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EX-32.1 - SECTION 906 CERTIFICATION - ON4 COMMUNICATIONS INC. | exhibit32-1.htm |
EX-31.1 - SECTION 302 CERTIFICATION - ON4 COMMUNICATIONS INC. | exhibit31-1.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 2011
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission File Number 001-34297
ON4 COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
Delaware | 98-0540536 |
(State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
16413 N. 91 Street, C 100, Scottsdale, AZ | 85260 |
(Address of principal executive offices) | (Zip Code) |
480-619-5510
(Registrants telephone number,
including area code)
N/A
(Former name, former address and former
fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[X]
YES [ ] NO
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T (§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such
files).
[ ]
YES [ ] NO
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] |
Accelerated filer [ ] |
Non-accelerated filer [ ] (Do not check if a smaller reporting company) |
Smaller reporting company [X] |
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act
[ ]
YES [X] NO
APPLICABLE ONLY TO ISSUERS INVOLVED IN
BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant has filed all documents and reports
required to be filed by Sections 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a
court.
[ ]
YES [ ] NO
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date. 66,602,490 common shares issued and outstanding as of September 16, 2011.
Table of Contents
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
The unaudited interim financial statements of On4 Communications, Inc. follow. These statements are presented in U.S. dollars and are prepared in accordance with generally accepted accounting principles in the United States.
3
ON4 COMMUNICATIONS INC.
Financial Statements
Nine Months Ended July 31, 2011
(Expressed in US dollars)
On4 Communications Inc.
(A Development Stage Company)
Balance Sheets
(Expressed in US Dollars)
July 31, | October 31, | |||||
2011 | 2010 | |||||
$ | $ | |||||
(unaudited) | ||||||
ASSETS | ||||||
Current Assets | ||||||
Cash | 613 | 7,558 | ||||
Total Current Assets | 613 | 7,558 | ||||
Investment (Note 4) | 1 | | ||||
Property and equipment (Note 5) | 1,368 | 3,594 | ||||
Total Assets | 1,982 | 11,152 | ||||
LIABILITIES AND STOCKHOLDERS DEFICIT | ||||||
Current Liabilities | ||||||
Accounts payable | 601,408 | 625,086 | ||||
Accrued interest payable | 201,638 | 138,514 | ||||
Due to related parties (Note 6) | 379,594 | 327,049 | ||||
Notes payable (Note 7) | 468,690 | 467,018 | ||||
Total Liabilities | 1,651,330 | 1,557,667 | ||||
Nature of Operations and Continuance of Business (Note 1) | ||||||
Commitments (Note 10) | ||||||
Stockholders Deficit | ||||||
Preferred stock: 10,000,000 shares authorized, non-voting, no par value; No shares issued and outstanding | | | ||||
Common stock: 100,000,000 shares authorized, $0.0001 par value; 66,602,490 shares issued and outstanding | 6,660 | 6,660 | ||||
Additional paid-in capital | 11,866,935 | 11,870,626 | ||||
Common stock issuable | 70,000 | 70,000 | ||||
Deficit accumulated during the development stage | (13,592,943 | ) | (13,493,801 | ) | ||
Total Stockholders Deficit | (1,649,348 | ) | (1,546,515 | ) | ||
Total Liabilities and Stockholders Deficit | 1,982 | 11,152 |
(The accompanying notes are an integral part of these consolidated financial statements)
F-1
On4 Communications Inc.
(A Development Stage Company)
Statements of Operations
(Expressed in US Dollars)
(unaudited)
For The | For The | For The | For The | Accumulated From | |||||||||||
Three Months | Three Months | Nine Months | Nine Months | June 5, 2006 | |||||||||||
Ended | Ended | Ended | Ended | (Date of Inception) | |||||||||||
July 31, | July 31, | July 31, | July 31, | to July 31 | |||||||||||
2011 | 2010 | 2011 | 2010 | 2011 | |||||||||||
$ | $ | $ | $ | $ | |||||||||||
Revenue | | | | | | ||||||||||
Costs of Sales | | | | | | ||||||||||
Gross margin | | | | | | ||||||||||
Operating Expenses | |||||||||||||||
Advertising and marketing | | | | 5,648 | 182,182 | ||||||||||
Amortization of intangible assets | | 1,739 | | 5,216 | 17,989 | ||||||||||
Amortization of property and equipment | 242 | (546 | ) | 725 | 3,374 | 34,007 | |||||||||
Consulting fees | | (5 | ) | (2,191 | ) | 323,034 | 2,136,862 | ||||||||
Foreign exchange loss | (666 | ) | (1,410 | ) | 15,395 | 26,134 | 265,000 | ||||||||
General and administrative | 7,288 | 32,653 | 22,789 | 101,014 | 1,078,042 | ||||||||||
Impairment of goodwill | | | | | 3,274,110 | ||||||||||
Impairment of intangible assets | | | | | 2,219,724 | ||||||||||
Management fees (Note 6(b)) | | 45,000 | | 135,000 | 1,162,596 | ||||||||||
Payroll | | | | | 3,566 | ||||||||||
Professional fees | 15,366 | 51,011 | 53,864 | 209,313 | 666,212 | ||||||||||
Research and development | | 1,749 | | 7,432 | 318,360 | ||||||||||
Total Operating Expenses | 22,230 | 130,191 | 90,582 | 816,165 | 11,358,650 | ||||||||||
Operating Loss | (22,230 | ) | (130,191 | ) | (90,582 | ) | (816,165 | ) | (11,358,650 | ) | |||||
Other Income (Expense) | |||||||||||||||
Gain on settlement of debt | 1,985 | 469,506 | 1,985 | 425,595 | 648,979 | ||||||||||
Interest and other income | | | | | 181,682 | ||||||||||
Interest expense | (35,626 | ) | (12,987 | ) | (79,294 | ) | (142,812 | ) | (661,518 | ) | |||||
Write-off of note receivable | | | | | (1,114,182 | ) | |||||||||
Total Other Income (Expense) | (33,641 | ) | 456,519 | (77,309 | ) | 282,783 | (945,039 | ) | |||||||
Gain (Loss) from Continuing Operations | (55,871 | ) | 326,328 | (167,891 | ) | (533,385 | ) | (12,303,689 | ) | ||||||
Discontinued Operations (Note 3) | |||||||||||||||
Gain (loss) from discontinued operations | | 42,048 | (8,085 | ) | (52,385 | ) | (1,282,616 | ) | |||||||
Gain on disposal of discontinued operations | | | 76,834 | | 76,834 | ||||||||||
Gain (Loss) on Discontinued Operations | | 42,048 | 68,749 | (52,385 | ) | (1,205,782 | ) | ||||||||
Net Income (Loss) | (55,871 | ) | 368,376 | (99,142 | ) | (585,767 | ) | (13,509,471 | ) | ||||||
Net Income (Loss) Per Share Basic and Diluted | |||||||||||||||
Continuing operations | | 0.01 | | (0.01 | ) | ||||||||||
Discontinued operations | | | | | |||||||||||
Weighted Average Shares Outstanding | 66,602,000 | 62,045,000 | 66,602,000 | 71,722,000 |
(The accompanying notes are an integral part of these consolidated financial statements)
F-2
On4 Communications Inc.
