20090306Revised Application.pdf

February 25 2009 R~::r:Enj.:.\.1'.... ':I ',_'
Sent via UPS 2009 MAR -6 PH 2= 24
Idaho Public Utilities Commission
472 West Washington State House
Jean Jewell-Commission Secretar /ViA ,-i-oB -ofBoise, ID 83720-0074
Re: Resubmitting the NET TALK.COM, INC. Application to Provide Facilties Based Local
Exchange and Resale Interexchange Service
Enclosed for fiing please fmd the resubmitted application to replace in full the previous application
submitted on November 7th 2008 to Carolee Hall. Included is one original and thee (3) copies of the
application of to provide facilities-based local exchange and resale interexchange service within the state of
Idaho.
Additionally, NET TALK.COM, INC. states for the record as part of its application that it wil comply with
all federal and state guidelines that regulate and monitor Idaho area codes.
Any questions you may have regarding this fiing may be directed to my attention at 305-621-1200 ext. 109
or via e-mail atnicktßnettlk.com
Please acknowledge receipt of this fiing at your nearest convenience. Than you for your assistance.
NET T ALK.COM, INC.
Enclosure
NET TALK.COM, INC
Idaho CLEC Application
1.
ionq "AR -6 PH
2= 24
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
Application of )
NET T ALKCOM, INC.)Case No.fJTA -:C)~-oJ
Provide Facilties-Based Local Exchange )
And Resale Interexchange Telecommunications )
Service Throughout Idaho )
APPLICATION FOR CERTIFICATION
Pursuant to Title 62 ofthe Idaho Code and IDAP A 31.01.11, NET TALKCOM, INC. ("Net Talk
" or Company) respectfully requests that the Idaho Public Utilities Commission ("Commission) grant the
Company a Certificate of Public Convenience and Necessity to provide local exchange and interexchange
telecommunications services within the State of Idaho.
i. Proposed Services
Net Talk is requesting authority to provide basic resold and facilties-based local exchange
services and resold interexchange service to both residence and business customers throughout Idaho
in all exchanges not exempt from competition. Net Talk wil provide services by combining
unbundled network elements and resellng services obtained from incumbent local exchange carriers
located in the State pursuant to interconnection agreement(s). Net Talk may also acquire services
and facilties from other carriers operating in the State and may eventually install its own switching
facilties to provide services within the state. Company is requesting statewide authority. Should its
Application be granted, Net Talk plans to commence offering service immediately upon the
establishment of the appropriate and necessary arrangements with the incumbent LECs.
II. Form of Business
1. Name, Address and Form of Business
NET TALK.COM, INC.
1100 NW 163rd Drive Ste. 3
North Miami Beach, FL 33169
NET TALK.COM, INC
Idaho CLEC Application
2.
c. Ifthe applicant is a corporation,
(1) a short statement of the character of public service in which it may engage,
NET TALK COM provides very affordable local/long distance telecom
service to both residential and business clients
(2) the name of the state in which it is incorporated,
NET TALK COM, INC. is an active for profit corporation registered in the
State of Florida
(3) its principal business address and its principal business address within Idaho,
1100 NW 163rd Drive Ste. 3
North Miami Beach, FL 33169
Net Talk does not operate an offce in Idaho
(4) a certified copy of its aricles of incorporation,
Please see attached Articles of Incorporation
(5) if not incorporated in Idaho, a certificate of good standing issued by the
Idaho Secretary of State of Idaho, and
Net Talk has been accepted as a foreign corporation by the Secretary of
State in Idaho. Please see attached as proof.
(6) name and address of registered agent for service in Idao.
Incorp Services, Inc.
921 S. Orchard Street, Suite G
Boise, ID 83705
NET TALK.COM, INC
Idaho CLEC Application
3.
2. Ifa corporation, the names and addresses of the ten common stockholders of applicant
owning the greatest number of shares of common stock and the number of such shares
owned by each, as follows:
Name Address SharesOwned Percentage of All Percentage
Shares Issued and of Voting
Outstanding Control
1. Anastasios Kyriakides-President/Secretary: 2,100,000 Shares Owned- 24.4% voting control
1030 Washington Street
Hollywood, FL 33019
2. Kenneth Hosfeld-VP/Director: 1,100,000 Shares Owned-12.8% voting control
5166 North Springs Way
Coral Springs, FL 33076
3. Leo Manzewitsch-CTO/Director: 1,100,000 Shares Owned- 12.8% voting control
11331 SW 20th Street
Miramar, FL 33025
4. Bil Rodriguez- CFO/Director: 1,100,000 Shares Owned-12.8% voting control
5701 SW 196 Lane
South West Ranches, FL 33332
5. Ron Rule-Stockholder: 1,000,000 Shares Owned- 11.6% voting control
1124 Foxwood Dr.,
Lutz, FL 33549
6. Nicholas Kyriakides- Director of Marketing: 600,000 Shares Owned- 7% voting control
1030 Washington Street
Hollywood, FL 33019
NET TALK.COM, INC
Idaho CLEC Application
4.
7. Robin Hoover-Stockholder: 113,250 Shares Owned- 1.3% voting control
4201 Bayshore Blvd, Unit 1201
Tampa, Florida 33611
8. Jacques Marcotte: 40,000 Shares Owned- .4% voting control
P.O. Box 923323
Norcross, GA 300100
9. Samuel McClain: 40,000 Shares Owned- .4% voting control
766 Rosemere Circle
Orlando, FL 32835
10. Robert Zenner: 40,000 Shares Owned- .4% voting control
21521 farmcrest Road
Belgrade, MN 56312
3. Names and addresses ofthe offcers and directors of applicant.
Please refer to above question and see attached
4. Name and address of any corporation, association, or similar organization holding a
5% or greater ownership or a management interest in the applicant. As to ownership, the
amount and character of the interest must be indicated. A copy of any management
agreement must be attched.
Apogee Financial Investment, Inc.: 1,000,000 Shares Owned- 11.6%
4902 Eisenhower Blvd, Suite 185
Tampa, FL 33634
-Apogee does not have a management contract with Net Talk.COM, INC.
5. Names and addresses of subsidiares owned or controlled by applicant.
NET TALK.COM, INC
Idaho CLEC Application
5.
NET TALK COM, INC. is the sole company
III. Telecommunication Service
1. The date on which applicant proposes to begin constrction or anticipates it wil begin
to provide service.
Upon certifcation of this application
2. A written description of customer classes and customer service(s) that the applicant
proposes to offer to the public.
Net Talk intends to offer service to both business and residential customers. The
Company intends to provide network bundled telecommunications services,
including long distance and local exchange services. In addition, the Company
ensures customer access to emergency services such as 9111E911, operator services
and directory assistance.
Net Talk understands the importance of effective customer service for local service
consumers. Net Talk's toll free customer service telephone number wil be available
with live operator response Monday-Friday from 8 a.m. til 6 pm, by dialing
1-888-638-0012
iv. Service Territory
1. A description sufficient for determining whether service is to be offered in a paricular
location; and the names of all incumbent local exchange corporations with whom the
proposed utilty is likely to compete.
Net Talk intends to offer service in the geographic areas currently served by Qwest
Communications. Net Talk wil mirror the basic local callng scopes of the
incumbent local exchange companies.
2. Written description of the intended manner of service, for example, resold services or
facilties based. A general description of the propert owned or controlled by applicant.
Net Talk proposes to provide resold and facilties-based local exchange and resold
interexchange services through the combination of its own and/or leased facilties
and the resale of other carrier's facilties and network elements. The Company
intends to offer service immediately upon certification and approval of its
interconnection agreement.
3. A statement describing with whom the applicant is likely to compete.
Any and all VoIP providers and the local ILECs and additionally a grant of Net
Talk's Application to provide facilties-based local exchange and resold
interexchange services is in the public interest and serves the public convenience
NET TALK. COM, INC
Idaho CLEC Application
6.
and necessity. In enacting the Federal Telecommunications Act of 1996, the United
States Congress determined that it is in the public interest to promote competition
in the provision often telecommunications services, including local
exchange services. Experience with competition in other telecommunications
markets, such as long distance, competitive access, and customer premises
equipment, demonstrates the benefits that competition can bring to consumers.
Consumers are enjoying increased services, lower prices, higher quality, and greater
reliabilty. This is true not only with respect to the service offerings of the new
entrants, but also as a result of the response of incumbent monopoly providers to
the introduction of competition. Net Talk's proposed services wil provide multiple
public benefits by increasing the competitive choices available to users in Idaho.
Enhanced competition in telecommunications services likely wil further stimulate
economic development in Idaho. In addition, increased competition wil create
incentives for all carriers to offer lower prices, more innovative services, and more
responsive customer service.
4. A description of the propert owned by the applicant clarifies the applicant's proposed
services and operation.
Net Talk is a newly formed company and has yet to initiate operations in Idaho. The
company does have a Class V switching facilty data center in North Miami Beach
Florida.
V. Financial Information
1. Current detailed balance sheets, including a detailed income and profit and loss
statements of applicant reflecting curent and prior year balances for the twelve months
ended as of the date of the balance sheet, or if not readily available, for the period since
the close of the preceding calendar year.
Net Talk is a development stage company and has attached updated financials
2. If a balance sheet and income statement are not available, the applicant must submit
financial data suffcient to establish that it possesses adequate fmancial resources to
provide the proposed services.
Please see attached updated financial information
VI. "Ilustrative" Tariff Filngs - ATTACHED
Proposed initial tariff and price sheets setting forth rates, rules, terms, and regulations applicable
to the contemplated service.
NET TALK. COM, INC
Idaho CLEC Application
7.
VII. Customer contacts
1. Contact information for the Applicant.
Nicholas Kyriakides
1100 NW 163rd Drive Ste. 3
North Miami Beach FL 33169
Phone [phone] ext 109
nicktßnettalk.com
b) A toll-free number for customer inquiries and complaints.
1-888-638-0012
a) The name, number and electronic mailng addresses (if available) of the
person(s) designated as a contact for the Commission Staff for resolving
complaints, inquiries and matters concerning rates and price lists or tariffs.
Nicholas Kyriakides
1100 NW 163rd Drive Ste. 3
North Miami Beach FL 33169
Phone [phone] ext 109
nick(ßnettalk.com
NET TALK. COM, INC
Idaho CLEC Application
8.
VII. Interconnection Agreements
1. Statements of whether the applicant has initiated interconnection negotiations and, if
so, when and with whom.
Net Talk has not yet initiated interconnection agreements as of yet but is planning
on doing so in the very near future.
IX. Compliance with Commission Rules
Net Talk has reviewed all of the Commission's rules applicable to competitive local exchange service
and interexchange service providers and agrees to comply with those rules except to the extent the
rules are explicitly waived for Net Talk or for all carriers in the same class. Specifically, Net Talk
requests exemption from the following rule:
(a) Reporting Requirements
Net Talk further requests waivers of any reporting requirements which, although applicable to
incumbent LECs, are not applicable to competitive providers such as Net Talk because such
requirements: (1) are not consistent with the demands of the competitive market; and (2) they
constitute an undue burden on a competitive provider, thereby requiring an ineffcient allocation of
its limited resources. In addition, Net Talk reserves the right to seek any regulatory waivers which
may be required for Net Talk to compete effectively in the Idaho local exchange services market.
X. Escrow Account or Security Bond
The company has no intention of charging advanced payment or deposit and is requesting a waiver
from this requirement.
XI. Conclusion
This Application demonstrates that Net Talk. possesses the technical, financial
and managerial resources to provide local exchange and interexchange service in Idaho.
Wherefore, Net Talk respectfully requests that the Commission:
1. grant Net Talk authority to operate as a provider of resold and facilties-based basic local
exchange and resold interexchange telecommunications services within the State of Idaho;
2. grant the waivers requested in this Applicaton; and
3. grant such other relief as it deems necessary and appropriate.
Respectfully submitted Si
'1/1
ee -k l i~ i ¿oo.!i
aT"LKCO~WC' _
-.M~
Anas sios Kyriakides, President
+o'\"~Y.~~'lo
*' . * MY COISSIfOD 8390
EXPIREæ:C 23,2012d'~~OFf\#,~'" Bon~NO8e
NET TALK.COM, INC
Idaho CLEC Application
9.
NET TALKCOM, INC.
