UNITED STATES
 SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-K /A
 (Amendment No. 1)
 
 
 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
 SECURITIES EXCHANGE ACT OF 1934
 
 For the Fiscal Year Ended September 30, 2009
 Commission File Number: 333-136993
 
 TELIPHONE CORP
 (Name of registrant as specified in its charter)
 
 Nevada
84-1491673(State or other jurisdiction

of incorporation or organization)
(IRS Employer

Identification No.)
 
 194 St-Paul Street West, Suite 303,
 Montreal, Quebec, Canada, H2Y 1Z8
 (Address of principal executive offices)
 
 (514) 313-6010
 (Registrant’s telephone number, including area code)
 
 Joseph I. Emas, Attorney at Law
 1224 Washington Avenue
 Miami Beach, Florida  33139
 Telephone (305) 531-1174
 (Name, address and telephone number of agent for service)
 
  Securities Registered Under Section 12(b) of the Exchange Act:
 None
 
 Securities Registered Under Section 12(g) of the Exchange Act:
 Common Stock, $0.001
 
 
 Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     Yes  ̈     No x
 
 Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act from their obligations under those Sections. Yes x     No  ̈
 
 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x     No  ̈
 1
  Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ̈
 
 Indicate by check mark whether the registrant is a large accelerated file, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
 
 Large accelerated filer     o
Accelerated filer                        oNon-accelerated filer       o(Do not check if a smaller reporting company)
Smaller reporting company     x
 
 Indicate if the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).   Yes  ̈     No x
 
 The aggregate market value of the registrant’s common stock held by non-affiliates of the registrant as of December 23, 2009 was approximately $1,868,833.  The price is based on the on the price of the issuer’s common stock as quoted on the Over-The-Counter Bulletin Board exchange.
 
 Solely for purposes of the foregoing calculation, all of the registrant’s directors and officers are deemed to be affiliates.
 
 The number of shares outstanding of the registrant’s Common Stock, par value $.001 per share (the “Common Stock”), as of December 23, 2009, was 37,376,657.
 
 Documents incorporated by reference
 
 None.
   EXPLANATORY NOTE
 
 This Amendment No. 1 on Form 10-K/A (the “Amendment”) to the Annual Report on Form 10-K for the year ended September 30, 2009 (the “Original Annual Report”) of Teliphone Corp. (the “Company”) is being filed to (i) report management's assessment of our internal controls over financial reporting as of September 30, 2009 in Item 9A under the subheading “Management’s Report on Internal Control Over Financial Reporting”, and (ii) revise our disclosure in Item 9A under the subheading “Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures”  to conclude that our disclosure controls and procedures as of September 30, 2009 were not effective based primarily on our inadvertent failure to file management's assessment of internal controls over financial reporting with the filing of the Original Annual Report on Form 10-K for the period ending September 30, 2009. In addition, the Company is including as exhibits to this Amendment the certifications required pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002.
 
 Except as described above, this Amendment does not attempt to modify or update any other disclosures set forth in the Company’s Original Annual Report. Accordingly, the remainder of the Company’s Original Annual Report remains unchanged. This Amendment continues to speak as of December 23, 2009, the date of our initial filing of the Original Annual Report, and unless otherwise indicated herein, does not reflect information obtained after that date. Therefore, in conjunction with reading this Amendment, you also should read all other filings that we have made with the Securities and Exchange Commission since December 23, 2009.
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 TELIPHONE CORP.
 Report on Form 10-K
 For the Fiscal Year Ended September 30, 2009
 
 PagePART IItem 1.
Business
4Item 1A.
Risk Factors
13Item 1B.
Unresolved Staff Comments
21Item 2.
Properties
22Item 3.
Legal Proceedings
22Item 4.
Submission of Matters to a Vote of Security Holders
22PART IIItem 5.
Market for Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
23Item 6.
Selected Financial Data
23Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
23Item 7A.
Quantitative and Qualitative Disclosures About Market Risk.
38Item 8.
Financial Statements and Supplementary Data
38Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
39Item 9A.
Controls and Procedures
39Item 9B.
Other Information
40PART IIIItem 10.
Directors, Executive Officers and Corporate Governance
41Item 11.
Executive Compensation
42Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
43Item 13.
Certain Relationships and Related Transactions, and Director Independence
44Item 14
Principal Accountant Fees and Services
45PART IVItem 15.
Exhibits, Financial Statement Schedules
46SIGNATURES

48
 
 FORWARD-LOOKING STATEMENTS
 
 This Annual Report on Form 10-K contains, in addition to historical information, forward-looking statements regarding Teliphone Corp. (the “Company” or “Teliphone”), which represent the Company's expectations or beliefs including, but not limited to, statements concerning the Company's operations, performance, financial condition, business strategies, and other information and that involve substantial risks and uncertainties. The Company's actual results of operations, some of which are beyond the Company's control, could differ materially. For this purpose, any statements contained in this Report that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the generality of the foregoing, words such as "may," "will," "expect," "believe," "anticipate," "intend," "could," "estimate," or "continue" or the negative or other variations thereof or comparable terminology are intended to identify forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, history of operating losses and accumulated deficit; need for additional financing; dependence on future sales of our services; competition; dependence on management; risks related to proprietary rights; government regulation; and other factors described under "Risk Factors" and throughout this Annual Report on Form 10-K. Actual results may differ materially from those projected. These forward-looking statements represent our judgment as of the date of the filing of this Annual Report on Form 10-K. We disclaim any intent or obligation to update these forward-looking statements.
 3
  PART I
 
 ITEM 1.
BUSINESS
 
 Teliphone Corp was incorporated in the State of Nevada on March 2, 1999 under the name "OSK Capital II Corp." to serve as a vehicle to effect a merger, exchange of capital stock, asset acquisition or other business combination with a domestic or foreign private business. Effective April 28, 2005, the Company achieved its objectives with the reverse merger and reorganization with Teliphone Inc., a Canadian company. On August 21, 2006, we changed our name from OSK Capital II Corp. to Teliphone Corp.
 
 As a result of the merger and re-organization, Teliphone Inc. became our wholly owned subsidiary and we became a majority owned subsidiary of Teliphone Inc.'s parent company, United American Corporation, a Florida Corporation trading on the NASD OTCBB under the symbol UAMA.  The merger and re-organization of April 28, 2005 was a business combination between Teliphone Inc. and OSK Capital II Corp. As a result, Teliphone Inc. became a wholly-owned subsidiary of OSK Capital II Corp.
 
 The Principal terms of the combination were that a recapitalization occurred as a result of the reverse merger. The shareholder's equity of OSK Capital II Corp. became that of Teliphone Inc. Original shareholders of OSK Capital II Corp. maintained their shareholdings of OSK Capital II Corp. and new treasury shares of OSK Capital II Corp. were issued to shareholders of Teliphone Inc.
 
 On July 14th, 2006 the Company entered into a Letter of Intent with 3901823 Canada Inc. ("3901823") whereby Teliphone Inc. will issue 3901823 new shares from its treasury such that 3901823 became a 25% owner of our subsidiary Teliphone Inc. effective August 1, 2006 in return for additional investment in the company.  Subsequently on September 30, 2008, the Company’s subsidiary Teliphone Inc. issued additional stock to the Company representing the conversion of cash advances from August 1, 2006 to September 30, 2008.  The resultant ownership of its subsidiary by the Company as of September 30, 2009 is 87.1%.  The Company does not have any other subsidiaries.
 
 On October 30, 2006, United American Corporation spun off their share position in our Company through the pro rata distribution of their 25,737,956 shares to their shareholders. Although there were no contractual obligations on the part of the company or United American Corporation, this spin off was part of a long term strategy of United American Corporation.
 
 In June of 2008, the Company commenced trading of its common stock over the counter under the ticker symbol TLPH.
 
 History of Key Agreements
 
 At the time of the merger and re-organization, the Company, through its subsidiary Teliphone Inc., was able to offer its services to customers in Canada only. This was achieved through the signing of a retail distribution agreement on March 1, 2005, with BR Communications Inc. ("BR") for the purpose accessing the retail consumer portion of our target market through retail and Internet-based sales. Under the terms of this agreement, BR was granted the exclusive right to distribute Teliphone Inc.’s VoIP services via Internet-based sales or direct sales to retail establishments in the territory consisting of the Province of Quebec in Canada exclusive of Sherbrooke, Quebec for a 5 year term. The agreement included a commitment by the company to pay BR and its resellers 25% of the recurring revenues derived from clients in the territory. This agreement was later expanded on July 6, 2005 to include the city of Ottawa within the Province of Ontario and to remove the restriction of Sherbrooke, Quebec.  Subsequently on September 1, 2008, the agreement was amended by replacing the monthly % of recurring revenue commitment by a fixed monthly payment of $2,500 for a term of 24 months, removing all exclusivity restrictions, permitting the Company to sell its products and services in the Territory through other sales channels without paying BR any % of recurring revenues.
  4
 
 On April 22, 2005, the Company, through its subsidiary Teliphone Inc., entered into a Wholesale distribution agreement with 9151-4877 Quebec Inc., also known as "Dialek Telecom". Teliphone Inc. supplies Dialek Telecom with VoIP services to Dialek's Canadian and US customers, permitting Dialek Telecom to brand the service "Dialek VoIP" instead of "Teliphone VoIP". The agreement also permits Dialek Telecom to invoice and support its clients directly. The term of the agreement is for one year renewable to successive one year terms upon 30 days written notice.
 
 On June 1, 2005, the Company, through its subsidiary Teliphone Inc., signed an Agreement with Northern Communication Services Inc. ("Northern") such that Northern would supply the company with Emergency 9-1-1 caller address verification and call transfer services to the necessary Municipal Emergency Services Department associated with the caller's location. This service is required for Teliphone Inc.'s customers located in North America. The term of the agreement is for 3 years, renewable automatically for an additional 3 years with a termination clause of 90 days written notice.
 
 On December 2, 2005, the Company, through its subsidiary Teliphone Inc. signed a Co-Location and Bandwidth Services Agreement with Peer 1. The agreement stipulates that the Company houses its telecommunications and computer server hardware within the Peer 1 Montreal Data center, located at 1080 Beaver Hall, suite 1512, Montreal, Quebec, Canada. Likewise, Teliphone Inc. agrees to purchase Peer 1 bandwidth services and internet access across its worldwide network. The term of the contract was for 12 months, renewable for successive 30 day terms.
 
 The Company sought to expand its product offering in order to offer its broadband phone services to US customers as well. The Company signed an agreement with RNK Telecom Inc, a New Jersey company, in December of 2005 which permitted the company to interconnect with RNK's network of US cities. This agreement has a term of one year renewable month to month at the end of the term.
 
 On April 6, 2006, the Company, through its subsidiary Teliphone Inc. signed a Master Services Agreement with Rogers Business Solutions ("Rogers"). This agreement permits Teliphone Inc. to purchase voice channel capacity for its Canadian Network. The majority of its current voice channel capacity already exists with Rogers, however, the current agreements are still between Rogers and the Company's former parent company, United American Corporation. It is anticipate that all of the capacity will transfer under the Teliphone Inc.-Rogers agreement by June 30, 2007. The term of the agreement is for 2 years, with no specific renewal conditions.  The contract was not renewed as the Company migrated its Canadian network towards Intelco, as outlined in the next paragraph.
 
 Teliphone Inc., a majority-owned subsidiary of the Company, 3901823 Canada Inc., the holding company of Intelco Communications ("3901823"), and Intelco Communications ("Intelco") entered into an agreement on July 14, 2006. Pursuant to the terms of the Agreement, Teliphone Inc. agreed to issue 35 class A voting shares of its common stock representing 25.2% of Teliphone Inc.'s issued shares to 3901823 in exchange for office rent, use of Intelco's data center for Teliphone Inc.'s equipment, and use of Intelco's broadband telephony network valued at approximating $144,000 (CDN$) for the period August 1, 2006 through July 31, 2007, a line of credit of $75,000 (CDN$), of which $25,000 (CDN$) was already drawn upon in July 2006 and paid back in December 2006.
 
 Teliphone Inc. also agreed to make available to the customers of Intelco certain proprietary software for broadband telephony use. In lieu of receiving cash for the licensing of this software, Teliphone Inc. will apply $1 per customer per month at a minimum of $5,000 per month.
 
 On February 15, 2008, the Company entered into an agreement with 9191-4200 Quebec Inc., owners of Dialek Telecom for the acquisition of certain assets and liabilities of Dialek Telecom.  As a result, the Company acquired an additional 2,000 customers for telecommunications services in Canada, along with other assets valued at CDN$86,000 and liabilities valued at CDN$227,000 and access to an operating line of credit of CDN$150,000 at an annualized interest rate of 18%.
 
 On September 30, 2008, the Company re-evaluated its pre-paid services asset from Intelco (originally $144,000 CDN$ and valued at $119,819 CDN as of September 30, 2008) to 0$ since the Company had vacated the premises of Intelco and could not execute on the use of any of the pre-paid services originally earmarked for consumption.
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  As of September 30, 2008, the Company’s ownership in its subsidiary Teliphone Inc. increased from 74.8% to 87.1% due to the issuance of stock to the Company in exchange for funds invested from July 14th, 2008 to September 30, 2008.
 
 On May 7th, 2009, the Company entered into a customer assignment agreement with the owners of Orion Communications Inc.  As a result, the Company acquired an additional 580 Business Customers for telecommunications services in Canada, along with other assets valued at CDN$376,781 and liabilities valued at CDN$418,762.  The Company and the owner of Orion Communications, 9191-4200 Quebec Inc. agreed to a gross benefit sharing arrangement of 50%-50% for any potential future benefits derived from the customer base.
 
 Description of Business
 
 Principal products or services and their markets
 
 With the merger and re-organization we became a telecommunications company providing broadband telephone services utilizing our innovative Voice over Internet Protocol, or VoIP, technology platform, to offer feature-rich, low-cost communications services to our customers, thus providing them an experience similar to traditional telephone services at a reduced cost. VoIP means that the technology used to send data over the Internet (example, an e-mail or web site page display) is used to transmit voice as well. The technology is known as packet switching. Instead of establishing a dedicated connection between two devices (computers, telephones, etc.) and sending the message "in one piece," this technology divides the message into smaller fragments, called 'packets'. These packets are transmitted separately over the internet and when they reach the final destination, they are reassembled into the original message.
 
 Our Company has invested in the research and development of our VoIP telecommunications technology which permits the control, forwarding, storing and billing of phone calls made or received by our customers. Our technology consists of proprietary software programming and specific hardware configurations, however, we have no specific legal entitlement that does not permit someone else from utilizing the same base software languages and same hardware in order to produce similar telephony service offerings.
 
 Base software languages are the language building blocks used by programmers to translate the desired logic sequences into a message that the computer can understand and execute.  An example of a logic sequence is “if the user dials “011” before the number, the software should then treat this as an international call and invoice the client accordingly”.  The combination and use of these building blocks is known as ‘software code”, and hence this combination, created by the Company’s programmers, along with “off-the-shelf” computer and telecommunications hardware (ie. Equipment that is readily available by computer, networking and telecommunications companies) is collectively referred to as “our technology and trade secrets”.
 
 Examples of “off-the-shelf” hardware utilized include the desktop phones and handsets, computer servers used to store such things as account information and voice mail, and telecommunications hardware that permit the routing of telephone voice calls between various points across the internet and the world’s Public Switched Telephone Network (PSTN), the global wired and wireless connections between every land and mobile phone.
 
 We therefore cannot be certain that others will not gain access to our technology. In order to protect this proprietary technology, we hold non-disclosure and confidentiality agreements and understandings with our employees, consultants, re-sellers, distributors, wholesalers and technology partners. We cannot guarantee that our technology and trade secrets will not be stolen, challenged, invalidated or circumvented. If any of these were to occur, we would suffer from a decreased competitive advantage, resulting in lower profitability due to decreased sales.
 
 The Company offers the following products and services to customers utilizing its VoIP technology platform:
 
 ·
Residential phone service. Customers purchase a VoIP adaptor from a re-seller and install it in their home. This allows all of their traditional phones in their home to have their inbound and outbound calls redirected to Teliphone. As a result, the residential customer purchases their choice of unlimited local or long distance calling services, with pay-per-minute long distance calling services.
 
 ·
Business phone service. Customers purchase multiple VoIP adaptors from re-sellers and install them in their business. Similar to Residential phone service, customers purchase various local and long distance calling services from the Company.
 6
  For Residential and Business phone services, the Company, through its subsidiary Teliphone Inc., invoices and collects funds directly from the end-user customer and pays a commission to their re-sellers and distributors upon receipt of the funds. The customer can also purchase the VoIP adaptors and calling services directly with Teliphone Inc. via its website www.teliphone.us for US customers, www.teliphone.ca for Canadian customers and www.teliphone.in for India customers.
 
 ·
The Company also sells VoIP calling services to Wholesalers who re-sell these services to their customers. In this case, the Company’s subsidiary Teliphone Inc. provides the services to the end-user customers, however invoices and collects funds from the Wholesaler, who invoices their customers and provides technical support to their customers directly.
 
 The VoIP adaptors are manufactured by Linksys-Cisco and purchased by the Company directly from the manufacturer and re-sold to the re-sellers and wholesalers. The Company’s subsidiary Teliphone Inc. is a Linksys-Cisco Internet Telephony Services approved supplier based on their agreement signed in October 2005.
 
 Distribution methods of the products or services
 
 Retail Sales.
 
 We distribute our products and services through our retail partners' stores. Our retail partners have existing public retail outlets where they typically sell telecommunications or computer related products and services such as other telecommunications services (cellular phones) or computer hardware and software.
 
 The Company does not own or rent any retail space for the purpose of distribution, rather, it relies on its re-seller partners to display and promote the Company's products and services within their existing retail stores.
 
 For a retail sale to occur, our re-sellers purchase hardware from us and hold inventory of our hardware at their store. In some cases, we may sell the hardware to our re-sellers below cost in order to subsidize the customer's purchase of the hardware from the re-seller. Upon the sale of hardware to the customer, the retail partner activates the service on our website while in-store with the customer.
 
 Internet Sales.
 
 We likewise distribute our products through the sale of hardware on our website, www.teliphone.us. The customer purchases the necessary hardware from our on-line catalog. Upon receipt of the hardware from us, the customer returns to the company's website to activate their services.
 
 Wholesale Sales.
 
 We likewise distribute our products and services through Wholesalers. A Wholesaler is a business partner who purchases our products and services "unbranded", that is, with no reference to our Company on the hardware or within the service, and re-bills the services to their end-user customers. In the case of a sale to our Wholesalers, we do not sell the hardware below cost.
 
 Direct Sales.
 
 We likewise distribute our products and services directly to customers via our own sales force.  We currently employ 2 people in this capacity, providing sales solutions directly to larger business clients throughout Canada.
  7
 
 The agreements between our wholesalers and our customers are similar to those that the Company has with our Retail customers. The wholesalers provide monthly calling services to their customers and invoice them on a monthly basis on their usage. Our form of general conditions for use of the Company's telecommunications products and services found in exhibit 10.2 of this prospectus presents the general and underlying agreement that we hold with our Wholesalers. While product and professional liability cannot be entirely eliminated, the conditions set forth in the agreement serve to forewarn Wholesalers that should a stoppage of service occur we cannot be held liable.  Since we do not currently hold product and professional liability insurance coverage, this does not protect us from potential litigation. The risk of this is outlined in risk factor C.6. in this prospectus.
 
 Status of any publicly announced new product or service
 
 TeliPhone VoIP services were officially launched to the public in the Province of Quebec in December of 2004.
 
 teliPhone Residential VoIP service
 
 The Company currently offers a residential VoIP phone service to customers in the provinces of Ontario and Quebec. Average revenues per customer are $30.00 per month. The customer can also purchase virtual numbers from other cities in North America and internationally, permitting the customer to provide a local phone number to their calling party who is in another area or country that normally would represent a long distance call. These services cost from 5$ to 30$ per month depending on the country.
 
 teliPhone Small business VoIP services
 
 The Company targets Small and Medium sized business clients with an expanded version of its offering. Average revenues per customer in this segment are $400 per month. The Company markets these services primarily through its telecom interconnection resellers, who have existing customer relationships in this segment.
 
