SOUND REVOLUTION INC.
PROFORMA FINANCIAL STATEMENTS
(Expressed in US dollars)
(Unaudited)
Pro Forma Balance Sheet as at February 28, 2009…………………………………………………… PF - 1
Pro Forma Statement of Operations for the Year Ended February 28, 2009 …………………….PF - 2
Notes to the Pro Forma Financial Statements…………….…………………...………….…………. PF - 3
PRO FORMA BALANCE SHEET
AS AT FEBRUARY 28, 2009
(Expressed in US dollars)
(Unaudited)
Sound As at February 28, 2009 | On4 As at April 30, 2009 | Pro Forma (Note 3) | Pro Forma Balance Sheet | ||
$ | $ | $ | $ | ||
ASSETS | |||||
CURRENT | |||||
Cash and cash equivalents | 3,598 | 158 | (c) | (3,598) | 158 |
(d) | 150,000 | ||||
(e) | (150,000) | ||||
Prepaid expenses | 7,814 | 10,833 | (c) | (7,814) | 10,833 |
11,412 | 10,991 | (11,412) | 10,991 | ||
PROPERTY, PLANT AND EQUIPMENT | 6,761 | 9,130 | (c) | (6,761) | 9,130 |
INTANGIBLE ASSETS | 342 | 267,398 | (c) | (342) | 267,398 |
| 18,515 | 287,519 | (18,515) | 287,519 | |
LIABILITIES | |||||
CURRENT | |||||
Accounts payable and accrued liabilities | 49,586 | 285,018 | (c) | (49,586) | 285,018 |
Convertible debenture | – | – | (a) | 108,000 | 108,000 |
Accrued interest payable | – | 106,975 | – | 106,975 | |
Notes payable | – | 742,424 | – | 742,424 | |
Preferred stock dividend payable | – | 83,472 | (j) | (83,472) | – |
Due to related parties | 565,390 | 823,116 | (a) | (120,000) | 823,116 |
(b) | (35,000) | ||||
(e) | (150,000) | ||||
(f) | (260,390) | ||||
614,976 | 2,041,005 | (590,448) | 2,065,533 | ||
Due to related parties | – | 262,565 | – | 262,565 | |
614,976 | 2,303,570 | (590,448) | 2,328,098 | ||
| |||||
STOCKHOLDERS’ EQUITY | |||||
PREFERRED STOCK | – | 1,000,000 | (j) | (1,000,000) | – |
COMMON STOCK | 26 | 2,438,985 | (b) | 3,500 | 2,831 |
(d) | 75 | ||||
(g) | (3,495) | ||||
(h) | (26) | ||||
(h) | 2,796 | ||||
(j) | (2,439,030) | ||||
ADDITIONAL PAID-IN CAPITAL | 352,822 | 833,539 | (a) | 12,000 | 4,611,861 |
(b) | 31,500 | ||||
(d) | 149,925 | ||||
(g) | 3,495 | ||||
(h) | (352,822) | ||||
(h) | 58,900 | ||||
(j) | 3,522,502 | ||||
COMMON STOCK SUBSCRIBED | 3,000 | 50,000 | (h) | (3,000) | 50,000 |
DEFICIT ACCUMULATED DURING THE DEVELOPMENT STAGE | (952,309) | (6,338,575) | (f) | 291,461 | (6,705,271) |
(h) | (658,157) | ||||
(h) | 952,309 | ||||
| (596,461) | (2,016,051) | 571,933 | (2,040,579) | |
| 18,515 | 287,519 | 18,515 | 287,519 |
(See accompanying notes)
PF - 1
SOUND REVOLUTION INC.
PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED FEBRUARY 28, 2009
(Expressed in US dollars)
(Unaudited)
Sound Year Ended February 28, | On4 Twelve Months Ended March 31, | Pro Forma | Pro Forma | ||
$ | $ | $ | $ | ||
SALES | 136 | – | (i) | (136) | – |
COST OF SALES | (246) | – | (i) | 246 | – |
(110) | – | 110 | – | ||
| |||||
EXPENSES | |||||
Amortization | 38,259 | 15,362 | (i) | (3,013) | 50,608 |
Accretion | – | – | (a) | 12,000 | 12,000 |
Consulting | – | 451,770 | – | 451,770 | |
Foreign exchange gain | – | 178,443 | – | 178,443 | |
General & Administrative | 9,374 | 422,094 | (i) | 1,566 | 433,034 |
Management fees | 25,000 | 363,500 | – | 388,500 | |
Marketing | 16,008 | 51,658 | – | 67,666 | |
Professional | 81,433 | 105,513 | – | 186,946 | |
Product development | – | 72,805 | – | 72,805 | |
Total Expenses | 170,074 | 1,661,145 | 10,553 | 1,841,772 | |
Net Loss Before Other Items | (170,184) | (1,661,145) | (10,443) | (1,841,772) | |
Other Income (Expense) | |||||
Interest income | – | 46,792 | – | 46,792 | |
Impairment of investment | (10,000) | – | – | (10,000) | |
Interest expense | – | (154,834) | – | (154,834) | |
Write-off of receivables | – | (1,113,062) | – | (1,113,062) | |
Impairment loss on goodwill | – | – | (f) | 291,461 | 291,461 |
Gain on disposal of subsidiary | – | – | (h) | (658,157) | (658,157) |
NET LOSS – Continuing operations | (180,184) | (2,882,249) | (377,139) | (3,439,572) | |
Discontinued Operations | – | – | (i) | (1,557) | (1,557) |
NET LOSS - | (180,184) | (2,882,249) | (378,696) | (3,441,129) | |
Pro forma loss per share (Note 5) | |||||
LOSS PER SHARE – Basic and diluted | |||||
Continuing Operations | (0.70) | (0.10) | (0.12) | ||
Discontinued Operations | (0.00) | (0.00) | (0.00) |
(See accompanying notes)
PF - 2
1. Basis of Presentation
On May 1, 2009, Sound Revolution Inc. (“Sound” or the “Company”) completed a merger with On4 Communications Inc. (“On4”). Pursuant to the terms of the merger agreement, Sound 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. See Note 2.
These unaudited pro forma financial statements (“pro forma financial statements”) have been prepared in accordance with accounting principles generally accepted in the United States and are expressed in US dollars. These pro forma financial statements do not contain all of the information required for annual financial statements. Accordingly, they should be read in conjunction with the most recent annual and interim financial statements of the Company.
These pro forma financial statements have been compiled from and include:
(a) an unaudited pro forma balance sheet combining the audited balance sheet of Sound as at February 28, 2009 with the unaudited balance sheet of On4 as at April 30, 2009, giving effect to the transaction as if it occurred on February 28, 2009; and
(b) an unaudited pro forma statement of operations combining the audited annual statement of operations of Sound for the year ended February 28, 2009 with the unaudited interim statement of operations of On4 for the twelve month period ended April 30, 2009, giving effect to the transaction as if it occurred on March 1, 2008. In the preparation of the unaudited pro forma statement of operations for the twelve months ended February 28, 2009, the results of On4 have been obtained from the statement of operations for the year ended October 31, 2008, less the statement of operations for the six month period ended April 30, 2008, plus the statement of operations for the six month period ended April 30, 2009.
The unaudited pro forma financial statements have been compiled using the significant accounting policies as set out in the audited financial statements of the Company for the year ended February 28, 2009. Based on the review of the accounting policies of On4, it is management’s opinion that there are no material accounting differences between the accounting policies of the Company and On4. The unaudited pro forma financial statements should be read in conjunction with the historical financial statements and notes thereto of the Company.