(A Development Stage Company)
Statements of Cash Flows
(Expressed in US Dollars)
(unaudited)
Accumulated From | |||||||||
June 5, 2006 | |||||||||
For The Nine Months | For The Nine Months | (Date of Inception) | |||||||
Ended July 31, | Ended July 31, | to July 31, | |||||||
2011 | 2010 | 2011 | |||||||
$ | $ | $ | |||||||
Operating Activities | |||||||||
Net loss from continuing operations | (167,891 | ) | (585,767 | ) | (12,303,689 | ) | |||
Adjustments to reconcile net loss to net cash used in operating activities: | |||||||||
Accretion of discount on convertible debt | | 76,782 | 75,000 | ||||||
Amortization of property and equipment | 725 | 3,374 | 34,007 | ||||||
Amortization of intangible assets | | 5,216 | 17,989 | ||||||
Gain on settlement of debt | (1,985 | ) | (430,037 | ) | (652,301 | ) | |||
Impairment of goodwill | | | 3,274,109 | ||||||
Impairment of intangible assets | | | 2,219,724 | ||||||
Issuance of notes payable for services and penalties | | | 90,402 | ||||||
Issuance of shares for services | | | 528,000 | ||||||
Stock-based compensation | (3,691 | ) | 319,534 | 1,136,981 | |||||
Write-off of notes receivable | | | 1,114,182 | ||||||
Changes in operating assets and liabilities: | |||||||||
Accounts receivable | | 64,737 | (5,431 | ) | |||||
Prepaid expenses and deposits | | (6,346 | ) | (10,678 | ) | ||||
Accounts payable and accrued liabilities | 33,556 | 128,562 | 808,222 | ||||||
Accrued interest payable | 63,124 | 189,966 | 420,909 | ||||||
Deferred revenue | | (58,264 | ) | | |||||
Due to related parties | 54,217 | 159,308 | 576,853 | ||||||
Net Cash Used In Operating Activities | (21,945 | ) | (132,935 | ) | (2,675,721 | ) | |||
Investing Activities | |||||||||
Acquisition of intangible assets | | | (182,687 | ) | |||||
Cash acquired in reverse merger | | | 1,523 | ||||||
Acquisition of property and equipment | | (2,897 | ) | (33,562 | ) | ||||
Advances for note receivable | | | (1,114,182 | ) | |||||
Net Cash Used In Investing Activities | | (2,897 | ) | (1,328,908 | ) | ||||
Financing Activities | |||||||||
Proceeds from issuance of common stock | | | 1,821,267 | ||||||
Proceeds from issuance of preferred stock | | | 1,000,000 | ||||||
Proceeds from notes payable | | 75,000 | 727,022 | ||||||
Repayment of notes payable | | | (81,250 | ) | |||||
Proceeds from related parties | | 81,472 | 561,935 | ||||||
Repayments to related parties | | (39,780 | ) | (84,780 | ) | ||||
Cash from disposition of subsidiary | 15,000 | | 15,709 | ||||||
Share issuance costs | | | (8,000 | ) | |||||
Net Cash Provided By Financing Activities | 15,000 | 116,692 | 3,951,903 | ||||||
Effects of Exchange Rate Changes on Cash | | 18,780 | 54,862 | ||||||
Net Cash (Used in) Provided by Discontinued Operations: | |||||||||
Operating Activities | | | (119,701 | ) | |||||
Investing Activities | | | (661,509 | ) | |||||
Financing Activities | | | 779,687 | ||||||
| | (1,523 | ) | ||||||
(Decrease) Increase in Cash | (6,945 | ) | (360 | ) | 613 | ||||
Cash - Beginning of Period | 7,558 | 473 | | ||||||
Cash - End of Period | 613 | 113 | 613 | ||||||
Supplemental Disclosures | |||||||||
Interest paid | | | | ||||||
Income taxes paid | | | |
(The accompanying notes are an integral part of these consolidated financial statements)
F-3
On4 Communications Inc.
(A Development Stage Company)
Notes to the Financial Statements
July 31, 2011
(Expressed in US
dollars)
(unaudited)
1. |
Nature of Operations and Continuance of Business |
Sound Revolution Inc. (the "Company"), was incorporated on June 4, 2001 under the laws of the State of Delaware and on July 2, 2009 changed its name to On4 Communications, Inc. On May 1, 2009, the Company merged with On4 Communications, Inc. (On4), an Arizona corporation incorporated on June 5, 2006. Pursuant to the terms of the merger agreement, the Company acquired all assets and liabilities of On4 by issuing new shares to all former shareholders of On4 on a 1-to-1 basis. The Company issued 27,955,089 common shares to the former shareholders of On4 and the merger was accounted for as a reverse merger using the purchase method of accounting, with the former shareholders of On4 controlling 68% of the issued and outstanding common shares of the Company after the closing of the transaction. Accordingly, On4 was deemed to be the acquirer for accounting purposes and the consolidated financial statements are presented as a continuation of On4 and include the results of operations of On4 since incorporation on June 5, 2006, and the results of operations of the Company since the date of acquisition on May 1, 2009. | |
On4 is in the business of manufacturing two-way communication and location devices with applications that include tracking people, pets, assets, and inventory, among others. The Company had two wholly-owned subsidiaries: (i) Sound Revolution Recordings Inc., which was incorporated in British Columbia, Canada on June 20, 2001, for the purpose of carrying on music marketing services in British Columbia, and (ii) Charity Tunes Inc., which was incorporated in the State of Delaware on June 27, 2005, for the purpose of operating a website for the distribution of songs online. On March 16, 2011, the Company disposed its two wholly owned subsidiaries, Sound Revolution Recordings Inc., and Charity Tunes Inc., in consideration for $15,000 and 6,300 shares of the acquirers common stock. The Company is a Development Stage Company, as defined by Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 915, Development Stage Entities, and has not yet generated significant revenues from their intended business activities. | |
Going Concern | |
These financial statements have been prepared on a going concern basis, which implies that the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The Company has not generated significant revenues since inception and is unlikely to generate significant revenue or earnings in the immediate or foreseeable future. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability of the Company to obtain necessary equity financing to continue operations, and the attainment of profitable operations. As at July 31, 2011, the Company has a working capital deficiency of $1,650,717 and has accumulated losses totaling $13,592,943 since inception. These factors raise substantial doubt regarding the Companys ability to continue as a going concern. These consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern | |
The Company will need additional working capital to continue or to be successful in any future business activities. Therefore, continuation of the Company as a going concern is dependent upon obtaining the additional working capital necessary to accomplish its objective. Management plans to seek debt or equity financing, or a combination of both, to raise the necessary working capital. | |
2. |
Summary of Significant Accounting Principles |
Basis of Presentation and Principles of Consolidation | |
These financial statements are prepared in conformity with accounting principles generally accepted in the United States and are presented in US dollars, unless otherwise noted. The Companys fiscal year end is October 31. | |
Interim Financial Statements | |
The interim financial statements have been prepared by the Company pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the "SEC"). Certain information and footnote disclosure normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such SEC rules and regulations. The interim financial statements should be read together with the audited consolidated financial statements and accompanying notes included in the Company's audited consolidated financial statements for the year ended October 31, 2010. In the opinion of the Company, the unaudited financial statements contained herein contain all adjustments (consisting of a normal recurring nature) necessary to present a fair statement of the results of the interim periods presented. |
F-4
On4 Communications Inc.
