UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-K

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended October 31, 2013

Commission File No. 001-34297

 

ON4 COMMUNICATIONS, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware	98-0540536
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

 

Suite 1707-1188 West Pender Street,

Vancouver, British Columbia, Canada V6E 0A2

(Address of principal executive offices, zip code)

 

(604) 620-6879

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

None

 

Securities registered pursuant to section 12(g) of the Act:

Common Stock, $.0001 par value

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐  No ☑

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☑

 

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.

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 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting Company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting Company” in Rule 12b-2 of the Exchange Act. (Check one):

 

 

Large Accelerated Filer  ☐	Accelerated Filer  ☐
Non-Accelerated Filer  ☐	Smaller Reporting Company  ☑

 

 

Indicate by check mark whether the registrant is a shell Company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐   No ☑

 

The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant is $1,450,544.11 based upon the price of $0.6757 at which the common stock was last sold as of the last business day of the most recently completed second fiscal quarter, multiplied by the approximate number of shares of common stock held by persons other than executive officers, directors and five percent stockholders of the registrant without conceding that any such person is an “affiliate” of the registrant for purposes of the federal securities laws. Our common stock is traded in the over-the-counter market and quoted on the Over-The-Counter Bulletin Board under the symbol (“ONCI”).

 

As of March 13, 2014, there were 2,146,728 issued and outstanding shares of the Company’s common stock, $0.0001 par value.

 

 

 

ON4 COMMUNICATIONS, INC.

TABLE OF CONTENTS

 

			Page No.
		PART I
Item 1.		Business	2
Item 1A.		Risk Factors	6
Item 1B.		Unresolved Staff Comments	6
Item 2.		Properties	7
Item 3.		Legal Proceedings	7
Item 4.		Mine Safety Disclosures	7
		PART II
Item 5.		Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	7
Item 6.		Selected Financial Data	9
Item 7.		Management’s Discussion and Analysis of Financial Condition and Results of Operations	9
Item 7A.		Quantitative and Qualitative Disclosures About Market Risk	12
Item 8.		Financial Statements and Supplementary Data	13
Item 9.		Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	33
Item 9A.		Controls and Procedures	33
Item 9B.		Other Information	34
		PART III
Item 10.		Directors, Executive Officers and Corporate Governance	34
Item 11.		Executive Compensation	37
Item 12.		Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	39
Item 13.		Certain Relationships and Related Transactions, and Director Independence	40
Item 14.		Principal Accounting Fees and Services	40
		PART IV
Item 15.		Exhibits and Financial Statement Schedules	42
		Signatures

 

FORWARD-LOOKING STATEMENTS

 

This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements are not historical facts but rather are based on current expectations, estimates and projections. We may use words such as “anticipate,” “expect,” “intend,” “plan,” “believe,” “foresee,” “estimate” and variations of these words and similar expressions to identify forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and other factors, some of which are beyond our control, are difficult to predict and could cause actual results to differ materially from those expressed or forecasted. These risks and uncertainties include the following:

 

·

The availability and adequacy of our cash flow to meet our requirements;

·

Economic, competitive, demographic, business and other conditions in our local and regional markets;

·

Changes or developments in laws, regulations or taxes in our industry;

·

Actions taken or omitted to be taken by third parties including our suppliers and competitors, as well as legislative, regulatory, judicial and other governmental authorities;

·

Competition in our industry;

·

The loss of or failure to obtain any license or permit necessary or desirable in the operation of our business;

·

Changes in our business strategy, capital improvements or development plans;

·

The availability of additional capital to support capital improvements and development; and

·

Other risks identified in this report and in our other filings with the Securities and Exchange Commission or the SEC.

 

This report should be read completely and with the understanding that actual future results may be materially different from what we expect. The forward-looking statements included in this report are made as of the date of this report and should be evaluated with consideration of any changes occurring after the date of this Report. We will not update forward-looking statements even though our situation may change in the future and we assume no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

 

Use of Term

 

Except as otherwise indicated by the context, references in this report to the “Company”, “ONCI”, “we”, “us” and “our” are references to On4 Communications, Inc. All references to “USD” or United States Dollars refer to the legal currency of the United States of America.

 

 

 

 

 

PART I

 

ITEM 1.

BUSINESS

 

General 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 address is 1704-1188 West Pender Street, Vancouver, British Columbia, Canada V6E 0A2. Our telephone number is (604) 620-6879. We have not entered into any bankruptcy, receivership or similar proceeding.

 

Our common stock is quoted on the Pink Sheets Quotation system under the symbol “ONCI.PK” and on the Berlin Stock Exchange under the symbol O4C:GR.

 

On June 10, 2008, our company effected a 1 for 42 reverse stock split of the outstanding shares of common stock our company and also increased the number of authorized share capital of our company from 100,000,000 to 110,000,000 shares. 100,000,000 shares out the total authorized capital shall be common stock and 10,000,000 shall be preferred stock. On June 26, 2008, the reverse stock split and the increase in our company’s authorized capital came into effect. As a result of the reverse split, the number of the outstanding shares of common stock of our company was decreased from 10,854,629 shares to 258,444 shares of common stock.

 

On March 13, 2012, we received written consent from the board of directors and the holders of 52.40% of our company’s voting securities to amend the Articles of Incorporation to increase our authorized capital.

 

On April 19, 2012, the Delaware Secretary of State accepted for filing of a Certificate of Amendment, wherein, we amended our Articles of Incorporation to increase the authorized number of shares of our common stock from 100,000,000 to 200,000,000 shares of common stock, par value of $0.0001 per share, effective April 20, 2012. Our preferred stock remained unchanged.

 

On November 1, 2012, our company received written consent from the board of directors and the holders of 78.72% of our company’s voting securities to amend the Articles of Incorporation to increase our authorized capital.

 

On November 30, 2012, the Delaware Secretary of State accepted for filing of a Certificate of Amendment, wherein, our company amended its Articles of Incorporation to increase the authorized number of shares of our common stock from 210,000,000 to 630,000,000 shares, with a par value of $0.0001, which consists of 600,000,000 shares of common stock and 30,000,000 shares of preferred stock.

 

On October 11, 2013, the Financial Industry Regulatory Authority (“FINRA”) approved a reverse stock split (the “Reverse Split”) of the common shares of the Company, whereby every four hundred and fifty (450) old shares of the Company’s common stock shall be exchanged for one (1) new share of the Company’s common stock. As a result, the issued and outstanding shares of common stock of the Company decreased from five hundred ninety nine million, six hundred fifty seven thousand, three hundred and forty six (599,657,346) shares prior to the Reverse Split to one million, three hundred thirty two thousand, five hundred seventy two (1,332,572) shares following the Reverse Split. The Reverse Split became effective on October 15, 2013.

 

Our common stock is quoted on Over-the-Counter Bulletin Board under the symbol “ONCI”.

 

Corporate History

 

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 Empire’s common stock. As a result, we currently have no subsidiaries.

 

On November 3, 2011, we entered into a binding letter of intent (“LOI”) to acquire 100% of the issued and outstanding shares of NetCents Systems Ltd. (“NetCents”), a private Alberta corporation engaged in the development and implementation of a unique and secure electronic payment system for online merchants and consumers. The LOI provides for a period of due diligence which will lead to a formal agreement whereby we will acquire 100% of the issued and outstanding capital of NetCents. Clayton Moore, an officer and director of our Company, and Ryan Madson, an officer of our Company, are shareholders of NetCents and Mr. Moore is the president and director of Net Cents.

 

On November 4, 2011, Clayton Moore was appointed as a director, president and chief executive officer of our Company, Steven Allmen was appointed a director, Ryan Madson was appointed chief operating officer, Tom Locke was appointed as a director, chief financial officer, secretary and treasurer, and John Kaczmarowski was appointed chief technical officer. Effective July 23, 2012, Tom Locke resigned as chief financial officer, secretary, treasurer and as a director of our Company. His resignation was not the result of any disagreements with our Company regarding its operations, policies, practices or otherwise.

 

On December 15, 2011, we entered into a share exchange agreement with NetCents and the selling shareholders of NetCents (“Share Exchange Agreement”). Pursuant to the terms of the Share Exchange Agreement, our Company and NetCents agreed to engage in a share exchange which, if completed, would result in NetCents becoming a wholly owned subsidiary of our Company. The share exchange has not been completed as of the date of this Annual Report and is subject to completion of due diligence by the parties, and to the following material terms and conditions:

 

1.

We will issue 2 shares of our common stock from treasury for every 1 share of NetCents stock issued and outstanding on the date of closing;

 

2.

NetCents will have no more than 16,245,421 shares of its common stock issued and outstanding on the closing date of the Share Exchange Agreement. Additional issuances must be authorized by our company;

 

3.

NetCents will have delivered to our company audited financial statements for its last two fiscal years and any applicable interim period ended no more than 35 days before the closing of the share exchange agreement, prepared in accordance with United States GAAP and audited by an independent auditor registered with the Public Company Accounting Oversight Board in the United States; and

 

4.

NetCents will file all required documentation with the Province of Alberta to effect the share exchange.

 

Also on December 15, 2011, NetCents received the approval for the share exchange agreement and the share exchange transaction from holders of approximately 76% of its voting securities through written resolution in lieu of holding a meeting. However, as reported above, as of the date of this annnual report, the share exchange has yet to be completed.

 

Our Current Business

 

We are a development stage company, and currently focus on 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. However, we anticipate that our business focus will change upon completion of the share exchange with NetCents contemplated by the Share Exchange Agreement.

Our Business Upon Consummation of the Share Exchange

 

Upon the consummation of the acquisition of NetCents contemplated by the Share Exchange Agreement, we anticipate that our business will be that of an enhanced electronic Payment Service Provider (or “PSP”) that offers new, unique features to benefit both merchants and consumers for a better way to buy and sell online. It is anticipated that the Company will be able to provide a seamless, transparent enabling technology adopted by financial institutions to allow their clientele the option of conducting financial transactions on the web in a secure fashion without the use of credit card information. Triggered by a valid email address, the Company will be able to deliver a 100% secure, self-administered and anonymous payment system for the purpose of making safe online purchases and transferring of funds. The Company will be able to enable a simple yet innovative, swift, two-way flow of funds when paying for goods and services over the Internet. The Company will be able to provide the merchant with the means to connect with all consumers whether or not they hold direct access to a credit card. It also allows new entrants under the age of 18 to shop online. This payment option for the consumers and merchants will provide peace-of-mind with no fear of identity theft or credit card fraud.

 

The Company intends to brand and grow its services quickly by developing the NetCents payment system, which will:

·

Provide peace-of-mind with no fear of identity theft and/or credit card fraud

·

Cater to those who wish to protect personal information

·

Offer a way to buy/sell without a credit card due to poor credit ratings and with no risk to the merchant

·

Offer new entrants under the age of 18 a way to shop online even without access to credit cards

·

Open access to online shopping without attached privacy and security concerns

 

How the NetCents System Works

 

 

 Note: Once the registration in Steps 1 through 3 is complete, the NetCents User will begin at Step 4 or 5 for all future transactions.

 

The Market

 

In 2009, there were over 1.7 billion online Internet users worldwide. The growth of the Internet has far exceeded the growth of any other communications medium in the 20^th century. In just under 4 years, the Internet reached penetration rates that took television 13 years to reach and radio over 30 years to reach. For the five-year period from 2009 to 2014, it is estimated that revenues generated by the US online payment market will increase to approximately $248.7 billion, representing a compound annual growth rate of approximately 15%.

