mainbody
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-KSB/A
[X]
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ANNUAL
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the fiscal year ended December
31, 2005
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[ ]
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TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT
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For
the transition period from _________ to ________
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Commission file number 000-27621
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United
American Corporation
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(Name
of small business issuer in its
charter)
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Florida
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95-4720231
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(State
or other jurisdiction of incorporation or organization)
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(I.R.S.
Employer Identification No.)
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1080
Beaver Hall, Suite 155, Montreal, Quebec, Canada
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H2Z
1S8
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(Address
of principal executive offices)
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(Zip
Code)
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Issuer’s
telephone number: 514-313-6010 |
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Securities
registered under Section 12(b) of the Exchange Act:
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Title
of each class
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Name
of each exchange on which registered
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None
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Not
Applicable
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Securities
registered under Section 12(g) of the Exchange Act:
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Common
Stock, par value $0.001
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(Title
of class)
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Check
whether the Issuer (1) filed all reports required to be filed by Section 13
or
15(d) of the Securities Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and
(2)
has been subject to such filing requirements for the past 90 days. Yes [X]
No [
]
Check
if
disclosure of delinquent filers in response to Item 405 of Regulation S-B is
not
contained in this form, and no disclosure will be contained, to the best of
registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment
to
this Form 10-KSB [ ]
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes [ ] No [X]
State
issuer’s revenue for its most recent fiscal year. $4,845,485
State
the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the average bid and asked price of
such
common equity, as of a specified date within the past 60 days.
$1,440,126
as of April 7, 2006
State
the
number of shares outstanding of each of the issuer’s classes of common equity,
as of the latest practicable date. 49,969,985 Common Shares as of April 6,
2006
Transitional
Small Business Disclosure Format (Check One): Yes [ ] No [X]
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Page
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PART
I
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PART
II
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PART
III
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PART
I
Item
1.
Description of Business
Business
Development
We
were
incorporated on July 17, 1992, under the laws of the state of Florida. Since
our
inception, we sought out various business opportunities, none proved successful
over a sustained period of time. We explored opportunities to acquire products
or businesses that had the potential for profit.
On
July
18, 2003, we entered into a share exchange agreement with 3874958 Canada Inc.
whereby we agreed to transfer to 3874958 Canada Inc. 26,250,000 common shares
of
our common stock in exchange for the transfer of 100 shares of American United
Corporation, a Delaware corporation (“AUC”). The 100 shares of AUC represent all
of the issued and outstanding shares of the company. The agreement was
contingent on the parties’ due diligence and completion of several conditions
prior to sale. On October 6, 2003, these conditions were satisfied and the
sale
was consummated. Following the consummation of this sale, AUC became a
wholly-owned subsidiary of our company. AUC was later dissolved.
At
the
time the share exchange agreement was entered into on July 18, 2003, Benoit
Laliberté was the beneficial holder of a majority of our issued and outstanding
shares of common stock and was also the sole officer, director, and shareholder
of American United Corporation. In addition, Mr. Laliberté was the sole officer,
director, and shareholder of 3874958 Canada, Inc. As a result, Mr. Laliberté was
the beneficial holder of the 100 shares of AUC held by 3874958 Canada, Inc.
and
is now the beneficial holder of the 26,250,000 shares we issued to 3874958
Canada, Inc. in the transaction described above. Subsequent to the share
exchange agreement, Mr. Laliberté was appointed as our CEO, CFO, and as a member
of our board of directors.
On
February 3, 2004, a majority of the shareholders approved a change in the name
of our company to United American Corporation. Management considered it in
the
best interests of the company to change our name to reflect the acquisition
of
American United Corporation shares and the new direction of our business.
Description
of Business
Following
the acquisition of AUC, we revised our business plan and implemented the
business plan of AUC. AUC began its operations in 2002 as a holding company
focused on the acquisition of network-centric technology and telecommunication
companies. Given the rapid changes in the telecommunications marketplace, and
the strong need for a competitive edge, they revised their business plan and
set
out on a new course in 2003 to provide Voice over Internet Protocol (VoIP)
solutions.
VoIP
means that the technology used to send data over the Internet is now being
used
to transmit voice as well. The technology is known as packet switching. Instead
of establishing a dedicated connection between two devices (computers,
telephones, etc.) and sending the message "in one piece," this technology
divides the message into smaller fragments, called 'packets'. These
packets
are transmitted separately over a decentralized network and when they reach
the
final destination, they're reassembled into the original message.
VoIP
allows a much higher volume of telecommunications traffic to flow at much higher
speeds than traditional circuits do, and at a significantly lower cost. VoIP
networks are significantly less capital intensive to construct and much less
expensive to maintain and upgrade than legacy networks or what is commonly
referred to as traditional circuit-switched networks. Since VoIP networks are
based on internet protocol, they can seamlessly and cost-effectively interface
with the high-technology, productivity-enhancing services shaping today's
business landscape. These networks can seamlessly interface with web-based
services such as virtual portals, interactive voice response (IVR), and unified
messaging packages, integrating data, fax, voice, and video into one
communications platform that can interconnect with the existing
telecommunications infrastructure.
Initially,
we sought to provide retail
consumers and small and medium sized companies with
a
mobile or landline phone that utilizes VoIP as opposed to traditional cell
phone
technology. A mobile phone that is connected to a Wi-Fi router, which is
interconnected to a hi-speed Internet modem, cable or ADSL transmits telephone
calls by connecting to the Internet using a high-speed Internet connection.
Use
of this technology offers large savings to consumers because a majority of
the
telephone call is now being transmitted over the Internet replacing what was
previously an established telecommunication line. When a VoIP network is
utilized, an established telecommunication line is only utilized to transmit
the
call from our servers to the termination point of a call. 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.
We
constructed our first VoIP network which we refer to as CaribbeanONE. To
construct this network, we established servers in Haiti that utilize our
intellectual property to connect with our servers located in Montreal, Quebec,
Canada. Following the successful testing of our servers in Haiti, the
CaribbeanONE network was completed in March 2004. The establishment of the
CaribbeanONE network was critical in that it enables us to charge significantly
less than other providers that exclusively utilize established telecommunication
lines for calls that originate in North America and terminate in any country
in
the Caribbean. When one of our consumers originates a call in North America,
our
VoIP network will receive the call and transmit the call to our server in Haiti
and an established telecommunication line will only be utilized to transmit
the
call from our server in Haiti to the termination point of the call in the
Caribbean. The establishment of the CaribbeanONE network was our first step
in
strategically
establishing computer servers in specified geographical areas
to
construct an international VoIP network. Since the establishment of the
CaribbeanONE network, we have worked to improve this VoIP network by added
additional capacity.
In
August
2004, we incorporated Teliphone, Inc. (“Teliphone”), a Canadian corporation,
which became a wholly-owned subsidiary of our company. We formed Teliphone
as a
wholly-owned subsidiary for the purpose handling the origination, management,
and billing of calls. Teliphone
also
handles servicing and providing businesses
and individuals with a mobile or landline phone to access our VoIP network.
The
management of calls refers to the routing of calls from the origination point
to
the termination point. The billing of calls refers to the collection of charges
for utilization of our VoIP network.
At
this
stage our of business plan, we were successfully able to provide businesses
and
individuals with the ability to utilize our VoIP
network to transmit communications through the use of a mobile and landline
phone that connects to the Internet. Our ability to grow beyond the Montreal,
Quebec geographical area was inhibited at this point because we were only were
able to provide our consumers with telephone numbers that contained Canadian
area codes. Consumers generally desire area codes for the telephone numbers
they
are assigned which are consistent with the geographical area where they
primarily conduct business or reside.
In
recognition of this limitation, our management entered into a carrier agreement
with XO Communications, Inc.(“XO”), a Delaware corporation, on October 12, 2004.
This carrier agreement with XO provides us with the ability to purchase
telephone numbers in any of thirty seven (37) major metropolitan markets in
the
United States. As a result, we are capable of providing our service to consumers
in any of these major metropolitan markets in the United States and each
consumer could now be assigned a telephone number with a local area
code.
Also
under the terms of this carrier agreement with XO, we acquired the ability
to
purchase
and utilize voice channels that
XO
maintains within the United States. The ability to purchase and utilize these
voice channels is beneficial to our consumers that originate calls that
terminate in the United States. Use of these voice channels enables us route
calls to their termination point without utilizing carriers outside of our
network that would likely charge higher fees to route the call to its
termination point. This completion of the carrier agreement with XO further
established our VoIP network and positioned us with the ability to compete
with
other providers of VoIP in certain major metropolitan markets in the United
States.
Our
management identified that another limitation of our service is that access
to
our VoIP network requires individuals or businesses to utilize a mobile and
landline phone that connects to the Internet. Traditional cellular phones do
not
require an Internet connection for their utilization. As a result, users of
traditional cellular phones can physically be more mobile while maintaining
telephone service. In contrast, the mobility of our consumers is limited to
areas where an Internet connection can be maintained. Our management concluded
that the appeal of our service will be enhanced by broadening the physical
areas
in which our consumers can utilize their mobile phone while maintaining service.
To broaden the physical areas in which our consumers can utilize their mobile
phone, our management began to negotiate agreements with retail establishments
that
have
a Wi-Fi router. A Wi-Fi router is interconnected to a hi-speed Internet modem,
cable or ADSL enabling telephone calls made in their retail establishment to
connect to the Internet. As a result, our consumers would be able access our
VoIP network through the use their mobile phone when physically present in
a
particular retail
establishment.
On
November 13, 2004, we entered into an agreement with Ta-Daa High Speed Wireless.
(Ta-Daa), a provider of wireless Internet access in various retails
establishments located in Montreal, Quebec. At the present time, our consumers
do not incur any additional cost for originating calls
from
these cafés. Additional agreements were entered into for the same purpose on
substantially the same terms with other providers of wireless Internet access
in
various retails establishments throughout Montreal, Quebec. On November 30,
2004, we entered into a similar agreement with Eye-In Inc. and also on March
10,
2005 we entered into a similar agreement with Experience Wifi Inc.
In
an
attempt to further broaden the physical areas in which our consumers can utilize
their mobile phone, we entered into a telecommunications services agreement
on
November 3, 2004 with Kore Wireless Canada Inc. (“Kore”), a supplier of global
systems for mobile communications (“GSM”). This agreement will enable us to
offer a mobile phone that is compatible with both our VoIP network and a GSM
network utilized for traditional cellular phone use. Our consumers will benefit
because they will now be able to utilize one mobile phone that integrates the
use of both a VoIP and GSM network resulting in an expanding coverage area
for
mobile phones which we provide service to. When an Internet connection cannot
be
maintained, calls can still be placed using traditional cellular phone
technology. For our consumers that utilize this service, we have the ability
to
integrate into a single bill charges for calls placed utilizing both the VoIP
and GSM networks. Prior to this agreement with Kore, we were unable to offer
phone service to consumers at times when they did not maintain an Internet
connection.
Once
the
requisite infrastructure was in place and operational, we sought to establish
agreements and incentives for retailers of telephone products to make available
to retail
consumers and small and medium sized companies a
mobile
or landline phone that utilizes our VoIP network. In furtherance of this
objective to provide our target market with a product that is compatible with
our VoIP network, we entered
into a distribution agreement with Distribution Car-Tel, Inc.
(“Car-Tel”) on July 28, 2004. During Q4 2004, unfortunately, our agreement with
Car-Tel did not result in the volume of increased sales of our service that
was
originally contemplated. As a result, we terminated our agreement with Car-Tel,
and sought to renew our efforts to build our retail distribution network in
the
Montreal, Quebec area.
We
succeeded in meeting our objectives when we entered into a distribution
agreement with MSBR Communication Inc. (“MSBR”) on March 1, 2005, for the
purpose accessing the retail consumer portion of our target market through
retail and Internet-based sales. Under the terms of this agreement, MSBR was
granted the exclusive right to distribute mobile or landline phones that utilize
our VoIP network via Internet-based sales or direct sales to retail
establishments in the territory consisting of the Province of Quebec in Canada
exclusive of Sherbrooke, Quebec. This agreement was entered into for a term
of
two (2) years with automatic renewals for additional one year terms unless
either party provides notice within 90 days of the initial two year term. This
agreement is subject to termination upon the occurrence of specified events
triggering default. MSBR will receive a pre-determined commission based upon
sales of mobile or landline phones that utilize our VoIP network and revenues
derived from retailer consumers who activated their VoIP service through
distribution channels used by MSBR.
As
a
result of this agreement, MSBR Communications Inc. has succeeded in building
a
distribution network of over 70 points of retail sale, telemarketing sales
partners and small business telecommunications interconnect companies. This
distribution network is the current
driver
of
our new customer acquisition in the retail segment of our business.
On
March
11, 2005, we continued our attempt to build an international VoIP network by
entering into a marketing and distribution agreement with Podar Enterprise
(“Podar”) of Mumbai, India. Podar is a distributor of telecommunications that
will make mobile or landline phones that utilize our VoIP network available
to
consumers in Central, South, and East Asia, Eastern Europe, and parts of the
Middle East. Under the terms of this agreement, Podar was granted the exclusive
marketing and distribution rights for our products and services in India, China,
Sri Lanka, United Arab Emirates, and Russia. The term of this agreement is
five
(5) years subject to early termination with 60 days notice following any default
under the agreement.
Accounts
activated in any of the geographical markets serviced by Podar will be assigned
a North American telephone number. For this reason, we anticipate that our
target market in these geographical areas will be small and medium sized
businesses that frequently transact business in North America.
During
the third quarter of 2005, we expanded our Long Distance VoIP termination
services into Africa, expanding our current infrastructure to build a VoIP
gateway in Gabon, Africa. Similar to our CaribbeanONE
infrastructure located in Haiti, we are now able to offer wholesale termination
services to global Tier1 and Tier 2 telecommunications companies to utilize
our
VoIP link between Montreal, Canada and Gabon in order to terminate their long
distance calls. This gateway installation permits us to expand the number of
voice channels that we have in operation in our global network and hence sell
more long distance termination minutes to our existing and future
customers.
Subsidiary
Spin-off
In
March
2005, our management proposed to spin-off one of our subsidiaries, Teliphone,
Inc., subject to the approval of the stockholders. At the time of this proposal,
we owned 100 common shares of the 104 common shares issued and outstanding
in
Teliphone. Under the terms of this proposal, our shareholders would have
received 1 share of Teliphone for each share of our company they owned.
Our
board
of directors believed that spinning-off Teliphone would accomplish an important
objective. The spin-off would enable Teliphone to focus on handling
the origination, management, and billing of calls and allow us to concentrate
on
building an international VoIP focused primarily on call termination.
This
will
allow both companies that have operations that are focused on different
objectives to better prioritize the allocation of their management and their
financial resources for achievement of their corporate objectives.
In
April
2005, our management was presented with an opportunity where Teliphone would
enter into a merger with a wholly-owned subsidiary of OSK Capital II Corp.
