Item 2. Management’s Discussion and Analysis or Plan of
Operation
The following discussion of our financial condition, changes in
financial condition and results of operations for the nine months ended August
31, 2007 should be read in conjunction with our unaudited consolidated interim
financial statements and related notes for the nine months ended August 31, 2007
included in this Quarterly Report.
Overview of our Business
We are the owner of a suite of proprietary software
applications that we refer to as the “ITonis video solution”. We are engaged in
the business of commercializing the ITonis video solution. The ITonis video
solution enables the on-demand delivery of video content, including television
channels and videos, to consumers via broadband Internet for viewing on the
consumer’s television.
Our business plan is to market and sell the ITonis video
solution as a technology solution that will enable the on-demand delivery of
video content via the Internet. The ITonis video solution is one of three
components that are essential to the on-demand delivery of video content via
broadband Internet, namely:
-
the intellectual property rights to distribute the video content;
-
a set-top box located near the consumer’s television that is connected to
broadband Internet; and
-
a technology solution that enables the on-demand delivery of the video
content to the consumer’s television via the set top box.
We do not have any plans to engage in the business of acquiring
intellectual property rights to distribute video content or manufacturing and
selling set top boxes for televisions. Our focus will be on the marketing and
sale of the ITonis video solution in circumstances where other parties will be
responsible for the provision of the intellectual property rights to distribute
the video content and the necessary set-top boxes.
The ITonis video solution is comprised of the following
components, each of which will be achieved by the installation of our software
applications on computer servers that are used to implement our video
solution:
-
the ITonis media acquisition system that allows the upload of video content
onto media storage servers;
-
ITonis media storage servers that provide for the storage of video and
other media content;
-
ITonis media streamers that provide for the streaming of video content in
real time to the end consumer via the Internet;
-
an ITonis television portal (“IPTV”) application server that provides the
interface between the computer system and the ultimate consumer; and
-
an ITonis service server that performs automatic maintenance tasks on the
solution.
We have developed the basic functionality of ITonis video
solution and have demonstrated the solution in a laboratory environment. During
the third quarter we have launched ITonis solution with a Czech
- 2 -
customer in a Live environment. The commercial operation uses
ITonis solution as a whole and provides standard functionality to subscribers.
We are also planning to continue additional development of the ITonis video
solution in order to extend the functionality of the solution.
Although sales and marketing activities have been initiated, we
have earned minimal revenues to date and, as such, we are presently a
development stage company. We presently have limited funds with which to pursue
our plan of operations. While we have completed private placement financings as
part of our corporate organization, we will require additional funding in order
to pursue our plan of operations over the next twelve months. We currently have
no arrangements for any additional financing and there is no assurance that any
additional financing will be obtained.
Corporate Organization
Incorporation
We were incorporated on July 5, 2005 as Kenshou Inc. under the
laws of the state of Nevada. We changed our name to ITonis Inc. on December 5,
2005 to reflect our acquisition of certain intellectual property underlying the
ITonis video solution and our new business focus.
We commenced the process of incorporating a wholly owned Czech
subsidiary called “ITonis CZ” on November 25, 2005. The incorporation process
was formally completed under Czech law on January 4, 2006.
Principal Executive Offices
Our principal executive offices and the offices of IToniz CZ
are located in leased premises at Klimentska 10, 110 00 Prague 1, Czech
Republic. We refer to this facility as our research and development facility as
this is where we carry out the research, development and testing of our ITonis
video solution.
Three for One Forward Stock Split
On March 20, 2007 (the “Record Date”), we completed an increase
in the number of shares of our authorized share capital and correspondingly
increase in the number of our issued and outstanding shares of common stock, in
each case on a three (3) new shares for one (1) old share basis (the “Forward
Stock Split”) in accordance with Section 78.207 of the Nevada Revised Statutes:
Chapter 78, as amended.
The Forward Stock Split was implemented taking into account our
authorized share capital and number of issued and outstanding shares of common
stock as of the Record Date. As such, our authorized common share capital
increased from 100,000,000 shares to 300,000,000 shares, and our issued and
outstanding common stock increased from 23,129,115 shares to 69,387,345 shares,
with a par value of $0.001 per share. There was no change to our authorized
preferred share capital of 5,000,000 shares, with a par value of $0.001 per
share. No shares of preferred stock of the Company are currently issued and
outstanding. All share numbers presented in this annual report are on a
post-split basis.
