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, 2008
 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
19, 2008 was approximately $674,436.  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
19, 2008, was 33,554,024.
 
 Documents
incorporated by reference
 
 None.
  2
  TELIPHONE
CORP.
 Report
on Form 10-K
 For
the Fiscal Year Ended September 30, 2008
   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
      IItem
      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
                24Item
      7A.
                Quantitative
      and Qualitative Disclosures About Market Risk.
                34Item
      8.
                Financial
      Statements and Supplementary Data
                35Item
      9.
                Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
                36Item
      9A.
                Controls
      and Procedures
                37Item
      9B.
                Other
      Information
                38PART
      IIIItem
      10.
                Directors,
      Executive Officers and Corporate Governance
                39Item
      11.
                Executive
      Compensation
                40Item
      12.
                Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
                41Item
      13.
                Certain
      Relationships and Related Transactions, and Director
      Independence
                42Item
      14
                Principal
      Accountant Fees and Services
                43PART
      IVItem
      15.
                Exhibits,
      Financial Statement Schedules
                44SIGNATURES
                
                46
  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, 2008 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.
 
 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.
  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. Our agreement with BR
Communications Inc. has permitted us to establish our retail sales
channel.
  Our
relationship to the retail outlets is on of a supplier. We supply the hardware
to the retail outlet owners, who have a re-seller agreement with our
distributor, BR Communications Inc. We ship these products direct to the stores
based on their requirements. All shipments are Cash On Delivery payment
terms.
  For a
retail sale to occur, our re-sellers purchase hardware from us and hold
inventory of our hardware at their store. In some cases, we may sell the
hardware to our re-sellers below cost in order to subsidize the customer's
purchase of the hardware from the re-seller. Upon the sale of hardware to the
customer, the retail partner activates the service on our website while in-store
with the customer.
  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.
  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. 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.
  CallOnA.com
  We are
currently testing our CallOnA.com service, which permits users to execute free
calls to certain international destinations by initiating a call from our
website. This service has not been fully tested as of yet and we anticipate
launching the service in a preliminary form within 2009.
  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.
  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) 313-6010
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 8 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 Expect Losses to
Continue
  We have a
limited operating history with losses and expect losses to continue for at least
the next Fiscal Year Ending September 30, 2009. Should we continue to incur
losses for a significant amount of time, the value of your investment in the
common shares will be affected, and you could even lose your entire investment.
We have been unprofitable since our inception and have incurred losses. Our
accumulated deficit since inception on August 27, 2004 at September 30, 2008 was
$1,753,060. 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. However, profitability is not being
considered for the foreseeable future and is only expected for the fiscal year
ending September 30, 2010.
  13
  A.2. We
Require Additional Financing to Sustain Our Operations
  We
require additional financing to sustain our operations and in acquiring such
additional financing investors in this offering may suffer substantial
consequences such as dilution or a loss of seniority in preferences and
privileges. Based on our current operating plan (12 month projected cash
requirements found in the Plan of Operations), if the maximum number of shares
are sold in this offering, we should have sufficient funds to satisfy our
anticipated need for working capital and capital expenditures for the next 12
months. Otherwise, we will require funds to sustain operations and to develop
our business. In order to cover our continued losses from operations, we require
at least 5,000 active, paying customers. We have achieved just over 85% of this
target. Should we receive funds based on the minimum offering as outlined in
this prospectus and we maintain our current level of revenue growth, we will
satisfy our anticipated need for working capital and capital expenditures for
the next 12 months. We will require continued financing during this share
registration process to sustain this shortfall until we reach our break-even
point. Financing is likewise necessary to achieve our optimum
growth.
  In
selling only the minimum number of shares, this results in insufficient proceeds
for operations. Since our inception, our financing shortfall had been covered by
United American Corporation, our former parent company until September 30, 2007.
This was in the form of cash advances received on an "as needed basis" based on
our agreement dated February 23, 2006. Part of the funds advanced have been
converted to common stock of our Company at a value of $0.25 per share. During
Fiscal Year ending September 30, 2009, we have likewise incurred additional debt
by borrowing money through an operating line of credit established at our
Subsidiary Teliphone Inc.’s bank.
  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 your
investment in the common shares would therefore be affected, and you could even
lose your 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 your investment in the common shares would therefore
be affected, and you could even lose your 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 your investment
in the common shares would be affected, and you could even lose your 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 of your investment in the common shares to be affected, and
you could even lose your 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 your investment in the common shares would be affected, and
you could even lose your 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 of your investment in the common shares would be affected, and
you could even lose your 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 you could even lose your 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 your investment in the common shares would be affected, and you could even
lose your 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 you could lose your 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, you could lose your 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 you could
even lose your 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.
Investors in our common stock will experience immediate and substantial dilution
as a percentage of their holdings.
  The net
tangible book value of our common stock at September 30, 2008 was
($959,069), or ($0.029) per share based on 33,554,024 common shares outstanding
at the time.  Any investor purchasing common stock will experience a
substantial dilution.
  D.5
  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
Vsurance Inc. 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, Montreal, Quebec, Canada, H2Y 1Z8. The 2300 square foot office space is
rented at a base rent of approximately $1,800 per month.  In addition,
under agreement with Peer 1 Networks, a data center and co-location facility, we
rent 2 cabinets of space for our main telecommunications network equipment
located at 1080 Beaver Hall, suite 1512, Montreal, PQ, Canada H2Z
1S2.
  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 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.
  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, 2008
              High
              LowFirst
      Quarter
              Not
      TradingSecond
      Quarter
              Not
      TradingThird
      Quarter
              Not
      TradingFourth
      Quarter
              $0.15
              $0.02
 
 
 Fiscal
      Year Ended September 30, 2007
              High
              LowFirst
      Quarter
              Not
      TradingSecond
      Quarter
              Not
      TradingThird
      Quarter
              Not
      TradingFourth
      Quarter
              Not
      Trading
 
 As of
Decembert
19th, there were 33,054,024 shares of our common stock outstanding
and 317 holders of record of our common stock.
 
 Recent
Sales of Unregistered Securities
 
 None.
  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.
  23
  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.
  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, 2008
  On The
Company's balance sheet as of September 30, 2008, the Company had assets
consisting of accounts receivable in the amount of $152,836, inventory of
$8,964, prepaid expenses of $45,714 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, 2008 reflects a deficit accumulated of
($1,753,060) and a stockholders deficit of ($959,069).
  The
Company recorded sales of $1,215,570 of which $56,684 was hardware and
$1,158,886 was services, for the year ended September 30, 2008 as compared to
$673,278 of which $76,753 was hardware and $596,525 was services, for the year
ended September 30, 2007. This 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. For the year ended
September 30, 2007, revenue was derived from the sale of $420,805 of VoIP
hardware and services to Residential and Business Retail clients and $252,743
VoIP hardware and services to Wholesale customers.
 
 The
Company's cost of sales were $820,884 for the year ended September 30, 2008
compared to $479,618 for the year ended September 30, 2007, 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. The net
result was a gross margin for the year ended September 30, 2008 of $394,686
compared to $193,660 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.
  The
Company's aggregate operating expenses were $511,718 for the year ended
September 30, 2008 compared to $311,717 for the year ended September 30, 2007.
In particular, there was an increase in Selling and Promotion expenses from
$11,385 to $21,757 as the company increase its purchasing of promotional media
and sales travel as it concentrated it is seeking to expand its sales outside
of  its local market. There was a decrease in Administrative wages
from $138,051 to $85,222 as the Company paid some administrative wages for the
year as consulting fees instead of employee wages
and re-hired someof its technical staff that it had previously
outsourced for Research and Development purposes. There was an increase in
Professional and Consulting Fees from $53,838 to $238,617 as the company
outsourced some computer software development services in order to reduce costs.
There was an increase in General and Administrative Expenses from $41,367 to
$117,941 due to an increase in expenditures associated with the move of the
company from its offices at Intelco Communications to its in own offices in
downtown Montreal as well as an increase in costs to produce a printed-invoice
based billing system for Dialek Telecom customers.  There was a
decrease in Depreciation Expenses from $66,626 to $47,881 since the company did
not acquire a significant amount of new computer equipment during the period and
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 loss of ($187,656) for the year ended September
30, 2008 (when considering a minority interest of $43,381) compared to a net
loss of ($150,626) for the year ended September 30, 2007 (when considering a
minority interest of $26,439). The principal reasons for company’s net loss for
the year ended September 30, 2008 is due to the higher cost of our VoIP network
in Canada compared to the number of customers and the subsequent revenues we
have been able to generate over it.
 
 Plan
of Operations and Need for Additional Financing
  The
Company's plan of operations for most of 2009 and 2010 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, 2008:
  The
Company used $30,307 in operating activities in 2006 compared to $90,787 in
2006. 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 acquired from Dialek Telecom.
  The
Company received cash in investing activities of $9,807 compared to a use of
$24,570 in 2007. This change was attributable to the Company's acquisition of
Dialek Telecom’s bank account, which had this cash in it at the time of
acquisition as part of its acquisition of certain assets and liabilities of
Dialek. The Company did not require any acquisitions of telecommunications
equipment in order to serve its customers during 2008, as compared to an
acquisition of $24,570 in the prior year.
  The
Company had net cash provided by financing activities of $18,299 in 2008
compared to $125,153 in 2007.  It must be noted that the Company was
provided $408,747 of cash in financing activities 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
operating and investing activities, since the Company’s current level of gross
margin is not adequate to cover all of the operating expenses. The Company
therefore expects future cash requirements to continue to cover this shortfall.
The Company will continue to borrow money through its operating line of credit
at its subsidiary’s bank.  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 services.
  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."
  26
 
 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, 2008 of $628,424 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
accompanying financial statements have been prepared assuming the Company will
continue as a going concern. The Company has suffered recurring losses from
operations and at September 30, 2008 and 2007 had working capital deficit of
$1,190,439and $565,730. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty. The Company has been
searching for new distribution channels to wholesale their services to provide
additional revenues to support their operations.
  In
addition, the Company 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 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. 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.
 