(“OSK”), a public reporting company under Section 12(g) of the Securities
Exchange Act of 1934. As a result of this opportunity, we did not present our
original proposal to the shareholders for their consideration and approval.
On
April
28, 2005, OSK completed its acquisition of Teliphone, pursuant to an Agreement
and
Plan
of
Merger and Reorganization. At the effective time of the merger, OSK acquired
all
of the outstanding shares of Teliphone and Teliphone merged with OSK II
Acquisition Corp., a Florida corporation and wholly-owned subsidiary of OSK
Capital II, Corp. Following the merger, Teliphone was the surviving corporation.
OSK issued 25,000,000 common shares in exchange for all of the issued and
outstanding shares of Teliphone and these shares of OSK were issued to the
shareholders Teliphone shareholders on a pro rata basis. We owned 100 common
shares of the 104 common shares issued and outstanding in Teliphone. As a
result, we received 24,038,462 shares of OSK. Following the effectiveness of
the
merger, OSK had 30,426,000 common shares issued and outstanding. Consequently,
Teliphone became a wholly owned subsidiary of OSK and OSK is currently a
majority-owned subsidiary of our company.
Our
management proposed to spin-off our majority-owned subsidiary, OSK. To complete
the spin-off, we propose to distribute the 24,038,462 shares of OSK that we
own
on a pro rata basis to our shareholders. A record date for the proposed spin-off
has not yet been set.
Industry
Overview
One
of
the outgrowths from the rapid deployment of broadband connectivity in the United
States and abroad has been the accelerated adoption of VoIP. VoIP is a
technology that enables voice communications over the Internet through the
conversion of voice signals into data packets. The data packets are transmitted
over the Internet and converted back into voice signals before reaching their
recipient. The Internet has always used packet-switched technology to transmit
information between two communicating terminals. For example, packet switching
allows a personal computer to download a page from a web server or to send
an
e-mail message to another computer. VoIP allows for the transmission of voice
signals over these same packet switched networks and, in doing so, provides
an
alternative to traditional telephone networks.
VoIP
technology presents several advantages over the technology used in traditional
wireline telephone networks that enable VoIP providers to operate with lower
capital expenditures and operating costs while offering both traditional and
innovative service features. Traditional networks, which require that each
user's telephone be connected to a central office circuit switch, are expensive
to build and maintain. In contrast, VoIP networks route calls over the Internet
using either softswitches or software, both of which are less expensive than
circuit switches. In addition, traditional wireline networks
use dedicated circuits that allot fixed bandwidth to a call throughout its
duration, whether or not the full bandwidth is being used throughout the call
to
transmit voice signals. VoIP networks use bandwidth more efficiently, allocating
it instead based on usage at any given moment. VoIP technology also presents
the
opportunity to offer customers attractive features that traditional telephone
networks cannot easily support, such as online call management and
self-provisioning (the ability for customers to change or add service features
online).
Traditional
telephone companies originally avoided the use of VoIP networks for transmitting
voice signals due to the potential for data packets to be delayed or lost,
preventing real-time transmission of the voice data and leading to poor sound
quality. While a delay of several seconds in downloading a webpage or receiving
an e-mail generally is acceptable to a user, a delay of more than a millisecond
during a live, two-way voice conversation is not satisfactory. Original VoIP
services, which were pioneered in the mid-1990s, were typically only PC-to-PC,
requiring
two personal computers to be in use at the same time. Early international
calling card services, which allowed users to dial abroad for significantly
discounted rates, also relied on a form of VoIP technology. These initial VoIP
services often suffered from dropped calls, transmission delays and poor sound
quality because of bandwidth limitations. As a result, VoIP initially developed
a poor reputation for service quality relative to traditional fixed line
telephone service. Subsequent increases in bandwidth, driven by increased
broadband penetration, and improvements in packet switching, signaling, and
compression technology have significantly enhanced the quality and reliability
of VoIP calls.
Today,
VoIP technology is used in the backbone of many traditional telephone networks,
and VoIP services are offered to residential and business users by a wide array
of service providers, including established telephone service providers. These
VoIP providers include traditional local and long distance phone companies,
established cable companies, Internet service providers and alternative voice
communications providers.
While
all
of these companies provide residential VoIP communications services, each group
provides those services over a different type of network, resulting in important
differences in the characteristics and features of the VoIP communications
services that they offer. Traditional wireline telephone companies offering
VoIP
services to consumers do so using their existing broadband DSL networks.
Similarly, cable companies offering VoIP communications services use their
existing cable broadband networks. Because these companies own and control
the
broadband network over which the VoIP traffic is carried between the customer
and public switched telephone network, they have the advantage of controlling
a
substantial portion of the call path and therefore being better able to control
call quality. In addition, many of these providers are able to offer their
customers additional bandwidth dedicated solely to the customer's VoIP service,
further enhancing call quality and preserving the customer's existing bandwidth
for other uses. However, these companies typically have high capital
expenditures and operating costs in connection with their networks. In addition,
depending on the structure of their VoIP networks, the VoIP services provided
by
some of these companies can only be used from the location at which the
broadband line they provide is connected.
Like
traditional telephone companies and cable companies offering VoIP services,
alternative voice communications providers also connect their VoIP traffic
to
the public switched telephone network so that their customers can make and
receive calls to and from non-VoIP users. Unlike traditional telephone companies
and cable companies, however, alternative voice communications providers do
not
own or operate a private broadband network. Instead, the VoIP services offered
by these providers use the customer's existing broadband connection to carry
call traffic from the customer to their VoIP networks. These companies do not
control the "last mile" of the broadband connection, and, as a result, they
have
less control over call quality than traditional telephone
or cable companies do. However, these companies have the operating advantage
of
low capital expenditure requirements and operating costs.
Internet
service providers generally offer or have announced intentions to offer VoIP
services principally on a PC-to-PC basis. These providers generally carry their
VoIP traffic for the most part over the public Internet, with the result that
VoIP services are often offered for free, but can only be used with other users
of that provider's services. Many of these providers offer a premium service
that allows customers to dial directly into a public switched telephone network.
In
addition, while no special adapters or gateways are required, often customers
must use special handsets, headsets or embedded microphones through their
computers, rather than traditional telephone handsets.
Reliance
on Technology and Computer Systems
We
rely
on specialized telecommunications and computer technology to meet the needs
of
our consumers. We will need to continue to select, invest in and develop new
and
enhanced technology to remain competitive. Our future success will also depend
on our operational and financial ability to develop information technology
solutions that keep pace with evolving industry standards and changing client
demands. Our business is highly dependent on our computer and telephone
equipment and software systems, the temporary or permanent loss of which could
materially and adversely affect our business.
Competition
The
telecommunications industry is highly competitive, rapidly evolving and subject
to constant technological change and to intense marketing by different providers
of functionally similar services. Since there are few, if any, substantial
barriers to entry, except in those markets that have not been subject to
governmental deregulation, we expect that new competitors are likely to enter
our markets. Most, if not all, of our competitors are significantly larger
and
have substantially greater market presence and longer operating history as
well
as greater financial, technical, operational, marketing, personnel and other
resources than we do.
Our
use
of VoIP technology and our proprietary systems and products enables us to
provide customers with competitive pricing for telecommunications services.
Nonetheless, there can be no assurance that we will be able to successfully
compete with major carriers in present and prospective markets. While there
can
be no assurances, we believe that by offering competitive pricing we will be
able to compete in our present and prospective markets.
Patents,
Licenses, Trademarks, Franchises, Concessions, Royalty Agreements, or Labor
Contracts
We
do not
own, legally or beneficially, any patent or trademark.
Research
and Development
We
did
incurred research and development expenditures of $103,006 in the fiscal year
ended December 31, 2005 and $0 in the fiscal year ended December 31, 2004.
Existing
and Probable Governmental Regulation
Overview
of Regulatory Environment
Traditional
telephone service historically has been subject to extensive federal and state
regulation, while Internet services generally have been subject to less
regulation. Because some
elements
of VoIP resemble the services provided by traditional telephone companies and
others resemble the services provided by Internet service providers, the VoIP
industry has not fit easily within the existing framework of telecommunications
law and until recently has developed in an environment largely free from
regulation.
The
Federal Communications Commission, or FCC, the U.S. Congress and various
regulatory bodies in the states and in foreign countries have begun to assert
regulatory authority over VoIP providers and are continuing to evaluate how
VoIP
will be regulated in the future. In addition, while some of the existing
regulation concerning VoIP is applicable to the entire industry, many rulings
are limited to individual companies or categories of service. As a result,
both
the application of existing rules to us and our competitors and the effects
of
future regulatory developments are uncertain.
Regulatory
Classification of VoIP Services
On
February 12, 2004, the FCC initiated a rulemaking proceeding concerning the
provision of voice and other services and applications utilizing Internet
Protocol technology. As part of this proceeding, the FCC is considering whether
VoIP services like ours should be classified as information services or
telecommunications services. We believe our service should be classified as
an
information service. If the FCC decides to classify VoIP services like ours
as
telecommunications services, we could become subject to rules and regulations
that apply to providers of traditional telephony services. This could require
us
to restructure our service offering or raise the price of our service, or could
otherwise significantly harm our business.
While
the
FCC has not reached a decision on the classification of VoIP services like
ours,
it has ruled on the classification of specific VoIP services offered by other
VoIP providers. The FCC has drawn distinctions among different types of VoIP
services, and has concluded that some VoIP services are telecommunications
services while others are information services. The FCC's conclusions in those
proceedings do not determine the classification of our service, but they likely
will inform the FCC's decision regarding VoIP services like ours.
In
Canada, the Canadian Radio-Television Commission (CRTC) is the regulating body
who has set guidelines that our subsidiary, OSK, must meet. These guidelines
center around 9-1-1 calling services and other services that are normally
available to subscribers of traditional telephony services. OSK has met these
requirements in its product offering.
An
additional element of Canadian regulation is that the incumbent providers,
Bell
Canada (Central and Eastern Canada) and Telus (Western Canada), who in 2004
controlled over 98% of the Business and Residential phone lines, are not able
to
reduce their prices to meet the newly offered reduced price options of
independent VoIP and Cable phone companies. This regulation permitted
independents such as OSK to provide their VoIP phone service without fear of
anti-competitive activity by the incumbents. The CRTC has recently ruled that
they will permit the reduction of pricing by the incumbent carriers once a
25%
market share has been attained by the upstart phone service providers. Effective
March 2005, there is a penetration of 10% of phone services by up-start VoIP
providers. OSK views its long term strategy outside of just residential
phone
service, through the availability of international phone numbers to global
clients, thereby creating an international product offering, a strategy that
is
very different from the geographically limited incumbent carriers.
VoIP
E-911 Matters
On
June 3, 2005, the FCC released an order and notice of proposed rulemaking
concerning VoIP emergency services. The order set forth two primary requirements
for providers of "interconnected VoIP services" such as ours, meaning VoIP
services that can be used to send or receive calls to or from users on the
public switched telephone network.
First,
the order requires us to notify our customers of the differences between the
emergency services available through us and those available through traditional
telephony providers. We also must receive affirmative acknowledgment from all
of
our customers that they understand the nature of the emergency services
available through our service. Second, the order requires us to provide
enhanced emergency dialing capabilities, or E-911, to all of our customers
by
November 28, 2005. Under the terms of the order, we are required to use the
dedicated wireline E-911 network to transmit customers' 911 calls, callback
number and customer-provided location information to the emergency authority
serving the customer's specified location.
International
Regulation
The
regulation of VoIP services is evolving throughout the world. The introduction
and proliferation of VoIP services have prompted many countries to reexamine
their regulatory policies. Some countries do not regulate VoIP services, others
have taken a light-handed approach to regulation, and still others regulate
VoIP
services the same as traditional telephony. In some countries, VoIP services
are
prohibited. Several countries have recently completed or are actively holding
consultations on how to regulate VoIP providers and services. We primarily
provide VoIP services internationally in Canada.
Canada
Classification
and Regulation of VoIP Services. The
Telecommunications Act governs the regulation of providers of telecommunications
services in Canada. We are considered a telecommunications service provider
rather than a telecommunications common carrier. Telecommunications service
providers are subject to less regulation than telecommunications common
carriers, but do have to comply with various regulatory requirements depending
on the nature of their business.
On
May 12, 2005, the Canadian regulator, the CRTC, stated that VoIP services
permitting users to make local calls over the public switched telephone network
generally will be regulated by the same rules that apply to traditional local
telephone services. Because we are not a telecommunications common carrier,
we
will not be subject to such regulation. Under the CRTC's decision, however,
we
are required to register as a local VoIP reseller in order to obtain access
to
certain services from other telecommunications providers.
The
CRTC's May 12, 2005 decision provided that VoIP providers who are
registered as local VoIP resellers will be able to obtain numbers and
portability from Canadian local exchange carriers, but will not be able to
obtain numbers directly from the Canadian Numbering Administrator or to have
direct access to the local number portability database. The CRTC's decision
also
identified other obligations of VoIP providers, such as contributing to a
national service fund, complying with consumer protection, data and privacy
requirements and providing access for the disabled. The details of these
requirements have been referred to industry groups for further study. Certain
aspects of the decision are the subject of pending appeals by other Canadian
VoIP providers. We do not know what requirements will ultimately be imposed
nor
the potential cost that compliance may entail. The CRTC found that it is
technically feasible for VoIP providers to support special services for
hearing-impaired customers.
Provision
of 911 Services. On
April 4, 2005, the CRTC released a ruling requiring certain providers of
VoIP services, like us, to provide interim access to emergency services at
a
level comparable to traditional basic 911 services by July 3, 2005 or such
later date as the CRTC may approve on application by a service provider. Under
the interim solution adopted by the regulator for the provision of VoIP 911
services, customers of local VoIP services who dial 911 will generally be routed
to a call center, where agents answer the call, verbally determine the location
of the caller, and transfer the call to the appropriate emergency services
agency. VoIP service providers are also required to notify their customers
about
any limitations on their ability to provide 911 services in a manner to be
determined.
Since
July 2005, OSK has complied with these regulations by partnering with a PSAP
(Primary Service Access Point) which serves to verify the customer location
and
forward the call to the respective Municipal 9-1-1 center for assistance. This
service therefore permits OSK’s customers to have access to 9-1-1 services
irrespective of their physical location, anywhere in the Continental US &
Canada. This service is of significance as VoIP permits customers to utilize
their phone anywhere a high-speed internet connection exists and can therefore
be located outside of their local city when requiring 9-1-1
services.
Other
Foreign Jurisdictions
Our
operations in foreign countries must comply with applicable local laws in each
country we serve. The communications carriers with which we associate in each
country is licensed to handle international call traffic, and takes
responsibility for all local law compliance. For that reason we do not believe
that compliance with the laws of foreign jurisdictions will affect our
operations or require us to incur any significant expense.