Recent Developments
Appointment of Directors and Officers
On July 2, 2007, by a written consent resolution of our board
of directors, Mr. Thomas Neal Roberts was appointed as our director, president,
chief executive officer, chief financial officer and secretary. Concurrent with
the appointments of Mr. Roberts, Mr. Nicolas Lavaud resigned as our director,
president,
- 3 -
chief executive officer, chief financial officer and secretary.
As a result, Mr. Lavaud is no longer a director or officer of the Company. We
entered into an employment agreement with Mr. Roberts on September 6, 2007
pursuant to which we agreed, among other things, to pay Mr. Roberts an annual
salary of $150,000 and to issue to him an aggregate of 14,000,000 shares of our
common stock in a combination of option grants and share grants.
On August 27, 2007, by a written consent resolution of our
board of directors, Mr. Lawrence Haber was appointed as our secretary in place
of Mr. Roberts and, on September 6, 2007, Mr. Haber was appointed as our senior
vice-president, general counsel and chief administrative officer. We entered
into an employment agreement with Mr. Haber on September 6, 2007 pursuant to
which we agreed, among other things, to pay Mr. Haber an annual salary of
$100,000 and to issue to him an aggregate of 7,000,000 shares of our common
stock in a combination of option grants and share grants.
The employment agreements between the Company and each of Mr.
Roberts and Mr. Haber are attached as exhibits to our current report on Form 8-K
filed with the SEC on September 11, 2007.
Our new management has determined to shift our efforts for
commercialization of our ITonis video solution from the European market to the
Chinese market. As a result of this determination, the Company plans to reduce
its operations in the Czech Republic during this fiscal year.
Proposed Acquisition of Aquos Media Limited
On September 8, 2007, we entered into a share purchase
agreement (the “Share Purchase Agreement”) among the Company, iOcean Media
Limited (“iOcean”) and Aquos Media Limited (“Aquos”), a wholly owned subsidiary
of iOcean. The following summary of the Share Purchase Agreement does not
purport to be complete and is qualified in its entirety by reference to the
Share Purchase Agreement, a copy of which is attached as Exhibit 10.1 to our
current report on Form 8-K filed with the SEC on September 13, 2007.
The Share Purchase Agreement provides that we will acquire all
of the issued and outstanding shares of Aquos in consideration for the issuance
to iOcean of a number of shares of our common stock such that iOcean will own
49% of our issued and outstanding shares immediately following the completion of
the acquisition. In addition, we will agree to issue additional shares to iOcean
equal to 25% of the original number of shares issued on the date upon which the
gaming portion of the license and permits held by Aquos is live and selling
lottery tickets. iOcean has agreed to enter into a voting agreement that will
govern the voting of its shares for a period of one year following the date of
closing. All shares issued to iOcean will be “restricted securities” under the
Securities Act of 1933.
iOcean has been engaged in the business of assembling licenses
and permits for Internet television broadcasting in China and the resale of
authorized Chinese lottery gaming products. As part of its business efforts,
iOcean has entered into an agreement with Pilot Media Limited, a corporation
incorporated under the laws of China. The agreement contemplates the formation
of a joint venture in China for the establishment of an online television
network platform in China. Under the agreement, Pilot would be responsible for
providing the television network platform and operational management of the
joint venture and iOcean would be responsible for financing, business
development and intellectual property. The internet television platform will be
used for internet television broadcasting and for the delivery of Chinese
lottery gaming products. iOcean will retain rights to deliver Chinese lottery
gaming products on the internet itself, and through other means of distribution,
such as mobile phones.
iOcean has agreed upon execution of the Share Purchase
Agreement to assign and transfer all of its right, title and interest in and to
the Pilot agreement to Aquos and to use its best efforts to obtain the written
- 4 -
consent of Pilot to this assignment and transfer. Following
completion of the acquisition, iOcean will cause all future agreements with
Pilot that are contemplated in the Pilot agreement to be negotiated and executed
by Aquos as a subsidiary of the Company. Further, iOcean has agreed to use its
best efforts to assist in these negotiations in good faith to ensure that the
definitive agreements contemplated in the Pilot agreement are achieved.
