UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
 
 FORM
10-K
 
 
 ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
 SECURITIES
EXCHANGE ACT OF 1934
 
 For
the Fiscal Year Ended September 30, 2009
 Commission
File Number: 333-136993
 
 TELIPHONE
CORP
 (Name
of registrant as specified in its charter)
 
 Nevada
              84-1491673(State
      or other jurisdiction
                of
      incorporation or organization)
              (IRS
      Employer
                Identification
      No.)
 
 194
St-Paul Street West, Suite 303,
 Montreal, Quebec, Canada,
H2Y 1Z8
 (Address
of principal executive offices)
 
 (514)
313-6010
 (Registrant’s
telephone number, including area code)
 
 Joseph
I. Emas, Attorney at Law
 1224
Washington Avenue
 Miami
Beach, Florida  33139
 Telephone (305)
531-1174
 (Name,
address and telephone number of agent for service)
 
  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
 
 
 Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.     Yes  ̈    
No x
 
 Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Exchange Act from their obligations under
those Sections. Yes x    
No  ̈
 
 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
preceding 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 x    
No  ̈
 1
  Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not 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 file, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the
definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
 
 Large
      accelerated filer     o
              Accelerated
      filer                       
      oNon-accelerated
      filer       o(Do not check if a
      smaller reporting company)
              Smaller
      reporting company     x
 
 Indicate
if the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).   Yes  ̈    
No x
 
 The
aggregate market value of the registrant’s common stock held by non-affiliates
of the registrant as of December
23, 2009 was approximately $1,868,833.  The price is based on
the on the price of the issuer’s common stock as quoted on the Over-The-Counter
Bulletin Board exchange.
 
 Solely
for purposes of the foregoing calculation, all of the registrant’s directors and
officers are deemed to be affiliates.
 
 The
number of shares outstanding of the registrant’s Common Stock, par value $.001
per share (the “Common Stock”), as of December
23, 2009, was 37,376,657.
 
 Documents
incorporated by reference
 
 None.
 2
 
 TELIPHONE
CORP.
 Report
on Form 10-K
 For
the Fiscal Year Ended September 30, 2009
 
 PagePART IItem
      1.
              Business
              4Item
      1A.
              Risk
      Factors
              13Item
      1B.
              Unresolved
      Staff Comments
              21Item
      2.
              Properties
              22Item
      3.
              Legal
      Proceedings
              22Item
      4.
              Submission
      of Matters to a Vote of Security Holders
              22PART
      IIItem
      5.
              Market
      for Common Equity, Related Stockholder Matters and Issuer Purchases of
      Equity Securities
              23Item
      6.
              Selected
      Financial Data
              23Item
      7.
              Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
              23Item
      7A.
              Quantitative
      and Qualitative Disclosures About Market Risk.
              38Item
      8.
              Financial
      Statements and Supplementary Data
              38Item
      9.
              Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
              39Item
      9A.
              Controls
      and Procedures
              39Item
      9B.
              Other
      Information
              40PART
      IIIItem
      10.
              Directors,
      Executive Officers and Corporate Governance
              41Item
      11.
              Executive
      Compensation
              42Item
      12.
              Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
              43Item
      13.
              Certain
      Relationships and Related Transactions, and Director
      Independence
              44Item
      14
              Principal
      Accountant Fees and Services
              45PART
      IVItem
      15.
              Exhibits,
      Financial Statement Schedules
              46SIGNATURES
              
              48
 
 FORWARD-LOOKING
STATEMENTS
 
 This
Annual Report on Form 10-K contains, in addition to historical information,
forward-looking statements regarding Teliphone Corp. (the “Company” or
“Teliphone”), which represent the Company's expectations or beliefs including,
but not limited to, statements concerning the Company's operations, performance,
financial condition, business strategies, and other information and that involve
substantial risks and uncertainties. The Company's actual results of operations,
some of which are beyond the Company's control, could differ materially. For
this purpose, any statements contained in this Report that are not statements of
historical fact may be deemed to be forward-looking statements. Without limiting
the generality of the foregoing, words such as "may," "will," "expect,"
"believe," "anticipate," "intend," "could," "estimate," or "continue" or the
negative or other variations thereof or comparable terminology are intended to
identify forward-looking statements. Factors that could cause or contribute to
such differences include, but are not limited to, history of operating losses
and accumulated deficit; need for additional financing; dependence on future
sales of our services; competition; dependence on management; risks related to
proprietary rights; government regulation; and other factors described under
"Risk Factors" and throughout this Annual Report on Form 10-K. Actual results
may differ materially from those projected. These forward-looking statements
represent our judgment as of the date of the filing of this Annual Report on
Form 10-K. We disclaim any intent or obligation to update these forward-looking
statements.
 3
  PART I
 
 ITEM
      1.
              BUSINESS
 
 Teliphone
Corp was incorporated in the State of Nevada on March 2, 1999 under the name
"OSK Capital II Corp." to serve as a vehicle to effect a merger, exchange of
capital stock, asset acquisition or other business combination with a domestic
or foreign private business. Effective April 28, 2005, the Company achieved its
objectives with the reverse merger and reorganization with Teliphone Inc., a
Canadian company. On August 21, 2006, we changed our name from OSK Capital II
Corp. to Teliphone Corp.
 
 As a
result of the merger and re-organization, Teliphone Inc. became our wholly owned
subsidiary and we became a majority owned subsidiary of Teliphone Inc.'s parent
company, United American Corporation, a Florida Corporation trading on the NASD
OTCBB under the symbol UAMA.  The merger and re-organization of April
28, 2005 was a business combination between Teliphone Inc. and OSK Capital II
Corp. As a result, Teliphone Inc. became a wholly-owned subsidiary of OSK
Capital II Corp.
 
 The
Principal terms of the combination were that a recapitalization occurred as a
result of the reverse merger. The shareholder's equity of OSK Capital II Corp.
became that of Teliphone Inc. Original shareholders of OSK Capital II Corp.
maintained their shareholdings of OSK Capital II Corp. and new treasury shares
of OSK Capital II Corp. were issued to shareholders of Teliphone
Inc.
 
 On July
14th, 2006 the Company entered into a Letter of Intent with 3901823 Canada Inc.
("3901823") whereby Teliphone Inc. will issue 3901823 new shares from its
treasury such that 3901823 became a 25% owner of our subsidiary Teliphone Inc.
effective August 1, 2006 in return for additional investment in the
company.  Subsequently on September 30, 2008, the Company’s subsidiary
Teliphone Inc. issued additional stock to the Company representing the
conversion of cash advances from August 1, 2006 to September 30,
2008.  The resultant ownership of its subsidiary by the Company as of
September 30, 2009 is 87.1%.  The Company does not have any other
subsidiaries.
 
 On
October 30, 2006, United American Corporation spun off their share position in
our Company through the pro rata distribution of their 25,737,956 shares to
their shareholders. Although there were no contractual obligations on the part
of the company or United American Corporation, this spin off was part of a long
term strategy of United American Corporation.
 
 In June
of 2008, the Company commenced trading of its common stock over the counter
under the ticker symbol TLPH.
 
 History
of Key Agreements
 
 At the
time of the merger and re-organization, the Company, through its subsidiary
Teliphone Inc., was able to offer its services to customers in Canada only. This
was achieved through the signing of a retail distribution agreement on March 1,
2005, with BR Communications Inc. ("BR") for the purpose accessing the retail
consumer portion of our target market through retail and Internet-based sales.
Under the terms of this agreement, BR was granted the exclusive right to
distribute Teliphone Inc.’s VoIP services via Internet-based sales or direct
sales to retail establishments in the territory consisting of the Province of
Quebec in Canada exclusive of Sherbrooke, Quebec for a 5 year term. The
agreement included a commitment by the company to pay BR and its resellers 25%
of the recurring revenues derived from clients in the territory. This agreement
was later expanded on July 6, 2005 to include the city of Ottawa within the
Province of Ontario and to remove the restriction of Sherbrooke,
Quebec.  Subsequently on September 1, 2008, the agreement was amended
by replacing the monthly % of recurring revenue commitment by a fixed monthly
payment of $2,500 for a term of 24 months, removing all exclusivity
restrictions, permitting the Company to sell its products and services in the
Territory through other sales channels without paying BR any % of recurring
revenues.
  4
 
 On April
22, 2005, the Company, through its subsidiary Teliphone Inc., entered into a
Wholesale distribution agreement with 9151-4877 Quebec Inc., also known as
"Dialek Telecom". Teliphone Inc. supplies Dialek Telecom with VoIP services to
Dialek's Canadian and US customers, permitting Dialek Telecom to brand the
service "Dialek VoIP" instead of "Teliphone VoIP". The agreement also permits
Dialek Telecom to invoice and support its clients directly. The term of the
agreement is for one year renewable to successive one year terms upon 30 days
written notice.
 
 On June
1, 2005, the Company, through its subsidiary Teliphone Inc., signed an Agreement
with Northern Communication Services Inc. ("Northern") such that Northern would
supply the company with Emergency 9-1-1 caller address verification and call
transfer services to the necessary Municipal Emergency Services Department
associated with the caller's location. This service is required for Teliphone
Inc.'s customers located in North America. The term of the agreement is for 3
years, renewable automatically for an additional 3 years with a termination
clause of 90 days written notice.
 
 On
December 2, 2005, the Company, through its subsidiary Teliphone Inc. signed a
Co-Location and Bandwidth Services Agreement with Peer 1. The agreement
stipulates that the Company houses its telecommunications and computer server
hardware within the Peer 1 Montreal Data center, located at 1080 Beaver Hall,
suite 1512, Montreal, Quebec, Canada. Likewise, Teliphone Inc. agrees to
purchase Peer 1 bandwidth services and internet access across its worldwide
network. The term of the contract was for 12 months, renewable for successive 30
day terms.
 
 The
Company sought to expand its product offering in order to offer its broadband
phone services to US customers as well. The Company signed an agreement with RNK
Telecom Inc, a New Jersey company, in December of 2005 which permitted the
company to interconnect with RNK's network of US cities. This agreement has a
term of one year renewable month to month at the end of the term.
 
 On April
6, 2006, the Company, through its subsidiary Teliphone Inc. signed a Master
Services Agreement with Rogers Business Solutions ("Rogers"). This agreement
permits Teliphone Inc. to purchase voice channel capacity for its Canadian
Network. The majority of its current voice channel capacity already exists with
Rogers, however, the current agreements are still between Rogers and the
Company's former parent company, United American Corporation. It is anticipate
that all of the capacity will transfer under the Teliphone Inc.-Rogers agreement
by June 30, 2007. The term of the agreement is for 2 years, with no specific
renewal conditions.  The contract was not renewed as the Company
migrated its Canadian network towards Intelco, as outlined in the next
paragraph.
 
 Teliphone
Inc., a majority-owned subsidiary of the Company, 3901823 Canada Inc., the
holding company of Intelco Communications ("3901823"), and Intelco
Communications ("Intelco") entered into an agreement on July 14, 2006. Pursuant
to the terms of the Agreement, Teliphone Inc. agreed to issue 35 class A voting
shares of its common stock representing 25.2% of Teliphone Inc.'s issued shares
to 3901823 in exchange for office rent, use of Intelco's data center for
Teliphone Inc.'s equipment, and use of Intelco's broadband telephony network
valued at approximating $144,000 (CDN$) for the period August 1, 2006 through
July 31, 2007, a line of credit of $75,000 (CDN$), of which $25,000 (CDN$) was
already drawn upon in July 2006 and paid back in December 2006.
 
 Teliphone
Inc. also agreed to make available to the customers of Intelco certain
proprietary software for broadband telephony use. In lieu of receiving cash for
the licensing of this software, Teliphone Inc. will apply $1 per customer per
month at a minimum of $5,000 per month.
 
 On
February 15, 2008, the Company entered into an agreement with 9191-4200 Quebec
Inc., owners of Dialek Telecom for the acquisition of certain assets and
liabilities of Dialek Telecom.  As a result, the Company acquired an
additional 2,000 customers for telecommunications services in Canada, along with
other assets valued at CDN$86,000 and liabilities valued at CDN$227,000 and
access to an operating line of credit of CDN$150,000 at an annualized interest
rate of 18%.
 
 On September
30, 2008, the Company re-evaluated its pre-paid services asset from Intelco
(originally $144,000 CDN$ and valued at $119,819 CDN as of September 30, 2008)
to 0$ since the Company had vacated the premises of Intelco and could not
execute on the use of any of the pre-paid services originally earmarked for
consumption.
 5
  As of
September 30, 2008, the Company’s ownership in its subsidiary Teliphone Inc.
increased from 74.8% to 87.1% due to the issuance of stock to the Company in
exchange for funds invested from July 14th, 2008 to September 30,
2008.
 
 On May
7th, 2009, the Company entered into a customer assignment agreement with the
owners of Orion Communications Inc.  As a result, the Company 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.  The Company 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
 
 With the
merger and re-organization we became a telecommunications company providing
broadband telephone services utilizing our innovative Voice over Internet
Protocol, or VoIP, technology platform, to offer feature-rich, low-cost
communications services to our customers, thus providing them 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.
 
 Our
Company has invested in the research and development of our VoIP
telecommunications technology which permits the control, forwarding, storing and
billing of phone calls made or received by our customers. Our technology
consists of proprietary software programming and specific hardware
configurations, however, we have no specific legal entitlement that does not
permit someone else from utilizing the same base software languages and same
hardware in order to produce similar telephony service offerings.
 
 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 the Company’s programmers, along with
“off-the-shelf” computer and telecommunications hardware (ie. 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
therefore cannot be certain that others will not gain access to our technology.
In order to protect this proprietary technology, we hold non-disclosure and
confidentiality agreements and understandings with our employees, consultants,
re-sellers, distributors, wholesalers and technology partners. We cannot
guarantee that our technology and trade secrets will not be stolen, challenged,
invalidated or circumvented. If any of these were to occur, we would suffer from
a decreased competitive advantage, resulting in lower profitability due to
decreased sales.
 
