Exhibit 99.1
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Letterhead of Schwartz Levitsky Feldman LLP
AUDITORS' REPORT
To the Shareholder of TELIPHONE INC.
We have audited the balance sheet of Teliphone Inc., as at September 30, 2004,
and the statements of operations and deficit for the period from date of
inception, August 27, 2004 to September 30, 2004. These financial statements are
the responsibility of the Corporation's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. 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.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Corporation as at September 30, 2004,
and the results of its operations for the period from date of inception, August
27 2004, to September 30, 2004, in accordance with Canadian generally accepted
accounting principles.
/s/ Schwartz Levitsky Feldman LLP
Schwartz Levitsky Feldman LLP
Chartered Accountants LLP
Montreal, Quebec July 13, 2005
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Teliphone Inc. (A Development Stage Company)
Balance Sheet
As at September 30, 2004, December 31, 2004 and March 31, 2005.
(Amounts expressed in United States Dollars)
Three months FYEnd
Six months Ending September 30,
Ending December 31, 2004
March 31, 2005 2004 (Audited)
--------------- --------------- ---------------
Assets
Current
Cash $ 2,853 $ -- $ --
Accounts receivable 35,265 24,869 6,620
Sales tax receivable 6,873 17,731 --
Inventory 121,236 83,731 25,134
--------------- --------------- ---------------
166,227 126,331 31,394
Property, plant and equipment 108,366 105,048
274,593 231,379 31,394
Liabilities
Current
Bank indebtedness -- 45 --
Accounts payable 39,058 15,349 30,846
Loans payable 29,469 23,332 29,998
Loan payable - related company 436,617 435,760
--------------- --------------- ---------------
652,462 474,486 60,844
Shareholders' equity
Capital stock (note 3) 79 79 79
Additional paid up capital
(discount) -- -- --
Accumulated other comprehensive
income (loss) (5,965) (1,937) 1,691
Deficit (371,869) (241,249) (31,220)
--------------- --------------- ---------------
Total stockholders' deficit (377,869) (243,107) (29,450)
Total liabilities and
stockholders' deficit 274,593 231,370 31,394
1
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Teliphone Inc. (A Development Stage Company)
Statement of Operations and Deficit
For the Year Ended September 30, 2004 and the interim periods
December 31, 2004 and March 31, 2005.
(Amounts expressed in United States Dollars)
Three months FYEnd
Six months Ending September 30,
Ending December 31, 2004
March 31, 2005 2004 (Audited)
--------------- --------------- ---------------
Sales $ 78,793 $ 36,086 $ 3,447
Cost of sales
Inventory, beginning of period 30,814 30,814 --
Purchases 138,820 77,834 29,155
Inventory, end of period 121,236 83,731 25,134
--------------- --------------- ---------------
48,398 24,467 4,021
Gross profit 30,395 11,619 (574)
Expenses
Selling and promotion 124,857 76,497 --
Professional and consulting fees 106,673 70,003 25,575
Telecommunication and network
Costs 66,764 29,655 3,079
Salaries and wage levies 26,147 14,995 --
Interest on long-term debt 2,186 -- --
Telephone 2,713 1,660 --
Delivery and transport 10,283 8,305 --
Interest and service charges 2,164 1,556 --
Office and general 10,470 10,429 1,992
Amortization 18,901 8,548 --
--------------- --------------- ---------------
371,158 221,648 30,646
Net loss (340,763) (210,029) (31,220)
Net earnings (loss) per share (3,308.38) (2,100.30) (312.20)
Weighted average number of shares
outstanding 104 100 100
2
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Teliphone Inc. (A Development Stage Company)
Statement of Cash Flows
For the Year Ended September 30, 2004 and the interim periods
December 31, 2004 and March 31, 2005.
(Amounts Expressed in United States Dollars unless otherwise stated)
Three months FYEnd
Six months Ending September 30,
Ending December 31, 2004
March 31, 2005 2004 (Audited)
--------------- --------------- ---------------
Cash flow from operating activities
Net loss $ (340,763) $ (210,029) $ (31,220)
Adjustments
Amortization 18,901 8,548 --
--------------- --------------- ---------------
(321,862) (201,481) (31,220)
Changes in operating assets and liabilities
Accounts receivable (35,265) (24,869) (6,260)
Inventory (121,236) (83,731) (25,134)
Prepaid expenses -- -- --
Accounts payable and accrued
liabilities 39,058 15,349 30,846
Net cash used in operating activities (439,305) (294,732) (31,768)
Cash flow from financing activities
Issuance of share capital -- -- 79
Proceeds from loans payable 29,469 23,332 29,900
Proceeds from loans payable,
related companies 436,617 435,760 --
--------------- --------------- ---------------
466,086 459,092 29,979
Cash flow from investing activities
Acquisition of property, plant
and equipment (108,366) (105,048) --
Increase (Decrease) in cash (81,585) 59,312 --
Cash, beginning of period -- -- --
Cash (bank indebtedness), end of period (81,585) 59,312 --
Supplementary cash flow information:
Interest paid -- -- 912
3
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Teliphone Inc. (A Development Stage Company)
Notes to Pro Forma Consolidated Balance Sheet
For the Year Ended September 30, 2004 and the interim periods
December 31, 2004 and March 31, 2005.