Forthwith following execution of this Agreement, iOcean will
use its best efforts to ensure that the licenses and permits required for the
conduct of the planned television over the Internet business, as specified in
the Share Purchase Agreement, are secured by Aquos by no later than October 31,
2007. In the event that the acquisition is completed prior to these licenses and
permits being secured and Aquos has not secured these licenses and permits by
October 31, 2007, then we will have the right under an option agreement to be
executed on closing to re-purchase the shares issued to iOcean on closing by
delivering notice of exercise of the option together with an assignment of the
shares of Aquos acquired to iOcean. If we exercise this option, all shares
issued to iOcean will be deemed to be cancelled and we will have no further
interest in Aquos.
Upon closing, iOcean will have the right to appoint one nominee
to our board of directors who will be appointed on closing of the acquisition.
We anticipate that our board of directors will consist of three directors for at
least one year after the closing, including the one nominee of iOcean.
Closing of the acquisition is subject to the following
conditions, as well as customary conditions of closing:
-
assignment of the Pilot agreement by iOcean to Aquos; and
-
delivery of audited and interim financial statements of Aquos, audited in
accordance with U.S. GAAP as required, for those periods necessary to enable
us to comply with our reporting obligations under the Securities Exchange Act
of 1934 as a consequence of completion of the acquisition of Aquos.
We anticipate that the closing of the acquisition of Aquos will
take place on or about October 15, 2007. There is no assurance the acquisition
will be completed or that Aquos will obtain the required licenses and permits.
Our Plan of Operations
Our plan of operations for the next twelve months is to
complete the following objectives within the time periods and within the budgets
specified, subject to our achieving the requisite financing:
|
1.
|
We plan to carry on the development of the ITonis video
solution from our research and development facility in Prague. Our general
administrative overhead cost for our Prague office is approximately
$50,000 per month. This amount includes salaries, computer hardware, rent
and other general expenses associated with our Prague office. If we are
successful in securing initial commercial sales of our ITonis video
solutions, then we anticipate that these expenses may increase to $80,000
per month by the end of the third quarter of fiscal 2007, subject to
financing. This increase in cost would be attributable to adding
additional personnel to our development team and to put in place a team of
employees to provide customer support services.
|
|
|
|
|
2.
|
We plan to carry out sales and marketing of our ITonis
video solution over the next twelve months with the objective of securing
sales to several clients. Our direct marketing activities will be carried
out by our employees from our Prague office. As such, the expense for
these
|
- 5 -
|
|
marketing activities will be within our general and
administrative expenses for the Prague office, as outlined above. In
addition, ITonis distributors (Nordic IPTV Company ApS and Sofia Digital)
undertake those activities for which we pay a percentage of the
sales.
|
|
|
|
|
3.
|
We plan to launch an operation pilot scale solution for
an Internet service provider ISP. The purpose of the pilot project would
be to allow us to complete the testing of our ITonis video solution in a
live environment and to enable us to have an operating solution that we
can use for demonstration purposes in connection with our marketing
activities. We anticipate that it would cost approximately $10,000 in
additional expenses to launch this operation.
|
|
|
|
|
4.
|
We anticipate spending approximately $4,000 in ongoing
general, legal and administrative expenses per month for the next twelve
months, for a total anticipated expenditure of $48,000 over the next
twelve months. These general, legal and administrative expenses are
external expenses that we anticipate incurring and are in addition to the
general and administrative expense of the Prague office discussed
above.
|
|
|
|
|
5.
|
We anticipate spending approximately $53,000 in complying
with our obligations as a reporting company under the Securities Exchange
Act of 1934. These expenses will consist primarily of professional fees
relating to the preparation of our financial statements and completing our
annual report, quarterly report, current report and proxy statement
filings with the SEC.
|
|
|
|
|
6.
|
We anticipate spending $120,000 to pay the accrued
liability in connection with the services provided to us by John Marienhof
pursuant to our reseller and consulting agreement with Nordic IPTV and
$39,830 to repay the loan made to us by our former chief executive officer
described below under the heading “Liquidity and Capital
Resources”.
|
As at November 30, 2006, we had cash reserves of $1,571 and a
working capital deficit of $442,867. As at August 31, 2007, our cash reserves
had increased to $18,293 and our working capital deficit had increased to
$724,591. Our planned expenditures over the next twelve months are approximately
$1,000,000. Accordingly, we anticipate that we will require financing in the
amount of approximately $1,730,000 in order to carry out our plan of operations
for the next twelve months.