 The
Company offers the following products and services to customers utilizing its
VoIP technology platform:
 
 ·
              Residential
      phone service. Customers purchase a VoIP adaptor from a re-seller and
      install it in their home. This allows all of their traditional phones in
      their home to have their inbound and outbound calls redirected to
      Teliphone. As a result, the residential customer purchases their choice of
      unlimited local or long distance calling services, with pay-per-minute
      long distance calling services.
 
 ·
              Business
      phone service. Customers purchase multiple VoIP adaptors from re-sellers
      and install them in their business. Similar to Residential phone service,
      customers purchase various local and long distance calling services from
      the Company.
 6
  For
Residential and Business phone services, the Company, through its subsidiary
Teliphone Inc., invoices and collects funds directly from the end-user customer
and pays a commission to their re-sellers and distributors upon receipt of the
funds. The customer can also purchase the VoIP adaptors and calling services
directly with Teliphone Inc. via its website www.teliphone.us for
US customers, www.teliphone.ca for
Canadian customers and www.teliphone.in for
India customers.
 
 ·
              The
      Company also sells VoIP calling services to Wholesalers who re-sell these
      services to their customers. In this case, the Company’s subsidiary
      Teliphone Inc. provides the services to the end-user customers, however
      invoices and collects funds from the Wholesaler, who invoices their
      customers and provides technical support to their customers
      directly.
 
 The VoIP
adaptors are manufactured by Linksys-Cisco and purchased by the Company directly
from the manufacturer and re-sold to the re-sellers and wholesalers. The
Company’s subsidiary Teliphone Inc. is a Linksys-Cisco Internet Telephony
Services approved supplier based on their agreement signed in October
2005.
 
 Distribution
methods of the products or services
 
 Retail
Sales.
 
 We
distribute our products and services through our retail partners' stores. Our
retail partners have existing public retail outlets where they typically sell
telecommunications or computer related products and services such as other
telecommunications services (cellular phones) or computer hardware and
software.
 
 The
Company does not own or rent any retail space for the purpose of distribution,
rather, it relies on its re-seller partners to display and promote the Company's
products and services within their existing retail stores.
 
 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
likewise distribute our products through the sale of hardware on our website,
www.teliphone.us. The customer purchases the necessary hardware from our on-line
catalog. Upon receipt of the hardware from us, the customer returns to the
company's website to activate their services.
 
 Wholesale
Sales.
 
 We
likewise distribute our products and services through Wholesalers. A Wholesaler
is a business partner who purchases our products and services "unbranded", that
is, with no reference to our Company on the hardware or within the service, and
re-bills the services to their end-user customers. In the case of a sale to our
Wholesalers, we do not sell the hardware below cost.
 
 Direct
Sales.
 
 We
likewise 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.
  7
 
 The
agreements between our wholesalers and our customers are similar to those that
the Company has 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 the Company's
telecommunications products and services found in exhibit 10.2 of this
prospectus presents the general and underlying agreement that we hold with our
Wholesalers. While product and professional liability cannot be entirely
eliminated, the conditions set forth in the agreement 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. The risk of this is outlined in risk factor C.6. in this
prospectus.
 
 Status
of any publicly announced new product or service
 
 TeliPhone
VoIP services were officially launched to the public in the Province of Quebec
in December of 2004.
 
 teliPhone
Residential VoIP service
 
 The
Company currently offers a residential VoIP phone service to customers in the
provinces of Ontario and Quebec. Average revenues per customer are $30.00 per
month. The customer can also purchase virtual numbers from other cities in North
America and internationally, permitting the customer to provide a local phone
number to their calling party who is in another area or country that normally
would represent a long distance call. These services cost from 5$ to 30$ per
month depending on the country.
 
 teliPhone
Small business VoIP services
 
 The
Company targets Small and Medium sized business clients with an expanded version
of its offering. Average revenues per customer in this segment are $400 per
month. The Company markets these services primarily through its telecom
interconnection resellers, who have existing customer relationships in this
segment.
 
 Teliphone
has also developed and integrated new software permitting the replacement of
traditional auto-attendant and office telephony systems. The Company has
finalized its beta trials and has introduced this to the market through its
interconnection re-seller base.
 
 teliPhone
Enterprise VoIP and Resale services
 
 Since May
of 2009 as part of its acquisition of the clients of Orion Communications Inc.,
the Company has been selling services over its own network, along with those of
Tier 1 and Tier 2 telecommunications carriers across Canada to Enterprise
business clients.  Enterprise clients are larger, multi-national
organizations with multiple office locations throughout the
country.  Average revenues per customer in this segment is $1,000 per
month.  The Company markets its services primarily through its direct
sales force of qualified telecommunications services
representatives.
 
 Competitive
Business Conditions
 
 Today,
VoIP technology is used in the backbone of many traditional telephone networks,
and VoIP services are offered to residential and business users by a wide array
of service providers, including established telephone service providers. These
VoIP providers include traditional local and long distance phone companies,
established cable companies, Internet service providers and alternative voice
communications providers such as Teliphone.
 
 While all
of these companies provide residential VoIP communications services, each group
provides those services over a different type of network, resulting in important
differences in the characteristics and features of the VoIP communications
services that they offer. Traditional wireline telephone companies offering VoIP
services to consumers do so using their existing broadband DSL networks.
Similarly, cable companies offering VoIP communications services use their
existing cable broadband networks. Because these companies own and control the
broadband network over which the VoIP traffic is carried between the customer
and public switched telephone network, they have the advantage of controlling a
substantial portion of the call path and therefore being better able to control
call quality. In addition, many of these providers are able to offer their
customers additional bandwidth dedicated solely to the customer's VoIP service,
further enhancing call quality and preserving the customer's existing bandwidth
for other uses. However, these companies typically have high capital
expenditures and operating costs in connection with their networks. In addition,
depending on the structure of their VoIP networks, the VoIP services provided by
some of these companies can only be used from the location at which the
broadband line they provide is connected.
 8
  Like
traditional telephone companies and cable companies offering VoIP services, the
Company also connects its VoIP traffic to the public switched telephone network
so that their customers can make and receive calls to and from non-VoIP users.
Unlike traditional telephone companies and cable companies, however, alternative
voice communications providers such as Teliphone do not own or operate a private
broadband network. Instead, the VoIP services offered by these providers use the
customer's existing broadband connection to carry call traffic from the customer
to their VoIP networks. These companies do not control the "last mile" of the
broadband connection, and, as a result, they have less control over call quality
than traditional telephone or cable companies do. However, these companies have
the operating advantage of low capital expenditure requirements and operating
costs.
 
 Internet
service providers generally offer or have announced intentions to offer VoIP
services principally on a PC-to-PC basis. These providers generally carry their
VoIP traffic for the most part over the public Internet, with the result that
VoIP services are often offered for free, but can only be used with other users
of that provider's services. Many of these providers offer a premium service
that allows customers to dial directly into a public switched telephone network.
In addition, while no special adapters or gateways are required, often customers
must use special handsets, headsets or embedded microphones through their
computers, rather than traditional telephone handsets.
 
 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.
 
 We are
not dependent on a few major customers. Our largest Wholesale customer,
Horizon-Link, currently produces less than 10% of our monthly
revenues.
 
 We do not
currently hold any patents, trademarks, licences, franchises, concessions or
royalty agreements.
 
 Existing
and Probable Governmental Regulation
 
 Overview
of Regulatory Environment
 
 Traditional
telephone service has historically been subject to extensive federal and state
regulation, while Internet services generally have been subject to less
regulation. Because some elements of VoIP resemble the services provided by
traditional telephone companies, and others resemble the services provided by
Internet service providers, the VoIP industry has not fit easily within the
existing framework of telecommunications law and until recently, has developed
in an environment largely free from regulation.
 9
  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, must meet. These
guidelines center around 9-1-1 calling services and other services that are
normally available to subscribers of traditional telephony services. Teliphone
has met these requirements in its product offering.
 
 An
additional element of Canadian regulation is that the incumbent providers, Bell
Canada (Central and Eastern Canada) and Telus (Western Canada), who in 2004
controlled over 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 Teliphone to provide their 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.  Teliphone views its long term strategy outside of just
residential phone service, through the availability of international phone
numbers to global clients, thereby creating an international product offering, a
strategy that is very different from the geographically limited incumbent
carriers.
 
 Customer
Access to Broadband Services
 
 Our
customers must have broadband access to the Internet in order to use our
service. In the case of the Canadian market, our principal market, the Canadian
Radio-Television Telecommunications Commission (CRTC) has ordered that Internet
Service Providers and Incumbent Exchange Carriers have a legal obligation as per
Order 2000-789 to provide their services without interference to other service
providers in conjunction with to section 27(2) of the Telecommunications
Act.
 
 However,
anti-competitive 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.
 10
  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 behalf of the Company.
 
 Effective
the filing of this report, we have complied with all of these FCC
requirements.
 
 International
Regulation
 
 The
regulation of VoIP services is evolving throughout the world. The introduction
and proliferation of VoIP services have prompted many countries to reexamine
their regulatory policies. Some countries do not regulate VoIP services, others
have taken a light-handed approach to regulation, and still others regulate VoIP
services the same as traditional telephony. In some countries, VoIP services are
prohibited. Several countries have recently completed or are actively holding
consultations on how to regulate VoIP providers and services. We primarily
provide VoIP services internationally in Canada.
 
 Canadian
Regulation
 
 Classification
and Regulation of VoIP Services.
 
 The
Telecommunications Act governs the regulation of providers of telecommunications
services in Canada. We are considered a telecommunications service provider
rather than a telecommunications common carrier. Telecommunications service
providers are subject to less regulation than telecommunications common
carriers, but do have to comply with various regulatory requirements depending
on the nature of their business.
 
 On May
12, 2005, the Canadian regulator, the CRTC, stated that VoIP services permitting
users to make local calls over the public switched telephone networks will be
regulated by the same rules that apply to traditional local telephone services.
Because we are not a telecommunications common carrier, we will not be subject
to such regulation. Under the CRTC's decision, however, we are required to
register as a local VoIP reseller in order to obtain access to certain services
from other telecommunications providers.
 11
  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, Teliphone has complied with these regulations by partnering with a
PSAP (Primary Service Access Point) which serves to verify the customer location
and forward the call to the respective Municipal 9-1-1 center for assistance.
This service therefore permits Teliphone's customers to have access to 9-1-1
services irrespective of their physical location, anywhere in the Continental US
& Canada.. This service is of significance as VoIP permits customers to
utilize their phone anywhere a high-speed internet connection exists and can
therefore be located outside of their local city when requiring 9-1-1
services.
 
 Other
Foreign Jurisdictions
 
 Our
operations in foreign countries must comply with applicable local laws in each
country we serve. The communications carriers with which we associate in each
country is licensed to handle international call traffic, and takes
responsibility for all local law compliance. For that reason we do not believe
that compliance with the laws of foreign jurisdictions will affect our
operations or require us to incur any significant expense
 
 Research
and Development
 
 The
Company spent $120,531 in Research and Development activities during 2006 and
$116,896 during 2005.  The Company did not spend any additional funds
directly in Research and Development since 2007, however, has advanced its
products and services through the continuous evolving needs of its
customers.
 
 Compliance
with Environmental Laws
 
 We did
not incur any costs in connection with the compliance with any federal, state,
or local environmental laws.
 
 The
company has seven full time employees and two additional part time
employees.
 
 CORPORATE
OFFICES
 
 The
mailing address of our principal executive office is 194 St-Paul St West, Suite
303, Montreal, Quebec, H2Y 1Z8 Canada. 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, our legal offices are located in Miami Beach, Florida and our
data and collocation center is located in Montreal, Quebec.
 12
  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 the Company.
 
 ITEM
      1A.
              RISK
      FACTORS
 
 Any
investment in our common shares involves a high degree of risk and is subject to
many uncertainties. These risks and uncertainties may adversely affect our
business, operating results and financial condition. All of our material risks
and uncertainties are described below. If any of the following risks actually
occur, our business, financial condition, results or operations could be
materially and adversely affected. The trading of our common stock, once
established, could decline, and you may lose all or part of your investment
therein. You should acquire shares of our common stock only if you can afford to
lose your entire investment. In order to attain an appreciation for these risks
and uncertainties, you should read this Prospectus in its entirety and consider,
including the Financial Statements and Notes, prior to making an investment in
our common stock.
 
 As used
in this prospectus, the terms "we," "us," "our," "the Company" and "Teliphone"
mean Teliphone Corp., a Nevada corporation, or its subsidiary, Teliphone Inc., a
Canadian corporation, unless the context indicates a different
meaning.
 
 Risks
associated with forward-looking statements.
 
 This
prospectus contains certain forward-looking statements regarding management's
plans and objectives for future operations, including plans and objectives
relating to our planned marketing efforts and future economic performance. The
forward-looking statements and associated risks set forth in this prospectus
include or relate to:
 
 (1) Our
ability to obtain a meaningful degree of consumer acceptance for our products
now and in the future,
 
 (2) Our
ability to market our products on a global basis at competitive prices now and
in the future,
 
 (3) Our
ability to maintain brand-name recognition for our products now and in the
future,
 
 (4) Our
ability to maintain an effective distributors network,
 
 (5) Our
success in forecasting demand for our products now and in the
future,
 
 (6) Our
ability to maintain pricing and thereby maintain adequate profit margins,
and
 
 (7) Our
ability to obtain and retain sufficient capital for future
operations.
 
 A.
Risks Related To Our Financial Condition
 
 A.1. We
Have a Limited Operating History with Losses and Have Only Recently Emerged with
Profitability
 
 We have a
limited operating history with losses and have only recently emerged with
profitability for the first time in our company’s history. Should we continue to
incur losses for a significant amount of time, the value of our common shares
will be affected, and our shareholders could their entire investment. Our
accumulated deficit since inception on August 27, 2004 at September 30, 2009 was
$1,650,709. These losses have resulted principally from costs incurred in our
research and development programs, our general and administrative costs and our
telecommunications network overhead costs. We have started to derive revenues
from product and service sales since 2005.
  13
 
 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. 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 the Company's 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.
 14
  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, the value of our common
shares would be affected, and our shareholders could lose their entire
investment.
 