Articles of Incorporation
NET TALK. COM, INC
Idaho CLEC Application
10.
State of Florida
Department of State
I certify from the records of this office that NET TALK.COM, INC. is a
corporation organized under the laws of the State of Florida, filed on
May 1,2006.
The document number of this corporation is P06000061539.
I further certify that said corporation has paid all fees due this office
through December 31, 2008, that its most recent annual report was filed
on September 11, 2008, and its status is active.
I further certify that said corporation has not filed Articles of
Dissolution.
Given under my hand and the Great Seal of
Florida, at Tallahassee, the Capital, this the
Fifeenth day of December, 2008
~
Secretary of State
Authentication ID: 800139024348-121508-P06000061539
To authenticate this certificate,visit the followig site, enter this
ID, and then follow the instrctions displayed.
https:ffefie.sunbiz.orglcertauthver.html
850-817-6381
Septemb~ 10, 2008
NET TALK. COM, INC.
1100 NN 163 DR
MlAI, FL 33169US
B/10/2008 2: 34 PAGE 002/002 Fiorida Dept of state
FLRIA DEPARTM OF STATE
Divion ofCorpOTon
Re: Documnt Numbr P060DD061539
The Articles of Amndmnt to the Articles of Incorporation for DISCOVR
SCRENS, INC. which changed its na to NET TALK.CCI, INC., a Florida
corporation, were filed on Septembr 10, 2008.
The certification requested is enalosed. ~o be official, the
certification for a certified copy must be attached to the originaldocumt that was electronically subtted and filed under iix audit
numer 808000211974.
Should you have any qustion regarding this matter, please telephone [phone], the Amndmnt Filing Section.
Cheryl Coulliette
Regulatory Specialist II
Division of Corporations Letter Number: 30SA00049SSS
P.O BOX 6327 - Tal Fl 32314
MAY. 1. 20D6 10:26AM BUSH ROSS ? A ,. NO. 531.3 p, 2
FILËD
06 MAY - ( M1 10: 03
lxff~~Jèt?~~~lfA
ARTICLES OF INCORPORATION
OF
DISCOVER SCRENS, INC.
The underigned acting as inoIporator of th captioned corporation under the Florida
Business Coi:O!ation Act, adopts the following Articles of mcoIpOTation:
ARTICLE I
CORPORATE NAM AND PRICIPAL QFFlCE
The name of ths corporation is DISCOVER SCRS, me. (the "Corpormion'j an its
principal offce an mailing address is 50 Dogwood Grve, Ashevile, Nort Carolina 28805.
ARTICLEll
COM1VlECEME OF CORPORATE EXISTENCE
The Corpration shl commene its extence UpOJ the fiin of these Arcles of
Incorporation with the Florda Secretay of State.
ARTICLE ILL
GENERA NATUR OF BU~INESS
Tho Corportion may tranact any lawful business for which corportions may be
inorporaed unde Florida law.
Brena K. Holld, PanJ.e¡a
Bi. Rou, 1" A.
:20 S. Frax Street, Tama, F. 33602
813-224-25.5
FacsiDe Audit No.: U06000 1 2043 3~.- ,.. .. ...~..
MÁ t. 1. 20 U 6 i Q : 26AM BUSH ROSS P A NO. 5313 P. 3
Facsimile Audít No.: H0600012043 3
ARTICLE IV
CAPITAL STOCK
The aggrgate nwnber of shares of stock authorized to be issued by this coioration shal
be 7,500 shares of common stock ea with a par value of $.001. Each she of issued an
outstanin common stock shall entitl ile holder thereof to fuy paricipate in all shaehlder
meetipgs, to cast one vote on each matter with respect to 'which shareholders have the right to
vote, and to share ratably in al dividends and othi:r distrbutions declared an paid with resec
to the common stock, as well as in the net asset of tle Corporation upon liquidaion or
dissolution.
ARTICLE V
INIA REGlSTEBED OFFICE AN AGENT
The stret address of the initial registered offce of the Corporaton shal be 220 S.
Fra Street, Tampa, Florida 33602, an the intial registered agent of the Corporation at such
ad is John N. Giordo.
ARTICLEVI
INCORPORATOR
The nae an address of me Corpraton's inorporato is:~
Breda K. Rollan
Ades§.
220 S. Franlin Stret
Tampa, Florda 33602
Facime Audit No.: H060001204633 Page: 2of4
, .
MAV. 1.2006 íO: 26AM BUS'H ROSS P A ND. ,313 9. 4
Facsmie Audit No.: H06000I20463 3
AATICLEVn
BY-LA~S
The power to adpt, alter, amend or repeal by-laws of this Corporation shal be ves in
its sheholders and sepatately in its Board of Di:~tors, as prescribed by th by-laws of the
Corporation.
ARTICLE vi
INDEMNCATION
If the crteria set forth in §607,O&50(1) or (2), Florida Statures, as thei in effect have
been met, then the Corporation shall indemfy any director, offcer, emloyee or aget therof,
whether curent or former, together with Iiis or her personaL representatives. devisees or heis, in
th n:er and to th exnt conteplated by §607.0850, as then in effect, or by any SUCcessor
law therto.
IN WITSS \VOF, th undeigned ha execute these Aricles of Incorporation
ths 1'1 day of May. 2006.
~~1S~~h~~Hollan__r )
Fac6'ile Audit No.: H06000120463 3 Page 3 of4
l i .. i
MA II, i. 2006 i 0: 27AM BU.SHROSS P A NO. 53 ì 3 P. 5
r-ILED
06 t~AY -I AM 10= 03Facimile Audit No.: H06000120463 3
CERTIFICATE ii_ESIG~AT1NG
REGITERED AGE.'V
T.SfFff1t\\Y OF STATEÄl-ASSEE, FLORIDA
Pursuant to the provisions of §§4S.091 and 607.0501, Florida Statutes) DISCOVER
SCRS, INC., desirng to Qrganize under the laws of the State of Florida. hereby designates
John N. Giordao, an ìndividual resdent of die State of Borida as its Registered Agent for tho
puros~ of accepti service of process with such state and designa1es 220 S. Fran Street,
Tampa. Florida 33602, the busess offce of its Registered Agent, as its Registeed Offce,
DISCOVE SCRS, INC.
B~"~~QL&--. Ba Holl co!P
ACKNOWLDGMENT
r hereby accept my appointment as Regi Agent of the above naed corporation,
acowledge that I am faia: with and accept the obligations imosed by Flonda law upon tht
position, and age to ac as such in accorqance vvch the provisioos of §§48.091 and 607.0505,
Flonda Statutes.
381673.1
Facsí.le Audit No.: Hu6000ii0463 3 Page4of4
OCT. 13.2006 4:15PM BUSH ROSS P A .NO, 7404 P, 2
.~..,.
Fiic:iie Audlt No.: H06000250907 3 ,.
Os 0c, f:ltto
. IJ! '-1:e.J¡. 4ARTICLES OF AMNDMET TO Tl "1 ¿ i. 419?-4 f? r ~ 9.. ,
ARTICLS OF INCORPRATION OF '4SSlt.0f'S $
DISCOVER SCRNS! INC. ' f'¿ J:il'
~/O.............. *............... ~
l :."r ..1
1
,-
DISCOVER SCRS, INC., a Flor co¡patìon (the "'orpraon"), bctby ceeø
astoows:
1. Th Arices of Incooi of th Cooraon ar hereby amaied by dele
Arle IV in i1i enti a: by susttug. in Ueu therof; the folloWÙ:
(.ARICLE IV
CAITAL STOCK
The agggae nuber of shlØ3 of stolc auhorized to be lJed by this
cororation shol b6 300.000,000 shares of common stock, tJach wIth a par v41ue
of SO. 001. Eac share 01 ì.su an outstaning common stock shall S'title the
hblde theof to fully paicpae il aU shareholde meetgs, to cast one vore on
each mate with respcr to which shaf!holdei ha(! the right to 'Vte, and to
share raably in all divdends an other diibutons rkclar~à and pad with
respeCl to th Com117J srock¡ as wen as in the net QS"ts of the Coralon upn
liquidation or dissolutIon, H
2. Th foregoing anei sh become cffcce as of the close of bues. on
th da th Arcles of Amdment at approved by th Florida Depa of Sta and all
fi fee then due have be pad. al in iie wi the corporaon laws of tl St ofFlori
3. Th aiiienu recited in Secon 1. a.bove hae bee duly adpto ùi
8Crd wi th prvisions of §60.0821, .0704, .1003 Md .1006, Florida Sttu, tbe
shBholde and ditor of th coonon h. cxecte a wrci sttm date Ocbe11. , 206. mafe thei intetion th tb ameit be ad
IN WISS WHOF, the Coortion ba çàuscd thes Arcles of Amendment to
be prar unr th signtue of its Chef Extive Offce and Prde th \ i. th day of
Ocbe, 200.
DISCOVER SCRS, INC.
By:
.
By:
Fac.i~~~it No.: H060002S09073
. APR,. 24. 2007 11: 25AM BUSH ROSS P A NO, 0941 p, 2/5
Facsmi Aud.t No.; H07000i0942'3
" 0,'. ;;. J;. - -",..(., ? -..,... (" :;',_,r. -: ..~S\ '" ,'"
r" :; i; to%... "" \"
DISCOVE SCR, INC., a Flori corporaton (th "Cooron"), heeby ~~ 0as follows: . :; if .'\ ..~ 0~~, d'i. Th Arcle of Incorporon of th Cooraton are heeb amded by deetArcle IV in it en and by substitutng in lieu thof the fol1g: ~.
ARTICLES OF AMENDME TO TH
ARTICLS OF INCORPORAnON OF
DISCOVER SCIENS, INC.
...**...**.*.*.*.. .*.*.. ......
UARUÇLF:Il
CAll4L STOCK
'I QgggaB nube of shes of stock althized to be issued by th
coraon shl be 300,000. OtJ shm ql coon stoc eah with a pt value
01 SO.OOl(I/Commo St1t), an 10,000,000 shaes ofprfe"ed stocle $O.ooJ
pm w: per sh ("Prefered SJcl/~. Each she of ised an outsgco stock shaTl entle the hode threof to fully papa in all
shehold memnga, to CClt on vote on eah mai, with resp to which
shaho1ds ht ih right to vote, an to shae ratly in all diden an
other dibuons declaed an pad with respect te the co stk, as well asin th ne as of the Corpon iin liqu or dilution.
11 folloin is a stent of th desigan and the poers, pr/e
an right an 1M quaijkon, limttaon or restctons threof in rest of
eah cls of cota sk aj the Coaton:
A. ÇQMMQNSroCK.
J. GeaJ. Th votig, di an ltqutdon rlght of 1M hoJd1'
of the Co Stock ate subject to an qutfed by th rights of th holdes oj
th Ptfmed Stocl oj an Sees as ma be dugned by the Boa of DIrectos
upo a1iSSce of the Preferd Stock of an sees.
i. Vqt Th ho1órs of Com St will be mtkd to one vote
pe shre on all maer to be lJled em by th stockholdrs of th Coron.11e shll be M cula voting
. 3. Divjdsnd Dividnd ma be deed an pad on th Common
Stoc from futr lawjùlly Clkile therefor as an when detein by the
Boad 01 Dirctors aN subject to an prferenal dividend rights of Ø' th
oitsang Prefrd Stok.
Faetmile Audit No.: 907000109425 3
,,:i,'m.oi
APR.. 24. 2007 11: 25AM BUSH ROSS P A NO. 0941 p, 3/5
Facsmi AuQit No,i H07000i094i53
4. Liquirltjpl! Upo th diU(/uion 01' liquidaon ql the
Corpaton, wheth "Vlunta or irbmta,. holds of Common Sto will be
entled fo receive fill Q8sels 01 th Corpaton avlable for ditbution to itJ
stockhs, suject to an pr8ferentialliqudaon rights of cu then oung
Prefeed Stoc
B. PRE SlCK
PrøjfRed Sto ma be Î3yued frm time to tie in one ur more series.
