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

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended May 31, 2008

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)

Issuer's telephone number 604.376.0396

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

     Check whether the registrant (1) filed all reports required to be filed by sections 13 or 15(d) of the Exchange Act during the past 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 þ No x 

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.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes ¨  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 July 8, 2008, the registrant’s outstanding common stock consisted of 258,478 shares.

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

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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)
May 31, 2008

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F-1

(The accompanying notes are an integral part of these consolidated financial statements)

F-2

(The accompanying notes are an integral part of these consolidated financial statements)

F-3

(The accompanying notes are an integral part of these consolidated financial statements)

F-4

(The accompanying notes are an integral part of these consolidated financial statements)

F-5

(The accompanying notes are an integral part of these consolidated financial statements)

F-6

(The accompanying notes are an integral part of these consolidated financial statements)

F-7

(The accompanying notes are an integral part of these consolidated financial statements)

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 also an 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 website 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 website 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.

Website 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

(The accompanying notes are an integral part of these consolidated financial statements)

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). From March 1, 2008, the notes are unsecured, non-interest bearing and are 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.

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 since 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

(The accompanying notes are an integral part of these consolidated financial statements)

F-10

(The accompanying notes are an integral part of these consolidated financial statements)

7.     Stock Options

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

At May 31, 2008, there were no unvested stock options.

F-11

(The accompanying notes are an integral part of these consolidated financial statements)

F-12

(The accompanying notes are an integral part of these consolidated financial statements)

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

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MAY 31, 2008 COMPARED TO THE THREE MONTHS ENDED MAY 31, 2007, AND FOR THE PERIOD FROM JUNE 4, 2001 (DATE OF INCEPTION) TO MAY 31, 2008.

Revenues:

During the three months ended May 31, 2008, we realized $131 in total revenue as compared to $86 in revenue for the three months ended May 31, 2007. As of May 31, 2008, we accumulated $5,366 in revenue from our inception of June 4, 2001. During the period ended May 31, 2008, we incurred a net loss of $62,759 as compared to the net loss of $125,870 incurred during the same period in 2007.

From June 4, 2001 (date of inception) to May 31, 2008 we have accumulated total expenses of $921,217 and a net loss of $834,884. Although we have begun to realize 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 three months ended May 31, 2008 are management fees, director’s fees, interest expense, marketing, 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 three months ended May 31, 2008 were $15,750 compared to $15,900 for the same period ended May 31, 2007. Our total accumulated management fees from June 4, 2001 (date of inception) to May 31, 2008 are $162,031.

Our director’s fees for the three months ended May 31, 2008 were $0 compared to $5,323 for the same period ended May 31, 2007. Our total accumulated director’s fees from June 4, 2001 (date of inception) to May 21, 2008 are $22,485.

Our interest expense for the three months ended May 31, 2008 was $0 compared to $7,457 for the same period ended May 31, 2007. Our total accumulated interest expense from June 4, 2001 (date of inception) to May 31, 2008 is $61,977.

Our marketing expense for the three months ended May 31, 2008 was $0 compared to $0 for the same period ended May 31, 2007. Our total accumulated marketing expense from June 4, 2001 (date of inception) to May 31, 2008 is $56,972.

Our general and administrative expenses for the three months ended May 31, 2008 are $5,042 compared to $33,347 for the three months ended May 31, 2007. This decrease in general and administrative expenses is mainly the result of decreased software development costs. Our accumulated general and administrative expenses from June 4, 2001 (date of inception) to May 31, 2008 are $154,398.

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Our research and development costs for the three months ended May 31, 2008 were $0 compared to $30,273 for the same period ended May 31, 2007. The decrease in our research and development costs is due to the fact that we have capitalized those costs because development work on our website, www.charitytunes.com, is complete. Therefore, any amounts we have spent on research and development during the three month ended May 31, 2008 appear as an asset rather than as expenses on our consolidated financial statements. Our accumulated research and development costs from June 4, 2001 (date of inception) to May 31, 2008 are $77,629.

Our professional fees for the three months ended May 31, 2008 were $15,701 compared to $7,351 for the same period ended May 31, 2007. Our professional fees are mainly attributable to our auditor costs. Our total accumulated professional fees from June 4, 2001 (date of inception) to May 31, 2008 are $169,635.