 Teliphone has also developed and integrated new software permitting the replacement of traditional auto-attendant and office telephony systems. The Company has finalized its beta trials and has introduced this to the market through its interconnection re-seller base.
 
 teliPhone Enterprise VoIP and Resale services
 
 Since May of 2009 as part of its acquisition of the clients of Orion Communications Inc., the Company has been selling services over its own network, along with those of Tier 1 and Tier 2 telecommunications carriers across Canada to Enterprise business clients.  Enterprise clients are larger, multi-national organizations with multiple office locations throughout the country.  Average revenues per customer in this segment is $1,000 per month.  The Company markets its services primarily through its direct sales force of qualified telecommunications services representatives.
 
 Competitive Business Conditions
 
 Today, VoIP technology is used in the backbone of many traditional telephone networks, and VoIP services are offered to residential and business users by a wide array of service providers, including established telephone service providers. These VoIP providers include traditional local and long distance phone companies, established cable companies, Internet service providers and alternative voice communications providers such as Teliphone.
 
 While all of these companies provide residential VoIP communications services, each group provides those services over a different type of network, resulting in important differences in the characteristics and features of the VoIP communications services that they offer. Traditional wireline telephone companies offering VoIP services to consumers do so using their existing broadband DSL networks. Similarly, cable companies offering VoIP communications services use their existing cable broadband networks. Because these companies own and control the broadband network over which the VoIP traffic is carried between the customer and public switched telephone network, they have the advantage of controlling a substantial portion of the call path and therefore being better able to control call quality. In addition, many of these providers are able to offer their customers additional bandwidth dedicated solely to the customer's VoIP service, further enhancing call quality and preserving the customer's existing bandwidth for other uses. However, these companies typically have high capital expenditures and operating costs in connection with their networks. In addition, depending on the structure of their VoIP networks, the VoIP services provided by some of these companies can only be used from the location at which the broadband line they provide is connected.
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  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.
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  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.
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  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.
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  The CRTC's May 12, 2005 decision provided that VoIP providers who are registered as local VoIP resellers will be able to obtain numbers and portability from Canadian local exchange carriers, but will not be able to obtain numbers directly from the Canadian Numbering Administrator or to have direct access to the local number portability database. The CRTC's decision also identified other obligations of VoIP providers, such as contributing to a national service fund, complying with consumer protection, data and privacy requirements, and providing access for the disabled. The details of these requirements have been referred to industry groups for further study. Certain aspects of the decision are the subject of pending appeals by other Canadian VoIP providers. We do not know what requirements will ultimately be imposed nor the potential cost that compliance may entail. The CRTC found that it is technically feasible for VoIP providers to support special services for hearing-impaired customers.
 
 Effective the filing of this report, we have complied with all CRTC requirements.
 
 Provision of 911 Services.
 
 On April 4, 2005, the CRTC released a ruling requiring certain providers of VoIP services, like us, to provide interim access to emergency services at a level comparable to traditional basic 911 services by July 3, 2005 or such later date as the CRTC may approve on application by a service provider. Under the interim solution adopted by the regulator for the provision of VoIP 911 services, customers of local VoIP services who dial 911 will generally be routed to a call center, where agents answer the call, verbally determine the location of the caller, and transfer the call to the appropriate emergency services agency. VoIP service providers are also required to notify their customers about any limitations on their ability to provide 911 services in a manner to be determined.
 
 Since July 2005, Teliphone has complied with these regulations by partnering with a PSAP (Primary Service Access Point) which serves to verify the customer location and forward the call to the respective Municipal 9-1-1 center for assistance. This service therefore permits Teliphone's customers to have access to 9-1-1 services irrespective of their physical location, anywhere in the Continental US & Canada.. This service is of significance as VoIP permits customers to utilize their phone anywhere a high-speed internet connection exists and can therefore be located outside of their local city when requiring 9-1-1 services.
 
 Other Foreign Jurisdictions
 
 Our operations in foreign countries must comply with applicable local laws in each country we serve. The communications carriers with which we associate in each country is licensed to handle international call traffic, and takes responsibility for all local law compliance. For that reason we do not believe that compliance with the laws of foreign jurisdictions will affect our operations or require us to incur any significant expense
 
 Research and Development
 
 The Company spent $120,531 in Research and Development activities during 2006 and $116,896 during 2005.  The Company did not spend any additional funds directly in Research and Development since 2007, however, has advanced its products and services through the continuous evolving needs of its customers.
 
 Compliance with Environmental Laws
 
 We did not incur any costs in connection with the compliance with any federal, state, or local environmental laws.
 
 The company has seven full time employees and two additional part time employees.
 
 CORPORATE OFFICES
 
 The mailing address of our principal executive office is 194 St-Paul St West, Suite 303, Montreal, Quebec, H2Y 1Z8 Canada. Our telephone number is (514) 313-6000 and our fax number is (514) 313-6001. Our e-mail address is info@teliphone.caand our company website is www.teliphone.us. Our operational offices are located in Montreal, Quebec, our legal offices are located in Miami Beach, Florida and our data and collocation center is located in Montreal, Quebec.
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  EMPLOYEES
 
 We currently have 15 employees. We utilize the services of various consultants who provide, among other things, accounting services, technological development services and sales services to the Company.
 
 ITEM 1A.
RISK FACTORS
 
 Any investment in our common shares involves a high degree of risk and is subject to many uncertainties. These risks and uncertainties may adversely affect our business, operating results and financial condition. All of our material risks and uncertainties are described below. If any of the following risks actually occur, our business, financial condition, results or operations could be materially and adversely affected. The trading of our common stock, once established, could decline, and you may lose all or part of your investment therein. You should acquire shares of our common stock only if you can afford to lose your entire investment. In order to attain an appreciation for these risks and uncertainties, you should read this Prospectus in its entirety and consider, including the Financial Statements and Notes, prior to making an investment in our common stock.
 
 As used in this prospectus, the terms "we," "us," "our," "the Company" and "Teliphone" mean Teliphone Corp., a Nevada corporation, or its subsidiary, Teliphone Inc., a Canadian corporation, unless the context indicates a different meaning.
 
 Risks associated with forward-looking statements.
 
 This prospectus contains certain forward-looking statements regarding management's plans and objectives for future operations, including plans and objectives relating to our planned marketing efforts and future economic performance. The forward-looking statements and associated risks set forth in this prospectus include or relate to:
 
 (1) Our ability to obtain a meaningful degree of consumer acceptance for our products now and in the future,
 
 (2) Our ability to market our products on a global basis at competitive prices now and in the future,
 
 (3) Our ability to maintain brand-name recognition for our products now and in the future,
 
 (4) Our ability to maintain an effective distributors network,
 
 (5) Our success in forecasting demand for our products now and in the future,
 
 (6) Our ability to maintain pricing and thereby maintain adequate profit margins, and
 
 (7) Our ability to obtain and retain sufficient capital for future operations.
 
 A. Risks Related To Our Financial Condition
 
 A.1. We Have a Limited Operating History with Losses and Have Only Recently Emerged with Profitability
 
 We have a limited operating history with losses and have only recently emerged with profitability for the first time in our company’s history. Should we continue to incur losses for a significant amount of time, the value of our common shares will be affected, and our shareholders could their entire investment. Our accumulated deficit since inception on August 27, 2004 at September 30, 2009 was $1,650,709. These losses have resulted principally from costs incurred in our research and development programs, our general and administrative costs and our telecommunications network overhead costs. We have started to derive revenues from product and service sales since 2005.
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 A.2. We Require Additional Financing to Grow Our Operations
 
 We require additional financing to grow our operations and in acquiring such additional financing new investors and current shareholders may suffer substantial consequences such as dilution or a loss of seniority in preferences and privileges. There can be no assurance that any additional funds will be available to us upon terms acceptable to us or at all. If we are unable to obtain additional financing we might be required to delay, scale back, or eliminate certain aspects of our research and product development programs or operations. Should the financing we require to sustain our working capital needs be unavailable or prohibitively expensive, the consequences would be a material adverse effect on our business, operating results, financial condition and prospects. The value of our common shares would therefore be affected, and our shareholders could even lose their entire investment.
 
 B. Risks Related To Our Business
 
 B.1. Decreasing market prices for our products and services may cause us to lower our prices to remain competitive, which could delay or prevent our future profitability.
 
 Currently, our prices are lower than those of many of our competitors for comparable services. However, market prices for local calling and international long distance calling have decreased significantly over the last few years, and we anticipate that prices will continue to decrease. This information is based on the experience of the Company's management working in the telecommunications industry. Users who select our service offerings to take advantage of our prices may switch to another service provider as the difference between prices diminishes or disappears. In this instance, we may be unable to use our price as a distinguishing feature to attract new customers in the future. Such competition or continued price decreases may require us to lower our prices to remain competitive, may result in reduced revenue, a loss of customers, or a decrease in our subscriber line growth and may delay or prevent our future profitability. The value of our common shares would therefore be affected, and our shareholders could even lose their entire investment.
 
 B.2. VoIP technology may fail to gain acceptance among mainstream consumers and hence the growth of the business will be limited, lowering the profitability of the business.  If VoIP technology fails to gain acceptance among mainstream consumers, our ability to grow our business will be limited, which could affect the profitability of our business. The market for VoIP services has only recently begun to develop and is rapidly evolving. We currently generate all of our revenue from the sale of VoIP services and related products to residential, small office or home office customers and wholesale partners.
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  For our current residential user base, a significant portion of our revenue currently is derived from consumers who are early adopters of VoIP technology. However, in order for our business to continue to grow and to become profitable, VoIP technology must gain acceptance among mainstream consumers, who tend to be less technically knowledgeable and more resistant to new technology or unfamiliar services. Because potential VoIP customers need to connect additional hardware at their location and take other technical steps not required for the use of traditional telephone service, mainstream consumers may be reluctant to use our service. If mainstream consumers choose not to adopt our technology, our ability to grow our business will be limited. As a result, the value of our common shares would be affected, and our shareholders could lose their entire investment.
 
 Certain aspects of our service are not the same as traditional telephone service, which may limit the acceptance of our services by mainstream consumers and our potential for growth which could affect the profitability and operations of our business. Our continued growth is dependent on the adoption of our services by mainstream customers, so these differences are becoming increasingly important. For example:
 
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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;
 
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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.
 
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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.
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  Although we have designed our service network to reduce the possibility of disruptions or other outages, our service may be disrupted by problems with our technology and systems, such as malfunctions in our software or other facilities, and overloading of our network. Our customers have experienced interruptions in the past, and may experience interruptions in the future as a result of these types of problems. Interruptions have in the past, and may in the future, cause us to lose customers and sometimes require us to offer substantial customer credits, which could adversely affect our revenue and profitability. Such an effect would result in the value our common shares to be affected, and our shareholders could even lose their entire investment.
 
 B.5. Our ability to provide our service is dependent upon third-party facilities and equipment and hence our services could be interrupted due to our partner’s inability to provide continuous service, resulting in reduced profitability due to lost customers.
 
 Our ability to provide our service is dependent upon third-party facilities and equipment, the failure of which could cause delays or interruptions of our service, damage our reputation, cause us to lose customers and limit our growth which could affect the future growth of our business.
 
 Our success depends on our ability to provide quality and reliable service, which is in part dependent upon the proper functioning of facilities and equipment owned and operated by third parties and is, therefore, beyond our control. Unlike traditional wireline telephone service or wireless service, our service requires our customers to have an operative broadband Internet connection and an electrical power supply, which are provided by the customer's Internet service provider and electric utility company, respectively, not by us. The quality of some broadband Internet connections may be too poor for customers to use our services properly. In addition, if there is any interruption to a customer's broadband Internet service or electrical power supply, that customer will be unable to make or receive calls, including emergency calls, using our service. We also outsource several of our network functions to third-party providers. For example, we outsource the maintenance of our regional data connection points, which are the facilities at which our network interconnects with the public switched telephone network. If our third-party service providers fail to maintain these facilities properly, or fail to respond quickly to problems, our customers may experience service interruptions. Our customers have experienced such interruptions in the past and will experience interruptions in the future. In addition, our new E-911 service is currently dependent upon several third-party providers. Interruptions in service from these vendors could cause failures in our customers' access to E-911 services. Interruptions in our service caused by third-party facilities have in the past caused, and may in the future, cause us to lose customers, or cause us to offer substantial customer credits, which could adversely affect our revenue and profitability. If interruptions adversely affect the perceived reliability of our service, we may have difficulty attracting new customers and our brand, reputation, and growth will be negatively impacted. As a result, we would incur extra expense to acquire new customers to replace those which have been affected by such a service issue, decreasing our profitability as expenses would increase. As a result, the value of our common shares would be affected, and our shareholders could even lose their entire investment.
 
 B.6.If we are unable to improve our process for local number portability provisioning, our growth may be negatively impacted which could affect the profitability and operations of our business.
 
 We support local number portability for our customers allowing our customers to retain their existing telephone numbers when subscribing to our services. Transferring numbers is a manual process that in the past has taken us 20 business days or longer. Although we have taken steps to automate this process to reduce the delay, a new customer must maintain both service and the customer's existing telephone service during the transferring process. By comparison, transferring wireless telephone numbers among wireless service providers generally takes several hours, and transferring wireline telephone numbers among traditional wireline service providers generally takes a few days. The additional delay that we experience is due to our reliance on the telephone company from which the customer is transferring and to the lack of full automation in our process. Further, because we are not a regulated telecommunications provider, we must rely on the telephone companies, over whom we have no control, to transfer numbers. This slows the process of acquiring new customers, which could create a higher rate of early defection of new clients. This would cause our profitability to be reduced, and as such, the value of the common shares of our company would be lower.
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  B.7. Because much of our potential success and value lies in our use of internally developed systems and software, if we fail to protect them, it could affect the profitability and operations of our business.
 
 Our ability to compete effectively is dependent in large part upon the maintenance and protection of internally developed systems and software. To date, we have relied on trade secret laws, as well as confidentiality procedures and licensing arrangements, to establish and protect our rights to our technology. We typically enter into confidentiality or license agreements with our employees, consultants, customers and vendors in an effort to control access to, and distribution of, technology, software, documentation and other information. Despite these precautions, it may be possible for a third party to copy or otherwise obtain and use this technology without authorization.
 
 Policing unauthorized use of this technology is difficult. The steps we take may not prevent misappropriation of the technology we rely on. In addition, effective protection may be unavailable or limited in some jurisdictions outside the United States and Canada.. Litigation may be necessary in the future to enforce or protect our rights, or to determine the validity and scope of the rights of others. That litigation could cause us to incur substantial costs and divert resources away from our daily business, which in turn could materially adversely affect our business through decreasing profitability and negative corporate image to our customers, causing a higher rate of customer defection. As a result, the value our common shares would be affected, and our shareholders could even lose their entire investment.
 
 B.8.The adoption of broadband may not progress as expected which would negatively impact our growth rate and reduce our profitability.
 
 Our most significant market segment, that is TeliPhone VoIP services, requires an operative broadband connection. If the adoption of broadband does not progress as expected, the market for our services will not grow and we may not be able to develop our business and increase our revenue.
 
 Use of our service requires that the user be a subscriber to an existing broadband Internet service, most typically provided through a cable or digital subscriber line, or DSL, connection. Although the number of broadband subscribers worldwide has grown significantly over the last five years, this service has not yet been adopted by a majority of consumers. If the adoption of broadband services does not continue to grow, the market for our services may not grow. As a result, we may not be able to increase our revenue and become profitable, which would adversely affect the value of our common shares.
 
 B.9. Future new technologies could render our company less competitive than the industry standard, resulting in lower profitability due to decreased sales.
 
 VoIP technology, which our business is based upon, did not exist and was not commercially viable until relatively recently. VoIP technology is having a disruptive effect on traditional telephone companies, whose businesses are based on other technologies. We also are subject to the risk of future disruptive technologies. If new technologies develop that are able to deliver competing voice services at lower prices, better or more conveniently, it could have a material adverse effect on us by causing a higher rate of customer defection to companies with this new technology, reducing our profitability due to decreased sales. This would adversely affect the value of the common shares of the company, and our shareholders could even lose their entire investment.
 
 B.10. We cannot guarantee that our technology and trade secrets will not be stolen, decreasing our competitive advantage, resulting in lower profitability due to decreased sales.
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  Our Company has invested in the research and development of our VoIP telecommunications technology which permits the control, forwarding, storing and billing of phone calls made or received by our customers. This technology has been developed by our employees and consultants and is owned entirely by us. The calls are transmitted over our network to the Public Switched Telephone Network (PSTN), that is, the traditional wireline network that links all telephone devices around the world. Our network consists of leased bandwidth from numerous telecommunications and internet service providers. Bandwidth is defined as the passage of the call over the internet. The configuration of our technology together with this leased bandwidth and the telecommunications and computer hardware required for our services to function is proprietary to our company. We do not own any fibre optic cabling or other types of physical data and voice transmission links as we lease dedicated capacity from our suppliers. We rely on trade secrets and proprietary know-how to protect this technology. We cannot assure you that our technology will not be breached, that we will have adequate remedies for any breach, or that our trade secrets and proprietary know-how will not otherwise become known or be independently discovered by others. If such a breach were to occur, our brand, reputation, and growth will be negatively impacted. As a result, we would incur extra expense to acquire new customers to replace those which have been acquired by the increased competitive presence, decreasing our profitability as expenses would increase. As a result, the value of our common shares would be affected, and our shareholders could even lose their entire investment.
 
 C. Risks Related to Regulation
 
 Set forth below are all of the material risks related to regulation. For additional information about these risks, see "Regulation" in this prospectus.
 
 C.1. Regulation of VoIP services is developing and therefore uncertain, and future legislative, regulatory, or judicial actions could adversely impact our business by exposing us to liability, which could affect the profitability and operations of our business.
 
 Our business has developed in an environment largely free from government regulation. However, the United States and other countries have begun to assert regulatory authority over VoIP and are continuing to evaluate how VoIP will be regulated in the future. Both the application of existing rules to us and our competitors and the effects of future regulatory developments are uncertain.
 
 Future legislative, judicial, or other regulatory actions could have a negative effect on our business. If we become subject to the rules and regulations applicable to telecommunications providers in individual states and provinces, we may incur significant litigation and compliance costs, and we may have to restructure our service offerings, exit certain markets, or raise the price of our services, any of which could cause our services to be less attractive to customers. In addition, future regulatory developments could increase our cost of doing business and limit our growth.
 
 Our international operations are also subject to regulatory risks, including the risk that regulations in some jurisdictions will prohibit us from providing our services cost-effectively, or at all, which could limit our growth. Currently, there are several countries where regulations prohibit us from offering service. In addition, because customers can use our services almost anywhere that a broadband Internet connection is available, including countries where providing VoIP services is illegal, the governments of those countries may attempt to assert jurisdiction over us, which could expose us to significant liability and regulation. These increased liabilities will adversely affect the value of our common shares, and our shareholders could lose their entire investment.
 
 C.2. Telecommunications is a Regulated Industry, Particularly in Canada, the Main Market Segment of our Business, and Future Regulation May Impede us from Achieving the Necessary Market Share to Succeed.
 
 The current regulated environment in North America is extremely favorable for new, start-up companies, to enter the marketplace with new and innovative technologies and value added services. In Canada, our principal market, the telecommunications regulator, Canadian-Radio and Telecommunications Commission (CRTC), has regulated the incumbent Telecommunications companies such that they cannot reduce their elevated pricing for residential phone service. This regulation has provided us with a competitive advantage to sell our products and acquire customers from the incumbents. However, the CRTC has decided that once they feel that adequate competition is present in the Canadian market, and that start-ups, such as our company, have achieved a significant market presence, they will lift the regulation, allowing the incumbent Telecommunications companies to similarly lower their prices. This will slow the growth of the acquisition of customers, reducing profitability and adversely affecting the value of our common shares.. We plan to mitigate this risk by continuously offering further innovation and value-added services to our customers, however, the risk is that we do not develop and test these within the time allotted and our growth rates decrease. As a result, our shareholders could lose their entire investment.
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  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).
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  Management's experience in the telecommunications industry has permitted the registrant to identify that while barriers to entry to the marketplace exist including the requirement of further investment to build a successful company around the technology, the data from VoIP Action suggests that competition is increasing significantly. This increase can result in price erosion pricing, which could contribute to the reduction of profitability and growth of the company. While numerous providers have entered the market, we have not yet seen as yet pricing erosion in our market segments, however, this will be a factor over the next 3-4 years. This prediction is based on the registrants experience in the industry.
 