It is management’s opinion that these pro forma financial statements include all adjustments necessary for the fair presentation, in all material respects, of the proposed transaction described above in accordance with United States GAAP applied on a basis consistent with the Company’s accounting policies. No adjustments have been made to reflect potential cost savings that may occur subsequent to completion of the transaction. The pro forma statement of operations does not reflect non-recurring charges or credits directly attributable to the transaction, of which none are currently anticipated.
The unaudited pro forma financial statements are not intended to reflect the results of operations or the financial position of the Company which would have actually resulted had the proposed transaction been effected on the dates indicated. Further, the unaudited pro forma financial information is not necessarily indicative of the results of operations that may be obtained in the future.
PF - 3
SOUND REVOLUTION INC.
Notes to Pro Forma Financial Statements
(Unaudited)
(Expressed in Canadian dollars)
2. Business Acquisition
On May 1, 2009, Sound Revolution Inc. (“Sound” or the “Company”) completed a merger with On4 Communications Inc. (“On4”). Pursuant to the terms of the merger agreement, Sound 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. On4 is a private operating company, and Sound is a shell public company. The merger is accounted for as a “reverse merger” using the purchase method of accounting, with the former shareholders of On4 controlling 99% of the issued and outstanding common shares of Sound after the closing of the transaction. Accordingly, On4 is deemed to be the acquirer for accounting purposes. Material terms of the merger agreement are as follows:
Prior to the Merger Closing:
· | The Company shall enter into a convertible note (the “Note”) in the amount of US$120,000 with Penny Green, the majority shareholder, CEO, a Director and the sole officer of the Company, which shall be convertible into common stock at US$0.10 at the option of the holder, and which shall be due in seven months. The Note shall be reduced to US$100,000 if On4 incurs legal fees in excess of US$10,000 in connection with the Merger. |
· | The Company will convert debt owed to Penny Green and Bacchus Entertainment Ltd., a company owned and controlled by Penny Green, into 35,000,000 shares of its common stock at a price of $0.001 per share. |
· | The Company will have transferred all of its assets and debts, other than the Note and any debt owing to Penny Green or Bacchus Entertainment Ltd., to its wholly owned subsidiary, Charity Tunes Inc., a Delaware company. |
Upon the Merger Closing:
· | The New Entity shall raise a minimum of US$150,000 through a direct offering of units registered on a Form S-1 at a price to be determined, with each unit comprised of one common share and one half warrant to purchase one common share at a price of US$1.00 for a period of 12 months. |
· | All notes payable by On4 in excess of US$100,000 shall be converted to equity at a price to be mutually agreed on by On4 and the specific creditor or receive a repayment extension of no less than six months and with an annual interest rate not to exceed 12%. |
After Raising a Minimum of $150,000:
· | $150,000 shall be repaid to Penny Green towards the outstanding loans owed to her, or companies controlled by her. Upon receipt of the $150,000 payment: |
· | Charity Tunes Inc. shall be sold to Bacchus Filings Inc., a company controlled by Penny Green, in consideration for which Bacchus Filings Inc. shall assume the entire amount of loan owing to Penny Green or Bacchus Entertainment Ltd., exclusive of the Note; |
· | Penny Green, and all companies controlled by Penny Green, will cancel all but 236,066 of the Company’s shares owned by them; |
The Sound common shares to be issued to the On4 shareholders were determined to have a fair value of $61,696. After reflecting the pro forma purchase adjustments, the excess of the purchase consideration over the fair values of Sound’s assets and liabilities as at February 28, 2009, has been allocated to goodwill. However, as the US Securities and Exchange Commission has ruled that no goodwill can be recognized when the business combination involves a publicly held shell company and a privately held acquiree, an immediate impairment loss on goodwill of $658,157 has been recorded.
PF - 4
SOUND REVOLUTION INC.
