As filed with the Securities and Exchange Commission on November___, 2006.
Registration No. 333-136993
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2/A
Amendment Number One
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
TELIPHONE CORP.
NEVADA 2833 84-1491673
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or Classification Code Number) Identification No.)
organization)
4150 Ste-Catherine Street West, Suite 200,
Westmount (Montreal),
Quebec, Canada, H3Z 0A1
514-313-6010
(Address and telephone number of principal executive offices)
Copies of communications to:
JOSEPH I. EMAS
1224 WASHINGTON AVENUE
MIAMI BEACH, FLORIDA 33139
TELEPHONE NO.: (305) 531-1174
FACSIMILE NO.: (305) 531-1274
Approximate date of proposed sale to the public: As soon as practicable from
time to time after this registration statement becomes effective.
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
CALCULATION OF REGISTRATION FEE
Number Proposed Proposed
of shares Maximum maximum Amount of
Title of each Class of to be Offering price aggregate registration
Securities to be Registered registered per unit(1) offering price fee(1)
- --------------------------- ----------- -------------- -------------- ------------
Common Shares ............. 20,000,000 $.25 $5,000,000 $ 535.00*
Common Shares ............. 32,893,843(2) $.25 $7,772,380 $ 879.00
---------- ---- ---------- ---------
Total...................... $1,414.00
========== ==== ========== =========
* $535.00 previously paid.
(1) Estimated solely for the purpose of calculating the registration fee
required by Section 6(B) of the Securities Act and computed pursuant to Rule 457
under the Securities Act.
(2) Registered for resale on behalf of selling shareholders
No exchange or over the counter market exists for our common stock. The most
recent price paid for our common stock in a private placement was $0.50 which
closed on August 11, 2005.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this registration statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
================================================================================
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS DECLARED EFFECTIVE. THIS PROSPECTUS IS NOT
AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
PRELIMINARY PROSPECTUS
SUBJECT TO COMPLETION, DATED NOVEMBER ____, 2006
TELIPHONE CORP.
This Prospectus relates to the resale by selling stockholders listed elsewhere
in this Prospectus of 32,893,843 shares of the Common Stock (par value $0.0001
per share) of Teliphone Corp, (the "Company"). The selling stockholders may sell
their shares form time to time at the prevailing market price or in negotiated
transactions.
This Prospectus also relates to the offering by the Company of a Minimum/Maximum
Offering: 2,000,000 / 20,000,000 shares of common stock.
Offering Price: $0.25 per share
TeliPhone, Corp., a Nevada corporation, offers for sale, on a self- underwritten
basis, a minimum of 2,000,000 shares and a maximum of 20,000,000 shares at a
price of $0.25 per share. Proceeds from the sale of the shares will be escrowed
in a non-interest bearing account until the minimum number of units are sold. If
the minimum proceeds are not received within 180 days from the date of this
prospectus, all escrowed funds will be promptly returned to subscribers without
interest or deduction. The escrow agent will be Joseph I. Emas, Esq. This
offering may continue past 180 days only if the minimum number of units has been
sold. Otherwise this offering will end on the 180th day, unless, in our sole
discretion, the offering is extended an additional 180 days.
Investing in our securities involves risk, see "Risk Factors" page 3. Any
investor who cannot afford to sustain the total loss of their investment should
not purchase the securities offered herein. Neither the Securities and Exchange
Commission nor any state securities commission has approved or disapproved of
these securities or determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
BEFORE INVESTING, YOU SHOULD CAREFULLY READ THIS PROSPECTUS AND, PARTICULARLY,
THE RISK FACTORS SECTION, BEGINNING ON PAGE 5.
The Company will not receive any proceeds from the sale of the shares by the
selling security holders. However, it will receive proceeds in the amount of
$5,000,000.00 assuming the sale of all of the Common Stock of the Company
registered hereunder.
This is our initial public offering. No public market currently exists for our
shares. We know of no market makers for our common stock. The offering price may
not reflect the market price of our shares after the offering. The shares will
be offered and sold by our officers and directors without any discounts or other
commissions.
Price to Underwriting Discounts Proceeds to
public and Commissions (1) Company (2)
-------- ---------------------- ------------
Per Share....... $0.25 $0.0 $5,000,000
Total Maximum... $0.25 $0.0 $5,000,000
- ----------
(1) Proceeds to us are shown before deducting offering expenses payable by us
estimated at $100,000, including legal and accounting fees and printing costs.
The Company's "promoters" or their "affiliates" and their transferees, within
the meaning of the Securities Act of 1933 ("Act"), are, and the other selling
security holders listed in this Prospectus and any participating broker-dealers
may be, deemed to be "underwriters" within the meaning of the Act. Any
commissions or discounts given to any such broker-dealer may be regarded as
underwriting commissions or discounts under the Act. The selling security
holders have informed the Company that they do not have any agreement or
understanding, directly or indirectly, with any person to distribute their
securities.
Brokers or dealers effecting transaction in the securities should confirm the
registration of these securities under the securities laws of the states in
which transactions occur or the existence of our exemption from registration.
2
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this Prospectus is November ___, 2006.
3
TABLE OF CONTENTS
PAGE
----
Prospectus Summary 1
The Offering 2
Summary Financial Data 3
Risk Factors 5
Where You Can Find More Information 16
Use of Proceeds 16
Determination of Offering Price 18
Dividends 19
Dilution 19
Plan of Distribution 20
Penny Stock Rules / Section 15(g) of the Exchange Act 23
Legal Proceedings 23
Directors, Executive Officers and Control Persons 24
Security Ownership of Certain Beneficial Owners and Management 26
Description of Securities 27
Disclosure of Commission Position of Indemnification for Securities Act
Liabilities 27
Certain Relationships and Related Transactions 29
Interest of Named Experts and Counsel 29
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure 29
Additional Information 29
Description of Business 31
Management's Discussion and Analysis or Plan of Operation 45
Description of Property 50
Market for Common Equity and Related Stockholder Matters 50
Executive Compensation 51
4
Item 3. Summary Information and Risk Factors
PROSPECTUS SUMMARY
The following summary highlights selected information contained in this
prospectus. This summary does not contain all the information you should
consider before investing in the securities. Before making an investment
decision, you should read the entire prospectus carefully, including the "risk
factors" section, the financial statements and the notes to the financial
statements. As used in this prospectus, "we", "us", "our", "Teliphone" or "our
company" refers to Teliphone Corp., a Nevada corporation, together with our
subsidiary Teliphone Inc., a Canadian corporation.
Our Company
Teliphone Corp.( formally known as OSK Capital II Corp. ) was incorporated in
1999 under the laws of the State of Nevada. Our principal executive offices are
located at 4150 Ste-Catherine Street West, Westmount (Montreal) Quebec Canada
H3Z 0A1. Our US Corporate and legal affairs office is located at 1224 Washington
Avenue, Miami, Florida, 33139. The telephone number of our principal executive
office is (514) 313-6010. Our general telephone number is (514) 313-6000. The
address of our website is http://www.teliphone.us.
Teliphone Corp. ("The Company" or "Teliphone") became a telecommunications
company in April 2005 upon the merger and re-organization with Teliphone Inc., a
Canadian provider of broadband telephone services founded in August 2004.
Broadband telephone services utilize 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.
We principally sell these VoIP services to residential and small business
customer users. Our current geographic market is predominantly the Province of
Quebec, Canada.
As a result of the merger and re-organization, Teliphone Inc. became a
wholly-owned subsidiary of our company. On July 14th, 2006, we entered into a
letter of intent with 3901823 Canada Inc. where 3901823 Canada Inc. becomes a
minority shareholder of our subsidiary Teliphone Inc. As a result of this letter
of Intent, Teliphone Inc. remains a majority-owned subsidiary of our company.
As a result of the merger and re-organization, 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. On October
30, 2006, United American Corporation spun-off our Company by distributing its
entire holding of 25,737,785 shares of the common stock of our company to its
shareholders on a pro rata basis.
The offering
Issuer: Teliphone Corp.
Common Stock offered by us: 20,000,000 shares
Offering Price: $0.25 per share
Common Stock outstanding after the offering: 52,893,843
The number of shares of our common stock to be outstanding after this offering
is based on the number of shares outstanding as of November 28, 2006. There are
currently no options to purchase shares of common stock outstanding as of
November 28, 2006 and there are no additional shares of common stock available
for future issuance under our stock option plans and there are no outstanding
warrants to purchase additional shares of common stock.
This prospectus also includes shares of common stock that may be offered by
certain shareholders as Selling Shareholders. Our common stock is not currently
trading nor is there any assurance that a market will develop. The selling
shareholders and any broker-dealers who act in connection with the sale of the
shares of common stock hereunder may be deemed to be Underwriters within the
meaning of Section 2(11) of the Securities Act, and any commissions received by
them and any profit on any sale of the shares of common stock as principal might
be deemed to be underwriting discounts and commissions under the Securities Act
of 1933. However, we intend to have our shares trade on the OTC Bulletin Board
upon completion of this registration.
5
Summary Financial Data
The following table sets forth our summary consolidated financial data. The
statement of operations data for the years ended September 30, 2004 and 2005,
and the balance sheet data as of September 30, 2004 and 2005, are derived from
our audited consolidated financial statements and related notes included in the
back of this prospectus. The statement of operations data for the nine months
ended June 30, 2006 and the balance sheet data as of June 30, 2006 are derived
from our unaudited consolidated financial statements. In the opinion of
management, the unaudited consolidated financial statements have been prepared
on the same basis as our audited consolidated financial statements and include
all adjustments, consisting of only normal recurring adjustments, necessary for
a fair presentation of the information set forth therein.
The results for any interim period are not necessarily indicative of the results
that may be expected for a full year. The results included below and elsewhere
in this prospectus are not necessarily indicative of our future performance. You
should read this information together with "Capitalization," "Selected
Historical Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our consolidated financial statements
and the related notes included elsewhere in this prospectus.
6
Summary Financial Data
For the interim
For the year ended 9 month
September 30 period ending
Consolidated Balance (audited) (audited) (unaudited)
Sheet (US$) 2005 2004 June 30, 2006
- -------------------- ------------------ --------- ---------------
ASSETS
Cash -- -- --
Accounts receivable 63,063 6,620 25,770
Sales/Investment tax
receivable 16,502 -- --
R&D Credit 17,191
Inventory 32,468 25,134 15,862
Prepaid expenses and
other current
assets 22,621
Total
Current
Assets 134,654 31,394 68,965
Capital assets 156,399 -- 127,537
TOTAL ASSETS 291,053 31,394 196,502
LIABILITIES
Bank indebtedness 7,144 -- 2,692
Accounts payable and
accrued
liabilities 149,431 30,846 63,904
Loan payable,
related party 459,139 29,998 696,671
Loan payable 34,372 -- 86,926
TOTAL LIABILITIES 650,086 60,844 850,193
STOCKHOLDERS'
DEFICIENCY
Capital stock 31,090 79 31,090
Additional pain-in
capital 370,640 -- 370,640
Accumulated Deficit (720,920) (31,220) (978,937)
Comprehensive income
(loss) (39,843) 1,691 (76,484)
Total stockholders'
deficit (359,033) (29,450) (653,691)
Total liabilities
and stockholders'
deficit (291,053) (31,394) 196,502
7
For the interim
For the year ended 9 month
Consolidated September 30 period ending
Statement of (audited) (audited) (unaudited)
Operations (US$) 2005 2004 June 30, 2006
- -------------------- ------------------ ---------- ---------------
Sales 183,253 3,447 290,723
Cost of sales
Inventory,
beginning of
period 25,134 -- 32,468
Purchases
and cost of
VoIP services 455,086 29,155 281,972
Gain (Loss)
on foreign
exchange (2,502)
Inventory,
end of period (32,568) (25,134) (15,862)
Total Cost
of Revenues 447,752 4,021 296,076
Gross profit (Loss) (264,499) (574) (5,353)
Operating expenses
Salaries and wage
levies 53,072
Selling and promotion 130,924 -- 24,416
Other general and
administrative
expenses 47,228 -- 1,453
Research and
development 128,771 25,575
Professional and
consulting fees 67,169 -- 47,710
Commissions 17,877 3,381 51,592
Depreciation 23,551 -- 33,602
Total
Operating
Expenses 415,520 28,956 252,665
LOSS BEFORE OTHER
INCOME (EXPENSE) (680,019) (29,530) (257,370)
OTHER INCOME (EXPENSE)
Interest
expense (11,371) -- 648
NET LOSS BEFORE
PROVISION FOR INCOME
TAXES (691,390) (29,530) (258,018)
Provision
for Income
Taxes -- -- --
NET LOSS APPLICABLE
TO COMMON SHARES (691,390) (29,530) N/A
NET LOSS PER COMMON
SHARE BASIC AND
DILUTED (0.02) (0.00) --
WEIGHTED AVERAGE
NUMBER OF COMMON
SHARES OUTSTANDING 30,518,711 30,426,000 N/A
8
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. Our most
significant 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.
A. Risks Related To Our Financial Condition
A.1. We Have a Limited Operating History with Losses and Expect Losses to
Continue for at Least the Next Fiscal Year Ending September 30, 2007. Should we
continue to incur losses for a significant amount of time, the value of your
investment in the common shares will be affected, and you could even lose your
entire investment.
