TELIPHONE CORP [LOGO]
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March 23, 2007
VIA EDGAR
John Reynolds
Assistant Director
United States Securities and Exchange Commission
Division of Corporate Finance
Mail Stop 3561
Washington, D.C. 20549
File No. 333-136993
Re: Teliphone Corp. comment letter dated February 4, 2007
Dear Mr. Reynolds,
We have reviewed your letter dated February 4, 2007 concerning the following
comments. Under each comment we have responded and have provided additional
information to bring about a resolution of these matters. At any time we would
welcome you contacting us concerning any of the additional information or our
interpretations of the information.
General
1. We note your response to comment 142 of our letter dated October 11,
2006 in which you state that the spin-off complies with Staff Legal
Bulletin No. 4 because Teliphone Corp. is registering the spun-off
shares. We also note your disclosure throughout the registration
statement that 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
Untied American Corp.'s shareholders and that the effective date of
the spin-off was October 30, 1006. It appears that the investment
decision has been made and that the spin-off has already occurred.
Thus, it appears that the company would not be able to register the
spin-off on this registration statement. Please revise accordingly.
We further note your statement in your response that, "The Company
is in compliance with four of the elements in Staff Legal Bulletin
No. 4, but acknowledges that United American Corporation had not
held the spin-off securities for at least two years." Please discuss
the impact of non-compliance with Staff Legal Bulletin No. 4 and
whether the spin-off was possibly in violation of Sec. 5 of the
Securities Act. Please include a discussion of any liabilities
resulting from such non-compliance or possible violations.
RESPONSE
The Company has further reviewed Staff Legal Bulletin No. 4 and has concluded
that it was not required to register the spin-off of its shares by the parent,
United American Corporation. The Company acknowledges that Staff Legal Bulletin
No. 4 provides that it must register a spin-off of shares under the Securities
Act if the spin-off is a "sale" of securities by the parent, United American
Corporation. Section 2(3) of the Securities Act defines the term sale to
"include every contract of sale of disposition of a security or interest in a
security, for value." The shareholders of United American Corporation approved
by vote in a shareholder meeting the spin-off of the Company's shares and the
effective date of the spin-off was October 30, 2006, but the spin-off did not
constitute a "sale" because, among other reasons, there was no disposition of
the securities for value. No consideration was provided by the shareholders of
United American Corporation. Despite a vote approving the spin-off, no
shareholder placed additional value at risk in order to obtain ownership of a
security. As a result, it would be improper to characterize the decision made by
the shareholders as an investment decision.
1
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Teliphone Corp.
4150 Ste-Catherine West, suite 200
Westmount (Montreal) Quebec, Canada H3Z 0A1
(514) 313-6000, 877 TELIPHONE www.teliphone.ca
TELIPHONE CORP [LOGO]
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Courts have held that spin-off transactions constitute a "sale" requiring
registration under the Securities Act when it found that the purpose of the
registration requirements would be violated where (i) the intent or effect of
the spin-off transaction would be to create a public trading market in
securities of a non-public company without having to register the shares, and
(ii) such trading would take place without the dissemination of adequate
information regarding the spin-off or the securities. See Securities and
Exchange Commission v. Harwyn Industries Corp., 326 F. Supp. 943 (S.D.N.Y.
1971), and Securities and Exchange Commission v. Datronics Engineers, Inc., 490
F.2d 250 (4th Cir. 1973), cert. denied, 416 U.S. 937 (1974). Similarly, Staff
Legal Bulletin No. 4 specifically provides that "when a reporting company under
the Exchange Act spins-off shares of a company that does not report under the
Exchange Act, the spin-off raises concerns because it may: result in an active
trading market for the spun-off shares without adequate public information about
their issuer; and violate the anti-fraud provisions of the Securities Act and
the Exchange Act."
First, absent from this case is the existence of a non-public company having its
shares spun-off by a reporting company under the Exchange Act. Upon the
effective date of the spin-off, the parent, United American Corporation, and the
Company were public reporting companies with securities registered pursuant to
Section 12(g) of the Securities Act and both companies were current in their
reporting requirements. At the time of the spin-off, there was adequate public
information available concerning each of the parent and the Company. Second, it
would not be possible to create a public trading market resulting from this
spin-off. There was not at the effective time of the spin-off or presently a
public market for the Company's common stock. The Company's common stock is not
registered on any national securities exchanges or quoted on either the Nasdaq
OTCBB or Pink Sheets. Additionally, the shares spun-off are restricted
securities. As a result, the intent or effect of the spin-off could not be to
create a public trading market in securities of a non-public company without
having to register the shares. Furthermore, the Company now seeks to register
the spun-off shares. This is strong evidence and irrefutably establishes that
its intent is not to avoid registration under the Securities Act. The facts of
this spin-off do not evidence any indicia of abuse or fraud or raise any of the
concerns commonly associated with spin-offs.
In light of the foregoing, the Company respectfully submits to the Commission
that it would be improper to characterize the spin-off as a "sale." The Company
believes that it is compliant with Staff Legal Bulletin No. 4 and Section 5 of
the Securities Act because the spin-off was not a "sale."
2. We note that the cover page of the registration statement states
that the "prospectus relates to the resale by selling stockholders
listed elsewhere in this prospectus." Please note that the company
would not be able to register the resale of the shares that were
transferred in the spin-off if such shares were transferred in
violation of Sec. 5 of the Securities Act. Please provide a basis
why the resale of such shares could be registered or remove such
shares from the registration statement. Please clearly indicate
which selling shareholders hold shares that were acquired from the
spin-off and include the amount of shares each person received from
the spin-off. We may have further comment.
2
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Teliphone Corp.
4150 Ste-Catherine West, suite 200
Westmount (Montreal) Quebec, Canada H3Z 0A1
(514) 313-6000, 877 TELIPHONE www.teliphone.ca
TELIPHONE CORP [LOGO]
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RESPONSE
We have noted your comment and, as discussed in our response to comment one
above, the shares were not issued in violation of Section 5 of the Securities
Act. Accordingly, shares that were acquired in the spin off by selling
shareholders are being sold alongside all shares held be selling shareholders.
3. We reissue comments 4 and 20 from our letter dated October 11, 2006.
Item 3, Summary Information and Risk Factors - Offering, on page 5,
states: "...there are no outstanding warrants to purchase additional
shares of common stock." However the "Plan of Distribution" section
on page 49 states: "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." Please reconcile.
RESPONSE
We have noted this comment and revised our Plan of Distribution section to
reconcile with Item 3. There are no outstanding warrants to purchase additional
shares of common stock.
Cover Page
4. Please limit the outside front cover page of the prospectus to one
page. See Item 501(a) of Regulation S-B.
RESPONSE
We have noted this comment and limited the outside front cover page of the
prospectus to one page.
5. Please reconcile the disclosure on the cover page that states that
the offering price is $0.25 with the disclosure in the "Plan of
Distribution" section that states that it is $2.00.
RESPONSE
We have noted this comment and revised the prospectus to reflect the pre-listing
offering price to $0.25.
6. We reissue prior comment number ten from our letter dated October
11, 2006. Please remove the following from the cover page of the
prospectus, as pursuant to Item 501 of Regulations S-B: "The
offering price may not reflect the price of our shares after the
offering".
RESPONSE
The sentence has been removed as pursuant to Item 501 of Regulations S-B.
7. In the first paragraph on the cover page where you have stated that
the "selling stockholders may sell their shares from time to time at
the prevailing market price or in negotiated transactions," please
add that the shares will be sold at the offering price at the time
of effectiveness until you are listed on the OTC Bulletin Board.
Also state that you cannot assure that will be listed on the OTC
Bulletin Board. We note that in the "Prospectus Summary-The
Offering" section on page 5 you have stated: "However, we intend to
have our shares trade on the OTC Bulletin Board upon completion of
this registration." Please provide the same information in risk
factor, "D.3". and wherever else appropriate. We may have further
comment.
3
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Teliphone Corp.
4150 Ste-Catherine West, suite 200
Westmount (Montreal) Quebec, Canada H3Z 0A1
(514) 313-6000, 877 TELIPHONE www.teliphone.ca
TELIPHONE CORP [LOGO]
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RESPONSE
We have noted this comment and revised the prospectus to reflect that
stockholders must note that the shares in this offering must be sold at a fixed
price of $0.25 until the shares are listed on the OTC Bulletin Board. There can
be no assurances that we be listed on the OTC Bulletin Board.
8. The prospectus cover page should be limited to the disclosure
required by Item 501 of Regulation S-B. As applicable, please remove
the paragraph beginning "Brokers or dealers effecting..."
RESPONSE
We have noted this comment and revised the prospectus to remove this paragraph.
9. Your response to comment 11 of our letter dated October 11, 2006 is
not consistent with the numerous references in the registration
statement to broker-dealers, including the following on page 21
under "Use of Proceeds:" "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." Please revise.
Also, please be advised that if the company enters into an
agreement, after effectiveness, to retain a broker-dealer and the
broker-dealer is acting as an underwriter then the company needs to
file a post-effective amendment to the registration statement
identifying the broker-dealer and providing the required information
on the plan of distribution. Also, you must file the agreement as an
exhibit to the registration statement. Additionally you should be
aware that prior to any involvement of any broker-dealer in the
offering, such broker-dealer must seek and obtain clearance of the
underwriting compensation and arrangements from the NASD Corporate
Finance Department.
In addition, if you retain the broker-dealer disclosure, please
revise the disclosure to indicate in the disclosure that the company
will file a post-effective amendment addressing the above
information. We may have further comment.
RESPONSE
As the Company has not, nor intends to, engage any broker-dealer, we have
revised the prospectus to delete any references to broker-dealers.
Table of Contents, page 4
10. For each section, please reconcile the listed page numbers with the
appropriate pages in the prospectus.
RESPONSE
We have noted this comment and revised the prospectus accordingly.
4
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Teliphone Corp.
4150 Ste-Catherine West, suite 200
Westmount (Montreal) Quebec, Canada H3Z 0A1
(514) 313-6000, 877 TELIPHONE www.teliphone.ca
TELIPHONE CORP [LOGO]
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Prospectus Summary, page 5
11. Please disclose the following:
o The percentage of ownership in which Teliphone Corp. has in
Teliphone Inc.;
o The percentage ownership in which 3901823 Canada Inc. has in
Teliphone Inc.; and
o The percentage of ownership that United American Corporation had in
Teliphone Corp. prior to the spin-off.
RESPONSE
We have noted this comment and revised our disclosure to clarify the ownership
positions of our subsidiary and our parent at the time. The following has been
added:
As a result of this letter of Intent, Teliphone Inc. remains a
majority-owned subsidiary of our company at 74.8% and 3901823 Canada
Inc. owns 25.2%.
Prior to the distribution, United American Corporation held 76.7% of
the common stock of our company.
12. We note the disclosure in the summary section that Untied American
Corporation spun-off its interest in the company to United
American's shareholders. Please reconcile this disclosure with the
selling shareholder table on page 31 and the "Security Ownership of
Certain Beneficial Owners and Management" Section.
