UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
AMENDMENT
NO. 1 TO
FORM
10-K
[ X ]
ANNUAL REPORT UNDER SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the
fiscal year ended:
September
30, 2008
[
]
TRANSITION REPORT UNDER
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the
transition period from _____ to ______
Commission
File Number:
000-52753
PLAYBOX (US)
INC.
(Name of
small business issuer in its charter)
NEVADA
|
N/A
|
(State
or other jurisdiction of incorporation or
|
(I.R.S.
Employer Identification No.)
|
Organization)
|
|
|
|
14
Robinson Road, Suite #13-00
Far East Finance Building
|
|
Singapore
|
048545
|
(Address
of principal executive offices)
|
(Zip
Code)
|
Issuer’s
telephone number:
+65-6491-5497
Securities
registered under Section 12(b) of the Exchange Act:
Title of each class
|
Name of each exchange on which
registered
|
Not
Applicable
|
Not
Applicable
|
Securities
registered under Section 12(g) of the Exchange Act:
Common Stock, $0.001 par
value
(Title of
class)
Indicate
by checkmark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act [ ]
Yes [X ] No
Indicate
by checkmark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. [ ]
Indicate
by checkmark whether the issuer: (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 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 checkmark if no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of issuer’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ X ]
Indicate
by checkmark whether the registrant is a large accelerated filer, an accelerated
filer, or a non-accelerated filer.
Large
accelerated filer
[ ] Accelerated
filer
[ ] Non-accelerated
filer [X]
Indicate by checkmark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Act). [X ]
Yes [ ] No
State the
aggregate market value of the voting and non-voting common equity held by
non-affiliate computes by reference to the price at which the common equity was
sold, or the average bid and asked prices of such common equity:
$516,849 as at June 9,
2009
Applicable Only to Issuer Involved in
Bankruptcy Proceedings During the Preceding Five Years
.
N/A
Indicate
by checkmark whether the issuer has filed all documents and reports required to
be filed by Section 12, 13 and 15(d) of the Securities Exchange Act of 1934
after the distribution of securities under a plan confirmed by a
court. Yes[ ] No[ ]
Applicable
Only to Corporate Registrants
Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the most practicable date:
Class
|
Outstanding
as of June 9, 2009
|
Common
Stock, $0.001 par value
|
54,186,299
|
Documents
Incorporated By Reference
List
hereunder the following documents if incorporated by reference and the Part of
the Form 10-K (e.g., Part I, Part II, etc.) into which the document is
incorporated: (1) any annual report to security holders; (2) any proxy or
information statement; and (3) any prospectus filed pursuant to Rule 424(b) or
(c) of the Securities Act of 1933 “Securities Act”). The listed documents should
be clearly described for identification purposes (e.g. annual report to security
holders for fiscal year ended December 24, 1980).
None.
PLAYBOX
(US) INC.
Annual
Report on Form 10-K
For
The Year Ended
September
30, 2008
|
Business
|
5
|
|
Risk
Factors
|
27
|
|
Unresolved
Staff Comments
|
35
|
|
Properties
|
35
|
|
Legal
Proceedings
|
36
|
|
Submission
of Matters to a Vote of Security Holders
|
36
|
|
Market
for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
|
36
|
|
Selected
Financial Data
|
40
|
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operation
|
40
|
|
Quantity
and Qualitative Disclosure About Market Risks
|
49
|
|
Financial
Statements and Supplemental Data
|
50
|
|
Changes
in and Disagreements With Accountants on Accounting and Financial
Disclosure
|
61
|
|
Controls
and Procedures
|
62
|
|
Controls
and Procedures
|
63
|
|
Other
Information
|
63
|
|
Directors,
Executive Officers and Corporate Governance
|
63
|
|
Executive
Compensation
|
66
|
|
Security
Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
|
68
|
|
Certain
Relationships and Related Transactions and Director
Compensation
|
70
|
|
Principal
Accountant Fees and Services
|
72
|
|
Exhibits
and Financial Statement Schedules
|
74
|
FORWARD-LOOKING
STATEMENTS
This
annual report on Form 10-K contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. These forward-looking
statements involve risks and uncertainties, including statements regarding our
capital needs, business plans and expectations. Such forward-looking statements
involve risk and uncertainty regarding our ability to achieve commercial levels
of sales of our PlayBOX online music application, our ability to successfully
market our PlayBOX online music application, our ability to continue development
and upgrades to the PlayBOX online music application and our mobile games
technology, availability of funds, government regulations, common share prices,
operating costs, capital costs and other factors. Forward-looking statements are
made, without limitation, in relation to our operating plans, our liquidity and
financial condition, availability of funds, operating costs and the market in
which we compete. Any statements contained herein that are not statements of
historical facts may be deemed to be forward-looking statements. In some cases,
you can identify forward-looking statements by terminology such as "may",
"will", "should", "expect", "plan", "intend", "anticipate", "believe",
"estimate", "predict", "potential" or "continue", the negative of such terms or
other comparable terminology. Actual events or results may differ materially. In
evaluating these statements, you should consider various factors, including the
risks outlined in our registration statement on Form SB-2, filed with the
Securities and Exchange Commission (the “SEC”) on April 24, 2006, as amended,
this annual report on Form 10-K, and, from time to time, in other reports we
file with the SEC. These factors may cause our actual results to differ
materially from any forward-looking statement. Given these uncertainties,
readers are cautioned not to place undue reliance on such forward-looking
statements.
Available
Information
Playbox
(US) Inc. files annual, quarterly, current reports, proxy statements, and other
information with the Securities and Exchange Commission (the “Commission”). You
may read and copy documents referred to in this Annual Report on Form 10-KSB
that have been filed with the Commission at the Commission’s Public Reference
Room, 450 Fifth Street, N.W., Washington, D.C. You may obtain
information on the operation of the Public Reference Room by calling the
Commission at 1-800-SEC-0330. You can also obtain copies of our
Commission filings by going to the Commission’s website at
http://www.sec.gov.
This
Annual Report is being amended in response to comments provided by the
Securities and Exchange Commission in its letter dated April 7, 2009. The Annual
Report has been amended pertaining to its internal controls and procedures
disclsoure.
PART
I
BUSINESS
DEVELOPMENT
We were
incorporated on April 1, 2005 as Boyd Holdings Inc. under the laws of the State
of Nevada. On April 18, 2005, we entered into a letter of intent with PlayBOX UK
Media Limited (“PlayBOX UK”) proposing acquisition of PlayBOX UK subject to
certain conditions, including raising a minimum of $200,000. PlayBOX UK was
incorporated in the United Kingdom on August 21, 2003. The founding shareholders
of PlayBOX UK were PlayBOX Inc., a private corporation incorporated in the
Republic of Seychelles (“PlayBOX Inc.”) and Outlander Management, a private
corporation (“Outlander Management”).
On May
23, 2005, we entered into a definitive share exchange agreement (the “Share
Exchange Agreement”) with PlayBOX UK and the shareholders of PlayBOX UK. The
Share Exchange Agreement originally contemplated a closing date of June 30,
2005. The closing date was extended by agreement in order to provide PlayBOX UK
with more time to obtain necessary corporate approvals and to provide us with
more time to raise the required financing.
On March
24, 2006, we acquired all of the issued and outstanding shares of PlayBOX UK
pursuant to the terms and provisions of the Share Exchange Agreement in
consideration of the issuance of an aggregate of 12,000,000 shares of our common
stock to the shareholders of PlayBOX UK. On April 12, 2006, we changed our name
to Playbox (US) Inc. See “Item 12. Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder Matters”.
Subsidiary
We
carried out our business operations through our wholly owned subsidiary, PlayBOX
UK located in the United Kingdom. On July 1, 2008, we wound up PlayBOX UK and
the financial results of PlayBOX UK have been reclassified as discontinued
operations in our financial statements. See “Item 6. Management’s Discussion and
Analysis or Plan of Operation”.