(A Development Stage Company)
Notes to the Financial Statements
July 31, 2011
(Expressed in US
dollars)
(unaudited)
2. |
Summary of Significant Accounting Principles (continued) |
Use of Estimates | |
The preparation of financial statements in conformity with US generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to the useful life and recoverability of long-lived assets, recoverability of goodwill and intangible assets, fair value of convertible debt, stock-based compensation, bad debt expenses, and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Companys estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected. | |
Cash and Cash Equivalents | |
The Company considers all highly liquid instruments with maturity dates of three months or less at the time of issuance to be cash equivalents. | |
Property and Equipment | |
Property and equipment, consisting primarily of computer hardware and office equipment, is stated at cost and is amortized using the straight-line method over the estimated lives of the related assets of three and five years, respectively. | |
Intangible Assets | |
Intangible assets consist of patents and trademarks related to the TX200 mobile communication device. Intangible assets acquired are initially recognized and measured at cost and is being amortized straight-line over the estimated useful life of ten years. Impairment tests are conducted annually or more frequently if events or changes in circumstances indicate that the asset may be impaired. The impairment test compares the carrying amount of the intangible asset with its fair value, and an impairment loss is recognized in income for the excess, if any. The amortization methods and estimated useful lives of intangible assets are reviewed annually. | |
Goodwill | |
In accordance with ASC 350, Intangibles Goodwill and Other, goodwill is required to be tested for impairment on an annual basis, or more frequently if certain indicators arise, using the guidance specifically provided. | |
Management reviews goodwill at least annually, and on an interim basis when conditions require, evaluates events or changes in circumstances that may indicate impairment in the carrying amount of such assets. An impairment loss is recognized in the statement of operations in the period that the related asset is deemed to be impaired. | |
Website Development Costs | |
Website development costs consist of costs incurred to develop internet websites to promote, advertise, and earn revenue with respect to the Companys business operations. Costs are capitalized in accordance with ASC 350-50, Web Site Development Costs, and are amortized on a straight-line basis over the estimated useful life of three years commencing when the internet web site has been completed. | |
Impairment of Long-Lived Assets | |
In accordance with ASC 360, Property, Plant, and Equipment, the Company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed significantly before the end of its estimated useful life. Recoverability is assessed based on the carrying amount of the asset and its fair value which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value. |
F-5
On4 Communications Inc.
(A Development Stage Company)
Notes to the Financial Statements
July 31, 2011
(Expressed in US
dollars)
(unaudited)
2. |
Summary of Significant Accounting Principles (continued) |
Research and Development Expenses | |
Research and development costs are expensed as incurred. | |
Advertising Costs | |
The Company expenses advertising costs as incurred. For the nine month period ended July 31, 2011, advertising costs were $nil (2010 - $5,648). | |
Investment | |
The Company accounts for the investment described in Note 4 pursuant to ASC 320, Debt and Equity Securities. As the fair value of the investment is nominal, not readily determinable, and the estimation of fair value is not practicable, the Company has recorded the fair value at $1. | |
Earnings Per Share | |
The Company computes net loss per share in accordance with ASC 260, Earnings per Share, which requires presentation of both basic and diluted earnings per share (EPS) on the face of the consolidated statements of operations. Basic EPS is computed by dividing net loss available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. | |
Foreign Currency Translation | |
The Companys functional currency and its reporting currency is the United States dollar and foreign currency transactions are primarily undertaken in Canadian dollars. Monetary balance sheet items expressed in foreign currencies are translated into US dollars at the exchange rates in effect at the balance sheet date. Non-monetary assets and liabilities are translated at historical rates. Revenues and expenses are translated at average rates for the period, except for amortization, which is translated on the same basis as the related asset. Gains and losses arising on translation or settlement of foreign currency denominated transactions or balances are included in the determination of income. | |
Comprehensive Income/Loss | |
ASC 220, Comprehensive Income, establishes standards for the reporting and display of comprehensive loss and its components in the consolidated financial statements. As at July 31, 2011 and 2010, the Company had no items representing comprehensive income/loss. | |
Stock-based Compensation | |
The Company records stock-based compensation in accordance with ASC 718, Compensation Stock Based Compensation and ASC 505-50 - Equity-Based Payments to Non-Employees. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. |
F-6
On4 Communications Inc.