RESPONSE
We have noted this comment and revised our disclosure to update the respective
sections regarding stockholders. This will be updated in the amended filing.
The offering, page 5
13. Please disclose the amount of common stock outstanding prior to the
offering.
RESPONSE
We have noted this comment and revised our disclosure to update the offering
table to disclose the amount of common stock outstanding prior to the offering.
The table is found here:
Issuer: Teliphone Corp.
Common Stock outstanding prior to offering 35,554,024
Common Stock offered by us: 20,000,000 shares
Offering Price: $ 0.25 per share
Common Stock outstanding after the offering: 53,554,024
Risk Factors, page 9
14. We reissue in part comment 22 from our previous letter. Please revise
the introductory paragraph to disclose that you discussed all of the
material risks. In addition, it is necessary to also apply the comment
to the following statement in the first paragraph of the "Risk Related
to Regulation" section on page 13: "Set forth below are certain
material risks related to regulation."
5
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Teliphone Corp.
4150 Ste-Catherine West, suite 200
Westmount (Montreal) Quebec, Canada H3Z 0A1
(514) 313-6000, 877 TELIPHONE www.teliphone.ca
TELIPHONE CORP [LOGO]
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RESPONSE
We have noted this comment and revised our disclosure to show that we have
discussed all material risks related to our business.
15. Please separate the risk factor subheadings from the risk factor
narratives. For example, see risk factors A.1. and B.2.
RESPONSE
We have noted this comment and revised our disclosure to separate the risk
factor subheadings from the risk factor narratives.
16. In the risk factor subheadings, please avoid generic terms such as
"negative effect on our business" when describing the risk to the
company. Instead, please describe the specific risk to the company.
For example, please see risk factor B.11.
RESPONSE
We have noted this comment and revised our disclosure to avoid generic terms
when describing the risk to the company.
"A.2. We require additional financing..." page 9
17. Please clarify the disclosure that you have added to the prospectus
in response to comment 30 of our letter dated October 11, 2006.
Please be advised that Item 303 of Regulation S-B requires that you
describe your plan of operation for the next twelve months,
including a discussion of how long you can satisfy your cash
requirements and whether you will have to raise additional funds in
the next twelve months. It is not clear whether or not the first
sentence of your response, which sentence begins "Based on our
current operating plan...," is contradicted by the disclosure which
follows it. Please clarify.
RESPONSE
We have noted this comment and have revised our disclosure to include a 12 month
projected cash flow plan in our Plan of Operations, which demonstrates our cash
needs over the next 12 months. This can be found in the updated plan of
operations. As a result, we have likewise reconciled our Risk Factor A.2.
"B.1. Decreasing Market Prices..." page 9
18. In this risk factor, please disclose the basis for your assertion.
If applicable, support your statements by supplementally providing
us with copies of, or excerpts from, reports or publications which
you reference. If you do not have appropriate independent support
for a statement, please revise language to make clear that this is
the belief of the registrant based on its experience in the
industry, if true.
6
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Teliphone Corp.
4150 Ste-Catherine West, suite 200
Westmount (Montreal) Quebec, Canada H3Z 0A1
(514) 313-6000, 877 TELIPHONE www.teliphone.ca
TELIPHONE CORP [LOGO]
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RESPONSE
We have revised the language to make clear that this is the belief of the
registrant based on its experience in the industry.
"B.5. Flaws in our technology and systems could cause delays..." page 10
19. We reissue comment 35 of our letter dated October 11, 2006, which
comment stated: "We note the disclosure to `our technology' and `our
network'. Please revise to explain the company's ownership interests
in such properties." Ensure that you clarify for the ordinary
reasonable investor what aspect of your services others are not
entitled to take advantage of because of your proprietary rights and
that you describe the right connected with that aspect of your
service.
RESPONSE
We have noted this comment and have revised our disclosure to explain our
ownership interest and protected rights.
"B.8. As a result of being a public company..." page 12
20. We reissue comment 46 of our letter dated October 11, 2006. It
appears that this risk factor could apply to any issuer. Please
revise or explain how the risk factor specifically applies to your
company. In addition, we note your response comment 46 and note that
risk factor D.5. has not been removed as indicated in your response.
Please advise or revise.
RESPONSE
We have revised our disclosure to remove both risk factor D.5. and risk factor
B.8. as we concede that this risk factor could apply to any issuer.
"B.9. Because much of our potential success and value lies..." page 12
21. We reissue comment 37 of our letter dated October 11, 2006. Although
your supplemental response has recited revised disclosure, the text
of the prospectus continues to reference pending patent
applications. Please explain the pending applications and identify
the owner of each of the patent applications which you reference.
Also, state the application number for each.
RESPONSE
We have noted the comment and reiterate that the company does not hold any
patents or pending patent applications. The extraneous references to such
non-existent patents or applications have been removed.
"C.5. The Level of Competition is Increasing..." page 15
22. Please revise your cite to the report or publication which was the
source of the number of your competitors. The cite is incomplete. In
addition, supplementally provide us with copies of, or excerpts from
the report or publication which you referenced.
RESPONSE
We have noted the comment and have updated the disclosure in the amended filing
to properly site the excerpt, and to also indicate where the registrant's
experience in the industry has permitted the extrapolation and prediction of
specific market conditions that result in highlighting the importance of this
risk factor.
7
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Teliphone Corp.
4150 Ste-Catherine West, suite 200
Westmount (Montreal) Quebec, Canada H3Z 0A1
(514) 313-6000, 877 TELIPHONE www.teliphone.ca
TELIPHONE CORP [LOGO]
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"C.6. We are exposed to Potential Liability Claims..." page 16
23. State in the heading to this risk factor, if true, that you will not
obtain product liability insurance and that you have not yet
obtained professional liability insurance. In the body of the risk
factor, clarify the differences between the coverage of product
liability insurance and professional liability insurance. Also, with
regard to professional liability insurance, describe in detail what
is included under the "penalties awarded to the plaintiff" which you
have referenced.
RESPONSE
We have noted the comment and have updated the disclosure in the amended filing
to properly indicate that we do not currently hold professional liability
insurance and that we intend to purchase adequate professional liability
insurance coverage utilizing part of proceeds of this offering. We have likewise
updated the disclosure to more clearly describe what is included under the
"penalties awarded to the plaintiff" which we have referenced.
"D.1. Future Sales of Common Stock Could Depress the Price..." page 17
24. We reissue prior comments 44 and 121 of our letter dated October 11,
2006. Please disclose how many of the 33,554,014 shares are owned by
persons who are affiliates. Also describe those shares which would
be subject to the Division's interpretive letter to Ken Worm dated
January 21, 2000. Please ensure that you revise the disclosure in
"Market for Common Equity and Related Stockholder Matters" to
conform to any changes you make in this risk factor.
RESPONSE
We have noted the comment and revised the disclosure to reflect the requested
information.
"D.3. There is no public (trading) market for our common stock..." page 17
25. In this risk factor, please state that the shares in this offering
must be sold at a fixed price until the shares are listed on the OTC
Bulletin Board.
RESPONSE
We have noted the comment and have revised the disclosure to properly indicate
that the shares in this offering must be sold at a fixed price until the shares
are listed on the OTC Bulletin Board.
Use of Proceeds, page 20
26. Disclose how long you will wait to use the proceeds and why.
RESPONSE
We have noted the comment and have revised the disclosure to properly indicate
we will utilize the proceeds of this offering within 30 days of receipt of funds
as they become available, as per our Plan of Operations.
8
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Teliphone Corp.
4150 Ste-Catherine West, suite 200
Westmount (Montreal) Quebec, Canada H3Z 0A1
(514) 313-6000, 877 TELIPHONE www.teliphone.ca
TELIPHONE CORP [LOGO]
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27. We reissue in part comment 50 of our letter dated October 11, 2006:
"Please revise this section to clearly discuss the circumstances
that would require management to alter the use of proceeds from this
offering and discuss alternatives to the currently stated uses. The
disclosure should specifically state that the use of proceeds will
not vary except in the circumstances you reference. It should also
state how the use of proceeds would be different. Please refer to
Instruction 7 to Item 504 of Regulation S-K for guidance"
RESPONSE
We have revised our disclosure to include that there are no contingencies in
which an alternative use of proceeds would be considered.
28. Please disclose whether you have any understandings or preliminary
agreements with any broker-dealers to sell the company's securities.
RESPONSE
We have noted the comment and have revised the entire prospectus to clearly
indicate that we do not have any preliminary or final agreements with
broker-dealers to sell the company's securities. As a result, we have removed
the row entitled "Commissions" in our "Use of Proceeds" table.
29. In the narrative, please describe in detail "Customer Acquisition"
and "Inventory Financing." Please detail how the proceeds will be
used for these purposes.
RESPONSE
We have noted the comment and have revised the disclosure in order describe in
further detail these expenditure categories.
30. We note that the company has allocated $652,918 towards working
capital. Please describe how these proceeds will be used or discuss
the principal reasons for the offering. See Item 504 of Regulation
S-B.
RESPONSE
We have noted the comment and have revised the disclosure in order describe in
further detail regarding how the proceeds listed as "Working Capital" will be
used. We have added the following in the disclosure:
Working Capital allocations set forth in the use of proceeds table above
describe funds that will be utilized for such items as payroll fees and
professional fees associated with SEC reporting requirements and financial and
legal compliance.
31. We note that a large amount of the proceeds will discharge debt.
Please include the interest rate and maturity of the debt and
describe the use of proceeds of that debt. See Instruction 1 to item
504 of Regulation S-B.
9
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Teliphone Corp.
4150 Ste-Catherine West, suite 200
Westmount (Montreal) Quebec, Canada H3Z 0A1
(514) 313-6000, 877 TELIPHONE www.teliphone.ca
TELIPHONE CORP [LOGO]
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RESPONSE
We have noted the comment and have revised the disclosure in order to fully
disclose the interest rate and maturity of the debt, along with the description
of the use of proceeds of that debt. We have further detailed our disclosure
with the following information:
The Company has approximately $115,232 of non-interest bearing advances from its
former parent company, United American Corporation. These advances were provided
for cash flow purposes and working capital expenditures (payroll and
professional fees) for the company to sustain its operations. These amounts must
be repaid by The Company from proceeds of this offering.
The Company will also re-pay various amounts from related parties whom are
either officers, shareholders or entities under control by an officer or
shareholder. The proceeds of the original debt were utilized for cash flow and
working capital purposes for the company to sustain its operations. These
amounts bear interest at rates ranging between 5% and 7% per annum as follows:
o As of December 31, 2006, the Company has $78,826 outstanding with an
officer and a company controlled by the same officer, with interest
expense of $5,375 as of December 31, 2006.
o As of December 31, 2006, the Company has $66,758 outstanding with
shareholders. There is no accrued interest for these amounts, and
interest expense for the three months ended December 31, 2006 was
approximately $388.
The total amount to be paid due to these liabilities is $266,579.
On August 1, 2006, the Company converted $421,080 of the $721,080 of its loans
with United American Corporation, a related party through common ownership, into
common shares of the Company's common stock. The $300,000 remaining on the loan
has become interest bearing at 12% per annum on August 1, 2006, payable monthly
with a maturity date of August 1, 2009. In the event that the Company raises at
least $1,000,000 in this offering, we will re-pay this amount in total.
