ON4 COMMUNICATIONS INC. - Quarter Report: 2013 April (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the quarterly period ended | April 30, 2013 |
or
| ¨ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| For the transition period from | to |
| Commission File Number | 001-34297 |
| ON4 COMMUNICATIONS, INC. |
| (Exact name of registrant as specified in its charter) |
| Delaware | 98-0540536 | |
| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
| Suite 1704 – 1188 West Pender Street, Vancouver, BC, Canada | V6E 0A2 |
| (Address of principal executive offices) | (Zip Code) |
| (604) 620-6879 |
| (Registrant’s telephone number, including area code) |
| Suite 102 – 628 West 12th Avenue, Vancouver, BC, Canada, V5Z 1M8 |
| (Former name, former address and former fiscal year, if changed since last report) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
x YES ¨ NO
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
x YES ¨ NO
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ¨ | Accelerated filer ¨ | ||
| Non-accelerated filer | ¨ | (Do not check if a smaller reporting company) | Smaller reporting company | x |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act
¨ YES x NO
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court.
¨ YES ¨ NO
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
311,505,897 common shares issued and outstanding as of June 19, 2013.
Table of Contents
| PART I – FINANCIAL INFORMATION | 3 | |
| Item 1. | Financial Statements | 3 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 5 |
| Item 3. | Quantitative and Qualitative Disclosure About Market Risk | 12 |
| Item 4. | Controls and Procedures | 13 |
| PART II – OTHER INFORMATION | 13 | |
| Item 1. | Legal Proceedings | 13 |
| Item 2. | Unregistered Sales of Equity Securities | 13 |
| Item 3. | Defaults Upon Senior Securities | 13 |
| Item 4. | Mine Safety Disclosures | 13 |
| Item 5. | Other Information | 14 |
| Item 6. | Exhibits | 14 |
| SIGNATURES | 16 | |
| 2 |
PART I – FINANCIAL INFORMATION
| Item 1. | Financial Statements |
The unaudited interim financial statements of On4 Communications, Inc. follow. These statements are presented in U.S. dollars and are prepared in accordance with generally accepted accounting principles in the United States.
| 3 |
ON4 COMMUNICATIONS INC.
Financial Statements
Six Months Ended April 30, 2013 and 2012
(Expressed in US dollars)
ON4 COMMUNICATIONS INC.
(A Development Stage Company)
Balance Sheets
(Expressed in US Dollars)
| April 30, | October 31, | |||||||
| 2013 | 2012 | |||||||
| $ | $ | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash | – | 370 | ||||||
| Loan receivable (Note 3) | 132,339 | 78,202 | ||||||
| Total Current Assets | 132,339 | 78,572 | ||||||
| Deferred financing costs (Note 6) | 4,246 | 3,877 | ||||||
| Total Assets | 136,585 | 82,449 | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current Liabilities | ||||||||
| Bank indebtedness | 390 | – | ||||||
| Accounts payable and accrued liabilities | 681,625 | 647,951 | ||||||
| Accrued interest payable | 376,946 | 329,692 | ||||||
| Due to related parties (Note 4) | 237,332 | 238,867 | ||||||
| Notes payable (Note 5) | 391,160 | 431,370 | ||||||
| Convertible notes payable, net of unamortized discount of $43,848 and $44,385, respectively (Note 6) | 73,652 | 65,615 | ||||||
| Derivative liabilities (Note 7) | 101,439 | 103,747 | ||||||
| Total Liabilities | 1,862,544 | 1,817,242 | ||||||
| Nature of Operations and Continuance of Business (Note 1) | ||||||||
| Commitments (Note 11) | ||||||||
| Subsequent Events (Note 13) | ||||||||
| Stockholders’ Deficit | ||||||||
| Preferred stock: 30,000,000 shares authorized, non-voting, no par value; No shares issued and outstanding | – | – | ||||||
| Common stock: 600,000,000 shares authorized, $0.0001 par value; 284,755,897 shares issued and outstanding (October 31, 2012 – 120,939,534) | 28,475 | 12,094 | ||||||
| Additional paid-in capital | 13,045,099 | 12,579,860 | ||||||
| Common stock issuable | 70,000 | 70,000 | ||||||
| Deficit accumulated during the development stage | (14,869,533 | ) | (14,396,747 | ) | ||||
| Total Stockholders’ Deficit | (1,725,959 | ) | (1,734,793 | ) | ||||
| Total Liabilities and Stockholders’ Deficit | 136,585 | 82,449 | ||||||
(The accompanying notes are an integral part of these unaudited financial statements)
| F-1 |
ON4 COMMUNICATIONS INC.
(A Development Stage Company)
Statements of Operations
(Expressed in US Dollars)
(Unaudited)
| Three Months Ended | Three Months Ended | Six Months Ended | Six Months Ended | Accumulated From June 5, 2006 (Date of Inception) | ||||||||||||||||
| April 30, | April 30, | April 30, | April 30, | to April 30, | ||||||||||||||||
| 2013 | 2012 | 2013 | 2012 | 2013 | ||||||||||||||||
| $ | $ | $ | $ | $ | ||||||||||||||||
| Revenue | – | – | – | – | – | |||||||||||||||
| Operating Expenses | ||||||||||||||||||||
| Advertising and marketing | – | – | – | – | 182,182 | |||||||||||||||
| Amortization of intangible assets | – | – | – | – | 18,138 | |||||||||||||||
| Amortization of property and equipment | – | – | – | 241 | 32,677 | |||||||||||||||
| Consulting fees | – | 48,750 | 5,232 | 48,750 | 2,173,938 | |||||||||||||||
| Foreign exchange loss | (1,259 | ) | 5,085 | (18 | ) | 2,399 | 254,784 | |||||||||||||
| General and administrative | 5,843 | 11,544 | 8,834 | 12,980 | 1,122,838 | |||||||||||||||
| Impairment of goodwill | – | – | – | – | 3,274,109 | |||||||||||||||
| Impairment of assets | – | – | – | 885 | 2,220,609 | |||||||||||||||
| Management fees (Note 4) | – | 16,706 | 15,610 | 27,655 | 1,222,381 | |||||||||||||||
| Payroll | – | – | – | – | 29,516 | |||||||||||||||
| Professional fees | 19,146 | 19,369 | 41,827 | 47,498 | 788,790 | |||||||||||||||
| Research and development | – | – | – | – | 318,360 | |||||||||||||||
| Total Operating Expenses | 23,730 | 101,454 | 71,485 | 140,408 | 11,638,322 | |||||||||||||||
| Operating Loss | (23,730 | ) | (101,454 | ) | (71,485 | ) | (140,408 | ) | (11,638,322 | ) | ||||||||||
| Other Income (Expense) | ||||||||||||||||||||
| Accretion of discounts on convertible notes payable (Note 6) | (72,913 | ) | – | (153,037 | ) | – | (391,152 | ) | ||||||||||||
| Amortization of deferred financing costs | (3,409 | ) | – | (6,131 | ) | – | (16,254 | ) | ||||||||||||
| Gain on settlement of debt | – | – | – | – | 807,352 | |||||||||||||||
| Interest and other income | – | – | – | – | 181,682 | |||||||||||||||
| Interest expense | (25,644 | ) | (25,462 | ) | (69,999 | ) | (63,894 | ) | (838,813 | ) | ||||||||||
| Loss on change in fair value of derivative liabilities (Note 7) | (32,723 | ) | – | (172,134 | ) | – | (570,590 | ) | ||||||||||||
| Write-off of note receivable | – | – | – | – | (1,114,182 | ) | ||||||||||||||
| Total Other Income (Expense) | (134,689 | ) | (25,462 | ) | (401,301 | ) | (63,894 | ) | (1,941,957 | ) | ||||||||||
| Loss from Continuing Operations | (158,419 | ) | (126,916 | ) | (472,786 | ) | (204,302 | ) | (13,580,279 | ) | ||||||||||
| Discontinued Operations | ||||||||||||||||||||
| Loss from discontinued operations | – | – | – | – | (1,282,616 | ) | ||||||||||||||
| Gain on disposal of discontinued operations | – | – | – | – | 76,834 | |||||||||||||||
| Loss from Discontinued Operations | – | – | – | – | (1,205,782 | ) | ||||||||||||||
| Net Loss | (158,419 | ) | (126,916 | ) | (472,786 | ) | (204,302 | ) | (14,786,061 | ) | ||||||||||
| Net Loss Per Share – Basic and Diluted | ||||||||||||||||||||
| Continuing operations | – | – | – | – | ||||||||||||||||
| Discontinued operations | – | – | – | – | ||||||||||||||||
| Weighted Average Shares Outstanding | 228,570,000 | 67,108,000 | 200,467,000 | 67,619,000 | ||||||||||||||||
(The accompanying notes are an integral part of these unaudited financial statements)
| F-2 |
ON4 COMMUNICATIONS INC.