 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 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.
 
 Our
Company has invested in the research and development of our VoIP
telecommunications technology which permits the control, forwarding, storing and
billing of phone calls made or received by our customers. This technology has
been developed by our employees and consultants and is owned entirely by our
Company. 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.
 15
  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. 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 profitability to be reduced, and as such, the value of the
common shares of our company would be lower.
 16
  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 our company 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. This would adversely affect the value of the common shares of the
company, and our shareholders could even lose their entire
investment.
 
 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.
 17
  Our
Company has invested in the research and development of our VoIP
telecommunications technology which permits the control, forwarding, storing and
billing of phone calls made or received by our customers. 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. As a result, the value
of our common shares would be affected, and our shareholders could even lose
their entire investment.
 
 C.
Risks Related to Regulation
 
 Set forth
below are all of the material risks related to regulation. For additional
information about these risks, see "Regulation" in this prospectus.
 
 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 the
value of our common shares.. We plan to mitigate this risk by continuously
offering further innovation and value-added services to our customers, however,
the risk is that we do not develop and test these within the time allotted and
our growth rates decrease. As a result, our shareholders could lose their entire
investment.
 18
  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
US. 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 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
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, adversely affecting the value of our common shares.
 
 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. As of the date of the filing of this prospectus, numerous smaller
players have entered the market already. VoIP Action, a leading market research
company following the VoIP industry, reports that there are currently 379 VoIP
residential providers and 439 Small business VoIP providers in North America.
(VoIP North America Directory, VoIPAction, 2006, see
http://www.voipaction.com/about_directory.php).
 19
  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 profitability and growth of the company. 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 registrants 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 the Company 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. The company
currently has no specific professional or product liability insurance. The
company's current insurance policies cover theft and liability in our offices
only. The company intends to purchase professional and product liability
insurance which will help to defray costs to the company for defense against
damage claims. The Company does not foresee any difficulties in obtaining such a
policy, as the company has 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.
Future Sales of Common Stock Could Depress the Price of our Common
Stock
 
 Future
sales of substantial amounts of common stock pursuant to Rule 144 under the
Securities Act of 1933 or otherwise by certain shareholders could have a
material adverse impact on the market price for the common stock at the
time.  In general, under Rule 144, a person (or persons whose shares
are aggregated) who has satisfied a one-year holding period may, under certain
circumstances, sell within any three-month period a number of restricted
securities which does not exceed the greater of one (1%) percent of the shares
outstanding, or the average weekly trading volume during the four calendar weeks
preceding the notice of sale required by rule 144. In addition, rule 144
permits, under certain circumstances, the sale of restricted securities without
any quantity limitations by a person who is not an affiliate of ours and has
satisfied a two-year holding period. Any sales of shares by shareholders
pursuant to rule 144 may have a depressive effect on the price of our common
stock.
 
 D.2. To
date, we have not paid any cash dividends and no cash dividends will be paid in
the foreseeable future.
  20
 
 We do not
anticipate paying cash dividends on our common stock in the foreseeable future,
and we cannot assure an investor that funds will be legally available to pay
dividends or that even if the funds are available, that the dividends will be
paid.
 
 D.3.
Volatility in our common share price may subject us to securities litigation,
thereby diverting our resources that may have a material effect on our
profitability and results of operations.
 
 As
discussed in the preceding risk factor, the market for our common shares is
characterized by significant price volatility when compared to seasoned issuers,
and we expect that our share price will continue to be more volatile than a
seasoned issuer for the indefinite future. In the past, plaintiffs have often
initiated securities class action litigation against a company following periods
of volatility in the market price of its securities.. We may in the future be
the target of similar litigation. Securities litigation could result in
substantial costs and liabilities and could divert management's attention and
resources.
 
 D.4
  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.
 
 Where you
can get additional information
 
 We will
be subject to and will comply with the periodic reporting Requirements of
Section 12(g) of the Securities Exchange Act of 1934. We will furnish to our
shareholders an Annual Report on Form 10-K containing financial information
examined and reported upon by independent accountants, and it may also provide
unaudited quarterly or other interim reports such as Forms 10-Q or Form 8-K as
it deems appropriate. Our periodic reports may be inspected at the public
reference facilities of the U.S. securities and Exchange Commission, Judiciary
Plaza, 100 F Street, N.E., Room 1580, Washington, D.C. 20549, or from the
Commission's internet website, www.sec.gov and searching the EDGAR database for
Teliphone Corp. Copies of such materials can be obtained from the Commission's
Washington, D.C. office at prescribed rates. The public may obtain information
on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330.
 
 ITEM
      1B.
              UNRESOLVED
      STAFF COMMENTS
 
 None.
  21
 
 ITEM
      2.
              PROPERTIES
 The
Company's executive offices are currently located 194 St-Paul Street West, suite
303 and 301, Montreal, Quebec, Canada, H2Y 1Z8. We also have a sales and client
services office located at 6299 Airport Road, suite 307, Mississauga, Ontario,
Canada L4V 1N3.  The approximately 4300 square feet of office space is
rented at a base rent of approximately $4,000 per month.
 ITEM
      3.
              LEGAL
      PROCEEDINGS
 
 During
the past five years, none of the following occurred with respect to a present or
former director or executive officer of the Company: (1) any bankruptcy petition
filed by or against any business of which such person was a general partner or
executive officer either at the time of the bankruptcy or within two years prior
to that time; (2) any conviction in a criminal proceeding or being subject to a
pending criminal proceeding (excluding traffic violations and other minor
offenses); (3) being subject to any order, judgment or decree, not subsequently
reversed, suspended or vacated, of any court of any competent jurisdiction,
permanently or temporarily enjoining, barring, suspending or otherwise limiting
his involvement in any type of business, securities or banking activities; and
(4) being found by a court of competent jurisdiction (in a civil action), the
SEC or the commodities futures trading commission to have violated a federal or
state securities or commodities law, and the judgment has not been reversed,
suspended or vacated. We are not a party to any pending material legal
proceedings other than that listed below and are not aware of any threatened or
contemplated proceeding by any governmental authority against the Company or its
subsidiaries. Notwithstanding, from time to time, the Company is subject to
legal proceedings and claims in the ordinary course of business, including
employment-related and trade related claims.
 
 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.
  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.
  ITEM
      4.
              SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY
HOLDERS
 
 None.
 22
  PART II
 
 ITEM
      5.
              MARKET
      FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
      EQUITY SECURITIES
 
 Our
common stock trades on the Over-The-Counter Bulletin Board Market under the
symbol "TLPH". The following table sets forth, for the periods indicated, the
high and low sale prices per share of common stock, as reported by the
Over-The-Counter Bulletin Board Market.
 
 Fiscal
      Year Ended September 30, 2009
              
              High
              
              
              LowFirst
      Quarter
              
              $
              0.070
              
              
              $
              0.020Second
      Quarter
              
              $
              0.050
              
              
              $
              0.010Third
      Quarter
              
              $
              0.050
              
              
              $
              0.020Fourth
      Quarter
              
              $
              0.060
              
              
              $
              0.020
  Fiscal
      Year Ended September 30, 2008
              
              High
              
              
              LowFirst
      Quarter
              
              Not
      TradingSecond
      Quarter
              
              Not
      TradingThird
      Quarter
              
              Not
      TradingFourth
      Quarter
              
              $
              0.150
              
              
              $
              0.020
 
 As of December
23, 2009 there were 37,376,657shares of our common stock
outstanding and 317 holders of record of our common stock.
 
 Recent
Sales of Unregistered Securities
 
 On
December 31, 2008, the company issued the following restricted
shares:
 
 1,973,747
shares of the common stock of the Company to 9191-4200 Quebec Inc. related to
conversion of debt.
 
 1,780,324
shares of the common stock of the Company to United American Corporation related
to conversion of debt.
 
 58,562
shares of the common stock of the Company to Lawry Trevor-Deutsch related to the
payment of accrued interest on its long-term debt with the Company.
 
 10,000
shares of the common stock of the Company to Irving Schwartz related to the
payment of a consulting mandate regarding revenue potential for the Company in
the region of Eastern Canada.
 
 Dividend
Policy
 
 We have
never declared or paid cash dividends on our capital stock and do not plan to
pay any cash dividends in the foreseeable future. Our current policy is to
retain all of our earnings to finance future growth.
 
 Repurchases
by the Company
 
 During
the last Fiscal Year we did not repurchase any shares of our common stock on our
own behalf or for any affiliated purchaser.
 
 Equity
Compensation Plan Information
 
 None.
 
 ITEM
      6.
              SELECTED
      FINANCIAL DATA
 
 Not
required.
  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 included elsewhere in this report and the
information described under the caption "Risk Factors" found in Part 1. Readers
should also be cautioned that results of any reported period are often not
indicative of results for any future period.
  23
 
 We were
incorporated in Nevada under the name "OSK CAPITAL II CORP" in 1999. In April of
2005, we effectuated a merger and re-organization
with Teliphone Inc., a Canadian Internet Telecommunications (VoIP or
"Voice-Over-Internet-Protocol") Company. Teliphone Inc. is now a majority-owned
subsidiary of our company and as such, our revenues are derived primarily from
the sale of telecommunications services to retail clients.
 
 Trends
in Our Industry and Business
 
 A number
of trends in our industry and business have a significant effect on our results
of operations and are important to an understanding of our financial statements.
These trends include:
 
 Broadband adoption. The
number of households with broadband Internet access in our core markets of
Canada and India has grown significantly. We expect this trend to continue. We
benefit from this trend because our service requires a broadband Internet
connection and our potential addressable market increases as broadband adoption
increases.
 
 Changing competitive
landscape. We are facing increasing competition from other
companies that offer multiple services such as cable television, voice and
broadband Internet service. Several of these competitors are offering VoIP or
other voice services as part of a bundle, in which they offer voice services at
a lower price than we do to new subscribers. In addition, several of these
competitors are working to develop new integrated offerings that we cannot
provide and that could make their services more attractive to customers. We also
compete against established alternative voice communication providers and
independent VoIP service providers. Some of these service providers may choose
to sacrifice revenue in order to gain market share and have offered their
services at lower prices or for free. These offerings could negatively affect
our ability to acquire new customers or retain our existing
customers.
 
 Consumer adoption of new VoIP
technology.  The development of our Teliphone VoIP service permits
us to sell telecommunications services to consumers who have a broadband
internet connection. Our technology permits customers to continue to use their
traditional phone devices to make and receive calls at a lower cost than
traditional phone services. One of the key challenges in the adoption of this
new technology is the customer’s acceptance of potential loss of service when
their internet connection goes down or they lose electrical power in their home
or office. The Company has mitigated this risk for their customers by providing
telephone call fail-over methods in case of loss of service. Management believes
that even though this adoption risk exists, the reduction of cost for the
services will negate the impact of occasional service loss much like how
consumers accepted at times lower call quality in their worldwide adoption of
mobile phones due to increased convenience.
 
 The
development of our callona.com website seeks to attract consumers on the
internet who will look to utilize our web-based communications services, which
will permit us to generate advertising and promotional revenues from other
companies looking to advertise and promote their products to our callona.com
users. We have not as yet realized any revenue from our callona.com
prototype.
 
 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. 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.
 24
  We have
incurred gross losses during our first three years of operation because the
minimum purchases necessary in order to sustain our operations are enough to
deliver services to more customers than we currently have. As a result, we
estimate that we will continue to increase our gross profit over time. An
indication of this is our positive gross profit from the interim period ending
December 31, 2006.
 
