a result, the price
of our common stock may be higher than the price that otherwise might exist in
the open market.  If these activities are commenced, they may be
discontinued at any time.  These transactions may be effected on the
OTC pink sheets or any other available markets or exchanges.  Such
short selling if it were to occur could impact the value of our stock in an
extreme and volatile manner to the detriment of our shareholders.
 
 D. 5 Because
the SEC imposes additional sales practice requirements on brokers who deal in
our shares that are penny stocks, some brokers may be unwilling to trade them.
This means that you may have difficulty in reselling your shares and may cause
the price of the shares to decline.
 
 Our stock is a
penny stock.  The Securities and Exchange Commission has adopted Rule
15g-9 which generally defines “penny stock” to be any equity security that has a
market price (as defined) less than $5.00 per share or an exercise price of less
than $5.00 per share, subject to certain exceptions.  Our securities
are covered by the penny stock rules, which impose additional sales practice
requirements on broker-dealers who sell to persons other than established
customers and “accredited investors”.  The term “accredited investor”
refers generally to institutions with assets in excess of $5,000,000 or
individuals with a net worth in excess of $1,000,000 or annual income exceeding
$200,000 or $300,000 jointly with their spouse.  The penny stock rules
require a broker-dealer, prior to a transaction in a penny stock not otherwise
exempt from the rules, to deliver a standardized risk disclosure document in a
form prepared by the SEC which provides information about penny stocks and the
nature and level of risks in the penny stock market.  The
broker-dealer also must provide the customer with current bid and offer
quotations for the penny stock, the compensation of the broker-dealer and its
salesperson in the transaction and monthly account statements showing the market
value of each penny stock held in the customer’s account.  The bid and
offer quotations and the broker-dealer and salesperson compensation information
must be given to the customer orally or in writing prior to effecting the
transaction and must be given to the customer in writing before or with the
customer’s confirmation.  In addition, the penny stock rules require
that prior to a transaction in a penny stock not otherwise exempt from these
rules, the broker-dealer must make a special written determination that the
penny stock is a suitable investment for the purchaser and receive the
purchaser’s written agreement to the transaction.  These disclosure
requirements may have the effect of reducing the level of trading activity in
the secondary market for the stock that is subject to these penny stock
rules.  Consequently, these penny stock rules may affect the ability
of broker-dealers to trade our securities.  We believe that the penny
stock rules discourage investor interest in, and limit the marketability of, our
common stock.
  20
 
 In addition to
the “penny stock” rules promulgated by the Securities and Exchange Commission,
Financial Industry Regulatory Authority (“FINRA”) has adopted rules that require
that in recommending an investment to a customer, a broker-dealer must have
reasonable grounds for believing that the investment is suitable for that
customer.  Prior to recommending speculative, low-priced securities to
their non-institutional customers, broker-dealers must make reasonable efforts
to obtain information about the customer’s financial status, tax status,
investment objectives and other information.  Under interpretations of
these rules, FINRA believes that there is a high probability that speculative
low-priced securities will not be suitable for at least some
customers.  The FINRA requirements make it more difficult for
broker-dealers to recommend that their customers buy our common stock, which may
limit your ability to buy and sell our stock.
 
 D.
6  We have additional securities available for issuance, which, if
issued, could adversely affect the rights of the holders of our common
stock.
 
 Our articles of
incorporation authorize the issuance of 125,000,000 shares of our common
stock.  The common stock can be issued by our board of directors,
without stockholder approval.  Any future issuances of our common
stock would further dilute the percentage ownership of our Company held by our
public stockholders.
 
 D.7  
Possibility of Contingent Liability and SEC Violation
 
 The board of
directors of United American Corporation (“UAC”) determined to spin off its
stock holdings in us. To accomplish the spin off, UAC declared a stock dividend
effective in at the end of business on October 30, 2006 for its equity interests
in our company, consisting of 1,699,323 shares of our common stock, to UAC’s
stockholders on a pro rata basis (with an additional 171 fractional shares
distributed in December). We filed a registration statement on Form SB-2 with
the intent of complying with safe harbor provisions of Staff Legal Bulletin No.
4. Although we intended to follow steps necessary for reliance on the safe
harbor, we failed to follow the appropriate steps. This activity represented a
violation of federal securities laws. There is a possibility that the recipients
could attempt to rescind their receipt of securities and the Securities and
Exchange Commission could find that UAC made a distribution of securities in
violation of Section 5. While the rescission of the receipt of securities would
not be likely to have an impact on our financial condition as the shares would
be returned to UAC, the action could have an adverse impact on the
liquidity and prospective market for our shares of common stock.
 
 ITEM
1B. UNRESOLVED
STAFF COMMENTS
 
 None.
  ITEM 2.
PROPERTIES
 
 Our executive
offices are currently located 424 St. Francois-Xavier Street, Montreal, Quebec,
Canada, H2Y 2S9. We also have a Toronto sales and client services office located
at 6299 Airport Road, suite 307, Mississauga, Ontario, Canada L4V 1N3.  The
approximately 4300 square feet of total office space in these two offices is
rented at a base rent of approximately $4,000 per month.
 ITEM 3.
LEGAL
PROCEEDINGS
 BR
Communications Inc.
 
 We received
notice on February 11, 2009 from 9164-4898 Quebec Inc d/b/a BR Communications
Inc. (“BR”). The notice, filed at the Province of Quebec Superior Court,
District of Montreal, claims that we owe BR unpaid commissions totalling CDN$
158,275.25 ($129,944 US$) based on our increase in sales due to our Dialek
acquisition.
  21
 
 Subsequently 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 us for the termination of the
agreement.
 
 In the executed
agreement with BR it is specifically stated that sales from Dialek are excluded
from the commission calculation due to BR.  We do 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.
 
 We have filed
counterclaims against BR Communications Inc. for lost sales and other defaults
caused by BR’s inability to meet its obligations as part of its agreement with
us.  The amount of damages claimed in our counter claim is CDN$410,255
(approximately US$390,358)
 
 Former
Owners of Orion Communications Inc.
 
 On April 29,
2009, 9191-4200 Quebec Inc. (“9191”) entered into a purchase agreement (the
“Purchase Agreement”) with  the former shareholders (the “Former
Owners”)  of Orion Communications Inc. ("Orion")  for all
of  Orion's  issued and outstanding shares  (the
"Share Sale") .  On April 30, 2009, Orion, under management of 9191,
executed a services agreement with Teliphone Inc. (a subsidiary of the
Company) 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, district of Toronto, for
rescission of the Purchase Agreement due to overpayment and damages claiming
misrepresentation of financial statements made by the Former Owners (the
"Rescission Claim").
 
 As part of
the Share Sale, 9191 retained one of the Former Owners as a Vice President
of Sales.  As a result of the Rescission Claim, the Company’s
subsidiary, Teliphone Inc. terminated this person's
employment.
 
 On February 18,
2010, the Former Owners of Orion filed their defence and counterclaim against
9191, naming the Company, its subsidiary Teliphone Inc., George Metrakos, the
Company’s President and CEO and other  parties (the "Third Party
Defendants") as third party defendants for a total of
CDN$4,000,000.  The Former Owners allege, among other things that
the Third Party Defendants are proper parties to the Rescission
Claim due to its agreements with 9191 to provide services to the clients of
Orion.
 
 The Former
Owners are also pursuing our subsidiary Teliphone Inc. for $150,000 for the
early termination of the employment agreement.
 
 We do not feel
that, as a service provider, the agreements and disagreements between the 9191
and the Former Owners have anything to do with us and hence feel that the claims
brought upon it do not have any merit.  As a result, it has not accrued a
liability for the amounts of the claims made by the Former Owners, however will
continue to evaluate this as more information becomes readily available. We have
accrued legal fees in connection with the claim.
 
 Bank
of Montreal, related to Former Owners of Orion Communications
Inc.
 
 On March 10,
2010, Bank of Montreal (“BMO”), a Canadian financial institution and creditor of
Orion has filed a claim in Superior Court of Justice in the Province of Ontario,
Canada, district of Brampton, against our 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 defence
demonstrating that Teliphone Inc. is providing a paid service to Orion’s
clients.
 
 We have not
accrued a liability for any amounts of the claims made by BMO on its balance
sheet. We have accrued legal fees in connection with the claim.
  22
 
 Other than the
disputes mentioned above, we are currently not involved in any litigation that
we believe could have a materially adverse effect on our financial condition or
results of operations. There is no action, suit, proceeding, inquiry or
investigation before or by any court, public board, government agency,
self-regulatory organization or body pending or, to the knowledge of the
executive officers of our company or any of our subsidiaries, threatened against
or affecting our company, our common stock, any of our subsidiaries or of our
company’s or our company’s subsidiaries’ officers or directors in their
capacities as such, in which an adverse decision could have a material adverse
effect.
 ITEM 4.
(REMOVED
AND RESERVED)
 
 None.
 
 
 PART
II
 
 ITEM 5.
MARKET
FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
 
 Our common
stock is currently quoted on the OTC pink sheets electronic quotation system and
prior to September 3, 2010 was quoted on the OTC Bulletin Board.  The
OTC pink sheets electronic quotation system is a network of security dealers who
buy and sell stock.  The dealers are connected by a computer network
that provides information on current “bids” and “asks,” as well as volume
information.  Our shares are quoted on the OTC pink sheets electronic
quotation system under the symbol “TLPH”.
 