Compliance
with Environmental Laws
We
did
not incur any costs in connection with the compliance with any federal, state,
or local environmental laws.
Employees
We,
together with our subsidiary entities, currently have 3 full-time employees.
We
retain
consultants
to assist in our operations as needed. Our employees are not represented by
labor unions or collective bargaining agreements.
Item
2.
Description of Property
Our
principal place of business is located at 1080
Beaver Hall, Suite 155, Montreal, Quebec, Canada H2Z
1S8.
We
pay
monthly rent for this property in the amount of $4,500.
Item
3.
Legal Proceedings
We
are
not a party to any pending legal proceeding. We are not aware of any pending
legal proceeding to which any of our officers, directors, or any beneficial
holders of 5% or more of our voting securities are adverse to us or have a
material interest adverse to us.
Item
4.
Submission of Matters to a Vote of Security
Holders
No
matters have been submitted to our security holders for a vote, through the
solicitation of proxies or otherwise, during the fourth quarter of the fiscal
year ended December 31, 2005.
PART
II
Item
5.
Market for Common Equity and Related Stockholder
Matters
Market
Information
Our
common stock is currently quoted on the OTC Bulletin Board (“OTCBB”), which is
sponsored by the NASD. The OTCBB is a network of security dealers who buy and
sell stock. The dealers are connected by a computer network that provides
information on current "bids" and "asks", as well as volume information. Our
shares are quoted on the OTCBB under the symbol “UAMA.”
The
following table sets forth the range of high and low bid quotations for our
common stock for each of the periods indicated as reported by the OTCBB. These
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not necessarily represent actual transactions.
Fiscal
Year Ending December 31, 2005
|
Quarter
Ended
|
|
High
$
|
|
Low
$
|
March
31, 2005
|
|
0.155
|
|
0.102
|
June
30, 2005
|
|
0.112
|
|
0.05
|
September
30, 2005
|
|
0.075
|
|
0.043
|
December
31, 2005
|
|
0.07
|
|
0.04
|
|
Fiscal
Year Ended December 31, 2004
|
Quarter
Ended
|
|
High
$
|
|
Low
$
|
March
31, 2004
|
|
0.175
|
|
0.09
|
June
30, 2004
|
|
0.165
|
|
0.09
|
September
30, 2004
|
|
0.16
|
|
0.10
|
December
31, 2004
|
|
0.192
|
|
0.10
|
Holders
of Our Common Stock
As
of
April 6, 2006, we had approximately thirty (30) holders of record of our common
stock and several other stockholders hold shares in street name.
Dividends
We
have
not declared any dividends since our incorporation. There are no dividend
restrictions that limit our ability to pay dividends on our common stock in
the
Articles of Incorporation or Bylaws. Chapter 607 of Title 36 of the Florida
Statutes does provide limitations our ability to declare dividends. Section
607.06401 of Chapter 607 prohibits us from declaring dividends where, after
giving effect to the distribution of the dividend:
1. |
We
would not be able to pay our debts when they became due in the usual
course of business; or
|
2. |
Our
total assets would be less than the sum of its total liabilities
plus the
amount that would be needed, if we were to be dissolved at the time
of
distribution, to satisfy the preferential rights upon dissolution
of
stockholders whose preferential rights are superior to those receiving
the
distribution.
|
At
the
present time, we have no shareholders who have rights preferential to those
of
the common shareholders.
Section
607.0623 of Chapter 607 allows the board of directors to issue shares of stock
pro rata to our shareholders as a share dividend.
Recent
Sales of Unregistered Securities
We
did
not issue any securities without registration under the Securities Act of 1933
during the year ended December 31, 2005 which were not previously included
in a
Quarterly Report on Form 10-QSB or Current Report on Form 8-K.
Securities
Authorized for Issuance Under Equity Compensation Plans
The
following table provides information about our compensation plans under which
shares of common stock may be issued upon the exercise of options as of December
31, 2005.
Equity
Compensation Plans as of December 31, 2005
|
A
|
B
|
C
|
Plan
Category
|
Number
of securities to be issued upon exercise of outstanding options,
warrants
and rights
|
Weighted-average
exercise price of outstanding options, warrants and
right
|
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column
A)
|
Equity
compensation plans
approved
by security
holders
|
-
|
-
|
-
|
Equity
compensation plans
not
approved by security
holders
|
-
|
-
|
-
|
Total
|
-
|
-
|
-
|
Item
6.
Management’s Discussion and Analysis or Plan of
Operation
Forward-Looking
Statements
Historical
results and trends should not be taken as indicative of future operations.
Management’s statements contained in this report that are not historical facts
are forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities and
Exchange Act of 1934 (the “Exchange Act”), as amended. Actual results may differ
materially from those included in the forward-looking statements. The Company
intends such forward-looking statements to be covered by the safe-harbor
provisions for forward-looking statements contained in the Private Securities
Litigation Reform Act of 1995, and is including this statement for purposes
of
complying with those safe-harbor provisions. Forward-looking statements, which
are based on certain assumptions and describe future plans, strategies and
expectations of the Company, are generally identifiable by use of the
words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project,”
“prospects,” or similar expressions. The Company’s ability to predict results or
the actual effect of future plans or strategies is inherently uncertain. Factors
which could have a material adverse affect on the operations and future
prospects of the Company on a consolidated basis include, but are not limited
to: changes in economic conditions, legislative/regulatory changes, availability
of capital, interest rates, competition, and generally accepted accounting
principles. These risks and uncertainties should be considered in evaluating
forward-looking statements and undue reliance should not be placed on such
statements. Further information concerning the Company and its business,
including additional factors that could materially affect the Company’s
financial results, is included herein and in the Company’s other filings with
the SEC.
Results
of Operations for the Years Ended December 31, 2005 and
2004
For
the
year ended December 31, 2005, we generated total revenue of $4,845,485, compared
to revenue of $582,561 for the year ended December 31, 2004. Our revenue was
generated by sales of retail domestic and international voice and data products
and services using VoIP. Our increase in revenue for the year ended
December 31, 2005 when compared to the same reporting period in the prior year
is primarily attributable to increases in sales of VoIP termination services
in
our CaribbeanONE network, along with the sales results of our subsidiary OSK
Capital II Corp./Teliphone. $4,611,979 of our total revenue generated was
attributable to sales of VoIP termination services utilizing our CaribbeanONE
network. Sales of VoIP services in Canada through our subsidiary, Teliphone,
Inc., accounted for $233,506 of our total revenue generated.
We
incurred operating expenses in the amount of $1,726,296 for the year ended
December 31, 2005, compared to $891,168 for the year ended December 31, 2004.
The increase in our operating expenses is primarily attributable to expenditures
for research and development in the reporting period and a significant increase
in the payment of commissions and wages. We incurred research and development
expenditures of $103,006 in the year ended December 31, 2005 and did not incur
any research and development expenditures in the prior year. These research
and
development expenditures were incurred by our subsidiary, OSK, in connection
with its efforts to continuously
develop core call management and call routing technology, as well as the
integration of cellular phone calling records into the current
platform.
We paid
$573,446
in commissions and wages for the year ended December 31, 2005, compared to
commissions and wages of $17,006 for the year ended December 31, 2004. We paid
commissions based upon sales of VoIP termination services. As a result of a
significant increase in the sales of VoIP termination services, our commission
paid correspondingly increased.
Our
net
loss for the year ended December 31, 2005 was $1,442,255, compared to a net
loss
of $538,807 in the prior year.
Liquidity
and Capital Resources
As
of
December 31, 2005, we had current assets of $288,538. Our current assets
consisted of accounts receivable in the amount of $186,830, inventory of
$51,652, and prepaid expenses and other current assets of $50,056. Our total
current liabilities as of December 31, 2005 were $802,582. As a result, on
December 31, 2005 we had working capital deficit of $514,044.
Operating
activities used $447,266 in cash for the year ended December 31, 2005. Our
net
loss of $1,422,255 for the year ended December 31, 2005 was the primary
component of our negative operating cash flow. Investing activities during
the
year ended December 31, 2005 used $107,423 for the acquisition of fixed assets.
Cash flows provided by financing activities during the year ended December
31,
2005 primarily consisted of $52,122 for proceeds from loans payable and proceeds
from convertible debentures in the amount of $331,760. We primarily relied
on
revenues and debt financing to fund our operations during the year ended
December 31, 2005. On August 11, 2005, we, through our subsidiary OSK Capital
II
Corp., entered into a 10% Convertible Debentures (the “Debenture”) with an
accredited investor in the amount of $306,750. The Debenture had a maturity
date
of August 11, 2008. The debenture holder provided notice to us of his intent
to
exercise his conversion right and to convert the $306,750 previously advanced
into shares of common stock of OSK Capital II Corp. On August 31, 2005, the
debenture holder was issued 613,520 shares of OSK Capital II Corp. common stock
at the price of $0.50 per shares to retire the debenture.
The
underlying drivers that resulted in material changes and the specific inflows
and outflows of cash in the year ended December 31, 2005 are as
follows:
a. |
Property
acquisition costs,
|
b. |
Increase
in accounts payable attributable to increased sales, and
|
c. |
We
obtained financing from the issuance of loans and convertible debentures.
Our management believes that additional issuance of stock and/or
debt
financing will be required to satisfy our projected expenditures
in
2006.
|
As
of the
time of this Annual Report, our management believes that we have insufficient
capital to support our operations at their current level over the next twelve
months. The success of our business is contingent upon us obtaining additional
financing. We intend to fund operations through debt and/or equity financing
arrangements, which may be insufficient to fund our capital expenditures,
working capital, or other cash requirements for the year ending December 31,
2006. There can be no assurance that any additional financing will be available
to us on
acceptable
terms, or at all. We do not have any formal commitments or arrangements for
the
sales of stock or the advancement or loan of funds at this time.
Off
Balance Sheet Arrangements
As
of
December 31, 2005, there were no off balance sheet arrangements.
Going
Concern
As
shown
in the accompanying consolidated financial statements, we have incurred
recurring losses of $1,422,255 and $538,807 for the years ended December 31,
2005 and 2004, and have a working capital deficiency of $514,044 as of December
31, 2005. We have recently emerged from the development stage and have just
started generating revenues. There is no guarantee that we will be able to
raise
enough capital or generate revenues to sustain our operations. These conditions
raise substantial doubt about our ability to continue as a going concern for
a
reasonable period.
Management
believes that our capital requirements will depend on many factors. These
factors include the increase in sales through existing channels as well as
our
ability to continue to expand our distribution points and leveraging our
technology into the commercial small business segments. Our strategic
relationships with telecommunications interconnection companies, internet
service providers and retail sales outlets has permitted us to achieve
consistent monthly growth in acquisition of new customers.
In
the
near term, the Company will continue to pursue bridge financing, in addition
to
the approximately $100,000 it raised through convertible debentures in 2004
and
$306,750 by its majority-owned subsidiary, OSK Capital II Corp., in 2005
to
assist them in meeting their current working capital needs. The outstanding
debenture will either have to be re-paid or the debenture holder will decide
to
accept the issuance of stock. Should the debenture be re-paid, this will
put
additional strain on the company’s cash flow. Should the debenture holder choose
the issuance of stock, then this will have a dilutive effect on the Company’s
current shareholders. The Company’s ability to continue as a going concern for a
reasonable period is dependent upon management’s ability to raise additional
interim capital and, ultimately, achieve profitable operations. There can
be no
assurance that management will be able to raise sufficient capital, under
terms
satisfactory to the Company, if at all.
With
regards to the issuance of a convertible debenture of $306,750 within the
company’s majority-owned subsidiary OSK Capital II Corp, the Company accounted
for this issuance by increasing the Additional Paid in Capital of OSK Capital
II
Corp by $331,096 and the amount of Common Stock of $664. These figures were
expressed within the Consolidated Balance Sheet of the Company onwards from
the
period ending September 30, 2005.
The
consolidated financial statements do not include any adjustments relating to
the
carrying amounts of recorded assets or the carrying amounts and classification
of recorded liabilities that may be required should we be unable to continue
as
a going concern.
Critical
Accounting Policies
In
December 2001, the SEC requested that all registrants list their most “critical
accounting polices” in the Management Discussion and Analysis. The SEC indicated
that a “critical accounting policy” is one which is both important to the
portrayal of a company’s financial condition and results, and requires
management’s most difficult, subjective or complex judgments, often as a result
of the need to make estimates about the effect of matters that are inherently
uncertain. We believe that the following accounting policies fit this
definition.
Currency
Translation
For
subsidiaries outside the United States that prepare financial statements in
currencies other than the U.S. dollar, we translate income and expense amounts
at average exchange rates for the year, translates assets and liabilities at
year-end exchange rates and equity at historical rates. Our reporting currency
is that of the US dollar while its functional currency is that of the Canadian
dollar. We record these translation adjustments as accumulated other
comprehensive income (loss). Gains and losses from foreign currency transactions
are included in other income (expense) in the results of operations. For the
years ended December 31, 2005 and 2004, we recorded approximately $112,350
and
($73,328) in transaction gains (losses) as a result of currency translation.
Revenue
Recognition
When
we
emerged from the development stage following the acquisition of American United
Corporation/ 3874958 Canada Inc. and after assuming ownership of 3894517 Canada
Inc. as well as the establishment of Teliphone, Inc. we began to recognize
revenue from our VoIP services when the services were rendered and collection
was reasonably assured in accordance with SAB 101.
Our
operating division, United American Telecom recognizes service revenues through
the sale of VoIP long distance termination minutes. United American Telecom’s
wholesale customers pay (typically in advance) to utilize our network to
terminate their customer’s telephone calls.
With
regards to our subsidiary OSK, OSK sells hardware devices in order for their
customers to purchase OSK’s VoIP services. OSK typically sells the hardware
device at a subsidized price (below cost) in order reduce the barrier to entry
for the service by the customer, who then agrees to continue the service for
a
minimum of one year. The cost of the hardware is recovered through monthly
service revenues. The price of the hardware is therefore determined on the
sales
incentive program that we decide to use for a particular segment.
The
hardware device is “locked” in order to only enable it with our services.
Therefore, after the service contract, if the client does not renew, the device
becomes unusable by the client. In some cases, the early termination of service
prior to the end of the service contract results in a penalty which permits
the
Company to recover any subsidized costs upon cancellation of
contract.
If
the
device is in working order at the end of the service contract, and there is
a
need for demonstration units, we may credit the customer a nominal amount for
returning the device to us.
In
the
second quarter of 2006, OSK likewise began to expand our services to the
Wholesale segment. In these cases, we are able to offer our services over
hardware that we have not sold to the end user. As a result, we will present
segmented revenues for both hardware and services starting from our March 31,
2006 form 10-QSB.
With
regards to revenue recognition of cancellation fees, our contracts with
customers indicate that we have the right to charge a cancellation fee if the
contract is broken prior to its term. In 2005, cancellation fees were minor
and
included in revenue upon cancellation of the related contract.