 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 End September 30, 2009
  The
Company recorded sales of $2,710,680 of which $28,853 was hardware and
$2,681,827 was services, for the year ended September 30, 2009 as compared to
$1,215,570 of which $56,684 was hardware and $1,158,886 was services, for the
year ended September 30, 2008.  This revenue was derived from the sale of
$2,428,482 of VoIP hardware and services to Residential and Business Retail
clients and $124,443 VoIP hardware and services to Wholesale customers and
$157,755 of consulting services. For the year ended September 30, 2008, revenue
was derived from the sale of $1,055,133 of VoIP hardware and services to
Residential and Business Retail clients and $160,437 VoIP hardware and services
to Wholesale customers.
  The
Company's cost of sales were $1,563,671 for the year ended September 30, 2009
compared to $820,884 for the year ended September 30, 2008, primarily as a
consequence of an increase in sales and related costs, specifically the cost of
managing higher levels of traffic over our telecommunications network and the
increase of resale purchases from other Tier 1 telecommunications providers as
part of our newly expanded business since the acquisition of the customers of
Orion Communications. The net result was a gross margin for the year ended
September 30, 2009 of $1,147,009 compared to $394,686 for the prior period. This
increase in gross margin is primarily due to the decrease in the Company’s cost
of operating its VoIP network in Canada as well as being derived from the gross
profit attained through the resale of certain telecommunications services due to
the acquisition of the customer base of Dialek Telecom and Orion
Communications.
  The
Company's aggregate operating expenses were $975,330 for the year ended
September 30, 2009 compared to $511,718 for the year ended September 30, 2008.
In particular, there was an increase in Selling and Promotion expenses from
$21,757 to $34,489 as the company increase its sales travel as it opened an
office in the city of Toronto, Ontario as part of its acquisition of the
customers Orion Communications, as well as the introduction of its own direct
sales force operating from that new office. There was an increase in
Administrative wages from $85,222 to $398,393 as the Company hired its own staff
to continue product development functions within the company (as opposed to
doing so with consultants in the prior year) as well as increase its staffing
levels due to the opening of the Company’s new Toronto office. There was an
increase in Professional and Consulting Fees from $238,617 to $268,883 as the
company increased its legal and accounting services as part of its increase in
business since its acquisition of the customers of Orion Communications in May
of 2009. There was an increase in General and Administrative Expenses from
$117,941 to $265,051 due to an increase in expenditures associated with the
establishment of a second office in Toronto.  There was a decrease in
Depreciation Expenses from $47,881 to $8,514 since the company’s acquisitions of
new computer equipment to upgrade its services were done through operating
leases and hence did not acquire a significant amount of new computer equipment
during the period.  Likewise, the original equipment received in 2004
during the formation of the Company’s subsidiary Teliphone Inc. from its former
parent company United American Corporation had completely
depreciated.
  25
  As a
result, the Company had a net income of $102,351 for the year ended September
30, 2009 (when considering a minority interest of ($16,553)) compared to a net
loss of ($187,656) for the year ended September 30, 2008 (when considering a
minority interest of $43,381). The principal reasons for company’s net income
for the year ended September 30, 2009 is due to its continued decreasing costs of
operating its VoIP network in Canada and the increase in gross margin acquired
through the acquisition of customers of Orion Communications.
  Plan
of Operations and Need for Additional Financing
  The
Company's plan of operations for most of 2010 and 2011 is to build a subscriber
base of retail customers who purchase telecommunications services on a monthly
basis, as well as wholesale technology and telecommunications solutions to Tier
1 & Tier 2 telecommunications companies.
  Liquidity
and Capital Resources
  For
the year ended September 30, 2009:
  On The
Company's balance sheet as of September 30, 2009, the Company had assets
consisting of accounts receivable in the amount of $514,988, inventory of
$11,819, prepaid expenses of $88,240 and no cash. The Company has expended its
cash in furtherance of its business plan.  Consequently, the Company's
balance sheet as of September 30, 2009 reflects a deficit accumulated of
($1,650,709) and total stockholder’s equity of $191,370.
  The
Company was provided $91,079 of cash from operating activities in 2009 compared
to a use of $30,307 in 2008. This change was attributable in large part to the
decreased expenditures to maintain our telecommunications network and related
maintenance of its operation along with the increase in the company’s ability to
collect its receivables from clients with pas due amounts relative to the
increase in accounts payable to service them.
  The
Company used cash in investing activities of $55,685 compared to receiving
$9,807 in 2008. This change was attributable to the Company's acquisition of the
customers of Orion Communications. The Company did not require any acquisitions
of telecommunications equipment in order to serve its customers during 2008, and
had received $9,807 in cash from its acquisition of the net assets of Dialek
Telecom at the time.
  The
Company had net cash used financing activities of $52,195 in 2009 compared to
$18,299 in 2008.  The majority of this use comes from the company’s
repayment of the proceeds it received from related parties through the issuance
of debentures and the increase in its bank overdraft.  It must be noted
that the Company was provided $18,299 of cash from financing activities in 2008,
$125,153 in 2007, $408,747  in 2006 and $697,917 in 2005.  The
Company continues to become less reliant on its raising funds (mostly in the
form of related party debt) as its cash flow from operations
improves.
  In
pursuing its business strategy, the Company will require additional cash for
growing its operating and investing activities, since the Company’s current
level of gross margin is capable of covering its operating expenses. Company
will continue to borrow money through its operating line of credit at its
subsidiary’s bank when such cash for growth purposes is required.  In
order to increase this operating line, the Company relies on collateral
guarantees from shareholders and related parties.  The Company
continues to search for ways to reduce costs and increase revenues of its VoIP
and telecommunications resell services.
 
 26
  On
November 2nd, 2007, the Company cleared a registration of shares on form SB-2
for the sale of up to 20,000,000 of its shares of common stock at $0.25 per
share. The Company anticipated proceeds of this offering to be approximately
$450,568 should the minimum be raised to as high as $4,950,568 should the
maximum be raised, after the payment of closing costs of approximately
$49,432.  However, the company withdrew its offering on May 1, 2008
due to its inability to receive approval from the Over-The-Counter Bulletin
Board exchange regulator (FINRA, the Financial Industry Regulatory Authority)
for trading of its common stock over the counter with an open, pending offer to
sell registered securities.  The Company intends to re-submit its
preliminary prospectus for approval on form S-1 in the future should its capital
raising strategies require it.
  The
Company anticipates raising funds in order to increase its base of retail
customers through the acquisition of telecommunications
resellers.  Likewise, the Company continues to pursue and carry out
its business plan, which includes marketing programs aimed at the promotion of
the Company's services, hiring additional staff to distribute and find
additional distribution channels, enhance the current services the Company is
providing and maintain its compliance with Sarbanes - Oxley Section
404."
  Other
than current requirements from our suppliers, and the maintenance of our current
level of operating expenses, the company does not have any commitments for
capital expenditures or other known or reasonably likely cash
requirements.
  The
company has classified its related party loans on its Balance sheet as of
September 30, 2009 of $42,500 as a current liability. These loans were issued as
advances to the company to be repaid when the company can raise adequate funds
through the sale of equity.  The Company has 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 the Company will
continue as a going concern. The Company has suffered recurring losses from
operations from its inception in 2004 to its fiscal year ending September 30,
2008.  However, the Company has emerged from the recurring losses and has
posted a net income for the year ended September 30, 2009.  The Company
continues to have a working capital deficit of $604,541. 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. The Company
has been searching for new distribution channels to wholesale their services to
provide additional revenues to support their operations.  There is no
guarantee that the Company will be able to raise additional capital or generate
the increase in revenues to sustain its operations, however, the company has an
effective registration statement to raise additional capital. These conditions
raise substantial doubt about the Company's ability to continue as a going
concern for a reasonable period.
  In
addition, the Company acquired certain assets and liabilities of Dialek Telecom
on February 15, 2008 for a total price of CDN$383,464.  After 10
months of operations, the Company has evaluated, taking into account the
interest payments required to finance the acquisition, the gross margin received
and increase in operating expenses required to support the new customer base,
that the assets and liabilities acquired were re-evaluated at
CDN$401,812.  The positive gross margin from its operations related to
the acquisition of certain assets and liabilities of Dialek have therefore
contributed to the Company’s increase in cash flow contributed from
operations.  On December 31, 2008, the Company converted the entire amount
due on the purchase price through the issuance of capital stock at $0.25 per
share.
  On August
1, 2006, the Company converted $421,080 of the $721,080 of its loans with United
American Corporation, a related party through common ownership, and majority
shareholder of the Company prior to United American Corporation's stock dividend
that took place effective October 30, 2006 into 1,699,323 shares of the
Company's common stock. In December 2006, the Company issued a resolution to
issue the remaining 171 fractional shares related to United American
Corporation's spin-off of the corporation and pro-rata distribution of United
American Corporation's holding of the Company's common stock to its
shareholders. Those shares were issued prior to December 31, 2006 and
distributed to shareholders. The $300,000 remaining on the loan has become interest
bearing at 12% per annum on August 1, 2006, payable monthly with a maturity date
of August 1, 2009.  However on December 31, 2009, the Company converted the
entire debt through the issuance of capital stock at $0.25 per
share.
  27
  The
Company also holds the possibility of a contingent liability and SEC violation
surrounding the distribution of a portion of its shares performed by its former
parent company United American Corporation (“UAC”) to its
shareholders.  The board of directors of 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). The Company has filed a registration statement on Form
SB-2 with the intent of complying with safe harbor provisions of Staff Legal
Bulletin No. 4. Although the Company and UAC 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.
  In
addition, the Company acquired certain assets and liabilities of Orion
Communications Inc. on May 7, 2009, and assumed a total of $418,762 of
liabilities and $376,7891 of assets. The Company has evaluated the net income
acquired due to the deal as approximately an additional approximately $35,000
per month, and hence the positive income generated has contributed to an
increase in cash flow from operations.
 28
  CRITICAL ACCOUNTING POLICIES
AND ESTIMATES
 
 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.
 
 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.
 
 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 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.
 29
 
 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 consists of telephony services revenue and customer equipment (which
enables the Company's telephony services) and shipping revenue. The point in
time at which revenue is recognized is determined in accordance with 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. they began to recognize revenue from their VoIP Telephony
services when the services were rendered and customer equipment purchased as
follows:
 
 VoIP Telephony Services
Revenue
 
 The
Company realizes VoIP telephony services revenue through sales by two distinct
channels; the Retail Channel (Customer purchases their hardware from a Retail
Distributor and the Company invoices the customer direct) and the Wholesale
Channel (Customer purchases their hardware from the Wholesaler and the Company
invoices the Wholesaler for usage by the Wholesaler’s customers
collectively).
 
 Substantially
all of the Company's operating revenues are telephony services revenue, which is
derived primarily from monthly subscription fees that customers are charged
under the Company's service plans. The Company also derives telephony services
revenue from per minute fees for international calls and for any calling minutes
in excess of a customer's monthly plan limits.
 
 Retail
Channel
 
 Monthly
subscription fees are automatically charged to customers' credit cards in
advance and are recognized over the following month when services are
provided.
 
 Revenue
generated from international calls and from customers exceeding allocated call
minutes under limited minute plans is charged to the customer’s credit cards in
advanced in small increments and are recognized over the following month when
the services are provided.
 
 The
Company generates revenues from shipping equipment direct to customers and our
re-seller partners.  This revenue is considered part of the VoIP
service revenues.
 
 The
Company does not charge initial activation fees associated with the service
contracts in the Retail Channel.  The Company generates revenues from
disconnect fees associated with early termination of service contracts with
Retail Customers. These fees are included in service revenue as they are
considered part of the service component when the service is delivered or
performed.
 
 Prior to
March 31, 2007 the Company generally charged a disconnect fee to Retail
customers who did not return their customer equipment to the Company upon
disconnection of service if the disconnection occurred within the term of the
service contract. On April 1, 2007, the Company changed its disconnect policy.
Upon cancellation of the service, no disconnection fee is charged and there is
no refund issued to the customer for any portion of the unused services as
before.  The customer’s service termination date becomes the next
anniversary date of its billing cycle.
  30
  This
accounting is consistent with the rules set forth in the revenue recognition
guidelines in ASC Topic 605 since there are no rights of returns or refunds that
exist for the customer other than a standard 30-day money-back
guarantee.  In the event of a return within the 30 day guarantee
period, the hardware is refunded in its entirety.  This accounting is
also consistent with ASC 605-15 on “Revenue Recognition When Right of Return
Exists” which allows for equipment revenue to be recognized at the time of sale
since there no longer exists a right of return after the 30 day
period.
 
 Wholesale
Channel
 
 Monthly
subscription fees are invoiced to Wholesale customers at the end of the month
for the entirety of the services delivered during the month.  Revenue
for this period is therefore recognized at the time the Wholesaler is
billed.
  The
Company recognizes this revenue utilizing the guidance set forth in ASC 605-25,
"Revenue Arrangements with Multiple Deliverables".  For the Wholesale
channel, the activation fee is recognized as deferred revenue, and amortized
over the length of the service agreement. If the service is terminated within
the term of the service agreement, the deferred revenue is fully
amortized.  This accounting is consistent because the up-front fee is
not in exchange for products delivered or services performed that represent the
culmination of a separate earnings process, and hence the deferral of revenue is
appropriate.
  There is
no disconnection fee associated with a wholesale customer.
  The
Company generates revenues from shipping equipment direct to wholesale
customers.  This revenue is considered part of the VoIP service
revenues.
 
 Customer
Equipment
 
 Retail
Channel
 
 For
retail sales, the equipment is sold to re-sellers at a subsidized price below
that of cost and below that of the retail sales price. The customer purchases
the equipment at the retail price from the retailer.  The Company
recognizes this revenue utilizing the guidance set forth in ASC 605-25, “Revenue
Arrangements with Multiple Deliverables” and ASC 605-50, “Accounting for
Consideration Given by a Vendor to a Customer (Including a Reseller of the
Vendor’s Products)”.
 
 Under a
retail agreement, the cost of the equipment is recognized as deferred revenue,
and amortized over the length of the service agreement. Upon refund, the
deferred revenue is fully amortized.
 
 Customer
equipment expense is recorded to direct cost of goods sold when the hardware is
initially purchased from our suppliers.
 
 The
Company also provides rebates to retail customers who purchase their customer
equipment from retailers and satisfy minimum service period
requirements.   This minimum service period (e.g. three months)
differs from the length of the service agreement (e.g. twelve
months).  These rebates are recorded as a reduction of service revenue
over the minimum service period based upon the actual rebate coupons received
from customers and whose accounts are in good standing.  The Company
records a contingent liability to represent the amount of the refund obligation
through earnings on a systematic basis.
  31
 
 Wholesale
Channel
 
 For
wholesale customers, the equipment is sold to wholesalers at the Company’s cost
price plus mark-up.  There are no rebates for equipment sold to
wholesale customers and the Company does not subsidize their equipment
sales.  The Company recognizes revenue from sales of equipment to
wholesale customers as billed.
  Commissions Paid to Retail
Distributors
  Commissions
paid to Retail Distributors are based on the recurring revenues recorded by the
company and incurred in the period where the revenue is recognized and paid by
the company to the retail Distributor in the following month.  These
commissions are recorded as cost of sales as they are directly related to the
revenue acquired and are not considered a sales and marketing
expense.  These commissions are payable based on the Distributor’s
servicing of the customer on an on-going basis.
 
 Commissions Paid to
Wholesalers
 
 The
Company recognizes this revenue utilizing the guidance set forth in ASC 605-50
“Accounting for Consideration Given by a Vendor to a Customer (Including a
Reseller of the Vendor’s Products)”.  The Company is receiving
identifiable benefits from the Wholesaler (billing and customer support) in
return for the allowance.  These benefits are sufficiently separable
from the Wholesaler’s purchase of the Company’s hardware and
services.  The fair value of those benefits can be reasonably
estimated and therefore the excess consideration is characterized as a reduction
of revenue on the Company’s Statement of Operations.
 
 Resale of Traditional
Telecommunications Services (due to Acquisition of customer base of Dialek
Telecom and Orion Communications Inc. - represents a majority of the Company’s
revenue
 
 The
Company earns revenue by reselling telecommunications services purchased from
wholesale providers such as Rogers Communications and Videotron
Telecom.  These revenues include monthly network access fees for local
calling and internet access services billed one month in advance and recognized
when earned.  Long Distance and Toll free calling service revenues are
recognized when the service is rendered and included and billed the following
month.
 
 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 $76,701 at
September 30, 2009.
 
 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.
  32
 
 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,
2009.
 