We have been unprofitable since our inception and have incurred losses. Our
accumulated deficit since inception on August 27, 2004 to June 30, 2006 was
$978,937 and the Company had a net loss of $691,390 for the year ended September
30, 2005 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 in the last 12 months of operations. However,
profitability is not being considered for the foreseeable future and is only
expected for the fiscal year ending September 30, 2008.
A.2. We Require Additional Financing to Sustain Our Operations and in acquiring
such additional financing investors in this offering may suffer substantial
consequences such as dilution or a loss of seniority in preferences and
privileges.
Based on our current operating plan, if the maximum number of shares are sold we
should have sufficient funds to satisfy our anticipated need for working capital
and capital expenditures for the next 12 months We will require funds to sustain
operations and to develop our business. In order to cover our continued losses
from operations, we require at least 4,000 active, paying customers. We have
achieved just over 35% of this target. We will require continued financing to
sustain this shortfall until we reach our break-even point. Financing is
likewise necessary to achieve our optimum growth.
In selling only the minimum number of shares, this results in insufficient
proceeds for operations. Until October 30, 2006, our financing shortfall had
been covered by our parent company, United American Corporation. This was in the
form of cash advances received on an "as needed basis" based on our agreement
dated February 23, 2006. The funds advanced have been converted to common stock
of our Company at a value of $0.25 per share.
>From October 31, 2006 to the point at which we are able to obtain funds through
the sale of shares associated with this offering, we will continue to receive
cash advances on an `as needed basis' from our fomer parent company, United
American Corp. These funds will have to be re-paid by the Company, are
non-interest bearing and are not anticipated to exceed $150,000.
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.
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. 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.
B.2. 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.
9
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.
B.3. 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.
Certain aspects of our service are not the same as traditional wireline
telephone service. Our continued growth is dependent on the adoption of our
services by mainstream customers, so these differences are becoming increasingly
important. For example:
o 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;
o 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.
o 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.
B4. 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.
B5. 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.
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.
B.6. 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.
10
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.
11
B.7.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 which allows 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.
B.8. As a result of being a public company, we will incur increased costs that
may place a strain on our resources or divert our management's attention from
other business concerns.
As a public company, we will incur additional legal, accounting, and other
expenses that we do not incur as a private company. The Exchange Act will
require us to file annual, quarterly and current reports with respect to our
business and financial condition, which will require us to incur legal and
accounting expenses. The Sarbanes-Oxley Act will require us to maintain
effective disclosure controls and procedures and internal controls for financial
reporting. In order to maintain and improve the effectiveness of our disclosure
controls and procedures and internal control over financial reporting,
significant resources and management oversight will be required. We expect the
corporate governance rules and regulations of the SEC and the NASD will increase
our legal and financial compliance costs and make some activities more time
consuming and costly. These requirements may place a strain on our systems and
resources and may divert our management's attention from other business
concerns, which could have a material adverse effect on our business, financial
condition and results of operations. In addition, we are hiring, and will
continue to hire, additional legal, accounting, and financial staff with
appropriate public company experience and technical accounting knowledge, which
will increase our operating expenses in future periods.
We also expect these rules and regulations to make it more difficult and more
expensive for us to obtain director and officer liability insurance, and we may
be required to accept reduced policy limits and coverage or incur substantially
higher costs to obtain the same or similar coverage. As a result, it may be more
difficult for us to attract and retain qualified persons to serve on our board
of directors or as executive officers.
B.9. 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
negatively affect us 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. While
we have several pending patent applications, we cannot patent much of the
technology that is important to our business. In addition, our pending patent
applications may not be successful. To date, we have relied on copyright,
trademark and 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.
12
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.
B.10. 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.
B.11. Future new technologies could have a negative effect on our businesses.
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.
C. Risks Related to Regulation
Set forth below are certain material risks related to regulation. For additional
information about these and other regulatory risks we face, 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 and expose us to liabilityand 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, 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.
13
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. 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.
C.3. 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.
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 behaviour 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.
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.
C.4. 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.
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.
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.
14
..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.
15
..
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 Director, VoIPAction, 2006). 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.
C.6. We Are Exposed To Potential Liability Claims, And Our Insurance Against
These Claims May Not Be Sufficient To Protect Us
Professional liability is coverage 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 defence, or any penalties awarded to the
plaintiff in such cases.
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 product liability insurance. The company's
current insurance policies cover theft and liability in our offices only. The
company intends to purchase professional liability insurance which will help to
defray costs to the company for defence against damage claims. 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.
D. Risks Related To Our Common Stock And To The Offering
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.
There are presently 32,893,843 outstanding shares of our common stock held by
shareholders which are deemed "restricted securities" as defined by Rule 144
under the Securities Act. Under certain circumstances, these shares may be sold
without registration pursuant to the provisions of rule 144. 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. Effective
April 28, 2005, the Company effectived the reverse merger and reorganization
with Teliphone Inc., a Canadian company. As OSK Capital II, Corp. was a blank
check company 3,426,000 shares will be eligible for resale under rule 144 on
April 28, 2006, one year from the date of the merger with OSK
16
D.2. To date, we have not paid any cash dividends and no cash dividends will be
paid in the foreseeable future.
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. There is no public (trading) market for our common stock and there is no
assurance that the common stock will ever trade on a recognized exchange or
dealers' network; therefore, our investors may not be able to sell their shares.
Our common stock is not listed on any exchange or quoted on any similar
quotation service, and there is currently no public market for our common stock.
We have not taken any steps to enable our common stock to be quoted on the OTC
Bulletin Board, and can provide no assurance that our common stock will ever be
quoted on any quotation service or that any market for our common stock will
ever develop. As a result, stockholders may be unable to liquidate their
investments, or may encounter considerable delay in selling shares of our common
stock. unable to sell your common shares at or above your purchase price, which
may result in substantial losses to you.
17
D.4. 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.5. We will incur increased costs as a result of being a public company, which
could affect our profitability and operating results.
The Sarbanes-Oxley Act of 2002 and the new rules subsequently implemented by the
Securities and Exchange Commissions, the Nasdaq National Market and the Public
Company Accounting Oversight Board have imposed various new requirements on
public companies, including requiring changes in corporate governance practices.
We expect these rules and regulations to increase our legal and financial
compliance costs and to make some activities more time-consuming and costly. We
expect to spend between $100,000 to $300,000 in legal and accounting expenses
annually to comply with Sarbanes-Oxley. These costs could affect profitability
and our results of operations. The cost of these activities will be paid out of
this offering.
D.6. Investors in our common stock will experience immediate and substantial
dilution as a percentage of their holdings.
The net tangible book value of our common stock at June 30, 2006 was ($653,691),
or ($0.03) per share based on 31,089,520 common shares outstanding at the time.
Compared to the currently outstanding shares of our stock, investors will
experience an immediate dilution of $0.17 per share if the totality of the
offering is sold.
D.7. Our offering price is arbitrarily determined and is unrelated to any
measure of value, actual income or assets.
Our offering price of $0.25 per share was arbitrarily determined by us based
solely upon an increase over the prices paid by earlier investors in our
company. It is not based upon an independent assessment of the value of our
shares and should not be considered as such.
Forward-Looking Statements
This prospectus includes forward-looking statements that involve risks and
uncertainties. These forward-looking statements include statements under the
captions "Prospectus Summary," "Risk Factors," "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business" and elsewhere in this prospectus. . Although we will amend this
registration statement to update the information as required by Section 10(a)(3)
of the Securities Act of 1933 or to disclose any fundamental change in the
information in the registration statement or additional or changed material
information on the plan of distribution you should not rely on these
forward-looking statements which apply only as of the date of this prospectus.
These statements refer to our future plans, objectives, expectations and
intentions. We use words such as "believe," "anticipate," "expect," "intend,"
"estimate" and similar expressions to identify forward-looking statements. This
prospectus also contains forward-looking statements attributed to third parties
relating to their estimates regarding the growth of certain markets. You should
not place undue reliance on these forward-looking statements, which apply only
as of the date of this prospectus. Our actual results could differ materially
from those discussed in these forward-looking statements. Factors that could
contribute to these differences include those discussed in the preceding pages
and elsewhere in this prospectus.
18
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.
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-KSB 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-QSB or Form 8-K as
it deems appropriate. Our Registration Statement on Form SB-2 with respect to
the Securities offered by this prospectus, which is a part of the Registration
Statement as well as our periodic reports may be inspected at the public
reference facilities of the U.S. securities and Exchange Commission, Judiciary
Plaza, 100 F Street, N.E., Room 1580, Washington, D.C. 20549, or from the
Commission's internet website, www.sec.gov and searching the EDGAR database for
Vsurance Inc. Copies of such materials can be obtained from the Commission's
Washington, D.C. office at prescribed rates. The public may obtain information
on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330.
19
Item 4. Use of Proceeds.
We intend to use the net proceeds from this offering primarily for working
capital and to fund the expansion of our business, including funding marketing
expenses and operating losses.
The amounts actually spent by us for any specific purpose may vary significantly
and will depend on a number of factors, including the progress of our
commercialization and development efforts. Accordingly, our management has broad
discretion to allocate the net proceeds. Pending the uses described above, we
intend to invest the net proceeds of this offering in short-term,
interest-bearing, investment-grade securities.
The following table demonstrates the use of proceeds based on the projected
funds raised from this offering. Different values are provided in the event that
the maximum amounts are not raised as a part of this offering. No officer or
director of the Company will be purchasing shares in this offering.
The foregoing categories indicate the allocation of funds for various purposes
to be used by the company. The foregoing estimates of the application of
proceeds represent the objectives of the company and are subject to modification
depending upon a number of factors which may not be presently known or existing
and which may occur during the time such funds are being expended; in which
event, the foregoing estimates may vary from actual expenditures at a later
date.
It is possible that all or a portion of the funds received in this offering may
not be utilized immediately, in which case the company may invest unused funds
in short-term interest bearing, investment grade securities until expenditure of
such funds becomes necessary. Should any allocation made above not be fully
utilized for the purpose indicated, then the balance remaining will be added to
working capital.
Minimum offering Maximum offering
raised $1,000,000 $2,500,000 raised
($500,000) raised raised ($5,000,000)
---------------- ---------- ---------- ----------------
Current liabilities $179,494 $ 179,494 $ 179,494 $ 179,494
Repayment of Debt to former
parent company -- $ 300,000 $ 300,000 $ 300,000
Fees associated to this
offering $ 50,000 $ 50,000 $50,000 $ 50,000
Commissions -- $ 80,000 $ 200,000 $ 400,000
Product Development $ 50,000 $ 50,000 $ 100,000 $ 200,000
Fixed Costs (Telecom
Infrastructure) $ 25,000 $ 50,000 $ 100,000 $ 100,000
General & Administration -- $ 100,000 $ 100,000 $ 100,000
Sales & Marketing $ 50,000 $ 75,000 $ 250,000 $ 500,000
Inventory Financing &
Customer Acquisition $ 85,000 $ 100,000 $ 900,000 $2,500,000
Additional Working Capital $ 60,506 $ 15,506 $ 320,506 $ 670,506
TOTAL: $500,000 $1,000,000 $2,500,000 $5,000,000
Current Liabilities :
o Amounts owed to George Metrakos, Director for unpaid wages (non
accrued on financial statements as of September 30, 2006: 31,250$
20
o Amounts owed to George Metrakos, Director as personal cash advances
to the Company (accrued on financial statements as of September 30
2006 under Accounts Payable: 38,270$
o Amounts owed United American Corporation as cash advances to the
Company that were not converted to common stock of the corporation
prior to being spun off from parent company United American
Corporation to September 30, 2006: 41,297$
o Amounts owed to 3901823 Canada Inc. due to cash advance received on
July 14, 2006 of $22,298.
o Amounts owed to Suppliers in order to bring the Company to within
their current payment term agreements (accrued on September 30, 2006
financial statements of 46,379$
The total amount to be paid due to these liabilities is $179,494
Repayment of Debt to Former Parent Company
Effective September 30, 2006, our former Parent Company United American
Corporation has invested a total of 766,128$. On August 22nd, 2006, the Company
issued 1,699,323 shares of common stock in order to repay $424,831 of this debt,
leaving 341,297$ to be repaid in cash. Should we raise at least $1,000,000 in
this offering, we will re-pay this amount in total.
Fees associated with this offering
o We estimate that printing, accounting, legal and courier costs
associated with this prospectus will be $50,000, regardless of the
amounts raised.
Commissions
o We do not currently have any agreements in place with brokers in
order to sell shares associated with this offering. However, we may
engage the services of a dealer/Broker in the near future and to
sell larger amounts of shares as part of this offering. In the event
that we do, we have listed the commission fees in this table as 8%
of proceeds.
Product Development
In 2005, we spent a total of $128,772 on Research and Development activities
related to the continuous development and improvement of our technology. While
our products and services are currently able to be sold on the marketplace, we
will continuously invest in improving our technology to maintain our competitive
advantage in our market segments. The increase in funds raised as a result of
this offering will permit us to further invest in Research and Development to
further expand product base and target new market segments in the future. Should
we more than $1,000,000 in this offering, we propose to invest at least 10% of
the offering into new product development. Otherwise, we intend on spending an
additional minimum of $50,000 per year in Product Development. Our product
development expenditures are predominantly salaries of skilled technicians,
telecommunications engineers and computer programmers.
Fixed Costs
, Upgrades to telecommunications equipment and servers will be made in order to
ensure adequate management of communication traffic growth for a maintenance of
superior quality of service for our customers. These upgrades are required based
on new customer acquisitions and are therefore estimates related to our success
in acquiring new clients as listed below.
