UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington, D.C.
20549





FORM
10-Q





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





For the quarterly
period ended January
31, 2010





o TRANSITION REPORT
UNDER SECTION 13 OR 15 (d) OF THE EXCHANGE ACT OF 1934





Commission File
Number: 001-34297





ON4 COMMUNICATIONS,
INC.


(Exact name of
registrant as specified in its charter)





Delaware


(State or other
jurisdiction of incorporation or organization)





N/A


(I.R.S. Employer
Identification No.)





16413 N. 91
Street, C 100


Scottsdale, AZ
 85260


(Address of
principal executive offices)





480.619.5510


(Registrant’s
telephone number, including area code)





________________________________


(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 require to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.  Yes þ  Noo





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).  Yes þ  Noo





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 o  Accelerated
filer o 
Non-accelerated filer oSmaller reporting company þ





Indicate by check
mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).  Yes o  No þ





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.





As of March 12,
2010 the registrant’s outstanding common stock consisted of
47,651,046 shares.







Table
of Contents




PART I – FINANCIAL INFORMATION
                2Item 1. Financial Statements
                2Item 2. Management’s Discussion and Analysis of Financial
      Condition and Results of Operations
                3Item 3. Quantitative and Qualitative Disclosures About Market
      Risk
                6Item 4. Controls and Procedures
                6PART II – OTHER INFORMATION
                7Item 1. Legal Proceedings
                7Item 2. Unregistered Sales of Equity
    Securities
                7Item 3. Defaults Upon Senior Securities
                7Item 4. Submission of Matters to a Vote of Security
      Holders
                7Item 5. Other Information
                7Item 6. Exhibits
                7
 
 1








PART I - FINANCIAL INFORMATION





Item 1. Financial Statements.






















ON4
      COMMUNICATIONS INC.
              Consolidated
      Financial Statements
              Three Months
      Ended January 31, 2010
              (Expressed in
      US dollars)
              (Unaudited)




2




On4 Communications
Inc.


(A
Development Stage Company)


Consolidated
Balance Sheets


(Expressed in US
Dollars)





January
      31,2010
                $
              
              October
      31,2009
                $(Unaudited)ASSETSCurrent
      AssetsCash
              
              
              77,503
              
              
              473Accounts
      receivable
              
              
              –
              
              
              64,737Prepaid
      expenses and deposits
              
              
              26,235
              
              
              38,738Total Current
      Assets
              
              
              103,738
              
              
              103,948Goodwill
      (Note 3)
              
              
              1,163,884
              
              
              1,163,884Intangible
      assets (Note 4)
              
              
              65,040
              
              
              66,779Property and
      equipment (Note 5)
              
              
              8,169
              
              
              8,002Total
      Assets
              
              
              1,340,831
              
              
              1,342,613LIABILITIES
      AND STOCKHOLDERS’ DEFICITCurrent
      LiabilitiesAccounts
      payable
              
              
              547,727
              
              
              533,273Accrued
      liabilities
              
              
              30,591
              
              
              17,299Accrued
      interest payable (Note 6(c))
              
              
              220,237
              
              
              141,307Deferred
      revenue
              
              
              36,272
              
              
              90,385Due to
      related parties (Note 6)
              
              
              1,420,963
              
              
              1,303,492Notes payable
      (Note 7)
              
              
              959,900
              
              
              881,637Convertible
      note payable to related party, net of unamortized discount of $Nil
      (October 31, 2009 - $1,782) (Note 6(e))
              
              
              120,000
              
              
              118,218Total
      Liabilities
              
              
              3,335,690
              
              
              3,085,611Nature of
      Operations and Continuance of Business (Note 1)Commitments
      (Note 10)Contingent
      Liability (Note 11)Stockholders’
      DeficitPreferred
      stock: 10,000,000 shares authorized, non-voting, no par value;No shares
      issued and outstanding
              
              
              –
              
              
              –Common
      stock:  100,000,000 shares authorized, 0.0001 par value;99,874,977
      shares issued and outstanding
              
              
              9,987
              
              
              9,987Additional
      paid-in capital
              
              
              9,261,980
              
              
              9,261,980Common stock
      issuable
              
              
              70,000
              
              
              70,000Deficit
      accumulated during the development stage
              
              
              (11,336,826
              )
              
              (11,084,965
              )Total
      Stockholders’ Deficit
              
              
              (1,994,859
              )
              
              (1,742,998
              )Total
      Liabilities and Stockholders’ Deficit
              
              
              1,340,831
              
              
              1,342,613




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




F-1





On4 Communications
Inc.


(A
Development Stage Company)


Consolidated
Statements of Operations


(Expressed in US
Dollars)


(Unaudited)





For
      the Three MonthsEnded
                January
      31,2010
                $
              
              
              For
      the Three MonthsEnded
                January
      31,2009
                $
              
              
              Accumulated
      From
                June
      5, 2006
                (Date
      of Inception)
                to
      January 31,2010
                $Revenue
              
              
              57,999
              
              
              
              –
              
              
              
              76,745Cost of
      sales
              
              
              27,155
              
              
              
              –
              
              
              
              30,504Gross
      margin
              
              
              30,844
              
              
              
              –
              
              
              
              46,241ExpensesAdvertising
      and marketing
              
              
              1,889
              
              
              
              30,882
              
              
              
              227,469Amortization
      of intangible assets
              
              
              1,739
              
              
              
              3,802
              
              
              
              12,923Amortization
      of property and equipment
              
              
              2,730
              
              
              
              9,288
              
              
              
              41,308Consulting
      fees
              
              
              16,166
              
              
              
              309,821
              
              
              
              1,682,844Foreign
      exchange loss
              
              
              6,718
              
              
              
              192
              
              
              
              226,452General and
      administrative
              
              
              32,683
              
              
              
              83,270
              
              
              
              1,023,167Impairment of
      goodwill
              
              
              –
              
              
              
              –
              
              
              
              2,050,401Impairment of
      intangible assets
              
              
              –
              
              
              
              –
              
              
              
              2,871,524Management
      fees
              
              
              45,000
              
              
              
              177,000
              
              
              
              1,033,596Payroll
              
              
              16,838
              
              
              
              431
              
              
              
              46,354Professional
      fees
              
              
              80,979
              
              
              
              17,239
              
              
              
              512,551Research and
      development
              
              
              2,847
              
              
              
              305
              
              
              
              391,829Total
      Expenses
              
              
              207,589
              
              
              
              632,230
              
              
              
              10,120,418Operating
      Loss
              
              
              (176,745
              )
              
              
              (632,230
              )
              
              
              (10,074,177
              )Other Income
      (Expense)Gain on
      settlement of debt
              
              
              4,442
              
              
              
              –
              
              
              
              189,587Interest and
      other income
              
              
              –
              
              
              
              224
              
              
              
              63,066Interest
      expense
              
              
              (79,558
              )
              
              
              (35,601
              )
              
              
              (317,648
              )Write-off of
      note receivable
              
              
              –
              
              
              
              –
              
              
              
              (1,114,182
              )Total Other
      Income (Expense)
              
              
              (75,116
              )
              
              
              (667,607
              )
              
              
              (1,179,177
              )Net
      Loss
              
              
              (251,861
              )
              
              
              (667,607
              )
              
              
              (11,253,354
              )Net Loss Per
      Share – Basic and Diluted
              
              
              –
              
              
              
              (0.01
              )Weighted
      Average Shares Outstanding
              
              
              99,875,000
              
              
              
              96,214,000
 (The
accompanying notes are an integral part of these consolidated financial
statements)




F-2





On4 Communications
Inc.


