ON4 COMMUNICATIONS INC. - Quarter Report: 2008 November (Form 10-Q)

sr10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended November 30, 2008

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

For the transition period from _________to _________

Commission File Number: 333 - 118398

SOUND REVOLUTION INC.

(Name of Small Business Issuer in its charter)

Delaware		N/A
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)


7 Vancouver Street, Suite 207
Barrie, Ontario, Canada		L4M 4M1
(Address of principal executive offices)		(Zip Code)

705 321 2428

(Issuer's telephone number)

3281 Chartwell Green

Coquitlam, British Columbia

Canada V3E 3M9

(Former name, former address, and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was require to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

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 definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer o Non-accelerated filer o Smaller reporting company þ

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

APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date:

As of December 23, 2008, the registrant’s outstanding common stock consisted of 258,444 shares.

Transitional Small Business Disclosure Format (Check one): YES o NO þ

Table of Contents

PART I - FINANCIAL INFORMATION		3
Item 1	Financial Statements	4
Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	8
Item 3	Quantitative and Qualitative Disclosure About Market Risk	8
Item 4	Controls and Procedures	9
Part II - OTHER INFORMATION		9
Item 1	Legal Proceedings	9
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	9
Item 3	Defaults Upon Senior Securities	9
Item 4	Submission of Matters to a Vote of Securities Holders	9
Item 5	Other Information	9
Item 6	Exhibits and Reports on Form 8-K	9

PART I - FINANCIAL INFORMATION

Safe Harbor Statement

Certain statements in this filing that relate to financial results, projections, future plans, events, or performance are forward-looking statements and involve significant risks and uncertainties, including, but not limited to, the following: competition, promotional costs, and risk of declining revenues. Sound Revolution Inc.’s actual results could differ materially from those anticipated in such forward-looking statements as a result of a number of factors. These forward-looking statements are made as of the date of this filing, and the company assumes no obligation to update such forward-looking statements. The following discusses our financial condition and results of operations based upon our consolidated financial statements which have been prepared in conformity with accounting principles generally accepted in the United States of America. It should be read in conjunction with our financial statements and the notes thereto included elsewhere herein. Unless otherwise noted, all dollar references herein are in US dollars.

Sound Revolution, Inc.

(A Development Stage Company)

November 30, 2008

Index
Consolidated Balance Sheets	F-1
Consolidated Statements of Operations	F-2
Consolidated Statements of Stockholders’ Deficit	F-3
Consolidated Statements of Cash Flows	F-6
Notes to the Consolidated Financial Statements	F-7

Sound Revolution, Inc.

(A Development Stage Company)

Consolidated Balance Sheets

(Expressed in US Dollars)

(Unaudited)

	November 30, 2008			February 29, 2008
	$			$
ASSETS

Current Assets

Cash		722			1,794
Prepaid expenses and other assets		10,004			11,378

Total Current Assets		10,726			13,172

Investment (Note 3)		–			10,000
Property and Equipment (Note 4)		7,586			10,110
Web Site Development Costs (Note 4)		265			33,833
Music Rights		342			342

Total Assets		18,919			67,457


LIABILITIES AND STOCKHOLDERS’ DEFICIT

Current Liabilities

Accounts payable and accrued expenses		35,492			43,241
Due to related a party (Note 5(a))		–			2,250
Note payable to related parties (Note 5(b))		558,854			441,243

Total Current Liabilities		594,346			486,734

Stockholders’ Deficit

Preferred Stock: 10,000,000 share authorized; none issued		–			–

Common Stock: 100,000,000 shares authorized, $0.0001 par value 258,444 (February 29, 2008 – 258,444) shares issued and outstanding		26			26

Additional Paid-in Capital		352,822			352,822

Deficit Accumulated During the Development Stage		(928,275	)		(772,125	)

Total Stockholders’ Deficit		(575,427	)		(419,277	)

Total Liabilities and Stockholders’ Deficit		18,919			67,457

F-1

Sound Revolution, Inc.

(A Development Stage Company)

Consolidated Statements of Operations

(Expressed in US Dollars)

(Unaudited)

	For the Three Month Period Ended			For the Three Month Period Ended			For the Nine Month Period Ended			For the Nine Month Period Ended			Accumulated From June 4, 2001 (Date of Inception)
	November 30, 2008			November 30, 2007			November 30, 2008			November 30, 2007			to November 30, 2008
	$			$			$			$			$

Sales		–			171			136			645			5,371

Cost of Sales		–			(422	)		(246	)		(1,220	)		(7,596	)

Gross Margin		–			(251	)		(110	)		(575	)		(2,225	)

Expenses

Directors fees		–			22,988			–			34,260			22,485
Marketing		–			7,639			–			12,171			56,972
Management fees (Note 5)		–			15,900			25,000			47,700			171,281
Professional fees		6,541			183			75,648			19,193			229,582
Research and development		–			–			–			30,273			77,629
Share based compensation		–			–			–			25,670			109,726
General and administrative		891			1,981			8,223			47,121			157,579
Interest expense		–			9,265			–			24,904			61,977
Depreciation and amortization		1,360			13,385			37,169			27,676			117,362