Principal
Executive Office
Our
principal executive office is located at Suite 3.19, 130 Shaftesbury Avenue,
London, England, W1D 5EU. Our telephone number is +44(0)20 7031 1187 and our fax
number is +44(0)20 7031 1199.
CURRENT
BUSINESS OPERATIONS
General
We are
the owner of an online music hosting and downloading application targeted at
unsigned music acts and small- to medium-sized record labels enabling them to
establish their own music downloading or hosting services. The application is
offered with a number of supplemental services such as hosting, streaming,
e-commerce and digital rights management (DRM) using the latest MP3 and Windows
Multimedia technology. We pool these services together to offer our clients a
cost-effective and professional platform on which to sell and promote their
music products.
Our
PlayBOX online music application consists of four dynamic interfaces, namely
White Label, Aggregator, Bespoke and Jukebox, which provide an interface between
artists and content owners and their listeners via the Internet. The White Label
interface provides artists a way to offer their music for sale to listeners via
the Internet by enabling them to download individual songs either directly from
our website or from the artist’s own website. The Aggregator interface allows
small- to medium-sized record labels with a music catalogue of at least 50
tracks who wish to sell their tracks via an online downloading store with
e-commerce, tracking, reporting and billing functions built in. The interface
can be operated as a stand-alone website, or can be integrated into the client’s
existing website. For our Bespoke interface, we hire independent web designers
to create specialized interfaces for particular clients with unique needs and
requirements quickly and cheaply. Finally, our PlayBOX Jukebox interface
provides music listeners with a unique way to listen to their music and to
manage their music collections visually on their personal computer. The PlayBOX
Jukebox also lets users submit their personal ratings of the music they have
stored on the Jukebox, and the Jukebox can even recommend other music that will
match the user’s taste.
We have
completed the development of the PlayBOX online music application. However, we
have only commenced the process of commercializing our technology and we have
had very minimal sales to date. While we have achieved initial sales, these
sales cannot be viewed as significant in relation to our operating expenses.
Accordingly, we are in the early development stage of our business. Further, we
will require additional financing in order to complete commercialization of our
PlayBOX online music application. As a result of our limited financing, our
operations during the past year have been scaled back to reflect our limited
financial resources. Accordingly, we have not advanced our business to the
extent that we had planned during the past year.
OVERVIEW
OF THE PLAYBOX ONLINE MUSIC APPLICATION
The
PlayBOX music application offers a combination of dynamic web-based interfaces
that allow unsigned music artists and small- to medium-sized record labels to
sell their music and related products online, either from our website or through
their website should they have one. Our online solution also provides a complete
range of supplemental services such as hosting, streaming, e-commerce and
digital rights management, thus enabling us to offer a full service solution to
potential customers. We integrate these services to offer a cost-effective and
professional platform for the promotion and sales of their music
catalogues.
Interfaces
We offer
four different specialized web-based interfaces that are based on our PlayBOX
music application, each of which can be visually tailored to each client’s
specifications. The interfaces can be linked to the client’s own website or
hosted on our own servers. The following is a breakdown of the interfaces we
offer.
White Label
Interface.
Our White Label interface is targeted towards unsigned artists
looking for a simple and cost-effective way to:
·
|
Establish
an online presence with little technical knowledge, enabling the client to
upload their own content, personalise their interface and use real time
tracking and download information provided by the PlayBOX
application.
|
·
|
Stream
their songs to listeners, either by a 30-second sample stream or a full
stream of the song at either high or low speed to enable users to play all
or part of a song with any type of Internet
connection.
|
·
|
Offer
users a free promotional download of their
music.
|
·
|
Sell
their songs online, including billing and e-commerce support for secure
payments using debit and credit
cards.
|
·
|
Build
their fan base by interacting by e-mail directly with listeners who set up
a personal account page on our website allowing an artist to provide
interested listeners with information on upcoming events and news
releases.
|
Pricing
of the White Label interface depends on the number of tracks uploaded by the
client and the functionality required of the interface. For example, if the
client intends to use the interface only for marketing and not sales, e-commerce
support services will not be required.
Aggregator
Interface.
Smaller record labels wishing to promote their artists and
make their music catalogues available for purchase or streaming online
frequently do not have the resources available in-house to set-up and manage
their own web site. The PlayBOX Aggregator interface allows such potential
clients to create and manage an interactive online download store for music
catalogues of between 50 and 1,000 songs, complete with e-commerce, tracking,
reporting and billing functions. The Aggregator interface is image-driven and
offers music fans the opportunity to visually search through each client’s music
catalogues by artist, track or album image in addition to a regular search
function.
The
Aggregator interface can be integrated into either the client’s website or work
as a complete stand-alone website served up to the client’s specified domain
name. Independent web designers that we hire on a project-by-project basis can
work with the client to create a visually appealing environment for their
interface that enhances the client’s current marketing, complete with
advertising, promotions and links to other websites. This customized environment
is then integrated with PlayBOX’s back-end services (such as e-commerce and
digital rights management) to create a seamless online marketing and sales tool
which the client is free to manage as they choose. PlayBOX also offers
management services for this interface should the client choose not to manage
their site themselves.
Additional
features of the Aggregator interface are:
·
|
A
secure payment facility allowing users to purchase downloadable versions
of music tracks.
|
·
|
The
ability to capture user details through membership opt-in, allowing the
aggregator to create a database of users and giving the user their own
account page.
|
·
|
The
ability to offer a sample of the artist’s track as a ringtone for users to
download to their mobile phones.
|
·
|
An
artist-only area where artists can interact with each other and upload
their latest demo/promo for their peers to comment
on.
|
·
|
An
online forum where registered users can
interact.
|
Pricing
of the Aggregator interface is quoted on a per client basis in relation to the
number of hours of development time required to satisfy each client’s particular
needs.
Bespoke
Interfaces.
Independent website developers and designers that we hire on
a project-by-project basis can create an interface to handle a range of
specialized client requests. For example, PlayBOX recently created an interface
for a music upload competition sponsored by one of its clients, The Little
Bazaar. This interface allows registered music artists to upload their latest
songs to the interface once per month. Downloaded songs are tracked by the
interface and listed on a “Top 20” chart. The artists with the most downloaded
tracks during that month become eligible to win a number of prizes sponsored by
The Little Bazaar and PlayBOX. Each winner’s songs are displayed on the website,
and users have the option to listen or download the songs. Winners from previous
months are listed in a winners archive.
The
Little Bazaar music upload competition is one example of the flexibility and
functionality that our Bespoke interface can provide. The Little Bazaar is our
only Bespoke interface to date, but other possible Bespoke interfaces include
comprehensive chart listings, hard copy music or video sales, and websites
incorporating elements from our White Label and Aggregator
interfaces.
Music Jukebox
Interface.
The PlayBOX Music Jukebox interface is a free service which
allows users to both listen to music and manage their personal computer music
collections online in an image-driven environment, rather than a text-based one
as most are. This feature will be of particular interest to users with a large
music collection, and will allow them to organize and find the music they want
in their own collections much more easily than with traditional means. Users can
also rate the individual songs and albums in their collections, and the
interface uses this information to recommend music from PlayBOX’s artist clients
that might match the user’s tastes, based on the music in their own collection.
The PlayBOX Music Jukebox also lets users transfer their music to and from
portable devices which can play MP3 or other similar music files, and can stream
the music directly to such portable devices. This interface acts as an
integrated service with our other interfaces, which we believe will encourage
use of our website and increase traffic.
Services
PlayBOX
offers a number of services that work in conjunction with our interfaces and
enhance their value to our clients. Clients can send us their content on compact
disk in a raw format (such as WAV), which we then process into Windows Media
files, which are smaller and more easily downloaded by users from the Internet.
These files are then stored on our server and supplied to consumers. A detailed
discussion of these services follows.
Hosting
and bandwidth
The music
files which artists wish to sell to users of PlayBOX are stored or “hosted” on
our server, which we lease from Open Hosting Ltd., a dedicated server service. A
single song usually requires about 7MB of storage space. With our server, we
provide “bandwidth” which enables users to download files over the Internet.