(A
Development Stage Company)


Consolidated
Statements of Cash Flows


(Expressed in US
Dollars)


(Undaudited)





For
      the ThreeMonths
              Ended
              January
      31,2010
              $
            
            
            For
      the ThreeMonths
              Ended
              January
      31,2009
              $
            
            
            Accumulated
      From
              June
      5, 2006
              (Date
      of Inception)
              to
      January 31,2010
              $Operating
      ActivitiesNet
      loss
            
            
            (251,861
            )
            
            
            (667,607
            )
            
            
            (11,253,354
            )Adjustments
      to reconcile net loss to net cash used in operating
      activities:Accretion of
      discount on convertible debt
            
            
            1,782
            
            
            
            –
            
            
            
            12,000Amortization
      of property and equipment
            
            
            2,730
            
            
            
            9,288
            
            
            
            41,308Amortization
      of intangible assets
            
            
            1,739
            
            
            
            3,802
            
            
            
            12,923Gain on
      settlement of debt
            
            
            (4,442
            )
            
            
            –
            
            
            
            (189,587
            )Impairment of
      goodwill
            
            
            –
            
            
            
            –
            
            
            
            2,050,401Impairment of
      intangible assets
            
            
            –
            
            
            
            –
            
            
            
            2,871,524Issuance of
      notes payable for services and penalties
            
            
            –
            
            
            
            –
            
            
            
            90,402Issuance of
      shares for services
            
            
            –
            
            
            
            –
            
            
            
            120,000Stock-based
      compensation
            
            
            –
            
            
            
            –
            
            
            
            833,539Write-off of
      notes receivable
            
            
            –
            
            
            
            –
            
            
            
            1,114,182Changes in
      operating assets and liabilities:Accounts
      receivable
            
            
            64,737
            
            
            
            –
            
            
            
            –Prepaid
      expenses and deposits
            
            
            12,502
            
            
            
            –
            
            
            
            (17,872
            )Accounts
      payable and accrued liabilities
            
            
            32,189
            
            
            
            89,029
            
            
            
            625,234Accrued
      interest payable
            
            
            78,930
            
            
            
            41,905
            
            
            
            232,686Deferred
      revenue
            
            
            (54,113
            )
            
            
            –
            
            
            
            36,272Due to
      related parties
            
            
            91,349
            
            
            
            176,425
            
            
            
            748,475Net Cash Used
      In Operating Activities
            
            
            (24,458
            )
            
            
            (347,158
            )
            
            
            (2,671,867
            )Investing
      ActivitiesAcquisition
      of intangible assets
            
            
            –
            
            
            
            –
            
            
            
            (834,487
            )Cash acquired
      in reverse merger
            
            
            –
            
            
            
            –
            
            
            
            1,523Acquisition
      of property and equipment
            
            
            (2,897
            )
            
            
            –
            
            
            
            (43,271
            )Advances for
      note receivable
            
            
            –
            
            
            
            –
            
            
            
            (1,114,182
            )Net Cash Used
      In Investing Activities
            
            
            (2,897
            )
            
            
            –
            
            
            
            (1,990,417
            )Financing
      ActivitiesProceeds from
      issuance of common stock
            
            
            –
            
            
            
            272,539
            
            
            
            2,521,267Proceeds from
      issuance of preferred stock
            
            
            –
            
            
            
            –
            
            
            
            1,000,000Proceeds from
      notes payable
            
            
            75,000
            
            
            
            –
            
            
            
            727,022Repayment of
      notes payable
            
            
            –
            
            
            
            –
            
            
            
            (81,250
            )Proceeds from
      related parties
            
            
            50,372
            
            
            
            –
            
            
            
            610,522Repayments to
      related parties
            
            
            (24,250
            )
            
            
            –
            
            
            
            (69,250
            )Share
      issuance costs
            
            
            –
            
            
            
            (78,000
            )
            
            
            (8,000
            )Net Cash
      Provided By Financing Activities
            
            
            101,122
            
            
            
            194,539
            
            
            
            4,700,311Effects of
      Exchange Rate Changes on Cash
            
            
            3,263
            
            
            
            –
            
            
            
            39,476Increase
      (Decrease) in Cash
            
            
            77,030
            
            
            
            (152,619
            )
            
            
            77,503Cash -
      Beginning of Period
            
            
            473
            
            
            
            152,777
            
            
            
            –Cash - End of
      Period
            
            
            77,503
            
            
            
            158
            
            
            
            77,503Supplemental
      DisclosuresInterest
      paid
            
            
            –
            
            
            
            –
            
            
            
            1,250Income taxes
      paid
            
            
            –
            
            
            
            –
            
            
            
            –




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




F-3





On4 Communications
Inc.


(A
Development Stage Company)


Notes to the
Consolidated Financial Statements


January 31,
2010


(Expressed in US
dollars)


(Unaudited)





1. Nature
of Operations and Continuance of Business




Sound Revolution
Inc. (the "Company"), was incorporated on June 4, 2001 under the laws of the
State of Delaware and on July 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.  On4 was a private operating company, and the Company was a
public company with an operating business. 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 is deemed
to be the acquirer for accounting purposes and the consolidated 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. 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 has three 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, (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; and (iii) PetsMobility Inc., which was
incorporated in the state of Delaware on March 23, 2006 for the purposes
operating the website www.petsmo.com and related business. 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. Refer to Note 3.




Going
Concern




These consolidated
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. 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.
As at January 31, 2010, the Company has a working capital deficiency of
$3,231,952, and has accumulated losses totaling $11,336,826 since inception.
These factors raise substantial doubt regarding the Company’s ability to
continue as a going concern. These consolidated 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.




2. Summary
of Significant Accounting Principles




Basis of Presentation and
Principles of Consolidation




These consolidated
financial statements are prepared in conformity with accounting principles
generally accepted in the United States and are presented in US dollars, unless
otherwise noted, and include the accounts of the Company and its subsidiaries,
Sound Revolution Recordings Inc., Charity Tunes Inc., and Petsmobility Inc. All
inter-company accounts and transactions have been eliminated. The Company’s
fiscal year end is October 31.




Interim Consolidated
Financial Statements







The interim
consolidated financial statements have been prepared by the Company pursuant to
the rules and regulations of the U.S. Securities and Exchange Commission (the
"SEC"). Certain information and footnote disclosure normally included in
consolidated financial statements prepared in accordance with accounting
principles generally accepted in the United States have been condensed or
omitted pursuant to such SEC rules and regulations. The interim consolidated
financial statements should be read together with the audited consolidated
financial statements and accompanying notes included in the Company's audited
consolidated financial statements for the year ended October 31, 2009. In the
opinion of the Company, the unaudited consolidated financial statements
contained herein contain all adjustments (consisting of a normal recurring
nature) necessary to present a fair statement of the results of the interim
periods presented.




