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 June 30, 2008
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from _________ to __________
Commission file number 333-148266
Utalk Communications, Inc.
(Exact name of small business issuer as specified in its charter)
Nevada 98-0530295
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Seaford Fifth Avenue Plaza
800 5th Avenue, Suite 4100, Seattle WA
(Address of principal executive offices)
206.224.4108
(Issuer's telephone number)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
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 [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] 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 August 8, 2008.
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):
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Small reporting company [X]
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Unaudited Balance Sheets as of June 30, 2008 and
December 31, 2007 3
Unaudited Statements of Expenses for the periods ended
June 30, 2008 and 2007 4
Unaudited Statements of Cash Flows for the periods ended
June 30, 2008 and 2007 5
Notes to the Unaudited Financial Statements 6
2
Utalk Communications Inc.
(A Development Stage Company)
Balance Sheets
Unaudited
June 30, December 31,
2008 2007
-------- --------
ASSETS
Current:
Cash $ 26,472 $ 7,552
Prepaid expenses 299 299
-------- --------
Total Current Assets 26,771 7,851
Software and website development 15,500 --
-------- --------
Total Assets $ 42,271 $ 7,851
======== ========
LIABILITIES
Current:
Accounts payable and accrued liabilities $ -- $ 11,299
Due to stockholder 7,000 --
-------- --------
Total Liabilities 7,000 11,299
-------- --------
STOCKHOLDERS` EQUITY (DEFICIT)
Common stock authorized -
50,000,000 common shares, par value $0.001, 4,470,000 and
4,000,000 shares issued and outstanding, respectively 4,470 4,000
Additional paid in capital 62,530 16,000
Deficit accumulated during the development stage (31,729) (23,448)
-------- --------
Total Stockholders' Equity (Deficit) 35,271 (3,448)
-------- --------
Total Liabilities and Stockholders' Equity( Deficit) $ 42,271 $ 7,851
======== ========
The accompanying notes are an integral part of these financial statements
3
Utalk Communications Inc.
(A Development Stage Company)
Statements of Expenses
Unaudited
Period from Period from
Inception Inception
Three Months Three Months Six Months (Jan 30, 07) (Jan 30, 07)
Ended Ended Ended to to
June 30, June 30, June 30, June 30, June 30,
2008 2007 2008 2007 2008
---------- ---------- ---------- ---------- ----------
Operating expenses:
Accounting fees $ 2,274 $ -- $ 4,524 $ -- $ 9,597
Legal fees -- 8,782 -- 8,782 16,282
General and administrative 1,568 344 3,757 344 5,850
---------- ---------- ---------- ---------- ----------
Net loss $ (3,842) $ (9,126) $ (8,281) $ (9,126) $ (31,729)
========== ========== ========== ========== ==========
Basic and diluted loss per common share $ (a) $ (a) $ (a) $ (a)
========== ========== ========== ==========
Weighted average number of common
shares outstanding - Basic and Diluted 4,470,000 4,000,000 4,327,995 4,000,000
========== ========== ========== ==========
----------
(a) Less than $0.01 per share
The accompanying notes are an integral part of these financial statements
4
Utalk Communications Inc.
(A Development Stage Company)
Statements of Cash Flows
Unaudited
Period from
Inception
Six Months January 30, 2007 (January 30, 2007)
Ended to to
June 30, June 30, June 30,
2008 2007 2008
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (8,281) $ (9,126) $(31,729)
Changes in assets and liabilities:
Increase in prepaid expenses -- -- (299)
Increase (Decrease) in accounts payable (11,299) -- --
-------- -------- --------
Net cash used in operating activities (19,580) (9,126) (32,028)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of software and website development (15,500) -- (15,500)
CASH FLOWS FROM FINANCING ACTIVITIES
Advances from stockholder 7,000 210 7,000
Sale of stock 47,000 20,000 67,000
-------- -------- --------
Net cash provided by financing activities 54,000 20,210 74,000
-------- -------- --------
Increase in cash 18,920 11,084 26,472
Cash, beginning of period 7,552 -- --
-------- -------- --------
Cash, end of period $ 26,472 $ 11,084 $ 26,472
======== ======== ========
Supplemental disclosure of cash flow information:
Taxes paid $ -- $ -- $ --
-------- -------- --------
Interest paid $ -- $ -- $ --
-------- -------- --------
The accompanying notes are an integral part of these financial statements
5
Utalk Communications Inc.
(A Development Stage Company)
Notes to Unaudited Financial Statements
June 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
June 30, 2008, Utalk has not generated any revenue since inception and has
accumulated losses of $31,729. 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.
