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Home My WebLink About20061003Application.pdfMy Tel Co, Inc. 445 Hamilton Avenue, Suite 408 White Plains, New York 10601 (914) 948-5550 !"" \ji:f)Qr t.', f....i.. ,,- 2000 OC1 -3 PM \2: 24 10;\\10 P~b~\Q,,\O\! UTILITIES COr\AI~ JJ\~~ It Ms. Jean Jewell, Secretary Idaho Public Utilities Commission 472 West Washington State House Boise, ID 83720-0074 JI1-rc~ -t-- 6 b - Re: Application to provide facilities-based local exchange and resale interexchange service for My Tel Co, Inc. Dear Ms. Jewell: Enclosed for filing please find one original and three copies for the application of My Tel Co, Inc. to provide facilities-based local exchange and resale interexchange service within the State of Idaho. Please acknowledge receipt of this filing by returning one copy of this transmittal letter date stamped in the self-addressed stamped envelope enclosed for that purpose. Any question regarding this filing may be directed to (914) 948-5550, or mabbagnaro~cordiacorp.com. Thank you for your assistance. Sincerely, Assistant General Counsel APPLICATION FOR CERTIFICATION ON BEHALF OF MY TEL CO, INC. I. Proposed Services Applicant intends on providing local and interexchange services in the geographic area currently served by Qwest Communications, Inc. Applicant will not build its own facilities but rather resell telecommunications services utilizing the underlying network of its affiliate s network. Affliate is a competitive local exchange carrier. Applicant intends on marketing to residential and small business consumers in the State of Idaho utilizing a third-party telemarketing firm. Applicant may, in the future, conduct in-house telemarketing of its services. Prior to this application, Applicant has not served any consumers within the State of Idaho. II. Form of Business 1. Applicant is a corporation formed in the State of New York; attached to this application is a certified copy of its Articles of Incorporation. Also attached is Applicant's certificate of authority to do business in the State of Idaho. The legal name and address of applicant are: My Tel Co, Inc. 445 Hamilton Avenue, Suite 408 White Plains, New York 10601 Applicant intends on operating as a local and long distance telecommunications reseller. Applicant does not intend on maintaining a physical location in the State of Idaho however its registered agent in the State is National Registered Agents, Inc., 10985 Cody, Suite Ill Overland Park, KS 06724. Applicant's principal business address is stated above. 2. Applicant is a wholly-owned subsidiary of Cordia Corporation (CORG.OB). 3. Applicants Officers & Directors: Patrick Freeman - President/Director Wesly Minella - Secretary 4. Cordia Corporation owns a 100% interest in Applicant. 5. Applicant does not own or control any subsidiaries. My Tel Co, Inc. Application for Certification Page 2 of 3 III. Telecommunication Service 1. Applicant does not propose the construction of facilities, as it will be utilizing the underlying network of its affiliate company to conduct business. Applicant proposes to begin providing service upon the Commission s approval of its application and tariff. 2. Applicant proposes to offer local and long distance telecommunications services to residential and business customers. IV. Service Territory 1. My Tel Co, Inc. will be offering telecommunications services in the territories within the State of Idaho in which Qwest Communications, Inc. currently offers services. Qwest is the only incumbent local exchange carrier with whom My Tel Co, Inc. is likely to compete. 2. Applicant intends to resell the services of its affiliate company. Applicant will not be constructing facilities and does not anticipate owning property within the State of Idaho. 3. Applicant is likely to compete with Qwest Communications, Inc. and the other competitive local exchange carriers that offer services in the Qwest territories within the State of Idaho. 4. Applicant does not own property related to its services and operation in the State of Idaho. V. Financial Information 1. Attached is the Applicants Form 10-QSB as filed with the Securities and Exchange Commission for the period ended June 30, 2006 and from 10-KSB as filed with the Securities Exchange Commission for the period ended December 31, 2005. VI. "Illustrative" Tariff Filings Illustrative Tariff is attached to this application. VII. Customer Contacts 1. Customers may contact My Tel Co, Inc. Customer service at 13275 West Colonial Drive Winter Garden, Florida, 800 871-2250 for inquiries or complaints. 2. The Commission may contact Claude Abbew, My Tel Co, Inc., 445 Hamilton Avenue, Suite 408 , White Plains , New York 10601 psc~mytelco.for complaint resolution. The Commission may contact Claude Abbew for matters concerning rates and price lists or tariffs at 914-948-5550 xl083 or cabbew~cordiacorp.com My Tel Co, Inc. Application for Certification Page 3 of 3 . VIII. Interconnection Agreements Applicant has not commenced interconnection negotiations with Qwest Communications Inc. It is Applicant's intention to provide services utilizing the network of its affiliate company. IX. Compliance with Commission Rules Applicant has reviewed and agrees to comply with all of the Commission s rules. X. Escrow Account or Security Bond The company does not require advance deposits by its customers and therefore will not be submitting an executed copy of an escrow account with a bonded escrow agent or a security bond. MY TEL CO, INC. FINANCIAL INFORMATION Form 10-QSB Period Ended June 30 , 2006 Form 10-KSB Period Ended December 31 2005 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-QSB (Mark One) (X) Quarterly report under Section 13 or 15( d) of the Securities exchange Act of 1934 For the quarterly period ended June 30, 2006 ( ) Transition report under Section 13 or 15(d) of the Exchange Act For the transition period from Commission File Number: CORDIA CORPORATION ----------------------------------------------------------------------- (Exact Name of Small Business Issuer as Specified in Its Charter) Nevada 11-2917728 ------------------------------------------------------------------- (State or Other Jurisdiction of (I.R.S. Employer Identification No. Incorporation or Organization) 13275 W. Colonial Drive, Winter Garden, Florida 34787 ---------------------------------------------------------------------- (Address of Principal Executive Offices) 866-777 -7777 --- - -- ------ - - ---- --- -- - --- (Issuer s Telephone Number, Including Area Code) Check whether the issuer (l) 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 beensubject to such filing requirements for the past 90 days. Yes ( X) No ( ) Indicate by check mark whether the registrant is a shell company (as defmed in Rule 12b-2 ofthe Exchange Act). Yes ( ) No ( X ) APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Check whether the registrant filed all documents and reports required to be filed by Section 12 , 13 or 15(d) of the Exchange Act after the distribution of securities under a plan conflrI11edby a court. Yes ( ) No ( ) APPLICABLE ONLY TO CORPORATE ISSUERS As of August 7 2006, there were 5 808 774 shares of the issuer s common stock outstanding. Transitional Small Business Disclosure Format (check one):Yes ( ) No (X) PART I. Item 1. Item 2. Item 3. PART II. Item 1. Item 2. Item 3. Item 4. Item 5. Item 6. Signatures Certifications CORDIA CORPORA nON FORM lO-QSB T ABLE OF CONTENTS Financial Information ......................................................................,................................................. Financial Statements: Condensed Consolidated Balance Sheets - June 30, 2006 (unaudited) and December 31 , 2005.................................................................................................................. Condensed Consolidated Statements of Operations - Six and Three months ended June 30, 2006 and 2005 (unaudited)........................................................................................ Condensed Consolidated Statements of Cash Flows - Six months ended June 30 2006 and 2005 (unaudited) ..................................................................................,.,................. Notes to Financial Statements (unaudited) .................................................................................. Management's Discussion and Analysis or Plan of Operation.......................................................... Controls and Procedures.................................................................................................................... Other Information ............................................................................................................................. Legal Proceedings Unregistered Sales of Equity Securities and Use of Proceeds Defaults Upon Senior Securities Submission of Matters to a Vote of Security Holders Other Infonnation Exhibits ................................................................................................,..........."""""""""""""".'." ....................................................................................................................................,.............................................................................................................................................................,................... Page No. ITEM 1. FINANCIAL STATEMENTS CORDIA CORPORA nON AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS Propertv and equipment. at cost Office and computer equipment Computer software Leasehold improvements June 30,December 31. 2006 2005 unaudited 496.889 944.840 992,966 1.401 058 526.638 992.833 609,910 514.576 255,000 332.534 350 278 000 7231 886 9463 841 187 991 787.809 993.560 602,012 341612 255.050 523.163 1.644.871 742 600 354430 1 780 563 I 290 441 383,3 17 278 749 216,358 662066 216358 674 515 $ 10.970.640 ASSETS Current Assets Cash and cash equivalents Cash-restricted Accounts receivable, less allowance for doubtful accounts of $1.091.471 (2006) and $864.827 (2005) Prepaid expenses Accrued usage receivable Deferred tax assets TOT AL CURRENT ASSETS Less: Accumulated depreciation/amortization NET PROPERTY AND EOUIPMENT Other Assets Goodwill Security deposits and other assets TOTAL ASSETS LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities Current portion. capital lease obligations Accounts pavable Accrued expenses Income taxes pavable Unearned income Loans pavable - other 11.536 11,099 2.332,724 708,784 723.612 260.304 69,690 109 000 1.062 889 1.161 562 57 000 7200451 8 307 749 53.518 45,410 86.456 000 44 285 50165 184 104.575 TOTAL CURRENT LIABILITIES Noncurrent Liabilities Deferred rent Deferred income taxes Capital lease obligation, net of current TOTAL NONCURRENT LIABILITIES COMMITMENT AND CONTINGENCIES Stockholders' Equity Preferred stock, $0,001 par value; 000,000 shares authorized. 707.800 (2006) and 797,800 (2005) shares issued and outstanding Common stock, $0,001 par value: 100,000,000 shares authorized. 808,774 (2006) and 5,639,410 (2005) shares issued and outstanding Additional paid-in capital Comprehensive (loss) Accumulated deficit 708 798 809 639 025,745 054,606 (3,881) 642 578 (3 406 729) 2.385,803 654,314 95 998 (95,998) 2 289 805 558,316 674 515 $ 10,970 640 Less: Treasury stock. at cost, 177 694 common shares TOTAL STOCKHOLDERS' EQUITY TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY See notes to condensed consolidated financial statements. CORDIA CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) Six Months Ended Three Months Ended June 30 June 30 2006 2005 2006 2005 Revenues Telecommunications Revenue $18 968 420 $18 937 569 070 079 808 379 Other 320 629 374 713 152 651 210 079 289 049 312 282 222 730 018 458 Cost of Revenues Resale and wholesale line charges 307 422 003 113 989 481 978 400 Gross Profit 981 627 309 169 233 249 040 058 Operating Expenses Sales and Marketing 536 465 166 126 818 587 291 893 Provision for Doubtful Accounts 600 615 309 399 780 003 237 459 General and Administrative 561 774 877 426 782 580 015 916 Depreciation 426 239 780 238 263 761 125 093 441 731 619 433 601 029 Operating (Loss) Income (143 466)867 438 (386 184)439 029 Other Income (Expenses) Interest income 913 830 555 878 Interest expense 323)(I 4 466) (I,260)935) 590 636)295 057) (Loss) Income Before Income Taxes (140 876)860 802 (385 889)437 972 Income Tax Provision (Benefit)973 (47 030) Net (Loss) Income $ (235,849)860 802 $(338 859)$ 437 972 Basic (Loss) Income per share (0,04)(0,06) Weighted Average Common Shares Outstanding 580,740 504 890 631,080 503 254 Diluted (Loss) Income per share (0,04)(0,06) Weighted Average Common and Common Equivalent Shares Outstanding 580 740 943 675 631 080 536,092 See notes to condensed consolidated financial statements, CORDIA CORPORA TlION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) Effect of exchange rate changes on cash For the Six Months Ended June 30 2006 2005 $ (235 849)860 802 027 500 600 615 309 399 426 239 780 973 408 092 3-61 057) (134 420)893 745) (102 833)(225,389) 534 (21 986) (80 055)(70,750) (29 752) (338 930)(541 195) (536 692)562 113 (39 309) (98 673)389 986 108 1,420 017 075 855,122 (391 548)(260 977) (86 562)(113 693) (400 182)(219 972) (211,410) (1,089 594.642 1,455 000 443) (57 000) (309 000) (40,000) (371 443)415 000 881) (447 951)(34,764) 944 840 300 119 496 889 265 355 180 250 78,315 Cash Flows From Operating Activities Net (loss) income from continuing operations Adjustments to reconcile net (loss) income to net cash provided (used) by operations Compensatory stock expense Provision for doubtful accounts Depreciation expense Deferred income taxes (Increase) decrease in assets, net of acquisition: Restricted cash Accounts receivable Prepaid expenses and other current assets Accrued usage receivable Security deposits Other long term assets Increase (decrease) in lia:,ilities: Accounts payable Accrued expenses Income taxes payable Unearned income Deferred rent NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES Cash Flows from Investing Activities Capitalized software costs Leasehold improvements Purchase of property and equipment Payment for acquisition ofTriamis, net of cash acquired NET CASH USED BY INVESTING ACTIVITIES Cash Flows From Financing Activities Net proceeds from issuance of preferred stock Principal payments on capital leases Payments of loans payable to affiliaes Purchase of stock warrants Purchase of treasury stock NET CASH (USED) PROVIDED BY FINANCING ACTIVITIES Decrease in Cash Cash, beginning Cash, ending Supplemental Disclosures of Cash Flow Information: Cash paid during the quarter for: Interest Income Tax Supplemental disclosure of non-cash investing and financing activities: Restricted common stock issued: 000 shares for investor relations agreement valued at $45 000 (18 000 shares earned and expensed) Stock issued in Triamis acquisitions Conversion of preferred stock into common Purchase accounting adjustment for goodwill - $ 200 000 000 001 500 See notes to condensed consolidated financial statements, CORDIA CORPORA nON AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 2006 (Unaudited) Note 1: Basis of Presentation Our unaudited condensed consolidated fmancial statements have been prepared in accordance with the instructions to Form 10-QSB and do not include all of the information and disclosures required by accounting principles generally accepted in the United States of America, Therefore, these fmancial statements should be read in conjunction with the fmancial statements and related footnotes included in our Annual Report on Form 10-KSB for the most recent year- end. These fmancial statements reflect all adjustments that are, in the opinion of management, necessary to fairly state the results for the interim periods reported, The results of operations for the three and six month periods ended June 2006, are not necessarily indicative of the results to be expected for the full year. The condensed consolidated fmancial statements include the accounts of Cordia Corporation ("Cordia ) and the accounts of our wholly owned subsidiaries Cordia Communications Corp. ("CCC"), My Tel Co, Inc ("My Tel" Cordia International Corp. ("CIC") and its subsidiaries, and CordiaIP Corp, ("CordiaIP") as of June 30, 2006 and for the six and three months ended June 30, 2006 and 2005. Cordia and its subsidiaries are collectively referred to herein as the "Company." All material intercompany balances and transactions have been eliminated, Certain amounts in the 2005 condensed consolidated financial statements have been reclassified to conform to the current period presentation, Note 2: Restricted Cash At June 30, 2006, the Company held three Certificates of Deposit ("CD') totaling $967 000 plus accrued interest of approximately $26 000, The CD's secure Letters of Credit ("LOC'), which were required as a result of the contract with Verizon Communications, Inc, ("Verizon ) and are shown as restricted cash on the balance sheet due to the inability to withdraw the funds prior to maturity. During the quarter a fourth CD representing $400 000 plus accrued interest of$13 OOO matured and its accompanying LOC expired. Subsequent to the balance sheet date, in July 2006, a CD representing $17 000 plus accrued interest of approximately $523 matured and its accompanying LOC expired, As of the date of this filing, we have two CD' securing LOC's that mature and expire in March 2007 and total $950 000 plus accrued interest of approximately $25 000, The LOC's are not renewable upon their expiration. Note 3: Acquisition On February 15 2006, the Company, through its subsidiary CIC, completed the acquisition of Triamis Group Limited Triamis ), a privately held Hong Kong corporation, We acquired a 100% interest in Triamis by purchasing its outstanding stock, which totaled 10 000 shares, for a cash purchase price of $200 000 and the equivalent of $200 000 in shares of Cordia s common stock, or 79 364 shares of common stock, which at the time had a cash value of $2, per share, Triamis is a provider of WiFi and Voir services in the Asian Pacific region. The results of operations of Triamis have been included in our consolidated results of operations subsequent to its acquisition on February 15 2006. CORDIA CORPORA nON AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 2006 (U naudited) Note 3: Acquisition (cont' The values of assets acquired were estimated at fair market value, The following table presents an allocation of the purchase price based on the estimated fair values of the assets acquired and the liabilities assumed at the date of acquisition: Total consideration 417 162 Less: cash balance acquired 751 411 411 Allocated to: Other current assets 457 Property, plant and equipment, net 610 Current liabilities assumed (12 973) Goodwill 383 317 411 411 Goodwill was recorded based on the residual purchase price after allocating the purchase price to the fair market value of tangible and intangible assets acquired less liabilities assumed. In accordance with F AS 142 "Goodwill and Other Intangible Assets " (" SFAS 142") goodwill will not be amortized but will be tested at least annually for impairment. The unaudited pro forma fmancial information for the six months ended June 30, 2005 was deemed immaterial and has not been provided. Further, unaudited pro forma financial information for the six months ended June 30, 2006 has not been provided as Triamis had minimal operations during the period from January 1 2006 through February 15 2006, the date of acquisition. Note 4: Foreign Currency Transactions The functional currency of Triamis, is the local currency, the Hong Kong dollar ("HK$"). For this foreign operation the assets and liabilities have been translated into US dollars using period-end exchange rates in effect as of the balance sheet date and revenue and expenses have been translated using average daily exchange rates for the period, The resulting cumulative translation adjustment is included in comprehensive (loss) as a separate component of stockholders' equity in the condensed consolidated balance sheet for the period from February 15, 2006 (date of acquisition) through June 30, 2006 and aggregated approximately $3 900, Note 5: Employee Stock Compensation On May 23 , 2003, Cordia s shareholders voted to amend the 2001 Equity Incentive Plan (the "Plan ) by authorizing an additional 1 000 000 shares. The total number of shares of Cordia s common stock authorized for issuance under the Plan is 6 000 000, subject to adjustment for events such as stock dividends and stock splits, All stock options under the Plan are granted at the fair market value of the common stock at the grant date. Employee stock options vest ratably over a three or four-year period and generally expire five (5) years from the grant date. Effective January 1 , 2006, the Plan is accounted for in accordance with the recognition and measurement provisions of Statement of Financial Accounting Standards ("FAS") No. 123 (revised 2004), Share-Based Payment ("FAS 123(R)"), which replaces FAS No. 123 , Accounting for Stock-Based Compensation, and supersedes Accounting Principles Board Opinion ("APB") No. 25, Accounting for Stock Issued to Employees, and related interpretations, FAS 123(R) requires compensation costs related to share-based payment transactions, including employee stock options, to be recognized in the financial statements. In addition, the Company adheres to the guidance set forth within Securities and Exchange Commission ("SEC") Staff Accounting Bulletin ("SAB") No, 107, which provides the Staffs views regarding the interaction between FAS 123(R) and certain SEC rules and regulations and provides interpretations with respect to the valuation of share-based payments for public companies. - 7- CORDIA CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 2006 (Unaudited) Note 5: Employee Stock Compensation (cont' Prior to January 1 , 2006, the Company accounted for similar transactions in accordance with APB No, 25 , which employed the intrinsic value method of measuring compensation cost. Accordingly, compensation expense was not recognized for fixed stock options if the exercise price of the option equaled or exceeded the fair value of the underlying stock at the grant date, While FAS No, 123 encouraged recognition of the fair value of all stock-based awards on the date of grant as expense over the vesting period, companies were permitted to continue to apply the intrinsic value-based method of accounting prescribed by APB No, 25 and disclose certain pro-forma amounts as if the fair value approach of F 123 had been applied. In December 2002, FAS No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure, an amendment of F AS 123, was issued, which, in addition to providing alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based employee compensation, required more prominent pro-forma disclosures in both the annual and interim fmancial statements. The Company complied with these disclosure requirements for all applicable periods prior to January 1, 2006. In adopting F AS 123(R), the Company applied the modified prospective approach to transition, Under the modified prospective approach, the provisions of FAS 123(R) are to be applied to new awards and to awards modified repurchased, or cancelled after the required effective date. Additionally, compensation cost for the portion of awards for which the requisite service has not been rendered that are outstanding as of the required effective date shall be recognized as the requisite service is rendered on or after the required effective date. The compensation cost for that portion of awards shall be based on the grant-date fair value of those awards as calculated for either recognition or pro-forma disclosures under FAS 123, As a result of the adoption of F AS 123(R), the Company s results of operations for the six and three month periods ended June 30, 2006 include share-based compensation expense totaling approximately $80 500 and $64,400 respectively, and are reflected in the Condensed Consolidated Statements of Operations within general and administrative expense. No deferred tax asset has been recognized in the income statement for share-based compensation arrangements, There was no stock compensation expense reported, under APB No. 25 , for the three and six months ended June 30, 2005, Stock option compensation expense in 2006 is the estimated fair value of options granted amortized on a straight-line basis over the vesting period for the entire portion of the award. The Company has not adjusted the expense by estimated forfeitures, as required by FAS 123(R) for employee options, since the forfeiture rate based upon historical data was determined to be immaterial. The Plan is administered by a committee of the board of directors having full and fmal authority and discretion to determine when and to whom awards should be granted, The committee will also determine the terms, conditions and restrictions applicable to each award, Transactions under the Plan for the six months ended June 30, 2006 are summarized as follows: Stock Octions Weighted Average Exercise Price Weighted Average Remaining Contractual Life Aggregate Intrinsi Value Outstanding at,December 31, 2005 148 000 $1.27 Granted with 3 year vesting Exercised Expired 312 500 $1.81 (12 000) Outstanding at June 30, 2006 1,448 500 $1.39 1.80 $433,1 Exercisable at June 30, 2006 077,792 $1.24 2.30 $433,' CORDIA CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 2006 (Unaudited) Note 5: Employee Stock Compensation (cont' As of June 30, 2006, there were 1 077 792 options outstanding that were exercisable. As of June 30, 2006, there was approximately $461 800 of unrecognized compensation cost, net of estimated forfeitures, related to nonvested stock options, which is expected to be recognized over a weighted average period of approximately two (2) years, Additional information as of June 30, 2006, with respect to all outstanding options is as follows: Range of Prices Number Outstanding Options Outstanding Weighted Average Remaining Contractual Life Weighted Average Exercise Price Options Exercisable Weighted Average Number Exercisable Exercise Price $0.40 - $0.864 000 1.75 $0. $8, 863 438 $0. 