UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549  


  FORM 10-Q/A

Amendment No. 1


 

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 31, 2013

 

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934

 

Commission File Number 001-34297

 

ON4 COMMUNICATIONS, INC.

(Exact name of registrant as specified in its charter)

 

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

 

Suite 1704—1188 West Pender Street

Vancouver, BC, Canada V6E0A2

(Address of principal executive offices)

 

(604) 620-6879

(Registrant’s telephone number)

 

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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes      No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

 

Large Accelerated Filer ☐ Accelerated Filer

 

Non-Accelerated Filer ☐ 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

 

As of September 19, 2013, there were 581,699,830 shares of the registrant’s $0.0001 par value common stock issued and outstanding.

 

 

 
 

EXPLANATORY NOTE

 

On4 Communications, Inc. is filing this Amendment No. 1 on Form 10-Q/A for the period ended July 31, 2013, to amend and restate financial statements and other financial information on the Company’s Quarterly Report on Form 10-Q for the quarter ended July 31, 2013, as filed with the Securities and Exchange Commission (the “SEC”) on September 23, 2013 (the “Original Filing”).

 

The purpose of this Amendment No. 1 on Form 10-Q/A is to account for debt obligations that were not provided or disclosed to the Company’s independent auditors.  For convenience and ease of reference, the Company is filing this Form 10-Q/A in its entirety with all applicable changes and unless otherwise stated, all information contained in this amendment is as of September 23, 2013, the filing date of the Original Filing. Except as stated herein, this Form 10-Q/A does not reflect events or transactions occurring after such filing date or modify or update those disclosures in the original Form 10-Q that may have been affected by events or transactions occurring subsequent to such filing date.

 
 

ON4 COMMUNICATIONS, INC.

QUARTERLY REPORT

PERIOD ENDED JULY 31, 2013

 

TABLE OF CONTENTS

     
  Page
   
PART I.                  FINANCIAL INFORMATION  
   
ITEM 1. FINANCIAL STATEMENTS 4
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 16
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 22
ITEM 4. CONTROLS AND PROCEDURES 22
   
PART II.                 OTHER INFORMATION  
   
ITEM 1. LEGAL PROCEEDINGS 23
ITEM 1A. RISK FACTORS 23
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 23
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 23
ITEM 4. MINE SAFETY DISCLOSURES 23
ITEM 5. OTHER INFORMATION 23
ITEM 6. EXHIBITS 24

 

 

Special Note Regarding Forward-Looking Statements

 

Information included in this Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”). This information may involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of On4 Communications, Inc.,(the “Company”), to be materially different from future results, performance or achievements expressed or implied by any forward-looking statements. Forward-looking statements, which involve assumptions and describe future plans, strategies and expectations of the Company, are generally identifiable by use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” or “project” or the negative of these words or other variations on these words or comparable terminology. These forward-looking statements are based on assumptions that may be incorrect, and there can be no assurance that these projections included in these forward-looking statements will come to pass. Actual results of the Company could differ materially from those expressed or implied by the forward-looking statements as a result of various factors. Except as required by applicable laws, the Company has no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.

 

* Please note that throughout this Quarterly Report, and unless otherwise noted, the words "we," "our," "us," the "Company," or "ONCI" refers to On4 Communications, Inc.

 
 

  PART I - FINANCIAL INFORMATION

 

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 1.  CONDENSED FINANCIAL STATEMENTS

 

INDEX F-1
   
Unaudited Consolidated Balance Sheets as of July 31, 2013, and Balance Sheet as of October 31, 2012. F-2
   
Unaudited Consolidated Statement of Operations for the Three and Nine Months Ended July 31, 2013 and 2012, and Cumulative Since Inception. F-3
   
Unaudited Consolidated Statement of Cash Flows for the Nine Months Ended July 31, 2013 and 2012, and Cumulative Since Inception. F-4
   
Notes to  Unaudited Consolidated Financial Statements F-5

4
 

ON4 COMMUNICATIONS, INC.