PlayBOX runs a Linux server, having 1,000 GB of bandwidth per month, out of Open
Hosting’s facility in London UK. Open Hosting provides 24-hour support and
duplicate servers to guarantee 99.9% up-time. Although Open Hosting guarantees
99.9% up-time, there can be no assurance that unforeseen events will not
interrupt our services. Current pricing for our hosting and bandwidth services
is as follows:
Pckg
|
Disk
Space
|
Bandwidth
|
Cost per
month
|
A
|
100 MB
|
2 GB
|
£25.00
|
B
|
300 MB
|
5 GB
|
£40.00
|
C
|
500 MB
|
7 GB
|
£60.00
|
D
|
1 GB
|
20 GB
|
£120.00
|
E
|
2 GB
|
40 GB
|
£180.00
|
F
|
5 GB
|
100 GB
|
£350.00
|
G
|
10 GB
|
200 GB
|
£600.00
|
H
|
20 GB
|
400 GB
|
£1000.00
|
I
|
100 GB
|
800 GB
|
£1700.00
|
These
prices are subject to change by us.
Ripping
and Encoding
PlayBOX
can encode audio for use on our website from a variety of source material,
including compact discs and WAV format into MP3, Windows Media files or Advanced
Audio Coding (AAC or MP4) file formats. PlayBOX uses the latest audio file
compression technology to ensure the quality of the original music content is
kept intact after compression.
Sound
quality of audio files is typically measured in kilobytes per second (kbps),
which measures the amount of data transferred per second of time. The higher the
kbps, the faster the data is transferred and the better the file will sound when
it is played (192 kbps is considered CD-quality).
Our
typical Bit Rates for streaming are:
·
|
30
Second Sample: 64kbps – 220kbps
|
·
|
Full
length track stream: 64kbps –
220kbps
|
·
|
Free
Download: 64kbps – 220kbps
|
·
|
Paid-for
Download – 220kbps+
|
Digital
Rights Management
Digital
rights management (DRM) is a system for protecting the copyrights of data
(including music) circulated via the Internet or other digital media by enabling
secure distribution and/or disabling illegal distribution of the data.
Typically, a DRM system protects intellectual property by either encrypting the
data so that it can only be accessed by authorized users or preventing the data
from being freely distributed.
PlayBOX
uses Microsoft Windows Media® DRM, a proven platform to protect and securely
deliver content for playback on a computer, portable music device or network
device. The platform is flexible enough to be used to download single tracks or
entire albums. The current version of Windows Media DRM enables additional
scenarios, such as downloads to multiple music storage devices and multiple
burning or recording of the same song. This promises to provide consumers with
an even greater access to protected audio and video content.
eCommerce
PlayBOX
utilizes Barclaycard’s Merchant Services’ proprietary “ePDQ System” to process
its secure online payments. Barclaycard’s payment handling process is widely
recognized in the UK. Once a PlayBOX user has chosen one or more songs or
products from our website that they wish to purchase, they are directed to the
Barclaycard’s “ePDQ” Cardholder Payment Interface (or “CPI”), a secure payment
environment, where the user can pay for their purchases either by debit card or
major credit card. Once the user has completed the ePDQ CPI transaction, they
are returned to the PlayBOX website and the user is emailed a password and
Internet link to where they can download the track or album.
Tracking
and Billing
This
value-added service allows PlayBOX clients to gain a much better understanding
of their fan base. Each PlayBOX user’s movements through the different PlayBOX
interfaces is logged, and this information, along with other data including
their collective purchases and where they are logging in from, is made available
to our clients in real time. In conjunction with this service, PlayBOX provides
a monthly report to clients who use this service. This report provides a
breakdown of usage and sales figures.
Pricing
and Revenue Sources
The
prices that we plan to charge our clients for configuration and installation of
our PlayBOX interfaces will be based on the number of artist or aggregator
templates configured and the number of tracks uploaded to the interface. In
addition to these initial fees, we plan to charge monthly hosting fees quoted
based on the amount of hard drive space on our server each customer required.
Exact prices vary according to the size of the client. Prices for configuration
and installation of Bespoke interfaces vary according to the time and resources
required.
Our
services will be bundled and sold in packages with our interfaces. These
packages are differentiated solely in the type of audio streaming offered.
Packages are priced per track uploaded or made available for purchase on the
application by the customer.
Once a
client is properly registered and their tracks uploaded onto the PlayBOX
application, we plan to charge a 15% commission on total revenues earned from
sales of those tracks in each month in which these revenues exceed £1,000. We
will collect these fees directly from our Barclaycard Online Merchant Account at
the end of each month before transferring all net revenues to the customer
directly to their account. Along with monthly net revenues, we will provide a
comprehensive tracking and billing report which gives the customer a breakdown
of the month’s transactions and the revenues earned.
ACQUISITION
OF THE PLAYBOX APPLICATION
The
PlayBOX online music application was originally developed by Just/Kidde APS, a
company based in Sweden. In October 2003, the intellectual property rights to
the PlayBOX online music application were originally acquired by Keydata
Technology Partnership 1 LLP (“Keydata Technology”). The rights to the PlayBOX
application were subsequently acquired by PlayBOX Inc. Subsequently, on
September 12, 2003, PlayBOX Inc. entered into license agreements with four
separate entities (collectively, the “License Agreements”) as follows: (i) HBI
Sales Private Limited; (ii) Zacan Holdings Proprietary Limited; (iii)
ICT/Europetec Limited; and (iv) MIR Technologies LLC (collectively, the
“Licensees”). In accordance with the terms and provisions of the License
Agreements, PlayBOX Inc. granted to each Licensee a license to exploit the
PlayBOX application with each respective Licensee acquiring rights to a
different territory. On March 30, 2004, the Licensees respectively entered into
an agency exploitation agreement with PlayBOX UK as described below. The License
Agreements were terminated on March 31, 2006 upon our acquisition of the PlayBOX
online music application.
Agency
Exploitation Agreement
On March
30, 2004, PlayBOX UK entered into an agency exploitation agreement with the
Licensees (collectively, the “Agency Exploitation Agreement”). In accordance
with the terms and provisions of the Agency Exploitation Agreement, PlayBOX UK
was appointed as the agent of the Licensees for the purpose of undertaking the
commercial exploitation of the license rights to the PlayBOX online music
application. PlayBOX UK was obligated to carry out the commercial exploitation
of the PlayBOX application and to use its best efforts to achieve an
exploitation result in accordance with an agreed upon exploitation forecast. In
exchange for undertaking these duties, the Licensees agreed to pay to PlayBOX UK
an amount equal to 25% of the gross income derived from the exploitation of
those license rights. The Agency Exploitation Agreement was terminated on March
31, 2006 concurrently with our acquisition of the PlayBOX application from
PlayBOX Inc., as described below. PlayBOX UK did not realize any gross income
from the exploitation of the PlayBOX application or earn any payments during the
term of the agency exploitation agreement.
Intellectual
Property Asset Purchase Agreement
On March
31, 2006, we entered into an intellectual property asset purchase agreement (the
“Intellectual Property Asset Purchase Agreement”) with PlayBOX Inc. pursuant to
which we purchased the intellectual property rights to the PlayBOX online music
application.
This
acquisition followed the concurrent re-acquisition of the PlayBOX online music
application by PlayBOX Inc. from Keydata Technology. We could not complete the
acquisition of intellectual property assets directly from Keydata Technology due
to the fact that Keydata Technology originally held the intellectual property
assets subject to a security interest in favour of a creditor. PlayBOX Inc. was
able to structure a transaction whereby it was able to acquire the intellectual
property and arrange for the discharge of the security interest held by the
creditor. This transaction structure required that Keydata Technology
incorporate a wholly owned subsidiary and that the intellectual property be
assigned to the wholly owned subsidiary. Keydata Technology and PlayBOX Inc.
then entered into a share exchange agreement whereby PlayBOX Inc. acquired all
of the shares of the wholly owned subsidiary. As part of this acquisition, the
security interest held by the creditor against the intellectual property was
discharged. PlayBOX Inc. was then able to sell the intellectual property assets
free and clear of any security interest to us. We were not party to the share
exchange agreement between Keydata Technology and PlayBOX Inc.