Impairment
of Long-Lived Assets
Long-lived
assets, primarily fixed assets, are reviewed for impairment whenever events
or
changes in circumstances indicate that the carrying amount of the assets might
not be recoverable. We do not perform a periodic assessment of assets for
impairment in the absence of such information or indicators. Conditions that
would necessitate an impairment assessment include a significant decline in
the
observable market value of an asset, a significant change in the extent or
manner in which an asset is used, or a significant adverse change that would
indicate that the carrying amount of an asset or group of assets is not
recoverable. For long-lived assets to be held and used, we recognize an
impairment loss only if its carrying amount is not recoverable through its
undiscounted cash flows and measures the impairment loss based on the difference
between the carrying amount and estimated fair value. We, determined based
upon
an independent valuation performed on our equipment acquired from American
United Corporation that there was impairment of $1,750,875 based upon the fair
value of the stock issued for the equipment. This amount is reflected as
impairment in the 2003 financial statements.
Recently
Issued Accounting Pronouncements
On
December 16, 2004, the Financial Accounting Standards Board (“FASB”) published
Statement of Financial Accounting Standards No. 123 (Revised 2004),
“Share-Based
Payment”
(“SFAS
123R”). SFAS 123R requires that compensation cost related to share-based payment
transactions be recognized in the financial statements. Share-based payment
transactions within the scope of SFAS 123R include stock options, restricted
stock plans, performance-based awards, stock appreciation rights, and employee
share purchase plans. The provisions of SFAS 123R, as amended, are effective
for
small business issuers beginning as of the next interim period after December
15, 2005.
Item
7.
Financial Statements
Index
to
Consolidated Financial Statements:
Audited
Financial Statements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REPORT
OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
Board
of
Directors
United
American Corporation
Montreal,
Quebec CANADA
I
have
audited the accompanying consolidated balance sheet of United American
Corporation (the “Company”) as of December 31, 2005 and the related consolidated
statements of operations, changes in stockholders’ equity (deficit), and cash
flows for the years ended December 31, 2005 and 2004. These consolidated
financial statements are the responsibility of the Company’s management. My
responsibility is to express an opinion on these consolidated financial
statements based on my audits.
I
conducted my audits in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
I plan
and perform the audits to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. I was
not
engaged to perform an audit of the Company’s internal control over financial
reporting. My audits included consideration of internal control over financial
reporting as a basis for designing audit procedures that are appropriate
in the
circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control over financial reporting.
Accordingly, I express no such opinion. An audit includes examining, on a
test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. I believe that my audits provide a reasonable
basis for my opinion.
In
my
opinion, the consolidated financial statements referred to above present
fairly,
in all material respects, the consolidated financial position of United American
Corporation as of December 31, 2005, and the results of its consolidated
statements of operations, changes in stockholders’ equity (deficit), and cash
flows for the years ended December 31, 2005 and 2004 in conformity with U.S.
generally accepted accounting principles.
The
accompanying consolidated financial statements have been prepared assuming
that
the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has sustained operating losses
and capital deficits that raise substantial doubt about its ability to continue
as a going concern. Management’s plans in regard to these matters are also
described in Note 1. The consolidated financial statements do not include
any
adjustments that might result from the outcome of this uncertainty.
As
discussed in Notes 1 and 10, the Company has restated its consolidated financial
statements for the year ended December 31, 2004.
/s/
Michael Pollack CPA
Cherry
Hill, NJ
April
20,
2006, except for Note 10, which is dated June 1, 2007
CONSOLIDATED
BALANCE SHEET
DECEMBER
31, 2005
ASSETS
|
|
|
(IN
US$)
|
|
(Restated)
|
Current
Assets:
|
|
Cash
and cash equivalents
|
$
|
-
|
Accounts
receivable, net
|
|
186,830
|
Inventory
|
|
51,652
|
Prepaid
expenses and other current assets
|
|
50,056
|
|
|
|
Total
Current Assets
|
|
288,538
|
|
|
|
Fixed
assets, net of depreciation
|
|
640,101
|
|
|
|
TOTAL
ASSETS
|
$
|
928,639
|
|
|
|
LIABILITIES
AND STOCKHOLDERS' EQUITY (DEFICIT)
|
|
|
|
|
|
LIABILITIES
|
|
|
Current
Liabilities:
|
|
|
Bank
overdraft
|
$
|
16,905
|
Loan
payable
|
|
77,701
|
Loan
payable - related parties
|
|
-
|
Other
Payables
|
|
625,964
|
Convertible
debentures
|
|
90,961
|
Derivative
liability
|
|
9,039
|
Accounts
payable and accrued expenses
|
|
607,976
|
|
|
|
Total
Current Liabilities
|
|
1,428,546
|
|
|
|
Total
Liabilities
|
|
1,428,546
|
|
|
|
MINORITY
INTEREST
|
|
443,025
|
|
|
|
STOCKHOLDERS'
EQUITY (DEFICIT)
|
|
|
Common
stock, $.001 Par Value; 125,000,000 shares authorized
and
49,969,985 shares issued and outstanding
|
|
49,970
|
Additional
paid-in capital
|
|
4,219,448
|
Accumulated
deficit
|
|
(5,251,372)
|
Accumulated
other comprehensive income (loss)
|
|
39,022
|
|
|
|
Total
Stockholders' Equity (Deficit)
|
|
(942,932)
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
|
$
|
928,639
|
The accompanying notes are an integral
part of
the consolidated financial statements.
CONSOLIDATED
STATEMENTS OF OPERATIONS AND
COMPREHENSIVE
INCOME (LOSS)
FOR
THE YEARS ENDED DECEMBER 31, 2005 AND 2004
|
|
|
2004
|
|
|
|
(Restated)
|
OPERATING
REVENUES
|
|
|
|
Sales
|
$
|
4,845,485
|
|
$
|
582,561
|
|
|
|
|
|
|
COST
OF SALES
|
|
|
|
|
|
Inventory,
beginning of period
|
|
44,059
|
|
|
-
|
Purchases
|
|
4,648,302
|
|
|
268,488
|
Inventory,
end of period
|
|
(51,652)
|
|
|
(44,059)
|
Total
Cost of Sales
|
|
4,640,709
|
|
|
224,429
|
|
|
|
|
|
|
GROSS
PROFIT
|
|
204,776
|
|
|
358,132
|
|
|
|
|
|
|
OPERATING
EXPENSES
|
|
|
|
|
|
Selling
and promotion
|
|
135,274
|
|
|
105,901
|
Research
and development
|
|
103,006
|
|
|
-
|
Professional
and consulting fees
|
|
642,902
|
|
|
541,130
|
Commissions
and wages
|
|
573,446
|
|
|
17,006
|
Other
general and administrative expenses
|
|
81,116
|
|
|
44,610
|
Depreciation,
amortization and impairment
|
|
190,552
|
|
|
182,521
|
Total
Operating Expenses
|
|
1,726,296
|
|
|
891,168
|
|
|
|
|
|
|
LOSS
BEFORE OTHER INCOME (EXPENSE)
|
|
(1,521,520)
|
|
|
(533,036)
|
|
|
|
|
|
|
OTHER
INCOME (EXPENSE)
|
|
|
|
|
|
Interest
expense
|
|
(12,000)
|
|
|
(5,771)
|
Total
Other Income (Expense)
|
|
(12,000)
|
|
|
(5,771)
|
|
|
|
|
|
|
NET
LOSS BEFORE PROVISION FOR INCOME TAXES AND
MINORITY INTEREST
|
|
|
|
|
|
|
|
(1,533,520)
|
|
|
(538,807)
|
Minority
interest
|
|
111,265
|
|
|
-
|
|
|
|
|
|
|
NET
LOSS BEFORE PROVISION FOR INCOME TAXES
|
|
(1,422,255)
|
|
|
(538,807)
|
Provision
for Income Taxes
|
|
-
|
|
|
-
|
|
|
|
|
|
|
NET
LOSS APPLICABLE TO COMMON SHARES
|
$
|
(1,422,255)
|
|
$
|
(538,807)
|
|
|
|
|
|
|
NET
LOSS PER BASIC AND DILUTED SHARES
|
$
|
(0.03)
|
|
$
|
(0.01)
|
|
|
|
|
|
|
WEIGHTED
AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING
|
|
48,067,108
|
|
|
41,682,907
|
|
|
|
|
|
|
COMPREHENSIVE
INCOME (LOSS)
|
|
|
|
|
|
Net
loss
|
$
|
(1,422,255)
|
|
$
|
(538,807)
|
Other
comprehensive income (loss)
|
|
|
|
|
|
Currency
translation adjustments
|
|
112,350
|
|
|
(73,328)
|
Comprehensive
income (loss)
|
$
|
(1,309,905)
|
|
$
|
(612,135)
|
The accompanying notes are an integral part
of
the consolidated financial statements.
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS' (DEFICIT)
FOR
THE YEARS ENDED DECEMBER 31, 2005 AND 2004
(RESTATED)
|
IN
US$
|
|
Common
Stock
|
|
|
|
Accumulated
|
|
Accumulated
Other
Comprehensive
|
|
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Deficit
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
January 1, 2004, as previously reported
|
|
40,943,242
|
|
$
|
40,943
|
|
$
|
3,324,551
|
|
$
|
(2,553,081)
|
|
$
|
-
|
|
$
|
812,413
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior
period adjustment, see Note 10
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(625,964)
|
|
|
-
|
|
|
(625,964)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
January 1, 2004, as restated
|
|
40,943,242
|
|
|
40,943
|
|
|
3,324,551
|
|
|
(3,179,045)
|
|
|
|
|
|
186,449
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for services
|
|
3,176,743
|
|
|
3,177
|
|
|
426,997
|
|
|
-
|
|
|
-
|
|
|
430,174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the year ended December 31, 2004, as
previously reported
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(398,593)
|
|
|
-
|
|
|
(398,593)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior
period adjustment, see Note 10
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(140,214)
|
|
|
(73,328)
|
|
|
(213,542)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the year ended December 31, 2004, as
restated
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(538,807)
|
|
|
(73,328)
|
|
|
(612,135)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
December 31, 2004
|
|
44,119,985
|
|
|
44,120
|
|
|
3,751,548
|
|
|
(3,717,852)
|
|
|
(73,328)
|
|
|
4,488
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for services
|
|
5,850,000
|
|
|
5,850
|
|
|
467,900
|
|
|
-
|
|
|
-
|
|
|
473,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocation
of paid in capital of OSK
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss for the year ended December 31, 2005
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,533,520)
|
|
|
112,350
|
|
|
(1,421,170)
|
|
|
49,969,985
|
|
$
|
49,970
|
|
$
|
4,219,448
|
|
$
|
(5,251,372)
|
|
$
|
39,022
|
|
$
|
(942,932)
|
The accompanying notes are an integral
part of
the consolidated financial statements.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
FOR
THE YEARS ENDED DECEMBER 31, 2005 AND 2004
|
|
|
2004
|
|
(Restated)
|
|
(Restated)
|
CASH
FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
Net
loss
|
$
|
(1,422,255)
|
|
$
|
(538,807)
|
|
|
|
|
|
|
Adjustments
to reconcile net loss to net cash used
in operating activities:
|
|
|
|
|
|
Depreciation,
amortization and impairment
|
|
188,979
|
|
|
182,521
|
Shares
issued for services
|
|
473,750
|
|
|
430,174
|
|
|
|
|
|
|
Changes
in assets and liabilities
|
|
|
|
|
|
(Increase)
in accounts receivable
|
|
(171,725)
|
|
|
(29,348)
|
(Increase)
in inventory
|
|
(7,593)
|
|
|
(44,059)
|
(Increase)
in prepaid expenses and other current assets
|
|
(56,086)
|
|
|
(820)
|
Increase
in accounts payable and and accrued expenses
|
|
454,058
|
|
|
56,360
|
Total
adjustments
|
|
881,383
|
|
|
594,828
|
|
|
|
|
|
|
Net
cash provided by (used in) operating activities
|
|
(540,872)
|
|
|
56,021
|
|
|
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
Acquisitions
of fixed assets
|
|
(108,673)
|
|
|
(30,776)
|
|
|
|
|
|
|
Net
cash (used in) investing activities
|
|
(108,673)
|
|
|
(30,776)
|
|
|
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITES
|
|
|
|
|
|
Increase
in bank overdraft
|
|
16,905
|
|
|
-
|
Proceeds
from loan payable
|
|
48,987
|
|
|
27,571
|
Proceeds
from loan payable - related parties
|
|
(43,760)
|
|
|
43,760
|
Proceeds
from convertible debentures
|
|
331,760
|
|
|
100,000
|
|
|
|
|
|
|
Net
cash provided by financing activities
|
|
353,892
|
|
|
171,331
|
|
|
|
|
|
|
Effect
of foreign currency
|
|
211,399
|
|
|
(112,322)
|
|
|
|
|
|
|
NET
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS
|
|
(84,254)
|
|
|
84,254
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS - BEGINNING
OF YEAR
|
|
84,254
|
|
|
-
|
|
|
|
|
|
|
CASH
AND CASH EQUIVALENTS - END OF YEAR
|
$
|
-
|
|
$
|
84,254
|
|
|
|
|
|
|
CASH
PAID DURING THE YEAR FOR:
|
|
|
|
|
|
Interest
expense
|
$
|
12,000
|
|
$
|
4,249
|
The accompanying notes are an integral
part of
the consolidated financial statements.
NOTES
TO CONSOLIDTAED FINANCIAL STATEMENTS
DECEMBER
31, 2005 (RESTATED) AND 2004
NOTE
1- ORGANIZATION
AND BASIS OF PRESENTATION
United
American Corporation (the “Company”) was incorporated under the laws of the
State of Florida on July 17, 1992 under the name American Financial
Seminares,
Inc. with authorized common stock of 1,000 shares at $1.00 par value.
Since its
inception the Company has made several name changes and increased the
authorized
common stock to 50,000,000 shares with a par value of $.001. On February
5,
2004, the name was changed to United American Corporation.
The
Company was first organized for the purpose of marketing a software
license
known as “Gnotella”, however, in late 2001 this activity was
abandoned.
On
July
18, 2003, the Company entered into a share exchange agreement with
3874958
Canada Inc. (a Canadian corporation and an affiliate of the Company
by common
officers) to transfer 26,250,000 shares of its common stock for 100
shares of
American United Corporation (a Delaware corporation and wholly owned
subsidiary
of 3874958 Canada Inc.) which represented 100% of the outstanding shares
of
American United Corporation. The Company in this transaction acquired
internet
telecommunications equipment valued at $874,125. These assets did not
go into
service until 2004. The 26,250,000 shares of the Company were issued
into an
escrow account on October 6, 2003, the effective date of the transaction.