General and Administrative
We will increase our management team with the hiring of a Director of Marketing
as well as a Director of Operations. These new key positions are required in
order to assist the current management team to effectively manage growth. We
estimate an average salary of $50,000 per person, regardless of the amounts of
money raised. These positions will be filled only if the Company raises at least
$1,000,000 as part of this offering.
Sales & Marketing
To date, our Sales & Marketing expenses have been limited to commission-based
sales costs and minimal marketing expenses. As a result, there is very little
brand awareness for Teliphone and its products and services. We believe a
strategic marketing campaign is necessary to achieve the customer base growth
that we anticipate due to significant investments in customer acquisition.
21
There are three main market segments where we will invest in Sales & Marketing:
The Canadian market for Residential and Business VoIP services due to our
partnership with BR Communications. In this segment, we typically share sales
and marketing expenses with BR. Promotion of the Teliphone brand includes such
things as newspaper and radio advertisements, internet web-site campaigns and
event sponsorship.
The International market for VoIP services due to our partnership with Podar
Enterprises. Promotion in India of our products and services are through
internet web-site campaigns, travel for our representatives to our various
distributors in India and brand promotion such as print and television
advertisements.
The Global web-based market for cost-per-call advertising revenues with
CallOnA.com. Promotion includes paid key-word search on popular website search
engines, web-site banner advertising campaigns and e-mail/newsletter campaigns.
Inventory Financing and Customer Acquisition
TeliPhone VoIP Services
The company typically finances new customer acquisitions in return of a
recurring monthly revenue for its VoIP services. Similar to the cellular phone
industry, we subsidize the hardware at new customer activation in order to
reduce the barrier to entry for a new customer to adopt our services. Our
typical hardware investment for new customers is $20. Likewise, we provide an
incentive to our sales agents in order to encourage new sales. This incentive is
on average $20. While we currently invest minimally in brand awareness and
promotion in our target market segments, we intend to assist our sales force in
the future through targeted marketing and promotion campaigns. Based on industry
averages, the cost of acquisition for a new Retail VoIP services subscriber is
an additional $50.
CallOnA.com Services
The objective of CallOnA.com is to increase the number of subscribers and users
of the free calling services in order to translate the web traffic (amount of
users visiting the website) into advertising and promotional revenues. We intend
to offer free calling across numerous countries over our VoIP calling network in
order to entice customers to utilize the service. We will incur costs in order
to offer these free calls. These costs will be offset by the revenue we intend
to earn through the sale of advertising on the callona.com website. In order to
incite initial interest in callona.com and therefore create a community of
regular users of its services, we will be required to advertise callona.com
services on related websites. Therefore, we consider that our customer
acquisition costs for customers of this service will be the individual
promotional banners and advertising links located on related websites that
potential customers will follow in order to arrive at the callona.com site.
Websites typically charge a "cost per click", that is, a set price that is paid
when a user follows a link in order to arrive at another website.
Symbol
There is no public market for our securities at present.
22
Item 5. Determination of Offering Price
There is currently no over the counter trading of the Company's securities. The
offering price of our shares were arbitrarily determined by our management and
was based upon consideration of various factors including our history and
prospects, the background of our management and current conditions in the
securities markets. The price of our shares does not bear any relationship to
our assets, book value, net worth or other economic or recognized criteria of
value. In no event should the offering price of our shares be regarded as an
indicator of any future market price of our securities.
23
Dividends
We have never paid a cash dividend on our common stock. The payment of dividends
may be made at the discretion of our board of directors and will depend upon,
among other things, our operations, capital requirements, and overall financial
condition.
We do not anticipate paying cash dividends on our common shares in the
foreseeable future. We may not have enough funds to legally pay dividends. Even
if funds are legally available to pay dividends, we may nevertheless decide in
our sole discretion not to pay dividends.
Dilution
Effect of Offering on Net Tangible Book Value Per Share
Our net tangible book value as of June 30, 2006 was approximately ($653,691), or
($0.03) per share. Net tangible book value per share represents our total
tangible assets less our total liabilities, divided by the aggregate number of
shares of our common stock outstanding. After giving effect to the sale of the
20,000,000 shares of our common stock in this offering, approximating 10% for
underwriting discounts and commissions and the estimated offering expenses
payable by us, our net tangible book value at June 30, 2006 would have been
approximately $3,846,309 or $0.08 per share. We have assumed a public offering
price of $0.25 per share. This represents an immediate increase in net tangible
book value per share of $0.11 to existing stockholders and an immediate dilution
of $0.17 per share to new investors. Dilution per share represents the
difference between the amount per share paid by the new investors in this
offering and the net tangible book value per share at June 30, 2006, giving
effect to this offering. The following table illustrates this per share dilution
to new investors.
Assumed public offering
price per share $ 0.25
------
Net tangible book value
per share as of June
30, 2006 $(0.03)
------
Increase in net tangible
book value per share
attributable to new
investors $ 0.11
------
Net tangible book value
per share after this
offering $ 0.08
------
Dilution per share to new
investors $ 0.17
------
As of June 30, 2006, there were no options and warrants outstanding.
24
We have the right to accept or reject subscriptions in whole or in part, for any
reason or for no reason. All monies from rejected subscriptions will be returned
immediately to the subscriber, without interest or deductions. Subscriptions for
securities will be accepted or rejected within 48 hours after we receive them.
Our officers will not register as a broker/dealer under Section 15 of the
Securities Exchange Act of 1934 in reliance upon Rule 3a4-1. Rule 3a4-1 sets
forth those conditions under which a person associated with an issuer may
participate in the offering of the issuer's securities and not be deemed to be a
broker/dealer. The conditions are that:
1. The person is not statutorily disqualified, as that term is defined
in Section 3(a)(39) of the Act, at the time of his participation;
and,
2. The person is not at the time of their participation, an associated
person of a broker/dealer; and,
3. The person meets the conditions of Paragraph (a)(4)(ii) of Rule
3a4-1 of the Exchange Act, in that he (A) primarily performs, or is
intended primarily to perform at the end of the offering,
substantial duties for or on behalf of the issuer otherwise than in
connection with transactions in securities; and (B) is not a broker
or dealer, or an associated person of a broker or dealer, within the
preceding twelve (12) months; and (C) do not participate in selling
and offering of securities for any issuer more than once every
twelve (12) months other than in reliance on Paragraphs (a)(4)(i) or
(a)(4)(iii). The officers that will be engaged in the sale of this
offering are George Metrakos and Robert Cajolet,
Our officers and directors are not statutorily disqualified, are not being
compensated, and are not associated with a broker/dealer. They are and will
continue to be one of our officers and directors at the end of the offering and
have not been during the last twelve months and are currently not broker/dealers
or associated with a broker/dealers. They have not nor will not participate in
the sale of securities of any issuer more than once every twelve months. Only
after our registration statement is declared effective by the SEC, do we intend
to advertise, through tombstones, and hold investment meetings in various states
where the offering will be registered. We will not utilize the Internet to
advertise our offering. We will also distribute the prospectus to potential
investors at the meetings and to our friends and relatives who are interested in
us and a possible investment in the offering.
We intend to sell our shares in the United States of America and offshore.
Penny Stock Rules / Section 15(g) of the Exchange Act
Our shares are covered by Section 15(g) of the Securities Exchange Act of 1934,
as amended, and Rules 15g-1 through 15g-6 promulgated there under. They impose
additional sales practice requirements on broker/dealers who sell our securities
to persons other than established customers and accredited investors who are
generally institutions with assets in excess of $5,000,000 or individuals with
net worth in excess of $1,000,000 or annual income exceeding $200,000 or
$300,000 jointly with their spouses.
Rule 15g-1 exempts a number of specific transactions from the scope of the penny
stock rules. Rule 15g-2 declares unlawful broker/dealer transactions in penny
stocks unless the broker/dealer has first provided to the customer a
standardized disclosure document.
Rule 15g-3 provides that it is unlawful for a broker/dealer to engage in a penny
stock transaction unless the broker/dealer first discloses and subsequently
confirms to the customer current quotation prices or similar market information
concerning the penny stock in question.
Rule 15g-4 prohibits broker/dealers from completing penny stock transactions for
a customer unless the broker/dealer first discloses to the customer the amount
of compensation or other remuneration received as a result of the penny stock
transaction.
Rule 15g-5 requires that a broker/dealer executing a penny stock transaction,
other than one exempt under Rule 15g-1, disclose to its customer, at the time of
or prior to the transaction, information about the sales persons compensation.
Rule 15g-6 requires broker/dealers selling penny stocks to provide their
customers with monthly account statements.
Rule 15g-9 requires broker/dealers to approved the transaction for the
customer's account; obtain a written agreement from the customer setting forth
the identity and quantity of the stock being purchased; obtain from the customer
information regarding his investment experience; make a determination that the
investment is suitable for the investor; deliver to the customer a written
statement for the basis for the suitability determination; notify the customer
of his rights and remedies in cases of fraud in penny stock transactions; and,
the NASD's toll free telephone number and the central number of the North
American Administrators Association, for information on the disciplinary history
of broker/dealers and their associated persons.
The application of the penny stock rules may affect your ability to resell your
shares due to broker-dealer reluctance to undertake the above described
regulatory burdens.
25
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.
26
We are not a party to any pending material legal proceedings and are not aware
of any threatened or contemplated proceeding by any governmental authority
against the Company or its subsidiaries. Notwithstanding, from time to time, the
Company is subject to legal proceedings and claims in the ordinary course of
business, including employment-related and trade related claims.
Directors, Executive Officers, Promoters and Control Persons.
The directors and executive officer as of April 1, 2006 are as follows:
NAME AGE SERVED SINCE POSITIONS WITH COMPANY
- --------------- --- ------------ -----------------------------
George Metrakos 35 April, 2005 Director, President, CEO, CFO
Robert Cajolet 65 March, 2005 Director
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.
ROBERT CAJOLET, Director
Robert Cajolet graduated from the Owner/President Management Programm (OPM) at
Harvard Business School in Boston, MA. He previously studied at the University
of Montreal HEC School of Business. Mr. Cajolet served as the president of
Alphinat Inc.(2004-2005) and director of Nature Genetiks Capital
Inc.(2004-present), both companies are listed on the TSX. Mr. Cajolet also
serves as Director of OSK Capital ll (2005-present) and as Vice-President and
director of Multiple Awnings Inc. (2002-present). From 2000-2002, Mr. Cajolet
served as Director of Archambault Group and was previously the owner of
Camelot-Info Inc., a chain of technology oriented stores that were sold to
Quebecor Media in 2000. Mr. Cajolet also owned and/or controlled several
companies involved in dental healthcare and personal safety products in North
America and Europe between 1975 and 1990.
Beginning and ending Brief Description of Employer's
Employer's name dates of employment Positions Held business
--------------------- ------------------------- ------------------- -----------------------------------
George Metrakos Teliphone Inc. Sep 1, 2004 to present President Telecommunications Company
Teliphone Corp. Apr 28, 2005 to present President, CEO, CFO Holding Company
and Director
United American Corp. Nov 8, 2005 to present Director Holding Company
Metratech Retail Mar 6, 2000 to Aug 31, President & Founder Supply Chain Management Software
Systems Inc. 2004 Company
Robert Cajolet Teliphone Corp. Jun 1, 2005 to present Director Holding Company
Tectacom Inc. Jun 1, 1991 to present President & Founder Telecommunications Company
Nature Genetiks Jul 1 2004 to present Director Holding Company
Capital Inc.
Alphinat Inc. Apr 1, 2004 to Oct 1 2005 President Business Solutions Software Company
Multiple Awnings Inc. Sept 1, 2002 to present Vice President and Household Recreational Products
Director Manufacturer
Coractive HighTech Oct 1, 2005 to present Chairman Specialized Fibre Optic
Inc. manufacturing
27
Compensation of Directors
We have no standard arrangement pursuant to which our Directors are compensated
for services provided as a Director.
Compliance With Section 16(a) of the Exchange Act.
For the fiscal year ending September 30, 2004, all of the Company's officers,
directors and principal shareholders are delinquent in filing reports required
under Section 16(a). Code of Ethics The Company has adopted a code of ethics
which applies to its principal executive officer, principal financial officer,
principal accounting officer or persons performing similar functions. A copy of
the code is incorporated by reference to this prospectus as Exhibit 14.
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.
28
Board Committees
There are currently no Board Committees in place.
Security Ownership of Certain Beneficial Owners and Management.
The following table sets forth certain information regarding beneficial
ownership of the common stock as of September 30, 2005, 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 4150 Ste-
Catherine Street West, suite 200, Westmount (Montreal), Quebec, Canada H3Z 0A1.
SHARES
BENEFICIALLY PERCENT
NAME TITLE OF CLASS OWNED (1) CLASS(1)
- ------------------------------- -------------- ------------ --------
George Metrakos(2) Common 961,528 2.9%
Robert Cajolet(3) Common 1,250,000 3.8%
Officers and Directors Common 2,211,528 6.7%
As a Group (2 persons)
United American Corporation (3) Common 25,737,785 78.2%
Officers, Directors and
Certain Beneficial Owners
As a Group (3 persons) Common 27,949,312 85.0%
(1) Applicable percentage of ownership is based on 32,893,843 shares of fully
diluted common stock effective November 23, 2006. 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 September 30, 2005 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.