Ø4 of such seres to ha such ters as slid or exressed herein an in ~
reoltJon 01 re80hmons prvidg fo th iss of such seres adted by. th
Boad of Dieet$ of thCorl'aton a. heeiner proide No sh oj
Prferr Stoc th is redemed, pucha or acqud by the Coraton ma
be reiss expt as otheise prd heein or 1Y la. Diferent serleos oj
Prered Stk shI not be consed to constitue diffren cla of shs jo
the pi of votng 1J class"s imess exessly prOlded hein. in an such
re801uton or re.oluona, Dr by law,
AutrIty is heeby expess glanted to th Boad of Directrs
./ ti to tie to ;ss th Pr/erred Sto in one or more seies, an in
connctl with th creaton of an such sers, lJ resoha () ~soluticm
prng fo tM Wi oj the shes thsreoj, to deteme an fi su voti
jxeT8. fu or lied (d no voti paer, an suh designon. p1'eftr",san rela paipg. opt/oMI01 othr spct rights an quliftca1l,
ltons or reatct theof i1Jludng~ witht rrmitaon threof, dtide
rlgh'u convon right. redemption prilegs an liquidaon prferncs. as
shll be std an exressed in such resolutins, all to the full exten nu orherøsr pmitt by the las of Floda With lig the genea/tt of th
foregog. th resolvon pro for i. of Q1 sees oj Prefmed Stockmay prtk tha suh seris sha be suio qr ran equy 07 be jUcr to th
Preferred Stoc of an ot seri to th exent pentfinBd ln la. Exept as
othise prde byla, by thse Arcles of Incorporaon, or Ù) wrtt
cotJ 11 'Yfe of the holdes ofth Prfeed St or Comon Stk shl bea prereque to th ise oj Cl shs of wr series of th PrÐferrd Stk
auhoriud by an comlying with the condtions of th Artcle ofInc. ..
2. Th forein anendcn shl become efecve as of th close of busIDe8ø on
th dat thse Arles of Amendmen ar approved by th Flori Deparen of Sta and all
fi fees th du have been pad, a1li Ð,ecrd with the corpation laws of the Sta of
Flonda
3. The amdments re in Secton 1. above have bee duly adopt in
atrdace with the provisons of §607.0821, .0704. .1003 an .1006, Florda Stattes th
FaC$ou)e Audit No,; 807000109425 3 425151.01
I AP~. 24. 2007 11: 26AM BUSH ROSS P A NO, 0941 P. 4/5
Facs'''e Audit No.: B070001094ZS 3
shlder an dictrs of the corporaton haVÌ exete a wr st date April
l~i 200 mafesg tlir ineDton th th amnden be adopted.
IN WISS WHOF, the Corpation ba au th Atcles of Amenme to
be preed und th SÎgna:tme of its Chief Executive Offce and Presiden ths 20 th day of
Apri~ 207.:SC~~Off
By:
Rober Blan Prdent
Faesimie Audit No.: B070001 094lS 3 4~i.ol
. APR. 24. 2007 11:26AM BUSH ROSS P A
Faclini Audit NO.1 807000109429:3
NO. 0941 p, 5/5
sharlder an di$ of the coraon havilJ exec a wr staent. da Aprl
2: 2006, magthir inttion th the amendment be adoped
IN WIESS WHREOF, th Corpran ha ca thse Arcles of Amendmen to
be preed uner the sign of its Chief Exeve Ofce an PrdeDt ths W tb da of
April, 207.
FaeiiDe Auilt No.: H0700()10~2S 3
DISCOVER SCRES, INC.
By:
By:
4251.01
ARTICLES OF AMENDMENT TO TH
ARTICLES OF INCORPORATION OF
DISCOVER SCRENS, INC.
:t.~ær.
NO. 64~ .....r¡~.
C:úi" ~a~ ",'
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~ ;.. (J /\~~
'0'" ":p.~.. ;. \..' alJ~ ;)Ii,
/. "'~t:.' 06~ ~;.
.,.~EP.l0.2008 1:15PM BUSH ROSS P A
Facslmllo Audit No.: H08000iii9743
*******.*. ..*** ****** **.. ......
DISCOVER SCREENS, INC., a Florida corporaon (the "Corporation"). hereby ceres
as follows~
1. The Arcles of Incorporation of the Corporation (Forda Dívion of
COrptioIU Documont Number P06000061S39) ~ herby amened by deleth the present
form of Arcle I in itB entirety aid by substtuting, in li~ thereof, the followig:
/íATICLEI
CORPPlWTE NAME AN PRICIPAL OFFICE
The name of this corporattn is NET TALCOM, INC. (the "Corpratn") Ild it
prbdpa olJ and møUig adress;' i 1 00 NW 163 D1hæ, Miami, noruJ 33169. n
2. The foregoing amendment shl beme effectve as of the close of busess on
the date these Arcles of Amendment are aproved by the Florida Deparent of Stae an all
filig fccB then due have been paid, al in acce with th cotporon laws of the State ofFloriCh .
3. The ¡uendmeut reite in Sooon 1. abve ha bee duly adopte in accordan
wiil the provisioiu of §607 .0821. ,0704. .i 003 and ,1006. Florida States, the shareholdes and
directors of the Corporation havi executed. a wrtten statere:t. dated effecve December 30,
2007, manfesg thr intetion that the amendment be adopted.
IN WIS WHOF, Uie Corpration has caued these Arcles of Amcment to
be prepared uner the signe of its Chief Exective Offcer ths 10th day of September, 2008.
DISCOVER SCRENS, INC.,
a Florida corporatoo
By;
FAesbufl. Audit No.: H080oo211974 3 5'1$0.01
NET TALK COM, INC.
Certifcate of Authority with the State of Idaho
NET TALK. COM, INC
Idaho CLEC Application
11.
ho
:~,:~' '.Il~ei ~l lIe ~eere~ar~ ~l ~~a~es- " \ 0' ~ i e '- "'
CERTIFICATE OF AUTHORITY
OF
NET TALK.COM, INC.
File Number C 180671
I, BEN YSURSA, Secretary of State of the State of Idaho, hereby certify that an
Application for Certificate of Authority, duly executed pursuant to the provisions of the
Idaho Business Corporation Act, has been received in this office and is found to
conform to law.
ACCORDINGLY and by virtue of the authority vested in me by law, I issue this
Certificate of Authority to transact business in this State and attach hereto a duplicate of
the application for such certificate.
Dated: October 31,2008
~~
SECRETARY OF STATE
\~, 0\~"~_By~~, ¡"-~~~~~~
L_
NET TALK COM, INC.
Management
NET TALK.COM, INC
Idaho CLEC Application
12.
The following individuals are key managers of NET TALKCOM, INC. and may be contacted at the
Compnay's headquarers located at 1100 NW 163rd Drive Ste. 3 North Miami Beach, Florida 33169
MANGERIAL CAP ABIL TY
Anastasios N. Kyriakides is President. Mr. Kyriakides received a Bachelor of Science degree in business
from Florida International University in 1975; in 1977, he received a degree in investment baning from
the American Institute of Banking. From 1979 to the present, Mr. Kyriakides has consulted for numerous
companies in the areas of shipping, travel, banking, and electronics. His cruise ship career stared with
Carnival Cruise line out of the Port of Miami, and continued to a successful start up with Tropicana
Cruises; one of the first gaming ships out of the Port of Miami. In 1994, Mr. Kyriakides became the
Chairan of Montgomery Ward Travel, a company created to provide full travel services to eight milion
Montgomery Ward customers and credit card holders; he served in this capacity from 1994 to 1996. Mr.
Kyriakides had previously organized the successful start-up of Sea wind Cruise Line in 1990; there, he was
the founder, and later, the Chairan, CEO, and Secretary until 1994. In 1984 Mr. Kyriakides founded
Regency Cruise Line, the world's first publicly traded company in passenger shipping, and served as its
Chairan and Secretary until 1987. In 1983, Mr. Kyrakides founded the Mylex Corporation to develop
and produce the world's first hand-held optical scaner and VGA card for personal computers. As the
President and Chairman, Mr. Kyriakides guided Mylex from its begining as a private company to its
becoming a public company traded on the NASDAQ under the stock symbol MYLX until it was acquired
as a wholly owned subsidiar ofIBM (NYSE: IBM). In 1983, Mr. Kyriakides was the founder and
Chairan of Tower Ban NA, a full service commercial bank, with three offces, headquarered in Dade
County, Florida.
In 1980, Mr. Kyriakides, was the founder of Delcor Industries of Hollywood, Florida, an electronics
manufacturing facility, assembling OEM products for various electronics companies including IBM
mainframe and cable division employing over 150 skiled employees. In 1979, he was the founder and
Chairan of Lexicon Corporation, the worlds first hand held electronic language translator the LK3000
that translated into 12 different languages. This company, publicly traded on the NASDAQ, under the
symbol LEXI, was ultimately acquired by Nixdorf Computers of Germany.
Prior to founding NET TALK COM, INC., Mr. Kyriakides was a co-founder and CEO ofInterlin Global
Corp. a Telephone company that was built up to include subsidiaries in three countries, including a nation
wide full service telephone company in Venezuela (recently sold to the largest cable company in
Venezuela).
Kenneth Hosfeld is Executive Vice President. Kenneth has over twenty-two years of international sales,
marketing, and business management experience in the telecommunications industr. Kenneth was a co-
founder ofInterlink Global Corp. a Telephone company that was built up to include subsidiaries in three
countries, including a nation wide full service telephone company in Venezuela (recently sold to the largest
cable company in Venezuela). Before co-founding Interlink Global Corp, he co-founded another VOIP
telephone company (NetExpress) which was eventually rolled up into OneRing International. Prior
experience includes being the Regional Director of Brazil, the Andinos, and the Caribbean for Tellabs, Inc.
He secured Tellabs' first "tum-key" contract (a complete, fully managed network deployment including all
products and services and project financing). He opened Tellabs' offices in Brazil and regularly exceeded
revenue targets. Prior to that, Kenneth was Vice President ofNera Latin America, a subsidiar ofNera
Telecommunications (formerly ABB), with full P&L responsibility for the region. He opened offices
throughout Latin America including Brazil, Colombia, Mexico, and Venezuela and additionally penetrated
the Mexican and Chilean markets. Prior to Latin America, Kenneth was responsible for sales in Africa and
in China. He speaks over six languages including fluent Spanish and Portguese.
NET TALK.COM, INC
Idaho CLEC Application
13.
Nicholas Kyriakides is the Marketing Director. (Resume Attached) Nicholas received dual degrees in
Finance and Multinational Business Operations from Florida State University and a Masters of Business
Administration from Nova Southeastern University. In addition to his curent marketing capacities at
netTALKcom Inc., was the Director of Marketing & Business development at Interlink Global Corp. a
Telephone company that was built up to include subsidiaries in three countries, including a nation wide full
service telephone company in Venezuela (recently sold to the largest cable company in Venezuela).
Nicholas also teaches Principles of Marketing at Miami Dade College School of Business. Nicholas is
fluent in both English and Spanish.
Bil Rodriguez is the CFO. Prior to his CFO duties at NET TALK COM, INC., Bil was a CFO at Interlin
Global Corp. a Telephone company that was built up to include subsidiaries in three countries, including a
nation wide full service telephone company in Venezuela (recently sold to the largest cable company in
Venezuela). Bill's resume is attached.
TECHNICAL CAPABILITY
Leo Manzewitsch is the CTO. Leo has more than 18 years in the Telecommunications industr. Leo
received a Master's in Electronics Engineering, from the University of Buenos Aires, Argentina in 1991
and previously received a degree in mechanics from the Argentinean National School of Technical
Education, Buenos Aires in 1981.
Before coming on board, Leo was the CTO ofInterlink Global Corp. a Telephone company that was built
up to include subsidiaries in three countries, including a nation wide full service telephone company in
Venezuela (recently sold to the largest cable company in Venezuela). Previously, Leo held positions sale
support management at UT Starcom, Business Development Manager for STRA TEKGY Telecom
Solutions, Marketing Manager for Tellabs International in their South American market, and finally various
positions at NEC Corporation ranging from new product engineering up to and including management of
new product marketing.
Leo is fluent in both English and Spanish
NET TALK.COM, INC
Idaho CLEC Application
14.
Guillermo (Bill) Rodriguez
PROFILE
Self motivated, honest, reliable and professionally skiled with extensive experience in Accounting,
Business Administration and hands-on day to day operations.