151,354 $1.88 000 $8. 077 792 $1.24 $1.22 - $2.521 500 1.63 $1.84 $5,00 - $11.25 000 TOTAL 448 500 1.80 $1.39 There were 312 500 options granted during the six months ended June 30, 2006 and 110 000 options granted during the six months ended June 30, 2005, with weighted average fair value of $1.33 and $0,94 respectively, Pro Forma Information under F AS 123 for Periods Prior to Adoption ofF AS 123(R): The following table illustrates the effect on net income and earnings per share as if the fair value recognition provisions ofFAS 123 had been applied to all outstanding and unvested awards in the prior year comparable periods. Net income. as reported For the Six Months Ended June 30. 2005 $860.802 For the Three Months Ended June 30. 2005 $437.972 Add: Stock-based compensation Included in reported net income Deduct: Total stock based compensation determined under the fair value based method for all awards (no tax effect)61833 798 969 401 845 0.14 0.18 Pro forma net income Net income per share: Basic income per share. as reported Diluted income per share. as reported Basic income per share. pro forma Diluted income per share. pro forma The fair value 'of each option grant was estimated on the date of the grant using the Black-Scholes option-pricing model. The following weighted-average assumptions for 2006 and 2005 issuances averaged an expected volatility of 122% and 75%, respectively; an average risk-free rate of 4.99% and 3.71 %, respectively and all have an expected life of three (3) years, CORDIA CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 2006 (Unaudited) Note 6: Commitments Operating Leases The Company is committed for annual rentals under four (4) separate non-cancelable operating leases for its office space. Future minimum rental commitments under these leases from July 1 2006 to December 31 , 2006 are $198 893 and for the years subsequent to December 31 2006 areas follows: Year Ending December 31 2007 424 483 2008 403 014 2009 354 643 2010 312 218 2011 251 406 Thereafter 169 824 915 588 Rent and other occupancy charges included in operating expenses were $351 533 and $101 439 for the six month periods ended June 30, 2006 and 2005, respectively, and $184 059 and $49 847 for the three month periods ended June 30, 2006 and 2005, respectively, In White Plains, New York we lease (1) approximately 2 840 square feet of office space at a rental price of $4 970 per month plus utilities with incremental annual increases in rent commencing in year three of the lease term and (2) approximately 4 725 square feet at a rental price of $8 663 per month plus utilities with incremental annual increases in rent commencing in year three of the lease term, Both leases are for a term of five years and expire on November , 2008 and July 31 , 2010, respectively, The rent commencement date on the lease expiring in 2010, was August 1 2005, In Winter Garden, Florida we lease approximately 32 000 square feet of office space at a rental price of $18 849 per month plus utilities. Incremental increases in rent commence in year two of the seven and Yz year lease term. The lease term commenced on April 1 , 2005 and the rent commencement date was September 1 2005, In Hong Kong, we lease office space at a rental price of HK $26 258 or approximately US $3 383 per month plus management fees and air conditioning charges totaling HK $4 146 or approximately US $534. The lease provides for a two (2) month rent-free period with a rent commencement date of May 21 , 2006 and an expiration date of March 21 2008, Employee Benefit Plan In 2004, the Company began the Cordia Corporation 401(k) Profit Sharing Plan (the "Plan ) covering all eligible employees. Under the Plan, the Company matches on an elective basis, 50% of the first 6% contributed by the employee, for an aggregate maximum of 3%. Participating employees shall become vested in employer contributions after three (3) years of service. If a participating employee is terminated or resigns before the three (3) year vesting period employer contributions shall be forfeited. The Plan became effective January 1 , 2004, and employee and employer contributions commenced April 16, 2004, 10- CORDIA CORPORATION AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS June 30, 2006 (Unaudited) Note 6: Commitments (cont' For the Plan year beginning on January 1 , 2006, the Company implemented a fully-vested safe harbor matching contribution to all eligible participants. Under the safe harbor matching contribution, the Company matches 100% of employee deferrals up to 3% of compensation, plus 50% of cash deferrals in excess of 3% of compensation not to exceed 5% of compensation. For the six months ended June 30, 2006, employee contributions totaled $47 423 and employer contributions totaled $27 761 as compared to $50 705 and $16 777, respectively for the same period in 2005, For three months ended June 30, 2006, employee contributions totaled $22 413 and employer contributions totaled $13 520 as compared to $19 817 and $8 668, respectively, for the same period in 2005, Note 7: Subsequent Event Our South American efforts include the recent acquisition of a 51 % interest in Canal West Soluc;:5es em Informatica Ltda. ("Canal West"), a Brazilian limited liability partnership, CIC has agreed to invest US$ 45 000 for its 51 % interest in Canal West. This amount is not due to Canal West until its status as a limited liability partnership is transformed into a Sociedade por Ac;:5es which is the equivalent to a u.S. corporation. Canal West is a start-up entity, with limited revenue, providing VoIP services in Brazil over its own proprietary VoIP network, We believe this investment is beneficial for our international expansion into the South American VoIP market. 11- ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERA nON Certain statements in this Report constitute "forward-looking statements." Such forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Factors that might cause such a difference include, among others, uncertainties relating to general economic and business conditions; industry trends; changes in demand for our products and services; uncertainties relating to customer plans and commitments and the timing of orders received from customers; announcements or changes in our pricing policies or that of our competitors; unanticipated delays in the development, market acceptance or installation of our products and services; changes in government regulations; availability of management and other key personnel; availability, terms and deployment of capital; relationships with third-party equipment suppliers; and worldwide political stability and economic growth, The words "believe expect " " anticipate " " intend " " plan " and similar expressions identify forward-looking statements, Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made. Critical Accounting Policies and Estimates The preparation of fmancial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the unaudited Condensed Consolidated Financial Statements and accompanying notes, Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. Actual results could differ from these estimates under different assumptions or conditions, The Company believes there have been no significant changes during the three and six month periods ended June 30, 2006, to the items disclosed as significant accounting policies in management's Notes to Consolidated Financial Statements in the Company s Annual Report on Form lO-KSB for the year ended December , 2005 , except for the implementation of F AS 123(R) for accounting of share based payments; see Note 5 to the unaudited condensed consolidated fmancial statements. Overview Cordia is a global telecommunications services fmn generating revenue from the telecommunications products and services it offers its customers domestically and internationally, We provide business, residential, and wholesale customers with local and long distance voice services utilizing traditional wire line and Voice over Internet Protocol V alP") technologies. We also derive revenue from our web-based service offerings, which include the solutions we offer on an outsourced basis to other telecommunications service providers on a contractual and on a month-to- month basis. An additional, but lesser source of revenue is derived from Carrier Access Billing Services ("CABS" which is compensation we receive from other telecommunications carriers who utilize a portion of our loop to complete long distance calls to our customers. Historically, our traditional bundled wireline service offerings represented a majority of our revenue, followed by revenue derived from our outsourced services, and VoIP service offerings, respectively. We believe this trend will continue with respect to our wireline, services during the remainder of fiscal year 2006, as we continue our expansion into the Qwest Communications International, Inc ("Qwest") territory in the Western United States, and commence our pre-paid wireline service offering, We believe that revenue derived from our VoIP service offerings will surpass that of our outsourced services as we continue to focus on our VoIP services, in particular our international VoIP initiatives. 12- Business Services Wireline Services We offer small businesses and residential customers wire line service by leasing a portion of the network owned by other larger telecommunications carriers, namely Verizon, Qwest, and AT&T, Inc. ("AT&T"). These leasing arrangements are controlled by multi-state, multi-year interconnection and commercial services agreements that allow us to offer telecommunications services to consumers in the Northeast and Western regions of the United States without incurring the capital expenditures associated with building our own network. We offer local exchange, local access, domestic and international long distance telephone services, and a full suite of local features and calling plans to small business and residential consumers in Colorado, Idaho, Massachusetts New Jersey, New York, Oregon, Pennsylvania, and Washington through our wholly-owned subsidiary CCC, are also licensed to provide local and long distance telecommunications services in Florida, Illinois, Maryland Michigan, Minnesota, Ohio and Virginia although we are not actively marketing or providing retail telecommunications services in these states at this time. Applications for authorization to operate as a telecommunications carrier are pending before regulatory agencies in Arizona, Iowa, and Utah. During the second half of 2006, we will commence services as a competitive local exchange carrier through our formerly inactive wholly-owned subsidiary, My Tel. My Tel will operate using tighter credit controls as its target base will be consumers in the secondary consumer credit market. By reducing the invoice due date, accelerating service suspension for non-payment, blocking excessive international calling, and charging a monthly per line service premium we believe we can increase sales with minimum credit exposure, We also anticipate, through My Tel, rolling out a pre-paid wireline service, requiring customers to pay for services prior to them being rendered during the last half of 2006. This roll out of pre-paid services will allow us to offer services to customers in a sub- prime market who would otherwise have difficulty in obtaining telecommunications service, My Tel is licensed to offer local and long distance services in Massachusetts and New York and we anticipate commencing services in New York during the third quarter of 2006. In addition, we plan on obtaining authority to operate as a pre-paid telecommunications carrier in additional states, VoIP Services We offer, through our wholly-owned subsidiary CordiaIP, a voice over broadband solution enabling delivery of voice services over any broadband Internet Protocol ("IP") connection, We believe VoIP is the logical extension of our traditional wireline telecommunications service offerings and after achieving compliance with the Federal Communication Commission s ("FCC") E911 order, requiring that customers have the ability to make 911 calls over our VoIr network, we launched our full commercial roll-out in January 2006. To support this service offering, and the marketing efforts related to this service, we hired additional personnel and built our own proprietary VoIP network including our own network software and operating support systems. We offer a wide range of service plans including a flat rate plan starting as low as $14.95 per month, combined with a full suite of enhanced features make our service an attractive value proposition to existing and potential customers, We also give customers the option, at no additional cost, of choosing their desired area code, fortheir telephone number regardless of their physical location creating the ability to make long distance calls local, a feature not available with traditional wire line service. For an additional fee, customers may also choose a telephone number from over thirty countries worldwide. In addition, we offer a fully integrated Spanish language VoIP service. Our Spanish language VoIP service is identical in quality and functionality except its target market is Spanish-speaking customers, The service was designed to be a purely Spanish language experience and includes all Spanish user interfaces, voice prompts, invoices, customer service and targeted country calling plans, Our service is offered primarily to small business and residential consumers however, we also offer our service on both a wholesale and resale basis, 13- At present the FCC does not regulate VoIP, although it has commenced a proceeding to examine its role in the new Internet based environment for voice services. In addition, the FCC has however taken a proactive approach with respect to emergency services dialing and accommodating law enforcement wiretaps, The current position of the FCC has allowed for rapid entrance into this newly emerging marketplace, We do however, recognize the uncertainty that exists with respect to the future direction of the FCC and any future regulations it may impose on VoIP providers and the potential impact these regulations may have on our business operations, in particular an increase in our costs associated with providing VoIP thus lower lowering our profit margin, International Services We anticipate increased competition as VoIP becomes more widely accepted among consumers, We believe this consumer driven market will result in lowered prices and it will become difficult for a company our size to effectively compete in the domestic marketplace for this service. Therefore our goal is to focus on creating a niche in the international VoIP market by providing value added services and creating partnerships and/or acquiring international Voir providers allowing us to compete more effectively. Through our wholly-owned subsidiary, CIC we acquire and operate traditional wire line and VoIr telecom assets outside the United States, To date, we have focused our efforts on the Asia Pacific ("APAC")region and South America. In the APAC region we offer Wi-Fi services through our recently acquired wholly-owned subsidiary Triamis, In addition, through Cordia HK Limited we have the ability to offer services under the Public Non-Exclusive Telecommunications Services ("PNETS"License and local access codes granted' by the Office of Telecommunications Authority ("OFTA") in Hong Kong. We have also requested authority to operate as a VoIP provider from OFT A with our recent submission of a Services Based Operator License application for providers of IP telephony services, We believe the acquisition of Triamis, together with our PNETS service offerings and future VoIP offerings provide us with the opportunity to offer our products and services to several key markets in Asia which include more than 40% of the world's Internet and broadband subscribers. Our South American efforts include the recent acquisition of a 51 % interest in Canal West Solus;oes em Informatica Ltda. ("Canal West"), a Brazilian limited liability partnership, CIC has agreed to invest US$ 45 000 for its 51 interest in Canal West. This amount is not due to Canal West until its status as a limited liability partnership transformed into a Sociedade por As;oes which is the equivalent to a U,S. corporation. Canal West is a start-up entity, with limited revenue, providing VoIP services in Brazil over its own proprietary VoIP network, We believe this investment is beneficial for our international expansion into the South American VoIP market In addition to our recent acquisitions we have continued fostering bilateral relationships with international VoIP carriers in an effort to gain low cost access to their networks allowing us to deliver high quality, low cost global voice services to our domestic and international customers, To date, our VoIP network includes international Direct Inward Dial ("DID") telephone numbers from more than thirty (30) countries. We believe blending VoIP technology, DID access and the large disparity between wholesale costs and retail rates, strengthens our ability to actively participate in the international communications market. We believe that by offering a wide range of international numbers coupled with value added services we present an attractive value proposition to customers and we will continue to focus VoIP sales resources and revenue derived from our wireline services toward the development of our international services, Expanding globally exposes us to additional regulatory requirements. The stance taken by various countries on the provision of VoIP ranges from total prohibition, to limitation and control of the service by requiring licensing or other registration, to no regulation at all. It is our goal to expand our service offerings into regions that treat VoIP as an unregulated service. In addition to compliance with the local regulatory framework in various countries, we must also take into consideration any economic and trade sanctions based on United States foreign policy and national security goals strictly prohibiting us from conducting business or exporting telephone adapters to certain regIOns, 14- Outsourced Services Through CCC, we offer an extensive outsourced service product line, in particular wholesale telecommunications services, Our wholesale customers have access to our secure Internet enabled software systems in which user- friendly web client front-ends called WorkspacesCID serve as an interface for integration with our software systems, The suite of services available to wholesale providers through our WorkspacesCID include all the tasks incident to operating as a full service telecommunications carrier such as Data Interconnection, which provides call detail and cost data for line level margin analysis, revenue integrity and wholesale bill auditing; Rate Plan Administration which includes all the tools necessary to create, edit and enable rate plans; Rating and Invoicing, which allows for rating on a near real time basis with resulting data being passed to revenue integrity and invoicing system; and Ticketing and Transaction Posting, which provides for real time transaction posting and an integrated ticketing and a messaging system. Additional services include Billing, New Order Provisioning, Repair in which customer service representatives can run tests from within the workspace to determine if a technician needs to be sent to the customer s location, Level I Customer Service, which includes all inbound calls from end-users, Secondary Provisioning, Collections, which involves management of the collection process and real time collection status and Regulatory services. The services available to wholesalers through our WorkspacesCID are the same services utilized internally for the provision of our own traditional wire line and VoIP services to our customers. As such, we are continuously updating and improving these processes to ensure optimal functionality, We believe our outsourced solutions are an attractive offering because it is not a pre-packaged all or nothing product; the wholesale customer has the power to assess their organization and then adopt and utilize only the functions they believe will increase their own profitability, Our goal is to tailor our services to our client's needs and create a mutually beneficial and profitable relationship, We believe this is achieved by offering process driven software whereby client required modifications to our systems are made at the server level and then instantly passed onto the client's end users , promoting our commitment to the continuous development and improvement of our WorkspacesCID, As we bill our outsourced telecommunications customers on a predominantly per line basis, we have experienced a decrease in outsourced revenues as a result of the decreased line count experienced by our wholesale customer operations, As a result we believe revenue derived from outsourced services will become less material as we focus on the growth and development of our own business. Employees As of July 24, 2006, subsequent to the balance sheet date, we had 132 employees, 122 of whom were employed on a full-time basis, At such date, forty-three (43) of our employees were located at our offices in White Plains, New York, eight-three (83) were located at our principal office in Winter Garden, Florida, and six (6) were located in our office located in Hong Kong. None of our employees are represented under a collective bargaining agreement. We believe our relations with our employees to be good, Plan of Operation During the remainder of the 2006, we will continue to focus on our traditional wire line services as we expand into new service territories and commence offering service on a pre-paid basis. In the past we focused on the development of technology related to VoIP and the geographic expansion of our wireline service offerings, During the recent quarter we have had limited success with our domestic VoIP initiatives and we believe focusing our efforts on our core wireline business, which includes pre-paid wireline telephone service, and our international VoIP initiative will result in greater long term shareholder value. We anticipate expanding CCC's service area to include customers in Minnesota, Maryland, and Virginia by year end. In addition, My Tel will commence offering pre-paid services in New York and Massachusetts, We also plan on expanding My Tel's pre-paid services to include additional territory depending upon the favorability of applicable state regulations during the third quarter. We will continue to utilize third-party telemarketing firms and sales agents to market these services, In addition, we anticipate engaging in a pilot program with overseas telemarketing firms during the third quarter, 15- It is our intention to market and develop our international VoIP product, promote sales in the APAC region, and promote the services offered