 C.6. We Do Not Currently Hold a Professional or Product Liability Insurance Policy Required to Sufficiently Protect Us and We Remain Exposed To Potential Liability Claims.
 
 We do not currently hold a professional or product liability insurance policy. We intend to purchase a professional and product liability insurance policy from the proceeds of this offering. Professional and product liability insurance coverage is specifically tailored to the delivery of our phone services to the end user. For example, a customer whose phone service is not functional due to a service outage may sue us for damages related to the customer's inability to make or receive a phone call (such as inability to call 9-1-1). Professional liability insurance exists to cover the Company for any costs associated with the legal defense, or any penalties awarded to the plaintiff in such cases where judgment could be rendered against us in case of loss in court.. Such penalties could be large monetary funds that a judge could force us to pay in the event where damages have been awarded to the plaintiff.
 
 Our business exposes us to potential professional liability which is prevalent in the telecommunications industry. While we have adequate service level agreements which indicate that we cannot guarantee 100% up time, these service level agreements cannot guarantee that we will not be sued for damages. The company currently has no specific professional or product liability insurance. The company's current insurance policies cover theft and liability in our offices only. The company intends to purchase professional and product liability insurance which will help to defray costs to the company for defense against damage claims. The Company does not foresee any difficulties in obtaining such a policy, as the company has already been approved and a quotation submitted for such coverage by a Canadian Insurance Company. In this proposal, the Insurance Company is aware of the geographical locations of our client base, which is predominantly in Canada however includes a small amount in the US and International. There can be no assurance that the coverage the commercial general liability insurance policy provides will be adequate to satisfy all claims that may arise. Regardless of merit or eventual outcome, such claims may result in decreased demand for a product, injury to our reputation and loss of revenues. Thus, a product liability claim may result in losses that could be material, affecting the value of the common shares of the company, and our shareholders could even lose their entire investment.
 
 D. Risks Related To Our Common Stock
 
 D.1. Future Sales of Common Stock Could Depress the Price of our Common Stock
 
 Future sales of substantial amounts of common stock pursuant to Rule 144 under the Securities Act of 1933 or otherwise by certain shareholders could have a material adverse impact on the market price for the common stock at the time.  In general, under Rule 144, a person (or persons whose shares are aggregated) who has satisfied a one-year holding period may, under certain circumstances, sell within any three-month period a number of restricted securities which does not exceed the greater of one (1%) percent of the shares outstanding, or the average weekly trading volume during the four calendar weeks preceding the notice of sale required by rule 144. In addition, rule 144 permits, under certain circumstances, the sale of restricted securities without any quantity limitations by a person who is not an affiliate of ours and has satisfied a two-year holding period. Any sales of shares by shareholders pursuant to rule 144 may have a depressive effect on the price of our common stock.
 
 D.2. To date, we have not paid any cash dividends and no cash dividends will be paid in the foreseeable future.
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 We do not anticipate paying cash dividends on our common stock in the foreseeable future, and we cannot assure an investor that funds will be legally available to pay dividends or that even if the funds are available, that the dividends will be paid.
 
 D.3. Volatility in our common share price may subject us to securities litigation, thereby diverting our resources that may have a material effect on our profitability and results of operations.
 
 As discussed in the preceding risk factor, the market for our common shares is characterized by significant price volatility when compared to seasoned issuers, and we expect that our share price will continue to be more volatile than a seasoned issuer for the indefinite future. In the past, plaintiffs have often initiated securities class action litigation against a company following periods of volatility in the market price of its securities.. We may in the future be the target of similar litigation. Securities litigation could result in substantial costs and liabilities and could divert management's attention and resources.
 
 D.4   Possibility of Contingent Liability and SEC Violation
 
 The board of directors of United American Corporation (“UAC”) determined to spin off its stock holdings in us. To accomplish the spin off, UAC declared a stock dividend effective in at the end of business on October 30, 2006 for its equity interests in our company, consisting of 1,699,323 shares of our common stock, to UAC’s stockholders on a pro rata basis (with an additional 171 fractional shares distributed in December). We filed a registration statement on Form SB-2 with the intent of complying with safe harbor provisions of Staff Legal Bulletin No. 4. Although we intended to follow steps necessary for reliance on the safe harbor, we failed to follow the appropriate steps. This activity represented a violation of federal securities laws. There is a possibility that the recipients could attempt to rescind their receipt of securities and the Securities and Exchange Commission could find that UAC made a distribution of securities in violation of Section 5. While the rescission of the receipt of securities would not be likely to have an impact on our financial condition as the shares would be returned to UAC, the action could have an adverse impact on the liquidity and prospective market for our shares of common stock.
 
 Where you can get additional information
 
 We will be subject to and will comply with the periodic reporting Requirements of Section 12(g) of the Securities Exchange Act of 1934. We will furnish to our shareholders an Annual Report on Form 10-K containing financial information examined and reported upon by independent accountants, and it may also provide unaudited quarterly or other interim reports such as Forms 10-Q or Form 8-K as it deems appropriate. Our periodic reports may be inspected at the public reference facilities of the U.S. securities and Exchange Commission, Judiciary Plaza, 100 F Street, N.E., Room 1580, Washington, D.C. 20549, or from the Commission's internet website, www.sec.gov and searching the EDGAR database for Teliphone Corp. Copies of such materials can be obtained from the Commission's Washington, D.C. office at prescribed rates. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
 
 ITEM 1B.
UNRESOLVED STAFF COMMENTS
 
 None.
  21
 
 ITEM 2.
PROPERTIES
 The Company's executive offices are currently located 194 St-Paul Street West, suite 303 and 301, Montreal, Quebec, Canada, H2Y 1Z8. We also have a sales and client services office located at 6299 Airport Road, suite 307, Mississauga, Ontario, Canada L4V 1N3.  The approximately 4300 square feet of office space is rented at a base rent of approximately $4,000 per month.
 ITEM 3.
LEGAL PROCEEDINGS
 
 During the past five years, none of the following occurred with respect to a present or former director or executive officer of the Company: (1) any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; (2) any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); (3) being subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of any competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; and (4) being found by a court of competent jurisdiction (in a civil action), the SEC or the commodities futures trading commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated. We are not a party to any pending material legal proceedings other than that listed below and are not aware of any threatened or contemplated proceeding by any governmental authority against the Company or its subsidiaries. Notwithstanding, from time to time, the Company is subject to legal proceedings and claims in the ordinary course of business, including employment-related and trade related claims.
 
 The Company’s subsidiary Teliphone Inc. had entered into a distribution agreement with one of its distributors in March 2006 for a period of five-years. The distribution agreement stipulated that the Company must pay up to 25% commissions on all new business generated by the distributor. This distributor controlled the areas of Quebec and Ontario in Canada. The agreement was terminated due to a default by the distributor on its terms and conditions.
  The default is now in dispute, as the Company received notice on February 11, 2009 from 9164-4898 Quebec Inc (known as BR Communications Inc.”). The notice claims that the Company owes BR Communications Inc. unpaid commissions totaling CDN$ 158,275.25 ($129,944 US$) based on the Company’s increase in sales due to its Dialek acquisition.
  The Company evaluated this dispute and filed counterclaims against BR Communications Inc. for lost sales due to BR’s default of their distribution agreement with the Company. BR Communications, Inc. filed a lawsuit against the Company in December of 2009, claiming damages of Cdn$410,255.
  ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
 None.
 22
  PART II
 
 ITEM 5.
MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
 
 Our common stock trades on the Over-The-Counter Bulletin Board Market under the symbol "TLPH". The following table sets forth, for the periods indicated, the high and low sale prices per share of common stock, as reported by the Over-The-Counter Bulletin Board Market.
 
 Fiscal Year Ended September 30, 2009

High


LowFirst Quarter

$
0.070


$
0.020Second Quarter

$
0.050


$
0.010Third Quarter

$
0.050


$
0.020Fourth Quarter

$
0.060


$
0.020
  Fiscal Year Ended September 30, 2008

High


LowFirst Quarter

Not TradingSecond Quarter

Not TradingThird Quarter

Not TradingFourth Quarter

$
0.150


$
0.020
 
 As of December 23, 2009 there were 37,376,657shares of our common stock outstanding and 317 holders of record of our common stock.
 
 Recent Sales of Unregistered Securities
 
 On December 31, 2008, the company issued the following restricted shares:
 
 1,973,747 shares of the common stock of the Company to 9191-4200 Quebec Inc. related to conversion of debt.
 
 1,780,324 shares of the common stock of the Company to United American Corporation related to conversion of debt.
 
 58,562 shares of the common stock of the Company to Lawry Trevor-Deutsch related to the payment of accrued interest on its long-term debt with the Company.
 
 10,000 shares of the common stock of the Company to Irving Schwartz related to the payment of a consulting mandate regarding revenue potential for the Company in the region of Eastern Canada.
 
 Dividend Policy
 
 We have never declared or paid cash dividends on our capital stock and do not plan to pay any cash dividends in the foreseeable future. Our current policy is to retain all of our earnings to finance future growth.
 
 Repurchases by the Company
 
 During the last Fiscal Year we did not repurchase any shares of our common stock on our own behalf or for any affiliated purchaser.
 
 Equity Compensation Plan Information
 
 None.
 
 ITEM 6.
SELECTED FINANCIAL DATA
 
 Not required.
  ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
 The following discussion and analysis should be read in conjunction with the consolidated financial statements included elsewhere in this report and the information described under the caption "Risk Factors" found in Part 1. Readers should also be cautioned that results of any reported period are often not indicative of results for any future period.
  23
 
 We were incorporated in Nevada under the name "OSK CAPITAL II CORP" in 1999. In April of 2005, we effectuated a merger and re-organization with Teliphone Inc., a Canadian Internet Telecommunications (VoIP or "Voice-Over-Internet-Protocol") Company. Teliphone Inc. is now a majority-owned subsidiary of our company and as such, our revenues are derived primarily from the sale of telecommunications services to retail clients.
 
 Trends in Our Industry and Business
 
 A number of trends in our industry and business have a significant effect on our results of operations and are important to an understanding of our financial statements. These trends include:
 
 Broadband adoption. The number of households with broadband Internet access in our core markets of Canada and India has grown significantly. We expect this trend to continue. We benefit from this trend because our service requires a broadband Internet connection and our potential addressable market increases as broadband adoption increases.
 
 Changing competitive landscape. We are facing increasing competition from other companies that offer multiple services such as cable television, voice and broadband Internet service. Several of these competitors are offering VoIP or other voice services as part of a bundle, in which they offer voice services at a lower price than we do to new subscribers. In addition, several of these competitors are working to develop new integrated offerings that we cannot provide and that could make their services more attractive to customers. We also compete against established alternative voice communication providers and independent VoIP service providers. Some of these service providers may choose to sacrifice revenue in order to gain market share and have offered their services at lower prices or for free. These offerings could negatively affect our ability to acquire new customers or retain our existing customers.
 
 Consumer adoption of new VoIP technology.  The development of our Teliphone VoIP service permits us to sell telecommunications services to consumers who have a broadband internet connection. Our technology permits customers to continue to use their traditional phone devices to make and receive calls at a lower cost than traditional phone services. One of the key challenges in the adoption of this new technology is the customer’s acceptance of potential loss of service when their internet connection goes down or they lose electrical power in their home or office. The Company has mitigated this risk for their customers by providing telephone call fail-over methods in case of loss of service. Management believes that even though this adoption risk exists, the reduction of cost for the services will negate the impact of occasional service loss much like how consumers accepted at times lower call quality in their worldwide adoption of mobile phones due to increased convenience.
 
 The development of our callona.com website seeks to attract consumers on the internet who will look to utilize our web-based communications services, which will permit us to generate advertising and promotional revenues from other companies looking to advertise and promote their products to our callona.com users. We have not as yet realized any revenue from our callona.com prototype.
 
 We generate revenues from the sale of VoIP services to our customers, along with the hardware required for our customers to utilize these services. Our cost of sales includes all of the necessary purchases required for us to deliver these services. This includes the use of broadband internet access required for our servers to be in communication with our customers’ VoIP devices at the customer’s location, our rental of voice channels connected to the Public-Switched-Telephone-Network, that is the traditional phone network which currently links all phone numbers worldwide. Our cost of sales also includes our commissions paid to our re-sellers as we are distributing a portion of recurring revenues to the re-seller after the sale has been consummated. Our cost of sales also includes any variable costs of service delivery that we may have, including our per-minute costs for terminating our customers’ calls on another carrier’s network.
 24
  We have incurred gross losses during our first three years of operation because the minimum purchases necessary in order to sustain our operations are enough to deliver services to more customers than we currently have. As a result, we estimate that we will continue to increase our gross profit over time. An indication of this is our positive gross profit from the interim period ending December 31, 2006.
 
 We will continue to cover our cash shortfalls through debt financing with affiliated parties. In the event that we do not have a significant increase in revenues and we do not raise sufficient capital in the offering herein, management estimates we can only sustain our cash requirements for three months.  After three months, management will need to consider alternate sources of financing, including but not limited to additional debt financing, in order to sustain operations for the next twelve months.  No agreements or arrangements have been made as of this date for such financing.
 
 Results of Operations
  Fiscal Year End September 30, 2009
  The Company recorded sales of $2,710,680 of which $28,853 was hardware and $2,681,827 was services, for the year ended September 30, 2009 as compared to $1,215,570 of which $56,684 was hardware and $1,158,886 was services, for the year ended September 30, 2008.  This revenue was derived from the sale of $2,428,482 of VoIP hardware and services to Residential and Business Retail clients and $124,443 VoIP hardware and services to Wholesale customers and $157,755 of consulting services. For the year ended September 30, 2008, revenue was derived from the sale of $1,055,133 of VoIP hardware and services to Residential and Business Retail clients and $160,437 VoIP hardware and services to Wholesale customers.
  The Company's cost of sales were $1,563,671 for the year ended September 30, 2009 compared to $820,884 for the year ended September 30, 2008, primarily as a consequence of an increase in sales and related costs, specifically the cost of managing higher levels of traffic over our telecommunications network and the increase of resale purchases from other Tier 1 telecommunications providers as part of our newly expanded business since the acquisition of the customers of Orion Communications. The net result was a gross margin for the year ended September 30, 2009 of $1,147,009 compared to $394,686 for the prior period. This increase in gross margin is primarily due to the decrease in the Company’s cost of operating its VoIP network in Canada as well as being derived from the gross profit attained through the resale of certain telecommunications services due to the acquisition of the customer base of Dialek Telecom and Orion Communications.
  The Company's aggregate operating expenses were $975,330 for the year ended September 30, 2009 compared to $511,718 for the year ended September 30, 2008. In particular, there was an increase in Selling and Promotion expenses from $21,757 to $34,489 as the company increase its sales travel as it opened an office in the city of Toronto, Ontario as part of its acquisition of the customers Orion Communications, as well as the introduction of its own direct sales force operating from that new office. There was an increase in Administrative wages from $85,222 to $398,393 as the Company hired its own staff to continue product development functions within the company (as opposed to doing so with consultants in the prior year) as well as increase its staffing levels due to the opening of the Company’s new Toronto office. There was an increase in Professional and Consulting Fees from $238,617 to $268,883 as the company increased its legal and accounting services as part of its increase in business since its acquisition of the customers of Orion Communications in May of 2009. There was an increase in General and Administrative Expenses from $117,941 to $265,051 due to an increase in expenditures associated with the establishment of a second office in Toronto.  There was a decrease in Depreciation Expenses from $47,881 to $8,514 since the company’s acquisitions of new computer equipment to upgrade its services were done through operating leases and hence did not acquire a significant amount of new computer equipment during the period.  Likewise, the original equipment received in 2004 during the formation of the Company’s subsidiary Teliphone Inc. from its former parent company United American Corporation had completely depreciated.
  25
  As a result, the Company had a net income of $102,351 for the year ended September 30, 2009 (when considering a minority interest of ($16,553)) compared to a net loss of ($187,656) for the year ended September 30, 2008 (when considering a minority interest of $43,381). The principal reasons for company’s net income for the year ended September 30, 2009 is due to its continued decreasing costs of operating its VoIP network in Canada and the increase in gross margin acquired through the acquisition of customers of Orion Communications.
  Plan of Operations and Need for Additional Financing
  The Company's plan of operations for most of 2010 and 2011 is to build a subscriber base of retail customers who purchase telecommunications services on a monthly basis, as well as wholesale technology and telecommunications solutions to Tier 1 & Tier 2 telecommunications companies.
  Liquidity and Capital Resources
  For the year ended September 30, 2009:
  On The Company's balance sheet as of September 30, 2009, the Company had assets consisting of accounts receivable in the amount of $514,988, inventory of $11,819, prepaid expenses of $88,240 and no cash. The Company has expended its cash in furtherance of its business plan.  Consequently, the Company's balance sheet as of September 30, 2009 reflects a deficit accumulated of ($1,650,709) and total stockholder’s equity of $191,370.
  The Company was provided $91,079 of cash from operating activities in 2009 compared to a use of $30,307 in 2008. This change was attributable in large part to the decreased expenditures to maintain our telecommunications network and related maintenance of its operation along with the increase in the company’s ability to collect its receivables from clients with pas due amounts relative to the increase in accounts payable to service them.
  The Company used cash in investing activities of $55,685 compared to receiving $9,807 in 2008. This change was attributable to the Company's acquisition of the customers of Orion Communications. The Company did not require any acquisitions of telecommunications equipment in order to serve its customers during 2008, and had received $9,807 in cash from its acquisition of the net assets of Dialek Telecom at the time.
  The Company had net cash used financing activities of $52,195 in 2009 compared to $18,299 in 2008.  The majority of this use comes from the company’s repayment of the proceeds it received from related parties through the issuance of debentures and the increase in its bank overdraft.  It must be noted that the Company was provided $18,299 of cash from financing activities in 2008, $125,153 in 2007, $408,747  in 2006 and $697,917 in 2005.  The Company continues to become less reliant on its raising funds (mostly in the form of related party debt) as its cash flow from operations improves.
  In pursuing its business strategy, the Company will require additional cash for growing its operating and investing activities, since the Company’s current level of gross margin is capable of covering its operating expenses. Company will continue to borrow money through its operating line of credit at its subsidiary’s bank when such cash for growth purposes is required.  In order to increase this operating line, the Company relies on collateral guarantees from shareholders and related parties.  The Company continues to search for ways to reduce costs and increase revenues of its VoIP and telecommunications resell services.
 