(A Development Stage Company)

Condensed Balance Sheets

(Expressed in US Dollars) 

 

    July 31,   October 31,
    2013   2012
    $   $
   

(unaudited)

(Restated -

Note 13)

   
ASSETS                
                 
Current Assets                
                 
Cash     —         370  
Loan receivable (Note 3)     130,572       78,202  
                 
Total Current Assets     130,572       78,572  
                 
Deferred financing costs (Note 6)     2,265       3,877  
                 
Total Assets     132,837       82,449  
                 
LIABILITIES AND STOCKHOLDERS’ DEFICIT                
                 
Current Liabilities                
                 
Bank indebtedness     440       —    
Accounts payable and accrued liabilities     916,803       647,951  
Accrued interest payable     393,946       329,692  
Due to related parties (Note 4)     35,221       238,867  
Notes payable (Note 5)     390,648       431,370  
Convertible notes payable, net of unamortized discount of $29,640 and $44,385, respectively (Note 6)     125,710       65,615  
Derivative liabilities (Note 7)     42,368       103,747  
                 
Total Liabilities     1,905,136       1,817,242  
                 
Going Concern (Note 1)                
Commitments (Note 11)                
Subsequent Events (Note 14)                
                 
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;
454,499,323 shares issued and outstanding (October 31, 2012 – 120,939,534)
    45,450       12,094  
Additional paid-in capital     13,237,328       12,579,860  
Common stock issuable     70,000       70,000  
Deficit accumulated during the development stage     (15,125,077 )     (14,396,747 )
                 
Total Stockholders’ Deficit     (1,772,299 )     (1,734,793 )
                 
Total Liabilities and Stockholders’ Deficit     132,837       82,449  

 

 

The accompanying notes are an integral part of these unaudited financial statements.

F- 1
 

 

ON4 COMMUNICATIONS, INC.

(A Development Stage Company)

Condensed Statements of Operations

(Expressed in US Dollars) 

(Unaudited)

 

    Three Months
Ended
  Three Months
Ended
  Nine Months
Ended
  Nine Months
Ended
  Accumulated From
June 5, 2006
(Date of Inception)
    July 31,   July 31,   July 31,   July 31,   to July 31,
    2013   2012   2013   2012   2013
    $   $   $   $   $
   

(Restated -

Note 13)

     

(Restated - Note 13)

     

(Restated -

Note 13)

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       48,750       2,173,938  
Foreign exchange loss (gain)     (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     —         —         —         —         3,274,109  
Impairment of assets     —         —         —         885       2,220,609  
Management fees (Note 4)     4,028       16,519       19,638       44,174       1,226,409  
Payroll     —         —         —         —         29,516  
Professional fees     10,687       10,058       52,514       57,556       799,477  
Research and development     —         —         —         —         318,360  
                                         
Total Operating Expenses     13,804       26,220       147,289       166,628       11,714,126  
                                         
Operating Loss     (13,804 )     (26,220 )     (147,289 )     (166,628 )     (11,714,126 )
                                         
Other Income (Expense)                                        
                                         
Accretion of discounts on convertible notes payable (Note 6)     (62,958 )     (17,629 )     (215,995 )     (17,629 )     (454,110 )
Amortization of deferred financing costs     (1,981 )      (3,332 )     (8,112 )     (4,859 )     (18,235 )
Gain on settlement of debt     —         —         —         —         807,352  
Interest and other income     —         —         —         —         181,682  
Interest expense     (72,999 )     (42,235 )     (143,147 )     (104,602 )     (911,961 )
Loss on change in fair value of derivative liabilities (Note 7)     (41,653 )     (31,257 )     (213,787 )     (31,257 )     (612,243 )
Write-off of note receivable     —         —         —         —         (1,114,182 )
                                         
Total Other Income (Expense)     (179,591 )     (94,453 )     (581,041 )     (158,347 )     (2,121,697 )
                                         
Loss from Continuing Operations     (193,395 )     (120,673 )     (728,330 )     (324,975 )     (13,835,823 )
                                         
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     (193,395 )     (120,673 )     (728,330 )     (324,975 )     (15,041,605 )
                                         
Net Loss Per Share – Basic and Diluted                                        
Continuing operations     —         —         —         —            
Discontinued operations     —         —         —         —            
                                         
Weighted Average Shares Outstanding     326,767,971       68,102,000       242,722,820       67,443,000          

 

  

The accompanying notes are an integral part of these unaudited financial statements.