 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, 2009
and 2008 are included in selling and promotion expenses in the 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.
  33
 
 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.
 
 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.
  34
 
 Reclassifications
 
 The
Company has reclassified certain amounts in their consolidated statement of
operations for the years ended September 30, 2008 to conform with the September
30, 2009 presentation. These reclassifications had no effect on the net loss for
the year ended September 30, 2008.
 
 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, 2009, 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 years ended September 30, 2009 and
2008.
 
 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.
  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.
  35
 
 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.
 
 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.
  36
 
 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. The Company has evaluated subsequent events through December
23, 2009, the date the financial statements were
issued.
 
 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.
 
 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.
  37
 ITEM
      7A.
              QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
 
 Not
required.
 
 ITEM
      8.
              FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA
  TELIPHONE
CORP.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
  INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
  PageReport of Independent Registered Public Accounting Firm
                F-1Consolidated
      Balance Sheets as of September 30, 2009 and 2008
                F-2Consolidated
      Statements of Operations and Comprehensive Income (Loss) for the Years
      Ended September 30, 2009 and 2008
                F-3Consolidated
      Statements of Changes in Stockholders’ Equity (Deficit) for the Years
      Ended September 30, 2009 and 2008
                F-4Consolidated
      Statements of Cash Flows for the Years Ended September 30, 2009 and
      2008
                F-5Notes
      to Consolidated Financial Statements
                F-6
 38
  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, 2009 and 2008, and the related consolidated
statements of operations, changes in stockholders' equity (deficit) and cash
flows for the years ended September 30, 2009 and 2008  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, 2009 and 2008, and the results of its consolidated
statements of operations, changes in stockholders’ equity (deficit), and cash
flows for years ended September 30, 2009 and 2008 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
 December
23, 2009
  F-1
  TELIPHONE
CORP.
 CONSOLIDATED
BALANCE SHEETS
 AS AT SEPTEMBER
30, 2009 AND 2008
   ASSETSUS
      $SEPTEMBER
      30,
                
                
                SEPTEMBER
      30,2009
                
                
                2008Current
      Assets:Cash
      and cash equivalents
                
                $
                -
                
                
                $
                -Accounts
      receivable, net
                
                
                514,988
                
                
                
                152,836Inventory
                
                
                11,819
                
                
                
                8,964Prepaid
      expenses and other current assets
                
                
                88,240
                
                
                
                45,714Total
      Current Assets
                
                
                615,047
                
                
                
                207,514Fixed
      assets, net of depreciation
                
                
                15,250
                
                
                
                14,563Goodwill
                
                
                851,489
                
                
                
                526,783TOTAL
      ASSETS
                
                $
                1,481,786
                
                
                $
                748,860LIABILITIES AND STOCKHOLDERS' EQUITY
      (DEFICIT)LIABILITIESCurrent
      Liabilities:Bank
      overdraft
                
                $
                93,714
                
                
                $
                19,545Deferred
      revenue
                
                
                2,690
                
                
                
                4,428Promissory
      note payable
                
                
                26,152
                
                
                
                -Current
      portion of related party convertible debentures
                
                
                56,038
                
                
                
                -Current
      portion of related party loans
                
                
                42,500
                
                
                
                628,424Line
      of credit - Dialek
                
                
                -
                
                
                
                140,951Current
      portion of note payable, Dialek Telecom
                
                
                -
                
                
                
                69,390Accounts
      payable and accrued expenses
                
                
                998,494
                
                
                
                535,215Total
      Current Liabilities
                
                
                1,219,588
                
                
                
                1,397,953Long
      Term Liabilities:Related
      party convertible debentures, net of current portion
                
                
                -
                
                
                
                250,116Related
      party loans, net of current portion
                
                
                70,828
                
                
                
                -TOTAL
      LIABILITIES
                
                
                1,290,416
                
                
                
                1,648,069STOCKHOLDERS'
      EQUITY (DEFICIT)Common stock, $.001 Par Value; 125,000,000 shares
    authorizedand
      37,376,657 and 33,554,024 shares issued and outstanding,
      respectively
                
                
                37,377
                
                
                
                33,554Additional
      paid-in capital
                
                
                1,847,871
                
                
                
                898,156Accumulated
      deficit
                
                
                (1,650,709
                )
                
                
                (1,753,060
                )Accumulated
      other comprehensive income (loss)
                
                
                (119,562
                )
                
                
                (137,719
                )Total
      Teliphone Corp. Stockholders' Equity (Deficit)
                
                
                114,977
                
                
                
                (959,069
                )Noncontrolling
      interest
                
                
                76,393
                
                
                
                59,860Total
      Stockholders' Equity (Deficit)
                
                
                191,370
                
                
                
                (899,209
                )TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
                
                $
                1,481,786
                
                
                $
                748,860
   The accompanying notes are
an integral part of the condensed consolidated financial
statements.
  F-2
  TELIPHONE
CORP.
 CONSOLIDATED STATEMENTS OF
OPERATIONS
 FOR THE YEARS ENDED
SEPTEMBER 30, 2009 AND 2008
   US$YEARS
      ENDEDSEPTEMBER
      30,2009
                
                
                2008OPERATING
      REVENUESRevenues
                
                $
                2,710,680
                
                
                $
                1,215,570COST
      OF REVENUESInventory,
      beginning of period
                
                
                8,964
                
                
                
                6,100Purchases
      and cost of VoIP services
                
                
                1,566,526
                
                
                
                823,748Inventory,
      end of period
                
                
                (11,819
                )
                
                
                (8,964
                )Total
      Cost of Revenues
                
                
                1,563,671
                
                
                
                820,884GROSS
      PROFIT
                
                
                1,147,009
                
                
                
                394,686OPERATING
      EXPENSESSelling
      and promotion
                
                
                34,489
                
                
                
                21,757Administrative
      wages
                
                
                398,393
                
                
                
                85,522Professional
      and consulting fees
                
                
                268,883
                
                
                
                238,617Other
      general and administrative expenses
                
                
                265,051
                
                
                
                117,941Depreciation
                
                
                8,514
                
                
                
                47,881Total
      Operating Expenses
                
                
                975,330
                
                
                
                511,718NET
      INCOME (LOSS) BEFORE OTHERINCOME (EXPENSE)
                
                
                171,679
                
                
                
                (117,032
                )OTHER
      INCOME (EXPENSE)Interest
      expense
                
                
                (52,795
                )
                
                
                (114,005
                )Total
      Other Income (Expense)
                
                
                (52,795
                )
                
                
                (114,005
                )NET
      INCOME (LOSS) BEFORE PROVISION FORINCOME
      TAXES
                
                
                118,884
                
                
                
                (231,037
                )Provision
      for Income Taxes
                
                
                -
                
                
                
                -NET
      INCOME (LOSS)
                
                
                118,884
                
                
                
                (231,037
                )Less:
      Net earnings attributable to noncontrolling interest
                
                
                (16,533
                )
                
                
                43,381NET
      INCOME (LOSS) APPLICABLE TO COMMON SHARES
                
                $
                102,351
                
                
                $
                (187,656
                )NET
      INCOME (LOSS) PER BASIC AND DILUTED SHARES
                
                $
                0.00
                
                
                $
                (0.01
                )WEIGHTED
      AVERAGE NUMBER OF COMMONSHARES
      OUTSTANDING
                
                
                35,910,295
                
                
                
                33,554,024COMPREHENSIVE
      INCOME (LOSS)Net
      Income (loss)
                
                $
                102,351
                
                
                $
                (187,656
                )Other
      comprehensive income (loss)Currency
      translation adjustments
                
                
                18,157
                
                
                
                (102,442
                )Comprehensive
      income (loss)
                
                $
                120,508
                
                
                $
                (290,098
                )
   The accompanying notes are
an integral part of the condensed consolidated financial
statements.
  F-3
 TELIPHONE CORP.
 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'
(DEFICIT)
 FOR THE YEARS ENDED
SEPTEMBER 30, 2009 AND 2008
   US$AccumulatedCommon
                
                
                
                
                
                Additional
                
                
                
                
                
                OtherStock
                
                
                
                
                
                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
                )
                
                $
                114,977
   The accompanying notes are
an integral part of the condensed consolidated financial
statements.
  F-4
  TELIPHONE
CORP.
 CONSOLIDATED STATEMENTS OF
CASH FLOWS
 FOR THE YEAR ENDED
SEPTEMBER 30, 2009 AND 2008
   US$YEARS
      ENDEDSEPTEMBER
      30,2009
                
                
                2008CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      income (loss)
                
                $
                102,351
                
                
                $
                (187,656
                )Adjustments
      to reconcile net income (loss) to net cashused
      in operating activities:Depreciation
                
                
                8,514
                
                
                
                47,881Noncontrolling
      interest
                
                
                16,533
                
                
                
                (43,381
                )Common
      stock issued for services
                
                
                380
                
                
                
                -Changes
      in assets and liabilities(Increase)
      decrease in accounts receivable
                
                
                (308,323
                )
                
                
                (21,305
                )Decrease
      in investment tax credit receivable
                
                
                -
                
                
                
                10,603(Increase)
      decrease in inventory
                
                
                (2,909
                )
                
                
                (3,200
                )(Increase)
      decrease in prepaid expenses and other current assets
                
                
                (7,095
                )
                
                
                66,553Increase
      (decrease) in deferred revenues
                
                
                (1,711
                )
                
                
                (14,486
                )(Increase)
      decrease in Good WillIncrease
      in accounts payable andand
      accrued expenses
                
                
                283,339
                
                
                
                114,684Total
      adjustments
                
                
                (11,272
                )
                
                
                157,349Net
      cash provided by (used in) operating activities
                
                
                91,079
                
                
                
                (30,307
                )CASH
      FLOWS FROM INVESTING ACTIVITIESAcquisitions
      of capital assets
                
                
                (10,081
                )
                
                
                -Cash
      paid in acquisition of net assets of Orion
                
                
                (45,604
                )
                
                
                -Cash
      received in acquisition of net assets of Dialek Telecom
                
                
                -
                
                
                
                9,807Net
      cash provided by (used in) investing activities
                
                
                (55,685
                )
                
                
                9,807CASH
      FLOWS FROM FINANCING ACTIVITESIncrease
      in bank overdraft
                
                
                74,288
                
                
                
                19,545Proceeds
      from debenture payable
                
                
                56,038
                
                
                
                -Repayment
      of promissory note
                
                
                (11,208
                )
                
                
                -Repayment
      of debt - Dialek
                
                
                -
                
                
                
                (40,835
                )Proceeds
      from loan payable - related parties, net
                
                
                (171,313
                )
                
                
                39,589Net
      cash provided by (used in) financing activities
                
                
                (52,195
                )
                
                
                18,299Effect
      of foreign currencies
                
                
                16,801
                
                
                
                (9,780
                )NET
      INCREASE (DECREASE) INCASH
      AND CASH EQUIVALENTS
                
                
                -
                
                
                
                (11,981
                )CASH
      AND CASH EQUIVALENTS -BEGINNING
      OF PERIOD
                
                
                -
                
                
                
                11,981CASH
      AND CASH EQUIVALENTS - END OF PERIOD
                
                $
                -
                
                
                $
                -CASH
      PAID DURING THE PERIOD FOR:Interest
      expense
                
                $
                50,670
                
                
                $
                83,730SUPPLEMENTAL
      NONCASH INFORMATION:Common
      stock issued for liability for stock to be issued
                
                $
                -
                
                
                $
                -Acquisition
      of Dialek Customers:Accounts
      receivable
                
                
                
                
                
                $
                74,533Goodwill
                
                
                
                
                
                
                549,767Accounts
      payable
                
                
                
                
                
                
                (258,044
                )Note
      payable
                
                
                
                
                
                
                (376,063
                )Cash
      received in acquisition
                
                $
                -
                
                
                $
                (9,807
                )Conversion
      of trade payable to promissory note payable
                
                $
                32,679
                
                
                $
                -Acquisition
      of Orion Customers:Accounts
      receivable
                
                $
                46,686
                
                
                $
                -Goodwill
                
                
                327,901
                
                
                
                -Accounts
      payable
                
                
                (420,191
                )
                
                
                -Cash
      paid in acquisition
                
                $
                (45,604
                )
                
                $
                -
   The accompanying notes are
an integral part of the condensed consolidated financial
statements.
  F-5
  TELIPHONE
CORP.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
   NOTE
      1-
              ORGANIZATION AND BASIS
      OF PRESENTATION
 
 Teilphone
Corp. (formerly OSK Capital II Corporation) (the “Company”) was incorporated in
the State of Nevada on March 2, 1999 to serve as a vehicle to effect a merger,
exchange of capital stock, asset acquisition or other business combination with
a domestic or foreign private business. Effective April 28, 2005, the Company
achieved its objectives with the reverse merger and reorganization with
Teliphone Inc., a Canadian company.
 
 Teliphone,
Inc. was founded by its original parent company, United American Corporation, a
publicly traded Florida Corporation, in order to develop a
Voice-over-Internet-Protocol (VoIP) network which enables users to connect an
electronic device to their internet connection at the home or office which
permits them to make telephone calls to any destination phone number anywhere in
the world. VoIP is currently growing in scale significantly in North America.
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.  For this distribution channel, the
Company typically pays a 25% commission to the distributor who shares this with
the re-seller.
 
 In
addition to the retail services provided, Teliphone Inc. also sells to
wholesalers. Wholesalers typically receive approximately a 35% commission on
such sales, however, the wholesaler re-bills these services to their customers
and provide the necessary customer support to their customers
directly.
 
 In
addition to retail and wholesale services provided, Teliphone Inc. also re-sells
traditional telecommunications services across Canada through a direct sales
channel.
 
 On August
21, 2006, OSK Capital II Corporation formerly changed its name to Teliphone
Corp.
 