 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.
  27
  Critical Accounting Policies
and Estimates
  Management's
Discussion and Analysis of Financial Conditions and Results of Operations are
based upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
When preparing our financial statements, we make estimates and judgments that
affect the reported amounts on our balance sheets and income statements, and our
related disclosure about contingent assets and liabilities. We continually
evaluate our estimates, including those related to revenue, allowance for
doubtful accounts, reserves for income taxes, and litigation. We base our
estimates on historical experience and on various other assumptions, which we
believe to be reasonable in order to form the basis for making judgments about
the carrying values of assets and liabilities that are not readily ascertained
from other sources. Actual results may deviate from these estimates if
alternative assumptions or condition are used.
  In
December 2004, the FASB issued Statement of Financial Accounting Standards No.
123 R (As amended) Accounting for Stock-Based Compensation. This statement is a
revision of FASB Statement No 123 and supersedes APB Opinion No. 25, Accounting
for Stock Issued to Employees, and its related implementation guidance. This
statement establishes standards for the accounting for transactions in which an
entity exchanges its equity instruments for goods and services. It also
addresses transactions in which an entity incurs liabilities in exchange for
goods and services that are based on the fair value of the entity's equity
instruments or that may be settled by the issuance of those equity instruments.
This Statement focuses primarily on accounting for transactions in which an
entity obtains employee services in share-based payment transactions. For public
entities that are not small business issuers, the implementation of this
Statement is required as of the beginning of the first interim or annual
reporting period after June 15, 2005. For public entities that are small
business issuers, the implementation of this Statement, is required as of the
beginning of the first interim or annual reporting period after December 18,
2005. Management is required to implement this Statements beginning in fiscal
year beginning on January 1, 2006 and they are currently evaluating the impact
of implementation of this Statement on the Company.
  Use of
Estimates
  The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. On an on-going basis, the Company evaluates its
estimates, including, but not limited to, those related to investment tax
credits, bad debts, income taxes and contingencies. The Company bases its
estimates on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which form the
basis for making judgments about the carrying value of assets and liabilities
that are not readily apparent from other sources. Actual results could differ
from those estimates.
 
 Inventories
  Inventories
are stated at the lower of cost to purchase and/or manufacture the inventory or
the current estimated market value of the inventory. We regularly review our
inventory quantities on hand and record a provision for excess and obsolete
inventory based primarily on our estimated forecast of product demand and/or our
ability to sell the products and production requirements. Demand for the our
products can fluctuate significantly. Factors which could affect demand for our
products include unanticipated changes in consumer preferences, general market
conditions or other factors, which may result in cancellations of advance orders
or a reduction in the rate of reorders placed by customers and/or continued
weakening of economic conditions. Additionally, our estimates of future product
demand may be inaccurate, which could result in an understated or overstated
provision required for excess and obsolete inventory. Our estimates are based
upon our understanding of historical relationships which can change at
anytime.
  Fair Value of Financial
Instruments (other than Derivative Financial Instruments)
  The
carrying amounts reported in the condensed consolidated balance sheet for cash
and cash equivalents, accounts receivable and accounts payable approximate fair
value because of the immediate or short-term maturity of these financial
instruments. For the notes payable, the carrying amount reported is based upon
the incremental borrowing rates otherwise available to the Company for similar
borrowings. For the convertible debentures, fair values were calculated at net
present value using the Company's weighted average borrowing rate for debt
instruments without conversion features applied to total future cash flows of
the instruments.
  28
  Currency
Translation
  For
subsidiaries outside the United States that prepare financial statements in
currencies other than the U.S. dollar, the Company translates income and expense
amounts at average exchange rates for the year, translates assets and
liabilities at year-end exchange rates and equity at historical rates. The
Company’s functional currency is the Canadian dollar, whiles the Company reports
its currency in the US dollar. The Company records these translation adjustments
as accumulated other comprehensive income (loss). Gains and losses from foreign
currency transactions are included in other income (expense) in the results of
operations.
  Revenue
Recognition
  Operating
revenues consists of telephony services revenue and customer equipment (which
enables the Company's telephony services) and shipping revenue. The point in
time at which revenue is recognized is determined in accordance with Staff
Accounting Bulletin No. 104, Revenue Recognition, and Emerging Issues Task Force
Consensus No. 01-9, Accounting for Consideration Given by a Vendor to a Customer
(Including a Reseller of the Vendor's Products) ("EITF No. 01-9"), EITF Issue
00-21, "Revenue Arrangements with Multiple Deliverables", and EITF Issue No.
00-14, “Accounting for Certain Sales Incentives”.. 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.
  29
  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 SAB 104 Section A(4)(a)
since there are no rights of returns or refunds that exist for the customer
other than a standard 30-day money-back guarantee. In the event of a return
within the 30 day guarantee period, the hardware is refunded in its entirety.
This accounting is also consistent with FASB Statement 48 on “Revenue
Recognition When Right of Return Exists” which allows for equipment revenue to
be recognized at the time of sale since there no longer exists a right of return
after the 30 day period.
  Wholesale
Channel
 
 Monthly
subscription fees are invoiced to Wholesale customers at the end of the month
for the entirety of the services delivered during the month. Revenue for this
period is therefore recognized at the time the Wholesaler is
billed.
  The
Company recognizes this revenue utilizing the guidance set forth in EITF Issue
00-21, "Revenue Arrangements with Multiple Deliverables". For the Wholesale
channel, the activation fee is recognized as deferred revenue, and amortized
over the length of the service agreement. If the service is terminated within
the term of the service agreement, the deferred revenue is fully amortized. This
accounting is consistent with SAB 104 because the up-front fee is not in
exchange for products delivered or services performed that represent the
culmination of a separate earnings process, and hence the deferral of revenue is
appropriate.
  There is
no disconnection fee associated with a wholesale customer.
  The
Company generates revenues from shipping equipment direct to wholesale
customers. This revenue is considered part of the VoIP service
revenues.
  Customer
Equipment
  Retail
Channel
 
 For
retail sales, the equipment is sold to re-sellers at a subsidized price below
that of cost and below that of the retail sales price. The customer purchases
the equipment at the retail price from the retailer. The Company recognizes this
revenue utilizing the guidance set forth in EITF 00-21, “Revenue Arrangements
with Multiple Deliverables” and EITF Issue 01-9, “Accounting for Consideration
Given by a Vendor to a Customer (Including a Reseller of the Vendor’s
Products)”.
  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.
  30
  Wholesale
Channel
 
 For
wholesale customers, the equipment is sold to wholesalers at the Company’s cost
price plus mark-up. There are no rebates for equipment sold to wholesale
customers and the Company does not subsidize their equipment sales. The Company
recognizes revenue from sales of equipment to wholesale customers as
billed.
  Commissions
Paid to Retail Distributors
  Commissions
paid to Retail Distributors are based on the recurring revenues recorded by the
company and incurred in the period where the revenue is recognized and paid by
the company to the retail Distributor in the following month. These commissions
are recorded as cost of sales as they are directly related to the revenue
acquired and are not considered a sales and marketing expense. These commissions
are payable based on the Distributor’s servicing of the customer on an on-going
basis. This accounting is consistent with EITF Issue No. 00-14, “Accounting for
Certain Sales Incentives.”
  Commissions
Paid to Wholesalers
 
 The
Company recognizes this revenue utilizing the guidance set forth in EITF Issue
01-9 “Accounting for Consideration Given by a Vendor to a Customer (Including a
Reseller of the Vendor’s Products)”. The Company is receiving identifiable
benefits from the Wholesaler (billing and customer support) in return for the
allowance. These benefits are sufficiently separable from the Wholesaler’s
purchase of the Company’s hardware and services. The fair value of those
benefits can be reasonably estimated and therefore the excess consideration is
characterized as a reduction of revenue on the Company’s Statement of
Operations.
 
 Resale
of Traditional Telecommunications Services (due to Acquisition of customer base
of Dialek
 
 The
Company earns revenue by reselling telecommunications services purchased from
wholesale providers such as Rogers Communications and Videotron
Telecom.  These revenues include monthly network access fees for local
calling and internet access services billed one month in advance and recognized
when earned.  Long Distance and Toll free calling service revenues are
recognized when the service is rendered and included and billed the following
month.   The revenue recognition policies used for these sales
are in accordance with the Securities and Exchange Commission's Staff Accounting
Bulletin ("SAB") No. 101, "Revenue Recognition in Financial
Statements."
 
 Accounts
Receivable
 
 The
Company conducts business and extends credit based on an evaluation of the
customers’ financial condition, generally without requiring
collateral.
  Exposure
to losses on receivables is expected to vary by customer due to the financial
condition of each customer. The Company monitors exposure to credit losses and
maintains allowances for anticipated losses considered necessary under the
circumstances.
  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 for years in which differences are expected to reverse.
Valuation allowances are established, when necessary, to reduce deferred tax
assets to amounts that are expected to be realized.
  Investment Tax
Credits
 