 The market for
our common stock is limited, volatile and sporadic.  The following
table sets forth the range of high and low bid quotations for our common stock
for each of the periods indicated as reported by the OTC Bulletin Board and OTC
pink sheets.  These quotations below reflect inter-dealer prices,
without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions.
 
 Fiscal Year Ended
      September 30, 2010High
      Bid
              
              
              Low
      BidFiscal Quarter
      Ended:December
      31, 2009
              
              $
              0.057
              
              
              $
              0.01March 31,
      2010
              
              $
              0.036
              
              
              $
              0.01June 30,
      2010
              
              $
              0.029
              
              
              $
              0.00September
      30, 2010
              
              $
              0.0241
              
              
              $
              0.0055Fiscal Year Ended
      September 30, 2009High
      Bid
              
              
              Low
      BidFiscal Quarter
      Ended:December
      31, 2008
              
              $
              0.06
              
              
              $
              0.01March 31,
      2009
              
              $
              0.04
              
              
              $
              0.005June 30,
      2009
              
              $
              0.045
              
              
              $
              0.008September
      30, 2009
              
              $
              0.056
              
              
              $
              0.008
  23
  As of December
29, 2010,
there were 37,376,657shares of our common stock outstanding and 209 holders of
record of our common stock and several other stockholders hold shares in street
name.  In many instances, a record holder is a broker or other entity
holding shares in street name for one or more customers who beneficially own the
shares.
 
 Recent
Issuances of Unregistered Securities
  None.
 
 Dividend
Policy
 
 To date, we
have not declared or paid cash dividends on our shares of common
stock.  The holders of our common stock will be entitled to
non-cumulative dividends on the shares of common stock, when and as declared by
our board of directors, in its discretion.  We intend to retain all
future earnings, if any, for our business and do not anticipate paying cash
dividends in the foreseeable future.
 
 Any future
determination to pay cash dividends will be at the discretion of our board of
directors and will be dependent upon our financial condition, results of
operations, capital requirements, general business conditions and such other
factors as our board of directors may deem relevant.
 
 Repurchases
by the Company
 
 During the
fiscal year ended September 30, 2010, we did not repurchase any shares of our
common stock on our own behalf or for any affiliated purchaser.
 
 Securities
Authorized for Issuance under Equity Compensation Plans
  We do not have
established any form of equity compensation plan for the benefit of our
directors, officers or employees.
  ITEM 6.
SELECTED
FINANCIAL DATA
 
 Not
applicable
  24
  ITEM 7.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
 
 The
following discussion and analysis should be read in conjunction with the
consolidated financial statements and related notes included elsewhere in this
annual report on Form 10-K.  This discussion contains forward-looking
statements reflecting our current expectations, estimates and assumptions
concerning events and financial trends that may affect our future operating
results or financial position.  Actual results and the timing of
events may differ materially from those contained in these forward-looking
statements due to a number of factors, including those discussed in the sections
entitled “Risk Factors” and “Cautionary Note Regarding Forward-Looking
Statements” appearing elsewhere in this annual report on Form 10-K.
 
 Trends
in Our Industry and Business
 
 A number of
trends in our industry and business have a significant effect on our results of
operations and are important to an understanding of our financial statements.
These trends include:
 
 Broadband
adoption. The number of households with broadband Internet access
in our core markets of Canada and India has grown significantly. We expect this
trend to continue. We benefit from this trend because our service requires a
broadband Internet connection and our potential addressable market increases as
broadband adoption increases.
 
 Changing
competitive landscape. We are facing increasing competition from
other companies that offer multiple services such as cable television, voice and
broadband Internet service. Several of these competitors are offering VoIP or
other voice services as part of a bundle, in which they offer voice services at
a lower price than we do to new subscribers. In addition, several of these
competitors are working to develop new integrated offerings that we cannot
provide and that could make their services more attractive to customers. We also
compete against established alternative voice communication providers and
independent VoIP service providers. Some of these service providers may choose
to sacrifice revenue in order to gain market share and have offered their
services at lower prices or for free. These offerings could negatively affect
our ability to acquire new customers or retain our existing
customers.
 
 Consumer
adoption of new VoIP technology.  The development of our Teliphone
VoIP service permits us to sell telecommunications services to consumers who
have a broadband internet connection. Our technology permits customers to
continue to use their traditional phone devices to make and receive calls at a
lower cost than traditional phone services. One of the key challenges in the
adoption of this new technology is the customer’s acceptance of potential loss
of service when their internet connection goes down or they lose electrical
power in their home or office. We have mitigated this risk for our customers by
providing telephone call fail-over methods in case of loss of service.
Management believes that even though this adoption risk exists, the reduction of
cost for the services will negate the impact of occasional service loss much
like how consumers accepted at times lower call quality in their worldwide
adoption of mobile phones due to increased convenience.
 
 The development
of our callona.com website seeks to attract consumers on the internet who will
look to utilize our web-based communications services, which will permit us to
generate advertising and promotional revenues from other companies looking to
advertise and promote their products to our callona.com users. We have not as
yet realized any revenue from our callona.com prototype.
  25
 
 We will
continue to cover our cash shortfalls through debt financing with affiliated
parties. In the event that we do not have a significant increase in revenues and
we do not raise sufficient capital in the offering herein, management
estimates we can only sustain our cash requirements for three
months.  After three months, management will need to consider
alternate sources of financing, including but not limited to additional debt
financing, in order to sustain operations for the next twelve
months.  No agreements or arrangements have been made as of this date
for such financing.
 
 Results
of Operations
 
 Fiscal
Year Ended September 30, 2010 as compared to September 30,
2009
 
 We generate
revenues from the sale of VoIP 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.
 
 For the year
ended September 30, 2010, we recorded sales of $4,663,201, an increase of 72%,
as compared to $2,710,680 for the same period in 2009.  The revenues
were derived from the sale of $264,596 of consulting services and $4,398,605 of
telecommunications services to residential and business clients, as compared to
the prior year which consisted of $276,660 of consulting services and $2,434,020
of sales of telecommunications services to residential and business
clients  The increase in telecommunications services sales are
primarily due to the increased business brought on through the servicing of the
customers of Orion Communications Inc., which rights were acquired in May of
2009.  All of our sales for the year ended September 30, 2010 were
primarily attributable to services, as compared to the prior year where 98% of
sales related to services and 2% related to hardware.
 
 Our cost of
sales were $3,007,073 for the year ended September 30, 2010, a 92% increase as
compared to $1,563,671 in the prior year, primarily due to the sales increase
and related costs, specifically the cost of managing higher levels of traffic
over our telecommunications network and our major providers’
networks.  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 $1,656,128, a 44% increase
as compared to $1,147,009 in the prior year.  The increase in gross
margin is primarily due to the resale of certain telecommunications services
resulting from the acquisition of the customer base of Dialek Telecom and the
servicing of the clients of Orion Communications.  Both the
acquisition of the Dialek customer base and the servicing of the Orion customers
provide margins related to the re-sale of telecommunications services provided
by other carriers.  This is different from our traditional business of
offering telecommunications services over our own network.  Services
re-sold us with lower gross margins and since the majority of our revenues are
now derived from the resale of services, we expect that future results may
demonstrate a decrease in gross margin as a percentage of sales.  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.
 
 The following
table presents an analysis of operating revenues and gross margin based on our
two operating offices—in Montreal, Quebec (which includes sales to clients
acquired in the 2008 transaction with Dialek Telecom) and in Toronto, Ontario
(which includes sales associated with the servicing of the clients acquired in
the 2009 transaction with Orion Communications Inc.).  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.
  26
 
 Analysis
of Operating Revenues
 
 Montreal,
      Quebec
              
              Toronto,
      OntarioYear
      ended September 30
              2010
              
              
              2009
              
              %
      Change
              
              2010
              
              
              
              2009*
              
              %
      ChangeRevenues
              $
              1,293,765
              
              
              $
              1,349,485
              
              -4%
              
              $
              3,256,521
              
              
              $
              1,361,195
              
              76%Cost of
      Sales
              $
              713,171
              
              
              $
              756,690
              
              -7%
              
              $
              2,318,016
              
              
              $
              898,695
              
              158%Gross
      Margin ($)
              $
              580,594
              
              
              $
              592,795
              
              -2%
              
              $
              938,505
              
              
              $
              462,500
              
              103%Gross
      Margin %
              
              45
              %
              
              
              44
              %
              
              
              
              29
              %
              
              
              34
              %% of
      total Gross Margin
              
              38
              %
              
              
              56
              %
              
              
              
              62
              %
              
              
              44
              %
 
 * We
began operating out of our Toronto, Ontario office in May 2009, near the end of
the fourth fiscal quarter of 2009.
 
 Our aggregate
operating expenses for the year ended September 30, 2010, were $2,324,911, a
138% increase as compared to $975,330 for the prior year.  During the
current year period, we took a one-time, non-cash impairment of $337,275 on
February 23, 2010, which related to the cancellation of our agreement with
9191-4200 Quebec Inc. We also took a one-time charge of $284,737 for bad debt
for the year ended September 30, 2010, compared with $87,242 in bad debt
expenses for 2009.  This represents a 613% increase in impairment and
write-offs from 2009 to 2010.  The year-over-year increase in
operating expenses was also driven by a $459,406 increase in administrative
wages resulting from an increase in our salaried employee base due to the May
2009 opening of the new office in Toronto; a $374,688 increase in professional
and consulting fees as we increased our accounting, internal audit and legal
expenditures related to the servicing of the Orion Communications Inc. customer
base, as well as the legal expenses related to the required defense and a
$25,530 decrease in general and administrative expenses related to the reduction
of expenses through cost reduction measures in our two operating
offices.  In addition, selling and promotion expenses decreased by
$12,080 as we decreased sales travel as part of our efforts to focus on our
local markets of Montreal and Toronto and depreciation expense increased by
$18,327 since we acquired new computer equipment during the year.
 