(Amounts Expressed in United States Dollars unless otherwise stated)
1. Securities exchange agreement and reverse acquisition
Subsequent event: On April 28, Teliphone Inc., a private Canadian corporation
("Teliphone", "The Corporation"), entered into a Securities Exchange Agreement
with OSK Capital II Corp., a Nevada corporation ("OSK"). In exchange for the
acquisition of the 100% interest in Teliphone, the shareholders of Teliphone
were issued a total of 27,010,000 Common shares of OSK. Following the share
exchange, the former shareholders of Teliphone hold 88.8% of the 30,426,000
shares of common stock of OSK. Consequently, even though OSK is the legal
acquirer, this transaction will be treated as an acquisition of OSK by Teliphone
and as a recapitalization by Teliphone for accounting purposes.
2. Incorporation
The Corporation was incorporated on August 27, 2004, under the Canada
Business Corporation Act.
3. Nature of activities
The Corporation provides "Voice over Internet Protocol" (VOIP) services and
sells the related hardware to telephone subscribers in North America.
4. Significant accounting policies
The Corporation has applied the following significant accounting policies;
Inventory
Inventory is valued at the lower of cost and net realizable value, using the
first-in, first-out basis.
Revenue recognition
Revenues from VOIP services are recorded as they are earned.
Revenues from hardware sales are recorded once they have been delivered to the
subscriber.
All revenues recorded for the period ended September 30, 2004, relate to the
delivery of telephone hardware.
Foreign Currency Translation
Monetary assets and liabilities denominated in foreign currencies are translated
into Canadian dollars at rates of exchange in effect at the date of the
statement. Gains or losses are included in income for the year. Non-monetary
assets, liabilities and other items recorded in income arising from transactions
denominated in foreign currencies are translated at rates of exchange in effect
at the date of the transaction.
Use of Estimates
The preparation of financial statements in conformity with Canadian generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. By their nature, these estimates are
subject to measurement uncertainty and actual results could differ from these
estimates.
4
5. Accounts receivable
Trade Cdn$ 3,816
Sales taxes receivable 4,082
7,898
6. Accounts payable
Trade Cdn$ 1,106
Trade - parent company 30,812
Accrued liabilities 7,000
38,918
7. Loan payable
The loans payable are non-interest bearing unsecured and due on demand. The
Corporations are related by virtue of common management.
8. Share Capital
The corporation is authorized to issue an unlimited number of no par value
shares as follows:
Class A - voting, participating
Class B - non-voting, non-participating
Class C - voting at the rate of 100 votes per share, no entitlement to
dividends, redeemable and retractable at the amount paid thereon,
non-participating
Class D - non-voting, non-cumulative dividend at the rate of 1% per month,
redeemable and retractable at the amount paid thereon, non-participating
Class E - non-voting, non-cumulative dividend at the rate of 3/4 of 1% per
month, redeemable and retractable at the amount paid thereon, non-participating
Class F - non-voting, non-cumulative dividend at the rate of 1/12 of the
prime rate per month, of the amount paid thereon, redeemable and retractable at
the amount paid thereon, non-participating
Issued
- ------
100 Class 'A' shares $ 79
During the year, the Corporation issued 100 Class A shares for aggregate
proceeds of $79.
5
9. Related party transaction
During the period, the Corporation had purchases of Cdn$35,681, from its parent
company. The amount payable is included with accounts payable and accrued
liabilities as disclosed in Note 5.
The related party transaction was incurred in the ordinary course of business
and is measured at the exchange amounts agreed to by the related parties.
10. Financial instruments
Fair value of financial instruments
The carrying amount of accounts receivable and accounts payable and accrued
liabilities approximates their fair value due to the short-term maturities of
these items. The fair value of the loan payable is based upon discounted future
cash flows, using the current market rate for a similar debt and approximates
carrying value.
Currency risk
The Corporation is exposed to currency risks arising from import activities
denominated in foreign currencies. The Corporation monitors and, when
appropriate, utilizes financial instruments to manage its exposure to these
risks.
The following liability was recorded in U.S. currency and converted at the
prevailing Canadian exchange rates, as follows:
Loan payable $ 30,000
Credit risk
The Corporation is exposed to credit risk on the accounts receivable from its
customers. In order to reduce its credit risk, the Corporation has adopted
credit policies, which include the analysis of the financial position of its
customers and the regular review of credit limits.