(A Development Stage Company)
Statements of Cash Flows
(Expressed in US Dollars)
(Unaudited)
| Six Months Ended April 30, 2013 $ | Six Months Ended April 30, 2012 $ | Accumulated From June 5, 2006 (Date of Inception) to April 30, 2013 $ | ||||||||||
| Operating Activities | ||||||||||||
| Net loss from continuing operations | (472,786 | ) | (204,302 | ) | (13,580,279 | ) | ||||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||
| Accretion of discounts on convertible notes payable | 153,037 | – | 391,152 | |||||||||
| Amortization of property and equipment | – | 241 | 32,677 | |||||||||
| Amortization of intangible assets | – | – | 18,138 | |||||||||
| Amortization of deferred financing costs | 6,131 | 1,527 | 16,254 | |||||||||
| Gain on settlement of debt | – | – | (807,352 | ) | ||||||||
| Impairment of goodwill | – | – | 3,274,109 | |||||||||
| Impairment of assets | – | 885 | 2,220,609 | |||||||||
| Issuance of notes payable for services and penalties | – | – | 90,402 | |||||||||
| Issuance of shares for services | – | – | 576,750 | |||||||||
| Loss on change in fair value of derivative liabilities | 172,134 | – | 570,590 | |||||||||
| Stock-based compensation | – | 48,750 | 1,136,981 | |||||||||
| Write-off of notes receivable | – | – | 1,114,182 | |||||||||
| Changes in operating assets and liabilities: | ||||||||||||
| Accounts receivable | – | – | (5,431 | ) | ||||||||
| Prepaid expenses and deposits | – | – | (10,678 | ) | ||||||||
| Bank indebtedness | 390 | – | 390 | |||||||||
| Accounts payable and accrued liabilities | 52,239 | (1,344 | ) | 887,796 | ||||||||
| Accrued interest payable | 51,932 | 47,052 | 605,795 | |||||||||
| Due to related parties | (1,535 | ) | 28,566 | 633,334 | ||||||||
| Net Cash Used In Operating Activities | (38,458 | ) | (78,625 | ) | (2,834,582 | ) | ||||||
| Investing Activities | ||||||||||||
| Acquisition of intangible assets | – | – | (182,687 | ) | ||||||||
| Cash acquired in reverse merger | – | – | 1,523 | |||||||||
| Cash from disposition of subsidiary | – | – | 15,709 | |||||||||
| Loan receivable | (54,137 | ) | (35,095 | ) | (132,339 | ) | ||||||
| Acquisition of property and equipment | – | – | (33,562 | ) | ||||||||
| Advances for note receivable | – | – | (1,114,182 | ) | ||||||||
| Net Cash Used In Investing Activities | (54,137 | ) | (35,095 | ) | (1,445,538 | ) | ||||||
| Financing Activities | ||||||||||||
| Proceeds from issuance of common stock | – | – | 1,821,267 | |||||||||
| Proceeds from issuance of preferred stock | – | – | 1,000,000 | |||||||||
| Proceeds from notes payable and convertible notes payable | 98,935 | 115,000 | 1,038,457 | |||||||||
| Repayment of notes payable | – | – | (81,250 | ) | ||||||||
| Payment of deferred financing costs | (6,500 | ) | – | (20,500 | ) | |||||||
| Proceeds from related parties | – | – | 561,935 | |||||||||
| Repayments to related parties | – | – | (84,780 | ) | ||||||||
| Share issuance costs | – | – | (8,000 | ) | ||||||||
| Net Cash Provided By Financing Activities | 92,435 | 115,000 | 4,227,129 | |||||||||
| Effects of Exchange Rate Changes on Cash | (210 | ) | – | 54,514 | ||||||||
| Discontinued Operations: | ||||||||||||
| Operating activities | – | – | (119,701 | ) | ||||||||
| Investing activities | – | – | (661,509 | ) | ||||||||
| Financing activities | – | – | 779,687 | |||||||||
| Net Cash Used in Discontinued Operations | – | – | (1,523 | ) | ||||||||
| Increase (Decrease) in Cash | (370 | ) | 1,280 | – | ||||||||
| Cash - Beginning of Period | 370 | – | – | |||||||||
| Cash - End of Period | – | 1,280 | – | |||||||||
Supplemental Disclosures (Note 12)
(The accompanying notes are an integral part of these unaudited financial statements)
| F-3 |
ON4 COMMUNICATIONS INC.
(A Development Stage Company)
Notes to the Financial Statements
April 30, 2013
(Expressed in US dollars)
(Unaudited)
| 1. | Basis of Presentation |
These interim unaudited financial statements of On4 Communications, Inc. (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Securities and Exchange Commission (“SEC”) Form 10-Q. They do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Therefore, these financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto for the year ended October 31, 2012, included in the Company’s Annual Report on Form 10-K filed on February 13, 2013 with the SEC.
The financial statements included herein are unaudited; however, they contain all normal recurring accruals and adjustments that, in the opinion of management, are necessary to present fairly the Company’s financial position at April 30, 2013, and the results of its operations and cash flows for the three months ended April 30, 2013. The results of operations for the three months ended April 30, 2013, are not necessarily indicative of the results to be expected for future quarters or the full year.
Sound Revolution Inc. (the "Company"), was incorporated on June 4, 2001 under the laws of the State of Delaware and on October 2, 2009 changed its name to On4 Communications, Inc. On May 1, 2009, the Company merged with On4 Communications, Inc. (“On4”), an Arizona corporation incorporated on June 5, 2006. Pursuant to the terms of the merger agreement, the Company acquired all assets and liabilities of On4 by issuing new shares to all former shareholders of On4 on a 1-to-1 basis. The Company issued 27,955,089 common shares to the former shareholders of On4 and the merger was accounted for as a “reverse merger” using the purchase method of accounting, with the former shareholders of On4 controlling 68% of the issued and outstanding common shares of the Company after the closing of the transaction. Accordingly, On4 was deemed to be the acquirer for accounting purposes and the financial statements are presented as a continuation of On4 and include the results of operations of On4 since incorporation on June 5, 2006, and the results of operations of the Company since the date of acquisition on May 1, 2009. On May 3, 2012, the Company’s shareholders approved a name change to NetCents Systems International Ltd., however, this has not been declared effective as of the date of issuance of these financial statements.
On4 is in the business of manufacturing two-way communication and location devices with applications that include tracking people, pets, assets, and inventory, among others. The Company had two wholly-owned subsidiaries: (i) Sound Revolution Recordings Inc., which was incorporated in British Columbia, Canada on June 20, 2001, for the purpose of carrying on music marketing services in British Columbia, and (ii) Charity Tunes Inc., which was incorporated in the State of Delaware on June 27, 2005, for the purpose of operating a website for the distribution of songs online. On March 16, 2011, the Company disposed its two wholly owned subsidiaries, Sound Revolution Recordings Inc., and Charity Tunes Inc., for consideration of $15,000 and 6,300 shares of the acquirer’s common stock. The Company is a Development Stage Company, as defined by Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 915, Development Stage Entities, and has not yet generated significant revenues from their intended business activities.