During the twelve month period following the date hereof, we
anticipate that we will not generate revenues that exceed our operating costs.
We anticipate based on our current cash and our working capital deficit and our
planned expenses that we will be able to continue our plan of operations over
the next one month without additional financing. This projection does not
account for any revenues that we may earn from licensing sales of components to
our ITonis video solution. We believe that we will require additional financing
in order to commercialize our ITonis video solution in order to earn revenues
that exceed our operating expenses.
We anticipate that additional funding will be in the form of
equity financing from the sale of our common stock. We presently have no
arrangements in place for any additional equity financings. In the absence of
such additional financing, we may not be able to continue our plan of operations
beyond the next month and our business plan may fail. If we do not obtain the
required additional financing, we will initially scale back our business
operations and may ultimately be forced to abandon our plan of operations and
our business activities.
If we are successful in completing the acquisition of Aquos, we
will require additional financing with which to pursue the plan of operations
for Aquos. We are in the process of defining this plan of operations and the
funds required to fund this plan of operations will be in addition to the funds
required for the current plan of operations described above.
- 6 -
Critical Accounting Policies
Development Stage Company
We are a development stage company as defined by Financial
Accounting Standards No. 7. We are presently devoting all of our present efforts
to establishing a new business. All losses accumulated since inception have been
considered as part of our development stage activities.
Revenue Recognition
We recognize revenue when all of the following criteria have
been met: persuasive evidence for an arrangement exists; delivery has occurred;
the fee is fixed or determinable; and collection is reasonably assured. Upfront
contract payments received from the sale of services not yet earned are initially
recorded as deferred revenue on the balance sheet.
Revenue from time and material service contracts is recognized
as the services are provided. Revenue from fixed price, long-term service or
development contracts is recognized over the contract term based on the percentage
of services that are provided during the period compared with the total estimated
services to be provided over the entire contract. Losses on fixed price contracts
are recognized during the period in which the loss first becomes apparent. Payment
terms vary by contract.
Foreign Currency Translations
Our functional currency is the Czech Koruna (“CZK”), and our
reporting currency is the U.S. dollar. All transactions initiated in other
currencies are re-measured into the functional currency as follows:
|
|
i)
|
Monetary assets and liabilities at the rate of exchange
in effect at the balance sheet date,
|
|
|
|
|
|
|
ii)
|
Non-monetary assets and liabilities, and equity at
historical rates, and
|
|
|
|
|
|
|
iii)
|
Revenue and expense items at the average rate of exchange
prevailing during the period.
|
Gains and losses on re-measurement are included in determining
net income for the period.
Translation of balances from the functional currency into the
reporting currency is conducted as follows:
|
|
i)
|
Assets and liabilities at the rate of exchange in effect
at the balance sheet date,
|
|
|
|
|
|
|
ii)
|
Equity at historical rates, and
|
|
|
|
|
|
|
iii)
|
Revenue and expense items at the average rate of exchange
prevailing during the period.
|
Translation adjustments resulting from translation of balances
from functional to reporting currency are accumulated as a separate component of
shareholders’ equity as a component of comprehensive income or loss. Upon sale
or liquidation of the net investment in the foreign entity the amount deferred
will be recognized in income.
Use of Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make certain estimates and assumptions that affect the
reported amounts and timing of revenues and expenses, the reported amounts and
classification of assets
- 7 -
and liabilities, and disclosure of contingent assets and
liabilities. These estimates and assumptions are based on the Company's
historical results as well as management's future expectations. The Company's
actual results could vary materially from management's estimates and
assumptions.
