UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the period ended September 30, 2009
[ ] Transition Report pursuant to 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period ______________ to ______________
Commission File Number 000-52278
ITOKK, INC.
(Exact name of registrant as specified in its charter)
Nevada 26-1281852
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
440 North Wolfe Road, Sunnyvale, CA 94085
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: 408-419-1719
Shadow Marketing Inc.
17365 S.W. 13th Street
Pembroke Pines, Florida 33029
(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 Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
(do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
Itokk, Inc. (formerly Shadow Marketing Inc.)
(A Development Stage Company)
Balance Sheets
- --------------------------------------------------------------------------------
September 30, June 30,
2009 2009
-------- --------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash $ 3,392 $ 122
-------- --------
TOTAL ASSETS $ 3,392 $ 122
======== ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 7,150 $ 13,150
Due to related party 63,819 42,859
-------- --------
TOTAL CURRENT LIABILITIES 70,969 56,009
-------- --------
STOCKHOLDERS' DEFICIT
Common stock, $0.001 par value
Authorized: 200,000,000 shares
Issued and outstanding:
7,445,000 at September 30, 2009 and June 30, 2009 7,445 7,445
Additional paid-in capital 17,055 17,055
Deficit accumulated during the development stage (92,077) (80,387)
-------- --------
TOTAL STOCKHOLDERS' DEFICIT (67,577) (55,887)
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 3,392 $ 122
======== ========
The accompanying notes are an integral part of
these interim financial statements
2
Itokk, Inc. (formerly Shadow Marketing Inc.)
(A Development Stage Company)
Statements of Operations
(Unaudited)
- --------------------------------------------------------------------------------
From
Three Months Ended September 19, 2003
September 30, (Inception) to
--------------------------------- September 30,
2009 2008 2009
----------- ----------- -----------
REVENUE
Advertising revenue $ -- $ -- $ 576
----------- ----------- -----------
TOTAL REVENUE -- -- 576
----------- ----------- -----------
EXPENSES
Magazine publication costs -- -- 16,755
General and administrative 11,690 1,793 75,898
----------- ----------- -----------
TOTAL COSTS AND EXPENSES 11,690 1,793 92,653
----------- ----------- -----------
NET LOSS $ (11,690) (1,793) $ (92,077)
=========== =========== ===========
NET LOSS
Basic and diluted $ (0.00) (0.00)
=========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING
Basic and diluted 7,445,000 7,445,000
=========== ===========
The accompanying notes are an integral part of
these interim financial statements
3
Itokk, Inc. (formerly Shadow Marketing Inc. )
(A Development Stage Company)
Statements of Cash Flows
(Unaudited)
- --------------------------------------------------------------------------------
From
Three Months Ended September 19, 2003
September 30, (Inception) to
------------------------ September 30,
2009 2008 2009
-------- -------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(11,690) $ (1,793) $(92,077)
Changes in operating assets and liabilities:
Accounts payable and accrued liabilities (6,000) (4,500) 7,150
-------- -------- --------
NET CASH USED FOR OPERATING ACTIVITIES (17,690) (6,293) (84,927)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Loans from related party 20,960 10,000 63,819
Proceeds from sales of common stock -- -- 24,500
-------- -------- --------
NET CASH PROVIDED BY FINANCING ACTIVITIES 20,960 10,000 88,319
-------- -------- --------
INCREASE IN CASH 3,270 3,707 3,392
CASH, BEGINNING 122 558 --
-------- -------- --------
CASH, ENDING $ 3,392 $ 4,265 $ 3,392
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ -- $ -- $ --
======== ======== ========
Income taxes paid $ -- $ -- $ --
======== ======== ========
The accompanying notes are an integral part of
these interim financial statements
4
1. ORGANIZATION, BUSINESS OPERATIONS AND BASIS OF PRESENTATION
BASIS OF PRESENTATION
The unaudited financial statements included herein have been prepared in
accordance with accounting principles generally accepted in the United States
for interim financial information and with the rules and regulations of the
Securities and Exchange Commission. They do not include all information and
notes required by generally accepted accounting principles for complete
financial statements. However, except as disclosed herein, there have been no
material changes in the information disclosed in the notes to the audited
financial statements included on Form 10-K of the Company for the year ended
June 30, 2009. In the opinion of management, all adjustments (including normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three months ended September 30, 2009, are
not necessarily indicative of the results that may be expected for any other
interim period or the entire year. For further information, these unaudited
financial statements and the related notes should be read in conjunction with
the Company's audited financial statements for the year ended June 30, 2009,
included in the Company's annual report on Form 10-K.
