The financial statements included
herein have been prepared by us, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in the financial statements prepared in accordance with generally
accepted accounting principles have been omitted. However, in the opinion of management, all adjustments (which include only normal
recurring accruals) necessary to present fairly the financial position and results of operations for the transition period presented
have been made. The results for interim periods are not necessarily indicative of trends or of results to be expected for the full
year. These interim financial statements should be read in conjunction with the audited financial statements and notes thereto
included in our audited financial statements filed therewith along with the Form 10–K/A Annual Report with the U.S. Securities
and Exchange Commission (SEC) on February 14, 2013, and can be found on the SEC website at www.sec.gov.
ITEM 2.
|
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF OPERATION
|
FORWARD-LOOKING STATEMENTS
This Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) contains forward-looking
statements that involve known and unknown risks, significant uncertainties and other factors that may cause our actual results,
levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance
or achievements expressed, or implied, by those forward-looking statements. You can identify forward-looking statements by
the use of the words may, will, should, could, expects, plans, anticipates, believes, estimates, predicts, intends, potential,
proposed, or continue or the negative of those terms. These statements are only predictions. In evaluating these statements,
you should consider various factors which may cause our actual results to differ materially from any forward-looking statements.
Although we believe that the exceptions reflected in the forward-looking statements are reasonable, we cannot guarantee future
results, levels of activity, performance or achievements. Therefore, actual results may differ materially and adversely from
those expressed in any forward-looking statements. We undertake no obligation to revise or update publicly any forward-looking
statements for any reason.
Business Overview
We were incorporated as a Delaware company
on June 4, 2001 under the name Sound Revolution Inc. On July 2, 2009 we changed our name to On4 Communications, Inc. Our fiscal
year end is October 31. Our address is Suite 1704 – 1188 West Pender Street, Vancouver, BC, Canada, V6E 0A2. Our telephone
number is (604) 620-6879.
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.
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. We subsequently amended this agreement
on April 7, 2009, and on May 1, 2009 we completed the merger with On4, with our company 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 Inc., 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 to acquire 100% of the issued and outstanding shares of NetCents Systems Ltd., a private Alberta corporation engaged
in the development and implementation of a unique and secure electronic payment system for online merchants and consumers. The
letter of intent 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 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 quarterly 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 quarterly report, the share exchange has yet to be completed.
Our Current Business
We are a development stage company, providing
wireless communications services to telecommunication companies, consumers and businesses. Our platform comprises global positioning
system (“GPS”) device management, location-based services (“LBS”) capabilities, and the broadcasting of
proprietary and non-proprietary content. LBS is a term used to describe the delivery of information and entertainment content to
consumers with mobile devices based on the geographical position of the mobile device. We intend to deliver LBS via two-way communication
tracking devices with applications that are able to track people, pets, assets and inventory. Our solution platform integrates
various location-aware devises, such as GPS receivers, and transmits data to a range of devices, including Web browsers, instant
messengers, short message service/mail, and mobile phones.
Research and Development Expenditures
We have incurred $Nil in research and development expenditures over
the last two fiscal years.
Employees
As of July 31, 2013, our only employees are our directors and officers.
We plan to hire additional employees when circumstances warrant.
Results of Operations
Three and Nine Months Ended July 31, 2013 and July 31, 2012,
and the Period from June 5, 2006 (Date of Inception) to July 31, 2013.
Our results of operations are presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 5, 2006
|
|
|
|
Three Months
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
Nine Months
|
|
|
(Date of
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Inception) to
|
|
|
|
July 31,
|
|
|
July 31,
|
|
|
July 31,
|
|
|
July 31,
|
|
|
July 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
Revenue
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
Nil
|
|
Total Operating Expenses
|
|
|
13,804
|
|
|
|
26,220
|
|
|
|
147,289
|
|
|
|
166,628
|
|
|
|
11,714,126
|
|
Total Other Expenses
|
|
|
(179,591)
|
|
|
|
(94,453)
|
|
|
|
(581,041)
|
|
|
|
(158,347)
|
|
|
|
(2,121,697)
|
|
Net Loss from continuing operations
|
|
|
(193,395)
|
|
|
|
(120,673)
|
|
|
|
(728,330)
|
|
|
|
(324,975)
|
|
|
|
(13,835,823)
|
|
From our inception on June 5, 2006 to July 31, 2013, we did not
generate any revenue.