Therefore,
we purchased the intellectual property rights to the PlayBOX online music
application from PlayBOX Inc. pursuant to the Intellectual Property Asset
Purchase Agreement. We issued 10,000,000 shares of our common stock to PlayBOX
Inc. in consideration of the transfer to us of the intellectual property rights
to the PlayBOX application. PlayBOX Inc. in turn transferred these 10,000,000
shares of our common stock to Keydata Technology in connection with its
concurrent acquisition of the intellectual property rights to the PlayBOX
application from Keydata Technology. See “ – Material Contracts”.
MATERIAL
CONTRACTS
Intellectual
Property Asset Purchase Agreement
On March
31, 2006, we acquired the intellectual property rights to the PlayBOX online
music application from PlayBOX Inc. in accordance with the terms and provisions
of the Intellectual Property Asset Purchase Agreement for total consideration of
the issuance of 10,000,000 shares of our restricted common stock. Concurrent
with the completion of this acquisition, PlayBOX Inc. transferred the 10,000,000
shares of our common stock to Keydata Technology as part of its arrangement to
re-acquire the intellectual property rights to the PlayBOX online music
application from Keydata Technology. Keydata Technology is a limited liability
partnership that was at arm’s length to PlayBOX Inc. Keydata Technology became
one of our principal shareholders as a result of the completion of these
transactions. See “Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters.”
Jabeco
Inc.
On
November 25, 2008, we entered into a five-year consulting agreement (the
“Consulting Agreement”) with Jabeco Inc., a music industry consulting firm
located in the Commonwealth of Dominica (“Jabeco”). In accordance with the terms
and provisions of the Consulting Agreement: (i) Jabeco shall provide consulting
services to us in the area of securing music content from Asia in the form of
music video content, music distribution technology, music distribution through
Asian channels and portals both online and on mobile networks, and other
directly related advisory services; and (ii) we shall issue to Jabeco 9,000,000
shares of our restricted common stock. See “Item 5. Market for Common Equity and
Related Stockholder Matters” and “Item 12 Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder Matters”.
Azuracle
Management Contract
We
entered into a management contract with Azuracle Limited (“Azuracle”) on July 1,
2005 (the “Management Agreement”). In accordance with the terms and provisions
of the Management Agreement, Azuracle provided us with office space in shared
office premises and administration services, including telephone, reception and
Internet access services. . Additional legal administration, financial,
marketing and sales, meeting room, stationary and information technology support
services are to be provided by Azuracle upon our request, at agreed upon rates.
Effective approximately June 30, 2008 and based upon the winding up of the
subsidiary, Azuracle has agreed to provide us the same office space rent free
until such time as we have arranged and received sufficient funding to meet our
operational obligations. At that point, new rental terms will be
negotiated. See “Item 13. Certain Relationships and Related Transactions and
Director Independence.”
Employment
Agreement
On
December 14, 2007, we entered into an executive employment agreement (the
“Employment Agreement”) with Henry Maloney with respect to his appointment as an
executive officer. In accordance with the terms and provisions of the Employment
Agreement, the annual salary for Mr. Maloney was $99,865. As of September 30, an
aggregate of $63,042 has been accrued. See “Item 7. Management’s Discussion and
Analysis of Financial Condition and Results of Operation – Material Contracts”,
“Item 11. Executive Compensation” and Item 13. Certain Relationships and Related
Transaction and Director Independence.”
Delta
Music Limited
On March
28, 2008, we entered into a share purchase agreement (the “Share Purchase
Agreement”) with
Laurence Adams and Jacqueline Adams (the “Seller
s
”) for the proposed
acquisition of U.K based Delta Music Limited, a United Kingdom company (“Delta
Music”). The acquisition would have been effected through the acquisition from
the Sellers of 100% of the total issued and outstanding shares of Delta Leisure
Group Plc ("Delta Leisure"), a private company that owned 75% interest of the
total issued and outstanding shares of Delta Music, and 25% of the share capital
of Delta Music. The consideration for the acquisition would have been a
combination of cash and shares of our common stock, as follows: (i) cash of
1,400,000 Pounds Sterling payable on closing of the acquisition, and (ii) a
number of shares of our common stock equal to 10% of our common stock, on a
fully diluted basis, to be issued on closing of the acquisition.
The
completion of the acquisition was subject to the satisfaction of certain
conditions precedent to closing set forth in the Share Purchase Agreement by no
later than June 30, 2008. These conditions included the following in addition to
customary conditions of closing: (i) the completion by us of a private placement
financing to raise gross proceeds of no less than $4,000,000, and (ii) the
delivery to us of financial statements of Delta Music and Delta Leisure as
required to enable us to satisfy our reporting obligations under the Securities
Exchange Act of 1934 arising as a result of the completion of the
acquisition.
On July
2, 2008, we received notice of termination from the Sellers of termination of
the Share Purchase Agreement. The terms of the Share Purchase Agreement provided
that either party could terminate if the acquisition contemplated thereunder had
not occurred prior to June 30, 2008. Therefore, as of the date of this Annual
Report, the Share Purchase Agreement is deemed terminated. See “Item 1B.
Unresolved Staff Comments” and “Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operation – Material
Commitments.”
DEVELOPMENT
OF PLAYBOX ONLINE MUSIC APPLICATION
Development
Work Completed by Us
PlayBOX
UK entered into the Agency Exploitation Agreement whereby it undertook to
commercially exploit the PlayBOX application on behalf of the Licensees that had
originally been granted license rights to the technology by PlayBOX Inc.
Effective May 1, 2004, Robert Burden was hired as managing director of PlayBOX
UK with a view to establish a commercially viable sales and marketing plan for
the exploitation of the PlayBOX online music application. Mr. Burden set in
place a number of technology development enhancement projects designed to allow
PlayBOX UK to effectively exploit the PlayBOX application. These projects were
completed by Xeris S.R.O., a software development company based in Prague. These
projects included the following:
|
1.
|
first
phase of the design and development of the White Label Interface, which
commenced on November 1, 2004 and completed on February 1, 2005, and which
involved designing and integrating the following operational
features:
|
|
|
|
|
|
|
a)
|
registration
process
|
|
|
b)
|
shopping
basket
|
|
|
c)
|
Barclays
ePDQ integration
|
|
|
d)
|
streaming
track ability
|
|
|
e)
|
free
and paid-for download
|
|
|
f)
|
ability
to personalize front-end design of white label
|
|
|
g)
|
tiered
level of administration access for artist and PlayBOX
administrator
|
|
|
h)
|
secure
certificate integration
|
|
|
i)
|
tracking
and reporting facility
|
|
|
|
|
|
2.
|
first
phase of the design and development of the Aggregator Interface, which
commenced on November 1, 2004 and completed on February 1, 2005, and which
involved designing and integrating the following operational
features:
|
|
|
|
|
|
|
a)
|
registration
process
|
|
|
b)
|
shopping
basket
|
|
|
c)
|
Barclays
ePDQ integration
|
|
|
d)
|
streaming
track ability
|
|
|
e)
|
free
and paid-for download
|
|
|
f)
|
ability
to personalize front-end design of white label
|
|
|
g)
|
tiered
level of administration access for artist and PlayBOX
administrator
|
|
|
h)
|
secure
certificate integration
|
|
|
i)
|
tracking
and reporting facility
|
|
|
j)
|
bulk
email broadcast to registered users html and plain text
|
|
|
k)
|
news
and advertising personalization
|
|
|
l)
|
about
us, gigs, events pages added
|
|
|
m)
|
top
ten releases and new releases listings added
|
|
|
n)
|
CD
cover size track image added for download by
consumers
|
|
|
|
|
|
3.