by Canal West in Brazil. As a result we are reducing expenditures related to our domestic VoIP offering, We will continue to serve customers domestically, however our marketing efforts for this service will be scaled back as it is our intention to leverage our VoIP network to support our international services and expand our global footprint. Although we do not anticipate our line count, as it relates to wireline services to increase as rapidly as in past quarters, we believe our expansion into the Western United States will result in increased revenues, In addition, we believe our other efforts associated with prepaid and international VoIP services should contribute additional revenue to our operations. The detailed results of operations for the six and three month periods ended June 30, 2006, as compared to the same periods during 2005 follows, Results of Operations Six and Three Months Ended June 30, 2006 vs, June 30, 2005 OPERA TING REVENUES Six Months Ended June 302006 2005 Three Months Ended June 30,2006 2005 Telecommunications Revenue Other $18 968 420 320 629 $18 937 569 374 713 070 079 152 651 $ 9 808 379 210,079 $19 289 049 $19 312 282 222 730 $10 018,458 Total revenues for the six and three months ended June 30, 2006, decreased by approximately $23 000 and $795 000, respectively, to approximately $19 289 000 and $9 223 000, respectively, as compared to approximately $19 312 000 and $10 018 000, respectively, reported in the six and three months ended June 30 2005. Our primary source of revenue is through our telecommunications related business and is earned through the provisioning of services to business, residential and wholesale customers for basic telephone service, including local and long distance service, as well as ancillary services such as voice mail and call waiting, Of the telecommunications revenues reported for the six and three month periods ended June 30, 2006, approximately $18 712 000 and $8 892 000 respectively, was generated from retail telecommunications services and approximately $256 000 and $178 000, respectively, was generated from VoIP services as compared to telecommunications revenue of approximately $18 938 000 and $9 808 000, respectively, reported in the comparable periods in 2005. For the six and three month periods ended June 30, 2005, we had no significant VoIP revenues, During 2005, we had focused on the aggressive growth of our retail customer base and on increasing our line counts, This resulted in a higher bad debt expense during 2005 because many of these customers were a high credit risk, During fourth quarter 2005, and continuing into 2006, we focused on obtaining better qualified customers by utilizing credit scoring. While credit scoring results in a better quality customer base it limits the pool of potential customers from which we can provide our services, As a result, for the first half of 2006, the number of retail telephone lines we billed declined from the same period in 2005. An additional factor to this decline was scaling back our telemarketing efforts during the fIrst half of 2006. We anticipate increasing our marketing efforts for retail telephone customers for the remainder of 2006 as we enter new territories and commence a pilot program with overseas telemarketing flrI11S during the remainder of 2006. We do not however, anticipate our line count to increase as rapidly as in prior periods, 16- Other revenue consists primarily of income earned through outsourcing of data and website technology and wholesale telecommunications services. As we bill our outsourced telecommunications customers on a predominantly per line basis, we have experienced a decrease in outsourced revenues as a result of the decreased line count experienced by our wholesale customer s operations. Other revenue for the six and three months ended June 30, 2006 was approximately $321 000 and $153 000, respectively, and represented approximately 2% of our total revenue for each period, as compared to $375 000 and $210 000, respectively, or approximately 2% of our total revenue during the same periods in 2005, COST OF REVENUE Six Months Ended June 302006 2005 Resale and Wholesale Line Charges $10 307 422 $10 003 113 Resale and Wholesale Line Charges Three Months Ended June 302006 2005 989 481 978 400 Resale and wholesale line charges are direct costs associated with our telecommunications subsidiary, CCC, and represent our network access fees paid in order to provide local and long distance telephone service to our customers, These expenses vary in direct correlation to the size of our telecommunications customer base. We have experienced an increase of approximately $304 000 and $11 000, respectively, for the six and three month periods ended June 30, 2006 over the same periods ended 2005. The majority of this increase is due to higher surcharges imposed under the pricing terms of our commercial agreement with Verizon. In addition we experienced an increase in our costs associated for providing VoIP services during the six and three months ended June 30, 2006, of approximately $102 000 and $76 000, respectively. We had no significant costs associated with our VoIP services during the comparable periods during 2005, Gross Profit Margin For the six and three month periods ended June 30, 2006, our gross profit margin decreased to approximately 46, and 45., respectively, from approximately 48,2% and 50.3%, respectively, reported for the same periods in 2005, This decrease is primarily due to the reduction in lines billed in 2006, as compared to 2005, to an increase in our wholesale line charges in 2006 as compared to 2005, and our costs associated with providing our VoIP services during the rust half of 2006, which were immaterial in 2005, OPERATING EXPENSES Six Months Ended June 302006 2005 Sales and Marketing 536 465 166 126 Provision for Doubtful Accounts 600 615 309 399 General and Administrative 561 774 877 426 Depreciation 426 239 780 125 093 441 731 17- Three Months Ended June 302006 2005 $818 587 780 003 782 580 238 263 291 893 237 459 015 916 761 619,433 601 029 Consolidated operating expenses increased by approximately $683 000 and $18 000, respectively, to approximately 125 000 and $4 619 000, respectively, for the six and three months ended June 30, 2006, as compared to approximately $8 442 000 and $4 601 000, respectively, reported during the comparable periods in 2005, The Company incurred expenses related to the hiring, development and deployment of personnel, software systems and infrastructure necessary to support CCC's operations and the expansion of our domestic and international deployment of VolP services during the 2006 period, Sales and Marketing For the six and three months ended June 30, 2006, sales and marketing expenses decreased by approximately $630 000 and $473 000, respectively, to approximately $1 536 000 and $819 000, respectively, as compared to approximately $2 166 000 and $1 292 000, respectively, reported in the prior year, These decreases are primarily due to a reduction in telemarketing costs during the six and three months ended June 30, 2006, as compared to the same period in 2005 when we were aggressively growing our retail wireline customer base. We expect our sales and marketing expenses to increase slightly during the remainder of 2006 as we increase our efforts to add additional retail wireline customers and market our VolP services on an international scale, Provisionfor Doubtful Accounts For the six and three months ended June 30, 2006, our bad debt expense decreased by approximately $708 000 and $457 000, respectively, to approximately $1 601 000 and $780 000, respectively, from approximately $2 309 000 and $1 237 000, respectively, reported in the prior year. The decrease is primarily due to the write-off of the bulk of our questionable receivables throughout fiscal 2005 and qualifying our new customers through credit scoring, We expect our increased efforts and close monitoring of our receivables will enable us to reduce our bad debt exposure throughout 2006, Depreciation! Amortization Depreciation increased approximately $337 000 and $182 000, respectively, for the six and three month periods ended June 30, 2006, compared to the same periods during 2005. This increase is a result of additional depreciable office equipment, employee costs associated with the rollout of VoIP, which was capitalized and depreciated in accordance with Statement of Position ("SOP") 98-, and our expenditures relating to leasehold improvements which were made during the build-out of our Florida office. The expenditures related to office equipment and leasehold improvements were necessary to facilitate our growth. Depreciation on equipment and capitalized software costs are calculated using a Modified Accelerated Cost Recovery System (MACRS) over a three (3) year period. Amortization of leasehold improvements and other assets is computed using the straight-line method over the estimated useful lives of the asset or the remaining lease tenn. Other General and Administrative General and administrative ("G&A") expenses include, but are not limited to salaries, rent, office expenses insurance, commissions, telephone, bank and credit card processing fees, license expense and registration fees, G&A expenses increased by approximately $1 685 000 and $767 000, respectively, for the six and three months ended June 30, 2006 compared to the same periods in 2005. This was due primarily to increases in rent, general office expenses and salaries having thirty-eight (38) more employees for the three month period ended June 30, 2006, than we had for the same period ended 2005, We believe the G&A costs we incurred were necessary to build the foundation for our business services and we believe that our current levels of G&A should sustain our on going operations and future growth. 18- Liquidity and Capital Resources At June 30, 2006, we had cash and cash equivalents, including restricted cash, of approximately $1 490 000, a decrease of approximately $856 000 from amounts reported at December 31 , 2005, and working capital of approximately $32 000, as compared to working capital of approximately $1 156 000 reported at December 31 2005, The decrease in working capital is primarily related to our repurchase of all our outstanding warrants, totaling 170 000 for $309 000, our costs associated with acquiring and funding our new Hong Kong subsidiary, and our costs associated with the expansion of VoIP. While we continue to expect increased initial costs associated with our international expansion, our revenue stream has allowed us to continue to meet our fmancial obligations on a timely basis, Net cash provided by (used in) operating activities aggregated approximately $1 017 000 and ($855 000) for the six month periods ended June 30, 2006 and 2005 , respectively. The principal source of net cash for the six month period ended June 30, 2006, was the increase in the allowance for doubtful accounts of approximately $1 601 000 offset against payments for accounts payable and accrued expenses totaling approximately $876 000. The use of net cash reported for the six month period ended June 30, 2005 was primarily due to the increase in accounts receivable of approximately $3 894 000 and the use of cash necessary to post the required LOC', (offset against accrued interest), with Verizon, which totaled approximately $1 361 000, These amounts were offset against the increase in accrued expenses of approximately $1 562 000, Net cash used by investing activities for the six month periods ended June 30, 2006 and 2005 aggregated approximately $1 090 000 and $595 000, respectively. For the six month period ended June 30, 2006, net cash used by investing activities consisted primarily of expenditures for internally development software for our VoIP platform, the purchase of computer equipment, leasehold improvements and for the acquisition of Triamis, For the six month period ended June 30, 2005, net cash applied to investing activities consisted of the purchases of , computer equipment, leasehold improvements and expenditures relating to internally developed software, Net cash (used in) provided by fmancing activities aggregated approximately ($371 000) and $1 415 000 for the six month periods ended June 30, 2006 and 2005, respectively, The principal use of cash by financing activities in the six month period ended June 30, 2006, was the repurchase of our stock warrants amounting to $309 000 and the repayment of a loan in the amount of $57 000. The principal source of cash provided by fmancing activities in the six month period ended June 30, 2005 , was $1 455 000 attributed to our private placement of Series A Convertible Preferred Stock and Warrants offset against our purchase of treasury stock aggregating $40 000, We also expect to continue to invest capital in our VoIP softswitch development and related equipment during the last half of 2006 although not at the same level as during the rust half of 2006. Long-term debt and operating lease obligations as of June 30, 2006, mature as follows: ments due Less than More Than Obligations Total I year 3 years 5 years 5 years Telephone Capital Lease 697 458 916 323 Rental (Office)114 481 419 187 783 925 615 010 296 359 TOTAL OBLIGATIONS $ 2 180 178 434 645 814 841 634 333 296 359 19- During the six and three months ended June 30, 2006, we had sales and marketing expenses of approximately 536 000 and $818 000, respectively, or approximately 8% and 9%, respectively, of revenues, We expect our sales and marketing expenses to continue to grow in the future predominantly due to the anticipated higher cost per sale as a result of us requiring higher credit standards. We expect our sales and marketing expenses to increase slightly during the remainder of 2006 as we increase our efforts to add additional retail wire line customers and market our VoIP services on an international scale, . Sales and marketing expenses are primarily outsourced telemarketing expenses, We have not entered into volume commitments with any of our third party sales organizations. By avoiding volume commitments, we are better able to control our levels of advertising expenditures. We believe this flexibility affords us the ability to adjust our expenditures based on our available working capital and liquidity, At June 30, 2006, a significant portion of our working capital was restricted cash in the form of CD's which totaled $967 000 plus accrued interest of approximately $26 000, The CD's mature in July 2006, and March 2007, and secure three (3) separate LOC's for Massachusetts , New York, and New Jersey, which we were required to post with Verizon in conjunction with our long-term wholesale agreement. The LOC's are not renewable upon their expiration, In addition to the LOC', our agreement with Verizon requires payment within 20 days of our receipt of Verizon s bills, Prior to our entering into the agreement, Verizon had allowed us more than 30 days to pay our bills, We have satisfied the credit and payment terms related to the Verizon agreement and do not expect the agreement's terms to have a material impact on our ongoing uses of cash other than a strict requirement to maintain current payments in the future. Our fmancial flexibility and ability to grow at an aggressive pace are limited by the significant portion of our working capital that is restricted and held in CD's and the requirement under our Verizon agreement that we maintain a current payment schedule. Despite these limitations we believe our current cash and cash equivalent assets will provide us with sufficient liquidity to continue to grow our telecommunications operations and develop, deploy, and market our VoIP services. At our current run rate we believe our operations will generate sufficient cash for the remainder of the year. Sufficient liquidity is dependent on our ability to maintain the number of our customer accounts, inclusive of chum and continue our current pattern of growth, which we believe can be sustained through our current levels of sales and marketing, In addition, because we use third party telemarketing firms on a non-contractual basis we have the ability to control our sales and marketing expenses, by reducing our marketing efforts as necessary, to combat liquidity issues that may arise during the normal course of business. Although we believe our current resources will permit us to execute our business plan we may need additional resources to be able to expand more rapidly. If competition increases or we are unable to continue to develop our domestic wireline operation as anticipated we may have to seek additional capital from other sources. To maintain our growth and carry out our plans for our international expansion ofVoIP and related value added services, we may have to raise cash from additional sources such as short-term funding, which may include receivables fmancing, to cover short-term cash deficiencies that may arise, In addition, our ability to raise capital through other means may affect our ability to reach our anticipated growth results, cover increased marketing expenses, and satisfy the initial funding of increased customer receivables with increased sales rates throughout the year ending 2006. Off -balance sheet arrangements We have not entered into any transactions with unconsolidated entities whereby we have financial guarantees, or other contingent arrangements that exposes us to material continuing risks, contingent liabilities or any other obligations that provide fmancing, liquidity, market risk or credit risk support to the Company, 20- ITEM 3. CONTROLS AND PROCEDURES (a) Based upon an evaluation of the effectiveness of the Company s disclosure controls and procedures as of the end of the period covered by this report, our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO" have each concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed in our reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Commission s rules and forms and are also effective to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is accumulated and communicated to the Company s management, including the Company s principal executive and principal financial officers to allow timely decisions regarding required disclosure and that our internal controls are effective to provide reasonable assurances that our financial condition, results of operations and cash flows are fairly presented in all material respects. (b) The CEO and CFO each note that, since the date of his/her evaluation that occurred during the last fiscal quarter there have been no changes in the current quarter in internal controls or in other factors that could materially affect or is reasonably likely to materially affect, our internal control over fmancial reporting, PART II OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS We are not currently a party to any legal proceedings that we believe will have a material adverse effect on our fmancial condition or results of operations, ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS We have no unregistered sales of equity securities and use of proceeds to report. ITEM 3. DEFAULTS UPON SENIOR SECURITIES We have no defaults upon senior securities to report. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS We held our annual meeting of shareholders on May 23 , 2006. The shareholders elected each of the five nominees to the Board of Directors for a one-year term: Director Joel Dupre Kevin Griffo John Scagnelli Yoshiyasu Takada Gandolfo Verra For 179 769 179 769 179 769 183 328 184 883 Withhold 787 787 787 228 673 21- The shareholders ratified the selection of Lazar, Levine & Felix, LLP as Independent Public Accountants for fiscal year 2006, For 193 890 Against 666 Abstained No other action was taken at the meeting. ITEM 5. OTHER INFORMATION We have no additional information to report that would require disclosure in a report on Form 8-K during the period ended June 30, 2006 for which we did not file a Fonn 8-K report, ITEM 6. EXHIBITS (a) Exhibits. The following exhibits are filed herewith, Exhibit No.Description 11.1 Computation of per share earnings 31.1 Certification of Principal Executive Officer, Joel Dupre, Pursuant to 18 U,c. 1350 (Section 302 of the Sarbanes-Oxley Act of2002) 31.2 Certification of Principal Financial Officer, Gandolfo Verra, Pursuant to 18 U,C. 1350 (Section 302 of the Sarbanes-Oxley Act of2002) 32.1 Certification of Cordia Corporation s Principal Executive Officer, Joel Dupre, pursuant to Section 906 of the Sarbanes-Oxley Act of2002. 32.Certification of Cordia Corporation s Principal Financial Officer, Gandolfo Verra, pursuant to Section 906 of the Sarbanes-Oxley Act of2002, 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, CORDIA CORPORATION Date: August 14 2006 By: Isl Joel Dupre ---------------------------------- ----- Joel Dupre Chief Executive Officer Date: August 14, 2006 By: Isl Gandolfo Verra --------------------------------------- Gandolfo Verra ChiefFinancialOfficer 22- EXHIBIT 11. Cordia Corporation Computation of Per Share Earnings (Unaudited) Net (Loss) Income BASIC EARNINGS (LOSS): Weighted average number of common shares outstanding Basic earnings (loss) per common share DILUTED EARNINGS: Weighted average number of common shares outstanding Assumed conversion of preferred stock Assumed exercise of stock options Weighted average number of common shares outstanding - as adjusted Diluted earnings per common share Six Months Ended2006 2005 Three Months Ended2006 2005 $(235 849)$ 860 802 $(338 859)$ 437 972 580 740 504 890 631 080 503 254 $(0.04)$(0,06) 580 740 504 890 631 080 503 254 994 475 500 000 444 310 532 838 580 740 943 675 631 080 536 092 $(0.04)$(0,06) Exhibit 31. I Certification of Principal Executive Officer Pursuantto 18 U,c. 1350 (Section 302 of the Sarbanes-Oxley Act of 2002) Joel Dupre, certify that: I have reviewed this quarterly report on Form 10-QSB of CORDIA CORPORATION; Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash t10ws of the registrant as of, and for, the periods presented in this quarterly report; The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a- I 4 and l5d-14) for the registrant and have; (a)Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b)Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date ); and (c)Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; The registrant's other certifying officer and I have disclosed , based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): (a)All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors , any material weaknesses in internal controls; and (b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses, Date: August 14 2006 Isl Joel Dupre Chief Executive Officer A signed original of this written statement required by Section 302 of the Sarbanes-Oxley Act of 2002 has been provided by the registrant and will be retained by the registrant and furnished to the Securities and Exchange Commission or at staff upon request. Exhibit 31, Certification of Principal Financial Officer Pursuant to 18 U,C, 1350 (Section 302 of the Sarbanes-Oxley Act of 2002) , Gandolfo Verra, certify that: I have reviewed this quarterly report on Form 10-QSB of CORDIA CORPORATION; Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have; (a)Designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; (b)Evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date ); and (c)Presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date; The registrant's other certifying officer and I have disclosed , based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions): (a)All significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors, any material weaknesses in internal controls; and (b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and The registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses Date: August 14, 2006 Isl Gandolfo Verra Chief Financial Officer A signed original ofthis written statement. required by Section 302 of the Sarbanes-Oxley Act of 2002 has been provided by the registrant and will be retained by the registrant and fumished to the Securities and Exchange Commission or at staff upon request. EXHIBIT 32. Certification of Principal Executive Officer Pursuant to 18 U,c. 1350 (Section 906 of the Sarbanes-Oxley Act of2002) Joel Dupre, Chief Executive Officer of Cordia Corporation (the "Registrant") do hereby certify, pursuant to 18 U,C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of2002, that, to the best of my knowledge, based upon a review of the Quarterly Report on Form 10-QSB for the period June 30, 2006 of the Registrant, as filed with the Securities and Exchange Commission on the date hereof (the "Report" (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. By: Isl Joel Dupre Joel Dupre Chief Executive Officer August 14 2006 signed original of this written statement required by Section 906 has been provided to Cordia Corporation and will be retained by Cordia Corporation and furnished to the Securities Exchange Commission or its staff upon request. EXHIBIT 32, Certification of Principal Financial Officer Pursuant to 18 U.C, 1350 (Section 906 of the Sarbanes-Oxley Act of 2002) , Gandolfo Verra, Chief Financial Officer of Cordia Corporation (the "Registrant") do hereby certify, pursuant to 18 U ,c. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge, based upon a review of the Quarterly Report on Form 10-QSB for the period June 30 2006 of the Registrant, as filed with the Securities and Exchange Commission on the date hereof (the "Report" (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. By: Isl Gandolfo Verra Gandolfo Verra Chief Financial Officer August 14, 2006 signed original of this written statement required by Section 906 has been provided to Cordia Corporation and will be retained by Cordia Corporation and furnished to the Securities Exchange Commission or its staff upon request UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.c. 20549 Form 10-KSB (Mark One) (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31 , 2005 ( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the transition period from -- --- --------------- Commission File Number 33-23473 -------------------- CORDIA CORPORATION ------------------------------------------------------- (Name of small business issuer in its charter) Nevada 112917728 ------------- --------------------------------- ------ ------------ ---- (State or other jurisdiction of (I.R.S. Employer Identification No. incorporation or organization) 13275 W. Colonial Drive, Winter Garden, Florida 34787 ------------------------------------------------------- (Address of principal executive offices) (Zip Code) Issuer s telephone number: (866) 777-7777 -------------------- Securities registered under Section 12(b) ofthe Act: None Securities registered under Section 12(g) of the Exchange Act: Common Stock 0.001 par value Check whether the issuer is not required to file reports pursuant to Section 13 or 15( d) of the Exchange Act.(X) 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 ( ) Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B not contained in this form, and no disclosure will be contained, to the best of the registrant's knowledge , in defmitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB, ( Indicate by mark whether registrant is a shell company (as derIDed in Rule 12b-2 ofthe Exchange Act). Yes ( )No (X) State issuer s revenues for its most recent fiscal year, $41 951 215 As of March 20, 2006, the issuer had 5 808 774 outstanding shares of its common stock. As of March 20, 2006, the aggregate market value of the issuer s common stock held by non-affiliates was $7 530 53 1 ,(based upon the price at which the common stock was sold on such date), DOCUMENTS INCORPORATED BY REFERENCE Part Item 1, Proxy Statement for the 2006 Annual Meeting of Stockholders III Transitional Small Business Disclosure Format (check one)Yes () No (X) Item I. Item 2, Item 3, Item 4, Item 5, Item 6, Item 7, Item 8, Item 8A. Item 8B, Item 9, Item 10, Item 11. Item 12 Item 13, Item 14, SIGNATURES TABLE OF CONTENTS PART! Description of Business Description of Property Legal Proceedings Submission of Matters to a Vote of Security Holders PART II Market for Common Equity, Related Stockholder Matters And Small Business Issuer Purchases of Equity Securities Management's Discussion and Analysis or Plan of Operations Financial Statements Changes In and Disagreements with Accountants on Accounting and Financial Disclosure Controls and Procedures Other Information PART III Directors and Executive Officers of the Registrant Executive Compensation Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Certain Relationships and Related Transactions Exhibits Principal Accountant Fees and Services Page Certain statements in this Report and in the documents incorporated by reference herein constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements, Factors that might cause such a difference include, among others, uncertainties relating to general economic and business conditions; governmental regulations; industry trends; changes in demand for our products and services; uncertainties relating to customer plans and commitments and the timing of orders received from customers; announcements or changes in our pricing policies or those of our competitors; unanticipated delays in the development market acceptance or installation of our products and services; availability of management and other key personnel; availability, terms and deployment of capital; relationships with third-party equipment suppliers; and worldwide political stability and economic growth. The words "believe , " expect" , " anticipate , " intend" and "plan" and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements which speak only as of the date the statement was made. PART I Item 1. Description of Business. Overview Cordia Corporation ("Cordia ) is a global telecommunications services firm generating a majority of its revenue through its wholly owned subsidiary, Cordia Communications Corp. ("CCC"), and the telecommunications products and services we offer our customers located in the United States. We provide both domestic and international business, residential, and wholesale customers with local and long distance voice services utilizing traditional wireline and Voice Over Internet Protocol ("VoIP") technologies, In addition, we develop and provide, on a contractual and on a month-to-month basis, a suite of proprietary web-based operating support systems ("OSS"), which includes billing software and outsourced services to other local, long distance and VoIP telecommunications service providers. We provide our wireline service by leasing a portion of the network owned by other larger telecommunications carriers namely Verizon Communications, Inc. ("Verizon ), Qwest Communications International Inc. ("Qwest"), and AT&T, Inc, A T &T"), formerly known as SBC Communications, Inc, hereafter collectively referred to as Incumbent Local Exchange Carriers ("ILEC' ), We have multi-state, multi-year interconnection and commercial services agreements with the ILEC' governing our network leasing arrangements, The term of these agreements range from three (3) years to five (5) years expiring in 2008 and 2009, and are subject to termination for material breach, including, but not limited to a default in payment, upon written notice and defaulting party's failure to cure, These agreements allow us to offer telecommunications services to consumers in the Northeast and Western regions of the United States without incurring capital expenditures associated with building our own facilities. We also offer, through our wholly-owned subsidiary CordiaIP Corp, ("CordiaIP"), a voice over broadband solution enabling delivery of voice services over any broadband Internet Protocol ("IP") connection, We believe VoIP is the logical extension of our traditional wireline telecommunications service offerings and began our development of VoIP services during the second quarter of 2004. After a period of internal and external beta testing, we commenced our initial commercial rollout during June 2005, In January 2006, we achieved compliance with Federal Communication Commission ("FCC") mandated E911 emergency calling capabilities, in that customers can make 911 calls over our VoIP network, allowing us to proceed with our complete roll-out and related marketing efforts of VoIP, We are also developing a "business-grade" VoIP service with enhanced business related features and functionality and dedicated Internet access, To carry out our plan for a business- grade VoIP service, we renewed our nationwide agreement with Covad Communications Group, Inc. for an additional term so we can continue offering our customers dedicated DSL and T-l Internet access services. This agreement may be terminated if we fail to pay for service within forty (40) days after the date of the invoice or for other material breach, In addition, all terms and conditions of the agreement will survive expiration of the agreement with respect to end user circuits currently in service or for pending orders. In providing VoIP, it is our goal to provide increased productivity, enhanced quality of service and next generation integrated services to our consumers. As VoIP technology evolves and continues to improve, we believe it will gain widespread acceptance as a competitive alternative to traditional telecommunications service offerings. We believe the acceptance of VoIP will provide us with a strategic advantage in years to come, specifically the opportunity to convert our customer base to a VoIP network as an alternative to renegotiating our commercial services agreements upon their expiration, as well as expand our marketing footprint from a regional carrier to a global carrier. In furtherance of our global strategy, our wholly owned Hong Kong subsidiary, Cordia HK Limited, established a network Point of Presence ("POP") in Hong Kong, Cordia also launched a fully integrated Spanish language VoIP service, and we acquired Triamis Group Limited, owner and operator of a Wi-Fi network in Hong Kong. In addition to our suite of wire line and VoIP telecommunications service offerings, we generate revenue from our web-based service offerings, which include the solutions we provide on an outsourced basis to other telecommunications service providers, We provide secure Internet enabled software systems through user-friendly web client front ends, which we refer to as WorkspacesCID that serve as an interface for integration with our software systems, Through our WorkspacesCID, clients are able to outsource tasks incident to the provision of telecommunications services such as provisioning, order entry, repair customer service, collections, margin integrity and purchase local telecommunications services directly from us for retail purposes, An additional, but lesser source of revenue is derived from Carrier Access Billing Services ("CABS"), which is compensation we receive from other telecommunications carriers who utilize a portion of our loop to complete long distance calls to our customers. The majority of our revenue is derived from traditional wireline services offered domestically in the Northeast and Western regions of the United States by CCC, Our primary source of customers is from third-party telemarketers focusing on residential subscribers. In addition to telemarketing we are developing additional channels of distribution which include agent sales, online sales, direct mail and email. We will use the aforementioned channels to promote our traditional wire line service and our VoIP service targeting residential users and small to medium sized businesses, With the increased acceptance of VoIP technology, we expect to experience a steady decline in our cost of acquisition throughout 2006 and beyond, We believe our additional channels of distribution and anticipated decline in our acquisition costs will result in our VoIP service offering representing approximately 10% of our overall revenues for the year end December 31 2006, Subsidiaries Cordia Communications Corp, ("CCC" In July 2001 , we formed CCC, providing local exchange, local access, domestic and international long distance telephone and a full suite of local features and calling plans to small business and residential consumers in Massachusetts, New Jersey, New York, Pennsylvania and Washington. We are also licensed to provide local and long distance telecommunications services in Colorado, Florida, Illinois, Maryland, Michigan, Ohio and Oregon. We are not, however, actively marketing or providing retail telecommunications services in these states at this time. Applications for authorization to operate as a telecommunications carrier are pending before regulatory agencies in Arizona, Idaho Minnesota, and Virginia. We are also preparing an application for entry into Utah, CCC also offers an extensive outsourced service product line, which includes wholesale telecommunications services, Customers who utilize this service have access to our secure Internet enabled software systems in which user-friendly web client front-ends called WorkspacesQD serve as an interface for integration with our software systems. Our operations support systems referred to as a Telecom Account Management System or simply ("TAMS") represent a suite of services available to telecommunications service providers wishing to outsourcetasks incident to operating as a full service telecommunications carrier, These services include Data Interconnection, which provides call detail and cost data for line level margin analysis revenue integrity and wholesale bill auditing; Rate Plan Administration, which includes all the tools necessary to create, edit and enable rate plans; Rating and Invoicing, which allows for rating on a near real time basis with resulting data being passed to revenue integrity and invoicing system; and Ticketing and Transaction Posting, which provides for real time transaction posting and an integrated ticketing and messaging system, TAMS was developed to faci litate our Professional Outsourced Telecommunications Solutions ("POTS") service offering, which is a suite of services designed around our WorkspacesCID. These services include Billing, New Order Provisioning, Repair in which customer service representatives can run tests from within the workspace to determine if a technician needs to be sent to the customer s location, Level I Customer Service which includes all inbound calls from end-users, Secondary Provisioning, Collections, which involves management of the collection process and real time collection status and Regulatory services. During 2006, we anticipate the introduction of an updated version of TAMS to include WorkspacesQD and software functionality designed to support VoIP and wireless services. We are confident in our OSS service and utilize the same OSS offered to our outsourced clientele to serve as the backbone for the provision of telecommunications services to our own local and long distance consumers, We believe clients will find TAMS and POTS attractive because it is not a pre-packaged all or nothing product; the customer has the power to assess their organization and then adopt and utilize only the functions they believe will increase their own profitability, Our goal is to tailor our services to our client's needs and create a mutually beneficial and profitable relationship. We believe this is achieved by offering process driven software whereby client required modifications to our ass are made at the server level and then instantly passed onto the client's end users, promoting continuous development and improvement of our WorkspacesCID, We also offer emergency backup and transitional services allowing our customers to outsource these functions during times of unplanned facilities outages, loss of key personnel or rapid growth. By utilizing our suite of outsourced services our clients are able to maximize profitability because they are in a position to provide telecommunications services with less investment and capital expenditures and with greater efficiency and expertise, Our clients ability to rely on our expertise, while saving money entering the marketplace, makes our outsourced telecommunications services a valuable option for any new entrant's business strategy, We believe this aspect of our business will be successful as a result of the rapid growth and acceptance of the Internet as a global medium for communications, information and commerce. The Internet has revolutionized the way organizations function and has created opportunities to perform business operations more efficiently and effectively through the utilization of standardized Internet technologies, databases and applications. Our technological advancement and specialized expertise in developing systems and tools allows us to provide outsourced solutions at lower costs and with higher quality while giving our customers the freedom and ability to focus on providing telecommunications services. CordialP Corp, ("CordiaIP In response to the rapid global acceptance of the Internet and standardized IP technologies, and in recognition of the opportunity to globally deliver voice communications service over the Internet and IP networks, we decided to broaden the scope of our services to include VoIP services and formed CordiaIP in April 2004. In June 2004, we commenced our initial deployment and testing of VoIP services utilizing wholesale offerings and network sharing arrangements from other VoIP- enabled carriers, The results of our testing produced marginally acceptable results. Believing greater long-term shareholder value and better results would come from the development of our own proprietary VoIP services, technologies, network software and OSS capabilities we hired additional personnel. Beta testing of the CordiaIP developed VoIP service platform began during the second quarter of 2004, and during the first quarter of 2005, we hired additional personnel to support the continued development and sales and marketing of our VoIP service both domestically and internationally in preparation of our commercial roll-out which we commenced both domestically and internationally, in June 2005. Through CordiaIP, we offer consumers quality voice services with an attractive array of standard and enhanced features, Additionally, we offer VoIr solutions for service providers on a wholesale or resale basis, Our calling plans, which include residential, business, toll-free and international, all include Call Waiting, Caller ID, Caller ID Privacy, Anonymous Call Block, Call Return, Busy Number Redial, 3 Way Conference, Speed Dial 8, VoIP Mail, Online Billing and Account Management, including the ability to update the customer s Registered Location, a Flexible AutoPayment Program and E911 at no additional cost. Also, at no additional cost, we give customers the option of choosing their desired area code, for their telephone number regardless of their physical location creating the ability to make long distance calls local. For an additional fee, customers may also choose a telephone number from over thirty countries including Hong Kong, Japan, Israel, United Kingdom, Canada, Argentina and Chile, In addition, all telephone numbers are nomadic; the telephone number is associated with the CordiaIP provided telephone adapter, which connects to the customer s standard telephone and broadband connection, allowing the customer to utilize their CordialP service wherever there is an available broadband connection. In December 2005, we entered into a wholesale relationship with Imperio Movilcom , (" Imperio ) a subsidiary of Alert Communications, allowing Imperio to expand its service offering in the Dominican Republic utilizing our network. Historically, traditional wireline telecommunications, unlike Internet services, have been subject to extensive federal and state regulation, Recently, however, the FCC and various state regulatory agencies have taken an interest in the regulation of VolP due to its similarity to traditional wireline services, While the FCC does not presently regulate VolP it has commenced a proceeding to examine its role in the new Internet based environment for voice services, The FCC has also directed VoIP providers to supply enhanced 911 emergency calling capabilities to customers as a mandatory feature of service, The FCC required compliance with this requirement as of November 28, 2005, as evidenced by the submission of a compliance report describing the VoIP provider s 911 solution, In January 2006, we achieved compliance with the FCC's mandated E911 emergency calling capabilities allowing us to proceed with our complete roll-out and related marketing efforts of VolP, addition, in September 2005, the FCC released an order which requires VoIP service providers to accommodate law enforcement wiretaps in accordance with the Communications Assistance For Law Enforcement Act ("CALEA" ) , The compliance deadline for CALEA is May 2007 and we are taking steps to ensure compliance by this date, The FCC's current position to treat VoIP as an unregulated service has allowed for rapid entrance into this newly emerging marketplace to grow our VoIP business both domestically and internationally, We believe the ubiquitous nature of the Internet and open standards of both Session Internet Protocol ("SIP") and IP will allow us to deploy an efficient and economical VoIP network so we may provide retail and wholesale VolP services to our consumers, We do recognize the uncertainty with respect to the future direction of the FCC and future regulations and their impact on our business operations and anticipate any regulation to increase our costs associated with providing VolP and lower our profit margin, Cordia International Corp, (HClC" Cordia International Corp. was formed in May 2005, for the purpose of acquiring and operating traditional and VoIP telecom assets, customers and services outside the United States. To carryout our global strategy of expanding the geographic distribution of our telecommunications services we acquired a 100% ownership interest, through a stock transfer from the incorporator to CIC, without consideration, in Cordia HK Limited ("CordiaHK"), formally known as Transcom Technology Limited, a Hong Kong Company holding no assets, formed for the purpose of CIC's acquisition in September 2005, At the direction of CIC management, an application for Public Non-Exclusive Telecommunications Service ("PNETS") License was filed on behalf of CordiaHK with the Office of Telecommunications Authority ("OFTA") in Hong Kong. The application was approved and a license was issued in September 2005. The license grants us the authority to provide external public telecommunications services ("ETS") in Hong Kong and we anticipate the commencement of ETS in Hong Kong utilizing our recently established POP during the first half of 2006. In June 2005, OFT A commenced a proceeding regarding regulation of Internet Protocol Telephony, In January 2006, after a comment and consultation period, OFTA released an order introducing a new Services Based Operator License for providers of IP telephony services, We are currently investigating the licensing process and intend to obtain a license. In the fIrst quarter of 2006, we also acquired Triamis Group Limited a Hong Kong based owner and operator of a Wi-Fi network in Hong Kong, Triamis Group Limited also markets International VolP in the Asia-Pacific region. We believe this acquisition provides us the base to offer our products and services to several key markets in Asia, which include more than 40% of the world's Internet and broadband subscribers, We hope to build on Cordia s global market by leveraging Triamis Group Limited's Wi-Fi networking capabilities and Asia- Pacific marketing and operations experience, In furtherance of our goal of global expansion, we formed VOzsIP Corp. ("VozsIP") in October 2005, for the purpose of launching our fully integrated Spanish language VolP service. Our Spanish language VoIr service offered through VozsIP is identical in quality and functionality to the services offered by CordialP except its target market is Spanish-speaking customers. The service was designed to be a purely Spanish language experience and includes all Spanish user interfaces voice prompts, invoices, customer service and targeted country calling plans, In addition, we have been active in fostering bilateral relationships with international VoIP carriers in Europe and the Middle East which will allow us to deliver high quality, low cost global voice services to our domestic and international customers by gaining low cost access to these carrier s networks, Our goal has been to directly source international Direct Inward Dial DID") telephone numbers, recently adding phone numbers from more than thirty (30) countries to our VolP network, to lay the foundation for potential future partnerships at the local level and establish VoIP peering relationships with VoIP companies in the region, reduce our network costs by circumventing costs of United States wholesalers for DID's and termination costs, and develop relationships