Lithium Corp - Quarter Report: 2008 September (Form 10-Q)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
x QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended
September 30, 2008
r TRANSITION REPORT
UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _________
to __________
Commission
file number 333-148266
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Utalk
Communications, Inc.
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(Exact
name of small business issuer as specified in its
charter)
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Nevada
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98-0530295
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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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Seaford
Fifth Avenue Plaza
800
5th
Avenue, Suite 4100, Seattle WA
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(Address
of principal executive offices)
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206.224.4108
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(Issuer’s
telephone number)
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N/A
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(Former
name, former address and former fiscal year, if changed since last
report)
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Check
whether the issuer: (1) filed all reports required to be filed by Section 13 or
15(d) of the 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 r
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions in of “large accelerated filer,” “accelerated filer” and
“smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):
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Large
accelerated filer
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Accelerated
filer
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r
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Non-accelerated
filer
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r
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Small
reporting company
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x
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes r No x
APPLICABLE
ONLY TO CORPORATE ISSUERS
State the
number of shares outstanding of each of the issuer’s classes of common equity,
as of the latest practicable date: 4,470,000
common shares issued and outstanding as at November 10, 2008.
PART I. FINANCIAL INFORMATION
ITEM1.
FINANCIAL STATEMENTS
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4
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5
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6
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Utalk Communications Inc.
(A
Development Stage Company)
Balance
Sheets
Unaudited
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September
30,
2008
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December
31,
2007
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||||||
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Assets
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||||||||
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Current:
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||||||||
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Cash
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$ | 12,548 | $ | 7,552 | ||||
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Prepaid
expenses
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10,099 | 299 | ||||||
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Total
Current Assets
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22,647 | 7,851 | ||||||
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Software
and website development
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15,500 | - | ||||||
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Total
Assets
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$ | 38,147 | $ | 7,851 | ||||
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Liabilities
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||||||||
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Current:
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Accounts
payable and accrued liabilities
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$ | 1,500 | $ | 11,299 | ||||
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Due to
stockholder
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7,000 | - | ||||||
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Total
Liabilities
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8,500 | 11,299 | ||||||
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Stockholders`
Equity (Deficit)
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||||||||
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Common
stock authorized –
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||||||||
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50,000,000
common shares, par value $0.001,
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||||||||
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4,470,000
and 4,000,000 shares issued and outstanding, respectively
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4,470 | 4,000 | ||||||
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Additional
paid in capital
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62,530 | 16,000 | ||||||
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Deficit
accumulated during the development stage
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(37,353 | ) | (23,448 | ) | ||||
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Total
Stockholders’ Equity (Deficit)
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29,647 | (3,448 | ) | |||||
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Total
Liabilities and Stockholders’ Equity( Deficit)
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$ | 38,147 | $ | 7,851 | ||||
The
accompanying notes are an integral part of these unaudited financial
statements
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Period
from
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Period
from
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Inception
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Inception
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|||||||||||||||||
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Three
Months
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Three
Months
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Nine
Months
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(Jan
30, 07)
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(Jan
30, 07)
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||||||||||||||||
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Ended
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Ended
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Ended
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to
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to
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Sept 30, 2008
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Sept
30, 2007
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Sept
30, 2008
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Sept
30, 2007
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Sept
30, 2008
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||||||||||||||||
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Operating
expenses:
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Accounting
fees
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$ | 3,000 | $ | 1,279 | $ | 7,524 | $ | 1,279 | $ | 12,597 | ||||||||||
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Legal
fees
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- | - | - | 8,782 | 16,282 | |||||||||||||||
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General
and administrative
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2,624 | 583 | 6,383 | 927 | 8,474 | |||||||||||||||
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Net
loss
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$ | (5,624 | ) | $ | (1,862 | ) | $ | (13,907 | ) | $ | (10,988 | ) | $ | (37,353 | ) | |||||
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Basic
and diluted loss per common share
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$ | (a | ) | $ | (a | ) | $ | (a | ) | $ | (a | ) | ||||||||
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Weighted
average number of common
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||||||||||||||||||||
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shares
outstanding – Basic and Diluted
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4,470,000 | 4,000,000 | 4,375,675 | 2,649,007 | ||||||||||||||||
(a) Less than
$0.01 per share
The
accompanying notes are an integral part of these unaudited financial
statements
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Period
from
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|||||||||||
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Inception
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Nine
Months
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January
30, 2007
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(January
30, 2007)
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Ended
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to
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to
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September
30, 2008
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September
30, 2007
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September
30, 2008
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Cash
Flows from Operating Activities
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Net
loss
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$ | (13,907 | ) | $ | (10,988 | ) | $ | (37,353 | ) | |||
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Changes
in assets and liabilities:
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Increase
in prepaid expenses
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(9,800 | ) | (869 | ) | (10,099 | ) | ||||||
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Increase
(Decrease) in accounts payable
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(9,797 | ) | - | 1,500 | ||||||||
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Net
cash used in operating activities
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(33,504 | ) | (11,857 | ) | (45,952 | ) | ||||||
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Cash
Flows from Investing Activities
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Purchase
of software and website development
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(15,500 | ) | - | (15,500 | ) | |||||||
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Cash
Flows from Financing Activities
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Advances
from stockholder
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7,000 | 15 | 7,000 | |||||||||
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Sale
of stock
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47,000 | 20,000 | 67,000 | |||||||||
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Net
cash provided by financing activities
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54,000 | 20,015 | 74,000 | |||||||||
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Increase
in cash
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4,996 | 8,158 | 12,548 | |||||||||
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Cash,
beginning of period
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7,552 | - | - | |||||||||
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Cash,
end of period
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$ | 12,548 | $ | 8,158 | $ | 12,548 | ||||||
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Supplemental
disclosure of cash flow information:
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Taxes
paid
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$ | - | $ | - | $ | - | ||||||
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Interest
paid
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$ | - | $ | - | $ | - | ||||||
The
accompanying notes are an integral part of these unaudited financial
statements
Utalk Communications Inc.
(A
Development Stage Company)
Notes to Unaudited Financial Statements
September
30, 2008
Note
1 – Basis of Presentation
The
accompanying unaudited interim financial statements of Utalk, have
been prepared in accordance with accounting principles generally accepted in the
United States of America and the rules of the Securities and Exchange
Commission, and should be read in conjunction with the audited financial
statements and notes thereto contained in Utalk’s Annual
Report filed with the SEC on Form 10-KSB. In the
opinion of management, all adjustments, consisting of normal recurring
adjustments, necessary for a fair presentation of financial position and the
results of operations for the interim periods presented have been reflected
herein. The results of operations for interim periods are not
necessarily indicative of the results to be expected for the full
year. Notes to the financial statements which would substantially
duplicate the disclosure contained in the audited financial statements for
fiscal 2007 as reported in the form 10-KSB
have been omitted.
Accounting
Policies
Capitalized Website and
Software Costs
Utalk
follows AICPA Statement of Position 98-1: “Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use” as well as EITF 00-02:
“Accounting for Web Site Development Costs”. In accordance with SOP
98-1 and EITF 00-02, internal costs incurred to develop a web site to be used
for commercial purposes are charged to expense when incurred until technological
feasibility has been established for the web site. Technological feasibility is
established upon completion of a detailed program design or, in its absence,
completion of a working model. After technological feasibility is established,
the costs of coding and testing and other costs of producing product masters are
capitalized. Cost capitalization ceases when the product is available for
general release to customers.
Capitalized
website development costs are amortized over the web sites estimated useful life
once it is available for general use by customers. Annual amortization is the
greater of straight-line over the product’s estimated useful life or the percent
of the product’s current-year revenues as compared to the product’s anticipated
future revenues. Capitalized software costs are amortized using the
straight line method over the software’s estimated useful life once it is
available for use.
Capitalized
website development costs are evaluated for impairment on a product-by-product
basis by a comparison of the unamortized capitalized costs to the product’s net
realizable value. The amount by which the unamortized capitalized costs exceed
the net realizable value is recognized as an impairment
charge.