 26
  On November 2nd, 2007, the Company cleared a registration of shares on form SB-2 for the sale of up to 20,000,000 of its shares of common stock at $0.25 per share. The Company anticipated proceeds of this offering to be approximately $450,568 should the minimum be raised to as high as $4,950,568 should the maximum be raised, after the payment of closing costs of approximately $49,432.  However, the company withdrew its offering on May 1, 2008 due to its inability to receive approval from the Over-The-Counter Bulletin Board exchange regulator (FINRA, the Financial Industry Regulatory Authority) for trading of its common stock over the counter with an open, pending offer to sell registered securities.  The Company intends to re-submit its preliminary prospectus for approval on form S-1 in the future should its capital raising strategies require it.
  The Company anticipates raising funds in order to increase its base of retail customers through the acquisition of telecommunications resellers.  Likewise, the Company continues to pursue and carry out its business plan, which includes marketing programs aimed at the promotion of the Company's services, hiring additional staff to distribute and find additional distribution channels, enhance the current services the Company is providing and maintain its compliance with Sarbanes - Oxley Section 404."
  Other than current requirements from our suppliers, and the maintenance of our current level of operating expenses, the company does not have any commitments for capital expenditures or other known or reasonably likely cash requirements.
  The company has classified its related party loans on its Balance sheet as of September 30, 2009 of $42,500 as a current liability. These loans were issued as advances to the company to be repaid when the company can raise adequate funds through the sale of equity.  The Company has classified an additional $70,828 of related party loans as a long term liability due to the requirement of repayment of interest only over the next 5 years.
  The accompanying financial statements have been prepared assuming the Company will continue as a going concern. The Company has suffered recurring losses from operations from its inception in 2004 to its fiscal year ending September 30, 2008.  However, the Company has emerged from the recurring losses and has posted a net income for the year ended September 30, 2009.  The Company continues to have a working capital deficit of $604,541. The financial statements do not include any adjustments that might result from the outcome of any uncertainty that may arise due to this working capital deficit. The Company has been searching for new distribution channels to wholesale their services to provide additional revenues to support their operations.  There is no guarantee that the Company will be able to raise additional capital or generate the increase in revenues to sustain its operations, however, the company has an effective registration statement to raise additional capital. These conditions raise substantial doubt about the Company's ability to continue as a going concern for a reasonable period.
  In addition, the Company acquired certain assets and liabilities of Dialek Telecom on February 15, 2008 for a total price of CDN$383,464.  After 10 months of operations, the Company has evaluated, taking into account the interest payments required to finance the acquisition, the gross margin received and increase in operating expenses required to support the new customer base, that the assets and liabilities acquired were re-evaluated at CDN$401,812.  The positive gross margin from its operations related to the acquisition of certain assets and liabilities of Dialek have therefore contributed to the Company’s increase in cash flow contributed from operations.  On December 31, 2008, the Company converted the entire amount due on the purchase price through the issuance of capital stock at $0.25 per share.
  On August 1, 2006, the Company converted $421,080 of the $721,080 of its loans with United American Corporation, a related party through common ownership, and majority shareholder of the Company prior to United American Corporation's stock dividend that took place effective October 30, 2006 into 1,699,323 shares of the Company's common stock. In December 2006, the Company issued a resolution to issue the remaining 171 fractional shares related to United American Corporation's spin-off of the corporation and pro-rata distribution of United American Corporation's holding of the Company's common stock to its shareholders. Those shares were issued prior to December 31, 2006 and distributed to shareholders. The $300,000 remaining on the loan has become interest bearing at 12% per annum on August 1, 2006, payable monthly with a maturity date of August 1, 2009.  However on December 31, 2009, the Company converted the entire debt through the issuance of capital stock at $0.25 per share.
  27
  The Company also holds the possibility of a contingent liability and SEC violation surrounding the distribution of a portion of its shares performed by its former parent company United American Corporation (“UAC”) to its shareholders.  The board of directors of UAC determined to spin off its stock holdings in us. To accomplish the spin off, UAC declared a stock dividend effective in at the end of business on October 30, 2006 for its equity interests in our company, consisting of 1,699,323 shares of our common stock, to UAC’s stockholders on a pro rata basis (with an additional 171 fractional shares distributed in December). The Company has filed a registration statement on Form SB-2 with the intent of complying with safe harbor provisions of Staff Legal Bulletin No. 4. Although the Company and UAC intended to follow steps necessary for reliance on the safe harbor, we failed to follow the appropriate steps. This activity represented a violation of federal securities laws. There is a possibility that the recipients could attempt to rescind their receipt of securities and the Securities and Exchange Commission could find that UAC made a distribution of securities in violation of Section 5. While the rescission of the receipt of securities would not be likely to have an impact on our financial condition as the shares would be returned to UAC, the action could have an adverse impact on the liquidity and prospective market for our shares of common stock.
  In addition, the Company acquired certain assets and liabilities of Orion Communications Inc. on May 7, 2009, and assumed a total of $418,762 of liabilities and $376,7891 of assets. The Company has evaluated the net income acquired due to the deal as approximately an additional approximately $35,000 per month, and hence the positive income generated has contributed to an increase in cash flow from operations.
 28
  CRITICAL ACCOUNTING POLICIES AND ESTIMATES
 
 Principles of Consolidation
 
 The consolidated financial statements include the accounts of the Company and its majority owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. All minority interests have been reflected herein.
 
 Use of Estimates
 
 The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  On an on-going basis, the Company evaluates its estimates, including, but not limited to, those related to investment tax credits, bad debts, income taxes and contingencies. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.
 
 Cash and Cash Equivalents
 
 The Company considers all highly liquid debt instruments and other short-term investments with an initial maturity of three months or less to be cash equivalents.
 
 Comprehensive Income
 
 The Company adopted ASC 220-10, “Reporting Comprehensive Income,” (formerly SFAS No. 130). ASC 220-10 requires the reporting of comprehensive income in addition to net income from operations.
 
 Comprehensive income is a more inclusive financial reporting methodology that includes disclosure of information that historically has not been recognized in the calculation of net income.
 
 Inventory
 
 Inventory is valued at the lower of cost or market determined on a first-in-first-out basis.  Inventory consisted only of finished goods.
 
 Fair Value of Financial Instruments
 
 The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, accounts receivable and accounts payable approximate fair value because of the immediate or short-term maturity of these financial instruments.  For the notes payable, the carrying amount reported is based upon the incremental borrowing rates otherwise available to the Company for similar borrowings.
 
 Currency Translation
  For subsidiaries outside the United States that prepare financial statements in currencies other than the U.S. dollar, the Company translates income and expense amounts at average exchange rates for the year, translates assets and liabilities at year-end exchange rates and equity at historical rates. The Company’s functional currency is the Canadian dollar, while the Company reports its currency in the US dollar. The Company records these translation adjustments as accumulated other comprehensive income (loss). Gains and losses from foreign currency transactions are included in other income (expense) in the results of operations.
 29
 
 Research and Development
 
 The Company occasionally incurs costs on activities that relate to research and development of new products. Research and development costs are expensed as incurred. Certain of these costs are reduced by government grants and investment tax credits where applicable.
  Revenue Recognition
 
 Operating revenues consists of telephony services revenue and customer equipment (which enables the Company's telephony services) and shipping revenue. The point in time at which revenue is recognized is determined in accordance with Revenue Recognition under ASC 605-50, Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor's Products) ("ASC 605-50"), and ASC 605-25, "Revenue Arrangements with Multiple Deliverables" (“ASC 605-25”). When the Company emerged from the development stage with the acquisition of Teliphone Inc. they began to recognize revenue from their VoIP Telephony services when the services were rendered and customer equipment purchased as follows:
 
 VoIP Telephony Services Revenue
 
 The Company realizes VoIP telephony services revenue through sales by two distinct channels; the Retail Channel (Customer purchases their hardware from a Retail Distributor and the Company invoices the customer direct) and the Wholesale Channel (Customer purchases their hardware from the Wholesaler and the Company invoices the Wholesaler for usage by the Wholesaler’s customers collectively).
 
 Substantially all of the Company's operating revenues are telephony services revenue, which is derived primarily from monthly subscription fees that customers are charged under the Company's service plans. The Company also derives telephony services revenue from per minute fees for international calls and for any calling minutes in excess of a customer's monthly plan limits.
 
 Retail Channel
 
 Monthly subscription fees are automatically charged to customers' credit cards in advance and are recognized over the following month when services are provided.
 
 Revenue generated from international calls and from customers exceeding allocated call minutes under limited minute plans is charged to the customer’s credit cards in advanced in small increments and are recognized over the following month when the services are provided.
 
 The Company generates revenues from shipping equipment direct to customers and our re-seller partners.  This revenue is considered part of the VoIP service revenues.
 
 The Company does not charge initial activation fees associated with the service contracts in the Retail Channel.  The Company generates revenues from disconnect fees associated with early termination of service contracts with Retail Customers. These fees are included in service revenue as they are considered part of the service component when the service is delivered or performed.
 
 Prior to March 31, 2007 the Company generally charged a disconnect fee to Retail customers who did not return their customer equipment to the Company upon disconnection of service if the disconnection occurred within the term of the service contract. On April 1, 2007, the Company changed its disconnect policy. Upon cancellation of the service, no disconnection fee is charged and there is no refund issued to the customer for any portion of the unused services as before.  The customer’s service termination date becomes the next anniversary date of its billing cycle.
  30
  This accounting is consistent with the rules set forth in the revenue recognition guidelines in ASC Topic 605 since there are no rights of returns or refunds that exist for the customer other than a standard 30-day money-back guarantee.  In the event of a return within the 30 day guarantee period, the hardware is refunded in its entirety.  This accounting is also consistent with ASC 605-15 on “Revenue Recognition When Right of Return Exists” which allows for equipment revenue to be recognized at the time of sale since there no longer exists a right of return after the 30 day period.
 
 Wholesale Channel
 
 Monthly subscription fees are invoiced to Wholesale customers at the end of the month for the entirety of the services delivered during the month.  Revenue for this period is therefore recognized at the time the Wholesaler is billed.
  The Company recognizes this revenue utilizing the guidance set forth in ASC 605-25, "Revenue Arrangements with Multiple Deliverables".  For the Wholesale channel, the activation fee is recognized as deferred revenue, and amortized over the length of the service agreement. If the service is terminated within the term of the service agreement, the deferred revenue is fully amortized.  This accounting is consistent because the up-front fee is not in exchange for products delivered or services performed that represent the culmination of a separate earnings process, and hence the deferral of revenue is appropriate.
  There is no disconnection fee associated with a wholesale customer.
  The Company generates revenues from shipping equipment direct to wholesale customers.  This revenue is considered part of the VoIP service revenues.
 
 Customer Equipment
 
 Retail Channel
 
 For retail sales, the equipment is sold to re-sellers at a subsidized price below that of cost and below that of the retail sales price. The customer purchases the equipment at the retail price from the retailer.  The Company recognizes this revenue utilizing the guidance set forth in ASC 605-25, “Revenue Arrangements with Multiple Deliverables” and ASC 605-50, “Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor’s Products)”.
 
 Under a retail agreement, the cost of the equipment is recognized as deferred revenue, and amortized over the length of the service agreement. Upon refund, the deferred revenue is fully amortized.
 
 Customer equipment expense is recorded to direct cost of goods sold when the hardware is initially purchased from our suppliers.
 
 The Company also provides rebates to retail customers who purchase their customer equipment from retailers and satisfy minimum service period requirements.   This minimum service period (e.g. three months) differs from the length of the service agreement (e.g. twelve months).  These rebates are recorded as a reduction of service revenue over the minimum service period based upon the actual rebate coupons received from customers and whose accounts are in good standing.  The Company records a contingent liability to represent the amount of the refund obligation through earnings on a systematic basis.
  31
 
 Wholesale Channel
 
 For wholesale customers, the equipment is sold to wholesalers at the Company’s cost price plus mark-up.  There are no rebates for equipment sold to wholesale customers and the Company does not subsidize their equipment sales.  The Company recognizes revenue from sales of equipment to wholesale customers as billed.
  Commissions Paid to Retail Distributors
  Commissions paid to Retail Distributors are based on the recurring revenues recorded by the company and incurred in the period where the revenue is recognized and paid by the company to the retail Distributor in the following month.  These commissions are recorded as cost of sales as they are directly related to the revenue acquired and are not considered a sales and marketing expense.  These commissions are payable based on the Distributor’s servicing of the customer on an on-going basis.
 
 Commissions Paid to Wholesalers
 
 The Company recognizes this revenue utilizing the guidance set forth in ASC 605-50 “Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor’s Products)”.  The Company is receiving identifiable benefits from the Wholesaler (billing and customer support) in return for the allowance.  These benefits are sufficiently separable from the Wholesaler’s purchase of the Company’s hardware and services.  The fair value of those benefits can be reasonably estimated and therefore the excess consideration is characterized as a reduction of revenue on the Company’s Statement of Operations.
 
 Resale of Traditional Telecommunications Services (due to Acquisition of customer base of Dialek Telecom and Orion Communications Inc. - represents a majority of the Company’s revenue
 
 The Company earns revenue by reselling telecommunications services purchased from wholesale providers such as Rogers Communications and Videotron Telecom.  These revenues include monthly network access fees for local calling and internet access services billed one month in advance and recognized when earned.  Long Distance and Toll free calling service revenues are recognized when the service is rendered and included and billed the following month.
 
 Accounts Receivable
 
 The Company conducts business and extends credit based on an evaluation of the customers’ financial condition, generally without requiring collateral.
 
 Exposure to losses on receivables is expected to vary by customer due to the financial condition of each customer. The Company monitors exposure to credit losses and maintains allowances for anticipated losses considered necessary under the circumstances. The Company has an allowance for doubtful accounts of $76,701 at September 30, 2009.
 
 Accounts receivable are generally due within 30 days and collateral is not required. Unbilled accounts receivable represents amounts due from customers for which billing statements have not been generated and sent to the customers.
 
 Income Taxes
 
 The Company accounts for income taxes utilizing the liability method of accounting.  Under the liability method, deferred taxes are determined based on differences between financial statement and tax bases of assets and liabilities at enacted tax rates in effect in years in which differences are expected to reverse.  Valuation allowances are established, when necessary, to reduce deferred tax assets to amounts that are expected to be realized.
  32
 
 Investment Tax Credits
 
 The Company claims investment tax credits as a result of incurring scientific research and experimental development expenditures. Investment tax credits are recognized when the related expenditures are incurred, and there is reasonable assurance of their realization. Management has made a number of estimates and assumptions in determining their expenditures eligible for the investment tax credit claim. It is possible that the allowed amount of the investment tax credit claim could be materially different from the recorded amount upon assessment by Revenue Canada and Revenue Quebec. The Company has not estimated any amounts for incoming tax credits for September 30, 2009.
 
 Convertible Instruments
 
 The Company reviews the terms of convertible debt and equity securities for indications requiring bifurcation, and separate accounting, for the embedded conversion feature. Generally, embedded conversion features where the ability to physical or net-share settle the conversion option is not within the control of the Company are bifurcated and accounted for as a derivative financial instrument. (See Derivative Financial Instruments below). Bifurcation of the embedded derivative instrument requires allocation of the proceeds first to the fair value of the embedded derivative instrument with the residual allocated to the debt instrument. The resulting discount to the face value of the debt instrument is amortized through periodic charges to interest expense using the Effective Interest Method.
 
 Derivative Financial Instruments
 
 The Company generally does not use derivative financial instruments to hedge exposures to cash-flow or market risks. However, certain other financial instruments, such as warrants or options to acquire common stock and the embedded conversion features of debt and preferred instruments that are indexed to the Company’s common stock, are classified as liabilities when either (a) the holder possesses rights to net-cash settlement or (b) physical or net share settlement is not within the control of the Company. In such instances, net-cash settlement is assumed for financial accounting and reporting, even when the terms of the underlying contracts do not provide for net-cash settlement. Such financial instruments are initially recorded at fair value and subsequently adjusted to fair value at the close of each reporting period.
 
 Advertising Costs
 
 The Company expenses the costs associated with advertising as incurred.  Advertising expenses for the years ended September 30, 2009 and 2008 are included in selling and promotion expenses in the consolidated statements of operations.
 
 Fixed Assets
 
 Fixed assets are stated at cost.  Depreciation is computed using the straight-line method over the estimated useful lives of the assets; automobiles – 3 years, computer equipment – 3 years, and furniture and fixtures – 5 years.
 
 When assets are retired or otherwise disposed of, the costs and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is recognized in income for the period.  The cost of maintenance and repairs is charged to income as incurred; significant renewals and betterments are capitalized.  Deduction is made for retirements resulting from renewals or betterments.
  33
 
 Impairment of Long-Lived Assets
 
 Long-lived assets, primarily fixed assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable. The Company does perform a periodic assessment of assets for impairment in the absence of such information or indicators. Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which an asset is used, or a significant adverse change that would indicate that the carrying amount of an asset or group of assets is not recoverable. For long-lived assets to be held and used, the Company recognizes an impairment loss only if its carrying amount is not recoverable through its undiscounted cash flows and measures the impairment loss based on the difference between the carrying amount and estimated fair value.
  Earnings (Loss) Per Share of Common Stock
  Basic net income (loss) per common share is computed using the weighted average number of common shares outstanding.  Diluted earnings per share (EPS) includes additional dilution from common stock equivalents, such as stock issuable pursuant to the exercise of stock options and warrants.  Common stock equivalents were not included in the computation of diluted earnings per share when the Company reported a loss because to do so would be antidilutive for periods presented.
 
 The Company has not issued options or warrants to purchase stock in these periods. If there were options or warrants outstanding they would not be included in the computation of diluted EPS when the Company reported a loss because inclusion would have been antidilutive.
 
 Stock-Based Compensation
 
 In 2006, the Company adopted the provisions of ASC 718-10 “Share Based Payments” for its year ended December 31, 2008. The adoption of this principle had no effect on the Company’s operations.
 
 The Company has elected to use the modified–prospective approach method. Under that transition method, the calculated expense in 2006 is equivalent to compensation expense for all awards granted prior to, but not yet vested as of January 1, 2006, based on the grant-date fair values. Stock-based compensation expense for all awards granted after January 1, 2006 is based on the grant-date fair values. The Company recognizes these compensation costs, net of an estimated forfeiture rate, on a pro rata basis over the requisite service period of each vesting tranche of each award. The Company considers voluntary termination behavior as well as trends of actual option forfeitures when estimating the forfeiture rate.
 
 The Company measures compensation expense for its non-employee stock-based compensation under ASC 505-50, “Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services”.  The fair value of the option issued is used to measure the transaction, as this is more reliable than the fair value of the services received.  The fair value is measured at the value of the Company’s common stock on the date that the commitment for performance by the counterparty has been reached or the counterparty’s performance is complete. The fair value of the equity instrument is charged directly to compensation expense and additional paid-in capital.
 
 Segment Information
 
 The Company follows the provisions of ASC 280-10, “Disclosures about Segments of an Enterprise and Related Information”. This standard requires that companies disclose operating segments based on the manner in which management disaggregates the Company in making internal operating decisions. Despite the Company’s subsidiary, Teliphone, Inc. incurring sales of hardware components for the VoIP service as well as the service itself, the Company treats these items as one component, therefore has not segregated their business.
  34
 
 Reclassifications
 
 The Company has reclassified certain amounts in their consolidated statement of operations for the years ended September 30, 2008 to conform with the September 30, 2009 presentation. These reclassifications had no effect on the net loss for the year ended September 30, 2008.
 
 Uncertainty in Income Taxes
 
 The Company follows ASC 740-10, “Accounting for Uncertainty in Income Taxes” (“ASC 740-10”). This interpretation requires recognition and measurement of uncertain income tax positions using a “more-likely-than-not” approach. ASC 740-10 is effective for fiscal years beginning after December 15, 2006. Management has adopted ASC 740-10 for 2009, and they evaluate their tax positions on an annual basis, and has determined that as of September 30, 2009, no additional accrual for income taxes other than the federal and state provisions and related interest and estimated penalty accruals is not considered necessary.
 
 Noncontrolling Interests
 
 In accordance with ASC 810-10-45, Noncontrolling Interests in Consolidated Financial Statements,the Company classifies controlling interests as a component of equity within the consolidated balance sheets. The Company has retroactively applied the provisions in ASC 810-10-45 to the financial information for the years ended September 30, 2009 and 2008.
 
 Recent Accounting Pronouncements
 
 In September 2006, ASC issued 820, Fair Value Measurements. ASC 820 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosure about fair value measurements. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007. Early adoption is encouraged. The adoption of ASC 820 is not expected to have a material impact on the financial statements.
  In February 2007, ASC issued 825-10, The Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment of ASC 320-10, (“ASC 825-10”) which permits entities to choose to measure many financial instruments and certain other items at fair value at specified election dates. A business entity is required to report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. This statement is expected to expand the use of fair value measurement. ASC 825-10 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years.
  In December 2007, the Company adopted ASC 805,Business Combinations (“ASC 805”). ASC 805 retains the fundamental requirements that the acquisition method of accounting be used for all business combinations and for an acquirer to be identified for each business combination. ASC 805 defines the acquirer as the entity that obtains control of one or more businesses in the business combination and establishes the acquisition date as the date that the acquirer achieves control.  ASC 805 will require an entity to record separately from the business combination the direct costs, where previously these costs were included in the total allocated cost of the acquisition.  ASC 805 will require an entity to recognize the assets acquired, liabilities assumed, and any non-controlling interest in the acquired at the acquisition date, at their fair values as of that date.
  35
 
 ASC 805 will require an entity to recognize as an asset or liability at fair value for certain contingencies, either contractual or non-contractual, if certain criteria are met.  Finally, ASC 805 will require an entity to recognize contingent consideration at the date of acquisition, based on the fair value at that date.  This will be effective for business combinations completed on or after the first annual reporting period beginning on or after December 15, 2008.  Early adoption is not permitted and the ASC is to be applied prospectively only.  Upon adoption of this ASC, there would be no impact to the Company’s results of operations and financial condition for acquisitions previously completed.  The adoption of ASC 805 is not expected to have a material effect on the Company’s financial position, results of operations or cash flows.
 