Subsequent event
Between February 1, 2005 and May 31, 2005, the Corporation received aggregate
proceeds of $363,200 pursuant to the issuance of convertible debentures, bearing
interest at an annual rate of 10%.
11. Name change
On September 27, 2004, the Corporation changed its name from 4237561 Canada Inc.
to Teliphone Inc.
6
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(c) Consolidated Financial Statements, June 30, 2005.
OSK CAPITAL II CORPORATION
(A DEVELOPMENT STAGE COMPANY)
INTERIM CONSOLIDATED BALANCE SHEET
AS AT JUNE 30, 2005 (RE-STATED)
(Amounts expressed in United States Dollars)
June 30, 2005
(UNAUDITED)
(Re-stated)
---------------
ASSETS
Cash
Accounts receivable 49,635
Sales tax receivable 7,7963
Inventory 102,490
---------------
160,088
Capital assets 95,442
---------------
255,530
===============
LIABILITIES
Bank indebtedness 3,683
Accounts payable and accrued liabilities 42,852
Loans payable 50,291
Debentures payable 289,325
Loan payable - related company 309,998
---------------
696,149
---------------
STOCKHOLDERS' DEFICIENCY
Capital stock 3,043
Deficit (451,779)
Comprehensive income (loss) 8,117
Total stockholders' deficit (440,619)
---------------
Total liabilities and stockholders' deficit 255,530
===============
7
OSK CAPITAL II CORPORATION
(A DEVELOPMENT STAGE COMPANY)
INTERIM CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS AND NINE MONTHS PERIOD ENDED JUNE 30, 2005
AND FROM INCEPTION (RE-STATED)
(Amounts Expressed in United States Dollars)
Three months June 30, 2005 Nine months June 30, 2005 27 August 2004
(Re-stated) (Re-stated) (Inception) to
2005 2004 2005 2004 June 30, 2005
-------------- -------------- -------------- -------------- --------------
Sales 82,416 -- 160,775 -- 164,993
Cost of sales
Inventory, beginning of period 116,235 -- 30,814 -- 30,814
Purchases 32,154 -- 170,210 -- 205,891
-------------- -------------- --------------
148,389 -- 201,024 -- 236,705
Inventory, end of period 102,490 -- 102,490 -- 134,215
-------------- -------------- -------------- -------------- --------------
45,899 -- 98,534 -- 102,490
-------------- -------------- -------------- -------------- --------------
Gross profit 36,517 -- 62,241 -- 62,503
-------------- -------------- -------------- -------------- --------------
Operating expenses
Selling and promotion 59,164 -- 183,333 -- 183,333
Professional and consulting fees 26,207 -- 132,293 -- 246,564
Office and general 5,470 -- 15,884 -- 15,884
Deliver and Transport 1,796 -- 12,022 -- 12,022
Interest on long term debt 6,602 -- 8,776 -- 8,776
Interest and bank charges 730 -- 2,881 -- 2,881
Salaries and wage levies 14,613 -- 40,616 -- 40,616
Telecommunications network costs (10,773) -- 55,623 -- 59,390
Telephone 410 -- 3,107 -- 3,107
Amortization 9,468 -- 28,265 -- 28,265
-------------- -------------- -------------- -------------- --------------
113,687 -- 482,800 600,838
-------------- -------------- -------------- -------------- --------------
Net earnings (loss) (77,170) -- (420,559) (538,335)
Net earnings (loss) per common share
basic and diluted 5,524,587 -- 5,524,587
Weighted average number of common shares
used in calculation (0.01) -- (0.08)
8
OSK CAPITAL II CORPORATION
(A DEVELOPMENT STAGE COMPANY)
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS AND NINE MONTHS PERIOD ENDED JUNE 30, 2005
AND FROM INCEPTION (RE-STATED)
(Amounts Expressed in United States Dollars)
27 August 2004
Three months Nine months (Inception) to
June 30, 2005 June 30, 2005 September 30,
Cash flows from operating activities (Re-stated) (Re-stated) 2005
--------------- --------------- ---------------
Net earnings (loss) (77,170) (420,559) (420,559)
Amortization 9,468 28,265 28,265
Changes in operating assets and liabilities
Accounts receivable (14,370) (43,379) (43,379)
Sales tax (1,090) (7,963) (7,963)
Inventory 18,746 (77,356) (77,356)
Accounts payable and accrued liabilities 3,794 12,006 12,006