|
first
phase of the design and development of the Bespoke Interface, which
commenced on April 5, 2005 and completed on May 1, 2005, and which
involved designing and integrating the following operational
features:
|
|
|
|
|
|
|
a)
|
registration
process
|
|
|
b)
|
ability
for user to upload track
|
|
|
c)
|
ability
for administrator to listen to and rate uploaded music
|
|
|
d)
|
top
20 listing of tracks selected by administrator
|
|
|
e)
|
ability
to select a winner and archive previous winners
|
|
|
f)
|
full
tracking and reporting of all movements on the
interface
|
|
|
g)
|
ability
to bulk email all registered users of the interface
|
|
|
|
|
|
4.
|
second
phase of the design and development of the White Label Interface, which
commenced on May 18, 2005 and completed on June 26, 2005, and which
involved designing and integrating the following operational
features:
|
|
|
|
|
|
|
a)
|
resize
of white label, was too large before
|
|
|
b)
|
ability
to change background image of white label
|
|
|
c)
|
the
ability to change the shopping basket icon
|
|
|
d)
|
adding
the ability to add a large image on the left of the white label for
promotional purposes
|
|
|
|
|
|
5.
|
second
phase of the design and development of the Bespoke Interface and
automation of The Little Bazaar Top 20 upload process, which commenced on
June 24, 2005 and completed on June 30, 2005. This work simplified the
rating process to allow the client administrator the ability to more
easily rate and upload the top 20 tracks and the winning track into the
interface.
|
Design
Objectives
Our
objective is to offer artists and record labels professional and quality driven
services that allow the client to concentrate on making music while PlayBOX
takes care of their online presence.
With the
demands of the modern day music industry, unsigned artists and small/medium
record labels do not have the resources and time to put together a professional
online presence. Our objective is to handle this in a few easy steps by offering
the client:
|
1.
|
The
ability to capture user’s details and the ability to send bulk emails
(news letters/promotions) to these users.
|
|
|
|
|
2.
|
The
ability to take and process online credit/debit card transactions, through
a simple and secure easy to use process.
|
|
|
|
|
3.
|
The
ability to stream sample music via their website.
|
|
|
|
|
4.
|
A
searchable and professional portfolio of their content in an online secure
(wrapped in Digital Rights Management).
|
|
|
|
|
5.
|
The
hosting of all relevant content and images.
|
|
|
|
|
6.
|
The
ability to offer third party advertising (banner, sky scrappers and block
advertisements) from their website. These advertisements can also help in
cross promotion of the client’s content.
|
|
|
|
|
7.
|
The
ability to track and report on all movements and sales within their site.
Offering the ability of real time and up-to-date statistical analysis of
sales downloads, streamed music and use registration.
|
|
|
|
|
8.
|
The
ability to constantly update the system and change the design. The
interfaces are white labels and can be easily changed to allow a different
experience for the client’s user
base.
|
The
PlayBOX service is not unique, but our business strategy is to provide services
comparable to those of our competitors at what we believe to be lower prices
based on our understanding of our competitors’ pricing. There can be no
assurance, however, that our competitors will not match, or even undercut, our
pricing. As we set-up and administrate the service as part of the package, all
the artists/record label need to do is hand over the content and sign off on the
design. Our objective is to make the process as simple as possible for the
client. Using our service, they will receive a tracking report at the end of the
month and a cheque for the amount of content sold, thus enabling the client to
concentrate on creating more music content to be uploaded.
Future
Development
We
believe that changes in technology and increased competition will require that
we constantly review and improve the functionality of PlayBOX application in
response to client and user feedback and changing technologies. We have
identified a second round of development requirements that we presently plan to
complete for the PlayBOX application, as described below.
We do not
have the internal ability to carry out software development work on our PlayBOX
software. Accordingly, we have outsourced the software upgrades and developments
planned for our PlayBOX software to Xeris S.R.O., a private software development
company that is not a related party to us, as well as to another independent web
designer. We also anticipate engaging Xeris S.R.O., the independent web designer
we have used to date, or other independent website developers or designers for
future software development work on a project-by-project basis.
Additional
software development is planned for the PlayBOX Jukebox that will permit users
to access it from any mobile phone having MP3-player capabilities. This will
allow users to have music from the PlayBOX website streamed to any mobile phone
with Internet access via Bluetooth or GPRS.
Once we
have finished updating the PlayBOX Jukebox, we plan to evaluate developing a
hardware product for use with the PlayBOX Jukebox. This would be a
PlayBOX-branded device to be developed by Mini-box.com, a computer electronics
company based in the UK, using the proprietary Mini-itx reference hardware
platform (
www.mini-itx.com
). It
would come with PlayBOX pre-installed and configured Linux Operating System to
provide a home music jukebox operated from a remote control or a wireless
keyboard using a TV as the monitor and a user’s existing hi-fi equipment as the
music transport mechanism.
The
PlayBOX application also has sufficient flexibility to support other types of
media, such as books, film and video games. Up-and-coming film makers, game
makers and authors will have the opportunity of selling themselves to a new
generation of consumer that is looking for more in the way of choice and style.
While these opportunities are presently not part of our immediate plan of
operations, we plan to evaluate these potential market opportunities as we
pursue our primary business objectives.
Each of
these proposed developments is contingent on PlayBOX accessing sufficient funds
to put its development plans in place. There is no guarantee that PlayBOX will
be able to secure such funding.
MARKETING
STRATEGY
Marketing
We plan
to exploit our online music solution in its present form and to develop the
marketplace for our PlayBOX interfaces, namely our White Label, Aggregator and
Bespoke solutions. Our primary marketing objective at present is to make the
PlayBOX interfaces and services available to the market, building awareness of
our artists and record labels. Our current sales and marketing plan focuses
heavily on unsigned artists and small record labels. For this strategy to be
successful, we must put in place strategic partnerships with companies that have
access to large quantities of both unsigned artists and up-and-coming record
labels. Examples of potential strategic partners include events and music
promotion companies, music colleges, industry music commissions and associations
and music development networks and agencies.
Being a
digital download service provider, we do not plan to target music consumers
directly. Our plan to commercialize the PlayBOX online music application will
begin with marketing the White Label interface. We believe this product will be
the most demanded product initially and is our best product to promote while
building our name within the industry. Our focus will be on signing a critical
mass of artists and record labels to service contracts, and then working with
them to promote their content directly to consumers through the PlayBOX portal.
We are at the early stages of the commercialization of our application, and
accordingly there is no assurance that our initial marketing efforts will be
successful. Further, we may elect to change our strategy in response to our
success or lack of success in pursuing commercialization of our
technology.
We have
compiled a software development schedule with the goal of ensuring that as new
formats and technologies are launched into the marketplace, we will be able to
sustain our competitive position. We believe that this additional development
work will enable us to enhance our product offerings and give us potential
reselling options to existing customers and additional potential revenue
streams.
First Phase –
White Label.
To successfully commercialize our online music application,
we believe that we must complete a number of strategic initiatives. First, we
plan to create awareness of our White Label interface, as this product will be
the main focus of our initial marketing efforts. We will rely on direct contact
with artists in the London, England area. Marketing materials will be simple and
inexpensive, relying mainly on leafleting, fly posting and advertising in select
industry trade press and magazines. To further enable efficient use of our
marketing budget, PlayBOX has become a member of the British Phonographic
Institute (BPI). The BPI is the governing body for the recording industry in the
UK with ties to almost all aspects of the music industry including record
labels, artist managers, distributors and retail organisations. As a member of
the BPI, we have access to their database including contacts for all other BPI
members. We plan to use this information to develop strategic partnerships with
key live music venues and local promotion companies to host competitions and
promote events. We believe that events like these will raise the profile of our
service within our desired market while providing us with a first look at new
artists. Once contact with a potential new client is initiated, we will attempt
to sign these artists to initial contracts of at least 6 months, using the offer
of one or two months of free use of the interface if the artist is willing to
commit for longer. Once we have a number of artists signed to contracts, we
anticipate that word of mouth will be a major factor in gaining the momentum
that will be required to successfully grow this part of our
business.
