OSK CAPITAL II CORP
June 6, 2006
VIA EDGAR
Tia Jenkins
Brian K. Bhandari
United States Securities and Exchange Commission
Division of Corporate Finance
Mail Stop 3561
Washington, D.C., 20549
Re: OSK Capital II Corp. comment letter dated April 27, 2006
Dear Ms. Jenkins and Mr. Bhandari,
We have reviewed your letter dated April 27, 2006 concerning the following
comments. Under each comment we have responded and have provided additional
information to bring about a resolution of these matters. At any time we would
welcome you contacting us concerning any of the additional information or our
interpretations of the information.
Form 10-QSB/A for the period ended June 30, 2005
Financial Statements
Notes to Financial Statements
1. We reviewed your response to our prior comment 2, noting an explanatory
statement inserted as an introduction to financial statements. Your
response did not address our comment, thus the comment will be
reissued. We note your interim financial statements have been restated.
Please provide a note to the financial statements that thoroughly
explains and quantifies all revisions made as required by paragraph 37
of APB 20. In your note to the financial statements, tabular
presentation showing the original amount, restated amount and
difference would be appropriate.
RESPONSE
In the re-stated interim financial statements of June 30, 2005 on form 10-QSB
filed on April 7, 2006, we have amended the following items on the financial
statements:
The only changes made were the following:
o The statements of operations and cash flows in the filing has properly
indicated the inception date of August 27, 2004 (the inception date of
Teliphone Inc.) versus the inception date of March 2, 1999, the inception
date of OSK Capital II Corp. Due to the reverse-merger nature of the
acquisition, Teliphone Inc.'s inception date is used.
o We have added an additional note to the disclosure which appears as an
explanatory note at the beginning of the filing and in the Notes to the
Financial statements:
o NOTE 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.
With regards to any quantitative changes performed in the re-statement, we have
provided the following highlights of these changes in tabular form, and will
included them as well in the amended filing:
Original filing Re-Stated Filing Change
3 mths 9mths 3 mths 9 mths
------ ----- ------ ------
Total Assets 255,530 N/A 255,530 N/A No Change
Total Liabilities 696,149 N/A 696,149 N/A No Change
Total Stockholder's Deficit (440,619) N/A (440,619) N/A No Change
Total Revenues 82,416 160,775 82,416 160,775 No Change
Gross Profit 36,517 62,241 36,517 62,241 No Change
Net Earnings (Loss) (77,170) (420,559) (77,170) (420,559) No Change
Net Earnings (Loss) per common share (0.03) (0.17) (0.01) (0.08) Updated to reflect
basic and diluted re-capitalization
Weighted average number of common shares 2,500,767 2,500,767 5,524,587 5,524,587 Updated to reflect
used in calculation re-capitalization
Form 10-KSB/A for the year ended September 30, 2005
Management's Discussion and Analysis of Results of Operations and
Financial Condition
2. We have reviewed your response to our prior comment 3, noting a
majority of your revenue was derived from sales to residential
customers. Please revise MD&A to describe and quantify your sources
of revenue (ie. Residential and business)
RESPONSE
For the period ending September 30, 2005, we earned total revenues of $183,253
from Residential and Business Customers. Our Residential customers accounted for
$161,453 and our Business customers accounted for $21,800.
We will update our disclosure to include the following:
The Company recorded sales of $183,253 for the year ended September 30, 2005 as
compared to $3,447 for the period August 27, 2004 through September 30, 2004.
This revenue was derived from the sale of VoIP hardware and services to
Residential ($161,453) and Business ($21,800) customers. For the period ending
September 30, 2004, all revenues were attributed to Residential customers.
Financial Statements
Report of Independent Public Accounting Firm - 2004
3. We note you included the report of Schwartz Levitsky Feldman LLP,
dated July 13, 2005, for the period ended September 30, 2004. We
note this report is dated as of the same date as the report that has
been filed in your amended Form 8-K in response to our prior comment
1. As your 2004 financial statements (included in form 10-KSB/A)
have been restated to give effect to the recapitalization, please
revise to include an updated audit report, dual dated if necessary,
that provides assurance on these restated financial statements.
RESPONSE
In conversation with our auditor Michael Pollack and Schwartz Levitsky Feldman
LLP, it has been discovered that we performed an error in collating our
documents prior to filing the 10-KSB/A on April 7, 2006. The Schwartz Levitsky
Feldman LLP auditor letter identified on Page 2 "Report of Independent
Registered Public Accounting Firm - 2004" should have been the letter which was
produced by Schwartz Levitsky Feldman LLP, dated April 21, 2005, filed in our
September 30 2004 Annual report on form 10-KSB dated May 4, 2005.
The letter to be incorporated in our subsequent amended filing will be as
follows:
SCHWARTZ LEVITSKY FELDMAN LLP
COMPTABLES AGREES
CHARTERED ACCOUNTANTS
MONTREAL, TORONTO, OTTAWA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders of
OSK Capital II Corporation
(A Development Stage Company)
We have audited the balance sheets of OSK Capital II Corporation (A Development
Stage Company) as at September 30, 2004 and the related statements of operations
and stockholders' equity and cash flows for the years then ended September 30,
2004 and 2003. These financial statements are the responsibility of the
company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board in the United States. Those standards require that we
plan and perform an audit to obtain reasonable assurance whether the financial
statements are free of material misstatements. 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 audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of OSK Capital II Corporation as
at September 30, 2004 and 2003 and the results of its operations and its cash
flows for each of the year ended September 30, 2004 and 2003, in conformity with
generally accepted accounting principles in the United States of America.