Note
2 – Going Concern
These
financial statements have been prepared on a going concern basis. As of
September 30, 2008, Utalk has not generated any revenue since inception and has
accumulated losses of $37,353. The continuation of Utalk as a going
concern is dependent upon the continued financial support from its shareholders,
the ability to obtain necessary equity financing to continue operations, and the
attainment of profitable operations. These factors raise substantial doubt
regarding Utalk’s ability to continue as a going concern.
Common
Stock
Utalk
sold 470,000 common shares for cast at $0.10 per share during the three months
ended March 31, 2008.
Item 2. Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
FORWARD-LOOKING
STATEMENTS
This
quarterly report contains forward-looking statements as that term is defined in
the Section 27A of the Securities Act and Section 21E of the Securities Exchange
Act. These statements relate to future events or our future financial
performance. In some cases, you can identify forward-looking
statements by terminology such as “may”, “should”, “expects”, “plans”,
“anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or
the negative of these terms or other comparable terminology. These
statements are only predictions and involve known and unknown risks,
uncertainties and other factors, including the risks in the section entitled
“Risk Factors”, that may cause our or our industry’s actual results, levels of
activity, performance or achievements to be materially different from any future
results, levels of activity, performance or achievements expressed or implied by
these forward-looking statements.
Although
we believe that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance
or achievements. Except as required by applicable law, including the
securities laws of the United States, we do not intend to update any of the
forward-looking statements to conform these statements to actual
results.
Our
financial statements are stated in United States dollars and are prepared in
accordance with United States Generally Accepted Accounting
Principles. In this quarterly report, unless otherwise specified, all
dollar amounts are expressed in United States dollars. All references
to “common shares” refer to the common shares in our capital stock.
As used
in this quarterly report, the terms “we”, “us”, “our”, and “Utalk” means Utalk
Communications, Inc., unless otherwise indicated.
General
We are in
the process of developing our call-back services. We expect that we will be able
to offer service toward the end of 2008. We were incorporated in the State of
Nevada on January 30, 2007.
The
address of our principal executive office is Seaford Fifth Avenue Plaza, 800
5th
Avenue, Suite 4100, Seattle, WA. Our telephone number is
206-224-4108.
Our
Current Business
We were
incorporated in the State of Nevada on January 30, 2007, and are a development
stage company. From our inception to date, we have not generated any
revenues, and our operations have been limited to organizational, start-up, and
capital formation activities. We currently have no employees other
than our sole officer, who is also our sole director.
We are
engaged in the development and marketing of call-back services using a call-back
platform. Generally, our anticipated call-back service will enable a customer to
call a designated telephone number and disconnect. The system will automatically
identify the caller as a customer, call the user back and provide the customer
with a dial-tone to place an outbound call. In doing so, our service will enable
our customers to realize cost savings when there is a substantial differential
between the cost of placing and receiving calls.
As an
example of how our call-back services may be utilized, some cellular providers
allow their customers to receive many minutes for free (some offer unlimited
free incoming minutes) but allow only a limited number of outgoing minutes for
free and charge a substantial amount for minutes exceeding the number of free
minutes. If such customer also subscribes to our service, they will be able to
initiate a call from our system to their phone which will appear as an incoming
call rather than an outbound one, potentially providing the customer with cost
savings.
A sample
call flow would occur as follows: A customer dials a telephone number that is
owned by us which automatically forwards the call to our call-back switch. The
customer hangs up after three rings. Our system does not answer the call (so
that the customer is not charged for a call by their phone company) but rather
detects the customer’s phone number. The system automatically checks our
customer database and identifies whether the phone number belongs to a customer.
If the answer is no, then the system takes no action. If the caller is a
customer and has sufficient funds on balance with us, our system will place a
call to the customer (we intend that such call will be through a Voice over IP
company) and prompts the customer to enter the number they would like to call.
The customer enters the destination number and our system will send the call to
the VoIP carrier’s network. Our system will then track the duration and cost of
the call and deduct the appropriate funds from the customer account. If the
balance reaches zero, customers will receive a voice prompt notifying them that
their funds are running low and the call will be terminated.
The
callback system is a software program that resides on a computer server that is
connected to the public Internet. It will be connected with a VoIP provider
across the Internet (if our system is not located in the same facility as the
VoIP service provider) or directly to their equipment (if we are located in the
same facility). The VoIP company will provide us with phone numbers that
customers can call to initiate a call back. They will also provide us with the
ability to place calls in North America and internationally.
The
callback system will also have a database of all of our customers and their
particular information such as name, email, address, phone numbers, account
balance and call history. The system will also have telephony software that is
able to receive calls, initiate calls, play prompts (messages) and connect to
outside parties during a call.
We have
not yet developed our call-back system. As discussed below, our
initial focus will be to engage in the development of our call-back
system. This is described below in our “Products and Services”
section. Management intends to outsource the development of this product
offshore to reduce costs. However, the intellectual property rights
over our software will be retained by the Company. We except that this will be
completed within approximately eight months following the termination of this
offering, after which we intend to begin marketing our services. All our
services will be based on a pre-paid model where a customer must pre-pay for
services. We will be marketing our services primarily through a network of
regional resellers and distributors in Canada. We also plan to hire a
sales/support assistant in approximately eleven months from development of our
service to help our executive officer provide support to our end-users and
resellers.
We have
outsourced the development and deployment of our Call-back service to Netfone
Inc. We have paid Netfone Inc. USD $12,000 to perform these tasks. We anticipate
the delivery of the product in the forth quarter of 2008. We may opt to use
Netfone Inc. to host and maintain the service on our behalf, we will pay them
USD $200 per month.
We have
retained the services of Island Capital Management, LLC dba as Island Stock
Transfer to act as our transfer agent on April 25, 2008.
Industry Background
There are
instances when a phone call placed in one direction is considerably cheaper than
a phone call placed in the opposite direction. For example, if a person in one
region places a call to someone in a different region, the cost may be several
times lower than if the call originated from the opposite location. This
difference provides an opportunity tooffer what is referred to as a call-back
service. Call-back services have been used in the international long distance
market to bypass expensive long distance charges in certain countries (such as
the Philippines, Lebanon, United Arab Emirates, and numerous others). A more
recent development is the use of call-back services in conjunction with cellular
phone plans. This allow customers to take advantage of the proliferation of
unlimited incoming cellular plans in certain countries, such as Canada, and use
call-back systems to initiate free or low cost outgoing calls. We
plan to focus on the provision of call-back services for cellular phones. We
anticipate that our initial focus will be directed to the Canadian
market.
Call-back
services:
A
call-back system enables a user to call in a number and hang up. The system will
then call the person and provide him (or her) with a dial-tone to place a
call.
Some
cellular companies offer plans where the customer receives an unlimited or a
large quantity of incoming minutes for free, while only is able to make a
limited numbers of free outgoing minutes. After customers exhaust the free
outgoing minutes, they are charged a high rate per minute, depending on the
carrier and whether a call is placed locally or long distance in the USA and
Canada. A call-back system allows the customer to initiate a call-back from our
system. This makes it an incoming call for the customer and therefore,
free.
The
Market
Cellular
market:
The
cellular market is immensely large worldwide with 2.5 billion cellular
connections as of September 2006 (GSM Association and Ovum – a market research
company as quoted by IDG News Service on September 7, 2006). Cellular
connections do not represent the number of cellular users, since many
subscribers have more than one cellular connection. In addition, these figures
include prepaid accounts that may no longer be active. EtForcast, another market
research company, provides similar figures at just over 2 billion subscribers in
2005 (http://www.etforecasts.com/). EtForcast figures refer to cellular
subscribers rather than cellular connections.
It is
impossible to verify the number of subscriptions to specific plans as cellular
companies do not disclose this information and provide only total numbers of
subscribers. “Unlimited” (or a very large number of) incoming minute plans are
popular with plans being offered by nearly every major cellular service
provider. We intend to pursue the Canadian cellular market through a series of
regional distributors and resellers. We do not plan on allocating any resources
at this point to penetrate the U.S. market and will instead focus exclusively on
the Canadian market.
Our
Products and Services
We have
reviewed available call-back solutions currently in the market in order to
determine how best to develop, deploy and offer our services, and have narrowed
our options to two solutions:
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·
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The
first is to purchase licenses for a commercial call-back package such as
that offered by VoipSwitch
(www.VoipSwitch.com).