We issued share based compensation of $0 during the three months ended May 31, 2008 compared to $25,670 for same period ended May 31, 2007. From June 4, 2001 (date of inception) to May 31, 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.

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Net Losses:

Our net loss for the three months ended May 31, 2008 was $62,759 and our loss per share was $0.24 compared to a net loss of $125,630 and loss per share of $0.49 for the same period in 2007. The decrease in net loss for 2007 was as a result of our capitalization of research and development costs during the fiscal year, causing those expenses to appear as an asset rather than as expenses on our consolidated financial statements. Our net loss from June 4, 2001 (date of inception) to May 31, 2008 is $834,884.

Liquidity and Capital Resources:

As of May 31, 2008, we had cash of $1,387. 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 $923,427 from inception on June 4, 2001 through May 31, 2008, and the $175 loss we incurred on the sale of our subsidiary, Buzz Tub Media Inc., we generated a net deficit accumulated during the development stage of $834,884. We met our cash requirements during the development stage through the receipt of $415,560 advanced by Penny Green, our Director and Chief Financial Officer, and by Bacchus Entertainment Ltd. (“Bacchus Entertainment”), 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 revenues in this period, and realized a negative cash flow from operations of $32,429 for the three months ended May 31, 2008 compared to a negative cash flow from operations of $66,781 for the same period in 2007. From June 4, 2001 (date of inception) to May 31, 2008, we have realized a negative cash flow from operations of $355,799. We have achieved liquidity from June 4, 2001 (date of inception) to May 31, 2008 principally from $415,560 advanced by Penny Green and Bacchus Entertainment.

On August 31, 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.

Subsequent to the year end, 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 no further interest will be charged on any outstanding balance of the monies loaned and we shall pay the full amount of the loan, being $411,017, on demand to Penny Green.

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Our losses for the three months ended May 31, 2008 were $62,759 or $20,920 per month compared to $125,630 or $41,877 per month for the same period 2007.

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

As of May 31, 2008, we had cash of $1,387 and we believe that we need approximately an additional $2,000,000 to meet our capital requirements over the next 12 months. Our intention is to seek equity financing from our existing shareholders and from friends or family of our officers and Directors through private placements. We intend to seek additional financing of approximately $2,000,000 to complete and launch our products into the market. We also intend to seek consultants willing to accept our common stock as partial or full consideration for services.

We will continue to engage outside contractors and consultants who are willing to be paid in stock rather than cash. Expenses incurred which cannot be paid in stock, such as auditors fees, will be paid in cash. If the cash in our account is insufficient to cover our auditor fees, we will cover our expenses by accessing loans from Bacchus Entertainment through our loan agreement signed on August 31, 2004 or by seeking financing through equity placements. If we are unable to raise necessary capital to meet our capital requirements, we may not be able to pay our internet hosting fees, which may mean our website and digital music would no longer be available to the public, and we may not be able to pay our auditor which could result in a failure to comply with accounting disclosure requirements.

If we are unable to raise the necessary capital to meet our capital requirements, we may not be able to pay our internet hosting fees, which may mean that our website and digital music will no longer be available to the public, or our auditor fees, which could result in our failure to comply with accounting disclosure requirements.

If we expand in the future, and if we successfully license additional music libraries or any film libraries, we will incur additional personnel costs. In order for us to attract and retain quality personnel, management anticipates that it will need to offer competitive salaries, issue common stock to consultants and employees, and grant Sound Revolution stock options to future employees. We anticipate that we will need approximately $300,000 per year beginning in mid-2008 to pay salaries to employees or consultants in working in the areas of marketing, sales, music acquisition and accounting.

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.

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Plan of Operation for the 12 Months ending May 31, 2009

Our plan is for Charity Tunes Inc. to market the website www.charitytunes.com and build alliances to increase traffic to our site. We are also looking for companies or businesses to acquire through a reverse merger.

Research and Development

During the three months ended May 31, 2008, we incurred $0 in expenses related to research and development. We do not anticipate that we will spend anything on research and development over the next 12 months.

Purchase of Significant Equipment

None.

Employees

We currently have no employees.