Software Costs
Effective March 1, 2006, the Company adopted the provisions of
Statement of Financial Accounting Standards (“SFAS”) No. 123(R), “Share-Based
Payment” (“SFAS 123(R)”), which establishes accounting for equity instruments
exchanged for employee services. Under the provisions of SFAS 123(R),
stock-based compensation cost is measured at the grant date, based on the
calculated fair value of the award, and is recognized as an expense over the
employees’ requisite service period (generally the vesting period of the equity
grant). Before March 1, 2006, the Company accounted for stock-based compensation
to employees in accordance with Accounting Principles Board Opinion No. 25,
“Accounting for Stock Issued to Employees,” and complied with the disclosure
requirements of SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS
123”). The Company adopted SFAS 123(R) using the modified prospective method,
which requires the Company to record compensation expense over the vesting
period for all awards granted after the date of adoption, and for the unvested
portion of previously granted awards that remain outstanding at the date of
adoption. Accordingly, financial statements for the periods prior to March 1,
2006 have not been restated to reflect the fair value method of expensing
share-based compensation. Adoption of SFAS 123(R) does not change the way the
Company accounts for share-based payments to non-employees, with guidance
provided by SFAS 123 (as originally issued) and Emerging Issues Task Force Issue
No. 96-18, “Accounting for Equity Instruments That Are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling, Goods or Services”.
Results of Operations – Nine months ended August 31, 2007
and 2006
References in the discussion below to fiscal 2007 are to our
current fiscal year which will end on November 30, 2007. References to fiscal
2006 are to our fiscal year ended November 30, 2006.
References to the
first nine months of fiscal 2006 are to the nine month period ended August 31,
2006 and references to the first nine months of fiscal 2007 are to the nine
month period ended August 31, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From
|
|
|
|
|
For the
|
|
|
For the
|
|
|
For the
|
|
|
For the
|
|
|
Incorporation
|
|
|
|
|
Three Months
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
Nine Months
|
|
|
July 5,
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
2005 to
|
|
|
|
|
August 31,
|
|
|
August 31,
|
|
|
August 31,
|
|
|
August 31,
|
|
|
August 31,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
$
|
27,845
|
|
$
|
24,351
|
|
$
|
199,415
|
|
$
|
24,351
|
|
$
|
223,766
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Sales
|
|
17,573
|
|
|
9,424
|
|
|
167,463
|
|
|
9,424
|
|
|
176,887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
10,272
|
|
|
14,927
|
|
|
31,952
|
|
|
14,927
|
|
|
46,879
|
|
|
General and Administrative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Software development
costs
|
|
78,933
|
|
|
-
|
|
|
252,979
|
|
|
13,814
|
|
|
615,533
|
|
|
Consulting
|
|
72,134
|
|
|
31,901
|
|
|
178,092
|
|
|
53,337
|
|
|
213,428
|
|
|
Salaries and wages
|
|
17,926
|
|
|
90,652
|
|
|
136,302
|
|
|
198,435
|
|
|
211,897
|
|
|
Auditing
and accounting
|
|
37,573
|
|
|
19,371
|
|
|
100,645
|
|
|
39,995
|
|
|
256,602
|
|
|
Office
|
|
23,436
|
|
|
5,975
|
|
|
61,068
|
|
|
22,627
|
|
|
116,015
|
|
|
Legal
|
|
16,880
|
|
|
16,633
|
|
|
31,066
|
|
|
49,760
|
|
|
102,334
|
|
|
Depreciation
|
|
3,706
|
|
|
5,896
|
|
|
22,773
|
|
|
14,893
|
|
|
43,463
|
|
|
Rent
|
|
8,345
|
|
|
-
|
|
|
21,829
|
|
|
-
|
|
|
53,848
|
|
|
Filing fees
|
|
9,871
|
|
|
2,365
|
|
|
15,324
|
|
|
9,820
|
|
|
22,611
|
|
- 8 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From
|
|
|
|
|
For the
|
|
|
For the
|
|
|
For the
|
|
|
For the
|
|
|
Incorporation
|
|
|
|
|
Three Months
|
|
|
Three Months
|
|
|
Nine Months
|
|
|
Nine Months
|
|
|
July 5,
|
|
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
Ended
|
|
|
2005 to
|
|
|
|
|
August 31,
|
|
|
August 31,
|
|
|
August 31,
|
|
|
August 31,
|
|
|
August 31,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
2006
|
|
|
2007
|
|
|
Investor
relations
|
|
-
|
|
|
2,287
|
|
|
6,235
|
|
|
2,287
|
|
|
24,915
|
|
|
Foreign exchange loss
|
|
(214
|
)
|
|
4,811
|
|
|
3,801
|
|
|
4.811
|
|
|
9,651
|
|
|
Intellectual property
|
|
-
|
|
|
-
|
|
|
-
|
|
|
1,500,000
|
|
|
1,947,637
|
|
|
Marketing and
distribution
|
|
-
|
|
|
-
|
|
|
-
|
|
|
120,000
|
|
|
120,000
|
|
|
Bad debt
|
|
-
|
|
|
9,789
|
|
|
-
|
|
|
9,789
|
|
|
9,789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
268,590
|
|
|
189,680
|
|
|
830,114
|
|
|
2,039,568
|
|
|
3,747,723
|
|
|
Loss from Operations
|
|
(258,318
|
)
|
|
(174,753
|
)
|
|
(798,162
|
)
|
|
(2,024,641
|
)
|
|
(3,700,844
|
)
|
|
Other Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
|
|
-
|
|
|
4,974
|
|
|
-
|
|
|
26,724
|
|
|
33,926
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
for the Period
|
$
|
(258,318
|
)
|
$
|
(169,779
|
)
|
$
|
(798,162
|
)
|
$
|
(1,997,917
|
)
|
$
|
(3,666,918
|
)
|
Revenue
We generated our initial revenues during the first quarter of
fiscal 2007. During the first quarter of fiscal 2007, we delivered our encoding
platform to a customer for encoding content from DVD disks onto the customer’s
video demand platform. The encoding platform is one of the components of the
ITonis video solution. Our revenues increased to $199,415 for the first nine
months of fiscal 2007 from $24,351 for the first nine months of fiscal 2006.