RECENTLY ADOPTED ACCOUNTING GUIDANCE
On July 1, 2009, we adopted authoritative guidance issued by the Financial
Accounting Standards Board ("FASB") on business combinations. The guidance
retains the fundamental requirements that the acquisition method of accounting
(previously referred to as the purchase method of accounting) be used for all
business combinations, but requires a number of changes, including changes in
the way assets and liabilities are recognized and measured as a result of
business combinations. It also requires the capitalization of in-process
research and development at fair value and requires the expensing of
acquisition-related costs as incurred. We completed no business combinations
since July 1, 2009 and the adoption of the new guidance did not have an impact
on our financial statements.
On July 1, 2009, we adopted the authoritative guidance issued by the FASB that
changes the accounting and reporting for non-controlling interests.
Non-controlling interests are to be reported as a component of equity separate
from the parent's equity, and purchases or sales of equity interests that do not
result in a change in control are to be accounted for as equity transactions. In
addition, net income attributable to a non-controlling interest is to be
included in net income and, upon a loss of control, the interest sold, as well
as any interest retained, is to be recorded at fair value with any gain or loss
recognized in net income. Adoption of the new guidance did not have an impact on
our financial statements.
On July 1, 2009, we adopted the authoritative guidance on fair value measurement
for nonfinancial assets and liabilities, except for items that are recognized or
disclosed at fair value in the financial statements on a recurring basis (at
least annually). Adoption of the new guidance did not have an impact on our
financial statements.
RECENT ACCOUNTING GUIDANCE NOT YET ADOPTED
In October 2009, the FASB issued authoritative guidance on revenue recognition
that will become effective for us beginning July 1, 2010, with earlier adoption
permitted. Under the new guidance on arrangements that include software
elements, tangible products that have software components that are essential to
the functionality of the tangible product will no longer be within the scope of
the software revenue recognition guidance, and software-enabled products will
now be subject to other relevant revenue recognition guidance. Additionally, the
FASB issued
authoritative guidance on revenue arrangements with multiple deliverables that
are outside the scope of the software revenue recognition guidance. Under the
new guidance, when vendor specific objective evidence or third party evidence
for deliverables in an arrangement cannot be determined, a best estimate of the
selling price is required to separate deliverables and allocate arrangement
consideration using the relative selling price method. The new guidance includes
new disclosure requirements on how the application of the relative selling price
method affects the timing and amount of revenue recognition. The adoption of
this new guidance will not have an impact on our financial statements.
In June 2009, the FASB issued authoritative guidance on the consolidation of
variable interest entities, which is effective for us beginning July 1, 2010.
The new guidance requires revised evaluations of whether entities represent
variable interest entities, ongoing assessments of control over such entities,
and additional disclosures for variable interests. The adoption of this new
guidance will not have an impact on our financial statements.
5
2. SUBSEQUENT EVENTS
NAME CHANGE
On October 5, 2009, the Company changed its name to Itokk, Inc.
CAPITAL STOCK
On October 5, 2009, the Company's authorized capital changed to include
1,000,000 preferred shares. The classes, series, voting powers and restrictions
on these preferred shares have not been determined or authorized by the
Company's board of directors.
On September 14, 2009, the Company approved an 8.5 to 1 forward-split of their
common stock for shareholders of record on that date. The split was effective on
October 28, 2009.