Going Concern
These financial statements have been prepared on a going concern basis, which implies that the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The Company has not generated significant revenues since inception and is unlikely to generate significant revenue or earnings in the immediate or foreseeable future. As at April 30, 2013, the Company has not generated any revenues since inception, has a working capital deficiency of $1,730,205 and has an accumulated deficit of $14,869,533 since inception. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability of the Company to obtain necessary equity financing to continue operations, and the attainment of profitable operations. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. These financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
The Company will need additional working capital to continue or to be successful in any future business activities. Therefore, continuation of the Company as a going concern is dependent upon obtaining the additional working capital necessary to accomplish its objective. Management plans to seek debt or equity financing, or a combination of both, to raise the necessary working capital.
| F-4 |
ON4 COMMUNICATIONS INC.
(A Development Stage Company)
Notes to the Financial Statements
April 30, 2013
(Expressed in US dollars)
(Unaudited)
| 1. | Summary of Significant Accounting Principles |
Comprehensive Loss
ASC 220, “Comprehensive Income” establishes standards for the reporting and display of comprehensive income and its components in the financial statements. As at April 30, 2013 and October 31, 2012, the Company had no items that represent comprehensive income or loss.
Recent Accounting Pronouncements
The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
| 3. | Loan Receivable |
On December 15, 2011, the Company entered into the share exchange agreement with NetCents Systems Ltd. (“NetCents”), as described in Note 11. As at April 30, 2013, the Company was owed $132,339 (October 31, 2012 - $78,202) for expenses paid on behalf of NetCents. The amount is unsecured, non-interest bearing and due on demand.
| 4. | Related Party Transactions |
| (a) | As at April 30, 2013, the Company owed $26,965 (October 31, 2012 - $31,200) to the former Chief Financial Officer of the Company. The amounts owing are unsecured, non-interest bearing, and due on demand. |
| (b) | As at April 30, 2013, the Company owed $2,159 (October 31, 2012 - $2,329) to the Chief Executive Officer of the Company. The amounts owing are unsecured, non-interest bearing, and due on demand. |
| (c) | As at April 30, 2013, the Company owed $205,338 (October 31, 2012 - $205,338) to the former Chief Executive Officer of the Company. The amounts owing are unsecured, non-interest bearing, and due on demand. |
| (d) | As at April 30, 2013, the Company owed $2,870 (October 31, 2012 - $Nil) to the Chief Operating Officer of the Company. The amounts owing are unsecured, non-interest bearing, and due on demand. |
| (e) | During the three months ended April 30, 2012, the Company incurred $nil (2012 - $10,949) of management fees to the former Chief Financial Officer of the Company. |
| 5. | Notes Payable |
| April 30, 2013 $ | October 31, 2012 $ | |||||||
| Kestrel Gold Inc., unsecured, due interest at prime plus 2% per annum, and due on demand. | 24,815 | 25,025 | ||||||
| Scottsdale Investment Corporation, unsecured, due interest at 12% per annum, and due on demand. | 319,980 | 319,980 | ||||||
| Gordon Jessop, unsecured, due interest at 5% per annum, and due on demand | 46,365 | 86,365 | ||||||
| 391,160 | 431,370 | |||||||
| F-5 |
ON4 COMMUNICATIONS INC.
(A Development Stage Company)
Notes to the Financial Statements
April 30, 2013
(Expressed in US dollars)
(Unaudited)
| 6. | Convertible Notes Payable |
| (a) | On May 8, 2012, the Company entered into a convertible promissory note agreement for $32,500. Pursuant to the terms of the agreement, the loan is unsecured, bears interest at 8% per annum, and is due on February 11, 2013. Furthermore, the note is convertible 180 days after issuance into shares of common stock at a variable conversion price equal to 51% of the average of the lowest three closing bid prices for the common stock during the 10 trading days prior to the date of the conversion notice. Due to this provision, the embedded conversion option qualifies for derivative accounting under ASC 815-15 “Derivatives and Hedging”. The fair value of the derivative liability resulted in a full discount to the note payable of $32,500. The carrying value of the convertible note will be accreted over the term of the convertible note up to the value of $32,500. During the six months ended April 30, 2013, the Company issued 22,871,651 shares of common stock for the conversion of $32,500 plus accrued interest of $1,300. As at April 30, 2013, $32,500 of accretion expense had been recorded upon the conversion of the note. |
The Company paid financing costs of $2,500 relating to the issuance of the note.
| (b) | On August 7, 2012, the Company entered into a convertible promissory note agreement for $32,500. Pursuant to the terms of the agreement, the loan is unsecured, bears interest at 8% per annum, and is due on May 9, 2013. Furthermore, the note is convertible 180 days after issuance into shares of common stock at a variable conversion price equal to 51% of the average of the lowest two closing bid prices for the common stock during the 60 trading days prior to the date of the conversion notice. Due to this provision, the embedded conversion option qualifies for derivative accounting under ASC 815-15 “Derivatives and Hedging”. The fair value of the derivative liability resulted in a full discount to the note payable of $32,500. The carrying value of the convertible note will be accreted over the term of the convertible note up to the value of $32,500. During the six months ended April 30, 2013, the Company issued 42,062,365 shares of common stock for the conversion of $32,500 plus accrued interest of $1,300. As at April 30, 2013, $32,500 of accretion expense had been recorded upon the conversion of the note. |
The Company paid financing costs $2,500 relating to the issuance of the note.
| (c) | On September 10, 2012, the Company entered into a convertible promissory note agreement for $25,000. The proceeds were received on October 1, 2012. Pursuant to the terms of the agreement, the loan is unsecured, bears interest at 8% per annum, and is due on September 10, 2013. Furthermore, the note is convertible into shares of the Company’s common stock at any time at a variable conversion price equal to 50% of the average of the lowest three closing bid prices for the common stock during the 10 trading days prior to the date of the conversion notice. Due to this provision, the embedded conversion option qualifies for derivative accounting under ASC 815-15 “Derivatives and Hedging”. The fair value of the derivative liability resulted in a full discount to the note payable of $25,000. The carrying value of the convertible note will be accreted over the term of the convertible note up to the value of $25,000. During the six months ended April 30, 2013, the Company issued 35,660,372 shares of common stock for the conversion of $25,000 plus accrued interest of $1,538. As at April 30, 2013, $25,000 of accretion expense had been recorded upon the conversion of the note. |
The Company paid financing costs of $1,500 relating to the issuance of the note.
| (d) | On September 10, 2012, the Company entered into a convertible promissory note agreement for $60,000. Pursuant to the terms of the agreement, the loan is unsecured, bears interest at 8% per annum, and is due on September 10, 2013. Furthermore, the note is convertible into shares of the Company’s common stock at any time at a variable conversion price equal to 55% of the average of the lowest closing bid prices for the common stock during the 5 trading days prior to the date of the conversion notice. Due to this provision, the embedded conversion option qualifies for derivative accounting under ASC 815-15 “Derivatives and Hedging”. The fair value of the derivative liability resulted in a full discount to the note payable of $60,000. The carrying value of the convertible note will be accreted over the term of the convertible note up to the value of $60,000. During the year ended October 31, 2012, the Company issued 17,681,232 shares of common stock for the conversion of $40,000 of the note. During the six months ended April 30, 2013, the Company issued 15,329,249 shares of common stock for the conversion of $20,000 of the note and $220 of interest. As at April 30, 2013, $60,000 of accretion expense had been recorded. |
| F-6 |
ON4 COMMUNICATIONS INC.