 

 

The global payment service market has experienced exponential growth. The development of the global online payment market to date has been led by companies in the United States with the global market estimate for generated revenue at approximately $670 billion for 2009. NetCents is well positioned to capture a portion of this global market via its “Secure Payment Service.”

 

Marketing

 

The Company’s objectives will be:

·

To initiate an advertising and promotion strategy to garner awareness and trust of consumers and merchants

·

To develop an advertising and promotion strategy consistent with the Company’s vision of being a world leader in providing merchants and consumers a better and secure way to buy and sell online

·

To develop marketing materials to be used by the Company in its corporate and public endeavors

 

Associations

 

NetCents has completed integration with the The Royal Bank of Canada. NetCents is currently integrating software with contracted merchants including Swimco, The Alberta Diamond Exchange, Global Storm IT Corporation and the Western Arctic Conservative Association and is also under contract and integrating with the following major charities: the Princess Margaret Hospital Foundation, The Canadian Cancer Society, Mental Health, Canadian National Institute for the Blind, the Sick Kids Foundation, the Heart & Stoke Foundation, Southern Alberta Brain Injuries, The Mustard Seed, Habitat for Humanity and Special Olympics Calgary. Together they account for hundreds of thousands of active customers and donors that would be integrated with the NetCents Payment System for payment and donations.

 

Competition

 

Seventy-four percent of online shoppers who have seen or heard of alternative online payment services report having used methods such as:

 

o

PayPal

o

VISA/MASTERCARD

o

Google Checkout

 

PayPal laid the groundwork by familiarizing many online consumers, primarily eBay buyers and sellers, with alternative payment methods. Other payment providers soon followed.

 

NetCents, by providing an alternative that does not involve credit cards, appeals to both consumers and merchants who are concerned with online identity theft. NetCents is also attractive to new customers who are non-credit cardholders.

 

Competitive Advantages

 

Key Competitive Advantages of the NetCents System include:

 

o

Payment solutions that do not require disclosure of any personal or financial information

o

Fast, efficient and viable method of completing online transactions

o

Access to a new market segment of online shoppers

o

Guaranteed payments to merchants

o

Merchant transaction fees structured to be less than those of traditional credit cards

 

The following chart provides details describing some of the features of NetCents in comparison to its primary competitor.

 

 

Feature	Description		PayPal
Anonymity	Account set-up without disclosure of financial or personal information.	Yes	No
Online Bill Pay	Transfer funds to your account within the secure framework of your chosen financial institution.	Yes	No
Availability	Service available to persons of all ages.	Yes	No
Guaranteed Payment	Funds transfer to merchant without threat of charge back.	Yes	No
Credit Protocol	Service available to consumers without direct access to credit cards.	Yes	No
Rewards Program	Initiative to promote customer loyalty.	Yes	No
Transaction Fee	Fee charged to merchants per online transaction.	1.99%	2.4% - 3.4%
Integration	Time required facilitating integration with merchant account.	1 Hour	1 Day
New Accounts Process	Time required for consumer to open new account.	60 Seconds	Up to 3 Days
Direct Access	PSP has access to consumer credit and bank accounts.	No	Yes
Buy Now Buttons	Enable ecommerce on your merchant websites.	Yes	Yes
Money-Back Guarantee	Money-Back Guarantee to ensure delivery and protect your purchase.	Yes	Yes
Mobile	Transactions over web- enabled mobile phones.	Yes	Yes

 

Alternative payment methods are becoming a preferred choice by many consumers shopping online and will continue to grow over the next five years, steadily increasing to one-third of the online retail transaction volume. Upon consummation of the Share Exchange, the Company will be well positioned to play an integral role in the transitioning that is taking place worldwide.

Intellectual Property

 

The Company does not currently own any intellectual property. All intellectual property associated with the NetCents System is the property of NetCents Systems, Ltd. and shall be owned by the Company upon completion of the Share Exchange.

 

Subsidiaries

 

As at the year ended October 31, 2013, we do not have any subsidiaries. However, upon consummation of the Share Exchange Agreement, as anticipated, NetCents Systems, Inc. shall be a wholly owned subsidiary of the Company.

 

Research and Development Expenditures

 

We have incurred $Nil in research and development expenditures over the last two fiscal years.

 

Employees

 

As of October 31, 2013, our only employees are our directors and officers. We plan to hire additional employees when circumstances warrant.

 

WHERE YOU CAN GET ADDITIONAL INFORMATION

We file annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy our reports or other filings made with the SEC at the SEC’s Public Reference Room, located at 100 F Street, N.E., Washington, DC 20549. You can obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. You can also access these reports and other filings electronically on the SEC’s web site, www.sec.gov.

 

ITEM 1A.

RISK FACTORS

 

As a “smaller reporting company,” as defined in Rule 12b-2 of the Exchange Act, the Company is not required to provide the information called for by this Item.

 

ITEM 1B.

UNRESOLVED STAFF COMMENTS

 

None.

 

ITEM 2.

PROPERTIES

 

Our principal offices are located at Suite 1704 – 1188 West Pender Street, Vancouver, British Columbia, Canada V6E 0A2. Our office space at this location consists of approximately 600 square feet at the cost of $1,100 per month, which is paid by NetCents. We believe that our office space and facilities are sufficient to meet our present needs and do not anticipate any difficulty securing alternative or additional space, as needed, on terms acceptable to us.

 

ITEM 3.

LEGAL PROCEEDINGS

 

There are no current proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our company.

 

 

ITEM 4.

MINE SAFETY DISCLOSURES

 

Not Applicable.

 

PART II

 

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

 

Market Information

 

In the United States, our common shares are quoted on the Over-the-Counter Bulletin Board under the symbol “ONCI.” The following quotations, obtained from OTC Markets, reflect the high and low bids for our common shares based on inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.

 

The high and low bid prices of our common stock for the periods indicated below are as follows:

 

OTC Bulletin Board(1)
Quarter Ended	High	Low
October 31, 2013	$0.4955	$0.0100
July 31, 2013	$0.9009	$0.2703
April 30, 2013	$1.4414	$0.4505
January 31, 2013	$5.1802	$0.6757
October 31, 2012	$20.2703	$1.8018
July 31, 2012	$33.3333	$4.4595
April 30, 2012	$36.0360	$4.9550
January 31, 2012	$33.7838	$1.8018

 

(1) Over-the-counter market quotations reflect inter-dealer prices without retail mark-up, mark-down or commission, and may not represent actual transactions.

 

Our shares are issued in registered form. Holladay Stock Transfer, Inc., 2939 N 67th Place, Scottsdale, AZ 85251, is the registrar and agent for our common and preferred shares.

 

Warrants, Options and Other Rights to Acquire Shares

 

Other than as disclosed below, there are no outstanding warrants or options to purchase our securities.

 

Record Holders

 

As of March 13, 2014, we had a total of 82 active registered shareholders and 2,146,728 shares of common stock issued and outstanding. There are no shares of preferred stock issued and outstanding.

 

Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities

 

During the year ended October 31, 2013, we issued an aggregate of 1,196,779 shares of our common stock related to the conversion of $251,967 of convertible promissory notes plus accrued interest. These securities were issued pursuant to an exemption from registration requirements relying on Regulation Rule 506 of Regulation D of the Securities Act of 1933.

 

Subsequent Issuances:

 

Subsequent to October 31, 2013, the Company issued 681,162 common shares upon the conversion of $3,468 of principal relating to convertible notes payable. These securities were issued pursuant to an exemption from registration requirements relying on Regulation Rule 506 of Regulation D of the Securities Act of 1933.

 

All securities issued to Asher Enterprises, Inc. were issued in reliance on the exemption from registration contained in Rule 506 of Regulation D of the Securities Act of 1933

 

We did not sell any other equity securities which were not registered under the Securities Act during the year ended October 31, 2013 that were not otherwise disclosed on our quarterly reports on Form 10-Q or our current reports on Form 8-K filed during the year ended October 31, 2013.

 

 

Dividends

 

We have not paid any cash dividends on our common stock since inception and presently anticipate that all earnings, if any, will be retained for development of our business and that no dividends on our common stock will be declared in the foreseeable future. Any future dividends will be subject to the discretion of our Board of Directors and will depend upon, among other things, future earnings, operating and financial condition, capital requirements, general business conditions and other pertinent facts. Therefore, there can be no assurance that any dividends on our common stock will be paid in the future.

 

Securities Authorized for Issuance Under Equity Compensation Plans

 

We have no long-term incentive plans, other than the 2006 Non-Qualified Stock Option Plan described below.

 

2006 Non-Qualified Stock Option Plan

 

On September 18, 2006, our directors approved the adoption of our 2006 Non-Qualified Stock Option Plan (amended October 10, 2006) which permits our company to grant up to 1,500,000 options to acquire shares of common stock, to directors, officers, employees and consultants of our company.

 

Equity Compensation Plan Information
Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding options, warrants and rights	Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Equity compensation plans approved by security holders	Nil	Nil	Nil
Equity compensation plans not approved by security holders	1,500,000	Nil	1,500,000
Total	1,500,000	Nil	1,500,000

 

 

ITEM 6.

SELECTED FINANCIAL DATA

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

 

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS

 

FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements are not historical facts but rather are based on current expectations, estimates and projections. We may use words such as “anticipate,” “expect,” “intend,” “plan,” “believe,” “foresee,” “estimate” and variations of these words and similar expressions to identify forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and other factors, some of which are beyond our control, are difficult to predict and could cause actual results to differ materially from those expressed or forecasted. You should read this report completely and with the understanding that actual future results may be materially different from what we expect. The forward-looking statements included in this report are made as of the date of this report and should be evaluated with consideration of any changes occurring after the date of this Report. We will not update forward-looking statements even though our situation may change in the future and we assume no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

 

Results of Operations

 

Years Ended October 31, 2013 and 2012, and the Period from June 5, 2006 (Date of Inception) to October 31, 2013.

 

Our results of operations are presented below:

												Accumulated from
												June 5, 2006
				Year				Year				(Date of
				Ended				Ended				Inception) to
				October 31,				October 31,				October 31,
				2013				2012				2013
				($)				($)				($)
Revenue					Nil				Nil				Nil
Total Operating Expenses					165,886				190,531				11,732,723
Total Other Income (Expenses)					(745,277)				(716,870)				(2,285,933)
Net Loss from continuing operations					(911,163)				(907,401)				(14,018,656)

 

From our inception on June 5, 2006 to October 31, 2013, we did not generate any revenue.

 

Expenses

 

												Accumulated from
												June 5, 2006
				Year				Year				(Date of
				Ended				Ended				Inception) to
				October 31,				October 31,				October 31,
				2013				2012				2013
				($)				($)				($)
Advertising and Marketing					62,000				Nil				244,182
Amortization of intangible assets					Nil				Nil				18,138
Amortization of property and equipment					Nil				241				32,677
Consulting fees					5,232				52,440				2,173,938
Foreign exchange (gain) loss					(4,840)				295				249,962
General and administrative					13,661				23,676				1,127,665
Impairment of goodwill					Nil				Nil				3,274,109
Impairment of assets					Nil				885				2,220,609
Management fees					19,638				44,175				1,226,409
Payroll					Nil				Nil				29,516
Professional fees					70,195				68,819				817,158
Research and development					Nil				Nil				318,360

 

 

 

Our total operating expenses during the year ended October 31, 2013 were $165,886 which consisted of $62,000 in advertising and marketing, $4,840 in foreign exchange gain, $13,661 in general and administrative expenses, $5,232 in consulting fees, $19,638 in management fees and $70,195 in professional fees. During this period, we also incurred $263,786 in accretion of discounts on convertible notes payable, $9,599 in amortization of deferred financing costs, $173,399 in interest expenses and $298,493 in loss on change in fair value of derivative liabilities.