 F-6
 
 TELIPHONE
CORP.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
 
 
 NOTE
      1-
              ORGANIZATION AND BASIS
      OF PRESENTATION(CONTINUED)
 
 Going
Concern
  As shown
in the accompanying consolidated financial statements the Company has a working
capital deficiency of ($604,541) as of September 30, 2009, and has an
accumulated deficit of ($1,650,709) through September 30, 2009. The Company has
improved operations and streamlined their business, expanded their services
through the acquisitions of Dialek and Orion customer bases, and has generated
net profits for the past nine months. The Company has utilized their line of
credit limits from the bank and their profits have gone to pay down the payables
that exist. While the Company demonstrates that it has recently become
profitable, the existence of the working capital deficiency 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 from this entity. This transaction as
described in Note 11.
 
 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.
 
 On May 1,
2009, the company entered into a customer assignment contract with 9191-4200
Quebec Inc. where it acquired the customer contracts of Orion Communications
Inc., an Ontario, Canada Company.  The transaction is further detailed
in Note 12.
 
 While the
Company has experienced a net profit for the year ended September 30, 2009,
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.
 
 F-7
 
 TELIPHONE
CORP.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
   NOTE
      1-
              ORGANIZATION AND BASIS
      OF PRESENTATION(CONTINUED)
 
 Going Concern
(Continued)
 
 Management
believes that the Company’s capital requirements will depend on many factors.
These factors include the increase in sales through existing channels as well as
the Company’s subsidiary Teliphone Inc.’s ability to continue to expand its
distribution points and leveraging its technology into the commercial small
business segments. The Company’s subsidiary Teliphone Inc.’s strategic
relationships with telecommunications interconnection companies, internet
service providers and retail sales outlets has permitted the Company to achieve
consistent monthly growth in acquisition of new customers.
 
 The
Company’s ability to continue as a going concern for a reasonable period is
dependent upon management’s ability to raise additional interim
capital.  There can be no assurance that management will be able to
raise sufficient capital, under terms satisfactory to the Company, if at
all.
 
 The
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, 2009 AND 2008
   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 approximately $454,000 CDN$ in line of credits from the
bank. Therefore, the Company can exceed their cash in bank by this amount. The
$454,000 CD$ in line of credits is comprised of approximately $315,000 CDN$ in
guaranteed investment certificates (“GIC”) and approximately $139,000 CDN$ in
personal guarantees to the bank from a shareholder.
 
 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, 2009 AND 2008
  
 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 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.
  F-10
  TELIPHONE
CORP.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
  
 NOTE
      2-
              SUMMARY OF SIGNIFICANT
      ACCOUNTING POLICIES(CONTINUED)
 
 Revenue
Recognition
 
 Operating
revenues consists of telephony services revenue and customer equipment (which
enables the Company's telephony services) and shipping revenue. The point in
time at which revenue is recognized is determined in accordance with 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. they began to recognize revenue from their VoIP Telephony
services when the services were rendered and customer equipment purchased as
follows:
 
 VoIP Telephony Services
Revenue
 
 The
Company realizes VoIP telephony services revenue through sales by two distinct
channels; the Retail Channel (Customer purchases their hardware from a Retail
Distributor and the Company invoices the customer direct) and the Wholesale
Channel (Customer purchases their hardware from the Wholesaler and the Company
invoices the Wholesaler for usage by the Wholesaler’s customers
collectively).
 
 Substantially
all of the Company's operating revenues are telephony services revenue, which is
derived primarily from monthly subscription fees that customers are charged
under the Company's service plans. The Company also derives telephony services
revenue from per minute fees for international calls and for any calling minutes
in excess of a customer's monthly plan limits.
 
 Retail
Channel
 
 Monthly
subscription fees are automatically charged to customers' credit cards in
advance and are recognized over the following month when services are
provided.
 
 Revenue
generated from international calls and from customers exceeding allocated call
minutes under limited minute plans is charged to the customer’s credit cards in
advanced in small increments and are recognized over the following month when
the services are provided.
 
 The
Company generates revenues from shipping equipment direct to customers and our
re-seller partners.  This revenue is considered part of the VoIP
service revenues.
 
 F-11
  TELIPHONE
CORP.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
   NOTE
      2-
              SUMMARY OF SIGNIFICANT
      ACCOUNTING POLICIES(CONTINUED)
 
 Revenue Recognition(Continued)
 
 The
Company does not charge initial activation fees associated with the service
contracts in the Retail Channel.  The Company generates revenues from
disconnect fees associated with early termination of service contracts with
Retail Customers. These fees are included in service revenue as they are
considered part of the service component when the service is delivered or
performed.
 
 Prior to
March 31, 2007 the Company generally charged a disconnect fee to Retail
customers who did not return their customer equipment to the Company upon
disconnection of service if the disconnection occurred within the term of the
service contract. On April 1, 2007, the Company changed its disconnect policy.
Upon cancellation of the service, no disconnection fee is charged and there is
no refund issued to the customer for any portion of the unused services as
before.  The customer’s service termination date becomes the next
anniversary date of its billing cycle.
  This
accounting is consistent with the rules set forth in the revenue recognition
guidelines in ASC Topic 605 since there are no rights of returns or refunds that
exist for the customer other than a standard 30-day money-back
guarantee.  In the event of a return within the 30 day guarantee
period, the hardware is refunded in its entirety.  This accounting is
also consistent with ASC 605-15 on “Revenue Recognition When Right of Return
Exists” which allows for equipment revenue to be recognized at the time of sale
since there no longer exists a right of return after the 30 day
period.
 
 Wholesale
Channel
 
 Monthly
subscription fees are invoiced to Wholesale customers at the end of the month
for the entirety of the services delivered during the month.  Revenue
for this period is therefore recognized at the time the Wholesaler is
billed.
  The
Company recognizes this revenue utilizing the guidance set forth in ASC 605-25,
"Revenue Arrangements with Multiple Deliverables".  For the Wholesale
channel, the activation fee is recognized as deferred revenue, and amortized
over the length of the service agreement. If the service is terminated within
the term of the service agreement, the deferred revenue is fully
amortized.  This accounting is consistent because the up-front fee is
not in exchange for products delivered or services performed that represent the
culmination of a separate earnings process, and hence the deferral of revenue is
appropriate.
  There is
no disconnection fee associated with a wholesale customer.
  The
Company generates revenues from shipping equipment direct to wholesale
customers.  This revenue is considered part of the VoIP service
revenues.
 
 F-12
 
 TELIPHONE
CORP.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
   NOTE
      2-
              SUMMARY OF SIGNIFICANT
      ACCOUNTING POLICIES(CONTINUED)
 
 Revenue Recognition(Continued)
 
 Customer
Equipment
 
 Retail
Channel
 
 For
retail sales, the equipment is sold to re-sellers at a subsidized price below
that of cost and below that of the retail sales price. The customer purchases
the equipment at the retail price from the retailer.  The Company
recognizes this revenue utilizing the guidance set forth in ASC 605-25, “Revenue
Arrangements with Multiple Deliverables” and ASC 605-50, “Accounting for
Consideration Given by a Vendor to a Customer (Including a Reseller of the
Vendor’s Products)”.
 
 Under a
retail agreement, the cost of the equipment is recognized as deferred revenue,
and amortized over the length of the service agreement. Upon refund, the
deferred revenue is fully amortized.
 
 Customer
equipment expense is recorded to direct cost of goods sold when the hardware is
initially purchased from our suppliers.
 
 The
Company also provides rebates to retail customers who purchase their customer
equipment from retailers and satisfy minimum service period
requirements.   This minimum service period (e.g. three months)
differs from the length of the service agreement (e.g. twelve
months).  These rebates are recorded as a reduction of service revenue
over the minimum service period based upon the actual rebate coupons received
from customers and whose accounts are in good standing.  The Company
records a contingent liability to represent the amount of the refund obligation
through earnings on a systematic basis.
 
 Wholesale
Channel
 
 For
wholesale customers, the equipment is sold to wholesalers at the Company’s cost
price plus mark-up.  There are no rebates for equipment sold to
wholesale customers and the Company does not subsidize their equipment
sales.  The Company recognizes revenue from sales of equipment to
wholesale customers as billed.
 
 F-13
 
 TELIPHONE
CORP.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
   NOTE
      2-
              SUMMARY OF SIGNIFICANT
      ACCOUNTING POLICIES(CONTINUED)
 
 Revenue Recognition(Continued)
 
 Commissions Paid to Retail
Distributors
  Commissions
paid to Retail Distributors are based on the recurring revenues recorded by the
company and incurred in the period where the revenue is recognized and paid by
the company to the retail Distributor in the following month.  These
commissions are recorded as cost of sales as they are directly related to the
revenue acquired and are not considered a sales and marketing
expense.  These commissions are payable based on the Distributor’s
servicing of the customer on an on-going basis.
 
 Commissions Paid to
Wholesalers
 
 The
Company recognizes this revenue utilizing the guidance set forth in ASC 605-50
“Accounting for Consideration Given by a Vendor to a Customer (Including a
Reseller of the Vendor’s Products)”.  The Company is receiving
identifiable benefits from the Wholesaler (billing and customer support) in
return for the allowance.  These benefits are sufficiently separable
from the Wholesaler’s purchase of the Company’s hardware and
services.  The fair value of those benefits can be reasonably
estimated and therefore the excess consideration is characterized as a reduction
of revenue on the Company’s Statement of Operations.
 
 Resale of Traditional
Telecommunications Services (due to Acquisition of customer base of Dialek
Telecom (see Note 11) and Orion Communications Inc. (see Note 12)- represents a
majority of the Company’s revenue
 
 The
Company earns revenue by reselling telecommunications services purchased from
wholesale providers such as Rogers Communications and Videotron
Telecom.  These revenues include monthly network access fees for local
calling and internet access services billed one month in advance and recognized
when earned.  Long Distance and Toll free calling service revenues are
recognized when the service is rendered and included and billed the following
month.
 
 F-14
 
 TELIPHONE
CORP.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
   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 $76,701 at
September 30, 2009.
 
 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, 2009.
 
 F-15
  TELIPHONE
CORP.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
   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, 2009
and 2008 are included in selling and promotion expenses in the 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-16
 
 TELIPHONE
CORP.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
   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.
   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
      30,2009
                
                
                2008Net
      income (loss)
                
                $
                102,351
                
                
                $
                (187,656
                )Weighted-average
      common sharesOutstanding
      (Basic)
                
                
                35,910,295
                
                
                
                33,554,024Weighted-average
      common stockEquivalentsStock
      options
                
                
                -
                
                
                
                -Warrants
                
                
                -
                
                
                
                -Weighted-average
      common sharesOutstanding
      (Diluted)
                
                
                35,910,295
                
                
                
                33,554,024
  F-17
 
 TELIPHONE
CORP.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
  
 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 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.
 
 F-18
 
 TELIPHONE
CORP.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
   NOTE
      2-
              SUMMARY OF SIGNIFICANT
      ACCOUNTING POLICIES(CONTINUED)
 
 Reclassifications
 
 The
Company has reclassified certain amounts in their consolidated statement of
operations for the years ended September 30, 2008 to conform with the September
30, 2009 presentation. These reclassifications had no effect on the net loss for
the year ended September 30, 2008.
 
 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, 2009, 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 years ended September 30, 2009 and 2008. As of
September 30, 2009 and 2008, noncontrolling interests of $76,393 and $59,860,
respectively, have been classified as a component of equity in the consolidated
balance sheet and relate to the outside ownership percentage of the subsidiary
Teliphone Inc. For the years ended September 30, 2009 and 2008, net income
attributable to noncontrolling interests of $16,533 and a net loss of $43,381,
respectively, is included in the Company’s net income (loss).
 
 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-19
  TELIPHONE
CORP.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
   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-20
 
 TELIPHONE
CORP.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
   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-21
  TELIPHONE
CORP.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
  
 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. The Company has evaluated subsequent events through December
23, 2009, the date the financial statements were issued.
 
 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.
 
 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-22
  TELIPHONE
CORP.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
 
 
 NOTE
      3-
              FIXED
      ASSETS
 
 Fixed
assets as of September 30, 2009 and 2008 were as follows:
 
 Estimated
      UsefulLives
      (Years)
              
              
              September
      30,
                2009
              
              
              September
      30,
                2008Furniture
      and fixtures
              
              
              5
              
              
              $
              2,182
              
              
              $
              1,255Computer
      equipment
              
              
              3
              
              
              
              205,825
              
              
              
              197,879Vehicles
              
              
              5
              
              
              
              23,548
              
              
              
              23,692231,555
              
              
              
              222,826Less:
      accumulated depreciation
              
              
              
              
              
              
              216,305
              
              
              
              208,263Property
      and equipment, net
              
              
              
              
              
              $
              15,250
              
              
              $
              14,563
  There was
$8,514 and $47,881 charged to operations for depreciation expense for the years
ended September 30, 2009 and 2008, respectively.
  NOTE
      4-
              RELATED PARTY
      LOANS
 
 On August
1, 2006, the Company converted $421,080 of the $721,080 of its loans with United
American Corporation, a related party through common ownership, and majority
shareholder of the Company prior to United American Corporation’s stock dividend
that took place effective October 30, 2006 into 1,699,323 shares of the
Company’s common stock.
 
 In
December 2006, the Company issued a resolution to issue the remaining 171
fractional shares related to United American Corporation’s spin-off of the
corporation and pro-rata distribution of United American Corporation’s holding
of the Company’s common stock to its shareholders. Those shares were issued
prior to December 31, 2006 and distributed to shareholders.
 
 The
$300,000 remaining on the loan was interest bearing at 12% per Annum until it
was converted to common stock of the Company through the issuance of 1,200,000
shares ($0.25 per share) on December 31, 2008.
 
 In
addition, there was approximately $145,081 of non-interest bearing advances that
were incurred from August 2006 from United American Corporation. These advances
were provided for cash flow purposes for the Company to sustain its
operations.  On December 31, 2008, the Company converted this
liability into 580,324 shares ($0.25 per share) of the common stock of the
Company.
  F-23
  TELIPHONE
CORP.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
   NOTE
      4-
              RELATED PARTY
      LOANS (CONTINUED)
 
 The
Company had also over the past few years been advanced various amounts from
related parties whom are either officers, shareholders or entities under control
by an officer or shareholder. These amounts bore interest at interest rates
ranging between 5% and 7% per annum.  On December 31, 2008, the
Company converted the remaining balances of $120,448 into 481,791 shares of the
common stock of the Company ($0.25 per share).
 