(A Development Stage Company)
Notes to the Financial Statements
April 30, 2013
(Expressed in US dollars)
(Unaudited)
| 6. | Convertible Notes Payable (continued) |
| (e) | On November 13, 2012, the Company entered into a convertible promissory note agreement for $20,000. Pursuant to the terms of the agreement, the loan is unsecured, bears interest at 5% per annum, and is due on November 5, 2013. Furthermore, the note is convertible into shares of the Company’s common stock at any time at a variable conversion price equal to 50% of the average of the lowest three closing bid prices for the common stock during the 20 trading days prior to the date of the conversion notice. Due to this provision, the embedded conversion option qualifies for derivative accounting under ASC 815-15 “Derivatives and Hedging”. The fair value of the derivative liability resulted in a full discount to the note payable of $20,000. The carrying value of the convertible note will be accreted over the term of the convertible note up to the value of $20,000. As at April 30, 2013, $2,558 of accretion expense had been recorded and the carrying value of the note is $2,558. |
| (f) | On November 13, 2012, the Company entered into a convertible promissory note agreement for $40,000. Pursuant to the terms of the agreement, the loan is unsecured, bears interest at 5% per annum, and is due on November 5, 2013. Furthermore, the note is convertible into shares of the Company’s common stock at any time at a variable conversion price equal to 50% of the average of the lowest three closing bid prices for the common stock during the 20 trading days prior to the date of the conversion notice. Due to this provision, the embedded conversion option qualifies for derivative accounting under ASC 815-15 “Derivatives and Hedging”. The fair value of the derivative liability resulted in a full discount to the note payable of $40,000. The carrying value of the convertible note will be accreted over the term of the convertible note up to the value of $40,000. During the six months ended April 30, 2013, the Company issued 47,892,726 shares of common stock for the conversion of $40,000 of the note and $320 of interest. As at April 30, 2013, $40,000 of accretion expense had been recorded. |
| (g) | On December 3, 2012, the Company entered into a Convertible Promissory Note agreement for $32,500. Pursuant to the agreement, the loan is convertible 180 days after issuance into shares of common stock at a variable conversion price equal to 51% of the average of the lowest two closing bid prices for the common stock during the 20 trading days prior to the date of the conversion notice. The loan bears interest at 8% per year and the principal amount and any interest thereon are due on September 5, 2013. Pursuant to ASC 815, “Derivatives and Hedging,” the Company will recognize the fair value of the embedded conversion feature as a derivative liability when the note becomes convertible on June 1, 2013. |
The Company paid financing costs $2,500 relating to the issuance of the note.
| (h) | On February 10, 2013, the Company entered into a Convertible Promissory Note agreement for $27,500. Pursuant to the terms of the agreement, the loan is unsecured, bears interest at 8% per annum, and is due on February 10, 2014. Furthermore, the note is convertible into shares of the Company’s common stock at any time at a variable conversion price equal to 50% of the average of the lowest three closing bid prices for the common stock during the 10 trading days prior to the date of the conversion notice. Due to this provision, the embedded conversion option qualifies for derivative accounting under ASC 815-15 “Derivatives and Hedging”. The fair value of the derivative liability resulted in a full discount to the note payable of $27,500. The carrying value of the convertible note will be accreted over the term of the convertible note up to the value of $27,500. As at April 30, 2013, $1,094 of accretion expense had been recorded and the carrying value of the note is $1,094. |
The Company paid financing costs of $1,500 relating to the issuance of the note.
| (i) | On February 20, 2013, the Company entered into a Convertible Promissory Note agreement for $37,500. Pursuant to the agreement, the loan is convertible 180 days after issuance into shares of common stock at a variable conversion price equal to 51% of the average of the lowest two closing bid prices for the common stock during the 20 trading days prior to the date of the conversion notice. The loan bears interest at 8% per year and the principal amount and any interest thereon are due on November 22, 2013. Pursuant to ASC 815, “Derivatives and Hedging,” the Company will recognize the fair value of the embedded conversion feature as a derivative liability when the note becomes convertible on August 29, 2013. |
The Company paid financing costs $2,500 relating to the issuance of the note.
| F-7 |
ON4 COMMUNICATIONS INC.
(A Development Stage Company)
Notes to the Financial Statements
April 30, 2013
(Expressed in US dollars)
(Unaudited)
| 7. | Derivative Liabilities |
The conversion options of the convertible notes payable, as disclosed in Note 6, are required to record a derivative at their estimated fair value on each balance sheet date with changes in fair value reflected in the statement of operations.
The fair value of the derivative liabilities for the May 8, 2012, September 10, 2012, November 13, 2012, and February 10, 2013 convertible notes were $36,123, $37,357, $36,987, $139,369, $69,684 and $57,147 on vesting, respectively. The fair values as at April 30, 2013 and October 31, 2012 are as follows:
| April 30, 2013 $ | October 31, 2012 $ | |||||||
| $25,000 convertible debenture issued September 10, 2012 | – | 66,759 | ||||||
| $60,000 convertible debenture issued September 10, 2012 | – | 36,988 | ||||||
| $40,000 convertible debenture issued November 13, 2012 | 43,600 | – | ||||||
| $20,000 convertible debenture issued February 15, 2013 | 57,839 | – | ||||||
| 101,439 | 103,747 | |||||||
During the three months ended April 30, 2013, the Company recorded a loss on the change in fair value of the derivative liabilities of $172,134 (2012 – $nil).
The Company uses the Black-Scholes option pricing model to calculate the fair values of the derivative liabilities. The following table shows the assumptions used in the calculations:
| Expected Volatility | Risk-free Interest Rate | Expected Dividend Yield | Expected Life (in years) | |||||||||||||
| May 8, 2012 convertible note | ||||||||||||||||
| As at November 4, 2012 (date of vesting) | 326 | % | 0.09 | % | 0 | % | 0.27 | |||||||||
| As at April 30, 2013 | – | – | – | – | ||||||||||||
| September 10, 2012 convertible note | ||||||||||||||||
| As at October 1, 2012 (date of vesting) | 300 | % | 1.13 | % | 0 | % | 0.94 | |||||||||
| As at April 30, 2013 | – | – | – | – | ||||||||||||
| November 13, 2012 convertible notes | ||||||||||||||||
| As at November 13, 2012 (date of vesting) | 313 | % | 0.18 | % | 0 | % | 0.98 | |||||||||
| As at April 30, 2013 | 347 | % | 0.09 | % | 0 | % | 0.52 | |||||||||
| August 7, 2012 convertible note | ||||||||||||||||
| As at February 3, 2013 (date of vesting) | 420 | % | 0.60 | % | 0 | % | 0.26 | |||||||||
| As at April 30, 2013 | – | – | – | – | ||||||||||||
| February 10, 2013 convertible notes | ||||||||||||||||
| As at February 10, 2013 (date of vesting) | 307 | % | 0.17 | % | 0 | % | 1.00 | |||||||||
| As at April 30, 2013 | 332 | % | 0.11 | % | 0 | % | 0.80 | |||||||||
| F-8 |
ON4 COMMUNICATIONS INC.
(A Development Stage Company)
Notes to the Financial Statements
April 30, 2013
(Expressed in US dollars)
(Unaudited)
| 8. | Common Stock |
| (a) | Effective April 20, 2012, the Company amended its Articles of Incorporation to increase the authorized number of shares of common stock from 100,000,000 to 200,000,000 shares with a par value of $0.0001 per share. Effective November 30, 2012, the Company amended its Articles of Incorporation to increase the authorized number of shares of common stock from 200,000,000 to 600,000,000 shares with a par value of $0.0001 per share, and the authorized number of preferred stock from 10,000,000 to 30,000,000 shares with no par value. |
| (b) | During the six months ended April 30, 2013, the Company issued an aggregate of 163,816,363 common shares upon the conversion of $150,000 of convertible notes payable and accrued interest of $4,678 as described in Note 6. |
| 9. | Share Purchase Warrants |
The following table summarizes the continuity of share purchase warrants:
| Number of Warrants | Weighted Average Exercise Price $ | |||||||
| Balance, October 31, 2012 | 156,000 | 0.50 | ||||||
| Expired | (156,000 | ) | 0.50 | |||||
| Balance, April 30, 2013 | – | – | ||||||
| 10. | Stock Options |
The following table summarizes stock option plan activities:
| Number of Options | Weighted Average Exercise Price $ | Weighted Average Remaining Contractual Life (years) | Aggregate Intrinsic Value $ | |||||||||||||
| Outstanding, October 31, 2012 and April 30, 2013 | 2,625,000 | 0.30 | 2.46 | – | ||||||||||||
The Company’s had no unvested stock options at April 30, 2013 or October 31, 2012.