 

Our total operating expenses during the year ended October 31, 2012 were $190,531 which consisted of $241 in amortization of property and equipment, $52,440 in consulting fees, $295 in foreign exchange gain, $23,676 in general and administrative expenses, $885 in impairment of assets, $44,175 in management fees and $68,819 in professional fees. During this period, we also incurred $145,176 in the form of interest expense, $163,115 of accretion of discounts on convertible notes payable, $10,123 of amortization of deferred financing costs, and $398,456 of loss due to the change in fair value of derivative liabilities.

 

Our total operating expenses from our inception on June 5, 2006 to October 31, 2013 were $11,732,723 which consisted of $244,182 in advertising and marketing expenses, $18,138 in amortization of intangible assets, $32,677 in amortization of property and equipment, $2,173,938 in consulting fees, $249,962 in foreign exchange loss, $1,127,665 in general and administrative expenses, $3,274,109 in impairment of goodwill, $2,220,609 in impairment of assets, $1,226,409 in management fees, $29,516 in payroll expenses, $817,158 in professional fees and $318,360 in research and development expenses.

 

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 year ended October 31, 2013 compared to the same period in 2012 was primarily due to decreases in general and administrative expenses, Consulting fees, management fees, and impairment of assets during the most recent period.

 

During the year ended October 31, 2013, we incurred a $165,886 operating loss, and a net loss of $911,163. During the year ended October 31, 2012 we incurred an operating loss of $190,531 and a net loss of $907,401. We experienced a net loss per share of $1.27 during the year ended October 31, 2013 and $5.64 per share during the year ended October 31, 2012. From our inception on June 5, 2006 to October 31, 2013 we incurred a total of $11,732,723 in operating loss, incurred a $1,205,782 loss from discontinued operations, and incurred a net loss $15,224,438.

 

Liquidity and Capital Resources

 

Working Capital

 

 

 

			At				At
			October 31,				October, 31
			2013				2012
			($)				($)
Total Current Assets			121,090				78,572
Total Current Liabilities			1,977,748				1,817,242
Working Capital/(Deficit)			(1,856,658)				(1,738,670		)

 

 

Cash Flows

  

										Period from
		Year				Year				Inception
		Ended				Ended				(June 5, 2006)
		October 31,				October 31,				to October 31,
		2013				2012				2013
		($)				($)				($)
Net Cash used in Operating Activities			(103,454	)			(119,790	)			(2,899,578	)
Net Cash used in Investing Activities			(42,888	)			(78,202	)			(1,434,289	)
Net Cash provided by Financing Activities			147,022				198,500				4,281,716
Net Increase (Decrease) in Cash During Period			(370	)			370				Nil

 

As of October 31, 2013, we had $Nil in cash, $121,868 in total assets, $1,977,748 in total liabilities and a working capital deficit of $1,856,658. As of October 31, 2012, we had working capital deficit of $1,738,670.

 

During the year ended October 31, 2013, we spent $103,454 on operating activities, compared to spending of $119,790 on operating activities during the same period in fiscal 2012. The decrease in our expenditures on operating activities during the year ended October 31, 2013 was largely due to decreases in stock based compensation and amounts due to related parties. From our inception on June 5, 2006 to October 31, 2013, we spent $2,899,578 on operating activities.

 

During the year ended October 31, 2013, we spent $42,888 on investing activities, whereas we spent $78,202 on investing activities during the same period in fiscal 2012. From our inception on June 5, 2006 to October 31, 2013, we spent $1,434,289 on investing activities, the bulk of which was in the form of advances for notes receivable of $1,114,182, loan receivables of $121,090 and the acquisition of intangible assets of $182,687.

 

During the year ended October 31, 2013, we received $147,022 from financing activities, of which $152,500 was in the form of proceeds from notes payable offset by $6,500 in payment of deferred financing costs, whereas we received $198,500 from financing activities during the same period in fiscal 2012 related primarily to proceeds from the issuance of convertible notes payable. From our inception on June 5, 2006 to October 31, 2013, we received $4,281,716 from financing activities, primarily in the form of proceeds from the issuance of our common stock and preferred stock and proceeds from notes payable and convertible notes payable.

 

For the next 12 months (beginning October 2013), we estimate our planned expenses to be approximately $1,400,000, as summarized in the table below:

 

Description		Potential				Estimated
		Completion				Expenses
		Date				($)
General and administrative expenses			12 months				250,000
Professional fees			12 months				150,000
Unallocated working capital			12 months				100,000
Debt repayment			12 months				900,000
Total							1,400,000

 

Based on our planned expenditures, we require additional funds of approximately $1,400,000 to proceed with our business plan over the next 12 months (beginning October 2013). 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 $1,400,000 over the next 12 months (beginning October 2013) 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

 

We have not attained profitable operations and are dependent upon obtaining financing to pursue any extensive activities. For these reasons, our auditors stated in their report on our audited financial statements that they have substantial doubt that we will be able to continue as a going concern without further financing.

 

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.

 

Contractual Obligations

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

 

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.

 

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 three and twelve months ended October 31, 2013. 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.

 

Comprehensive Loss

 

ASC 220, “Comprehensive Income” establishes standards for the reporting and display of comprehensive income and its components in the financial statements. As at October 31, 2013 and 2012, our company had no items that represent comprehensive income or loss.

 

Recently Issued Accounting Pronouncements

 

Our 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 financial position or results of operations.

 

ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

 

ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY

 

 

Financial Statements

Years Ended October 31, 2013 and 2012

(Expressed in US dollars)

 

 

 

	Index
Report of Independent Registered Public Accounting Firm	19
Balance Sheets	20
Statements Of Operations	21
Statement Of Stockholders' Equity (Deficit)	22
Statements Of Cash Flow	25
Notes to the Financial Statements	26

 

 

 

 

 

 

 

 

 

 

 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
On4 Communications Inc.
(A Development Stage Company)

We have audited the accompanying balance sheets of On4 Communications Inc. (A Development Stage Company) (the “Company”) as of October 31, 2013 and 2012, and the related statements of operations, stockholders’ equity (deficit), and cash flows for the years then ended and accumulated from June 5, 2006 (date of inception) to October 31, 2013. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of October 31, 2013 and 2012, and the results of its operations and its cash flows for the years then ended and accumulated from June 5, 2006 (date of inception) to October 31, 2013, in conformity with accounting principles generally accepted in the United States.

 

The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has not generated significant revenue, has a working capital deficit, and has incurred operating losses since inception. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also discussed in Note 1 to the financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

/s/ SATURNA GROUP CHARTERED ACCOUNTANTS LLP
Vancouver, Canada
March 17, 2014

 

ON4 COMMUNICATIONS, INC.
(A Development Stage Company)
Balance Sheets
(Expressed in US Dollars)

	October 31,	October 31,
	2013	2012
	$	$
ASSETS
Current Assets
Cash	–	370
Loan receivable (Note 3)	121,090	78,202
Total Current Assets	121,090	78,572
Deferred financing costs	778	3,877
Total Assets	121,868	82,449
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current Liabilities
Bank indebtedness	1,022	–
Accounts payable and accrued liabilities (Note 5)	1,378,983	1,214,181
Due to related parties (Note 4)	4,858	2,329
Notes payable (Note 6)	390,320	431,370
Convertible notes payable, net of unamortized discount of $38,099 and $44,385, respectively (Note 7)	80,933	65,615
Derivative liabilities (Note 8)	121,632	103,747
Total Liabilities	1,977,748	1,817,242
Nature of Operations and Continuance of Business (Note 1)
Commitments (Note 13)
Subsequent Event (Note 15)
Stockholders’ Deficit
Preferred stock: 30,000,000 shares authorized, non-voting, no par value; No shares issued and outstanding	–	–
Common stock: 600,000,000 shares authorized, $0.0001 par value; 1,465,566 shares issued and outstanding (2012 – 268,755)	147	27
Additional paid-in capital	13,381,883	12,591,927
Common stock issuable	70,000	70,000
Deficit accumulated during the development stage	(15,307,910)	(14,396,747)
Total Stockholders’ Deficit	(1,855,880)	(1,734,793)
Total Liabilities and Stockholders’ Deficit	121,868	82,449
(The accompanying notes are an integral part of these financial statements)

 

 

ON4 COMMUNICATIONS INC.
(A Development Stage Company)
Statements of Operations
(Expressed in US Dollars)

	Year Ended	Year Ended	Accumulated From June 5, 2006 (Date of Inception)
	October 31,	October 31,	to October 31,
	2013	2012	2013
	$	$	$
Revenue	–	–	–
Operating Expenses
Advertising and marketing	62,000	–	244,182
Amortization of intangible assets	–	–	18,138
Amortization of property and equipment	–	241	32,677
Consulting fees	5,232	52,440	2,173,938
Foreign exchange loss (gain)	(4,840)	295	249,962
General and administrative	13,661	23,676	1,127,665
Impairment of goodwill	–	–	3,274,109
Impairment of assets	–	885	2,220,609
Management fees (Note 4)	19,638	44,175	1,226,409
Payroll	–	–	29,516
Professional fees	70,195	68,819	817,158
Research and development	–	–	318,360
Total Operating Expenses	165,886	190,531	11,732,723
Operating Loss	(165,886)	(190,531)	(11,732,723)
Other Income (Expense)
Accretion of discounts on convertible notes payable (Note 7)	(263,786)	(163,115)	(501,901)
Amortization of deferred financing costs	(9,599)	(10,123)	(19,722)
Gain on settlement of debt	–	–	807,352
Interest and other income	–	–	181,682
Interest expense	(173,399)	(145,176)	(942,213)
Loss on change in fair value of derivative liabilities (Note 8)	(298,493)	(398,456)	(696,949)
Write-off of note receivable	–	–	(1,114,182)
Total Other Income (Expense)	(745,277)	(716,870)	(2,285,933)
Loss from Continuing Operations	(911,163)	(907,401)	(14,018,656)
Discontinued Operations
Loss from discontinued operations	–	–	(1,282,616)
Gain on disposal of discontinued operations	–	–	76,834
Loss from Discontinued Operations	–	–	(1,205,782)
Net Loss	(911,163)	(907,401)	(15,224,438)
Net Loss Per Share – Basic and Diluted	(1.27)	(5.64)
Weighted Average Shares Outstanding	717,000	161,000
(The accompanying notes are an integral part of these financial statements)

 

 

ON4 COMMUNICATIONS INC.