 As of
September 30, 2009, the Company has $42,500 including accrued interest
outstanding with shareholders. Interest expense for the year ended September 30,
2009 was $1,535. 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, 2009.
 
 The
Company agreed to pay the shareholders of 9151-4877 Quebec Inc. a total of CDN
$383,464 for the acquisition of certain assets and liabilities of 9151-4877
Quebec Inc. (d/b/a “Dialek Telecom”) (See Note 9). The Company holds the option
to pay the entire amount of the balance due at anytime.  Up thorough
November 30, 2008, the Company was making a minimum monthly payment of CDN
$9,992.01, which equates to the payment of the $360,331 (US$) (CDN $383,464)
over 52 months at 15% annual interest.
 
 On
December 1, 2008, the Company and 9151-4877 Quebec Inc. entered into an
agreement which permits the Company to pay 50% of the monthly payment in cash
and the balance in shares of the common stock.
 
 On
December 31, 2008, the Company and Dialek Telecom agreed to convert the entire
remaining principal of $264,476 into 1,057,905 shares ($.25 per share) of the
common stock of the Company.
 
 In
addition, the shareholders of 9151-4877 Quebec Inc. have provided a revolving
line of credit facility of CDN $150,000 18% per annum rate of
interest.  As of December 31, 2008, the Company had drawn down
$123,153 (CDN$150,000) of this line of credit   On December 31,
2008, the Company and the shareholders of Dialek Telecom agreed to convert the
entire amount into 492,612 shares ($.25 per share) of the common stock of the
Company.
 
 The
Company entered into a cash advance agreement as part of its assignment
agreement with 9191-4200 Quebec Inc. (see Note 12) for $5,472.  The
amount is not interest bearing.
 
 F-24
 
 TELIPHONE
CORP.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
   NOTE
      4-
              RELATED PARTY
      LOANS (CONTINUED)
 
 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
 
 The
Company has accrued $6,375 in accrued interest on this payable.
 
 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.  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, 2009, the amount
outstanding was CDN$28,000 ($26,152).  Interest costs have been
established at the Bank Prime rate + 2.5%, for a total of 4.25%.
 
 NOTE
      6-
              CONVERTIBLE
      DEBENTURES
 
 On
February 6, 2009, the Company entered into a 12% Convertible Debenture (the
“Debenture”) with an individual. The Debenture had a maturity date of February
6, 2010, and incurred interest at a rate of 12% per annum.
 
 The
Debentures can either be paid to the holders on February 6, 2010 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-25
 
 TELIPHONE
CORP.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
   NOTE
      6-
              CONVERTIBLE DEBENTURES(CONTINUED)
 
 On
February 17, 2009, the Company entered into a 12% Convertible Debenture (the
“Debenture”) with an individual. The Debenture had a maturity date of February
17, 2010, and incurred interest at a rate of 12% per annum.
 
 The
Debentures can either be paid to the holders on February 6, 2010 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 Debentures was $56,038.
 
 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
 
 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-26
  TELIPHONE
CORP.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
   NOTE
      7-
              COMMITMENTS
 
 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.
 
 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. has 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. The Company anticipates
to pay approximately $50,000 (CDN$) for the year ending September 30, 2010, and
$30,000 (CND$) for the eight months ending May 31, 2011 for an aggregate total
of $80,000. Rent expense for this lease for the year ended September 30, 2009
was $41,375.
 
 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 $45,000 (CDN$) for the year ending September 30, 2010, and
$47,000 (CND$) 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 $190,000.
Rent expense for this lease for the year ended September 30, 2009 was
$28,506.
 
 The
Company’s subsidiary Teliphone Inc. has entered into various lease agreements
for computer equipment with Dell Financial Services Canada
Limited.  The Company pays approximately $3,700 (CDN$) per
month.   The Company will pay an aggregate amount of $44,000 for
the year ending September 30, 2010 and $18,000 for the year ending September 30,
2011.
  F-27
  TELIPHONE
CORP.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
  
 NOTE
      8-
              AGREEMENT – INTELCO
      COMMUNICATIONS
 
 Teliphone
Inc., a majority-owned subsidiary of the Company, 3901823 Canada Inc., the
holding company of Intelco Communications (“3901823”), and Intelco
Communications (“Intelco”)  entered into an agreement (the
“Agreement”) on July 14, 2006.  Pursuant to the terms of the
Agreement, Teliphone Inc. agreed to issue 35 class A voting shares of its common
stock representing 25.2% of Teliphone Inc.’s issued shares to 3901823 in
exchange for office rent, use of Intelco’s data center for Teliphone Inc.’s
equipment, and use of Intelco’s broadband telephony network valued at
approximating $144,000 (CDN$) for the period August 1, 2006 through July 31,
2007, a line of credit of $75,000 (CDN$), of which $25,000 (CDN$) was already
drawn upon in July 2006 and repaid in December 2006.
 
 On
September 30, 2008, 133 class A voting shares of the common stock of Teliphone
Inc. were issued to the Company for a conversion of cash advances and loans by
the Company into its subsidiary.  As a result, 3901823 decreased its
holding of Teliphone Inc. from 25.2% to 12.9%.
 
 Teliphone
Inc. recognized a prepaid expense for the fair value of the shares issued to
Intelco. The value of the prepaid expense was determined based on the estimated
cost of the services that Teliphone Inc. is to receive under the Joint Venture
Agreement entered into for a one-year period of time. The cost was estimated at
$12,000 (CDN$) per month. Teliphone Inc. up through September 30, 2007 has not
used the $12,000 (CDN$) per month. As of September, 2008, the balance remaining
in the prepaid expense for Intelco was $112,594 (US$).
 
 On
September 30, 2008, the Company re-evaluated the $112,594 pre-paid asset and
considering that the Company has moved from the premises of Intelco, and will
not benefit from any future use of equipment, data center or network, the
Company reduced the value of this pre-paid asset to $0, with a corresponding
reduction in Additional Paid-In Capital of the same amount.
 
 F-28
 
 TELIPHONE
CORP.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
   NOTE
      9-
              STOCKHOLDERS’
      DEFICIT
 
 Common
Stock
 
 As of
September 30, 2009, the Company has 125,000,000 shares of common stock
authorized with a par value of $.001.
 
 The
Company has 37,376,657 and 33,554,024 shares issued and outstanding as of
September 30, 2009 and 2008.
 
 On
September 30, 2004, the Company had 3,216,000 shares issued and outstanding. On
April 28, 2005, the Company entered into a reverse merger upon the acquisition
of Teliphone, Inc. and issued 27,010,000 shares of common stock to the
shareholders of Teliphone, Inc. in exchange for all of the outstanding shares of
stock of Teliphone, Inc. Thus the Company had 30,426,000 shares issued and
outstanding.
 
 On August
31, 2005, the Company issued 663,520 shares of common stock in conversion of the
Company’s convertible debentures in the amount of $331,760.
 
 On August
22, 2006, the Company issued 1,699,323 shares of common stock to United American
Corporation in conversion of related party debt in the amount of $421,080 (see
Note 4). An additional 171 fractional shares were issued in December
2006.
 
 On August
22, 2006, the Company issued 105,000 shares of common stock for consulting
services. These services have been valued at $0.25 per share, the price at which
the Company’s offering will be. The value of $26,250 was reflected in the
consolidated statement of operation for the year ended September 30,
2006.
 
 In
December 2006, the Company issued 660,000 shares of common stock representing a
value in the amount of $165,000, for consulting services that occurred during
the year ended September 30, 2006. The Company recognized the expense in the
year ended September 30, 2006 as the services were provided in this time frame.
The Company used the $0.25 price for valuation purposes.
 
 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).
 
 
 F-29
 
 TELIPHONE
CORP.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
   NOTE
      10-
              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, 2009, deferred tax assets consist of the following:
 
 Net
      operating losses
                
                $
                580,541Valuation
      allowance
                
                
                (580,541
                )$
                -
 At
September 30, 2009, the Company had a net operating loss carryforward in the
approximate amount of $1,707,475, available to offset future taxable income
through 2029.  The Company established valuation allowances equal to
the full amount of the deferred tax assets due to the uncertainty of the
utilization of the operating losses in future periods.
 
 A
reconciliation of the Company’s effective tax rate as a percentage of income
before taxes and federal statutory rate for the periods ended September 30, 2009
and 2008 is summarized as follows:
 
 2009
              
              
              2008Federal
      statutory rate
              
              
              (34.0
              )%
              
              
              (34.0
              )%State
      income taxes, net of federal benefits
              
              
              3.3
              
              
              
              3.3Valuation
      allowance
              
              
              30.7
              
              
              
              30.70
              %
              
              
              0
              %
  F-30
  TELIPHONE
CORP.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
   NOTE
      11-
              ACQUISITION OF CERTAIN
      ASSETS AND LIABILITIES (DIALEK
TELECOM)
 
 On
February 14, 2008, the Company entered into a Letter of Intent for the
acquisition of certain assets and liabilities of 9151-4877 Quebec Inc.
(Operating as “Dialek Telecom”). The Company later entered into a definitive
agreement for acquisition on June 30, 2008.  While the acquisition
remained effective from the date of February 15, 2008, the Company updated the
valuation after having negotiated the true values of the assets and
liabilities.  As a result, the following demonstrates the details of
the assets and liabilities acquired:
 
 Value
      adjusted
                and
      disclosed
                in
      06-30-2008 Definitive
                Agreement
                (US$)AssetsGoodwill
      (customer contracts)
              
              $
              549,767Accounts
      Receivable
              
              $
              74,533Cash
      in Bank
              
              $
              9,807TOTAL
      ASSETS:
              
              $
              634,107LiabilitiesCurrent
      Supplier Payables
              
              $
              258,044TOTAL
      LIABILITIES:Note
      Payable (see Note 4):
              
              $
              376,063
 
 There was
a reduction of the valuation due to the difference between the verified assets
and liabilities that resulted in a decrease of the acquisition price from
$411,894 (CDN$420,000) to $376,063 (CDN$383,464).  This value
fluctuates based on the exchange rate of the US and CDN dollars.  On
December 31, 2008, the Company converted the entire amount owing of $264,476
into 1,057,905 shares ($.25 per share) of the common stock of the
Company.
 
 LINE OF CREDIT
FACILITY
 
 The
shareholders of 9151-4877 Quebec Inc. have provided a revolving line of credit
facility of CDN $150,000 18% per annum rate of interest.  As of
December 31, 2008, the Company had drawn down $123,153 (CDN$150,000)) of this
line of credit.  On December 31, 2008, the Company and the
shareholders of Dialek Telecom converted the entire amounts owing into 492,612
shares ($.25 per share) of the common stock of the Company.
  F-31
 
 TELIPHONE
CORP.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
  
 NOTE
      12-
              ACQUISITION OF CERTAIN
      ASSETS AND LIABILITIES (ORION
  COMMUNICATIONS)
 
 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
have agreed to share 50% each of the gross benefits received from the customer
base. The consideration will take effect upon the customer base achieving
$767,840 in profits ($767,840 @ 50% = $393.920, which is the goodwill on the
transaction). Upon achievement of this threshold, the Company will pay 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,
2009, the Company had repaid 9191 a total of CDN$241,972 and as a result, the
amount outstanding is CDN$5,859 ($5,472) as of September 30,
2009.  The amount was considered as a cash advance and is 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, 2009.
 
 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.
  F-32
  TELIPHONE
CORP.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
  
 NOTE
      12-
              ACQUISITION OF CERTAIN
      ASSETS AND LIABILITIES (ORION COMMUNICATIONS)
      (CONTINUED)
 
 As a
result, the following demonstrates the details of the assets and liabilities
acquired:
 
 AssetsGoodwill
      (customer contracts)
              
              $
              327,901Accounts
      Receivable
              
              $
              46,686TOTAL
      ASSETS:
              
              $
              376,781LiabilitiesCurrent
      Supplier Payables
              
              $
              420,191TOTAL
      LIABILITIES:Net
      cash paid through September 30, 2009
              
              $
              45,604
 
 NOTE
      13-
              SUBSEQUENT
      EVENTS
 
 On
October 28, 2009, the Company settled a $242,538 payable with a non-related
vendor for a lump sum payment of $121,269 (50 cents on the dollar). The
forgiveness of debt of $121,269 will be reflected in the December 31, 2009
quarterly report.
  F-33
  ITEM
      9.
              CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE
  None
 
 ITEM
      9A.
              CONTROLS
      AND PROCEDURES
 
 Evaluation
of Disclosure Controls and Procedures
 
 As of the
end of the period covered by this report, we carried out an evaluation, under
the supervision and with the participation of our management, including our
Chief Executive Officer and Chief Financial Officer, of the effectiveness of our
disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e)
of the Securities Exchange Act of 1934 as of the end of the period covered by
this report. Based on that evaluation, our Chief Executive Officer and Chief
Financial Officer have concluded that our disclosure controls and procedures as
of September 30, 2009 were effective to ensure that information required to be
disclosed by us in reports that we file or submit under the Securities Exchange
Act of 1934 is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission’s rules and
forms.  Management, however, has identified certain limitations
in specific critical controls in their accounting systems which are increasingly
resulting in lengthier time lapses required in order for the company to
accurately disclose its financial statements.  In particular, these
lengthier time lapses occur for the following reasons:
 
 ·
              Lack
      of dedicated resources to track and keep records of supplier invoices on a
      daily basis·
              Lack
      of dedicated resources to track and keep records of daily disbursements
      against these invoices·
              Surplus
      accounting entries required to track intercompany expenses, post spin-off
      of the Company from its former parent company·
              Lack
      of a dedicated resource person to oversee daily record
      keeping
 39
  Management
will look to dedicate resources to these tasks in the coming months in order to
accelerate the reporting of our financial statements.  This resource
dedication will result in the Company incurring additional costs which will
affect the Company’s profitability going forward.  The Company's
management anticipates that these costs will be up to $50,000 per year in order
to maintain compliance with timely financial reporting
requirements.
 