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·
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The
second is to use an open source product such as Asterisk2billing
(www.asterisk2billing.org). The software includes call-back functionality.
However, it will require a significant level of customization (See below
under Product Development) and does not include a multi-level reseller
module.
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We
decided that the second option presents the best and most cost effect
opportunity for the Company to develop our service for the following
reasons:
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·
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We
will have license-free software to deploy on as many servers as we need,
whereas choosing the first option will force us to buy software licenses
for every server we deploy.
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·
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We
have the ability to customize the second product and continuously
introduce new products.
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·
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Asterisk2billing
runs over the Linux operating system while VoipSwitch runs over the
Microsoft Windows operating system. Our management belives that
Windows systems are more expensive and require more powerful, and
therefore more expensive, servers as compare to the Linux operating
system. As of April 4, 2007, a single CPU license for Microsoft Server
2003 (Datacenter Server Edition) costs $2,999. Linux operating systems are
free.
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What is
Asterisk2Billing?
Asterisk2Billing
is an open source project (available for download and use for free) with a web
site at www.asterisk2billing.org. Asterisk2billing is a fully featured calling
card platform running on an Asterisk server (Asterisk is an open source free
telephone software available at www.asterisk.org) providing a complete solution
for both prepaid (a customer must pre-pay for service which means that they must
have a positive balance in their account to place a call) and post-paid (a
customer typically pays for services at the end of the month) calling card
services. Its main disadvantage is that it does not have a multiple reseller
module.
We will
be making substantial modifications and additions to the software to meet our
needs as described in our Platform Development section below.
Utalk’s Call-Back
Packages:
We
anticipate that our pricing packages will be either flat-fee, usage-based, or a
combination of the two:
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·
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Flat-fee
packages: A user is charged a flat monthly fee for the service. We
anticipate offering several local and national
packages.
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·
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Usage-based
package: A user is charged by the minute based upon a specified
rate.
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·
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Hybrid
Packages: Hybrid packages combine the above two options. A customer may
have a local or national package which makes his calls to these areas
free. However, he is charged by the minute based upon a specified rate for
calls outside the free calling area of his
plan.
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All
packages will be pre-paid, meaning that a customer must pre-pay for all of the
services used on our web site. All payments will be converted received on our
web site by Paypal (our payment processor) into US funds at the prevailing rate
which will in turn be deposited in our US bank account.
Utalk’s Call-Back Platform
Development:
We must
customize the Asterisk2billing software in order to meet our needs. Our software
development will be primarily conducted by outside contractors supervised
closely by our sole officer and director. The development of our product will
commence as soon as the minimum funding has been secured. Our development tasks
and the approximate durations of these tasks are described below:
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·
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Selection
of Software Development Contractor: Mr. Hleiss will lead the selection of
one or more contractors in order to install and modify the software to fit
our needs. Mr. Hleiss will develop a request for quotations that will be
sent to several contractors. The selection will be based on price,
experience and track record. We expect the selection process to take 1
month following the offering.
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|
·
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Specifications
and high-level design: We expect that we will complete specifications for
the product and finish high-level design 2 months after the selection of a
software contractor. This will include the development of specifications
for new software elements (referred to as modules) to be developed and
those to be modified. This will be an interactive process between our
management and the software
contractor.
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|
·
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Development
Infrastructure deployment: This will include the purchase of two servers.
One server will be used for development while the other one is used for
the deployment of the product. The installation of the
operating system, Asterisk software and the Asterisk2 billing software is
believed to take two weeks. This task will be performed by the software
contractor.
|
Reseller
Portals: We will be designing a reseller portal (a portal is a web site where
resellers can track their sales, customers and balances) which does not
currently exist in Asterisk2Billing. We will be supporting up to 3 levels of
resellers. Our software will also support affiliates. Affiliates are those who
simply refer customers to our service. These can be individuals, web sites or
companies who do not want to directly sell the service.
Rather,
affiliates simply refer customers to a reseller and the affiliate earns a
commission from reseller. Resellers can build their own affiliate program and
use our software to track sales and to compensate affiliates
accordingly.
Administrative
Portal: The system shall have an administrative portal. While there exists
currently an administrative portal in Asterisk2billing, it does not have any
tools to manage resellers. Therefore, we will modify the administrative portal
in order add support for reseller administration. We expect that this task will
take one month to complete.
Customer
Portal or web page: We will be modifying the existing customer portal to make it
more aesthetically appealing to our customers and to increase its utility and
functionality. We will also enable the customer to add funds to their account
from the customer portal using credit card or through Paypal. We have chosen
Paypal (http://www.paypal.com) to act as our credit card merchant. Paypal is a
financial company that accepts and clears all customer credit card payments on
behalf of participating merchants, such as our Company.
There are
no short or long term contracts or obligations associated with the use of
PayPal. Each reseller wishing to accept credit card or Paypal payment must
establish a Paypal merchant account. We expect that the customer portal will
take 30 days to finish.
We have
outsourced the development and deployment of our Call-back service to Netfone
Inc. We have paid Netfone Inc. USD $12,000 to perform these tasks. We anticipate
the delivery of the product in the forth quarter of 2008. We may opt to use
Netfone Inc. to host and maintain the service on our behalf, we will pay them
USD $200 per month.
Utalk’s Call-Back Platform
Deployment:
The
production system will consist of a high-end server. We will also have a lower
end server to serve as a backup in case of failure in the primary
server.
The
system will be located in a data center. A data center is a facility used to
house mission critical computer systems and associated components. The data
center will include environmental controls (air conditioning, fire suppression,
etc.), redundant/backup power supplies, redundant data communications
connections and high security.
In order
for our system to be able to place and receive calls, it is necessary to connect
to phone service providers. We will avoid the larger carriers since they
generally impose large monthly fees and minimum revenue commitments. There are
many VoIP companies on the market that supply VoIP phone connectivity at a low
cost with low commitment levels. Some also provide space, for a fee, in which to
house our servers. This will allow us to directly connect to their equipment
which will increase reliability and quality of the calls and reduce the Internet
traffic cost. We have not entered into any agreements or contracts with any such
VoIP companies.
Our
selection of the VoIP company will depend on:
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·
|
Price
|
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·
|
Quality
of both national and international
connectivity
|
|
·
|
Location
of the data center where the VoIP company is
located.
|
Sales
and distribution
We
anticipate offering our services through distributors and resellers. We do not
currently have any agreements or contracts with any distributors or
resellers.
Resellers
We expect
to be able to support three levels of resellers. We refer to them as Levels I,
II and III resellers.
Level I
resellers are typically substantial organizations with strong distribution
networks (for example a calling card company or a company involved in the resale
of long distance services). Level I resellers can opt to have their own brand
name (in which case, they may set their own prices) or sell under one of Utalk’s
brand names. They will have the ability to add, suspend and manage Level II and
III resellers.
Level II
resellers typically recruit and manage multiple Level III resellers. They will
also have the ability to add, suspend and manage Level III
resellers.
Level III
resellers are the individuals, stores and web sites that sell directly to the
end user. They have the ability to create end user accounts as well as add
credit to them.
Exclusive Regional
Resellers
We may
grant Level I resellers regional exclusivity. In such a case, we will set
revenue targets for the reseller as a requirement to maintaining its
exclusivity. This target will depend on the market size of the territory. If the
reseller fails to meet the revenue target, we will retain the right to revoke
the exclusivity. The exclusive reseller will be responsible for recruiting other
resellers within the territory. The grant of exclusivity will be based on, in
addition to other factors, the following:
-
Strength of organization in the region.
-
Track record in this industry
-
Commitment to spend advertising dollars
-
The size of the region and its market potential.
The
territory of the exclusive reseller will depend on the size of the market and
the sale volume produced by said reseller.
We
believe our strategy of focusing on offering the Company’s services through
resellers rather than directly to the end user will allow us to capture a larger
market share at a significantly lower cost. If this strategy ultimately proves
to be successful, we will have ready access to the potentially large customer
bases serviced by resellers.
The
advantage for the reseller is immediate access to lucrative services without the
need to invest in building and maintaining such systems as well as continuously
updating their service offering. It will also enable them to focus on core
competencies and up-selling services to their customer base.