F-4




On4 Communications
Inc.


(A
Development Stage Company)


Notes to the
Consolidated Financial Statements


January 31,
2010


(Expressed in US
dollars)


(Unaudited)





2.  Summary of Significant
Accounting Principles(continued)




Estimates




The preparation of
financial statements in conformity with US generally accepted accounting
principles (“US GAAP”) requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period. The
Company regularly evaluates estimates and assumptions related to the useful life
and recoverability of long-lived assets, recoverability of goodwill and
intangible assets, stock-based compensation and deferred income tax asset
valuation allowances. The Company bases its estimates and assumptions on current
facts, historical experience and various other factors that it believes to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities and the
accrual of costs and expenses that are not readily apparent from other sources.
The actual results experienced by the Company may differ materially and
adversely from the Company’s estimates. To the extent there are material
differences between the estimates and the actual results, future results of
operations will be affected.




Cash and Cash
Equivalents




The Company
considers all highly liquid instruments with maturity dates of three months or
less at the time of issuance to be cash equivalents




Property and
Equipment




Property and
equipment, consisting primarily of computer and office equipment, is stated at
cost and is amortized using the straight-line method over the estimated lives of
the related assets of three and five years, respectively.




Intangible
Assets




Intangible assets
consist of patents and trademarks related to the TX200 mobile communication
device, and the assets acquired from Pets911.com described in Note 4. Intangible
assets acquired are initially recognized and measured at cost and is being
amortized straight-line over the estimated useful life of ten years. Impairment
tests are conducted annually or more frequently if events or changes in
circumstances indicate that the asset may be impaired. The impairment test
compares the carrying amount of the intangible asset with its fair value, and an
impairment loss is recognized in income for the excess, if any. The amortization
methods and estimated useful lives of intangible assets and goodwill are
reviewed annually.




Goodwill




In accordance with
ASC 350, Intangibles –
Goodwill and Other, goodwill is required to be tested for impairment on
an annual basis, or more frequently if certain indicators arise, using the
guidance specifically provided.




Management reviews
goodwill at least annually, and on an interim basis when conditions require,
evaluates events or changes in circumstances that may indicate impairment in the
carrying amount of such assets. An impairment loss is recognized in the
statement of operations in the period that the related asset is deemed to be
impaired.




Website Development
Costs




Website development
costs consist of costs incurred to develop internet websites to promote,
advertise, and earn revenue with respect to the Company’s business operations.
Costs are capitalized in accordance with ASC 350-50, Web Site Development Costs,
and are amortized on a straight-line basis over the estimated useful life of
three years commencing when the internet web site has been
completed.




Impairment of Long-Lived
Assets




In accordance with
ASC 360, Property Plant and
Equipment, the Company tests long-lived assets or asset groups for
recoverability when events or changes in circumstances indicate that their
carrying amount may not be recoverable. Circumstances which could trigger a
review include, but are not limited to: significant decreases in the market
price of the asset; significant adverse changes in the business climate or legal
factors; accumulation of costs significantly in excess of the amount originally
expected for the acquisition or construction of the asset;




current period cash
flow or operating losses combined with a history of losses or a forecast of
continuing losses associated with the use of the asset; and current expectation
that the asset will more likely than not be sold or disposed significantly
before the end of its estimated useful life. Recoverability is assessed based on
the carrying amount of the asset and its fair value which is generally
determined based on the sum of the undiscounted cash flows expected to result
from the use and the eventual disposal of the asset, as well as specific
appraisal in certain instances. An impairment loss is recognized when the
carrying amount is not recoverable and exceeds fair value.




Research and Development
Expenses




Research and
development costs are expensed as incurred.




F-5





On4 Communications
Inc.


(A
Development Stage Company)


Notes to the
Consolidated Financial Statements


January 31,
2010


(Expressed in US
dollars)


(Unaudited)




2.  Summary of Significant
Accounting Principles (continued)




Advertising
Costs




The Company
expenses advertising costs as incurred. For the three months ended January 31,
2010, advertising costs were $1,889 (2009 - $30,882).




Revenue
Recognition




The Company
recognizes revenue from the online sale music in accordance with ASC 605, Revenue Recognition. Revenue
consists of the sale of music and is recognized only when the price is fixed or
determinable, persuasive evidence of an arrangement exists, the product is
shipped, and collectibility is reasonably assured.  The Company enters
into contracts that provide access to the Company’s music library for a
specified period of time.  The Company recognizes revenue from these
contracts on a straight-line basis over the term of the contract.




Earnings Per
Share




The Company
computes net loss per share in accordance with ASC 260, Earnings per Share,which
requires presentation of both basic and diluted earnings per share (EPS) on the
face of the consolidated statements of operations. Basic EPS is computed by
dividing net loss available to common shareholders (numerator) by the weighted
average number of shares outstanding (denominator) during the period. Diluted
EPS gives effect to all dilutive potential common shares outstanding during the
period using the treasury stock method and convertible preferred stock using the
if-converted method. In computing diluted EPS, the average stock price for the
period is used in determining the number of shares assumed to be purchased from
the exercise of stock options or warrants. Diluted EPS excludes all dilutive
potential shares if their effect is anti-dilutive.




Foreign Currency
Translation




The Company’s
functional currency and its reporting currency is the United States dollar and
foreign currency transactions are primarily undertaken in Canadian dollars.
Monetary balance sheet items expressed in foreign currencies are translated into
US dollars at the exchange rates in effect at the balance sheet date.
Non-monetary assets and liabilities are translated at historical rates. Revenues
and expenses are translated at average rates for the period, except for
amortization, which is translated on the same basis as the related asset. Gains
and losses arising on translation or settlement of foreign currency denominated
transactions or balances are included in the determination of
income.




Comprehensive
Income




ASC 220, Comprehensive Income,
establishes standards for the reporting and display of comprehensive loss and
its components in the consolidated financial statements. As at January 31, 2010
and 2009, the Company had no items representing comprehensive
income/loss.




Stock-based
Compensation




The Company records
stock-based compensation in accordance with ASC 718, Compensation – Stock Based
Compensationand ASC 505-50 - Equity-Based Payments to
Non-Employees. All transactions in which goods or services are the
consideration received for the issuance of equity instruments are accounted for
based on the fair value of the consideration received or the fair value of the
equity instrument issued, whichever is more reliably measurable.




Income
Taxes




The Company
accounts for income taxes using the asset and liability method in accordance
with ASC 740, Accounting for
Income Taxes. The asset and liability method provides that deferred tax
assets and liabilities are recognized for the expected future tax consequences
of temporary differences between the financial reporting and tax bases of assets
and liabilities, and for operating loss and tax credit carry-forwards. Deferred
tax assets and liabilities are measured using the currently enacted tax rates
and laws that will be in effect when the differences are expected to reverse.
The Company records a valuation allowance to reduce deferred tax assets to the
amount that is believed more likely than not to be realized.