(A Development Stage Company)

Statements of Stockholders’ Equity (Deficit)

For the Period from June 5, 2006 (Date of Inception) to October 31, 2013

 

	Preferred Stock			Common Stock				Additional Paid-in	Share Subscriptions	Deficit Accumulated During the Development
	Shares	Amount		Shares			Amount	Capital	Receivable	Stage	Total
	#	$		#			$	$	$	$	$
Balance, June 5, 2006 (Date of Inception)	–	–		–			–	–	–	–	–
Issuance of common stock for cash at $0.0001 per share	–	–		22,222			2	998	(1,000)	–	–
Issuance of common stock for cash at $0.07 per share	–	–		22,222			1,556	698,444	(25,000)	–	675,000
Net loss for the period				–			–	–	–	(282,206)	(282,206)
Balance, October 31, 2006	–	–		44,444			1,558	699,442	(26,000)	(282,206)	392,794
Issuance of 4,444 Series A Preferred Shares at $0.50 per share	4,444	2,222		–			–	997,778	–	–	1,000,000
Stock subscriptions received	–	–		–			–	–	25,120	–	25,120
Issuance of common stock at $0.50 per share	–	–		1,111			555	249,445	–	–	250,000
Issuance of common stock to subsidiary	–	–		1			–	–	–	–	–
Fair value of share purchase warrants issued	–	–		–			–	497,980	–	–	497,980
Fair value of stock options granted	–	–		–			–	108,710	–	–	108,710
Cumulative preferred dividends	–	–		–			–	–	–	(48,472)	(48,472)
Net loss for the year				–			–	–	–	(2,183,150)	(2,183,150)
Balance, October 31, 2007	4,444	2,222		45,556			2,113	2,553,355	(880)	(2,513,828)	42,982
Issuance of common stock at $0.50 per share	–	–		6,713			3,369	1,512,631	–	–	1,516,000
Stock subscriptions received	–	–		–			–	–	880	–	880
Share issuance costs	–	–		–			(173)	(77,842)	–	–	(78,015)
Fair value of share purchase warrants issued	–	–		–			–	29,350	–	–	29,350
Fair value of stock options granted	–	–		–			–	102,960	–	–	102,960
Cumulative preferred dividends	–	–		–			–	–	–	(35,000)	(35,000)
Net loss for the year	–	–		–			–	–	–	(3,115,418)	(3,115,418)
Balance, October 31, 2008	4,444	2,222		52,269			5,309	4,120,454	–	(5,664,246)	(1,536,261)
(The accompanying notes are an integral part of these financial statements)

 

 

ON4 COMMUNICATIONS INC.

(A Development Stage Company)

Statements of Stockholders’ Equity (Deficit) Continued

For the Period from June 5, 2006 (Date of Inception) to October 31, 2013

	Preferred Stock				Common Stock		Additional Paid-in	Common Stock	Deficit Accumulated During the Development
	Shares	Amount			Shares	Amount	Capital	Issuable	Stage	Total
	#	$			#	$	$	$	$	$
Balance, October 31, 2008	4,444	2,222			52,269	5,309	4,120,454	–	(5,664,246)	(1,536,261)
Issuance of common stock for services at $0.50 per share	–	–			222	111	49,889	–	–	50,000
Stock-based compensation	–	–			–	–	94,539	–	–	94,539
Common shares issued upon conversion of preferred stock	(4,444)	(2,222)			8,889	2,222	–	–	–	–
Common shares issued upon conversion of preferred dividend payable	–	–			742	185	83,287	–	–	83,472
Balance, May 1, 2009 before recapitalization	–	–			62,122	7,827	4,348,169	–	(5,664,246)	(1,308,250)
May 1, 2009 Recapitalization Transactions
Shares acquired by legal parent	–	–			(62,122)	–	–	–	–	–
Shares of Sound Revolution Inc.	–	–			151,685	–	–	–	–	–
Shares issued to shareholders of On4 Communications Inc.	–	–			62,122	5	2,661,684	–	–	2,661,689
To record par value adjustment	–	–			–	(7,812)	7,812	–	–	–
Stock subscriptions received	–	–			1,470	1	132,281	–	–	132,282
Share issuance costs	–	–			–	–	(8,000)	–	–	(8,000)
Issuance of common stock for acquisition	–	–			6,667	1	2,129,999	–	–	2,130,000
Common stock issuable for services	–	–			–	–	–	70,000	–	70,000
Net loss for the year	–	–			–	–	–	–	(5,420,719)	(5,420,719)
Balance, October 31, 2009	–	–			221,944	22	9,271,945	70,000	(11,084,965)	(1,742,998)
Beneficial conversion feature	–	–			–	–	75,000	–	–	75,000
Shares issued upon conversion of notes	–	–			7,557	1	170,023	–	–	170,024
Shares issued upon settlement of related party debt	–	–			33,224	3	1,645,159	–	–	1,645,162
Cancellation of shares	–	–			(120,497)	(12)	12	–	–	–
Shares issued for services	–	–			5,778	1	407,999	–	–	408,000
Fair value of stock options granted	–	–			–	–	307,133	–	–	307,133
Net loss for the year	–	–			–	–	–	–	(2,408,836)	(2,408,836)
Balance, October 31, 2010	–	–			148,006	15	11,877,271	70,000	(13,493,801)	(1,546,515)
Stock-based compensation	–	–			–	–	(3,691)	–	–	(3,691)
Net income for the year	–	–			–	–	–	–	4,455	4,455
Balance, October 31, 2011	–	–			148,006	15	11,873,580	70,000	(13,489,346)	(1,545,751)
(The accompanying notes are an integral part of these financial statements)

 

 

 

ON4 COMMUNICATIONS INC.

(A Development Stage Company)

Statements of Stockholders’ Equity (Deficit) Continued

For the Period from June 5, 2006 (Date of Inception) to October 31, 2013

 

	Preferred Stock				Common Stock		Additional Paid-in	Common Stock	Deficit Accumulated During the Development
	Shares	Amount			Shares	Amount	Capital	Issuable	Stage	Total
	#	$			#	$	$	$	$	$
Balance, October 31, 2011	–	–			148,006	15	11,873,580	70,000	(13,489,346)	(1,545,751)
Shares issued for services	–	–			3,333	1	48,749	–	–	48,750
Shares issued upon conversion of notes payable	–	–			117,416	11	167,389	–	–	167,400
Derivative liabilities relating to notes payable converted to shares	–	–			–	–	502,209	–	–	502,209
Net loss for the year	–	–			–	–	–	–	(907,401)	(907,401)
Balance, October 31, 2012	–	–			268,755	27	12,591,927	70,000	(14,396,747)	(1,734,793)
Shares issued upon conversion of notes payable	–	–			1,196,779	120	251,847	–	–	251,967
Derivative liabilities relating to notes payable converted to shares	–	–			–	–	538,109	–	–	538,109
Rounding for reverse stock split	–	–			32	–	–	–	–	–
Net loss for the year	–	–			–	–	–	–	(911,163)	(911,163)
Balance, October 31, 2013	–	–			1,465,566	147	13,381,883	70,000	(15,307,910)	(1,855,880)
(The accompanying notes are an integral part of these financial statements)

  

 

 

ON4 COMMUNICATIONS INC.

(A Development Stage Company)

Statements of Cash Flows

(Expressed in US Dollars)

 

	Year Ended October 31, 2013 $	Year Ended October 31, 2012 $	Accumulated From June 5, 2006 (Date of inception) to October 31, 2013 $
Operating Activities
Net loss from continuing operations	(911,163)	(907,401)	(14,018,656)
Adjustments to reconcile net loss to net cash used in operating activities:
Accretion of discounts on convertible notes payable	263,786	163,115	501,901
Amortization of property and equipment	–	241	32,677
Amortization of intangible assets	–	–	18,138
Amortization of deferred financing costs	9,599	10,123	19,722
Gain on settlement of debt	–	–	(807,352)
Impairment of goodwill	–	–	3,274,109
Impairment of assets	–	885	2,220,609
Issuance of notes payable for services and penalties	62,000	–	152,402
Issuance of shares for services	–	–	576,750
Loss on change in fair value of derivative liabilities	298,493	48,750	696,949
Stock-based compensation	–	398,456	1,136,981
Write-off of notes receivable	–	–	1,114,182
Changes in operating assets and liabilities:
Accounts receivable	–	–	(5,431)
Prepaid expenses and deposits	–	–	(10,678)
Accounts payable and accrued liabilities	171,302	132,512	1,560,721
Due to related parties	2,529	33,529	637,398
Net Cash Used In Operating Activities	(103,454)	(119,790)	(2,899,578)
Investing Activities
Acquisition of intangible assets	–	–	(182,687)
Cash acquired in reverse merger	–	–	1,523
Cash from disposition of subsidiary	–	–	15,709
Loan receivable	(42,888)	(78,202)	(121,090)
Acquisition of property and equipment	–	–	(33,562)
Advances for note receivable	–	–	(1,114,182)
Net Cash Used In Investing Activities	(42,888)	(78,202)	(1,434,289)
Financing Activities
Bank indebtedness	1,022	–	1,022
Proceeds from issuance of common stock	–	–	1,821,267
Proceeds from issuance of preferred stock	–	–	1,000,000
Proceeds from notes payable and convertible notes payable	152,500	212,500	1,092,022
Repayment of notes payable	–	–	(81,250)
Payment of deferred financing costs	(6,500)	(14,000)	(20,500)
Proceeds from related parties	–	–	561,935
Repayments to related parties	–	–	(84,780)
Share issuance costs	–	–	(8,000)
Net Cash Provided By Financing Activities	147,022	198,500	4,281,716
Effects of Exchange Rate Changes on Cash	(1,050)	(138)	53,674
Discontinued Operations:
Operating activities	–	–	(119,701)
Investing activities	–	–	(661,509)
Financing activities	–	–	779,687
Net Cash Used in Discontinued Operations	–	–	(1,523)
Increase (Decrease) in Cash	(370)	370	–
Cash - Beginning of Period	370	–	–
Cash - End of Period	–	370	–
Supplemental Disclosures (Note 12)
(The accompanying notes are an integral part of these financial statements)

ON4 COMMUNICATIONS INC.

(A Development Stage Company)

Notes to the Financial Statements

October 31, 2013

(Expressed in US dollars)

 

 

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 October 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 62,122 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 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. Refer to Note 13(b) for details of the share exchange agreement with NetCents Systems Ltd. (“NetCents”). On May 3, 2012, the Company’s shareholders approved a name change to NetCents Systems International Ltd., however, this has not been declared effective as of the date of issuance of these financial statements.

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 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. As at October 31, 2013, the Company has not generated any revenues since inception, has a working capital deficiency of $1,856,658, and has an accumulated deficit of $15,307,910 since inception. 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. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. These 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

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 Company’s fiscal year end is October 31.

ON4 COMMUNICATIONS INC.

(A Development Stage Company)

Notes to the Financial Statements

October 31, 2013

(Expressed in US dollars)

 

1.

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, fair value of convertible notes payable, stock-based compensation, derivative liabilities, 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 Company’s 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 consists of office equipment, is stated at cost and is amortized using the straight-line method over the estimated lives of the related assets of five years.

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.

Research and Development Expenses

Research and development costs are expensed as incurred.

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.

Reclassification

Certain financial statement items have been reclassified from the prior year in order to conform to presentation standards for the current year.

ON4 COMMUNICATIONS INC.

(A Development Stage Company)

Notes to the Financial Statements

October 31, 2013

(Expressed in US dollars)

 

2.

Summary of Significant Accounting Principles (continued)

Loss 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 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 Company’s 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 financial statements. As at October 31, 2013 and 2012, the Company had no items representing comprehensive income or loss.

Income Taxes

The Company accounts for income taxes using the asset and liability method in accordance with ASC 740, Accounting for Income Taxes. The asset and liability method provides that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.

The Company files federal income tax returns in the United States. The Company may be subject to a reassessment of federal taxes by tax authorities for a period of three years from the date of the original notice of assessment in respect of any particular taxation year. In certain circumstances, the federal statute of limitations can reach beyond the standard three year period. The statute of limitations in the United States for income tax assessment varies from state to state. Tax authorities have not audited any of the Company’s income tax returns.

The Company recognizes interest and penalties related to uncertain tax positions in tax expense. During the years ended October 31, 2013 and 2012, there were no charges for interest or penalties.

Financial Instruments and Fair Value Measures

ASC 825, Financial Instruments, defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and it considers assumptions that market participants would use when pricing the asset or liability.

ON4 COMMUNICATIONS INC.

(A Development Stage Company)

Notes to the Financial Statements

October 31, 2013

(Expressed in US dollars)

 

2.

Summary of Significant Accounting Principles (continued)

Financial Instruments and Fair Value Measures (continued)

ASC 825 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 825 establishes three levels of inputs that may be used to measure fair value.