 In March 2008, ASC issued ASC 815, Disclosures about Derivative Instruments and Hedging Activities”, (“ASC 815”). ASC 815 requires enhanced disclosures about an entity’s derivative and hedging activities. These enhanced disclosures will discuss: how and why an entity uses derivative instruments; how derivative instruments and related hedged items are accounted for and its related interpretations; and how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. ASC 815 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The Company does not believe that ASC 815 will have an impact on their results of operations or financial position.
 
 In April 2008, ASC 350-30 was issued, “Determination of the Useful Life of Intangible Assets”. The Company was required to adopt ASC 350-30 on October 1, 2008. The guidance in ASC 350-30 for determining the useful life of a recognized intangible asset shall be applied prospectively to intangible assets acquired after adoption, and the disclosure requirements shall be applied prospectively to all intangible assets recognized as of, and subsequent to, adoption. The Company does not believe ASC 350-30 will materially impact their financial position, results of operations or cash flows.
 
 In May 2008, ASC 470-20 was issued, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)” (“ASC 470-20”). ASC 470-20 requires the issuer of certain convertible debt instruments that may be settled in cash (or other assets) on conversion to separately account for the liability (debt) and equity (conversion option) components of the instrument in a manner that reflects the issuer’s non-convertible debt borrowing rate. ASC 470-20 is effective for fiscal years beginning after December 15, 2008 on a retroactive basis. The Company does not believe that the adoption of ASC 470-20 will have a material effect on its financial position, results of operations or cash flows.
 
 In June 2008, ASC 815-40 was issued, “Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock” (“ASC 815-40”), which supersedes the definition in ASC 605-50 for periods beginning after December 15, 2008. The objective of ASC 815-40 is to provide guidance for determining whether an equity-linked financial instrument (or embedded feature) is indexed to an entity’s own stock and it applies to any freestanding financial instrument or embedded feature that has all the characteristics of a derivative in accordance with ASC 815-20.
 
 ASC 815-40 also applies to any freestanding financial instrument that is potentially settled in an entity’s own stock. The Company believes that ASC 815-40, will not have a material impact on their financial position, results of operations and cash flows.
 
 In June 2008, ASC 470-20-65 was issued, Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios (“ASC 470-20-65”). ASC 470-20-65 is effective for years ending after December 15, 2008. The overall objective of ASC 470-20-65 is to provide for consistency in application of all the standards issued for convertible securities. The Company has computed and recorded a beneficial conversion feature in connection with certain of their prior financing arrangements and does not believe that ASC 470-20-65 will have a material effect on that accounting.
  36
 
 Effective April 1, 2009, the Company adopted ASC 855, Subsequent Events (“ASC 855”). ASC 855 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. It requires disclosure of the date through which an entity has evaluated subsequent events and the basis for that date – that is, whether that date represents the date the financial statements were issued or were available to be issued. This disclosure should alert all users of financial statements that an entity has not evaluated subsequent events after that date in the set of financial statements being presented. Adoption of ASC 855 did not have a material impact on the Company’s results of operations or financial condition. The Company has evaluated subsequent events through December 23, 2009, the date the financial statements were issued.
 
 Effective July 1, 2009, the Company adopted FASB ASU No. 2009-05, Fair Value Measurement and Disclosures (Topic 820) (“ASU 2009-05”). ASU 2009-05 provided amendments to ASC 820-10, Fair Value Measurements and Disclosures – Overall, for the fair value measurement of liabilities. ASU 2009-05 provides clarification that in circumstances in which a quoted market price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using certain techniques. ASU 2009-05 also clarifies that when estimating the fair value of a liability, a reporting entity is not required to include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the transfer of a liability. ASU 2009-05 also clarifies that both a quoted price in an active market for the identical liability at the measurement date and the quoted price for the identical liability when traded as an asset in an active market when no adjustments to the quoted price of the asset are required for Level 1 fair value measurements. Adoption of ASU 2009-05 did not have a material impact on the Company’s results of operations or financial condition.
 
 Other ASU’s that have been issued or proposed by the FASB ASC that do not require adoption until a future date and are not expected to have a material impact on the financial statements upon adoption.
  37
 ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
 Not required.
 
 ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  TELIPHONE CORP.
 CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
  PageReport of Independent Registered Public Accounting Firm
F-1Consolidated Balance Sheets as of September 30, 2009 and 2008
F-2Consolidated Statements of Operations and Comprehensive Income (Loss) for the Years Ended September 30, 2009 and 2008
F-3Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the Years Ended September 30, 2009 and 2008
F-4Consolidated Statements of Cash Flows for the Years Ended September 30, 2009 and 2008
F-5Notes to Consolidated Financial Statements
F-6
 38
  Report of Independent Registered Public Accounting Firm
 
 To the Directors of
 Teliphone Corp.
 
 We have audited the accompanying consolidated balance sheets of Teliphone Corp. (the "Company") as of September 30, 2009 and 2008, and the related consolidated statements of operations, changes in stockholders' equity (deficit) and cash flows for the years ended September 30, 2009 and 2008  Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
  We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.  We were not engaged to perform an audit of the Company’s internal control over financial reporting.  Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.
 
 In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Teliphone Corp. as of September 30, 2009 and 2008, and the results of its consolidated statements of operations, changes in stockholders’ equity (deficit), and cash flows for years ended September 30, 2009 and 2008 in conformity with U.S. generally accepted accounting principles.
 
 The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has sustained operating losses and significant working capital deficits in the past few years, and has commenced profitable operations during this past year. The lack of profitable operations in the past and the need to continue to raise funds raise significant doubt about the Company’s ability to continue as a going concern. Management’s plans in this regard are described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
 /s/KBL, LLP
 
 New York, NY
 December 23, 2009
  F-1
  TELIPHONE CORP.
 CONSOLIDATED BALANCE SHEETS
 AS AT SEPTEMBER 30, 2009 AND 2008
   ASSETSUS $SEPTEMBER 30,


SEPTEMBER 30,2009


2008Current Assets:Cash and cash equivalents

$
-


$
-Accounts receivable, net


514,988



152,836Inventory


11,819



8,964Prepaid expenses and other current assets


88,240



45,714Total Current Assets


615,047



207,514Fixed assets, net of depreciation


15,250



14,563Goodwill


851,489



526,783TOTAL ASSETS

$
1,481,786


$
748,860LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)LIABILITIESCurrent Liabilities:Bank overdraft

$
93,714


$
19,545Deferred revenue


2,690



4,428Promissory note payable


26,152



-Current portion of related party convertible debentures


56,038



-Current portion of related party loans


42,500



628,424Line of credit - Dialek


-



140,951Current portion of note payable, Dialek Telecom


-



69,390Accounts payable and accrued expenses


998,494



535,215Total Current Liabilities


1,219,588



1,397,953Long Term Liabilities:Related party convertible debentures, net of current portion


-



250,116Related party loans, net of current portion


70,828



-TOTAL LIABILITIES


1,290,416



1,648,069STOCKHOLDERS' EQUITY (DEFICIT)Common stock, $.001 Par Value; 125,000,000 shares authorizedand 37,376,657 and 33,554,024 shares issued and outstanding, respectively


37,377



33,554Additional paid-in capital


1,847,871



898,156Accumulated deficit


(1,650,709
)


(1,753,060
)Accumulated other comprehensive income (loss)


(119,562
)


(137,719
)Total Teliphone Corp. Stockholders' Equity (Deficit)


114,977



(959,069
)Noncontrolling interest


76,393



59,860Total Stockholders' Equity (Deficit)


191,370



(899,209
)TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

$
1,481,786


$
748,860
   The accompanying notes are an integral part of the condensed consolidated financial statements.
  F-2
  TELIPHONE CORP.
 CONSOLIDATED STATEMENTS OF OPERATIONS
 FOR THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
   US$YEARS ENDEDSEPTEMBER 30,2009


2008OPERATING REVENUESRevenues

$
2,710,680


$
1,215,570COST OF REVENUESInventory, beginning of period


8,964



6,100Purchases and cost of VoIP services


1,566,526



823,748Inventory, end of period


(11,819
)


(8,964
)Total Cost of Revenues


1,563,671



820,884GROSS PROFIT


1,147,009



394,686OPERATING EXPENSESSelling and promotion


34,489



21,757Administrative wages


398,393



85,522Professional and consulting fees


268,883



238,617Other general and administrative expenses


265,051



117,941Depreciation


8,514



47,881Total Operating Expenses


975,330



511,718NET INCOME (LOSS) BEFORE OTHERINCOME (EXPENSE)


171,679



(117,032
)OTHER INCOME (EXPENSE)Interest expense


(52,795
)


(114,005
)Total Other Income (Expense)


(52,795
)


(114,005
)NET INCOME (LOSS) BEFORE PROVISION FORINCOME TAXES


118,884



(231,037
)Provision for Income Taxes


-



-NET INCOME (LOSS)


118,884



(231,037
)Less: Net earnings attributable to noncontrolling interest


(16,533
)


43,381NET INCOME (LOSS) APPLICABLE TO COMMON SHARES

$
102,351


$
(187,656
)NET INCOME (LOSS) PER BASIC AND DILUTED SHARES

$
0.00


$
(0.01
)WEIGHTED AVERAGE NUMBER OF COMMONSHARES OUTSTANDING


35,910,295



33,554,024COMPREHENSIVE INCOME (LOSS)Net Income (loss)

$
102,351


$
(187,656
)Other comprehensive income (loss)Currency translation adjustments


18,157



(102,442
)Comprehensive income (loss)

$
120,508


$
(290,098
)
   The accompanying notes are an integral part of the condensed consolidated financial statements.
  F-3
 TELIPHONE CORP.
 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' (DEFICIT)
 FOR THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
   US$AccumulatedCommon





Additional





OtherStock





Paid-in


Accumulated


ComprehensiveShares


Amount


Capital


Deficit


Income (Loss)


TotalBalance September 30, 2007


33,554,024


$
33,554


$
898,156


$
(1,565,404
)

$
(35,277
)

$
(668,971
)Net loss for the year


-



-



-



(187,656
)


(102,442
)


(290,098
)Balance September 30, 2008


33,554,024



33,554



898,156



(1,753,060
)


(137,719
)


(959,069
)Stock issuance for debt conversion


3,812,633



3,813



949,345



-



-



953,158Stock issued for services rendered


10,000



10



370



-



-



380Net income for the year


-



-



-



102,351



18,157



120,508Balance September 30, 2009


37,376,657


$
37,377


$
1,847,871


$
(1,650,709
)

$
(119,562
)

$
114,977
   The accompanying notes are an integral part of the condensed consolidated financial statements.
  F-4
  TELIPHONE CORP.
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 FOR THE YEAR ENDED SEPTEMBER 30, 2009 AND 2008
   US$YEARS ENDEDSEPTEMBER 30,2009


2008CASH FLOWS FROM OPERATING ACTIVITIESNet income (loss)

$
102,351


$
(187,656
)Adjustments to reconcile net income (loss) to net cashused in operating activities:Depreciation


8,514



47,881Noncontrolling interest


16,533



(43,381
)Common stock issued for services


380



-Changes in assets and liabilities(Increase) decrease in accounts receivable


(308,323
)


(21,305
)Decrease in investment tax credit receivable


-



10,603(Increase) decrease in inventory


(2,909
)


(3,200
)(Increase) decrease in prepaid expenses and other current assets


(7,095
)


66,553Increase (decrease) in deferred revenues


(1,711
)


(14,486
)(Increase) decrease in Good WillIncrease in accounts payable andand accrued expenses


283,339



114,684Total adjustments


(11,272
)


157,349Net cash provided by (used in) operating activities


91,079



(30,307
)CASH FLOWS FROM INVESTING ACTIVITIESAcquisitions of capital assets


(10,081
)


-Cash paid in acquisition of net assets of Orion


(45,604
)


-Cash received in acquisition of net assets of Dialek Telecom


-



9,807Net cash provided by (used in) investing activities


(55,685
)


9,807CASH FLOWS FROM FINANCING ACTIVITESIncrease in bank overdraft


74,288



19,545Proceeds from debenture payable


56,038



-Repayment of promissory note


(11,208
)


-Repayment of debt - Dialek


-



(40,835
)Proceeds from loan payable - related parties, net


(171,313
)


39,589Net cash provided by (used in) financing activities


(52,195
)


18,299Effect of foreign currencies


16,801



(9,780
)NET INCREASE (DECREASE) INCASH AND CASH EQUIVALENTS


-



(11,981
)CASH AND CASH EQUIVALENTS -BEGINNING OF PERIOD


-



11,981CASH AND CASH EQUIVALENTS - END OF PERIOD

$
-


$
-CASH PAID DURING THE PERIOD FOR:Interest expense

$
50,670


$
83,730SUPPLEMENTAL NONCASH INFORMATION:Common stock issued for liability for stock to be issued

$
-


$
-Acquisition of Dialek Customers:Accounts receivable





$
74,533Goodwill






549,767Accounts payable






(258,044
)Note payable






(376,063
)Cash received in acquisition

$
-


$
(9,807
)Conversion of trade payable to promissory note payable

$
32,679


$
-Acquisition of Orion Customers:Accounts receivable

$
46,686


$
-Goodwill


327,901



-Accounts payable


(420,191
)


-Cash paid in acquisition

$
(45,604
)

$
-
   The accompanying notes are an integral part of the condensed consolidated financial statements.
  F-5
  TELIPHONE CORP.
 CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
   NOTE 1-
ORGANIZATION AND BASIS OF PRESENTATION
 
 Teilphone Corp. (formerly OSK Capital II Corporation) (the “Company”) was incorporated in the State of Nevada on March 2, 1999 to serve as a vehicle to effect a merger, exchange of capital stock, asset acquisition or other business combination with a domestic or foreign private business. Effective April 28, 2005, the Company achieved its objectives with the reverse merger and reorganization with Teliphone Inc., a Canadian company.
 
 Teliphone, Inc. was founded by its original parent company, United American Corporation, a publicly traded Florida Corporation, in order to develop a Voice-over-Internet-Protocol (VoIP) network which enables users to connect an electronic device to their internet connection at the home or office which permits them to make telephone calls to any destination phone number anywhere in the world. VoIP is currently growing in scale significantly in North America. This innovative new approach to telecommunications has the benefit of drastically reducing the cost of making these calls as the distances are covered over the Internet instead of over dedicated lines such as traditional telephony.
 
 Prior to its acquisition by the Company, Teliphone Inc. had grown primarily in the Province of Quebec, Canada through the sale of its product offering in retail stores and over the internet.  For this distribution channel, the Company typically pays a 25% commission to the distributor who shares this with the re-seller.
 
 In addition to the retail services provided, Teliphone Inc. also sells to wholesalers. Wholesalers typically receive approximately a 35% commission on such sales, however, the wholesaler re-bills these services to their customers and provide the necessary customer support to their customers directly.
 
 In addition to retail and wholesale services provided, Teliphone Inc. also re-sells traditional telecommunications services across Canada through a direct sales channel.
 
 On August 21, 2006, OSK Capital II Corporation formerly changed its name to Teliphone Corp.
 
 F-6
 
 TELIPHONE CORP.
 CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
 
 
 NOTE 1-
ORGANIZATION AND BASIS OF PRESENTATION(CONTINUED)
 
 Going Concern
  As shown in the accompanying consolidated financial statements the Company has a working capital deficiency of ($604,541) as of September 30, 2009, and has an accumulated deficit of ($1,650,709) through September 30, 2009. The Company has improved operations and streamlined their business, expanded their services through the acquisitions of Dialek and Orion customer bases, and has generated net profits for the past nine months. The Company has utilized their line of credit limits from the bank and their profits have gone to pay down the payables that exist. While the Company demonstrates that it has recently become profitable, the existence of the working capital deficiency continues to raise substantial doubt about the Company’s ability to continue as a going concern.
 
 The Company also successfully reduced approximately $400,000 of related party debt in August 2006 as this was converted into additional shares of the Company’s stock.
 
 In August of 2006, the Company sold approximately 25% of its subsidiary Teliphone Inc. to the parent company of Intelco Communications which will bring further opportunity and working capital to the Company. Since this period, Teliphone Inc. has required further cash investments from the Company.  These amounts, totaling approximately $600,000 have been converted into Common Stock the subsidiary Teliphone Inc. on September 30, 2008 hence, the resulting ownership of Teliphone Inc. by the parent company of Intelco Communications to be presently 12.9%.
 
 The Company’s subsidiary, Teliphone Inc. finalized an agreement with 9151-4877 Quebec Inc (known as Dialek Telecom), which was effective on February 15, 2008, to acquire certain assets and liabilities from this entity. This transaction as described in Note 11.
 
 The Company further reduced approximately $950,000 of related party debt in February 2009 as this was converted into additional shares of the Company’s stock.
 
 On May 1, 2009, the company entered into a customer assignment contract with 9191-4200 Quebec Inc. where it acquired the customer contracts of Orion Communications Inc., an Ontario, Canada Company.  The transaction is further detailed in Note 12.
 
 While the Company has experienced a net profit for the year ended September 30, 2009, there is still no guarantee that the Company will be able to raise additional capital or generate the increase in revenues to sustain its operations.  The Company hired a market maker and has secured a listing on the Over the Counter Bulletin Board, and the Company’s Common Stock became tradeable over-the-counter in June 2008.
 
 F-7
 
 TELIPHONE CORP.
 CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
   NOTE 1-
ORGANIZATION AND BASIS OF PRESENTATION(CONTINUED)
 
 Going Concern (Continued)
 
 Management believes that the Company’s capital requirements will depend on many factors. These factors include the increase in sales through existing channels as well as the Company’s subsidiary Teliphone Inc.’s ability to continue to expand its distribution points and leveraging its technology into the commercial small business segments. The Company’s subsidiary Teliphone Inc.’s strategic relationships with telecommunications interconnection companies, internet service providers and retail sales outlets has permitted the Company to achieve consistent monthly growth in acquisition of new customers.
 
 The Company’s ability to continue as a going concern for a reasonable period is dependent upon management’s ability to raise additional interim capital.  There can be no assurance that management will be able to raise sufficient capital, under terms satisfactory to the Company, if at all.
 
 The consolidated financial statements do not include any adjustments relating to the carrying amounts of recorded assets or the carrying amounts and classification of recorded liabilities that may be required should the Company be unable to continue as a going concern.
 
 Effective July 1, 2009, the Company adopted the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 105-10, Generally Accepted Accounting Principles – Overall (“ASC 105-10”). ASC 105-10 establishes the FASB Accounting Standards Codification (the “Codification”) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with U.S. GAAP. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative U.S. GAAP for SEC registrants. All guidance contained in the Codification carries an equal level of authority. The Codification superseded all existing non-SEC accounting and reporting standards. All other non-grandfathered, non-SEC accounting literature not included in the Codification is non-authoritative. The FASB will not issue new standards in the form of Statements, FASB Positions or Emerging Issue Task Force Abstracts. Instead, it will issue Accounting Standards Updates (“ASUs”). The FASB will not consider ASUs as authoritative in their own right. ASUs will serve only to update the Codification, provide background information about the guidance and provide the bases for conclusions on the change(s) in the Codification. References made to FASB guidance throughout this document have been updated for the Codification.
  F-8
 
 TELIPHONE CORP.
 CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
   NOTE 2-
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 Principles of Consolidation
 
 The consolidated financial statements include the accounts of the Company and its majority owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. All minority interests have been reflected herein.
 
 Use of Estimates
 
 The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  On an on-going basis, the Company evaluates its estimates, including, but not limited to, those related to investment tax credits, bad debts, income taxes and contingencies. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.
 
 Cash and Cash Equivalents
 
 The Company considers all highly liquid debt instruments and other short-term investments with an initial maturity of three months or less to be cash equivalents.
 