29
(2) George Metrakos controls 961,528 shares of his stock through Metratech
Business Solutions Inc of which he is the beneficial owner.
(3) Robert Cajolet controls his stock through XIPE Management Corp, and Beverly
Hills Trading Corp.
(4) United American Corporation is the founder of Teliphone Inc. On October 23,
2006, Shareholders of United American Corp voted in the majority to spin off its
holdings of Teliphone Corp. through a pro-rata distribution of Teliphone Corp.
shares to United American Corp. Shareholders. The effective date of the spin-off
was October 30, 2006. United American Corp and Teliphone Corp. are awaiting
instructions from the Depository Trust Corporation regarding fractional share
issuances required by brokers in order to complete the distribution. The
distribution of shares to United American Shareholders will occur in December,
2006.
Changes in Control
We are not aware of any arrangements, which may result in a change in control of
the Company.
SELLING SHAREHOLDERS
The following table presents information regarding the Selling Shareholders.
Unless otherwise stated below, to our knowledge no Selling Shareholders nor any
affiliate of such shareholder has held any position or office with, been
employed by, or otherwise has had any material relationship with us or our
affiliates, during the three years prior to the date of this prospectus.
None of the Selling Shareholders are members of the National Association of
Securities Dealers, Inc. The Selling Shareholders may be deemed to be
"underwriters" within the meaning of the Securities Act of 1933.
Any of the Selling Shareholders, acting alone or in concert with one another,
may be considered statutory underwriters under the Securities Act of 1933 in
they are directly or indirectly conducting an illegal distribution of the
securities on behalf of our corporation. For instance, an illegal distribution
may occur if any of the Selling Shareholders were to provide us with cash
proceeds from their sales of the securities. If any of the Selling Shareholders
are determined to be underwriters, they may be liable for securities violations
in connection with any material misrepresentations or omissions made in this
prospectus.
In addition, the Selling Shareholders and any brokers and dealers through whom
sales of the securities may be deemed to be "underwriters" within the meaning of
the Securities Act of 1933, and the commissions or discounts and other
compensation paid to such persons may be regarded as underwriters' compensation.
The number and percentage of shares beneficially owned before and after the
sales 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. The total number of common shares sold
under this prospectus may be adjusted to reflect adjustments due to stock
dividends, stock distributions, splits, combinations or recapitalizations.
The Selling Shareholders named in this prospectus are offering all of the
3,610,000 shares of common stock offered through this prospectus. These shares
were acquired from us in a private placement that was exempt from registration
under Regulation D of the Securities Act of 1933. None of our Selling Share
holders are broker-dealers or have any affiliation with any broker dealers.
The following table sets forth the name of each selling security holder, the
number of shares owned, and the number of shares being registered for resale by
each selling security holder.
30
We may amend or supplement this prospectus from time to time to update the
disclosure set forth herein. All of the shares owned by the selling security
holders may be offered hereby. Except as described below there are currently no
agreements, arrangements or understandings with respect to the sale of any of
the shares. No estimate can be given as to the number of shares that will be
held by the selling security holders upon termination of any offering made
hereby.
Percentage of Ownership
before sale of shares
NAME # OF SHARES registered by Company
- ------------------------------- -------------- -----------------------
Anderson, Heather Z. 1,000 0.003%
Anderson, Lincoln 6,000 0.018%
ASR Invest Ltd 284,000 0.875%
Bell, Jennifer R. 1,000 0.003%
Berman, Philip 1,000 0.003%
Beverly Hills Trading Corp 2,000,000 6.080%
Borchard, Kathleen E. 1,000 0.003%
Brazeau, Maxime 10,000 0.030%
Breitling Sky Ltd. 225,000 0.684%
Bronfmann Equities Corp 33,000 0.100%
Business Development Consultants 51,000 0.155%
Carlson, Linda M. 1,000 0.003%
Christopher, Robert Bruce 1,000 0.003%
Cote, Marcel 30,000 0.091%
Emas, Joseph 25,000 0.076%
Gearke, Thomas D. 1,000 0.003%
Gestion CD Lam 95,000 0.289%
Groehsl, George 1,000 0.003%
Greenberg, Gary 1,000 0.003%
Hepworth, David 1,000 0.003%
Huon de Kermadec, Ronan 10,000 0.030%
Joiner, Gary S. 2,000 0.006%
Kelly, Claudia 1,000 0.003%
Kramer, Elizabeth 1,000 0.003%
Kramer, Frank L. 600,000 1.824%
Krekel, Robert 1,000 0.003%
KVZ Clips Corp 240,000 0.730%
Lambert, Jean-Guy 1,313,520 3.895%
Lawetz, Benjamin 10,000 3.895%
Leach, Alvin D. 1,000 0.003%
Martineau, Robert 20,000 0.061%
McKinstry, Anne Marie 1,000 0.003%
McKinstry, Raymond F. 1,000 0.003%
Memolo, John J. 1,000 0.003%
Meskunas, John A. 5,000 0.015%
Metratech Business Solutions Inc. 961,538 2.923%
Mirotchnick, Brendan 10,000 0.030%
Mourani, Bruno 10,000 0.030%
Mourani, Europe 10,000 0.030%
Perron, Suzanne 10,000 0.030%
Phaneuf, Simon 20,000 0.061%
Ratthe, Benoit 10,000 0.030%
Rose, Jeffrey S. 1,000 0.003%
Rueschhoff, Bernard 1,000 0.003%
Rueschhoff, Britta 1,000 0.003%
Salerno, Deborah 550,000 1.672%
Sauve, Lynn 51,000 0.155%
Singh, Rhadica 1,000 0.003%
Slow, Edward 1,000 0.003%
Slow, Susan 1,000 0.003%
Sullivan, Don 1,000 0.003%
Sullivan, Nancy J. 1,000 0.003%
Sweeney, Daniel B. 1,000 0.003%
United American Corporation 25,737,785 79.338%
Von Alven Corp. 225,000 0.684%
Warburg Capital Holding Ltd. 249,000 0.768%
Welsh, Frederick E. Jr. 1,000 0.003%
Whatley, Kevin 1,000 0.003%
Wong, Richard 1,000 0.003%
Xipe Holding Corp 50,000 0.152%
Xirouhakis, Marika 10,000 0.030%
Zane, Holly R. 1,000 0.003%
---------- --------
32,893,843 104.882%
The named party beneficially owns and has sole voting and investment power over
all shares or rights to these shares. The numbers in this table assume that none
of the selling shareholders sells shares of common stock not being offered in
this prospectus or purchases additional shares of common stock, and assumes that
all shares offered are sold.
Except as disclosed below, none of the Selling Shareholders:
(a) has had a material relationship with us other than as a shareholder at any
time within the past three years; or
(b) has never been one of our officers or directors.
Frank L. Kramer was our Secretary, Treasurer and Director and Deborah Salerno
was our former President and Director. They resigned as of April 5, 2005.
31
Francis Maillot was our President and CEO. He holds his shares under Beverly
Hills Trading Corp. He resigned as of April 22, 2005.
We have agreed to pay full costs and expenses, incentives to the issuance,
offer, sale and delivery of the shares, including all fees and expenses in
preparing, filing and printing the registration statement and prospectus and
related exhibits, amendments and supplements thereto and mailing of those items.
We will not pay selling commissions and expenses associated with any sale by the
selling security holders.
Description of Securities.
Common Stock
Our authorized capital stock consists of 125,000,000 authorized shares of common
stock, $.001 par value, of which 32,893,842 shares were outstanding as of
September 1, 2006. The holders of our common stock (i) have equal ratable rights
to dividends from funds legally available therefore, when, as and if declared by
our Board of Directors; (ii) are entitled to share in all of our assets
available for distribution to holders of common stock upon liquidation,
dissolution or winding up of our affairs; (iii) do not have preemptive,
subscription or conversion rights and there are no redemption or sinking fund
provisions or rights; and (iv) are entitled to one non-cumulative vote per share
on all matters on which stockholders may vote.
We have no authorized preferred stock.
Warrants
We currently do not have any warrants outstanding.
Warrant and Transfer Agent
Our transfer agent is:
Mountain Share Transfer, ATT: Beth Powell 1625 Abilene Drive
Broomfield, Colorado 80020
Amendment of our Bylaws
Our bylaws may be adopted, amended or repealed by the affirmative vote of a
majority of our outstanding shares. Subject to applicable law, our bylaws also
may be adopted, amended or repealed by our board of directors
DISCLOSURE OF COMMISSION POSITION OF INDEMNIFICATION FOR SECURITIES ACT
LIABILITIES; ANTI-TAKEOVER, LIMITED LIABILITY AND INDEMNIFICATION
PROVISIONS
Certificate of Incorporation and Bylaws. Pursuant to our amended certificate of
incorporation, our board of directors may issue additional shares of common
stock. Any additional issuance of common stock could have the effect of impeding
or discouraging the acquisition of control of us by means of a merger, tender
offer, proxy contest or otherwise, including a transaction in which our
stockholders would receive a premium over the market price for their shares, and
thereby protects the continuity of our management. Specifically, if in the due
exercise of its fiduciary obligations, the board of directors were to determine
that a takeover proposal was not in our best interest, shares could be issued by
the board of directors without stockholder approval in one or more transactions
that might prevent or render more difficult or costly the completion of the
takeover by:
o diluting the voting or other rights of the proposed acquirer or insurgent
stockholder group;
32
o putting a substantial voting block in institutional or other hands that
might undertake to support the incumbent board of directors; or
o effecting an acquisition that might complicate or preclude the takeover.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to our directors, officers and controlling persons pursuant to the
provisions above, or otherwise, we have been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act, and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities, other
than the payment by us of expenses incurred or paid by one of our directors,
officers, or controlling persons in the successful defense of any action, suit
or proceeding, is asserted by one of our directors, officers, or controlling
person in connection with the securities being registered, we will, unless in
the opinion of our counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification is against public policy as expressed in the Securities Act, and
we will be governed by the final adjudication of such issue.
Nevada Laws
The Nevada Business Corporation Law contains a provision governing "Acquisition
of Controlling Interest." This law provides generally that any person or entity
that acquires 20% or more of the outstanding voting shares of a publicly-held
Nevada corporation in the secondary public or private market may be denied
voting rights with respect to the acquired shares, unless a majority of the
disinterested stockholders of the corporation elects to restore such voting
rights in whole or in part. The control share acquisition act provides that a
person or entity acquires "control shares" whenever it acquires shares that, but
for the operation of the control share acquisition act, would bring its voting
power within any of the following three ranges: (1) 20 to 33 1/3%, (2) 33 1/3 to
50%, or (3) more than 50%. A "control share acquisition" is generally defined as
the direct or indirect acquisition of either ownership or voting power
associated with issued and outstanding control shares. The stockholders or board
of directors of a corporation may elect to exempt the stock of the corporation
from the provisions of the control share acquisition act through adoption of a
provision to that effect in the articles of incorporation or bylaws of the
corporation. Our articles of incorporation and bylaws do not exempt our common
stock from the control share acquisition act. The control share acquisition act
is applicable only to shares of "Issuing Corporations" as defined by the act. An
Issuing Corporation is a Nevada corporation, which; (1) has 200 or more
stockholders, with at least 100 of such stockholders being both stockholders of
record and residents of Nevada; and (2) does business in Nevada directly or
through an affiliated corporation.
At this time, we do not have 100 stockholders of record resident of Nevada.
Therefore, the provisions of the control share acquisition act do not apply to
acquisitions of our shares and will not until such time as these requirements
have been met. At such time as they may apply to us, the provisions of the
control share acquisition act may discourage companies or persons interested in
acquiring a significant interest in or control of Teliphone Corp., regardless of
whether such acquisition may be in the interest of our stockholders.
The Nevada "Combination with Interested Stockholders Statute" may also have an
effect of delaying or making it more difficult to effect a change in control of
Teliphone Corp. This statute prevents an "interested stockholder" and a resident
domestic Nevada corporation from entering into a "combination", unless certain
conditions are met. The statute defines "combination" to include any merger or
consolidation with an "interested stockholder," or any sale, lease, exchange,
mortgage, pledge, transfer or other disposition, in one transaction or a series
of transactions with an "interested stockholder" having; (1) an aggregate market
value equal to 5 percent or more of the aggregate market value of the assets of
the corporation; (2) an aggregate market value equal to 5 percent or more of the
aggregate market value of all outstanding shares of the corporation; or (3)
representing 10 percent or more of the earning power or net income of the
corporation. An "interested stockholder" means the beneficial owner of 10
percent or more of the voting shares of a resident domestic corporation, or an
affiliate or associate thereof. A corporation affected by the statute may not
engage in a "combination" within three years after the interested stockholder
acquires its shares unless the combination or purchase is approved by the board
of directors before the interested stockholder acquired such shares. If approval
is not obtained, then after the expiration of the three-year period, the
business combination may be consummated with the approval of the board of
directors or a majority of the voting power held by disinterested stockholders,
or if the consideration to be paid by the interested stockholder is at least
equal to the highest of: (1) the highest price per share paid by the interested
stockholder within the three years immediately preceding the date of the
announcement of the combination or in the transaction in which he became an
interested stockholder, whichever is higher; (2) the market value per common
share on the date of announcement of the combination or the date the interested
stockholder acquired the shares, whichever is higher; or (3) if higher for the
holders of preferred stock, if any are authorized or issued, the highest
liquidation value of the preferred stock.