Net cash provided from (used in) operating activities (60,622) (537,251) (537,251)
Cash flows from financing activities
Issuance of share capital -- -- --
Proceeds from loan payable 20,882 20,293 20,293
Proceeds from loans payable, related companies (126,619) 309,998 309,998
Proceeds from debentures payable 142,007 289,325 289,325
Net cash provided from (used in) financing activities 39,883 632,299 623,299
Cash flows from investing activities
Acquisition of fixed assets 20,729 (86,048) (86,048)
Increase (decrease) in cash -- -- --
Cash, beginning of year -- -- --
Cash, end of year -- -- --
Supplementary cash flow information
Interest paid
9
OSK CAPITAL II CORPORATION
(A DEVELOPMENT STAGE COMPANY)
INTERIM CONSOLIDATED STATEMENT OF STOCKHOLDER'S DEFICIENCY
AS AT JUNE 30, 2005 (RE-STATED)
(Amounts Expressed in United States Dollars)
Deficit
Accumulated
Common Additional During the Total
stock Paid in Development Stockholder's
Shares Amount ($) Capital ($) Stage ($) Deficiency($)
--------------- --------------- --------------- --------------- ---------------
At August 27, 2004 -- -- -- -- --
Issue of stock for cash 100 79 -- -- --
Net loss for the year 2004 (31,220) (31,220)
--------------- --------------- --------------- --------------- ---------------
Balance, September 30, 2004 100 79 -- (31,220) (31,220)
Recapitalization pursuant
to reverse acquisition 30,425,900 2,964 -- -- --
Net loss for the nine months
ended June 30, 2005 -- -- -- (420,559) (420,559)
--------------- --------------- --------------- --------------- ---------------
Balance, June 30, 2005 30,426,000 3,043 -- (451,779) (451,779)
10
OSK CAPITAL II CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2005 (RE-STATED)
(Amounts Expressed in United States Dollars)
1. BASIS OF CONSOLIDATION
The consolidated financial statements include accounts of OSK Capital II
Corporation and its wholly owned subsidiary Teliphone Inc. for the nine month
period ended June 30, 2005.
2. INTERIM REPORTING
While the information presented in the accompanying consolidated interim three
months financial statements is unaudited, it includes all adjustments, which are
in the opinion of management necessary to present fairly the consolidated
financial position, results of operations for the interim consolidated periods
presented. All adjustments are normal recurring nature. It is suggested that
these Interim consolidated financial statements be read in conjunction with the
company's September 30, 2004 annual financial statements.
3 CAPITAL STOCK
Authorized
The Company is authorized to issue 125,000,000 shares of common stock at$0.001
par value as at September 30, 2004, 3,416,000 shares were issued and
outstanding.
On July 29, 2004, the company amended its certificate of incorporation to
increase the number of authorized shares of common stock from 25,000,000 to
125,000,000.
There are no warrants or options outstanding to issue any additional shares of
common stock.
During the period the company entered into a share purchase agreement to acquire
all of the outstanding shares of Teliphone Inc. through the issuance of
30,425,900 common shares of its share capital with a stated par value of
$0.0001.
4. MERGER AND RECAPITALIZATION
The merger with Teliphone Inc., a Canadian corporation was consummated on June
8, 2005. The merger was accounted for as a recapitalization of Teliphone inc.,
the results of operations for periods prior to the merger are those of Teliphone
Inc., Teliphone Inc.'s accumulated deficit was brought forward, and Teliphone
Inc.'s historical stockholder's equity prior to the merger was retroactively
restated for the equivalent number of shares received in the merger.
11
(d) Exhibits
Exhibits Description
- -------- -----------
99.1 Agreement and Plan of Merger by and between Teliphone Inc., OSK II
Acquisition Corp. and OSK Capital Corp., dated April 28, 2005. (1)