(A Development Stage Company)
Notes to the Financial Statements
July 31, 2011
(Expressed in US
dollars)
(unaudited)
2. |
Summary of Significant Accounting Principles (continued) |
Financial Instruments and Fair Value Measures | |
ASC 820, Fair Value Measurements, requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instruments categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value: | |
Level 1 | |
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities. | |
Level 2 | |
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model- derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data. | |
Level 3 | |
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities. | |
The Companys financial instruments consist primarily of cash, investment securities, accounts payable, accrued interest payable, amounts due to related parties, and notes payable. Pursuant to ASC 820, the fair value of our cash is determined based on Level 1 inputs, which consist of quoted prices in active markets for identical assets. We believe that the recorded values of all of our other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations. | |
Recent Accounting Pronouncements | |
In January 2010, the FASB issued an amendment to ASC 505, Equity, where entities that declare dividends to shareholders that may be paid in cash or shares at the election of the shareholders are considered to be a share issuance that is reflected prospectively in EPS, and is not accounted for as a stock dividend. This standard is effective for interim and annual periods ending on or after December 15, 2009 and is to be applied on a retrospective basis. The adoption of this standard did not have a significant impact on the Companys consolidated financial statements. | |
In January 2010, the FASB issued an amendment to ASC 820, Fair Value Measurements and Disclosure, to require reporting entities to separately disclose the amounts and business rationale for significant transfers in and out of Level 1 and Level 2 fair value measurements and separately present information regarding purchase, sale, issuance, and settlement of Level 3 fair value measures on a gross basis. This standard, for which the Company is currently assessing the impact, is effective for interim and annual reporting periods beginning after December 15, 2009 with the exception of disclosures regarding the purchase, sale, issuance, and settlement of Level 3 fair value measures which are effective for fiscal years beginning after December 15, 2010. The adoption of this standard did not have a significant impact on the Companys consolidated financial statements. | |
The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its consolidated financial statements. |
F-7
On4 Communications Inc.
(A Development Stage Company)
Notes to the Financial Statements
July 31, 2011
(Expressed in US
dollars)
(unaudited)
3. |
Discontinued Operations |
On April 30, 2010, a company controlled by the former President of the Company acquired certain assets including Pets911.com from the Company's wholly owned subsidiary, PetsMobility, in consideration for the return and cancellation of 2,000,000 shares of the Company's common stock. As at April 30, 2010, the date of disposition, the assets disposed of had a carrying value of $nil. On October 29, 2010, the agreement was amended to include the Companys interest in PetsMobility. | |
As a result of the Companys disposal of PetsMobility, all operations related to the former subsidiary have been classified as discontinued operations. Cash flows from discontinued operations were not material and were combined with cash flows from continuing operations within the consolidated statement of cash flows categories | |
The results of PetsMobilitys discontinued operations are summarized as follows: |
For The | For The | For The | For The | Accumulated from | ||||||||||||
Three Months | Three Months | Nine Months | Nine Months | June 5, 2006 | ||||||||||||
Ended | Ended | Ended | Ended | (Inception) | ||||||||||||
July 31, | July 31, | July 31, | July 31, | To July 31, | ||||||||||||
2011 | 2010 | 2011 | 2010 | 2011 | ||||||||||||
$ | $ | $ | $ | $ | ||||||||||||
Revenue | | | | 6,744 | 6,744 | |||||||||||
Expenses | ||||||||||||||||
Advertising and marketing | | | | | 44,748 | |||||||||||
Amortization of property and equipment | | | | | 9,709 | |||||||||||
Consulting fees | | | | | 262,523 | |||||||||||
Foreign exchange loss | | | | | 27 | |||||||||||
General and administrative | | | | 5,311 | 45,505 | |||||||||||
Impairment of intangible assets | | | | | 651,800 | |||||||||||
Management fees | | | | | 51,000 | |||||||||||
Professional fees | | | | | 28,802 | |||||||||||
Payroll | | | | 16,838 | 16,838 | |||||||||||
Research and development | | | | | 79,354 | |||||||||||
Total Expenses | | | | 22,149 | 1,190,306 | |||||||||||
Operating Income (Loss) | | | | (15,405 | ) | (1,183,562 | ) | |||||||||
Other Income (Expenses) | ||||||||||||||||
Loss on settlement of debt | | | | | (1,120 | ) | ||||||||||
Interest and other income | | | | | 3,166 | |||||||||||
Net Income (Loss) from Discontinued | ||||||||||||||||
Operations | | | | (15,405 | ) | (1,181,516 | ) |
On March 16, 2011, the Company disposed of its wholly owned subsidiaries, Sound Revolution Recordings Inc., and Charity Tunes Inc., in consideration for $15,000 and 6,300 shares of the acquirers common stock.
As a result of the Companys disposal of Sound Revolution Recordings Inc., and Charity Tunes Inc., all operations related to the former subsidiaries have been classified as discontinued operations.
F-8
On4 Communications Inc.
(A Development Stage Company)
Notes to the Financial Statements
July 31, 2011
(Expressed in US
dollars)
(unaudited)
3. |
Discontinued Operations |
The results of Sound Revolution Recordings Inc., and Charity Tunes Inc., discontinued operations are summarized as follows: |
For The | For The | For The | For The | Accumulated from | ||||||||||||
Three Months | Three Months | Nine Months | Nine Months | June 5, 2006 | ||||||||||||
Ended | Ended | Ended | Ended | (Inception) | ||||||||||||
July 31, | July 31, | July 31, | July 31, | To July 31, | ||||||||||||
2011 | 2010 | 2011 | 2010 | 2011 | ||||||||||||
$ | $ | $ | $ | $ | ||||||||||||
Revenue | | 47,617 | | 172,091 | 222,866 | |||||||||||
Cost of sales | | 6,241 | | 65,460 | 97,230 | |||||||||||
Gross margin | | 41,376 | | 106,631 | 125,636 | |||||||||||
Expenses | ||||||||||||||||
Advertising and marketing | | | | | 9,298 | |||||||||||
Amortization of property and equipment | | 747 | 1,121 | 2,264 | 4,162 | |||||||||||
Consulting fees | | | 5,534 | 20,042 | 15,218 | |||||||||||
Foreign exchange loss | | (1,575 | ) | 1,430 | 5,660 | 6,025 | ||||||||||
General and administrative | | 156 | | 1,104 | 12,961 | |||||||||||
Professional fees | | | | (2,799 | ) | 35,783 | ||||||||||
Payroll | | | | | 25,950 | |||||||||||
Total Expenses | | (672 | ) | 8,085 | 26,271 | 109,397 | ||||||||||
Operating Income (Loss) | | 42,048 | (8,085 | ) | 80,360 | 16,239 | ||||||||||
Other Income (Expenses) | ||||||||||||||||
Gain on settlement of debt | | | | 4,442 | 4,442 | |||||||||||
Interest expense | | | | (121,782 | ) | (121,782 | ) | |||||||||
Net Income (Loss) from Discontinued | ||||||||||||||||
Operations | | 42,048 | (8,085 | ) | (36,980 | ) | (101,101 | ) |
4. |
Investment |
On March 16, 2011, the Company acquired 6,300 common shares of a private company in conjunction with the disposal of two of its subsidiaries. The investment represents less than 1% of the outstanding shares of the private company. The investment is recorded at a nominal amount of $1 as the value of the shares is nominal, there are no quoted market prices for this investment and a reasonable estimate of the fair value was not practicable. | |
5. |
Property and Equipment |
July 31, | October 31, | ||||||||||||
2011 | 2010 | ||||||||||||
Accumulated | Net Carrying | Net Carrying | |||||||||||
Cost | Amortization | Value | Value | ||||||||||
$ | $ | $ | $ | ||||||||||
Computer equipment | | | | 1,502 | |||||||||
Office equipment | 26,037 | 24,669 | 1,368 | 2,092 | |||||||||
26,037 | 24,669 | 1,368 | 3,594 |
F-9
On4 Communications Inc.