Second Phase –
Aggregator.
We expect that the marketing process for the Aggregator
interface will be longer, as the record labels to which the interface will be
targeted will likely wish to see a larger critical mass of product offerings on
and users of the PlayBOX website before committing. PlayBOX’s membership in the
BPI will be an important tool in accessing record label executives. We will also
look at forming strategic partnerships or reseller arrangements with
distribution companies and other companies that have access to a large number of
record labels, including events and music promotion companies, music colleges,
industry music commissions and associations and music development networks and
agencies.
Third Phase.
The next step will be to combine the White Label and Aggregator
interfaces into a main PlayBOX portal, which we plan to be the hub for the
system, and which will also offer these artists and labels another sales
pipeline. This hub will initially service the UK, with the intention of
launching the service into other markets once we have gained a foothold in the
UK market.
Marketing
Activities to Date
Our
marketing activities to date have been centered on raising the profile of the
PlayBOX website to artists in the United Kingdom and introducing our online
music application to prospective strategic partners. Our level of marketing
activity has been restrained by our limited financial resources. We have limited
our marketing efforts to date to free online resources such as forums, blogs and
free advertisements on traditional music artists’ websites such as
Artistmanager.com and RecordOfTheDay.com. Our focus has been to raise our
profile through communications with key industry contacts. Once established in
the UK, our goal is to move into the global music marketplace by launching our
services in other countries, particularly in the United States, which is the
largest music market. However, we do not have any current plans to expand beyond
the UK because we believe that it is important to secure our brand in the UK
before expanding to other countries.
Direct
Marketing
PLAYBOX
has developed a bespoke interface with CD distribution company, The Little
Bazaar (
www.littlebazaar.co.uk
),
which provides additional incentive for artists and record labels to try our
service and begin the process of building a fan base through the PlayBOX
website.
At
present, PlayBOX has an agreement with Equal Records, a Swedish-based record
label, which allows us to have a test version of our White Label interface
running on their website.
Our
Web Site
We have
created a corporate web presence (www.play-box.com), which we use as an
information portal to facilitate our marketing efforts. It gives us an easy,
visual way to demonstrate our application and allow potential clients to find
out more about PlayBOX services, pricing and product updates, client studies and
links to strategic partners.
We
believe that offering the PlayBOX Jukebox as a complimentary service to all
users of the PlayBOX website will be essential in drawing traffic to our website
and our clients’ songs and products. Once we have established a user base of at
least 1,000 users, we will then attempt to build an additional revenue stream by
offering advertising or promotions space on our website.
INTELLECTUAL
PROPERTY
We own
intellectual property rights including trade secrets and copyright relating to
our online music application. We may seek to protect our intellectual property
by generally limiting access to it, treating portions of it as trade secrets and
obtaining confidentiality or non-disclosure agreements from persons who are
given access to it, including our developers. In general, a "trademark" is a
distinctive word, phrase, logo, graphic symbol or other device that is used to
identify the source of a product and to distinguish a product from anyone
else's. As a general rule, trademark law confers legal protection to names,
logos and other marketing devices that are distinctive. We may seek trademark
protection of our logos in order to identify our services on the Internet and in
the marketplace to prevent consumer confusion and to protect the means we chose
to identify our services and products against use by competitors.
In
general, a copyright gives the owner of a creative work the right to keep others
from using the work without the owner's permission. In general, a creative work
must meet three criteria to be protected by copyright: (i) it must be original;
(ii) it must be fixed in a tangible medium of expression; and (iii) it must have
at least some creativity, i.e. produced by an exercise of human intellect. We
have not sought copyright protection of our website designs
.
Our
management believes that copyright and trademark protection may provide us with
certain protections. As of the date of this Annual Report, we have obtained
patent, copyright or trademark registrations for certain of our products.
Therefore, since a copyright or trademarks have been issued for our products, we
have the right to bring a copyright or trademark infringement action against a
third party. Also, there is no assurance that such copyright and trademarks will
not be attacked by third parties or that, if any such attack were made, it would
not be successful. The costs in defending such copyright or trademark or
prosecuting a copyright or trademark infringement action could be
substantial.
Trademark
Applications
PlayBOX
made an initial trademark application for the name “PlayBOX” in the United
Kingdom in 2004. The application was rejected due to identical applications
already being in existence. We have been advised by legal counsel it may be
possible to re-apply for trademark protection by adding a distinctive (not
descriptive) logo or an extra word or words to the “PlayBOX” name. We plan to
evaluate a re-submission for trademark application with a distinctive (not
descriptive) logo or an extra word or words as our business progresses and if we
have sufficient funds with which to pursue the trademark
application.
Given the
lack of success with our initial trademark application and the possible
conflicting marks identified by our trademark searches, we cannot provide
investors with any assurance that we will be able to achieve any trademark
protection for the “PlayBOX” name online music application. As a result, third
parties might be able to sell competing products with names incorporating these
terms, and our ability to build goodwill and brand recognition for our products
may be compromised. Further, there is a risk that a competitor or other business
or person may claim that our use of the “PlayBOX” name in connection with our
online music application violates the trademark or other intellectual property
rights of the competitor or other business or person. We have not received any
such claims to date.
Patents
PlayBOX
Inc. filed for patent protection in the United Kingdom for the PlayBOX
application as of January 31, 2004. PlayBOX Inc. decided not to proceed with the
patent process after their research determined that similar technologies existed
in the public domain. The patent application was allowed to lapse. Accordingly,
we believe it is likely that we will not be able to obtain any patent protection
for the PlayBOX on-line music application.
COMPLIANCE
WITH GOVERNMENT REGULATION
In the
United Kingdom, PlayBOX will need to acquire a Joint Online Download License
through MCPS-PRS alliance (The Mechanical-Copyright Protection Society (MCPS),
The Performing Right Society (PRS) and their operational alliance). This license
will allow PlayBOX to sell copyrighted media through its networks on behalf of
artists and record labels. The license covers all copyrighted works sold and a
percentage of revenue earned from works sold is then paid monthly to the
MCPS-PRS alliance. The cost to obtain the license includes a £500 set-up fee, a
£200 per quarter ongoing license fee and a 8.5% revenue sharing fee. Given this
expense, we have determined to pursue this license at such time as we sign up a
client that would require that we obtain the license to sell copyrighted media
through our networks.
In order
to satisfy other UK government regulations, we have acquired an Entrust Secure
Certificate, which ensures the security of the interface to users wishing to
purchase content. In addition, we have acquired a Data Protection Certificate,
which ensures the data that we capture from a user will not be passed to any
third party that might cause damaging effects to that user.
Although
our goal is to eventually launch our services in other countries, we do not have
any current plans to expand beyond the UK. If we expand our services into other
countries, we will have to analyze the government regulations that will apply to
the operation of our business in these new markets. As we presently have no
immediate plans to expand beyond the UK market, we have not yet ascertained what
these government regulations will be and their impact on our cost of doing
business in any new markets.
COMPETITION
The legal
music download industry in which we operate only really took off in March 2004
with the launch of iTunes by Apple Inc. In the time since then, a large number
of competitors have moved into this young marketplace, bringing new elements and
innovations. In the last two years, the industry has become very vast, with many
different offerings and products available.
Although
we would like to eventually launch our services in other countries, our current
focus is to market to artists and small- to medium-sized record labels in the
UK. Our PlayBOX software and services focus on this niche in the music download
marketplace, where there are still few competitors. At this stage we can break
our competition down into Digital Music Services and Digital Download Service
Providers. In the future, however, as the music industry takes more control of
the online digital distribution of its content, the record labels/publishers,
offline content distributors and well established artists/musicians likely will
be looking at directly controlling the online download market with their own
services.
The
following is a breakdown of the main competitive elements that exist as of the
date of this Annual Report.
Digital
Music Services
A digital
music service sells licensed music content to consumers online via a website or
music application. For a music service to function, it needs to obtain access to
as much content as possible, offering its consumers as much choice as possible.
