ITEM
2.
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MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF OPERATION
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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.
On
October 11, 2013, the Financial Industry Regulatory Authority (“FINRA”) approved a reverse stock split (the “Reverse
Split”) of the common shares of the Company, whereby every four hundred and fifty (450) old shares of the Company’s
common stock shall be exchanged for one (1) new share of the Company’s common stock. As a result, the issued and outstanding
shares of common stock of the Company decreased from five hundred ninety nine million, six hundred fifty seven thousand, three
hundred and forty six (599,657,346) shares prior to the Reverse Split to one million, three hundred thirty two thousand, five
hundred seventy two (1,332,572) shares following the Reverse Split. The Reverse Split became effective on October 15, 2013.
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:
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1.
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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;
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2.
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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;
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3.
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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
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4.
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NetCents will file
all required documentation with the Province of Alberta to effect the share exchange.
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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 $Nil in research and development expenditures over the last two fiscal years.
Employees
As
of January 31, 2014, our only employees are our directors and officers. We plan to hire additional employees when circumstances
warrant.
Results
of Operations
Three
Months Ended January 31, 2014 and January 31, 2013, and the Period from June 5, 2006 (Date of Inception) to January 31, 2014.
Our results
of operations are presented below:
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Accumulated from
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June 5, 2006
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Three Months
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Three Months
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(Date of
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Ended
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Ended
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Inception) to
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January 31,
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January 31,
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January 31,
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2014
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2013
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2014
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(unaudited)
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(unaudited)
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(unaudited)
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($)
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($)
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($)
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Revenue
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Nil
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Nil
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Nil
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Total Operating Expenses
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15,447
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47,755
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11,748,170
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Total Other Expenses
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228,258
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266,612
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2,514,191
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Net Loss from continuing operations
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(243,705)
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(314,367)
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(14,262,361)
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From our
inception on June 5, 2006 to January 31, 2014, we did not generate any revenue.
Expenses
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Accumulated
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from
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Three Months
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Three Months
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June 5, 2006
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Ended
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Ended
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(Date of
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January 31,
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January 31,
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Inception) to
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2014
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2013
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January 31, 2014
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(unaudited)
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(unaudited)
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(unaudited)
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($)
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($)
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($)
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Advertising and Marketing
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Nil
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Nil
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244,182
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Amortization of intangible assets
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Nil
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Nil
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18,138
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Amortization of property and equipment
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Nil
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Nil
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32,677
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Consulting fees
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Nil
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5,232
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2,173,938
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Foreign exchange (gain) loss
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(10,429
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1,241
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239,533
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General and administrative
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352
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2,991
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1,128,017
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Impairment of goodwill
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Nil
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Nil
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3,274,109
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Impairment of assets
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Nil
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Nil
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2,220,609
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Management fees
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Nil
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15,610
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1,226,409
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Payroll
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Nil
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Nil
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29,516
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Professional fees
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25,524
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22,681
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842,682
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Research and development
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Nil
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Nil
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318,360
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Our
total expenses during the three months ended January 31, 2014 were $243,705 which consisted of $10,429 in foreign exchange gain,
$352 in general and administrative expenses, $NIL in management fees, and $25,524 in professional fees. During this period we
also incurred $37,997 in accretion of discounts on convertible notes payable, $953 in amortization of deferred financing costs,
$45,511 in interest expenses and $144,097 in loss on change in fair value of derivative liabilities.
Our
total expenses during the three months ended January 31, 2013 were $314,367 which consisted of $5,232 in consulting fees, $1,241
in foreign exchange loss, $2,991 in general and administrative expenses, $15,610 in management fees and $22,681 in professional
fees. During this period we also incurred $80,124 in accretion of discounts on convertible notes payable, $2,722 in amortization
of deferred financing costs, $44,355 in the form of interest expenses and $139,411 in loss on change in fair value of derivative
liabilities.
Our
total operating expenses from our inception on June 5, 2006 to January 31, 2014 were $11,748,170 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, $239,533 in foreign exchange loss, $1,128,017 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, $842,682
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 January 31, 2014 compared to the same period in 2013 was primarily
due to decreases in general and administrative expenses and management fees and during the most recent period.
During
the three months ended January 31, 2014 we incurred a $15,447 operating loss, and a net loss of $243,705. During the same period
in fiscal 2013 we incurred an operating loss of $47,755 and a net loss of $314,367. We experienced a net loss per share of $0.13
during the three months ended January 31, 2014 and $0.89 during the same period ended 2013. From our inception on June 5, 2006
to January 31, 2014 we incurred a total of $11,748,170 in operating loss, incurred a $1,205,782 loss from discontinued operations
and incurred a net loss $15,468,143.