32. Please reconcile the fees associated with this offering to disclosure
elsewhere in the registration statement including "Other expenses of
Issuance and Distribution" in Part II of the registration statement.
RESPONSE
We have noted the comment and have revised the disclosure to reconcile the fees
associated with this offering and "Other expenses of Issuance and Distribution".
These fees are equivalent to and estimated $49,432.
33. We reissue prior comment 58 of our letter dated October 11, 2006:
"Ensure that you disclose the principal terms of all material
agreements in the business section. Also file each agreement as an
exhibit."
RESPONSE
We have noted the comment and revised the disclosure to ensure that all
agreements have been filed as an exhibit. We note the addition of exhibit 10.12
"Co-Location and Bandwidth Services Agreement, Peer 1 Network".
34. We note that some of the disclosure on page 25 duplicates the
disclosure in the plan of distribution section. Please revise to remove
duplicative disclosure.
RESPONSE
We have noted the comment and have revised the disclosure to delete this
duplicative disclosure.
10
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Teliphone Corp.
4150 Ste-Catherine West, suite 200
Westmount (Montreal) Quebec, Canada H3Z 0A1
(514) 313-6000, 877 TELIPHONE www.teliphone.ca
TELIPHONE CORP [LOGO]
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Compliance With Section 16(a) of the Exchange Act, page 28
35. Please ensure that you comply fully with Item 405 of Regulation S-B. It
appears that you have not provided all of the information the item
requires. Also, we note the statement that "[a] copy of the code is
incorporated by reference to this prospectus." Please note that you
cannot incorporate by reference on Form SB-2. Please revise.
RESPONSE
We have noted the comment and have revised
Security Ownership of Certain Beneficial Owners and Management, page 29
36. Please disclose the principal shareholders after the spin-off.
RESPONSE
We have noted your comment and have updated our disclosure to show the principal
shareholders of the Company after the spin-off. The following disclosure has
been amended in the amended filing:
Shares
Beneficially Percent
Name Title of Class Owned (1) Class(1)
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rge Metrakos (2) Common 1,038,798 3.10%
Officers and Directors
As a Group (1 Person) Common 1,038,798 3.10%
3874958 Canada Inc. (3) Common 13,520,451 40.29%
Beverly Hills Trading Corp (4) Common 2,000,000 5.96%
Officers, Directors and
Certain Beneficial Owners
As a group (3 persons) Common 16,559,249 49.35%
(1) Applicable percentage of ownership is based on 33,554,024 shares of fully
diluted common stock effective February 19, 2007, 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, 2006 are deemed to
be beneficially owned by the person holding such options for the purpose of
computing the percentage of ownership of such person, but are not treated as
outstanding for the purpose of computing the percentage ownership of any other
person.
(2) George Metrakos controls 1,038,798 shares of his stock through Metratech
Business Solutions Inc. of which he is the beneficial owner. 961,528 shares were
received from the merger and re-organization of Teliphone Inc. and OSK Capital
II Corp. in April 2005 and the balance from his holdings of Untied American
Corporation prior to United American Corporation's spin-off of The Company in
October, 2006.
(3) 3874958 Canada Inc. is owned by "Fiducie Familiale MAA" (MAA Family Trust),
controlled by Benoit Laliberte.
(4) The 2,000,000 shares held by Beverly Hills Trading Corp. is jointly
controlled by Francis Maillot and Robert Cajolet, both former Officers of the
Company who have resigned from office April 22, 2005 and November 28th, 2006
respectively.
11
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Teliphone Corp.
4150 Ste-Catherine West, suite 200
Westmount (Montreal) Quebec, Canada H3Z 0A1
(514) 313-6000, 877 TELIPHONE www.teliphone.ca
TELIPHONE CORP [LOGO]
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Selling Shareholders, page 30
37. Please revise the selling shareholder section in light of comments one
and two above.
RESPONSE
We have revised the selling shareholder section in response to comments
elsewhere in this correspondence but refer to our response to comments one and
two that no adjustment is required. The selling shareholder list is as follows:
# Of
shares Percentage
# Of shares Percentage of After of Ownership
Before Ownership before Sales of after
Sales of shares Sales of shares shares Sales of shares
Registered by Registered Registered Registered
Name Company by Company by Company by Company Name of Natural Person
- ----------------------------------------------------------------------------------------------------------------------------------
3874958 Canada Inc. 13,520,451 40.338% 13,185,271 39.338% Benoit Laliberte
Ameritrade, Inc. 2,054,260 6.129% 0 0.000% Clearing house/Broker
Beverly Hills Trading Corp 2,000,000 5.967% 1,664,820 4.967% Francis Maillot, Robert Cajolet
National Investor Services Corp. 1,467,195 4.377% 0 0.000% Clearing house/Broker
Lambert, Jean-Guy 1,313,520 3.919% 0 0.000% Jean-Guy Lambert
Mesirow Financial, Inc. 1,236,156 3.688% 0 0.000% Clearing house/Broker
NBCN Inc. 1,194,378 3.563% 0 0.000% Clearing house/Broker
CIBC World Markets, Inc. 1,022,198 3.050% 0 0.000% Clearing house/Broker
Charles Schwab & Co., Inc. 878,905 2.622% 0 0.000% Clearing house/Broker
TD Waterhouse Canada, Inc. 619,761 1.849% 0 0.000% Clearing house/Broker
Kramer, Frank L. 600,000 1.790% 0 0.000% Kramer, Frank L.
Salerno, Deborah 550,000 1.641% 0 0.000% Salerno, Deborah
E*Trade 409,889 1.223% 0 0.000% Clearing house/Broker
Penson Financial Services, Inc. 408,504 1.219% 0 0.000% Clearing house/Broker
Strathmere & Associates 371,938 1.110% 0 0.000% Lawry Trevor-Deutsch
Business Development Consultants 301,000 0.898% 0 0.000% Jeremy Krausse
ASR Invest Ltd 284,000 0.847% 0 0.000% Francis Maillot
Warburg Capital Holding Ltd. 249,000 0.743% 0 0.000% Francis Maillot
KVZ Clips Corp 240,000 0.716% 0 0.000% Francis Maillot
Breitling Sky Ltd. 225,000 0.671% 0 0.000% Clearing house/Broker
Von Alven Corp. 225,000 0.671% 0 0.000% Francis Maillot
First Clearing, LLC 210,876 0.629% 0 0.000% Clearing house/Broker
Pershing LLC 209,053 0.624% 0 0.000% Clearing house/Broker
Enoch, Steve M. 169,972 0.507% 0 0.000% Enoch, Steve M.
Scottrade, Inc. 167,966 0.501% 0 0.000% Clearing house/Broker
Cajolet, Robert 154,520 0.461% 0 0.000% Cajolet, Robert
Optionsxpress, Inc. 134,690 0.402% 0 0.000% Clearing house/Broker
Cote, Marcel 133,013 0.397% 0 0.000% Cote, Marcel
Penson Financial Services 131,453 0.392% 0 0.000% Clearing house/Broker
National Financial Services LLC 131,177 0.391% 0 0.000% Clearing house/Broker
Valeurs Mobileres Desjardins 102,344 0.305% 0 0.000% Clearing house/Broker
Gold, Ronald 101,969 0.304% 0 0.000% Gold, Ronald
Podar Infotech Ltd. 100,000 0.298% 0 0.000% Rajiv Podar
Gestion CD Lam Inc. 95,000 0.283% 0 0.000% Jean-Guy Lambert
Brown Brothers Harriman & Company 93,845 0.280% 0 0.000% Clearing house/Broker
Scott & Stringfellow, Inc. 69,534 0.207% 0 0.000% Clearing house/Broker
Gold, Lessie 68,686 0.205% 0 0.000% Gold, Lessie
Kappler, Joseph M. for Kaferon Trust 68,676 0.205% 0 0.000% Joseph M Kappler
Canaccord Capital Corporation 65,671 0.196% 0 0.000% Clearing house/Broker
Janney Montgomery Scott LLC 62,890 0.188% 0 0.000% Clearing house/Broker
Merrill Lynch, Pierce Fenner & Smith 62,597 0.187% 0 0.000% Clearing house/Broker
RBC Dominion Securities, Inc. 55,471 0.165% 0 0.000% Clearing house/Broker
- ----------------------------------------------------------------------------------------------------------------------------------
12
- --------------------------------------------------------------------------------
Teliphone Corp.
4150 Ste-Catherine West, suite 200
Westmount (Montreal) Quebec, Canada H3Z 0A1
(514) 313-6000, 877 TELIPHONE www.teliphone.ca
TELIPHONE CORP [LOGO]
- --------------------------------------------------------------------------------
# Of
shares Percentage
# Of shares Percentage of After of Ownership
Before Ownership before Sales of after
Sales of shares Sales of shares shares Sales of shares
Registered by Registered Registered Registered
Name Company by Company by Company by Company Name of Natural Person
- ----------------------------------------------------------------------------------------------------------------------------------
St. Julien, Richard 51,507 0.154% 0 0.000% St. Julien, Richard
Sauve, Lynn 51,000 0.152% 0 0.000% Sauve, Lynn
Xipe Holding Corp 50,000 0.149% 0 0.000% Robert Cajolet
Linsco/Private Ledger Corp. 47,386 0.141% 0 0.000% Clearing house/Broker
Dundee Securities Corporation 46,871 0.140% 0 0.000% Clearing house/Broker
Citigroup Global Markets, Inc. 40,691 0.121% 0 0.000% Clearing house/Broker
Bryn, Mark J. 38,630 0.115% 0 0.000% Bryn, Mark J.
BMO Nesbitt Burns, Inc. 34,364 0.103% 0 0.000% Clearing house/Broker
Hudson, Sara 34,338 0.102% 0 0.000% Hudson, Sara
Bronfmann Equities Corp 33,000 0.098% 0 0.000% Clearing house/Broker
Ashland Capital Advisors 32,965 0.098% 0 0.000% Clearing house/Broker
Goldman Sachs Execution & Clearing 30,904 0.092% 0 0.000% Clearing house/Broker
Gundyco 28,329 0.085% 0 0.000% Clearing house/Broker
Parker, Mickey J. 25,754 0.077% 0 0.000% Parker, Mickey J.