Additional information regarding stock options as of April 30, 2013 is as follows:
| Number of Options | Exercise Price $ | Expiry Date | ||||||
| 2,000,000 | 0.15 | March 3, 2015 | ||||||
| 275,000 | 0.50 | July 23, 2017 | ||||||
| 350,000 | 1.00 | December 18, 2017 | ||||||
| 2,625,000 | ||||||||
| F-9 |
ON4 COMMUNICATIONS INC.
(A Development Stage Company)
Notes to the Financial Statements
April 30, 2013
(Expressed in US dollars)
(Unaudited)
| 11. | Commitments |
| (a) | On February 23, 2010, the Company entered into a trademark license agreement (the “Agreement”). Pursuant to the Agreement, the Company was granted an exclusive license to use certain trademarks and trade names on the Company’s hardware, software and services that provide tracking and location monitoring for people, animals and property of any other nature, but excluding firearms and related accessories, as well as existing licensed products and services of the Company, including but not limited to GPS, E911, A-GPS, radio frequency, beacon technology. Other applications that are covered under the Trademark License Agreement also include offenders monitoring, elderly, medical, teens and children tracking, public safety officers, executives, cars, tracks, motorcycles, aircrafts, boats, personal watercrafts, ATV’s, equipment, cargo, tools, trailers, electronic equipment, retail goods, and consumer goods in transit. The licensed territory includes the United States, Canada and Mexico. The Agreement expires on February 1, 2015. |
The Company must pay a royalty of net sales and incurred a non-refundable advance against royalties of $5,000. The Company must pay guaranteed royalties with 25% of each royalty for the year due at the end of each calendar quarter. Further, the Company has agreed to spend an amount equal to at least 2% of all net sales of the licensed products during each contract year for promotional activities.
| (b) | On December 15, 2011, the Company entered into a share exchange agreement (the “Agreement”) with NetCents Systems Ltd. (“NetCents”). Pursuant to the terms of the Agreement, the Company will issue two shares of common stock for every one share of NetCents stock issued and outstanding on the date of closing. Upon completion of the transaction, NetCents would become a wholly owned subsidiary of the Company. The Agreement is subject to conditions precedent to closing and the risk that these conditions precedent will not be satisfied results in there being no assurance that the Agreement will be completed as contemplated, or at all. As of the date of issuance of these financial statements, the agreement had yet to be completed. |
| 12. | Supplemental Disclosures |
| Three Months Ended April 30, 2013 $ | Three Months Ended April 30, 2012 $ | Accumulated From June 5, 2006 (Date of Inception) to April 30, 2013 $ | ||||||||||
| Non-cash investing and financing activities: | ||||||||||||
| Shares issued for settlement of debt | 66,365 | – | 305,696 | |||||||||
| Supplemental Disclosures: | ||||||||||||
| Interest paid | – | – | – | |||||||||
| Income taxes paid | – | – | – | |||||||||
| 13. | Subsequent Events |
| (a) | Subsequent to April 30, 2013, the Company issued 26,750,000 shares of common stock upon the conversion of the convertible notes as described in Note 6. |
| (b) | Subsequent to April 30, 2013, the Company entered into three debt settlement agreements. Pursuant to the agreements, the Company would issue 717,663 units to settle $215,299 of amounts owed to creditors. Each unit consists of one common share and one share purchase warrant to purchase an additional common share of the Company at $0.30 for two years. As of the date of this filing, the shares have not been issued. |
| (c) | Subsequent to April 30, 2013, the Company entered into a debt settlement agreement. Pursuant to the agreement, the Company settled $60,614 of amounts owing to a creditor for a cash payment of $12,122. |
| F-10 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Forward-Looking Statements
This quarterly report contains forward-looking statements that involve risks and uncertainties. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may", "should", "expect", "plan", "anticipate", "believe", "estimate", "predict", "potential" or "continue" or the negative of these terms or other comparable terminology. These statements are only predictions. Actual events or results may differ materially.
While these forward-looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested in this report. Except as required by applicable laws, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
Our unaudited financial statements are stated in U.S. dollars and are prepared in accordance with generally accepted accounting principles in the United States. The following discussion should be read in conjunction with our financial statements and the related notes that appear elsewhere in this quarterly report.
In this quarterly report, unless otherwise specified, all dollar amounts are expressed in United States dollars. All references to "common shares" refer to the common shares in our capital stock.
As used in this quarterly report and unless otherwise indicated, the terms "we", "us", "our" and "our company" mean On4 Communications Inc., a Delaware corporation, unless otherwise indicated.
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.
| 5 |
On November 30, 2012, the Delaware Secretary of State accepted for filing of a Certificate of Amendment, wherein, our company amended its Articles of Incorporation to increase the authorized number of shares of our common stock from 210,000,000 to 630,000,000 shares, with a par value of $0.0001, which consists of 600,000,000 shares of common stock and 30,000,000 shares of preferred stock.
Corporate History
On March 12, 2009, we entered into a merger agreement with On4 Communications, Inc., a private Arizona company incorporated on June 5, 2006. We subsequently amended this agreement on April 7, 2009, and on May 1, 2009 we completed the merger with On4, with our company as the surviving entity. Upon the completion of the merger, we had three wholly-owned subsidiaries: (i) Charity Tunes Inc., a Delaware company incorporated on June 27, 2005 for the purpose of operating a website for the distribution of music online; (ii) Sound Revolution Recordings Inc., a British Columbia, Canada company incorporated on June 20, 2001 for the purpose of carrying on music marketing services in British Columbia; and (iii) PetsMobility Inc., a Delaware company incorporated on March 23, 2006 for the purpose of operating the website www.petsmo.com and related business.
On April 29, 2010, we sold our interest in PetsMobility, excluding certain specific assets, to On4 Communications Inc., a private Canadian company and our shareholder (“On4 Canada”), pursuant to an asset purchase agreement in exchange for On4 Canada returning 2,000,000 shares of our common stock to our treasury for cancellation. On October 29, 2010 we amended the asset purchase agreement to clarify certain terms of the purchase and sale.
On March 16, 2011, we sold our interest in Charity Tunes and Sound Revolution to Empire Success, LLC, a private Nevada limited liability company, in exchange for $15,000 and 6,300 shares of Empire’s common stock. As a result, we currently have no subsidiaries.
On November 3, 2011, we entered into a binding letter of intent to acquire 100% of the issued and outstanding shares of NetCents Systems Ltd., a private Alberta corporation engaged in the development and implementation of a unique and secure electronic payment system for online merchants and consumers. The letter of intent provides for a period of due diligence which will lead to a formal agreement whereby we will acquire 100% of the issued and outstanding capital of NetCents. Clayton Moore, an officer and director of our company, and Ryan Madson, an officer of our company, are shareholders of NetCents and Mr. Moore is the president and director of Net Cents.