Liquidity
and Capital Resources
Working
Capital
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At
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At
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January 31,
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October 31,
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2014
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2013
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($)
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($)
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Current Assets
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116,669
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121,090
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Current Liabilities
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2,197,713
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1,977,748
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Working Capital/(Deficit)
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(2,081,044
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)
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(1,856,658
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Cash Flows
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Period from
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Three Months
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Three Months
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Inception
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Ended
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Ended
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(June 5, 2006)
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January 31,
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January 31,
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to January 31,
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2014
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2013
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2014
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($)
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($)
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($)
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Net Cash used in Operating Activities
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(4,325)
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(35,025)
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(2,903,903)
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Net Cash used in Investing Activities
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4,421
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(15,491
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(1,429,868)
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Net Cash provided by Financing Activities
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(96)
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50,103
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4,281,620
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Net Increase (Decrease) in Cash During Period
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(370)
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Nil
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As
of January 31, 2014, we had $Nil in cash, $116,669 in total current assets, $2,197,713 in total current liabilities and a working
capital deficit of $2,081,044. As of October 31, 2013, we had working capital deficit of $1,856,658.
During
the three months ended January 31, 2014, we spent $4,325 on operating activities, compared to spending of $35,025 on operating
activities during the same period in fiscal 2013. The decrease in our expenditures on operating activities during the three months
ended January 31, 2014 was largely due to the fact that we had limited cash flows from financing activities, which restricted
the amount of operating expenditure that we incurred during the period. From our inception on June 5, 2006 to January 31, 2014
we spent $2,903,903 on operating activities.
During
the three months ended January 31, 2014, we received $4,421 on investing activities, whereas we spent $15,491 on investing activities
during the same period in fiscal 2013. From our inception on June 5, 2006 to January 31, 2014 we spent $1,429,868 on investing
activities, the bulk of which was in the form of advances for notes receivable of $1,114,182, loan receivables of $11,669 and
the acquisition of intangible assets of $182,687.
During
the three months ended January 31, 2014 we spent $96 in financing activities related to our bank indebtedness. From our inception
on June 5, 2006 to January 31, 2014, we received $4,281,620 from financing activities, primarily in the form of proceeds from
the issuance of our common stock and preferred stock and proceeds from notes payable and convertible notes payable.
For
the next 12 months (beginning October 2013), we estimate our planned expenses to be approximately $1,400,000, as summarized in
the table below:
Description
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Potential
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Estimated
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Completion
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Expenses
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Date
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($)
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General and administrative
expenses
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12 months
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250,000
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Professional fees
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12 months
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150,000
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Unallocated working capital
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12 months
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100,000
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Debt repayment
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12 months
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900,000
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Total
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1,400,000
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Based
on our planned expenditures, we require additional funds of approximately $1,400,000 to proceed with our business plan over the
next 12 months (beginning October 2013). If we are not able to obtain additional financing on a timely basis, we will be unable
to conduct our operations as planned, and we will not be able to meet our obligations as they become due. In such event, we will
be forced to scale down or perhaps even cease our operations.
Future
Financings
We
have not generated significant revenues since inception and are unlikely to generate significant revenues or earnings in the immediate
or foreseeable future. We rely upon the sale of our securities and proceeds from related parties to fund our operations. We anticipate
that we will incur substantial losses for the foreseeable future, and we are dependent upon obtaining outside financing to carry
out our operations.
We
will require approximately $1,400,000 over the next 12 months (beginning October 2013) to enable us to proceed with our plan of
operations, including paying our ongoing expenses. These cash requirements are in excess of our current cash and working capital
resources. Accordingly, we intend to raise funds from private placements, loans or possibly a registered public offering (either
self-underwritten or through a broker-dealer). At this time we do not have a commitment from any broker-dealer to provide us with
financing, and there is no guarantee that any financing will be available to us or if available, on terms that will be acceptable
to us.
If
we are unable to obtain the necessary additional financing, then we plan to reduce the amounts that we spend on our operations,
our professional fees and our general and administrative expenses so as not to exceed the amount of capital resources that are
available to us. If we do not secure additional financing our current cash reserves and working capital will be not be sufficient
to enable us to sustain our operations for the next 12 months, even if we do decide to scale them down.
Going
Concern
Our
financial statements for the three months ended January 31, 2014 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 months ended January 31, 2014. 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 January 31, 2014 and 2013, 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.