 As a result, we
had net loss of $590,041 for the year ended September, 2010 (including a
minority interest of $50,462), as compared to a net income of $102,351 for the
prior year (when considering a minority interest of $16,533).  During
2010, we took impairment and bad debt expenses of $622,012 and had a gain from
debt forgiveness of $114,805.  When removing these one-time factors,
we demonstrated an net loss of $82,834 from operations.  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
year ended September 30, 2010:
 
 On our balance
sheet as of September 30, 2010, we had assets consisting of accounts receivable
in the amount of $405,965, inventory of $12,225, prepaid expenses of $223,690
and no cash. We have expended our cash in furtherance of our business
plan.  We also show fixed assets, net of depreciation of $186,992
which includes $160,217 of equipment and capitalized research and development
labor for new services to be offered over our own network.  Our
balance sheet as of September 30, 2010 reflects an accumulated deficit of
$2,240,750 and total stockholder’s deficit of $435,695.
 
 We used
$510,304 of cash in operating activities in 2010 compared to being provided
$91,079 in 2009. This change was attributable in large part due to the one-time
impairment of $337,275 and the bad debt expense of 284,737.
 
 We used cash in
investing activities of $171,905 compared to a use of $55,685 in 2009. This
change was primarily attributable to our use of cash in 2010 to invest in our
new IP-Television servicing offering to be launched in 2011.
 
 We had net cash
provided by financing activities of $712,823 in 2010 compared to a use of
$52,195 in 2009.  The majority of this provision comes from our
increase in overdraft at our bank, as well as the proceeds of a loan payable of
$534,243 with one of our primary telecommunications service
providers.
 
 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.
  27
 
 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 September 30, 2010 of
$8,000 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 last three months of the fiscal year ended
September 30, 2010, we posted a significant loss applicable to common shares of
$590,041.  We continue to have a working capital deficit of $729,756.
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.
 
 We acquired the
rights to service the customers of Orion Communications Inc. on May 7, 2009, and
assumed a total of $418,762 of liabilities and $46,686 of assets. We realize
approximately $35,000 per month of additional gross margin, and hence this has
contributed to an increase in cash flow from operations.
  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.
  28
 
 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:
 
 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.
  29
 
 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 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:
 
 ·
              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.
  30
  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.
  31
 
 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.
  32
 
 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.
  33
 ITEM
7A. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Not
applicable
  ITEM 8.
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
 The financial
statements are listed in Part IV Item 15 of this annual report on
Form 10-K and are incorporated by reference in this
Item 8.
 
 ITEM 9.
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
 
 None
 ITEM
9A. CONTROLS
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
September 30, 2010, the end of the period covered by this Annual Report on
Form 10-K, 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 Annual 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 our management's assessment of
internal controls over financial reporting in connection with the filing of
Original Annual Report on Form 10-K for the period ended September 30, 2010,
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.
  Management’s
Report on Internal Control over Financial Reporting
 
 Our management
is responsible for establishing and maintaining adequate internal control over
financial reporting.  Our internal control over financial reporting is
designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles and includes those
policies and procedures that:
 
 ·
              Pertain
      to the maintenance of records that in reasonable detail accurately and
      fairly reflect the transactions and dispositions of our
      assets;
 
 ·
              Provide
      reasonable assurance that the transactions are recorded as necessary to
      permit preparation of financial statements in accordance with generally
      accepted accounting principles, and that our receipts and expenditures are
      being made only in accordance with authorizations of our management and
      directors; and
 
 ·
              Provide
      reasonable assurance regarding prevention or timely detection of
      unauthorized acquisition, use or disposition of our assets that could have
      a material effect on the financial
statements.
  34
  All internal
control systems, no matter how well designed, have inherent
limitations.  Therefore, even those systems determined to be effective
can provide only reasonable assurance with respect to financial statement
preparation and presentation.  Because of its inherent limitations,
internal control over financial reporting may not prevent or detect
misstatements.  Projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate
because of changes in conditions or that the degree of compliance with the
policies or procedures may deteriorate.
 
 In connection
with the filing of our Annual Report on Form 10-K, our management assessed
the effectiveness of our internal control over financial reporting as of
September 30, 2010.  In making this assessment, our management used
the criteria set forth by Committee of Sponsoring Organizations of the Treadway
Commission in Internal
Control—Integrated Framework.  Based on our assessment using
those criteria, management believes that, as of September 30, 2010, our internal
control over financial reporting is effective based on those
criteria.
 
 This annual
report does not include an attestation report of our Company's registered public
accounting firm regarding internal control over financial reporting. 
Management's report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permit us to provide only management's report in this annual
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 year ended September 30,
2010.
 ITEM
9B. OTHER
INFORMATION
 None.
 
 
 PART
III
 
 ITEM
10. DIRECTORS,
EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
 The following
information sets forth the names of our current director and executive officers,
their ages and their present positions.
 
 NAME
              AGE
              SERVED
      SINCE
              POSITIONS
      WITH COMPANYLawry
      Trevor-Deutsch
              53
              August
      23, 2010
              Director,
      President, CEO and CFOGeorge
      Metrakos
              39
              April 28,
      2005
              Director
 
 35
  Lawry
Trevor-Deutsch.  Mr. Trevor-Deutsch was appointed to serve as
our Chief Executive Officer, Chief Financial Officer and President on October
19, 2010 and has served as a member of our board of directors since August 23,
2010.  Mr. Trevor-Deutsch was appointed to serve as President of
Teliphone Inc. on September 18, 2010.  In 1991, Mr. Trevor-Deutsch
founded Strathmere Associates International Limited, a Canadian corporation
focused on compiling business and economic development plans, and continues to
serve as its President.  From 1983 to 1991,  Mr.
Trevor-Deutsch was a consultant with Robertson Nickerson Limited, Consulting
Engineers in Ottawa, Ontario Canada where he specialized in economic development
projects over a wide variety of industry sectors.  Mr. Trevor-Deutsch
is a regular consultant to the World Bank in the area of project feasibility and
implementation.  Since May 1999, he has served as a member of the
board of directors of International Hi-Tech Industries.  From March
2008 to May 2008, Mr. Lawry Trevor-Deutsch served as President, Chief Executive
Officer, Chief Financial Officer, Director, and Chairman of United American
Corporation.  Mr. Trevor-Deutsch earned his Bachelor of Science, with
honours, and Masters of Science from Carleton University in Ottawa Canada and a
joint Master of Business Administration from McGill University in
Montreal and the Manchester Business School of the University of
Manchester.
 
 George
Metrakos.  Mr. Metrakos holds a Bachelor's of Engineering from
Concordia University (Montreal, Canada) and a Master's of Business
Administration (MBA) from the John Molson School of Business at Concordia
University. Mr. Metrakos has specialized in numerous successful launches of new
technologies for emerging marketplaces. He has worked with such organizations as
Philips B.V. (The Netherlands), Dow Chemical company (USA), Hydro Quebec
(Provincial Utility) and other entrepreneurial high-tech companies. During his
founding role in his prior company, Mr. Metrakos was recognized as entrepreneur
of the year in an angel financing competition within the Montreal business
community awarded by the Montreal Chamber of Commerce youth wing. His previous
company launched an advanced Demand Management software used by suppliers to
Wal-Mart Stores.
 
 Employer's
      name
              
              Beginning
      and ending
                dates
      of employment
              
              Positions
      Held
              
              Brief
      Description of
                Employer's
      businessGeorge
      Metrakos
              
              Teliphone
      Inc.
              
              9/2004 to
      9/2010
              
              President
              
              Telecommunications
      CompanyTeliphone
      Corp.
              
              10/ 2010
      to present
              
              Director
              
              Holding
      CompanyTeliphone
      Corp.
              
              4/2005 to
      10/2010
              
              President, CEO, CFO
      and Director
              
              Holding
      CompanyUnited
      American Corp.
              
              11/2005
      to 2/2008
              
              President, CEO, CFO
      and Director
              
              Holding
      CompanyMetratech
      Retail Systems Inc.
              
              3/2000 to
      8/2004
              
              President
      & Founder
              
              Supply
      ChainManagement
      Software
 
 Our Directors
were appointed to hold office until the next annual meeting of our stockholders
or until their successors are elected and qualified. Officers are elected
annually and serve at the discretion of the Board of Directors. Board
vacancies are filled by a majority vote of the Board.
 
 Family
Relationships
 
 There are no
family relationships between or among the directors, executive officers or
persons nominated or chosen by us to become directors or executive
officers.
 