Revenue
model
Our
revenue will be earned from direct and wholesale sales. Direct sales will be
revenue from brands that we own. These brands are marketed to the end users
directly by Utalk or through a network of resellers. Wholesale sales are
revenues earned by enabling other service providers to utilize the Company’s
call-back services.
Direct
sales:
In this
case, the Company will collect revenue from the end users through credit card
payment using Paypal. When paying through Paypal, we will reserve a portion of
the money for the resellers and affiliates and keep the rest. Our system will
automatically calculate the revenue sharing between Utalk and the different
levels of resellers. Any such revenue sharing arrangement will be determined
based upon prevailing market conditions and will be re-evaluated on a regular
basis.
Wholesale:
In this
model, a Level I reseller will brand our solution under their name. They will
wholesale services at a rate agreed upon with the Company, and then resell them
at prices of their choosing. The wholesaler must pre-pay for services and their
clients will not be able to place calls if the wholesaler balance with us is
negative. The wholesaler is set as a reseller Level I in our system and will be
able to have two levels of resellers working for them in addition to
affiliates.
Marketing
strategy
We plan
on using “Cost per Click” (“CPC”) web based advertising to gain traffic to our
website. Under this program, we will design our own ads, target locations (ie.
countries or regions) and keywords. A “keyword” is another term for “search
term”. When someone is searching for information on the internet, they will
usually visit a search engine such as Yahoo or Google and type in some words
describing what they are looking for. The search engine then returns results
based upon the words submitted. Search engines such as Google have their own CPC
advertising programs. We will be focusing on Google (Adwords) for primary
campaigns. Google is the most popular search engine and we believe it will
provide us with the greatest potential amount of traffic exposure.
With CPC
advertising, we only pay for actual clicks on the ad, which will then be
directed through to our website. CPC-based advertising allows businesses to pay
only for the leads they receive. According to www.businessnation.com, over 80%
of people start their search through a search engine when they need to find
specific information online. In addition, businessnation.com reports that
consumers are 5 times more likely to purchase from search listings, 7 times more
likely to view search listings and 20 times more likely to click on search
listings, when compared to banner.
We
believe this is the most cost effective and targeted audience advertising we can
obtain with our limited resources. This method will enable us to control our
advertising costs with respect to our target market through control over the
search terms, titles and description for each listing. Furthermore, we can
control the amount to pay for each listing and the maximum amount we wish to
spend on a daily basis. It also allows us to pause or alter the advertising. The
keywords will focus on search results, which we believe will be most related to
our product.
We also
plan on selling our product through an Affiliate Marketing Program (“APM”). An
APM is a form of profit sharing program that is widely accepted and utilized in
internet commerce. We will implement our website based APM program, which will
effectively track and account for affiliate activity. Under the APM, we pay
other website owners commission for referring customers who make a
purchase. Participating website owners provide links, such as
banners, to our products on their own websites. We are planning to
payout commissions of 10-20% of the product purchase price as an incentive to
sell our products for each referred customer who uses or services.
Our APM
management tools will also be available to our resellers who may choose to
develop their own APM program. Our advertising will be largely targeted to
recruiting resellers and service providers to adopt and resell our
service.
In
addition to Google advertising, we intend to advertise on websites such as
Linkshare.com, Commissiongroup.com, Affiliateprograms.com, and in periodicals
such as Revenue Today magazine (www.revenuetoday.com) - all of which are
targeted to affiliate marketing prospects and products. Affiliates will signup
directly on our website, or through one of the affiliate marketing sites listed
above. We believe the benefits of affiliate marketing far outweigh the
commission costs, given our current position as a startup with no revenue.
Affiliate marketers provide increased exposure to our product, incur the cost of
generating traffic and save us the cost of hiring a sales and marketing force,
until we have the resources to do so.
Our
business model anticipates the creation of a network of established multi-level
reseller partners in our target market areas to reach our potential end
users. We believe we offer reseller partners certain advantages,
including:
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·
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Fast
Time to Market - By taking advantage of our existing infrastructure and
software solution, a distributor's service can be up and running within
days.
|
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·
|
Operational
Freedom - By outsourcing application management to us, resellers can focus
on critical resources, revenue generation and business development
functions.
|
|
·
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Customization
- Our resellers are able to customize our solution to suit the needs of
their end user client base.
|
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·
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24/7
Access - Resellers or end users have access to applications via the
Internet on a 24/7 basis.
|
|
·
|
Private
Label Solution - Our branded solutions offer distributors and agents the
ability to build their own branded services in their territory. Our
services are designed to be privately labeled and can be customized to
meet the reseller's "look and feel" in addition to business
processes.
|
Branding:
Utalk
expects to introduce multiple service brands into the market with different
price points. While this may dilute the value of the Utalk brand, it is a common
practice by calling-cards companies. It may be necessary to create a specific
brand for a marketing agency who wants to be exclusively marketing this
brand.
Intellectual
Property
We do not
have any patents or patent-pending applications. We currently have no
plans to seek patent protection, although we do not exclude that this may become
a possibility in the future. We will maintain ownership of the software
developed and do not intend to release the source code to anyone. Resellers will
have rights to use the software to sell our services but will not own the
software or have any ownership rights to it. They will also not be allowed to
modify the software in any fashion.
Competition
While
there are many companies that focus on the international market for call-back
services, we intend to focus solely on the delivery of call-back services in
Canada. We are aware of only three companies that are focused on cellular phone
subscribers in Canada. Notwithstanding, other such companies may in fact exist
and it is very likely that they do. One company which we are aware of is
Globalive Communications Corp. (http://www.globalive.com), a private company
based in Toronto, Canada and offer services through Yak Communications (Canada)
Corp. (http://www.yak.com/). Its call-back product is named YakCallback.
However, they charge by the minute and do not offer flat fee monthly rates.
Another such company is IMC Telecom (http://www.imctelecom.com/) which offers
service in cities in Canada such as Montreal, Ottawa, Toronto, Calgary and
Vancouver. The third company, a private company based in Vancouver, Canada, is
Packetera Communications Inc. which is in the beta stage of their call-back
service. Packetera advertises its service under the “itokk” brand name
(http://www.itokk.com/).
We
believe that we have the following competitive advantages:
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·
|
We
expect to enable other service providers to deliver the same service over
our platform but with that service provider’s own
branding
|
|
·
|
We
will be one of the first companies to focus on the Canadian cellular
market We are currently aware of two competitors on the market. The first
is Yak.com and they charge over 3.5 cents per minute. We expect to match
this rate for usage based plans but will also offer flat monthly plans
($10 for local calling, $15 for national calling and $20 for free calling
in Canada and USA). The other competitor, Evoiphone charges $10 for
unlimited calling, but limits its service to a few
markets.
|
|
·
|
We
will have reduced operational costs since we anticipate that such costs
can be spread over multiple resellers and other service
providers.
|
|
·
|
Our
resellers and service providers will be able to focus on marketing and
sales, without the need to expend resources on support and operational
issues.
|
Government
Regulation
The
telecommunications sector in Canada is regulated by the Canadian
Radio-television and Telecommunications Commission (CRTC). However, we are not
aware of any ruling, prohibition, or restriction on the use of callback services
in Canada.
Privacy
Regulations
Since we
will be collecting confidential information about our customers including
personal information (name, address, and telephone numbers), payment information
(credit card, bank details, etc.) and phone calling history, we will be enacting
measures to ensure the privacy of the customer data. Such measures will include
strong encryption of the data and strong access control to the data where only
authorized persons are able to do so. We do not intend to share our customer
data with anyone except if mandated by a government regulation (e.g., Patriot
Act).
As of
2006, Canadian business and private sector organizations are subject to federal
or provincial privacy protection legislation governing both customer and, with
some exceptions, employee information.
Effective
as of January 1, 2001, the Canadian federal government enacted the Personal
Information Protection and Electronic Documents Act (PIPEDA). PIPEDA applies to
federally-regulated private sector organizations (i.e., organizations in the
transportation, communications, broadcasting, federal banking and offshore
sectors, as well as in Canada’s three territories), and to other private sector
organizations in provinces that have not enacted “substantially similar”
legislation. It applies to personal information and health information that is
collected, used or disclosed in the course of commercial activity that takes
place across the Canadian border, between provinces, and within a Canadian
province that has not enacted “substantially similar” legislation.