 

F- 2
 

 

ON4 COMMUNICATIONS, INC.

(A Development Stage Company)

Condensed Statements of Cash Flows

(Expressed in US Dollars)

(Unaudited) 

 

    Nine   Nine   Accumulated From
    Nine Months   Nine Months   June 5, 2006
    Ended   Ended   (Date of Inception)
    July 31,   July 31,   to July 31,
    2013   2012   2013
    $   $   $
     

(Restated -

Note 13)

             

(Restated -

Note 13)

 
Operating Activities                        
                         
Net loss from continuing operations     (728,330 )     (324,975 )     (13,835,823 )
                         
Adjustments to reconcile net loss to net cash used in operating activities:                        
Accretion of discounts on convertible notes payable     215,995       17,629       454,110  
Amortization of property and equipment     —         241       32,677  
Amortization of intangible assets     —         —         18,138  
Amortization of deferred financing costs     8,112       4,859       18,235  
Foreign exchange translation     (722 )             (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     97,000       —         187,402  
Issuance of shares for services     —         —         576,750  
Loss on change in fair value of derivative liabilities     213,787       31,257       612,243  
Stock-based compensation     —         48,750       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     —         (415 )     (10,678 )
Accounts payable and accrued liabilities     287,417       767       1,122,973  
Accrued interest payable     69,512       72,907       623,375  
Due to related parties     (203,646 )     40,957       431,223  
                         
Net Cash Used In Operating Activities     (40,875 )     (107,138 )     (2,836,999 )
                         
Investing Activities                        
Acquisition of intangible assets     —         —         (182,687 )
Cash acquired in reverse merger     —         —         1,523  
Cash from disposition of subsidiary     —         —         15,709  
Loan receivable     (52,370 )     (37,563 )     (130,572 )
Acquisition of property and equipment     —         —         (33,562 )
Advances for note receivable     —         —         (1,114,182 )
                         
Net Cash Used In Investing Activities     (52,370 )     (37,563 )     (1,443,771 )
                         
Financing Activities                        
Bank indebtedness     440        —       440  
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     98,935       155,000       1,038,457  
Repayment of notes payable     —         —         (81,250 )
Payment of deferred financing costs     (6,500 )     (10,000 )     (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     92,875       145,000       4,227,569  
                         
Effect of Exchange Rate Changes on Cash     —          —     54,724
                         
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 )     299       —    
                         
Cash, Beginning of Period     370       —         —    
                         
Cash, End of Period     —         299       —    
                         
 
Supplemental Disclosures (Note 12)
                       

 

 

 

The accompanying notes are an integral part of these unaudited financial statements.

F- 3
 

  

ON4 COMMUNICATIONS INC.

(A Development Stage Company)

Notes to the Condensed Financial Statements

July 31, 2013

(Expressed in US dollars)

(Unaudited)

 

1. Basis of Presentation

These interim unaudited financial statements of On4 Communications, Inc. (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Securities and Exchange Commission (“SEC”) Form 10-Q. They do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Therefore, these financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto for the year ended October 31, 2012, included in the Company’s Annual Report on Form 10-K filed on February 13, 2013 with the SEC.

The financial statements included herein are unaudited; however, they contain all normal recurring accruals and adjustments that, in the opinion of management, are necessary to present fairly the Company’s financial position at July 31, 2013, and the results of its operations and cash flows for the nine months ended July 31, 2013. The results of operations for the nine months ended July 31, 2013, are not necessarily indicative of the results to be expected for future quarters or the full year.