 The
Company claims investment tax credits as a result of incurring scientific
research and experimental development expenditures. Investment tax credits are
recognized when the related expenditures are incurred, and there is reasonable
assurance of their realization. Management has made a number of estimates and
assumptions in determining their expenditures eligible for the investment tax
credit claim. It is possible that the allowed amount of the investment tax
credit claim could be materially different from the recorded amount upon
assessment by Revenue Canada and Revenue Quebec.
  31
  Convertible
Instruments
  The
Company reviews the terms of convertible debt and equity securities for
indications requiring bifurcation, and separate accounting, for the embedded
conversion feature. Generally, embedded conversion features where the ability to
physical or net-share settle the conversion option is not within the control of
the Company are bifurcated and accounted for as a derivative financial
instrument. (See Derivative Financial Instruments below). Bifurcation of the
embedded derivative instrument requires allocation of the proceeds first to the
fair value of the embedded derivative instrument with the residual allocated to
the debt instrument. The resulting discount to the face value of the debt
instrument is amortized through periodic charges to interest expense using the
Effective Interest Method.
  Derivative Financial
Instruments
  The
Company generally does not use derivative financial instruments to hedge
exposures to cash-flow or market risks. However, certain other financial
instruments, such as warrants or options to acquire common stock and the
embedded conversion features of debt and preferred instruments that are indexed
to the Company's common stock, are classified as liabilities when either (a) the
holder possesses rights to net-cash settlement or (b) physical or net share
settlement is not within the control of the Company. In such instances, net-cash
settlement is assumed for financial accounting and reporting, even when the
terms of the underlying contracts do not provide for net-cash settlement. Such
financial instruments are initially recorded at fair value and subsequently
adjusted to fair value at the close of each reporting period.
  Advertising
Costs
  The
Company expenses the costs associated with advertising as incurred. Advertising
expenses for the years ended September 30, 2008 and 2007 are included in general
and administrative 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.
  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.
  32
  The
Company has not issued options or warrants to purchase stock in these periods.
If there were options or warrants outstanding they would not be included in the
computation of diluted EPS because inclusion would have been
antidilutive.
  Stock-Based
Compensation
  On
December 16, 2004, the Financial Accounting Standards Board ("FASB") published
Statement of Financial Accounting Standards No. 123 (Revised 2004), "Share-Based
Payment" ("SFAS 123R"). SFAS 123R requires that compensation cost related to
share-based payment transactions be recognized in the financial statements.
Share-based payment transactions within the scope of SFAS 123R include stock
options, restricted stock plans, performance-based awards, stock appreciation
rights, and employee share purchase plans. The provisions of SFAS 123R, as
amended, are effective for small business issuers beginning as of the next
fiscal year after December 15, 2005. The Company has adopted the provisions of
SFAS 123R for its fiscal year ended September 30, 2006. The adoption of this
principle had no effect on the Company's operations.
  On
January 1, 2006, the Company adopted the provisions of FAS No. 123R "Share-Based
Payment" ("FAS 123R") which requires recognition of stock-based compensation
expense for all share-based payments based on fair value. Prior to January 1,
2006, the Company measured compensation expense for all of its share-based
compensation using the intrinsic value method prescribed by Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25") and related interpretations. The Company has provided pro
forma disclosure amounts in accordance with FAS No. 148, "Accounting for
Stock-Based Compensation - Transition and Disclosure - an amendment of FASB
Statement No. 123" ("FAS 148"), as if the fair value method defined by FAS No.
123, "Accounting for Stock Based Compensation" ("FAS 123") had been applied to
its stock-based compensation.
  The
Company has elected to use the modified-prospective approach method. Under that
transition method, the calculated expense in 2006 is equivalent to compensation
expense for all awards granted prior to, but not yet vested as of January 1,
2006, based on the grant-date fair values estimated in accordance with the
original provisions of FAS 123. Stock-based compensation expense for all awards
granted after January 1, 2006 is based on the grant-date fair values estimated
in accordance with the provisions of FAS 123R. The Company recognizes these
compensation costs, net of an estimated forfeiture rate, on a pro rata basis
over the requisite service period of each vesting tranche of each award. The
Company considers voluntary termination behavior as well as trends of actual
option forfeitures when estimating the forfeiture rate.
  The
Company measures compensation expense for its non-employee stock-based
compensation under the Financial Accounting Standards Board (FASB) Emerging
Issues Task Force (EITF) Issue No. 96-18, "Accounting for Equity Instruments
that are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services". The fair value of the option issued is used to
measure the transaction, as this is more reliable than the fair value of the
services received. The fair value is measured at the value of the Company's
common stock on the date that the commitment for performance by the counterparty
has been reached or the counterparty's performance is complete. The fair value
of the equity instrument is charged directly to compensation expense and
additional paid-in capital.
  Segment
Information
  The
Company follows the provisions of SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information". This standard requires that companies
disclose operating segments based on the manner in which management
disaggregates the Company in making internal operating decisions. Despite the
Company's subsidiary, Teliphone, Inc. incurring sales of hardware components for
the VoiP service as well as the service itself, the Company treats these items
as one component, therefore has not segregated their business.
  33
  Recent Accounting
Pronouncements
  In
February 2006, the FASB issued Statement of Financial Accounting Standard No.
155, "Accounting for Certain Hybrid Instruments" ("SFAS 155"). FASB 155 allows
financial instruments that have embedded derivatives to be accounted for as a
whole (eliminating the need to bifurcate the derivative from its host) if the
holder elects to account for the whole instrument on a fair value basis. This
statement is effective for all financial instruments acquired or issued after
the beginning of an entity's first fiscal year that begins after September 15,
2006.
  In May
2005, the FASB issued Statement of Financial Accounting Standard No. 154,
"Accounting Changes and Error Corrections" ("SFAS 154"). SFAS 154 is a
replacement of APB No. 20, "Accounting Changes", and SFAS No. 3, "Reporting
Accounting Changes in Interim Financial Statements". SFAS 154 applies to all
voluntary changes in accounting principle and changes the requirements for
accounting and reporting of a change in accounting principle. This statement
establishes that, unless impracticable, retrospective application is the
required method for reporting of a change in accounting principle in the absence
of explicit transition requirements specific to the newly adopted accounting
principle. It also requires the reporting of an error correction which involves
adjustments to previously issued financial statements similar to those generally
applicable to reporting an accounting change retrospectively. SFAS 154 is
effective for accounting changes and corrections of errors made in fiscal years
beginning after December 15, 2005.
  In
September 2006, the FASB issued SFAS 157, "Fair Value Measurements." This
standard defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles, and expands disclosure about fair
value measurements. This statement is effective for financial statements issued
for fiscal years beginning after November 15, 2007. Early adoption is
encouraged. The adoption of SFAS 157 is not expected to have a material impact
on the financial statements.
  In
September 2006, the FASB issued SFAS 158, "Employers' Accounting for Defined
Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements
87, 88, 106 and 132(R)" ("SFAS 158"). SFAS 158 requires an employer to recognize
the over-funded or under-funded status of a defined benefit postretirement plan
(other than a multiemployer plan) as an asset or liability in its statement of
financial position and to recognize changes in that funded status in the year in
which the changes occur through comprehensive income. SFAS 158 also requires the
measurement of defined benefit plan assets and obligations as of the date of the
employer's fiscal year-end statement of financial position (with limited
exceptions). Management does not expect adoption of SFAS 158 to have a material
impact on the Company's financial statements.
  In
February 2007, the FASB issued FAS No. 159, "The Fair Value Option for Financial
Assets and Financial Liabilities - Including an amendment of FASB Statement No.
115", ("FAS 159") which permits entities to choose to measure many financial
instruments and certain other items at fair value at specified election dates. A
business entity is required to report unrealized gains and losses on items for
which the fair value option has been elected in earnings at each subsequent
reporting date. This statement is expected to expand the use of fair value
measurement. FAS 159 is effective for financial statements issued for fiscal
years beginning after November 15, 2007, and interim periods within those fiscal
years.
  In July
2006, the FASB issued Interpretation No. 48 (FIN No. 48), "Accounting for
Uncertainty in Income Taxes." This interpretation requires recognition and
measurement of uncertain income tax positions using a "more-likely-than-not"
approach. FIN No. 48 is effective for fiscal years beginning after December 15,
2006. Management is still evaluating what effect this will have on the Company's
financial statements.
  In
September 2006, the United States Securities and Exchange Commission ("SEC")
issued SAB 108, "Considering the Effects of Prior Year Misstatements when
Quantifying Misstatements in Current Year Financial Statements."
  This SAB
provides guidance on the consideration of the effects of prior year
misstatements in quantifying current year misstatements for the purpose of a
materiality assessment. SAB 108 establishes an approach that requires
quantification of financial statement errors based on the effects of each of the
company's financial statements and the related financial statement disclosures.
SAB 108 permits existing public companies to record the cumulative effect of
initially applying this approach in the first year ending after November 15,
2006 by recording the necessary correcting adjustments to the carrying values of
assets and liabilities as of the beginning of that year with the offsetting
adjustment recorded to the opening balance of retained earnings. Additionally,
the use of the cumulative effect transition method requires detailed disclosure
of the nature and amount of each individual error being corrected through the
cumulative adjustment and how and when it arose. The Company does not anticipate
that SAB 108 will have a material impact on its financial
statements.
  34
 
 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, 2008 AND 2007
 
 INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS
 
 PagesReport
      of Independent Registered Public Accounting Firm
                F-1Consolidated
      Balance Sheets as of September 30, 2008 and 2007
                F-2Consolidated
      Statements of Operations and Comprehensive Income (Loss)for
      the Years Ended  September 30, 2008 and 2007
                F-3Consolidated
      Statement of Changes in Stockholders’ Deficit for the
YearsEnded
      September 30, 2008 and 2007
                F-4Consolidated
      Statements of Cash Flows for the Years EndedSeptember
      30, 2008 and 2007
                F-5Notes
      to Consolidated Financial Statements
                F-6
  35
  REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 Board of
Directors
 Teliphone
Corp.
 Montreal,
Quebec CANADA
 
 We have
audited the accompanying consolidated balance sheets of Teliphone Corp. (the
“Company”) as of September 30, 2008 and 2007 and the related consolidated
statements of operations and comprehensive income (loss), changes in
stockholders’ (deficit), and cash flows for the years ended September 30, 2008
and 2007. These consolidated financial statements are the responsibility of the
Company’s management.  My 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 audits 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, 2008 and 2007, and the results of its consolidated
statements of operations and comprehensive income (loss), changes in
stockholders’ (deficit), and cash flows for the years ended September 30, 2008
and 2007 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 capital deficits that raise substantial doubt about its
ability to continue as a going concern.  Management’s plans in regard
to these matters are also described in Note 1.  The consolidated
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
 
 /s/
      KBL, LLPNew
      York, NY
                    December  17,
      2008
 F-1
 TELIPHONE
CORP.
 CONSOLIDATED
BALANCE SHEETS AS
AT SEPTEMBER 30, 2008 AND 2007
 ASSETSUS
      $SEPTEMBER
      30,
                
                
                SEPTEMBER
      30,2008
                
                
                2007Current
      Assets:Cash
      and cash equivalents
                
                $
                -
                
                
                $
                11,981Accounts
      receivable, net
                
                
                152,836
                
                
                
                58,522Investment
      tax credit receivable
                
                
                -
                
                
                
                16,311Inventory
                
                
                8,964
                
                
                
                6,100Prepaid
      expenses and other current assets
                
                
                45,714
                
                
                
                118,802Total
      Current Assets
                
                
                207,514
                
                
                
                211,716Fixed
      assets, net of depreciation
                
                
                14,563
                
                
                