The Company files
federal income tax returns in the United States.  The Company may be
subject to a reassessment of federal taxes by tax authorities for a period of
three years from the date of the original notice of assessment in respect of any
particular taxation year. In certain circumstances, the federal statute of
limitations can reach beyond the standard three year period. The statute of
limitations in the United States for income tax assessment varies from state to
state. Tax authorities have not audited any of the Company’s income tax
returns.




The Company
recognizes interest and penalties related to uncertain tax positions in tax
expense. During the three month periods ended January 31, 2010 and 2009, there
were no charges for interest or penalties.




F-6





On4 Communications
Inc.


(A
Development Stage Company)


Notes to the
Consolidated Financial Statements


January 31,
2010


(Expressed in US
dollars)


(Unaudited)





2.  Summary of Significant
Accounting Principles(continued)




Financial Instruments and
Fair Value Measures




ASC 820, Fair Value Measurements,
requires an entity to maximize the use of observable inputs and minimize the use
of unobservable inputs when measuring fair value. ASC 820 establishes a fair
value hierarchy based on the level of independent, objective evidence
surrounding the inputs used to measure fair value. A financial instrument’s
categorization within the fair value hierarchy is based upon the lowest level of
input that is significant to the fair value measurement. ASC 820 prioritizes the
inputs into three levels that may be used to measure fair value:




Level 1




Level 1 applies to
assets or liabilities for which there are quoted prices in active markets for
identical assets or liabilities.




Level
2




Level 2 applies to
assets or liabilities for which there are inputs other than quoted prices that
are observable for the asset or liability such as quoted prices for similar
assets or liabilities in active markets; quoted prices for identical assets or
liabilities in markets with insufficient volume or infrequent transactions (less
active markets); or model-derived valuations in which significant inputs are
observable or can be derived principally from, or corroborated by, observable
market data.




Level
3




Level 3 applies to
assets or liabilities for which there are unobservable inputs to the valuation
methodology that are significant to the measurement of the fair value of the
assets or liabilities.




Our financial
instruments consist principally of cash, accounts receivable, accounts payable,
accrued liabilities, accrued interest payable, amounts due to related parties,
and notes payable. Pursuant to ASC 820, the fair value of our cash is determined
based on “Level 1” inputs, which consist of quoted prices in active markets for
identical assets. We believe that the recorded values of all of our other
financial instruments approximate their current fair values because of their
nature and respective maturity dates or durations.




Recent Accounting
Pronouncements




In August 2009,
FASB issued an amendment to the accounting standards related to the measurement
of liabilities that are recognized or disclosed at fair value on a recurring
basis. This standard clarifies how a company should measure the fair value of
liabilities and that restrictions preventing the transfer of a liability should
not be considered as a factor in the measurement of liabilities within the scope
of this standard. This standard is effective for the Company on October 1, 2009.
The adoption of this amendment did not have a material effect on the Company’s
consolidated financial statements.




In October 2009,
FASB issued an amendment to the accounting standards related to the accounting
for revenue in arrangements with multiple deliverables including how the
arrangement consideration is allocated among delivered and undelivered items of
the arrangement. Among the amendments, this standard eliminated the use of the
residual method for allocating arrangement considerations and requires an entity
to allocate the overall consideration to each deliverable based on an estimated
selling price of each individual deliverable in the arrangement in the absence
of having vendor-specific objective evidence or other third party evidence of
fair value of the undelivered items. This standard also provides further
guidance on how to determine a separate unit of accounting in a
multiple-deliverable revenue arrangement and expands the disclosure requirements
about the judgments made in applying the estimated selling price method and how
those judgments affect the timing or amount of revenue recognition. This
standard, for which the Company is currently assessing the impact, will become
effective on January 1, 2011.




F-7




On4 Communications
Inc.


(A Development
Stage Company)


Notes to the
Consolidated Financial Statements


January 31,
2010


(Expressed in US
dollars)


(Unaudited)




2.  Summary of Significant
Accounting Principles(continued)




Recent Accounting
Pronouncements (continued)




In October 2009,
the FASB issued an amendment to the accounting standards related to certain
revenue arrangements that include software elements. This standard clarifies the
existing accounting guidance such that tangible products that contain both
software and non-software components that function together to deliver the
product’s essential functionality, shall be excluded from the scope of the
software revenue recognition accounting standards. Accordingly, sales of these
products may fall within the scope of other revenue recognition standards or may
now be within the scope of this standard and may require an allocation of the
arrangement consideration for each element of the arrangement. This standard,
for which the Company is currently assessing the impact, will become effective
on January 1, 2011.




In January 2010,
the FASB issued an amendment to ASC 505, Equity, where entities that declare
dividends to shareholders that may be paid in cash or shares at the election of
the shareholders are considered to be a share issuance that is reflected
prospectively in EPS, and is not accounted for as a stock
dividend.  This standard is effective for interim and annual periods
ending on or after December 15, 2009 and is to be applied on a retrospective
basis.  The adoption of this standard is not expected to have a
significant impact on the Company’s consolidated financial
statements.




In January 2010,
the FASB issued an amendment to ASC 820, Fair Value Measurements and Disclosure,
to require reporting entities to separately disclose the amounts and business
rationale for significant transfers in and out of Level 1 and Level 2 fair value
measurements and separately present information regarding purchase, sale,
issuance, and settlement of Level 3 fair value measures on a gross
basis.  This standard, for which the Company is currently assessing
the impact, is effective for interim and annual reporting periods beginning
after December 15, 2009 with the exception of disclosures regarding the
purchase, sale, issuance, and settlement of Level 3 fair value measures which
are effective for fiscal years beginning after December 15, 2010.




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 consolidated financial statements.





3. Merger
Transaction




On May 1, 2009, the
Company completed a merger with On4.  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. On4
was a private operating company, and the Company was a public company with an
operating business. 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.




Material terms of
the merger agreement were as follows:




Prior to the merger
closing:




● The Company entered
into a convertible note (the “Note”) in the amount of $120,000 with Penny Green,
a director and officer of the Company, which is convertible into common stock at
$0.10 per share at the option of the holder, and which was due in seven months.
Refer to Note 6(e).




● The Company
converted debt of $35,000 owed to Bacchus Entertainment Ltd., a company owned
and controlled by Penny Green, into 35,000,000 shares of common stock at a price
of $0.001 per share.




● The Company is to
transfer 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. At January 31, 2010, the transfer to Charity Tunes had not
occurred.




Upon the merger
closing:




● The Company shall
raise a minimum of $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 share purchase warrant to purchase one common share at a
price of $1.00 for a period of one year. At January 31, 2010, the Company had
not yet raised $150,000.




● All notes payable
by On4 in excess of $100,000 shall be converted to common shares 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%. As at January 31, 2010, none of the notes had been
converted.





F-8





On4 Communications
Inc.


(A
Development Stage Company)


Notes to the
Consolidated Financial Statements


January 31,
2010


(Expressed in US
dollars)


(Unaudited)





3. Merger Transaction
(continued)




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. (Not yet completed).