(A Development Stage Company)
Notes to the Financial Statements
July 31, 2011
(Expressed in US
dollars)
(unaudited)
6. |
Related Party Transactions | |
a) |
As at July 31, 2011, the Company owed $379,594 (October 31, 2010 - $327,049) to management and directors for advance of operating funds and services provided on behalf of the Company. The amounts owing are unsecured, non-interest bearing, and due on demand. | |
b) |
During the nine month period ended July 31, 2011, the Company incurred $nil (2010 - $135,000) of management fees to the former President of the Company. | |
7. |
Notes Payable |
July 31, | October 31, | ||||||
2011 | 2010 | ||||||
$ | $ | ||||||
Bling Capital Corp., unsecured, and due on demand. | 26,210 | 24,538 | |||||
Scottsdale Investment Corporation, unsecured, due interest at 12% per annum, and due on demand. | 319,980 | 319,980 | |||||
Ed Aaronson, unsecured, due interest at 10% per annum, and due on demand. | 115,000 | 115,000 | |||||
Troy Rice, unsecured, due interest at 10% per annum, and due on demand. | 7,500 | 7,500 | |||||
468,690 | 467,018 |
8. |
Share Purchase Warrants |
As at July 31, 2011 and October 31, 2010, the following share purchase warrants were outstanding: |
Number of Warrants | Exercise Price | Expiry Date | ||
1,300,000 | $0.50 | July 23, 2012 | ||
78,000 | $0.50 | February 28, 2013 | ||
78,000 | $0.50 | February 28, 2013 | ||
1,456,000 |
9. |
Stock Options |
On March 3, 2010, the Company granted a consultant options to purchase 2,000,000 shares of common stock at $0.15 per share for five years. Pursuant to the option agreement, 1,500,000 options vested immediately, 250,000 options vested on June 1, 2010 and the remaining 250,000 options vested on December 1, 2010. The fair value of the options was estimated at the date of grant using the Black-Scholes option pricing model using the following weighted average assumptions: risk-free interest rate of 2.27%, expected volatility of 161%, an expected option life of 5 years and no expected dividends. The fair value of options granted was $0.19 per option. During the nine month period ending July 31, 2011, stock-based compensation expense was reduced by $3,691. | |
The following table summarizes stock option plan activities: |
Weighted | Weighted | ||||
Average | Average | Aggregate | |||
Exercise | Remaining | Intrinsic | |||
Number of | Price | Contractual Life | Value | ||
Options | $ | (years) | $ | ||
Outstanding, October 31, 2009 | 625,000 | 0.78 | |||
Granted | 2,000,000 | 0.15 | |||
Outstanding, October 31, 2010 and July 31, 2011 | 2,625,000 | 0.30 | 4.22 | |
F-10
On4 Communications Inc.
(A Development Stage Company)
Notes to the Financial Statements
July 31, 2011
(Expressed in US
dollars)
(unaudited)
9. |
Stock Options (continued) |
A summary of the status of the Companys non-vested shares as of July 31, 2011, and changes during the nine month period ended July 31, 2011 is presented below: |
Weighted Average | |||
Grant Date | |||
Number of | Fair Value | ||
Options | $ | ||
Non-vested, October 31, 2010 | 250,000 | 0.19 | |
Vested | (250,000) | 0.19 | |
Non-vested, July 31, 2011 | | |
Additional information regarding stock options as of July 31, 2011, is as follows:
Exercise | ||||
Number of | Price | |||
Options | $ | Expiry Date | ||
275,000 | 0.50 | July 23, 2017 | ||
350,000 | 1.00 | December 18, 2017 | ||
2,000,000 | 0.15 | March 3, 2015 | ||
2,625,000 |
At July 31, 2011, the Company had no unvested options or unrecognized compensation expense. | ||
10. |
Commitments | |
a) |
On February 23, 2010, the Company entered into a trademark license agreement (the Agreement) Pursuant to the Agreement, the Company was granted an exclusive license to use certain trademarks and trade names on the Companys hardware, software and services that provide tracking and location monitoring for people, animals and property of any other nature, but excluding firearms and related accessories, as well as existing licensed products and services of the Company, including but not limited to GPS, E911, A-GPS, radio frequency, beacon technology. Other applications that are covered under the Trademark License Agreement also include offenders monitoring, elderly, medical, teens and children tracking, public safety officers, executives, cars, tracks, motorcycles, aircrafts, boats, personal watercrafts, ATVs, equipment, cargo, tools, trailers, electronic equipment, retail goods, and consumer goods in transit. The licensed territory includes the United States, Canada and Mexico. The Agreement expires on February 1, 2015. | |
The Company must pay a royalty of net sales and incurred a non-refundable advance against royalties of $5,000. The Company must pay guaranteed royalties with 25% of each royalty for the year due at the end of each calendar quarter. Further, the Company has agreed to spend an amount equal to at least 2% of all net sales of the licensed products during each contract year for promotional activities. | ||
b) |
On May 7, 2010, the Company entered into an agreement with a consultant who will provide consulting services for a period of 12 months in consideration for 2,000,000 shares of the Companys common stock and 1.5% of the commitment amount of any senior, asset based indebtedness and 6% of the face amount of any non-asset based indebtedness as part of a transaction arranged by the consultant. |
F-11
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This quarterly report contains forward-looking statements that involve risks and uncertainties. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may", "should", "expect", "plan", "anticipate", "believe", "estimate", "predict", "potential" or "continue" or the negative of these terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially.
While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested in this report. Except as required by applicable laws, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
Our unaudited financial statements are stated in U.S. dollars and are prepared in accordance with generally accepted accounting principles in the United States. The following discussion should be read in conjunction with our financial statements and the related notes that appear elsewhere in this quarterly report.
In this quarterly report, unless otherwise specified, all dollar amounts are expressed in United States dollars. All references to "common shares" refer to the common shares in our capital stock.
As used in this quarterly report and unless otherwise indicated, the terms "we", "us", "our" and "our company" mean On4 Communications Inc., a Delaware corporation, unless otherwise indicated.
Business Overview
We were incorporated as a Delaware company on June 4, 2001 under the name Sound Revolution Inc. On July 2, 2009 we changed our name to On4 Communications, Inc. Our fiscal year end is October 31. Our address is 16413 N. 91 Street, C 100, Scottsdale, AZ 85260. Our telephone number is (480) 619-5510.