To date,
Alberta and British Columbia have joined Québec in enacting their own private
sector privacy legislation. Each of the Québec, British
Columbia and Alberta statutes has been recognized as “substantially similar” by
the Canadian federal government.
(http://www.osler.com/resources.aspx?id=8686).
Employees
We have
no employees other than our sole officer and director, Mazen
Hleiss. As such, Mr. Hleiss has been responsible for all business
planning, and operational duties, and will continue to perform these duties
throughout the early stages of our growth. During this time, Mr. Hleiss will
supervise the development and deployment of our software.
We have
outsourced the development and deployment of our Call-back service to Netfone
Inc. We have paid Netfone Inc. USD $12,000 to perform these tasks. We anticipate
the delivery of the product in the forth quarter of 2008. We may opt to use
Netfone Inc. to host and maintain the service on our behalf, we will pay them
USD $200 per month.
We
anticipate that after the development of our product, we will need to hire a
sales and support assistant who will be responsible for answering customer and
reseller inquiries and providing basic support.
Results
of Operations
From the
date of our incorporation on January 30, 2007 to March 31, 2008, we have been a
development stage company that has generated no revenues.
January
1 – September 30, 2008 compared to the period from inception (January 30, 2007)
to September 30, 2007.
We posted
an operating loss of $5,624 and $13,907 for the three and nine month period
ended September 30, 2008 compared to operating losses of $1,862 and 10,988 for
periods ended September 30, 2007, and operating losses of $37,353 from inception
(January 30, 2007) to September 30, 2008. The principal
component of the increase was due to an increase in general and administrative
and accounting expenses.
Our
operating expenses for the three and nine month period ended September 30, 2008
compared to the period ended September 30, 2007 are classified primarily into
the following two categories:
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·
|
Accounting
fees for the year end audit. The amount incurred by our company
during for the three and nine month periods ended September 30, 2008 was
$3,000 and $7,524 respectively, compared to the period ended September 30,
2007 of $1,279;
|
|
·
|
General
and administrative expenses. The amount incurred by our company
during for the three and nine month periods ended September 30, 2008 was
$2,624 and 6,383, compared to the period ended September 30, 2007 of $583
and $927.
|
Financial
Condition, Liquidity and Capital Resources
We are in
the process of developing Call-back services. We expect that we will be able to
offer service toward the end of 2008. Principal capital resources
have been acquired through the issuance of common stock.
At
September 30, 2008, we had working capital of $14,147.
At
September 30, 2008, we had assets of $38,147.
At
September 30, 2008, our total liabilities were $8,500.
At
September 30, 2008 we had cash on hand of $12,548.
Plan
of Operation
From the
date of our incorporation on January 30, 2007 to September 30, 2008, we have
been a start up company that has not generated revenues.
We have
not generated any revenues since our inception. To date, we have
engaged in the following activities:
Our sole
officer and director has conducted preliminary market research relating to
call-back services, as well as the software to be used in connection with our
anticipated service. In addition, we have reserved a domain name,
www.utalklive.com, for our Company at a cost of approximately $30 per year. We
have also acquired web and email hosting (up to 4 emails) for $240 per
year.
We have
retained a contractor for the development of our web site and marketing and
corporate collateral for $3,500. We expect that the product will be delivered by
the end of September 2008.
We have
retained a company for the development and deployment of call-back services. A
payment of $12,000 was made for the development of our product and we expect
that the product will be delivered by the end of 2008. Our Director will be
working closely on the development of the services.
During
the next twelve months following the termination of our offering, we intend to
engage in the following activities:
October through December,
2008
During
this period, we expect to achieve the following:
|
·
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Complete
the development of the software
|
|
·
|
Complete
the formulation of a marketing and sales
strategy
|
|
·
|
Complete
the development of our marketing
collateral
|
|
·
|
Purchase
and configuration of computer servers to deploy our call-back
services
|
|
·
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Initiate
sales activities
|
January through March,
2009
During
this period, we expect to achieve the following:
|
·
|
Launch
our advertising campaign to attract
resellers
|
|
·
|
Launch
our service in Canada
|
April through
June2009
|
·
|
Make
our service available to resellers
|
|
·
|
If
we have enough funding, continue the development of our
product
|
July 2009
and thereafter
During
this period, we plan to focus on our marketing and sales effort.
Employees
As of
September 30, 2008, we have no employees.
Personnel
Plan
We do not
currently plan to add more personnel to our company until the product
development is completed when wee expect to hire a sales assistant. As we start
offering service, we will consider outsourcing customer support or hiring
additional personnel.
Cash
Requirements
Presently,
our revenues are not sufficient to meet our operating and capital
expenses. Management projects that we will require additional funding
to expand our current operations, although we anticipate that our current funds
will enable us to address our minimal current and ongoing expenses and continue
with the marketing and promotion activity connected with the development and
marketing of our call-back products and services throughout the period ending
September 30, 2009.
There is
some doubt about our ability to continue as a going concern as the continuation
of our business is dependent upon the successful and sufficient market
acceptance of new call-back products and services, the continuing successful
promotion of our call-back products and services, obtaining additional
financing, and finally, maintaining a break even or profitable level of
operations. The issuance of additional equity securities by us will result in a
dilution in the equity interests of our current
stockholders. Obtaining commercial loans, assuming those loans would
be available, will increase our liabilities and future cash
commitments.
We have
incurred operating losses since inception. As we had cash on hand of
$12,548 as at September 30, 2008, management projects that we may require an
additional $50,000 to fund our ongoing operating expenditures, offering expenses
and working capital requirements for the twelve month period ending September
30, 2009, broken down as follows:
Estimated
Funding Required During the Twelve Month Period Ending September 30,
2009
|
Operating
expenditures
|
||||
|
Marketing
& Sales
|
$ | 15,000 | ||
|
General
and Administrative
|
$ | 20,000 | ||
|
Product
development and deployment
|
$ | 7,000 | ||
|
Working
capital
|
$ | 13,000 | ||
|
Total
(including Offering Costs)
|
$ | 50,000 | ||
Due to
the uncertainty of our ability to meet our current operating and capital
expenses, in their report on the annual financial statements for the period from
incorporation on January 30, 2007 to September 30, 2008, our independent
auditors included an explanatory paragraph regarding concerns about our ability
to continue as a going concern. Our financial statements contain
additional note disclosures describing the circumstances that lead to this
disclosure by our independent auditors.
There are
no assurances that we will be able to obtain further funds as may be required
for our continued operations. If required, we will pursue various
financing alternatives to meet our immediate and long-term financial
requirements, which we anticipate will consist of further private placements of
equity securities, advances from related parties or shareholder
loans. We have not entered into any definitive agreements with any
shareholders or related parties for the provision of loans or
advances. There can be no assurance that additional financing will be
available to us when needed or, if available, that it can be obtained on
commercially reasonable terms. If we are not able to obtain the
additional financing on a timely basis, we will not be able to meet our other
obligations as they become due and we will be forced to scale down or perhaps
even cease our operations.
Purchase
of Significant Equipment
We do not
anticipate that we will expend any significant amount on equipment for our
present or future operations.
Going
Concern
Due to
our being a development stage company and not having generated revenues, in
their report on our financial statements for the period from incorporation on
January 30, 2007 to September 30, 2008, our independent auditors included an
explanatory paragraph regarding concerns about our ability to continue as a
going concern. Our financial statements contain additional note disclosures
describing the circumstances that lead to this disclosure.
We have
historically incurred losses, and through September 30, 2008 have incurred
losses of $37,353 from our inception. Because of these historical losses, we
will require additional working capital to develop our business operations. We
intend to raise additional working capital through private placements, public
offerings, bank financing and/or advances from related parties or shareholder
loans.
The
continuation of our business is dependent upon obtaining further financing and
achieving a break even or profitable level of operations. The issuance of
additional equity securities by us could result in a significant dilution in the
equity interests of our current or future stockholders. Obtaining commercial
loans, assuming those loans would be available, will increase our liabilities
and future cash commitments.