99.2 Pro Forma Financial Statements.
OSK CAPITAL II CORPORATION
(A Development Stage Company)
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2004
(Unaudited)
(In United States Dollars)
TABLE OF CONTENTS
Pro Forma Consolidated Balance Sheets as at September 30, 2004 1
Pro Forma Consolidated Statement of Operations and Deficit 2
Notes to Pro Forma Consolidated Financial Statements 3 - 4
12
OSK CAPITAL II CORPORATION
(A Development Stage Company)
Pro Forma Consolidated Balance Sheet
As at September 30, 2004
(Unaudited)
(Amounts expressed in United States Dollars) Page 1
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OSK Capital II Teliphone Pro forma
Corporation Inc. adjustments Pro forma
-------------- -------------- -------------- --------------
Assets
Current
Cash $ 460 $ -- $ -- $ 460
Accounts receivable -- 6,260 -- 6,260
Inventory -- 25,134 -- 25,134
-------------- -------------- -------------- --------------
$ 460 $ 31,394 $ -- $ 31,854
============== ============== ============== ==============
Liabilities
Current
Accounts payable $ 2,500 $ 30,846 $ -- $ 33,346
Loans payable 8,200 29,998 -- 38,198
-------------- -------------- -------------- --------------
10,700 60,844 -- 71,544
-------------- -------------- -------------- --------------
Shareholders' equity
Capital stock (note 3) 3,416 79 26,931 30,426
Additional paid up capital (discount) 66,554 -- (107,141) (40,587)
Accumulated other comprehensive
income (loss) -- 1,691 -- 1,691
Deficit (80,210) (31,220) 80,210 (31,220)
-------------- -------------- -------------- --------------
Total stockholders' deficit (10,240) (29,450) -- (39,690)
-------------- -------------- -------------- --------------
Total liabilities and stockholders'
Deficit $ 460 $ 31,394 $ -- $ 31,854
============== ============== ============== ==============
13
OSK CAPITAL II CORPORATION
(A Development Stage Company)
Pro Forma Consolidated Statement of Operations and Deficit
For the Year Ended September 30, 2004
(Unaudited)
(Amounts expressed in United States Dollars) Page 2
- --------------------------------------------------------------------------------
OSK Capital II Teliphone Pro forma
Corporation Inc. adjustments Pro forma
-------------- -------------- -------------- --------------
Sales $ -- $ 3,447 $ -- $ 3,447
-------------- -------------- -------------- --------------
Cost of sales
Inventory, beginning
of period -- -- -- --
Purchases -- 29,155 -- 29,155
-------------- -------------- -------------- --------------
-- 29,155 -- 29,155
Inventory, end of
period -- 25,134 -- 25,134
-------------- -------------- -------------- --------------
-- 4,021 -- 4,021
-------------- -------------- -------------- --------------
Gross profit -- (574) -- (574)
-------------- -------------- -------------- --------------
Expenses
Professional and
consulting fees 10,417 25,575 -- 35,992
Telecommunication and
Network costs -- 3,079 -- 3,079
Office and general 125 1,992 -- 2,117
-------------- -------------- -------------- --------------
10,542 30,646 -- 41,188
-------------- -------------- -------------- --------------
Net loss $ (10,542) $ (31,220) $ -- $ (41,762)
============== ============== ============== ==============
Net earnings (loss) per
share $ -- $ -- $ -- $ (0.02)
============== ============== ============== ==============
Weighted average number
of shares outstanding -- -- -- 2,500,767
============== ============== ============== ==============
14
OSK CAPITAL II CORPORATION
(A Development Stage Company)
Notes to Pro Forma Consolidated Balance Sheet
September 30, 2004
(Unaudited)
(Amounts Expressed in United States Dollars)
- --------------------------------------------------------------------------------
1. Securities exchange agreement and reverse acquisition
On April 28, 2005 OSK Capital II Corp. ("OSK"), a publicly traded company,
entered into a Securities Exchange Agreement with Teliphone Inc., a
Canadian corporation ("Teliphone"). In exchange for the acquisition of the
100% interest in Teliphone, the shareholders of Teliphone were issued a
total of 27,010,000 Common shares of OSK. Following the share exchange,
the former shareholders of Teliphone hold 88.8% of the 30,426,000 shares
of common stock of OSK. Consequently, even though OSK is the legal
acquirer, this transaction will be treated as an acquisition of OSK by
Teliphone and as a recapitalization by Teliphone for accounting purposes.
2. Pro-forma financial statements
The unaudited pro-forma consolidated financial statements are provided for
information purposes only and do not purport to represent what the
consolidated financial statements and results of operations would have
been had the acquisition and recapitalization in fact occurred on the
dates indicated. The unaudited pro-forma consolidated balance sheets
represent the financial position of Teliphone and OSK as of September 30,
2004. The unaudited pro-forma consolidated statements of operations give
effect to the proposed recapitalization of Teliphone and OSK for the
period ended September 30, 2004 assuming the merger occurred in the
earliest period. The unaudited pro-forma consolidated financial statements
are presented for illustrative purposes only. The pro-forma adjustments
are based upon available information and assumptions that management
believes are reasonable.
There are no intercompany transactions between Teliphone and OSK during
the period presented.
3. Assumptions and pro forma adjustments
a) During the period the company entered into a share purchase
agreement to acquire all of the outstanding shares of Teliphone Inc.
through the issuance of 27,010,000 common shares of its share
capital with a stated par value of $0.001.
15
4. Capital stock
Authorized
125,000,000 Common stock, $0.001 par value
The transactions included in the company's capital stock form the
transactions described previously.