Notes to Pro Forma Financial Statements
(Unaudited)
(Expressed in Canadian dollars)
3. Pro Forma Assumptions and Adjustments
The unaudited pro form consolidated financial statements incorporate the following pro forma assumptions:
(a) | On April 30, 2009, the Company entered into a convertible agreement with Bacchus Entertainment Ltd., a company controlled by the Company’s director and officer, for $120,000 of previously forwarded funds. Interest on the note is to be calculated at 20% per annum, but shall begin accruing on November 30, 2009. Additionally, the note is convertible into shares of the Company’s stock at a rate of $0.10 per share. |
(b) | On April 30, 2009, the Company entered into a debt conversion agreement with Bacchus Entertainment Ltd, for the conversion of $35,000 of debt owed by the Company to Bacchus Entertainment Ltd. into common shares of the Company at $0.001 per share for an aggregate total of 35,000,000 shares. |
(c) | Prior to the closing of the merger, Sound transfers all of its assets and liabilities except for the $120,000 convertible debenture to its wholly-owned subsidiary, Charity Tunes Inc. |
(d) | Prior to the closing of the merger, the Company completes a private placement consisting of 750,000 common shares at $0.20 per share for proceeds of $150,000. |
(e) | The Company pays $150,000 to Penny Green for amounts owed. |
(f) | The Company disposes of its subsidiary Charity Tunes, Inc. to Bacchus Filings Inc., a company controlled by Penny Green, in consideration for which Bacchus Filings Inc. shall assume the entire amount of loan owing to Penny Green or Bacchus Entertainment Ltd., exclusive of the Note. |
(g) | The Company cancels all but 236,066 of the Company’s shares owned by Penny Green, and all companies controlled by Penny Green. |
(h) | The former shareholders of On4 exchange their common shares on a 1 to 1 basis for 27,955,089 common shares of the Company. The acquisition has been accounted for using the purchase method with On4 identified as the acquirer and the business acquired recorded at estimated fair value. An immediate impairment of goodwill has been recognized in the amount of $658,157. |
(i) | The former operations of Charity Tunes Inc. have been reclassified as discontinued operations. |
(j) | The share capital of the Company was adjusted to reflect the common stock par value of $0.0001 per share. |
4. Pro Forma Share Capital:
Pro forma share capital as at February 28, 2009 has been determined as follows:
Number | Par | Additional | |
$ | $ | ||
Common shares of the Company at February 28, 2009 | 258,478 | 26 | 352,822 |
Issue of common shares for settlement of debt | 35,000,000 | 3,500 | 31,500 |
Issue of common shares for cash by private placement | 750,000 | 75 | 149,925 |
Cancellation of common shares held by Penny Green | (34,950,000) | (3,495) | 3,495 |
Discount on convertible note payable | – | – | 12,000 |
Eliminate equity of the Company | – | (26) | (352,822) |
Add equity of On4 | – | 2,438,985 | 833,539 |
Issue of common shares On4 shareholders | 27,955,089 | 2,796 | 58,900 |
Adjustment to reflect par value | – | (2,439,030) | 3,522,502 |
Pro forma balance | 29,013,567 | 2,831 | 4,611,861 |
PF - 5
SOUND REVOLUTION INC.
Notes to Pro Forma Financial Statements
(Unaudited)
(Expressed in Canadian dollars)
5. Pro Forma Loss Per Share:
Pro forma basic and diluted loss per share for the year ended February 28, 2009, has been calculated based on the number of Sound shares issued to the On4 shareholders and assuming to be issued effective March 1, 2008.
Year ended February 28, 2009 | |
Basic pro forma loss per share computation | |
Numerator: | |
Pro forma net loss from continuing operations | $ (3,439,572) |
Pro forma net loss from discontinued operations | $ (1,557) |
Denominator: | |
Common shares of the Company | 258,478 |
Common shares issued to On4 shareholders | 27,955,089 |
Pro forma weighted average shares outstanding | 28,213,567 |
Basic and Diluted pro forma loss per share | |
Continuing operations | $ (0.12) |
Discontinued operations | $ (0.00) |
PF - 6