EXPERIENCE
ControllerlFinancial Offcer, Land Cellular Corporation - Oct. 2005 - March 1, 2007
-Responsible for day to day operations including GAAP Accounting, Financial Reporting,
Inventory Control, Accounts Receivable (AR), Accounts Payable (AP), Human Resources (RR),
InsurancelRsk Management, Bank Relationships, Sales Management, Budgets, Manufacturing/Cost
Accounting for Sales and Distribution of wireless modems - sold Domestic and InternationaL.
Major Achievements - Implementation of Treasury Functions (i.c.: electronic payments and
receipts, AR and AP monitoring, On Line banking, etc.)
- Setting up Accounting Policies and Procedures - GAAP.
ControllerlFinancial Offcer; Brenner Real Estate Group - Feb. 1999 - Oct. 2005
- Responsible for day to day operations of Brenner Real Estate Group, a licensed Commercial Real Estate
Broker and Propert Management Company.
- Responsible for GAAP Accounting, Financial Operations and Financial Reporting of Managed
Properties including CAM reconciliations, Mortgage Financing, Bank Relationships, InsurancelRsk
Management, AR, AP, Human Resources, Budgets, Lease Management, conversion of Accounting
Softare, Year End Financial Reporting Packages - Audit and Tax and vendor selection - Preferred List
of Vendors.
Major Achievements - Bringing in-house all client prepared work-papers for Annual Audit and Tax-
Preparation from outside auditors.
- Set up Lease Abstract and Lease Management Functions.
ControllerlFinancial Offcer; Primary Corporate Group(CSW Associates, Inc.)- Nov. 1993 - Feb 1999
Primary Corporate Group managed Commercial Buildings, owned three Centu 21 Franchises, a Mortgage
Company and Title Company.
- Responsible for day to day operations including GAAP Accounting, Financial Reporting, Budgets, AR,
AP, Bank Reconcilations, Human Resources, Propert Management, Escrow Account Reconciliations
and Annual Audits and Year End Tax Packages.
CSW was a sub-contractor to FDICIRTC on three large government contracts.
- Responsible for GAAP Financial Accounting and Reporting to FDICIRTC and for selection and awarding
contracts to sub-contractors - Minority Owned Business- (i.e.: Brokers, Environmental and Operating
Contracts).
Major Achievements - Setting up selection and awarding contracts to sub-contractors in compliance with
FDICIRTC Guidelines for Minority Owned Businesses.
- Setting up Accounting Procedures to comply with RTCIFDIC Guidelines.
AuditorlInvestigator, Federal Deposit Insurance Corporation FDICIRTC - Sept. 1991-Nov.1993.
-Employed as Case Investigator and Auditor to review, audit and write up cases on failed Financial
Institutions. Cases were written on Appraisals, Loan Approval, Loan Management and bank's practices
and procedures. Claims were made on Error/Omissions Policies and OfficerslDirectors.
Major Achievement - Wrote up two cases on failed banks presented to FDIC attorneys for action.
Vice President Controller; Consolidated Bank, N.A. March 1986 - Sept. 1991
-Responsible for GAAP Accounting and Financial Reporting of Bank Holding Company and Subsidiaries
including a major Bank with seven locations and a Data Processing Center.
- Functions included: consolidation and Reporting to FDIC and Federal Reserve Bank, Annual Budgets,
Monthly Operational Meetings, Annual Audits and Year End Tax Reporting Package - client prepared
work-papers.
- Assisted in operation of Other Real Estate Owned Department - "take-over" functions of foreclosed
commercial properties - Hotels, Offce Buildings, Shopping Centers, etc.
Major Achievements - Implementation of new GAA Ruling on recognition of loan fees and cost.
- Bringing in-house all client prepared work-papers for Annual Audit and Taxes.
ControllerlFinancial Offcer: International Housing Ltd. Nov. 1981- March 1986.
NET TALK COM, INC.
Financial Statement and Affdavit
NET TALK.COM, INC
Idaho CLEC Application
16.
NETTALK.COM, INC.
(a development stage enterprise)
BALANCE SHEET
SEPTEMBER 30, 2008
ASSETS
Current asset:
Cash and cash equivalents
Total current asset
Telecommunications equipment and other propert, net
Intangible assets, net
Deferred financing costs and other assets
Total assets
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilties:
Accounts payable
Accrued interest
Total current liabilities
Long-term liabilties:
Senior secured convertible debentures ($1.500,000 face value)
Derivative liabilities
Total liabilities
Commitments and contingencies (Note 8)
Stockholders' deficit
Preferred stock, $.001 par value, 10,000,000 shares authorized,
none designated or issued
Common stock, $.001 par value, 300,000,000 shares authorized,
8,749,800 issued and outstanding
Additional paid-in capital
Accumulated deficit during the development stage
Total stockholders' deficit during the development stage
Total liabilities and stockholders' deficit
The accompanying notes are an integral part of the financial statements.
F-3
September 30,
2008
$ 342,793
342,793
749,767
832,743
23,730
$ 1,949,033
$ 13,753
10,000
23,753
1,520,415
563,400
2,107,568
8,750
2,337,475
(2,504,760)
(158,535)
$..949,033
NETTALK.COM, INC.
(a development stage enterprise)
STATEMENTS OF OPERATIONS
FISCAL YEARS ENDED SEPTEMBER 30, 2008 AN 2007
Year Ended September 30,2008 2007
Loss from continuing operations
1,544,701
562,500
14,625
49,737
(2,171,563)
(2,171,563)
Compensation and benefits (including $1,500,000 share based payment)
Professional fees (including $537,500 share based payment)
Depreciation and amortization
General and administrative expense
Other income and expense:
Interest expense
Derivative expense
Interest income
Loss from continuing operations
(25,470)
(7,800)
765
(32,505)
(2,204,068)
8,033
(2, 1 96,035)
186,128 (446,496)
$.(2,009,907)$(446,496)
Loss from continuing operations before benefit for income taxes
Benefit for income taxes
Discontinued operations (Note 10)
Income (loss) from discontinued operations (including gain on
disposal of equipment of $168,083 in 2008)
Net loss
Net loss per share:
Continuing Operations:
Basic and diluted $(2.10) $
l,046,375Weighted average shares, basic and diluted 599,800
Discontinued Operations:
Basic $0.18 $(0.74)
(0.74)Diluted $0.04 $
Weighted average shares, basic 1,046,375 599,800
Weighted average shares, diluted 4,966,822 599,800
The accompanying notes are an integral part of the financial statements.
F-4
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F-
5
NETTALK.COM, INC.
(a development stage enterprise)
STATEMENTS OF CASH FLOWS
FISCAL YEARS ENDED SEPTEMBER 30, 2008 AN 2007
Year Ended September 30,
2008 2007
Cash flows from operating activities:
Net loss $2,009,907)$(446,496)
Adjustments to reconcile net loss to cash used in operating activities
Depreciation Expense 6,404
Amortization 8,221
Amortization finance costs 668
Amortization premium on debentures 588)
Fair value adjustments to derivatives 7,800
Issuance of common stock-offcers 1,500,000
Issuance of common stock for consulting services 537,500
Gain on sale of fixed assets l68,083)
Discontinued operations, net (23,045)
Expensed finance costs 14,802
Deferred income taxes (8,033)
Changes in assets and liabilities:
Changes in operating assets
Changes in operating liabilities 23,753
Net cash used in operating activities $110,508)$(446,496)
Cash flows used in Investing Activities:
Purchase of propert and equipment
Acquisition, net 448,300
Proceeds from sale of business 85,812
Net cash used in investing activities $534,112 $
Cash flow from Financing Activities:
Proceeds from issuance of common stock
Net proceeds from senior convertible notes, net
Warrants liabilties
(Payment) Proceeds from advances to offcer
Net cash provided by or (used) in financing activities $$
Changes in net assets - discontinued operations:
Operating activities $80,811)237,788
Investing activities (79,8l8)
Financing activities 288,526
Net cash provided by discontinued operations $80,81l)$446,496
Net Increase (Decrease) in cash 342,793
Cash and equivalents, beginning $$
Cash and equivalents, ending $342,793 $
The accompanying notes are an integral part of the financial statements.
F-6
NETTALK.COM, INC.
(a development stage enterprise)
STATEMENTS OF CASH FLOW (CONTINED)
FISCAL YEARS ENDED SEPTEMBER 30, 2008 AN 2007
Supplemental disclosures
Cash paid for interest $$
Cash paid from income taxes $$
Supplemental disclosures for non-cash items:
Stock issued for consulting services $537,500 $
Stock issued to offcers $1,500,000 $
Propert and equipment - addition $756,l71 $
Intangible assets - addition $840,964 $
Issuance of debentures $1,020,414 $
Issuance of Warants $563,400 $
The accompanying notes are an integral part of the financial statements.
F-7
NET TALK.COM, INC.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS
Years Ended September 30, 2008 and 2007
Note 1- Organization and Basis of Presentation:
NetTalk.com, Inc. ("NetTalk" or the "Company") was incorporated on May 1, 2006 under the laws of the State of
Florida.
We are engaged in the development of products and services for the use of Voice over Internet Protocol ("VoIP").
Our applications of VoIP technology are intended to allow principally consumers to make phone calls over a
broadband Internet connection instead of using a regular (or analog) phone line. At this time, our main product
under development is the TK 6000, which "is designed to allow our future customers full mobile flexibilty by
being able to transport the VoIP interface anywhere the customer has an internet connection.
We are currently in the development stage, as that term is defined in Statement of Accounting Standards No.7,
Accounting and Reporting by Development Stage Enterprises (SF AS 7). During this stage of our development, we
are devoting substantially all of our efforts in developing the TK 6000 product and service offerings and the
methods of addressing related markets where we wil deploy this product. We are also engaged in developing our
business infrastructure and we are seeking capital to support the further development and deployment of our
product. We currently project that our product wil commence beta testing during March of 2009 and wil enter
revenue generation status thereafter.
Note 2 - Summary of Significant Accounting Policies:
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United
States of America requires our management to make estimates and assumptions that affect the amounts reported in
the financial statements and footnotes. Significant estimates inherent in the preparation of our financial sttements
include developing fair value measurements upon which to base our accounting for acquisitions of intangible
assets and issuances of financial instruments, including our common stock. Our estimates also include developing
useful lives for our tangible and intangible assets and cash flow projections upon which we determine the
existence of, or the measurements for, impairments. In all instances, estimates are made by competent employees
under the supervision of management, based upon the current circumstances and the best available information
available. However, actual results could differ from those estimates.
Risk and Uncertinties
Our future results of operations and financial condition wil be impacted by the following factors, among others:
dependence on the worldwide telecommunication markets characterized by intense competition and rapidly
changing technology, on third-part manufacturers and subcontractors, on third-part distributors in certin
markets, on the successful development and marketing of new products in new and existing markets. Generally,
we are unable to predict the future status of
these areas of risk and uncertainty. However, negative trends or conditions in these areas could have an adverse
affect on our business.
F-8
NET TALK.COM, INC.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS
Years Ended September 30,2008 and 2007
Note 2 - Summary of Significant Accounting Policies (Continued):
Revenue Recognition
We are in our development stage and have not generated revenue on our principal product offering, the TK 6000.
We are currently projecting revenue commencing in approximately March 2009. The content and terms of our
revenue producing arrangements is currently under development. Upon generating sales of our products, we wil
recognize revenue when the arrangement is evidenced, the price is fixed or determinable, we have delivered our
products and services and collectability is reasonably assured. Our offering wil consist of both customer premise
equipment ("CPE") and telephony servíces. That is, a multi-element revenue producing arangement. Revenue
recognition accounting for multi-element revenue producing arrangements is provided in EITF 00-12 Revenue
Arrangements with Multiple Deliverables (EITF 00-12) and other interpretive guidance. Generally, revenue
arrangements with multiple deliverables will require allocation of the aggregate revenue stream to the individual
elements, usually based upon relative fair values. Upon allocation under this methodology, principles of revenue
recognition are applied to each component. Accordingly, when we commence revenue generation, we wil likely
have multiple forms of revenue, including products and services.
Cash and Cash Equivalents
We consider all highly liquid cash balances and debt instruments with an original maturity of three months or less
to be cash equivalents. We maintain cash balances only in domestic bank accounts, which at times, may exceed
federally insured limits. Notwithstanding, the current economic environment has significantly affected all financial
institutions and, accordingly, the risk of loss due to excessive deposits is very high at this time. We manage our
risk by assessing the ratings of financial institutions that we currently use.