Level 1 applies to assets and liabilities for which there are quoted prices in active markets for identical assets or liabilities. Valuations are based on quoted prices that are readily and regularly available in an active market and do not entail a significant degree of judgment.

Level 2 applies to assets and liabilities for which there are other than Level 1 observable inputs 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 2 instruments require more management judgment and subjectivity as compared to Level 1 instruments. For instance: determining which instruments are most similar to the instrument being priced requires management to identify a sample of similar securities based on the coupon rates, maturity, issuer, credit rating and instrument type, and subjectively select an individual security or multiple securities that are deemed most similar to the security being priced; and determining whether a market is considered active requires management judgment.

Level 3 applies to assets and 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 determination of fair value for Level 3 instruments requires the most management judgment and subjectivity.

Assets and liabilities measured at fair value on a recurring basis were presented on the Company’s balance sheet as at October 31, 2013 as follows:

	Fair Value Measurements Using
	Quoted prices in active markets for identical instruments (Level 1) $	Significant other observable inputs (Level 2) $	Significant unobservable inputs (Level 3) $	Balance, October 31, 2013 $
Bank indebtedness	1,022	–	–	1,022
Derivative liabilities	–	121,632	–	121,632
	1,022	121,632	–	122,654

The fair values of other financial instruments, which include loan receivable, accounts payable and accrued liabilities, accrued interest payable, amounts due to related parties, notes payable, and convertible notes payable approximate their current fair values because of their nature and respective maturity dates or durations.

Recent Accounting Pronouncements

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 financial statements.

 

3.

Loan Receivable

On December 15, 2011, the Company entered into the share exchange agreement with NetCents Systems Ltd. (“NetCents”), as described in Note 13(b). At October 31, 2013, the Company was owed $121,090 (2012 - $78,202) for expenses paid on behalf of NetCents. The amount is unsecured, non-interest bearing, and due on demand.

ON4 COMMUNICATIONS INC.

(A Development Stage Company)

Notes to the Financial Statements

October 31, 2013

(Expressed in US dollars)

 

4.

Related Party Transactions

(a)

As at October 31, 2013, the Company owed $2,085 (2012 - $2,329) to the Chief Executive Officer of the Company. The amounts owing are unsecured, non-interest bearing, and due on demand.

(b)

As at October 31, 2013, the Company owed $2,773 (2012 - $Nil) to the Chief Operating Officer of the Company. The amounts owing are unsecured, non-interest bearing, and due on demand.

 

(c)

During the year ended October 31, 2013, the Company incurred $19,638 (2012- $44,175) of management fees to officers and directors of the Company.

 

5.

Accounts Payable and Accrued Liabilities

	2013 $		2012 $
Trade payables	956,100		884,489
Accrued interest expense	422,883		329,692
	1,378,983		1,214,181

 

6.

Notes Payable

	2013 $		2012 $
Kestrel Gold Inc., unsecured, due interest at prime plus 2% per annum, and due on demand.	23,975		25,025
Scottsdale Investment Corporation, unsecured, due interest at 12% per annum, and due on demand.	319,980		319,980
Gordon Jessop, unsecured, due interest at 5% per annum, and due on demand	46,365		86,365
	390,320		431,370

 

7.

Convertible Notes Payable

(a)

On May 8, 2012, the Company entered into a convertible promissory note agreement for $32,500. Pursuant to the terms of the agreement, the loan is unsecured, bears interest at 8% per annum, and is due on February 11, 2013. Furthermore, the note is convertible 180 days after issuance into shares of common stock at a variable conversion price equal to 51% of the average of the lowest three closing bid prices for the common stock during the 10 trading days prior to the date of the conversion notice. Due to this provision, the embedded conversion option qualifies for derivative accounting under ASC 815-15 “Derivatives and Hedging”. The fair value of the derivative liability resulted in a full discount to the note payable of $32,500. The carrying value of the convertible note will be accreted over the term of the convertible note up to the value of $32,500. During the year ended October 31, 2013, the Company issued 50,826 shares of common stock for the conversion of $32,500 plus accrued interest of $1,300. During the year ended October 31, 2013, $32,500 (2012 - $nil) of accretion expense had been recorded upon the conversion of the note. The Company paid financing costs of $2,500 relating to the issuance of the note.

ON4 COMMUNICATIONS INC.

(A Development Stage Company)

Notes to the Financial Statements

October 31, 2013

(Expressed in US dollars)

 

7.

Convertible Notes Payable (continued)

(b)

On August 7, 2012, the Company entered into a convertible promissory note agreement for $32,500. Pursuant to the terms of the agreement, the loan is unsecured, bears interest at 8% per annum, and is due on May 9, 2013. Furthermore, the note is convertible 180 days after issuance into shares of common stock at a variable conversion price equal to 51% of the average of the lowest two closing bid prices for the common stock during the 60 trading days prior to the date of the conversion notice. Due to this provision, the embedded conversion option qualifies for derivative accounting under ASC 815-15 “Derivatives and Hedging”. The fair value of the derivative liability resulted in a full discount to the note payable of $32,500. The carrying value of the convertible note will be accreted over the term of the convertible note up to the value of $32,500. During the year ended October 31, 2013, the Company issued 93,472 shares of common stock for the conversion of $32,500 plus accrued interest of $1,300. During the year ended October 31, 2013, $32,500 (2012 - $nil) of accretion expense had been recorded upon the conversion of the note. The Company paid financing costs $2,500 relating to the issuance of the note.

(c)

On September 10, 2012, the Company entered into a convertible promissory note agreement for $25,000. The proceeds were received on October 1, 2012. Pursuant to the terms of the agreement, the loan is unsecured, bears interest at 8% per annum, and is due on September 10, 2013. Furthermore, the note is convertible into shares of the Company’s common stock at any time at a variable conversion price equal to 50% of the average of the lowest three closing bid prices for the common stock during the 10 trading days prior to the date of the conversion notice. Due to this provision, the embedded conversion option qualifies for derivative accounting under ASC 815-15 “Derivatives and Hedging”. The fair value of the derivative liability resulted in a full discount to the note payable of $25,000. The carrying value of the convertible note will be accreted over the term of the convertible note up to the value of $25,000. During the year ended October 31, 2013, the Company issued 79,245 shares of common stock for the conversion of $25,000 plus accrued interest of $1,538. During the year ended October 31, 2013, $24,675 (2012 - $325) of accretion expense had been recorded upon the conversion of the note. The Company paid financing costs of $1,500 relating to the issuance of the note.

(d)

On September 10, 2012, the Company entered into a convertible promissory note agreement for $60,000. Pursuant to the terms of the agreement, the loan is unsecured, bears interest at 8% per annum, and is due on September 10, 2013. Furthermore, the note is convertible into shares of the Company’s common stock at any time at a variable conversion price equal to 55% of the average of the lowest closing bid prices for the common stock during the 5 trading days prior to the date of the conversion notice. Due to this provision, the embedded conversion option qualifies for derivative accounting under ASC 815-15 “Derivatives and Hedging”. The fair value of the derivative liability resulted in a full discount to the note payable of $60,000. The carrying value of the convertible note will be accreted over the term of the convertible note up to the value of $60,000. During the year ended October 31, 2012, the Company issued 39,292 shares of common stock for the conversion of $40,000 of the note. During the year ended October 31, 2013, the Company issued 34,065 shares of common stock for the conversion of $20,000 of the note and $220 of interest. During the year ended October 31, 2013, $19,710 (2012 - $40,290) of accretion expense had been recorded.

(e)

On November 13, 2012, the Company entered into a convertible promissory note agreement for $20,000. Pursuant to the terms of the agreement, the loan is unsecured, bears interest at 5% per annum, and is due on November 5, 2013. Furthermore, the note is convertible into shares of the Company’s common stock at any time at a variable conversion price equal to 50% of the average of the lowest three closing bid prices for the common stock during the 20 trading days prior to the date of the conversion notice. Due to this provision, the embedded conversion option qualifies for derivative accounting under ASC 815-15 “Derivatives and Hedging”. The fair value of the derivative liability resulted in a full discount to the note payable of $20,000. The carrying value of the convertible note will be accreted over the term of the convertible note up to the value of $20,000. During the year ended October 31, 2013, the Company issued 113,276 shares of common stock for the conversion of $20,000 of the note and $580 of interest. During the year ended October 31, 2013, $20,000 (2012 - $nil) of accretion expense had been recorded.

ON4 COMMUNICATIONS INC.

(A Development Stage Company)

Notes to the Financial Statements

October 31, 2013

(Expressed in US dollars)

 

7.

Convertible Notes Payable (continued)

(f)

On November 13, 2012, the Company entered into a convertible promissory note agreement for $40,000. Pursuant to the terms of the agreement, the loan is unsecured, bears interest at 5% per annum, and is due on November 5, 2013. Furthermore, the note is convertible into shares of the Company’s common stock at any time at a variable conversion price equal to 50% of the average of the lowest three closing bid prices for the common stock during the 20 trading days prior to the date of the conversion notice. Due to this provision, the embedded conversion option qualifies for derivative accounting under ASC 815-15 “Derivatives and Hedging”. The fair value of the derivative liability resulted in a full discount to the note payable of $40,000. The carrying value of the convertible note will be accreted over the term of the convertible note up to the value of $40,000. During the year ended October 31, 2013, the Company issued 106,428 shares of common stock for the conversion of $40,000 of the note and $320 of interest. During the year ended October 31, 2013, $40,000 (2012 - $nil) of accretion expense had been recorded.

(g)

On December 3, 2012, the Company entered into a Convertible Promissory Note agreement for $32,500. Pursuant to the agreement, the loan is convertible 180 days after issuance into shares of common stock at a variable conversion price equal to 51% of the average of the lowest two closing bid prices for the common stock during the 20 trading days prior to the date of the conversion notice. The loan bears interest at 8% per year and the principal amount and any interest thereon are due on September 5, 2013. On June 20, 2013, the Company defaulted on the loan. As a result, a penalty of 150% of the principal balance was applied, increasing the loan to $48,750. Pursuant to ASC 815, “Derivatives and Hedging,” the Company recognized the fair value of the embedded conversion feature as a derivative liability when the note became convertible on June 1, 2013. The fair value of the derivative liability resulted in a full discount to the note payable of $48,750. The carrying value of the convertible note will be accreted over the term of the convertible note up to the value of $48,750. During the year ended October 31, 2013, the Company issued 342,068 shares of common stock for the conversion of $48,750 of the note and $1,241 of accrued interest. During the year ended October 31, 2013, $48,750 (2012 - $nil) of accretion expense had been recorded. The Company paid financing costs $2,500 relating to the issuance of the note.

(h)

On February 1, 2013, the Company entered into a Convertible Promissory Note agreement for $62,000 of marketing services. Pursuant to the agreement, the promissory note is convertible at any time after issuance into shares of common stock at a price of $1.0363 per share. The promissory note is unsecured, bears interest at 1% per year, and the principal amount and any interest thereon are due on January 30, 2014.

(i)

On February 10, 2013, the Company entered into a Convertible Promissory Note agreement for $27,500. Pursuant to the terms of the agreement, the loan is unsecured, bears interest at 8% per annum, and is due on February 10, 2014. Furthermore, the note is convertible into shares of the Company’s common stock at any time at a variable conversion price equal to 50% of the average of the lowest three closing bid prices for the common stock during the 10 trading days prior to the date of the conversion notice. Due to this provision, the embedded conversion option qualifies for derivative accounting under ASC 815-15 “Derivatives and Hedging”. The fair value of the derivative liability resulted in a full discount to the note payable of $27,500. The carrying value of the convertible note will be accreted over the term of the convertible note up to the value of $27,500. During the year ended October 31, 2013, the Company issued 244,437 shares of common stock for the conversion of $26,000 of the note. During the year ended October 31, 2013, $26,914 (2012 - $nil) of accretion expense had been recorded and the carrying value of the note is $914. The Company paid financing costs of $1,500 relating to the issuance of the note.