There are
no assurances that we will be able to either (1) achieve a level of revenues
adequate to generate sufficient cash flow from operations; or (2) obtain
additional financing through either private placements, public offerings and/or
bank financing necessary to support our working capital requirements. To the
extent that funds generated from operations and any private placements, public
offerings and/or bank financing are insufficient, we will have to raise
additional working capital. No assurance can be given that additional financing
will be available, or if available, will be on terms acceptable to us. If
adequate working capital is not available we may not increase our
operations.
These
conditions raise substantial doubt about our ability to continue as a going
concern. The financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amount and
classification of liabilities that might be necessary should we be unable to
continue as a going concern.
Application
of Critical Accounting Policies
Our
financial statements and accompanying notes are prepared in accordance with
generally accepted accounting principles in the United
States. Preparing financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets,
liabilities, revenue, and expenses. These estimates and assumptions are affected
by management’s application of accounting policies. We believe that
understanding the basis and nature of the estimates and assumptions involved
with the following aspects of our financial statements is critical to an
understanding of our financials.
In
preparing financial statements in conformity with generally accepted accounting
principles, management is required to make estimates and assumptions that affect
the reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and revenues and
expenses during the reported period. Actual results could differ from
those estimates.
For
purposes of the cash flow statements, we consider all highly liquid investments
with original maturities of three months or less at the time of purchase to be
cash equivalents.
Property
and equipment are stated at cost and depreciated using the declining balance
method over estimated economic useful life of 5 years. Maintenance
and repairs are charged to expense as incurred. Major improvements
are capitalized.
The
carrying amounts of our stockholder loan payable approximate fair value due to
the relatively short period to maturity for this instrument.
We
account for income taxes under the Financial Accounting Standards Board
Statement of Financial Accounting Standards No. 109 "Accounting for Income
Taxes" (“Statement 109”). Under Statement 109, deferred tax assets
and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. Under Statement 109, the effect on deferred
tax assets and liabilities of a change in tax rates is recognized in income in
the period that includes the enactment date.
We
recognize revenue when persuasive evidence of an arrangement exists, delivery
has occurred, the fee is fixed or determinable and collectability is
assured. We recognize revenue from usage, storage and system
modifications at the time the services are performed.
Basic and
diluted net loss per common share is computed based upon the weighted average
common shares outstanding as defined by Financial Accounting Standards No. 128,
“Earnings Per Share.” As of September 30, 2008, there were no common
share equivalents outstanding.
Basis
of Presentation
The
accompanying audited financial statements of the Company have been prepared in
accordance with accounting principles generally accepted in the United States of
America and the rules of the Securities and Exchange Commission.
Capitalized
Website Costs
Utalk
follows AICPA Statement of Position 98-1: “Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use” as well as EITF 00-02:
“Accounting for Web Site Development Costs”. In accordance with SOP
98-1 and EITF 00-02, internal costs incurred to develop a web site to be used
for commercial purposes are charged to expense when incurred until technological
feasibility has been established for the web site. Technological feasibility is
established upon completion of a detailed program design or, in its absence,
completion of a working model. After technological feasibility is established,
the costs of coding and testing and other costs of producing product masters are
capitalized. Cost capitalization ceases when the product is available for
general release to customers.
Capitalized
website development costs are amortized over the web sites estimated useful life
once it is available for general use by customers. Annual amortization is the
greater of straight-line over the product's estimated useful life or the percent
of the product's current-year revenues as compared to the product's anticipated
future revenues.
Capitalized website
development costs are evaluated for impairment on a product-by-product basis by
a comparison of the unamortized capitalized costs to the product's net
realizable value. The amount by which the unamortized capitalized costs exceed
the net realizable value is recognized as an impairment
charge.
Recently
Issued Accounting Pronouncements
Utalk
does not expect the adoption of any recently issued accounting pronouncements to
have a significant impact on their financial position, results of operations or
cash flows.
Item
4. Controls and Procedures
As
required by Rule 13a-15 under the Exchange Act, as of the end of the period
covered by this quarterly report, being September 30, 2008, we have carried out
an evaluation of the effectiveness of the design and operation of our company’s
disclosure controls and procedures. This evaluation was carried out
under the supervision and with the participation of our company’s management,
including our company’s president and chief financial officer. Based
upon that evaluation, our company’s president along with our company’s chief
financial officer concluded that our company’s disclosure controls and
procedures are not effective as at the end of the period covered by this
report. There have been no changes in our company’s internal controls
that occurred during our most recent fiscal quarter that have materially
affected, or are reasonably likely to materially affect our internal controls
subsequent to the date we carried our evaluation.
Disclosure
controls and procedures and other procedures that are designed to ensure that
information required to be disclosed in our reports filed or submitted under the
Exchange Act is recorded, processed, summarized and reported, within the time
period specified in the Securities and Exchange Commission’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 president and chief financial officer
as appropriate, to allow timely decisions regarding required
disclosure.
In the
quarter ended September 30, 2008, the Company did not make any significant
changes in, nor take any corrective actions regarding, its internal controls or
other factors that could significantly affect these controls.
Part
II - OTHER INFORMATION
Item
1. Legal Proceedings.
We know
of no material, active or pending legal proceedings against our company, nor are
we involved as a plaintiff in any material proceeding or pending
litigation. There are no proceedings in which any of our directors,
officers or affiliates, or any registered or beneficial shareholder, is an
adverse party or has a material interest adverse to our interest.
Item
1A. Risk Factors
RISK
FACTORS
Much of
the information included in this quarterly report includes or is based upon
estimates, projections or other “forward-looking statements.” Such
forward-looking statements include any projections or estimates made by us and
our management in connection with our business operations. While these
forward-looking statements, and any assumptions upon which they are based, are
made in good faith and reflect our current judgment regarding the direction of
our business, actual results will almost always vary, sometimes materially, from
any estimates, predictions, projections, assumptions, or other future
performance suggested herein. We undertake no obligation to update
forward-looking statements to reflect events or circumstances occurring after
the date of such statements.
Such
estimates, projections or other “forward-looking statements” involve various
risks and uncertainties as outlined below. We caution readers of this quarterly
report that important factors in some cases have affected and, in the future,
could materially affect actual results and cause actual results to differ
materially from the results expressed in any such estimates, projections or
other “forward-looking statements”. In evaluating us, our business and any
investment in our business, readers should carefully consider the following
factors.
Risks
Associated With Our Business
We
are a development stage company and may never be able to effectuate our business
plan or achieve any revenues or profitability; at this stage of our business,
even with our good faith efforts, potential investors have a high probability of
losing their entire investment.
We were
established on January 30, 2007 and have no operating history. We are
in the development stage and are subject to all of the risks inherent in the
establishment of a new business enterprise. We have had no revenue to
date. Our operations to date have been focused on organizational,
start-up, preliminary market research, and fund raising activities. As a
development stage company, the Company is a highly speculative venture involving
significant financial risk. It is uncertain as to when we will become
profitable, if ever.
There is
nothing at this time on which to base an assumption that our business operations
will prove to be successful or that we will ever be able to operate profitably.
We may not be able to successfully effectuate our business plan. There can be no
assurance that we will ever achieve any revenues or profitability. The revenue
and income potential of our proposed business and operations is unproven as the
lack of operating history makes it difficult to evaluate the future prospects of
our business. Accordingly, our prospects must be considered in light of the
risks, expenses and difficulties frequently encountered in establishing a new
business.
We
expect losses in the future and as a result, we may not be able to continue
operations. Unless we are able to generate revenues and make a profit, our
stockholders may lose their entire investment in us.
We expect
to incur losses over the next twelve months because we do not yet have any
revenues to offset the expenses associated with the development and the
marketing of our of our call-back service. We cannot guarantee that we will ever
be successful in generating revenues in the future. We recognize that if we are
unable to generate revenues, we will not be able to earn profits or continue
operations and as a result our stockholders may lose their entire investment in
us. There is no history upon which to base any assumption as to the
likelihood that we will prove successful, and we can provide investors with no
assurance that we will generate any operating revenues or ever achieve
profitable operations.