 The Company has available approximately $454,000 CDN$ in line of credits from the bank. Therefore, the Company can exceed their cash in bank by this amount. The $454,000 CD$ in line of credits is comprised of approximately $315,000 CDN$ in guaranteed investment certificates (“GIC”) and approximately $139,000 CDN$ in personal guarantees to the bank from a shareholder.
 
 Comprehensive Income
 
 The Company adopted ASC 220-10, “Reporting Comprehensive Income,” (formerly SFAS No. 130). ASC 220-10 requires the reporting of comprehensive income in addition to net income from operations.
 
 Comprehensive income is a more inclusive financial reporting methodology that includes disclosure of information that historically has not been recognized in the calculation of net income.
  F-9
  TELIPHONE CORP.
 CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
  
 NOTE 2-
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(CONTINUED)
 
 Inventory
 
 Inventory is valued at the lower of cost or market determined on a first-in-first-out basis.  Inventory consisted only of finished goods.
 
 Fair Value of Financial Instruments
  The carrying amounts reported in the consolidated balance sheets for cash and cash equivalents, accounts receivable and accounts payable approximate fair value because of the immediate or short-term maturity of these financial instruments.  For the notes payable, the carrying amount reported is based upon the incremental borrowing rates otherwise available to the Company for similar borrowings.
 
 Currency Translation
  For subsidiaries outside the United States that prepare financial statements in currencies other than the U.S. dollar, the Company translates income and expense amounts at average exchange rates for the year, translates assets and liabilities at year-end exchange rates and equity at historical rates. The Company’s functional currency is the Canadian dollar, while the Company reports its currency in the US dollar. The Company records these translation adjustments as accumulated other comprehensive income (loss). Gains and losses from foreign currency transactions are included in other income (expense) in the results of operations.
  Research and Development
 
 The Company occasionally incurs costs on activities that relate to research and development of new products. Research and development costs are expensed as incurred. Certain of these costs are reduced by government grants and investment tax credits where applicable.
  F-10
  TELIPHONE CORP.
 CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
  
 NOTE 2-
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(CONTINUED)
 
 Revenue Recognition
 
 Operating revenues consists of telephony services revenue and customer equipment (which enables the Company's telephony services) and shipping revenue. The point in time at which revenue is recognized is determined in accordance with Revenue Recognition under ASC 605-50, Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor's Products) ("ASC 605-50"), and ASC 605-25, "Revenue Arrangements with Multiple Deliverables" (“ASC 605-25”). When the Company emerged from the development stage with the acquisition of Teliphone Inc. they began to recognize revenue from their VoIP Telephony services when the services were rendered and customer equipment purchased as follows:
 
 VoIP Telephony Services Revenue
 
 The Company realizes VoIP telephony services revenue through sales by two distinct channels; the Retail Channel (Customer purchases their hardware from a Retail Distributor and the Company invoices the customer direct) and the Wholesale Channel (Customer purchases their hardware from the Wholesaler and the Company invoices the Wholesaler for usage by the Wholesaler’s customers collectively).
 
 Substantially all of the Company's operating revenues are telephony services revenue, which is derived primarily from monthly subscription fees that customers are charged under the Company's service plans. The Company also derives telephony services revenue from per minute fees for international calls and for any calling minutes in excess of a customer's monthly plan limits.
 
 Retail Channel
 
 Monthly subscription fees are automatically charged to customers' credit cards in advance and are recognized over the following month when services are provided.
 
 Revenue generated from international calls and from customers exceeding allocated call minutes under limited minute plans is charged to the customer’s credit cards in advanced in small increments and are recognized over the following month when the services are provided.
 
 The Company generates revenues from shipping equipment direct to customers and our re-seller partners.  This revenue is considered part of the VoIP service revenues.
 
 F-11
  TELIPHONE CORP.
 CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
   NOTE 2-
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(CONTINUED)
 
 Revenue Recognition(Continued)
 
 The Company does not charge initial activation fees associated with the service contracts in the Retail Channel.  The Company generates revenues from disconnect fees associated with early termination of service contracts with Retail Customers. These fees are included in service revenue as they are considered part of the service component when the service is delivered or performed.
 
 Prior to March 31, 2007 the Company generally charged a disconnect fee to Retail customers who did not return their customer equipment to the Company upon disconnection of service if the disconnection occurred within the term of the service contract. On April 1, 2007, the Company changed its disconnect policy. Upon cancellation of the service, no disconnection fee is charged and there is no refund issued to the customer for any portion of the unused services as before.  The customer’s service termination date becomes the next anniversary date of its billing cycle.
  This accounting is consistent with the rules set forth in the revenue recognition guidelines in ASC Topic 605 since there are no rights of returns or refunds that exist for the customer other than a standard 30-day money-back guarantee.  In the event of a return within the 30 day guarantee period, the hardware is refunded in its entirety.  This accounting is also consistent with ASC 605-15 on “Revenue Recognition When Right of Return Exists” which allows for equipment revenue to be recognized at the time of sale since there no longer exists a right of return after the 30 day period.
 
 Wholesale Channel
 
 Monthly subscription fees are invoiced to Wholesale customers at the end of the month for the entirety of the services delivered during the month.  Revenue for this period is therefore recognized at the time the Wholesaler is billed.
  The Company recognizes this revenue utilizing the guidance set forth in ASC 605-25, "Revenue Arrangements with Multiple Deliverables".  For the Wholesale channel, the activation fee is recognized as deferred revenue, and amortized over the length of the service agreement. If the service is terminated within the term of the service agreement, the deferred revenue is fully amortized.  This accounting is consistent because the up-front fee is not in exchange for products delivered or services performed that represent the culmination of a separate earnings process, and hence the deferral of revenue is appropriate.
  There is no disconnection fee associated with a wholesale customer.
  The Company generates revenues from shipping equipment direct to wholesale customers.  This revenue is considered part of the VoIP service revenues.
 
 F-12
 
 TELIPHONE CORP.
 CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
   NOTE 2-
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(CONTINUED)
 
 Revenue Recognition(Continued)
 
 Customer Equipment
 
 Retail Channel
 
 For retail sales, the equipment is sold to re-sellers at a subsidized price below that of cost and below that of the retail sales price. The customer purchases the equipment at the retail price from the retailer.  The Company recognizes this revenue utilizing the guidance set forth in ASC 605-25, “Revenue Arrangements with Multiple Deliverables” and ASC 605-50, “Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor’s Products)”.
 
 Under a retail agreement, the cost of the equipment is recognized as deferred revenue, and amortized over the length of the service agreement. Upon refund, the deferred revenue is fully amortized.
 
 Customer equipment expense is recorded to direct cost of goods sold when the hardware is initially purchased from our suppliers.
 
 The Company also provides rebates to retail customers who purchase their customer equipment from retailers and satisfy minimum service period requirements.   This minimum service period (e.g. three months) differs from the length of the service agreement (e.g. twelve months).  These rebates are recorded as a reduction of service revenue over the minimum service period based upon the actual rebate coupons received from customers and whose accounts are in good standing.  The Company records a contingent liability to represent the amount of the refund obligation through earnings on a systematic basis.
 
 Wholesale Channel
 
 For wholesale customers, the equipment is sold to wholesalers at the Company’s cost price plus mark-up.  There are no rebates for equipment sold to wholesale customers and the Company does not subsidize their equipment sales.  The Company recognizes revenue from sales of equipment to wholesale customers as billed.
 
 F-13
 
 TELIPHONE CORP.
 CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
   NOTE 2-
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(CONTINUED)
 
 Revenue Recognition(Continued)
 
 Commissions Paid to Retail Distributors
  Commissions paid to Retail Distributors are based on the recurring revenues recorded by the company and incurred in the period where the revenue is recognized and paid by the company to the retail Distributor in the following month.  These commissions are recorded as cost of sales as they are directly related to the revenue acquired and are not considered a sales and marketing expense.  These commissions are payable based on the Distributor’s servicing of the customer on an on-going basis.
 
 Commissions Paid to Wholesalers
 
 The Company recognizes this revenue utilizing the guidance set forth in ASC 605-50 “Accounting for Consideration Given by a Vendor to a Customer (Including a Reseller of the Vendor’s Products)”.  The Company is receiving identifiable benefits from the Wholesaler (billing and customer support) in return for the allowance.  These benefits are sufficiently separable from the Wholesaler’s purchase of the Company’s hardware and services.  The fair value of those benefits can be reasonably estimated and therefore the excess consideration is characterized as a reduction of revenue on the Company’s Statement of Operations.
 
 Resale of Traditional Telecommunications Services (due to Acquisition of customer base of Dialek Telecom (see Note 11) and Orion Communications Inc. (see Note 12)- represents a majority of the Company’s revenue
 
 The Company earns revenue by reselling telecommunications services purchased from wholesale providers such as Rogers Communications and Videotron Telecom.  These revenues include monthly network access fees for local calling and internet access services billed one month in advance and recognized when earned.  Long Distance and Toll free calling service revenues are recognized when the service is rendered and included and billed the following month.
 
 F-14
 
 TELIPHONE CORP.
 CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
   NOTE 2-
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(CONTINUED)
 
 Accounts Receivable
 
 The Company conducts business and extends credit based on an evaluation of the customers’ financial condition, generally without requiring collateral.
 
 Exposure to losses on receivables is expected to vary by customer due to the financial condition of each customer. The Company monitors exposure to credit losses and maintains allowances for anticipated losses considered necessary under the circumstances. The Company has an allowance for doubtful accounts of $76,701 at September 30, 2009.
 
 Accounts receivable are generally due within 30 days and collateral is not required. Unbilled accounts receivable represents amounts due from customers for which billing statements have not been generated and sent to the customers.
 
 Income Taxes
 
 The Company accounts for income taxes utilizing the liability method of accounting.  Under the liability method, deferred taxes are determined based on differences between financial statement and tax bases of assets and liabilities at enacted tax rates in effect in years in which differences are expected to reverse.  Valuation allowances are established, when necessary, to reduce deferred tax assets to amounts that are expected to be realized.
 
 Investment Tax Credits
 
 The Company claims investment tax credits as a result of incurring scientific research and experimental development expenditures. Investment tax credits are recognized when the related expenditures are incurred, and there is reasonable assurance of their realization. Management has made a number of estimates and assumptions in determining their expenditures eligible for the investment tax credit claim. It is possible that the allowed amount of the investment tax credit claim could be materially different from the recorded amount upon assessment by Revenue Canada and Revenue Quebec. The Company has not estimated any amounts for incoming tax credits for September 30, 2009.
 
 F-15
  TELIPHONE CORP.
 CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
   NOTE 2-
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(CONTINUED)
 
 Convertible Instruments
 
 The Company reviews the terms of convertible debt and equity securities for indications requiring bifurcation, and separate accounting, for the embedded conversion feature. Generally, embedded conversion features where the ability to physical or net-share settle the conversion option is not within the control of the Company are bifurcated and accounted for as a derivative financial instrument. (See Derivative Financial Instruments below). Bifurcation of the embedded derivative instrument requires allocation of the proceeds first to the fair value of the embedded derivative instrument with the residual allocated to the debt instrument. The resulting discount to the face value of the debt instrument is amortized through periodic charges to interest expense using the Effective Interest Method.
 
 Derivative Financial Instruments
 
 The Company generally does not use derivative financial instruments to hedge exposures to cash-flow or market risks. However, certain other financial instruments, such as warrants or options to acquire common stock and the embedded conversion features of debt and preferred instruments that are indexed to the Company’s common stock, are classified as liabilities when either (a) the holder possesses rights to net-cash settlement or (b) physical or net share settlement is not within the control of the Company. In such instances, net-cash settlement is assumed for financial accounting and reporting, even when the terms of the underlying contracts do not provide for net-cash settlement. Such financial instruments are initially recorded at fair value and subsequently adjusted to fair value at the close of each reporting period.
 
 Advertising Costs
  The Company expenses the costs associated with advertising as incurred.  Advertising expenses for the years ended September 30, 2009 and 2008 are included in selling and promotion expenses in the consolidated statements of operations.
 
 Fixed Assets
  Fixed assets are stated at cost.  Depreciation is computed using the straight-line method over the estimated useful lives of the assets; automobiles – 3 years, computer equipment – 3 years, and furniture and fixtures – 5 years.
  When assets are retired or otherwise disposed of, the costs and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is recognized in income for the period.  The cost of maintenance and repairs is charged to income as incurred; significant renewals and betterments are capitalized.  Deduction is made for retirements resulting from renewals or betterments.
 
 F-16
 
 TELIPHONE CORP.
 CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
   NOTE 2-
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(CONTINUED)
 
 Impairment of Long-Lived Assets
 
 Long-lived assets, primarily fixed assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable. The Company does perform a periodic assessment of assets for impairment in the absence of such information or indicators. Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which an asset is used, or a significant adverse change that would indicate that the carrying amount of an asset or group of assets is not recoverable. For long-lived assets to be held and used, the Company recognizes an impairment loss only if its carrying amount is not recoverable through its undiscounted cash flows and measures the impairment loss based on the difference between the carrying amount and estimated fair value.
  Earnings (Loss) Per Share of Common Stock
 
 Basic net income (loss) per common share is computed using the weighted average number of common shares outstanding.  Diluted earnings per share (EPS) includes additional dilution from common stock equivalents, such as stock issuable pursuant to the exercise of stock options and warrants.  Common stock equivalents were not included in the computation of diluted earnings per share when the Company reported a loss because to do so would be antidilutive for periods presented.
 
 The following is a reconciliation of the computation for basic and diluted EPS:
  September 30,


September 30,2009


2008Net income (loss)

$
102,351


$
(187,656
)Weighted-average common sharesOutstanding (Basic)


35,910,295



33,554,024Weighted-average common stockEquivalentsStock options


-



-Warrants


-



-Weighted-average common sharesOutstanding (Diluted)


35,910,295



33,554,024
  F-17
 
 TELIPHONE CORP.
 CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
  
 NOTE 2-
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(CONTINUED)
 
 Earnings (Loss) Per Share of Common Stock (Continued)
 
 The Company has not issued options or warrants to purchase stock in these periods. If there were options or warrants outstanding they would not be included in the computation of diluted EPS when the Company reported a loss because inclusion would have been antidilutive.
 
 Stock-Based Compensation
 
 In 2006, the Company adopted the provisions of ASC 718-10 “Share Based Payments” for its year ended December 31, 2008. The adoption of this principle had no effect on the Company’s operations.
 
 The Company has elected to use the modified–prospective approach method. Under that transition method, the calculated expense in 2006 is equivalent to compensation expense for all awards granted prior to, but not yet vested as of January 1, 2006, based on the grant-date fair values. Stock-based compensation expense for all awards granted after January 1, 2006 is based on the grant-date fair values. The Company recognizes these compensation costs, net of an estimated forfeiture rate, on a pro rata basis over the requisite service period of each vesting tranche of each award. The Company considers voluntary termination behavior as well as trends of actual option forfeitures when estimating the forfeiture rate.
 
 The Company measures compensation expense for its non-employee stock-based compensation under ASC 505-50, “Accounting for Equity Instruments that are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services”.  The fair value of the option issued is used to measure the transaction, as this is more reliable than the fair value of the services received.  The fair value is measured at the value of the Company’s common stock on the date that the commitment for performance by the counterparty has been reached or the counterparty’s performance is complete. The fair value of the equity instrument is charged directly to compensation expense and additional paid-in capital.
 
 Segment Information
 
 The Company follows the provisions of ASC 280-10, “Disclosures about Segments of an Enterprise and Related Information”. This standard requires that companies disclose operating segments based on the manner in which management disaggregates the Company in making internal operating decisions. Despite the Company’s subsidiary, Teliphone, Inc. incurring sales of hardware components for the VoIP service as well as the service itself, the Company treats these items as one component, therefore has not segregated their business.
 
 F-18
 
 TELIPHONE CORP.
 CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
   NOTE 2-
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(CONTINUED)
 
 Reclassifications
 
 The Company has reclassified certain amounts in their consolidated statement of operations for the years ended September 30, 2008 to conform with the September 30, 2009 presentation. These reclassifications had no effect on the net loss for the year ended September 30, 2008.
 
 Uncertainty in Income Taxes
 
 The Company follows ASC 740-10, “Accounting for Uncertainty in Income Taxes” (“ASC 740-10”). This interpretation requires recognition and measurement of uncertain income tax positions using a “more-likely-than-not” approach. ASC 740-10 is effective for fiscal years beginning after December 15, 2006. Management has adopted ASC 740-10 for 2009, and they evaluate their tax positions on an annual basis, and has determined that as of September 30, 2009, no additional accrual for income taxes other than the federal and state provisions and related interest and estimated penalty accruals is not considered necessary.
 
 Noncontrolling Interests
 
 In accordance with ASC 810-10-45, Noncontrolling Interests in Consolidated Financial Statements,the Company classifies controlling interests as a component of equity within the consolidated balance sheets. The Company has retroactively applied the provisions in ASC 810-10-45 to the financial information for the years ended September 30, 2009 and 2008. As of September 30, 2009 and 2008, noncontrolling interests of $76,393 and $59,860, respectively, have been classified as a component of equity in the consolidated balance sheet and relate to the outside ownership percentage of the subsidiary Teliphone Inc. For the years ended September 30, 2009 and 2008, net income attributable to noncontrolling interests of $16,533 and a net loss of $43,381, respectively, is included in the Company’s net income (loss).
 
 Recent Accounting Pronouncements
 
 In September 2006, ASC issued 820, Fair Value Measurements. ASC 820 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosure about fair value measurements. This statement is effective for financial statements issued for fiscal years beginning after November 15, 2007. Early adoption is encouraged. The adoption of ASC 820 is not expected to have a material impact on the financial statements.
  F-19
  TELIPHONE CORP.
 CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
   NOTE 2-
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(CONTINUED)
 
 Recent Accounting Pronouncements (Continued)
 
 In February 2007, ASC issued 825-10, The Fair Value Option for Financial Assets and Financial Liabilities – Including an amendment of ASC 320-10, (“ASC 825-10”) which permits entities to choose to measure many financial instruments and certain other items at fair value at specified election dates. A business entity is required to report unrealized gains and losses on items for which the fair value option has been elected in earnings at each subsequent reporting date. This statement is expected to expand the use of fair value measurement. ASC 825-10 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years.
  In December 2007, the Company adopted ASC 805,Business Combinations (“ASC 805”). ASC 805 retains the fundamental requirements that the acquisition method of accounting be used for all business combinations and for an acquirer to be identified for each business combination. ASC 805 defines the acquirer as the entity that obtains control of one or more businesses in the business combination and establishes the acquisition date as the date that the acquirer achieves control.  ASC 805 will require an entity to record separately from the business combination the direct costs, where previously these costs were included in the total allocated cost of the acquisition.  ASC 805 will require an entity to recognize the assets acquired, liabilities assumed, and any non-controlling interest in the acquired at the acquisition date, at their fair values as of that date.
 
 ASC 805 will require an entity to recognize as an asset or liability at fair value for certain contingencies, either contractual or non-contractual, if certain criteria are met.  Finally, ASC 805 will require an entity to recognize contingent consideration at the date of acquisition, based on the fair value at that date.  This will be effective for business combinations completed on or after the first annual reporting period beginning on or after December 15, 2008.  Early adoption is not permitted and the ASC is to be applied prospectively only.  Upon adoption of this ASC, there would be no impact to the Company’s results of operations and financial condition for acquisitions previously completed.  The adoption of ASC 805 is not expected to have a material effect on the Company’s financial position, results of operations or cash flows.
 
 In March 2008, ASC issued ASC 815, Disclosures about Derivative Instruments and Hedging Activities”, (“ASC 815”). ASC 815 requires enhanced disclosures about an entity’s derivative and hedging activities. These enhanced disclosures will discuss: how and why an entity uses derivative instruments; how derivative instruments and related hedged items are accounted for and its related interpretations; and how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. ASC 815 is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008. The Company does not believe that ASC 815 will have an impact on their results of operations or financial position.
  F-20
 
 TELIPHONE CORP.
 CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
   NOTE 2-
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(CONTINUED)
 
 Recent Accounting Pronouncements (Continued)
 
 In April 2008, ASC 350-30 was issued, “Determination of the Useful Life of Intangible Assets”. The Company was required to adopt ASC 350-30 on October 1, 2008. The guidance in ASC 350-30 for determining the useful life of a recognized intangible asset shall be applied prospectively to intangible assets acquired after adoption, and the disclosure requirements shall be applied prospectively to all intangible assets recognized as of, and subsequent to, adoption. The Company does not believe ASC 350-30 will materially impact their financial position, results of operations or cash flows.
 
