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 December 31, 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 Identification No.)
incorporation or organization)
440 North Wolfe Road, Sunnyvale, CA 94085
(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: 408-419-1719
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N/A
(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)
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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)
Consolidated Balance Sheets
(Expressed in US Dollars)
December 31, June 30,
2009 2009
----------- -----------
(Unaudited)
ASSETS
CURRENT ASSETS
Cash $ 20,081 $ 122
----------- -----------
TOTAL CURRENT ASSETS 20,081 122
License 2,000,000 --
----------- -----------
TOTAL ASSETS $ 2,020,081 $ 122
=========== ===========
LIABILITIES
CURRENT LIABILITIES
Accounts payable $ 11,288 $ 7,150
Accrued liabilities 1,120 6,000
Loan payable 63,000 42,859
Due to related parties 71,314 --
----------- -----------
TOTAL CURRENT LIABILITIES 146,722 56,009
----------- -----------
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, $0.001 par value
Authorized: 1,000,000 shares,
Issued and outstanding:
none at December 31, 2009 and June 30, 2009
Common stock, $0.001 par value
Authorized: 200,000,000 shares
Issued and outstanding:
59,882,500 and 63,282,500 at December 31, 2009
and June 30, 2009, respectively 59,883 63,283
Additional paid-in capital 1,964,617 (38,783)
Deficit accumulated during the development stage (151,141) (80,387)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 1,873,359 (55,887)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 2,020,081 $ 122
=========== ===========
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The accompanying notes are an integral part of
these interim financial statements
2
ITOKK, INC.
(formerly Shadow Marketing Inc.)
(A Development Stage Company)
Consolidated Statements of Operations
(Expressed in US Dollars)
(Unaudited)
From
September 19, 2003
Three Months Ended Six Months Ended (Inception) to
December 31, 2009 December 31, 2009 December 31,
2009 2008 2009 2008 2009
------------ ------------ ------------ ------------ ------------
REVENUE
Advertising revenue $ -- $ -- $ -- $ -- $ 576
------------ ------------ ------------ ------------ ------------
TOTAL REVENUE -- -- -- -- 576
------------ ------------ ------------ ------------ ------------
EXPENSES
Consulting fees 20,970 -- 20,970 -- 20,970
General, office and administrative 34,281 2,717 45,971 4,510 110,179
License fees 3,813 -- 3,813 -- 3,813
Magazine publication costs -- -- -- -- 16,755
------------ ------------ ------------ ------------ ------------
TOTAL EXPENSES 59,064 2,717 70,754 4,510 151,717
------------ ------------ ------------ ------------ ------------
NET LOSS $ (59,064) $ (2,717) $ (70,754) $ (4,510) $ (151,141)
============ ============ ============ ============ ============
NET LOSS PER SHARE
Basic and diluted $ (0.00) $ (0.00) $ (0.00) $ (0.00)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER OF SHARES
OUTSTANDING
Basic and diluted 61,028,152 62,155,326 63,282,500 63,282,500
============ ============ ============ ============
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The accompanying notes are an integral part of
these interim financial statements
3
ITOKK, INC.
(formerly Shadow Marketing Inc.)
(A Development Stage Company)
Consolidated Statements of Cash Flows
(Expressed in US Dollars)
(Unaudited)
From
September 19, 2003
Six Months Ended (Inception) to
December 31, 2009 December 31,
2009 2008 2009
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (70,754) $ (4,510) $ (151,141)
Changes in operating assets and liabilities:
Accounts payable 4,138 (4,580) 11,288
Accrued liabilities (4,880) -- 1,120
----------- ----------- -----------
NET CASH USED FOR OPERATING ACTIVITIES (71,496) (9,090) (138,733)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Due to related parties 71,314 -- 71,314
Loan payable 20,141 10,850 63,000
Proceeds from sales of common stock -- -- 24,500
----------- ----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 91,455 10,850 158,814
----------- ----------- -----------
INCREASE IN CASH 19,959 1,760 20,081
CASH, BEGINNING 122 558 --
----------- ----------- -----------
CASH, ENDING $ 20,081 $ 2,318 $ 20,081
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for:
Taxes $ -- $ -- $ --
Interest $ -- $ -- $ --
=========== =========== ===========
Non-cash financing transactions:
Common stock issued for license $ 2,000,000 $ -- $ 2,000,000
=========== =========== ===========
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The accompanying notes are an integral part of
these interim financial statements
4
ITOKK, INC.