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 27,955,089 common shares to the former shareholders of On4 and the merger was accounted for as a “reverse merger” using the purchase method of accounting, with the former shareholders of On4 controlling 68% of the issued and outstanding common shares of the Company after the closing of the transaction. Accordingly, On4 was deemed to be the acquirer for accounting purposes and the financial statements are presented as a continuation of On4 and include the results of operations of On4 since incorporation on June 5, 2006, and the results of operations of the Company since the date of acquisition on May 1, 2009.

On4 is in the business of manufacturing two-way communication and location devices with applications that include tracking people, pets, assets, and inventory, among others. The Company had two wholly-owned subsidiaries: (i) Sound Revolution Recordings Inc., which was incorporated in British Columbia, Canada on June 20, 2001, for the purpose of carrying on music marketing services in British Columbia, and (ii) Charity Tunes Inc., which was incorporated in the State of Delaware on June 27, 2005, for the purpose of operating a website for the distribution of songs online. On March 16, 2011, the Company disposed its two wholly owned subsidiaries, Sound Revolution Recordings Inc., and Charity Tunes Inc., for consideration of $15,000 and 6,300 shares of the acquirer’s common stock. T he 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 July 31, 2013, t he Company has not generated any revenues since inception, has a working capital deficiency of $1,774,564 and has an accumulated deficit of $ 15,125,077 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. T hese 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.

F- 4
 

2. Summary of Significant Accounting Principles

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 October 31, 2012, the Company had no items that represent comprehensive income or loss.

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 position or results of operations.

3. Loan Receivable

On December 15, 2011, the Company entered into the share exchange agreement with NetCents Systems Ltd. (“NetCents”), as described in Note 11. As at July 31, 2013, the Company was owed $130,572 (October 31, 2012 - $78,202) for expenses paid on behalf of NetCents. The amount is unsecured, non-interest bearing and due on demand.

4. Related Party Transactions

(a) As at July 31, 2013, the Company owed $30,297 ( October 31, 2012 - $31,200) to the former Chief Financial Officer of the Company. The amounts owing are unsecured, non-interest bearing, and due on demand.
(b) As at July 31, 2013, the Company owed $2,114 ( October 31, 2012 - $2,329) to the Chief Executive Officer of the Company. The amounts owing are unsecured, non-interest bearing, and due on demand.
(c) As at July 31, 2013, the Company owed $2,810 ( October 31, 2012 - $nil) to the Chief Operating Officer of the Company. The amounts owing are unsecured, non-interest bearing, and due on demand.
(d) As at July 31, 2013, the Company owed $205,338 ( October 31, 2012 - $205,338) to the former Chief Executive Officer of the Company. The amounts owing are unsecured, non-interest bearing, and due on demand and has been included in accounts payable and accrued liabilities as at July 31, 2013.
(e) During the nine months ended July 31, 2013, the Company incurred $4,028 (2012 - $44,174) of management fees to the former Chief Financial Officer of the Company.

5. Notes Payable

    July 31, 2013
$
  October 31, 2012
$
                 
Kestrel Gold Inc., unsecured, due interest at prime plus 2% per annum, and due on demand.     24,303       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  
                 
      390,648       431,370  

 

F- 5
 

6. 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 nine months ended July 31, 2013, the Company issued 22,871,651 shares of common stock for the conversion of $32,500 plus accrued interest of $1,300. As at July 31, 2013, $32,500 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.

(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 nine months ended July 31, 2013, the Company issued 42,062,365 shares of common stock for the conversion of $32,500 plus accrued interest of $1,300. As at July 31, 2013, $32,500 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 nine months ended July 31, 2013, the Company issued 35,660,372 shares of common stock for the conversion of $25,000 plus accrued interest of $1,538. As at July 31, 2013, $25,000 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 17,681,232 shares of common stock for the conversion of $40,000 of the note. During the nine months ended July 31, 2013, the Company issued 15,329,249 shares of common stock for the conversion of $20,000 of the note and $220 of interest. As at July 31, 2013, $60,000 of accretion expense had been recorded.