On December 15, 2011, we entered into a share exchange agreement with NetCents and the selling shareholders of NetCents. Pursuant to the terms of the share exchange agreement, our company and NetCents agreed to engage in a share exchange which, if completed, would result in NetCents becoming a wholly owned subsidiary of our company. The share exchange has not been completed as of the date of this quarterly report and is subject to completion of due diligence by the parties, and to the following material terms and conditions:
| 1. | We will issue 2 shares of our common stock from treasury for every 1 share of NetCents stock issued and outstanding on the date of closing; |
| 2. | NetCents will have no more than 16,245,421 shares of its common stock issued and outstanding on the closing date of the Share Exchange Agreement. Additional issuances must be authorized by our company; |
| 3. | NetCents will have delivered to our company audited financial statements for its last two fiscal years and any applicable interim period ended no more than 35 days before the closing of the share exchange agreement, prepared in accordance with United States GAAP and audited by an independent auditor registered with the Public Company Accounting Oversight Board in the United States; and |
| 4. | NetCents will file all required documentation with the Province of Alberta to effect the share exchange. |
Also on December 15, 2011, NetCents received the approval for the share exchange agreement and the share exchange transaction from holders of approximately 76% of its voting securities through written resolution in lieu of holding a meeting.
| 6 |
On February 13, 2012, we entered into a convertible promissory note agreement with Asher for $32,500. Pursuant to the agreement, the loan is convertible into shares of common stock at a variable conversion price equal to the lower of 51% of the average of the lowest three closing bid prices for the common stock during the 10 trading days prior to the date of the conversion notice. The loan bears interest at 8% per year and the principal amount and any interest thereon are due on November 15, 2012.
On May 8, 2012, we entered into a convertible promissory note agreement with Asher pursuant to which we received debt financing in the amount of $32,500. Pursuant to the agreement, the loan is convertible 180 days after issuance into shares of common stock at a variable conversion price equal to the lower of 51% of the average of the lowest three closing bid prices for the common stock during the 10 trading days prior to the date of the conversion notice. The loan bears interest at 8% per year and the principal amount and any interest thereon are due on February 11, 2013. . During the six months ended April 30, 2013 we issued 22,871,651 shares of common stock for the conversion of $32,500 of the note plus accrued interest of $1,300.
On August 7, 2012, we entered into a convertible promissory note agreement with Asher for $32,500. Pursuant to the agreement, the loan is convertible at a variable conversion price equal to 51% of the average of the lowest three closing bid prices for the common stock during the 20 trading days prior to the date of the conversion notice. The loan bears interest at 5% per year and the principal amount and any interest thereon are due on May 9, 2013. During the six months ended April 30, 2013 we issued 42,062,365 shares of common stock for the conversion of $32,500 of the note plus accrued interest of $1,300.
On September 10, 2012, we entered into a convertible promissory note agreement with Asher for $25,000. The proceeds were received on October 1, 2012. Pursuant to the terms of the agreement, the loan is unsecured, bears interest at 8% per annum, and is convertible into shares of our common stock at any time at a variable conversion price equal to 50% of the average of the lowest three closing bid prices for the common stock during the 10 trading days prior to the date of the conversion notice. The principal amount of the loan and any interest thereon are due on October 1, 2013. During the six months ended April 30, 2013 we issued 35,660,372 shares of common stock for the conversion of $25,000 of the note plus accrued interest of $1,538.
On September 10, 2012, we entered into a convertible promissory note agreement with Asher for $60,000. Pursuant to the terms of the agreement, the loan is unsecured, bears interest at 8% per annum, and is due on September 10, 2013. Furthermore, the note is convertible into shares of our company’s common stock at any time at a variable conversion price equal to 55% of the average of the lowest closing bid prices for the common stock during the 5 trading days prior to the date of the conversion notice. During the six months ended April 30, 2013 we issued 15,329,249 shares of common stock for the conversion of $20,000 of the note and $220 of interest.
On November 13, 2012, we entered into a convertible promissory note agreement with Asher for $20,000. Pursuant to the agreement, the loan is convertible at a variable conversion price equal to 50% of the average of the lowest three closing bid prices for the common stock during the 20 trading days prior to the date of the conversion notice. The loan bears interest at 5% per year and the principal amount and any interest thereon are due on November 5, 2013.
On November 13, 2012, we entered into a convertible promissory note agreement with Asher for $40,000. Pursuant to the agreement, the loan is convertible at a variable conversion price equal to 50% of the average of the lowest three closing bid prices for the common stock during the 20 trading days prior to the date of the conversion notice. The loan bears interest at 5% per year and the principal amount and any interest thereon are due on November 5, 2013. During the six months ended April 30, 2013 we issued 47,892,726 shares of common stock for the conversion of $40,000 of the note and $320 of interest.
On December 3, 2012, we entered into a convertible promissory note agreement with Asher for $32,500. Pursuant to the agreement, the loan is convertible 180 days after issuance into shares of common stock at a variable conversion price equal to 51% of the average of the lowest two closing bid prices for the common stock during the 20 trading days prior to the date of the conversion notice. The loan bears interest at 8% per year and the principal amount and any interest thereon are due on September 5, 2013.
| 7 |
On February 10, 2013, we entered into a convertible promissory note agreement with Asher for $27,500. Pursuant to the agreement, the loan is convertible at a variable conversion price equal to 50% of the average of the lowest three closing bid prices for the common stock during the 10 trading days prior to the date of the conversion notice. The loan bears interest at 8% per year and the principal amount and any interest thereon are due on February 10, 2014.
On February 20, 2013, we entered into a convertible promissory note agreement with Asher for $37,500. Pursuant to the agreement, the loan is convertible at a variable conversion price equal to 51% of the average of the lowest three closing bid prices for the common stock during the 20 trading days prior to the date of the conversion notice. The loan bears interest at 8% per year and the principal amount and any interest thereon are due on November 22, 2013.
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 $Nil in research and development expenditures over the last two fiscal years.
Employees
As of April 30, 2013, our only employees are our directors and officers. We plan to hire additional employees when circumstances warrant.
Results of Operations
Three and Six Months Ended April 30, 2013 and April 30, 2012, and the Period from June 5, 2006 (Date of Inception) to April 30, 2013.
Our results of operations are presented below:
| Accumulated | ||||||||||||||||||||
| from | ||||||||||||||||||||
| June 5, 2006 | ||||||||||||||||||||
| Three Months | Three Months | Six Months | Six Months | (Date of | ||||||||||||||||
| Ended | Ended | Ended | Ended | Inception) to | ||||||||||||||||
| April 30, | April 30, | April 30, | April 30, | April 30, | ||||||||||||||||
| 2013 | 2012 | 2013 | 2012 | 2013 | ||||||||||||||||
| (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | ||||||||||||||||
| ($) | ($) | ($) | ($) | ($) | ||||||||||||||||
| Revenue | Nil | Nil | Nil | Nil | Nil | |||||||||||||||
| Total Operating Expenses | 23,730 | 101,454 | 71,485 | 140,408 | 11,638,322 | |||||||||||||||
| Total Other Expenses | 134,689 | 25,462 | 401,301 | 63,894 | 1,941,957 | |||||||||||||||
| Net Loss from continuing operations | (158,419 | ) | (126,916 | ) | (472,786 | ) | (204,302 | ) | (13,580,279 | ) | ||||||||||
From our inception on June 5, 2006 to April 30, 2013, we did not generate any revenue.