Total Expenses		8,792			71,341			146,040			268,968			1,004,593

Operating Loss		(8,792	)		(71,592	)		(146,150	)		(269,543	)		(1,006,818	)

Other Income (Loss)

Gain on issue by subsidiary of its own shares outside the consolidated group		–			(3	)		–			–			–
Non-controlling interest		–			(70	)		–			–			–
Gain on write-off of debt		–			–			–			–			88,718
Loss on sale of subsidiary		–			(175	)		–			(175	)		(175	)
Write-off of investment		–			–			(10,000	)		–			(10,000	)

Net Loss		(8,792	)		(71,840	)		(156,150	)		(269,718	)		(928,275	)

Net Loss Per Share – Basic and Diluted		(0.03	)		(0.28	)		(0.60	)		(1.05	)

Weighted Average Shares Outstanding		258,444			258,419			258,444			257,114

F-2

Sound Revolution, Inc.

(A Development Stage Company)

Consolidated Statements of Stockholders’ Equity (Deficit)

For the Period from June 4, 2001 (Date of Inception) to November 30, 2008

(Unaudited)



							Deficit Accumulated
	Common Stock				Additional Paid-in		During the
	Shares		Amount		Capital		Development Stage			Total
	#		$		$		$			$

Balance – June 4, 2001 (Date of Inception)		–		–		–		–			–

Issuance of common stock for cash:
June 15, 2001		190,476		19		781		–			800
June 27, 2001		47,619		5		7,249		–			7,254
August 31, 2001		167		–		905		–			905

Net loss for the period		–		–		–		(9,351	)		(9,351	)

Balance - February 28, 2002		238,262		24		8,935		(9,351	)		(392	)

Net loss for the year		–		–		–		(2,773	)		(2,773	)

Balance – February 28, 2003		238,262		24		8,935		(12,124	)		(3,165	)

Net loss for the year		–		–		–		(2,069	)		(2,069	)

Balance – February 29, 2004		238,262		24		8,935		(14,193	)		(5,234	)

Issuance of common stock for cash, July 2004		5,912		1		49,662		–			49,663
Issuance of common stock for professional services, July 2004		345		–		2,900		–			2,900

Net loss for the year		–		–		–		(42,380	)		(42,380	)

Balance – February 28, 2005		244,519		25		61,497		(56,573	)		4,949

Issuance of common stock for professional services, July 2005		1,985		–		25,004		–			25,004

Net loss for the year		–		–		–		(68,578	)		(68,578	)

Balance – February 28, 2006		246,504		25		86,501		(125,151	)		(38,625	)

F-3

Sound Revolution, Inc.

(A Development Stage Company)

Consolidated Statements of Stockholders’ Equity (Deficit)

For the Period from June 4, 2001 (Date of Inception) to November 30, 2008

(Unaudited)

							Deficit Accumulated
	Common Stock				Additional Paid-in		During the
	Shares		Amount		Capital		Development Stage			Total
	#		$		$		$			$

Balance – February 28, 2006		246,504		25		86,501		(125,151	)		(38,625	)

Issuance of common stock for professional services, March 2006		357		–		5,250		–			5,250
Issuance of common stock for debt settlement, April 2006		72		–		1,000		–			1,000
Issuance of common stock for management services, June 2006		476		–		5,000		–			5,000
Issuance of common stock for professional services, July 2006		314		–		12,012		–			12,012
Issuance of common stock for research and development, July 2006		95		–		1,880		–			1,880
Issuance of common stock for consulting services, July 2006		191		–		3,760		–			3,760
Issuance of common stock for consulting services, August 2006		100		–		1,974		–			1,974
Issuance of common stock for research and development, August 2006		80		–		1,508		–			1,508
Issuance of common stock for consulting services, August 2006		216		–		4,855		–			4,855
Issuance of common stock for management services, August 2006		52		–		1,364		–			1,364
Issuance of common stock for management services, August 2006		600		–		15,623		–			15,623
Issuance of common stock for management services, August 2006		138		–		3,702		–			3,702
Issuance of stock for consulting services, September 2006		–		–		2,464		–			2,464
Issuance of stock options for management services, September 2006		–		–		48,300		–			48,300
Issuance of common stock for web development services, September 2006		476		–		12,000		–			12,000
Issuance of common stock for capital equipment, September 2006		538		–		13,560		–			13,560
Issuance of common stock for research and development, September 2006		124		–		2,392		–			2,392
Issuance of common stock for promotional services, September 2006		714		–		6,300		–			6,300
Issuance of stock options for consulting services, October 2006		–		–		3,843		–			3,843
Issuance of stock options for directors’ fees, November 2006		–		–		38,200		–			38,200
Issuance of common stock for promotional services, November 2006		1,905		–		21,600		–			21,600
Issuance of common stock for research and development, December 2006		354		–		5,948		–			5,948
Net loss for the year		–		–		–		(415,178	)		(415,178	)

Balance – February 28, 2007		253,306		25		299,036		(540,329	)		(241,268	)

F-4

Sound Revolution, Inc.