33
Certain Relationships And Related Transactions
Certain Related Party Transactions Within The Past Two Years. There are no
certain transactions or have there been any proposed transactions during the
last two years to which we were a party, or proposed to be a party, in which
certain persons had a direct or indirect material interest.
Interest of Named Experts and Counsel
None of the experts named herein was or is a promoter, underwriter, voting
trustee, director, officer or employee of our company. Further, none of the
experts was hired on a contingent basis and none of the experts named herein
will receive a direct or indirect interest in our Company, except that Mr.
Joseph I. Emas, Attorney at Law, Miami, Florida, has received 25,000 shares of
our common stock.
Legal Matters
Joseph I. Emas, Attorney at Law, Miami, Florida will issue an opinion with
respect to the validity of the shares of common stock being offered hereby.
Accounting Matters
Michael Pollack, CPA, independent certified public accountants, have audited our
consolidated financial statements at September 30, 2005 as set forth in their
included report. Schwartz, Levitsky, Feldman LLP, independently certified public
accountants, have audited our consolidated financial statements from September
30, 2004 and September 30, 2003 as set forth in its reports. We have included
our consolidated financial statements in the registration statement, in reliance
on their report giving their authority as an expert in accounting and auditing.
Both Legal Counsel and Experts have no interest in this registration statement
other than normal legal and accounting fees.
Changes In and Disagreements With Accountants On Accounting And Financial
Disclosure
We have had no disagreements on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedures with
any of our accountants for the year ended September 30, 2005.
We have not had any other changes in nor have we had any disagreements, whether
or not resolved, with our accountants on accounting and financial disclosures
during our two recent fiscal years or any later interim period.
Additional Information
We are subject to the reporting requirements of the Securities Exchange Act of
1934, as amended, and file reports, proxy statements and other information with
the Securities and Exchange Commission. These reports, proxy statements and
other information may be inspected and copied at the public reference facilities
maintained by the Securities and Exchange Commission at 100 F Street, NE,
Washington, D.C. 20549 and at the Securities and Exchange Commission's regional
offices. You can obtain copies of these materials from the Public Reference
Section of the Securities and Exchange Commission upon payment of fees
prescribed by the Securities and Exchange Commission. You may obtain information
on the operation of the Public Reference Room by calling the Securities and
Exchange Commission at 1-800-SEC-0330. The Securities and Exchange Commission's
Web site contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Securities
and Exchange Commission. The address of that site is HYPERLINK
"http://www.sec.gov"
34
Description of Business
Company History; Organization Within the Last Five Years
Corporate Structure
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 details of the merger and re-organization, along with the principal
negotiators of the agreement are as follows:
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.
The parties who negotiated the merger and reorganization agreement were:
o George Metrakos, President of Teliphone Inc. who became President
CEO of OSK Capital II Corp. George Metrakos was not compensated in
this transaction. George Metrakos already owned 3.9% of Teliphone
Inc. prior to the combination and hence received the 961,528 shares
of Corp. in exchange for his 4 shares of Teliphone Inc. These shares
are listed under Metratech Business Solutions Inc., a wholly-owned
company of George Metrakos.
o Robert Cajolet, President and CEO of OSK Capital II Corp. who stayed
on the board of OSK Capital II Corp. after the transaction as
director. Robert Cajolet was compensated with the issuance of
1,250,000 restricted shares of the Company stock (1,000,000 shares
currently held within 2,000,000 share block of Beverly Hills
Trading). He was not provided any monetary compensation.
o Benoit Laliberte, President and CEO of United American Corp. at the
time. He did not receive any compensation in the transaction,
however United American Corp received 24,038,462 shares of Corp. in
exchange for their 100 shares of Teliphone Inc.
o Francis Maillot, Former President and CEO of OSK Capital II Corp
prior to Robert Cajolet, during negotiatons acting as broker from
Beverly Hills Trading Corp.. Beverly Hills Trading Corp. received a
total of 2,000,000 shares of OSK Capital II Corp., and are the
beneficial owner of 1,000,000 of them (see Robert Cajolet, above)
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 will become a 25% owner of our subsidiary
Teliphone Inc. in return for additional investment in the company. As a result
of this transaction, Teliphone Inc. remains a majority-owned subsidiary of the
Company. 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 25,737,785 shares to
their shareholders. Although there were no contractual obligations on the part
of the company or United American Corporation, this spin off was part of a long
term strategy of United American Corporation.
History of Key Agreements
At the time of the merger and re-organization, the Company, through its
subsidiary Teliphone Inc., was able to offer its services to customers in Canada
only. This was achieved through the signing of a retail distribution agreement
on March 1, 2005, with BR Communication 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 mobile or landline phones that utilize our VoIP
network 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. This agreement was later expanded to include the Province of
Ontario and to remove the restriction of Sherbrooke, Quebec. BR receives a
pre-determined commission based upon sales of mobile or landline phones that
utilize our VoIP network and revenues derived from retailer consumers who
activated their VoIP service through distribution channels used by BR.
35
The Company sought to further expand its distribution reach internationally and
on August 23, 2005, we entered into a marketing and distribution agreement with
Podar Enterprise ("Podar") of Mumbai, India. Podar is focused on building a
distribution network to sell to consumers in Central, South, and East Asia,
Eastern Europe, and parts of the Middle East. Under the terms of this agreement,
Podar was granted the exclusive marketing and distribution rights for our
products and services in India, China, Sri Lanka, United Arab Emirates, and
Russia. The term of this agreement is five (5) years subject to early
termination with 60 days notice following any default under the agreement.
The Company sought to expand its product offering in order to offer its
broadband phone services to US customers as well. The Company singed 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.
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.
The Company offers the following services to customers utilizing its VoIP
technology platform:
o Local and International VoIP calling services for residential
customers in the Province of Quebec, Canada
o Local and International VoIP calling services for small businesses
in the Province of Quebec, Canada
o International VoIP calling services to residential customers in
India
Distribution methods of the products or services
Retail Sales.
We distribute our products and services through our retail partners' stores. Our
retail partners have existing public retail outlets where they typically sell
telecommunications or computer related products and services such as other
telecommunications services (cellular phones) or computer hardware and software.
The Company does not own or rent any retail space for the purpose of
distribution, rather, it relies on its re-seller partners to display and promote
the Company's products and services within their existing retail stores. Our
agreement with BR Communications Inc. has permitted us to establish our retail
sales channel.
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.
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In the Province of Quebec, we have an agreement with 9151-4877 Quebec Inc.
"Dialek" who is a wholesaler of our products and services. The nature of the
agreement is such that Dialek purchases our products and services at volume
quantities and re-selles them to their own end-user customers. Internationally,
we have an agreement with Podar Infotech LLC "Podar"of India, our principal
wholesale partner in Asia and the Middle East. Podar sells to re-sellers and
end-users the Company's products and services exclusively in India, China,
Russia, Sri Lanka and the United Arab Emirates.
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
During 2005Q3, The Company began to target Small and Medium sized business
clients with an expanded version of its offering. Average revenues per customer
in this segment are $400. The Company markets these services primarily through
its telecom interconnection resellers, who have existing customer relationships
in this segment.
Teliphone has also developed and integrated new software permitting the
replacement of traditional auto-attendant and office telephony systems. The
Company is currently finalizing its beta trials and will introduce to the market
through its interconnection re-seller base in 2007Q1.
CallOnA.com
We are currently testing our CallOnA.com service, which permits users to execute
free calls to certain international destinations by initiating a call from our
website. This service has not been fully tested as of yet and we anticipate
launching the service in a preliminary form within 3 months of the filing of
this prospectus.
teliPhone Mobile VoIP and Single Point of Contact services (MobilNation)
This service is an entry-level service targeting both residential and business
mobile phone users. This end-user customer does not require broadband internet
access nor any additional equipment to utilize this service. Users pay a fixed
monthly fee of $9.95 per month and receive a phone number where they are
provided options to re-direct the incoming call to numerous phones, enhanced
voice-mail, as well as the ability to add virtual numbers from other cities
($4.95 per month), eliminating inbound long distance charges to their calling
parties.
Customers of MobilNation are provided with multiple dial-up numbers from various
cities in the US & Canada. This permits the customer to make long distance calls
on their home or cellular phone by purchasing the long distance call from the
Company instead of their existing service provider. Our rates are typically up
to 50% less than existing suppliers, thereby reducing our customer's overall
monthly phone bill.
The MobilNation services are currently in the final stages of development. They
will be marketed primarily over the Internet and will be introduced in 2007Q1 to
The Company's Retail sales points as well.
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.
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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.
The Company is provided its phone numbers and interconnection with the existing
public switched telephone network in Canada by Rogers Business Solutions. This
agreement was originally signed in 2004 under Teliphone's former parent company
United American Corporation and has since been updated to the current agreement
with Teliphone and Rogers Business Solutions signed on April 25th, 2006. In the
US and internationally, this service is provided by RNK Telecom Inc.
We are not dependent on a few major customers. Our largest Wholesale customer,
Dialek Telecom, currently produces less than 10% of our monthly revenues.
We do not currently hold any patents, trademarks, liences, 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.
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.
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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 98% 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
they will permit the reduction of pricing by the incumbent carriers once a 25%
market share has been attained by the upstart phone service providers. Effective
March 2005, there is a penetration of 10% of phone services by up-start VoIP
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.
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.
Effective the filing of this prospectus, 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.
41
Effective the filing of this prospectus, 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 $128,771 in Research and Development activities during 2005
and $0 during 2004.
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.
42
Managements Discussion and Analysis of Financial Condition and Plan of
Operations
The following discussion should be read in conjunction with, and is qualified in
its entirety by, our consolidated financial statements and the notes thereto and
other financial information included elsewhere in this Annual Report on Form
10-KSB. This Annual Report, including the following Management's Discussion and
Analysis, and other reports filed by the Registrant from time to time with the
Securities and Exchange Commission (collectively the "Filings") contain
forward-looking statements which are intended to convey our expectations or
predictions regarding the occurrence of possible future events or the existence
of trends and factors that may impact our future plans and operating results.
These forward-looking statements are derived, in part, from various assumptions
and analyses we have made in the context of our current business plan and
information currently available to us and in light of our experience and
perceptions of historical trends, current conditions and expected future
developments and other factors we believe to be appropriate in the
circumstances. You can generally identify forward-looking statements through
words and phrases such as "seek", "anticipate", "believe", "estimate", "expect",
"intend", "plan", "budget", "project", "may be", "may continue", "may likely
result", and similar expressions. When reading any forward-looking statement you
should remain mindful that all forward-looking statements are inherently
uncertain as they are based on current expectations and assumptions concerning
future events or future performance of our company, and are subject to risks,
uncertainties, assumptions and other factors relating to our industry and
results of operations.
Should one or more of these risks or uncertainties materialize, or should the
underlying assumptions prove incorrect, actual results may differ significantly
from those anticipated, believed, estimated, expected, intended or planned.
Each forward-looking statement should be read in context with, and with an
understanding of, the various other disclosures concerning our company and our
business made in our Filings. You should not place undue reliance on any
forward-looking statement as a prediction of actual results or developments. We
are not obligated to update or revise any forward-looking statement contained in
this report to reflect new events or circumstances unless and to the extent
required by applicable law.
Results of Operations
Fiscal Year End September 30, 2005
The Company's balance sheet as of September 30, 2005, the Company had assets
consisting of accounts receivable in the amount of $63,063, income tax
receivable (Canadian Research and Development Tax Credits) of $16,502, inventory
of $32,468 and prepaid expenses of 22,621, but no cash. The Company has expended
its cash in furtherance of its business plan, including primarily expenditure of
funds to pay legal and accounting expenses, and has recorded the full value of
the stock issued for services as a general, selling, and administrative expense.
Consequently, the Company's balance sheet as of September 30, 2005 reflects a
deficit accumulated of ($720,920) and a stockholders deficit of ($359,033).
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.
The Company's cost of sales were $447,752 for the year ended September 30, 2005
compared to $574 for the period August 27, 2004 through September 30, 2004,
primarily as a consequence of an increase in sales and related costs,
specifically the cost of purchasing inventory. The Company's aggregate operating
expenses were $415,520 for the year ended September 30, 2005 compared to $28,956
for the period August 27, 2004 through September 30, 2004. As a result, the
Company had a net loss of ($691,390) for the year ended September 30, 2005
compared to a net loss of ($29,530) for the period August 27, 2004 through
September 30, 2004.
Three and Nine Months Ended June 30, 2006 Compared to Three and Nine Months
Ended June 30, 2005
The Company's condensed consolidated balance sheet as of the nine months ended
June 30, 2006, had assets consisting of accounts receivable in the amount of
$25,770, income tax receivable (Canadian Research and Development Tax Credits)
of $17,191, inventory of $15,862 and prepaid expenses of $10,142, fixed assets
of $127,537, but no cash. The Company has expended its cash in furtherance of
its business plan, including expenditure of funds to pay legal and accounting
expenses. Consequently, the Company's condensed consolidated balance sheet as of
June 30, 2006 reflects an accumulated deficit of ($978,937) and a stockholders'
deficit of ($653,691).
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The Company recorded sales of $95,994 for the three months ended June 30, 2006
as compared to $82,416 for the three months ended June 30, 2005 and sales of
$290,723 for the nine months ended June 30, 2006 as compared to $161,228 for the
nine months ended June 30, 2005. The increase in sales is primarily due to
increased sales in the small business segment in our domestic market.