6
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.
7
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 to offer 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.
8
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:
* The first is to purchase licenses for a commercial call-back package
such as that offered by VoipSwitch (www.VoipSwitch.com).
* 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.
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:
* 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.
* We have the ability to customize the second product and continuously
introduce new products.
* 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.
9
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:
* Flat-fee packages: A user is charged a flat monthly fee for the
service. We anticipate offering several local and national packages.
* Usage-based package: A user is charged by the minute based upon a
specified rate.
* 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.
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:
* 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.
* 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.
* 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
10
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:
* Price
* 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.
11
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.
12
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:
* 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.
13
* Operational Freedom - By outsourcing application management to us,
resellers can focus on critical resources, revenue generation and
business development functions.
* Customization - Our resellers are able to customize our solution to
suit the needs of their end user client base.
* 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:
* 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.
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* 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 Quebec in enacting their own
private sector privacy legislation. Each of the Quebec, 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.
15
JANUARY 1 - JUNE 30, 2008 COMPARED WITH THE PERIOD FROM INCEPTION (JANUARY 30,
2007) TO JUNE 30, 2007.
We posted an operating loss of $3,842 and $8,281 for the three and six month
period ended June 30, 2008 compared to operating losses of $9,126 for the three
month period ended June 30, 2007, and operating losses of $31,729 since
inception (January 30, 2007) to June 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 six month period ended June 30, 2008
compared to the period ended June 30, 2007 are classified primarily into the
following two categories:
* Accounting fees for the year end audit. The amount incurred by our
company during for the three and six month periods ended June 30, 2008
was $2,274 and $4,524 respectively, compared to the period ended June
30, 2007 of $Nil;
* General and administrative expenses. The amount incurred by our
company during for the three and six month periods ended June 30, 2008
was $1,568 and 3,757, compared to the period ended June 30, 2007 of
$344.
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 June 30, 2008, we had working capital of $19,771.
At June 30, 2008, we had assets of $42,271.
At June 30, 2008, our total liabilities were $7,000.
At June 30, 2008 we had cash on hand of $26,472.
PLAN OF OPERATION
From the date of our incorporation on January 30, 2007 to June 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 $3500. 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:
16
JULY THROUGH SEPTEMBER, 2008
During this period, we expect to achieve the following:
* 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
* Initiate sales activities
OCTOBER THROUGH DECEMBER, 2008
During this period, we expect to achieve the following:
* Launch our advertising campaign to attract resellers
* Launch our service in Canada
* Make our service available to resellers
* If we have enough funding, continue the development of our product
JANUARY, 2009 AND THERE AFTER
During this period, we plan to focus on our marketing and sales effort.
EMPLOYEES
As of March 31, 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
June 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
17
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
$26,472 as at June 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 June 30,
2009, broken down as follows:
Estimated Funding Required During the Twelve Month Period Ending June 30, 2008
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 June 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 June 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 March 31, 2008 have incurred
losses of $31,729 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
18
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 June 30, 2008, there were no common share
equivalents outstanding.
19
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 June 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 June 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.
20
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
21
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 $31,729 for the period January 30, 2007
(inception) to June 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
22
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
23
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:
* election of our board of directors;
* removal of any of our directors;
* amendment of our Articles of Incorporation or bylaws; and
* adoption of measures that could delay or prevent a change in control
or impede a merger, takeover or other business combination involving
us.
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
24
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:
* that a broker or dealer approve a person's account for transactions in
penny stocks; and
* 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.
In order to approve a person's account for transactions in penny stocks, the
broker or dealer must:
* obtain financial information and investment experience objectives of
the person; and
* 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.
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:
* sets forth the basis on which the broker or dealer made the
suitability determination; and
25
* that the broker or dealer received a signed, written agreement from
the investor prior to the transaction.
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 June 30,
2008.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
26
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
Exhibit Description
------- -----------
3.1 Certificate of Incorporation of Registrant*
3.2 Bylaws of Registrant*
4.1 Specimen Common Stock Certificate*
10.1 HQ Agreement, dated July 16, 2007, between Utalk Communications,
Inc. and Regus Management Group, LLC*
10.2 Regus Agreement, dated December 12, 2007, between Utalk
Communications, Inc. and Regus Management Group, LLC*
10.3 Form of Subscription Agreement*
31 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002, dated March 30, 2008.
32 Certification pursuant to 18 U.S.C. SECTION 1350 as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated
March 30, 2008.
----------
* 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
27
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)
Date: August 8, 2008
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