Number of
shares Amount
---------- ----------
Balance, prior to pro forma
adjustments 100 $ 79
Recapitalization pursuant
to the reverse acquisition 30,425,900 30,347
---------- ----------
Balance, subsequent to pro forma
adjustments 30,426,000 $ 30,426
========== ==========
16
OSK CAPITAL II CORPORATION
(A Development Stage Company)
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
(Unaudited)
(In United States Dollars)
TABLE OF CONTENTS
Pro Forma Consolidated Balance Sheets as at December 31, 2004 1 - 2
Pro Forma consolidated Statement of Operations and Deficit 3
Notes to Pro Forma Consolidated Financial Statements 4 - 5
17
OSK CAPITAL II CORPORATION
(A Development Stage Company)
Pro Forma Consolidated Balance Sheet
As at December 31, 2004
(Unaudited)
(Amounts expressed in United States Dollars) Page 1
- --------------------------------------------------------------------------------
OSK Capital II Teliphone Pro forma
Corporation Inc. adjustments Pro forma
-------------- -------------- -------------- --------------
Assets
Current
Cash $ 1,041 $ -- $ -- $ 1,041
Accounts receivable -- 24,869 -- 24,869
Sales tax receivable -- 17,731 -- 17,731
Inventory -- 83,731 -- 83,731
Loan receivable 1,000 -- -- 1,000
-------------- -------------- -------------- --------------
2,041 126,331 -- 128,372
-------------- -------------- -------------- --------------
Property, plant and equipment -- 105,048 -- 105,048
-------------- -------------- -------------- --------------
$ 2,041 $ 231,379 $ -- $ 233,420
============== ============== ============== ==============
18
OSK CAPITAL II CORPORATION
(A Development Stage Company)
Pro Forma Consolidated Balance Sheet
As at December 31, 2004
(Unaudited)
(Amounts expressed in United States Dollars) Page 2
- --------------------------------------------------------------------------------
OSK Capital II Teliphone Pro forma
Corporation Inc. adjustments Pro forma
-------------- -------------- -------------- --------------
\Liabilities
Current
Bank indebtedness $ -- $ 45 $ -- $ 45
Accounts payable 2,500 15,349 -- 17,849
Loans payable -- 23,332 -- 23,332
Loan payable - parent company -- 435,760 -- 435,760
Advance from shareholders 11,200 -- -- 11,200
-------------- -------------- -------------- --------------
13,700 474,486 -- 488,186
-------------- -------------- -------------- --------------
Shareholders' equity
Capital stock (note 3) 3,416 79 26,931 30,426
Additional paid up capital
(discount) 66,554 -- (108,560) (42,006)
Accumulated other comprehensive
income (loss) -- (1,937) -- (1,937)
Deficit (81,629) (241,249) 81,629 (241,249)
-------------- -------------- -------------- --------------
Total stockholders' deficit (11,659) (243,107) -- (254,766)
-------------- -------------- -------------- --------------
Total liabilities and
stockholders' deficit $ 2,041 $ 231,379 $ -- $ 233,420
============== ============== ============== ==============
OSK CAPITAL II CORPORATION
(A Development Stage Company)
Pro Forma Consolidated Statement of Operations and Deficit
For the Three Months Period Ended December 31, 2004
(Unaudited)
(Amounts expressed in United States Dollars) Page 3
- --------------------------------------------------------------------------------
OSK Capital II Teliphone Pro forma
Corporation Inc. adjustments Pro forma
-------------- -------------- -------------- --------------
Sales $ -- $ 36,086 $ -- $ 26,086
-------------- -------------- -------------- --------------
Cost of sales
Inventory, beginning
of period -- 30,814 -- 30,814
Purchases -- 77,384 -- 77,384
-------------- -------------- -------------- --------------
-- 108,198 -- 108,198
Inventory, end of period -- 83,731 -- 83,731
-------------- -------------- -------------- --------------
-- 24,467 -- 24,467
-------------- -------------- -------------- --------------
Gross profit -- 11,619 -- 11,619
-------------- -------------- -------------- --------------
Expenses
Selling and promotion -- 76,497 -- 76,497
Professional and
consulting fees 1,045 70,003 -- 71,048
Telecommunication
network costs -- 29,655 -- 29,655
Salaries and wage levies -- 14,995 -- 14,995
Telephone -- 1,660 -- 1,660
Delivery and transport -- 8,305 -- 8,305
Interest and service charges 374 1,556 -- 1,930
Office and general -- 10,429 -- 10,429
Amortization -- 8,548 -- 8,548
-------------- -------------- -------------- --------------
1,419 221,648 -- 223,067
-------------- -------------- -------------- --------------
Net loss $ (1,419) $ (210,029) $ -- $ (211,448)
============== ============== ============== ==============
Net earnings (loss) per share $ -- $ -- $ -- $ (0.08)
============== ============== ============== ==============
Weighted average number
of shares outstanding -- -- -- 2,500,767
============== ============== ============== ==============
19
OSK CAPITAL II CORPORATION
(A Development Stage Company)
Notes to Pro Forma Consolidated Balance Sheet
December 31, 2004
(Unaudited)
(Amounts Expressed in United States Dollars) Page 4
- --------------------------------------------------------------------------------
1. Securities exchange agreement and reverse acquisition
On April 28, 2005 OSK Capital II Corp. ("OSK"), a publicly traded company,
entered into a Securities Exchange Agreement with Teliphone Inc., a
Canadian corporation ("Teliphone"). In exchange for the acquisition of the
100% interest in Teliphone, the shareholders of Teliphone were issued a
total of 27,010,000 Common shares of OSK. Following the share exchange,
the former shareholders of Teliphone hold 88.8% of the 30,426,000 shares
of common stock of OSK. Consequently, even though OSK is the legal
acquirer, this transaction will be treated as an acquisition of OSK by
Teliphone and as a recapitalization by Teliphone for accounting purposes.