There are a number of models of services, each one aimed at creating the optimum
user experience.
There are
now a large number of these services worldwide and they all have unique elements
that attract consumers. Apple Inc. is the present market leader—it has a market
share of over 60% with its combined iTunes and iPod offerings. iTunes was one of
the first legal digital music services and offers an end-to-end service for the
consumer. Apple offers a free downloadable music application/library that allows
users to manage and listen to music on their computer. From this application,
the user can access the Internet and the iTunes music service, where they can
sample and purchase music. This music is offered on an à-la carte/pay-as-you-go
basis. This means a user can purchase one track at a time or a whole album. The
opposite service to this is the subscription based service, such as Napster or
Rhapsody, where a subscribed user has access to a set number of tracks for a
monthly fee.
The
following table shows the business models of the major competing digital music
service providers:
Service
|
Core
Offer
|
Payment
Method
|
Unique
Offering
|
iTunes
|
à-la-carte
downloads
|
pay
per song, music
allowance
accounts, gift
certificates
sold at
iTunes
and Apple Stores
|
audiobooks,
share music samples
via
email, exclusive tracks and on-
demand
videos, customized
playlists,
transfer to portable
player
(iPod)
|
Napster 2.0
|
track
streaming,
customized
streaming,
à-la-carte
downloads
|
monthly
subscription for
Napster
Premium, pay
per
song, Napster Card
sold
at over 14,000
retailers
|
playlist
recommendations and
sharing,
exclusive material (on-
demand
videos, free online music
magazine,
exclusive tacks, in-
studio
performances), transfer to
portable
player
|
Rhapsody
|
track
streaming,
customized
streaming
|
monthly
subscription,
with
additional charge
for
CD burning
|
access
music from any PC
|
MusicMatch
|
Track
streaming,
customized
streaming,
à-la-carte
downloads
|
one-off
fee for
MusicMatch
Jukebox
Plus,
pay per song
thereafter
|
transfer
to portable players,
personalize
CD package, new
music
recommendations based on
customer
playlist
|
OD2
(branded by
HMV, Fnac,
MSN,
etc.)
|
track
streaming, à-la-
carte
downloads
|
pre-payment
credits
(activities
such as
downloads
and streams
have
different credit
value),
pay per song,
subscription
|
discounts
for products paid with
credits,
transfer to portable player,
news
and special features with
artists
|
The way
we differ from iTunes and the other major digital music services (other than
OD2) is that we offer the services needed to distribute music content online
directly to artists and record labels. OD2 does provide major companies and
record labels with the ability to distribute content directly, but this service
(and its higher pricing structure as compared to ours) is focused on large,
well-financed clients that are not our target clientele.
Through
our service, record labels or artists have the ability to distribute music
online just like iTunes, with their own service, directly from their website, at
a price point that we believe is attractive and affordable to individual artists
and small- to medium-sized record companies. Our business model allows artists
and record labels to sell their music at whatever price they wish on an
à-la-carte (pay-as-you-go) basis.
Apple
iTunes, Napster and the other digital music service providers are much larger
and well-established than we are and have significantly more resources than we
do. Although they do not currently provide distribution services directly to
artists and record labels like we do (other than OD2, which focuses on major
record companies and labels), there can be no assurance that they will not enter
this market (or in the case of OD2, expand their market to include individual
artists and small- to medium-sized record companies). It would be difficult for
us to compete with such well-established, well-financed companies.
Digital
Download Service Providers (DSP)
Our
future goal is to be a digital download service provider by establishing our own
online service to attract Internet users to our brand and our clients’ services.
A digital download service provider offers the relevant services that allow a
music company to start selling music downloads from their own personalized web
shop. Some of the services offered include:
|
1.
|
Design
and development
|
|
2.
|
ePayment
|
|
3.
|
Hosting
|
|
4.
|
Streaming
bandwidth
|
|
5.
|
Tracking
and reporting on the service
|
|
6.
|
Extra
content to sell
|
|
7.
|
Music
Download Chart Listing
|
In
addition to these services, some digital download providers compile services
through strategic partnerships with specialist service providers and then offer
music companies an entire array of services that allow them to start trading
music and other content online.
Market
Leaders
There are
a number of large competitors currently operating in this industry that provide
digital music services, including:
|
1.
|
RealNetworks
(www.realnetworks.com)
|
|
2.
|
Apple
Inc. (www.apple.com/itunes)
|
|
3.
|
Microsoft
(www.microsoft.com)
|
|
4.
|
Sony
Online Entertainment (www.sonyconnect.com)
|
|
5.
|
Napster
(www.napster.com)
|
|
6.
|
OD2/Loudeye
(www.ondemanddistribution.com)
|
Apple is
the frontrunner in this industry with almost 60% market share, driven mainly by
their digital rights management software (Fairplay) and their iPod digital music
device. Because iPod users must use Apple’s download platform iTunes to load
music onto their iPod, Apple has essentially secured its own marketplace. OD2,
which is the company behind MyCokeMusic, is the top supplier of white label
music platforms across Europe. Its client base is music retailers, major brands
that want to enhance their brand value by providing a music service, and
Internet service provides, mobile phone companies and existing media providers
that want to expand beyond the services they offer.
Apple,
OD2 and the other DSPs listed above have aimed their services predominantly at
large record labels and music publishers. There is always the risk that they
might tailor their services towards our niche target market of artists and
small- to medium-sized record labels. These companies have financial and other
resources far in excess of ours, and it would be difficult for us to compete
with them if they were to enter our niche market.
Our
strategy is to differentiate ourselves from Apple, OD2 and other DSPs by
targeting the niche market consisting of unsigned artists and small- to
medium-sized record labels, and by offering them a complete solution to
marketing their music catalogues online. We are not the first company to target
this niche market, but we believe we are the first to offer artists the option
of selling their music directly from their own website.
Our
Most Direct Competitors
We
believe the following companies, which are headquartered in the UK, currently
form PlayBOX’s most direct competition with respect to our target
markets:
1.
|
7
Digital Ltd. (www.7digital.com)
|
2.
|
MPP
Global Ltd. (www.mppglobal.com)
|
3.
|
DA
Recordings Ltd. (www.emusu.com)
|
These
three companies, like us, are fairly new, having launched their services within
the past two years. As such, none of them have significantly more experience
than we do.
Both 7
Digital and MPP Global offer services that use very similar models to
PlayBOX’s—that is, they provide a hosted solution running all client services. 7
Digital is a larger company than PlayBOX and focuses on more established artists
and record labels as well as broadcast and retail companies in the UK, the
United States and several other countries. 7 Digital’s products are more
expensive than ours, a vital concern for independent acts and labels. In
addition, we believe that 7 Digital does not offer the level of bespoke or
customizable solutions or promotional services that we do.
MPP
Global is also a larger company than we are and, like 7 Digital, targets more
established artists and record labels as well as broadcast and retail companies
in the UK, the United States, the EU and other parts of the world. MPP Global
offers its clients the ability to sell individual music or video downloads or
subscriptions to music or video content; however, MPP Global’s set-up and
monthly fees for these services are currently significantly higher than
ours.
DA
Recordings offers a service called emusu.com (this service was formerly known as
Music Control). Like us, DA Recordings is a small company specifically focused
on providing services similar to our services to unsigned artists and record
labels in the UK. However, based on our understanding of DA Recording’s current
business model and pricing, we believe that we provide more features and a
higher level of promotional support at a competitive price-point.
EMPLOYEES
As of the
date of this Annual Report, we have one employee, namely Mr. Gideon Jung, who is
our sole director and executive officer. See “Item 5. Market for Common Equity
and Related Stockholder Matters”; “Item 9. Directors, Executive Officers,
Promoters, Control Persons and Corporate Governance; Compliance with Section
16(a) of the Exchange Act; “Part 10. Executive Compensation”; and “Item 12.
Certain Relationships and Related Transactions and Director
Independence”.