● Upon receipt of the
$150,000 payment, Charity Tunes 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 (amended below).;




● Penny Green, and
all companies controlled by Penny Green, will cancel all but 236,066 of the
Company’s shares owned by them (amended below).




The Company’s
common shares issued to the On4 shareholders were determined to have a fair
value of $2,661,689. After reflecting the purchase adjustments, the excess of
the purchase consideration over the fair values of the Company’s assets and
liabilities of $3,214,285 as at May 1, 2009, was allocated to
goodwill.  As at October 31, 2009, the Company recorded impairment on
goodwill of $2,050,401, resulting in a carrying value of goodwill of
$1,163,884.




On September 14,
2009, the Company entered into a post merger agreement with Penny Green, Bacchus
Entertainment Ltd. and Bacchus Filings Inc., pursuant to which the parties
agreed to amend the post merger obligations of the Company contemplated by the
merger agreement.  Pursuant to the post merger agreement, the parties
agreed that Charity Tunes Inc., currently a wholly owned subsidiary of the
Company, shall not be sold to Bacchus Filings Inc. Further Penny Green and
Bacchus Entertainment Ltd. agreed to cancel a total of 52,223,931 common shares
in the Company upon repayment of $75,000 of debt owed to them by the Company
(refer to Note 14).  In addition, if Charity Tunes does not generate
$500,000 of revenue by June 30, 2010 all amounts owed to Penny Green and Bacchus
Filings shall be forgiven.




4. Intangible
Assets and Website Development Costs




January 31, 2010
                  
                  
                  October 31, 2009Accumulated
                  
                  
                  
                  
                  
                  Net
      Carrying
                  
                  
                  Net
      CarryingCost

                      $
                  
                  
                  Amortization

                      $
                  
                  
                  Impairment

                      $
                  
                  
                  Value

                      $
                  
                  
                  Value

                      $Patents
                  
                  
                  58,262
                  
                  
                  
                  12,923
                  
                  
                  
                  –
                  
                  
                  
                  45,339
                  
                  
                  
                  47,078Trademarks
                  
                  
                  19,701
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  19,701
                  
                  
                  
                  19,701Pets911.com
                  
                  
                  2,115,000
                  
                  
                  
                  –
                  
                  
                  
                  2,115,000
                  
                  
                  
                  –
                  
                  
                  
                  –2,192,963
                  
                  
                  
                  12,923
                  
                  
                  
                  2,115,000
                  
                  
                  
                  65,040
                  
                  
                  
                  66,779Website
      Development
                  
                  
                  197,141
                  
                  
                  
                  –
                  
                  
                  
                  197,141
                  
                  
                  
                  –
                  
                  
                  
                  –2,390,104
                  
                  
                  
                  12,923
                  
                  
                  
                  2,312,141
                  
                  
                  
                  65,040
                  
                  
                  
                  66,779




On October 12,
2009, the Company entered into an asset purchase agreement to acquire
Pets911.com and all intellectual property, software and business assets
associated with operating the website.  Pursuant to the terms of the
agreement the Company issued 3,000,000 shares of its common
stock.  The Company recorded the fair value of the shares of
$2,115,000 as intangible assets.




As at October 31,
2009, the Company recognized an impairment of $2,115,000 over its assets
acquired from Pets911.com and an impairment of $197,141 for website development
costs.




The following table
summarizes the expected amortization on the patents over the next five
years:




2010
            
            $
            5,2152011
            
            
            6,9542012
            
            
            6,9542013
            
            
            6,9542014
            
            
            6,954$
            33,031




F-9




On4 Communications
Inc.


(A
Development Stage Company)


Notes to the
Consolidated Financial Statements


January 31,
2010


(Expressed in US
dollars)


(Unaudited)




5. 
Property and Equipment




January 31, 2010
            
            
            October 31, 2009Accumulated
            
            
            Net
      Carrying
            
            
            Net
      CarryingCost

                $
            
            
            Amortization

                $
            
            
            Value

                $
            
            
            Value

                $Computer
      equipment
            
            
            32,053
            
            
            
            26,700
            
            
            
            5,353
            
            
            
            6,727Office
      equipment
            
            
            27,964
            
            
            
            25,148
            
            
            
            2,816
            
            
            
            1,27560,017
            
            
            
            51,848
            
            
            
            8,169
            
            
            
            8,002




6. 
Related Party Transactions




a)
            As at January
      31, 2010, the Company owed $426,908 (October 31, 2009 - $426,908) to a
      company with common management for advances of operating funds and
      services provided. This amount owing is unsecured, non-interest bearing
      and due on demand.




b)
            As at January
      31, 2010, the Company owed $420,878 (October 31, 2009 - $324,307) to
      management and directors for consulting services. The amounts owing are
      unsecured, non-interest bearing, and due on
  demand.




c)
            As at January
      31, 2010, the Company owed $187,565 (October 31, 2009 - $187,565) to
      management and directors of the Company for advance of operating funds and
      services provided on behalf of the Company. The amounts owing are
      unsecured, bear interest at 10% per annum, and payable on January 31,
      2010. As at January 31, 2010, accrued interest of $42,160 (October 31,
      2009 - $37,446) is included in accrued interest payable.  The
      note was not repaid on January 31,
2010.




d)
            As at January
      31, 2010, the Company has notes payable of $385,612 (October 31, 2009 -
      $364,712) to a related party that was bearing interest at 10% per annum.
      Interest was charged and was payable quarterly on any outstanding balance
      beginning on September 1, 2004 to February 29, 2008 (prior to that date
      the borrowings from the related parties were non-interest bearing).
      Commencing March 1, 2008, the notes are non-interest bearing, unsecured
      and are payable on demand.




e)
            On April 30,
      2009, the Company issued a convertible note to an officer and director to
      secure $120,000 of amounts owed.  The note is non-interest
      bearing until maturity seven months after issuance. If the note is not
      repaid upon the maturity date, it bears interest at a rate of 20%, with
      interest accruing monthly. The note may be converted at any time into
      shares of the Company’s common stock at a price of $0.10 per share, at the
      option of the holder.




In accordance with
ASC 470-20, Debt with
Conversion and Other Options, the Company recognized the intrinsic value
of the embedded beneficial conversion feature of $12,000 as additional paid-in
capital and an equivalent discount which will be charged to operations over the
term of the convertible debenture. The Company records accretion expense over
the term of the convertible note up to its face value of $120,000. As at January
31, 2010 $12,000 (October 31, 2009, - $10,218) had been accreted increasing the
carrying value of the convertible note to $120,000.




F-10





On4 Communications
Inc.


(A
Development Stage Company)


Notes to the
Consolidated Financial Statements


January 31,
2010


(Expressed in US
dollars)


(Unaudited)




7. 
Notes Payable




January
      31,2010
              $
            
            
            October
      31,2009
              $Bling Capital
      Corp., unsecured, non-interest bearing, and due on demand.
            