Subsequent Events

On June 10, 2008, our Board of Directors and holders of a majority of the outstanding shares of common stock approved (i) a 1-for-42 reverse stock split of the outstanding shares of common stock the Company and (ii) an increase in the number of authorized share capital of the 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 the authorized capital came into effect.

We amended our Articles of Incorporation to effect the increase in the authorized capital and the reverse stock split by filing a Certificate of Amendment with the Delaware Secretary of State. On June 26, 2008, as a result of the Amendment, the number of the outstanding shares of our common stock was decreased from 10,854,629 shares to 258,444 shares of common stock.

The Company’s symbol on the Over the Counter Bulletin Board has changed, effective June 26, 2008, as a result of the reverse split from “SRVN.OB” to “SRLU.OB“.

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Critical Accounting Policies

Our critical accounting policies, including their underlying assumptions and judgments, are disclosed in the Notes to the 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

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.

Stock-Based Compensation

Prior to the March 1, 2006 adoption of the Financial Accounting Standards Board (“SFAS”) Statement No. 123(R), “Share-Based Payment” (“SFAS 123R”), we accounted for stock-based compensation using the intrinsic value method prescribed in Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” and related interpretations. As permitted by SFAS Statement No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”), stock-based compensation was included as a pro forma disclosure in the notes to the consolidated financial statements. We had no employee stock-based compensation issued and outstanding prior to March 1, 2006.

Effective March 1, 2006, we adopted the fair value recognition provisions of SFAS 123R using the modified-prospective transition method. Under this transition method, stock-based compensation expenses are recognized in the consolidated financial statements for granted, modified, or settled stock options. Compensation expenses recognized include the estimated expenses for stock options granted on and subsequent to March 1, 2006, based on the grant date fair value estimated in accordance with the provisions of SFAS 123R, and the estimated expenses for the portion vesting in the period for options granted prior to, but not vested as of March 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123. Results for prior periods have not been restated, as provided for under the modified-prospective method.

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Known Material Trends and Uncertainties

As of May 31, 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, revenues 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.

Related Party Transactions

During the three months period ended May31, 2008, we paid $15,750 to our President and Chief Executive Officer in management fees pursuant to a management agreement. As at May 31, 2008, $2,250 is owed to him.

On May 30, 2008 Penny Green and Bacchus Entertainment Ltd. 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 no further interest will be charged on any outstanding balance of the monies loaned and we shall pay the full amount of the loan, being $415,560 as of May 30, 2008, on demand to Penny Green.

Item 3. Quantitative and Qualitative Disclosure About Market Risk.

Not applicable.

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Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)). Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Because of our inherent limitations, our internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Our Chief Executive Officer and Chief Financial Officer assessed the effectiveness of our internal control over financial reporting as of February 29, 2008. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control — Integrated Framework.

Management conducted a walk through of the procedures and controls documented in this memo or relied on personal knowledge where no walk through was possible in order to test the effectiveness of our internal control over financial reporting.

A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. In its assessment of the effectiveness of internal control over financial reporting as of February 29, 2008, we determined that there were control deficiencies that constituted material weaknesses, as described below.

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The recommendations to remediate these deficiencies are as follows:

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

As a result of the material weaknesses described above, management has concluded that the Company did not maintain effective internal control over financial reporting as of February 29, 2008 based on criteria established in Internal Control—Integrated Framework issued by COSO

We did not change our internal control over financial reporting during our last fiscal quarter of 2008 in connection with the results of Management’s report, nor have we made any changes to our internal control over financial reporting as of May 31, 2008.

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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 are (i) 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.

On June 10, 2008, holders of a majority (72%) of the outstanding shares of our common stock approved (i) a 1-for-42 reverse stock split of the outstanding shares of our common stock and (ii) an increase in the number of our authorized share capital from 100,000,000 to 110,000,000 shares, of which 100,000,000 are common and 10,000,000 are preferred shares. As the result of the reverse split, our issued and outstanding capital was decreased from 10,854,629 to 258,444 shares of common stock. We amended our Articles of Incorporation to effect the aforementioned changes by filing a Certificate of Amendment with the Delaware Secretary of the State.

Item 5. Other Information.

None.

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Item 6. Exhibits and Reports on Form 8-K

(a) Exhibits

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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.

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