(A Development Stage Company)

Consolidated Statements of Stockholders’ Equity (Deficit)

For the Period from June 4, 2001 (Date of Inception) to November 30, 2008

(Unaudited)

							Deficit Accumulated
	Common Stock				Additional Paid-in		During the
	Shares		Amount		Capital		Development Stage			Total
	#		$		$		$			$

Balance – February 28, 2007		253,306		25		299,036		(540,329	)		(241,268	)

Issuance of stock options for management services, March 2007		–		–		10,622		–			10,622
Issuance of common stock for management services, April 2007		3,571		1		22,499		–			22,500
Issuance of stock options for directors’ fees, May 2007		–		–		6,297		–			6,297
Issuance of common stock for consulting services, June 2007		763		–		7,368		–			7,368
Issuance of common stock for directors’ fees, July 2007		350		–		5,000		–			5,000
Issuance of common stock for directors’ fees, September 2007		454		–		2,000		–			2,000
Net loss for the year		–		–		–		(231,796	)		(231,796	)

Balance – February 29, 2008		258,444		26		352,822		(772,125	)		(419,277	)

Net loss for the period		–		–		–		(156,150	)		(156,150	)

Balance – November 30, 2008 (Unaudited)		258,444		26		352,822		(928,275	)		(575,427	)

F-5

Sound Revolution, Inc.

(A Development Stage Company)

Consolidated Statements of Cash Flows

(Expressed in US Dollars)

(Unaudited)

	For the Nine Month Period Ended			For the Nine Month Period Ended			Accumulated From June 4, 2001 (Date of Inception)
	November 30, 2008			November 30, 2007			to November 30, 2008
	$			$			$

Operating Activities

Net loss for the period		(156,150	)		(269,718	)		(928,275	)

Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization		37,169			27,676			117,362
Write-off of outstanding debt		–			–			(88,718	)
Shares issued for services		–			36,868			164,941
Stock options issued in exchange for services		–			25,670			109,726
Write-off of investment		10,000			–			10,000

Change in operating assets and liabilities
Prepaid expenses and other assets		1,374			(9,651	)		(10,004	)
Accounts payable and accrued expenses		(7,749	)		7,127			125,210
Accrued interest due to related parties		–			24,923			61,032

Net Cash Used In Operating Activities		(115,356	)		(157,105	)		(438,726	)

Investing Activities
Purchase of music rights		–			–			(291	)
Purchase of office equipment		–			–			(14,818	)
Web site development costs		(1,077	)		(1,800	)		(96,887	)
Investment		–			–			(10,000	)

Net Cash Flows Used In Investing Activities		(1,077	)		(1,800	)		(121,996	)

Financing Activities
Advances from related parties		115,361			168,372			497,822
Proceeds from issuance of common stock		–			–			63,622

Net Cash Flows Provided By Financing Activities		115,361			168,372			561,444

Foreign Exchange Effect on Cash		–			1,679			–

(Decrease) Increase in Cash		(1,072	)		11,146			722

Cash - Beginning of Period		1,794			6,974			–

Cash - End of Period		722			18,120			722

Non-cash Investing and Financing Activities
Common stock issued for property and equipment		–			–			13,560
Common stock issued for debt settlement		–			–			1,000

Supplemental Disclosures
Interest paid		–			–			1,082
Income taxes paid		–			–			–

F-6

Sound Revolution, Inc.

(A Development Stage Company)

Notes to Consolidated Financial Statements

(Expressed in US Dollars)

(Unaudited)

1.	Nature of Operations and Continuance of Business

Sound Revolution, Inc. (the "Company"), was incorporated under the laws of the State of Delaware. While the Company sponsored one marketing event to promote its intended purpose in fiscal year 2004 and has begun to realize nominal revenues from its website, it continues to be in the development stage. The Company is planning to pursue the business of providing tools and services for music distribution and promotion and is currently designing a website for this purpose. The Company has 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.

Going Concern

As shown in the financial statements, the Company is in the development stage and has not yet developed a commercially viable product or generated significant revenues from their intended business activities. In addition, the Company has incurred losses since inception resulting in a net accumulated deficit of $928,275 at November 30, 2008, and has used cash of $438,726 in operating activities since inception. These factors raise substantial doubt about the Company's ability 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.

The Company expects that its cash requirements over the next 12 months will not exceed $2,000,000. A major stockholder former CFO of the Company and a company controlled by that person have agreed to make loans to the Company ($558,854 has been drawn through November 30, 2008) to meet part of its capital requirements for that period. For the balance of working capital it requires for the next 12 months, the Company plans to generate cash from the sale of stock to the public and existing stockholders. When possible, the Company plans to issue stock for professional services it may require, except for services provided by the Company’s independent auditor.

The accompanying financial statements do not include any adjustments to the recorded assets or liabilities that might be necessary should the Company fail in any of the above objectives and is unable to operate for the coming year.