Emas, Joseph 25,000 0.075% 0 0.000% Emas, Joseph
Martineau, Robert 20,000 0.060% 0 0.000% Martineau, Robert
Phaneuf, Simon 20,000 0.060% 0 0.000% Phaneuf, Simon
Puckett, Brian 18,027 0.054% 0 0.000% Puckett, Brian
A.G. Edwards & Sons, Inc. 17,484 0.052% 0 0.000% Clearing house/Broker
Morgan Stanley DW, Inc. 16,483 0.049% 0 0.000% Clearing house/Broker
Citibank, N.A. 12,877 0.038% 0 0.000% Clearing house/Broker
Oppenheimer & Co., Inc. 10,662 0.032% 0 0.000% Clearing house/Broker
Brazeau, Maxime 10,000 0.030% 0 0.000% Brazeau, Maxime
Huon de Kermadec, Ronan 10,000 0.030% 0 0.000% Huon de Kermadec, Ronan
Lamarche, Simon 10,000 0.030% 0 0.000% Lamarche, Simon
Lawetz, Benjamin 10,000 0.030% 0 0.000% Lawetz, Benjamin
Mirotchnick, Brendan 10,000 0.030% 0 0.000% Mirotchnick, Brendan
Mourani, Bruno 10,000 0.030% 0 0.000% Mourani, Bruno
Mourani, Europe 10,000 0.030% 0 0.000% Mourani, Europe
Perron, Suzanne 10,000 0.030% 0 0.000% Perron, Suzanne
Ratthe, Benoit 10,000 0.030% 0 0.000% Ratthe, Benoit
Xirouhakis, Marika 10,000 0.030% 0 0.000% Xirouhakis, Marika
Raymond, James & Associates, Inc. 9,788 0.029% 0 0.000% Clearing house/Broker
Laurential Bank of Canada 9,787 0.029% 0 0.000% Clearing house/Broker
UBS Financial Services, Inc. 9,273 0.028% 0 0.000% Clearing house/Broker
Interactive Brokers Retail Equity CL 7,984 0.024% 0 0.000% Clearing house/Broker
Crowell, Weedon, & Company 6,868 0.020% 0 0.000% Clearing house/Broker
Anderson, Lincoln 6,000 0.018% 0 0.000% Anderson, Lincoln
Meskunas, John A. 5,000 0.015% 0 0.000% Meskunas, John A.
USAA Investment Management Company 4,166 0.012% 0 0.000% Clearing house/Broker
Paradis, Gaetan 3,606 0.011% 0 0.000% Paradis, Gaetan
American Enterprise Investment Serv 3,495 0.010% 0 0.000% Clearing house/Broker
Loisel, Lila 3,451 0.010% 0 0.000% Loisel, Lila
UBS Securites LLC 2,903 0.009% 0 0.000% Clearing house/Broker
Morgan, Keegan & Company, Inc. 2,715 0.008% 0 0.000% Clearing house/Broker
Alliant Securities, Inc. Turner, Nor 2,576 0.008% 0 0.000% Clearing house/Broker
Jefferies & Company 2,576 0.008% 0 0.000% Clearing house/Broker
Legent Clearing LLC 2,576 0.008% 0 0.000% Clearing house/Broker
Theroux, Robert 2,576 0.008% 0 0.000% Theroux, Robert
ADP Clearing & Outsourcing Services 2,473 0.007% 0 0.000% Clearing house/Broker
Joiner, Gary S. 2,000 0.006% 0 0.000% Joiner, Gary S.
Terra Nova Trading, LLC 1,365 0.004% 0 0.000% Clearing house/Broker
Archambault-Guilbault, Claire 1,288 0.004% 0 0.000% Archambault-Guilbault, Claire
Littman, Eric P. 1,031 0.003% 0 0.000% Littman, Eric P.
Anderson, Heather Z. 1,000 0.003% 0 0.000% Anderson, Heather Z.
Bell, Jennifer R. 1,000 0.003% 0 0.000% Bell, Jennifer R.
- ----------------------------------------------------------------------------------------------------------------------------------
13
- --------------------------------------------------------------------------------
Teliphone Corp.
4150 Ste-Catherine West, suite 200
Westmount (Montreal) Quebec, Canada H3Z 0A1
(514) 313-6000, 877 TELIPHONE www.teliphone.ca
TELIPHONE CORP [LOGO]
- --------------------------------------------------------------------------------
# Of
shares Percentage
# Of shares Percentage of After of Ownership
Before Ownership before Sales of after
Sales of shares Sales of shares shares Sales of shares
Registered by Registered Registered Registered
Name Company by Company by Company by Company Name of Natural Person
- ----------------------------------------------------------------------------------------------------------------------------------
Berman, Philip 1,000 0.003% 0 0.000% Berman, Philip
Borchard, Kathleen E. 1,000 0.003% 0 0.000% Borchard, Kathleen E.
Carlson, Linda M. 1,000 0.003% 0 0.000% Carlson, Linda M.
Christopher, Robert Bruce 1,000 0.003% 0 0.000% Christopher, Robert Bruce
Gearke, Thomas D. 1,000 0.003% 0 0.000% Gearke, Thomas D.
Greenberg, Gary 1,000 0.003% 0 0.000% Greenberg, Gary
Groehsl, George 1,000 0.003% 0 0.000% Groehsl, George
Hepworth, David 1,000 0.003% 0 0.000% Hepworth, David
Kelly, Claudia 1,000 0.003% 0 0.000% Kelly, Claudia
Kramer, Elizabeth 1,000 0.003% 0 0.000% Kramer, Elizabeth
Krekel, Robert 1,000 0.003% 0 0.000% Krekel, Robert
Leach, Alvin D. 1,000 0.003% 0 0.000% Leach, Alvin D.
McKinstry, Anne Marie 1,000 0.003% 0 0.000% McKinstry, Anne Marie
McKinstry, Raymond F. 1,000 0.003% 0 0.000% McKinstry, Raymond F.
Memolo, John J. 1,000 0.003% 0 0.000% Memolo, John J.
Rose, Jeffrey S. 1,000 0.003% 0 0.000% Rose, Jeffrey S.
Rueschhoff, Bernard 1,000 0.003% 0 0.000% Rueschhoff, Bernard
Rueschhoff, Britta 1,000 0.003% 0 0.000% Rueschhoff, Britta
Singh, Rhadica 1,000 0.003% 0 0.000% Singh, Rhadica
Slow, Edward 1,000 0.003% 0 0.000% Slow, Edward
Slow, Susan 1,000 0.003% 0 0.000% Slow, Susan
Sullivan, Don 1,000 0.003% 0 0.000% Sullivan, Don
Sullivan, Nancy J. 1,000 0.003% 0 0.000% Sullivan, Nancy J.
Sweeney, Daniel B. 1,000 0.003% 0 0.000% Sweeney, Daniel B.
Welsh, Frederick E. Jr. 1,000 0.003% 0 0.000% Welsh, Frederick E. Jr.
Whatley, Kevin 1,000 0.003% 0 0.000% Whatley, Kevin
Wong, Richard 1,000 0.003% 0 0.000% Wong, Richard
Zane, Holly R. 1,000 0.003% 0 0.000% Zane, Holly R.
Crossfield, Sara Johnson 940 0.003% 0 0.000% Crossfield, Sara Johnson
Le Groupe Option Retraite Inc. 927 0.003% 0 0.000% Clearing house/Broker
Rivard, Caty 773 0.002% 0 0.000% Rivard, Caty
Swiss American Securities, Inc. 773 0.002% 0 0.000% Clearing house/Broker
Johnson, William Scott & Jamie
Johnson, JT TEN 722 0.002% 0 0.000% Johnson, William Scott & Jamie
Downie, Thomas A. 516 0.002% 0 0.000% Downie, Thomas A.
Dub, Alan 516 0.002% 0 0.000% Dub, Alan
Favron, Mme Ginette 516 0.002% 0 0.000% Favron, Mme Ginette
Gauthier, Mathieu 516 0.002% 0 0.000% Gauthier, Mathieu
Nelson, Garry 516 0.002% 0 0.000% Nelson, Garry
Stephens, Inc. 516 0.002% 0 0.000% Clearing house/Broker
U.S. Bank N.A. 516 0.002% 0 0.000% Clearing house/Broker
Alvarez, Amado Alan 515 0.002% 0 0.000% Alvarez, Amado Alan
Scotia Capital Inc. 155 0.000% 0 0.000% Clearing house/Broker
Langston, Donnie R. 129 0.000% 0 0.000% Langston, Donnie R.
Bear, Stearns Securities, Corp 92 0.000% 0 0.000% Clearing house/Broker
Damia, Robert H. 82 0.000% 0 0.000% Damia, Robert H.
Adrea Capital Corp. 2 52 0.000% 0 0.000% Clearing house/Broker
Southwest Securities, Inc. 52 0.000% 0 0.000% Clearing house/Broker
Hill, Thompson, Magid & Company, Inc. 19 0.000% 0 0.000% Clearing house/Broker
Sterne, Agee & Leach, Inc. 1 0.000% 0 0.000% Clearing house/Broker
------------------------------------------------------
38. We note the statement that, "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." Please revise these statements in
light of the amount being offered for resale.
14
- --------------------------------------------------------------------------------
Teliphone Corp.
4150 Ste-Catherine West, suite 200
Westmount (Montreal) Quebec, Canada H3Z 0A1
(514) 313-6000, 877 TELIPHONE www.teliphone.ca
TELIPHONE CORP [LOGO]
- --------------------------------------------------------------------------------
RESPONSE
We have noted the comment and have revised the disclosure to delete this
statement.
39. Please revise the table to clearly state for each holder, the amount
being offered and the amount owned after the offering. We may have
further comment.
RESPONSE
We have noted the comment and have revised the table accordingly.
40. For holders that are not natural persons, please revise to identify the
natural person that would be attributed ownership of such securities.
RESPONSE
We have noted the comment and have revised the table accordingly.
Certain Relationships and Related Transactions, page 34.
41. Please discuss whether any of the company's shares have been offered to
executive officers or directors during the last two years. See Item 404
of Regulation S-B. Also disclose all transactions with principal
shareholders as required by Item 404. In addition, please remove
duplicative disclosure such as the same section disclosure on page 48.
RESPONSE
We have noted the comment and have revised the disclosure to include related
transactions and delete the duplicative disclosure.
Interest of Named Experts and Counsel, page 34.
42. Please describe the value of the 25,000 shares of common stock received
by Joseph I. Emas. Also disclose whether the resale of such shares is
being registered on this registration statement.
RESPONSE
We have noted the comment and have revised the disclosure to reflect the value
of the shares and that such shares are being registered for resale.
Changes in and Disagreements with Accountants, page 34.
43. We note your disclosure that you have not had a change in accountants
during the two recent fiscal years. Tell us how this statement is
consistent with your February 2006 change in accountants as disclosed
on Form 8-k file April 7, 2006. Please advise or revise.
RESPONSE
We have noted the comment and have revised the disclosure to reflect the change
in accountants.
15
- --------------------------------------------------------------------------------
Teliphone Corp.
4150 Ste-Catherine West, suite 200
Westmount (Montreal) Quebec, Canada H3Z 0A1
(514) 313-6000, 877 TELIPHONE www.teliphone.ca
TELIPHONE CORP [LOGO]
- --------------------------------------------------------------------------------
Description of Business, page 35
Corporate Structure
44. Please disclose whether Beverly Hills Trading Corp. is a registered
broker-dealer, and if not, please explain why. Also disclose the value
of the shares received by Francis Maillot and/or Beverly Hills Trading
Corp.
RESPONSE
We have noted the comment and have revised the disclosure to reflect that
Beverly Hills Trading Corp. is not a registered broker-dealer and the shares
were issued based on the total shares issued to consummate the transaction.