Telecommunications Equipment and Other Propert
Telecommunications equipment and other propert are recorded at our cost (see Note 4). We depreciate these
assets using the straight-line method over lives that we believe the assets will have utility. Our expenditures for
additions, improvements and renewals are capitalized, while normal expenditures for maintenance and repairs are
charged to expense
Intangible Assets
Our intangible assets were acquired in connection with the asset acquisition, more fully described in Note 4. As
noted therein, these assets were not recorded in connection with a business combination, as that term is defined in
Statements on Financial Accounting Standards No. 141 Accounting for Business Combinations. Rather, these
intangible assets were recorded at our acquisition cost, which encompassed estimates of their respective and their
relative fair values, as well as estimates of the fair value of consideration that we issued. We amortized our
intangible assets using the straight-line method over lives that are predicated on contractual terms or over periods
we believe the assets wil have utility.
f-9
NET TALK.COM, INC.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS
Years Ended September 30,2008 and 2007
Note 2 - Summary of Significant Accounting Policies (Continued):
Impairments and Disposals
We evaluate our tangible and definite-lived intangible assets for impairment under Statement of Financial
Accounting Standards No. 144 Accounting for the Impainnent or Disposal of Long-Lived Assets (SFAS 144)
annually at the beginning of our fourth fiscal quarter or more frequently in the presence of circumstances or trends
that may be indicators of impairment. Our evaluation is a two step process. The first step is to compare our
undiscounted cash flows, as projected over the remaining useful lives of the assets, to their respective carring
values. In the event that the carring values are not recovered by future undiscounted cash flows, as a second step,
we compare the carring values to the related fair values and, if lower, record an impairment adjustment. For
purposes of fair value, we generally use replacement costs for tangible fixed assets and discounted cash flows,
using risk-adjusted discount rates, for intangible assets.
During the current fiscal year, our management and Board of Directors approved the discontinuance and sale of
our advertising business in order to devote all resources to the development our VoIP offerings. We concluded that
the advertising business constituted a component of our business, as defined in SF AS 144 and have presènted the
unit in the accompanying financial statements on the basis that (a) the operations and cash flows of the component
have been eliminated from our ongoing operations a result of the disposal transaction and (b) we have no
significant continuing involvement in the operations of the component after the disposal transaction. See Note 11
for additional information about the disposaL.
We have certain intangible assets that are not subject to amortization because they currently have indefinite lives.
We are required to evaluate whether these assets acquire a finite useful life annually and, if present, commence
amortization thereof. Prior to that event, if ever, we evaluate intangible assets that are not subject to amortization
under the guidance of Statement of Financial Accounting Standards No. 142 Goodwill and Intangible Assets
(SF AS 142). Under this standard, the impairment test consists of a comparison of the fair values of the intangible
assets with the respective carrying values. An impairment loss would be required for an excess in carring value
over the fair value on an asset-by-asset basis.
Research and Development and Softare Costs
We expense research and development expenses, as defined in Statements on Financial Accounting Standards No.
2 Accounting for Research and Development Expense as these costs are incurred. We account for our offering-
related softare development costs under Statements on Financial Accounting Standards No. 86 Accounting for
the Costs of Computer Softare to Be Sold, Leased, or Otherwise Marketed, which specifies that costs incurred
internally in creating a computer softare product shall be charged to expense when incurred as research and
development until technological feasibility has been established for the product. Technological feasibility is
established upon completion of a detail program design or, in its absence, completion of a working modeL.
Thereafter, all softare production costs shall be capitalized and subsequently reported at the lower of
unamortized cost or net realizable value. Capitalized costs are amortized based on current and future revenue for
each product with an annual minimum equal to the straight-line amortization over the remaining estimated
economic life of the product. As of September 30, 2008, we had not achieve technological feasibilty as
contemplated under SF AS 86 and, accordingly, our softare costs were expensed as research and development.
F-lO
NET TALK.COM, INC.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS
Years Ended September 30,2008 and 2007
Note 2 - Summary of Significant Accounting Policies (Continued):
Share-Based Payment Arrangements
We apply the grant-date fair value method to our share-based payment arrangements with employees under the
rules provided in Statement of Financial Accounting Standards No. 123R Accounting for Share-Based Payment
(SF AS i 23R). For share-based payment transactions with parties other than employees we apply EITF Issue No.
96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Sellng, Goods or Services. Under SFAS 123R, share-based compensation cost to employees is
measured at the grant date fair value based on the value of the award and is recognized over the service period,
which is usually the vesting period for employees. Share-based payments to non-employees are recorded at fair
value on the measurement date and reflected in expense over the service period.
Financial Instruments
Financial instruments, as defined in Financial Accounting Standard No. 107 Disclosures about Fair Value of
Financial Instruments (F AS 107), consist of cash, evidence of ownership in an entity, and contracts that both (i)
impose on one entity a contractual obligation to deliver cash or another financial instrument to a second entity,
or to exchange other financial instruments on potentially unfavorable terms with the second entity, and (ii)
conveys to that second entity a contractual right (a) to receive cash or another financial instrument from the first
entity, or (b) to exchange other financial instruments on potentially favorable terms with the first entity.
Accordingly, our financial instruments consist of cash and cash equivalents, accounts receivable, accounts
payable, accrued liabilities, secured convertible debentures, and derivative financial instruments.
We carr cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities at historical
costs since their respective estimated fair values approximate carrying values due to their current nature. We
also carry convertible debentures at historical cost.
However, the fair values of debt instruments are estimated for disclosure purposes (below) based upon the
present value of the estimated cash flows at market interest rates applicable to similar instruments.
As of September 30, 2008, estimated fair values and respective carring values of our secured convertible
debentures are as follows:
Financial Instrument Note
$1,000,000 12% Secured ConvertibleDebenture 6
$500,000 12% Secured Convertible Debenture 6
Fair
Value
Carring
Value
$ 1,014,002
$ 507,000
$ 1,013,611
$ 506,804
Derivative financial instruments, as defined in Financial Accounting Standard No. 133, Accounting for
Derivative Financial Instruments and Hedging Activities (F AS 133), consist of financial instruments or other
contracts that contain a notional amount and one or more underlying (e.g. interest rate, security price or other
variable), require no initial net investment and permit net settlement. Derivative financial instruments may be
free-standing or embedded in other financial instruments. Further, derivative financial instruments are initially,
and subsequently, measured at fair value and recorded as liabilities or, in rare instances, assets.
F-l J
NET TALK.COM, INC.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS
Years Ended September 30, 2008 and 2007
Note 2 - Summary of Significant Accounting Policies (Continued):
We generally do not use derivative financial instruments to hedge exposures to cash-flow, market or foreign-
currency risks. However, we have entered into certain other financial instruments and contracts, such as our
secured convertible debenture and warrant financing arrangements that are either (i) not afforded equity
classification, (ii) embody risks not clearly and closely related to host contracts, or (iii) may be net-cash settled
by the counterpart. As required by FAS 133, these instruments are required to be carried as derivative
liabilities, at fair value, in our financial statements.
Our derivative liabilities as of September 30, 2008 consisted of the following:
Derivative Financial Instrument
Class B Warrants, indexed to 6,000,000 shares of common stock
Compound Derivative Financial Instruments:
$l,OOO,OOO 12% Secured Convertible Debenture
$500,000 12% Secured Convertible Debenture
Amount
$ 563,400
$ 563,400
The following table summarizes the effects on our income (\oss) associated with changes in the fair values of
our derivative financial instruments by type for the period from transaction inception to September 30, 2008:
Derivative Financial Instrument
Class B Warrants, indexed to 6,000,000 shares of common stock
Compound Derivative Financial Instruments:
$1,000,000 12% Secured Convertible Debenture
$500,000 12% Secured Convertible Debenture
(Credit) Charge$ 7,800
$ 7,800
Direct Financing Costs
We allocate direct financing costs to the financial instruments issued based upon their relative fair values.
Amounts allocated to debt instruments are carried as assets and amortized through charges to interest expense
using the effective interest method. Amounts allocated to derivative financial instruments are charged upon
inception to interest expense. Amounts associated with equity instruments are included as reductions of the
related credit to equity. Any amounts paid directly to a creditor are reflected as a reduction in the carring
amount of the debt instrument and amortized through charges to interest expense using the effective interest
method.
F-12
NET TALK.COM, INC.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS
Years Ended September 30, 2008 and 2007
Note 2 - Summary of Significant Accounting Policies (Continued):
Registration Rights Agreements
During December 2006, the Financial Accounting Standards Board issued F ASB Staff Position EITF 00- i 9-2,
Accounting for Registration Payment Arrangements, which provides that registration payment arrangements,
such as the liquidated damages, should be accounted for pursuant to Financial Accounting Standard No. 5
Accounting for Contingencies. That is, all registration payments require recognition when they are both
probable and reasonably estimable. We currently have registration rights agreements with investors in our
secured convertible debenture financing arrangements. However, these agreements do not embody registration
payment arrangements. If, in the future, we enter into registration rights agreements that have registration
payment arrangements, we will be required to follow the guidance ofthis FSP.
Fair Value Measurements
Fair value measurement requirements are embodied in certain accounting standards applied in the preparation of
our financial statements. Significant fair value measurements resulted from the application of SF AS 133 to our
secured convertible debenture and warrant financing arrangements described in Note 6, SF AS 123R to our
share-based payment arrangements described in Note 7 and SF AS 142 to our business combination described in
Note 3.
Financial Accounting Standard No. 157 Fair Value Measurements defines fair value, establishes a framework
for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value
measurements. It is effective for our fiscal year beginning October 1,2008. This Statement applies under other
accounting pronouncements that require or permit fair value measurements, the F ASB having previously
concluded in those accounting pronouncements that fair value is the relevant measurement attribute.
Accordingly, this new standard wil not require any new fair value measurements. We do not believe that this
standard wil result in a material financial affect. However, we wil be required to expand our disclosures,
commencing with our quarterly period ending December 3 i, 2008, in areas where other accounting principles
require fair value measurements to provide information related to the hierarchy of fair value inputs.
Financial Accounting Standard No. 159 The Fair Value Option for Financial Assets and Financial Liabilties
permits entities to choose to measure many financial instruments and certain other items at fair value. It is
effective for our fiscal year beginning October i, 2008. At this time, we do not intend to reflect any of our
current financial instruments at fair value (expect that we are required to carry our derivative financial
instruments at fair value). However, we will consider the appropriateness of recognizing financial instruments at
fair value on a case by case basis as they arise in future periods.
Advertising
We expense advertising costs and expenses as they are incurred.
F-13
NET T ALK.COM, INC.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS
Years Ended September 30,2008 and 2007
Note 2 - Summary of Significant Accounting Policies (Continued):
Income Taxes
We record our income taxes using the asset and liability method provided in Statement of Financial Accounting
Standard No. 109 Accounting for Income Taxes (SF AS 109). Under this method, the future ta consequences
attributed to differences between the financial statement carring amounts of existing assets and liabîlities and
their respective tax basis are reflected as tax assets and liabilities using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences reverse. Changes in these deferred tax assets and
liabilties are reflected in the provision for income taxes. However, we are required to evaluate the recoverability
of net deferred tax assets. If it is more likely than not that some portion of a net deferred tax asset wil not be
realized, a valuation allowance is recognized with a charge to the provision for income taxes.
Net Loss per Common Share
We have applied the provisions in Statement of Financial Accounting Standards No. 128, Earings per Share
(SFAS 128) in calculating our basic and diluted loss per common share. Basic loss per common share represents
our net loss divided by the weighted average number of common shares outstanding during the period. Diluted loss
per common share gives effect to all potentially dilutive securities. We compute the effects on diluted loss per
common share arising from warrants and options using the treasury stock method. We compute the effects on
diluted loss per common share arising from convertible securities using the if-converted method. The effects, if
anti-dilutive are excluded.
Recent Accounting Pronouncements
We have reviewed accounting pronouncements and interpretations thereof that have effectiveness dates during the
periods reported and in future periods. We believe that the following impending standards may have an impact on
our future filings. Also see Fair Value Measurements, above. The applicability of any standard is subject to the
formal review of our financial management and certain standards are under consideration.