Later,
American United Corporation was dissolved. The equipment value was
based on an
independent valuation. The shares issued were to 3874958 Canada Inc.,
whose sole
owner at the time, was the President and CEO of the Company. This transaction
did not constitute a reverse merger even though the Company issued
in excess of
50% of its then current issued and outstanding shares. For accounting
purposes,
the Company accounted for the acquisition as a recapitalization. The
transaction
involved entities under common control as defined in Statement of Financial
Standard 141, “Business Combinations”. As such, the net assets were acquired at
their carrying values at the time of the acquisition.
In
January 2004, the Company took ownership of all 100 shares issued and
outstanding of 3894517 Canada, Inc. (a Canadian corporation), whose
100% owner
was at the time President and CEO of the Company. At this time, 3894517
Canada,
Inc. became the operating unit of the Company for the services they
were
providing utilizing the equipment acquired in 2003 from American United
Corporation. There was no consideration paid for these 100 shares.
On
August
27, 2004, the Company entered the telecommunications business by the
creation of
United American Telecom, a division focused on terminating call traffic
in the
Caribbean, and by the creation of Teliphone, a division focused on
providing
Voice-over-Internet -Protocol (VoIP) calling services to residential
and
business customers.
Teliphone,
Inc. was founded in order to develop a VoIP network which enables users
to
connect an electronic device to their internet connection at the home
or office
which permits them to make telephone calls to any destination phone
number
anywhere in the world. VoIP is currently growing in scale significantly
in North
America.
UNITED
AMERICAN CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER
31, 2005 (RESTATED) AND 2004
NOTE
1- ORGANIZATION
AND BASIS OF PRESENTATION
(CONTINUED)
Industry
experts predict the VoIP offering to be one of the fastest growing
sectors from
now until 2009. This innovative new approach to telecommunications
has the
benefit of drastically reducing the cost of making these calls as the
distances
are covered over the Internet instead of over dedicated lines such
as
traditional telephony. Teliphone has grown primarily in the Province
of Quebec,
Canada through the sale of its product offering in retail stores and
over the
internet. During this time, Teliphone also expanded its network in
order to
offer services outside of the Province of Quebec, mainly in the Province
of
Ontario and the State of New York.
In
March
2005, Teliphone, Inc. issued 4 shares of stock to management. After
this
transaction, the Company owned 96% of Teliphone, Inc. Subsequently,
on April 28,
2005, the Company entered into a merger and reorganization agreement
with OSK
Capital II Corp., a Nevada corporation, where OSK Capital II Corp.
became a
majority owned subsidiary of the Company, and Teliphone, Inc. became
a wholly
owned subsidiary of OSK Capital II Corp. The Company accounted for
the business
combination with OSK Capital II Corp. through consolidation under
FASB-115.
Prior
to
the business combination, The Company owned 96.2% of Teliphone Inc.
As a result,
the March 31, 2005 condensed consolidated balance sheets shows a
minority
interest to the 3.8% holders. In April of 2005, the Company entered
into an
agreement for the merger and re-organization with OSK Capital II
Corp. which
provided for the Company’s ownership percentage of OSK Capital II Corp to be
82.2% (which owned 100% of Teliphone Inc. as per the agreement).
This minority
interest continued to be reflected in the Consolidated Balance Sheet
moving
forward until the spin-off of OSK Capital II Corp. on October 30,
2006.
The
only
related party transactions the Company has entered into are advances
to the
entities consolidated within OSK Capital II Corp., and with 3894517
Canada,
Inc., which is a wholly-owned subsidiary, all of which have been
eliminated
within the consolidation herein. Additionally, from time to time
shareholders or
entities with shareholders under common control will advance amounts
to the
Company to assist in cash flow. These are all short-term amounts
and are
non-interest bearing. Interest rates that the Company could obtain
from a
financial institution range from 4-6%, and for the holding period
would yield
interest expense that is not considered material to these consolidated
financial
statements.
As
discussed in Note 10 to the consolidated financial statements, the
Company has
restated its consolidated financial statements for the years ended
December 31,
2004 and 2003.
UNITED
AMERICAN CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER
31, 2005 (RESTATED) AND 2004
NOTE
1- ORGANIZATION
AND BASIS OF PRESENTATION
(CONTINUED)
Going
Concern
As
shown
in the accompanying consolidated financial statements the Company has
incurred
recurring losses of $1,422,255 and $538,807 for the years ended December
31,
2005 and 2004, and has a working capital deficiency of $514,044 as
of December
31, 2005. The Company has recently emerged from the development stage
and has
just started generating revenues. There is no guarantee that the Company
will be
able to raise enough capital or generate revenues to sustain its operations.
These conditions raise substantial doubt about the Company’s ability to continue
as a going concern for a reasonable period.
Management
believes that the Company’s capital requirements will depend on many factors.
These factors include the increase in sales through existing channels
as well as
the Company’s ability to continue to expand its distribution points and
leveraging its technology into the commercial small business segments.
The
Company’s strategic relationships with telecommunications interconnection
companies, internet service providers and retail sales outlets has
permitted the
Company to achieve consistent monthly growth in acquisition of new
customers.
In
the
near term, the Company will continue to pursue bridge financing,
in addition to
the approximately $100,000 it raised through convertible debentures
in 2004 and
$306,750 by its majority-owned subsidiary OSK Capital II Corp in
2005 to assist
them in meeting their current working capital needs. The outstanding
debenture
will either have to be re-paid or the debenture holder will decide
to accept the
issuance of stock. Should the debenture be re-paid, this will put
additional
strain on the company’s cash flow. Should the debenture holder choose the
issuance of stock, then this will have a dilutive effect on the Company’s
current shareholders. The Company’s ability to continue as a going concern for a
reasonable period is dependent upon management’s ability to raise additional
interim capital and, ultimately, achieve profitable operations. There
can be no
assurance that management will be able to raise sufficient capital,
under terms
satisfactory to the Company, if at all.
The
consolidated financial statements do not include any adjustments
relating to the
carrying amounts of recorded assets or the carrying amounts and classification
of recorded liabilities that may be required should the Company be
unable to
continue as a going concern.
UNITED
AMERICAN CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER
31, 2005 (RESTATED) AND 2004
NOTE
2- SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Principles
of Consolidation
The
consolidated financial statements include the accounts of the Company
and all of
its wholly owned and majority owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation. All
minority
interests are reflected in the consolidated financial statements.
Use
of Estimates
The
preparation of financial statements in conformity with accounting
principles
generally accepted in the United States of America requires management
to make
estimates and assumptions that affect the reported amounts of assets
and
liabilities and disclosure of contingent assets and liabilities at
the date of
the financial statements and the reported amounts of revenues and
expenses
during the reporting period. On an on-going basis, the Company evaluates
its
estimates, including, but not limited to, those related to bad debts,
income
taxes and contingencies. The Company bases its estimates on historical
experience and on various other assumptions that are believed to
be reasonable
under the circumstances, the results of which form the basis for
making
judgments about the carrying value of assets and liabilities that
are not
readily apparent from other sources. Actual results could differ
from those
estimates.
Cash
and Cash Equivalents
The
Company considers all highly liquid debt instruments and other short-term
investments with an initial maturity of three months or less to be
cash
equivalents.
Comprehensive
Income
The
Company adopted Statement of Financial Accounting Standards No, 130,
“Reporting
Comprehensive Income,” (SFAS No. 130). SFAS No. 130 requires the reporting of
comprehensive income in addition to net income from operations.
Comprehensive
income is a more inclusive financial reporting methodology that includes
disclosure of information that historically has not been recognized
in the
calculation of net income.
Inventory
Inventory
is valued at the lower of cost or market determined on a first-in-first-out
basis. Inventory consisted only of finished goods.
UNITED
AMERICAN CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER
31, 2005 (RESTATED) AND 2004
NOTE
2- SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Fair
Value of Financial Instruments (other than Derivative Financial
Instruments)
The
carrying amounts reported in the consolidated balance sheet for cash
and cash
equivalents, accounts receivable and accounts payable approximate fair
value
because of the immediate or short-term maturity of these financial
instruments.
For the notes payable, the carrying amount reported is based upon the
incremental borrowing rates otherwise available to the Company for
similar
borrowings. For the convertible debentures, fair values were calculated
at net
present value using the Company’s weighted average borrowing rate for debt
instruments without conversion features applied to total future cash
flows of
the instruments.
Currency
Translation
For
subsidiaries outside the United States that prepare financial statements
in
currencies other than the U.S. dollar, the Company translates income
and expense
amounts at average exchange rates for the year, translates assets
and
liabilities at year-end exchange rates and equity at historical rates.
The
Company’s reporting currency is that of the US dollar while its functional
currency is that of the Canadian dollar. The Company records these
translation
adjustments as accumulated other comprehensive income (loss). Gains
and losses
from foreign currency transactions are included in the results of
operations and
were approximately $21,000 and $12,000 for the years ended December
31, 2005 and
2004, respectively. For the years ended December 31, 2005 and 2004,
the Company
recorded approximately $112,350 and ($73,328) in translation gains
(losses) as a
result of currency translation.
Research
and Development
The
Company annually incurs costs on activities that relate to research
and
development of new products. Research and development costs are expensed
as
incurred. Certain of these costs are reduced by government grants
and investment
tax credits where applicable.
Revenue
Recognition
In
2004,
when the Company emerged from the development stage with the acquisition
of
American United Corporation/ 3874958 Canada Inc. and after assuming
ownership of
3894517 Canada Inc. as well as the establishment of Teliphone, Inc.
they began
to recognize revenue from their VoIP services when the services were
rendered
and collection was reasonably assured in accordance with SAB
101.
UNITED
AMERICAN CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER
31, 2005 (RESTATED) AND 2004
NOTE
2- SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue
Recognition (continued)
VoIP
Service Revenue related to American United
Substantially
all of the Company’s revenues are derived from the sale of wholesale long
distance termination services to Tier 1 and Tier 2 Telecommunications
carriers.
These services were rendered and collection was reasonably assured in
accordance
with SAB 101.
There
are
limited estimates required in connection with recognition of revenue
because
voice traffic is measured in automated switches and routers, and contractual
rates for traffic are used to bill or declare revenue on a monthly basis.
However, for certain voice contracts, historical traffic may be retroactively
re-rated within a contract period. This traffic re-rating is calculated
and
recognized immediately in the month the new contractual rate is established.
Although relatively infrequent, there can be material disputes with customers
over volume or traffic recognized on our customers’ switches. The Company’s
practice is to maintain recorded revenue based on our traffic data until
the
merits of a dispute are identified.
VoIP
Service Revenue related to Teliphone Inc. (OSK Capital II
Corp)
Operating
revenues consists of telephony services revenue and customer equipment
(which
enables the Company's telephony services) and shipping revenue. The point
in
time at which revenue is recognized is determined in accordance with
Staff
Accounting Bulletin No. 104, Revenue Recognition, and Emerging Issues
Task Force
Consensus No. 01-9, Accounting for Consideration Given by a Vendor to
a Customer
(Including a Reseller of the Vendor's Products) ("EITF No. 01-9"). Teliphone
Inc./OSK Capital II Corp. recognizes revenue from their VoIP Telephony
services
when the services were rendered and customer equipment purchased as follows:
VoIP
Telephony Services Revenue
The
Company realizes VoIP telephony services revenue through sales by two
distinct
channels; the Retail Channel (Customer purchases their hardware from
a Retail
Distributor and the Company invoices the customer direct) and the Wholesale
Channel (Customer purchases their hardware from the Wholesaler and the
Company
invoices the Wholesaler for usage by the Wholesaler’s customers
collectively).
Substantially
all of the Company's operating revenues are telephony services revenue,
which is
derived primarily from monthly subscription fees that customers are charged
under the Company's service plans. The Company also derives telephony
services
revenue from per minute fees for international calls and for any calling
minutes
in excess of a customer's monthly plan limits.
UNITED
AMERICAN CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER
31, 2005 (RESTATED) AND 2004
NOTE
2- SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue
Recognition (continued)
Retail
Channel
Monthly
subscription fees are automatically charged to customers' credit cards
in
advance and are recognized over the following month when services are
provided.
Revenue
generated from international calls and from customers exceeding allocated
call
minutes under limited minute plans is charged to the customer’s credit cards in
advanced in small increments and are recognized over the following month
when
the services are provided.
The
Company generates revenues from shipping equipment direct to customers
and our
re-seller partners. This revenue is considered part of the VoIP service
revenues.
The
Company does not charge initial activation fees associated with the service
contracts in the Retail Channel. The Company generates revenues from
disconnect
fees associated with early termination of service contracts with Retail
Customers. These fees are included in service revenue as they are considered
part of the service component when the service is delivered or
performed.
Prior
to
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.
Wholesale
Channel
Monthly
subscription fees are invoiced to Wholesale customers at the end of the
month
for the entirety of the services delivered during the month. Revenue
for this
period is therefore recognized at the time the Wholesaler is
billed.
The
Company 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.
There
is
no disconnection fee associated with a wholesale customer.
The
Company generates revenues from shipping equipment direct to wholesale
customers. This revenue is considered part of the VoIP service
revenues.
UNITED
AMERICAN CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER
31, 2005 (RESTATED) AND 2004
NOTE
2- SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue
Recognition (continued)
Customer
Equipment
Retail
Channel
For
retail sales, the equipment is sold to re-sellers at a subsidized price
below
that of cost and below that of the retail sales price. The customer purchases
the equipment at the retail price from the retailer. The Company recognizes
this
revenue utilizing the guidance set forth in EITF 00-21, “Revenue Arrangements
with Multiple Deliverables”.
Under
a
retail agreement, the cost of the equipment is recognized as deferred
revenue,
and amortized over the length of the service agreement. Upon satisfying
the
minimum service requirements the equipment charges are refunded through
subsequent billings netting out this charge against service charges.
Upon
refund, the deferred revenue is fully amortized.
Customer
equipment expense is recorded to direct cost of goods sold when the hardware
is
initially purchased from our suppliers.
The
Company also provides rebates to retail customers who purchase their
customer
equipment from retailers and satisfy minimum service period requirements.
These
rebates are recorded as a reduction of revenue over the minimum service
period
based upon the actual rebate coupons received from customers and whose
accounts
are in good standing.
Wholesale
Channel
For
wholesale customers, the equipment is sold to wholesalers at the Company’s cost
price plus mark-up. There are no rebates for equipment sold to wholesale
customers and the Company does not subsidize their equipment sales. The
Company
recognizes revenue from sales of equipment to wholesale customers as
billed.
Commissions
Paid to Retail Distributors
Commissions
paid to Retail Distributors are 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:
UNITED
AMERICAN CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER
31, 2005 (RESTATED) AND 2004
NOTE
2- SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue
Recognition (continued)
· |
The
Wholesaler assumes the cost of billing and collections direct
with the
customer
|
· |
The
Wholesaler assumes the costs of customer
support
|
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.