 In May 2008, ASC 470-20 was issued, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)” (“ASC 470-20”). ASC 470-20 requires the issuer of certain convertible debt instruments that may be settled in cash (or other assets) on conversion to separately account for the liability (debt) and equity (conversion option) components of the instrument in a manner that reflects the issuer’s non-convertible debt borrowing rate. ASC 470-20 is effective for fiscal years beginning after December 15, 2008 on a retroactive basis. The Company does not believe that the adoption of ASC 470-20 will have a material effect on its financial position, results of operations or cash flows.
 
 In June 2008, ASC 815-40 was issued, “Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity’s Own Stock” (“ASC 815-40”), which supersedes the definition in ASC 605-50 for periods beginning after December 15, 2008. The objective of ASC 815-40 is to provide guidance for determining whether an equity-linked financial instrument (or embedded feature) is indexed to an entity’s own stock and it applies to any freestanding financial instrument or embedded feature that has all the characteristics of a derivative in accordance with ASC 815-20.
 
 ASC 815-40 also applies to any freestanding financial instrument that is potentially settled in an entity’s own stock. The Company believes that ASC 815-40, will not have a material impact on their financial position, results of operations and cash flows.
 
 In June 2008, ASC 470-20-65 was issued, Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios (“ASC 470-20-65”). ASC 470-20-65 is effective for years ending after December 15, 2008. The overall objective of ASC 470-20-65 is to provide for consistency in application of all the standards issued for convertible securities. The Company has computed and recorded a beneficial conversion feature in connection with certain of their prior financing arrangements and does not believe that ASC 470-20-65 will have a material effect on that accounting.
  F-21
  TELIPHONE CORP.
 CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
  
 NOTE 2-
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(CONTINUED)
 
 Recent Accounting Pronouncements (Continued)
 
 Effective April 1, 2009, the Company adopted ASC 855, Subsequent Events (“ASC 855”). ASC 855 establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. It requires disclosure of the date through which an entity has evaluated subsequent events and the basis for that date – that is, whether that date represents the date the financial statements were issued or were available to be issued. This disclosure should alert all users of financial statements that an entity has not evaluated subsequent events after that date in the set of financial statements being presented. Adoption of ASC 855 did not have a material impact on the Company’s results of operations or financial condition. The Company has evaluated subsequent events through December 23, 2009, the date the financial statements were issued.
 
 Effective July 1, 2009, the Company adopted FASB ASU No. 2009-05, Fair Value Measurement and Disclosures (Topic 820) (“ASU 2009-05”). ASU 2009-05 provided amendments to ASC 820-10, Fair Value Measurements and Disclosures – Overall, for the fair value measurement of liabilities. ASU 2009-05 provides clarification that in circumstances in which a quoted market price in an active market for the identical liability is not available, a reporting entity is required to measure fair value using certain techniques. ASU 2009-05 also clarifies that when estimating the fair value of a liability, a reporting entity is not required to include a separate input or adjustment to other inputs relating to the existence of a restriction that prevents the transfer of a liability. ASU 2009-05 also clarifies that both a quoted price in an active market for the identical liability at the measurement date and the quoted price for the identical liability when traded as an asset in an active market when no adjustments to the quoted price of the asset are required for Level 1 fair value measurements. Adoption of ASU 2009-05 did not have a material impact on the Company’s results of operations or financial condition.
 
 Other ASU’s that have been issued or proposed by the FASB ASC that do not require adoption until a future date and are not expected to have a material impact on the financial statements upon adoption.
  F-22
  TELIPHONE CORP.
 CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
 
 
 NOTE 3-
FIXED ASSETS
 
 Fixed assets as of September 30, 2009 and 2008 were as follows:
 
 Estimated Useful

Lives (Years)


September 30,

2009


September 30,

2008Furniture and fixtures


5


$
2,182


$
1,255Computer equipment


3



205,825



197,879Vehicles


5



23,548



23,692231,555



222,826Less: accumulated depreciation






216,305



208,263Property and equipment, net





$
15,250


$
14,563
  There was $8,514 and $47,881 charged to operations for depreciation expense for the years ended September 30, 2009 and 2008, respectively.
  NOTE 4-
RELATED PARTY LOANS
 
 On August 1, 2006, the Company converted $421,080 of the $721,080 of its loans with United American Corporation, a related party through common ownership, and majority shareholder of the Company prior to United American Corporation’s stock dividend that took place effective October 30, 2006 into 1,699,323 shares of the Company’s common stock.
 
 In December 2006, the Company issued a resolution to issue the remaining 171 fractional shares related to United American Corporation’s spin-off of the corporation and pro-rata distribution of United American Corporation’s holding of the Company’s common stock to its shareholders. Those shares were issued prior to December 31, 2006 and distributed to shareholders.
 
 The $300,000 remaining on the loan was interest bearing at 12% per Annum until it was converted to common stock of the Company through the issuance of 1,200,000 shares ($0.25 per share) on December 31, 2008.
 
 In addition, there was approximately $145,081 of non-interest bearing advances that were incurred from August 2006 from United American Corporation. These advances were provided for cash flow purposes for the Company to sustain its operations.  On December 31, 2008, the Company converted this liability into 580,324 shares ($0.25 per share) of the common stock of the Company.
  F-23
  TELIPHONE CORP.
 CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
   NOTE 4-
RELATED PARTY LOANS (CONTINUED)
 
 The Company had also over the past few years been advanced various amounts from related parties whom are either officers, shareholders or entities under control by an officer or shareholder. These amounts bore interest at interest rates ranging between 5% and 7% per annum.  On December 31, 2008, the Company converted the remaining balances of $120,448 into 481,791 shares of the common stock of the Company ($0.25 per share).
 
 As of September 30, 2009, the Company has $42,500 including accrued interest outstanding with shareholders. Interest expense for the year ended September 30, 2009 was $1,535. These notes accrue interest at 5% per annum. These related party loans are due on demand and classified as current liabilities on the consolidated balance sheet at September 30, 2009.
 
 The Company agreed to pay the shareholders of 9151-4877 Quebec Inc. a total of CDN $383,464 for the acquisition of certain assets and liabilities of 9151-4877 Quebec Inc. (d/b/a “Dialek Telecom”) (See Note 9). The Company holds the option to pay the entire amount of the balance due at anytime.  Up thorough November 30, 2008, the Company was making a minimum monthly payment of CDN $9,992.01, which equates to the payment of the $360,331 (US$) (CDN $383,464) over 52 months at 15% annual interest.
 
 On December 1, 2008, the Company and 9151-4877 Quebec Inc. entered into an agreement which permits the Company to pay 50% of the monthly payment in cash and the balance in shares of the common stock.
 
 On December 31, 2008, the Company and Dialek Telecom agreed to convert the entire remaining principal of $264,476 into 1,057,905 shares ($.25 per share) of the common stock of the Company.
 
 In addition, the shareholders of 9151-4877 Quebec Inc. have provided a revolving line of credit facility of CDN $150,000 18% per annum rate of interest.  As of December 31, 2008, the Company had drawn down $123,153 (CDN$150,000) of this line of credit   On December 31, 2008, the Company and the shareholders of Dialek Telecom agreed to convert the entire amount into 492,612 shares ($.25 per share) of the common stock of the Company.
 
 The Company entered into a cash advance agreement as part of its assignment agreement with 9191-4200 Quebec Inc. (see Note 12) for $5,472.  The amount is not interest bearing.
 
 F-24
 
 TELIPHONE CORP.
 CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
   NOTE 4-
RELATED PARTY LOANS (CONTINUED)
 
 On November 15, 2007, a shareholder of the Company provided a fixed term deposit of $45,000 (US$) with the Company’s bank in order to guarantee an equivalent value operating line of credit for use by the Company.  Until December 31, 2008, the Company provided the shareholder an annual interest rate of 20% payable in common stock of the Company.
 
 On January 29, 2008, a shareholder of the Company provided a fixed term deposit of $30,000 (US$) with the Company’s bank in order to guarantee an equivalent value operating line of credit for use by the Company.
 
 Until December 31, 2008, the Company provided the shareholder an annual interest rate of 20% payable in common stock of the Company.
 .
 On December 31, 2008, the Company and the shareholder combined these two figures into a $70,828 loan payable and agreed that the payable would be converted to a long term loan, maturing on December 31, 2013 with interest only payable monthly at an annual rate of 12%.  The Company reserves the right to pay the principal in its entirety at any time without penalty
 
 The Company has accrued $6,375 in accrued interest on this payable.
 
 NOTE 5-
PROMISSORY NOTE PAYABLE
 
 The Company entered into a Promissory Note agreement (“Promissory Note”) with Primus Telecommunications Canada Inc. (“Primus”) on April 15, 2009 for a total amount of CDN$40,000, representing the conversion of Primus’ trade payable amount owing into the Promissory Note.  The Company agreed to pay, by way of monthly payments of theprincipal amount outstanding of $3,000 per month commencing on June 1, 2009 and each month thereafter with the final principal balance of $4,000 being paid on June 1, 2010.  As of September 30, 2009, the amount outstanding was CDN$28,000 ($26,152).  Interest costs have been established at the Bank Prime rate + 2.5%, for a total of 4.25%.
 
 NOTE 6-
CONVERTIBLE DEBENTURES
 
 On February 6, 2009, the Company entered into a 12% Convertible Debenture (the “Debenture”) with an individual. The Debenture had a maturity date of February 6, 2010, and incurred interest at a rate of 12% per annum.
 
 The Debentures can either be paid to the holders on February 6, 2010 or converted at the holders’ option any time up to maturity at a conversion price equal to eighty percent (80%) of the average closing price of the common stock as listed on a Principal Market for the five (5) trading days immediately preceding the conversion date. If the common stock is not traded on a Principal Market, the conversion price shall mean the closing bid price as furnished by the National Association of Securities Dealers, Inc.
 
 F-25
 
 TELIPHONE CORP.
 CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
   NOTE 6-
CONVERTIBLE DEBENTURES(CONTINUED)
 
 On February 17, 2009, the Company entered into a 12% Convertible Debenture (the “Debenture”) with an individual. The Debenture had a maturity date of February 17, 2010, and incurred interest at a rate of 12% per annum.
 
 The Debentures can either be paid to the holders on February 6, 2010 or converted at the holders’ option any time up to maturity at a conversion price equal to eighty percent (80%) of the average closing price of the common stock as listed on a Principal Market for the five (5) trading days immediately preceding the conversion date. If the common stock is not traded on a Principal Market, the conversion price shall mean the closing bid price as furnished by the National Association of Securities Dealers, Inc.
 
 The total amount of the Debentures was $56,038.
 
 The convertible debentures met the definition of hybrid instruments, as defined in ASC 815-10, Accounting for Derivative Instruments and Hedging Activities (ASC 815-10). The hybrid instruments are comprised of a i) a debt instrument, as the host contract and ii) an option to convert the debentures into common stock of the Company, as an embedded derivative. The embedded derivative derives its value based on the underlying fair value of the Company’s common stock. The Embedded Derivative is not clearly and closely related to the underlying host debt instrument since the economic characteristics and risk associated with this derivative are based on the common stock fair value.
 
 The embedded derivative did not qualify as a fair value or cash flow hedge under ASC 815-10.
 
 NOTE 7-
COMMITMENTS
 
 The Company’s subsidiary Teliphone Inc. had entered into a distribution agreement with one of its distributors in March 2006 for a period of five-years. The distribution agreement stipulated that the Company must pay up to 25% commissions on all new business generated by the distributor. This distributor controlled the areas of Quebec and Ontario in Canada. The agreement was terminated due to a default by the distributor on its terms and conditions.
 
 The default is now in dispute, as the Company received notice on February 11, 2009 from 9164-4898 Quebec Inc (known as BR Communications Inc.”). The notice claims that the Company owes BR Communications Inc. unpaid commissions totaling CDN$ 158,275.25 ($129,944 US$) based on the Company’s increase in sales due to its Dialek acquisition.
  F-26
  TELIPHONE CORP.
 CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
   NOTE 7-
COMMITMENTS
 
 In the executed agreement with BR Communications Inc, it is specifically stated that sales from Dialek are excluded from the commission calculation due to BR Communications Inc.
 
 The Company evaluated this dispute and filed counterclaims against BR Communications Inc. for lost sales due to BR’s default of their distribution agreement with the Company. BR Communications, Inc. filed a lawsuit against the Company in December of 2009, claiming damages of Cdn$410,255.
 
 The Company does not believe that the dispute brought on by BR Communications Inc. has any merit, and has not accrued a liability for the amounts BR Communications Inc., claims are due them.
 
 The Company’s subsidiary Teliphone Inc. has entered into a lease agreement for its Montreal, Canada offices, which is set to expire on May 31, 2011. In May 2009, Teliphone Inc. added additional offices to this lease without extending the lease any further, only increasing the monthly rental. The Company anticipates to pay approximately $50,000 (CDN$) for the year ending September 30, 2010, and $30,000 (CND$) for the eight months ending May 31, 2011 for an aggregate total of $80,000. Rent expense for this lease for the year ended September 30, 2009 was $41,375.
 
 The Company’s subsidiary Teliphone Inc. has entered into a lease agreement for its Toronto, Canada offices, which is set to expire on August 31, 2014. The Company pays approximately $45,000 (CDN$) for the year ending September 30, 2010, and $47,000 (CND$) for the year ending September 30, 2011 and 2012 and $49,000 for the year ending September 30, 2013 and 2014 for an aggregate total of $190,000. Rent expense for this lease for the year ended September 30, 2009 was $28,506.
 
 The Company’s subsidiary Teliphone Inc. has entered into various lease agreements for computer equipment with Dell Financial Services Canada Limited.  The Company pays approximately $3,700 (CDN$) per month.   The Company will pay an aggregate amount of $44,000 for the year ending September 30, 2010 and $18,000 for the year ending September 30, 2011.
  F-27
  TELIPHONE CORP.
 CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
  
 NOTE 8-
AGREEMENT – INTELCO COMMUNICATIONS
 
 Teliphone Inc., a majority-owned subsidiary of the Company, 3901823 Canada Inc., the holding company of Intelco Communications (“3901823”), and Intelco Communications (“Intelco”)  entered into an agreement (the “Agreement”) on July 14, 2006.  Pursuant to the terms of the Agreement, Teliphone Inc. agreed to issue 35 class A voting shares of its common stock representing 25.2% of Teliphone Inc.’s issued shares to 3901823 in exchange for office rent, use of Intelco’s data center for Teliphone Inc.’s equipment, and use of Intelco’s broadband telephony network valued at approximating $144,000 (CDN$) for the period August 1, 2006 through July 31, 2007, a line of credit of $75,000 (CDN$), of which $25,000 (CDN$) was already drawn upon in July 2006 and repaid in December 2006.
 
 On September 30, 2008, 133 class A voting shares of the common stock of Teliphone Inc. were issued to the Company for a conversion of cash advances and loans by the Company into its subsidiary.  As a result, 3901823 decreased its holding of Teliphone Inc. from 25.2% to 12.9%.
 
 Teliphone Inc. recognized a prepaid expense for the fair value of the shares issued to Intelco. The value of the prepaid expense was determined based on the estimated cost of the services that Teliphone Inc. is to receive under the Joint Venture Agreement entered into for a one-year period of time. The cost was estimated at $12,000 (CDN$) per month. Teliphone Inc. up through September 30, 2007 has not used the $12,000 (CDN$) per month. As of September, 2008, the balance remaining in the prepaid expense for Intelco was $112,594 (US$).
 
 On September 30, 2008, the Company re-evaluated the $112,594 pre-paid asset and considering that the Company has moved from the premises of Intelco, and will not benefit from any future use of equipment, data center or network, the Company reduced the value of this pre-paid asset to $0, with a corresponding reduction in Additional Paid-In Capital of the same amount.
 
 F-28
 
 TELIPHONE CORP.
 CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
   NOTE 9-
STOCKHOLDERS’ DEFICIT
 
 Common Stock
 
 As of September 30, 2009, the Company has 125,000,000 shares of common stock authorized with a par value of $.001.
 
 The Company has 37,376,657 and 33,554,024 shares issued and outstanding as of September 30, 2009 and 2008.
 
 On September 30, 2004, the Company had 3,216,000 shares issued and outstanding. On April 28, 2005, the Company entered into a reverse merger upon the acquisition of Teliphone, Inc. and issued 27,010,000 shares of common stock to the shareholders of Teliphone, Inc. in exchange for all of the outstanding shares of stock of Teliphone, Inc. Thus the Company had 30,426,000 shares issued and outstanding.
 
 On August 31, 2005, the Company issued 663,520 shares of common stock in conversion of the Company’s convertible debentures in the amount of $331,760.
 
 On August 22, 2006, the Company issued 1,699,323 shares of common stock to United American Corporation in conversion of related party debt in the amount of $421,080 (see Note 4). An additional 171 fractional shares were issued in December 2006.
 
 On August 22, 2006, the Company issued 105,000 shares of common stock for consulting services. These services have been valued at $0.25 per share, the price at which the Company’s offering will be. The value of $26,250 was reflected in the consolidated statement of operation for the year ended September 30, 2006.
 
 In December 2006, the Company issued 660,000 shares of common stock representing a value in the amount of $165,000, for consulting services that occurred during the year ended September 30, 2006. The Company recognized the expense in the year ended September 30, 2006 as the services were provided in this time frame. The Company used the $0.25 price for valuation purposes.
 
 The Company issued 3,812,633 shares of common stock of the Company in February 2009 as part of the debt conversion agreement with related parties on December 31, 2008. The Company also issued 10,000 shares of stock for services rendered at a value of $.038 per share ($380).
 
 
 F-29
 
 TELIPHONE CORP.
 CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
   NOTE 10-
PROVISION FOR INCOME TAXES
 
 Deferred income taxes are determined using the liability method for the temporary differences between the financial reporting basis and income tax basis of the Company’s assets and liabilities.  Deferred income taxes are measured based on the tax rates expected to be in effect when the temporary differences are included in the Company’s tax return.  Deferred tax assets and liabilities are recognized based on anticipated future tax consequences attributable to differences between financial statement carrying amounts of assets and liabilities and their respective tax bases.
 
 At September 30, 2009, deferred tax assets consist of the following:
 
 Net operating losses

$
580,541Valuation allowance


(580,541
)$
-
 At September 30, 2009, the Company had a net operating loss carryforward in the approximate amount of $1,707,475, available to offset future taxable income through 2029.  The Company established valuation allowances equal to the full amount of the deferred tax assets due to the uncertainty of the utilization of the operating losses in future periods.
 
 A reconciliation of the Company’s effective tax rate as a percentage of income before taxes and federal statutory rate for the periods ended September 30, 2009 and 2008 is summarized as follows:
 
 2009


2008Federal statutory rate


(34.0
)%


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


3.3



3.3Valuation allowance


30.7



30.70
%


0
%
  F-30
  TELIPHONE CORP.
 CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
   NOTE 11-
ACQUISITION OF CERTAIN ASSETS AND LIABILITIES (DIALEK TELECOM)
 
 On February 14, 2008, the Company entered into a Letter of Intent for the acquisition of certain assets and liabilities of 9151-4877 Quebec Inc. (Operating as “Dialek Telecom”). The Company later entered into a definitive agreement for acquisition on June 30, 2008.  While the acquisition remained effective from the date of February 15, 2008, the Company updated the valuation after having negotiated the true values of the assets and liabilities.  As a result, the following demonstrates the details of the assets and liabilities acquired:
 
 Value adjusted

and disclosed

in 06-30-2008 Definitive

Agreement

(US$)AssetsGoodwill (customer contracts)

$
549,767Accounts Receivable

$
74,533Cash in Bank

$
9,807TOTAL ASSETS:

$
634,107LiabilitiesCurrent Supplier Payables

$
258,044TOTAL LIABILITIES:Note Payable (see Note 4):

$
376,063
 
 There was a reduction of the valuation due to the difference between the verified assets and liabilities that resulted in a decrease of the acquisition price from $411,894 (CDN$420,000) to $376,063 (CDN$383,464).  This value fluctuates based on the exchange rate of the US and CDN dollars.  On December 31, 2008, the Company converted the entire amount owing of $264,476 into 1,057,905 shares ($.25 per share) of the common stock of the Company.
 