ON4 COMMUNICATIONS INC.

(A Development Stage Company)

Notes to the Financial Statements

October 31, 2013

(Expressed in US dollars)

 

7.

Convertible Notes Payable (continued)

(j)

On February 20, 2013, the Company entered into a Convertible Promissory Note agreement for $37,500. Pursuant to the agreement, the loan is convertible 180 days after issuance into shares of common stock at a variable conversion price equal to 51% of the average of the lowest two closing bid prices for the common stock during the 20 trading days prior to the date of the conversion notice. The loan bears interest at 8% per year and the principal amount and any interest thereon are due on November 22, 2013. Pursuant to ASC 815, “Derivatives and Hedging,” the Company will recognize the fair value of the embedded conversion feature as a derivative liability when the note becomes convertible on August 29, 2013. On June 20, 2013, the Company defaulted on the loan. As a result, a penalty of 150% of the principal balance was applied, increasing the loan to $56,250. The carrying value of the convertible note will be accreted over the term of the convertible note up to the value of $56,250. During the year ended October 31, 2013, the Company issued 132,962 shares of common stock for the conversion of $718 of the note. During the year ended October 31, 2013, $18,737 (2012 - $nil) of accretion expense had been recorded and the carrying value of the note is $18,019. The Company paid financing costs $2,500 relating to the issuance of the note.

 

8.

Derivative Liabilities

The conversion options of the convertible notes payable, as disclosed in Note 7, are required to record a derivative at their estimated fair value on each balance sheet date with changes in fair value reflected in the statement of operations.

The fair value of the derivative liabilities for the May 8, 2012, August 7, 2012, September 10, 2012, November 13, 2012, December 3, 2012, February 10, 2013, February 20, 2013, convertible notes were $36,123, $86,121, $37,357, $69,684, $47,880, $57,147 and $91,023 on vesting, respectively. The fair values as at October 31, 2013 and 2012 are as follows:

	2013 $	2012 $
$25,000 convertible debenture issued September 10, 2012	–	66,759
$60,000 convertible debenture issued September 10, 2012	–	36,988
$27,500 convertible debenture issued February 10, 2013	2,777	–
$37,500 convertible debenture issued February 20, 2013	118,855	–
	121,632	103,747

During the year ended October 31, 2013, the Company recorded a loss on the change in fair value of the derivative liabilities of $298,493 (2012 – $398,456). The Company uses the Black-Scholes option pricing model to calculate the fair values of the derivative liabilities. The following table shows the assumptions used in the calculations:

	Expected Volatility	Risk-free Interest Rate	Expected Dividend Yield	Expected Life (in years)
May 8, 2012 convertible note
As at November 4, 2012 (date of vesting)	326%	0.09%	0%	0.27
As at October 31, 2013	–	–	–	–
September 10, 2012 convertible note
As at October 1, 2012 (date of vesting)	300%	1.13%	0%	0.94
As at October 31, 2013	–	–	–	–
November 13, 2012 convertible notes
As at November 13, 2012 (date of vesting)	313%	0.18%	0%	0.98
As at October 31, 2013	–	–	–	–
August 7, 2012 convertible note
As at February 3, 2013 (date of vesting)	420%	0.60%	0%	0.26
As at October 31, 2013	–	–	–	–
December 3, 2012 convertible note
As at June 1, 2013 (date of vesting)	239%	0.04%	0%	0.26
As at October 31, 2013	–	–	–	–
February 10, 2013 convertible note
As at February 10, 2013 (date of vesting)	307%	0.17%	0%	1.00
As at October 31, 2013	596%	0.08%	0%	0.29
February 20, 2013 convertible note
As at August 19, 2013 (date of vesting)	301%	0.04%	0%	0.25
As at October 31, 2013	415%	0.04%	0%	0.05

 

ON4 COMMUNICATIONS INC.

(A Development Stage Company)

Notes to the Financial Statements

October 31, 2013

(Expressed in US dollars)

 

9.

Common Stock

(a)

On February 29, 2012, the Company issued 3,333 common shares with a fair value of $48,750 for consulting services.

(b)

Effective April 20, 2012, the Company amended its Articles of Incorporation to increase the authorized number of shares of common stock from 100,000,000 to 200,000,000 shares with a par value of $0.0001 per share. Effective November 30, 2012, the Company amended its Articles of Incorporation to increase the authorized number of shares of common stock from 200,000,000 to 600,000,000 shares with a par value of $0.0001 per share, and the authorized number of preferred stock from 10,000,000 to 30,000,000 shares with no par value.

(c)

During the year ended October 31, 2012, the Company issued an aggregate of 117,416 common shares upon the conversion of $167,400 of convertible notes payable and accrued interest.

(d)

On October 15, 2013, the Company approved a 450-to-1 reverse stock split of its issued and outstanding shares. All share and per share information has been retroactively adjusted to reflect the reverse stock split.

(e)

During the year ended October 31, 2013, the Company issued an aggregate of 1,196,779 common shares upon the conversion of $251,967 of convertible notes payable and accrued interest.

 

(f)

During the year ended October 31, 2013, the Company recorded $538,109 (2012- $502,209) of additional paid-in-capital relating to the conversion of convertible notes to common shares.

 

10.

Share Purchase Warrants

The following table summarizes the continuity of share purchase warrants:

	Number of Warrants	Weighted Average Exercise Price $
Balance, October 31, 2011	3,236	225.00
Expired	(2,889)	225.00
Balance, October 31, 2012	347	225.00
Expired	(347)	225.00
Balance, October 31, 2013	–	–

 

11.

Stock Options

The following table summarizes stock option plan activities:

	Number of Options	Weighted Average Exercise Price $	Weighted Average Remaining Contractual Life (years)	Aggregate Intrinsic Value $
Outstanding, October 31, 2011, 2012 and 2013	5,833	135.00	1.96	–

The Company’s had no unvested stock options at October 31, 2013 and 2012.

ON4 COMMUNICATIONS INC.

(A Development Stage Company)

Notes to the Financial Statements

October 31, 2013

(Expressed in US dollars)

 

Additional information regarding stock options as of October 31, 2013 is as follows:

Number of Options	Exercise Price $	Expiry Date
4,444	67.50	March 3, 2015
611	225.00	July 23, 2017
778	450.00	December 18, 2017
5,833

 

 

12. Supplemental Disclosures

	Year Ended October 31, 2013 $	Year Ended October 31, 2012 $	Accumulated From June 5, 2006 (Date of Inception) to October 31, 2013 $
Non-cash investing and financing activities:
Shares issued for settlement of notes payable and accrued interest	251,967	167,400	419,367
Supplemental Disclosures:
Interest paid	–	–	–
Income taxes paid	–	–	–

 

ON4 COMMUNICATIONS INC.

(A Development Stage Company)

Notes to the Financial Statements

October 31, 2013

(Expressed in US dollars)

 

13.

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 Company’s 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, ATV’s, 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 December 15, 2011, the Company entered into a share exchange agreement (the “Agreement”) with NetCents. Pursuant to the terms of the Agreement, the Company will issue two shares of common stock for every one share of NetCents stock issued and outstanding on the date of closing. Upon completion of the transaction, NetCents would become a wholly owned subsidiary of the Company. The Agreement is subject to conditions precedent to closing and the risk that these conditions precedent will not be satisfied results in there being no assurance that the Agreement will be completed as contemplated, or at all. As of the date of issuance of these financial statements, the agreement had yet to be completed.

(c)

On May 10, 2013, the Company entered into debt settlement agreements with certain creditors for amounts owed by the Company. Under the terms of the settlement, the Company agreed to settle $60,614 of accounts payable and accrued liabilities for cash payment of $12,122, and $215,299 of accounts payable and accrued liabilities in exchange for the issuance of 1,595 units. Each unit will be comprised of one common share of the Company and one share purchase warrant, which is exercisable into common shares of the Company at $135.00 per share for a period of two years from the effective date. The effective date of these debt settlement agreements will occur upon the closing of the Agreement, as noted in Note 13(b). As of the date of filing, the Agreement has not been completed, and the terms of the settlements have not yet been satisfied.

 

14. Income Taxes

The Company has $7,914,699 of net operating losses carried forward to offset taxable income in future years which expire commencing in fiscal 2026. The income tax benefit differs from the amount computed by applying the federal income tax rate of 34% to net loss before income taxes for the years ended October 31, 2013 and 2012, respectively, as a result of the following:

		2013 $	2012 $
Net loss before taxes		(911,163)	(907,401)
Statutory rate		34%	34%
Expected tax recovery		309,795	308,516
Permanent differences and other		(191,174)	(191,317)
Change in valuation allowance		(118,621)	(117,199)
Income tax provision		–	–

 

ON4 COMMUNICATIONS INC.

(A Development Stage Company)

Notes to the Financial Statements

October 31, 2013

(Expressed in US dollars)

 

14. Income Taxes (continued)

The significant components of deferred income tax assets and liabilities as at October 31, 2013 and 2012, after applying enacted corporate income tax rates, are as follows:

		2013 $	2012 $
Net operating losses carried forward		2,690,998	2,572,377
Valuation allowance		(2,690,998)	(2,572,377)
Net deferred tax asset		–	–

Deferred tax benefits, which may arise as a result of these losses, have not been recognized in these financial statements, and have been offset by a valuation allowance. The following table lists the fiscal year in which the loss was incurred and the expiration date of the operating:

	Net Operating		Expiry Date
	Loss
Period Incurred	$
2006	282,206		2026
2007	2,168,732		2027
2008	1,987,017		2028
2009	1,026,834		2029
2010	1,524,551		2030
2011	231,771		2031
2012	344,704		2032
2013	348,884		2033
	7,914,699

The Company is in arrears on filing its statutory income tax returns and it therefore has estimated the expected amount of loss carryforwards available once the outstanding returns are filed. The Company expects to have net operating loss carryforwards for income tax purposes available to offset future taxable income. In addition, the Company may be subject to penalties and interest for failure to file these returns and related schedules.

 

15.

Subsequent Event

(a)

Subsequent to October 31, 2013, the Company issued 681,162 common shares upon the conversion of $3,468 of convertible notes payable.

 

 

END NOTES TO FINANCIALS

 

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

There were no disagreements related to accounting principles or practices, financial statement disclosure, internal controls or auditing scope or procedure during the two fiscal years and interim periods.

 

ITEM 9A.

CONTROLS AND PROCEDURES

 

Management’s Report on Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934 , as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our president (who is acting as our principal executive officer and as our principal financial officer and principle accounting officer) to allow for timely decisions regarding required disclosure

 

As of October 31, 2013, the end of our fiscal year covered by this report, we carried out an evaluation, under the supervision and with the participation of our president (also our principal executive officer and our principal financial and accounting officer), of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our president (also our principal executive officer and our principal financial and accounting officer) concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this annual report. In its assessment of the effectiveness of internal control over financial reporting as of October 31, 2013, we determined that there were control deficiencies that constituted material weaknesses, as described below:

 

1.

We did not maintain appropriate financial reporting controls – As of October 31, 2013, our company has not maintained sufficient internal controls over financial reporting for the financial reporting process. As at October 31, 2013, our company did not have sufficient financial reporting controls with respect to timely financial reporting and the ability to process complex accounting issues.