Accounts
Receivable
The
Company conducts business and extends credit based on an evaluation of
the
customers’ financial condition, generally without requiring collateral. Exposure
to losses on receivables is expected to vary by customer due to the financial
condition of each customer. The Company monitors exposure to credit losses
and
maintains allowances for anticipated losses considered necessary under
the
circumstances. The Company has not recorded an allowance for doubtful accounts
at December 31, 2005.
Accounts
receivable are generally due within 30 days and collateral is not required.
Unbilled accounts receivable represents amounts due from customers for
which
billing statements have not been generated and sent to the
customers.
Income
Taxes
The
Company accounts for income taxes utilizing the liability method of accounting.
Under the liability method, deferred taxes are determined based on differences
between financial statement and tax bases of assets and liabilities at
enacted
tax rates in effect in years in which differences are expected to reverse.
Valuation allowances are established, when necessary, to reduce deferred
tax
assets to amounts that are expected to be realized.
UNITED
AMERICAN CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER
31, 2005 (RESTATED) AND 2004
NOTE
2- SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Convertible
Instruments
The
Company reviews the terms of convertible debt and equity securities for
indications requiring bifurcation, and separate accounting, for the embedded
conversion feature. Generally, embedded conversion features where the ability
to
physical or net-share settle the conversion option is not within the control
of
the Company are bifurcated and accounted for as a derivative financial
instrument. (See Derivative Financial Instruments below). Bifurcation of
the
embedded derivative instrument requires allocation of the proceeds first
to the
fair value of the embedded derivative instrument with the residual allocated
to
the debt instrument. The resulting discount to the face value of the debt
instrument is amortized through periodic charges to interest expense using
the
Effective Interest Method.
Derivative
Financial Instruments
The
Company generally does not use derivative financial instruments to hedge
exposures to cash-flow or market risks. However, certain other financial
instruments, such as warrants or options to acquire common stock and the
embedded conversion features of debt and preferred instruments that are
indexed
to the Company’s common stock, are classified as liabilities when either (a) the
holder possesses rights to net-cash settlement or (b) physical or net share
settlement is not within the control of the Company. In such instances,
net-cash
settlement is assumed for financial accounting and reporting, even when
the
terms of the underlying contracts do not provide for net-cash settlement.
Such
financial instruments are initially recorded at fair value and subsequently
adjusted to fair value at the close of each reporting period. Fair value
for
option-based derivative financial instruments is determined using the
Black-Scholes Valuation Method.
Advertising
Costs
The
Company expenses the costs associated with advertising as incurred. Advertising
expenses for the years ended December 31, 2005 and 2004 are included in
general
and administrative expenses in the consolidated statements of operations.
Fixed
Assets
Fixed
assets are stated at cost. Depreciation is computed using the straight-line
method over the estimated useful lives of the assets; automobiles - 3 years,
computer and internet telecommunications equipment - 5 years, and furniture
and
fixtures - 5 years.
When
assets are retired or otherwise disposed of, the costs and related accumulated
depreciation are removed from the accounts, and any resulting gain or loss
is
recognized in income for the period. The cost of maintenance and repairs
is
charged to income as incurred; significant renewals and betterments are
capitalized. Deduction is made for retirements resulting from renewals
or
betterments.
UNITED
AMERICAN CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER
31, 2005 (RESTATED) AND 2004
NOTE
2- SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Impairment
of Long-Lived Assets
Long-lived
assets, primarily fixed assets, are reviewed for impairment whenever events
or
changes in circumstances indicate that the carrying amount of the assets
might
not be recoverable. The Company does not perform a periodic assessment
of assets
for impairment in the absence of such information or indicators. Conditions
that
would necessitate an impairment assessment include a significant decline
in the
observable market value of an asset, a significant change in the extent
or
manner in which an asset is used, or a significant adverse change that
would
indicate that the carrying amount of an asset or group of assets is not
recoverable. For long-lived assets to be held and used, the Company recognizes
an impairment loss only if its carrying amount is not recoverable through
its
undiscounted cash flows and measures the impairment loss based on the difference
between the carrying amount and estimated fair value. The Company, determined
based upon an independent valuation performed on its equipment acquired
from
American United Corporation that their was impairment of $1,750,875 based
upon
the fair value of the stock issued for the equipment. This amount is reflected
as impairment in the 2003 financial statements.
(Loss)
Per Share of Common Stock
Basic
net
(loss) per common share is computed using the weighted average number of
common
shares outstanding. Diluted earnings per share (EPS) includes additional
dilution from common stock equivalents, such as stock issuable pursuant
to the
exercise of stock options and warrants. Common stock equivalents were not
included in the computation of diluted earnings per share when the Company
reported a loss because to do so would be antidilutive for periods
presented.
UNITED
AMERICAN CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER
31, 2005 (RESTATED) AND 2004
NOTE
2- SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(Loss)
Per Share of Common Stock
(Continued)
The
following is a reconciliation of the computation for basic and diluted
EPS:
|
|
|
|
|
|
|
|
Net
loss
|
$
|
(1,422,255)
|
|
$
|
(538,807)
|
|
|
|
|
|
|
Weighted-average
common shares
|
|
|
|
|
|
Outstanding
(Basic)
|
|
48,067,108
|
|
|
41,682,907
|
|
|
|
|
|
|
Weighted-average
common stock
|
|
|
|
|
|
Equivalents
|
|
|
|
|
|
Stock
options
|
|
-
|
|
|
-
|
Warrants
|
|
-
|
|
|
-
|
|
|
|
|
|
|
Weighted-average
common shares
|
|
|
|
|
|
Outstanding
(Diluted)
|
|
48,067,108
|
|
|
41,682,907
|
Stock-Based
Compensation
The
Company measures compensation expense for its employee stock-based compensation
using the intrinsic-value method. Under the intrinsic-value method of accounting
for stock-based compensation, when the exercise price of options granted
to
employees and common stock issuances are less than the estimated fair value
of
the underlying stock on the date of grant, deferred compensation is recognized
and is amortized to compensation expense over the applicable vesting period.
In
each of the periods presented, the vesting period was the period in which
the
options were granted. All options were expensed to compensation in the
period
granted rather than the exercise date.
The
Company measures compensation expense for its non-employee stock-based
compensation under the Financial Accounting Standards Board (FASB) Emerging
Issues Task Force (EITF) Issue No. 96-18, “Accounting
for Equity Instruments that are Issued to Other Than Employees for Acquiring,
or
in Conjunction with Selling, Goods or Services”.
The
fair value of the option issued is used to measure the transaction, as
this is
more reliable than the fair value of the services received. The fair value
is
measured at the value of the Company’s common stock on the date that the
commitment for performance by the counterparty has been reached or the
counterparty’s performance is complete. The fair value of the equity instrument
is charged directly to compensation expense and additional paid-in
capital.
UNITED
AMERICAN CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER
31, 2005 (RESTATED) AND 2004
NOTE
2- SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Segment
Information
The
Company follows the provisions of SFAS No. 131, “Disclosures
about Segments of an Enterprise and Related Information”.
This
standard requires that companies disclose operating segments based on the
manner
in which management disaggregates the Company in making internal operating
decisions. Commencing with the creation of Teliphone, Inc. the Company
began
operating in two segments, and two geographical locations.
Recent
Accounting Pronouncements
On
December 16, 2004, the Financial Accounting Standards Board (“FASB”) published
Statement of Financial Accounting Standards No. 123 (Revised 2004),
“Share-Based
Payment”
(“SFAS
123R”). SFAS 123R requires that compensation cost related to share-based payment
transactions be recognized in the financial statements. Share-based payment
transactions within the scope of SFAS 123R include stock options, restricted
stock plans, performance-based awards, stock appreciation rights, and employee
share purchase plans. The provisions of SFAS 123R, as amended, are effective
for
small business issuers beginning as of the next interim period after December
15, 2005.
NOTE
3- FIXED
ASSETS
Fixed
assets as of December 31, 2005 were as follows:
|
Estimated
Useful
Live
(Years)
|
|
|
|
|
|
|
Computer
equipment
|
|
5
|
|
$
|
1,013,174
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
accumulated depreciation
|
|
|
|
|
(373,073)
|
Property
and equipment, net
|
|
|
|
$
|
640,101
|
There
was
$190,552 and $182,521 charged to operations for depreciation expense for
the
years ended December 31, 2005 and 2004, respectively.
The
Company acquired telecommunications equipment in its acquisition of American
United Corporation valued at $874,125, net of impairment of $1,750,875
in the
issuance of the 26,250,000 shares of common stock. This equipment however,
was
not placed into service until 2004, therefore no depreciation was recorded
for
those assets in 2003.
The
Company also transferred $104,500 of equipment to its subsidiary Teliphone,
Inc.
on December 31, 2004.
UNITED
AMERICAN CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER
31, 2005 (RESTATED) AND 2004
NOTE
4- LOANS
PAYABLE
The
Company beginning in 2004 entered into unsecured loans payable with non-related
parties. There was $77,701 outstanding as of December 31, 2005. These loans
were
non-interest bearing and demand loans that were short-term in nature. Amounts
were funded for cash flow purposes, and repaid periodically during the
periods.
Interest expense based on borrowing rates the Company could obtain from
financial institutions calculated based on the holding periods were not
considered to be material.
NOTE
5- RELATED
PARTY LOANS
Beginning
in 2004, the Company’s subsidiary entered into non-interest bearing loans with
OSK Capital II Corp, a company with common officers and directors. There
were no
amounts outstanding as of December 31, 2005.
Additionally,
the Company had loans with various directors that were non-interest bearing.
There were no amounts outstanding as of December 31, 2005.
NOTE
6- CONVERTIBLE
DEBENTURES
On
October 18, 2004, the Company entered into 12% Convertible Debentures (the
“Debentures”) with Strathmere Associates International Limited (“Strathmere”) in
the amount of $100,000. The Debentures have a maturity date of October
31, 2006,
and incur interest at a rate of 12% per annum, payable every six
months.
Subsequently
on November 14, 2006, the Company and Strathmere agreed to extend the
maturity
date to October 31, 2007, while maintaining the same interest rate of
12% per
annum, payable every month.
The
Debentures can either be paid to the holders on October 31, 2007 or converted
at
the holders’ option any time up to maturity at a conversion price equal of $0.07
per share (the original conversion rate was $.20 per share). The convertible
debentures met the definition of hybrid instruments, as defined in SFAS
133,
Accounting
for Derivative Instruments and Hedging Activities
(SFAS
No. 133). The hybrid instruments are comprised of a i) a debt instrument,
as the
host contract and ii) an option to convert the debentures into common
stock of
the Company, as an embedded derivative. The embedded derivative derives
its
value based on the underlying fair value of the Company’s common stock. The
Embedded Derivative is not clearly and closely related to the underlying
host
debt instrument since the economic characteristics and risk associated
with this
derivative are based on the common stock fair value. The Company has
separated
the embedded derivative from the hybrid instrument based on an independent
valuation.
UNITED
AMERICAN CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER
31, 2005 (RESTATED) AND 2004
NOTE
6- CONVERTIBLE
DEBENTURES (CONTINUED)
For
disclosure purposes, the fair value of the derivative is estimated on
the date
of issuance of the debenture (October 18, 2004) using the Black-Scholes
option-pricing model, which approximates fair value, with the following
weighted-average assumptions used for September 30, 2005, June 30, 2005,
March
31, 2005 and December 31, 2004; no annual dividends, volatility of 125%,
risk-free interest rate of 3.28%, and expected life of 2 years. For disclosure
purposes as of December 31, 2004 the derivative call option was valued
at a fair
value of $.087. As of March 31, 2005 the call option was valued at $.057.
As
of
June 30, 2005 the call option was valued at $.024. As of September 30,
2005 and
December 31, 2005 the call option was valued at $.018.
The
embedded derivative did not qualify as a fair value or cash flow hedge
under
SFAS No. 133.
The
stock
price as of December 31, 2004 was approximately $.15 per share, as of March
31,
2005 was approximately $.11, as of June 30, 2005 was approximately $.06,
and as
of September 30, 2005 and December 31, 2005 was $.05, therefore there was
a
decrease of $34,498 for the nine months and year ended December 31, 2005
and $0
for the three months ended December 31, 2005 in the derivative liability
as of
December 31, 2005.
The
embedded derivative did not qualify as a fair value or cash flow hedge
under
SFAS No. 133. Interest for the year ended December 31, 2004 was approximately
$2,419 and was accrued at December 31, 2004.
Interest
expense for the year ended December 31, 2005 and 2004 was $12,000 and $2,419,
respectively. At December 31, 2005, there was $2,419 of interest
accrued.
On
August
11, 2005, the Company’s majority owned subsidiary OSK Capital II Corp. entered
into 10% Convertible Debentures (the “Debentures”) with various individuals. The
Debentures had a maturity date of August 11, 2008, and incurred interest
at a
rate of 10% per annum.
UNITED
AMERICAN CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER
31, 2005 (RESTATED) AND 2004
NOTE
6- CONVERTIBLE
DEBENTURES (CONTINUED)
The
Debentures can either be paid to the holders on August 11, 2008 or converted
at
the holders’ option any time up to maturity at a conversion price equal to
eighty percent (80%) of the average closing price of the common stock
as listed
on a Principal Market for the five (5) trading days immediately proceeding
the
conversion date. If the common stock is not traded on a Principal Market,
the
conversion price shall mean the closing bid price as furnished by the
National
Association of Securities Dealers, Inc. The holder agrees that it shall
not
convert the Debentures prior to August 12, 2005, if on a conversion date
the
closing price of the common stock on any of the five (5) trading days
immediately proceeding the applicable conversion date id $.50 per share
or less.
OSK Capital II Corp’s stock was not trading on a Principal Market as of August
12, 2005, and therefore the holders all converted their debentures at
$.50 per
share. The total Debentures issued by OSK Capital II Corp was $331,760
and OSK
Capital II Corp issued 663,520 shares of its common stock in conversion
of the
debentures. The convertible debentures met the definition of hybrid instruments,
as defined in SFAS 133, Accounting
for Derivative Instruments and Hedging Activities
(SFAS
No. 133). The hybrid instruments are comprised of a i) a debt instrument,
as the
host contract and ii) an option to convert the debentures into common
stock of
OSK Capital II Corp as an embedded derivative. The embedded derivative
derives
its value based on the underlying fair value of OSK Capital II Corp’s common
stock. The Embedded Derivative is not clearly and closely related to
the
underlying host debt instrument since the economic characteristics and
risk
associated with this derivative are based on the common stock fair value.
There
was no derivative liability recognized due to the conversion of the debenture
into shares of common stock at he time the debenture agreement was entered
into.
The
embedded derivative did not qualify as a fair value or cash flow hedge
under
SFAS No. 133.
There
was
no interest charged due to the debentures being converted
immediately.