                63,248Goodwill
                
                
                526,783
                
                
                
                -TOTAL
      ASSETS
                
                $
                748,860
                
                
                $
                274,964LIABILITIES AND
      STOCKHOLDERS' EQUITY (DEFICIT)LIABILITIESCurrent
      Liabilities:Bank
      overdraft
                
                $
                19,545
                
                
                $
                -Deferred
      revenue
                
                
                4,428
                
                
                
                20,015Related
      party loans and advances
                
                
                628,424
                
                
                
                640,795Line
      of credit - Dialek
                
                
                140,951
                
                
                
                -Current
      portion of note payable, Dialek Telecom
                
                
                69,390
                
                
                
                -Accounts
      payable and accrued expenses
                
                
                535,215
                
                
                
                179,884Total
      Current Liabilities
                
                
                1,397,953
                
                
                
                840,694Long
      Term Liabilities:Note
      payable, Dialek Telecom, net of current portion
                
                
                250,116
                
                
                
                -TOTAL
      LIABILITIES
                
                
                1,648,069
                
                
                
                840,694Minority
      interest
                
                
                59,860
                
                
                
                103,241STOCKHOLDERS'
      EQUITY (DEFICIT)Common stock, $.001 Par Value; 125,000,000 shares
    authorizedand 33,554,024 shares issued and outstanding, respectively
                
                
                33,554
                
                
                
                33,554Additional
      paid-in capital
                
                
                898,156
                
                
                
                898,156Accumulated
      deficit
                
                
                (1,753,060
                )
                
                
                (1,565,404
                )Accumulated
      other comprehensive income (loss)
                
                
                (137,719
                )
                
                
                (35,277
                )Total
      Stockholders' Equity (Deficit)
                
                
                (959,069
                )
                
                
                (668,971
                )TOTAL
      LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
                
                $
                748,860
                
                
                $
                274,964
   The
accompanying notes are an integral part of the consolidated financial
statements.
  F-2
 TELIPHONE
CORP.
 CONSOLIDATED
STATEMENTS OF OPERATIONS FOR
THE YEARS ENDED SEPTEMBER 30, 2008 AND 2007
 US$YEARS
      ENDEDSEPTEMBER
      30,2008
                
                
                2007OPERATING
      REVENUESRevenues
                
                $
                1,215,570
                
                
                $
                673,278COST
      OF REVENUESInventory,
      beginning of period
                
                
                6,100
                
                
                
                11,034Purchases
      and cost of VoIP services
                
                
                823,748
                
                
                
                474,684Inventory,
      end of period
                
                
                (8,964
                )
                
                
                (6,100
                )Total
      Cost of Revenues
                
                
                820,884
                
                
                
                479,618GROSS
      PROFIT
                
                
                394,686
                
                
                
                193,660OPERATING
      EXPENSESSelling
      and promotion
                
                
                21,757
                
                
                
                11,835Administrative
      wages
                
                
                85,522
                
                
                
                138,051Professional
      and consulting fees
                
                
                238,617
                
                
                
                53,838Other
      general and administrative expenses
                
                
                117,941
                
                
                
                41,367Depreciation
                
                
                47,881
                
                
                
                66,626Total
      Operating Expenses
                
                
                511,718
                
                
                
                311,717NET
      INCOME (LOSS) BEFORE OTHERINCOME
      (EXPENSE)
                
                
                (117,032
                )
                
                
                (118,057
                )OTHER
      INCOME (EXPENSE)Interest
      expense
                
                
                (114,005
                )
                
                
                (59,008
                )Total
      Other Income (Expense)
                
                
                (114,005
                )
                
                
                (59,008
                )NET
      LOSS BEFORE MINORITY INTEREST ANDPROVISION
      FOR INCOME TAXES
                
                
                (231,037
                )
                
                
                (177,065
                )Minority
      interest
                
                
                43,381
                
                
                
                26,439NET
      LOSS BEFORE PROVISION FOR INCOME TAXES
                
                
                (187,656
                )
                
                
                (150,626
                )Provision
      for Income Taxes
                
                
                -
                
                
                
                -NET
      LOSS APPLICABLE TO COMMON SHARES
                
                $
                (187,656
                )
                
                $
                (150,626
                )NET
      LOSS PER BASIC AND DILUTED SHARES
                
                $
                (0.01
                )
                
                $
                (0.00
                )WEIGHTED
      AVERAGE NUMBER OF COMMONSHARES
      OUTSTANDING
                
                
                33,554,024
                
                
                
                33,418,362COMPREHENSIVE
      INCOME (LOSS)Net
      loss
                
                $
                (187,656
                )
                
                $
                (150,626
                )Other
      comprehensive income (loss)Currency
      translation adjustments
                
                
                (102,442
                )
                
                
                (14,433
                )Comprehensive
      income (loss)
                
                $
                (290,098
                )
                
                $
                (165,059
                )
   The
accompanying notes are an integral part of the consolidated financial
statements.
  F-3
 TELIPHONE
CORP.
 CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' (DEFICIT) FOR
THE YEARS ENDED SEPTEMBER 30, 2008 AND 2007
 US$AccumulatedAdditional
                
                
                
                
                
                OtherCommon
      Stock
                
                
                Paid-in
                
                
                Accumulated
                
                
                ComprehenisveShares
                
                
                Amount
                
                
                Capital
                
                
                Deficit
                
                
                Income
      (Loss)
                
                
                TotalBalance
      September 30, 2006
                
                
                32,893,843
                
                
                
                32,894
                
                
                $
                733,816
                
                
                $
                (1,414,778
                )
                
                $
                (20,844
                )
                
                $
                (668,912
                )Common
      stock issued for services
                
                
                660,000
                
                
                
                660
                
                
                
                164,340
                
                
                
                -
                
                
                
                -
                
                
                
                165,000Adjustment
      of fractional shares
                
                
                181
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                -Net
      loss for the year
                
                
                -
                
                
                
                -
                
                
                
                -
                
                
                
                (150,626
                )
                
                
                (14,433
                )
                
                
                (165,059
                )Balance
      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
                )
   The
accompanying notes are an integral part of the consolidated financial
statements.
  F-4
 TELIPHONE
CORP. CONSOLIDATED
STATEMENTS OF CASH FLOWS FOR
THE YEARS ENDED SEPTEMBER 30, 2008 AND 2007
 US$YEARS
      ENDEDSEPTEMBER
      30,2008
                
                
                2007CASH
      FLOWS FROM OPERATING ACTIVITIESNet
      loss
                
                $
                (187,656
                )
                
                $
                (150,626
                )Adjustments
      to reconcile net loss to net cashused
      in operating activities:Depreciation
                
                
                47,881
                
                
                
                66,626Minority
      interest
                
                
                (43,381
                )
                
                
                (26,439
                )Changes
      in assets and liabilities(Increase)
      in accounts receivable
                
                
                (21,305
                )
                
                
                (32,678
                )Decrease
      in investment tax credit receivable
                
                
                10,603
                
                
                
                5,582(Increase)
      decrease in inventory
                
                
                (3,200
                )
                
                
                5,612Decrease
      in prepaid expenses and other current assets
                
                
                66,553
                
                
                
                18,494Increase
      (decrease) in deferred revenues
                
                
                (14,486
                )
                
                
                9,774Increase
      in accounts payable andand
      accrued expenses
                
                
                114,684
                
                
                
                12,868Total
      adjustments
                
                
                157,349
                
                
                
                59,839Net
      cash (used in) operating activities
                
                
                (30,307
                )
                
                
                (90,787
                )CASH
      FLOWS FROM INVESTING ACTIVITIESAcquisitions
      of capital assets
                
                
                -
                
                
                
                (24,570
                )Cash
      received in acquisition of net assets of Dialek Telecom
                
                
                9,807
                
                
                
                -Net
      cash provided by (used in) investing activities
                
                
                9,807
                
                
                
                (24,570
                )CASH
      FLOWS FROM FINANCING ACTIVITESIncrease
      in bank overdraft
                
                
                19,545
                
                
                
                (7,710
                )Repayment
      of debt - Dialek
                
                
                (40,835
                )
                
                
                -Proceeds
      from loan payable - related parties, net
                
                
                39,589
                
                
                
                132,863Net
      cash provided by financing activities
                
                
                18,299
                
                
                
                125,153Effect
      of foreign currencies
                
                
                (9,780
                )
                
                
                2,185NET
      INCREASE (DECREASE) INCASH
      AND CASH EQUIVALENTS
                
                
                (11,981
                )
                
                
                11,981CASH
      AND CASH EQUIVALENTS -BEGINNING
      OF YEAR
                
                
                11,981
                
                
                
                -CASH
      AND CASH EQUIVALENTS - END OF YEAR
                
                $
                -
                
                
                $
                11,981CASH
      PAID DURING THE YEARS FOR:Interest
      expense
                
                $
                83,730
                
                
                $
                19,768SUPPLEMENTAL
      NONCASH INFORMATION:Common
      stock issued for liability for stock to be issued
                
                $
                -
                
                
                $
                165,000Acquisition
      of Dialek Customers:Accounts
      receivable
                
                $
                74,533
                
                
                $
                -Goodwill
                
                
                549,767
                
                
                
                -Accounts
      payable
                
                
                (258,044
                )
                
                
                -Note
      payable
                
                
                (376,063
                )
                
                
                -Cash
      received in acquisition
                
                $
                (9,807
                )
                
                $
                -
   The
accompanying notes are an integral part of the consolidated financial
statements.
  F-5
  TELIPHONE
CORP.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2008 AND 2007
 
 
 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.
Industry experts predict the VoIP offering to be one of the fastest growing
sectors from now until 2009. This innovative new approach to telecommunications
has the benefit of drastically reducing the cost of making these calls as the
distances are covered over the Internet instead of over dedicated lines such as
traditional telephony.
 
 Prior to
its acquisition by the Company, Teliphone Inc. had grown primarily in the
Province of Quebec, Canada through the sale of its product offering in retail
stores and over the internet.  For this distribution channel, the
Company typically pays a 25% commission to the distributor who shares this with
the re-seller.
 