In December 2007, the FASB issued SFAS No. 141(R), Business Combinations ("SFAS 141(R)"), which
establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the
identifiable assets acquired, the liabilties assumed, and any non-controlling interest in an acquiree, including the
recognition and measurement of goodwil acquired in a business combination. SFAS 141R is effective as of the
beginning of the first fiscal year beginning on or after December 15, 2008. Earlier adoption is prohibited and we
are currently evaluating the effect, if any that the adoption will have on our financial position results of operations
or cash flows.
F-14
NET T ALK.COM, INC.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS
Years Ended September 30,2008 and 2007
Note 2 - Summary of Significant Accounting Policies (Continued):
In September 2006, the FASB issued SFAS No. 158, Employers' Accounting for Defined Benefit Pension and
Other Postretirement Plans, an amendment of F ASB Statements No. 87, 88, 106 and 132(R) ("SF AS 158"). SFAS
158 improves financial reporting by requiring an employer to recognize the overfunded or underfunded status of a
defined benefit postretirement plan (other than a inultiemployer plan) as an asset or liability in its statement of
financial position and to recognize changes in that funded status in the year in which the changes occur t.hro~gh
comprehensive. income of a business entity or changes in unrestricted net assets of a not-for-profit organization.
SF AS 158 also improves financial reporting by requiring an employer to measure the funded status of a plan as of
the date of its year-end statement of financial position, with limited exceptions. The effective date for an employer
with publicly traded equity securities is as of the end of the fiscal year ending after December 1 S, 2006. The
adoption of SF AS 1 S8 did not have a material impact on our financial position, results of operations or cash flows
because we do not have a defined benefit plan for our employees.
In December 2007, the F ASB issued SF AS No. 160, Non-controllng Interests in Consolidated Financial
Statements Liabilities -an Amendment of ARB No. 51. This statement amends ARB No. 51 to establish
accounting and reporting standards for the Non-controlling interest in a subsidiar and for the deconsolidation of a
subsidiary. SF AS 160 wil change the classification and reporting for minority interest and non-controlling
interests of variable interest entities. Following the effectiveness of SF AS 160, the minority interest and non-
controlling interest of variable interest entities wil be carried as a component of stockholders' equity.
Accordingly, upon the effectiveness of this statement, we will begin to reflect non-controlling interest in our
consolidated variable interest entities as a component of stockholders' equity. This statement is effective for fiscal
years and interim periods within those fiscal years, beginning on or after December 15, 2008 and earlier adoption
is prohibited. Since we do not currently have Variable Interest Entities consolidated in our financial statements,
adoption of this standard is not expected to have a material effect.
In March 2008, the F ASB issued SF AS No. 161, Disclosures about Derivative Instruments and Hedging Activities
- an amendment to F ASB Statement No. i 33 ("SF AS 161 "). SF AS 161 is intended to improve financial standards
for derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better
understand their effects on an entity's financial position, financial performance, and cash flows. Entities are
required to provide enhanced disclosures about: (a) how and why an entity uses derivative instruments; (b) how
derivative instruments and related hedged items are accounted for under SF AS 133 and its related interpretations;
and (c) how derivative instruments and related hedged items affect an entity's financial position, financial
performance, and cash flows. It is effective for financial statements issued for fiscal years beginning after
November 15,2008, with early adoption encouraged. We are currently evaluating the impact of SFAS 161, if any,
wil have on our financial position, results of operations or cash flows. This standard will affect the disclosures in
our financial statements to provide the required information.
In May 2008, the F ASB issued SF AS No. 162, The Hierarchy of Generally Accepted Accounting Principles
("SF AS 162 "). SF AS 162 identifies the sources of accounting principles and the framework for selecting the
principles used in the preparation of financial statements of nongovernmental entities that are presented in
conformity with generally accepted accounting principles (the GAAP hierarchy). SF AS i 62 wil become effective
60 days following the SEC's approval of the Public Company Accounting Oversight Board amendments to AU
Section 411, "The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles." The
Company does not expect the adoption of SF AS i 62 will have a material effect on its financial position, results of
operations or cash flows.
F-15
NET T ALK.COM, INC.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS
Years Ended September 30, 2008 and 2007
Note 2 - Summary of Significant Accounting Policies (Continued):
In July 2006, the FASB issued Interpretation No. 48, Accounting for uncertinty in Income Taxes ("FIN 48"). FIN
No. 48 clarifies the accounting for Income Taxes by prescribing the minimum recognition threshold a tax position
is required to meet before being recognized in the financial statements. It also provides guidance on de-
recognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and
transition and clearly scopes income taxes out of SF AS No.5, Accounting for Contingencies. FIN 48 was effective
for fiscal years
beginning after December 15, 2006. Accordingly, we have implemented FIN 48 by summarizing and evaluating
alI potential uncertain tax positions. As a result of our implementation, FIN No. 48 did not have a material impact
on our financial position, results of operations or cash flows, although, as discussed in our income ta disclosures,
certain positions are present that require our periodic review in maintaining compliance with this standard. .
In December 2006, the F ASB issued FSP EITF 00-19-2, Accounting for Registration Payment Arrangements (FSP
00-19-2) which addresses accounting for registration payment arrangements. FSP 00- 19-2 specifies that the
contingent obligation to make future payments or otherwise transfer consideration under a registration payment
arrangement, whether issued as a separate agreement or included as a provision of a financial instrment or other
agreement, should be separately recognized and measured in accordance with SFAS No.5, Accounting for
Contingencies. FSP 00-19-2 further clarifies that a financial instrument subject to a registrtion payment
arrangement should be accounted for in accordance with other applicable generally accepted accounting principles
without regard to the contingent obligation to transfer consideration pursuant to the registration payment
arrangement. For registration payment arrangements and financial instruments subject to those arangements that
were entered into prior to the issuance of EITF 00-19-2, this guidance shall be effective for financial statements
issued for fiscal years beginning after December 15, 2006 and interim periods within those fiscal years. The
adoption of EITF 00-19-02 did not have a material impact on our financial position, results of operations or cash
flows, because we have no current transactions that embody Registration Payment Arrangements, as defined in the
standard.
In June 2008, the Emerging Issues Task Force issued EITF Consensus No. 07-05 Determining Whether an
Instrument (or Embedded Feature) Is Indexed to an Entity's Own Stock, which supersedes the definition in EITF
06-01 for periods beginning after December 15,2008 (our fiscal year ending September 30, 2010). The objective
of this Issue is to provide guidance for determining whether an equity-linked financial instrument (or embedded
feature) is indexed to an entity's own stock and it applies to any freestanding financial instrument or embedded
feature that has all the characteristics of a derivative in of Statement 133, for purposes of determining whether that
instrument or embedded feature qualifies for the first part of the scope exception in paragraph 1 i (a) of Statement
133 (the "Paragraph 11(a) Exemption). This Issue also applies to any freestanding financial instrument that is
potentially settled in an entity's own stock, regardless of whether the instrument has all the characteristics of a
derivative in Statement 133, for purposes of determining whether the instrument is within the scope of Issue 00-19.
We currently have 9,275,877 warrants that embody terms and conditions that require the reset of their strike prices
upon our sale of shares or equity-indexed financial instruments and amounts less than the conversion prices. These
features wil no longer be treated as "equity" under the EITF once it becomes effective. Rather, such instrments
wil require classification as liabilities and measurement at fair value. Early adoption is precluded. Accordingly,
this standard wil be adopted in our quarterly period ended December 31,2009.
F-16
NET TALK.COM, INC.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS
Years Ended September 30, 2008 and 2007
Note 2 - Summary of Significant Accounting Policies (Continued):
In June 2008, the Emerging Issues Task Force issue EITF Consensus No. 08-04 Transition Guidance for
Conforming Changes to Issue 98-5 "Accounting for Convertible Securities with Beneficial Conversion Features or
Contingently Adjustable Conversion Ratios, which is effective for years ending after December 15, 2008 (our
fiscal year ending September 30, 2009). Early adoption is not permitted. The overall objective of the Issue is to
conform the requirements of EITF 00-27 and Financial Accounting Standard No. 150 with EITF 98-5 to provide
for consistency in application of the standard. We computed and recorded a beneficial conversion feature in
connection with our Preferred Stock Financing in 2007. We are currently evaluating the effects of our adoption of
this standard for purposes of our quarterly report for the period ending December 31,2008.
In April 2008, the F ASB issued FSP No. F AS 142-3 Determination of the Useful Life of Intangible Assets. This
FSP amends the factors that should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset under SF AS No. 142, Goodwil and Other Intangible
Assets. The Company is required to adopt FSP 142-3 on October I, 2008. The guidance in FSP 142-3 for
determining the useful life of a recognized intangible asset shall be applied prospectively to intangible assets
acquired after adoption, and the disclosure requirements shall be applied prospectively to all intangible assets
recognized as of, and subsequent to, adoption. The Company is currently evaluating the impact ofFSP 142-3 on its
financial position, results of operations or cash flows, and believes that the established lives wil continue to be
appropriate under the FSP.
In May 2008, the F ASB issued FSP Accounting Principles Board 14-1 Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement) (nFSP APB 14-1 ").
FSP APB 14-1 requires the issuer of certain convertible debt instruments that may be settled in cash (or other
assets) on conversion to separately account for the liability (debt) and equity (conversion option) components of
the instrument in a manner that reflects the issuer's non-convertible debt borrowing rate. FSP APB i 4- i is effective
for fiscal years beginning after December 15,2008 on a retroactive basis. The Company is currently evaluating the
potential impact, if any, of the adoption of FSP APB 14-1 on its financial position, results of operations or cash
flows.
Other recent accounting pronouncements issued by the F ASB (including its Emerging Issues Task Force), the
AICPA, and the SEC did not, or are not believed by management to, have a material impact on our present or
future financial statements.
Note 3 - Going Concern:
We have prepared our financial statements under the presumption that we wil continue as a going concern for a
reasonable period. However, as previously mentioned, we are currently in our developrnent stage and, accordingly,
we have not generated revenue nor do we expect to generate revenue until March 2009. During the years ended
September 30, 2008 and 2007, we generated net losses of $(2,009,907) and $(446,496), respectively, and used
cash in our operations in the amounts of $(143,886) and $(446,496). These conditions and negative trends raise
substantial doubt about our ability to continue as a going concern.
Our management is currently addressing these conditions and trends. We have discontinued our prior business that
was engaged in providing advertising services and, commencing with our purchase of the Interlink Asset Group
(see Note 4) on September 10,2008, we are devoting our efforts and our resources to the expeditious development
and deployment of the TK 6000 product line. Our acquisition of the Interlink Asset Group included an executive
F-I7
NET TALK.COM, INC.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS
Years Ended September 30, 2008 and 2007
Note 3 - Going Concern (Continued)
management team who are undertaking these initiatives and has raised $500,000 in convertible debenture and
warrant fina~cing. Notwithstanding, our ability to continue is dependent upon raising the additional capital
necessary to complete the successful deployment of the TK 6000 product line and, ultimately, achieve profitable
operations. There can be no assurances that capital wil1 be available at terms acceptable to our management, if at
alL. The accompanying financial statements do not include any adjustments that may result from the substantial
doubt surrounding our ability to continue.
Note 4 - Interlink Asset Group Acquisition:
On September 10, 2008, we acquired certain tangible and intangible assets, formerly owned by Interlink Global
Corporation ("Interlink"), (the "Interlink Asset Group") directly from Interlink's creditor who had seized the assets
pursuant to a Security and Col1ateral Agreement. Our purpose in acquiring these assets, which included
employment rights to the executive management team of Interlink, was to advance the TK 6000 VoIP Technology
Program, which Interlink launched in July 2008. Accordingly, these assets substantially comprise our current
business assets and the infrastructure for our future operations. Contemporaneously with this purchase, we
executed an Assignment and Intellectual Propert Agreement with Interlink that served to perfect our ownership
rights to the assets.
Consideration for the acquisition consisted of a face value $1,000,000 convertible debenture, plus warants to
purchase 4,000,000 shares of our common stock. On the date of the Interlink Asset Group acquisition, we also
entered into a financing agreement with the creditor that provided for the issuance of a face value $500,000
convertible debenture, plus warrants to purchase 2,000,000 shares of our common stock for net cash consideration
of$448,300. These financial instruments, and our accounting therefore, are further addressed in Note 6.