The Company's cost of sales were $89,235 for the three months ended June 30,
2006 as compared to $50,900 for the three months ended June 30, 2005 and
$296,076 for the nine months ended June 30, 2006 as compared to $205,084 for the
nine months ended March 31, 2005, primarily as a consequence of an decrease in
the cost of purchasing inventory. We have moved to outsourced fulfillment and
provisioning of our device hardware and therefore stock inventory on an as
needed basis in order to fulfill our re-seller demand.
The Company's aggregate operating expenses were $84,686 for the three months
ended June 30, 2006 as compared to $107,085 for the three months ended June 30,
2005 and $329,001 for the nine months ended June 30, 2006 as compared to
$250,362 for the nine months ended June 30, 2005, primarily as a consequence of
reduction of costs attributed to the building of our domestic sales distribution
channel and a decrease in promotion during the period. Likewise, the Company is
able to recover operating costs such as office supplies expenses, rent, etc.
from its parent company, United American Corporation, who share office space
with the Company.
Interest expense for the three months ended June 30, 2006 and three months ended
June 30, 2005 was ($391) and ($6,602) respectively. Interest expense for the
nine months ended June 30, 2006 and June 30, 2005 was ($10,320) and ($2,302)
respectively.
The Company had a net loss of for the three months ended June 30, 2006 of
($79,972) as compared to ($82,171) for the three months ended June 30, 2005 and
($258,017) for the nine months ended June 30, 2006 as compared to ($383,177) for
the nine months ended March 31, 2005, primarily as a consequence of further
reduction of costs attributed to our telecommunications network and our
operating expenses along with an increase in sales in our domestic market.
Plan of Operations and Need for Additional Financing
The Company's plan of operations for most of 2005 and 2006 is to build a
subscriber base of both residential and business customers who purchase
telecommunications services on a monthly basis, as well as wholesale technology
and telecommunications solutions to Tier 1 & Tier 2 telecommunications
companies.
The Company will require additional capital in order to pay the costs associated
with developing its business plan. Currently, the Company is a party to a cash
advance agreement between related companies 3894517 Canada Inc. and Teliphone
Inc. Pursuant to this agreement, the Company will be advances funds on an "as
needed" basis. The majority of these funds have been repaid through the issuance
of common stock of the Company at the current offering price. As a result,
$424,831 of debt has been converted to equity leaving a total debt of $341,297
effective September 30, 2006. $300,000 remaining on the loan has become interest
bearing at 12% per annum, payable monthly with a maturity date of August 1,
2009. The blanace, $41,297 are non-interest bearing loans and will be repaid to
United American Corp. as part of the proceeds of the offering of this
prospectus. (See "Use of Proceeds"). Even though we have secured adequate
funding, no assurances can be provided that our business activities will
generate sufficient revenues which may result in net profits for the Company.
Our auditors have raised substantial doubt as to our ability to continue as a
going concern. The financial statements do not include any adjustments that
might result from the outcome of these uncertainties.
44
Liquidity and Capital Resources
For the year ending September 30, 2005:
The Company used $652,515 in operating activities in 2005 compared to $30,078 in
2004. This change was attributable in large part to the increased expenditures
to maintain our telecommunications network and related maintenance of its
operation.
The Company used cash in investing activities of $75,450 compared to no cash
used in 2004. This change was attributable to the Company's acquisition of
telecommunications equipment in order to operate its services.
The Company had net cash provided by financing activities of $727,965 in 2005
compared to $30,078 in 2004. This change was primarily attributable to the
receipt of advances from its parent company, United American Corporation.
For the interim period ending June 30, 2006:
The Company used $242,599 in operating activities by June 30, 2006 compared to
$483,046 in the same period in 2005. This change was attributable in large part
to the decreasing expenditures to maintain our telecommunications network and
related maintenance of its operation as the Company emerged from higher cost
prototype operations to a production operations.
The Company used cash in investing activities of $6,394 compared to $7,876 cash
used in the same period in 2005. This change was attributable to the Company's
acquisition of telecommunications equipment in order to operate its services.
The Company had net cash provided by financing activities of $285,634 compared
to $509,771 in the same period in 2005. This change was primarily attributable
to the receipt of advances from its parent company, United American Corporation.
In pursuing its business strategy, the Company may require additional cash for
operating and investing activities. The Company expects future cash
requirements, if any to be funded from operating cash flow and cash flow from
financing activities.
The Company has undertaken a private placement of 20,000,000 of its shares of
common stock at $0.25 per share. The Company anticipates proceeds of this
offering to be approximately $4,750,000 after the payment of closing costs of
approximately $250,000.
The Company anticipates utilizing these proceeds to continue 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, search for additional companies to bring under
the corporate umbrella and enhance the current services the Company is
providing, and compliance with Sarbanes - Oxley Section 404."
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern. The Company has suffered recurring losses from
operations and at September 30, 2005 and 2004 had working capital deficits as
noted above. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Critical Accounting Policies and Estimates
Management's Discussion and Analysis of Financial Conditions and Results of
Operations are based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. When preparing our financial statements, we make estimates and
judgments that affect the reported amounts on our balance sheets and income
statements, and our related disclosure about contingent assets and liabilities.
We continually evaluate our estimates, including those related to revenue,
allowance for doubtful accounts, reserves for income taxes, and litigation. We
base our estimates on historical experience and on various other assumptions,
which we believe to be reasonable in order to form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily ascertained from other sources. Actual results may deviate from these
estimates if alternative assumptions or condition are used.
In December 2004, the FASB issued Statement of Financial Accounting Standards
No. 123 R (As amended) Accounting for Stock-Based Compensation. This statement
is a revision of FASB Statement No 123 and supersedes APB Opinion No.
25,Accounting for Stock Issued to Employees, and its related implementation
guidance. This statement establishes standards for the accounting for
transactions in which an entity exchanges its equity instruments for goods and
services. It also addresses transactions in which an entity incurs liabilities
in exchange for goods and services that are based on the fair value of the
entity's equity instruments or that may be settled by the issuance of those
equity instruments. This Statement focuses primarily on accounting for
transactions in which an entity obtains employee services in share-based payment
transactions. For public entities that are not small business issuers, the
implementation of this Statement is required as of the beginning of the first
interim or annual reporting period after June 15, 2005. For public entities that
are small business issuers, the implementation of this Statement, is required as
of the beginning of the first interim or annual reporting period after December
15, 2005. Management is required to implement this Statements beginning in
fiscal year beginning on January 1, 2006 and they are currently evaluating the
impact of implementation of this Statement on the Company.
45
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.
46
Inventories
Inventories are stated at the lower of cost to purchase and/or manufacture the
inventory or the current estimated market value of the inventory. We regularly
review our inventory quantities on hand and record a provision for excess and
obsolete inventory based primarily on our estimated forecast of product demand
and/or our ability to sell the products and production requirements. Demand for
the our products can fluctuate significantly. Factors which could affect demand
for our products include unanticipated changes in consumer preferences, general
market conditions or other factors, which may result in cancellations of advance
orders or a reduction in the rate of reorders placed by customers and/or
continued weakening of economic conditions. Additionally, our estimates of
future product demand may be inaccurate, which could result in an understated or
overstated provision required for excess and obsolete inventory. Our estimates
are based upon our understanding of historical relationships which can change at
anytime.
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 records these translation adjustments as accumulated other comprehensive
income (loss). Gains and losses from foreign currency transactions are included
in other income (expense) in the results of operations. For the year ended
September 30, 2005 and period August 27, 2004 (inception) through September 30,
2004, the Company recorded approximately $38,153 and $1,690 in transaction gains
(losses) as a result of currency translation.
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 $7,264 at
September 30, 2005.
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 for years in which differences are expected to
reverse. Valuation allowances are established, when necessary, to reduce
deferred tax assets to amounts that are expected to be realized.
Investment Tax Credits
The Company claims investment tax credits as a result of incurring scientific
research and experimental development expenditures. Investment tax credits are
recognized when the related expenditures are incurred, and there is reasonable
assurance of their realization. Management has made a number of estimates and
assumptions in determining their expenditures eligible for the investment tax
credit claim. It is possible that the allowed amount of the investment tax
credit claim could be materially different from the recorded amount upon
assessment by Revenue Canada and Revenue Quebec. The Company has estimated these
investment tax credits to be $16,502 for the year ended September 30, 2005.
There was an additional $59,384 in Federal research and development tax credits
earned in 2005, however since the corporation is foreign controlled (Teliphone),
these would not be refundable. These credits, however, can be used to reduce
future years' taxable income and they expire in 2015.
47
Stock Based Compensation
The Company measures compensation expense for its employee stock-based
compensation using the intrinsic-value method. Under the intrinsic-value method
of accounting for stock-based compensation, when the exercise price of options
granted to employees and common stock issuances are less than the estimated fair
value of the underlying stock on the date of grant, deferred compensation is
recognized and is amortized to compensation expense over the applicable vesting
period. In each of the periods presented, the vesting period was the period in
which the options were granted. All options were expensed to compensation in the
period granted rather than the exercise date.
Segment Information
The Company follows the provisions of SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information". This standard requires that companies
disclose operating segments based on the manner in which management
disaggregates the Company in making internal operating decisions. Despite the
Company's subsidiary, Teliphone, Inc. incurring sales of hardware components for
the VoiP service as well as the service itself, the hardware sales are only
necessary to receive the service. The Company does not consider this a separate
segment of their business. In less than 5% of the accounts, Teliphone, Inc.
sells hardware without service, or service without the hardware, failing to
segregate their business.
Description of Property.
The Company's executive offices are currently located at 4150 Ste-Catherine
Street West, suite 200, Montreal, PQ, Canada, H3Z 0A1. The 1000 square foot
office space is rented at a base rent of $2,500 per month, however this is
supplied by Intelco Communication as pert of the July 2006 agreement for
investment in Teliphone Inc. by Intelco Communications and 3908913 Canada Inc.
As a result, from August 1, 2006 to July 31, 2007, The Company will not be
required to actually pay the rental fee, as it represents part of the investment
by 3908913 and Intelco into Teliphone Inc's working capital requirements. In
addition, under agreement with Peer 1 Networks, a data center and co-location
facility, we rent 2 cabinets of space for our main telecommunications network
equipment located at 1080 Beaver Hall, suite 1512, Montreal, PQ, Canada H2Z 1S2.
Certain Relationships and Related Transactions.
There were no certain transactions or have there been any proposed transactions
during the last two years to which we were a party, or proposed to be a party,
in which certain persons had a direct or indirect material interest.
Market for Common Equity and Related Stockholder Matters
At present, our securities are not traded publicly. There is no assurance that a
trading market will develop, or, if developed, that it will be sustained. A
purchaser of shares may, therefore, find it difficult to resell the securities
offered herein should he or she desire to do so when eligible for public resale.
Furthermore, the shares are not marginable and it is unlikely that a lending
institution would accept our common stock as collateral for a loan. Pursuant to
this registration statement, we propose to publicly offer a minimum of 2,000,000
shares and a maximum of 20,000,000 shares.
Effective April 28, 2005, the Company effected the reverse merger and
reorganization with Teliphone Inc., a Canadian company. As OSK Capital II, Corp.
was a blank check company 3,426,000 shares will be eligible for resale under
rule 144 on April 28, 2006, one year from the date of the merger with OSK
Holders
As of November 28, 2006 there were fifty-six (56) holders of record of our
common stock. It must be noted that the majority stockholder, United American
Corporation, holds 25,737,785 of the 32,893,843 outstanding shares of the
company. United American Corporation proposes to spin-off Teliphone Corp.. To
complete the spin-off, management proposes to distribute the 25,737,785 shares
of Teliphone owned on a pro rata basis to its shareholders. This would increase
the shareholder base by four hundred and fifteen (415) bringing the total
holders to four hundred and seventy-one (471).
48
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, 2005.
Long Term Compensation
--------------------------------------------------------------------
Payouts
----------------------------------
Awards Securities
Annual Compensation ------------------------------- Underlying All Other
---------------------- Other Annual Restricted Stock Options/SARs LTIP Compen-
Name and Principal Position Year Salary Bonus Compensation Award (s) (#) Payouts sation
- -------------------------------- ---- ------- ----- ------------ ---------------- ------------ ------- --------
GEORGE METRAKOS
President, Chief
Executive Officer, CFO 2005 $48,000 -- -- 961,538 -- -- --
and Principal Accounting Officer
Director
2004 $ 4,000 -- -- --
2003 -- -- -- -- -- -- --
Robert Cajolet 2005 -- -- -- 1,250,000 -- -- --
Director 2004 -- -- -- -- -- -- --
2003 -- -- -- -- -- -- --
Employment Agreements
George Metrakos, Chairman, CEO, CFO, Principal Accounting Officer and President
George Metrakos is compensated $48,000 annually. Effective April 28, 2005, he
was awarded 961,538 shares of restricted stock of the corporation. These were
provided to him from his 3.9% ownership of Teliphone Inc. prior to the
combination. These shares are issued to Metratech Business Solutions Inc., a
Canadian company wholly owned by George Metrakos.
Effective only once the common stock of the Company is trading over the counter,
it has been agreed that George Metrakos will receive 75,000 options on a
quarterly basis at a value equivalent to the last 22 trading days stock value.
This stock option plan has not been formalized or disclosed as of the date of
this filing. It is anticipated that George Metrakos' annual base salary will
increase to $120,000 per year.