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
from
|
|
|
|
Three Months
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
Nine Months
|
|
|
June 5, 2006
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
(Date of
|
|
|
|
July 31,
|
|
|
July 31,
|
|
|
July 31,
|
|
|
July 31,
|
|
|
Inception) to
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
2012
|
|
|
July 31, 2013
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
Advertising and Marketing
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
62,000
|
|
|
|
Nil
|
|
|
|
244,182
|
|
Amortization of intangible assets
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
18,138
|
|
Amortization of property and equipment
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
241
|
|
|
|
32,677
|
|
Consulting fees
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
5,232
|
|
|
|
48,750
|
|
|
|
2,173,938
|
|
Foreign exchange (gain) loss
|
|
|
(2,789
|
)
|
|
|
(2,702)
|
|
|
|
(2,807
|
)
|
|
|
(303)
|
|
|
|
251,995
|
|
General and administrative
|
|
|
1,878
|
|
|
|
2,345
|
|
|
|
10,712
|
|
|
|
15,325
|
|
|
|
1,124,716
|
|
Impairment of goodwill
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
3,274,109
|
|
Impairment of assets
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
885
|
|
|
|
2,220,609
|
|
Management fees
|
|
|
4,028
|
|
|
|
16,519
|
|
|
|
19,638
|
|
|
|
44,174
|
|
|
|
1,226,409
|
|
Payroll
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
29,516
|
|
Professional fees
|
|
|
10,687
|
|
|
|
10,058
|
|
|
|
52,514
|
|
|
|
57,556
|
|
|
|
799,477
|
|
Research and development
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
Nil
|
|
|
|
318,360
|
|
Our total expenses during the three months
ended July 31, 2013 were $13,804 which consisted of $2,789 in foreign exchange gain, $1,878 in general and administrative expenses,
$4,028 in management fees, and $10,687 in professional fees. During this period we also incurred $62,958 in accretion of discounts
on convertible notes payable, $1,981 in amortization of deferred financing costs, $72,999 in interest expenses and $41,653 in loss
on change in fair value of derivative liabilities.
Our total expenses during the three months
ended July 31, 2012 were $26,220 which consisted of $2,702 in foreign exchange gain, $2,345 in general and administrative expenses,
$16,519 in management fees and $10,058 in professional fees. During this period we also incurred $17,629 in accretion of discounts
on convertible notes payable, $45,567 in the form of interest expenses and $31,257 in loss on change in fair value of derivative
liabilities.
Our total expenses during the nine months ended
July 31, 2013 were $147,289 which consisted of $62,000 in advertising and marketing, $2,807 in foreign exchange gain, $10,712 in
general and administrative expenses, $5,232 in consulting fees, $19,638 in management fees and $52,514 in professional fees. During
this period we also incurred $215,995 in accretion of discounts on convertible notes payable, $8,112 in amortization of deferred
financing costs, $143,147 in interest expenses and $213,787 in loss on change in fair value of derivative liabilities.
Our total expenses during the nine months ended
July 31, 2012 were $166,628 which consisted of $241 in amortization of property and equipment, $48,750 in consulting fees, $303
in foreign exchange gain, $15,325 in general and administrative expenses, $885 in impairment of assets, $44,174 in management fees
and $57,556 in professional fees. During this period we also incurred $104,602 in the form of interest expenses.
Our total expenses from our inception on June
5, 2006 to July 31, 2013 were $11,714,216 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, $251,995 in foreign exchange
loss, $1,124,717 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, $799,477 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 three months ended July 31, 2013 compared to the same period in 2012 was primarily due to decreases in general and administrative
expenses and management fees and during the most recent period.
The decrease in our operating expenses during
the nine months ended July 31, 2013 compared to the same period in 2012 was primarily due to decreases in general and administrative
expenses, Consulting fees, management fees, impairment of assets and professional fees during the most recent period.