ACQUISITION OF LICENSING AGREEMENT
On September 14, 2009, the Company entered into a licensing agreement with
Packetera Communications Inc. ("Packetera"), a private Canadian company, whereby
the Company agreed to issue 30,600,000 post forward-split shares of their common
stock in exchange for Packetera granting to the Company an exclusive worldwide
75 year license to use, sell, market, distribute and sublicense various products
and services owned by Packetera. The acquisition was effective on October 28,
2009 and the results of the transaction have been presented in the following pro
forma balance sheet:
September 30, Combined
2009 Pro Forma Adjustments Pro Forma
-------- -------------------------- -----------
ASSETS
CURRENT ASSETS
Cash $ 3,392 $ -- $ -- $ 3,392
Intellectual property -- (a) 2,000,000 -- 2,000,000
-------- ---------- -------- -----------
TOTAL ASSETS $ 3,392 $2,000,000 $ -- $ 2,003,392
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable and accrued liabilities $ 7,150 $ -- $ -- $ 7,150
Due to related party 63,819 -- -- 63,819
-------- ---------- -------- -----------
TOTAL CURRENT LIABILITIES 70,969 -- -- 70,969
-------- ---------- -------- -----------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $0.001 par value 7,445 (a) 30,600 (b) (4,000) 34,045
Additional paid-in capital 17,055 (a) 1,969,400 (b) 4,000 1,990,455
Deficit accumulated during the development stage (92,077) -- -- (92,077)
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) (67,577) 2,000,000 -- 1,932,423
-------- ---------- -------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 3,392 $2,000,000 $ -- $ 2,003,392
======== ========== ======== ===========
- ----------
(a) On October 28, 2009, the Company issued 30,600,000 shares of its common
stock to Packetera pursuant to a licensing agreement valued at $2,000,000.
(b) On October 28, 2009, two officers of Itokk each cancelled 17,000,000 shares
of the Company's common stock (34,000,000 shares were cancelled in total).
Management has evaluated all activity of the Company through November 13, 2009
(the issue date of the financial statements) and concluded that no subsequent
events (other than the subsequent events disclosed above) have occurred that
would require recognition in the financial statements or disclosure in the notes
to the financial statements.
6
FORWARD-LOOKING STATEMENTS
This Form 10-Q includes "forward-looking statements" within the meaning of the
"safe-harbor" provisions of the Private Securities Litigation Reform Act of
1995. Such statements are based on management's current expectations and are
subject to a number of factors and uncertainties that could cause actual results
to differ materially from those described in the forward-looking statements.
All statements other than historical facts included in this report, including
without limitation, statements under "Plan of Operation", regarding our
financial position, business strategy, and plans and objectives of management
for the future operations, are forward-looking statements.
Although we believe that the expectations reflected in such forward-looking
statements are reasonable, it can give no assurance that such expectations will
prove to have been correct. Important factors that could cause actual results to
differ materially from our expectations include, but are not limited to, market
conditions, competition and the ability to successfully complete financing.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Our plan of operation for the twelve months following the date of this report is
to expand our business operations by:
* executing additional reseller agreements pursuant to which third
parties will market our products and services to end-users;
* assembling an integration team to aid and assist resellers;
* assembling a call center support team to answer reseller and end-user
inquiries;
* conducting a marketing plan to secure additional resellers and
customers; and
* pursuing research and development initiatives to complete certain
products in the development stage and to generate proposals for
potential new products.
In order to execute additional reseller agreements, we plan to have our
management travel extensively in order to introduce our products and services to
telecommunications companies, cable companies, Internet service providers, VOIP
service providers and marketing organizations throughout North America and
Europe. Our C.E.O., Kevin Penstock, will be primarily responsible for initiating
new contacts in North America, while Carmelo D'Anzi, our vice-president of
business development, will initiate new contacts in Europe. Our goal is to
execute and maintain a minimum of 17 new, active resellers within the next 12
months. We intend to commence this marketing effort immediately and anticipate
that it will be ongoing throughout the next 12 month period.