If
our business strategy is not successful, we may not be able to continue
operations as a going concern and our stockholders may lose their entire
investment in us.
As
discussed in the Notes to Financial Statements included in this registration
statement, we incurred a net loss of $37,353 for the period January 30, 2007
(inception) to September 30, 2008. This factor raises substantial doubt that we
will be able to continue operations as a going concern, and our independent
auditors included an explanatory paragraph regarding this uncertainty in their
report on our financial statements for this period. Our ability to
continue as a going concern is dependent upon our generating cash flow
sufficient to fund operations and reduce operating expenses. If we cannot
continue as a going concern, our stockholders may lose their entire investment
in us.
We
will not be able to generate revenue unless and until we successfully develop
our call-back system.
The
Company expects to incur operating losses over the next twelve months because we
have no plan to generate revenue unless and until we are successful in
developing our call-back system. We anticipate relying upon third parties to
develop such call-back system. We cannot guarantee that we will ever be
successful in developing the call-back system or in generating revenues in the
future. We recognize that if we are unable to generate revenues, we will not be
able to earn profits or continue operations. We can provide investors
with no assurance that we will generate any operating revenues or ever achieve
profitable operations.
We
are heavily dependent upon Mr. Mazen Hleiss, our sole officer and
director. The loss of Mr. Hleiss, or the inability to contract with
qualified third parties, whose knowledge, leadership and technical expertise
upon which we rely, would harm our ability to execute our business
plan.
We are
dependent on the continued contributions of Mazen Hleiss, our sole officer,
whose knowledge, leadership and experience would be difficult to
replace. We do not maintain any key person insurance on our officer.
If we were to lose his services, our ability to execute our business plan would
be harmed, and we may be forced to cease operations until such time as we can
hire suitable replacements. As we anticipate relying upon third-parties to
develop our call-back system, if we are unable to contract with such qualified
third-parties we will not be able to develop our system. As such, we will not be
able to generate revenues or continue operations.
Since
our sole officer and director works for other companies, his other activities
could slow down our operations and we may not be able to successfully effectuate
our business plan.
Mazen
Hleiss, our sole officer does not work exclusively for us and does not devote
all of his time to our operations. Therefore, it is possible that a
conflict of interest with regard to his time may arise based upon his employment
with other companies. His other activities may prevent him from
devoting his full-time to our operations which could slow our operations and
consequently may reduce our financial results. It is expected that
Mr. Hleiss will only be available to the Company on a part-time basis and may
devote approximately twenty hours per week to our operations on an ongoing
basis. Mr. Hleiss has other part-time employment obligations which do
not preclude him from devoting up to 20 hours per week to Company business. If
our sole officer and director does not devote sufficient time towards our
business, we may never be able to effectuate our business plan.
We
expect to rely heavily on resellers and distributors of our call-back system in
order to generate revenues. If we fail to contract with resellers and
distributors, we may not be able to generate sufficient revenues to continue
operations. As a result, our stockholders may lose their entire investment in
us.
Our
Company expects to rely heavily on a network of resellers and distributors of
our call-back system and services as a primary source of revenues. We have no
contracts or agreements with any resellers or distributors to resell our
call-back services. We cannot provide any assurances that we will be able to
successfully contract with any such resellers and distributors. If we fail to do
so, we may not be able to generate sufficient revenues to continue operations.
Accordingly, our stockholders may lose their entire investment in
us.
If
we are unable to obtain additional funding in the future, our business
operations will be harmed. Even if we do obtain additional financing, our then
existing shareholders may suffer substantial dilution.
We expect
that the net proceeds of the offering to which this prospectus relates, even if
only the minimum number of shares are sold, will be sufficient to fund the
operating expenses associated with the development of our call-back system and
our proposed marketing and distribution program for the next twelve months. If
our expenses over the next twelve months exceed our budgeted expenses, we may
need to raise additional funds to pay for such additional expenses. Such
additional funds may come from the sale of equity and/or debt securities and/or
loans. It is possible that additional capital will be required to effectively
support our operations and to otherwise implement the Company’s overall business
strategy. The inability to raise the required capital will restrict our ability
to grow and may reduce our ability to continue to conduct business operations.
If we are unable to obtain necessary financing, we will likely be required to
curtail our development plans which could cause the Company to become dormant.
We currently do not have any arrangements or agreements to raise additional
capital. Any additional equity financing may involve substantial dilution to our
then existing shareholders.
We
may not be able to compete with current and potential competitors, some of whom
have greater resources and experience than we do.
The
call-back services market in which we operate is subject to rapid technological
changes. We may not have the resources to compete with our existing competitors
or with any new competitors. Our competitors have significantly greater
personnel, financial, managerial, and technical resources than we do. This
competition from other companies with greater resources and reputations may
result in our failure to maintain or expand our business as we may never be able
to develop customers for our products and services.
Our
lack of business diversification could have a negative impact on our financial
performance if we do not generate revenue from our products or such revenues
decrease.
We expect
that our business will consist solely of the development of a call-back system
and sale of call-back services. We currently have no other planned lines of
business or other sources of revenue. Our lack of business diversification could
cause us to be unable to generate revenues since we do not have any other lines
of business or alternative revenue sources other than the sale of our all-back
platform and service.
If
we fail to develop and maintain an effective system of internal controls, we may
not be able to accurately report our financial results or prevent fraud; as a
result, current and potential shareholders could lose confidence in our
financial reports, which could harm our business and the trading price of our
common stock.
Effective
internal controls are necessary for us to provide reliable financial reports and
effectively prevent fraud. Section 404 of the Sarbanes-Oxley Act of 2002
requires us to evaluate and report on our internal controls over financial
reporting and have our independent registered public accounting firm annually
attest to our evaluation, as well as issue their own opinion on our internal
controls over financial reporting, beginning with our Annual Report on Form
10-KSB for the fiscal year ended December 31, 2008. We plan to prepare for
compliance with Section 404 by strengthening, assessing and testing our system
of internal controls to provide the basis for our report. The process of
strengthening our internal controls and complying with Section 404 is expensive
and time consuming, and requires significant management attention. We cannot be
certain that the measures we will undertake will ensure that we will maintain
adequate controls over our financial processes and reporting in the future.
Furthermore, if we are able to rapidly grow our business, the internal controls
that we will need will become more complex, and significantly more resources
will be required to ensure our internal controls remain effective. Failure to
implement required controls, or difficulties encountered in their
implementation, could harm our operating results or cause us to fail to meet our
reporting obligations. If we or our auditors discover a material weakness in our
internal controls, the disclosure of that fact, even if the weakness is quickly
remedied, could diminish investors’ confidence in our financial statements and
harm our stock price. In addition, non-compliance with Section 404 could subject
us to a variety of administrative sanctions, including the suspension of
trading, ineligibility for listing on one of the Nasdaq Stock Markets or
national securities exchanges, and the inability of registered broker-dealers to
make a market in our common stock, which would further reduce our stock
price.
Because
we do not have an audit or compensation committee, shareholders will have to
rely on our sole director, who is not independent, to perform these
functions.
We do not
have an audit or compensation committee comprised of independent directors.
Indeed, we do not have any audit or compensation committee. These functions are
performed by, Mazen Hleiss, our sole director and officer. Thus,
there is a potential conflict of interest in that our sole director and officer
has the authority to determine issues concerning management compensation and
audit issues that may affect management decisions.
Our
principal stockholder, who is also our sole officer and director, owns a
controlling interest in our voting stock. Therefore, investors will not have any
voice in our management, which could result in decisions adverse to our general
shareholders.
Mazen
Hleiss, our sole officer and director beneficially owns 100% of our outstanding
common stock. Assuming all shares in this offering are sold, Mr. Hleiss will own
87% of our outstanding common stock. As a result, Mr. Hleiss will have the
ability to control substantially all matters submitted to our stockholders for
approval including:
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election
of our board of directors;
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removal
of any of our directors;
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amendment
of our Articles of
Incorporation or bylaws; and
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adoption
of measures that could delay or prevent a change in control or impede a
merger, takeover or other business combination involving
us.