2. Summary of Significant Accounting Principles

Basis of Presentation and Principles of Consolidation

These consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States and are presented in US dollars, unless otherwise noted, and include the accounts of the Company and its subsidiaries, Sound Revolution Recordings, Inc., and Charity Tunes, Inc. All inter-company accounts and transactions have been eliminated. The Company’s fiscal year end is February 28.

Interim Period Consolidated Financial Statements

The interim period consolidated financial statements have been prepared by the Company pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the "SEC"). Certain information and footnote disclosure normally included in consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to such SEC rules and regulations. The interim period consolidated financial statements should be read together with the audited consolidated financial statements and accompanying notes included in the Company's audited consolidated financial statements for the year ended February 29, 2008. In the opinion of the Company, the unaudited consolidated financial statements contained herein contain all adjustments (consisting of a normal recurring nature) necessary to present a fair statement of the results of the interim periods presented.

Cash

Cash consists of funds held in checking accounts at a bank in Canada.

F-7

Sound Revolution, Inc.

(A Development Stage Company)

Notes to Consolidated Financial Statements

(Expressed in US Dollars)

(Unaudited)

2. Summary of Significant Accounting Principles (Continued)

Music Rights

In February 2003, the Company purchased for $298 ($400 Canadian) the rights to represent a musician artist in the release of his first musical album. The artist is a former officer of the Company. Music rights include non-inclusive use of and distribution rights to the songs in various multi-media formats from the musician's first album. The music rights will be tested at least annually for impairment. There has been no impairment of music rights in any of the periods presented. The cost of the music rights will be expensed upon the release of the musician's first album and realization of the related royalties. The cost of music rights will not be carried beyond expiration of the license term on August 31, 2009. Changes in foreign exchange rates since acquisition increased the carrying cost to $342.

Impairment of Long-Lived Assets

In accordance with FAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” management tests long-lived assets to be held and used for recoverability whenever events or changes in circumstances indicate that their carrying amount may not be recoverable. No impairment of intangible assets was recorded during 2008 and 2007.

Property and Equipment

Property and equipment, consisting primarily of office equipment, is stated at cost and is depreciated using the straight-line method over the estimated lives of the related assets of five years.

Website Development Costs

Website development costs are accounted for in accordance with Emerging Issues Task Force EITF 00-2, “Accounting for Web Site Development Costs,” with applicable guidance from AICPA statement of Position 98-1, “Accounting for the Costs of Computer Software Developed or Obtained for Internal Use.” The Company’s internal web site development processes are relatively short-term in nature. The costs incurred in the preliminary stages of development are expenses as incurred. Once an application has reached the development stage, internal and external costs, if direct and incremental, will be capitalized and amortized, on a straight-line basis over the estimated useful life, if management believes such costs are significant. Maintenance and enhancement costs are typically expensed as incurred unless such costs relate to substantial upgrades and enhancements to the web site that result in added functionality in which case the costs will be capitalized and amortized on a straight-line basis, over the estimated useful life, if management believes such costs are significant.

Web site development costs are amortized using the straight-line method over the estimated useful life of one year.

Revenue Recognition and Cost of Revenue

The Company recognizes revenue from the online sale music in accordance with Securities and Exchange Commission Staff Accounting Bulletin No. 104, “Revenue Recognition in Financial Statements.” The Company accounts for revenue as a principal using the guidance in EITF 99-19, “Reporting Revenue Gross as a Principal vs. Net as an Agent”. Revenue consists of the sale of music and is recognized only when the price is fixed or determinable, persuasive evidence of an arrangement exists, the product is shipped, and collectibility is reasonably assured.

Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to the useful life and recoverability of long lived assets, stock-based compensation and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

F-8

Sound Revolution, Inc.

(A Development Stage Company)

Notes to Consolidated Financial Statements

(Expressed in US Dollars)

(Unaudited)

2. Summary of Significant Accounting Principles (Continued)

Notes Payable to Related Parties

The Company has notes payable to a related party that was bearing interest at 10%. Interest was charged and was payable quarterly on any outstanding balance beginning on September 1, 2004 to February 29, 2008, (prior to that date the borrowings from the related party were non-interest bearing). Starting March 1, 2008, the notes are unsecured, non-interest bearing and payable on demand.

Research and Development Expenses

Research and development costs are expensed as incurred.

Earnings Per Share

The Company computes net income (loss) per share in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 128, "Earnings per Share". SFAS No. 128 requires presentation of both basic and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. The Company’s outstanding stock options were excluded since their effect is anti-dilutuve due to the Company’s net loss

Income Taxes

The Company accounts for income taxes using the asset and liability method in accordance with SFAS No. 109, “Accounting for Income Taxes”. The asset and liability method provides that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.