 Audit
Committee
 
 We do not have
a separately-designated standing audit committee.  The entire Board of
Directors performs the functions of an audit committee, but no written charter
governs the actions of the Board when performing the functions of that would
generally be performed by an audit committee.  The Board approves the
selection of our independent accountants and meets and interacts with the
independent accountants to discuss issues related to financial
reporting.  In addition, the Board reviews the scope and results of
the audit with the independent accountants, reviews with management and the
independent accountants our annual operating results, considers the adequacy of
our internal accounting procedures and considers other auditing and accounting
matters including fees to be paid to the independent auditor and the performance
of the independent auditor.
  36
 
 For the fiscal
year ending September 30, 2010, the Board:
 
 ·
              Reviewed and
      discussed the audited financial statements with management,
      and
 
 ·
              Reviewed and
      discussed the written disclosures and the letter from our independent
      auditors on the matters relating to the auditor's
      independence.
 
 Based upon the
Board’s review and discussion of the matters above, the Board authorized
inclusion of the audited financial statements for the year ended September 30,
2010 to be included in the Annual Report on Form 10-K and filed with the
Securities and Exchange Commission.
 
 The Board of
Directors determined that Mr. Metrakos qualifies as an “audit committee
financial expert,” as defined under the rules and regulations of the Securities
and Exchange Commission.
 
 Section 16(a)
Beneficial Ownership Reporting
 
 Section 16(a) of the
Securities Act of 1934, as amended, requires our executive officers and
directors, and persons who own more than ten percent (10%) of our common
stock, to file with the Securities and Exchange Commission reports of ownership
of, and transactions in, our securities and to provide us with copies of those
filings.  To our knowledge, based solely on our review of the copies
of such forms received by us, or written representations from certain reporting
persons, we believe that during the year ended September 30, 2010, all filing
requirements applicable to our officers, directors and greater than ten percent
beneficial owners were complied with.
 
 Code of
Ethics and Conduct
  Our Board of
Directors has adopted a Code
of Ethics and Conductthat is applicable to our
 
 Senior
Financial Officers, including our principal executive officer, principal
financial officer, principal accounting officer or persons performing similar
functions.  Our Code
of Ethics and Conductis intended to ensure that our employees act in
accordance with the highest ethical standards.  The Code
of Ethics and Conductis filed as an exhibit to our Annual Report on
Form 10-KSB for the fiscal year ended September 30, 2005.
 
 ITEM
11. EXECUTIVE
COMPENSATION
 The following
table presents information concerning the total compensation of our Chief
Executive Officer, Chief Financial Officer and the other most highly compensated
officers during the last fiscal year (the “Named Executive Officers”) for
services rendered to us in all capacities for the years ended September 30, 2010
and 2009:
  Summary
Compensation Table
  Name
      (a)
              
              Year
              
              
              Salary
                ($)
              
              
              Bonus
                ($)(1)
              
              
              Stock
                Awards
                ($)
              
              
              Option
                Awards
                ($)
              
              
              All
      Other
                Compensation
                ($)
              
              
              Total
                ($)George
      Metrakos
                Former CEO, CFO
      & President (2)
              
              2010
                2009
              
              
              109,155
                53,747
              
              
              -
                -
              
              
              -
                -
              
              
              -
                -
              
              
              -
                -
              
              
              109,155
                53,747Lawry Trevor
      Deutsch
                CEO, CFO &
      President (3)
              
              2010
                2009
              
              
              -
                -
              
              
              -
                -
              
              
              -
                -
              
              
              -
                -
              
              
              -
                -
              
              
              -
                -
 ___________
 (1)
              No executive
      officers received any bonus during the fiscal years ended September 30,
      2010 or 2009.
 (2)
              Mr. Metrakos
      resigned as our Chief Executive Officer, Chief Financial Officer and
      President on October 19, 2010.
 (3)
              Mr. Trevor Deutsch
      was appointed to serve as our  Chief Executive Officer, Chief
      Financial Officer and President on October 19,
  2010.
  37
  Compensation
Components
  Base
Salary and Bonuses.  At this time, we do not compensate our
executive officers by the payment of bonus compensation.  Mr. Metrakos
was compensated at the rate of $100 per hour for any work that performed in an
operational capacity.
  Stock
Options.  Stock option awards are determined by the Board of
Directors based on numerous factors, some of which include responsibilities
incumbent with the role of each executive to the Company and tenure with the
Company.  We did not grant any stock option awards to our executive
officers during the year ended September 30, 2010.
 
 Outstanding
Equity Awards at Fiscal Year-End
  There were no
outstanding equity awards issued to any of our named executive officers at
September 30, 2010
  Equity
Compensation or Other Benefit Plans
  We have never established
any form of equity compensation plan for the benefit of our directors, officers
or future employees.  We do not have a long-term incentive plan or any
defined benefit, pension plan, profit sharing or other retirement
plan.
  Compensation
of Directors
 
 Our directors
did not receive any compensation for their service during the year ended
September 30, 2010.  No options were granted or exercised in
2010.  We have no standard arrangement to compensate directors for
their services in their capacity as directors.  Directors are not paid
for meetings attended.   All travel and lodging expenses
associated with corporate matters are reimbursed by us, if and when
incurred.
  Employment
Contracts; Termination of Employment and Change-in-Control
Arrangements
  We do not have
any employment agreements with any of our executive officers.
  ITEM
12. SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS.
 
 The following
table sets forth, as of December
29, 2010, the number and percentage of outstanding shares of
common stock beneficially owned by (a) each person known by us to
beneficially own more than five percent of such stock, (b) each director of
the Company, (c) each named officer of the Company, and (d) all our
directors and executive officers as a group. We have no other class of capital
stock outstanding.
  38
  Amount and Nature of
      Beneficial OwnershipName and Address of
      Beneficial Owner(1)
              
              Shares
                Owned
              
              Options
                Exercisable
                Within
      60
                Days
      (2)
              
              Percent
                of
                ClassDirectors
      and Executive OfficersGeorge Metrakos
      (3)
              
              1,838,798
              
              -
              
              4.9
              %Lawry Trevor-Deutsch
      (4)
              
              581,343
              
              -
              
              1.5
              %All current
      directors and executive officers as a group (two persons)
              
              2,420,141
              
              -
              
              6.4
              %More
      Than 5% Beneficial Owners3874958
      Canada Inc. (5)
                220 de la
      Coulée
                Mont
      St-Hilaire, QC J3H 5Z6
              
              12,560,451
              
              -
              
              33.4
              %
  (1)
              Unless otherwise
      provided, the address of each person is c/o 424 St-François-Xavier Street,
      Montreal, Quebec, Canada H2Y 2S9.
 (2)
              This column
      represents shares not included in “Shares Owned” that may be acquired by
      the exercise of options within 60 days of December
      29,
2010.
 (3)
              George Metrakos is
      the indirect beneficial owner of 1,838,798 shares held by Metratech
      Business Solutions Inc.
 (4)
              Lawry Trevor-Deutsch
      is the indirect beneficial owner of 534,184 shares held by Strathmere
      Associates International Limited.
 (5)
                3874958 Canada Inc.
      is owned by "Fiducie Familiale MAA" (MAA Family Trust) and the beneficial
      owner of shares held by this entity is Ann Marie
  Poudrier.
 The above
beneficial ownership information is based on information furnished by the
specified persons and is determined in accordance with Rule 13d-3 under the
Exchange Act, as required for purposes of this annual report; accordingly, it
includes shares of our common stock that are issuable upon the exercise of stock
options exercisable within 60 days of December
29, 2010. Such information is not necessarily to be
construed as an admission of beneficial ownership for other
purposes.
 
 ITEM
13. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
 Other than as
set forth below, none of our directors or executive officers, nor any proposed
nominee for election as a director, nor any person who beneficially owns,
directly or indirectly, shares carrying more than 5% of the voting rights
attached to all of our outstanding shares, nor any members of the immediate
family (including spouse, parents, children, siblings, and in-laws) of any of
the foregoing persons has any material interest, direct or indirect, in any
transaction since the beginning of our last fiscal year on October 1, 2009 or in
any presently proposed transaction which, in either case, has or will materially
affect us.
 
 ·
              On September 16,
      2009, we entered into a verbal loan agreement (the “Loan Agreement”) with
      Mr. Trevor-Deutsch. The loan agreement provides us the opportunity to
      extend our existing credit facility with our bank, TD Canada Trust
      (TD).  Under the terms of the Loan Agreement, Mr. Trevor-Deutsch
      agreed to loan us One Hundred Seventy Five Thousand Dollars ($175,000)
      (the “Loan”) in order to secure a Guaranteed Investment Certificate
      (“GIC”) for the same principal amount as collateral security for the TD
      credit facility.  We agreed to repay the Loan on demand together
      with interest at a rate of twelve percent (12%) per year plus any
      borrowing fees incurred by Mr. Trevor-Deutsch.  Interest of
      eight percent (8%) under the Loan Agreement is payable partly in cash
      (four percent (4%)) and partly in shares (four percent (4%)) of our common
      stock based on the average quarterly trading price of our shares as traded
      on the Over-The-Counter-Bulletin-Board.  As of December
      29, 2010, we have paid Mr. Trevor-Deutsch three thousand
      nine hundred and nine-four ($3,994) in cash and are obligated to issue him
      77,900 shares, which have not been issued as of the date of this
      report.
  ·
              On December 31,
      2008, we entered into a verbal long-term loan agreement (“Long-Term Loan
      Agreement”) with Strathmere Associates International Limited
      (“Strathmere”), a company controlled by Mr. Trevor-Deutsch for a total of
      seventy thousand eight hundred and twenty-eight dollars
      ($70,828).  The Long-Term Loan Agreement combined all prior
      advances that were made by Strathmere prior to December 31,
      2008.  Under the Terms of the Long-Term Loan Agreement, we
      agreed to pay the long-term loan on demand along with interest at a rate
      of twelve percent (12%) paid quarterly. As of December
      29, 2010, two-thousand, one hundred and twenty five dollars
      ($2,125), representing the quarterly payment due on September 30, 2010 has
      paid.  No other amounts are
  outstanding.
  39
 