 

F- 6
 

6. Convertible Notes Payable (continued)

(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 nine months ended July 31, 2013, the Company issued 50,974,141 shares of common stock for the conversion of $20,000 of the note and $580 of interest. As at July 31, 2013, $20,000 of accretion expense had been recorded.

(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 nine months ended July 31, 2013, the Company issued 47,892,726 shares of common stock for the conversion of $40,000 of the note and $320 of interest. As at July 31, 2013, $40,000 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 nine months ended July 31, 2013, the Company issued 118,769,285 shares of common stock for the conversion of $39,150 of the note. As at July 31, 2013, $43,158 of accretion expense had been recorded and the carrying value of the note is $4,008.

The Company paid financing costs $2,500 relating to the issuance of the note.

(h) 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. As at July 31, 2013, $3,452 of accretion expense had been recorded and the carrying value of the note is $3,452.

The Company paid financing costs of $1,500 relating to the issuance of the note.

(i) 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 Company paid financing costs $2,500 relating to the issuance of the note.

(j) On February 1, 2013, the Company entered into a Convertible Promissory Note agreement for $62,000 of advertising services. Pursuant to the agreement, the loan is convertible at any time after issuance into shares of common stock at a price of $1.0363 per share. The loan bears interest at 1% per year and the principal amount and any interest thereon are due on January 30, 2014.
F- 7
 

7. Derivative Liabilities

The conversion options of the convertible notes payable, as disclosed in Note 6, are required to be recorded as derivatives at their estimated fair values on each balance sheet date with changes in fair value reflected in the statements of operations.

The fair value of the derivative liabilities for the May 8, 2012, September 10, 2012, November 13, 2012, December 3, 2012, February 10, 2013, convertible notes were $36,123, $37,357, $36,987, $47,880, $139,369, $69,684 and $57,147 on vesting, respectively. The fair values as at July 31, 2013 and October 31, 2012 are as follows:

 

July 31,

2013

$

October 31, 2012

$

     
$25,000 convertible debenture issued September 10, 2012 66,759
$60,000 convertible debenture issued September 10, 2012 36,988
$32,500 convertible debenture issued December 3, 2012 (convertible as of June 1, 2013) 9,074
$27,500 convertible debenture issued February 16, 2013 33,294
     
  42,368 103,747

During the nine months ended July 31, 2013, the Company recorded a loss on the change in fair value of the derivative liabilities of $213,787 (2012 – $31,257).

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)
         
February 16, 2013 convertible note        
         
As at February 16, 2013 (date of vesting) 307% 0.17% 0% 1.00
As at July 31, 2013 259% 0.08% 0% 0.55
         
December 3, 2012 convertible note        
         
As at June 1, 2013 (date of vesting) 239% 0.04% 0% 0.26
As at July 31, 2013 343% 0.03% 0% 0.10

 

8. Common Stock

(a) 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.
(b) During the nine months ended July 31, 2013, the Company issued an aggregate of 333,559,789 common shares upon the conversion of $209,150 of convertible notes payable and accrued interest of $5,258 as described in Note 6.

F- 8
 

9. Share Purchase Warrants

The following table summarizes the continuity of share purchase warrants:

 

Number of

Warrants

Weighted Average Exercise Price

$

     
Balance, October 31, 2012 156,000 0.50
     
Expired (156,000) 0.50
     
Balance, July 31, 2013

10. 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 and exercisable, October 31, 2012 and July 31, 2013 2,625,000 0.30 2.21

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

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

Number of

Options

Exercise

Price

$

Expiry Date
     
2,000,000 0.15 March 3, 2015
275,000 0.50 July 23, 2017
350,000 1.00 December 18, 2017
     
2,625,000    

11. 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 Systems Ltd. (“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 four debt settlement agreements. Pursuant to the agreements, the Company would either issue 918,042 units or make cash payments of $55,083 to settle $275,413 of amounts owed to creditors. Each unit consists of one common share and one share purchase warrant to purchase an additional common share of the Company at $0.30 for two years. As of the date of this filing, the shares have not been issued.