In July 2006, the FASB issued Financial Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes”, as an interpretation of FASB Statement No. 109, “Accounting for Income Taxes” (“SFAS 109”). This Interpretation clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS 109 and prescribes a recognition threshold of more-likely-than-not to be sustained upon examination. Measurement of the tax uncertainty occurs if the recognition threshold has been met. This Interpretation also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. FIN 48 is effective for fiscal year beginning after December 15, 2006. Differences between the amounts recognized in the statements of financial position prior to the adoption of FIN 48 and the amounts reported after adoption should be accounted for as a cumulative-effect adjustment recorded to the beginning balance of retained earnings. The adoption of FIN 48 had no impact to the Company. Since the Company has not filed a US federal income tax returnsince inception all tax years remain open to IRS audit.

Fair Value of Financial Instruments

Financial instruments consist of cash, accounts payable and accrued expenses, and the note payable to related parties. The fair value of these financial instruments approximates their carrying amounts due to their short-term nature and/or approximation of current market interest rates.

Stock Based Compensation

The Company records stock-based compensation in accordance with SFAS No. 123R “Share Based Payments,”,using the fair value method.

All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. Equity instruments issued to employees and the cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued.

F-9

Sound Revolution, Inc.

(A Development Stage Company)

Notes to Consolidated Financial Statements

(Expressed in US Dollars)

(Unaudited)

2. Summary of Significant Accounting Principles (Continued)

Recently Issued Accounting Pronouncements

There are no new accounting pronouncements that are expected to have a material impact on the Company’s consolidated financial statements.

3. Investment

On September 21, 2006 the Company entered into a Wholesale Digital Download and Master Tone agreement with CD Baby, Inc. to obtain the rights to sell over 1,000,000 songs and ring tones. The initial term of the agreement is for one year and shall extend on a year to year basis. The Company has paid CD Baby $10,000 for 100,000 songs (at $0.10 per song). The Company agreed to pay an additional $90,000 for the remaining 900,000 songs, which it is not obligated to do. Upon sales of the songs, the Company is obligated to pay royalties to CD Baby Inc. of between 60% and 70% of the sale price. The agreement was cancelled on September 21, 2008.Therefore the carrying cost of $10,000 was charged to operations during the fiscal quarter ended August 31, 2008.

4. Property and Equipment

			Accumulated		November 30, 2008		February 29, 2008
			Depreciation and		Net Carrying		Net Carrying
	Cost		Amortization		Value		Value
	$		$		$		$

Equipment		16,746		9,160		7,586		10,110
Web Site Development Costs		108,626		108,361		265		33,833
		125,372		117,521		7,851		43,943

5. Related Party Transactions

During the period ended November 30, 2008, a former director of the Company received $25,000 (2007 - $47,700) in management fees pursuant to a management agreement. As at November 30, 2008, $Nil (February 29, 2008 - $2,250) is owed to him.

The Company has notes payable of $558,854 (February 29, 2008 - $441,243) to a related party that was bearing interest at 10%. Interest was charged and was payable quarterly on any outstanding balance beginning on September 1, 2004 to February 29, 2008, (prior to that date the borrowings from the related parties were non-interest bearing). Starting March 1, 2008, the notes are non-interest bearing, unsecured and are payable on demand.

6. Common Stock

On June 10, 2008, the Company completed a reverse stock split on the basis of one new share of common stock in exchange for every forty-two old shares of common stock outstanding. All per share amounts have been retroactively restated to reflect the reverse stock split. The Company also increased its authorized capital from 100,000,000 to 110,000,000 shares of which 100,000,000 shares of the total authorized capital shall be common stock and 10,000,000 shares shall be preferred stock.

F-10

Sound Revolution, Inc.

(A Development Stage Company)

Notes to Consolidated Financial Statements

(Expressed in US Dollars)

(Unaudited)

7. Stock Options

The following table summarizes the continuity of the Company’s stock options:

Weighted Average

Exercise Price

Weighted Average Remaining Contractual

Life (years)

Aggregate Intrinsic Value

Outstanding, February 29, 2008

7,738

66.15

0.73

–

Granted

–

Exercised

–

Expired

(5,357

)

48.89

–

Outstanding, November 30, 2008

2,381

105.00

0.34

–

Exercisable, November 30, 2008

2,381

105.00

0.34

–

At November 30, 2008, there were no unvested stock options.

8. Commitments

On January 3, 2008, the Company through its wholly owned subsidiary Charity Tunes Inc., entered into an Agency and Promotion agreement (the “Agreement”) with World Wildlife Fund Canada (“WWF-Canada”) to raise money and awareness of WWF-Canada’s cause through the participation in promotional programs with Charity Tunes. The term of the agreement is one year, extended from year to year with a termination notice of 30 days prior to the end of a term by either party.

The Company will collect an amount equal to a minimum of 10% of the purchase price of a song or other digital content or products sold in its website for which purchasers select WWF-Canada as the recipient of the donation. Donations collected will be forwarded to WWF-Canada every calendar quarter if donations owed by Charity Tunes are at least $100.