| 8 |
Expenses
| Accumulated | ||||||||||||||||||||
| from | ||||||||||||||||||||
| Three Months | Three Months | Six Months | Six Months | June 5, 2006 | ||||||||||||||||
| Ended | Ended | Ended | Ended | (Date of | ||||||||||||||||
| April 30, | April 30, | April 30, | April 30, | Inception) to | ||||||||||||||||
| 2013 | 2012 | 2013 | 2012 | April 30, 2013 | ||||||||||||||||
| (unaudited) | (unaudited) | (unaudited) | (unaudited) | (unaudited) | ||||||||||||||||
| ($) | ($) | ($) | ($) | ($) | ||||||||||||||||
| Advertising and Marketing | Nil | Nil | Nil | Nil | 182,182 | |||||||||||||||
| Amortization of intangible assets | Nil | Nil | Nil | Nil | 18,138 | |||||||||||||||
| Amortization of property and equipment | Nil | Nil | Nil | 241 | 32,677 | |||||||||||||||
| Consulting fees | Nil | 48,750 | 5,232 | 48,750 | 2,173,938 | |||||||||||||||
| Foreign exchange (gain) loss | (1,259 | ) | 5,085 | (18 | ) | 2,399 | 254,784 | |||||||||||||
| General and administrative | 5,843 | 11,544 | 8,834 | 12,980 | 1,122,838 | |||||||||||||||
| Impairment of goodwill | Nil | Nil | Nil | Nil | 3,274,109 | |||||||||||||||
| Impairment of assets | Nil | Nil | Nil | 885 | 2,220,609 | |||||||||||||||
| Management fees | Nil | 16,706 | 15,610 | 27,655 | 1,222,381 | |||||||||||||||
| Payroll | Nil | Nil | Nil | Nil | 29,516 | |||||||||||||||
| Professional fees | 19,146 | 19,369 | 41,827 | 47,498 | 788,790 | |||||||||||||||
| Research and development | Nil | Nil | Nil | Nil | 318,360 | |||||||||||||||
Our total expenses during the three months ended April 30, 2013 consisted of $1,259 in foreign exchange gain, $5,843 in general and administrative expenses and $19,146 in professional fees. During this period we also incurred $72,913 in accretion of discounts on convertible notes payable, $3,409 in amortization of deferred financing costs, $25,644 in interest expenses and $32,723 in loss on change in fair value of derivative liabilities.
Our total expenses during the three months ended April 30, 2012 consisted of $48,750 in consulting fees, $5,085 in foreign exchange loss, $11,544 in general and administrative expenses, $16,706 in management fees and $19,369 in professional fees. During this period we also incurred $25,462 in the form of interest expenses.
Our total expenses during the six months ended April 30, 2013 consisted of $18 in foreign exchange gain, $8,834 in general and administrative expenses, $15,610 in management fees and $41,827 in professional fees, During this period we also incurred $153,037 in accretion of discounts on convertible notes payable, $6,131 in amortization of deferred financing costs, $69,999 in interest expenses and $172,134 in loss on change in fair value of derivative liabilities.
Our total expenses during the six months ended April 30, 2012 consisted of $241 in amortization of property and equipment, $48,750 in consulting fees, $2,399 in foreign exchange loss, $12,980 in general and administrative expenses, $885 in impairment of assets, $27,655 in management fees and $47,498 in professional fees, During this period we also incurred $63,894 in the form of interest expenses.
Our total expenses from our inception on June 5, 2006 to April 30, 2013 consisted of $182,182 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, $254,784 in foreign exchange loss, $1,122,838 in general and administrative expenses, $3,274,109 in impairment of goodwill, $2,220,609 in impairment of intangible assets, $1,222,381 in management fees, $29,516 in payroll expenses, $788,790 in professional fees and $318,360 in research and development expenses.
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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 April 30, 2013 compared to the same period in 2012 was primarily due to decreases in consulting fees, foreign exchange loss, general and administrative expenses, management fees and professional fees during the most recent period.
The decrease in our operating expenses during the six months ended April 30, 2013 compared to the same period in 2012 was primarily due to decreases in amortization of property and equipment, consulting fees, foreign exchange loss, general and administrative expenses, management fees and professional fees during the most recent period.
During the three months ended April 30, 2013 we incurred a $23,730 operating loss, and a net loss of $158,419. During the same period in fiscal 2012 we incurred an operating loss of $101,454 and a net loss of $126,916. During the six months ended April 30, 2013 we incurred a $71,485 operating loss, and a net loss of $472,786. During the same period in fiscal 2012 we incurred an operating loss of $140,408 and a net loss of $204,302. We did not experience any net loss per share during the three and six months ended April 30, 2013 and 2012. From our inception on June 5, 2006 to April 30, 2013 we incurred a $13,580,279 loss from continuing operations, incurred a $1,205,782 loss from discontinued operations and incurred a net loss $14,786,061.
Liquidity and Capital Resources
Working Capital
| At | At | |||||||
| April 30, | October 31, | |||||||
| 2013 | 2012 | |||||||
| ($) | ($) | |||||||
| Current Assets | 132,339 | 78,572 | ||||||
| Current Liabilities | 1,862,544 | 1,817,242 | ||||||
| Working Capital/(Deficit) | (1,730,205 | ) | (1,738,670 | ) | ||||
Cash Flows
| Period from | ||||||||||||
| Six Months | Six Months | Inception | ||||||||||
| Ended | Ended | (June 5, 2006) | ||||||||||
| April 30, | April 30, | to April 30, | ||||||||||
| 2013 | 2012 | 2013 | ||||||||||
| ($) | ($) | ($) | ||||||||||
| Net Cash used in Operating Activities | (38,458 | ) | (78,625 | ) | (2,834,582 | ) | ||||||
| Net Cash used in Investing Activities | (54,137 | ) | (35,095 | ) | (1,445,538 | ) | ||||||
| Net Cash provided by Financing Activities | 92,435 | 115,000 | 4,227,129 | |||||||||
| Net Increase (Decrease) in Cash During Period | (370 | ) | 1,280 | Nil | ||||||||
As of April 30, 2013 we had $Nil in cash, $136,585 in total assets, $1,862,544 in total liabilities and a working capital deficit of $1,730,205. As of October 31, 2012, 2013 we had working capital deficit of $1,738,670.
During the six months ended April 30, 2013 we spent $38,458 on operating activities, compared to spending of $78,625 on operating activities during the same period in fiscal 2012. The decrease in our expenditures on operating activities during the six months ended April 30, 2013 was largely due to decreases in stock based compensation and amounts due to related parties. From our inception on June 5, 2006 to April 30, 2013 we spent $2,834,582 on operating activities.
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During the six months ended April 30, 2013 we spent $54,137 on investing activities, whereas we spent $35,095 on investing activities during the same period in fiscal 2012. From our inception on June 5, 2006 to April 30, 2013 we spent $1,445,538 on investing activities, the bulk of which was in the form of advances for notes receivable of $1,114,182, loan receivables of $132,339 and the acquisition of intangible assets of $182,687.
During the six months ended April 30, 2013 we received $92,435 from financing activities, all of which was in the form of proceeds from notes payable offset by $6,500 in payment of deferred financing costs, whereas we received $115,000 from financing activities during the same period in fiscal 2012. From our inception on June 5, 2006 to April 30, 2013 we received $4,227,129 from financing activities, primarily in the form of proceeds from the issuance of our common stock and preferred stock and proceeds from notes payable and convertible notes payable.
For the next 12 months (beginning May 2013), we estimate our planned expenses to be approximately $1,400,000, as summarized in the table below:
| Description | Potential | Estimated | ||||||
| Completion | Expenses | |||||||
| Date | ($) | |||||||
| General and administrative expenses | 12 months | 250,000 | ||||||
| Professional fees | 12 months | 150,000 | ||||||
| Unallocated working capital | 12 months | 100,000 | ||||||
| Debt repayment | 12 months | 900,000 | ||||||
| Total | 1,400,000 | |||||||
Based on our planned expenditures, we require additional funds of approximately $1,400,000 to proceed with our business plan over the next 12 months (beginning May 2013). If we are not able to obtain additional financing on a timely basis, we will be unable to conduct our operations as planned, and we will not be able to meet our obligations as they become due. In such event, we will be forced to scale down or perhaps even cease our operations.
Future Financings
We have not generated significant revenues since inception and are unlikely to generate significant revenues or earnings in the immediate or foreseeable future. We rely upon the sale of our securities and proceeds from related parties to fund our operations. We anticipate that we will incur substantial losses for the foreseeable future, and we are dependent upon obtaining outside financing to carry out our operations.