Robert Cajolet, Director
Robert Cajolet does not receive any base salary. Robert Cajolet has received
1,250,000 shares of restricted stock of the Company in April 2005, 250,000
issued to XIPE Corporation, a Canadian company wholly owned by Robert Cajolet
and 1,000,000 shares issued to Beverly Hills Trading, of which Robert Cajolet is
the beneficial owner of 1,000,000 of the 2,000,000 shares issued.
PLAN OF DISTRIBUTION
Currently we plan to have our officers sell the common shares on a
self-underwritten basis. They will receive no discounts or commissions. Our
officers will deliver prospectuses to these individuals and to others who they
believe might have interest in purchasing all or a part of this offering. The
officers that will be selling the common shares are:
o George Metrakos, President, CEO, CFO and Chairman
o Robert Cajolet, Director
We also may retain licensed broker/dealers to assist us in the offer and sell of
the shares of our common stock, if we deem such to be in our best interest. At
this time we do not have any commitments, agreements or understandings with any
broker/dealers. The maximum underwriting discounts and commissions we are
willing to pay to engage broker/dealers is 10%. In the event we retain any
broker/dealers to assist in the offer and sell of shares of our common stock we
will update this prospectus accordingly. We have not entered into negotiations
with any broker-dealer to offer or sell the securities for the company.
In order to buy shares you must complete and execute the subscription agreement
and return it to our escrow agent Joseph I. Emas Esq at 1224 Washington Ave,
Miami Beach, Florida 33139. Payment of the purchase price must be made by check
payable to the order of "Joseph I. Emas, P.A.: with a memo "to the benefit of
Teliphone, Corp." The check may be delivered directly to 1224 Washington Ave,
Miami Beach, Florida 33139, telephone 305-531-1174, or to us at St-Catherine St.
West, Westmount (Montreal), Quebec Canada, H3Z 0A1. Any subscription funds we
receive will be delivered to the Escrow Agent by no later than noon of the
business day following receipt.
49
We have the right to accept or reject subscriptions in whole or in part, for any
reason or for no reason. All monies from rejected subscriptions will be returned
immediately to the subscriber, without interest or deductions. Subscriptions for
securities will be accepted or rejected within 48 hours after we receive them.
Our officers will not register as a broker/dealer under Section 15 of the
Securities Exchange Act of 1934 (the "Exchange Act") in reliance upon Rule
3a4-1. Rule 3a4-1 sets forth those conditions under which a person associated
with an issuer may participate in the offering of the issuer's securities and
not be deemed to be a broker/dealer. The conditions are that:
1. The person is not statutorily disqualified, as that term is defined in
Section 3(a)(39) of the Act, at the time of his participation; and,
2. The person is not at the time of their participation, an associated
person of a broker/dealer; and,
3. The person meets the conditions of Paragraph (a)(4)(ii) of Rule 3a4-1
of the Exchange Act, in that he (A) primarily performs, or is intended primarily
to perform at the end of the offering, substantial duties for or on behalf of
the issuer otherwise than in connection with transactions in securities; and (B)
is not a broker or dealer, or an associated person of a broker or dealer, within
the preceding twelve (12) months; and (C) do not participate in selling and
offering of securities for any issuer more than once every twelve (12) months
other than in reliance on Paragraphs (a)(4)(i) or (a)(4)(iii).
Our officers and directors are not statutorily disqualified, are not being
compensated, and are not associated with a broker/dealer. They are, and will
continue to be, our officers and directors at the end of the offering, and have
not been, during the last twelve months, and are currently not, broker/dealers
or associated with broker/dealers. They have not, nor will not, participate in
the sale of securities of any issuer more than once every twelve months. After
our registration statement is declared effective by the SEC we intend to
advertise, through tombstones, and hold investment meetings in various states
where the offering will be registered. We will not utilize the Internet to
advertise our offering. We will also distribute the prospectus to potential
investors at meetings and to our friends and relatives who are interested in us
and a possible investment in the offering.
We intend to sell our shares in the United States of America, and/or offshore.
We are also registering the shares of our common stock covered by this
prospectus for the Selling Shareholders. As used in this prospectus, "Selling
Shareholders" includes the donees, transferees or others who may later hold the
Selling Shareholder's interests. The Selling Shareholders will act independently
of us in making decisions with respect to the timing, manner and size of each
sale. The Selling Shareholders are required to sell their shares at $2.00 per
share until our securities are quoted on the OTC Bulletin Board. Once our
securities are quoted on the OTC Bulletin Board, the Selling Shareholders may,
from time to time, sell all or a portion of its shares of common stock on the
OTC Bulletin Board or on any national securities exchange or automated
inter-dealer quotation system on which our common stock may be listed or traded,
in negotiated transactions or otherwise, at prices then prevailing or related to
the current market price or at negotiated prices. One or more underwriters on a
firm commitment or best efforts basis may sell the shares of common stock
directly or through brokers or dealers or in a distribution. The methods by
which the shares of common stock may be sold include:
o a block trade (which may involve crosses) in which the broker or
dealer engaged will attempt to sell the shares of common stock as
agent, but may position and resell a portion of the block, as
principal, to facilitate the transaction,
o purchases by a broker or dealer, as principal, and resale by such
broker or dealer for its account pursuant to this prospectus,
o ordinary brokerage transactions and transactions in which the broker
solicits purchasers or through market makers,
o transactions in put or call options or other rights (whether
exchange-listed or otherwise) established after the effectiveness of
the registration statement of which this prospectus is a part, and
o privately-negotiated transactions.
In addition, any of the shares of common stock that qualify for sale pursuant to
Rule 144 promulgated under the Securities Act of 1933 may be sold in
transactions complying with that Rule, rather than pursuant to this prospectus.
For sales to or through broker-dealers, these broker-dealers may receive
compensation in the form of discounts, concessions or commissions from the
Selling Shareholders or the purchasers of the shares, or both. We have advised
the Selling Shareholders that the anti-manipulative provisions of Regulation M
under the Securities Exchange Act of 1934 may apply to its sales in the market
and have informed it that it must deliver copies of this prospectus. We are not
aware, as of the date of this prospectus, of any agreements between any Selling
Shareholders and broker-dealers with respect to the sale of the shares of common
stock.
Any broker-dealers or agents participating in the distribution of our shares may
be deemed to be "underwriters" within the meaning of the Securities Act of 1933,
and any commissions received by any broker-dealer or agent and profit on any
resale of shares of common stock may be deemed to be underwriting commissions
under the Securities Act of 1933. The commissions received by a broker-dealer or
agent may be in excess of customary compensation.
50
At a time a particular offer of shares is made by a Selling Shareholders, a
prospectus supplement, if required, will be distributed that sets forth the
names of any underwriters, dealers or agents and any discounts, commissions and
other terms constituting compensation from a Selling Shareholders and any other
required information.
To the extent that any successor(s) to the named Selling Shareholders wishes to
sell under this prospectus, we have advised Selling Shareholders that a
prospectus supplement identifying such successor(s) as selling securities
holders must be filed in order for the successor(s) to the named Selling
Shareholders to sell their securities under this prospectus.
In connection with distributions of a Selling Shareholder's shares, or
otherwise, the Selling Shareholders may enter into hedging transactions with
broker-dealers or others, prior to or after the effective time of the
arrangement. These broker-dealers may engage in short sales of shares or other
transactions in the course of hedging the positions assumed by them or
otherwise. A Selling Shareholders may also:
o enter into option or other transactions with broker-dealers or
others that may involve the delivery to those persons the shares,
and broker-dealers may resell those shares pursuant to this
prospectus, and
o pledge the shares to a broker-dealer or others and, upon a default,
these persons may effect sales of the shares pursuant to this
prospectus.
We have advised the Selling Shareholders that open positions in shares of common
stock covered by this prospectus prior to the registration statement, of which
this prospectus is a part, being declared effective by the U.S. Securities and
Exchange Commission may constitute a violation of Section 5 of the Securities
Act of 1933. Each of the Selling Shareholders advised us that it did not have an
open position in the common stock covered by this prospectus at the time of its
response to our inquiry.
In order to comply with securities laws of some states, if applicable, the
shares of our common stock may be sold only through registered or licensed
broker-dealers.
The Selling Shareholders will be subject to applicable provisions of the
Securities Exchange Act of 1934 and its rules and regulations, including without
limitation, Rule 102 under Regulation M. These provisions may limit the timing
of purchases and sales of our common stock by the Selling Shareholders. Rule 102
under Regulation M provides, with limited exceptions, that it is unlawful for a
Selling Shareholders or its affiliated purchaser to, directly or indirectly, bid
for or purchase or attempt to induce any person to bid for or purchase, for an
account in which the Selling Shareholders or affiliated purchaser has a
beneficial interest in any securities that are the subject of the distribution
during the applicable restricted period under Regulation M. All of the above may
affect the marketability of our common stock.
Because it is possible that a significant number of shares could be sold at the
same time under this prospectus, these sales, or that possibility, may have a
depressive effect on the market price of our common stock.
We will receive none of the proceeds from the sale of the shares of common stock
by the Selling Shareholders, except upon exercise of the outstanding common
stock purchase warrant.
We will pay all costs and expenses incurred in connection with the registration
under the Securities Act of 1933 of the shares of common stock offered by the
Selling Shareholders, including all registration and filing fees, listing fees,
printing expenses, and our legal and accounting fees. The Selling Shareholders
will pay all of their own brokerage fees and commissions, if any, incurred in
connection with the sale of its shares of common stock.
We cannot assure you, however, that the Selling Shareholders will sell all or
any of the shares of common stock they may offer. In order to comply with state
securities laws, if applicable, the securities will be sold only through
registered or licensed brokers or dealers. In various states, the securities may
not be sold unless the securities have been registered or qualified for sale in
such state or an exemption from registration or qualification is available and
is complied with. Under applicable rules and regulation of the Securities
Exchange Act of 1934, as amended, any person engaged in a distribution of the
securities may not simultaneously engage in market-making activities in these
securities for a period of one (1) or five (5) business days prior to the
commencement of such distribution
We will register as broker-dealer under the sate laws of all states where we are
offering these securities and such registration is required.
Our officers, directors, employees and affiliates may purchase shares offered
under this prospectus:
o no offers were made to our officers, directors, employees and
affiliates prior to the filling of the registration statement;
o subsequent offers will be made only with the prospectus; and
o no funds have or will be committed or paid by our officers,
directors, employees and affiliates prior to effectiveness of the
registration statement.
51
All of the foregoing may affect the marketability of the securities. Pursuant to
the various agreements we have with the Selling Shareholders, we will pay all
the fees and expenses incident to the registration of the securities, other than
the Selling Shareholders' pro rata share of the underwriting discounts and
commissions, if any, which are to be paid by the Selling Shareholders.
Should any substantial change occur regarding the status or other matters
concerning the Selling Shareholders, we will file a Rule 424(b) prospectus
disclosing such matters.
PENNY STOCK RULES / SECTION 15(G) OF THE EXCHANGE ACT
Our shares are covered by Section 15(g) of the Securities Exchange Act of 1934,
as amended, and Rules 15g-1 through 15g-6 promulgated thereunder. They impose
additional sales practice requirements on broker/dealers who sell our securities
to persons other than established customers and accredited investors who are
generally institutions with assets in excess of $5,000,000, or individuals with
net worth in excess of $1,000,000 or annual income exceeding $200,000, or
$300,000 jointly with their spouses.
Rule 15g-1 exempts a number of specific transactions from the scope of the penny
stock rules. Rule 15g-2 declares unlawful broker/dealer transactions in penny
stocks unless the broker/dealer has first provided to the customer a
standardized disclosure document.
Rule 15g-3 provides that it is unlawful for a broker/dealer to engage in a penny
stock transaction unless the broker/dealer first discloses, and subsequently
confirms to the customer, current quotation prices or similar market information
concerning the penny stock in question.
Rule 15g-4 prohibits broker/dealers from completing penny stock transactions for
a customer unless the broker/dealer first discloses to the customer the amount
of compensation or other remuneration received as a result of the penny stock
transaction.
Rule 15g-5 requires that a broker/dealer executing a penny stock transaction,
other than one exempt under Rule 15g-1, disclose to its customer, at the time
of, or prior to, the transaction, information about the sales persons
compensation.
Rule 15g-6 requires broker/dealers selling penny stocks to provide their
customers with monthly account statements. Rule 15g-9 requires broker/dealers to
approve the transaction for the customer's account; obtain a written agreement
from the customer setting forth the identity and quantity of the stock being
purchased; obtain from the customer information regarding his investment
experience; make a determination that the investment is suitable for the
investor; deliver to the customer a written statement for the basis for the
suitability determination; notify the customer of his rights and remedies in
cases of fraud in penny stock transactions; and, contact the NASD's toll free
telephone number and the central number of the North American Administrators
Association for information on the disciplinary history of broker/dealers and
their associated persons.
The application of the penny stock rules may affect your ability to resell your
shares due to broker-dealer reluctance to undertake the above described
regulatory burdens.