The transference of the of the Interlink Asset Group required us to determine whether the group of assets
constituted a business, and accordingly, required accounting under Statement of Financial Accounting Standards
No. 141 Business Combinations (SF AS 14 I) or whether the group of assets did not constitute a business and,
accordingly, required accounting under other standards, including Statement of Financial Accounting Standards
No. 142 Goodwill and Intangible Assets (SF AS 142). This determination is required to be made by reference (by
analogy) to guidance in EITF No. 98-3 Determining Whether a Nonmonetar Transaction Involves Receipt of
Productive Assets or a Business (EITF 98-3). It should be noted that the determination of what constitutes a
business for reporting purposes under Rules and Regulations of the Securities and Exchange Commission differs
from the guidance in EITF 98-3.
We accounted for the acquisition of the Interlink Asset Group as an acquisition of productive assets and not as a
business. In applying the guidance of EITF 98-3, a business is a self sustaining, integrated set of activities and
assets conducted and managed for the purpose of providing a return to investors and, further, must consist of
inputs, processes applied to those inputs, and resulting outputs that are used to generate revenues. Based upon the
guidance of EITF 98-3, the Interlink Asset Group (i) did not possess the inputs because, on the date of the
acquisition, the critical asset (TK 6000 offering) had not achieved a proven level of technological feasibility and
(ii) did not possess the outputs because, on the date of the acquisition, the assets did not include a revenue
generating offering and, therefore, no ability to access customers. Further, we are unable to overcome the general
presumption in EITF 98-3 that a development stage enterprise is presumed not to be a business.
F-18
NET TALK.COM, INC.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS
Years Ended September 30, 2008 and 2007
Note 4 - Interlink Asset Group Acquisition (Continued):
In addition to our analysis that gave rise to the conclusion that the Interlink Asset Group did not constitute a
business, we considered whether the two aforementioned financing arrangements should be combined for purposes
accounting for the acquisition. In reaching a conclusions that they should be combined we considered and gave
substantial weight to the facts that (i) they were entered into contemporaneously and in contemplation of one
another, (ii) they were executed with the same counterpart and the terms and conditions of the financial
instruments and underlying contracts are substantially the same and (iii) there is otherwise no economic need nor
substantive business purpose for structuring the transactions separately. Accordingly, for purposes of accounting
for the Interlink Asset Group acquisition we have combined the financing arrangements associated with both the
asset purchase and the cash financing arrangement. Accounting for the financial instruments arising from these
arrangements is further discussed in Note 7.
Notwithstanding our conclusion that the Interlink Asset Group did not constitute a business, SFAS 142 provides
that intangible assets acquired as a group are initially recognized at fair value applying the measurement principles
for exchange transactions provided in SF AS 141.5-7. Those measurement principles provide that, when
consideration is not in the form of cash, measurement is based upon the fair value of the consideration given or the
fair value of the assets acquired, whichever is more clearly and closely evident and, thus more reliably
measureable. We have concluded that the value of the consideration given representing the financial instruments,
is more clearly evident and reliable for this purpose because (i) the exchange resulted from exhaustive negotiations
with the creditor, (ii) fair value measurements of our financial instruments are in part based upon market indicators
and assumptions derived for active markets, and (iii) while ultimately reasonable, our fair value measurements of
the significant tangible and intangible asset relies heavily on subjective estimates and prospective financial
information. The following table reflects the components of the consideration paid to effect the acquisition:
Financial Instrument or Cost:
Convertible debentures:
$1,000,000 face value, 12% convertible debentures
$500,000 face value, 12% convertible debentures
Class B warrants, indexed to 6,000,000 shares of common stock
Direct costs
Amount
$ 1,014,002
507,000
555,600
39,200
$ 2,115,802
We have evaluated the substance of the exchange for purposes of identifying all assets acquired. The recognition
of goodwil is not contemplated in an exchange that is not a business or accounted for as a business combination
under SFAS 141. The following table reflects the acquisition date fair values and the final allocation of the
consideration to the assets acquired. The allocation was performed in accordance with SF AS 142, which provides
that an excess in consideration over the fair values of the assets acquired is allocated to the assets subject to
depreciation and amortization, based upon their relative fair values, and not to those assets with indefinite lives. A
difference in the recognized basis in the value of the consideration between book and income tax gives rise to the
deferred income taxes. The allocation of consideration in this manner contemplates an immediate impairment
analysis under SF AS 144. Our analysis did not result in impairment, but we are required to continue to perform
this analysis as provided in our impairments policy (see Note 2).
F-19
NET TALK.COM, INC.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS
Years Ended September 30,2008 and 2007
Note 4 - Interlink Asset Group Acquisition (Continued):
Asset or Account
Cash
Deferred finance costs
Telecommunications equipment and other propert
Intangible assets:
Knowhow of specialized employees
Trademarks
Employment arrangements
Workforce
Telephony license
Domain names
Deferred income taxes
Interest expense (finance costs allocated to warrants)
Fair Value
$ 487,500
24,398
41l,203
Allocation
$ 487,500
24,398
756,171
212,254
180,925
122,400
54,000
5,000
4,200
212,254
332,708
225,084
54,000
9,195
7,723
(8,033)
14,802
$ 2,115,802
14,802
$ 1,516,682
In connection with the above allocation, we evaluated the presence of in-process research and development that
may require recognition (and immediate write-off). We concluded that in-process research and development was
de minimus since development is planned to be outsourced subsequent to the acquisition and; in fact, no
substantive effort and/or costs were found in the records of Interlink. Research and development wil be expensed
as it is incurred.
As more fully discussed in Note 8, we issued 6,000,000 shares of common stock to our new management team in
connection with the Interlink Asset Group acquisition. These shares are compensatory in nature and are fully
vested. We have valued the shares at $1,500,000, consistent with fair value measurements used elsewhere in our
accounting, and recognized the expense in compensation for the period.
As previously mentioned, the determination of what constitutes a business for reporting purposes under the Rules
and Regulations of the Securities and Exchange Commission differs from the guidance in EITF 98-3. Under
standards of the Securities and Exchange Commission, we have concluded that our acquisition of the Interlink
Asset Group is required to be reported (although not accounted for) as a business. The reporting requirements
provide for the filing of audited and reviewed financial statements of the component of Interlink comprising the
Interlink Asset Group, as well as pro forma information. This reporting information is included elsewhere in this
filing.
F-20
NET TALK.COM, INC.
(a develop~ent stage enterprise)
NOTES TO FINANCIAL STATEMENTS
Years Ended September 30,2008 and 2007
Note 5 - Telecommunications Equipment and Other Propert:
Telecommunications equipment and other propert consisted of the following on September 30, 2008:
Life Amount
7 $ 641,4605 85,1117 19,5593 10,041
756,l71
(6,404)
749,767
Telecommunications equipment
Computer equipment
Office equipment and furnishings
Purchased software
Less accumulated depreciation
$
Our telecommunications equipment is deployed in our Network Operations Center ("NOC") as is most of the
computer equipment. Other computer and offce equipment and furnishings are deployed at our corporate offces,
which we lease under an operating lease. Depreciation of the above assets amounted to $6,404 during the period
from the purchase date (September 10, 2008) to September 30, 2008. Commencing with our generation of revenue,
a portion of our depreciation expense will be allocated to cost of sales.
Note 6 - Intangible Assets:
Intangible assets consisted of the following on SeptemberJO, 2008:
Trademarks
Employment arrangements
Knowhow and specialty skils
Workforce (not subject to amortization)
Telephony licenses
Domain names
Life
5
3
2
2
Amount
$ 332,708
225,084
212,254
54,000
9,195
7,723
840,964
(8,221)
$ 832,743
Less accumulated depreciation
Amortization of the above intangible assets amounted to $8,22l (of which $4, ILL is included in compensation)
during the period from the purchase date (September 10, 2008) to September 30, 2008. Commencing with our
generation of revenue, a portion of our depreciation expense wil be allocated to cost of sales. The weighted
average amortization period for the amortizable intangible assets is 4.1 years.
Note 6 - Intangible Assets (Continued):
Estimated future amortization of intangible assets for each year ending September 30, 2008 is as follows:
2009 $150,029
2010 149,565
2011 137,458
2012 66,542
2013 62,895
$566,489
F-21
NET TALK.COM,INC.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS
Years Ended September 30,2008 and 2007
Note 7 - Secured Convertble Debentures and Warrant Financing Arrangements:
Our convertible debentures consisted of the following as of September 30,2008:
Amount
$1,000,000 face value, 12% secured convertible debenture, due
September 10,2010, interest payable quarterly, secured by all assets
$500,000 face value, 12% secured convertible debenture, due
September 10, 2010, interest payable quarterly, secured by aJJ assets
$1,013,611
506,804
$ 1,520,415
Common shares indexed to the financial instruments issued in our convertible debenture and warrant financing
arrangements are as follows as of September 30. 2008:
Shares
Conversion feature embedded in the $1,000,000 face value, 12% secured
convertible debenture, due September 10, 2010
Class B warrnts; $0.50 exercise price; expire September 10,2013
Conversion feature embedded in the $500,000 face value, 12% secured
convertible debenture, due September 10, 2010
Class B warrants; $0.50 exercise price; expire September 10,2013
4,000,000
4,000,000
2,000,000
2,000,000
12,000,000
On September 30,2008, we issued a $1,000,000 face value, l2% secured convertible debenture, due September
10, 2010 and Class B warrants indexed to 4,000,000 shares of our common stock in exchange for the Interlink
Asset Group, discussed in Note 3. Also on September 30, 2008, we issued a $500,000 face value 12% secured
convertible debenture, due September 10, 2010 and Class B warrants indexed to 2,000,000 shares of our
common stock for net cash proceeds of $472,800. These financial instruments were issued to the same creditor
under contracts that are substantially similar, unless otherwise mentioned in the following discussion.
The principal amount of the debentures is payable on September 10, 20 i 0 and the interest is payable quarerly,
on a calendar quarter basis. While the debenture is outstanding, the investor has the option to convert the
principal balance, and not the interest, into shares of our common stock at a conversion price of $0.25 per
common share. The terms of the conversion option provide for anti-dilution protections for traditional
restructurings of our equity, such as stock-splits and reorganizations, if any, and for sales of our common stock,
or issuances of common-indexed financial instruments, at amounts below the otherwise fixed conversion price.
Further, the terms of the convertible debenture provide for certain redemption features. If, in the event of certain
defaults on the terms of the debentures, certain of which are indexed to equity risks, we are required at the
investors option to pay the higher of (i) 11 0% of the principal balance, plus accrued interest or (ii) the if-
converted value of the underlying common stock, using the 110% default amount, plus accrued interest. If this
default redemption is not exercised by the investor, we would incur a default interest rate of 18% and the
investor would have rights to our assets under the related Security Agreement. We rnay redeem the convertible
debentures at anytime at 110% of the principal amount, plus accrued interest.
F-22
NET TALK.COM, INC.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS
Years Ended September 30,2008 and 2007
Note 7 - Secured Convertible Debentures and Warrant Financing Arrangements (Continued):
We have evaluated the tenns and conditions of the secured convertible debentures under the guidance of SF
AS
133 and EITF 00-19. We have determined that, while the anti-dilution protections preclude treatment of the
embedded conversion option as conventional, the conversion option is exempt from classification as a derivative
because it otherwise achieves the conditions for equity classification (if freestanding) provided inSF AS 133 and
EITF 00-19. We have further determined that the default redemption features described above are not exempt
for treatment of as derivative financial instruments, because they are not clearly and closely related in tenns of
risk to the host debt agreement. On the inception date of the .arrangement and as of September 30, 2008, we
determined that the fair value of these compound derivatives is de minus. However, we are required to re-
evaluate this value at each reporting date and record changes in its fair value, if any, in income. For purposes of
determining the fair value of the compound derivative, we have evaluated multiple, probability-weighted cash
flow scenarios. These cash flow scenarios include, and will continue to include, fair value information about our
common stock. Accordingly, fluctuations in our common stock value will significantly influence the future
outcomes from applying this technique.