NOTE
7- COMMITMENTS
On
October 12, 2004, the Company entered into a carrier agreement with XO
Communications, Inc. This carrier agreement provides the Company with
the
ability to purchase telephone numbers in any of thirty-seven major metropolitan
markets in the United States. As a result, services can be provided to
consumers
in any of these markets with each consumer being assigned a telephone
number
with a local area code. Prior to this agreement, we were only able to
provide
phone numbers with Canadian area codes.
UNITED
AMERICAN CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER
31, 2005 (RESTATED) AND 2004
NOTE
7- COMMITMENTS
(CONTINUED)
Additionally,
the Company in 2004 and 2005 entered into various agreements with wireless
Internet access providers, to provide VoIP services to the Company’s customers.
On November 3, 2004, the Company also entered into a telecommunications
agreement with Kore Wireless Canada, Inc., a supplier of global systems
for
mobile communications.
On
March
1, 2005, the Company entered into a distribution agreement with MSBR
Communication Inc. for the purpose of accessing the retail consumer portion
of
the Company’s target market through retail and Internet-based sales. The
territory for this distribution is the Province of Quebec in Canada exclusive
of
Sherbrooke, Quebec. This is a renewable two-year agreement.
On
March
11, 2005, the Company entered into a marketing and distribution rights
with
Podar Infotech Ltd. The five-year renewable agreement grants Podar the
exclusive
marketing and distribution rights for the Company’s products and services for
India, China, Sri Lanka, Russia and UAE for which the Company will receive
contractually agreed payments.
UNITED
AMERICAN CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER
31, 2005 (RESTATED) AND 2004
NOTE
8- STOCKHOLDERS’
EQUITY (DEFICIT)
Common
Stock
As
of
December 31, 2005, the Company has 50,000,000 shares of common stock authorized
with a par value of $.001.
The
Company has 49,969,985 shares issued and outstanding as of December 31,
2005.
During
the year ended December 31, 2005, the Company issued 1,400,000 for services
at
$.10 per share and 4,450,000 at $.075 per share for a value of
$473,750.
The
Company had 44,119,985 shares issued and outstanding as of December 31,
2004.
During
2004, the Company issued 926,743 for services at a fair market value of
$.10 or
$92,674; and 2,250,000 shares of common stock for services at a fair market
value of $.15 per share or $337,500.
The
Company has not issued any options or warrants.
NOTE
9- PROVISION
FOR INCOME TAXES
Deferred
income taxes are determined using the liability method for the temporary
differences between the financial reporting basis and income tax basis
of the
Company’s assets and liabilities. Deferred income taxes are measured based on
the tax rates expected to be in effect when the temporary differences are
included in the Company’s tax return. Deferred tax assets and liabilities are
recognized based on anticipated future tax consequences attributable to
differences between financial statement carrying amounts of assets and
liabilities and their respective tax bases.
At
December 31, 2005 and 2004, deferred tax assets consist of the
following:
|
2005
|
|
2004
|
Net
operating losses |
$ |
1,542,738 |
|
$ |
1,051,242 |
|
|
|
|
|
|
Valuation
allowances |
|
(1,542,738) |
|
|
(1,051,242) |
|
$ |
-
|
|
$ |
- |
At
December 31, 2005, the Company had a net operating loss carryforward in
the
approximate amount of $4,625,408, available to offset future taxable income
through 2024. The Company established valuation allowances equal to the
full
amount of the deferred tax assets due to the uncertainty of the utilization
of
the operating losses in future periods.
UNITED
AMERICAN CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER
31, 2005 (RESTATED) AND 2004
NOTE
9- PROVISION
FOR INCOME TAXES
(CONTINUED)
A
reconciliation of the Company’s effective tax rate as a percentage of income
before taxes and federal statutory rate for the periods ended December
31, 2005
and 2004 is summarized as follows:
|
2005
|
|
2004
|
Federal
statutory rate
|
(34.0)%
|
|
(34.0)%
|
State
income taxes, net of federal benefits
|
3.3
|
|
3.3
|
Valuation
allowance
|
30.7
|
|
30.7
|
|
0%
|
|
0%
|
NOTE
10- RESTATED
FINANCIAL STATEMENTS
The
Company has restated its previously issued consolidated financial statements
for
the year ended December 31, 2004 to include:
· |
The
results of operations for its subsidiary Teliphone, Inc. which
had been
previously excluded (A majority of the differences noted in the
chart
below relate to this item);
|
· |
The
accounting for the convertible debenture that was issued to Strathmere
Associates International Limited for the principal sum of $100,000
on
October 18, 2004;
|
· |
The
results of certain disbursements from banking accounts maintained
by
3894517 Canada Inc; and
|
· |
To
properly reflect the acquisition of the $2,625,000 of equipment
acquired
for 26,250,000 shares previously recorded in 2004 in 2003 and
related
depreciation in 2004, as well as the $1,750,875 that was recorded
as
impairment in 2003 in accumulated
deficit.
|
The
net
effect of these changes resulted in an increase in the net loss and accumulated
deficit of $140,214 to bring the restated loss to $538,807 and the restated
accumulated deficit to $3,091,888 as of and for the year ended December
31,
2004.
|
Original
filing
|
Re-Stated
Filing
|
Change
|
Total
Assets
|
918,514
|
905,107
|
(13,407)
|
Total
Liabilities
|
18,020
|
274,655
|
256,635
|
Total
Stockholder’s Deficit
|
900,494
|
630,452
|
(270,042)
|
Total
Revenues
|
1,298,525
|
582,561
|
(715,964)
|
Gross
Profi
|
(398,593)
|
358,132
|
756,725
|
Net
Earnings (Loss)
|
(398,593)
|
(538,807)
|
(140,214)
|
Net
Earnings (Loss) per common share basic and diluted
|
-
|
(0.01)
|
(0.01)
|
Weighted
average number of common shares used in calculation
|
15,750,000
|
41,682,907
|
25,932,907
|
UNITED
AMERICAN CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER
31, 2005 (RESTATED) AND 2004
NOTE
10- RESTATED
FINANCIAL STATEMENTS
(CONTINUED)
The
Company has restated its previously issued consolidated financial statements
for
the year ended December 31, 2005. The Company has restated its consolidated
financial statements for the extinguishment of $625,964 of payables that
the
Company wrote off in the year ended December 31, 2003. The Company has
received
legal opinions that determine these liabilities to no longer be outstanding,
however, is performing revised lien searches and performing further due
diligence on the existence of these liabilities. Until the time that
the Company
receives further documented evidential matter that these liabilities
are in fact
no longer considered to be liabilities, the Company has re-instated these
liabilities. The $625,964 is included in the consolidated balance sheet
at
December 31, 2005 as “Other payables”. The restatement has no impact on net
income (loss) or earnings per share calculations, or changes in the Company’s
cash flows for the years ended December 31, 2005 and 2004,
respectively.
NOTE
11- SEGMENT
INFORMATION
The
Company’s reportable operating segments include wholesale VoIP services which is
the physical buying of minutes (3894517 Canada Inc.), and the VoIP connection
services (Teliphone, Inc.). The Company also has corporate overhead expenses.
The wholesale services are essentially provided in the Caribbean, and the
connection services are provided in North America. The segment data presented
below details the allocation of cost of revenues and direct operating expenses
to these segments.
Operating
segment data for the year ended December 31, 2005 are as follows:
|
Corporate
|
|
|
|
|
|
Total
|
Sales
|
$
|
-
|
|
$
|
4,611,979
|
|
$
|
233,506
|
|
$
|
4,845,485
|
Cost
of sales
|
|
-
|
|
|
4,163,319
|
|
|
477,390
|
|
|
4,640,709
|
Gross
profit (loss)
|
|
-
|
|
|
448,660
|
|
|
(243,884)
|
|
|
204,776
|
Operating
expenses
|
|
543,682
|
|
|
658,359
|
|
|
333,703
|
|
|
1,535,744
|
Depreciation,
amortization and impairment
|
|
148,700
|
|
|
10,023
|
|
|
31,829
|
|
|
190,552
|
Interest
(net)
|
|
(12,000)
|
|
|
(0)
|
|
|
(0)
|
|
|
(12,000)
|
Net
income (loss)
|
|
(704,382)
|
|
|
(219,722)
|
|
|
(609,416)
|
|
|
(1,533,520)
|
Segment
assets
|
|
446,100
|
|
|
180,858
|
|
|
301,681
|
|
|
928,639
|
Fixed
Assets, net of depreciation
|
|
446,100
|
|
|
38,871
|
|
|
155,130
|
|
|
640,101
|
UNITED
AMERICAN CORPORATION
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
DECEMBER
31, 2005 (RESTATED) AND 2004
NOTE
11- SEGMENT
INFORMATION
(CONTINUED)
Operating
segment data for the year ended December 31, 2004 are as follows:
|
Corporate
|
|
|
|
|
|
Total
|
Sales
|
$
|
-
|
|
$
|
543,015
|
|
$
|
39,546
|
|
$
|
582,561
|
Cost
of sales
|
|
-
|
|
|
89,278
|
|
|
135,151
|
|
|
224,429
|
Gross
profit (loss)
|
|
-
|
|
|
453,737
|
|
|
(95,605)
|
|
|
358,132
|
Operating
expenses
|
|
436,265
|
|
|
135,930
|
|
|
136,452
|
|
|
708,647
|
Depreciation,
amortization and impairment
|
|
174,825
|
|
|
3,486
|
|
|
4,210
|
|
|
182,521
|
Interest
(net)
|
|
(2,419)
|
|
|
(1,819)
|
|
|
(1,533)
|
|
|
(5,771)
|
Net
income (loss)
|
|
(613,509)
|
|
|
312,502
|
|
|
(237,800)
|
|
|
(538,807)
|
Segment
assets
|
|
594,800
|
|
|
116,113
|
|
|
194,194
|
|
|
905,107
|
Fixed
Assets, net of depreciation
|
|
594,800
|
|
|
20,264
|
|
|
108,166
|
|
|
723,230
|
Item
8.
Changes In and Disagreements with Accountants on Accounting
and Financial Disclosure
On
August
31, 2005, we dismissed Madsen & Associates, CPA’s Inc. (the "Madsen &
Associates") as our principal accountant. We engaged Schwartz Levitsky Feldman
LLP ("Schwartz") as our principal accountants effective August 31, 2005.
The decision to change accountants was approved by our board of directors.
We did not consult with Schwartz on any matters prior to retaining such firm
as
our principal accountants.
Madsen
& Associates’ report dated April 27, 2005 on our balance sheet as of
December 31, 2004, and the statement of operations, statement of changes in
stockholders' equity, and statement of cash flows for the years ended December
31, 2004 and 2003, and for the cumulative period from inception, July 17, 1992,
to December 31, 2004 did not contain an adverse opinion or disclaimer of
opinion, nor was it qualified or modified as to uncertainty, audit scope, or
accounting principles.
In
connection with the audited balance sheet as of December 31, 2004, and the
statement of operations, statement of changes in stockholders' equity, and
statement of cash flows for the years ended December 31, 2004 and 2003, and
for
the cumulative period from inception, July 17, 1992, to December 31, 2004,
to
December 31, 2003, there were no disagreements with Madsen & Associates on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedures, which disagreements if not resolved
to the satisfaction of Madsen & Associates would have caused them to make
reference thereto in their report on the financial statements for such periods.
In
connection with the audited balance sheet as of December 31, 2004, and the
statement of operations, statement of changes in stockholders' equity, and
statement of cash flows for the years ended December 31, 2004 and 2003, and
for
the cumulative period from inception, July 17, 1992, to December 31, 2004,
to
December 31, 2003, and the subsequent reviews of interim periods
through August 31, 2005, Madsen & Associates did not advise us with
respect to any of the matters described in paragraphs (a)(1)(iv)(B) of Item
304
of Regulation S-B.
On
February 6, 2006, Schwartz Levitsky Feldman LLP (the “Schwartz”) resigned as our
principal accountant. We engaged Michael Pollack, CPA as our principal
accountant effective February 7, 2006. The decision to change accountants was
approved by our board of directors. We did not consult with Michael Pollack,
CPA
on any matters prior to retaining such firm as our principal
accountants.
Schwartz
did not report on the financial statements for either of the past two years,
but
did review our financial statements included in our amended quarterly report
for
the period ended September 30, 2004 and the quarterly reports for the periods
ended June 30, 2005 and September 30, 2005.
From
the
time that Schwartz was engaged on August 31, 2005 and through the interim period
ended February 6, 2006, Schwartz did not advise us with respect to any of the
matters described in paragraphs (a)(1)(iv)(B) of Item 304 of Regulation
S-B.
Item
8A.
Controls and Procedures
We
carried out an evaluation of the effectiveness of the design and operation
of
our disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) as of December 31, 2005. This evaluation was carried
out under the supervision and with the participation of our Chief Executive
Officer and Chief Financial Officer, Mr. Simon
Lamarche.
We
carried out an evaluation of the effectiveness of the design and operation
of
our disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) as of December 31, 2005. This evaluation was carried
out under the supervision and with the participation of our board of directors.
Based upon that evaluation, our board of directors concluded that, as of
December 31, 2005, our disclosure controls and procedures were not effective.
This
conclusion was reached as a result of our failure to include certain financial
information in the consolidated financial statements for the years ended
December 31, 2003 and December 31, 2004, and the quarterly periods ended March
31, 2004, June 30, 2004, September 30, 2004, March 31, 2005, June 30, 2005,
and
September 30, 2005. We are restating our financial statements and amending
our
quarterly and annual reports for the affected periods. We will also take action
to correct any errors, omissions, or misrepresentations brought to our attention
by our new principal accountant, Michael Pollack, CPA.
Our
board
of directors is currently working towards implementing significant changes
in
our internal controls over financial reporting that are expected to materially
affect such controls.
Our
board
of directors is seeking to retain a consultant to recommend for implementation
specific disclosure controls and procedures to ensure that information required
to be disclosed in our reports filed or submitted under the Exchange Act are
recorded, processed, summarized and reported, within the time periods specified
in the SEC's rules and forms.
Disclosure
controls and procedures are controls and other procedures that are designed
to
ensure that information required to be disclosed in our reports filed or
submitted under the Exchange Act are recorded, processed, summarized and
reported, within the time periods specified in the SEC's rules and forms.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed in
our
reports filed under the Exchange Act is accumulated and communicated to
management, including our Chief Executive Officer and Chief Financial Officer,
to allow timely decisions regarding required disclosure.