 

F- 9
 

12. Supplemental Disclosures

 

Nine Months Ended

July 31,

2013

$

Nine Months Ended

July 31,

2012

$

Accumulated From

June 5, 2006

(Date of Inception)

to July 31,

2013

$

Non-cash investing and financing activities:      
Fair value of beneficial conversion options upon conversion of debt recorded as additional paid-in capital 476,417 476,417
Shares issued for conversion of debt and accrued interest payable 209,150 376,550

 

Supplemental Disclosures:

     
Interest paid
Income taxes paid

 

13. Restatement

 

The financial statements have been restated to account for a convertible promissory note, signed on February 1, 2013, that was previously not recorded or disclosed by the Company. On February 1, 2013, the Company entered into a convertible promissory note in exchange for advertising services with a fair value of $62,000. Under the terms of the convertible note, the amount owing is unsecured, bears, interest at 1% per annum, and is due on January 30, 2014. The note is convertible into common shares of the Company at $1.03 per share.

 

The effect of the restatement increases liabilities by $62,306, and increases the net loss for the three and nine months ended July 31, 2013 by $62,306.

 

The following tables reflect the effects of the restatements on the Company’s unaudited financial statements:

 

Condensed Balance Sheets

    July 31, 2013
    As Reported   Adjustment   As Restated
Current Liabilities                        
Accrued interest payable   $ 393,640     $ 306     $ 393,946  
Convertible notes payable     63,710       62,000       125,710  
Total Liabilities     1,842,830       62,306       1,905,136  
Stockholders’ Deficit                        
Deficit accumulated during the development stage     (15,062,771 )     (62,306 )     (15,125,077 )
Total Stockholders’ Deficit   $ (1,709,993 )   $ (62,306 )   $ (1,772,299 )

 

Condensed Statements of Operations

    For the Three Months Ended July 31, 2013
    As Reported   Adjustment   As Restated
Interest expense   $ (72,848 )   $ (157 )   $ (72,999 )
Total Other Income (Expenses)     (179,434 )     (157 )     (179,591 )
Loss from Continuing Operations     (193,238 )     (157 )     (193,395 )
Net Loss   $ (193,238 )   $ (157 )   $ (193,395 )

 

    For the Nine Months Ended July 31, 2013
    As Reported   Adjustment   As Restated
             
Advertising and marketing   $ —       $ 62,000     $ 62,000  
Total Operating Expense     85,289       62,000       147,289  
Operating Loss     (85,289 )     (62,000 )     (147,289 )
Interest expense     (142,841 )     (306 )     (143,147 )
Total Other Income (Expenses)     (580,735 )     (306 )     (581,041 )
Loss from Continuing Operations     (666,024 )     (62,306 )     (728,330 )
Net Loss   $ (666,024 )   $ (62,306 )   $ (728,330 )

 

F- 10
 

13. Restatement  (continued)

 

Condensed Statements of Operations (continued)

 

    Period from June 5, 2006 (Inception) to July 31, 2013
    As Reported   Adjustment   As Restated
             
Advertising and marketing   $ 182,182     $ 62,000     $ 244,182  
Total Operating Expense     11,652,126       62,000       11,714,126  
Operating Loss     (11,652,126 )     (62,000 )     (11,714,126 )
Interest expense     (911,655 )     (306 )     (911,961 )
Total Other Income (Expenses)     (2,121,391 )     (306 )     (2,121,697 )
Loss from Continuing Operations     (13,773,517 )     (62,306 )     (13,835,823 )
Net Loss   $ (14,979,299 )   $ (62,306 )   $ (15,041,605 )

 

Condensed Statements of Cash Flows

 