These initial revenues are not significant in relation to our
overall expenses. We anticipate that we will not earn any significant revenues
until such time as we have achieved commercial deployment of our ITonis video
solution.
Software Development Costs
Software development costs represent amounts attributable to
the development of our proprietary software.
Our software development costs increased significantly to
$252,979 during the first nine months of fiscal 2007 from $13,814 during the
first nine months of fiscal 2006 as we continued development of our ITonis video
solution. Software development costs during fiscal 2006 included:
-
amounts paid to Xeris in respect of development work on our ITonis video
solution completed by Xeris prior to our taking over software development
activities from Xeris in January 2006; and
-
software development work that we completed in-house.
Consulting
Consulting fees represent amounts that we pay to consultants
that are engaged by us.
Consulting expenses increased significantly to $178,092 for the
first nine months of fiscal 2007 compared to $53,337 for the first nine months
of fiscal 2006. Consulting expenses have increased in part due to marketing
campaigns that were undertaken based on the previous strategy for the firm.
Outside consultants were required to facilitate these campaigns because of lack
of in-house expertise. We
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anticipate that management and consulting expenses will
increase during fiscal 2007 because of our determination to focus on China.
Salaries And Wages
Salaries and wages are primarily comprised of salaries paid to
employees of ITonis CZ who are or were at the time employed at our research and
development facility in Prague.
Salaries and wages were $136,302 during the first nine months
of fiscal 2007 compared to $198,435 during the first nine months of fiscal 2006
due to fewer employees.
Audit and Accounting
Our accounting and auditing expenses include professional fees
for accounting and auditing expenses incurred in connection with the preparation
and audit of our financial statements.
Accounting and auditing expenses increased during the first
nine months of fiscal 2007 to $100,645 compared to $39,995 in the first nine
months of fiscal 2006 as a result of the review of potential acquisitions.
Depreciation
Depreciation expense represents depreciation of our computer
hardware and equipment.
Depreciation expense in the first nine months of fiscal 2006
and fiscal 2007 represented depreciation of computer hardware and equipment that
we acquired in connection with the development and testing of our ITonis video
solution.
Legal
Legal expenses are attributable to legal fees paid to our legal
counsel in connection with the completion of our corporate reorganization and
our filing a registration statement with the SEC and becoming a reporting
company under the Securities Exchange Act of 1934.
Legal expenses during the first nine months of fiscal 2007
declined compared to the first nine months of fiscal 2006 as a result of our
completing our corporate reorganization and preparing and filing of a
registration statement with the SEC during fiscal 2006. Legal expenses during
the first nine months of fiscal 2007 have related to our ongoing continuous
reporting obligations under the Securities Exchange Act of 1934.
Rent
Our rent expenses include the rent that we pay for our research
and development facility in Prague and general office expenses.
Our rent expenses increased significantly in fiscal 2006 as the
result of ITonis CZ entering into a lease for our research and development
facility in Prague. This lease expense will be ongoing through fiscal 2007.