Accordingly, our company concluded that these control deficiencies resulted in a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis by our company’s internal controls.

 

Management’s Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Responsibility, estimates and judgments by management are required to assess the expected benefits and related costs of control procedures. The objectives of internal control include providing management with reasonable, but not absolute, assurance that assets are safeguarded against loss from unauthorized use or disposition, and that transactions are executed in accordance with management’s authorization and recorded properly to permit the preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States. Our management assessed the effectiveness of our internal control over financial reporting as of October 31, 2013. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework. Our management has concluded that, as of October 31, 2013, our internal control over financial reporting is effective. Our management reviewed the results of their assessment with our Board of Directors.

 

This annual report does not include an attestation report of Saturna Group Chartered Accountants LLP, our company’s registered public accounting firm, regarding internal control over financial reporting. Management’s report was not subject to attestation by our company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit our company to provide only management’s report in this annual report.

 

Inherent Limitations on Effectiveness of Controls

 

Internal control over financial reporting has inherent limitations which include but is not limited to the use of independent professionals for advice and guidance, interpretation of existing and/or changing rules and principles, segregation of management duties, scale of organization, and personnel factors. Internal control over financial reporting is a process which involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements on a timely basis, however these inherent limitations are known features of the financial reporting process and it is possible to design into the process safeguards to reduce, though not eliminate, this risk. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Changes in Internal Control over Financial Reporting

 

There have been no changes in our internal controls over financial reporting that occurred during the year ended October 31, 2013 that have materially or are reasonably likely to materially affect, our internal controls over financial reporting.

 

ITEM 9B.

OTHER INFORMATION

 

None.

 

PART III

 

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

 

Identification of Directors and Executive Officers

 

The following table sets forth the names and ages of our current directors and executive officers. Each director of the Company serves for a term of one year and until his successor is elected and qualified at the next Annual Shareholders’ Meeting, or until his death, resignation or removal. Each officer of the Company serves for a term of one year and until his successor is elected and qualified at a meeting of the Board of Directors, or until his death, resignation or removal.

 

 

Name	Position Held with Our Company	Age	Date First Elected or Appointed
Clayton Moore	President, Chief Executive Officer and Director	37	November 4, 2011
Steven Allmen	Director	54	November 4, 2011
Ryan Madson	Chief Operating Officer, Chief Marketing Officer, Secretary, Treasurer and Director	40	November 4, 2011

 

Identification of Certain Significant Employees

 

As of October 31, 2013, our only employees are our directors and officers. We plan to hire additional employees when circumstances warrant.

 

Family Relationships

 

We currently do not have any officers or directors of our Company who are related to each other.   

 

Business Experience

 

The following is a brief account of the education and business experience during at least the past five years of each director, executive officer and key employee of our company, indicating the person’s principal occupation during that period, and the name and principal business of the organization in which such occupation and employment were carried out. The biographies of our directors and officers are as follows:

 

Clayton Moore – President, Chief Executive Officer and Director

 

Mr. Moore is the founder and visionary of NetCents. After attending Caledonia College (British Columbia) and specializing in business administration, Mr. Moore began his career in the service industry as general manager for Silver Springs, a large restaurant establishment in Radium Hot Springs, British Columbia. After spending time in various management positions in the service industry, Mr. Moore was inspired to create the first version of the NetCents payment system. He spent the next 5 years creating and funding the development of his first company, The Cybux Cash Card Company Ltd. Cybux was tested in the British Columbia school systems and was eventually sold to a third party which led to the creation of the next generation, a payment system designed with total anonymity and security for buying goods and services over the internet known as NetCents. Mr. Moore has been president of NetCents since its incorporation in 2006.

 

Steven Allmen –Director

 

Steven Allmen has over twenty years of experience working with leading companies in the loyalty, retail, telecom, financial services and marketing sectors. His experience in delivering strategic partnerships and business solutions has enabled companies to achieve results and build market leadership through innovative use of technology and business strategy. Mr. Allmen has practical business experience across multiple industries having held senior positions at Aeroplan Canada (current), The Hudson’s Bay Company, Air Miles and Compusearch Micromarketing. By combining his years of experience and comprehensive understanding of market trends, Mr. Allmen can effectively advise our company on business development strategies, new product development and partnership programs that yield immediate results. Mr. Allmen is currently the vice-president, New Partner Development, Aeroplan Canada at Groupe Aeroplan and is responsible for new partner development, securing strategic alliances and negotiating new contracts for Aeroplan, Canada’s premier coalition loyalty program. Mr. Allmen holds a BA, political science and history from York University.

 

Ryan Madson – Chief Operating Officer, Chief Marketing Officer, Secretary, Treasurer and Director

 

Mr. Madson is a versatile professional who has spent the better part of his career in executive positions in the automotive and high tech industries. As a graduate of business and engineering at Malaspina University, he has the skill set in management and marketing required to execute the business plan of NetCents. As chief executive officer of Cybux, Mr. Madson, working with parents, teachers and school boards, created and developed a successful rollout of a school cash card program that was integrated into six school districts with a total of 20 schools.

 

Involvement in Certain Legal Proceedings

 

During the past ten years no director, executive officer, promoter or control person of the Company has been involved in the following:

 

(1) A petition under the Federal bankruptcy laws or any state insolvency law which was filed by or against, or a receiver, fiscal agent or similar officer was appointed by a court for the business or property of such person, or any partnership in which he was a general partner at or within two years before the time of such filing, or any corporation or business association of which he was an executive officer at or within two years before the time of such filing;

 

(2) Such person was convicted in a criminal proceeding or is a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses);

 

(3) Such person was the subject of any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from, or otherwise limiting, the following activities:

 

i. Acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity;

 

ii. Engaging in any type of business practice; or

 

iii. Engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of Federal or State securities laws or Federal commodities laws;

 

(4) Such person was the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any Federal or State authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any activity described in paragraph (f)(3)(i) of this section, or to be associated with persons engaged in any such activity;

 

(5) Such person was found by a court of competent jurisdiction in a civil action or by the Commission to have violated any Federal or State securities law, and the judgment in such civil action or finding by the Commission has not been subsequently reversed, suspended, or vacated;

 

(6) Such person was found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any Federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated;

 

(7) Such person was the subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of:

 

i. Any Federal or State securities or commodities law or regulation; or

 

ii. Any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or

 

iii. Any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or

 

(8) Such person was the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

 

Audit Committee and Audit Committee Financial Expert

 

The Company does not have an audit committee or an audit committee financial expert (as defined in Item 407 of Regulation S-K) serving on its Board of Directors. All current members of the Board of Directors lack sufficient financial expertise for overseeing financial reporting responsibilities. The Company has not yet employed an audit committee financial expert on its Board due to the inability to attract such a person.

 

The Company intends to establish an audit committee of the Board of Directors, which will consist of independent directors. The audit committee’s duties will be to recommend to the Company’s board of directors the engagement of an independent registered public accounting firm to audit the Company’s financial statements and to review the Company’s accounting and auditing principles. The audit committee will review the scope, timing and fees for the annual audit and the results of audit examinations performed by the internal auditors and independent registered public accounting firm, including their recommendations to improve the system of accounting and internal controls. The audit committee shall at all times be composed exclusively of directors who are, in the opinion of the Company’s board of directors, free from any relationship which would interfere with the exercise of independent judgment as a committee member and who possess an understanding of financial statements and generally accepted accounting principles.

 

Code of Ethics

 

We have not yet adopted a code of ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions because we have not yet finalized the content of such a code. We anticipate that we will adopt a code of ethics when we increase either the number of our directors and officers or the number of our employees.

 

Compliance with Section 16(a) of the Exchange Act

 

Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers and persons who beneficially own more than ten percent of a registered class of our equity securities to file with the SEC initial reports of ownership and reports of change in ownership of common stock and other equity securities of the Company. Officers, directors and greater than ten percent stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to us under Rule 16a-3(e) during the year ended October 31, 2013, Forms 5 and any amendments thereto furnished to us with respect to the year ended October 31, 2013, and the representations made by the reporting persons to us, we believe that during the year ended October 31, 2013, our executive officers and directors have not complied with all Section 16(a) filing requirements. As of the date of this report, our executive officers and directors are working to complete the required filings to comply with Section 16(a).

 

ITEM 11.

EXECUTIVE COMPENSATION

 

Compensation of Executive Officers

 

The following table sets forth the compensation paid to the Company’s executive officers during the years ended October 31, 2013 and 2012.  

The particulars of the compensation paid to the following persons:

	(a)	our principal executive officer;
	(b)	each of our two most highly compensated executive officers who were serving as executive officers at the end of the years ended October 31, 2013 and 2012; and
	(c)	up to two additional individuals for whom disclosure would have been provided under (b) but for the fact that the individual was not serving as our executive officer at the end of the years ended October 31, 2013 and 2012.

who we will collectively refer to as the named executive officers of our Company, are set out in the following summary compensation table, except that no disclosure is provided for any named executive officer, other than our principal executive officers, whose total compensation did not exceed $100,000 for the respective fiscal year:

	SUMMARY COMPENSATION TABLE
Name and principal position		Year	Salary ($)	Bonus ($)	Stock Awards ($)	Option Awards ($)	Non-Equity incentive Plan Compensation ($)	Nonqualified Deferred Compensation Earnings ($)	All Other Compensation ($)		Total ($)
Clayton Moore(1) President, Chief Executive Officer and Director		2013 2012	Nil Nil	Nil Nil	Nil Nil	Nil Nil	Nil Nil	Nil Nil	11,582 Nil		11,582 Nil
Tom Locke(2) Former Chief Financial Officer, Secretary, Treasurer and Director		2013 2012	Nil Nil	Nil Nil	Nil Nil	Nil Nil	Nil Nil	Nil Nil	4,028 44,175		4,028 44,175
Ryan Madson(3) Chief Operating Officer, Chief Marketing Officer, Secretary, Treasurer and Director		2013 2012	Nil Nil	Nil Nil	Nil Nil	Nil Nil	Nil Nil	Nil Nil	4,028 Nil		4,028 Nil
Gord Jessop(4) former President, Chief Operating Officer and Director		2013 2012	Nil Nil	Nil Nil	Nil Nil	Nil Nil	Nil Nil	Nil Nil	Nil Nil		Nil Nil
Cameron Robb(5) former Chief Executive Officer, Chief Financial Officer and Director		2013 2012	Nil Nil	Nil Nil	Nil Nil	Nil Nil	Nil Nil	Nil Nil	Nil Nil		Nil Nil

 

	(1)	Mr. Moore was appointed on November 4, 2011.
	(2)	Mr. Locke served as chief financial officer, secretary, treasurer and as a director from November 4, 2011 until his resignation on June 23, 2012.
	(3)	Mr. Madson has served as chief operating officer from November 4, 2011 and as chief marketing officer, secretary, treasurer and as a director since June 23, 2012.
	(4)	Mr. Jessop resigned as president, chief operating officer and as a director on November 4, 2011.
	(5)	Mr. Robb resigned as chief executive officer, chief financial officer and as a director on November 4, 2011.

 

There are no arrangements or plans in which we provide pension, retirement or similar benefits for directors or executive officers. Our directors and executive officers may receive share options at the discretion of our board of directors in the future. We do not have any material bonus or profit sharing plans pursuant to which cash or non-cash compensation is or may be paid to our directors or executive officers, except that share options may be granted at the discretion of our board of directors.

Stock Option Plan

On September 18, 2006, our directors approved the adoption of our 2006 Non-Qualified Stock Option Plan (amended on October 10, 2006) which permits our company to grant up to 1,500,000 options to acquire shares of common stock, to directors, officers, employees and consultants of our company. Other than the aforementioned 2006 Non-Qualified Option Plan, we do not have any other equity compensation plans or arrangements.