Since, as discussed above, the embedded conversion options did not require treatment as derivative financial
instruments, we are required to evaluate the feature as embodying a beneficial conversion feature under EITF
No. 98-5 Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable
Conversion Ratios and EITF No. 00-27 Application of Issue No. 98-5 to Certain Convertible Instruments. A
beneficial conversion feature is present when the fair value of the underlying common share exceeds the
effective conversion price of the conversion option. The effective conversion price is calculated as the basis in
the financing arrangement allocated to the hybrid convertible debt agreement, divided by the number of shares
into which the instrument is indexed.
Because the two hybrid debt contracts were issued as compensation for the Interlink Asset Group (see Note 4)
and as further discussed in that note we concluded that they should be combined for accounting purposes, the
accounting resulted in no beneficial conversion feature.
Premiums on the secured convertible debentures arose from initial recognition at fair value, which is higher than
face value. Premiums are amortized through credits to interest expense over the term of the debt agreement.
Amortization of debt premiums amounted to $587 during the period from inception to September 30, 2008.
Direct financing costs are atlocated to the financial instruments issued (hybrid debt and warrants) based upon
their relative fair values. Amounts related to the hybrid debt are recorded as deferred finance Costs and
amortized through charges to interest expense over the term of the arrangement using the effective interest
method. Amounts related to the warrants were charged directly to income because the warrants were classified
in liabilities, rather than equity, as described above. Direct financing costs are amortized through charges to
interest expense over the term of the debt agreement.
We have evaluated the terms and conditions of the Class B warrants under the guidance of Statement of
Financial Accounting Standards No. 150 Accounting for Certain Financial Instruments with Characteristics of
Both Liabilities and Equity (SF AS 150). The warrants embody a fundamental change-in-control redemption
privilege wherein the holder may redeem the warrants in the event of a change in control for a share of assets or
consideration received in such a contingent event. This redemption feature places the warrants within the scope
of SF AS 150, as put warrants and, accordingly, they are classified in liabilities and measured at inception and on
F-23
NET TALK.COM, INC.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS
Years Ended September 30,2008 and 2007
Note 7 - Secured Convertible Debentures and Warrant Financing Arrangements (Continued):
an ongoing basis at fair value. Fair value of the warrants was measured using the Black-Schools-Merton
valuation technique and in applying this technique we were required to develop certain subjective assumptions.
We have valued the underlying common shares at.$0.25 on both the inception and the financial statement date
being representative of our best estimates of our enterprise value, applying discounted cash flow techniques
consistent with approaches outlined by the American Institute of Certified Public Accountants. We have
developed volatility assumptions of 73.0% and 73.9% on the inception date and September 30, 2008,
respectively, using a peer group of companies whose common shares have traded in public markets for periods
of at least the expected term, which we have concluded is the contractual term. Finally, we have used the
publicly available rates of 2.91 % and 2.98% on the inception date and September 30,2008, respectively, related
to zero coupon United States Treasury Securities, with remaining terms consistent with the remaining warrant
term.
The following table ilustrates the initial allocation to the $l,OOO,OOO and $500,000 secured convertible
debenture and warrant financing arrangements:
$1,000,000
Financing
Secured convertible debentures
Class B warrants (classified in liabilities)
Compound derivative
$1,014,002
370,400
$500,000
Financing
$507,000
185,200
$1,384,402 692,200
Note 8 - Stockholders' Equity (Deficit):
Share-based payments (employees):
$
On September 10, 2008, we issued 6,000,000 shares of common stock to our new management team in connection
with the Interlink Asset Group acquisition (see Note 3). These shares are compensatory in nature and are fully
vested. We have valued the shares at $0.25, consistent with fair value measurements used elsewhere in our
accounting.
Officer
Anastasios Kyriakides, CEO
Nicholas Kyriakides
Kenneth Hosfeld, Executive Vice President
Leo Manzewitsch, CTO
Guillermo Rodriguez, CFO
Shares
2,100,000
600,000
1, LOO,OOO
1, 100,000
1,100,000
6,000,000
F-24
Expense
$ 525,000
150,000
275,000
275,000
275,000
$ 1,500,000
NET TALK-COM, INC.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS
Years Ended September 30, 2008 and 2007
Note 8 - Stockholders' Equity (Deficit (Continued));
Share-based payment for goods and services to non-employees:
During the year ended September 30, 2008, we issued 2.000,000 shares of common stock to non-employees for
goods and services.
Consultant/Provider
F AMALOM, LLC
Decembra Diamond
John Clarke
Deadalus Consulting, Inc.
Ron Roule
Iseal Aponte
Shares
450,000
360,000
100,000
90,000
1,000,000
150,000
2,150,000
Expense
$ 112,500
90,000
25,000
22,500
250,000
37,500
$ 537,500
Warrants to purchase common stock:
On September 10, 2008, we issued Class B warrants to purchase 6,000,000 shares of our common stock in
connection with financing transactions discussed in Note 6. These warrants have.a strike price of $0.50 and expire
five years from issuance.
On January l7, 2007, we issued Class A warrants to purchase 3,262, 712 shares of our common stock in connection
with a sale of common stock. These warrants have a strike price of $1.00 and expire five years from issuance.
Indexed Shares Weighted Strike
October 1, 2006
Issued 3,262,712 $1.00
Exercised
Expired
September 30, 2007 3,262,712 $1.00
Issued 6,000,000 $0.50
Exercised
Expired
September 30, 2008 9,262,712 $0.68
The weighted average remaining life of the aggregate 9,262,712 warrants is 4.37 years.
As more fully discussed in Note 6, the inception date fair value of Class B warrants amounted to $555,600. As of
September 30, 2008, the fair value amounted to $563,400. Derivative expense associated with the classification of
the Class B warrants in liabilities amounted to $7,800.
F-25
NET TALK.COM, INC.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS
Years Ended September 30, 2008 and 2007
Note 9 . Commitment and Contingencies:
Leases
We lease our principal office space under an arrangement that is an operating lease. Rent and associated
occupancy expenses for the year ended September 30, 2008 was $43,753.
Minimum non-cancellable future lease payments as of September 30, 2008, were as follows: 2009-$107,700;
20 10-$98,725.
Employment arangements
EMPLOYMENT ARRANGEMENTS
We have entered into an Employment Agreement with our Chief Executive Offcer, Anastasios Kyriakides.
In consideration of his services to us, we have agreed to pay him a base salary of$l50,OOO plus certain bonuses and awards if
the Company achieves certain profitabilty levels and adopts certain incentive compensation plans. As of September 30, 2008,
none of these incentive arrangements and plans had been realized. The agreement is effective through September 30,2013.
Note 10 - Related Parties:
During the year ended September 30, 2007, we advanced an aggregate of $9,429 to certain offcers, The balances
on these advances at September 30, 2008 and 2007 was $0 and $9,429, respectively.
Note 11 Discontinued Operations:
On September 10, 2008, at the time we acquired the Interlink Asset Group, our management and Board of
Directors committed to the discontinuance and disposal of our advertising business. We disposed of this asset to be
able to concentrate our efforts exclusively on the deployment of the TK6000 Product Offering. We concluded that
the advertising business constituted a component of our business, as defined in SF AS 144 and have presented the
unit in the accompanying financial statements on the basis that (a) the operations and cash flows of the component
have been eliminated from our ongoing operations a result of the disposal transaction and (b) we have no
significant continuing involvement in the operations of the component after the disposal transaction. On
September 10, 2008, we sold the advertising business resulting in a gain on sale of $168,083.
Note 11 Discontinued Operations (Continued):
There are no assets or liabilties remaining at September 30, 2008. The caption discontinued operations on our
statements of operations reflects the following:
Year Ended September 30,2008 2007
Revenues from discontinued business 186,128
Loss from operations of discontinued business
Gain on sale ufbusiness 446,496
F-26
NET TALK.COM, INC.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS
Years Ended September 30,2008 and 2007
Note 12 Income Taxes:
Our income tax provision (benefit) for the years ended September 30, 2008 consisted of the following:
September 30,
2008
Current provision
Deferred provision
Change in valuation allowance
$(8,033)
$ (8,033)
The composition of our deferred taxes is as follows:
September 30,
2008
Net operating loss
Basis oflong-lived assets acquired in
asset acquisition
Valuation allowance
(2,264,760)
(8,033)
(2,264,760)
$
We have provided a valuation allowance for the full amount of our net deferred tax credits because we currntly
have no reasonably assured future income sources.
As of September 30, 2008, we have net operating loss carr forwards amounting to $(2,264,760) that are available,
subject to certin limitations, to offset future taxable income through 2023 All prior tax years, subject to statutory
limitations, remain subject to examination by Federal and state taxing jurisdictions.
In July 2006, the F ASB issued Interpretation No. 48, Accounting for uncertainty in Income Taxes ("FIN 48"). FIN
No. 48 clarifies the accounting for Income Taxes by prescribing the minimum recognition threshold a ta position
is required to meet before being recognized in the financial statements. It also provides guidance on derecognition,
measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition and
clearly scopes income taxes out of SF AS No.5, Accounting for Contingencies. FIN 48 was effective for fiscal
years beginning after December 15, 2006. As more fully discussed in Note 3, we purchased the Interlink Asset
Group on September 10, 2008. While we have not filed income tax returns with taxing jurisdictions since that
acquisition, we intend to take the position that the purchase was a taxable transaction and, accordingly, depreciate
and or amortize the future step up in bases allocated for income tax purposes, which amounts exceed their income
tax bases with the seller.
F-27
Note 12 Income Taxes (Continued):
NET TALK.COM, INC.
(a development stage enterprise)
NOTES TO FINANCIAL STATEMENTS
Years Ended September 30,2008 and 2007
If, in an examination, the Internal Revenue Service imposed treatment as a non-taxable transaction, we would not
be afforded the benefit of the depreciation and amortization associated with the excess of the allocated values over
the basis in the assets. As of the date of these financial statements, we have not recognized any material benefits
from the step-up. However, we wil be required to continue to monitor the merits of this position as our business
develops.
Our effective tax rate differs from statutory tax rates in jurisdictions that we are taxed. The' following table
reconciles the differences:
Federal statutory rate
State rate, net of Federal benefit
Change in valuation allowance
Year ended September 30,
2008
34.00%
3.63%
37.63%
37,63%
Note 13 - Subsequent Events: NONE
F-28
AFFIDAVIT
STATE OF FLORIDA
COUNTY OF DADE
Anastasios Kyriakides, being first duly sworn, deposes and states as follows:
I am President of NET TALKCOM, INC.;
I am the Secretar of the Board of Directors
NET TALK is committed to the support of its futue telecommunications operation in IDAHO and
has the financial resources to provide such support.
t .~LK
Subscribes and sw~ :6 before me this
2f day of ;Ie irúorf. ,2006£J iNota ~ . Lw
State of Florida
My commission expires: Ocl i~ Û!l i,
~iJy pI/4" ..' ...."" AN IUIE
*.~ * MY COIS i 00 83~~~ EXIRES: Oc 23,2012
"'''~ OF f\Ø' Bo Th Bi No Se
NET TALK.COM, INC
Idaho CLEC Application
17.
NET TALK COM, INC.
Offcers and Directors
NET TALK.COM, INC
Idaho CLEC Application
18.
The following individuals are officers of NET TALK COM, INC. and may be contacted at the Company's
headquarers located at 1100 NW 163rd Drive Ste. 3 North Miami Beach, Florida 33169
Officers:
Anastasios Kyriakides
Kenneth Hosfeld
Bil Rodrguez
Leo Manzewitsch
Nicholas Kyriakides
President
Vice President
Chief Financial Offcer
Chief Technology Offcer
Director of Marketing
Directors:
Anastasios Kyriakides
Kenneth Hosfeld
Bil Rodriguez
Leo Manewitsch
SecretarlDirector
Director
Director
Director
NET TALK.COM, INC
Idaho CLEC Application
19.
NET TALKCOM, INC.
Stockholders
CONFIDENTIAL
eONFIDENTIAL INFORMATION WAS REMOVED FROM THE APPLICATION
NET TALK.COM, INC
Idaho CLEC Application
20.
NET TALK COM, INC.
Proposed Service Area Map
. NET TALK seeks statewide authority to offer its services.
NET TALK.COM, INC
Idaho CLEC Application
21.