On August 31, 2004, the Company entered into an agreement with its former director and chief financial officer, Penny Green, and Bacchus Entertainment Ltd., a company 100% owned by Penny Green, whereby the net amount of monies borrowed by the Company from Penny Green or Bacchus Entertainment would all convert to a loan payable by the Company to Bacchus Entertainment and that Bacchus Entertainment would make further loans to the Company from time to time with interest accruing at the annual rate of 10% up to an aggregate of $70,000. On November 30, 2004, pursuant an addendum, the parties agreed that interest on the loan monies would accrue quarterly and would be due within 45 days of the end of each quarter. On January 1, 2007, the loan agreement was again amended so that additional amounts loaned to the Company by Penny Green or Bacchus Entertainment would be subject to the loan agreement and so monthly payments will not be required until September 1, 2007. On June 30, 2007, this agreement was further amended to extend the payment period to January 1, 2008. On January 1, 2008, this agreement was further amended to waive the January 1, 2008 payment deadline and to make payment due on demand. On May 30, 2008, the amounts due to related parties were consolidated into one and are now due to Penny Green. Starting March 1, 2008, these amounts are non-interest bearing, unsecured and due on demand.

On October 10, 2007, the Company entered into an amendment agreement with Puretracks Inc. (“Puretracks”), whereby the Company agreed to pay to Puretracks, effective as of August 29, 2007, CDN$0.09 per track and CDN$1.08 per album downloaded from the Company’s Charity Tunes website in Canada and $0.08 per track and $0.96 per album downloaded from the Company’s Charity Tunes website in the United States.

9. Reclassifications

Certain items for the period ended November 30, 2008, have been reclassified to conform to the current period presentation.

10. Subsequent Event

During the three month period ended November 30, 2008, the Company was engaged in ongoing discussions regarding a potential merger agreement whereby the Company would become a wholly-owned subsidiary of the potential merger candidate. As of January 14, 2009, although discussions regarding the potential merger continue, there is no agreement between the Company and the potential merger candidate regarding the merger.

F-11

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED NOVEMBER 30, 2008 COMPARED TO THE NINE MONTHS ENDED NOVEMBER 30, 2007, AND FOR THE PERIOD FROM JUNE 4, 2001 (DATE OF INCEPTION) TO NOVEMBER 30, 2008.

Revenue:

During the nine months ended November 30, 2008, we realized total revenue of $136 compared to $645 for the nine months ended November 30, 2007 and we incurred a net loss of $156,150 for the nine months ended November 30, 2008 compared to a net loss of $269,718 for the same period in 2007. During the three months ended November 30, 2008, our total revenue were $0 as compared to $171 in revenue for the three months ended November 30, 2007. Also during the three months ended November 30, 2008, we incurred a net loss of $8,792 as compared to the net loss of $71,840 incurred during the same period in 2007.

From June 4, 2001 (date of inception) to November 30, 2008 we have accumulated revenue of $5,371, total expenses of $1,004,593, and a net loss of $928,275. Although we have realized nominal revenue from website activity, we still consider ourselves to be in the development stage for financial statement presentation.

Expenses:

The major components of our expenses for the nine months ended November 30, 2008 are management fees, professional fees, depreciation and amortization, and general administrative expenses which include telephone fees, couriers, postage, and corporate fees including corporate expenses, software development and office supplies.

Our management fees for the nine months ended November 30, 2008 were $25,000 compared to $47,700 for the same period ended November 30, 2007. For the three months ended November 30, 2008, our management fees were $0 compared to $15,900 for the same period in 2007. The decrease is due to the resignation of Garry Newman as our director, and to the fact that we have not yet completed any compensation arrangements regarding the compensation of our sole officer and director, Catherine LeBlanc. Our total accumulated management fees from June 4, 2001 (date of inception) to November 30, 2008 are $171,281.

For the nine months ended November 30, 2008 we did not incur any expense related to director’s fees, whereas we spent $34,260 on director’s fees during the nine months ended November 30, 2007. Our director’s fees for the three months ended November 30, 2008 were $0 compared to $22,988 for the same period ended November 30, 2007. Our total accumulated director’s fees from June 4, 2001 (date of inception) to November 30, 2008 are $22,485.

We incurred no interest expense during the nine months ended November 30, 2008. For the nine months ended November 30, 2007 our interest expense amounted to $24,904. Our interest expense for the three months ended November 30, 2008 was $0 compared to $9,265 for the same period ended November 30, 2007. The drop in the interest expense was the result of the latest amendment to the loan agreement between Penny Green, Bacchus Entertainment Ltd. and us. Our total accumulated interest expense from June 4, 2001 (date of inception) to November 30, 2008 is $61,977.

For the nine months ended November 30, 2008 our marketing expenses came to $0 as compared to $12,171 for the same period of 2007. During the three months ended November 30, 2008 we also did not incur any marketing expenses, whereas we spent $7,639 on marketing during the period ended November 30, 2007. The decrease in marketing expenses during the current fiscal year resulted from a general decrease in our marketing activities in an effort to reduce our operating costs. Our total accumulated marketing expense from June 4, 2001 (date of inception) to November 30, 2008 is $56,972.