with equipment manufacturers for direct sourcing in an effort to save on equipment costs. We believe blending VoIP technology, DID access and the large disparity between wholesale costs and retail rates give us the opportunity to seize a significant share of the international communications market. We believe the global acceptance of the Internet and VoIP has created a significant opportunity to expand the geographic distribution of our telecommunications services and we believe we can deliver even greater value to our internationally based customers as compared to our United States customers through the greatly reduced cost of international calls, especially calls to and from the United States. Our international plans allow customers to choose a telephone number associated with the United States, or from over thirty (30) additional countries resulting in the breach of geographic boundaries. This ability choose a specific location associated with a telephone number allows our customers and the individuals calling our customers to pay local rates, instead of paying costly long distance or international rates. We offer a cost effective means of staying in touch with family, friends and business associates located in other countries and continents. We also believe by offering regional VoIP companies access to our engineers and consulting services we will promote global expansion, We expect continue focusing a significant portion of our VoIP sales resources on international sales during 2006. It is important to recognize that expanding globally exposes us to additional regulatory requirements. The stance taken by various countries on the provision of VoIP ranges from total prohibition, to limitation and control of the service by requiring licensing or other registration, to no regulation at all. In addition to compliance with the local regulatory framework in various countries, we must also take into consideration any economic and trade sanctions based on United States foreign policy and national security goals strictly prohibiting us from conducting business or exporting telephone adapters to certain regions, We are in the process of investigating the regulatory requirements in all the countries in which we plan on conducting business as well as obtaining necessary export licenses, My Tel Co, Inc. ("My Tel") My Tel was formed in June 2002 and although licensed to operate as a competitive local exchange carrier in New York, is not currently an active telecommunications service provider. My Tel however, has never operated under the authority granted to it by the State of New York. It is our intention for My Tel to operate as a reseller of wireless services, We filed an application to operate as a wireless reseller with Verizon Wireless. The application is currently on hold while we attempt to negotiate for more favorable terms with other wireless carriers. Employees As of March 20, 2006, we had one hundred twenty-one (121) employees, one hundred eight (108) of whom were employed on a full-time basis, At such date, thirty-eight (38) of our employees were located at our offices in White Plains, New York two (2) employees were located in Hong Kong, and eighty-one (81) were located at our principal office located in Winter Garden, Florida. None of our employees are represented under a collective bargaining agreement. We believe our relations with our employees to be good. Item 2. Description of Property. As of December 31 , 2005, we leased property in White Plains, New York and Winter Garden, Florida. As of March 2006 subsequent to the balance sheet date, we leased property in Hong Kong, In White Plains, New York our subsidiary CCC leases (1) approximately 2 840 square feet of office space at a rental price of 970 per month plus utilities with incremental annual increases in rent commencing in year three of the lease term and (2) approximately 4 725 square feet at a rental price of $8 663 per month plus utilities with incremental annual increases in rent commencing in year three of the lease term, Both leases are for a term of five years and expire on November 30, 2008 and July 31, 2010, respectively. The rent commencement date on the lease expiring in 2010, was August 1 2005. In Winter Garden, Florida, our subsidiary CCC leases approximately 32 000 square feet of office space at a rental price of $18 849 per month plus utilities. . Incremental increases in rent commence in year two of the seven and Yz year lease term, The lease term commenced on April 1 , 2005 and the rent commencement date was September 1 2005, Prior to entering into this lease agreement, we leased approximately 4 000 square feet of office space at a rental price of $3 302 per month plus utilities on a month-to-month basis in Orlando, Florida. In November 2005, we terminated our month-to-month lease and moved our operations to Winter Garden, Florida. On or about March 22, 2006, subsequent to the balance sheet date, the Company through its subsidiary Cordia HK Limited executed a two (2) year lease for office space located in Hong Kong at a rental price of HK $26 258 or approximately US 383 per month plus management fees and air conditioning charges totaling HK $4 146 or approximately US $534 per month, The lease provides for a two (2) month rent-free period with a rent commencement date of May 21 , 2006 Item 3. Legal Proceedings. We are not currently a party to any legal proceedings that we believe will have a material adverse effect on our financial condition or results of operations, Item 4. Submission of Matters to a Vote of Security Holders. None, PART II Item 5. Market for Common Equity and Related Stockholder Matters. Since June 7, 2002, our common stock has been listed under the symbol "CORG" on the OTC Bulletin Board, Prior to that time, we were listed on the OTC Bulletin Board under the symbol "CORC" from June 5, 2001 to June 6, 2002 and under the symbol "CYOL" from May 8 , 2000 to June 4, 2001 , The following table represents the high and low per share bid information for our common stock for each quarterly period in fiscal 2005 and 2004. Such high and low bid information reflects inter-dealer quotes, without retail mark-up, mark-down or commissions and may not represent actual transactions. Year Ended 2005High Low Year Ended 2004High Low Quarter ended March 3\ Quarter ended June 30 Quarter ended September 30 Quarter ended December 31 1.90 \.40 1.76 1.95 0.40 1.05 As of March 20, 2006, there were 5 808 774 shares of our common stock outstanding held by approximately 146 shareholders of record, Relying on information obtained in filing our proxy dated April 4, 2005, we believe we have additional shareholders and that the number of shareholders has increased since 2005, as a result of our SB-2 registration effective August 31 , 2005. We do not currently pay dividends on our common stock. We do not intend to declare or pay dividends on our common stock, but to retain earnings, if any, for the operation and expansion of our business. Recent Sales of Unregistered Securities On March 7, 2005 , the Company consummated a private placement with Barron Partners, loP" ("Barron ) a Delaware limited partnership in which the Company issued 1 500 000 shares of Series A Convertible Preferred Stock, and issued warrants to purchase 750 000 shares of its common stock at $2.00 per share" and warrants to purchase 750 000 shares of its common stock at $4,00 per share, Barron s paid cash consideration for the Series A Convertible Preferred Stock and warrants aggregated $1 500 000. The fair value of the warrants issued was estimated on the date of grant at $122 415, using the Black-Scholes option pricing model including expected volatility of75% and average risk free rate of3,825% and an expected life of three to four years, There were no sales of unregistered securities during the twelve-month period ending December 31 , 2004. Use of Proceeds from Registered Securities The 3 000 000 shares of common stock underlying the Series A Convertible Preferred Stock and warrants were registered on Form SB-, registration number 333-124996, effective August 31 , 2005, As of December 31 , 2005 , Barron converted 702 200 shares of Series A Convertible Preferred Stock into common stock and purchased 330 000 shares of common stock by exercising 330 000 warrant shares at $2.00 per share. We used the proceeds received from exercise of the warrant shares for working capital and general corporate purposes. As of this filing, Barron converted 792 200 shares of Series A Convertible Preferred Stock into common stock. Issuer Purchases of Equity Securities On December 28, 2004, the Company gave West Lane Group, Inc. written notice of its intention to exercise its option to purchase 100 000 shares at $0.40 per share pursuant to an option agreement entered into between the parties as described in Note 4 to the consolidated fmancial statements. The shares were purchased by the Company on February 9, 2005 for $40 000, Other than this purchase there were no purchases of equity securities during the twelve-month period ending December 31 2005, On January 7, 2004, the Board of Directors of Cordia unanimously authorized Cordia s management to spend an aggregate of $100 000 to re-purchase Cordia s common stock when market conditions favorable for that purpose prevailed. Total # of Shares Purchased as Part Approximate Dollar Value of Shares Total # Shares Average Price of Publicly Announced that May be Purchased Under Period Purchased Per Share Plans or Pro rams Plans or Pro rams 7/1/04 - 7/31/04 800 $0,All $95 260 811/04 - 8/31/04 200 $0,33 - $0,34**All $86 184 911/04 - 9/31/04 000 $0.44 All $81 784 10/1/04 - 10/31/04 500 $0,All $78 034 12/1/04 - 12/31/04 450 $1.00 All $70 584 All purchases were made in open-market transactions pursuant to the Board's action taken on January 7, 2004, . The repurchase plan was announced in Company s Form 8-K filed on January 14, 2004. Under the plan, an aggregate of $100 000 was authorized for the purpose of re-purchasing Company s Common Stock when market conditions were favorable for that purpose. The plan prevented re-purchase of stock if the market price exceeded $1.00, The plan would expire after the aggregate amount authorized was exhausted. The last purchase made under the plan was in December 2004 and the Company does not intend to make any further purchases under the plan. .. A total of 17 200 shares were purchased at $0.33 per share and 10 000 shares were purchased at $0.34 per share. Cordia management purchased a total of 67 950 shares of common stock during fiscal year 2004 with an aggregate purchase price of $30 998, Item 6. Management's Discussion an~ Analysis or Plan of Operation. Certain statements set forth below under this caption constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Please refer to the first page of this Report for additional factors relating such statements, Plan of Operation During 2006, we will continue to focus on the growth of our traditional wire line customer base while improving quality and customer service to achieve greater customer loyalty and retention, To promote the growth of our customer base we plan on introducing our services in Colorado and Oregon during the first half of 2006. In addition, we recently filed applications to operate as a telecommunications carrier in Arizona, Idaho, Minnesota and Virginia, and anticipate the commencement of service offerings by the end of 2006. We are also preparing an application for entry into Utah. In an effort to improve customer loyalty, retention and overall customer satisfaction, we are continuing the development of our customer service reorganization, commenced during the latter half of 2005 , and anticipate completion and implementation during the first half of2006, The purpose of the reorganization is to ensure a better customer service experience for our customers and involves a new "single point of contact" method, replacing the former departmentalized service center approach we previously utilized. A new single point of contact means customer calls will be answered and addressed by one representative without the need to transfer customers to different departments. We believe that by providing our customers with a single point of contact who will be accountable for addressing our customer s concerns will have a significant impact on reducing customer chum and increasing customer satisfaction. - 7- During 2005, our business model included cost controls, bad debt controls, and new service offerings in an effort to reduce bad debt as a percentage of revenue, Cost controls involved avoiding service areas with high loop and port charges, the charges we pay under our leasing agreements with the ILECs so we can provide service to our customers, By limiting our offerings to service areas with lower charges, we maximized our ability to earn profits on the services we offer. To reduce bad debt we focused our telemarketing efforts on service areas in which, historically, we have had greater profitability, Additionally, we now supply our telemarketing firms with credit scored leads giving us the ability to improve the quality of targeted customers and our resulting customer base, We also engaged the services of a third party credit reporting agency combining local and long-distance telecommunications performance data with information from credit reporting databases and calculating a score to determine the probability of payment ranking for new and existing customer accounts, We plan on the continued implementation of this business model during 2006. Our primary means of marketing our traditional wireline service offerings are through three (3) unaffiliated third party telemarketing fLIlTls, The services of all three (3) telemarketing flrI11s are offered on a non-contractual basis and the firms are paid on a per sale commission basis that varies by the type, size, and location of the customer sold, Telemarketing represents one of our most significant expenses, spending approximately $4 057 000 for the year ended December 31 , 2005, as it has been the primary means of growing our customer base. Absent contractual relationships, we can reduce or discontinue our telemarketing efforts if necessary without serious consequence other than slower customer growth. We are also developing a network of independent sales agents operating on a commission based schedule of compensation which includes upfront commissions and residuals based on customer payments. To support our independent sales agent network, we developed an agent module to our WorkspacesCID and a related Internet site located at agents,cordia.us to assist us in attracting and maintaining a network of qualified independent sales agents. Through agents, cordia. us, our agents can track all customer activities on a real time basis, These activities include order tracking, billing, payments and ticketing systems that allow an agent to actively participate in our mutual customer s telecommunications status and requirements. We believe our ability to provide universal access to customer account information and transactions will provide us with a competitive advantage in the acquisition and retention of customers for our telecommunications services, In addition, we are currently developing new channels of distribution for both our wire line and voir products utilizing online marketing, direct mail, email response marketing, and fostering wholesale and resale relationships, Our goal is to decrease our cost of acquisition through the implementation of these additional channels of distribution and the growing use of the Internet as a means of communication. It is our intention to leverage our experience and expertise in system development and telecommunications into a successful VoIr business, We believe the stability of our core business and its associated revenue stream allow for the investment of profits into the growth of our VoIP service. To date, we have developed our own proprietary VolP system offering increased productivity, enhanced quality of service, and next generation integrated services to our customers, We are constantly developing and improving our service and anticipate the roll-out of additional services during the second quarter of 2006, By developing our own VoIP system and fostering relationships domestically and internationally it is our intention to promote globalization and offer a sophisticated line of services for the consumer regardless of location, For example, even the smallest business can create the appearance of a global presence simply by taking advantage of our ability to provide them with international telephone numbers, Cordia achieved compliance with FCC's requirement that VoIP service providers supply enhanced 911 emergency calling capabilities to customers in January 2006 and have moved forward with our complete roll-out and related marketing efforts ofVoIP, Customers can enroll in our VoIP service online at www.cordiaip,com. In addition to signing up online, Cordia is utilizing a third-party telemarketing flrI11, a network of independent sales agents, and creating wholesale and resale relationships with other entity's for the sale of our VoIr service. We are also developing additional channels of distribution which include agent sales, online sales, direct mail and email. We believe the acceptance of VoIP will provide us with a strategic advantage in years to come, specifically with the opportunity to convert our customer base to a voir network as an alternative to renegotiating our commercial services agreements upon their expiration, as well as with expanding our marketing footprint from that of a regional carrier to a global carrier. In furtherance of our global strategy, we will continue to seek acquisition and partnership opportunities in telecommunications that will permit us to rapidly and profitably grow our telecommunication-related revenues. We believe our traditional bundled wireline service offerings will represent more than 88% of our revenue, our outsourced services will represent approximately 2%, and VolP service offerings will represent more than 10% of overall revenue for the fiscal year 2006. Of this anticipated revenue we believe our expansion into the Qwest territory, representing the Western United States, will represent approximately 2% to 3% of our traditional bundled wire line revenue, In the future we expect VolP services to increase as a percentage of revenue and bdieve VoIP revenue will be comprised of both international and domestic customers with approximately a 50/50 split between the two. The detailed results of operations in 2005 follow. In instances where there is a dramatic increase or decrease from the prior year it should be noted these results are typical in the fast paced growth environment undertaken by us throughout 2005 and 2004, During 2006, we anticipate continued and steady growth results, although not as dramatic as during 2005 and 2004 as we strive to continually improve our telecommunications infrastructure and expand our customer base. We believe we will reach both economies of scale and scope with our anticipated telecommunications growth and VoIP rollout, thereby improving our fmancial position and profitability ratios. The dramatic increase or decrease in percentages should not however, be relied upon as a forecast of future revenues and costs, Management's Discussion and Analysis of Financial Condition and Results of Operations Critical Accounting Policies and Estimates The Company s accounting policies are more fully described in Note 1 of the consolidated financial statements. As discussed in Note 1 , the preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions about the future events that affect the amounts reported in the consolidated fmancial statements and the accompanying notes. Management bases its estimates on historical experience and on various other assumptions believed to be reasonable under the circumstances. Actual differences could differ from these estimates under different assumptions or conditions, The Company believes that the following addresses the Company s most critical accounting policies, We recognize revenue in accordance with Securities and Exchange Commission Staff Accounting Bulletin No, 104 Revenue Recognition " (" SAB 104"), Under SA.B 104, revenue is recognized at the point of passage to the customer oftitIe and risk of loss, when there is persuasive evidence of an arrangement, the sales price is determinable, and collection of the resulting receivable is reasonably assured. We recognize revenue as services are provided. Revenues are reflected net of coupon discounts, Our allowance for doubtful accounts is maintained to provide for losses arising from customers' inability to make required payments. If there is deterioration of our customers' credit worthiness and/or there is an increase in the length of time that the receivables are past due greater than the historical assumptions used, additional allowances may be required, For example, every additional one percent of our accounts receivable that becomes uncollectible would reduce our operating income by approximately $69 000. We account for income taxes in accordance with Statement of Financial Accounting Standards No, 109 , " Accounting for Income Taxes " (" SFAS No. 109"). Under SFAS No. 109, deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are reflected on the balance sheet when it is determined that it is more likely than not that the asset will be realized. Prior to 2005, a valuation allowance had been recorded to reduce our deferred tax asset to $0. As of December 31 , 2005, that valuation allowance has been reduced considerably due to current profits and expected future growth. Comparison of Fiscal Year 2005 to Fiscal Year 2004 OPERATING REVENUES Years Ended December 312005 2004 Telecommunications Revenue 238 000 623 000 Other 713 000 606 000 951 000 229 000 Revenues for the year ended December 31 , 2005 increased by approximately $28 722 000 or approximately 217%, to approximately $41 951 000 as compared to approximately $13 229 000 reported for the year ended December 31 2004, Our primary source of revenue is through our telecommunications related businesses and is earned through the provisioning of services to business, residential and wholesale customers for basic telephone service, including local and both domestic and international long distance service, as well as ancillary services such as voice mail and call waiting. Of the revenues reported for fiscal year 2005, approximately $38 349 000 was generated from retail telecommunications services approximately $2 853 000 was generated from CABS and approximately $36 000 was generated from VolP services, as compared to fiscal year 2004, where approximately $11 651 000 was generated from retail telecommunications services $972 000 was generated from CABS and there was no VolP revenue generated. During 2005 and 2004, we had focused on the aggressive growth of our retail customer base and on increasing our line counts. We anticipate a steady and continued growth rate in the customer base of our retail telecommunications operations as we expand into new territories, such as Colorado and Washington, and commence additional service offerings, such as new bundled plans and our VolP service which began during the second quarter of 2005, Except for the growth associated with entry into new territories, we are narrowing the scope of our growth plans as we focus on implementing cost and bad debt controls and increasing customer satisfaction, through our customer service reorganization, in an effort to improve the quality of our customer base. As a result, we do not anticipate our line count to increase as rapidly as in prior periods, However, we believe that our profit margin per customer will improve allowing us to compete more effectively in this industry. Other revenue consists primarily of income earned through our outsourcing of data and website technology and our wholesale telecommunications services. The increase in other revenue is primarily due to increases in our wholesale customers operations, which was offset by the termination of our licensing agreement with our discontinued insurance operation, which represented approximately $74 000 for fiscal year 2004. Outsourcing services provided to our wholesale customers represented $713 000 or approximately 1.7% of our total revenue generated during fiscal year 2005, as compared to $606 000 or approximately 4.6% of our total revenue generated during fiscal year 2004. COST OF REVENUE Years Ended December 31 2005 2004 Resale and Wholesale Line Charges $ 21 807 000 $ 6 207 000 Resale and Wholesale Line Charges Resale and wholesale line charges are direct costs associated with our telecommunications subsidiaries, CCC and CordialP, These costs represent network access fees paid in order to provide domestic and international telephone service to our customers, These expenses will rise or fall in direct correlation to the size of our telecommunications and VoIP customer base, We have experienced an increase of approximately $15 600 000 as a result of growing our customer base and anticipated increasing surcharges from our underlying carrier, By successfully negotiating commercial agreements with Verizon, Qwest, and AT&T we eliminated the effects the FCC' Triennial Review Order had on our ability to offer our consumers services utilizing certain unbundled network elements UNE-), while creating an environment of certainty because the agreements provide us with a known cost quantity, Gross Profit Margin For fiscal year 2005 , our gross profit margin decreased to approximately 48.0% from 53.1 % reported in fiscal 2004, This decrease is primarily due to our being assessed surcharges in accordance with the terms of our commercial agreement with Verizon, We anticipate that the costs associated with providing our services will increase approximately 10% under the pricing terms of these commercial agreements as the agreement provides for a yearly increase in applicable surcharges. Taking into consideration this increase, we were still able to generate sufficient gross margins resulting in profits for the year ending December 31 , 2005. We believe we will continue to generate sufficient gross margins to result in profits from these services. 