45. We reissue comment 95 from our previous letter. Please explain the
spin-off in more detail, including the purpose of the spin-off and when
the company determined to enter into the spin-off. Please explain
whether the spin-off was a consideration when entering into the merger
with Teliphone Inc. Also describe in detail the "long term strategy" of
the company in regards to the spin-off.
RESPONSE
In response to this comment, the Company discloses on the supplemental basis
that the management of United American Corporation discussed spinning-off the
Company in March 2005. Subsequently in April 2005, Teliphone, Inc. entered into
a merger with OSK II Acquisition Corp., a Florida corporation and wholly-owned
subsidiary of OSK Capital II, Corp. As a result of the merger, Teliphone, Inc.
became a wholly-owned subsidiary of OSK Capital II, Corp. and OSK Capital II,
Corp. became a majority-owned subsidiary of United American Corporation. OSK
Capital II, Corp. then changed its name to Teliphone, Corp. In September 2006,
the board of directors of United American Corporation approved the spin-off and
the proposed transaction was presented to the shareholders of United American
Corp. A preliminary proxy statement on Schedule 14A was filed by United American
Corporation on September 13, 2006 and following a review by the Commission the
definitive proxy statement was filed on October 10, 2006. The board of directors
of United American Corporation determined that the divergent market segments
served by United American Corporation and Teliphone Corp. make it untenable for
the companies to operate effectively and efficiently in the current business
environment with a single management team. The board of directors determined
that both companies will be able to more effectively reach their target markets
and maximize shareholder value by pursuing their diverse goals separately,
rather than jointly. The board of directors of United American Corporation
therefore concluded that it would be in the best interest of the stockholders of
United American Corporation to spin-off Teliphone promptly, thus allowing
separate management teams to guide each company towards its own strategic goals.
The long term strategy of the Company is to grow its business as 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 retail customers. United
American Corporation offers wholesale telecommunications services to large
international telecommunications customers.
Wholesale Sales, page 36.
16
- --------------------------------------------------------------------------------
Teliphone Corp.
4150 Ste-Catherine West, suite 200
Westmount (Montreal) Quebec, Canada H3Z 0A1
(514) 313-6000, 877 TELIPHONE www.teliphone.ca
TELIPHONE CORP [LOGO]
- --------------------------------------------------------------------------------
46. Please discuss in greater detail the principal terms of the agreements
between the company and 9151-4877 Quebec Inc. and Podar Infotech LLC.
RESPONSE
We have noted this comment and have further detailed within our amended
disclosure the principal terms of the agreements between these companies. The
amended disclosure is as follows:
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-sells them to their own end-user customers. Dialek maintains
customer services and accounting directly with their clients. This agreement was
for a term of one year from signing and is now being renewed on a monthly basis
for one month increments. 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. The term of this agreement is five (5) years subject to early
termination with 60 days notice following any default under the agreement. In
this agreement, Podar acts as the sales agent, however Teliphone invoices the
clients in India directly.
teliPhone Mobile VoIP and Single Point of Contact services (MobilNation), page
37
47. We reissue prior comment number 104 to explain, or cross-reference an
explanation of, the company's Retail Sales Points.
RESPONSE
We have noted your comment and have updated the disclosure to amend this section
regarding Retail Sales. The following amended disclosure is found here:
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 channel as well. As described above, 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.
General
48. We reissue prior comment number 109 from our letter dated October 11,
2006. The comment appears under the "Advertising and Marketing" section
of the letter. However, you have apparently removed that section of the
prospectus. Ensure that disclosure about each of the contracts
referenced in the comment remains, even if the contract has been
terminated. In addition, ensure that each contract is filed as an
exhibit, even if the contract has been terminated.
RESPONSE
We have noted your comment and repeat comment 109 from your letter dated October
11, 2006 here:
"Ensure that you describe the principal terms of all material agreements
you have referenced in this section. File each as an exhibit, including,
but not limited to, the October 12, 2004 agreement with XO Communications
Inc"
17
- --------------------------------------------------------------------------------
Teliphone Corp.
4150 Ste-Catherine West, suite 200
Westmount (Montreal) Quebec, Canada H3Z 0A1
(514) 313-6000, 877 TELIPHONE www.teliphone.ca
TELIPHONE CORP [LOGO]
- --------------------------------------------------------------------------------
The original reference to the agreement with XO communications Inc. was in
error. This agreement was an agreement between our former parent company, United
American Corporation, and not with the Company. This agreement therefore has no
relationship to the Company and therefore we will not reference it nor file it.
The agreement has been filed as an exhibit by United American Corporation, which
can be found here:
http://www.sec.gov/Archives/edgar/data/1096688/000111776805000101/ex10_7.htm.
49. We reissue prior comment under 110 from our letter dated October 11,
2006. The comment appears under the "Intellectual Property" section of
the letter. However, you have apparently removed that section of the
prospectus. Please ensure that the disclosure from that section is in
the prospectus and that you have complied with the comment.
RESPONSE
We have noted your comment and repeat comment 110 from your letter dated October
11, 2006 here:
"Describe the intellectual property which you referenced and your ownership
interests."
The original reference to intellectual property in this section comes from the
following sentence paragraph:
The VoIP network is utilized with intellectual property to transmit the call
from its origination point to our servers. The ability to minimize the use of
established telecommunication lines reduces the cost of transmitting telephone
calls. As a result, our ability to strategically establish computer servers in
specified geographical areas will maximum the cost-savings benefit to those that
utilize our service.
The company recognizes, as noted by the commission in comment 90 from your
letter dated October 11, 2006, that in the first filing of the SB-2, the "plain
English" directive for the Form was not as clearly respected as it should have
been. As a result, the Company will add the following paragraph in the amended
SB-2 to more clearly describe what the original intention of this paragraph was,
along with a description of the intellectual property and our ownership
interests. The following paragraph has been added:
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 research and
development has produced a specific configuration of telecommunications hardware
and custom-built software that is unique to our company. All of these Research
and Development costs have been paid for by the Company, through salaries and
consulting fees, and there exists no claims against this technology since we
have met all of the required criteria for software licensing and approved use of
any hardware from its suppliers. The Company is the full owner of the technology
that it utilizes. We refer to this technology as our intellectual property, even
though the technology itself cannot be patented. The procedures, configurations,
software programming and system settings that we utilize all make up the
collection of our intellectual property.
50. We reissue prior comment under 114 from our letter dated October 11,
2006. The comment appears under the "Retail Outlets" section of the
letter. However, you have apparently removed that section of the
prospectus. Please ensure that the disclosure from that section is in
the prospectus and that you have complied with the comment.
18
- --------------------------------------------------------------------------------
Teliphone Corp.
4150 Ste-Catherine West, suite 200
Westmount (Montreal) Quebec, Canada H3Z 0A1
(514) 313-6000, 877 TELIPHONE www.teliphone.ca
TELIPHONE CORP [LOGO]
- --------------------------------------------------------------------------------
RESPONSE
We have noted your comment and repeat comment 114 from your letter dated October
11, 2006 here:
"Please describe the company's relationship to the retail outlets."
The original reference to Retail Outlets in this section comes from the
following sentence paragraph:
Retail outlets include cellular phone and computer related stores. Teliphone
focuses on smaller outlets and chains due to their attention to the customer, as
well as the individual focus of in-store service activation. As a model,
Teliphone has successfully built a retail sales channel in Montreal comprised of
over 60 store fronts and independent re-sellers.
We had responded to this comment on our comment response letter dated December
13, 2006 with the following, which has been filed in the amended prospectus:
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.
We have updated the disclosure in the amended prospectus to include the
following:
Our relationship to the retail outlets is on of a supplier. We supply the
hardware to the retail outlet owners, who have a re-seller agreement with our
distributor, BR Communications Inc. We ship these products direct to the stores
based on their requirements. All shipments are Cash On Delivery payment terms.
51. Please discuss the principal terms of the agreement between the company
and Iphonia Inc. that is filed as Exhibit 10.4.
RESPONSE
We have noted your comment and have added the following disclosure to the
amended SB-2 in the Notes to the financial statements, as well as in the
"History of Key Agreements" section within the Description of Business section:
On December 7, 2005, the Company entered into, in conjunction with United
American Corporation, a related party, a Customer and Asset Acquisition and
Software Licensing Agreement with Iphonia, Inc., a Quebec corporation. However,
on July 6th, 2006, the agreement with iPhonia Inc. was terminated by both
parties. The original agreement was to set forth the rights and obligations
pertaining to the transfer of Iphonia's clients and services to Teliphone Inc.,
the Company's subsidiary, along with the sale of various telecommunications and
equipment. The term of the agreement was to be 24 months.
52. Please discuss the principal terms of the agreement between the company
and Northern Communications Services Inc. that is filed as Exhibit
10.5.
19
- --------------------------------------------------------------------------------
Teliphone Corp.
4150 Ste-Catherine West, suite 200
Westmount (Montreal) Quebec, Canada H3Z 0A1
(514) 313-6000, 877 TELIPHONE www.teliphone.ca
TELIPHONE CORP [LOGO]
- --------------------------------------------------------------------------------
RESPONSE
We have noted your comment and have added the following disclosure to the
amended SB-2 in the "History of Key Agreements" section within the Description
of Business section:
On June 1, 2005, the Company, through its subsidiary Teliphone Inc., signed an
Agreement with Northern Communication Services Inc. ("Northern") such that
Northern would supply the company with Emergency 9-1-1 caller address
verification and call transfer services to the necessary Municipal Emergency
Services Department associated with the caller's location. This service is
required for Teliphone Inc.'s customers located in North America. The term of
the agreement is for 3 years, renewable automatically for an additional 3 years
with a termination clause of 90 days written notice.
Management's Discussion and Analysis, page 43
General
53. We reissue comment 115 from our previous letter. We believe your MD&A
section could benefit from expanded "Overview" sections that offer
investors an introductory understanding of Teliphone Corp. and the
matters with which management is concerned primarily in evaluating the
company's financial condition and operating results. A good
introduction, accordingly, might include a discussion of the following:
the economic or industry-wide factors relevant to the company; a
discussion of how the company earns or expects to earn revenues and
income; the identity of the company's primary business lines,
location(s) of operations and principal services; and insight into
material opportunities, challenges, risks, and material trends and
uncertainties. To the extent known, provide insight into challenges,
risks and opportunities of which management is aware and discuss any
actions being taken to address the same. For a more detailed discussion
of what is expected in both this subheading and the MD&A section in
general, please refer to: http://www.sec.gov/rules/interp/33-8350.htm.
See also, Item 303 of Regulation S-K.
RESPONSE
We have noted your comment and have updated our disclosure in the amended SB-2/A
in order to include the following expanded overview:
We were incorporated in Nevada under the name "OSK CAPITAL II CORP" in 1999. In
April of 2005, we effectuated a merger and re-organization with Teliphone Inc.,
a Canadian Internet Telecommunications (VoIP or "Voice-Over-Internet-Protocol")
Company. Teliphone Inc. is now a majority-owned subsidiary of our company and as
such, our revenues are derived primarily from the sale of telecommunications
services to retail clients.