            
            23,532
            
            
            
            24,985McCann Family
      Holding Corporation, unsecured, due interest at 13% per annum, and due on
      demand. Original principal of $282,390 (Cdn$300,000) plus $56,478
      (Cdn$60,000) of non-payment penalties for failure to repay the debt at due
      date.
            
            
            338,868
            
            
            
            334,152Scottsdale
      Investment Corporation, unsecured, due interest at 12% per annum, and due
      on demand.
            
            
            400,000
            
            
            
            400,000Ed Aaronson,
      unsecured, due interest at 10% per annum, and due on
    demand.
            
            
            115,000
            
            
            
            115,000Troy Rice,
      unsecured, due interest at 10% per annum, and due on
    demand.
            
            
            7,500
            
            
            
            7,500Unsecured,
      non-interest bearing, due on demand
            
            
            75,000
            
            
            
            –959,900
            
            
            
            881,637




8. Share
Purchase Warrants




Number of
      Warrants
            
            
            Exercise
      Price
              $Balance –
      October 31, 2008
            
            
            1,378,000
            
            
            
            0.50Issued
            
            
            408,705
            
            
            
            0.82Balance –
      October 31, 2009 and January 31, 2010
            
            
            1,786,705
            
            
            
            0.57




As
at January 31, 2010, the following share purchase warrants were
outstanding:




Number of
      Warrants
            Exercise
      Price
            Expiry
    Date1,300,000
            $0.50
            July 23,
      201278,000
            $0.50
            February 28,
      201378,000
            $0.50
            February 28,
      2013330,705
            $0.90
            July 24,
      20111,786,705




F-11





On4 Communications
Inc.


(A
Development Stage Company)


Notes to the
Consolidated Financial Statements


January 31,
2010


(Expressed in US
dollars)


(Unaudited)




9. 
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
              $Balance –
      October 31, 2008
            775,000
            0.82
            
            –Forfeited
            (150,000)
            1.00Balance –
      October 31, 2009 andJanuary 31,
      2010
            625,000
            0.78
            7.96
            –




Additional
information regarding stock options as of January 31, 2010, is as
follows:




Number
      ofOptions
            ExercisePrice
              $
            Expiry
      Date275,000
            0.50
            July 23,
      2017350,000
            1.00
            December 18,
      2017625,000





As
of January 31, 2010, the Company had no unvested options and $Nil of
unrecognized compensation expense.




10.  Commitments




a)
            On January 3,
      2008, the Company through its wholly owned subsidiary Charity Tunes Inc.,
      entered into an Agency and Promotion agreement (the “Agreement”) with
      World Wildlife Fund Canada (“WWF-Canada”) to raise money and awareness of
      WWF-Canada’s cause through the participation in promotional programs with
      Charity Tunes. The term of the agreement is one year, extended from year
      to year with a termination notice of 30 days prior to the end of a term by
      either party.




The Company
      will collect an amount equal to a minimum of 10% of the sale price of a
      song or other digital content or products sold in its website for which
      purchasers select WWF-Canada as the recipient of the donation. Donations
      collected will be forwarded to WWF-Canada every calendar quarter if
      donations owed by Charity Tunes are at least
  $100.




b)
            On October
      10, 2007, the Company entered into an agreement with Puretracks Inc.
      (“Puretracks”), whereby the Company agreed to pay to Puretracks, effective
      as of August 29, 2007, CDN$0.09 per track and CDN$1.08 per album download
      from the Company’s Charity Tunes website in Canada and $0.08 per track and
      $0.96 per album downloaded from the Company’s Charity Tunes website in the
      United States.




c)
            On September
      10, 2009, the Company entered into a consulting agreement with a
      consultant who will provide consulting services for $4,622 (Cdn $5,000)
      and 10,000 shares of common stock per month for a term of two
      months.  As at October 31, 2009 and January 31, 2010, 20,000
      common shares with a fair value of $9,000 was included in common stock
      issuable.




d)
            The Company
      rents facilities from other entities. Rent expense for these facilities
      for the three months ended January 31, 2010 and 2009 was $17,937 and
      $51,386 respectively. The facility leases expire within the next
      year.




As of January
      31, 2010, approximate future minimum lease payment required under
      non-cancelable operating leases is as follows for the fiscal year
      ended:




2010
            $44,389





F-12





On4 Communications
Inc.


(A
Development Stage Company)


Notes to the
Consolidated Financial Statements


January 31,
2010


(Expressed in US
dollars)


(Unaudited)





11. 
Contingent Liability




McCann Family
Holding Corporation (“McCann”) filed a lawsuit against the Company for the
repayment of the promissory notes dated May 7 and May 22, 2008. The Company has
defended the lawsuit on the basis that the funds were not due because they were
in fact advanced to and utilized by a company related to McCann, even though the
Company executed the promissory notes. McCann has applied to the courts for a
summary judgement and the Company is opposing that application. The promissory
notes are included in current liabilities as disclosed in Note 7.





12. 
Subsequent Events




a)
            On February
      3, 2010, the Company repaid $75,000 towards debt owed to an officer and
      director of the Company, and a company controlled by the officer and
      director. The Company made the payment in accordance with a post merger
      agreement disclosed in Note 3.  Pursuant to the post merger
      agreement, the officer and director and a company controlled by the
      officer and director cancelled 52,223,931 shares of common stock of the
      Company.




b)
            On February
      23, 2010, the Company entered into a trademark license agreement pursuant
      to which it was granted an exclusive license for use of a trademark and a
      trade name in the territory of United States, Canada and Mexico for the
      period of five years.




c)
            On March 3,
      2010, the Company granted 2,000,000 options with an exercise price of
      $0.15 per share, of which 1,500,000 options vested immediately, 250,000
      options will vest on June 1, 2010, and the remaining 250,000 option will
      vest on December 1, 2010.




F-13




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





Forward-Looking
Statements





This quarterly
report on Form 10-Q 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.





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 law, 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.





As
used in this quarterly report, the terms "we", "us", "our" and "our company"
mean On4 Communications, Inc., 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. We recently changed our fiscal year end from February 28 to October 31. Our
address is 10575 N. 114th Street, Suite 103, Scottsdale, AZ 85259. Our telephone
number is 480.344.7755.





On
March 12, 2009, we entered into a merger agreement with On4 Communications,
Inc., a private Arizona company incorporated on June 5, 2006, that was
subsequently amended on April 7, 2009 (the “Merger Agreement”). On May
1, 2009, we completed the merger, with us as the surviving entity. As a
result, we now have 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.





We
currently carry on business in the fields of digital entertainment distribution,
marketing and related technology through Charity Tunes Inc. We also carry on the
business of providing location-based services, or “LBS”, through PetsMobility
Inc. Location-based service 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.