Limitations
on the Effectiveness of Internal Controls
Our
management does not expect that our disclosure controls and procedures or our
internal control over financial reporting will necessarily prevent all fraud
and
material error. Our disclosure controls and procedures are designed to provide
reasonable assurance of achieving our objectives and our Chief Executive Officer
and Chief Financial Officer concluded that our disclosure controls and
procedures are effective at that reasonable assurance level. Further, the design
of a control system must reflect the fact that there are resource constraints,
and the benefits of controls must be considered relative to their costs. Because
of the inherent limitations in all control systems, no evaluation of controls
can provide absolute assurance that all control issues and instances of fraud,
if any, within the Company have been detected. These inherent limitations
include the realities that judgments in decision-making can be faulty, and
that
breakdowns can occur because of simple error or mistake. Additionally, controls
can be circumvented by the individual acts of some persons, by collusion of
two
or more people, or by management override of the internal control. The design
of
any system of controls also is based in part upon certain assumptions about
the
likelihood of future events, and there can be no assurance that any design
will
succeed in achieving its stated goals under all potential future conditions.
Over time, control may become inadequate because of changes in conditions,
or
the degree of compliance with the policies or procedures may deteriorate.
Item
8B.
Other information
None.
PART
III
Item
9.
Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section
16(a) of the Exchange Act
The
following information sets forth the names of our current directors and
executive officers, their ages and their present positions with the Company.
Name
|
Age
|
Position(s)
and Office(s) Held
|
Simon
Lamarche
|
52
|
Chief
Executive Officer, Chief Financial Officer, and
Director
|
George
Metrakos
|
35
|
Director
|
Set
forth
below is a brief description of the background and business experience of each
of our current executive officers and directors.
Simon
Lamarche.
On
November 8, 2005, Mr. Larmache was appointed as our Chief Executive Officer,
Chief Financial Officer and as a member of our board of directors. Since June
2004, Mr. Lamarche has acted as an independent consultant with our subsidiary,
Teliphone, Inc. From January 2004 to June of 2004, Mr. Lamarche was
Director of Sales of MicroQuest, a company specializing in retail and business
sales and integration of computers and networking equipment. From January
2002 to the end of 2003, Mr. Lamarche was President of Vectoria Informatiques
Telecommunications Inc., a company specializing in advanced, internet-based
telecommunications and specialized computer networking within business and
residential applications. Prior to 2002, Mr. Lamarche was Director of
Sales at Jitec Corporation, a company specializing in software development,
computer networking and retail sales.
George
Metrakos.
Mr.
Metrakos was appointed to our board of directors on September 6, 2005. Mr.
Metrakos holds a Bachelor’s of Engineering from Concordia University located in
Montreal, Canada and a Master’s of Business Administration from The John Molson
School of Business at Concordia University. Mr. Metrakos has worked with such
organizations as Philips B.V. located in the Netherlands, The Dow Chemical
Company, and Hydro Quebec. Mr. Metrakos was appointed as President and Chief
Executive Officer of Teliphone, Inc. in September 2004. Teliphone, Inc. was
formed as a subsidiary of the Company in September 2004. Mr. Metrakos was
appointed as President, Chief Executive Officer and a member of the board of
directors of OSK Capital II Corp. in June 2005. OSK Capital II Corp. is
currently a subsidiary of the Company and the parent corporation of Teliphone,
Inc.
The
following information sets forth the names of former directors and executive
officers who provided services to us in this capacity during the year ended
December 31, 2005, their ages and period of service with the
Company.
Name
|
Age
|
Position(s)
and Office(s) Previously
Held
|
Period
of Service
|
Gilles
Poliquin
|
45
|
Director
|
September
6, 2005 - November 8, 2005
|
Benoit
Laliberté
|
34
|
Chief
Executive Officer,
Chief
Financial Officer, and Director
|
July
22, 2003 - November 8, 2005
|
Term
of Office
Our
directors are appointed for a one-year term to hold office until the next annual
meeting of our shareholders or until removed from office in accordance with
our
bylaws.
Our
executive officers are appointed by our board of directors and hold office
until
removed by the board.
Significant
Employees
We
have
no significant employees other than our officers and directors.
Family
Relationships
There
are
no family relationships between or among the directors, executive officers
or
persons nominated or chosen by us to become directors or executive
officers.
Involvement
in Certain Legal Proceedings
Other
than as disclosed below, during the past five years, none of the following
occurred with respect to any director, person nominated to become a director,
executive officer, promoter or control person: (1) any bankruptcy petition
filed
by or against any business of which such person was a general partner or
executive officer either at the time of the bankruptcy or within two years
prior
to that time; (2) any conviction in a criminal proceeding or being subject
to a
pending criminal proceeding (excluding traffic violations and other minor
offenses); (3) being subject to any order, judgment or decree, not subsequently
reversed, suspended or vacated, of any court of competent jurisdiction,
permanently or temporarily enjoining, barring, suspending or otherwise limiting
his or her involvement in any type of business, securities or banking
activities; and (4) being found by a court of competent jurisdiction (in
a civil
action), the SEC or the Commodities Futures Trading Commission to have violated
a federal or state securities or commodities law, and the judgment has not
been
reversed, suspended or vacated.
On
October 8, 2004 the Autorité des marchés financiers (the “AMF”) launched penal
proceedings before the Court of Québec (Criminal and Penal Division) against,
our former CEO and CFO, Benoit Laliberté, in the matter of Jitec Inc. Benoit
Laliberté faces 48 counts and is
liable
to
fines totaling $1,760,180. He is accused of insider trading in the securities
of
Jitec Inc., while having privileged information about the company, thereby
violating section 187 of the Securities Act (the “Act”), assisting Jitec Inc. in
making a misrepresentation in press releases in violation of section 196
of the
Act, and failing to file a report disclosing a change in his control over
the
securities of Jitec Inc., which is a reporting issuer, in violation of section
97 of the Act. A trial date for this matter has not been set. There are several
preliminary defense Motions which are now pending and after these Defense
Motions have been dealt with, if necessary, the Court will then set a Trial
date.
On
May
23, 2003, Vectoria Information Technology and Telecommunications Inc. filed
a
bankruptcy petition with the Canadian Federal Bankruptcy Court and was declared
bankrupt and liquidated on May 7, 2004. Mr. Simon Lamarche, our sole executive
officer, acted as President to Vectoria Information Technology and
Telecommunications Inc. from January 2002 to the end of 2003.
Audit
Committee
We
do not
have a separately-designated standing audit committee. The entire board of
directors performs the functions of an audit committee, but no written charter
governs the actions of the board of directors when performing the functions
of
that would generally be performed by an audit committee. The board of directors
approves the selection of our independent accountants and meets and interacts
with the independent accountants to discuss issues related to financial
reporting. In addition, the board of directors reviews the scope and results
of
the audit with the independent accountants, reviews with management and the
independent accountants our annual operating results, considers the adequacy
of
our internal accounting procedures and considers other auditing and accounting
matters including fees to be paid to the independent auditor and the performance
of the independent auditor.
We
do not
have an audit committee financial expert because of the
size
of our company and our board of directors at this time. We believe that we
do
not require an audit committee financial expert at this time because we retain
outside consultants who possess these attributes.
For
the
fiscal year ending December 31, 2003, the board of directors:
1. |
Reviewed
and discussed the restated audited financial statements with management,
and
|
2. |
Reviewed
and discussed the written disclosures and the letter from our independent
auditors on the matters relating to the auditor's
independence.
|
Based
upon the board of directors’ review and discussion of the matters above, the
board of directors authorized inclusion of the audited financial statements
for
the year ended December 31, 2005 to be included in this Annual Report on Form
10-KSB and filed with the Securities and Exchange Commission.
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Exchange Act requires our directors and executive officers and
persons who beneficially own more than ten percent of a registered class of
the
Company’s equity securities to file with the SEC initial reports of ownership
and reports of changes in ownership of common stock and other equity securities
of the Company. Officers, directors and greater than ten percent beneficial
shareholders are required by SEC regulations to furnish us with copies of all
Section 16(a) forms they file. To the best of our knowledge based solely on
a
review of Forms 3, 4, and 5 (and any amendments thereof) received by us during
or with respect to the year ended December 31, 2005, the following persons
have
failed to file, on a timely basis, the identified reports required by Section
16(a) of the Exchange Act during fiscal year ended December 31, 2005:
Name
and principal position
|
Number
of
late
reports
|
Transactions
not
timely
reported
|
Known
failures to
file
a required form
|
Simon
Lamarche
Chief
Executive Officer,
Chief
Financial Officer & Director
|
1
|
0
|
0
|
George
Metrakos
Director
|
1
|
0
|
0
|
Benoit
Laliberté
Former
Chief Executive Officer,
Chief
Financial Officer & Director
|
0
|
0
|
0
|
Giles
Poliquin
Former
Director
|
1
|
0
|
0
|
Code
of Ethics Disclosure
Subsequent
to the reporting period, we adopted a Code of Ethics for Financial Executives,
which include our principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing similar
functions. The code of ethics is filed as an exhibit to this Annual Report
on
Form 10-KSB for the fiscal year ended December 31, 2005.
Item
10.
Executive Compensation
The
table
below summarizes all compensation awarded to, earned by, or paid to our current
executive officers for each of the last three completed fiscal
years.
|
|
Annual
Compensation
|
Long
Term Compensation
|
Name
|
Title
|
Year
|
Salary
($)
|
Bonus
($)
|
Other
Annual Compensation
($)
|
Restricted
Stock
Awarded
($)
|
Options/
SARs
(#)
|
LTIP
Payouts
($)
|
All
Other
Compensation
($)
|
Benoit
Laliberté
|
Former
CEO,
CFO
&
Director
|
2005
2004
2003
|
0
0
0
|
0
0
0
|
275,300
0
0
|
0
0
0
|
0
0
0
|
0
0
0
|
0
0
0
|
Simon
Lamarche
|
CEO,
CFO
&
Director
|
2005
2004
2003
|
42,000
1
n/a
n/a
|
0
n/a
n/a
|
0
n/a
n/a
|
0
n/a
n/a
|
0
n/a
n/a
|
0
n/a
n/a
|
0
n/a
n/a
|
1
$32,500
was received as compensation in connection with services rendered to a
subsidiary entity.
Summary
of Options Grants and Compensation to Directors
We
did
not grant any stock options to our executive officers or directors during the
fiscal year ended December 31, 2005.
Item
11.
Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder
Matters
The
following table sets forth, as of April 6, 2006, the beneficial ownership of
our
common stock by each executive officer and director, by each person known by
us
to beneficially own more than 5% of the our common stock and by the executive
officers and directors as a group. Except as otherwise indicated, all shares
are
owned directly and the percentage shown is based on 49,969,985 shares of common
stock issued and outstanding on April 6, 2006.
Title
of class
|
Name
and address of
beneficial owner (1)
|
Amount
of beneficial
ownership
|
Percent
of
class*
|
Executive
Officers & Directors:
|
Common
|
Simon
Lamarche
1080
Beaver Hall, Suite 155
Montreal,
Quebec, Canada H2Z
1S8
|
0
shares
|
0%
|
Common
|
George
Metrakos
1080
Beaver Hall, Suite 155
Montreal,
Quebec, Canada H2Z
1S8
|
150,000
shares (2)
|
0.3%
|
Total
of All Directors and Executive Officers:
|
150,000
shares
|
0.3%
|
More
Than 5% Beneficial Owners:
|
Common
|
Benoit
Laliberté
220
de la Coulee
Mont-Saint-Hilaire,
Quebec, Canada
J3H
5Z6
|
26,250,000
shares (3)
|
52.5%
|
(1) |
As
used in this table, "beneficial ownership" means the sole or shared
power
to vote, or to direct the voting of, a security, or the sole or shared
investment power with respect to a security (i.e., the power to dispose
of, or to direct the disposition of, a security). In addition, for
purposes of this table, a person is deemed, as of any date, to have
"beneficial ownership" of any security that such person has the right
to
acquire within 60 days after such
date.
|
(2) |
Mr.
Metrakos is the indirect beneficial owner of 150,000 shares held
by
Metratech Business Solutions Inc.
|
(3) |
Mr.
Laliberté is the indirect beneficial owner of 26,250,000 shares held
by
3874958 Canada Inc.
|
Item
12.
Certain Relationships and Related
Transactions
Except
as
disclosed below, none of our directors or executive officers, nor any proposed
nominee for election as a director, nor any person who beneficially owns,
directly or indirectly, shares carrying more than 5% of the voting rights
attached to all of our outstanding shares, nor any members of the immediate
family (including spouse, parents, children, siblings, and in-laws) of any
of
the foregoing persons has any material interest, direct or indirect, in any
transaction over the last two years or in any presently proposed transaction
which, in either case, has or will materially affect us.
On
October 6, 2003, we issued 26,250,000 shares of our common stock to 3874958
Canada, Inc. in exchange for the acquisition of all of the issued and
outstanding shares of American United
Corporation.
Benoit Laliberté, our CEO, CFO, and Director at the time, was also the sole
officer, director, and shareholder of American United Corporation. Mr. Laliberté
is the beneficial owner of the 26,250,000 shares of our common stock issued
to
3874958 Canada, Inc. in the transaction described above.
Exhibit
Number
|
Description
|
14.1
|
Code
of Ethics
|
16.1
|
Letter
from Schwartz Levitsky Feldman LLP 1
|
16.2
|
Letter
from Madsen & Associates, CPA’s Inc. 2
|
|
|
|
|
|
|
|
|
1 |
Previously
attached as an exhibit to Amended Current Report on Form 8-K/A
filed on
February 27, 2006
|
2 |
Previously
attached as an exhibit to Amended Current Report on Form 8-K/A
filed on
September 27, 2006
|
3
|
Previously
attached as an exhibit to Current Report on Form 10KSB filed on
April 17, 2006
|
Item
14.
Principal Accountant Fees and Services
Audit
Fees
The
aggregate fees billed by our auditors for professional services rendered in
connection with a review of the financial statements included in our quarterly
reports on Form 10-QSB and the audit of our annual consolidated financial
statements for the fiscal years ended December 31, 2005 and December 31, 2004
were approximately $28,000 and $23,000 respectively.
Audit-Related
Fees
Our
auditors did not bill any additional fees for assurance and related services
that are reasonably related to the performance of the audit or review of our
financial statements.
Tax
Fees
The
aggregate fees billed by our auditors for professional services for tax
compliance, tax advice, and tax planning were $0 and $0 for the fiscal years
ended December 31, 2005 and 2004.
All
Other Fees
The
aggregate fees billed by our auditors for all other non-audit services, such
as
attending meetings and other miscellaneous financial consulting, for the fiscal
years ended December 31, 2005 and 2004 were $0 and $0 respectively.
SIGNATURES
In
accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
United
American Corporation
By: |
/s/ Simon Lamarche |
|
Simon Lamarche |
|
Chief Executive Officer and Chief
Financial
Officer |
|
June 19,
2007 |
In
accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities
and
on the date stated:
By: |
/s/
Simon Lamarche |
By: |
/s/
George Metrakos |
|
Simon Lamarche |
|
George Metrakos |
|
Director |
|
Director |
|
June 19, 2007 |
|
June 19,
2007 |