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As a
result of his ownership and positions, our director and executive officer will
be able to influence all matters requiring shareholder approval, including the
election of directors and approval of significant corporate transactions. In
addition, the future prospect of sales of significant amounts of shares held by
our director and executive officer, could affect the market price of our common
stock if the marketplace does not orderly adjust to the increase in shares in
the market and the value of your investment in the Company may decrease.
Management’s stock ownership may discourage a potential acquirer from making a
tender offer or otherwise attempting to obtain control of us, which in turn
could reduce our stock price or prevent our stockholders from realizing a
premium over our stock price.
We
will rely on a Voice over Internet Protocol (“VoIP”) provider for our telephone
connections; any delay, interruption or financial difficulties by our VoIP
provider would result in delayed or reduced rate of service to our future
customers and may harm our business.
We
anticipate relying upon a third-party VoIP services provider to provide
telephone connectivity for our call-back services. We do not have any contracts
or agreements with any such VoIP provider. We do not anticipate having any
control over the operations of our VoIP provider, and as result, any delay,
interruption or financial difficulties by such provider would result in delayed,
interrupted or reduced rates of service to our future customers which may harm
our business.
Changes
in the exchange rates between the United States dollar and foreign currencies
may be volatile and may negatively impact our costs which could adversely affect
our operating results.
When
operating in foreign countries, such as Canada, we expect to incur a certain
amount of our expenses from our operations in foreign currency and translate
these amounts into United States dollars for purposes of reporting operating
results. As a result, fluctuations in foreign currency exchange rates may
adversely affect our expenses and results of operations, as well as the value of
our assets and liabilities. Fluctuations may adversely affect the comparability
of period-to-period results. In addition, we anticipate holding foreign currency
balances, which will create foreign exchange gains or losses, depending upon the
relative values of the foreign currency at the beginning and end of the
reporting period, which may affect our net income and earnings per share.
Although we may use hedging techniques in the future (which we currently do not
use), we may not be able to eliminate the effects of currency fluctuations.
Thus, exchange rate fluctuations could have a material adverse impact on our
operating results and stock price.
Future
legislation or regulation of the internet and/or internet commerce services,
could restrict our business, prevent us from offering service or increase our
cost of doing business, which could result in a loss of revenue.
At
present there are few laws, regulations, or rulings that specifically address
access to or commerce on the internet. We are unable to predict the impact, if
any, that future legislation, legal decisions, or regulations concerning the
Internet may have on our business, financial condition, and results of
operations. Regulation may be targeted towards, among other things, assessing
access or settlement charges, imposing taxes related to internet commerce,
imposing tariffs or regulations based on encryption concerns or the
characteristics and quality of products and services. Any such regulation could
restrict our business or increase our cost of doing business and consequently a
loss of future revenue.
Risks
Associated with Our Common Stock
We
may, in the future, issue additional common shares, which would reduce
investors' percent of ownership and may dilute our share value.
Our
Articles of Incorporation authorize the issuance of 50,000,000 shares of common
stock, of which 4,470,000 shares are issued and outstanding. The
future issuance of common stock may result in substantial dilution in the
percentage of our common stock held by our then existing shareholders. We may
value any common stock issued in the future on an arbitrary basis. The issuance
of common stock for future services or acquisitions or other corporate actions
may have the effect of diluting the value of the shares held by our investors,
and might have an adverse effect on any trading market for our common
stock.
Our
common shares are subject to the "Penny Stock" Rules of the SEC and the trading
market in our securities is limited, which makes transactions in our stock
cumbersome and may reduce the value of an investment in our stock.
The
Securities and Exchange Commission has adopted Rule 15g-9 which establishes the
definition of a "penny stock," for the purposes relevant to us, as any equity
security that has a market price of less than $5.00 per share or with an
exercise price of less than $5.00 per share, subject to certain exceptions. For
any transaction involving a penny stock, unless exempt, the rules
require:
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that
a broker or dealer approve a person's account for transactions in penny
stocks; and
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the
broker or dealer receive from the investor a written agreement to the
transaction, setting forth the identity and quantity of the penny stock to
be purchased.
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In order
to approve a person's account for transactions in penny stocks, the broker or
dealer must:
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obtain
financial information and investment experience objectives of the person;
and
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make
a reasonable determination that the transactions in penny stocks are
suitable for that person and the person has sufficient knowledge and
experience in financial matters to be capable of evaluating the risks of
transactions in penny stocks.
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The
broker or dealer must also deliver, prior to any transaction in a penny stock, a
disclosure schedule prescribed by the Commission relating to the penny stock
market, which, in highlight form:
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sets
forth the basis on which the broker or dealer made the suitability
determination; and
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that
the broker or dealer received a signed, written agreement from the
investor prior to the transaction.
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Generally,
brokers may be less willing to execute transactions in securities subject to the
“penny stock” rules. This may make it more difficult for investors to dispose of
our Common shares and cause a decline in the market value of our
stock.
Disclosure
also has to be made about the risks of investing in penny stocks in both public
offerings and in secondary trading and about the commissions payable to both the
broker-dealer and the registered representative, current quotations for the
securities and the rights and remedies available to an investor in cases of
fraud in penny stock transactions. Finally, monthly statements have to be sent
disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stocks.
There
is no current trading market for our securities and if a trading market does not
develop, purchasers of our securities may have difficulty selling their
shares.
There is
currently no established public trading market for our securities and an active
trading market in our securities may not develop or, if developed, may not be
sustained. We intend to have a market maker apply for admission to quotation of
our securities on the NASD Over The Counter Bulletin Board after the
registration statement relating to this prospectus is declared effective by the
SEC. We do not yet have a market maker who has agreed to file such
application. If for any reason our common stock is not quoted on the
Over The Counter Bulletin Board or a public trading market does not otherwise
develop, purchasers of the shares may have difficulty selling their common stock
should they desire to do so. No market makers have committed to becoming market
makers for our common stock and none may do so.
Because
we do not intend to pay any cash dividends on our common stock, our stockholders
will not be able to receive a return on their shares unless they sell
them.
We intend
to retain any future earnings to finance the development and expansion of our
business. We do not anticipate paying any cash dividends on our common stock in
the foreseeable future. Unless we pay dividends, our stockholders will not be
able to receive a return on their shares unless the value of such shares
appreciates and they sell them. There is no assurance that stockholders will be
able to sell shares when desired.
Other
Risks
Because
our officer and director is located in non-U.S. jurisdictions, you may have no
effective recourse against the management for misconduct and may not be able to
enforce judgement and civil liabilities against our officers, directors, experts
and agents.
Our
director and officer, Mazen Hleiss, is a nationals and/or resident of country
other than the United States, specifically Lebanon, and all or a substantial
portion his assets are located outside the United States. As a result, it may be
difficult for investors to enforce within the United States any judgments
obtained against our officer or director, including judgments predicated upon
the civil liability provisions of the securities laws of the United States or
any state thereof.
Item
2. Unregistered Sales of
Equity Securities and Use of Proceeds.
We sold
470,000 shares at $0.10 per share during the six months ended September 30,
2008.
Item
3. Defaults Upon Senior
Securities.
None.
Item
4. Submission of Matters to
a Vote of Security Holders.
None.
Item
5. Other
Information.
None.
Item
6. Exhibits.
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Description
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3.1
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Certificate
of Incorporation of Registrant*
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3.2
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Bylaws
of Registrant*
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4.1
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Specimen
Common Stock Certificate*
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10.1
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HQ
Agreement, dated July 16, 2007, between Utalk Communications, Inc. and
Regus Management Group, LLC*
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10.2
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Regus
Agreement, dated December 12, 2007, between Utalk Communications, Inc. and
Regus Management Group, LLC*
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10.3
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Form
of Subscription Agreement*
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31
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32
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_____________
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*
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Previously
filed as an exhibit to the Registration Statement on Form SB-2 (File No.
333-148266) filed with the Securities and Exchange Commission on December
21, 2007
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SIGNATURES
In
accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
UTALK
COMMUNICATIONS, INC.
By: /s/
“Mazen
Hleiss”
Mazen
Hleiss, President, Secretary, Treasurer and Director
(Principal
Executive Officer, Principal Financial Officer
and
Principal Accounting Officer)