2. Pro-forma financial statements
The unaudited pro-forma consolidated financial statements are provided for
information purposes only and do not purport to represent what the
consolidated financial statements and results of operations would have
been had the acquisition and recapitalization in fact occurred on the
dates indicated. The unaudited pro-forma consolidated balance sheets
represent the financial position of Teliphone and OSK as of December 31,
2004. The unaudited pro-forma consolidated statements of operations give
effect to the proposed recapitalization of Teliphone and OSK for the
period ended December 31, 2004 assuming the merger occurred in the
earliest period. The unaudited pro-forma consolidated financial statements
are presented for illustrative purposes only. The pro-forma adjustments
are based upon available information and assumptions that management
believes are reasonable.
There are no intercompany transactions between Teliphone and OSK during
the period presented.
3. Assumptions and pro forma adjustments
a) During the period the company entered into a share purchase
agreement to acquire all of the outstanding shares of Teliphone Inc.
through the issuance of 27,010,000 common shares of its share
capital with a stated par value of $0.001.
4. Capital stock
Authorized
125,000,000 Common stock, $0.001 par value
The transactions included in the company's capital stock form the
transactions described previously.
Number of
shares Amount
---------- ----------
Balance, prior to pro forma
adjustments 100 $ 79
Recapitalization pursuant
to the reverse acquisition 30,425,900 30,347
---------- ----------
Balance, subsequent to pro forma
adjustments 30,426,000 $ 30,426
========== ==========
20
OSK CAPITAL II CORPORATION
(A Development Stage Company)
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2005
(Unaudited)
(In United States Dollars)
TABLE OF CONTENTS
Pro Forma Consolidated Balance Sheets as at March 31, 2005 1 - 2
Pro Forma Consolidated Statement of Operations and Deficit 3
Notes to Pro Forma Consolidated Financial Statements 4 - 5
21
OSK CAPITAL II CORPORATION
(A Development Stage Company)
Pro Forma Consolidated Balance Sheet
As at March 31, 2005
(Unaudited)
(Amounts expressed in United States Dollars) Page 1
- --------------------------------------------------------------------------------
OSK Capital II Teliphone Pro forma
Corporation Inc. adjustments Pro forma
-------------- -------------- -------------- --------------
Assets
Current
Cash $ 1,041 $ 2,853 $ -- $ 3,894
Accounts receivable -- 35,265 -- 35,265
Sales tax receivable -- 6,873 -- 6,873
Inventory -- 121,236 -- 121,236
Loan receivable 1,000 -- -- 1,000
-------------- -------------- -------------- --------------
2,041 166,227 -- 168,268
-------------- -------------- -------------- --------------
Capital assets -- 108,366 -- 108,366
-------------- -------------- -------------- --------------
$ 2,041 $ 274,593 $ -- $ 276,634
============== ============== ============== ==============
22
OSK CAPITAL II CORPORATION
(A Development Stage Company)
Pro Forma Consolidated Balance Sheet
As at March 31, 2005
(Unaudited)
(Amounts expressed in United States Dollars) Page 2
- --------------------------------------------------------------------------------
OSK Capital II Teliphone Pro forma
Corporation Inc. adjustments Pro forma
-------------- -------------- -------------- --------------
Liabilities
Current
Accounts payable $ 3,300 $ 39,058 $ -- $ 42,358
Loans payable 29,469 -- 29,469
Loan payable - parent
company 436,617 -- 436,617
Debentures payable 147,318 -- 147,318
Advance from shareholders 11,200 -- -- 11,200
-------------- -------------- -------------- --------------
14,500 652,462 -- 666,962
-------------- -------------- -------------- --------------
Shareholders' equity
Capital stock (note 3) 3,416 79 26,930 $ 30,426
Additional paid up capital 66,554 -- (109,360) (42,806)
Comprehensive income (loss) -- (5,965) -- (5,965)
Deficit (82,429) (371,983) 82,429 (371,983)
-------------- -------------- -------------- --------------
Total stockholders' deficit (12,459) (377,869) -- (390,328)
-------------- -------------- -------------- --------------
Total liabilities
and stockholders' deficit $ 2,041 $ 274,593 $ -- $ 276,634
============== ============== ============== ==============
23
OSK Capital II Teliphone Pro forma
Corporation Inc. adjustments Pro forma
-------------- -------------- -------------- --------------