    For the Nine Months Ended July 31, 2013
Statement of Cash Flows   As Reported   Adjustment   As Restated
             
Net loss from continuing operations   $ (666,024 )   $ (62,306 )   $ (728,330 )
Issuance of notes payable for services and penalties     35,000       62,000       97,000  
Accrued interest payable   $ 69,206     $ 306     $ 69,512  

 

    Period from June 5, 2006 (Inception) to July 31, 2013
Statement of Cash Flows   As Reported   Adjustment   As Restated
             
Net loss from continuing operations   $ (13,773,517 )   $ (62,306 )   $ (13,835,823 )
Issuance of notes payable for services and penalties     125,402       62,000       187,402  
Accrued interest payable   $ 623,069     $ 306     $ 623,375  

 

 

14. Subsequent Events

(a) Subsequent to July 31, 2013, the Company issued 35,161,291 shares of common stock upon the conversion of $9,600 of principal and $1,300 of accrued interest relating to the convertible note described in Note 6(g).
(b) Subsequent to July 31, 2013, the Company issued 92,039,216 shares of common stock upon the conversion of $22,500 of principal and $970 of accrued interest relating to the convertible note described in Note 6(h).

 

 

END OF NOTES TO FINANCIALS

F- 11
 

 

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.

 

16
 

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.

 

17
 

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.

 

18
 

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.

 

19
 

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.

  

20
 

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.

 

21
 

 

Item 3. Quantitative and Qualitative Disclosure 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 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

Disclosure controls and procedures are controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by our company in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our management carried out an evaluation under the supervision and with the participation of our Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 ("Exchange Act").

 

Based upon that evaluation, our Principal Executive Officer and Principal Financial Officer have concluded that our disclosure controls and procedures were not effective as of July 31, 2013, due to the material weaknesses resulting from the Board of Directors not currently having any independent members and no director qualifies as an audit committee financial expert as defined in Item 407(d)(5)(ii) of Regulation S-K, and controls were not designed and in place to ensure that all disclosures required were originally addressed in our financial statements.

 

Changes in Internal Control Over Financial Reporting

 

Our management has also evaluated our internal control over financial reporting, and there have been no significant changes in our internal controls or in other factors that could significantly affect those controls subsequent to the date of our last evaluation.

 

The Company is not required by current SEC rules to include, and does not include, an auditor's attestation report. The Company's registered public accounting firm has not attested to Management's reports on the Company's internal control over financial reporting.

 

Limitations on Effectiveness of Controls and Procedures

 

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

 

22
 

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

 

We know of no material, existing or pending legal proceedings against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, executive officers or affiliates, or any registered or beneficial stockholder, is an adverse party or has a material interest adverse to our interest.

 

Item 1A. Risk Factors

 

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

 

 

Item 2. Unregistered Sales of Equity Securities

 

During the nine months ended July 31, 2013 we issued an aggregate of 333,559,789 shares of our common stock related to the conversion of $209,150 plus accrued interest of $5,258 under the convertible promissory notes. 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 Issuances:

 

Subsequent to July 31, 2013, the Company issued 127,200,507 shares of common stock upon the conversion of $32,100 or principal and $2,270 of accrued interest relating to the convertible note described in Note 6(g). 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.

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

None.

 

23
 
Item 6. Exhibits

 

Exhibit
No.
  Description  
     
(3)   (i) Articles of Incorporation; (ii) By-laws
     
3.1   Articles of Incorporation (incorporated by reference to our Registration Statement filed on Form SB-2 on August 20, 2004)
     
3.2   By-Laws (incorporated by reference to our Registration Statement filed on Form SB-2 on August 20, 2004)
     
3.3   Certificate of 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.

 

24
 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

    On4 Communications, Inc.
     
Date:  March 11, 2014 By: /s/ Clayton Moore
    Clayton Moore
    President, Chief Executive Officer and Director
    (Principal Executive Officer, Principal Financial
    Officer and Principal Accounting Officer)

 

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