 In
addition to the retail services provided, Teliphone Inc. also sells to
wholesalers. Wholesalers typically receive approximately a 35% commission on
such sales, however, the wholesaler re-bills these services to their customers
and provide the necessary customer support to their customers directly. This
sector has grown this year for the Company and the Company will look to add
further distribution channels to other sectors of the world, commencing with
India in fiscal year 2007.
 
 On August
21, 2006, OSK Capital II Corporation formerly changed its name to Teliphone
Corp.
 
 Going
Concern
  As shown
in the accompanying consolidated financial statements the Company has incurred
recurring losses of ($187,656) and ($150,626) for the years ended September 30,
2008 and 2007, and has a working capital deficiency of $1,190,439 as of
September 30, 2008.  The Company has been searching for new
distribution channels to wholesale their services to provide additional revenues
to support their operations.
  F-6
 
 TELIPHONE
CORP.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2008 AND 2007
 
 
 NOTE
      1-
                ORGANIZATION AND BASIS
      OF PRESENTATION(CONTINUED)
 
 Going Concern(Continued)
 
 The
Company successfully reduced approximately $400,000 of related party debt as
this was converted into additional shares of the Company’s stock in August 2006.
There is no guarantee that the Company will be able to raise additional capital
or generate the increase in revenues to sustain its operations.  The
Company has 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.
 
 The
Company’s subsidiary, Teliphone Inc. has additionally on June 30, 2008,
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 9 will
assist the Company in achieving profitability in the future.
 
 The
Company’s management has made strides in the past year; however the continued
losses and working capital deficiency continue to raise substantial doubt about
the Company’s ability to continue as a going concern for a reasonable
period.
 
 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.
 
 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
of the subsidiary Teliphone Inc. hence, the resulting ownership of Teliphone
Inc. by the parent company of Intelco Communications to be presently
12.9%.
 
 The
Company will look to further develop its existing relationship with its
wholesaler in India in order to take advantage of the strong growth in demand
for its VoIP products worldwide.
  F-7
  TELIPHONE
CORP.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2008 AND 2007
 
 
 NOTE
      1-
                ORGANIZATION AND BASIS
      OF PRESENTATION(CONTINUED)
 
 Going Concern(Continued)
 
 The
Company’s ability to continue as a going concern for a reasonable period is
dependent upon management’s ability to raise additional interim capital and,
ultimately, achieve profitable operations.  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.
 
 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.
  F-8
  TELIPHONE
CORP.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2008 AND 2007
 
 
 NOTE
      2-
                SUMMARY OF SIGNIFICANT
      ACCOUNTING POLICIES(CONTINUED)
 
 Comprehensive
Income
 
 The
Company adopted Statement of Financial Accounting Standards No, 130, “Reporting
Comprehensive Income,” (SFAS No. 130). SFAS No. 130 requires the reporting of
comprehensive income in addition to net income from operations.
 
 Comprehensive
income is a more inclusive financial reporting methodology that includes
disclosure of information that historically has not been recognized in the
calculation of net income.
 
 Inventory
 
 Inventory
is valued at the lower of cost or market determined on a first-in-first-out
basis.  Inventory consisted only of finished goods.
 
 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. For the years ended September 30, 2008 and 2007, the Company
recorded approximately $102,442 and $14,433 in transaction losses as a result of
currency translation.
  F-9
  TELIPHONE
CORP.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2008 AND 2007
 
 
 NOTE
      2-
                SUMMARY OF SIGNIFICANT
      ACCOUNTING POLICIES(CONTINUED)
 
 Research and
Development
 
 The
Company annually incurs costs on activities that relate to research and
development of new products. Research and development costs are expensed as
incurred. Certain of these costs are reduced by government grants and investment
tax credits where applicable.
 
 Revenue
Recognition
 
 Operating
revenues consists of telephony services revenue and customer equipment (which
enables the Company's telephony services) and shipping revenue. The point in
time at which revenue is recognized is determined in accordance with Staff
Accounting Bulletin No. 104, Revenue Recognition, and Emerging Issues Task Force
Consensus No. 01-9, Accounting for Consideration Given by a Vendor to a Customer
(Including a Reseller of the Vendor's Products) ("EITF No. 01-9"), EITF Issue
00-21, "Revenue Arrangements with Multiple Deliverables", and EITF Issue No.
00-14, “Accounting for Certain Sales Incentives”. 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.
  F-10
 
 TELIPHONE
CORP.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2008 AND 2007
 
 
 NOTE
      2-
                SUMMARY OF SIGNIFICANT
      ACCOUNTING POLICIES(CONTINUED)
 
 Revenue Recognition(Continued)
 
 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.
  This
accounting is consistent with the rules set forth in SAB 104 Section A(4)(a)
since there are no rights of returns or refunds that exist for the customer
other than a standard 30-day money-back guarantee.  In the event of a
return within the 30 day guarantee period, the hardware is refunded in its
entirety.  This accounting is also consistent with FASB Statement 48
on “Revenue Recognition When Right of Return Exists” which allows for equipment
revenue to be recognized at the time of sale since there no longer exists a
right of return after the 30 day period.
 
 Wholesale
Channel
 
 Monthly
subscription fees are invoiced to Wholesale customers at the end of the month
for the entirety of the services delivered during the month.  Revenue
for this
 period is
therefore recognized at the time the Wholesaler is billed.
 F-11
 
 TELIPHONE
CORP.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2008 AND 2007
 
 
 NOTE
      2-
                SUMMARY OF SIGNIFICANT
      ACCOUNTING POLICIES(CONTINUED)
 
 Revenue Recognition(Continued)
  The
Company recognizes this revenue utilizing the guidance set forth in EITF Issue
00-21, "Revenue Arrangements with Multiple Deliverables".  For the
Wholesale channel, the activation fee is recognized as deferred revenue, and
amortized over the length of the service agreement. If the service is terminated
within the term of the service agreement, the deferred revenue is fully
amortized.  This accounting is consistent with Question 1 of Section
A(3)(f) of SAB 104 because the up-front fee is not in exchange for products
delivered or services performed that represent the culmination of a separate
earnings process, and hence the deferral of revenue is appropriate.
  There is
no disconnection fee associated with a wholesale customer.
  The
Company generates revenues from shipping equipment direct to wholesale
customers.  This revenue is considered part of the VoIP service
revenues.
 
 Customer
Equipment
 
 Retail
Channel
 
 For
retail sales, the equipment is sold to re-sellers at a subsidized price below
that of cost and below that of the retail sales price. The customer purchases
the equipment at the retail price from the retailer.  The Company
recognizes this revenue utilizing the guidance set forth in EITF 00-21, “Revenue
Arrangements with Multiple Deliverables” and EITF Issue 01-9, “Accounting for
Consideration Given by a Vendor to a Customer (Including a Reseller of the
Vendor’s Products)”.
 
 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.
  F-12
 
 TELIPHONE
CORP.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2008 AND 2007
 
 
 NOTE
      2-
                SUMMARY OF SIGNIFICANT
      ACCOUNTING POLICIES(CONTINUED)
 
 Revenue Recognition(Continued)
 
 Wholesale
Channel
 
 For
wholesale customers, the equipment is sold to wholesalers at the Company’s cost
price plus mark-up.  There are no rebates for equipment sold to
wholesale customers and the Company does not subsidize their equipment
sales.  The Company recognizes revenue from sales of equipment to
wholesale customers as billed.
 
 Commissions Paid to Retail
Distributors
  Commissions
paid to Retail Distributors are based on the recurring revenues recorded by the
company and incurred in the period where the revenue is recognized and paid by
the company to the retail Distributor in the following month.  These
commissions are recorded as cost of sales as they are directly related to the
revenue acquired and are not considered a sales and marketing
expense.  These commissions are payable based on the Distributor’s
servicing of the customer on an on-going basis.  This accounting is
consistent with EITF Issue No. 00-14, “Accounting for Certain Sales
Incentives.”
 
 Commissions Paid to
Wholesalers
 
 The
Company recognizes this revenue utilizing the guidance set forth in EITF Issue
01-9 “Accounting for Consideration Given by a Vendor to a Customer (Including a
Reseller of the Vendor’s Products)”.  The Company is receiving
identifiable benefits from the Wholesaler (billing and customer support) in
return for the allowance.  These benefits are sufficiently separable
from the Wholesaler’s purchase of the Company’s hardware and
services.  The fair value of those benefits can be reasonably
estimated and therefore the excess consideration is characterized as a reduction
of revenue on the Company’s Statement of Operations.
 
 Resale of Traditional
Telecommunications Services (due to Acquisition of customer base of Dialek
Telecom (see Note 9))
 
 The
Company earns revenue by reselling telecommunications services purchased from
wholesale providers such as Rogers Communications and Videotron
Telecom.  These revenues include monthly network access fees for local
calling and internet access services billed one month in advance and recognized
when earned.  Long Distance and Toll free calling service revenues are
recognized when the service is rendered and included and billed the following
month.   The revenue recognition policies used for these sales
are in accordance with the Securities and Exchange Commission's Staff Accounting
Bulletin ("SAB") No. 101, "Revenue
 Recognition
in Financial Statements."
 F-13
 
 TELIPHONE
CORP.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2008 AND 2007
 
 
 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 $0 at
September 30, 2008.
 
 Accounts
receivable are generally due within 30 days and collateral is not required.
Unbilled accounts receivable represents amounts due from customers for which
billing statements have not been generated and sent to the
customers.
 
 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, 2008.
  F-14
 
 TELIPHONE
CORP.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2008 AND 2007
 
 
 NOTE
      2-
                SUMMARY OF SIGNIFICANT
      ACCOUNTING POLICIES(CONTINUED)
  Advertising
Costs
 
 The
Company expenses the costs associated with advertising as
incurred.  Advertising expenses for the years ended September 30, 2008
and 2007 are included in general and administrative 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.
 
 Impairment of Long-Lived
Assets
 
 Long-lived
assets, primarily fixed assets, are reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of the assets might
not be recoverable. The Company does perform a periodic assessment of assets for
impairment in the absence of such information or indicators. Conditions that
would necessitate an impairment assessment include a significant decline in the
observable market value of an asset, a significant change in the extent or
manner in which an asset is used, or a significant adverse change that would
indicate that the carrying amount of an asset or group of assets is not
recoverable. For long-lived assets to be held and used, the Company recognizes
an impairment loss only if its carrying amount is not recoverable through its
undiscounted cash flows and measures the impairment loss based on the difference
between the carrying amount and estimated fair value.
 