The following trends have lead Management to believe that an enormous window of
opportunity exists to enter the Retail Telecommunications Market:
o Broadband Internet (also know as "High Speed Internet") has become more
prevalent worldwide and therefore the number of people looking to use
Internet-based telecommunications services is increasing.
o In today's technology-driven society, consumers are constantly looking
for innovative ways to reduce the costs for their telecommunications
needs without sacrificing ease-of-use and convenience
o The Internet has become the defacto standard for use by consumers to
seek information, and as a result, the quantity of internet web site
viewing has increased, producing opportunities for generating
advertising revenues from the usage by consumers of a website.
The development of our Teliphone VoIP service permits us to sell
telecommunications services to consumers who have a broadband internet
connection. The service's innovative calling features permit these consumers to
benefit from our value-added services such as enhanced voice-mail and
international call forwarding services while reducing the cost of their
telecommunications services compared with traditional residential and mobile
phone charges.
20
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Teliphone Corp.
4150 Ste-Catherine West, suite 200
Westmount (Montreal) Quebec, Canada H3Z 0A1
(514) 313-6000, 877 TELIPHONE www.teliphone.ca
TELIPHONE CORP [LOGO]
- --------------------------------------------------------------------------------
The development of our callona.com website seeks to attract consumers on the
internet who will look to utilize our web-based communications services, which
will permit us to generate advertising and promotional revenues from other
companies looking to advertise and promote their products to our callona.com
users.
Since we launched our Teliphone services, we incurred costs principally related
to the development of our proprietary software, acquisition of
telecommunications and computer hardware and the rental fees associated with
having voice channels that were part of the public switched telephone network
(PSTN), which permits our customers to make phone calls from their Teliphone
device direct to any other phone number, be it a cellular-mobile phone or
traditional wireline phone anywhere in the world. We have not yet officially
launched our callona.com service, which has been in a prototype stage since the
end of 2006. Since inception, we have invested approximately 1.5M$ to build our
technology and market our products.
We initially marketed our Teliphone services at one re-seller's retail store in
downtown Montreal, which has now expanded to sales points across the Central
Canadian provinces of Ontario and Quebec, along with regions in India. We
utilize our website, www.teliphone.us to sell to consumers in the USA.
54. Please revise to ensure all figures presented in MD&A agree with those
presented in your financial statements. For example, (i) you disclose
here that $424,831 of debt was converted to equity yet your financial
statements present this amount as $421,080 and (ii) you disclose costs
of sales were $545,712 for the year ended September 30, 2006 yet your
financial statements present this amount as $454,712.
RESPONSE
We have revised our disclosure to ensure that figures presented in the MD&A
agree with those presented in the financial statements in the amended filing.
Results of Operations, page 43.
55. Please revise your disclosure for each period to describe and quantify
underlying material activities that generate income statement variances
between periods for each financial statement line item. Your revised
disclosures should provide information that would assist an investor in
making a well informed investment decision. For example, quantify, to
the extent practicable, the amount of sales and cost of sales
attributable to hardware versus services and describe the factors that
contributed to (i) the increase in gross margin (e.g. margin on
hardware versus service revenue), (ii) the decrease in selling and
promotion expenses (iii) the increase in professional and consulting
fees and (iv) the increase in other general and administrative
expenses.
RESPONSE
We have revised our disclosure to describe and quantify underlying material
activities that generate income statement variances.
Liquidity and Capital Resources, page 45
56. We note you disclose the estimated proceeds of the offering to be
approximately $4,750,000. Please reconcile this amount with the amount
presented in your use of proceeds table on page 20.
21
- --------------------------------------------------------------------------------
Teliphone Corp.
4150 Ste-Catherine West, suite 200
Westmount (Montreal) Quebec, Canada H3Z 0A1
(514) 313-6000, 877 TELIPHONE www.teliphone.ca
TELIPHONE CORP [LOGO]
- --------------------------------------------------------------------------------
RESPONSE
We note the comment and have amended our disclosure to include the following
reconciliation of the amounts found in this section with the use of proceeds
table:
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 $450,568 should the minimum be raised to as high as
$4,950,568 should the maximum be raised, after the payment of closing costs of
approximately $49,432.
57. In the last paragraph of this section, and as applicable throughout the
prospectus, please expand the following statement to include your
previous disclosure that your auditors have raised substantial doubt as
to your ability to continue as a going concern: "The accompanying
financial statements have been prepared assuming the Company will
continue as a going concern."
RESPONSE
We note the comment and have amended our disclosure to update this section to
read the following:
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, 2006 and 2005 had working capital deficits as
noted above. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty. The Company has been searching for
new distribution channels to wholesale their services to provide additional
revenues to support their operations. In addition, the Company entered into a
letter of intent with Intelco Communications that can save them operating costs
in addition to providing support services. The Company successfully reduced
approximately $400,000 of related party debt as this was converted into
additional shares of the Company's stock in August 2006. There is no guarantee
that the Company will be able to raise additional capital or generate the
increase in revenues to sustain its operations, thus the company is submitting
this registration statement on Form SB-2 to raise additional capital. These
conditions raise substantial doubt about the Company's ability to continue as a
going concern for a reasonable period.
Description of Property, page 48
58. Please describe in detail in the business section, the principal terms
of the agreement(s) between the company, 3908912 and Intelco regarding
working capital requirements. Also ensure that all related agreements
are filed as exhibits and include in the business a discussion of the
joint venture arrangements between Teliphone Inc. and Intelco
Communication Inc. Please include any required disclosure in the
related transactions section.
RESPONSE
We note the comment and have updated the disclosure in the amended SB-2/A filing
to include the following disclosure in the "History of Key Agreements" section
within the "Description of Business" section:
Teliphone Inc., a majority-owned subsidiary of the Company, 3901823 Canada Inc.,
the holding company of Intelco Communications ("3901823"), and Intelco
Communications ("Intelco") entered into an agreement on July 14, 2006. Pursuant
to the terms of the Agreement, Teliphone Inc. agreed to issue 35 class A voting
shares of its common stock representing 25.2% of Teliphone Inc.'s issued shares
to 3901823 in exchange for office rent, use of Intelco's data center for
Teliphone Inc.'s equipment, and use of Intelco's broadband telephony network
valued at approximating $144,000 (CDN$) for the period August 1, 2006 through
July 31, 2007, a line of credit of $75,000 (CDN$), of which $25,000 (CDN$) was
already drawn upon in July 2006 and paid back in December 2006.
22
- --------------------------------------------------------------------------------
Teliphone Corp.
4150 Ste-Catherine West, suite 200
Westmount (Montreal) Quebec, Canada H3Z 0A1
(514) 313-6000, 877 TELIPHONE www.teliphone.ca
TELIPHONE CORP [LOGO]
- --------------------------------------------------------------------------------
Teliphone Inc. also agreed to make available to the customers of Intelco certain
proprietary software for broadband telephony use. In lieu of receiving cash for
the licensing of this software, Teliphone Inc. will apply $1 per customer per
month at a minimum of $5,000 per month. Following a twelve month period, Intelco
will receive additional shares of class A voting common stock of Teliphone Inc.
for the difference in the value between $144,000 and the total payments credited
back to Teliphone Inc. The maximum amount of additional shares that can be
issued to Intelco after the twelve month period is an additional 8.34% of
Teliphone Inc.'s issued and outstanding shares. In the event that the total
payments credited back to Teliphone Inc. exceeds $144,000, Intelco will not be
entitled to the issuance of any additional shares of Teliphone Inc. common
stock.
59. Please discuss the principal terms of the agreement between the Company
and Peer 1 Networks and file the agreement as an exhibit.
RESPONSE
We note the comment and have updated the disclosure in the amended SB-2/A filing
to include the following disclosure in the "History of Key Agreements" section
within the "Description of Business" section and have filed a copy of the
agreement as an exhibit:
On December 2, 2005, the Company, through it's subsidiary Teliphone Inc. signed
a Co-Location and Bandwidth Services Agreement with Peer 1. The agreement
stipulates that the Company houses its telecommunications and computer server
hardware within the Peer 1 Montreal Data center, located at 1080 Beaver Hall,
suite 1512, Montreal, Quebec, Canada. Likewise, Teliphone Inc. agrees to
purchase Peer 1 bandwidth services and internet access across its worldwide
network. The term of the contract was for 12 months, renewable for successive 30
day terms.
Market for Common Equity and Related Stockholder Matters, page 48.
60. We reissue comment 121 from our previous letter. Please disclose the
amount of common stock that could be sold pursuant to Rule 144 under
the Securities Act as required by Item 201 of Regulation S-B. Please
disclose the amount of securities that are subject to the Division's
interpretive letter to Ken Worm dated January 21, 2000.
RESPONSE
We note the comment and have updated the disclosure to disclose the amount of
common stock that could be sold pursuant to Rule 144 under the Securities Act as
required by Item 201 of Regulation S-B.
Executive Compensation, page 49.
61. Please advise us whether the $52,501 that Mr. Metrakos received in the
year 2006 included his salary from both Teliphone Corp. and Teliphone
Inc. Revise the disclosure as appropriate.
RESPONSE
We note the comment and have updated the disclosure in the amended filing to
read the following:
23
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Teliphone Corp.
4150 Ste-Catherine West, suite 200
Westmount (Montreal) Quebec, Canada H3Z 0A1
(514) 313-6000, 877 TELIPHONE www.teliphone.ca
TELIPHONE CORP [LOGO]
- --------------------------------------------------------------------------------
George Metrakos is compensated $52,501 annually by the Company's subsidiary
Teliphone Inc. He does not currently receive any compensation from the Company.
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. (His
additional holdings of 77,260, also issued to Metratech Business Solutions Inc.,
were provided through his ownership position in United American Corporation,
prior to United American Corporation's spin-off of the Company in October,
2006.)
Effective only once the common stock of the Company is trading over the counter,
it has been agreed that George Metrakos will receive 75,000 options on a
quarterly basis at a value equivalent to the last 22 trading days stock value.
This stock option plan has not been formalized or disclosed as of the date of
this filing. It is anticipated that George Metrakos' annual base salary will
increase to $120,000 per year. This will be as a combination of salaries as
President of the subsidiary Teliphone Inc. and as CEO, CFO, Principal Accounting
Officer and Director of the Company.
Plan of Distribution, page 49.
62. Please discuss how the securities will be offered by the officer, e.g.,
general solicitation, advertisements etc.
RESPONSE
We note the comment and have updated the disclosure to discuss how the
securities will be offered by the officer.
63. We note that the company's president, George Metrakos, will be offering
the shares for the issuer and he will be a selling shareholder in this
offering. Please provide some guidance as to how Mr. Metrakos will
offer the shares for the company and his own shares at the same time.
Explain how this complies with 3a4-1, which indicates that the
individual may not participate in selling an offering more than once
every twelve months. These are considered two separate offerings, the
offering on behalf of the company and the offering on his own behalf.
Please advise or revise. We may have further comment.
RESPONSE
We note the comment and have revised the disclosure to delete Metratech Business
Solutions Inc. (George Metrakos) as a selling shareholder. Metratech Business
Solutions Inc.'s holdings have been removed from the Selling Shareholders Table.