10- OPERATING EXPENSES Years Ended December 31 2005 2004 Sales and Marketing Provision for Doubtful Accounts General and Administrative 336 000 $ 382 000 978 000 314 000 596 000 628 000 893 000 000Depreciation and Amortization $ 19 010 000 $166 000 Consolidated operating expenses increased by approximately $11 844 000 or approximately 165%, to approximately $19 010 000 during fiscal 2005, as compared to approximately $7 166 000 during fiscal 2004, Consolidated operating expenses grew less than revenue during fiscal 2005, as compared to 2004, on an absolute and percentage basis. The Company incurred expenses related to the hiring, development and deployment of personnel, software systems and infrastructure necessary to support Cordia Communications ' growth , and the roll-out ofCordiaIP's VoIP services during 2005, A portion of these development expenses are not directly associated with revenue growth and should remain relatively fixed in future periods. Therefore, we believe the future growth ofrevenues will result in greater operating margins and profitability, Sales and Marketing We have experienced an increase of approximately $1,740 000 in fiscal 2005, as compared to fiscal 2004, in our advertising and promotion costs, which consist of advertising, marketing, and telemarketing expenses. This increase is primarily due to our use of telemarketers to grow our retail customer base during 2005, and to the additional marketing expenses associated with our launch of VoIr during the second quarter of 2005. As our primary means of marketing is through third party telemarketing flrI11s, we expect this trend to continue, Provisionfor Doubtful Accounts Our bad debt expense increased by approximately $4 754 000 during 2005, as compared to the prior year, which is primarily due to our rapid growth in revenues and the increase in our percentage of residential customers as compared to the business customers in our base. In general, we have experienced higher bad debts from our residential customers, However, we began credit scoring every sale since the beginning of fourth quarter 2005, and as a result we expect bad debts to decline as a percentage of sales during 2006. In addition to credit monitoring, we also implemented a customer service reorganization and geographical targeting of services areas in which, historically, we have experienced greater profitability, We expect that our increased efforts and closely monitoring our receivables will enable us to reduce our bad debt exposure in 2006, General and Administrative Other general and administrative expenses consist of expenses such as salaries, rent, office expenses, insurance commissions, telephone, bank and credit card processing fees, license expense and registration fees, among others. We experienced an increase of approximately $5 085 000 or approximately 131% in fiscal 2005 , as compared to the prior year, This was due primarily to expenses related to our growth, with the largest of these expenses being salary related; we have fifty (50) more employees for the period ended December 31 , 2005, than we had for the same period ended 2004, We expect this trend to level off as we continue implementing the second phase of our business model. 11- Depreciation Depreciation increased approximately $265 000 during fiscal 2005, compared to the prior year, due to additions of depreciable office equipment, time associated with our rollout ofVoIP, which was capitalized and depreciated in accordance with Statement of Position ("SOP") 98-, and our expenditures relating to leasehold improvements which were made during the build-out of our Florida office, The expenditures related to office equipment and leasehold improvements were necessary to facilitate our growth, Depreciation on equipment and capitalized software costs are calculated using a Modified Accelerated Cost Recovery System (MACRS) over a three (3) year period. Amortization of leasehold improvements and other assets is computed using the straight-line method over the estimated useful lives of the asset or the remaining lease term. Liquidity and Capital Resources At December 31 , 2005, we had cash and cash equivalents of approximately $2 346 000 an increase of approximately 046 000 from amoUnts reported at December 31 , 2004, and positive working capital of approximately $1 156 000, an increase of approximately $2 241 000 from the working capital deficit of approximately ($1 085 000), reported at December , 2004, The increase in working capital is primarily related to funds received in conjunction with a private placement of Series A Convertible Preferred Stock in which we raised $1 500 000, The completion of this equity placement has allowed us to strengthen our financial position enabling us to continue to maintain and promote our growth rate, In addition, our revenue stream has allowed us to continue to meet our fmancial obligations while achieving a level of profitability. Net cash used by operating activities for the year ended December 31 , 2005, aggregated approximately $83 000, an increase of approximately $508 000 from the amount provided during the year ended December 31 , 2004, For the year ended December 31, 2005, the principal use of cash was the increase in accounts receivable of approximately $6 951 000 and the uSe of cash necessary to post the required Letters of Credit ("LOC's ), (offset against accrued interest), with V erizon, which totaled approximately $1 401 000, These amounts were offset against the increase in accrued expenses of approximately $2,1 05 000 at December 31 , 2005. For fiscal 2004, the principal source of cash provided was due to the increase in accounts payable of approximately $2 428 000, which was offset against the source of cash used for the increase in accounts receivable of approximately $4,450 000, Net cash used in investing activities for the year ended December 31 , 2005, aggregated approximately $1 344 000 as compared to net cash used of approximately $197 000 for the year ended December 31 , 2004. Cash applied to investing activities consisted primarily of expenditures relating to the development of our VoIP platform, which amounted to approximately $602 000 and purchases of computer equipment amounting to approximately $487 000, The remaining expenditures of approximately $255 000 were the result of the build-out of our new office in Florida. For fiscal 2004, the net cash used in investing activities was due the purchase of computer equipment primarily for Ccc. Net cash provided by fmancing activities aggregated approximately $2 072 000 for the year ending December 31 , 2005, as compared to net cash used in fmancing activities of approximately $39 000 for the year ended December 31 , 2004, The principal source provided by fmancing activities in the 2005 period, was $1 455 000 attributed to our private placement of Series A Convertible Preferred Stock and Warrants as discussed in Note 4 of the consolidated fmancial statements, An additional $660 000 of proceeds was the result of the exercise of330 000 warrants associated with the private placement. For fiscal 2004, the principal source of cash used by fmancing activities was primarily attributed to our purchase of treasury stock aggregating approximately $31 000, Long-term debt and operating lease obligations as of December 31, 2005, mature as follows: ments due Less than More Than Obligations Total 1 year 3 years 5 years 5 ~ears Telephone Capital Lease 426 458 916 052 Rental (Office)239 753 374 909 776 753 666 862 421 229 TOTAL OBLIGA nONS $ 2 313 179 390 367 807 669 693 914 421 229 12- During fiscal 2005, we had sales and marketing expenses of approximately $4 336 000, or approximately 10% of revenues, We expect our sales and marketing expenses to continue to grow in the future primarily due to the anticipated higher acquisition cost per sale as a result of requiring higher credit standards, We also expect to incur additional marketing expenses associated with our recent commercial launch of VoIP service, Sales and marketing expenses are primarily outsourced telemarketing expenses, We have not entered into volume commitments with any of our third party sales organizations, By avoiding volume commitments, we are better able to control our levels of advertising expenditures. believe that this flexibility affords us the opportunity to aggressively grow our revenues while maintaining the short-term ability to adjust our expenditures based on our available working capital and liquidity, At December 31 , 2005 , a significant portion of our working capital was restricted cash in the form of certificates of deposit totaling $1 367 000 plus accrued interest of approximately $34 000. The certificates of deposits mature in March, April, and July 2006, and secure four (4) separate LOC's for Massachusetts, New York, New Jersey, and Pennsylvania, which we were required to post with Verizon in conjunction with our new long-term wholesale agreement. In addition to the LOC's, our new agreement with Verizon requires payment within 20 days of our receipt ofVerizon s bills. Prior to our entering into the new agreement, Verizon had allowed us more than 30 days to pay our bills, We have satisfied the credit and payment terms related to the Verizon agreement and do not expect the agreement's terms to have a material impact on our ongoing uses of cash other than a strict requirement to maintain current payments in the future, Our new wholesale agreements' requirement to maintain current payments in the future , and the significant portion of our working capital that is restricted and held in certificates of deposit reduces our fmancial flexibility and limits our ability to grow aggressively, Despite our limited financial resources and flexibility, we believe that our current cash and cash equivalent assets plus our anticipated profits will provide us with sufficient liquidity to continue to grow our telecommunications operations and develop, deploy and market our VoIP services. At our current run rate we are profitable and believe that we will be able to sufficiently cover all of our current expenses, During the fIrst quarter of 2005, we used cash in operations to establish deposits with Verizon and pay down our past due invoices, At this filing, we are current with Verizon and will not need to use cash from operations to pay past due invoices, Therefore we believe that our operations will generate sufficient cash at our current growth rate. Sufficient liquidity is dependent on our ability to maintain the number of our customer accounts, inclusive of chum, reducing our bad debts, and continuing our current pattern of growth, which we believe can be sustained through our current levels of sales and marketing. In addition, because we use third party telemarketing flrI11s, we have the ability to control our sales and marketing expense, by reducing our marketing efforts as necessary to combat liquidity issues that may arise during the normal course of business, In order to grow our telecommunications operations more quickly, we may have to raise cash from additional sources and management may have to seek other short-term funding, such as receivables financing, to cover the short-term cash deficiencies which may arise due to the twenty (20) day payment obligations under our wholesale service agreements and the current typical 45 day receipt of payment from our customers. The primary cost and use of cash for rapid growth are increased marketing expenses and the initial funding of increased customer receivables with increased sales rates, We also expect to continue to invest capital in our VoIP softswitch development, which will continue at approximately the same rate as in the fourth quarter of 2005, or approximately less than 1 % of total revenue. As we grow, we will also use cash for capital expenditures related to computer and office facilities to support increased staffing, During 2005, we executed a lease for an additional 32 000 square feet of office space in Winter Garden, Florida. We anticipate one-time capital expenditures for this increase to be approximately $500 000. Recognizing the limiting effect that our liquidity has on our ability to reach the aforementioned goals it may become necessary for management to consider other sources of funding to counterbalance this limitation. In addition, our ability to raise capital through other means will affect our ability to reach our anticipated growth results throughout the year ending 2006. Off -balance sheet arrangements We have not entered into any transactions with unconsolidated entities whereby we have fmancial guarantees, or other contingent arrangements that exposes us to material continuing risks, contingent liabilities or any other obligations that provide fmancing, liquidity, market risk or credit risk support to the Company. 13- Recent Accounting Pronouncements Affecting the Company In December 2004, the FASB issued a revision of SFAS No, 123 "Share-Based Payment" (No, 123R), The statement establishes standards for accounting for transactions in which an entity exchanges its equity investments for goods and services, It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity's equity instruments or that may be settled by the issuance of those equity instruments, The statement does not change the accounting guidance for share-based payments with parties other than employees. The statement requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exception). That cost will be recognized over the period during which an employee is required to provide service in exchange for the award (usually the vesting period), A public entity will initially measure the cost of employee services received in exchange for an award of a liability instrument based on its current fair value; the fair valued of that award will be remeasured subsequently at each reporting date through the settlement date, Changes in fair value during the requisite service period will be recognized as compensation over that period, The grant-date for fair value of employee share options and similar instruments will be estimated using option- pricing models adjusted for the unique characteristics of these instruments, The Company will be required to comply with this pronouncement for fiscal period commencing January 1 2006, In May 2005, the Financial Accounting Standards Board (F ASB) issued Statement of Financial Accounting Standards SF No. 154, Accounting Changes and Error Corrections which replaces APB Opinion No, 20 Accounting Changes and SF No, 3, Reporting Accounting Changes in Interim Financial Statements - An Amendment of APB Opinion No, 28, SF AS No, 154 requires retrospective application to prior periods' fmancial statements of a voluntary change in accounting principle unless it is not practicable. SFAS No, 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15 , 2005, and is required to be adopted by the Company in the first quarter of fiscal 2006. Although the Company will continue to evaluate the application of SF AS No, 154, management does not currently believe adoption will have a material impact on the Company s results of operations or fmancial position. Item 7. Financial Statements. The following consolidated fmancial statements, notes thereto, and the related independent registered public accounting flrI11 s report contained on page F-l to the Company s consolidated fmancial statements are herein incorporated: Report of Independent Registered Public Accounting Firm Consolidated Balance Sheets - December 31 , 2005 and 2004 Consolidated Statements of Operations - Years ended December 31 , 2005 and 2004 Consolidated Statements of Stockholders' Equity (Deficit) - Years ended December 31 , 2005 and 2004 Consolidated Statements of Cash Flows - Years ended December 31, 2005 and 2004 Notes to Consolidated Financial Statements - Years ended December 31 , 2005 and 2004 Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None 14- Item 8A. Controls and Procedures. (a) Based upon an evaluation of the effectiveness of the Company s disclosure controls and procedures as of the end of the period covered by this report, our Chief Executive Officer ("CEO") and Chief Accounting Officer CAO" ), who serves as our principal financial officer, have each concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed in our reports that we file or submit under the Exchange Act is recorded, processed summarized, and reported within the time periods specified in the Commission s rules and forms and are also effective to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is accumulated and communicated to the Company s management, including the Company s principal executive and principal financial officer to allow timely decisions regarding required disclosure, and that our internal controls are effective to provide reasonable assurances that our fmancial condition, results of operations and cash flows are fairly presented in all material respects, (b) The CEO and CAO each note that, since the date of hislher evaluation that occurred during our fourth fiscal quarter of 2005 , there have been no changes in internal controls or in other factors that could materially affect, or are reasonably likely to materially affect, our internal control over fmancial reporting. Item 8B. Other Information. None P ART III Item 9. Directors, Executive Officers, Promoters and Control Persons. Directors and Executive Officers. Information regarding our directors and executive officers is incorporated by reference to the section entitled "Election of Directors" appearing in our Proxy Statement for our Annual Meeting of Stockholders to be filed with the Securities and Exchange Commission (the "Commission ) within 120 days after the end of our year ended December 31 , 2005, Item 10. Executive Compensation. Information regarding executive compensation is incorporated by reference to the information set forth under the caption Executive Compensation" in our Proxy Statement for our Annual Meeting of Stockholders to be filed with the Commission within 120 days after the end of our year ended December 31 , 2005, Item 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. Information regarding security ownership of certain beneficial owners and management is incorporated by reference to the information set forth under the caption "Security Ownership of Certain Beneficial Owners and Management Ownership" in our Proxy Statement for our Annual Meeting of Stockholders to be filed with the Commission within 120 days after the end of our year ended December 31 , 2005. Item 12. Certain Relationships and Related Transactions. Information regarding certain relationships and related transactions is incorporated by reference to the information set forth under the caption "Certain Relationships and Related Transactions" in our Proxy Statement for our Annual Meeting of Stockholders to be filed with the Commission within 120 days after the end of our year ended December 31 , 2005, 15- Item 13. Exhibits The following exhibits are filed herewith or are incorporated by reference to exhibits previously filed. Exhibit No, 10, 10, 10.3 10.4 10, 10, 10, 10, 10, 10, 10, Description Articles of Incorporation (incorporated by reference to Exhibit B(1) of our Form 10-Q field with the Commission on May 16 2000). Revised Bylaws (incorporated by reference to Exhibit B(4) of our Form 10-Q filed with the Commission on May 16 2000), Articles of Merger of Vestex, Inc, and CyberopticLabs, Inc, (incorporated by reference to Exhibit B(2) of our Form 10-Q filed with the Commission on May 16 2000) Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 of our Form 10-KSB filed with the Commission on April 14 200 I), Cordia Corporation 2001 Equity Incentive Plan (incorporated by reference to Exhibit lO,lof our Form 10-KSB filed with the Commission on April 14 2001), Preferred Stock Purchase Agreement (incorporated by reference to Exhibit 10,1 of our Form 8- filed with the Commission on March 7 2005) Registration Rights Agreement (incorporated by reference to Exhibit 10,2 of our Form 8-K filed with the Commission on March 7 2005), Certificate of Designation of Preferences (incorporated by reference to Exhibit 10,3 of our Form 8- filed with the Commission on March 7 2005), Common Stock Purchase Warrant A (incorporated by reference to Exhibit 10.4 of our Form 8- filed with the Commission on March 7 2005), Common Stock Purchase Warrant B (incorporated by reference to Exhibit 10,5 of our Form 8- filed with the Commission on March 7 2005), Amendment to Preferred Stock Purchase Agreement (incorporated by reference to Exhibit 10, of our Form K/A filed with the Commission on March 11 2005), Agreement to Clarify the Terms of Warrant A and Warrant B (incorporated by reference of Exhibit 10,1 to our Form K/A filed with the Commission on April 6 2005), Common Stock Purchase Warrant A corrected as of April 6 2005 (incorporated by reference to Exhibit 10,2 of our Form K/ A filed with the Commission on April 6 2005), Common Stock Purchase Warrant B corrected as of April 6 2005 (incorporated by reference to Exhibit 10,3 of our Form K/A filed with the Commission on April 6 2005), Amendment to Registration Rights Agreement (incorporated by reference to Exhibit 10,1 of our Form 8-k filed with the Commission on April 27 2005), 16- 10, 10. 