 Director
Independence
 
 Our Board of
Directors undertook its annual review of the independence of the directors and
considered whether any director had a material relationship with us or our
management that could compromise his ability to exercise independent judgment in
carrying out his responsibilities.  As a result of this review, the
Board of Directors affirmatively determined that Mr. Trevor-Deutsch, because of
his service as an officer of the Company, is not an “independent director” as
such term is used under the rules and regulations of the Securities and Exchange
Commission.
 ITEM
14. PRINCIPAL
ACCOUNTANT FEES AND SERVICES
 
 The following
table is a summary of the fees billed to us by KBL, LLP for professional
services for the fiscal year ended September 30, 2010 and for professional
services for the fiscal year ended September 30, 2009:
  Fiscal
                2010
      Fees
              
              
              Fiscal
                2009
      FeesFee
      CategoryAudit Fees
              
              $
              27,500
              
              
              $
              27,500Audit-Related
      Fees
              
              
              -
              
              
              
              -Tax Fees
              
              
              -
              
              
              
              -All Other Fees
              
              
              -
              
              
              
              -Total Fees
              
              $
              27,500
              
              
              $
              27,500
  Audit
Fees. Consists
of fees billed for professional services rendered for the audit of our
consolidated financial statements and review of the interim consolidated
financial statements included in quarterly reports and services that are
normally provided by our independent registered public accounting firms in
connection with statutory and regulatory filings or engagements.
  Audit-Related
Fees. Consists
of fees billed for assurance and related services that are reasonably related to
the performance of the audit or review of our consolidated financial statements
and are not reported under “Audit Fees.” These services include employee benefit
plan audits, accounting consultations in connection with acquisitions, attest
services that are not required by statute or regulation, and consultations
concerning financial accounting and reporting standards.
  Tax
Fees. Consists
of fees billed for professional services for tax compliance, tax advice and tax
planning. These services include assistance regarding federal, state and
international tax compliance, tax audit defense, customs and duties, mergers and
acquisitions, and international tax planning.
  All
Other Fees. Consists
of fees for products and services other than the services reported
above.
  Our practice is to
consider and approve in advance all proposed audit and non-audit services to be
provided by our independent registered public accounting firm.
  The audit
report of KBL, LLP on the consolidated financial statements of the Company for
the year ended September 30, 2010 did not contain an adverse opinion or
disclaimer of opinion, and was not qualified or modified as to uncertainty,
audit scope or accounting principles, except that the audit reports on our
consolidated financial statements for the fiscal years ended September 30, 2010
and September 30, 2009 contained an uncertainty about our ability to continue as
a going concern.
  During
our fiscal years ended September 30, 2010 and 2009, there were no disagreements
with KBL, LLP on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedures, which disagreements if
not resolved to KBL, LLP satisfaction would have caused it to make reference to
the subject matter of such disagreements in connection with its reports on the
consolidated financial statements for such periods.
 
 During
our fiscal years ended September 30, 2010 and 2009, there were no reportable
events (as described in Item 304(a)(1)(v) of
Regulation S-K).
 
 40
 
 ITEM
15. EXHIBITS
 
 (a)(1)
  Index
to Financial Statements
 
 TELIPHONE
CORP.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR THE
YEARS ENDED SEPTEMBER 30, 2010 AND 2009
 
 INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 PageReport of
      Independent Registered Public Accounting Firm
              F-1Consolidated Balance
      Sheets as of September 30, 2010 and 2009
              F-2Consolidated
      Statements of Operations and Comprehensive Income (Loss) for the Years
      Ended September 30, 2010 and 2009
              F-3Consolidated
      Statements of Changes in Stockholders’ Equity (Deficit) for the Years
      Ended September 30, 2010 and 2009
              F-4Consolidated
      Statements of Cash Flows for the Years Ended September 30, 2010 and
      2009
              F-5Notes to
      Consolidated Financial Statements
              F-6
 
 41
 Report
of Independent Registered Public Accounting Firm
 
 To the
Directors of
 Teliphone
Corp.
 
 We have audited
the accompanying consolidated balance sheets of Teliphone Corp. (the "Company")
as of September 30, 2010 and 2009, and the related consolidated statements of
operations and comprehensive income (loss), changes in stockholders' equity
(deficit) and cash flows for the years ended September 30, 2010 and
2009  Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
 
 We conducted
our audits in accordance with standards of the Public Company Accounting
Oversight Board (United States).  Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material
misstatement.  We were not engaged to perform an audit of the
Company’s internal control over financial reporting.  Our audits
included consideration of internal control over financial reporting as a basis
for designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting.  Accordingly, we
express no such opinion.  An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements.  An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.  We believe
that our audits provide a reasonable basis for our opinion.
 
 In our opinion,
the consolidated financial statements referred to above present fairly, in all
material respects, the consolidated financial position of Teliphone Corp. as of
September 30, 2010 and 2009, and the results of its consolidated statements of
operations and comprehensive income (loss), changes in stockholders’ equity
(deficit), and cash flows for years ended September 30, 2010 and 2009 in
conformity with U.S. generally accepted accounting principles.
 
 The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has sustained operating losses
and significant working capital deficits in the past few years, and has
commenced profitable operations during this past year. The lack of profitable
operations in the past and the need to continue to raise funds raise significant
doubt about the Company’s ability to continue as a going concern. Management’s
plans in this regard are described in Note 1. The consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
 
 /s/KBL,
LLP
 
 New York,
NY
 F-1
  TELIPHONE
CORP.
 CONSOLIDATED
BALANCE SHEETS
 SEPTEMBER
30, 2010 AND 2009
  ASSETSUS
      $SEPTEMBER
      30,
                
                
                SEPTEMBER
      30,2010
                
                
                2009Current
      Assets:Cash and
      cash equivalents
                
                $
                -
                
                
                $
                -Accounts
      receivable, net
                
                
                405,965
                
                
                
                514,988Inventory
                
                
                12,225
                
                
                
                11,819Prepaid
      expenses and other current assets
                
                
                223,690
                
                
                
                88,240Total
      Current Assets
                
                
                641,880
                
                
                
                615,047Fixed
      assets, net of depreciation
                
                
                186,992
                
                
                
                15,250Goodwill
                
                
                544,385
                
                
                
                851,489TOTAL
      ASSETS
                
                $
                1,373,257
                
                
                $
                1,481,786LIABILITIES AND
      STOCKHOLDERS' EQUITY (DEFICIT)LIABILITIESCurrent
      Liabilities:Bank
      overdraft
                
                $
                433,035
                
                
                $
                93,714Deferred
      revenue
                
                
                3,409
                
                
                
                2,690Promissory
      note payable
                
                
                -
                
                
                
                26,152Current
      portion of related party convertible debentures
                
                
                58,309
                
                
                
                56,038Current
      portion of non related party loans
                
                
                178,654
                
                
                
                -Current
      portion of related party loans
                
                
                8,000
                
                
                
                42,500Current
      portion of obligations under capital lease
                
                
                13,165
                
                
                
                -Liability
      for stock to be issued
                
                
                19,868
                
                
                
                -Accounts
      payable and accrued expenses
                
                
                657,196
                
                
                
                998,494Total
      Current Liabilities
                
                
                1,371,636
                
                
                
                1,219,588Long Term
      Liabilities:Related
      party convertible debentures, net of current portion
                
                
                -
                
                
                
                -Obligations
      under capital lease, net of current portion
                
                
                10,971
                
                
                
                -Non
      related party loans, net of current portion
                
                
                355,517
                
                
                
                -Related
      party loans, net of current portion
                
                
                70,828
                
                
                
                70,828TOTAL
      LIABILITIES
                
                
                1,808,952
                
                
                
                1,290,416STOCKHOLDERS'
      EQUITY (DEFICIT)Common stock, $.001 Par Value; 125,000,000 shares
    authorizedand
      37,556,657 and 37,376,657 shares issued and outstanding,
      respectively
                
                
                37,557
                
                
                
                37,377Additional paid-in capital
                
                
                1,870,191
                
                
                
                1,847,871Accumulated
      deficit
                
                
                (2,240,750
                )
                
                
                (1,650,709
                )Accumulated
      other comprehensive income (loss)
                
                
                (128,624
                )
                
                
                (119,562
                )Total
      Teliphone Corp. Stockholders' Equity (Deficit)
                
                
                (461,626
                )
                
                
                114,977Noncontrolling
      interest
                
                
                25,931
                
                
                
                76,393Total
      Stockholders' Equity (Deficit)
                
                
                (435,695
                )
                
                
                191,370TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
                
                $
                1,373,257
                
                
                $
                1,481,786
 
 The accompanying notes are
an integral part of the consolidated financial statements
 
 
 F-2
  TELIPHONE
CORP.
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 FOR THE YEARS ENDED SEPTEMBER
30, 2010 AND 2009
  US$YEARS
      ENDEDSEPTEMBER
      30,2010
                
                
                2009OPERATING
      REVENUESRevenues
                
                $
                4,663,201
                
                
                $
                2,710,680COST
      OF REVENUESInventory,
      beginning of period
                
                
                11,819
                
                
                