64. We note that selling shareholders will be selling their securities at
the same time as the company's primary offering. Please discuss the
plan of distribution by the selling shareholders and how this could
impact the company's primary offering.
RESPONSE
We note the comment and have revised the disclosure to discuss the plan of
distribution by the selling shareholders and how this could impact the company's
primary offering.
Financial Statements
Notes to Consolidated Financial Statements
24
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Teliphone Corp.
4150 Ste-Catherine West, suite 200
Westmount (Montreal) Quebec, Canada H3Z 0A1
(514) 313-6000, 877 TELIPHONE www.teliphone.ca
TELIPHONE CORP [LOGO]
- --------------------------------------------------------------------------------
Note 2- Summary of Significant Accounting Policies (Revenue Recognition), page 9
65. We reviewed your response to our prior comment 127. Your response did
not address our comment, thus the comment will be reissued. Please
revise your revenue recognition policy to individually clarify how and
when you recognize the activation and disconnect fees (e.g. over term
of service contract, upon receipt of fee, etc.) In connection with your
response, tell us how your revenue recognition policy complies with the
guidance in Question 1 of Section A(3)(f) of SAB 104.
RESPONSE
We note your comment and have updated our disclosure in the amended filing to
individually clarify how and when we recognize the activation and disconnection
fees along with how our revenue recognition policy complies with the guidance in
Question 1 of Section A(3)(f) of SAB 104.
The amended disclosure is as follows:
Prior to September 30, 2006 the Company generally charged a disconnect fee to
Retail customers who did not return their customer equipment to the Company upon
disconnection of service if the disconnection occurred within the term of the
service contract. On October 1, 2006, the Company changed its disconnect policy.
Upon cancellation of the service, a disconnect fee is charged only if the
customer does not return their equipment to the Company. These fees are included
in service revenue as they are considered part of the service component when the
service is delivered or performed and are recognized upon receipt of the fee
The Company generates revenue from initial activation fees associated with
wholesale service contracts. These fees are included in service revenue as they
are considered part of the service component when the service is delivered or
performed and are recognized upon receipt of the fee.
66. We reviewed your response to our prior comment 128. Your response did
not address our comment in its entirety, thus the comment will be
partially issued. Please revise your revenue recognition policy to
clarify when you record commissions paid to wholesalers and
distributors.
RESPONSE
We note your comment and have updated our disclosure in the amended filing to
clarify when we record commissions paid to wholesalers and distributors.
The amended disclosure is as follows:
Commissions Paid to Retail Distributors
Commissions paid to Retail Distributors are sales and marketing expenses and are
recognized during the period where the commissions are paid.
Commissions Paid to Wholesalers
Commissions paid to wholesalers is recognized as a cost of sales due to the
Company receiving an identifiable benefit in exchange for the consideration, and
the Company can reasonably estimate the fair value of the benefit identified.
The Company receives the following identifiable benefit in exchange for the
commissions paid:
o The Wholesaler assumes the cost of billing and collections direct with the
customer
o The Wholesaler assumes the costs of customer support
25
- --------------------------------------------------------------------------------
Teliphone Corp.
4150 Ste-Catherine West, suite 200
Westmount (Montreal) Quebec, Canada H3Z 0A1
(514) 313-6000, 877 TELIPHONE www.teliphone.ca
TELIPHONE CORP [LOGO]
- --------------------------------------------------------------------------------
This cost of sale is recognized when the service is provided to the Wholesaler.
Should the consideration paid by the Company exceed the fair value of the
benefit received, that amount would be reflected as a reduction of revenue when
recognized in the Company's statement of operation.
67. In connection with the comment above, we note your assertion that you
receive an identifiable benefit in exchange for the wholesaler and
distributor commissions paid. Considering the guidance provided by
Issue 1 of EITF 01-9, please describe the identifiable benefit received
from the wholesalers and tell us how this benefit is sufficiently
separable from the wholesaler's purchase of your products.
RESPONSE
The Company receives the following identifiable benefit in exchange for the
commissions paid:
o The Wholesaler assumes the cost of billing and collections direct with
the customer
o The Wholesaler assumes the costs of customer support
68. We reviewed your response to our prior comment 129. Your response and
revised disclosure did not provide enough detail to support your
accounting treatment, thus the comment will be reissued. For your
retail sales, we note you refund the customer the equipment charge of a
three-month period if the customer satisfies the minimum service
period. Since you refund the equipment charge to customers when minimum
service requirements are met, it appears that the price of the
equipment is neither fixed nor determinable and cannot be recognized as
revenue in accordance with SAB 104. Furnish a complete explanation of
how you recognize revenue relating to equipment, how you account for
the refund, and identify the minimum service period. Please reference
the specific literature that supports you accounting policy and explain
how the literature is applicable to your fact pattern. Provide the
accounting for a sample transaction involving the sale of equipment to
a customer through a re-seller. Please revise your revenue recognition
policy to clarify your accounting for sales and refunds.
RESPONSE
We have noted the comment and have updated our revenue recognition policy
significantly in the amended prospectus filing. We hereby provide the following
supplementary information in order to further clarify our accounting and
recognition of the sale of customer equipment to a retail customer.
Stage 1: The Company sells a hardware device to the retail re-seller for $68.00
As is our recognition policy, upon activation of this particular unit of
hardware by a retail client,
"Under a retail agreement, the cost of the equipment is recognized as deferred
revenue, and amortized over the length of the service agreement."
We therefore recognize 1/12th of the revenue, or $5.67 as revenue for the month
of activation, and $62.33 as deferred revenue.
Stage 2: The retail re-seller sells the same hardware device to the retail
client for $99.
26
- --------------------------------------------------------------------------------
Teliphone Corp.
4150 Ste-Catherine West, suite 200
Westmount (Montreal) Quebec, Canada H3Z 0A1
(514) 313-6000, 877 TELIPHONE www.teliphone.ca
TELIPHONE CORP [LOGO]
- --------------------------------------------------------------------------------
Stage 3: The customer activates the service with a credit card. Our billing
system starts the service and charges the first month of service fees to the
client's credit card. Any activation fee would be recognized here for the
current period.
Stage 4: The customer has sent the Company his "Mail-in-credit" voucher, and
after three months in good payment standing, has achieved the minimum criteria
for the contract.
Stage 5: Application of credit. We apply a $79 credit to our automated billing
system for this client. In the 4th month of service, on the billing date,
instead of charging the monthly fee (for example $20), the system does not
charge the client's credit card with the 20$ but instead reduces the available
credit to $59 (from the original 79$). At this point, we apply the 20$ credit
against the 20$ of revenue and therefore the service revenue recognized for this
period is 0$. This continues every month until the full 79$ of credit has
expired, and the monthly charges continue to be charged on the client's credit
card.
Note 6- Commitments, page 19
69. Your response did not address our prior comment 130, thus the comment
will be reissued. As you plan to account for the transaction with
Iphonia as an asset acquisition, tell us how you determined that this
accounting treatment, and related reporting requirements, is consistent
with Rule 11-01 (d) of Regulation S-X. Please provide us with an
analysis that addresses each of the conditions of Rule 11-01d) of
Regulation S-X. If this transaction is considered to be a business
combination that is material at the 50% level, financial statements of
Iphonia are required to be filed in the SB-2 even though the
acquisition has not yet been consummated. Please refer to Item
310(3)(C)(iv) of Regulation S-B.
RESPONSE
We note the comment and do not feel that this comment needs to be addressed in
the amended filing. This deal had never been consummated and is now terminated,
and as referenced in the "Description of Business" Section:
On December 7, 2005, the Company entered into, in conjunction with United
American Corporation, a related party, a Customer and Asset Acquisition and
Software Licensing Agreement with Iphonia, Inc., a Quebec corporation. However,
on July 6th, 2006, the agreement with iPhonia Inc. was terminated by both
parties.
This Agreement is no longer a commitment of the company.
Note 7- Agreement-Intelco Communications, page 21
70. Please revise to disclose the guarantee related to your $56,000 in
research and development tax credits as discussed in section 4.4 of the
Letter of Intent for a Joint Venture Agreement between Teliphone Inc.
and Intelco Communication Inc., dated July 14, 2006 ("Joint Venture
Agreement") and filed as Exhibit 10.3.
RESPONSE
We note the comment and have updated the disclosure in the amended SB-2/A to
show the following:
27
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Teliphone Corp.
4150 Ste-Catherine West, suite 200
Westmount (Montreal) Quebec, Canada H3Z 0A1
(514) 313-6000, 877 TELIPHONE www.teliphone.ca
TELIPHONE CORP [LOGO]
- --------------------------------------------------------------------------------
"Teliphone Inc. is expected to have approximately $56,000 available in research
and development tax credits that have been pledged as a guarantee under their
agreement with Intelco. These are only tax credits, and not to be received in
the form of a cash refund."
71. We reviewed your response to our prior comment 133, noting you valued
the shares issued to Intelco based on the services to be provided.
(e.g. office space, data center, network usage). Tell us (i) how you
determined this value and how it relates to the fair value of these
services, (ii) how the services provided for the shares issued are
differentiated from the services to be provided for the excess
convertible advance as described in section 6 of the Joint Venture
Agreement and (iii) where you have recorded the share issuance in your
financial statements.
RESPONSE
We note the comment and offer the following supplementary information in order
to answer items (i) and (iii):
Prior to the transaction, Teliphone Corp, The Company, owned 100% of the issued
and outstanding shares of Teliphone Inc., which is 104 shares of Teliphone Inc.
Class A voting stock.
Teliphone Inc. issued 35 Class A voting stock to 3901823 Canada Inc. in return
of $144,000 worth of services as a pre-paid expense. The value of these services
was determined based on the estimated value of the benefit that Teliphone Inc.
would received from Intelco, such as rent, etc.
Upon the stock issuance, Teliphone Corp holds 104 of 139 Class A shares
outstanding or 74.8% of Teliphone Inc. and 3901823 Canada Inc. owns 35 of 139
Class A shares or 25.2% of Teliphone Inc.
Teliphone Corp, The Company, is not party to this contract, and therefore only
the minority interest is reflected in their financial statements, not the
issuance of stock on the financials, as stock issuance was within the
subsidiary, Teliphone Inc.
For item (ii), the excess convertible advance as described in section 6 of the
Joint Venture Agreement is based on the differential value of the services
provided by Teliphone Inc. to Intelco and the overall value of the services
provided by Intelco to Teliphone Inc. after the 12 month period. The Teliphone
Inc. services consist of software programming services and the use of existing
Teliphone Inc. software by Intelco to promote and deliver telecommunications
services to Intelco's clients.
72. Please revise to disclose the terms and conditions of the options (e.g.
exercise price, etc.) to be issued as disclosed in section 6 of the
Joint Venture Agreement and how you plan to account for the conversion
of this advance.
RESPONSE
We note the comment and have amended our Notes to the Financial Statements for
Note 7 to include the following revision:
Following a twelve month period, Intelco will receive additional shares of class
A voting common stock of Teliphone Inc. for the difference in the value between
$144,000 and the total payments credited back to Teliphone Inc. The maximum
amount of additional shares that can be issued to Intelco after the twelve month
period is an additional 8.34% of Teliphone Inc.'s issued and outstanding shares.