On March 12, 2009, we entered into a merger agreement with On4 Communications, Inc., a private Arizona company incorporated on June 5, 2006 (On4). We subsequently amended this agreement on April 7, 2009, and on May 1, 2009 we completed the merger with On4, with us as the surviving entity. Upon the completion of the merger, we had three wholly-owned subsidiaries: (i) Charity Tunes Inc., a Delaware company incorporated on June 27, 2005 for the purpose of operating a website for the distribution of music online; (ii) Sound Revolution Recordings Inc., a British Columbia, Canada company incorporated on June 20, 2001 for the purpose of carrying on music marketing services in British Columbia; and (iii) PetsMobility Inc., a Delaware company incorporated on March 23, 2006 for the purpose of operating the website www.petsmo.com and related business.
On April 29, 2010 we sold our interest in PetsMobility, excluding certain specific assets, to On4 Communications Inc., a private Canadian company and our shareholder (On4 Canada) pursuant to an asset purchase agreement in exchange for On4 Canada returning 2,000,000 shares of our common stock to our treasury for cancellation. On October 29, 2010 we amended the asset purchase agreement to clarify certain terms of the purchase and sale.
On March 16, 2011 we sold our interest in Charity Tunes and Sound Revolution to Empire Success, LLC, a private Nevada limited liability company, in exchange for $15,000 and 6,300 shares of Empires common stock. As a result, we currently have no subsidiaries.
4
We are a development stage company, providing wireless communications services to telecommunication companies, consumers and businesses. Our platform comprises global positioning system (GPS) device management, location-based services (LBS) capabilities, and the broadcasting of proprietary and non-proprietary content. LBS is a term used to describe the delivery of information and entertainment content to consumers with mobile devices based on the geographical position of the mobile device. We intend to deliver LBS via two-way communication tracking devices with applications that are able to track people, pets, assets and inventory. Our solution platform integrates various location-aware devises, such as GPS receivers, and transmits data to a range of devices, including Web browsers, instant messengers, short message service/mail, and mobile phones.
Results of Operations
Our results of operations are presented below:
Accumulated | |||||
from | |||||
Three | Three | Nine | Nine | June 5, 2006 | |
Months | Months | Months | Months | (Date of | |
Ended | Ended | Ended | Ended | Inception) to | |
July 31, | July 31, | July 31, | July 31, | July 31, | |
2011 | 2010 | 2011 | 2010 | 2011 | |
(unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | |
($) | ($) | ($) | ($) | ($) | |
Revenue | Nil | Nil | Nil | Nil | Nil |
Total Expenses | 22,230 | 130,191 | 90,582 | 816,165 | 11,358,650 |
Net Income (Loss) | (55,871) | 368,376 | (99,142) | (585,767 ) | (13,509,471) |
Three Months Ended July 31, 2011 and July 31, 2010, and the Period from June 5, 2006 (Date of Inception) to July 31, 2011
From our inception on June 5, 2006 to July 31, 2011, we did not generate any revenue.
Our total expenses during the three months ended July 31, 2011 were $22,230, compared to total expenses of $130,191 during the same period in fiscal 2010. Our total expenses from our inception on June 5, 2006 to April 30, 2011 were $11,358,650.
Our total expenses during the three months ended June 31, 2011 consisted of $242 in amortization of property and equipment, $7,288 in general and administrative expenses and $15,366 in professional fees, offset by the recovery of $666 in foreign exchange loss. During this period we also incurred $33,641 in other expenses, the majority of which were in the form of interest expenses.
Our total expenses during the three months ended July 31, 2010 consisted of $1,739 in amortization of intangible assets, $32,653 in general and administrative expenses, $45,000 in management fees, $51,011 in professional fees and $1,749 in research and development expenses offset by the recovery of $546 in amortization of property and equipment, $5 in consulting fees and $1,410 in foreign exchange loss. During this period we also incurred $456,519 in other expenses, including $12,987 in interest expenses offset by the recovery of $469,506 from the settlement of debt.
Our total expenses from our inception on June 5, 2006 to July 31, 2011 consisted of $182,182 in advertising and marketing expenses, $17,989 in amortization of intangible assets, $34,007 in amortization of property and equipment, $2,136,862 in consulting fees, $265,000 in foreign exchange loss, $1,078,042 in general and administrative expenses, $3,274,110 in impairment of goodwill, $2,219,724 in impairment of intangible assets, $1,162,596 in management fees, $3,566 in payroll expenses, $666,212 in professional fees and $318,360 in research and development expenses.
5
Our general and administrative expenses consisted of travel, meals and entertainment, office maintenance, communication expenses (cellular, internet, fax and telephone), office supplies and courier and postage costs. Our professional fees consisted of legal, accounting and auditing fees.
The decrease in our operating expenses during the three months ended July 31, 2011 was primarily due to decreases in amortization of intangible assets, general and administrative expenses, management fees, professional fees and research and development.
During the three months ended July 31, 2011 we incurred a $22,230 operating loss, and a net loss of $55,871. During the same period in fiscal 2010 we incurred a net income of $368,376. We did not experience any net loss per share during the three months ended July 31, 2011 and we experienced a net income per share from continuing operations of $0.01 during the same period in our prior fiscal year. From our inception on June 5, 2006 to July 31, 2011 we incurred a $12,303,689 loss from continuing operations, incurred a $1,205,782 loss from discontinued operations and incurred a net loss $13,509,471.
Nine Months Ended July 31, 2011 and July 31, 2010
Our total expenses during the nine months ended July 31, 2011 were $90,582, compared to total expenses of $816,165 during the same period in fiscal 2010.
Our total expenses during the nine months ended July 31, 2011 consisted of $725 in amortization of property and equipment, $15,395 in foreign exchange loss, $22,789 in general and administrative expenses and $53,864 in professional fees, as offset by the recovery of $2,191 in consulting fees. During this period we also incurred $77,309 in other expenses, all of which was in the form of interest expenses offset by the recovery of $1,985 gain on settlement of debt.
Our total expenses during the nine months ended July 31, 2010 consisted of $5,648 in advertising and marketing expenses, $5,216 in amortization of intangible assets, $3,374 in amortization of property and equipment, $323,034 in consulting fees, $26,134 in foreign exchange loss, $101,014 in general and administrative expenses, $135,000 in management fees, $209,313 in professional fees and $7,432 in research and development expenses. During this period, we recorded $425,595 in gain on settlement of debt, offset by $142,812 in interest expenses.