 (Loss) Per Share of Common
Stock
 
 Basic net
(loss) per common share is computed using the weighted average number of common
shares outstanding.  Diluted earnings per share (EPS) includes
additional dilution from common stock equivalents, such as stock issuable
pursuant to the exercise of stock options and warrants.  Common stock
equivalents were not included in the computation of diluted earnings per share
when the Company reported a loss because to do so would be antidilutive for
periods presented.
  F-15
 
 TELIPHONE
CORP.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2008 AND 2007
 
 
 NOTE
      2-
                SUMMARY OF SIGNIFICANT
      ACCOUNTING POLICIES(CONTINUED)
 
 The
following is a reconciliation of the computation for basic and diluted
EPS:
  September
      30,
                  
                  
                  September
      30,2008
                  
                  
                  2007Net
      loss
                  
                  $
                  (187,656
                  )
                  
                  $
                  (150,626
                  )Weighted-average
      common sharesOutstanding
      (Basic)
                  
                  
                  33,554,024
                  
                  
                  
                  33,418,362Weighted-average
      common stockEquivalentsStock
      options
                  
                  
                  -
                  
                  
                  
                  -Warrants
                  
                  
                  -
                  
                  
                  
                  -Weighted-average
      common sharesOutstanding
      (Diluted)
                  
                  
                  33,554,024
                  
                  
                  
                  33,418,362
 
 The
Company has not issued options or warrants to purchase stock in these periods.
If there were options or warrants outstanding they would not be included in the
computation of diluted EPS because inclusion would have been
antidilutive.
 
 Stock-Based
Compensation
 
 On
December 16, 2004, the Financial Accounting Standards Board (“FASB”) published
Statement of Financial Accounting Standards No. 123 (Revised 2004), “Share-Based Payment” (“SFAS
123R”).  SFAS 123R requires that compensation cost related to
share-based payment transactions be recognized in the financial statements.
Share-based payment transactions within the scope of SFAS 123R include stock
options, restricted stock plans, performance-based awards, stock appreciation
rights, and employee share purchase plans.  The provisions of SFAS
123R, as amended, are effective for small business issuers beginning as of the
next fiscal year after December 15, 2005.  The Company has adopted the
provisions of SFAS 123R for its fiscal year ended September 30, 2006. The
adoption of this principle had no effect on the Company’s
operations.
  F-16
 
 TELIPHONE
CORP.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2008 AND 2007
 
 
 NOTE
      2-
                SUMMARY OF SIGNIFICANT
      ACCOUNTING POLICIES(CONTINUED)
 
 Stock-Based
Compensation (Continued)
 
 On
January 1, 2006, the Company adopted the provisions of FAS No. 123R “Share-Based
Payment” (“FAS 123R”) which requires recognition of stock-based compensation
expense for all share-based payments based on fair value. Prior to January 1,
2006, the Company measured compensation expense for all of its share-based
compensation using the intrinsic value method prescribed by Accounting
Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to
Employees” (“APB 25”) and related interpretations. The Company has provided pro
forma disclosure amounts in accordance with FAS No. 148, “Accounting for
Stock-Based Compensation – Transition and Disclosure – an amendment of FASB
Statement No. 123” (“FAS 148”), as if the fair value method defined by FAS No.
123, “Accounting for Stock Based Compensation” (“FAS 123”) had been applied to
its stock-based compensation.
 
 The
Company has elected to use the modified–prospective approach method. Under that
transition method, the calculated expense in 2006 is equivalent to compensation
expense for all awards granted prior to, but not yet vested as of January 1,
2006, based on the grant-date fair values estimated in accordance with the
original provisions of FAS 123. Stock-based compensation expense for all awards
granted after January 1, 2006 is based on the grant-date fair values estimated
in accordance with the provisions of FAS 123R. The Company recognizes these
compensation costs, net of an estimated forfeiture rate, on a pro rata basis
over the requisite service period of each vesting tranche of each award. The
Company considers voluntary termination behavior as well as trends of actual
option forfeitures when estimating the forfeiture rate.
 
 The
Company measures compensation expense for its non-employee stock-based
compensation under the Financial Accounting Standards Board (FASB) Emerging
Issues Task Force (EITF) Issue No. 96-18, “Accounting for Equity Instruments
that are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services”.  The fair value of the option
issued is used to measure the transaction, as this is more reliable than the
fair value of the services received.  The fair value is measured at
the value of the Company’s common stock on the date that the commitment for
performance by the counterparty has been reached or the counterparty’s
performance is complete. The fair value of the equity instrument is charged
directly to compensation expense and additional paid-in capital.
  F-17
  TELIPHONE
CORP.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2008 AND 2007
 
 
 NOTE
      2-
                SUMMARY OF SIGNIFICANT
      ACCOUNTING POLICIES(CONTINUED)
 
 Segment
Information
 
 The
Company follows the provisions of SFAS No. 131, “Disclosures about Segments of an
Enterprise and Related Information”. This standard requires that
companies disclose operating segments based on the manner in which management
disaggregates the Company in making internal operating decisions. Despite the
Company’s subsidiary, Teliphone, Inc. incurring sales of hardware components for
the VoiP service as well as the service itself, the Company treats these items
as one component, therefore has not segregated their business.
 
 Reclassifications
 
 The
Company has reclassified certain amounts in their consolidated statement of
operations for the years ended September 30, 2007 to conform with the September
30, 2008 presentation. These reclassifications had no effect on the net loss for
the year ended September 30, 2007.
 
 Uncertainty in Income
Taxes
 
 In July
2006, the FASB issued Interpretation No. 48 (FIN No. 48), “Accounting for
Uncertainty in Income Taxes.” This interpretation requires recognition and
measurement of uncertain income tax positions using a “more-likely-than-not”
approach. FIN No. 48 is effective for fiscal years beginning after December 15,
2006. Management has adopted FIN 48 for 2008, and they evaluate their tax
positions on an annual basis, and has determined that as of September 30, 2008,
no additional accrual for income taxes other than the federal and state
provisions and related interest and estimated penalty accruals is not considered
necessary.
 
 Recent Accounting
Pronouncements
 
 In
September 2006, the FASB issued SFAS 157, “Fair Value Measurements.” This
standard defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles, and expands disclosure about fair
value measurements. This statement is effective for financial statements issued
for fiscal years beginning after November 15, 2007. Early adoption is
encouraged. The adoption of SFAS 157 is not expected to have a material impact
on the financial statements.
  F-18
  TELIPHONE
CORP.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2008 AND 2007
 
 
 NOTE
      2-
                SUMMARY OF SIGNIFICANT
      ACCOUNTING POLICIES(CONTINUED)
 
 Recent Accounting
Pronouncements (Continued)
 
 In
February 2007, the FASB issued FAS No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities – Including an amendment of FASB Statement No.
115”, (“FAS 159”) which permits entities to choose to measure many financial
instruments and certain other items at fair value at specified election dates. A
business entity is required to report unrealized gains and losses on items for
which the fair value option has been elected in earnings at each subsequent
reporting date. This statement is expected to expand the use of fair value
measurement. FAS 159 is effective for financial statements issued for fiscal
years beginning after November 15, 2007, and interim periods within those fiscal
years.
 
 In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements, an amendment of Accounting Research Bulletin
No 51” (SFAS 160). SFAS 160 establishes accounting and reporting standards for
ownership interests in subsidiaries held by parties other than the parent,
changes in a parent’s ownership of a noncontrolling interest, calculation and
disclosure of the consolidated net income attributable to the parent and the
noncontrolling interest, changes in a parent’s ownership interest while the
parent retains its controlling financial interest and fair value measurement of
any retained noncontrolling equity investment. SFAS 160 is effective for
financial statements issued for fiscal years beginning after December 15, 2008,
and interim periods within those fiscal years. Early adoption is prohibited. The
adoption of SFAS No. 160 is not expected to have a material effect on the
Company’s financial position, results of operations or cash flows.
 
 In
December 2007, the FASB issued SFAS 141R,Business Combinations (“SFAS
141R”), which replaces FASB SFAS 141,Business
Combinations.  This Statement retains the fundamental
requirements in SFAS 141 that the acquisition method of accounting be used for
all business combinations and for an acquirer to be identified for each business
combination. SFAS 141R defines the acquirer as the entity that obtains control
of one or more businesses in the business combination and establishes the
acquisition date as the date that the acquirer achieves control.  SFAS
141R will require an entity to record separately from the business combination
the direct costs, where previously these costs were included in the total
allocated cost of the acquisition.  SFAS 141R will require an entity
to recognize the assets acquired, liabilities assumed, and any non-controlling
interest in the acquired at the acquisition date, at their fair values as of
that date.  This compares to the cost allocation method previously
required by SFAS No. 141.  SFAS 141R will require an entity to
recognize as an asset or liability at fair value for certain contingencies,
either contractual or non-contractual, if certain criteria are
met.  Finally, SFAS 141R will require an entity to recognize
contingent consideration at the date of acquisition, based on the fair value at
that date.  This Statement will be effective for business combinations
completed on or after the first annual reporting period beginning on or after
December 15, 2008.  Early adoption of this standard is not permitted
and the standards are to be applied prospectively only.
  F-19
  TELIPHONE
CORP.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2008 AND 2007
 
 
 NOTE
      2-
                SUMMARY OF SIGNIFICANT
      ACCOUNTING POLICIES(CONTINUED)
 
 Recent Accounting
Pronouncements (Continued)
 
 Upon
adoption of this standard, there would be no impact to the Company’s results of
operations and financial condition for acquisitions previously
completed.  The adoption of SFAS No. 141R is not expected to have a
material effect on the Company’s financial position, results of operations or
cash flows.
 
 In
December 2007, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 110, “Use of a
Simplified Method in Developing Expected Term of Share Options” (“SAB
110”). SAB 110 expenses the current view of the staff that it will accept a
company’s election to use the simplified method discussed in Staff Accounting
Bulletin No. 107, “Share Based
Payment”, (“SAB 107”), for estimating the expected term of “plain
vanilla” share options regardless of whether the company has sufficient
information to make more refined estimates. SAB 110 became effective for the
Company on January 1, 2008. The adoption of SAB 110 did not have a material
impact on the Company’s financial position.
 