Our management will also oversee the assembly of the integration and call center
support teams. This will primarily involve hiring and training personnel to aid
and assist resellers in their efforts to sell our products to their customers
and to answer any questions from either the resellers or their customers. We
expect to hire 12 client and customer support personnel in the next 12 months.
The timing of the expansion of these teams will depend on our ability to raise
funding to cover labor and related overhead expense.
Our marketing efforts will consist of a mix of new social and media viral
marketing via the Internet sustained by channel marketing through our resellers.
In order to pursue new product development, such as our Softphone suite,
extended Callback products and services, as well as to research new VoIP
technologies, we intend to retain software developers. Our C.E.O., Kevin
Penstock, and our vice-president of research and development, Ioannis
7
Karamitsos, Ph.D., will oversee the training and management of these employees.
We intend to expand our research and development efforts by retaining five
technical staff in Vancouver and another 30 developers in India, with an initial
recruitment of five employees. The timing of the expansion of these teams will
depend on our ability to raise funding to cover labor and related overhead
expense.
In order to achieve the preceding objectives, we anticipate incurring the
following approximate costs:
Management wages: $ 915,000
Operations and overhead: $1,268,000
Research and development: $ 402,000
Marketing: $ 528,000
----------
TOTAL: $3,113,000
==========
Of this amount, we expect that in order to achieve our objectives, we will
require these funds on a per quarter basis approximately as follows:
Quarter 1: $ 256,000
Quarter 2: $ 630,000
Quarter 3: $1,013,000
Quarter 4: $1,214,000
----------
TOTAL: $3,113,000
==========
As well, we anticipate spending an additional $100,000 on administrative costs
such as accounting and auditing fees, legal fees and fees payable in connection
with reporting obligations.
Total expenditures over the next 12 months are therefore expected to be
approximately $3,213,000. Our ability to meet these objectives in the time
frames indicated will be dependent on our ability to generate revenue from
operations and to raise sufficient additional capital to expand operations. If
we are unable to generate sufficient revenue or raise financing as required, we
will delay our expansion of operations as necessary.
SOURCES AND USES OF CASH
At September 30, 2009, our current assets consisted of $3,392 in cash.
Accordingly, we will have to raise additional funds in the next twelve months in
order to cover our anticipated administrative costs and costs of expanding our
operations as outlined above. We currently do not have a specific plan of how we
will obtain such funding; however, we anticipate that additional funding will be
in the form of equity financing from the sale of our common stock. Any private
placement of our common stock could result in substantial dilution to existing
shareholders.
We have and will continue to seek to obtain short-term loans from our directors,
although no future arrangements for additional loans have been made. We do not
have any agreements with our directors concerning these loans. We do not have
any arrangements in place for any future equity financing.
EVENTS, TRENDS AND UNCERTAINTIES
The development of our business will depend upon our ability to attract
resellers and customers for our VOIP and related products and services. Our
ability to generate revenue may be affected by events and trends such as general
economic conditions, technological advances and competing products from existing
and new companies in the same business.
8
RESULTS OF OPERATIONS
We did not earn any revenues during the three-month period ended September 30,
2009. We incurred operating expenses in the amount of $11,690 for the period
consisting entirely of general and administrative costs.
We have not attained profitable operations and are dependent upon obtaining
financing to pursue activities. For these reasons, there is substantial doubt
that we will be able to continue as a going concern.
CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS
We evaluated the effectiveness of our disclosure controls and procedures as of
the date of this report. This evaluation was conducted by Kevin Penstock, our
chief executive officer and principal accounting officer.
Disclosure controls are controls and other procedures that are designed to
ensure that information that we are required to disclose in the reports we file
pursuant to the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported.
LIMITATIONS ON THE EFFECTIVE OF CONTROLS
Our management does not expect that our disclosure controls or our internal
controls over financial reporting will prevent all error and fraud. A control
system, no matter how well conceived and operated, can provide only reasonable,
but no absolute, assurance that the objectives of a control system are met.