(formerly Shadow Marketing Inc.)
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2009
(Unaudited)
1. ORGANIZATION, BUSINESS OPERATIONS AND BASIS OF PRESENTATION
ORGANIZATION AND BUSINESS OPERATIONS
The unaudited consolidated 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 considered
necessary for a fair presentation have been included. Operating results for the
three and six months ended December 31, 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.
On October 5, 2009, the Company changed its name to Itokk, Inc. (the "Company").
On October 12, 2009, Itokk Communications Inc. ("Communications"), a 100% owned
subsidiary, was incorporated in the State of Nevada.
On October 28, 2009, the Company acquired an exclusive worldwide 75 year license
to use, sell, market, distribute and sublicense various telecommunications
products.
Management evaluated all activity of the Company between the end of the period
December 31, 2009 through February 11, 2010 when the financial statements were
issued and concluded that no subsequent events have occurred that would require
recognition in the financial statements or disclosure in the notes to the
financial statements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
RECENTLY ADOPTED ACCOUNTING GUIDANCE
We reviewed recently issued accounting pronouncements and plan to adopt those
that are applicable to us. We do not expect the adoption of these pronouncements
to have a material impact on our financial position, results of operations or
cash flows.
3. LICENSE
On October 28, 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 its 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, including an application programming interface
for voice-over-Internet protocol ("VOIP"). The fair value of the license was
determined to be $2,000,000.
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ITOKK, INC.
(formerly Shadow Marketing Inc.)
(A Development Stage Company)
Notes to the Consolidated Financial Statements
December 31, 2009
(Unaudited)
4. LOAN PAYABLE
At December 31, 2009, the Company had a loan payable in the amount of $63,000.
This loan is unsecured, bears no interest and has no fixed terms of repayment.
5. DUE TO RELATED PARTY
At December 31, 2009 and June 30, 2009, the Company had advances payable of
$68,909 and $42,859, respectively. These advances are payable to a former
director. These advances are unsecured, bear no interest and have no fixed terms
of repayment.
At December 31, 2009, the Company was indebted to a company controlled by a
director in the amount of $2,405. This debt is unsecured, bears no interest and
has no fixed terms of repayment. During the six months ended December 31, 2009,
the Company paid or accrued a total of $44,800 in rent, administration,
consulting, telecommunications, license fees and travel to this company.
6. CAPITAL STOCK
On October 5, 2009, the Company authorized 1,000,000 preferred shares to be
issued with a par value of $0.001. The classes, series, voting powers and
restrictions on these preferred shares have not been determined by the Company's
board of directors.
On October 28, 2009, the Company completed an 8.5 to 1 forward-split of its
common stock for shareholders of record on that date.
On October 28, 2009, the Company issued 30,600,000 shares of its post split
common stock pursuant to a licensing agreement valued at $2,000,000 (Note 4).
On October 28, 2009, two officers of the Company each cancelled 17,000,000 post
split shares of the Company's common stock.
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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 complete existing new product development, such as our Softphone
suite, and Itokk social, a social VOIP for web communities, as well as to design
new products, we intend to retain software developers. Our C.E.O., Kevin
Penstock, and our vice-president of research and development, Ioannis
Karamitsos, Ph.D., will oversee the training and management of these employees.
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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
==========
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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
==========
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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 December 31, 2009, our current assets consisted of $20,081 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.
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RESULTS OF OPERATIONS
We did not earn any revenues during the three-month period ended December 31,
2009. We incurred operating expenses in the amount of $59,064 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
None.
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
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We filed the following current reports on Form 8-K during the three-month period
ended December 31, 2009, and subsequent thereto:
Date of Filing Subject of Filing
-------------- -----------------
October 28, 2009 Completion of licensing agreement with Packetera
Communications Inc.
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10
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.
February 12, 2010
ITOKK, INC.
/s/ Kevin Penstock
--------------------------------
Kevin Penstock, President,
Chief Executive Officer,
Principal Accounting Officer and
Principal Financial Officer
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iTokk (PK) (USOTC:IKTO)
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