 LINE OF CREDIT FACILITY
 
 The shareholders of 9151-4877 Quebec Inc. have provided a revolving line of credit facility of CDN $150,000 18% per annum rate of interest.  As of December 31, 2008, the Company had drawn down $123,153 (CDN$150,000)) of this line of credit.  On December 31, 2008, the Company and the shareholders of Dialek Telecom converted the entire amounts owing into 492,612 shares ($.25 per share) of the common stock of the Company.
  F-31
 
 TELIPHONE CORP.
 CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
  
 NOTE 12-
ACQUISITION OF CERTAIN ASSETS AND LIABILITIES (ORION COMMUNICATIONS)
 
 On May 7, 2009, the Company entered into an assignment agreement with 9191-4200 Quebec Inc. (“9191”) in order to have the customer contracts of Orion Communications Inc., (“Orion”) an Ontario, Canada Company assigned to the Company for its management.  No consideration was paid however the Company and 9191 have agreed to share 50% each of the gross benefits received from the customer base. The consideration will take effect upon the customer base achieving $767,840 in profits ($767,840 @ 50% = $393.920, which is the goodwill on the transaction). Upon achievement of this threshold, the Company will pay 9191 a monthly commission that approximates 50% of the net profit generated by this customer base.
 
 9191 had provided to the Company a cash deposit of CDN$260,000 in order to have the Company facilitate an extension to its line of credit in order to assist with the management of the newly assigned customers.  As of September 30, 2009, the Company had repaid 9191 a total of CDN$241,972 and as a result, the amount outstanding is CDN$5,859 ($5,472) as of September 30, 2009.  The amount was considered as a cash advance and is not interest bearing.
 
 As part of the agreement, the Company was able to utilize the bank accounts of Orion for its daily transactions until the Company can establish its own banking facilities in Ontario.  The following highlights the summary of the amounts from May 1, 2009 to September 30, 2009:
 
 Opening Balance on May 1, 2009:
CDN$ 628,462Adjustment for payment on 9191 services:
CDN$   19,248Closing Balance on September 30, 2009:
CDN($696,537)Balance:
CDN($  48,827)
 
 The $48,827 CD$ represents the net cash paid by the Company in the acquisition of the customer base through September 30, 2009.
 
 As part of the agreement, the Company acquired certain supplier contracts in order to continue delivery of services to the assigned clients.  These suppliers had trade payables totaling CDN$487,046 as of May 1, 2009 and hence these became trade payables of the Company.
 
 As part of the agreement, the Company acquired certain receivables from the customers assigned, totaling CDN$54,299 as of May 1, 2009 and hence these became trade receivables of the Company.
  F-32
  TELIPHONE CORP.
 CONSOLIDATED FINANCIAL STATEMENTS
 FOR THE YEARS ENDED SEPTEMBER 30, 2009 AND 2008
  
 NOTE 12-
ACQUISITION OF CERTAIN ASSETS AND LIABILITIES (ORION COMMUNICATIONS) (CONTINUED)
 
 As a result, the following demonstrates the details of the assets and liabilities acquired:
 
 AssetsGoodwill (customer contracts)

$
327,901Accounts Receivable

$
46,686TOTAL ASSETS:

$
376,781LiabilitiesCurrent Supplier Payables

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

$
45,604
 
 NOTE 13-
SUBSEQUENT EVENTS
 
 On October 28, 2009, the Company settled a $242,538 payable with a non-related vendor for a lump sum payment of $121,269 (50 cents on the dollar). The forgiveness of debt of $121,269 will be reflected in the December 31, 2009 quarterly report.
  F-33
  ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  None
 
 ITEM 9A.
CONTROLS AND PROCEDURES
  Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
 
 Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934.  Based on this evaluation as of September 30, 2009, the end of the period covered by this Annual Report on Form 10-K, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective at a reasonable assurance level to ensure that the information required to be disclosed in reports filed or submitted under the Securities Exchange Act of 1934, including this Annual Report, were recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and was accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.  Our conclusion is based primarily on our inadvertent failure to file our management's assessment of internal controls over financial reporting in connection with the filing of Original Annual Report on Form 10-K for the period ending September 30, 2009, which failure stems, we believe, primarily from the fact that we have limited personnel on our accounting and financial staff.  We are in the process of considering changes in our disclosure controls and procedures in order to address the aforementioned failure to timely file the assessment.
  39
 Management’s Report on Internal Control over Financial Reporting
 
 Our management is responsible for establishing and maintaining adequate internal control over financial reporting.  Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
 
 ·
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;
 
 ·
Provide reasonable assurance that the transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
 
 ·
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.
 
 All internal control systems, no matter how well designed, have inherent limitations.  Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.  Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
 
 In connection with the filing of our Annual Report on Form 10-K, our management assessed the effectiveness of our internal control over financial reporting as of September 30, 2009.  In making this assessment, our management used the criteria set forth by Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework.  Based on our assessment using those criteria, management believes that, as of September 30, 2009, our internal control over financial reporting is effective based on those criteria.
 
 This annual report does not include an attestation report of our Company's registered public accounting firm regarding internal control over financial reporting.  Management's report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management's report in this annual report.
   Changes in Internal Controls
 
 There have been no changes in our internal controls over financial reporting or in other factors that could materially affect, or are reasonably likely to affect, our internal controls over financial reporting during the year ended September 30, 2009. There have not been any significant changes in the Company’s critical accounting policies identified since the Company filed its Form 10-K as of September 30, 2009.
 
 ITEM 9B.
OTHER INFORMATION
 
 None.
  40
 
 PART III
 
 
 ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
 
 The directors and executive officers as of December 23, 2009 are as follows:
 
 NAME
AGE
SERVED SINCE
POSITIONS WITH COMPANYGeorge Metrakos
38
April 28, 2005
Director, President, CEO, CFO
 
 All of our directors serve until their successors are elected and qualified by our shareholders, or until their earlier death, retirement, resignation or removal. The following is a brief description of the business experience of our executive officers, director and significant employees:
 
 Business Experience of Officers and the Director and Significant Employees
 
 GEORGE METRAKOS, Chairman of the Board, CEO, CFO and President
 
 Mr. Metrakos holds a Bachelor's of Engineering from Concordia University (Montreal, Canada) and a Master's of Business Administration (MBA) from the John Molson School of Business at Concordia University. Mr. Metrakos has specialized in numerous successful launches of new technologies for emerging marketplaces. He has worked with such organizations as Philips B.V. (The Netherlands), Dow Chemical company (USA), Hydro Quebec (Provincial Utility) and other entrepreneurial high-tech companies. During his founding role in his prior company, Mr. Metrakos was recognized as entrepreneur of the year in an angel financing competition within the Montreal business community awarded by the Montreal Chamber of Commerce youth wing. His previous company launched an advanced Demand Management software used by suppliers to Wal-Mart Stores.
 
 Employer's name

Beginning and ending

dates of employment

Positions Held

Brief Description of

Employer's businessGeorge Metrakos

Teliphone Inc.

Sep 1, 2004 to present

President

Telecommunications CompanyTeliphone Corp.

Apr 28, 2005 to present

President, CEO, CFO and Director

Holding CompanyUnited American Corp.

Nov 8, 2005 to Feb 22, 2008

President, CEO, CFO and Director

Holding CompanyMetratech Retail Systems Inc.

Mar 6, 2000 to Aug 31, 2004

President & Founder

Supply Chain

Management Software
 
 Compensation of Directors
 
 Mr. Metrakos, Chairman of the Board and sole Director, is also the Company’s President, CEO and CFO.  Mr. Metrakos does not receive compensation as a Director.  Mr. Metrakos does receive compensation as on officer as disclosed in the “Executive Compensation” section of this prospectus.
 
 Compliance with Section 16(a) of the Exchange Act.
 
 Section 16(a) of the Exchange Act requires our directors, executive officers and persons who own more than 10% of a required class of our equity securities, to file with the SEC initial reports of ownership and reports of changes in ownership of common stock and other equity securities of our company. Officers, directors and greater than 10% shareholders are required by SEC regulation to furnish us with copies of all Section 16(a) forms they file.
 41
  As of December 23, 2009, the Company’s sole officer and director, George Metrakos (and Metratech Business Solutions Inc. of which he is the beneficial owner) has filed reports required under section 16(a).
  As of December 23, 2009, one of the Company's principal shareholders, 3874958 Canada Inc., has filed reports required under section 16(a).
 
 Family Relationships
 
 There are no family relationships between any two or more of our directors or executive officers. There is no arrangement or understanding between any of our directors or executive officers and any other person pursuant to which any director or officer was or is to be selected as a director or officer, and there is no arrangement, plan or understanding as to whether non-management shareholders will exercise their voting rights to continue to elect the current board of directors. There are also no arrangements, agreements or understandings to our knowledge between non-management shareholders that may directly or indirectly participate in or influence the management of our affairs.
 
 Board Committees
 
 There are currently no Board Committees in place.
 
 ITEM 11.
EXECUTIVE COMPENSATION
 
 The following table sets forth the information, on an accrual basis, with respect to the compensation of our executive officers for the three years ended September 30, 2009.
 
 Summary Compensation Table
 
 Name and principal position

Year

Salary

($)

Bonus

($)

Stock awards

($)

Option awards

($)

Nonequity

incentive plan

compensation

($)

Nonqualified

deferred compensation

earnings

($)

All other

compensation

($)

Total

($)George Metrakos

2009

$
53,747













$
53,747CEO, CFO, President &

2008

$
36,789













$
36,789Chairman

2007

$
33,746













$
33,746
 
 Options and Stock Appreciation Rights Grant Table
 
 There were no grants of stock options to the Named Executive Officers during the fiscal year ended September 30, 2009.
 
 Aggregated Option Exercises and Fiscal Year-End Option Value Table
 
 We did not have any outstanding stock options or stock appreciation rights at end the fiscal year ended September 30, 2009.
 42
  Long-Term Incentive Plan Awards Table
 
 We do not have any Long-Term Incentive Plans.
 
 Compensation of Directors
 
 During 2009, we did not compensate any of our directors for their services as board members.
 
 Employment Agreements
 
 George Metrakos, Chairman, CEO, CFO, Principal Accounting Officer and President
 
 From October 1, 2008 to April 30, 2009, George Metrakos was compensated $0 annually by the Company as a base salary.  In lieu of base compensation, Mr. Metrakos was to be  be compensated as a percentage commission on funds raised to effectuate its growth business plan during the upcoming fiscal year.  Effective May 1, 2009, George Metrakos’ compensation was changed to that of CDN$120,000 ($104,264 as per US$-Cdn$ exchange rate of May 1, 2009) of annual compensation.
 
 On April 28, 2005, he received 961,538 shares of restricted stock of the corporation when he exchanged his 3.9% ownership holdings of Teliphone Inc. which he held prior to the merger and re-organization. These shares are issued to Metratech Business Solutions Inc., a Canadian company wholly owned by George Metrakos. (His additional holdings of 77,260, also issued to Metratech Business Solutions Inc., were provided through his ownership position in United American Corporation, prior to United American Corporation's spin-off of the Company in October, 2006.)
 
 Effective since the  the common stock of the Company was trading over the counter in June of 2008, George Metrakos is to receive 75,000 options on a quarterly basis at a value equivalent to the last 22 trading days stock value. This stock option plan has not been formalized or disclosed as of the date of this filing and as of December 23, 2009, no options have been issued..
 
 ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
 
 The following table sets forth certain information regarding beneficial ownership of the common stock as December 23, 2009 by (i) each person, entity or group that is known by the Company to own beneficially more than 5% of the any classes of outstanding Stock, (ii) each director of the Company, (iii) each of our named Executive Officers as defined in Item 402(a)(2) of Regulation S-B; and (iv) most highly compensated executive officers who earned in excess of $100,000 for all services in all capacities (collectively, the "Named Executive Officers") and (iv) all directors and executive officers of the Company as a group.
 
 The number and percentage of shares beneficially owned is determined in accordance with Rule 13d-3 and 13d-5 of the Exchange Act, and the information is not necessarily indicative of beneficial ownership for any other purpose. We believe that each individual or entity named has sole investment and voting power with respect to the securities indicated as beneficially owned by them, subject to community property laws, where applicable, except where otherwise noted. Unless otherwise stated, the address of each person is 194 St-Paul St West, suite 303, Montreal, Quebec, Canada H2Y 1Z8.
  43
 
 Name
Title

of

Class

Shares

Beneficially

Owned (1)


Percent

Class (1)George Metrakos (2)
Common


1,838,798



4.9
%Officers and Directors

As a Group (1 Person)
Common


1,838,798



4.9
%3874958 Canada Inc. (3)
Common


12,560,451



33.6
%Officers, Directors and

Certain Beneficial Owners

As a group (2 persons)
Common


14,549,249



38.5
%
 
 (1) Applicable percentage of ownership is based on 37,376,657shares of fully diluted common stock effective December 23, 2009, Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of common stock subject to options that are currently exercisable or exercisable within sixty days of December 23, 2009 are deemed to be beneficially owned by the person holding such options for the purpose of computing the percentage of ownership of such person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.
 
 (2) George Metrakos controls 1,838,798 shares of his stock through Metratech Business Solutions Inc of which he is the beneficial owner. 961,528 shares were received from the merger and re-organization of Teliphone Inc. and OSK Capital II Corp. in April 2005, 77,270 from his holdings of United American Corporation prior to United American Corporation's spin-off of the Company stock in October, 2006 and the balance of 950,000 shares received in a private shareholder exchange between himself and 3874958 Canada Inc. in December, 2007.
 
 (3) 3874958 Canada Inc. is owned by "Fiducie Familiale MAA" (MAA Family Trust), controlled by Ann Marie Poudrier.
 
 Changes in Control
 
 We are not aware of any arrangements, which may result in a change in control of the Company.
 
 ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
 
 We believe that all prior related party transactions have been entered into upon terms no less favorable to us than those that could be obtained from unaffiliated third parties. Our reasonable belief of fair value is based upon proximate similar transactions with third parties or attempts to obtain the consideration from third parties.
 
 Director Independence
 
 The Company is currently listed on the OTCBB (Over-the-Counter-Bulletin-Board) exchange. Since the OTCBB does not have its own rules for director independence, the Company has adopted the director independence definitions as proposed by the NASDAQ stock market.
 
 Mr. Metrakos is not an independent director of the Company since he is also an acting officer of the Company.
 44
  ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
 
 Year ended 2009:
 
 Audit Fees: The aggregate fees, including expenses, billed by the Company's principal accountant in connection with the audit of our consolidated financial statements for the most recent fiscal year and for the review of our financial information included in our Annual Report on Form 10-K; and our quarterly reports on Form 10-Q during the fiscal year ending September 30, 2009 was $27,500.
 
 Audit Related Fees: The aggregate fees, including expenses, billed by the Company's principal accountant for services reasonably related to the audit for the year ended September 30, 2009 were $0.00.
 
 All Other Fees: The aggregate fees, including expenses, billed for all other services rendered to the Company by its principal accountant during year ended September 30, 2009 was $0.00.
  Year ended 2008:
 
 Audit Fees: The aggregate fees, including expenses, billed by the Company's principal accountant in connection with the audit of our consolidated financial statements for the most recent fiscal year and for the review of our financial information included in our Annual Report on Form 10-K; and our quarterly reports on Form 10-Q during the fiscal year ending September 30, 2008 was $30,000.
 
 Audit Related Fees: The aggregate fees, including expenses, billed by the Company's principal accountant for services reasonably related to the audit for the year ended September 30, 2008 were $0.00.
 
 All Other Fees: The aggregate fees, including expenses, billed for all other services rendered to the Company by its principal accountant during year ended September 30, 2008 was $0.00.
 
 AUDITOR INDEPENDENCE
 
 Our Board of Directors considers that the work done for us in the year ended September 30, 2009 and September 30, 2008 by KBL, LLP is compatible with maintaining his independence.
 
 AUDITOR'S TIME ON TASK
 
 All of the work expended by KBL, LLP on our September 30, 2009 and 2008 respectively audits were attributed to work performed by their full-time, permanent employees.
 45
  ITEM 15.
EXHIBITS
 
 Exhibit

Number

Description2.1*

Agreement and Plan of Merger by and among Teliphone Inc. and OSK II Acquisition Corp. and OSK Capital II Corp.2.2*

Letter agreement between OSK Capital II Corp. and Teliphone Inc., dated April 25, 20053.1*

Articles of Incorporation (incorporated by reference from Registration Statement on Form 10-SB filed with the Securities and Exchange Commission on January 6, 2000).3.2*

Bylaws (incorporated by reference from Registration Statement on Form 10-SB filed with the Securities and Exchange Commission on January 6, 2000).4.1*

Specimen Common Stock Certificate (incorporated by reference from Registration Statement on Form 10-SB filed with the Securities and Exchange Commission on January 6, 2000).14.1*

Code of Ethics (incorporated by reference from the Annual Report on Form 10-KSB filed with the Securities and Exchange Commission on February 27, 2006).10.1.*

Distribution agreement made and entered into in the city of Montreal, province of Quebec with an effective date of March 1, 2006 by and between Teliphone Inc., and 9164-4898 Quebec Inc.10.2.*

Form of general conditions for use of the Company's telecommunications products and services.10.3.*

Letter of Intent for a Joint Venture Agreement between Teliphone Inc. and Intelco Communication Inc., dated July 14, 2006.10.4.*

Customer and Asset acquisition and software licensing agreement made and entered into in the city of Montreal, province of Quebec with an effective date of March 1, 2006 by and between Teliphone, Inc., Iphonia Inc., Telicom Inc. and United American Corporation.
 
 10.5*

Agreement between Teliphone Inc. and Northern Communications Services Inc.10.6*

Extension agreement between Teliphone Inc. and Podar Infotech Limited.10.7*

Agreement between Teliphone Inc. and Podar Infotech Limited, dated April 28, 2005.10.8*

Form of IP Port Service agreement, RNK Telecom.10.9*

Master Services Agreement between Teliphone Inc. and Rogers Telecom Inc.10.10*

Cash Advance agreement between related companies 3894517 Canada Inc. and Teliphone Inc. made and entered into in the city of Montreal, province of Quebec with an effective date of August 27, 2004 by and between Teliphone Inc., 3894517 Canada Inc., OSK Capital II Corp., and United American Corp.10.11*

Wholesale agreement made and entered into in the city of Montreal, province of Quebec by and between Teliphone Inc. and 951-4877 Quebec Inc.10.12*

Co-Location and Bandwidth Services Agreement, Peer 1 Network10.12-A*

Co-Location and Bandwidth Services Agreement, Peer 1 Network, executed copy
 46
  10.13*

Linksys Service Provider or SP Reseller Authorization Agreement - Americas10.14*

Amendment to agreement with BR Communications
 
 21.*

Subsidiaries23.2**

Consent of Independent Registered Public Accounting Firm (KBL, LLP)
 
 31.1**

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO RULES 13A-14 AND 15D-14 OF THE SECURITIES EXCHANGE ACT OF 193431.2**

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO RULES 13A-14 AND 15D-14 OF THE SECURITIES EXCHANGE ACT OF 193432.1**

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 200232.2**

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 200299.1*

Form of Subscription Agreement (incorporated by reference from Registration Statement on Form SB-2/A filed with the Securities and Exchange Commission on July 10, 2007).
 
 * Previously filed
 ** Filed herewith
 47
  SIGNATURES
 
 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 TELIPHONE CORP.Date: April 2, 2010
By:
/s/ George MetrakosGeorge MetrakosChief Executive Officer  TELIPHONE CORP.Date: April 2, 2010
By:
/s/ George MetrakosGeorge MetrakosPrincipal Financial Officer
 TELIPHONE CORP.Date: April 2, 2010
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: April 2, 2010
By:
/s/ George MetrakosGeorge MetrakosDirector