 Other
accounting standards that have been issued or proposed by the FASB or other
standards-setting bodies that do not require adoption until a future date and
are not expected to have a material impact on the financial statements upon
adoption.
 
 NOTE
      3-
                FIXED
      ASSETS
 
 Fixed
assets as of September 30, 2008 and 2007 were as follows:
 
 Estimated
      Useful
                
                
                September
      30,
                
                
                September
      30,Lives
      (Years)
                
                
                2008
                
                
                2007Furniture
      and fixtures
                
                
                5
                
                
                $
                1,255
                
                
                $
                1,329Computer
      equipment
                
                
                3
                
                
                
                197,879
                
                
                
                209,398Vehicles
                
                
                5
                
                
                
                23,692
                
                
                
                25,071222,826
                
                
                
                235,798Less:
      accumulated depreciation
                
                
                
                
                
                
                208,263
                
                
                
                172,550Property
      and equipment, net
                
                
                
                
                
                $
                14,563
                
                
                $
                63,248
 
 There was
$47,881 and $66,626 charged to operations for depreciation expense for the years
ended September 30, 2008 and 2007, respectively.
 
 The
Company had acquired assets of a now related entity in April 2005, United
American Corporation (UAC).  UAC was the founder of Teliphone Inc.,
the Company’s majority-owned subsidiary.  This equipment was part of
the initial investment made by UAC in Teliphone Inc.  These assets,
included in fixed assets amounted to $104,500.
  F-20
 
 TELIPHONE
CORP.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2008 AND 2007
 
 
 NOTE
      4-
                RELATED PARTY
      LOANS
 
 On August
1, 2006, the Company converted $421,080 of the $721,080 of its loans with United
American Corporation, a related party through common ownership, and majority
shareholder of the Company prior to United American Corporation’s stock dividend
that took place effective October 30, 2006 into 1,699,323 shares of the
Company’s common stock. In December 2006, the Company issued a resolution to
issue the remaining 171 fractional shares related to United American
Corporation’s spin-off of the corporation and pro-rata distribution of United
American Corporation’s holding of the Company’s common stock to its
shareholders. Those shares were issued prior to December 31, 2006 and
distributed to shareholders.  The $300,000 remaining on the loan has
become interest bearing at 12% per annum on August 1, 2006, interest only
payable monthly with no set maturity date and no collateral guarantee. Interest
on this loan for the years ended September 30, 2008 and 2007 was $36,000, each.
These amounts have all been paid as of September 30, 2008.
 
 In
addition, there are approximately $163,320 of non-interest bearing advances that
were incurred from August 2006 from United American Corporation. These advances
were provided for cash flow purposes for the Company to sustain its
operations.
 
 The
Company has also been advanced various amounts from related parties whom are
either officers, shareholders or entities under control by an officer or
shareholder. These amounts bear interest at interest rates ranging between 5%
and 7% per annum as follows:
 
 As of
September 30, 2008, the Company has $43,994 including accrued interest
outstanding with an officer and a company controlled by the same officer of the
Company. The Company has recorded interest expense of $2,390 for the year ended
September 30, 2008. All amounts plus accumulated interest were outstanding
during the year ended September 30, 2007. As the amount is due on demand, the
Company has classified the loan as a current liability.
 
 As of
September 30, 2008, the Company has $207,878 including accrued interest
outstanding with shareholders. Interest expense for the years ended September
30, 2008 and 2007 were approximately $16,565 and $1,363, respectively. As the
amounts are due on demand, the Company has classified them as current
liabilities.
 
 The
Company has entered negotiations with certain major debt holders about the
possibility to convert their debt into shares of common stock of the Company now
that the Company’s common stock is trading over-the-counter. There have been no
conclusive agreements made, nor can there be any guarantee that the Company will
be successful in reaching an agreement.
  F-21
  TELIPHONE
CORP.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2008 AND 2007
 
 
 NOTE
      4-
                RELATED PARTY
      LOANS (CONTINUED)
 
 The
Company must 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.  The Company
is currently making a minimum monthly payment of CDN $9,992 must be made which
equates to the payment of the $360,331 (US$) (CDN $383,464) over 52 months at
15% annual interest.
 
 As of
September 30, 2008, the amount left owing is $319,497.
 
 Maturities
over the next four fiscal years and in the aggregate (US$) as of September 30,
2008 are as follows:
 
 2009
                
                $
                69,3912010
                
                
                80,5452011
                
                
                93,4932012
                
                
                76,068Total
                
                $
                319,497
 
 Subsequently
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.  The last full cash
payment was made on November 30, 2008.
 
 In
addition, the shareholders of 9151-4877 Quebec Inc. have provided a revolving
line of credit facility of CDN $150,000 18% per annum rate of
interest.  As at September 30, 2008, the Company had drawn down
$140,951 (CDN$150,000) of this line of credit.  The Company is making
interest payments only against this line of credit, totaling $10,572 for the
year ended September 30, 2008.
 
 The
current portion of the note payable to shareholders of 9151-4877 Quebec Inc. is
listed as “Current portion of Note Payable, Dialek Telecom” and the line of
credit as “Line of credit- Dialek” in the financial statements under current
liabilities.  The balance of the note payable is listed under long
term liabilities.
  F-22
  TELIPHONE
CORP.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2008 AND 2007
 
 
 NOTE
      5-
                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 stipulates that the Company must pay up to 25%
commissions on all new business generated by the distributor. This distributor
controls the areas of Quebec and Ontario in Canada. The agreement does not
stipulate any minimum commissions due the distributor, only that the distributor
is paid monthly on its business generated. The Company is current with its
commissions to the distributor.
 
 On
September 1, 2008, the company and its main distributor, 9164-4898 Quebec Inc.,
operating as “BR Communications Inc.” amended their agreement to convert the
monthly 25% commitment to one which allows the Company to pay the Distributor’s
resellers their commissions (reduces commitment to 15%) and to pay a remaining
CDN$2,500 per month to the distributor for a period of 24 months terminating
August 15, 2010.  Prior to this amendment, the Company paid out an
average of CDN$6,000 to BR Communications Inc.
 
 On August
23, 2005, The Company’s subsidiary Teliphone, Inc. entered into a marketing and
distribution rights with Podar Infotech Ltd. The five year renewable agreement
grants Podar the exclusive marketing and distribution rights for the Company’s
products and services for India, China, Sri Lanka, Russia and UAE for which the
Company will receive contractually agreed payments.  This agreement
was terminated during 2008.
 
 The
Company’s subsidiary Teliphone, Inc. had entered into a lease agreement for its
offices, which is set to expire on March 31, 2011. The Company pays
approximately $28,000 per year for the years ending September 30, 2009 and 2010,
and $16,000 for the six months ending March 31, 2011 for an aggregate total of
$72,000.
 
 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. The Company is providing the
shareholder an annual interest rate of 20% payable in common stock of The
Company. The deposit remains outstanding and the liability to the shareholder is
also outstanding.
 
 On
January 29, 2008, a shareholder of the Company provided a fixed term deposit of
$30,000 (US$) with the Company’s bank in order to guarantee an equivalent value
operating line of credit for use by the Company. The Company is providing the
shareholder an annual interest rate of 20% payable in common stock of The
Company. The deposit remains outstanding and the liability to the shareholder is
also outstanding.
  F-23
 
 TELIPHONE
CORP.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2008 AND 2007
 
 
 NOTE
      6-
                AGREEMENT – INTELCO
      COMMUNICATIONS
 
 Teliphone
Inc., a majority-owned subsidiary of the Company, 3901823 Canada Inc., the
holding company of Intelco Communications (“3901823”), and Intelco
Communications (“Intelco”)  entered into an agreement (the
“Agreement”) on July 14, 2006.  Pursuant to the terms of the
Agreement, Teliphone Inc. agreed to issue 35 class A voting shares of its common
stock representing 25.2% of Teliphone Inc.’s issued shares to 3901823 in
exchange for office rent, use of Intelco’s data center for Teliphone Inc.’s
equipment, and use of Intelco’s broadband telephony network valued at
approximating $144,000 (CDN$) for the period August 1, 2006 through July 31,
2007, a line of credit of $75,000 (CDN$), of which $25,000 (CDN$) was already
drawn upon in July 2006 and repaid in December 2006.
 
 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-24
 
 TELIPHONE
CORP.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2008 AND 2007
 
 
 NOTE
      7-
                STOCKHOLDERS’
      DEFICIT
 
 Common
Stock
 
 As of
September 30, 2008, the Company has 125,000,000 shares of common stock
authorized with a par value of $.001.
 
 The
Company has 33,554,024 shares issued and outstanding as of September 30, 2008
and 2007.
 
 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.
 
 NOTE
      8-
                PROVISION FOR INCOME
      TAXES
 
 Deferred
income taxes are determined using the liability method for the temporary
differences between the financial reporting basis and income tax basis of the
Company’s assets and liabilities.  Deferred income taxes are measured
based on the tax rates expected to be in effect when the temporary differences
are included in the Company’s tax return.  Deferred tax assets and
liabilities are recognized based on anticipated future tax consequences
attributable to differences between financial statement carrying amounts of
assets and liabilities and their respective tax bases.
  F-25
  TELIPHONE
CORP.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2008 AND 2007
 
 
 NOTE
      8-
                PROVISION FOR INCOME
      TAXES (CONTINUED)
 
 At
September 30, 2008, deferred tax assets consist of the following:
 
 Net
      operating losses
                  
                  $
                  596,040Valuation
      allowance
                  
                  
                  (596,040
                  )$
                  -
 
 At
September 30, 2008, the Company had a net operating loss carryforward in the
approximate amount of $1,753,060, available to offset future taxable income
through 2028.  The Company established valuation allowances equal to
the full amount of the deferred tax assets due to the uncertainty of the
utilization of the operating losses in future periods.
 
