10-Q 1 g3850.txt QTRLY REPORT FOR THE QTR ENDED 12-31-09 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 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) 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)

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)

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)

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. 5 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. 6 FORWARD-LOOKING STATEMENTS This Form 10-Q includes "forward-looking statements" within the meaning of the "safe-harbor" provisions of the Private Securities Litigation Reform Act of 1995. Such statements are based on management's current expectations and are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. All statements other than historical facts included in this report, including without limitation, statements under "Plan of Operation", regarding our financial position, business strategy, and plans and objectives of management for the future operations, are forward-looking statements. Although we believe that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Important factors that could cause actual results to differ materially from our expectations include, but are not limited to, market conditions, competition and the ability to successfully complete financing. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Our plan of operation for the twelve months following the date of this report is to expand our business operations by: * executing additional reseller agreements pursuant to which third parties will market our products and services to end-users; * assembling an integration team to aid and assist resellers; * assembling a call center support team to answer reseller and end-user inquiries; * conducting a marketing plan to secure additional resellers and customers; and * pursuing research and development initiatives to complete certain products in the development stage and to generate proposals for potential new products. In order to execute additional reseller agreements, we plan to have our management travel extensively in order to introduce our products and services to telecommunications companies, cable companies, Internet service providers, VOIP service providers and marketing organizations throughout North America and Europe. Our C.E.O., Kevin Penstock, will be primarily responsible for initiating new contacts in North America, while Carmelo D'Anzi, our vice-president of business development, will initiate new contacts in Europe. Our goal is to execute and maintain a minimum of 17 new, active resellers within the next 12 months. We intend to commence this marketing effort immediately and anticipate that it will be ongoing throughout the next 12 month period. Our management will also oversee the assembly of the integration and call center support teams. This will primarily involve hiring and training personnel to aid and assist resellers in their efforts to sell our products to their customers and to answer any questions from either the resellers or their customers. We expect to hire 12 client and customer support personnel in the next 12 months. The timing of the expansion of these teams will depend on our ability to raise funding to cover labor and related overhead expense. Our marketing efforts will consist of a mix of new social and media viral marketing via the Internet sustained by channel marketing through our resellers. In order to 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. 7 We intend to expand our research and development efforts by retaining five technical staff in Vancouver and another 30 developers in India, with an initial recruitment of five employees. The timing of the expansion of these teams will depend on our ability to raise funding to cover labor and related overhead expense. In order to achieve the preceding objectives, we anticipate incurring the following approximate costs: Management wages: $ 915,000 Operations and overhead: $1,268,000 Research and development: $ 402,000 Marketing: $ 528,000 ---------- TOTAL: $3,113,000 ========== Of this amount, we expect that in order to achieve our objectives, we will require these funds on a per quarter basis approximately as follows: Quarter 1: $ 256,000 Quarter 2: $ 630,000 Quarter 3: $1,013,000 Quarter 4: $1,214,000 ---------- TOTAL: $3,113,000 ========== As well, we anticipate spending an additional $100,000 on administrative costs such as accounting and auditing fees, legal fees and fees payable in connection with reporting obligations. Total expenditures over the next 12 months are therefore expected to be approximately $3,213,000. Our ability to meet these objectives in the time frames indicated will be dependent on our ability to generate revenue from operations and to raise sufficient additional capital to expand operations. If we are unable to generate sufficient revenue or raise financing as required, we will delay our expansion of operations as necessary. SOURCES AND USES OF CASH At 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. 8 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 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. 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 11

Itokk, Inc. 10-Q