31.1 31.2 32, 32, Qwest Master Services Agreement for Qwest Platform Plus Service (incorporated by reference to Exhibit 10,12 of our Amendment No, 4 to Form SB-2/ A filed with the Commission on August 15 2005 Registration No, 333-124996) Verizon Wholesale Advantage Services Agreement (certain portions were omitted based upon a request for confidential treatement; Non public information has been filed with the Commission) (incorporated by reference to Exhibit 10,13 of our Amendment No, 5 to Form SB-2/ A filed with the Commission on August 29, 2005, Registration No, 333-124996) Subsidiaries - list of all subsidiaries, jurisdiction of incorporation and names under which subsidiaries do business, Certification of Cordia Corporation s Principal Executive Officer, Joel Dupre, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, Certification of Cordia Corporation s Principal Financial Officer, Lorie M, Guerrera, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, Certificate of Cordia Corporation s Principal Executive Officer, Joel Dupre, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Certification of Cordia Corporation s Principal Financial Officer, Lorie M, Guerrera, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Item 14. Principal Accounting Fees and Services. Information regarding our principal accountant fees and services is incorporated by reference to the information set forth under the caption "Principal Accountant Fees and Services" in our Proxy Statement for the Annual Meeting of Stockholders to be filed with the Commission within 120 days after the end of our year ended December 31 2005, 17- SIGNA TURES In accordance Section 13 or 15( d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CORDIA CORPORATION Date: March 31 , 2006 By: Isl Joel Dupre ------------------------- ------------ Joel Dupre Chief Executive Officer Date: March 3 1 , 2006 By: Isl Lorie M. Guerrera ----------------------------- -------- Lorie M, Guerrera Chief Accounting Officer (Principal fmancial officer) In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in the capacities stated on March 31 2006. Signature Title Is/Joel Dupre Chief Executive Officer, Chairman of the Board ---------------------------------- Is/John Scagnelli Director -------------------------------- Is/Wesly Minella Secretary, Director ---------------------- ----------- Is/Patrick Freeman Chief Technology Officer, Director --------------------------------- Is/Gandolfo Verra Director ----------------------- ----------- 18- Cordia Corporation Computation of Per Share Earnings (Loss) NUMERATOR - BASIC Net Income (Loss) Deduct: Preferred Stock Dividend Numerator for Basic Earnings Per Share NUMERATOR - DILUTED Numerator for Basic Earnings Per Share Add: Preferred Stock Dividend Numerator for Diluted Earnings Per Share DENOMINATOR Weighted 'average number of common shares outstanding Assumed conversion of preferred stock Assumed exercise of stock options Denominator for Diluted Earnings Per Share Basic earnings (loss) per common share Diluted earnings (loss) per common share For the Year Ended December 31 2005 265 460 (212 415) 053 045 053 045 212;415 265 460 675 779 104 584 598 866 379 229 2004 $ (169 800) $ (169 800) $(169 800) $(169 800) 772 032 772 032 (0,04) (0,04) EXHIBIT 11. Subsidiary ------------- Cordia Communications Corp, My Tel Co, Inc, CordiaIP Corp. Cordia International Corp, Cordia HK Limited* VOzsIP Corp, Cordia International Holdings Group LIST OF SUBSIDIARIES Jurisdiction of Incorporation ----------------- Nevada New York Nevada Nevada Hong Kong Nevada British Virgin Islands EXHIBIT 21 Name Under Which Subsidiary Does Business ---------------------------- Cordia Communications Corp. My Tel Co, Inc, CordiaIP Corp, Cordia International Corp, Cordia HK Limited VOzsIP Corp, Cordia International Holdings Group * These entities are wholly-owned subsidiaries of Registrant's wholly-owned subsidiary Cordia International Corp, EXHIBIT 31.1 Certification of Principal Executive Officer Pursuant to 18 U,c. 1350 (Section 302 of the Sarbanes-Oxley Act of 2002) , Joel Dupre, certify that: I have reviewed this annual report on Form 10-KSB of CORDIA CORPORATION; Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this annual report; The small business issuer s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(t) and 15( d)-15(t) for the small business issuer have: Designed such disclosure controls and procedures, or caused such disclosure under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasona,ble assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; Evaluated the effectiveness of the small business issuer s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and Disclosed in this report any change in the small business issuer s internal control over financial reporting that occurred during the small business issuer s most recent fiscal quarter (the small business issuer s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer control over financial reporting; and The small business issuer s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer s auditors and the audit committee of small business issuer s board of directors (or persons perfonning the equivalent functions): Date: March 31 , 2006 All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer s ability to record, process summarize and report financial infonnation; and Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer s internal control over financial reporting, Isl Joel Dupre ----------------------------------- Chief Executive Officer EXHIBIT 31.2 Certification of Principal Financial Officer Pursuant to 18 u,c. 1350 (Section 302 of the Sarbanes-Oxley Act of2002) , Lorie M, Guerrera certify that: I have reviewed this annual report on Form 10-KSB of CORDIA CORPORATION; Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report; Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this annual report; The small business issuer s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f) for the small business issuer have: Designed such disclosure controls and procedures, or caused such disclosure under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared; Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; Evaluated the effectiveness of the small business issuer s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and Disclosed in this report any change in the small business issuer s internal control over financial reporting that occurred during the small business issuer s most recent fiscal quarter (the small business issuer s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer control over financial reporting; and The small business issuer s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer s auditors and the audit committee of small business issuer s board of directors (or persons performing the equivalent functions): Date: March 31, 2005 All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer s ability to record, process summarize and report financial information; and Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer s internal control over financial reporting, Isl Lorie M. Guerrera - - - -------- -- ---- - -- -- - ----- Chief Accounting Officer EXHIBIT 32. Certification of Principal Executive Officer Pursuant to 18 U,C, 1350 (Section 906 of the Sarbanes-Oxley Act of 2002) , Joel Dupre, Chief Executive Officer of Cordia Corporation (the "Registrant") do hereby certify, pursuant to 18 U,c. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge, based upon a review of the Annual Report on Form 10-KSB for the year ended December 31 , 2005 of the Registrant, as filed with the Securities and Exchange Commission on the date hereof (the "Report" (I) The Report fully complies with the requirements of Section 13(a) or 15( d) of the Securities Exchange Act of 1934, as amended; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. By: Isl Joel Dupre -- ----- - - - - - - ---- --- ------- -- Joel Dupre Chief Executive Officer March 31 , 2006 * A signed original of this written statement required by Section 906 has been provided to Cordia Corporation and will be retained by Cordia Corporation and furnished to the Securities Exchange Commission or its staff upon request. EXHIBIT 32. Certification of Principal Executive Officer Pursuant to 18 U,c. 1350 (Section 906 of the Sarbanes-Oxley Act of2002) , Lorie M, Guerrera, Chief Accounting Officer of Cordia Corporation (the "Registrant") do hereby certify, pursuant to 18 u,c. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge, based upon a review of the Annual Report on Form 10-KSB for the year ended December 31 , 2005 of the Registrant, as filed with the Securities and Exchange Commission on the date hereof (the "Report" (I) The Report fully complies with the requirements of Section 13(a) or 15( d) of the Securities Exchange Act of 1934, as amended; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. By: Isl Lorie M, Guerrera -- - -- ----- --- -- ------- --- --- - - - ---- Lorie M, Guerrera Chief Accounting Officer March 31 , 2006 * A signed original of this written statement required by Section 906 has been provided to Cordia Corporation and will be retained by Cordia Corporation and furnished to the Securities Exchange Commission or its staff upon request. CORDIA CORPORATION AND SUBSIDIARIES DECEMBER 31,2005 AND 2004 Index to Consolidated Financial Statements Page(s) Report ofIndependent Registered Public Accounting Firm Consolidated Balance Sheets Consolidated Statements of Operations Consolidated Statements of Stockholders' Equity (Deficit) Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements 6 - F- REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Board of Directors and Stockholders Cordia Corporation We have audited the accompanying consolidated balance sheets of Cordia Corporation and subsidiaries as of December 31 2005 and 2004, and the related consolidated statements of operations, stockholders' equity (deficit), and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company s internal control over fmancial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the fmancial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall fmancial statement presentation, We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Cordia Corporation and subsidiaries as of December 31 , 2005 and 2004, and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America, Isl LAZAR LEVINE & FELIX LLP New York, New York March 10 2006 CORDIA CORPORA nON AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS As of December 312005 2004 ASSETS Current Assets Cash and cash equivalents Cash - restricted Accounts receivable, less allowance for doubtful accounts of $864 827 (2005) and $627 158 (2004) Prepaid expenses Accmed usage receivable Deferred tax assets Other Assets Security deposits and other assets 944 840 300 119 1,401 058 992 833 4,423 423 514 576 324 420 332 534 263 014 278 000 463 841 5,310 976 787 809 236 597 602 012 255 050 644 871 236 597 354 430 182 290,441 177 415 216 358 064 $10 970 640 547,455 TOTAL CURRENT ASSETS Property and equipment, at cost Office and computer equipment Computer software Leasehold improvements Less: Accumulated depreciation/amortization NET PROPERTY AND EQUIPMENT TOTAL ASSETS LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current Liabilities Current portion, capital lease obligations Accounts payable Accmed expenses Income taxes payable Unearned income Loans payable-other 099 708,784 3,316 121 4,260 304 154 910 109 000 161 562 867 728 000 000 307 749 6,395,759 410 840 000 165 104 575 840 TOTAL CURRENT LIABILITIES Noncurrent Liabilities Deferred rent Deferred income taxes Capital lease obligation, net of current TOTAL NONCURRENT LIABILITIES COMMITMENTS AND CONTINGENCIES Stockholders' Equity (Deficit) Preferred stock , $. 001 par value; 5 000 000 shares authorized 797 800 shares issued and outstanding Common stock , $. 001 par value; 100 000 000 shares authorized 639,410 (2005) and 4 541 210 (2004) shares issued and outstanding Additional paid-in capital Accwnulated deficit 798 639 541 054 606 660 087 406 729)459 774) 654,314 (795 146) (95 998)998 558,316 851 144 $10 970 640 $ 5 547,455 Less: Treasury stock, at cost, 177 694 (2005) and 77 694 (2004) common shares TOTAL STOCKHOLDERS' EQUITY (DEFICIT) TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) See notes to consolidated financial statements. CORDIA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS For the Year Ended December 31 2005 2004 Revenues Telecommunications revenue 238,380 712 835 951 215 807 095 144 120 622 964 606 492Other 229 456 Cost of Revenues Resale and wholesale line charges 207 042 Gross Profit 022 414 Operating Expenses Sales and marketing Provision for doubtful accounts General and administrative Depreciation 4,336 415 381,753 978 211 313 998 596 326 627 544 892 658 941 010,377 165 469 Operating Income (Loss)133 743 (143 055) Other Income (Expenses) Net Interest Income (expense)26,358 936) Income (Loss) Before Income Taxes 160 101 (151 991) Income Tax (Benefit)(105 359)809 Net Income (Loss)265 460 (169 800) Dividends on preferred stock (212 415) Net Income (Loss) applicable to common stockholders 053 045 (169 800) Basic Income (Loss) per share (0.04) Weighted Average Common Shares Outstanding 675 779 722 032 Diluted Income (Loss) per share (004) Weighted Average Common and Common Equivalent Shares Outstanding 379 229 722 032 See notes to consolidated fmancial statements, CO R D I A C O R P O R A nO N A N D SU B S I D I A R I E S CO N S O L I D A T E D S T A T E M E N T S O F S T O C K H O L D E R S ' E Q U I T Y ( D E F I C I T ) YE A R S E N D E D D E C E M B E R 3 1 , 2 0 0 5 A N D 20 0 4 Pr e f e r r e d S t o c k Co m m o n S t o c k Tr e a s u r y S t o c k Ad d i t i o n a l Nu m b e r o f Nu m b e r o f Pa i d - Nu m b e r o f Ac c u m u l a t e d To t a l Sh a r e s Am o u n t Sh a r e s Am o u n t Ca p i t a l Sh a r e s Am o u n t De f i c i t Eq u i t y l D e f i c i t Ba l a n c e , D e c e m b e r 3 1 20 0 3 15 6 21 1 15 6 27 1 62 2 00 0 $ ( 2 5 00 0 ) $ ( 4 28 9 97 4 ) $ ( 3 7 19 6 ) Co m m o n S t o c k i s s u e d : Em p l o y e e s 11 0 00 0 11 0 49 0 (2 5 6 ) 60 0 St o c k r e c e i v e d f r o m S a l e o f I S O a n d r e t i r e d 72 5 00 1 ) (1 , 72 5 ) (6 5 7 02 5 ) (6 5 8 75 0 ) Tr e a s u r y S h a r e s P u r c h a s e d 95 0 (3 0 99 8 ) (3 0 99 8 ) Ne t L o s s (1 6 9 80 0 ) (1 6 9 80 0 ) Ba l a n c e , D e c e m b e r 3 1 20 0 4 54 1 21 0 54 1 66 0 08 7 69 4 (5 5 99 8 ) 45 9 77 4 ) (8 5 1 14 4 ) Pr e f e r r e d S t o c k I s s u e d Ne t o f f e e s 50 0 00 0 50 0 45 3 50 0 45 5 00 0 Wa r r a n t v a l u a t i o n 12 2 41 5 (1 2 2 41 5 ) Be n e f i c i a l c o n v e r s i o n f e a t u r e 00 0 (9 0 00 0 ) Co m m o n S t o c k i s s u e d : Em p l o y e e s 00 0 97 0 00 0 No n e m p l o y e e s 00 0 96 4 00 0 Pr e f e r r e d s h a r e s c o n v e r t e d t o c o m m o n (7 0 2 20 0 ) (7 0 2 ) 70 2 20 0 70 2 Ex e r c i s e o f W a r r a n t A 33 0 00 0 33 0 65 9 67 0 66 0 00 0 Tr e a s u r y S h a r e s P u r c h a s e d 10 0 00 0 (4 0 00 0 ) (4 0 00 0 ) Ne t I n c o m e 26 5 46 0 26 5 46 0 Ba l a n c e , D e c e m b e r 3 1 20 0 5 79 7 80 0 79 8 63 9 41 0 63 9 05 4 60 6 17 7 69 4 $ ( 9 5 99 8 ) $ ( 3 40 6 72 9 ) 55 8 31 6 Se e n o t e s t o c o n s o l i d a t e d f m a n c i a l s t a t e m e n t s CORDIA CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Cash Flows From Operating Activities Net Income (loss) from continuing operations Adjustments to reconcile net income (loss) to net cash (used) provided by operations Compensatory stock expense Provision for doubtful accounts receivable Depreciation expense DefeITed income taxes (Increase) decrease in assets: Restricted cash Accounts receivable Prepaid expenses and other cuITent assets Accrued usage receivable Security deposits Increase (decrease) in liabilities: Accounts payable Accrued expenses Income taxes payable Unearned income Other long tenn assets DefeITed Rent NET CASH (USED) PROVIDED BY OPERATING ACTIVITIES Cash Flows From Investing Activities Capitalized software costs Leasehold improvements Purchase of property and equipment NET CASH USED BY INVESTING ACTIVITIES Cash Flows From Financing Activities Net proceeds from issuance of prefeITed stock Net proceeds from exercise of warrants Proceeds from loans payable Priocipal payments on capital leases Payments of loans payable to affiliates Purchase of treasury stock NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES Increase in Cash Cash, Beginning Cash, Ending Supplemental Disclosures of Cash Flow Infonnation - Cash paid during the year for: Interest Income Tax Non Cash Items: Restricted Common stock issued: 000 shares for investor relations agreement valued at $45 000; prepaid portion Supplemental Disclosure of non-cash investing and financing activities: The Company obtained capital lease equipment in the amount of $63 907 during fiscal year ended December 31 , 2005, See notes to consolidated fmancial statements, For the Year Ended December 31 2005 2004 265 460 (169 80C 500 381,753 627 313 998 (269 000) 401 058) 951 163)(4,450 127 (182 656)(247 161 (69 520)(180 86E (101 044) (607 338)2,428 105,394 615,19 109 000 293 835 685 (75 000) (83,269 424 (602 012) (255 050) 487 305)(196 838 (1,344,367)(196 838 455 000 660 000 643) (28 074 (40 000)(30 998 072 357 (39 072 644 721 188 300 119 111 944 840 (300 739 641 500 CORDIA CORPORA nON AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2005 AND 2004 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES The Company Cordia Corporation (formerly CyberOpticLabs, Inc. ) (" Cordia ) was organized on June 22, 1988, and consummated an Initial Public Offering of its common stock on March 15, 1989, On February 26, 1992, Cordia filed a current report on Form 8- reporting that it had ceased operations and was liquidating its assets to payoff existing liabilities due to a lack of working capital. On November 30, 2000, Cordia acquired all of the outstanding common stock of ISG Group, Inc, ("ISG") and U,S, Direct Agency, Inc. ("USD") in exchange for 4 330 200 shares of Cordia s common stock (approximately 84 percent of Cordia common shares issued and outstanding), For accounting purposes, the transaction was treated as the acquisition of Cordia by ISG and USD, with ISG and USD as the accounting acquirer (reverse acquisition), The acquisition of Cordia had been accounted for as a series of capital stock transactions by ISG and USD, Accordingly, no goodwill was recorded and no pro-forma information was provided. The Company operates through different subsidiaries, but management believes that all such subsidiaries constitute a single operating segment since the subsidiaries have similar economic characteristics. Operations The Company s wholly-owned subsidiary, Cordia Communications Corp, ("CCC"), was formed during 2001 , and commenced operations during 2002, as a competitive local exchange carrier. CCC provides local and long distance telecommunications services to businesses and individuals in Massachusetts, New York, New Jersey, Pennsylvania and Washington. The telecommunications services provided by CCC are subject to regulation at the federal, state and local levels. Delays in receiving required regulatory approvals or the enactment of new adverse regulation or regulatory requirements mayhave a material adverse effect upon CCC. Principles of Consolidation The consolidated fmancial statements include the accounts of Cordia, Cordia International Corp, and its subsidiaries CordiaIP, My Tel (an inactive subsidiary) and CCC for the years ended December 31 , 2005 and 2004, All material intercompany balances and transactions have been eliminated, Use of Estimates The preparation of fmancial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the fmancial statements and the reported amounts of revenues and expenses during the reporting period. Accordingly, actual results could differ from those estimates, CORDIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2005 AND 2004 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (cont'd) Cash and Cash Equivalents The Company classifies as cash and cash equivalents amounts on deposit in banks and cash invested temporarily in various instruments with maturities of three months or less at time of purchase, Fair Value of Financial Instruments The carrying amounts of cash, accounts receivable, accounts payable and accrued expenses approximate fair value due to the short-term nature of these items. The carrying amount of debt also approximates fair value since the interest rates on these instruments approximate market interest rates, Property and Equipment Property and equipment are stated at cost less accumulated depreciation. For fmancial reporting purposes, depreciation is provided using accelerated methods over useful lives ranging from three to seven years for furniture and equipment. Capitalized software is depreciated using the straight-line method over a three (3) year period, Leasehold improvements are amortized over the life of their respective leases, Expenditures that significantly increase value or extend useful asset lives are capitalized, Expenditures for maintenance, repairs and renewals of a minor nature are charged against operations as incurred, Concentrations of Credit Risk, Significant Customers and Key Suppliers Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable, The Company from time to time may maintain cash balances, which exceed the Federal Depository Insurance Coverage limit. The Company performs periodic reviews of the relative credit rating of its bank to lower its risk. The Company s accounts receivable subject the Company to credit risk, as collateral is generally not required. The large number of customers mitigates the concentration of credit risk. No customer represented more than 10% of the Company consolidated operating revenues for each of the years ended December 31 , 2005 and 2004, No customer represented more than 10% of the Company s account receivable balance at December 31 2005 and 2004, CORDIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31,2005 AND 2004 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (cont' The Company leases a portion of network space from incumbent local exchange carriers ("ILECs ) that are major competitors of the Company, and is dependent upon the availability of network owned by the ILECs, The Company is exposed to risk associated with failing to obtain favorable renewal contract terms with these suppliers, which include rates that are subject to industry regulation, and to risk regarding the timeliness of supplier processing of the Company s orders for its customers, The Company primarily uses three vendors for obtaining and providing telecommunication services. If these vendors were unable to meet the Company s needs, management believes that the Company could obtain a portion of another carrier network on comparable terms and that its operating results would not be materially adversely affected; however, if' unfavorable terms could not be reached or services were disrupted, the Company may incur significant costs to integrate its network to the new network, which could have a material adverse effect on the Company s financial condition and results of operations, Revenue Recognition Telecommunication income is recognized as services are provided, The Company recognizes revenues in accordance with the Securities and Exchange Commission, Staff Accounting Bulletin 104 , " Revenue Recognition " (" SAB 104"). Under SAB 104, revenue is recognized when there is persuasive evidence of an arrangement, delivery has occurred or services have been rendered, the sales price is determinable, and collectability is reasonably assured. Amounts invoiced and collected in advance of being earned are recorded as unearned income, Services utilized/rendered, but not billed are recorded as accrued usage receivable. Sales and Marketing Sales and marketing costs are expensed as incurred. For the years ended December 31 2005 and 2004, sales and marketing costs aggregated $4 336,415 and $2 596 326, respectively, Provision for Doubtful Accounts The Company provides for estimated losses on accounts receivable, using the allowance method, based on prior bad debt experience and a review of existing receivables. During 2005, the Company wrote off approximately $5 000 000 of bad debts primarily due to its rapid growth and increase in residential customers compared to business customers. Bad debt as a percentage of sales is expected to decline due to credit monitoring, customer service reorganization, and geographical targeting that was implemented in 2005, Comprehensive Income (Loss) The Company has no items of other comprehensive income in any period presented, As such, Net Income (Loss) as presented in the statements of operations equals comprehensive income (loss), Stock-Based Compensation SFAS No, 148, Accounting for Stock Based Compensation-Transition and Disclosure , (" SFAS No, 148"), amended FASB Statement No, 123, Accounting for Stock-based Compensation , (" SF AS No. 123"), provide alternative methods of transition for a voluntary change to the fair value method of accounting for stock-based compensation, However, it allows an entity to continue to measure compensation cost for those instruments using the intrinsic value method of accounting prescribed by Accounting Principles Board Opinion No, 25, Accounting for Stock Issued to Employees , (" APB No, 25"), provided it discloses the effect of SF AS No, 123, as amended by SF AS No. 148, in the footnotes to the financial statements, Until the adoption of SFAS No. 123(R), Share-Based Payment, which becomes effective for the Company in January 2006, the Company has chosen to continue to account for stock-based compensation using the intrinsic value method. See below under recent accounting pronouncements for accounting under SF AS No, 123(R), CORDIA CORPORA nON AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2005 AND 2004 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (cont' Compensation expense, if any, based on the intrinsic value method is recognized on a straight-line basis over the vesting term. Had the Company elected to recognize compensation