Further, any control system reflects limitations on resources, and the benefits
of a control system must be considered relative to its costs. These limitations
also include the realities that judgments in decision-making can be faulty and
that breakdowns can occur because of simple error or mistake. Additionally,
controls can be circumvented by the individual acts of some persons, by
collusion of two or more people or by management override of a control. A design
of a control system is also based upon certain assumptions about potential
future conditions; over time, controls may become inadequate because of changes
in conditions, or the degree of compliance with the policies or procedures may
deteriorate. Because of the inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and may not be detected.
CONCLUSIONS
Based upon their evaluation of our controls, Kevin Penstock, our chief executive
officer and principal accounting officer, has concluded that, subject to the
limitations noted above, the disclosure controls are effective providing
reasonable assurance that material information relating to us is made known to
management on a timely basis during the period when our reports are being
prepared. There were no changes in our internal controls that occurred during
the quarter covered by this report that have materially affected, or are
reasonably likely to materially affect our internal controls.
PART II- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceeding. Management is not
aware of any threatened litigation, claims or assessments.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
On October 28, 2009, we issued 30,600,000 shares of our common stock to
Packetera Communications Inc. ("Packetera") pursuant to a licensing agreement
9
whereby we acquired an exclusive worldwide 75 year license to use, sell, market,
distribute and/or sublicense various products and services owned by Packetera.
We issued these shares pursuant to Section 4(2) of the Securities Act of 1933.
We were able to rely upon this exemption since this issuance does not constitute
a public offering of our shares.
In connection with this issuance, the principal of Packetera, Kevin Penstock was
provided with access to all material aspects of the company, including the
business, management, offering details, risk factors and financial statements.
He also represented to us that he was acquiring the shares as principal for his
own account with investment intent. He also represented that he was
sophisticated, having prior investment experience and having adequate and
reasonable opportunity and access to any corporate information necessary to make
an informed decision. This issuance of securities was not accompanied by general
advertisement or general solicitation. The shares were issued with a Rule 144
restrictive legend.
In connection with the completion of the aforementioned licensing agreement, we
agreed to split our common stock such that every share of pre-split stock was
exchange for 8.5 post-split shares of common stock.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On September 14, 2009, the following actions were authorized by our Board of
Directors and approved by the written consent of stockholders of the company
holding 4,000,000 shares, representing a majority of the shares of our
outstanding common stock:
(1) to amendment and restate our Articles of Incorporation to change the
name of the Company from Shadow Marketing, Inc. to Itokk, Inc.;
(2) to amend and restate our Articles of Incorporation to change our
authorized capital to include 1,000,000 shares of preferred stock and
that the Company vest authority in the board of directors to prescribe
the classes, series and the number of each class or series of stock
and the voting powers, designations, preferences, limitations,
restrictions and relative rights of each class or series of stock; and
(3) to approve a 8.5-for-1 forward-split of our common stock issued and
outstanding, such that every current shareholder of the Company's
common stock shall be issued 8.5 shares of the Company's $0.001 par
value common voting stock in exchange for every one share of the
Company's $0.001 par value common voting stock held as of the record
date, with fractional shares being rounded up to the next whole share.
The number of authorized shares of common stock will be unchanged
(200,000,000).
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
31.1 Certification pursuant to Rule 13a-14(a) under the Securities Exchange Act
of 1934
31.2 Certification pursuant to Rule 13a-14(a) under the Securities Exchange Act
of 1934
32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
32.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
10
We filed the following current reports on Form 8-K during the three-month period
ended September 30, 2009, and subsequent thereto:
Date of Filing Subject of Filing
-------------- -----------------
September 14, 2009 Entry into a licensing agreement with Packetera
Communications Inc.
September 22, 2009 Change of auditor
October 28, 2009 Completion of licensing agreement with Packetera
Communications Inc.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
November 16, 2009
ITOKK, INC.
/s/ Kevin Penstock
- -------------------------------------
Kevin Penstock, President,
Chief Executive Officer,
Principal Accounting Officer
and Principal Financial Officer
11