Disclosure of Commission Position on Indemnification for Securities Act
Liabilities
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
small business issuer pursuant to the foregoing provisions, or otherwise, the
small business issuer has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the small
business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer in the successful defense of any
action, suit or proceeding) is asserted by such director, officer, or
controlling person in connection with the securities being registered, the small
business issuer will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
52
OSK CAPITAL II CORPORATION
CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED SEPTEMBER 30, 2005 AND PERIOD AUGUST 27, 2004
(INCEPTION) THROUGH SEPTEMBER 30, 2004
53
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE(S)
-------
Report of Independent Registered Public Accounting Firm - 2005 1
Report of Independent Registered Public Accounting Firm - 2004 2
Consolidated Balance Sheet as of September 30, 2005 3
Consolidated Statements of Operations for the Year Ended
September 30, 2005 and Period August 27, 2004 (Inception)
through September 30, 2004 4
Consolidated Statements of Changes in Stockholders' (Deficit) for the
Year Ended September 30, 2005 and Period August 27, 2004 (Inception)
through September 30, 2004 5
Consolidated Statements of Cash Flows for the Year Ended
September 30, 2005 and Period August 27, 2004 (Inception)
through September 30, 2004 6
Notes to Consolidated Financial Statements 7-19
54
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
OSK Capital II Corporation
Montreal, Quebec CANADA
I have audited the accompanying consolidated balance sheet of OSK Capital II
Corporation (the "Company") as of September 30, 2005 and the related
consolidated statements of operations, changes in stockholders' (deficit), and
cash flows for the year ended September 30, 2005. These consolidated financial
statements are the responsibility of the Company's management. My responsibility
is to express an opinion on these consolidated financial statements based on my
audit.
I conducted my audit in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that I plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. I was not
engaged to perform an audit of the Company's internal control over financial
reporting. My audit 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, I 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. I believe that my audit provides a reasonable
basis for my opinion.
In my opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of OSK
Capital II Corporation as of September 30, 2005, and the results of its
consolidated statements of operations, changes in stockholders' (deficit), and
cash flows for the year ended September 30, 2005 in conformity with U.S.
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has sustained operating losses
and capital deficits that raise substantial doubt about its ability to continue
as a going concern. Management's plans in regard to these matters are also
described in Note 1. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ Michael Pollack CPA
----------------------------------------
Cherry Hill, NJ
February 20, 2006
55
Letterhead of Schwartz Levitsky Feldman LLP
AUDITORS' REPORT
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
November 10, 2006
56
Dealer Prospectus Delivery Obligation
"Until ______________, all dealers that effect transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions."
57
PART II -- INFORMATION NOT REQUIRED IN PROSPECTUS
Indemnification of Directors and Officers.
Anti-Takeover, Limited Liability and Indemnification Provisions
Neither our Articles of Incorporation nor Bylaws prevent us from indemnifying
our officers, directors and agents to the extent permitted under the Nevada
Revised Statute ("NRS"). NRS Section 78.502, provides that a corporation shall
indemnify any director, officer, employee or agent of a corporation against
expenses, including attorneys' fees, actually and reasonably incurred by him in
connection with any the defense to the extent that a director, officer, employee
or agent of a corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to Section 78.502(1) or
78.502(2), or in defense of any claim, issue or matter therein.
NRS 78.502(1) provides that a corporation may indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, except an action by or in the right of the corporation, by reason
of the fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses, including attorneys' fees,
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him in connection with the action, suit or proceeding if he: (a) is not
liable pursuant to NRS 78.138; or (b) acted in good faith and in a manner which
he reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. NRS Section 78.502(2)
provides that a corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against expenses, including amounts paid in
settlement and attorneys' fees actually and reasonably incurred by him in
connection with the defense or settlement of the action or suit if he: (a) is
not liable pursuant to NRS 78.138; or (b) acted in good faith and in a manner
which he reasonably believed to be in or not opposed to the best interests of
the corporation. Indemnification may not be made for any claim, issue or matter
as to which such a person has been adjudged by a court of competent
jurisdiction, after exhaustion of all appeals there from, to be liable to the
corporation or for amounts paid in settlement to the corporation, unless and
only to the extent that the court in which the action or suit was brought or
other court of competent jurisdiction determines upon application that in view
of all the circumstances of the case, the person is fairly and reasonably
entitled to indemnity for such expenses as the court deems proper. NRS Section
78.747 provides that except as otherwise provided by specific statute, no
director or officer of a corporation is individually liable for a debt or
liability of the corporation, unless the director or officer acts as the alter
ego of the corporation. The question of whether a director or officer acts as
the alter ego of a corporation must be determined by the court as a matter of
law.
No pending material litigation or proceeding involving our directors, executive
officers, employees or other agents as to which indemnification is being sought
exists, and we are not aware of any pending or threatened material litigation
that may result in claims for indemnification by any of our directors or
executive officers.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers or persons controlling us pursuant to the
foregoing provisions, we have been informed that, in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable. In the
event that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, we will, unless in the
opinion of our counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by us is against public policy as expressed hereby in the
Securities Act and we will be governed by the final adjudication of such issue.
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Other Expenses of Issuance and Distribution*
The following table sets forth the estimated costs and expenses we will pay in
connectio registration statement.
Amount
------
SEC registration fee $1,414
Printing and shipping expenses $ 250
Legal fees and expenses $2,500
Accounting fees and expenses $2,500
Transfer and Miscellaneous expenses $1,000
------
Total $7,614
* All expenses except SEC registration fee are estimated.
Recent Sales of Unregistered Securities.
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.
Name of Shareholder Number of Shares
- ------------------------------------- ----------------
United American Corp. (1) 24,038,462
Beverly Hills Trading Corporation (2) 2,000,000
Metratech Business Solutions Inc. (3) 961,538
- - The offer and sale of such shares of our common stock were effected in
reliance on the exemptions for sales of securities not involving a public
offering, as set forth in Rule 504 and 506 promulgated under the Securities Act
and in Section 4(2) and in reliance upon Regulation S of the Securities Act,
based on the following: (a) the investors confirmed to us that they were
"accredited investors," as defined in Rule 501 of Regulation D promulgated under
the Securities Act and had such background, education and experience in
financial and business matters as to be able to evaluate the merits and risks of
an investment in the securities; (b) there was no public offering or general
solicitation with respect to the offering; (c) the investors were provided with
certain disclosure materials and all other information requested with respect to
our company; (d) the investors acknowledged that all securities being purchased
were "restricted securities" for purposes of the Securities Act, and agreed to
transfer such securities only in a transaction registered under the Securities
Act or exempt from registration under the Securities Act; and (e) a legend was
placed on the certificates representing each such security stating that it was
restricted and could only be transferred if subsequent registered under the
Securities Act or transferred in a transaction exempt from registration under
the Securities Act.
A Convertible Debenture was signed with Mr. Jean-Guy Lambert, Businessman,
representing an investment of $306,560. The Debenture was converted to 613,520
shares of the common stock of the corporation on August 31, 2005 at a conversion
price of $0.50. These securities were issued in reliance upon the exemption
contained in Section 4(2) of the Securities Act of 1933 and in reliance upon
Regulation S for Mr. Jean-Guy Lambert, a citizen of Canada.
A Convertible Debenture was signed with Mr. Marcel Cote, Businessman,
representing an investment of $12,500. The Debenture was converted to 25,000
shares of the common stock of the corporation on August 31, 2005 at a conversion
price of $0.50. These securities were issued in reliance upon the exemption
contained in Section 4(2) of the Securities Act of 1933 and in reliance upon
Regulation S for Mr. Jean-Guy Lambert, a citizen of Canada.
A Convertible Debenture was signed with Mr. Robert Martineau, Businessman,
representing an investment of $10,000. The Debenture was converted to 20,000
shares of the common stock of the corporation on August 31, 2005 at a conversion
price of $0.50. These securities were issued in reliance upon the exemption
contained in Section 4(2) of the Securities Act of 1933 and in reliance upon
Regulation S for Mr. Jean-Guy Lambert, a citizen of Canada.
We recently issued the following securities on August 22nd, 2006 as restricted
stock for services:
# of
Shares of
Common
Name Address Stock
- ------------------- ------------------------------------------- ---------
Maxime Brazeau 2599 Louis-Veuillot, Montreal, Quebec, 10,000
Canada, H1N 2P1
Benjamin Lawetz 265 De Manou, Boucherville, Quebec, Canada, 10,000
J4B 1A6
Brendan Mirotchnick 5860 Monkland, Suite 203, Montreal, Quebec, 10,000
Canada H4A 1G1
Ronan Huon de 4502 Av. Lacombe, Montreal, Quebec, Canada, 10,000
Kermadec H3T 1M6
Suzanne Perron 3168 Des Emeraudes, St-Hubert, Quebec, 10,000
Canada, J4T 3S5
Bruno Mourani 1627, Blvd. Carpentier, Boisbriand, Quebec, 10,000
Canada, J7G 2Y7
Europe Mourani 1627, Blvd. Carpentier, Boisbriand, Quebec, 10,000
Canada, J7G 2Y7
Benoit Ratthe 811 Martin, St-Amable, Quebec, Canada, J0L 10,000
1N0
Joseph Emas 1224 Washington Av., Miami Beach, Florida, 25,000
USA, 33139
The offer and sale of the securities above were effected in reliance on the
exemptions for sales of securities not involving a public offering, as set forth
in Rule 506 promulgated under the Securities Act of 1933, as amended (the
"Securities Act") and in Section 4(2) and Section 4(6) of the Securities Act
and/or Rule 506 of Regulation D.
The offer and sale of such shares of our common stock were effected in reliance
on the exemptions for sales of securities not involving a public offering, as
set forth in Rule 504 and 506 promulgated under the Securities Act and in
Section 4(2) and in reliance upon Regulation S of the Securities Act, based on
the following: (a) the investors confirmed to us that they were "accredited
investors," as defined in Rule 501 of Regulation D promulgated under the
Securities Act and had such background, education and experience in financial
and business matters as to be able to evaluate the merits and risks of an
investment in the securities; (b) there was no public offering or general
solicitation with respect to the offering; (c) the investors were provided with
certain disclosure materials and all other information requested with respect to
our company; (d) the investors acknowledged that all securities being purchased
were "restricted securities" for purposes of the Securities Act, and agreed to
transfer such securities only in a transaction registered under the Securities
Act or exempt from registration under the Securities Act; and (e) a legend was
placed on the certificates representing each such security stating that it was
restricted and could only be transferred if subsequent registered under the
Securities Act or transferred in a transaction exempt from registration under
the Securities Act.
II-2
We likewise issued the following securities on August 26, 2006 2006 as
restricted stock in order to convert debt from our parent company United
American Corporation into common stock:
# of
Shares of
Common
Name Address Stock
- --------------- --------------------------------------- ---------
United American 3273 East Warm Springs Road, Las Vegas, 1,699,323
Corporation Nevada, USA, 89120
The offer and sale of such shares of our common stock were effected in reliance
on the exemptions for sales of securities not involving a public offering, as
set forth in Rule 504 and 506 promulgated under the Securities Act and in
Section 4(2) and in reliance upon Regulation S of the Securities Act, based on
the following: (a) the investors confirmed to us that they were "accredited
investors," as defined in Rule 501 of Regulation D promulgated under the
Securities Act and had such background, education and experience in financial
and business matters as to be able to evaluate the merits and risks of an
investment in the securities; (b) there was no public offering or general
solicitation with respect to the offering; (c) the investors were provided with
certain disclosure materials and all other information requested with respect to
our company; (d) the investors acknowledged that all securities being purchased
were "restricted securities" for purposes of the Securities Act, and agreed to
transfer such securities only in a transaction registered under the Securities
Act or exempt from registration under the Securities Act; and (e) a legend was
placed on the certificates representing each such security stating that it was
restricted and could only be transferred if subsequent registered under the
Securities Act or transferred in a transaction exempt from registration under
the Securities Act. II-3
II-3
Exhibits
Exhibit
Number Description
- ------- -----------
2.1 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, 2005*
3.1 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).
5.1 Opinion of Joseph Emas, Attorney at Law*
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, daed
April 28, 2005.*
10.8 Form of IP Port Service agreement.*
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 Captial 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.*
21. Subsidiaries*
23.1 Consent of Joseph Emas, Attorney at Law (see 5.1 opinion)*
23.2 Consent of Independent Registered Public Accounting Firm (Michael
Pollack CPA)*
23.3 Consent of Independent Registered Public Accounting Firm (Schwartz,
Levitsky Feldman LLP)*
99.1 Form of Subscription Agreement*
* filed herein
Undertakings
The undersigned registrant hereby undertakes:
(a) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described above, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
II-4
(b) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement;
(2) To include any prospectus required by section 10(a)(3) of the Securities Act
of 1933;
(3) To reflect in the prospectus any facts or events arising after the effective
date of the Registration Statement (or the most recent post-effective amendment
thereof) which, individually, or in the aggregate, represent a fundamental
change in the information set forth in the Registration Statement;
notwithstanding the foregoing, any increase or decrease in volume of securities
offered (if the total dollar value of securities offered would not exceed that
which was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective Registration Statement; and
(4) To include any material information with respect to the plan of distribution
not previously disclosed in the Registration Statement or any material change to
such information in the Registration Statement
(i) That, for the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment shall be deemed to be a new Registration
Statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof; and
(ii) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of the
Offering.
(c) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-5
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Coach Industries Corporation, Inc. has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
TELIPHONE, CORP.
By /s/ George Metrakos
---------------------------------
Chief Executive Officer
Date: November 29, 2006
By /s/ George Metrakos
---------------------------------
Principal Accounting Officer
Date: November 29, 2006
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..
By /s/ George Metrakos
------------------------
George Metrakos, Director
Date: November 29, 2006
By /s/ Robert Cajolet
-----------------------
Robert Cajolet, Director
Date: November 29, 2006
II-6