The decrease in our operating expenses during the nine months ended July 31, 2011 was primarily due to a decrease in amortization of intangible assets, amortization of property and equipment, foreign exchange loss, general and administrative expenses, management fees, professional fees and research and development.
During the nine months ended July 31, 2011 we incurred a $167,891 loss from continuing operations, received a gain of $68,749 from discontinued operations and incurred a net loss of $99,142. During the same period in fiscal 2010 we incurred a net loss of $585,767. We did not experience any net loss per share during the nine months ended July 31, 2011, whereas we experienced a net loss per share from continuing operations of $0.01 during the same period in our prior fiscal year.
6
Liquidity and Capital Resources
Working Capital
At | At | Change between | |
July 31, | October 31, | October 31, 2010 | |
2011 | 2010 | and July 31 , 2011 | |
($) | ($) | ($) | |
Current Assets | 613 | 7,558 | (6,945) |
Current Liabilities | 1,651,330 | 1,557,667 | 93,663 |
Working Capital/(Deficit) | (1,650,717) | (1,550,109) | (100,608) |
Cash Flows
Period from | |||
Nine Months | Nine Months | Inception (June 5, | |
Ended | Ended | 2006) to | |
July 31, 2011 | July 31, 2010 | July 31, 2011 | |
($) | ($) | ($) | |
Net Cash used in Operating Activities | (21,945) | (132,935) | (2,675,721) |
Net Cash provided by/(used in) Investing Activities | Nil | (2,897) | (1,328,908) |
Net Cash provided by Financing Activities | 15,000 | 116,592 | 3,951,903 |
Net Increase (Decrease) in Cash During Period | (6,945) | (360) | 613 |
As of July 31, 2011 we had $613 in cash, $1,982 in total assets, $1,651,330 in total liabilities and a working capital deficit of $1,650,717. As of July 31, 2011 we had an accumulated deficit of $13,592,943.
During the nine months ended July 31, 2011 we spent $21,945 on operating activities, compared to spending of $132,935 on operating activities during the same period in fiscal 2010. The decrease in our expenditures on operating activities during the nine months ended July 31, 2011 was due to decreased operating activity due to insufficient cash flows. Notably, our accrued interest payable and accounts receivable decreased from $189,966 and $64,737 during the nine months ended July 31, 2010, to $63,124 and $Nil during the current period, respectively, while our accounts payable and accrued liabilities similarly decreased from $126,298 to $33,557. From our inception on June 5, 2006 to July 31, 2011 we spent $2,675,721 on operating activities.
During the nine months ended July 31, 2011 we did not spend any money on investing activities, whereas we spent $2,897 on investing activities during the same period in fiscal 2010. From our inception on June 5, 2006 to July 31, 2011 we spent $1,328,908 on investing activities, the bulk of which was in the form of advances for notes receivable of $1,114,182 and the acquisition of intangible assets of $182,687.
During the nine months ended July 31, 2011 we received $15,000 from financing activities, all of which was in the form of proceeds from the disposition of our former subsidiaries, whereas we received $116,692 from financing activities during the same period in fiscal 2010. The decrease in our receipts from financing activities during the nine months ended July 31, 2011 was primarily due to decreases of $75,000 in proceeds from notes payable and $81,371 in proceeds from related parties, as offset by spending of $39,789 on repayments to related parties. From our inception on June 5, 2006 to July 31, 2011 we received $3,951,903 from financing activities, primarily in the form of proceeds from the issuance of our common stock and preferred stock.
7
For the next 12 months (beginning August 2011), we estimate our planned expenses to be approximately $1,700,000, as summarized in the table below:
Estimated | ||
Potential | Expenses | |
Description | Completion Date | ($) |
General and administrative expenses | 12 months | 250,000 |
Research and development | 12 months | 100,000 |
Sales and marketing | 12 months | 200,000 |
Professional fees | 12 months | 150,000 |
Unallocated working capital | 12 months | 100,000 |
Debt repayment | 12 months | 900,000 |
Total | 1,700,000 |
Based on our planned expenditures, we require additional funds of approximately $1,700,000 to proceed with our business plan over the next 12 months. If we are not able to obtain additional financing on a timely basis, we will be unable to conduct our operations as planned, and we will not be able to meet our obligations as they become due. In such event, we will be forced to scale down or perhaps even cease our operations.
Future Financings
We have not generated significant revenues since inception and are unlikely to generate significant revenues or earnings in the immediate or foreseeable future. We rely upon the sale of our securities and proceeds from related parties to fund our operations. We anticipate that we will incur substantial losses for the foreseeable future, and we are dependent upon obtaining outside financing to carry out our operations.
We will require approximately $1,700,000 over the next 12 months to enable us to proceed with our plan of operations, including paying our ongoing expenses. These cash requirements are in excess of our current cash and working capital resources. Accordingly, we intend to raise funds from private placements, loans or possibly a registered public offering (either self-underwritten or through a broker-dealer). At this time we do not have a commitment from any broker-dealer to provide us with financing, and there is no guarantee that any financing will be available to us or if available, on terms that will be acceptable to us.
If we are unable to obtain the necessary additional financing, then we plan to reduce the amounts that we spend on our operations, our professional fees and our general and administrative expenses so as not to exceed the amount of capital resources that are available to us. If we do not secure additional financing our current cash reserves and working capital will be not be sufficient to enable us to sustain our operations for the next 12 months, even if we do decide to scale them down.
Going Concern
Our financial statements for the nine months ended July 31, 2011 have been prepared on a going concern basis and contain an additional explanatory paragraph in Note 1 which identifies issues that raise substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Off-Balance Sheet Arrangements
We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our stockholders.
8
Inflation
The amounts presented in our financial statements do not provide for the effect of inflation on our operations or financial position. The net operating losses shown would be greater than reported if the effects of inflation were reflected either by charging operations with amounts that represent replacement costs or by using other inflation adjustments.
Employees
We do not currently have any employees, but we engage consultants to provide us with legal, accounting, management, marketing, sales and software development services.
Critical Accounting Policies
Our financial statements are affected by the accounting policies used and the estimates and assumptions made by management during their preparation. A complete summary of these policies is included in Note 2 of the notes to our financial statements for the nine months ended July 31, 2011. We have identified below the accounting policies that are of particular importance in the presentation of our financial position, results of operations and cash flows, and which require the application of significant judgment by management.