                8,964Purchases
      and cost of services
                
                
                3,007,479
                
                
                
                1,566,526Inventory,
      end of period
                
                
                (12,225
                )
                
                
                (11,819
                )Total
      Cost of Revenues
                
                
                3,007,073
                
                
                
                1,563,671GROSS
      PROFIT
                
                
                1,656,128
                
                
                
                1,147,009OPERATING
      EXPENSESSelling
      and promotion
                
                
                22,409
                
                
                
                34,489Administrative
      wages
                
                
                857,799
                
                
                
                398,393Professional
      and consulting fees
                
                
                643,571
                
                
                
                268,883Other
      general and administrative expenses
                
                
                152,279
                
                
                
                177,809Bad
      debt
                
                
                284,737
                
                
                
                87,242Impairment
                
                
                337,275
                
                
                
                -Depreciation
                
                
                26,841
                
                
                
                8,514Total
      Operating Expenses
                
                
                2,324,911
                
                
                
                975,330NET
      INCOME (LOSS) BEFORE OTHERINCOME (EXPENSE)
                
                
                (668,783
                )
                
                
                171,679OTHER
      INCOME (EXPENSE)Forgiveness
      of debt
                
                
                114,805
                
                
                
                -Interest
      expense
                
                
                (86,525
                )
                
                
                (52,795
                )Total
      Other Income (Expense)
                
                
                28,280
                
                
                
                (52,795
                )NET
      INCOME (LOSS) BEFORE PROVISION FORINCOME
      TAXES
                
                
                (640,503
                )
                
                
                118,884Provision
      for Income Taxes
                
                
                -
                
                
                
                -NET
      INCOME (LOSS)
                
                
                (640,503
                )
                
                
                118,884Less:
      Net earnings attributable to noncontrolling interest
                
                
                50,462
                
                
                
                (16,533
                )NET
      INCOME (LOSS) APPLICABLE TO COMMON SHARES
                
                $
                (590,041
                )
                
                $
                102,351NET
      INCOME (LOSS) PER BASIC AND DILUTED SHARES
                
                $
                (0.02
                )
                
                $
                0.00WEIGHTED
      AVERAGE NUMBER OF COMMONSHARES
      OUTSTANDING
                
                
                37,556,657
                
                
                
                35,910,295COMPREHENSIVE
      INCOME (LOSS)Net
      Income (loss)
                
                $
                (590,041
                )
                
                $
                102,351Other
      comprehensive income (loss)Currency
      translation adjustments
                
                
                (9,062
                )
                
                
                18,157Comprehensive income
      (loss)
                
                $
                (599,103
                )
                
                $
                120,508
 
 The accompanying notes are
an integral part of the consolidated financial statements
  F-3
  TELIPHONE
CORP.
 CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
 FOR THE YEARS ENDED SEPTEMBER
30, 2010 AND 2009
  US$AccumulatedAdditional
                
                
                
                
                
                OtherCommon
      Stock
                
                
                
                
                
                Paid-in
                
                
                Accumulated
                
                
                ComprehensiveShares
                
                
                Amount
                
                
                Capital
                
                
                Deficit
                
                
                Income
      (Loss)
                
                
                TotalBalance
      September 30, 2007
                
                
                33,554,024
                
                
                $
                33,554
                
                
                $
                898,156
                
                
                $
                (1,565,404
                )
                
                $
                (35,277
                )
                
                $
                (668,971
                )Net loss
      for the year
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (187,656
                )
                
                
                (102,442
                )
                
                
                (290,098
                )Balance
      September 30, 2008
                
                
                33,554,024
                
                
                
                33,554
                
                
                
                898,156
                
                
                
                (1,753,060
                )
                
                
                (137,719
                )
                
                
                (959,069
                )Stock
      issuance for debt conversion
                
                
                3,812,633
                
                
                
                3,813
                
                
                
                949,345
                
                
                
                -
                
                
                
                -
                
                
                
                953,158Stock
      issued for services rendered
                
                
                10,000
                
                
                
                10
                
                
                
                370
                
                
                
                -
                
                
                
                -
                
                
                
                380Net
      income for the year
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                102,351
                
                
                
                18,157
                
                
                
                120,508Balance
      September 30, 2009
                
                
                37,376,657
                
                
                
                37,377
                
                
                
                1,847,871
                
                
                
                (1,650,709
                )
                
                
                (119,562
                )
                
                
                114,977Stock
      issuance for debt conversion
                
                
                180,000
                
                
                
                180
                
                
                
                22,320
                
                
                
                -
                
                
                
                -
                
                
                
                22,500Net loss
      for the year
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (590,041
                )
                
                
                (9,062
                )
                
                
                (599,103
                )Balance
      September 30, 2010
                
                
                37,556,657
                
                
                $
                37,557
                
                
                $
                1,870,191
                
                
                $
                (2,240,750
                )
                
                $
                (128,624
                )
                
                $
                (461,626
                )
    F-4
 TELIPHONE
CORP.
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 FOR THE YEARS ENDED SEPTEMBER
30, 2010 AND 2009
  US$YEARS
      ENDEDSEPTEMBER
      30,2010
                
                
                2009CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      income (loss)
                
                $
                (590,041
                )
                
                $
                102,351Adjustments
      to reconcile net income (loss) to net cashused
      in operating activities:Depreciation
                
                
                26,841
                
                
                
                8,514Impairment
                
                
                337,275
                
                
                
                -Noncontrolling
      interest
                
                
                (50,462
                )
                
                
                16,533Forgiveness
      of debt
                
                
                (114,805
                )
                
                
                -Bad
      debt
                
                
                284,737
                
                
                
                87,242Common
      stock issued for services
                
                
                -
                
                
                
                380Changes
      in assets and liabilities(Increase)
      in accounts receivable
                
                
                (146,518
                )
                
                
                (395,565
                )(Increase)
      decrease in inventory
                
                
                63
                
                
                
                (2,909
                )(Increase)
      in prepaid expenses and other current assets
                
                
                (15,202
                )
                
                
                (7,095
                )Increase
      (decrease) in deferred revenues
                
                
                612
                
                
                
                (1,711
                )Increase
      in liability for stock to be issued
                
                
                19,868
                
                
                
                -Increase
      (decrease) in accounts payable andand
      accrued expenses
                
                
                (262,672
                )
                
                
                283,339Total
      adjustments
                
                
                79,737
                
                
                
                (11,272
                )Net
      cash provided by (used in) operating activities
                
                
                (510,304
                )
                
                
                91,079CASH
      FLOWS FROM INVESTING ACTIVITIESAcquisitions
      of capital assets
                
                
                (171,905
                )
                
                
                (10,081
                )Cash
      paid in acquisition of net assets of Orion
                
                
                -
                
                
                
                (45,604
                )Net
      cash (used in) investing activities
                
                
                (171,905
                )
                
                
                (55,685
                )CASH
      FLOWS FROM FINANCING ACTIVITESIncrease
      in bank overdraft
                
                
                335,424
                
                
                
                74,288Payments
      of obligations under capital lease
                
                
                (2,195
                )
                
                
                -Proceeds
      from debenture payable
                
                
                2,271
                
                
                
                56,038Repayment
      of promissory note
                
                
                (27,191
                )
                
                
                (11,208
                )Proceeds
      from loan payable
                
                
                534,243
                
                
                
                -Proceeds
      from loan payable - related parties, net
                
                
                (129,729
                )
                
                
                (171,313
                )Net
      cash provided by (used in) financing activities
                
                
                712,823
                
                
                
                (52,195
                )Effect of
      foreign currencies
                
                
                (30,782
                )
                
                
                16,801NET
      INCREASE (DECREASE) INCASH
      AND CASH EQUIVALENTS
                
                
                (168
                )
                
                
                -CASH
      AND CASH EQUIVALENTS -BEGINNING
      OF PERIOD
                
                
                168
                
                
                
                -CASH
      AND CASH EQUIVALENTS - END OF PERIOD
                
                $
                -
                
                
                $
                -CASH
      PAID DURING THE PERIOD FOR:Interest
      expense
                
                $
                19,825
                
                
                $
                50,670SUPPLEMENTAL
      NONCASH INFORMATION:Common
      stock issued for conversion of notes payable - related
    party
                
                $
                22,500
                
                
                $
                -Equipment
      purchased under capital lease
                
                $
                26,330
                
                
                $
                -Conversion
      of trade payable to promissory note payable
                
                $
                -
                
                
                $
                32,679Acquisition
      of Orion Customers:Accounts
      receivable
                
                $
                -
                
                
                $
                46,686Goodwill
                
                
                -
                
                
                
                327,901Accounts
      payable
                
                
                -
                
                
                
                (420,191
                )Cash
      paid in acquisition
                
                $
                -
                
                
                $
                (45,604
                )
 The accompanying notes are
an integral part of the consolidated financial statements.
 F-5
 TELIPHONE
CORP.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR THE
YEARS ENDED SEPTEMBER 30, 2010 AND 2009
 
 
 NOTE
1- ORGANIZATION
AND BASIS OF PRESENTATION
 
 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.
 