In the event that the total payments credited back to Teliphone Inc. exceeds
$144,000, Intelco will not be entitled to the issuance of any additional shares
of Teliphone Inc. common stock.
28
- --------------------------------------------------------------------------------
Teliphone Corp.
4150 Ste-Catherine West, suite 200
Westmount (Montreal) Quebec, Canada H3Z 0A1
(514) 313-6000, 877 TELIPHONE www.teliphone.ca
TELIPHONE CORP [LOGO]
- --------------------------------------------------------------------------------
Note the reference to "options" in the letter of intent is erroneous, this is
simply a stock issuance and not an options issuance.
73. We note your disclosure that this transaction will be accounted for as
an investment under the equity method since Intelco/3901823 Canada will
own approximately 25% of Teliphone. You appear to be describing how and
why Intelco will account for its investment in Teliphone. Please revise
to disclose how you will account for this transaction and the reasons
for that method of accounting.
RESPONSE
We note the comment and have amended our Notes to the Financial Statements for
Note 7 to include the following:
Teliphone Inc. recognized a prepaid expense for the fair value of the shares
issued to Intelco. The value of the prepaid expense was determined based on the
estimated cost of the services that Teliphone Inc. is to receive under the Joint
Venture Agreement entered into for a one-year period of time.
The Company (Teliphone Corp.) will not show the share issuance on the
financials, only that the minority interest has increased due to this agreement.
74. Please update the Subsequent Events note to discuss whether Teliphone
repaid any amounts drawn under the line of credit by the December 31,
2006 due date and the actual consequences of failing to do so.
RESPONSE
We note the comment and have amended our Notes to the Financial Statements to
disclose that the full amounts drawn under the line of credit have been repaid
prior to the December 31, 2006 due date.
The consequences of failing to do so would have been:
"Teliphone has until December 31, 2006 to repay this amount. Should payment not
be made, default provisions in the agreement would be enforced, which include
but are not limited to, 3901823 Canada, Inc. maintaining control of Teliphone's
current assets including its cash and accounts receivable, and control of
Teliphone's capital assets and any intellectual property owned by Teliphone. The
Company anticipates repayment of this amount, and a renegotiation of the terms
of the letter of intent into a new agreement prior to December 31, 2006."
General
75. Please note the updating requirements for the financial statements as
set forth in Item 310(g) of Regulation S-B and provide a current
consent of the independent accountant in any amendments.
29
- --------------------------------------------------------------------------------
Teliphone Corp.
4150 Ste-Catherine West, suite 200
Westmount (Montreal) Quebec, Canada H3Z 0A1
(514) 313-6000, 877 TELIPHONE www.teliphone.ca
TELIPHONE CORP [LOGO]
- --------------------------------------------------------------------------------
RESPONSE
We note the comment and have updated the disclosure.
Recent Sales of Unregistered Securities, page II-2
76. We note your disclosure that the reverse merger was pursuant to Rule
504 of Regulation D. Please note that Rule 504 is unavailable to blank
check companies. See Rule 504(a)(3) of Regulation D. Please revise
accordingly.
RESPONSE
We note the comment and have revised the disclosure to reflect the exemption
relied upon.
77. When referring to Regulation S, please discuss whether the transaction
is in compliance with each element of the rule.
RESPONSE
We note the comment and have revised the disclosure to discuss whether the
transaction is in compliance with each element of the rule.
78. Please provide the dates of the issuances of the convertible
debentures.
RESPONSE
We note the comment and have updated the disclosure in the amended SB-2/A to
include the following information regarding the dates of the issuances of the
convertible debentures:
Jean-Guy Lambert, August 11, 2005
Robert Martineau July 15, 2005
Marcel Cote, July 15, 2005
79. Please describe the services performed for the securities that you have
issued for services.
RESPONSE
We have noted the comment and have updated the disclosure to describe the
services performed for the securities that we have issued for services:
Maxime Brazeau: Employee, Services were for extra consulting in Customer Service
Ticketing software evaluations
Benjamin Lawetz: Employee, Services of extra consulting for Network optimization
Brendan Mirotchnick: Consulting services for Network optimization
Ronan Huon de Kermadec: Employee, Services of extra consulting in Software
performance optimization
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Teliphone Corp.
4150 Ste-Catherine West, suite 200
Westmount (Montreal) Quebec, Canada H3Z 0A1
(514) 313-6000, 877 TELIPHONE www.teliphone.ca
TELIPHONE CORP [LOGO]
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Suzanne Perron: Employee, Services of extra consulting in administration
Bruno Mourani: Consulting services for Accounting and Financial analysis
Europe Mourani: Consulting services for Accounting and Financial analysis
Benoit Ratthe: Consulting services for market segment evaluation
Joseph Emas: Legal services
Simon Lamarche: Consulting services for sales training tools for retailers
Ronald Gold: Consulting for International market development in Liberia and
Brazil
Strathmere and Associates: Consulting services for International market
development in India
Podar Infotech Ltd.: Consulting services for Market Analysis report, India
Business Development Consultants: Consulting services, Investor relations
80. For each of the transactions, please disclose the aggregate offering
price as required by Item 701 of Regulation S-K.
RESPONSE
We have noted the comment and have updated the disclosure to reflect that the
shares were issued at a valuation of $0.25 per share.
81. We note the issuance of securities in December 2006. Please explain the
exemption you relied upon in conducting these private placements given
that an issuer generally is not allowed to transact a private placement
concurrent with a public offering, with very limited exceptions, See
Black Box Inc. (June 26, 1990).
RESPONSE
We have noted the comment and have updated our disclosure with the following:
The issuance of securities in December, 2006, was not involving the purchase and
sale of securities but the satisfaction of debt through the issues of shares,
not involving a private placement or any general solicitation, to the
recipients. In the event that it is determined that such issuance to the
recipients resulted from a general solicitation, based upon our filed yet not
then effective registration statement, we shall offer the recipients the right
of rescission.
82. We reissue prior comment numbers 139 and 140 of our letter dated
October 11, 2006. You have supplementally responded that you have
revised the disclosure. However, we do not find the revisions in
response to this comment. Please explain supplementally and make any
required changes in this section and in the related transactions
section of the prospectus.
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Teliphone Corp.
4150 Ste-Catherine West, suite 200
Westmount (Montreal) Quebec, Canada H3Z 0A1
(514) 313-6000, 877 TELIPHONE www.teliphone.ca
TELIPHONE CORP [LOGO]
- --------------------------------------------------------------------------------
RESPONSE
We have noted the comment and have added comment numbers 139 and 140 from your
letter dated October 11, 2006 here:
"Please explain the statement "[w]e likewise issued the following
securities on August 18, 2006 as restricted stock in order to convert debt
from our parent company United American Corporation into common stock."
Please describe the issuance of debt."
"For the shares you have issued to your parent in return for debt,
disclose whether the parent or a subsidiary of the parent lent you the
money and disclose the amount of the debt you have repaid. Also ensure
that you include transactions in this regard in the certain relationships
section, as appropriate."
We have added the following disclosure in order to properly describe the
issuance of debt:
On August 1, 2006, the Company converted $421,080 of the $721,080 of its loans
with United American Corporation, a related party through common ownership, and
majority shareholder of the Company prior to United American Corporation's stock
dividend that took place effective October 30, 2006 into 1,699,323 shares of the
Company's common stock. In December 2006, the Company issued a resolution to
issue the remaining 171 fractional shares related to this transaction. Those
shares are anticipated to be issued prior to December 31, 2006. The $300,000
remaining on the loan has become interest bearing at 12% per annum, payable
monthly with a maturity date of August 1, 2009. Interest for the year ended
September 30, 2006 and accrued at September 30, 2006 is $6,000 on this loan.
The $421,080 was lent to us from United American Corporation, our former parent
company and currently a related party through common ownership.
Undertakings
83. Please include the undertakings as required by Item 512 of Regulation
S-B.
RESPONSE
We have noted the comment and have revised the disclosure to conform with item
512 of regulation S-B.
84. Please include the signature page as required by Form SB-2
RESPONSE
We have noted the comment and have revised the signature page.
Exhibit 21 Subsidiaries
85. Please amend exhibit 21 to provide the jurisdiction of organization and
the correct spelling of the subsidiary, as we requested in our prior
comment number 143 of our letter dated October 11, 2006.
RESPONSE
We have noted the comment and have revised Exhibit 21.
Please add the following comments:
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Teliphone Corp.
4150 Ste-Catherine West, suite 200
Westmount (Montreal) Quebec, Canada H3Z 0A1
(514) 313-6000, 877 TELIPHONE www.teliphone.ca
TELIPHONE CORP [LOGO]
- --------------------------------------------------------------------------------
Exhibit 99.1 Subscription Agreement
86. The representations specified in paragraphs 2.1(A)-(H) should be
deleted, unless the representations are included because of state law
or other requirement. In that event, a copy of the requirements should
be furnished to us as supplemental information and the subscription
agreement must be revised to include a statement in a prominent place
informing the subscribers that by making such representations they have
not waived any right of action they may have under the applicable
federal securities laws. In addition, it should be noted that the
federal securities laws specifically provide that any such waiver would
be unenforceable. The subscription agreement should also note whether
the company intends to assert the representations as a defense in any
subsequent litigation. We may have further comment.
RESPONSE
We have noted the comment and have revised the subscription agreement.
87. We note the statement in paragraph 2.1(F) that the shares are being
issued pursuant to an exemption from registration. Please revise or
advise in light of this registration statement.
RESPONSE
We have noted the comment and have revised the subscription agreement.
Exchange Act Reports
88. Please revise your current Form 10-KSB, Forms 10-QSB, and other
Exchange Act Filings to comply with these comments as applicable.
RESPONSE
We have noted the comment and will revise accordingly.
89. Please include on the cover page of the Form 10-KSB for the year ended
September 30, 2006 the 1934 Act SEC file number, which is 0-28793.
Please remove the 1933 Act file number.
RESPONSE
We have noted the comment and will include on the cover page of any Form 10-KSB
filed the 1934 Act SEC file number, which is 0-28793.
The Company hereby acknowledges that:
o The Company is responsible for the adequacy and accuracy of the disclosure
in the filings;
o Staff comments or changes to disclosure in response to staff comments do
not foreclose the Commission from talking any action with respect to the
fling; and
o the Company may not assert staff comments as a defense in any proceeding
initiated by the Commission or any person under the federal securities
laws of the United States.
33
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Teliphone Corp.
4150 Ste-Catherine West, suite 200
Westmount (Montreal) Quebec, Canada H3Z 0A1
(514) 313-6000, 877 TELIPHONE www.teliphone.ca
TELIPHONE CORP [LOGO]
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/s/ George Metrakos
- -------------------------------
George Metrakos
President & CEO
Teliphone Corp.
Tel: 514-313-6010
e-mail: gmetrakos@teliphone.ca
34
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Teliphone Corp.
4150 Ste-Catherine West, suite 200
Westmount (Montreal) Quebec, Canada H3Z 0A1
(514) 313-6000, 877 TELIPHONE www.teliphone.ca