cost based on fair value of the stock options at the date of grant under SFAS No, 148, such costs would have been recognized ratably over the vesting period of the underlying instruments and the Company s net income (loss) applicable to common shareholders and net income (loss) applicable to common shareholders per common share would have changed to the pro forma amounts indicated in the table below: As reported Pro Forma 053 045 824 832 $0,$0. $0,$0, ($169 800)($283 380) ($0,04)($0,06) ($0,04)($0,06) 2005 Net Income applicable to common stockholders Basic Income per share Diluted Income per share 2004 Net Loss applicable to common stockholders Basic Loss per share Diluted Loss per share The fair value of each option grant was estimated on the date of the grant using the Black-Scholes option-pricing model with the following weighted-average assumptions for 2005 and 2004, respectively: expected volatility of 112.09% and 107,08%; risk-free rate of 4.06% and 3.31 %; and expected life 00 years and 4 years. The effects of applying SF AS 123 in the above pro forma disclosures are not indicative of future amounts as future amounts are likely to be affected by the number of grants awarded and since additional awards are generally expected to be made at varying prices. Income Taxes The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in th~ Company s fmancial statements or tax returns, Under this method, deferred tax assets and liabilities are determined based on temporary differences between the fmancial statement carrying amounts and the tax bases of assets and liabilities using enacted tax rates in effect for the years in which the differences are expected to reverse, Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized, Earnings (loss) Per Share Earnings (loss) per common share are calculated under the provisions of SFAS No, 128 , " Earnings per Share." SFAS No, 128 requires the Company to report both basic earnings per share, which is based on the weighted-average number of common share outstanding, and diluted earnings per share, which is based on the weighted-average number of common shares outstanding plus all potential dilutive common shares outstanding. Diluted earnings (loss) per share for 2004 is the same as basic earnings per share as the effect of the common stock purchase options and warrants outstanding, on such calculation, would have been anti-dilutive. Weighted average number of shares outstanding was 4 675 779 and 4 722 032, for basic earnings per share, and 6 379 229 and 4 722 032, for diluted earnings per share for 2005 and 2004, respectively. In 2004, a total of 472 potential dilutive shares were excluded in the calculation of diluted earnings per share as their impact was anti-dilutive. CORDIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31 , 2005 AND 2004 NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (cont' Recent Accounting Pronouncements Affecting the Company In December 2004, the FASB issued a revision of SF AS No, 123 "Share-Based Payment" (No. 123R), The statement establishes standards for accounting for transactions in which an entity exchanges its equity investments for goods and services, It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity's equity instruments or that may be settled by the issuance of those equity instruments, The statement does not change the accounting guidance for share-based payments with parties other than employees. The statement requires a public entity to measure the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exception). That cost will be recognized over the period during which an employee is required to provide service in exchange for the award (usually the vesting period), A public entity will initially measure the cost of employee services received in exchange for an award of a liability instrument based on its current fair value; the fair valued of that award will be remeasured subsequently at each reporting date through the settlement date, Changes in fair value during the requisite service period will be recognized as compensation over that period. The grant-date for fair value of employee share options and similar instruments will be estimated using option- pricing models adjusted for the unique characteristics of these instruments. The Company will be required to comply with this pronouncement for fiscal period commencing January 1 2006. In May 2005 , the Financial Accounting Standards Board (F ASB) issued Statement of Financial Accounting Standards SF No. 154, Accounting Changes and Error Corrections which replaces APB Opinion No. 20 Accounting Changes and SF No.3. Reporting Accounting Changes in Interim Financial Statements - An Amendment of APB Opinion No, 28, SFAS No, 154 requires retrospective application to prior periods ' fmancial statements of a voluntary change in accounting principle unless it is not practicable, SFAS No, 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005, and is required to be adopted by the Company in the first quarter of fiscal 2006, Although the Company will continue to evaluate the application of SF AS No. 154, management does not currently believe adoption will have a material impact on the Company s results of operations or fmancial position. NOTE 2 - SALE OF BUSINESS SEGMENTS Sale ofInsurance Subrogation Group, Inc ("ISG" On March 3, 2003, Cordia sold its equity interests in ISG to West Lane Group, Inc., a company owned by the then current management of ISG for a purchase price of $750 000, The purchase price was represented by a two-year promissory note which bore interest at a rate of6% per annum and was secured by 700 000 shares of Cordia s stock owned by West Lane. In two transactions occurring in December2003, and February 2004, respectively, the Company agreed to accept a total of 725 001 shares of its common stock owned by West Lane Group, Inc. and a fifteen (15) month option to purchase 100 000 additional shares of its common stock at $.40 per share to satisfy the remaining principal balance of the promissory note pursuant to a Mutual Release and Satisfaction of Promissory Note and License Agreement. A total of 1 725 001 shares were transferred to the Company during the first quarter of 2004 and all were thereafter retired resulting in a reduction of total outstanding shares, as of February 18, 2004 to 4 431 210 shares. NOTE 3 - RELATED PARTY TRANSACTIONS The Company periodically borrows funds from shareholders and affiliates of shareholders. The loans bear interest at a rate of 12% per annum and are payable on demand, Interest expense resulting from related party loans totaled $2 958 and $2 040 during the years ended December 31 , 2005 and 2004, respectively, At December 31 , 2005 and 2004, loans outstanding to shareholders and/or its affiliates were $0, CORDIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31 2005 AND 2004 NOTE 4 - STOCKHOLDERS' EQUITY On April 6, 2005 , the Company issued 36 000 restricted shares of its common stock to a consulting flfm pursuant to the terms of a one (1) year consulting agreement. The shares were valued at $45 000 and are being prorated over the term of the agreement. At December 31 2005 the prepaid portion was $7 500, On March 7 , 2005, the Company consummated a private placement with Barron Partners, loP" ("Barron ) a Delaware limited partnership in which the Company issued 1 500 000 shares of Series A Convertible Preferred Stock ("Series A Preferred"), and issued warrants to purchase 750 000 shares of its common stock at $2.00 per share and warrants to purchase 750 000 shares of its common stock at $4.00per share, The Series A Preferred is convertible at any time at a 1: 1 conversion rate of Series A Preferred to common stock. Barron s paid cash consideration for the Series A Preferred and warrants aggregated $1 500 000, The warrants are exercisable at any time during their useful life prior to their expiration in March 2008 and 2009, respectively, The warrants are subject to certain conditions which may result in an adjustment of the exercise price, The warrant price may be reduced if the Company fails to meet the stated EBIDT A in the agreement. This reduction shall be made on a proportionate basis if the Company s earnings fall below $0,25 per share. For example, if the Company earns $0,20 per share, or 20% below $0.25 per share then the warrant exercise price shall be reduced by 20%. If the Company s EBIDT A earnings are less than or equal to $0,025 per share, or the Company experiences a loss, the warrant exercise price shall be reduced by 90%. For the period ended December 31 2005, EBIDT A was $0.23 per share. The 3 000 000 shares of common stock underlying the Series A Preferred and warrants were registered on Form SB- registration number 333-124996, effective August 31 , 2005. As of December 31 , 2005 , Barron converted 702 200 shares of Series A Preferred into common stock and purchased 330 000 shares of common stock by exercising 330 000 warrant shares at $2.00 per share. As of March 1 , 2006, subsequent to the balance sheet date, Barron converted an aggregate of 792 200 shares of Series A Preferred into common stock. The fair value of the warrants issued was estimated on the date of grant at $122 415 , using the Black-Scholes option pricing model including expected volatility of75% and average risk free rate of3.825% and an expected life of three to four years. The conversion terms of Series A Preferred result in a beneficial conversion amount of $90 000 calculated on 1,5 million Series A Preferred shares and the difference between the fair value of Series A Preferred shares and the market value of the Company s common shares, into which these are convertible. In accordance with the guidance of EITF 98- , " Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios " (" ElTF 98-), the value ofthe warrants and beneficial conversion have been accounted for as a dividend paid to Series A Preferred and have been deducted from net income for the purpose of determining net income available to common stockholders. On January 25 , 2005, the Company issued a total of 30 000 restricted shares of its common stock, to current employees and board members, and accordingly, recognized $24 000 as compensatory stock expense, On December 28, 2004, the Company gave West Lane Group, Inc. written notice of its intention to exercise its option to purchase 100 000 shares at $0.40 per share pursuant to an option agreement entered into between the parties. The shares were purchased by the Company on February 9, 2005 for $40 000, CORDIA CORPORA nON AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31,2005 AND 2004 NOTE 5 - EMPLOYEE STOCK COMPENSATION On May 23, 2003 , Cordia s shareholders voted to amend the 2001 Equity Incentive Plan (the "Plan ) by authorizing an additional 1 000 000 shares, The total number of shares of Cordia s common stock authorized for issuance under the Plan is 000 000, subject to adjustment for events such as stock dividends and stock splits. The Plan is administered by a committee of the board of directors having full and fmal authority and discretion to determine when and to whom awards should be granted, The committee will also determine the terms, conditions and restrictions applicable to each award. Transactions under the Plan are summarized as follows: Stock Options Weighted Average Exercise Price Balance, January 1 2004 928 000 $1.14 Granted with 5 year vesting Exercised Expired 209 000 0.40 (200 000) Balance, December 31 , 2004 937 000 $1.13 Granted with 5 year vesting Exercised Expired 211 000 1.90 Balance, December 31, 2005 148 000 $1.27 As of December 31 , 2005, there were 1 040 250 options outstanding that were exercisable, Additional information as of December 31 2005 with respect to all outstanding options is as follows: Range of Prices Number Outstanding Options Outstanding Weighted Average Remaining Contractual Life Weighted Average Exercise Price Options Exercisable Weighted Average Number Exercisable Exercise Price $0.40 - $0,874 000 $0,871,750 $0, 105 500 $3, 000 $8.49 040 250 $1.40 $1.80 -$2.36 211 000 4.57 $1.90 $5,00 - $11.25 000 $8, $0.40 - $11.25 148 000 $1.27 CORDIA CORPORA nON AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2005 AND 2004 NOTE 6 - INCOME TAXES The tax effect of the temporary differences that give rise to deferred tax assets are presented below: Year Ended December 31 2005 2004 Deferred Tax Assets: Accounts Receivable $328 000 Net Operating Losses Valuation Allowances (50 000) 278 000 $250 000 729 000 (979 000) Deferred Tax Liabilities: Fixed Assets 000 Net Deferred Tax Asset $269 000 The valuation allowance has been reduced considerably as management deems it is more likely than not, that the deferred tax asset will be realized based on future estimated taxable income and reversal of temporary deductible differences The components of income tax expense (benefit) are as follows: Year Ended December 31 2005 2004 Current Federal State $ 31 000 132 641 163 641 809 809 Deferred Federal State (223 000) (46 000) (269 000) $ (105 359)$ 17 809 CORDIA CORPORA nON AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31,2005 AND 2004 NOTE 6 - INCOME TAXES (cont'd) A reconciliation of the difference between the expected tax rate using the statutory federal tax rate and the Company effective tax rate is as follows: Year Ended December 31 2005 2004 34,34. (47,(26, (9.1%)11.7% S Federal income tax statutory rate State income tax, net offederal income tax benefIt Net operating loss benefit Effective tax rate NOTE 7 - RESTRICTED CASH At December 31 , 2005, the Company held four Certificates of Deposit ("CD') totaling $1 367 000, The CD's secure four Letters of Credit ("LOC's ), which were required as a result of its contract with Verizon Communications, The CD's mature in March, April and July 2006, as the Company is unable to withdraw the funds prior to maturity, the amounts are shown as restricted cash, The LOC's expire in April and July 2006 and March 2007 , respectively, NOTE 8 - COMMITMENTS Operating Leases The Company is committed for annual rentals under three separate non-cancelable operating leases for its office space, Future minimum rental commitments under these leases for years subsequent to December 31 , 2005, are as follows: Year Ending December 31 2006 374 909 2007 383 887 2008 392 865 2009 354 643 2010 312 218 Thereafter 421 231 239,753 Rent and other occupancy charges included in operating expenses was $407 784, and $163 195, for the years ended December 31 , 2005, and 2004, respectively. CORDIA CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2005 AND 2004 NOTE 8 - COMMITMENTS (cant' Capital Leases The Company is a lessee of telephone equipment under capital leases which expire in 2010, The asset and liability under the capital lease are recorded at the lower of the present value of the minimum lease payments or the fair value of the asset. The assets are depreciated over the lower of the lease term or its estimated productive life. Interest on these leases aggregate 75% per annum, Depreciation expense of assets under capital lease are included in depreciation expense and amounted to 325 for the year ended December 31 2005. At December 31 , 2005 assets held under capital lease are as follows: Telephone equipment Less: accumulated depreciation 2005 $63 907 325) $58 582 Future minimum lease payments under capital lease obligations at December 31 , 2005 are as follows: Year Ending December 31 2006 458 2007 458 2008 15,458 2009 458 2010 594 73,426 (12 162) 264 (11 099) 165 Loan interest portion: Current portion: Capital lease obligation net of current Loans Payable At December 31 , 2005 and 2004, the Company had a loan payable balance of $57 000 due to an unrelated third party. The loan beared interest at a rate of 7.9% per annum and was payable on demand. Interest expense resulting from this loan totaled $4 602 for 2005 and 2004, As of March 30, 2006, subsequent to the balance sheet date, this loan was repaid in full. CORDIA CORPORA nON AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2005 AND 2004 NOTE 8 - COMMITMENTS (cont' Employee Benefit Plan In 2004, the Company began the "Cordia Corporation 401(k) Profit Sharing Plan" (the "Plan ) covering all eligible employees, Under the Plan, the Company matches on an elective basis, 50% of the flfSt 6% contributed by the employee, for an aggregate maximum of 3%, Participating employees shall become fully vested in employer contributions after three (3) years of service, If a participating employee is terminated or resigns before the three (3) year vesting period employer contributions shall be forfeited. The Plan became effective January 1 , 2004, and employee and employer contributions commenced April 16, 2004. Total contributions made to the Plan for the years ended December 31 , 2005 and 2004 were $109 530 and $76 687, respectively, NOTE 9 - SUBSEQUENT EVENTS (a)On February 15, 2006, subsequent to the balance sheet date, the Company through its subsidiary Cordia International Corp. purchased a 100% interest in Triamis Group Limited, a Hong Kong company, For purposes of this transaction Cordia formed Cordia International Group, Inc" a British Virgin Islands holding company, to hold all of the issued and outstanding stock of Triamis Group Limited. In exchange, the shareholders of Triamis received consideration comprised of US $200 000 cash and $200 000 in restricted Cordia Corporation common stock which is equal to 634 shares, In addition, Triamis Group Limited's management team, consisting of two members, was hired to serve as Director of Operations and Director, of Sales and Business Development of Cordia s Asia Pacific Division, (b)On or about March 22, 2006, subsequent to the balance sheet date, the Company through its subsidiary Cordia HK Limited executed a two (2) year lease for office space located in Hong Kong at a rental price of HK $26 258 or approximately US $3 383 per month plus management fees and air conditioning charges totaling HK $4,146 or approximately US $534, The lease provides for a two (2) month rent-free period with a rent commencement date of May 21, 2006. MY TEL CO, INC. II. FORM OF BUSINESS Articles of Incorporation from State of New York Certificate of Authority - State of Idaho lU::SU:) Uocument 1 of 1 http://WWW accesslctaho.org/publlc/SOS/corplsearCh,mml'!:)cnptl' arm.", tate D' Idah CERTIFICATE OF AUTHORITY MY TELCO, INC. . , c. " .. " Fil~ N.~mberC:16a736 , , ~." ., " '. ~" ,-, ': ,., .. ,. I, BEN YSURS~.. ~CretarY ~f~~ate .O~~hE! $ta~e ~r Idah~t hereby certify that an Application for Certlflctlt~ofAU~OOI"io/t:d~~y execUt9d p~~ual'!t ~:the provisions of the Idaho Business Corporatl9n Act.ha~ be9~,recelved this office aild is found to conform to law. " ". ! ,. . ," "' .:. "' '.. ,.. ' , , ACCOROI~GLY. ttrid ~ virfu~,~f~e ~uthclt1tY ~ed~me bylaw, I issue this , ', ",, " ., " ': "" . Certificate of AuthO~to transa~~usl~_~1nthl~r S1ate a~,~ttach hereto a duplicate of , ' .. . '. , theapplica1ionforsUchcertjflcate ~,,~:"'..," :: 1:.." , ... ",.., ' Dated: September 5, 2006 , -. ' SECRETARY OF STATE By Qj 9/8/2006 12:05 PM 11J~U~ Document 1 of 1 http://www .accessldaho. org/pubhc/ SOs/ corp/ search.html'!ScnptForm.." 202 APPLICATION FOR CERTIFICATE OF AUTHORITY (For Profit) 21JD&S~ ~5-PHf2: (InstNctIone on Back of Application) . , . ". . . SECRET MY OF STATEThe undef'ligned Corporation applies fof a Certificate of Au1horlty III1d states IDft.HO 1. The name of the COfJ)OI'ation II: J J /(;( lAc. 2. The name Which It shaD use In Idaho Is: /4. 'I (, (CJ l/'t C . 3, It 18 incorporated undertl'1elaws of: Q..(.v , /1.( 4, Its date of IncorpQl'ation Is: , ~ - 0 J... 5. The address of Ita principal office Is: '-I4.r 1-/4,..../fD" AV S"c...k, 'f..f rd. r'li-PIc.J...I ('v Y' /i:).( i) 8. The address to whic:h correspondence should be addressed. If different from Item 5, is: 7, The street address afna registered office In Idaho III:, 1423 rell lane. Boise, Idaho 83706 and lis registered agenlln Idaho at that address is: National Re istered A ents. Inc:. 8, The names IiInd respective business addreases of ita directors and offIcer& are: Name OM ce I' l$l"R"V~ Address It'!s- fI,vt..;ff..,,", fl,vv..".;s....;k f.,g ("JJ..Ik. ""' . IlfIr /kr,;/.f,;,.. j;vt.,5""'~ i/'O) (,Vi :+-- 0(.:; ",,~..p"' .-11:- N D8ted: (31 )06 Signature: Typed Name: .J1. CaplcUy: .s ~r (!,. 'I-c.F (The fignet" be . or 1111 omcar at /he COIpOf8tJon, CII8tomer Aa;t . : (8~~- Secretary Of Sl2te IJ&e only DIID IEtlETMY II' JImI 89/85/2886 85.8.!:II tI29 crt !14m III m5511.... Ift.1I IUlN PII8 II! 1 11.88. aa taIP U 11W"'Foron c./wi 13b 9/8/2006 12:04 PM ~-:.;' y;:,(" s::\;~ Uqa:-...;cr.! vfS:a,e Di;',~l(m of Corr.or;J;';Qr.~. StJ:~ RcC"Jrd~ and Unif.:um Co:nm~6) Cod.! \:b;!n;. :---' ( \22.3: (This form must be printed or typed in black ink) CERTIFICATE OF INCORPORATION ",--" ~y Jel Co, Inc ~_.__.,_.._-- (f=,~'J .V'P(,".:Jtc "("",,'j Cnder Section 402 of the Busincs:,; Corporation Law FIRST '" .' " """"r31i"J' is' My Tel Co , Inc. .."".'" ....,.""""'---.-----,-,.- ''----- "".,----....---- SECO?\1): This corpora.t:on :ii f.):mcd to e::gage in "ny :a'.vful act or a;.;t:\iry for wpjch a corporation maybe organized under thl:: Busin~s:; COIpuu1t:on La', prond;:d LTja! it is ::o( formed to engage in any act or activity requiring Li.e consent or appro\'ai of a.'1y stat~ official, departrnent, boar~ agency or other body. THIRD: Jhc COlli-:.ty within this St,nc, in \\ihich the offic;: ofthc corporation is to be located is: ,_.. !'J ew York _,_.----~-,--.__., '" ...-..-..---.. .-...,---_._-,~--- FOURTH: T.'!e total munber of shares which the corporntion shall have authority to issue and a statement of the par value of each ;;r.;uoe or a statement that th~ shares are: without par va1u~ are: 200 No Par Value FIFTH: The ~(,."(;rctary ()f slate is designated 35 agent of the corporation upLm whom process against the corporation may be served. The address to whi..:h!he Scc:ctary ufS;alt:: :.hail m,~ila copy of .my process acc;:prcd Of'. Deb;!tf of the cc~ora!ian is: Patrick Freeman ~~~;~~c~~~~~~fO687i ~.' ._--- ,_. --.--- --, ~~.~... -.-.-- - SIXTH: (optioliu(J The na:nc ~nd S(:cel adJ,css ill thi~ s~t(: of the n;gis!c~.;d agent upon whom t)fOCCSS against the corporation may be ~crvcd is: -----. . 0., -. -,--..._------..,---."" """'.. _"0. .. ...-.. .... ....-..., ..'..- ....-..--,.. ,--.....---".-,.., .....----'.... _._0"""'_' ... .,.... ... --' 0._'-' ,--.... ------- .._, !)O;5.!~;'j i:;.S--S, SEVENTH: up;io!".o; !i !his pro":.'isfon is .tied. a sp.:.cUic date must b:: sra!ed which is nor before, nor more than 90 days a,/Ier 111.:: cia!i! o/fiiing) The d:;.te corporate existence ;;hall begin, if othcr man the date of filing. !:;;; --- .---.,."-----.------ f /" /1 t ,I , ,'i I \ ;\. -: Xi!iV\ .. --- (Sig .. r ' , ' Maria A. P;bbagnaro .,-.---...-,,--.-- iry;:-~ ()rp1';~ rn;,me; 54 Danbury Road, #370 (Addr~) Ridgefield, Connecticut 06877 ..--- (alY. Star&'. Zip ~ j This rOm! may not ~0iI13jn any atUchmcn:s Qr riders cx::cpt all original n:c.::pt evidencing re,;,;:r",ati"n of na:nc: ----'...' ----..------.-..."- -- -,._---------- CERTIFICATE OF INCORPORATION Under S;;ction 402 of the Busi11CSS Corporation Law ------------"""..- .-,.----..-------'...-- Filed by:Maria A. Abbagnaro (Sam;:) 54 Danbury Road , #370 (Maiiir.g Gt1'cires$) Ridg~fi~ld --,- Q~~ _,_..._".. ,----.- (0:;'. Slate ad Zip a'dc) DEF;'j:'.:r?'~=:N'r (iF STA:'8 " . !JIV:;:S::~~ C'F' CCRPO?_~T:r()~-:S F-..N.:J 3Tli,T'2 RECO:::::DS 1\: ,,;;.1\.-:' ,:'2231.,COOl F'T LTNG ~=:CEIPT ~~=~c~~~ = ==-~~~~~= =~== ===~~=~~ ~ = ~=~== ~ = ~= ====--== - ~==~== == == ====-==== ======== JTITY NAME::lY '~El. CG,INC. :)OC~)!-12NT TYPE:IN:C;~FC!~_I' I:.):: ; ;;:~;" E':.;8 an::s~ )COUNTY:NEHY SERVICE CCMPJUJY: * * NO 8E:;:"! 1 CE COFPAl'l'Y ,SERVICE eGGs:: :;, -=c=~ ~======--~8~= =~ ====~=-=---T== ~=~ =========-==== ==-=======---============== FILE:;: 05/::-'/2002 DURJ..:l'lON:: P5R?2TUAL CASP#: 02G6130GO2J~?I~M #:: 0205:300081: ADDRESS FOR ?RCCESS EXIST DATE ---- .---..-,-.--------....-------, PAT~I CK FREEMAi."J 54 DANBCRY ROll..D #370 06/13 !20G2 EI::CSFIELD ::'1' /)6577 2~GI3TRRED AG2NT -------..-.- STOCK::2::-'0 K?\' -, "', .-=== ~ ~_A===~==~~ ~~: ~ ~ a ~ ~ - ~ = ~=~- ~ . ~ B-~ =:~ =~ u ~ ~ ~ ~~ ~ ~ =~ - ' - r. ~== ==:_====~=====~= = f 1 LER -':::S l60. ~) A Y :-'K',? S 160. -------- ;:: LIXG l2S. C.:';. C'~ "";:' ..;) . . :) C 160. DC"'ARIA ?. A2.BACNP3.C' DA;'-i"BURY ?.OAI:; #37:'CER? CO?IES ~h.2C K ';:::P.ARG'S :- A:/.~ n , . ,.~ . ..... RLJGE?:ELD I CT 06377 rlJ...NDL: I NG :) - :) 0 r:;F~.!\.;-JI:-C'"lN2 S. 00 BIL1ED .:t. E FU'l'":) c. 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