 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 consolidated financial statements the Company has a working capital
deficiency of ($729,756) as of September 30, 2010, and has an accumulated
deficit of ($2,240,750) through September 30, 2010. The Company has streamlined
their business, and expanded their services throughout Canada which had
generated net profits for the prior year. 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 the year, The
Company has utilized their line of credit limits from the bank and their profits
have gone to pay down the payables that exist.
  F-6
 
 TELIPHONE
CORP.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR THE
YEARS ENDED SEPTEMBER 30, 2010 AND 2009
 
 
 NOTE
1-ORGANIZATION
AND BASIS OF PRESENTATION (CONTINUED)
 
 Going
Concern (continued)
 
 While the Company
demonstrates that it has recently become profitable, 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 also
successfully reduced approximately $400,000 of related party debt in August 2006
as this was converted into additional shares of the Company’s
stock.
 
 In August of 2006, the
Company sold approximately 25% of its subsidiary Teliphone Inc. to the parent
company of Intelco Communications which will bring further opportunity and
working capital to the Company. Since this period, Teliphone Inc. has required
further cash investments from the Company.  These amounts, totaling
approximately $600,000 have been converted into Common Stock the subsidiary
Teliphone Inc. on September 30, 2008 hence, the resulting ownership of Teliphone
Inc. by the parent company of Intelco Communications to be presently
12.9%.
 
 The Company’s subsidiary,
Teliphone Inc. finalized an agreement with 9151-4877 Quebec Inc (known as Dialek
Telecom), which was effective on February 15, 2008, to acquire certain assets
and liabilities, amounting to Dialek’s entire business, from this
entity.
 The Company further
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.  The Company hired
a market maker and has secured a listing on the Over the Counter Bulletin Board,
and the Company’s Common Stock became tradeable over-the-counter in June
2008.
 
 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.
  F-7
 
 TELIPHONE
CORP.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR THE
YEARS ENDED SEPTEMBER 30, 2010 AND 2009
 
 
 NOTE
1-ORGANIZATION
AND BASIS OF PRESENTATION(CONTINUED)
 
 Going
Concern (Continued)
 
 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 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.
  F-8
 
 TELIPHONE
CORP.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR THE
YEARS ENDED SEPTEMBER 30, 2010 AND 2009
 
 
 NOTE
2-SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
 
 Principles
of Consolidation
 
 The 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
September 30, 2010 has approximately $175,000 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.
  F-9
 
 TELIPHONE
CORP.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR THE
YEARS ENDED SEPTEMBER 30, 2010 AND 2009
 
 
 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 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:
 
 F-10
 
 TELIPHONE
CORP.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR THE
YEARS ENDED SEPTEMBER 30, 2010 AND 2009
 
 
 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, licence 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:
  F-11
 
 TELIPHONE
CORP.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR THE
YEARS ENDED SEPTEMBER 30, 2010 AND 2009
 
 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.
  F-12
 
 TELIPHONE
CORP.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR THE
YEARS ENDED SEPTEMBER 30, 2010 AND 2009
 
 
 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 $45,553 at September 30,
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 for September 30, 2010.
  F-13
  TELIPHONE
CORP.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR THE
YEARS ENDED SEPTEMBER 30, 2010 AND 2009
 
 
 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 years ended September 30, 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.
  F-14
 
 TELIPHONE
CORP.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR THE
YEARS ENDED SEPTEMBER 30, 2010 AND 2009
 
 
 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:
 
 September
      30
                    
                    
                    September
      302010
                    
                    
                    2009Net
      income (loss)
                    
                    $
                    (590,041
                    )
                    
                    $
                    102,351Weighted-average
      common stockOutstanding
      (Basic)
                    
                    
                    37,556,657
                    
                    
                    
                    35,910,295Weighted-average
      common stockEquivalentsStock
      Options
                    
                    
                    -
                    
                    
                    
                    -Warrants
                    
                    
                    -
                    
                    
                    
                    -Weighted-average
      common stockOutstanding
      (Diluted)
                    
                    
                    37,556,657
                    
                    
                    
                    35,910,295
  F-15
 
 TELIPHONE
CORP.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR THE
YEARS ENDED SEPTEMBER 30, 2010 AND 2009
 
 
 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.
  F-16
  TELIPHONE
CORP.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR THE
YEARS ENDED SEPTEMBER 30, 2010 AND 2009
 
 
 NOTE
2-SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES(CONTINUED)
 
 Reclassifications
 
 The Company has
reclassified certain amounts in their consolidated statement of operations for
the year ended September 30, 2009 to conform with the September 30, 2010
presentation. These reclassifications had no effect on the net income for the
year ended September 30, 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 September 30, 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 consolidated balance
sheets. The Company has retroactively applied the provisions in ASC 810-10-45 to
the financial information for the year ended September 30, 2010. For the year
ended September 30, 2010, net income attributable to noncontrolling interests of
$50,462, 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.
 
  F-17
 
 TELIPHONE
CORP.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR THE
YEARS ENDED SEPTEMBER 30, 2010 AND 2009
 
 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.
  F-18
 
 TELIPHONE
CORP.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR THE
YEARS ENDED SEPTEMBER 30, 2010 AND 2009
 
 
 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.
 
 F-19
 
 TELIPHONE
CORP.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR THE
YEARS ENDED SEPTEMBER 30, 2010 AND 2009
 
 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.
 
 F-20
 
 TELIPHONE
CORP.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR THE
YEARS ENDED SEPTEMBER 30, 2010 AND 2009
 
 
 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.
 F-21
 
 TELIPHONE
CORP.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR THE
YEARS ENDED SEPTEMBER 30, 2010 AND 2009
 
 
 NOTE
3-FIXED
ASSETS
 
 Fixed assets as of
September 30, 2010and 2009 were as follows:
 
 Estimated
      Useful
                  
                  
                  September
      30,
                  
                  
                  September
      30,Lives
      (Years)
                  
                  
                  2010
                  
                  
                  2009Furniture
      and fixtures
                  
                  5
                  
                  
                  $
                  2,268
                  
                  
                  $
                  2,182Computer
      equipment
                  
                  3
                  
                  
                  
                  412,237
                  
                  
                  
                  205,825Vehicles
                  
                  5
                  
                  
                  
                  -
                  
                  
                  
                  23,548414,505
                  
                  
                  
                  231,555Less:
      accumulated depreciation
                  
                  
                  
                  
                  
                  227,513
                  
                  
                  
                  216,305Property
      and equipment, net
                  
                  
                  
                  
                  $
                  186,992
                  
                  
                  $
                  15,250
 
 There was $26,841 and
$8,514 charged to operations for depreciation expense for the years ended
September 30, 2010 and 2009, respectively. In November 2009, the vehicle was
disposed of for $0. It was fully depreciated, and therefore no gain or loss was
recognized.
 
 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 September 30, 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.
 
 F-22
 
 TELIPHONE
CORP.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR THE
YEARS ENDED SEPTEMBER 30, 2010 AND 2009
 
 
 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
September 30, 2010.
 
 The Company has accrued
$4,250 in accrued interest on this payable.
 
 Short Term Related Party
Debt
 
 As of September 30, 2010,
the Company has $8,000 including accrued interest outstanding with shareholders.
Interest expense for the year ended September 30, 2010 was $768. These notes
accrue interest at 5% per annum. These related party loans are due on demand and
classified as current liabilities on the consolidated balance sheet at September
30, 2010.  On September 30, 2010, the following loans from
shareholders remain:
 
 $20,000
loan: Payment was issued for all interest owing up to September 30, 2010
for a total of $768, with no further interest payable  from April 1,
2010 during the repayment period ending January 1, 2011.  As of
September 30, 2010 the amount outstanding on this loan
$8,000.
 
 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.
 F-23
 
 TELIPHONE
CORP.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR THE
YEARS ENDED SEPTEMBER 30, 2010 AND 2009
 
 
 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 September 30, 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.  As of September 30,
2010, all amounts owing have been paid..
 
 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 $563,046.  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.
 
 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.
 
 F-24
 
 TELIPHONE
CORP.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR THE
YEARS ENDED SEPTEMBER 30, 2010 AND 2009
 
 
 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 $58,309.
 
 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
($129,944 US$) based on the Company’s increase in sales due to its Dialek
acquisition.
 
 F-25
 
 TELIPHONE
CORP.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR THE
YEARS ENDED SEPTEMBER 30, 2010 AND 2009
 
 
 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 year ended
September 30, 2010 was $41,376.
 
 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 year ended September 30, 2010
was $47,000.
 
 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 paid an aggregate amount of
$44,000 (CDN$) for the year ended September 30, 2010 as compared with $12,078
(CDN$) for the year ended September 30, 2009. 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.
 F-26
 
 TELIPHONE
CORP.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR THE
YEARS ENDED SEPTEMBER 30, 2010 AND 2009
 
 
 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.
 
 F-27
 
 TELIPHONE
CORP.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR THE
YEARS ENDED SEPTEMBER 30, 2010 AND 2009
 
 
 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 September 30, 2010,
the Company has 125,000,000 shares of common stock authorized with a par value
of $.001.
 
 The Company has 37,556,657
and 37,376,657 shares issued and outstanding as of September 30, 2010 and
September 30, 2009, respectively.
 
 On September 30, 2004, the
Company had 3,216,000 shares issued and outstanding. On April 28, 2005, the
Company entered into a reverse merger upon the acquisition of Teliphone, Inc.
and issued 27,010,000 shares of common stock to the shareholders of Teliphone,
Inc. in exchange for all of the outstanding shares of stock of Teliphone, Inc.
Thus the Company had 30,426,000 shares issued and
outstanding.
 
 On August 31, 2005, the
Company issued 663,520 shares of common stock in conversion of the Company’s
convertible debentures in the amount of $331,760.
 