2013 Grants of Plan-Based Awards

No equity or non-equity awards were granted to the named executives in 2013.

Outstanding Equity Awards at Fiscal Year End

There were no outstanding equity awards as at October 31, 2013.

Option Exercises

During our fiscal year ended October 31, 2013, there were no options exercised by our named officers.

Compensation of Directors

We do not have any agreements for compensating our directors for their services in their capacity as directors, although such directors are expected in the future to receive stock options to purchase shares of our common stock as awarded by our board of directors.

We have determined that none of our directors are independent directors, as that term is used in Item 7(d)(3)(iv)(B) of Schedule 14A under the Securities Exchange Act of 1934, as amended, and as defined by Rule 4200(a)(15) of the NASDAQ Marketplace Rules.

Compensation Committee

We currently do not have a compensation committee of the Board of Directors. The Board of Directors as a whole determines executive compensation.

Pension, Retirement or Similar Benefit Plans

There are no arrangements or plans in which we provide pension, retirement or similar benefits for directors or executive officers. We have no material bonus or profit sharing plans pursuant to which cash or non-cash compensation is or may be paid to our directors or executive officers, except that stock options may be granted at the discretion of the board of directors or a committee thereof.

Indebtedness of Directors, Senior Officers, Executive Officers and Other Management

None of our directors or executive officers or any associate or affiliate of our company during the last two fiscal years, is or has been indebted to our company by way of guarantee, support agreement, letter of credit or other similar agreement or understanding currently outstanding.

 

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

The following table sets forth certain information concerning the number of shares of our common stock owned beneficially as of the date of this Report by: (i) each of our directors; (ii) each of our executive officers; and (iii) each person or group known by us to beneficially own more than 5% of our issued and outstanding shares of common stock.  Unless otherwise indicated, the shareholders listed below possess sole voting and investment power with respect to the shares they own.

 

As of March 13, 2014, there were 2,146,728 common shares issued and outstanding, 0 shares issuable upon the exercise of stock purchase options within 60 days, and 0 shares issuable upon the exercise of stock purchase warrants within 60 days. 

 

Name and Address of Beneficial Owner	Title of Class	Amount and Nature of Beneficial Ownership	Percentage of Class (1)
Clayton Moore (2) President, Chief Executive Officer, Director 1188 West Pender Street Vancouver, British Columbia Canada	Common	Nil	Nil
Steven Allmen (3) Director 14 Bernice Avenue Toronto, Ontario Canada	Common	Nil	Nil
Ryan Madson (4) Chief Operating Officer, Chief Marketing Officer, Secretary, Treasurer and Director 6654 Jenkins Road Nanaimo, British Columbia Canada	Common	Nil	Nil
Directors and Officers as a group	Common	Nil	Nil
5% or More Beneficial Owners	Common	Nil	Nil

 

	(1)	Based on 2,146,728 shares of common stock issued and outstanding as of March 13, 2014. Except as otherwise indicated, we believe that the beneficial owners of the common shares listed above, based on information furnished by such owners, have sole investment and voting power with respect to such shares, subject to community property laws where applicable. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of common stock subject to options or warrants currently exercisable or exercisable within 60 days, are deemed outstanding for purposes of computing the percentage ownership of the person holding such option or warrants, but are not deemed outstanding for purposes of computing the percentage ownership of any other person.
	(2)	Mr. Moore was has served as President, CEO and Director of the Company since November 4, 2011.
	(3)	Mr. Allmen has served as Director of the Company since November 4, 2011.
	(4)	Mr. Madson has served as chief operating officer from November 4, 2011 and as chief marketing officer, secretary, treasurer and as a director since June 23, 2012.

 

 

Changes in Control

 

On December 15, 2011, we entered into a share exchange agreement with NetCents and the selling shareholders of NetCents. Pursuant to the terms of the share exchange agreement, our company and NetCents agreed to engage in a share exchange which, if completed, would result in NetCents becoming a wholly owned subsidiary of our company. The share exchange has not been completed as of the date of this Annual Report and is subject to completion of due diligence by the parties.

 

Also on December 15, 2011, NetCents received the approval for the share exchange agreement and the share exchange transaction from holders of approximately 76% of its voting securities through written resolution in lieu of holding a meeting.

 

Consummation of the above referenced transaction would result in a change of control of our company. Other than the aforementioned share exchange agreement, we are unaware of any contract or other arrangement or provisions of our Articles or Bylaws the operation of which may at a subsequent date result in a change of control of our company. There are not any provisions in our Articles or Bylaws, the operation of which would delay, defer, or prevent a change in control of our company.

 

ITEM 13.

CERTAIN RELATIONSHPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Director Independence

 

For purposes of determining director independence, we have applied the definitions set out in NASDAQ Rule 5605(a)(2).  The OTCBB on which shares of common stock are quoted does not have any director independence requirements.  The NASDAQ definition of “Independent Director” means a person other than an Executive Officer or employee of the Company or any other individual having a relationship which, in the opinion of the Company's Board of Directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.  

 

According to the NASDAQ definition, neither Clayton Moore nor Ryan Madson are independent directors, as defined in NASDAQ Marketplace Rule 4200(a)(15), because they are also executive officers of the Company. Steven Allmen is an independent director of the Company as defined in NASDAQ Marketplace Rule 4200(a)(15).

 

We do not have a standing audit, compensation or nominating committee, but our entire board of directors acts in such capacities. We believe that our members of our board of directors are capable of analyzing and evaluating our financial statements and understanding internal controls and procedures for financial reporting. The board of directors of our company does not believe that it is necessary to have an audit committee because we believe that the functions of an audit committee can be adequately performed by the board of directors. In addition, we believe that retaining an independent director who would qualify as an “audit committee financial expert” would be overly costly and burdensome and is not warranted in our circumstances given the early stages of our development.

 

Related Party Transactions

 

As at October 31, 2013, the Company owed $2,085 (2012 - $2,329) to the Chief Executive Officer of the Company. The amounts owing are unsecured, non-interest bearing, and due on demand.

As at October 31, 2013, the Company owed $2,773 (2012 - $Nil) to the Chief Operating Officer of the Company. The amounts owing are unsecured, non-interest bearing, and due on demand.

 

Other than the foregoing, none of the directors or executive officers of the Company, nor any person who owned of record or was known to own beneficially more than 5% of the Company’s outstanding shares of its Common Stock, nor any associate or affiliate of such persons or companies, has any material interest, direct or indirect, in any transaction that has occurred during the past fiscal year, or in any proposed transaction, which has materially affected or will affect the Company.

 

With regard to any future related party transaction, we plan to fully disclose any and all related party transactions in the following manner:

 

·

Disclosing such transactions in reports where required;

·

Disclosing in any and all filings with the SEC, where required;

·

Obtaining disinterested directors consent; and

·

Obtaining shareholder consent where required.

 

 

Review, Approval or Ratification of Transactions with Related Persons

 

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

 

ITEM 14.

PRINCIPAL ACCOUNTING FEES AND SERVICES

 

		Year Ended October 31, 2013	Year Ended October 31, 2012
Audit fees	$	17,500	17,500
Audit-Related fees	$	0	0
Tax fees	$	0	0
All other fees	$	0	0
Total	$	17,500	17,500

 

 

Audit Fees

 

During the fiscal year ended October 31, 2013, we incurred approximately $17,500 in fees to our principal independent accountants for professional services rendered in connection with the audit and reviews of our financial statements for fiscal year ended October 31, 2013.

 

During the fiscal year ended October 31, 2012, we incurred approximately $17,500 in fees to our principal independent accountants for professional services rendered in connection with the audit and reviews of our financial statements for fiscal year ended October 31, 2012.

 

Audit-Related Fees

 

The aggregate fees billed during the fiscal years ended October 31, 2013 and October 31, 2012 for assurance and related services by our principal independent accountants that are reasonably related to the performance of the audit or review of our financial statements (and are not reported under Item 9(e)(1) of Schedule 14A) were $0 and $0, respectively.

 

Tax Fees

 

The aggregate fees billed during the fiscal years ended October 31, 2013 and October 31, 2012 for professional services rendered by our principal accountant tax compliance, tax advice and tax planning were $0 and $0, respectively.

 

All Other Fees

 

The aggregate fees billed during the fiscal years ended October 31, 2013 and October 31, 2012 for products and services provided by our principal independent accountants (other than the services reported in Items 9(e)(1) through 9(e)(3) of Schedule 14A) were $0 and $0, respectively.  

 

PART IV

 

ITEM 15. EXHIBITS

 

(a) Financial Statements

(1) Financial statements for our company are listed in the index under Item 8 of this document

(2) All financial statement schedules are omitted because they are not applicable, not material or the required information is shown in the financial statements or notes thereto.

(b) Exhibits

ITEM 15.

EXHIBITS, FINANCIAL STATEMENT SCHEDULES

 

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 Amendment dated June 10, 2008 (incorporated by reference to our Current Report on Form 8-K filed on June 26, 2008)
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)
3.5	Certificate of Amendment dated March 13, 2012 (incorporated by reference to our Current Report on Form 8-K filed on May 1, 2012)
3.6	Certificate of Amendment dated November 30, 2012 (incorporated by reference to our Current Report on Form 8-K filed on December 5, 2012)
(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	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)
10.4	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)
10.5	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)
10.6	Letter of Intent between our company and NetCents Systems Ltd. (incorporated by reference to our Current Report on Form 8-K filed on November 9, 2011)
10.7	Share Exchange Agreement between our company and NetCents Systems Ltd., et al, dated December 15, 2011 (incorporated by reference to our Current Report on Form 8-K filed on December 19, 2011)
(31)	Rule 13a-14(a)/15d-14(a) Certifications
31.1*	Section 302 Certification pursuant to the Sarbanes-Oxley Act of 2002 of the Chief Executive Officer
31.2*	Section 302 Certification pursuant to the Sarbanes-Oxley Act of 2002 of the Chief Financial Officer
(32)	Section 1350 Certifications
32.1*	Section 906 Certification pursuant to the Sarbanes-Oxley Act of 2002 of the Chief Executive Officer
32.2*	Section 906 Certification pursuant to the Sarbanes-Oxley Act of 2002 of the Chief Financial Officer
(99)	Additional Exhibits
99.1	Audit Committee Charter dated September 30, 2009 (incorporated by reference to our Annual Report on Form 10-K filed on February 16, 2010)
101**	Interactive Data Files
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Schema
101.CAL	XBRL Taxonomy Calculation Linkbase
101.DEF	XBRL Taxonomy Definition Linkbase
101.LAB	XBRL Taxonomy Label Linkbase
101.PRE	XBRL Taxonomy Presentation Linkbase

 

* Filed herewith.

 

** Pursuant to Regulation S-T, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

 

 

.SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Dated: March 17, 2014	ON4 COMMUNICATIONS, INC.
	/s/ Clayton Moore
	Clayton Moore
	President, Chief Executive Officer and Director
	(Principal Executive Officer, Principal Financial Officer, Principal Accounting Officer)

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Dated: March 17, 2014	/s/ Clayton Moore
	Clayton Moore
	President, Chief Executive Officer and Director
	(Principal Executive Officer, Principal Financial Officer,
	Principal Accounting Officer)
Dated: March 17, 2014	/s/ Ryan Madson
	Ryan Madson
	Chief Operating Officer, Chief Marketing Officer,
	Secretary, Treasurer and Director
Dated: March 17, 2014	/s/ Steven Allmen
	Steven Allmen
	Director