The accompanying financial statements have been prepared assuming the company
will continue as a going concern. As outlined in note 1 to the financial
statements, the company has no established source of revenue and has not
commenced any commercial operations. This raises substantial doubt that its
ability to continue as a going concern. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
The financial statements as at September 30, 2003 and for the year then ended,
as well as the cumulative period from March 2, 1999 (date of inception) to
September 30, 2003 were audited by other auditors who expressed an opinion
without reservation on the statements in their report dated December 1, 2003.
/s/ Schwartz Levitsky Feldman LLP
Montreal, Quebec
April 21, 2005
4. The audit report filed in the Form 10-KSB must state compliance with
the "standards of the Public Company Accounting Oversight Board
(United States)." Please advise your independent account to refer to
PCAOB Auditing Standard No. 1, undertake to perform the necessary
additional audit procedures (if applicable), and revise the report.
RESPONSE
Please note response to comment 3 above.
5. Your audit report discloses that your 2004 financial statements have
been prepared in accordance with Canadian GAAP, yet you disclose in
Note 2 that your financial statements are prepared in accordance
with U.S. GAAP. Since you were incorporated in Nevada, you are
considered to be a domestic issuer regardless of the present
location of your operations and you must present your financial
statements for all required periods in accordance with US GAAP.
Please revise to present the financial statements for all periods in
accordance with US GAAP and advise the independent auditor to revise
its report to refer to US GAAP. The date of the audit report should
be revised appropriately.
RESPONSE
Please note response to comment 3 above.
Revenue Recognition, page 10
6. We reviewed your response to our prior comment 11, noting you sell
your hardware device at a subsidized price and then recover the cost
through monthly service revenues. We also note that the hardware
device can only be used with your services and is unusable if the
client does not renew your service, with the revenue for the
hardware device being recognized upon delivery. Based on the
guidance in EITF 00-21, it appears your hardware device and monthly
service fee represent one unit of accounting resulting in hardware
device revenue being deferred and recognized ratably over the term
of the service agreement. Please advise or revise your financial
statements accordingly.
RESPONSE
We have further revised our disclosure with regards to the guidance in EITF
00-21 and will amend our filing to include the following, more detailed
description for our Revenue Recognition:
When the Company emerged from the development stage with the acquisition of
Teliphone, Inc. they began to recognize revenue from their VoIP services when
the services were rendered and customer equipment purchased as follows:
VoIP Service Revenue
Substantially all of the Company's revenues are derived primarily from monthly
subscription fees that customers are charged under the Company's service plans.
Monthly subscription fees are generally charged to customers' credit cards on
the first day of the customers' billing cycle.
The Company records these revenues monthly and the revenues generated are for
the most part through retail channels.
Under typical contracts, customers subscribe for a period of two years.
Customer Equipment
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 re-seller. The customer
accepts the terms of the service agreement upon activation by credit card.
Should the customer satisfy the minimum service period requirements, the
equipment charge is refunded over a three-month period, reflected in the monthly
service charge bill.
For wholesale customers, there are no refunds for equipment. The Company does
not subsidize equipment sales to wholesale customers.
Activation and Disconnect Fees
The Company also generates revenue from initial activation fees associated with
the service contracts, and disconnect fees associated with early termination of
service contracts. These fees are included in service revenue as they are
considered part of the service component.
Recognition
The Company recognizes revenue utilizing the guidance set forth in EITF 00-21,
"Revenue Arrangements with Multiple Deliverables". Under a retail agreement, the
cost of the equipment is recognized as deferred revenue, and amortized over the
length of the service agreement. Upon satisfying the minimum service
requirements the equipment charges are refunded through subsequent billings
netting out this charge against service charges. Upon refund, the deferred
revenue is fully amortized.
Under a wholesale agreement, the equipment charge is recognized upon delivery of
the equipment to the reseller. There is no refund in this instance.
The Company commenced sales in September 2004. The Company is still essentially
in the beginning phases of securing distribution channels and updates their
service plans to remain competitive in this industry. The Company incurred some
promotional expenses in their initial year of operation to satisfy customer
demand for this service, and equipment sales were not significant. As a result,
deferred revenue was not material since minimum service requirements were
achieved for the units sold.
Note 10 - Subsequent Events, page 19
7. We reviewed your response to our prior comment 13 and it appears
that you plan to account for the transaction with Iphonia as an
asset acquisition. Your response did not address our comment in its
entirety, thus part of the comment will be reissued. In connection
with your proposed accounting treatment of the transaction with
Iphonia, please provide us with an analysis that addresses each of
the conditions of Rule 11-01(d) of Regulation S-X.
RESPONSE
With regards to the asset acquisition from Iphonia, this acquisition has not yet
been consummated and hence has yet to have any material impact on the Company.
We anticipate that the closing of the agreement and the effective transfer of
the assets will occur in July, 2006.
Form 10-QSB/A for the period ended December 31, 2005
General
8. Please revise your Form 10-QSB to include applicable comments above
on amended Form 10-KSB.
RESPONSE
As required, we will updated our amended form 10-QSB for December 31, 2005 with
the changes incorporated in form 10-KSB.
The Company hereby acknowledges that:
o The Company is responsible for the adequacy and accuracy of the disclosure
in the filings;
o Staff comments or changes to disclosure in response to staff comments do
not foreclose the Commission from talking any action with respect to the
fling; and
o the Company may not assert staff comments as a defense in any proceeding
initiated by the Commission or any person under the federal securities
laws of the United States.
/s/ George Metrakos
- -------------------------------
George Metrakos
President & CEO
OSK Capital II Corp.
President
Teliphone Inc.
Tel: 514-313-6010
e-mail: gmetrakos@teliphone.ca