 On August 22, 2006, the
Company issued 1,699,323 shares of common stock to United American Corporation
in conversion of related party debt in the amount of $421,080 (see Note 4). An
additional 171 fractional shares were issued in December
2006.
 
 On August 22, 2006, the
Company issued 105,000 shares of common stock for consulting services. These
services have been valued at $0.25 per share, the price at which the Company’s
offering will be. The value of $26,250 was reflected in the consolidated
statement of operation for the year ended September 30,
2006.
 
 In December 2006, the
Company issued 660,000 shares of common stock representing a value in the amount
of $165,000, for consulting services that occurred during the year ended
September 30, 2006. The Company recognized the expense in the year ended
September 30, 2006 as the services were provided in this time frame. The Company
used the $0.25 price for valuation purposes.
 
 F-28
 
 TELIPHONE
CORP.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR THE
YEARS ENDED SEPTEMBER 30, 2010 AND 2009
 
 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.
 
 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 September 30, 2010,
deferred tax assets consist of the
following:
 
 Net operating
      lossess
                  
                  $
                  761,855Valuation
      allowance
                  
                  $
                  (761,855
                  )$
                  -
 
 At September 30, 2010, the
Company had a net operating loss carryforward in the approximate amount of
$2,240,750, 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.
  F-29
 
 TELIPHONE
CORP.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR THE
YEARS ENDED SEPTEMBER 30, 2010 AND 2009
 
 
 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 years  ended September 30, 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
September 30, 2010.
 
 F-30
 
 TELIPHONE
CORP.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR THE
YEARS ENDED SEPTEMBER 30, 2010 AND 2009
 
 
 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.
 
 F-31
 
 TELIPHONE
CORP.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR THE
YEARS ENDED SEPTEMBER 30, 2010 AND 2009
 
 
 NOTE
11-OBLIGATIONS
UNDER CAPITAL LEASE
 
 The Company leases some of
its computer equipment pursuant to capital leases. At September 30, 2010,
minimum future annual lease obligations are as follows:
 
 Year
      EndingSeptember
      30, 2011
                    
                    $
                    13,861September
      30, 2012
                    
                    
                    11,55025,411Less:
      Amounts representing interest
                    
                    
                    (1,275
                    )Total
                    
                    
                    24,136Current
      portion
                    
                    
                    (13,165
                    )Long-term
      portion
                    
                    $
                    10,971
 F-32
 (a)(2)
                Not
      Applicable.(a)(3)
                Exhibits.See
      (b) below.(b)
                Exhibits.See the
      Exhibit Index following the signature page of this report, which is
      incorporated herein by reference. Each management contract and
      compensatory plan or arrangement required to be filed as an exhibit to
      this report is identified in the Exhibit Index by an asterisk
      following its exhibit number.(c)
                Financial
      Statements Excluded From Annual Report to
  Shareholders.
 Not
Applicable.
 42
 
 SIGNATURES
 
 Pursuant to the
requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
 
 TELIPHONE
      CORP.Date:December
      29, 2010
              By:
              /s/ Lawry
      Trevor-DeutschLawry
      Trevor-DeutschChief
      Executive Officer,
                Principal
      Financial Officer and
                Principal
      Accounting Officer
  In
accordance with the Exchange Act, the report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
  Date: December
      29, 2010
              By:
              /s/ George
      MetrakosGeorge
      MetrakosDirector
  Date: December
      29, 2010
              By:
              /s/ Lawry
      Trevor-DeutschLawry
      Trevor-DeutschDirector
 
 43
 
 TELIPHONE
CORP.
 
 EXHIBIT INDEX
 TO
 2010
ANNUAL REPORT ON FORM 10-K
 
 Exhibit
                Number
              
              Description2.1*
              
              Agreement
      and Plan of Merger by and among Teliphone Inc. and OSK II Acquisition
      Corp. and OSK Capital II Corp. (incorporated by reference to the company's
      Current Report filed on form 8-k on May 11, 2005).2.2*
              
              Letter
      agreement between OSK Capital II Corp. and Teliphone Inc., dated April 25,
      2005 (incorporated
      by reference to the company's Current Report filed onform
      8-k on May 11, 2005).3.1*
              
              Articles
      of Incorporation (incorporated by reference from Registration Statement on
      Form 10-SB filed with the Securities and Exchange Commission on January 6,
      2000).3.2*
              
              Bylaws
      (incorporated by reference from Registration Statement on Form 10-SB filed
      with the Securities and Exchange Commission on January 6,
      2000).4.1*
              
              Specimen
      Common Stock Certificate (incorporated by reference from Registration
      Statement on Form 10-SB filed with the Securities and Exchange Commission
      on January 6, 2000).14.1*
              
              Code of
      Ethics (incorporated by reference from the Annual Report on Form 10-KSB
      filed with the Securities and Exchange Commission on February 27,
      2006).10.1.*
              
              Distribution
      agreement made and entered into in the city of Montreal, province of
      Quebec with an effective date of March 1, 2006 by and between Teliphone
      Inc., and 9164-4898 Quebec Inc. (incorporated
      by reference to the company's Prospectus filed on formSB-2
      on August 29, 2006).10.2.*
              
              Form of
      general conditions for use of the Company's telecommunications products
      and services. (incorporated
      by reference to the company's Prospectus filed on formSB-2
      on August 29, 2006).10.3.*
              
              Letter of
      Intent for a Joint Venture Agreement between Teliphone Inc. and Intelco
      Communication Inc., dated July 14, 2006 (incorporated
      by reference to the company's Prospectus filed on formSB-2
      on August 29, 2006).10.4.*
              
              Customer
      and Asset acquisition and software licensing agreement made and entered
      into in the city of Montreal, province of Quebec with an effective date of
      March 1, 2006 by and between Teliphone, Inc., Iphonia Inc., Telicom Inc.
      and United American Corporation (incorporated
      by reference to the company's Prospectus filed on formSB-2
      on August 29, 2006).
 
 10.5*
              
              Agreement
      between Teliphone Inc. and Northern Communications Services Inc. (incorporated
      by reference to the company's Prospectus filed on formSB-2
      on August 29, 2006).10.6*
              
              Extension
      agreement between Teliphone Inc. and Podar Infotech Limited (incorporated
      by reference to the company's Current Report filed on form8-k
      on September 12, 2005).10.7*
              
              Agreement
      between Teliphone Inc. and Podar Infotech Limited, dated April 28, 2005
      (incorporated
      by reference to the company's Prospectus filed on formSB-2
      on August 29, 2006).10.8*
              
              Form of
      IP Port Service agreement, RNK Telecom (incorporated
      by reference to the company's Prospectus filed on formSB-2
      on August 29, 2006).10.9*
              
              Master
      Services Agreement between Teliphone Inc. and Rogers Telecom Inc. (incorporated
      by reference to the company's Prospectus filed on formSB-2
      on August 29, 2006).10.10*
              
              Cash
      Advance agreement between related companies 3894517 Canada Inc. and
      Teliphone Inc. made and entered into in the city of Montreal, province of
      Quebec with an effective date of August 27, 2004 by and between Teliphone
      Inc., 3894517 Canada Inc., OSK Capital II Corp., and United American Corp.
      (incorporated
      by reference to the company's Prospectus filed on formSB-2
      on August 29, 2006).10.11*
              
              Wholesale
      agreement made and entered into in the city of Montreal, province of
      Quebec by and between Teliphone Inc. and 951-4877 Quebec Inc. (incorporated
      by reference to the company's Prospectus filed on formSB-2
      on August 29, 2006).10.12*
              
              Co-Location and
      Bandwidth Services Agreement, Peer 1 Network (incorporated
      by reference to the company's Prospectus filed on formSB-2
      on August 29, 2006).10.12-A*
              
              Co-Location and
      Bandwidth Services Agreement, Peer 1 Network, executed copy (incorporated
      by reference to the company's Prospectus filed on formSB-2
      on August 29, 2006).
 
 44
 
 10.13*
              
              Linksys
      Service Provider or SP Reseller Authorization Agreement - Americas (incorporated
      by reference to the company's Prospectus filed on formSB-2
      on August 29, 2006).10.14*
              
              Amendment
      to agreement with BR Communications (incorporated
      by reference to the company's Prospectus filed on formSB-2
      on August 29, 2006).
 
 10.15**
              
              JAAM
      Operating Loan Agreement dated February 16,
2010
 
 10.16**
              
              JAAM
      General Security Agreement dated February 16,
  2010
 
 10.21*
              
              Subsidiaries (incorporated
      by reference to the company's Prospectus filed on formSB-2
      on August 29, 2006).
  23.1**
                
                Consent of
      Independent Registered Public Accounting
Firm
 31.1**
              
              CERTIFICATION OF
      CHIEF EXECUTIVE OFFICER PURSUANT TO RULES 13A-14 AND 15D-14 OF THE
      SECURITIES EXCHANGE ACT OF 193431.2**
              
              CERTIFICATION OF
      CHIEF FINANCIAL OFFICER PURSUANT TO RULES 13A-14 AND 15D-14 OF THE
      SECURITIES EXCHANGE ACT OF 193432.1**
              
              CERTIFICATION
      PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF
      THE SARBANES-OXLEY ACT OF 200232.2**
              
              CERTIFICATION
      PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF
      THE SARBANES-OXLEY ACT OF 2002
 ___________
 * Previously
filed
 ** Filed
herewith