Sales $ -- $ 78,793 $ -- $ 78,793
-------------- -------------- -------------- --------------
Cost of sales
Inventory, beginning
of period -- 30,814 -- 30,814
Purchases -- 138,820 -- 138,820
-------------- -------------- -------------- --------------
169,634 -- 169,634 --
Inventory, end of period -- 121,236 -- 121,236
-------------- -------------- -------------- --------------
-- 48,398 -- 48,398
-------------- -------------- -------------- --------------
Gross profit -- 30,395 -- 30,395
-------------- -------------- -------------- --------------
Expenses
Selling and promotion -- 124,857 -- 124,857
Professional and consulting fees 1,845 106,673 -- 108,518
Telecommunication network costs -- 66,764 -- 66,764
Salaries and wage levies -- 26,147 -- 26,147
Interest on long-term debt -- 2,186 -- 2,186
Delivery and transport -- 10,283 -- 10,283
Telephone -- 2,713 -- 2,713
Interest and service charges -- 2,164 -- 2,164
Office and general 374 10,470 -- 10,844
Amortization -- 18,901 -- 18,901
-------------- -------------- -------------- --------------
2,219 371,158 -- 373,377
-------------- -------------- -------------- --------------
Net loss $ (2,219) $ (340,763) $ -- $ (342,982)
============== ============== ============== ==============
Net earnings (loss) per share $ -- $ -- $ -- $ (0.14)
============== ============== ============== ==============
Weighted average number of
shares outstanding -- -- -- 2,500,767
============== ============== ============== ==============
24
OSK CAPITAL II CORPORATION
(A Development Stage Company)
Notes to Pro Forma Consolidated Balance Sheet
March 31, 2005
(Unaudited)
(Amounts Expressed in United States Dollars) Page 4
- --------------------------------------------------------------------------------
1. Securities exchange agreement and reverse acquisition
On April 28, 2005 OSK Capital II Corp. ("OSK"), a publicly traded company,
entered into a Securities Exchange Agreement with Teliphone Inc., a
Canadian corporation ("Teliphone"). In exchange for the acquisition of the
100% interest in Teliphone, the shareholders of Teliphone were issued a
total of 27,010,000 Common shares of OSK. Following the share exchange,
the former shareholders of Teliphone hold 88.8% of the 30,426,000 shares
of common stock of OSK. Consequently, even though OSK is the legal
acquirer, this transaction will be treated as an acquisition of OSK by
Teliphone and as a recapitalization by Teliphone for accounting purposes.
2. Pro-forma financial statements
The unaudited pro-forma consolidated financial statements are provided for
information purposes only and do not purport to represent what the
consolidated financial statements and results of operations would have
been had the acquisition and recapitalization in fact occurred on the
dates indicated. The unaudited pro-forma consolidated balance sheets
represent the financial position of Teliphone and OSK as of March 31,
2005. The unaudited pro-forma consolidated statements of operations give
effect to the proposed recapitalization of Teliphone and OSK for the
period ended March 31, 2005 assuming the merger occurred in the earliest
period. The unaudited pro-forma consolidated financial statements are
presented for illustrative purposes only. The pro-forma adjustments are
based upon available information and assumptions that management believes
are reasonable.
There are no intercompany transactions between Teliphone and OSK during
the period presented.
3. Assumptions and pro forma adjustments
a) During the period the company entered into a share purchase
agreement to acquire all of the outstanding shares of Teliphone Inc.
through the issuance of 27,010,000 common shares of its share
capital with a stated par value of $0.001.
4. Capital stock
Authorized
125,000,000 Common stock, $0.001 par value
The transactions included in the company's capital stock form the
transactions described previously.
Number of
shares Amount
------------ ------------
Balance, prior to pro forma
adjustments 100 $ 79
Recapitalization pursuant
to the reverse acquisition 30,425,900 30,347
------------ ------------
Balance, subsequent to pro forma
adjustments 30,426,000 $ 30,426
============ ============
(1) Incorporated by reference to the Form 8-K filed with the Securities and
Exchange Commission on May 11, 2005.
25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
DATE: September 7, 2005
/s/ George Metrakos
--------------------
George Metrakos
President & CEO
OSK Capital II Corp.
26