Our general and administrative expenses for the nine months ended November 30, 2008 were $8,223 compared to $47,121 for the nine months ended November 30, 2007. During the three months ended November 30, 2008 our general and administrative expenses were $891, compared to $1,981 for the three months ended November 30, 2007. The decrease in our general and administrative expenses during the current fiscal year is mainly the result of decreased software development costs. Our accumulated general and administrative expenses from June 4, 2001 (date of inception) to November 30, 2008 are $157,579.

We did not have any research and development expenses for the nine months ended November 30, 2008, whereas we expended $30,273 on research and development in the same period of 2007 which mainly related to the development cost on our website. Our research and development costs for the three months ended November 30, 2008 and for the three months ended November 30, 2007 were $0. Our accumulated research and development costs from June 4, 2001 (date of inception) to November 30, 2008 are $77,629.

For the nine months ended November 30, 2008 we spent $75,648 on professional fees as compared to $19,193 for the same period of 2007. Our professional fees for the three months ended November 30, 2008 were $6,541 compared to $183 for the same period ended November 30, 2007. Our professional fees are mainly attributable to our auditor costs. Our total accumulated professional fees from June 4, 2001 (date of inception) to November 30, 2008 are $229,582.

During the nine months ended November 30, 2008 we had no share based compensation expense, whereas we spent $25,670 on share based compensation during same period in 2007. We had no share based compensation during the three months ended November 30, 2008 or during the same period ended November 30, 2007. From June 4, 2001 (date of inception) to November 30, 2008 we issued $109,726 in stock based compensation. The decrease in stock based compensation during our past quarterly period is the result of decreased activities and the corresponding issuance of stock as payment for consulting services, promotional services, research & development services, and for capital equipment.

Net Losses:

We incurred a net loss of $156,150 and a loss per share of $0.60 for the nine months ended November 30, 2008 as compared to a net loss of $269,718 and a loss per share of $1.05 for the same period in 2007. For the three months ended November 30, 2008 our net loss was $8,792 and our loss per share was $0.03, compared to our net loss of $71,840 and loss per share of $0.28 for the same period in 2007. Our net loss from June 4, 2001 (date of inception) to November 30, 2008 is $928,275.

Liquidity and Capital Resources:

As of November 30, 2008, we had cash of $722. We intend to continue to make financial investments in marketing, digital music rights acquisitions, technology, software development and website development. We expect to incur substantial losses over the next year.

As a result of our operating loss of $1,006,818 from inception on June 4, 2001 through November 30, 2008, a gain on the write off of debt equal to $88,718; a write off of investment equal to $10,000, and a loss of $175 incurred on the sale of our subsidiary, Buzz Tub Media Inc., we generated a net deficit accumulated during the development stage of $928,275. We met our cash requirements during the development stage through the receipt of $497,822 advanced by Penny Green, our former Director and Chief Financial Officer, and by Bacchus Entertainment Ltd. a company 100% owned by Penny Green, as well as $63,622 received in exchange for the sales of our common stock in private placements. We have generated nominal revenue in this period, and realized a negative cash flow from operations of $115,356 for the nine months ended November 30, 2008 compared to a negative cash flow from operations of $157,105 for the same period in 2007. From June 4, 2001 (date of inception) to November 30, 2008, we have realized a negative cash flow from operations of $438,726. We have achieved liquidity from June 4, 2001 (date of inception) to November 30, 2008 principally from $497,822 advanced by Penny Green and Bacchus Entertainment.

On November 30, 2004, Penny Green and Bacchus Entertainment entered into an agreement with us whereby the net amount of monies borrowed by us from Penny Green and Bacchus Entertainment would all convert to a loan owed by us to Bacchus and that Bacchus would make further loans to us from time to time with interest accruing at the annual rate of 10% up to an aggregate of $70,000. On November 30, 2004, pursuant to an addendum, the parties agreed that interest on the loan monies would accrue quarterly and would be due within 45 days of the end of each quarter. On January 1, 2007 the loan agreement was again amended so that additional amounts loaned to us by Penny Green or Bacchus Entertainment will be subject to the loan agreement and so monthly payments will not be required until September 1, 2007. On June 30, 2007 this agreement was further amended to extend the payment period to January 1, 2008. On January 1, 2008, this agreement was further amended to waive the January 1, 2008 payment deadline and to make the payment due upon demand.

On May 30, 2008, Penny Green and Bacchus Entertainment entered into an agreement with us whereby all monies and interest owed by us to Bacchus Entertainment were assigned to Penny Green. Under the agreement the parties agreed that effective as March 1, 2008, no further interest will be charged on any outstanding balance of the monies loaned and we shall pay the full amount of the loan on demand to Penny Green.

Our losses for the nine months ended November 30, 2008 were $156,150 or $17,350 per month compared to $269,718 or approximately $29,969 per month for the same period 2007.