 A
reconciliation of the Company’s effective tax rate as a percentage of income
before taxes and federal statutory rate for the years ended September 30, 2008
and 2007 is summarized as follows:
 
 2008
                
                
                2007Federal
      statutory rate
                
                
                (34.0
                )%
                
                
                (34.0
                )%State
      income taxes, net of federal benefits
                
                
                3.3
                
                
                
                3.3Valuation
      allowance
                
                
                30.7
                
                
                
                30.70
                %
                
                
                0
                %
  NOTE
      9-
                ACQUISITION OF CERTAIN
      ASSETS AND LIABILITIES
 
 On
February 14, 2008, the Company entered into a Letter of Intent for the
acquisition of certain assets and liabilities of 9151-4877 Quebec Inc.
(Operating as “Dialek Telecom”). 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:
  F-26
 
 TELIPHONE
CORP.
 CONSOLIDATED
FINANCIAL STATEMENTS
 FOR
THE YEARS ENDED SEPTEMBER 30, 2008 AND 2007
 
 
 NOTE
      9-
                ACQUISITION OF CERTAIN
      ASSETS AND LIABILITIES(CONTINUED)
 
 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.  As
of September 30, 2008, the value owing is $319,497.  This valuation
was agreed upon by both parties and filed as a definitive agreement on form 8-K
on June 30, 2008.  The Company entered into a note payable as a result
of the revenue buy-out agreement (see Note 4).
 
 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
September 30, 2008, the Company had drawn down $140,951 (CDN$150,000)) of this
line of credit.
 
 NOTE
10-              SUBSEQUENT
EVENTS
 
 Subsequently
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.  The last full cash
payment was made on November 30, 2008.  As a result, the Company will
replace its CDN$9,992 with a payment of CDN$4,996 in cash and CDN$4,996 in
Restricted Common stock of the Company.  The Parties agreed to fix the
exchange rate to the average exchange rate for the last 10 months of the
contract at 1 CDN$ = 0.9447 US$, resulting in a monthly stock issuance of
US$4,720.  The parties agreed to utilize the last 20 day average
trading price to determine the amount of shares to be issued.
  F-27
 ITEM
      9.
              CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
      DISCLOSURE
  Dismissal of Michael
Pollack, CPA as the Registrant's independent accountants
  Teliphone
Corp. (the "Company") elected to dismiss Michael Pollack, CPA as the independent
registered public accounting firm responsible for auditing the Company's
financial statements on February 14, 2008.
  Michael
Pollack, CPA's report on the Company's financial statements for the two years
ended September 30, 2007 and 2006 did not contain an adverse opinion or a
disclaimer of opinion, and was not qualified or modified as to uncertainty,
audit scope, or accounting principles with the exception that Michael Pollack,
CPA's Audit Reports, contained an explanatory note which raised substantial
doubt as to the ability of the Company to continue as a going
concern.
  The
termination, which was effective as of February 14, 2008, was approved by the
Company's Board of Directors.
  During
the Company's two most recent fiscal years ended September 30, 2007 and 2006 and
until February 14, 2008, which preceded the termination of Michael Pollack, CPA,
the Company did not have any disagreements with Michael Pollack, CPA on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements, if not resolved to the
satisfaction of Michael Pollack, CPA, would have caused it to make reference to
the subject matter of the disagreements in connection with its
report.
  During
the Company's two most recent fiscal years ended September 30, 2007 and 2006 and
until February 14, 2008 which preceded the termination of Michael Pollack, CPA,
other than as is set forth herein, Michael Pollack, CPA did not advise the
Company of any of the following:
  (A) That
the internal controls necessary for the Company to develop reliable financial
statements did not exist;
  (B) That
information had come to Michael Pollack, CPA's attention that had led it to no
longer be able to rely on management's representations, or that had made it
unwilling to be associated with the financial statements prepared by
management;
  (C) (1)
That Michael Pollack, CPA needed to expand significantly the scope of its audit,
or that information had come to Michael Pollack, CPA's attention that if further
investigated may: (i) materially impact the fairness or reliability of either: a
previously issued audit report or the underlying financial statements; or the
financial statements issued or to be issued covering the fiscal period(s)
subsequent to the date of the most recent financial statements covered by an
audit report (including information that would have prevented it from rendering
an unqualified audit report on those financial statements), or (ii) cause it to
be unwilling to rely on management's representations or be associated with the
Company's financial statements, and (2) due to Michael Pollack, CPA's
resignation (due to audit scope limitations or otherwise) or dismissal, or for
any other reason, the accountant did not so expand the scope of its audit or
conduct such further investigation; or
  36
  (D) (1)
That information has come to Michael Pollack, CPA's attention that it had
concluded materially impacted the fairness or reliability of either: (i) a
previously issued audit report or the underlying financial statements, or (ii)
the financial statements issued or to be issued covering the fiscal period
subsequent to the date of the most recent financial statements covered by an
audit report (including information that, unless resolved to Michael Pollack,
CPA's satisfaction, would prevent it from rendering an unqualified audit report
on those financial statements, except as indicated above), and (2) the issue has
not been resolved to Michael Pollack, CPA's satisfaction prior to its
termination.
  The
Company provided Michael Pollack, CPA with a copy of the disclosures set forth
in this Current Report on Form 8-K, and requested that Michael Pollack, CPA
furnish the Company with a letter addressed to the Michael Pollack, CPA stating
whether it agrees with the statements made by the company herein. The letter
received by the Company from Michael Pollack, CPA, in which Michael Pollack, CPA
states that it is in agreement with the disclosures set forth herein, is
attached hereto as Exhibit 16.1.
  Engagement of KBL
LLP
  The
Company has engaged KBL LLP to serve as the independent registered public
accounting firm responsible for auditing the Company's financial statements on
February 14, 2008. The engagement, which is effective as of February 14, 2008,
was approved by the Company's Board of Directors.
  Neither
the Company nor anyone on behalf of the Company consulted KBL LLP during the two
most recent fiscal years and any subsequent interim period prior to engaging KBL
LLP, regarding either: (i) the application of accounting principles to a
specified transaction, either completed or proposed; or the type of audit
opinion that might be rendered on the Company's financial statements, and either
a written KBL LLP concluded was an important factor considered by the Company in
reaching a decision as to the accounting, auditing or financial reporting issue;
or (ii) any matter that was either the subject of a disagreement (as defined in
paragraph (a)(1)(iv) and the related instructions of Item 304 of Regulation S-K)
or reportable event (as described in paragraph (a)(1)(v) of Item 304 of
Regulation S-K).
 
 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, 2008 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
  37
  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, 2008. 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, 2008.
 
 ITEM
      9B.
              OTHER
      INFORMATION
 
 None.
      38
  PART III
 
 
 ITEM
      10.
              DIRECTORS,
      EXECUTIVE OFFICERS, AND CORPORATE
GOVERNANCE
 
 The
directors and executive officers as of December 19, 2008 are as
follows:
 
 NAME
                AGE
                SERVED
      SINCE
                POSITIONS WITH
      COMPANYGeorge
      Metrakos
                37
                April,
      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.
  39
  As of
January 10, 2008, 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 January 10, 2008, 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, 2008.
  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
              
              2008
              
              $
              36,789
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              36,789CEO,
      CFO, President &
              
              2007
              
              $
              33,746
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              33,746Chairman
              
              2006
              
              $
              52,501
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              52,501Robert
      Cajolet
              
              2008
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              0Former
      Director
              
              2007
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              0Resigned
      Nov. 28, 2006
              
              2006
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              $
              0
 
 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, 2008.
 
 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, 2008.
  40
 
 Long-Term
Incentive Plan Awards Table
 
 We do not
have any Long-Term Incentive Plans.
 
 Compensation
of Directors
 
 During
2008, 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
  Effective
October 1, 2008, George Metrakos is compensated $0 annually by the Company as a
base salary.  In lieu of base compensation, Mr. Metrakos will be
compensated as a percentage commission on funds raised to effectuate its growth
business plan during the upcoming fiscal year.
 
 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
only once the common stock of the Company is trading over the counter, it has
been agreed that George Metrakos will 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.
It is anticipated that George Metrakos' annual base salary will increase to
$120,000 per year when the funds become available.
  Robert
Cajolet, former Chairman, CEO, CFO, Principal Accounting Officer and
President
  Robert
Cajolet resigned from the Board of Directors and as an officer of the Company on
November 28, 2006.  Robert Cajolet holds 1,250,000 shares provided to
him within Beverly Hills Trading Corp’s 2,000,000 share
holdings.  Robert Cajolet was not compensated monetarily by the
Company.
  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
19, 2008by (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.
  41
  Name
              Title
                of
                Class
              
              Shares
                Beneficially
                Owned
      (1)
              
              
              Percent
                Class
      (1)George
      Metrakos (2)
              Common
              
              
              1,988,798
              
              
              
              5.9
              %Officers
      and DirectorsAs
      a Group (1 Person)
              Common
              
              
              1,988,798
              
              
              
              5.9
              %3874958
      Canada Inc. (3)
              Common
              
              
              12,560,451
              
              
              
              37.4
              %Officers,
      Directors andCertain
      Beneficial OwnersAs
      a group (2 persons)
              Common
              
              
              14,549,249
              
              
              
              43.4
              %
  (1)
Applicable percentage of ownership is based on 33,554,024 shares of fully
diluted common stock effective December
19, 2008,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
19, 2008are 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 1,988,798 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.
  42
 
 ITEM
      14.
              PRINCIPAL
      ACCOUNTANT FEES AND SERVICES
 
 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.
 
 Year ended
2007:
 
 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-KSB; and our quarterly reports on Form
10-QSB during the fiscal year ending September 30, 2007 was
$31,500.
 
 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, 2007 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, 2007 was $0.00.
  AUDITOR
INDEPENDENCE
 
 Our Board
of Directors considers that the work done for us in the year ended September 30,
2008 and September 30, 2007 by Michael Pollack, CPA and KBL, LLPis compatible
with maintaining his independence.
 
 AUDITOR'S
TIME ON TASK
 
 All of
the work expended by Michael Pollack, CPA and KBL, LLP on our September 30, 2008
and 2007 respectively audits were attributed to work performed by their
full-time, permanent employees.
  43
  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
 
 44
 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
      45
  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
      19, 2008
              By:
              /s/ George
      MetrakosGeorge
      MetrakosChief
      Executive OfficerTELIPHONE
      CORP.Date:
      December 19, 2008
              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 19, 2008
              By:
              /s/ George
      MetrakosGeorge
      MetrakosDirector