Use of Estimates
The preparation of financial statements in conformity with US generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Our company regularly evaluates estimates and assumptions related to the useful life and recoverability of long-lived assets, recoverability of goodwill and intangible assets, fair value of convertible debt, stock-based compensation, bad debt expenses, and deferred income tax asset valuation allowances. Our company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by our company may differ materially and adversely from our companys estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
Foreign Currency Translation
Our companys functional currency and its reporting currency is the United States dollar and foreign currency transactions are primarily undertaken in Canadian dollars. Monetary balance sheet items expressed in foreign currencies are translated into US dollars at the exchange rates in effect at the balance sheet date. Non-monetary assets and liabilities are translated at historical rates. Revenues and expenses are translated at average rates for the period, except for amortization, which is translated on the same basis as the related asset. Gains and losses arising on translation or settlement of foreign currency denominated transactions or balances are included in the determination of income.
Stock-based Compensation
Our company records stock-based compensation in accordance with ASC 718, Compensation Stock Based Compensation and ASC 505-50 - Equity-Based Payments to Non-Employees. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
As a smaller reporting company, we are not required to provide the information required by this Item.
9
Item 4. Controls and Procedures
Disclosure Controls
We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934 (the "Exchange Act"), that are designed to ensure that information we are required to disclose in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (the SEC) and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer (also our principal executive officer, principal financial officer and principal accounting officer), as appropriate to allow timely decisions regarding required disclosure.
As of the end of the period covered by this report, our management, with the participation of our chief executive officer and chief financial officer (also our principal executive officer, principal financial officer and principal accounting officer), carried out an evaluation of the effectiveness of our disclosure controls and procedures. Based on this evaluation, and in light of the material weaknesses in our internal control over financial reporting, our management concluded that our disclosure controls and procedures were not effective to ensure that information we are required to disclose in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information was not accumulated and communicated to management, including our chief executive officer and chief financial officer (also our principal executive officer, principal financial officer and principal accounting officer), to allow timely decisions regarding required disclosure.
Changes in Internal Control
There have been no changes in our internal controls over financial reporting that occurred during the quarter ended July 31, 2011 that have materially or are reasonably likely to materially affect, our internal controls over financial reporting.
PART II OTHER INFORMATION
Item 1. Legal Proceedings
On May 10, 2011 Saks Tierney, P.A., filed a complaint against our company in Maricopa County (Arizona) Superior Court seeking payment of $17,504.47 in unpaid fees for legal services rendered, plus pre and post-judgement interest at the rate of ten percent (10%) per annum; plus the Saks Tierneys reasonable attorneys fees and costs. We did not respond to the complaint and on June 23, 2011, Saks Tierney submitted an Application for entry of Default. We became in default of the complaint on July 8, 2011 and, on September 9, 2011, Saks Tierney entered a motion to take default judgment against us. Further to our ongoing negotiations with Saks Tierney to arrange a settlement of the unpaid legal fees, Saks Tierney filed a Notice of Dismissal to dismiss the complaint on September 15, 2011.
We know of no material, existing or pending legal proceedings against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, executive officers or affiliates, or any registered or beneficial stockholder, is an adverse party or has a material interest adverse to our interest.
Item 2. Unregistered Sales of Equity Securities
None.
10
Item 3. Defaults Upon Senior Securities
None.
Item 4. [Removed and Reserved]
Item 5. Other Information
Item 6. Exhibits
Exhibit | |
No. | Description |
(3) | (i) Articles of Incorporation; (ii) By-laws |
3.1 |
Articles of Incorporation (incorporated by reference to our Registration Statement filed on Form SB-2 on August 20, 2004) |
3.2 |
By-Laws (incorporated by reference to our Registration Statement filed on Form SB-2 on August 20, 2004) |
3.3 |
Certificate of Merger dated May 1, 2009 (incorporated by reference to our Current Report on Form 8-K filed on May 7, 2009) |
3.4 |
Certificate of Amendment dated May 21, 2009 (incorporated by reference to our Current Report on Form 8-K filed on July 28, 2009) |
(10) | Material Contracts |
10.1 |
Merger Agreement between Sound Revolution Inc. and On4 Communications, Inc. dated March 12, 2009 (incorporated by reference to our Current Report on Form 8-K filed on March 16, 2009) |
10.2 |
Merger Agreement Amendment between Sound Revolution Inc. and On4 Communications, Inc. dated March 26, 2009 (incorporated by reference to our Current Report on Form 8-K filed on April 13, 2009) |
10.3 |
Convertible Note between our company and Bacchus Entertainment Ltd. dated April 30, 2009 (incorporated by reference to our Current Report on Form 8-K filed on April 13, 2009) |
10.4 |
Debt Conversion Agreement between our company and Bacchus Entertainment Ltd. dated April 30, 2009 (incorporated by reference to our Current Report on Form 8-K filed on April 13, 2009) |
10.5 |
Loan Agreement between our company and DataTrail Inc. dated October 3, 2007 (incorporated by reference to our Current Report on Form 8-K filed on September 2, 2009) |
10.6 |
Asset Purchase Agreement between our company and On4 Communications, Inc. (Canada) dated April 29, 2010 (incorporated by reference to our Quarterly Report on Form 10-Q filed on June 22, 2010) |
10.7 |
Asset Purchase Agreement between our company, Charity Tunes Inc., Bacchus Filings Inc., Bacchus Entertainment Ltd. and Penny Green dated April 30, 2010 (incorporated by reference to our Quarterly Report on Form 10-Q filed on June 22, 2010) |
10.8 |
Debt Conversion Agreement between our company and Gord Jessop dated April 11, 2010 (incorporated by reference to our Quarterly Report on Form 10-Q filed on June 22, 2010) |
10.9 |
Debt Conversion Agreement between our company and Cameron Robb dated April 12, 2010 (incorporated by reference to our Quarterly Report on Form 10-Q filed on June 22, 2010) |
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Exhibit | |
No. | Description |
10.10 |
Debt Conversion Agreement between our company and On4 Communications, Inc. (Canada) dated April 12, 2010 (incorporated by reference to our Quarterly Report on Form 10-Q filed on June 22, 2010) |
10.11 |
Consulting Agreement between our company and Southwest Capital Partners, LLC dated May 7, 2010 (incorporated by reference to our Current Report on Form 8-K filed on September 2, 2010) |
10.12 |
Acquisition Agreement between our company and Empire Success, LLC dated March 16, 2011 (incorporated by reference to our Quarterly Report on Form 10-Q filed on June 17, 2011) |
(31) |
Rule 13a-14(a)/15d-14(a) Certifications |
(32) |
Section 1350 Certifications |
* Filed herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
On4 Communications, Inc. | ||
Date: September 19, 2011 | By: | /s/ Cameron Robb |
Cameron Robb | ||
Chief Executive Officer, Chief Financial | ||
Officer, Chief Operating Officer, Director | ||
(Principal Executive Officer, Principal Financial | ||
Officer, Principal Accounting Officer) |
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