We estimate that our expenses over the next 12 months (beginning in November 2008) will be approximately as follows:

Planned Expenses	Amount
Legal and Accounting	$30,000
Accounts Payable	$35,492
Note Payable to Related Parties	$558,854
General Administration and working capital (includes office supplies and expenses, travel)	$20,000
Total	$644,346

As of November 30, 2008, we had cash of $722 and we believe that we need approximately an additional $644,346 to meet our basic minimum capital requirements over the next 12 months.. We intend to seek additional financing of approximately $1,000,000 to cover our current debt. We will consider strategic alternatives to our current business model in order to attract financing. For example, we may decide to enter into a reverse merger agreement.

If we are unable to raise necessary capital to meet our capital requirements, we may not be able to pay our auditor which could result in a failure to comply with accounting disclosure requirements.

The effect of inflation on our operating results has not been significant. Our operations are located primarily in Canada. There are no legal or practical restrictions on our ability to transfer funds between Sound Revolution and our subsidiary companies.

Research and Development

During the nine and three months ended November 30, 2008, we incurred no expenses related to research and development. We do not anticipate that we will incur any expenses related to research and development over the next 12 months, unless we significantly change our business or enter into a reverse merger transaction.

Purchase of Significant Equipment

None.

Employees

We currently have no employees. Catherine, LeBlanc, our sole Director, President, Chief Executive Officer, Chief Financial Officer, Principal Accounting Officer, Secretary and Treasurer currently provides her services to us as a consultant and without remuneration. We anticipate entering into a consultancy agreement with Ms. LeBlanc in due course.

On September 8, 2008, Robin Ram resigned as our President, Chief Executive Officer and Director. On September 14, 2008, we accepted a resignation of Penny Green, who was our Chief Financial Officer, Secretary and Treasurer.

On September 15, 2008, Catherine LeBlanc was appointed as our sole Director, President, Chief Executive Officer, Chief Financial Officer, Principal Accounting Officer, Secretary and Treasurer. The terms of Ms. LeBlanc’s engagement and compensation for services as an officer and Director have not been finalized as of the date of this report. Also on September 15, 2008, we moved our executive office to Barrie, Ontario.

Subsequent Events

Critical Accounting Policies

Our critical accounting policies, including their underlying assumptions and judgments, are disclosed in the Notes to the consolidated Financial Statements. These policies have been consistently applied in all material respects and address such matters as revenue recognition and depreciation methods. The preparation of the financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The accounting treatment of a particular transaction is specifically dictated by generally accepted accounting principles in the United States, with no need for the application of management’s judgment. There are also areas in which management’s judgment in selecting any viable alternative would not produce a materially different result. The following are what management considers Sound Revolution’s critical accounting policies to be:

Revenue Recognition and Cost of Revenue

Stock-Based Compensation

The Company records stock-based compensation in accordance with SFAS No. 123R “Share Based Payments” using the fair value method.

All transactions in which goods or services are of consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. Equity instruments to employees and the cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued.

Known Material Trends and Uncertainties

As of November 30, 2008 we have no off balance sheet transactions that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures, or capital resources.

We believe that the above discussion contains a number of forward-looking statements. Our actual results and our actual plan of operations may differ materially from what is stated above. Factors which may cause our actual results or our actual plan of operations to vary include, among other things, decisions of our board of Directors not to pursue a specific course of action based on its re-assessment of the facts or new facts, changes in the online music sales or music distribution industry, or general economic conditions.

Item 3. Quantitative and Qualitative Disclosure About Market Risk.

Not applicable.

Item 4. Controls and Procedures.

Disclosure Controls

We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934 (the "Exchange Act"), that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized,and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of November 30, 2008. Based on the evaluation of these disclosure controls and procedures, and the material weaknesses in our internal control over financial reporting identified in our Annual Report on Form 10-K for the period ended February 29, 2008, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective.

Changes in internal control

We have not been able to implement any of the recommended changes to our internal control over financial reporting listed in our Annual Report on Form 10-K for the year ended February 29, 2008. As such, there were no changes in our internal control over financial reporting, as defined in Rule 13a-15(f) promulgated under the Exchange Act, during the quarter ended November 30, 2008, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings.

Management is not aware of any legal proceedings contemplated by any governmental authority against us. None of our directors, officers or affiliates (i) are a party adverse to us in any legal proceedings, or (ii) have an adverse interest to us in any legal proceedings.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults upon Senior Securities.

None.

Item 4. Submission of Matters to a Vote of Security Holders and Use of Proceeds.

None.

Item 5. Other Information.

On September 21, 2008 we terminated the Wholesale Digital Download and Master Tone agreement with CD Baby dated September 21, 2006.

Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

Exhibit Number	Exhibit Discription
10.1	Wholesale Digital Download and Master Tone Agreement with CD Baby dated September 21, 2006, incorporated by reference as exhibit 10.1 of our Report on Form 8-K filed September 28, 2006.
31.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	SOUND REVOLUTION INC.
	(Registrant)

Date: January 14, 2009	By: /s/ Catherine LeBlanc
	Catherine LeBlanc, Chief Executive Officer, Chief Financial Officer, President, Treasurer and Secretary