Results of
Operations





Our results of
operations are presented below:





Three
      Months Ended January 31, 2010
              ($)
            Three
      Months Ended January 31, 2009
              ($)
            Accumulated
      from
              June
      5, 2006
              (Date
      of Inception) to
              January
      31, 2010
              ($)Revenue
            57,999
            -
            76,745Cost
      of Sales
            27,155
            -
            30,504Operating
      Expenses
            207,589
            632,230
            10,120,418Net
      Loss
            251,861
            667,607
            11,253,354





Results
of Operations for the Three Months Ended January 31, 2010 and for the Period
from June 5, 2006 (Date of Inception) to January 31, 2010




3





For the three
months ended January 31, 2010, we incurred a net loss of $251,861, compared to a
net loss of $667,607 during the same period in fiscal 2009. Our net loss from
our inception on June 5, 2006 to January 31, 2010 was $11,253,354. We did not
experience any net loss per share for the three months ended January 31, 2010,
whereas our net loss per share for the same period in fiscal 2009 was
$0.01.





Our total operating
expenses for the three months ended January 31, 2010 were $207,589, compared to
total operating expenses of $632,230 for the same period in fiscal 2009. Our
total operating expenses from our inception on June 5, 2006 to January 31, 2010
were $10,120,418.





Our total operating
expenses for the three months ended January 31, 2010 consisted of $1,889 in
advertising and marketing expenses, $1,739 in amortization of intangible assets,
$2,730 in amortization of property and equipment, $16,166 in consulting fees,
$6,718 in foreign exchange loss, $32,683 in general and administrative expenses,
$45,000 in management fees, $16,838 in payroll expenses, $80,979 in professional
fees and $2,847 in research and development. We did not incur any other
operating expenses during this period.





Our total operating
expenses for the three months ended January 31, 2009 consisted of $30,882 in
advertising and marketing expenses, $3,802 in amortization of intangible assets,
$9,288 in amortization of property and equipment, $309,821 in consulting fees,
$192 in foreign exchange loss, $83,270 in general and administrative expenses,
$177,000 in management fees, $431 in payroll expenses, $17,239 in professional
fees and $305 in research and development expenses. We did not incur any other
operating expenses during this period.





Our total operating
expenses from our inception on June 5, 2006 to January 31, 2010 consisted of
$227,469 in advertising and marketing expenses, $12,923 in amortization of
intangible assets, $41,308 in amortization of property and equipment, $1,682,844
in consulting fees, $226,452 in foreign exchange loss, $1,023,167 in general and
administrative expenses, $2,050,401 in impairment goodwill, $2,871,524 in
impairment of intangible assets, $1,033,596 in management fees, $46,354 in
payroll expenses, $512,551 in professional fees and $391,829 in research and
development expenses.





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 for the three months ended January 31, 2010 was primarily due
to decreases in our consulting fees, general and administrative expenses,
management fees, professional fees and advertizing and marketing
expenses.





Liquidity and Capital
Resources





As
of January 31, 2010, we had cash of $77,503 in our bank accounts. As of January
31, 2010, we also had prepaid expenses and deposits of $26,235, goodwill of
$1,163,884, intangible assets of $365,040, and property and equipment of $8,169,
for total assets of $1,340,831.





As
of January 31, 2010, we had current assets of $103,738, current liabilities of
$3,335,690 and a working capital deficit of $3,231,952. Our accumulated deficit
from our inception on June 5, 2006 to January 31, 2010 was $11,336,826 and was
funded primarily through equity financing.





We
are dependent on funds raised through our equity financing. Our net loss of
$11,253,354 from our inception on June 5, 2006 to January 31, 2010 was funded
primarily through equity financing.





For the three
months ended January 31, 2010, we spent net cash of $24,458 on operating
activities, compared to net cash spending of $347,158 on operating activities
during the same period in fiscal 2009. The decrease in expenditures on operating
activities for the three months ended January 31, 2010 was primarily due a
decrease in the amounts due to related parties and accounts payable, and an
increase in accounts receivable. From our inception on June 5, 2006 to January
31, 2010 we spent net cash of $2,671,867 on operating activities.





For the three
months ended January 31, 2010, we used net cash of $2,897 in investing
activities, whereas we did not use or receive any cash from investing activities
during the same period in fiscal 2009. The increase in expenditures on investing
activities for the three months ended January 31, 2010 was primarily due to the
acquisition of property and equipment. From our inception on June 5, 2006 to
January 31, 2010 we spent net cash of $1,990,417 on investing
activities.





For the three
months ended January 31, 2010, we received net cash of $101,122 from financing
activities, compared to net cash received of $194,539 from financing activities
during the same period in fiscal 2009. The decrease in receipts from financing
activities for the three months ended January 31, 2010 was primarily due to
decreases in the proceeds from the issuance of our common stock. From our
inception on June 5, 2006 to January 31, 2010, we received net cash of
$4,700,311 from financing activities.





During the three
months ended January 31, 2010, our monthly cash requirements to fund our
operating activities was approximately $8,637 compared to approximately $115,719
during the same period in fiscal 2009.





We
estimate our planned expenses for the next 12 months (beginning February, 2009)
to be approximately $1,700,000, as summarized in the table below:





Description
            Potential
              Completion
      Date
            Estimated
              Expenses
              ($)General and
      administrative expenses
            12
      months
            250,000Research and
      development
            12
      months
            100,000Sales and
      marketing
            12
      months
            200,000Accounting
      and legal
            12
      months
            150,000Unallocated
      working capital
            12
      months
            100,000Debt
      repayment
            12
      months
            900,000Total
            
            1,700,000





4





Our general and
administrative expenses for the year will consist primarily of telephone
service, courier service, postage, office supplies, banking, and website, server
and software maintenance.





Based on our
planned expenditures, we require additional funds of approximately $1,622,497(a
total of $1,700,000 less our approximately $34,700 in cash as of January 31,
2010) to proceed with our business plan over the next 12 months. 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 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.
Our financial statements for the three months ended January 31, 2010 have been
prepared on a going concern basis.





We
will require approximately $1,700,000 over the next 12 months in order 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 the balance of our cash
requirements for the next 12 months (approximately $1,622,497) from private
placements, stockholder loans or possibly a registered public offering (either
self-underwritten or through a broker-dealer). If we are unsuccessful in raising
enough money through such efforts, we may review other financing possibilities
such as bank loans. 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.





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 are material to
stockholders.





Inflation





The amounts
presented in the 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.





Research and
Development





We
incurred $2,847 in research and development expenses during three months ended
January 31, 2010. However, we anticipate that we will incur approximately
$100,000 in research and development expenses over the next 12
months.




5





Employees





We
do not currently have any employees, but we engage consultants to provide legal,
accounting, management, marketing, sales and software development
services.





Critical Accounting
Policies





Our critical
accounting policies, including their underlying assumptions and judgments, are
disclosed in the Notes to the consolidated Financial Statements. These policies
have been consistently applied in all material respects and address such matters
as revenue recognition and depreciation methods. The preparation of the
financial statements in conformity with generally accepted accounting principles
in the United States requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. The accounting treatment of a
particular transaction is specifically dictated by generally accepted accounting
principles in the United States, with no need for the application of
management’s judgment. There are also areas in which management’s judgment in
selecting any viable alternative would not produce a materially different
result. The following are what management considers our critical accounting
policies to be:





Revenue
Recognition




The Company
recognizes revenue from the online sale music in accordance with ASC 605, Revenue Recognition. Revenue
consists of the sale of music and is recognized only when the price is fixed or
determinable, persuasive evidence of an arrangement exists, the product is
shipped, and collectibility is reasonably assured.  The Company enters
into contracts that provide access to the Company’s music library for a
specified period of time.  The Company recognizes revenue from these
contracts on a straight-line basis over the term of the contract.