During the three months ended July 31, 2013
we incurred a $13,804 operating loss, and a net loss of $193,395. During the same period in fiscal 2012 we incurred an operating
loss of $26,220 and a net loss of $120,673. During the nine months ended July 31, 2013 we incurred a $147,289 operating loss, and
a net loss of $728,330. During the same period in fiscal 2012 we incurred an operating loss of $166,628 and a net loss of $324,975.
We experienced a net loss per share of $NIL during the three and nine months ended July 31, 2013 and 2012. From our inception on
June 5, 2006 to July 31, 2013 we incurred a total of $11,714,126 in operating loss, incurred a $1,205,782 loss from discontinued
operations and incurred a net loss $15,041,605.
Liquidity and Capital Resources
Working Capital
|
|
At
|
|
|
At
|
|
|
|
July 31,
|
|
|
October 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
|
($)
|
|
|
($)
|
|
Current Assets
|
|
|
130,572
|
|
|
|
78,572
|
|
Current Liabilities
|
|
|
1,905,136
|
|
|
|
1,817,242
|
|
Working Capital/(Deficit)
|
|
|
(1,774,564
|
)
|
|
|
(1,738,670
|
)
|
Cash Flows
|
|
|
|
|
|
|
|
Period from
|
|
|
|
Nine Months
|
|
|
Nine Months
|
|
|
Inception
|
|
|
|
Ended
|
|
|
Ended
|
|
|
(June 5, 2006)
|
|
|
|
July 31,
|
|
|
July 31,
|
|
|
to July 31,
|
|
|
|
2013
|
|
|
2012
|
|
|
2013
|
|
|
|
($)
|
|
|
($)
|
|
|
($)
|
|
Net Cash used in Operating Activities
|
|
|
(40,875
|
)
|
|
|
(107,138
|
)
|
|
|
(2,836,999
|
)
|
Net Cash used in Investing Activities
|
|
|
(52,370
|
)
|
|
|
(37,563
|
)
|
|
|
(1,443,771
|
)
|
Net Cash provided by Financing Activities
|
|
|
92,875
|
|
|
|
145,000
|
|
|
|
4,227,569
|
|
Net Increase (Decrease) in Cash During Period
|
|
|
(370
|
)
|
|
|
299
|
|
|
|
Nil
|
|
As of July 31, 2013, we had $Nil in cash, $130,572
in total current assets, $1,905,136 in total current liabilities and a working capital deficit of $1,774,564. As of October 31,
2012, we had working capital deficit of $1,738,670.
During the nine months ended July 31, 2013,
we spent $40,875 on operating activities, compared to spending of $107,138 on operating activities during the same period in fiscal
2012. The decrease in our expenditures on operating activities during the nine months ended July 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 July 31, 2013 we spent $2,836,999
on operating activities.
During the nine months ended July 31, 2013,
we spent $52,370 on investing activities, whereas we spent $37,563 on investing activities during the same period in fiscal 2012.
From our inception on June 5, 2006 to July 31, 2013 we spent $1,443,771 on investing activities, the bulk of which was in the form
of advances for notes receivable of $1,114,182, loan receivables of $130,572 and the acquisition of intangible assets of $182,687.
During the nine months ended July 31, 2013
we received $92,875 from financing activities, of which $98,935 was in the form of proceeds from notes payable and $440 from bank
indebtedness offset by $6,500 in payment of deferred financing costs, whereas we received $145,000 from financing activities during
the same period in fiscal 2012. From our inception on June 5, 2006 to July 31, 2013, we received $4,227,569 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 May 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 May 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 May 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
Our financial statements for the three and nine months ended July
31, 2013 have been prepared on a going concern basis and contain an additional explanatory paragraph in Note 1 which identifies
issues that raise substantial doubt about our ability to continue as a going concern. Our financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Off-Balance Sheet Arrangements
We have no significant off-balance sheet arrangements that have
or are reasonably likely to have a current or future effect on our financial condition, changes in our financial condition, revenues
or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our stockholders.
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 nine months ended July 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 July 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.