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Intellectual Property
We did not incur any expenses on any intellectual property
during the first nine months of fiscal 2007. In fiscal 2006, we determined that
the cost of the intellectual property purchased during our fiscal 2006 does not
meet the criteria for capitalization as set out in SFAS No. 86.
Marketing And Distribution
Our marketing and distribution expenses include amounts that we
pay under our reseller and consulting services agreement with Nordic IPTV. We
recorded $120,000 in expenses under the Nordic IPTV agreement in fiscal 2006 in
respect of four months of service provided by John Marienhof as commercial
director of ITonis. In accordance with our agreement with Nordic IPTV, this
amount has not been paid but has been accrued. We did not record any marketing
and distribution expenses during the first nine months of fiscal 2007.
Other Income
We did not generate any other income during the first nine
months of fiscal 2007. Our other income during fiscal 2006 was comprised of:
-
Sub-letting part of our ITonis CZ office to iPLATO s.r.o., a company with
whom ITonis CZ has one director in common;
-
Outsourcing the services of our former director and officer, Nicolas
Lavaud, to Xeris., a company with whom ITonis CZ has one director in common,
as managing director; and
-
Outsourcing the services of Libor Bucinsky to Devoteam, an arms length
party, for the installation of Telefonica Video on Demand platform at Czech
Telecom.
Liquidity And Capital Resources
Cash and Working Capital
As at August 31, 2007, we had cash of $18,293 and a working
capital deficit of $724,591, compared to cash of $1,571 and a working capital
deficit of $442,867 as at November 30, 2006.
Related Party Loan
During fiscal 2006 Mr. Nicolas Lavaud, our former director and
chief executive officer, granted us a loan which was outstanding in the amount
of $40,621 as of August 31, 2007. The loan is evidenced by a promissory note, is
unsecured and does not bear any interest. The promissory note is payable on
demand.
Plan of Operations
Our planned expenditures over the next twelve months are
approximately $1,000,000. As described above under “Our Plan of Operations”, we
anticipate that we will require financing in the amount of approximately
$1,730,000 in order to carry out our plan of operations for the next twelve
months. While this amount may be offset by any gross profits that we earn from
sales of our ITonis video solutions, we anticipate that we do not have
sufficient funds to enable us to undertake our plan of operations past the next
month. Accordingly, we anticipate that we will require additional financing in
order to enable us to sustain our operations for the next twelve months, as
outlined above under “Our Plan of Operations”.
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We anticipate that additional funding will be in the form of
equity financing from the sale of our common stock. We presently have no
arrangements in place for any additional equity financings. In the absence of
such additional financing, we may not be able to continue our plan of operations
beyond the next month and our business plan may fail. If we do not obtain the
required additional financing, we will initially scale back our business
operations and may ultimately be forced to abandon our plan of operations and
our business activities.
Cash Used In Operating Activities
We used cash of $374,956 in operating activities during the
first nine months of fiscal 2007 compared to cash used of $296,969 in operating
activities during the first nine months of fiscal 2006.
Cash From Investing Activities
We used cash of $34,362 in investing activities during the
first nine months of fiscal 2007 which consisted of upgrades and enhancements to
technology and purchases of equipment. We used cash in investing activities in
the amount of $36,925 during the first nine months of fiscal 2006. Cash used in
investing activities in fiscal 2006 was attributable primarily to the purchase
of computer hardware and equipment that we have acquired in connection with the
development and testing of our ITonis video solution.
Cash from Financing Activities
We generated cash of $442,628 from financing activities during
the first nine months of fiscal 2007 compared to cash of $184,641 generated from
financing activities during the first nine months of fiscal 2006.
Cash generated from financing activities during the first nine
months of fiscal 2007 and 2006 was attributable to shares issued for cash.
Going Concern
We have not attained profitable operations and are dependent
upon obtaining financing to pursue any extensive business activities. For these
reasons our auditors stated in their report that they have substantial doubt we
will be able to continue as a going concern.
Future Financings
We anticipate continuing to rely on equity sales of our common
shares in order to continue to fund our business operations. Issuances of
additional shares will result in dilution to our existing stockholders. There is
no assurance that we will achieve any additional sales of our equity securities
or arrange for debt or other financing to fund our planned activities.
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 financial condition, revenues or expenses, results of
operations, liquidity, capital expenditures or capital resources that is
material to stockholders.
- 12 -