Goodwill




In
accordance with ASC 350, Intangibles – Goodwill and
Other, goodwill is required to be tested for impairment on an annual
basis, or more frequently if certain indicators arise, using the guidance
specifically provided.




Management reviews
goodwill at least annually, and on an interim basis when conditions require,
evaluates events or changes in circumstances that may indicate impairment in the
carrying amount of such assets. An impairment loss is recognized in the
statement of operations in the period that the related asset is deemed to be
impaired.




Stock-based
Compensation




The Company records
stock-based compensation in accordance with ASC 718, Compensation – Stock Based
Compensationand ASC 505-50 - Equity-Based Payments to
Non-Employees. All transactions in which goods or services are the
consideration received for the issuance of equity instruments are accounted for
based on the fair value of the consideration received or the fair value of the
equity instrument issued, whichever is more reliably measurable.




Item 3.  Quantitative and Qualitative Disclosure About Market
Risk.





Not
applicable.





Item 4. Controls and Procedures.





Disclosure
Controls





We
maintain disclosure controls and procedures, as defined in Rule 13a-15(e)
promulgated under the Securities Exchange Act of 1934 (the "Exchange Act"), that
are designed to ensure that information required to be disclosed by us 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 Securities and
Exchange Commission's rules and forms and that such information is accumulated
and communicated to our management, including our Chief Executive Officer and
Chief Financial Officer, as appropriate to allow timely decisions regarding
required disclosure.





We
carried out an evaluation, under the supervision and with the participation of
our management, including our Chief Executive Officer and Chief Financial
Officer, of the effectiveness of the design and operation of our disclosure
controls and procedures as of October 31, 2009. Based on the evaluation of these
disclosure controls and procedures, and in light of the material weaknesses
found in our internal controls over financial reporting, the Chief Executive
Officer and Chief Financial Officer concluded that our disclosure controls and
procedures were not effective.


Our auditors,
Saturna Group Chartered Accountants LLP, have not and were not required to
review and issue an independent report regarding the effectiveness of our
internal controls over financial reporting for the year ended October 31,
2010.





Changes in Internal
Control





We
have not been able to implement any of the recommended changes to our internal
control over financial reporting included in our Annual Report on Form 10-K for
the year ended October 31, 2010. As such, there were no changes in our
internal control over financial reporting (as defined in Rule 13a-15(e) and Rule
15d-15(e) under the Exchange Act) during the quarterly period ended January 31,
2010 that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.




6





PART II – OTHER INFORMATION





Item 1.  Legal Proceedings





On
October 30, 2008, the McCann Family Holding Corporation filed a Statement of
Claim in the Alberta Court of Queen’s Bench to initiate a lawsuit against On4
Communications, Inc., the private Arizona company with whom we merged on May 1,
2009. In the Statement of Claim, McCann seeks judgment with respect to two
promissory notes in the total amount of approximately $350,000 plus interest on
both notes at the rate of 13% per annum from October 17, 2008, as well as costs.
We executed the first promissory note in the amount of approximately $250,000 in
favor of McCann on May 7, 2008, and the second promissory note in the amount of
approximately $83,000 in favor of McCann on May 22, 2008. Both notes became due
and payable on June 30, 2008.





On
August 24, 2009 we filed a Statement of Claim in the Alberta Court of Queen’s
Bench to initiate a lawsuit against DataTrail Inc. In the Statement of Claim, we
are seeking the following from DataTrail:





●
            judgment for
      debt in the amount of approximately
$960,000;





●
            interest on
      that amount pursuant to the terms of a Loan Agreement between us and
      DataTrail dated October 3, 2007;





●
            an order for
      specific performance directing that DataTrail provide a Security Agreement
      to us pursuant to the terms of the Loan Agreement, and specifically in
      respect of certain intellectual property rights owned by
      DataTrail;





●
            an interim
      and permanent injunction preventing DataTrail from dealing in any way with
      such intellectual property rights;





●
            indemnity in
      respect of any amount we are ajudged to be liable for in an action
      instituted by the McCann Family Holding Corporation against us on October
      30, 2008; and





●
            costs.





Other than as
described above, we are not aware of any undisclosed legal proceedings to which
we are a party or of which our property or our subsidiary is the
subject.





None of our
directors, officers, affiliates, any owner of record or beneficially of more
than 5% of our voting securities, or any associate of any such director,
officer, affiliate or security holder are (i) a party adverse to us in any legal
proceedings, or (ii) have a material interest adverse to us in any legal
proceedings. We are not aware of any other legal proceedings that have been
threatened against us.





Item 2.  Unregistered Sales of Equity Securities





We
did not sell any previously undisclosed unregistered securities during the
period covered by this report.





Item 3.Defaults Upon Senior
Securities





None.





Item 4.Submission of Matters to
a Vote of Security Holders





None.





Item 5.  Other Information





On
February 3, 2010, On4 Communications Inc. (the “Company) repaid $75,000 towards
debt owed to Penny Green, the Company’s Chief Executive Officer and director,
and Bacchus Entertainment Ltd., a company controlled and directed by Ms. Green.
The Company made the payment in accordance with a post merger agreement (the
“Post Merger Agreement”), among the Company, Penny Green, Bacchus Entertainment
Ltd. and Bacchus Filing Inc., dated September 14, 2009.





Pursuant to the
Post Merger Agreement, Penny Green and Bacchus Entertainment Ltd. cancelled a
total of 52,223,931 shares of common stock in the capital of the Company. After
the cancellation, there are 47,651,046 shares of the Company’s common stock
issued and outstanding.





As
result of the cancellation of shares, a change of control occurred, whereupon
Penny Green ceased to be the beneficial owner of the majority of issued and
outstanding shares of the Company’s common stock.








Item 6.  Exhibits





ExhibitNumber
            ExhibitDescription10.1
            Promotion
      Agreement between Charity Tunes Inc. and ConAgra Foods Canada Inc. dated
      November 27, 2009 (1)31.1
            Certification of the Principal Executive Officer
      pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange
      Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley
      Act of 200231.2
            Certification of the Principal Financial Officer
      pursuant to Rule 13a-14(a) or Rule 15d-14(a) under the Securities Exchange
      Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley
      Act of 200232.1
            Certification of the Principal Executive Officer
      pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the
      Sarbanes-Oxley Act of 200232.2
            Certification of the Principal Financial Officer
      pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the
      Sarbanes-Oxley Act of
2002





(1)           Included
as an exhibit to our Current Report on Form 8-K filed on December 3,
2009.




7


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.





Date:
      March 22, 2010
            On4
      Communications, Inc.By:
            /s/
      Cameron RobbCameron
      RobbPresident,
      Chief Executive Officer, and
Director





8