 Changes
in Internal Controls
 
 There
have been no changes in our internal controls over financial reporting or in
other factors that could materially affect, or are reasonably likely to affect,
our internal controls over financial reporting during the year ended September
30, 2009. There have not been any significant changes in the Company’s critical
accounting policies identified since the Company filed its Form 10-K as of
September 30, 2009.
 
 ITEM
      9B.
              OTHER
      INFORMATION
 
 None.
  40
 
 PART III
 
 
 ITEM
      10.
              DIRECTORS,
      EXECUTIVE OFFICERS, AND CORPORATE
GOVERNANCE
 
 The
directors and executive officers as of December
23, 2009 are as follows:
 
 NAME
              AGE
              SERVED SINCE
              POSITIONS WITH COMPANYGeorge
      Metrakos
              38
              April
      28, 2005
              Director,
      President, CEO, CFO
 
 All of
our directors serve until their successors are elected and qualified by our
shareholders, or until their earlier death, retirement, resignation or removal.
The following is a brief description of the business experience of our executive
officers, director and significant employees:
 
 Business
Experience of Officers and the Director and Significant Employees
 
 GEORGE
METRAKOS, Chairman of the Board, CEO, CFO and President
 
 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.
              
              Sep
      1, 2004 to present
              
              President
              
              Telecommunications
      CompanyTeliphone
      Corp.
              
              Apr
      28, 2005 to present
              
              President,
      CEO, CFO and Director
              
              Holding
      CompanyUnited
      American Corp.
              
              Nov
      8, 2005 to Feb 22, 2008
              
              President,
      CEO, CFO and Director
              
              Holding
      CompanyMetratech
      Retail Systems Inc.
              
              Mar
      6, 2000 to Aug 31, 2004
              
              President
      & Founder
              
              Supply
      Chain
                  Management
      Software
 
 Compensation
of Directors
 
 Mr.
Metrakos, Chairman of the Board and sole Director, is also the Company’s
President, CEO and CFO.  Mr. Metrakos does not receive compensation as
a Director.  Mr. Metrakos does receive compensation as on officer as
disclosed in the “Executive Compensation” section of this
prospectus.
 
 Compliance
with Section 16(a) of the Exchange Act.
 
 Section
16(a) of the Exchange Act requires our directors, executive officers and persons
who own more than 10% of a required class of our equity securities, to file with
the SEC initial reports of ownership and reports of changes in ownership of
common stock and other equity securities of our company. Officers, directors and
greater than 10% shareholders are required by SEC regulation to furnish us with
copies of all Section 16(a) forms they file.
 41
  As of December
23, 2009, the Company’s sole officer and director, George Metrakos
(and Metratech Business Solutions Inc. of which he is the beneficial owner) has
filed reports required under section 16(a).
  As of December
23, 2009, one of the Company's principal shareholders,
3874958 Canada Inc., has filed reports required under section
16(a).
 
 Family
Relationships
 
 There are
no family relationships between any two or more of our directors or executive
officers. There is no arrangement or understanding between any of our directors
or executive officers and any other person pursuant to which any director or
officer was or is to be selected as a director or officer, and there is no
arrangement, plan or understanding as to whether non-management shareholders
will exercise their voting rights to continue to elect the current board of
directors. There are also no arrangements, agreements or understandings to our
knowledge between non-management shareholders that may directly or indirectly
participate in or influence the management of our affairs.
 
 Board
Committees
 
 There are
currently no Board Committees in place.
 
 ITEM
      11.
              EXECUTIVE
      COMPENSATION
 
 The
following table sets forth the information, on an accrual basis, with respect to
the compensation of our executive officers for the three years ended September
30, 2009.
 
 Summary Compensation
Table
 
 Name
      and principal position
              
              Year
              
              Salary
                ($)
              
              Bonus
                ($)
              
              Stock
      awards
                ($)
              
              Option
      awards
                ($)
              
              Nonequity
                incentive
      plan
                compensation
                ($)
              
              Nonqualified
                deferred
      compensation
                earnings
                ($)
              
              All
      other
                compensation
                ($)
              
              Total
                ($)George
      Metrakos
              
              2009
              
              $
              53,747
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              53,747CEO,
      CFO, President &
              
              2008
              
              $
              36,789
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              36,789Chairman
              
              2007
              
              $
              33,746
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              33,746
 
 Options
and Stock Appreciation Rights Grant Table
 
 There
were no grants of stock options to the Named Executive Officers during the
fiscal year ended September 30, 2009.
 
 Aggregated
Option Exercises and Fiscal Year-End Option Value Table
 
 We did
not have any outstanding stock options or stock appreciation rights at end the
fiscal year ended September 30, 2009.
 42
  Long-Term
Incentive Plan Awards Table
 
 We do not
have any Long-Term Incentive Plans.
 
 Compensation
of Directors
 
 During
2009, we did not compensate any of our directors for their services as board
members.
 
 Employment
Agreements
 
 George
Metrakos, Chairman, CEO, CFO, Principal Accounting Officer and
President
 
 From
October 1, 2008 to April 30, 2009, George Metrakos was compensated $0 annually
by the Company as a base salary.  In lieu of base compensation, Mr.
Metrakos was to be  be compensated as a percentage commission on funds
raised to effectuate its growth business plan during the upcoming fiscal
year.  Effective May 1, 2009, George Metrakos’ compensation was
changed to that of CDN$120,000 ($104,264 as per US$-Cdn$ exchange rate of May 1,
2009) of annual compensation.
 
 On April
28, 2005, he received 961,538 shares of restricted stock of the corporation when
he exchanged his 3.9% ownership holdings of Teliphone Inc. which he held prior
to the merger and re-organization. These shares are issued to Metratech Business
Solutions Inc., a Canadian company wholly owned by George Metrakos. (His
additional holdings of 77,260, also issued to Metratech Business Solutions Inc.,
were provided through his ownership position in United American Corporation,
prior to United American Corporation's spin-off of the Company in October,
2006.)
 
 Effective
since the  the common stock of the Company was trading over the
counter in June of 2008, George Metrakos is to receive 75,000 options on a
quarterly basis at a value equivalent to the last 22 trading days stock value.
This stock option plan has not been formalized or disclosed as of the date of
this filing and as of December
23, 2009, no options have been issued..
 
 ITEM
      12.
              SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS.
 
 The
following table sets forth certain information regarding beneficial ownership of
the common stock as December
23, 2009 by (i) each person, entity or group that is known by the
Company to own beneficially more than 5% of the any classes of outstanding
Stock, (ii) each director of the Company, (iii) each of our named Executive
Officers as defined in Item 402(a)(2) of Regulation S-B; and (iv) most highly
compensated executive officers who earned in excess of $100,000 for all services
in all capacities (collectively, the "Named Executive Officers") and (iv) all
directors and executive officers of the Company as a group.
 
 The
number and percentage of shares beneficially owned is determined in accordance
with Rule 13d-3 and 13d-5 of the Exchange Act, and the information is not
necessarily indicative of beneficial ownership for any other purpose. We believe
that each individual or entity named has sole investment and voting power with
respect to the securities indicated as beneficially owned by them, subject to
community property laws, where applicable, except where otherwise noted. Unless
otherwise stated, the address of each person is 194 St-Paul St West, suite 303,
Montreal, Quebec, Canada H2Y 1Z8.
  43
 
 Name
              Title
                of
                Class
              
              Shares
                Beneficially
                Owned
      (1)
              
              
              Percent
                Class
      (1)George
      Metrakos (2)
              Common
              
              
              1,838,798
              
              
              
              4.9
              %Officers
      and DirectorsAs a Group (1 Person)
              Common
              
              
              1,838,798
              
              
              
              4.9
              %3874958
      Canada Inc. (3)
              Common
              
              
              12,560,451
              
              
              
              33.6
              %Officers,
      Directors andCertain Beneficial OwnersAs a group (2
      persons)
              Common
              
              
              14,549,249
              
              
              
              38.5
              %
 
 (1) Applicable percentage
of ownership is based on 37,376,657shares of fully diluted common stock
effective December
23, 2009, Beneficial ownership is determined in accordance with the
rules of the Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of common stock subject to
options that are currently exercisable or exercisable within sixty days
of December
23, 2009 are deemed to be beneficially owned by the person holding
such options for the purpose of computing the percentage of ownership of such
person, but are not treated as outstanding for the purpose of computing the
percentage ownership of any other person.
 
 (2)
George Metrakos controls 1,838,798 shares of his stock through Metratech
Business Solutions Inc of which he is the beneficial owner. 961,528 shares were
received from the merger and re-organization of Teliphone Inc. and OSK Capital
II Corp. in April 2005, 77,270 from his holdings of United American Corporation
prior to United American Corporation's spin-off of the Company stock in October,
2006 and the balance of 950,000 shares received in a private shareholder
exchange between himself and 3874958 Canada Inc. in December, 2007.
 
 (3)
3874958 Canada Inc. is owned by "Fiducie Familiale MAA" (MAA Family Trust),
controlled by Ann Marie Poudrier.
 
 Changes
in Control
 
 We are
not aware of any arrangements, which may result in a change in control of the
Company.
 
 ITEM
      13.
              CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
      INDEPENDENCE
 
 We
believe that all prior related party transactions have been entered into upon
terms no less favorable to us than those that could be obtained from
unaffiliated third parties. Our reasonable belief of fair value is based upon
proximate similar transactions with third parties or attempts to obtain the
consideration from third parties.
 
 Director
Independence
 
 The
Company is currently listed on the OTCBB (Over-the-Counter-Bulletin-Board)
exchange. Since the OTCBB does not have its own rules for director independence,
the Company has adopted the director independence definitions as proposed by the
NASDAQ stock market.
 
 Mr.
Metrakos is not an independent director of the Company since he is also an
acting officer of the Company.
 44
  ITEM
      14.
              PRINCIPAL
      ACCOUNTANT FEES AND SERVICES
 
 Year ended
2009:
 
 Audit
Fees: The aggregate fees, including expenses, billed by the Company's principal
accountant in connection with the audit of our consolidated financial statements
for the most recent fiscal year and for the review of our financial information
included in our Annual Report on Form 10-K; and our quarterly reports on Form
10-Q during the fiscal year ending September 30, 2009 was $27,500.
 
 Audit
Related Fees: The aggregate fees, including expenses, billed by the Company's
principal accountant for services reasonably related to the audit for the year
ended September 30, 2009 were $0.00.
 
 All Other
Fees: The aggregate fees, including expenses, billed for all other services
rendered to the Company by its principal accountant during year ended September
30, 2009 was $0.00.
  Year ended
2008:
 
 Audit
Fees: The aggregate fees, including expenses, billed by the Company's principal
accountant in connection with the audit of our consolidated financial statements
for the most recent fiscal year and for the review of our financial information
included in our Annual Report on Form 10-K; and our quarterly reports on Form
10-Q during the fiscal year ending September 30, 2008 was $30,000.
 
 Audit
Related Fees: The aggregate fees, including expenses, billed by the Company's
principal accountant for services reasonably related to the audit for the year
ended September 30, 2008 were $0.00.
 
 All Other
Fees: The aggregate fees, including expenses, billed for all other services
rendered to the Company by its principal accountant during year ended September
30, 2008 was $0.00.
 
 AUDITOR
INDEPENDENCE
 
 Our Board
of Directors considers that the work done for us in the year ended September 30,
2009 and September 30, 2008 by KBL, LLP is compatible with maintaining his
independence.
 
 AUDITOR'S
TIME ON TASK
 
 All of
the work expended by KBL, LLP on our September 30, 2009 and 2008 respectively
audits were attributed to work performed by their full-time, permanent
employees.
 45
  ITEM
      15.
              EXHIBITS
 
 Exhibit
                Number
              
              Description2.1*
              
              Agreement
      and Plan of Merger by and among Teliphone Inc. and OSK II Acquisition
      Corp. and OSK Capital II Corp.2.2*
              
              Letter
      agreement between OSK Capital II Corp. and Teliphone Inc., dated April 25,
      20053.1*
              
              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.10.2.*
              
              Form
      of general conditions for use of the Company's telecommunications products
      and services.10.3.*
              
              Letter
      of Intent for a Joint Venture Agreement between Teliphone Inc. and Intelco
      Communication Inc., dated July 14, 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.
 
 10.5*
              
              Agreement
      between Teliphone Inc. and Northern Communications Services
      Inc.10.6*
              
              Extension
      agreement between Teliphone Inc. and Podar Infotech
      Limited.10.7*
              
              Agreement
      between Teliphone Inc. and Podar Infotech Limited, dated April 28,
      2005.10.8*
              
              Form
      of IP Port Service agreement, RNK Telecom.10.9*
              
              Master
      Services Agreement between Teliphone Inc. and Rogers Telecom
      Inc.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.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.10.12*
              
              Co-Location
      and Bandwidth Services Agreement, Peer 1 Network10.12-A*
              
              Co-Location
      and Bandwidth Services Agreement, Peer 1 Network, executed
      copy
 46
  10.13*
              
              Linksys
      Service Provider or SP Reseller Authorization Agreement -
      Americas10.14*
              
              Amendment
      to agreement with BR
Communications
 
 21.*
              
              Subsidiaries23.2**
              
              Consent
      of Independent Registered Public Accounting Firm (KBL,
      LLP)
 
 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 200299.1*
              
              Form
      of Subscription Agreement (incorporated by reference from Registration
      Statement on Form SB-2/A filed with the Securities and Exchange Commission
      on July 10, 2007).
 
 *
Previously filed
 ** Filed
herewith
 47
  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
      23, 2009
              By:
              /s/ George
      MetrakosGeorge
      MetrakosChief
      Executive OfficerTELIPHONE
      CORP.Date:
      December
      23, 2009
              By:
              /s/ George
      MetrakosGeorge
      MetrakosPrincipal
      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.
 
 TELIPHONE
      CORP.Date:
      December
      23, 2009
              By:
              /s/ George
      MetrakosGeorge
      MetrakosDirector