We will require approximately $1,400,000 over the next 12 months (beginning May 2013) to enable us to proceed with our plan of operations, including paying our ongoing expenses. These cash requirements are in excess of our current cash and working capital resources. Accordingly, we intend to raise funds from private placements, loans or possibly a registered public offering (either self-underwritten or through a broker-dealer). At this time we do not have a commitment from any broker-dealer to provide us with financing, and there is no guarantee that any financing will be available to us or if available, on terms that will be acceptable to us.
If we are unable to obtain the necessary additional financing, then we plan to reduce the amounts that we spend on our operations, our professional fees and our general and administrative expenses so as not to exceed the amount of capital resources that are available to us. If we do not secure additional financing our current cash reserves and working capital will be not be sufficient to enable us to sustain our operations for the next 12 months, even if we do decide to scale them down.
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Going Concern
Our financial statements for the three and six months ended April 30, 2013 have been prepared on a going concern basis and contain an additional explanatory paragraph in Note 1 which identifies issues that raise substantial doubt about our ability to continue as a going concern. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Off-Balance Sheet Arrangements
We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our stockholders.
Inflation
The amounts presented in our financial statements do not provide for the effect of inflation on our operations or financial position. The net operating losses shown would be greater than reported if the effects of inflation were reflected either by charging operations with amounts that represent replacement costs or by using other inflation adjustments.
Critical Accounting Policies
Our financial statements are affected by the accounting policies used and the estimates and assumptions made by management during their preparation. A complete summary of these policies is included in Note 2 of the notes to our financial statements for the three and six months ended April 30, 2013. We have identified below the accounting policies that are of particular importance in the presentation of our financial position, results of operations and cash flows, and which require the application of significant judgment by management.
Comprehensive Loss
ASC 220, “Comprehensive Income” establishes standards for the reporting and display of comprehensive income and its components in the financial statements. As at April 30, 2013 and 2012, our company had no items that represent comprehensive income or loss.
Recent 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.
| Item 3. | Quantitative and Qualitative Disclosure About Market Risk |
As a “smaller reporting company”, we are not required to provide the information required by this Item.
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| Item 4. | Controls and Procedures |
Management's Report on Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934 (the "Exchange Act"), that are designed to ensure that information we are required to disclose 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 rules and forms of the Securities and Exchange Commission (the “SEC”) and that such information is accumulated and communicated to our management, including our chief executive officer (our principal executive officer, principal financial officer and principal accounting officer), as appropriate to allow timely decisions regarding required disclosure.
As of the end of the period covered by this report, our management, with the participation of chief executive officer (our principal executive officer, principal financial officer and principal accounting officer), carried out an evaluation of the effectiveness of our disclosure controls and procedures. Based on this evaluation, and in light of the material weaknesses in our internal control over financial reporting, our management concluded that our disclosure controls and procedures were not effective to ensure that information we are required to disclose in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information was not accumulated and communicated to management, including chief executive officer (our principal executive officer, principal financial officer and principal accounting officer), to allow timely decisions regarding required disclosure.
Changes in Internal Control
There were no changes in our internal control over financial reporting during the quarterly period covered by this report 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 |
We know of no material, existing or pending legal proceedings against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, executive officers or affiliates, or any registered or beneficial stockholder, is an adverse party or has a material interest adverse to our interest.
| Item 2. | Unregistered Sales of Equity Securities |
During the six months ended April 30, 2013 we issued an aggregate of 163,816,363 shares of our common stock related to the conversion of $60,000 plus accrued interest of $4,678 under the convertible promissory notes. These securities were issued pursuant to an exemption from registration requirements relying on Regulation Rule 506 of Regulation D of the Securities Act of 1933.
| Item 3. | Defaults Upon Senior Securities |
None.
| Item 4. | Mine Safety Disclosures |
Not applicable.
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| Item 5. | Other Information |
None.
| Item 6. | Exhibits |
| Exhibit No. |
Description | |
| (3) | (i) Articles of Incorporation; (ii) By-laws | |
| 3.1 | Articles of Incorporation (incorporated by reference to our Registration Statement filed on Form SB-2 on August 20, 2004) | |
| 3.2 | By-Laws (incorporated by reference to our Registration Statement filed on Form SB-2 on August 20, 2004) | |
| 3.3 | Certificate of Amendment dated June 10, 2008 (incorporated by reference to our Current Report on Form 8-K filed on June 26, 2008) | |
| 3.3 | Certificate of Merger dated May 1, 2009 (incorporated by reference to our Current Report on Form 8- K filed on May 7, 2009) | |
| 3.4 | Certificate of Amendment dated May 21, 2009 (incorporated by reference to our Current Report on Form 8-K filed on July 28, 2009) | |
| 3.5 | Certificate of Amendment dated March 13, 2012 (incorporated by reference to our Current Report on Form 8-K filed on May 1, 2012) | |
| 3.6 | Certificate of Amendment dated November 30, 2012 (incorporated by reference to our Current Report on Form 8-K filed on December 5, 2012) | |
| (10) | Material Contracts | |
| 10.1 | Merger Agreement between Sound Revolution Inc. and On4 Communications, Inc. dated March 12, 2009 (incorporated by reference to our Current Report on Form 8-K filed on March 16, 2009) | |
| 10.2 | Merger Agreement Amendment between Sound Revolution Inc. and On4 Communications, Inc. dated March 26, 2009 (incorporated by reference to our Current Report on Form 8-K filed on April 13, 2009) | |
| 10.3 | Asset Purchase Agreement between our company and On4 Communications, Inc. (Canada) dated April 29, 2010 (incorporated by reference to our Quarterly Report on Form 10-Q filed on June 22, 2010) | |
| 10.4 | Asset Purchase Agreement between our company, Charity Tunes Inc., Bacchus Filings Inc., Bacchus Entertainment Ltd. and Penny Green dated April 30, 2010 (incorporated by reference to our Quarterly Report on Form 10-Q filed on June 22, 2010) | |
| 10.5 | Acquisition Agreement between our company and Empire Success, LLC dated March 16, 2011 (incorporated by reference to our Quarterly Report on Form 10-Q filed on June 17, 2011) | |
| 10.6 | Letter of Intent between our company and NetCents Systems Ltd. (incorporated by reference to our Current Report on Form 8-K filed on November 9, 2011) | |
| 10.7 | Share Exchange Agreement between our company and NetCents Systems Ltd., et al, dated December 15, 2011 (incorporated by reference to our Current Report on Form 8-K filed on December 19, 2011) | |
| (31) | Rule 13a-14(a)/15d-14(a) Certifications | |
| 31.1* | Section 302 Certification pursuant to the Sarbanes-Oxley Act of 2002 of the Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer |
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| Exhibit No. |
Description | |
| (32) | Section 1350 Certifications | |
| 32.1* | Section 906 Certification pursuant to the Sarbanes-Oxley Act of 2002 of the Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer | |
| (99) | Additional Exhibits | |
| 99.1 | Audit Committee Charter dated September 30, 2009 (incorporated by reference to our Annual Report on Form 10-K filed on February 16, 2010) | |
| 101** | Interactive Data Files | |
| 101.INS | XBRL Instance Document | |
| 101.SCH | XBRL Taxonomy Schema | |
| 101.CAL | XBRL Taxonomy Calculation Linkbase | |
| 101.DEF | XBRL Taxonomy Definition Linkbase | |
| 101.LAB | XBRL Taxonomy Label Linkbase | |
| 101.PRE | XBRL Taxonomy Presentation Linkbase |
| * | Filed herewith. |
| ** | To be submitted at a later date as part of an amended filing. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| On4 Communications, Inc. | ||
| Date: June 21, 2013 | By: | /s/ Clayton Moore |
| Clayton Moore | ||
| President, Chief Executive Officer and Director | ||
| (Principal Executive Officer, Principal Financial | ||
| Officer and Principal Accounting Officer) |
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