RESEARCH
AND DEVELOPMENT EXPENDITURES
We have
spent the following amounts on research and development activities, which
activities have been comprised of product and corporate
development:
|
Fiscal Year
ended
September
30,
2008
|
Fiscal Year
ended
September
30,
2007
|
Cumulative
From
Incorporation (August
21,
2003) to September
30,
2008
|
Amount
of Research and
Development
Expenditures
|
$Nil
|
$Nil
|
$29,152
|
RISK
FACTORS
An
investment in our common stock involves a number of very significant risks. You
should carefully consider the following risks and uncertainties in addition to
other information in evaluating our company and its business before purchasing
shares of our common stock. Our business, operating results and financial
condition could be seriously harmed due to any of the following risks. The risks
described below are all of the material risks that we are currently aware of
that are facing our company. Additional risks not presently known to us may also
impair our business operations. You could lose all or part of your investment
due to any of these risks.
Risks
Related to Our Business
As we have a limited operating history
and our ability to exploit thePlayBOX online music application is untested, we
may never earn revenuesor achieve profitability.
We were
incorporated on April 1, 2005 and only acquired PlayBOX UK on March 24, 2006,
which was wound up on July 1, 2008. PlayBOX UK’s experience with the PlayBOX
online music application was limited to acting as an agent of the Licensees of
the PlayBOX music online application with a contractual mandate to exploit
commercially the technology on behalf of the Licensees. Our operating history is
limited, and to date we have been involved primarily in organizational and
development activities. Moreover, we acquired the intellectual property rights
to the PlayBOX online music application on March 31, 2006, and we have little
experience as the owner of the technology. We have had limited revenues to date
($1,211 from inception on August 21, 2003 through March 31, 2008) and our
ability to commercially exploit our PlayBOX online music application is
untested. Accordingly, there is no assurance that we will ever achieve revenues
or profitability.
As we have yet to establish significant
commercial sales of music through ouronline music application, there is no
assurance that we will ever achieverevenues.
Our plan
of operation is focused on commercialization of our PlayBOX online music
application. Our ability to achieve significant revenues and future
profitability will depend on our ability to successfully market our application
to artists and record labels alike, and their ability to sell music and other
products through our online music application. There is no assurance that we
will be able to successfully develop sales of our application. We are not able
to provide investors with any assurance that we will be able to operate our
business successfully or that we will be able to achieve profitable operations.
Potential investors should consider the difficulties normally encountered in
developing and commercializing new online applications, and the high rate of
failure of such enterprises. The likelihood of success must be considered in
light of the problems, expenses, difficulties, complications and delays
encountered in connection with the commercialization process that we plan to
undertake. These potential problems include, but are not limited to, our
inability to provide a service that meets the expectations of our potential
customers and the reluctance of the general public to purchase our customers’
music and other products using our online music application. If we are
unsuccessful in addressing these risks, then we will not achieve revenues and
our business will most likely fail.
If we are unable to obtain additional
financing to execute our plan ofoperations, then we will not have sufficient
funds with which to carry out ourplan of operations and our business will most
likely fail.
Our plan
of operations is to commercialize and generate revenues from our PlayBOX online
music application. As at March 31, 2008, we had cash of $5,131 and a working
capital deficit of $617,439. Our planned expenditures over the next twelve
months to implement our plan of operations in the amount of $175,000 will exceed
our cash reserves and working capital. We anticipate that we will require
financing in the amount of approximately $390,000 in order to carry out our plan
of operations for the next twelve months. In fact, because we have limited cash
and a working capital deficit, we will not be able to fund our operations beyond
the next few months without additional financing. We presently do not have any
arrangements for additional financing in place and there is no assurance that we
will be able to arrange for additional financing. If we are not able to arrange
for additional financing to cover these additional anticipated expenses, we will
not be able to execute our plan of operations with the result that our business
may fail and investors may lose a substantial portion or all of their
investment.
If we
are not able to enter into agreements with artists and record labels touse our
PlayBOX application to sell their music catalogues online, then ourabilityto
earn revenues from fees generated by our customers’ online music sales will be
reduced.
An
important aspect of our business plan involves providing our PlayBOX online
music application directly to artists and record labels from which we would
receive fees and a portion of commissions generated from sales by such parties
to the public. We do not have a proven history of sales to such customers, who
may be reluctant to purchase an online music application from a company without
a proven ability to provide these services. Accordingly, there is no assurance
that we will achieve direct sales of our online music application and generate
online music sales from which we will earn revenues. In this event, we would be
solely dependent on arrangements that we may enter into with strategic partners,
with the result that there will be a significantly higher risk that our business
will fail.
If we are not able to enter into
arrangements with strategic partners tomarket our online music application, then
our plans to achieve revenuesfrom fees for the adoption and use of our
application will fail.
An
important aspect of our business plan involves entering into arrangements with
strategic partners to market our PlayBOX online music application to unsigned
artists and record labels. There is no assurance that potential strategic
partners will enter into these arrangements with us. If we are not able to enter
into these strategic relationships, we will have to rely on other marketing
initiatives to promote our PlayBOX online music application to potential
clients, likely resulting in lower than expected revenues and a significantly
higher risk that our business will fail.
Our marketing efforts directed to
unsigned artists and smaller record labelsmay not be successful and we may not
be able to achieve the sales necessaryto become profitable.
In order
for us to become profitable, we will need to build a critical mass of unsigned
artists and small- to medium-sized record labels using the PlayBOX website to
sell their music and other products on the Internet. If we are unsuccessful in
our marketing efforts to contract with these artists and record labels, we will
not be able to achieve the sales revenues necessary for our business to become
profitable. We cannot guarantee that we will be able to obtain a sufficient
number of these relationships.
If we are unable to generate
significant levels of traffic to our website, thenour customers may not generate
sufficient sales of their music to warrantthem renewing their contracts with us,
and we will have difficulty attracting new customers to our
application.
If we are
unable to generate significant levels of traffic to our website, it will make it
hard for us to attract new customers or keep our existing customers renewing
their contracts. This will make it difficult for us to negotiate higher prices
for our products and services and increase our profitability.
If we are unable to provide
uninterrupted uptime on our website, we willhave difficulty maintaining our
customers and attracting new customers.
Our
website is hosted on a Linux server that we lease from Open Hosting Ltd., a
dedicated server service. Open Hosting provides 24-hour support and duplicate
servers to guarantee 99.9% uptime. Although Open Hosting guarantees 99.9%
uptime, there can be no assurance that unforeseen events will not interrupt
access to our website or the services that we provide through our website. If we
are unable to provide uninterrupted uptime on our website, then our customers
may not generate sufficient sales of their music to warrant renewing their
contracts with us, and it will be difficult for us to attract new
customers.
We have a history of losses and
negative cash flows, which are likely tocontinue unless our online music
application gains sufficient marketacceptance to generate a commercially viable
level of sales.
Since
inception through September 30, 2008, we have incurred an aggregate net loss of
$3,760,161. For our fiscal year ended September 30, 2008, we had a net loss from
operations of $488,476. For our fiscal year ended September 30, 2007, we had a
net loss from operations of $294,636. There is no assurance that we will be able
to successfully commercialize our PlayBOX online music application in order to
generate revenues, achieve profitability and generate positive cash flow in the
future. Further, we also expect an increase in development and operating costs
as we undertake our plan of operations prior to achieving revenues, of which
there is no certainty. Consequently, we expect to incur continued operating
losses and net cash outflows until such time as our online music application
gains market acceptance sufficient to generate a commercially viable and
sustainable level of sales. In addition, our operating results in the future may
be subject to significant fluctuations due to many factors not within our
control, such as market acceptance of our online music application, the
unpredictability of when customers will agree to purchase music through our
online music application, the volume of music or other products purchased and
the overall demand for our online music application.
If our operating expenses are greater
than anticipated, then we will have lessfunds with which to pursue our plan of
operations and our additionalfinancing requirements will be greater than
anticipated.
We may
find that the costs of carrying out our plan of operations prior to achieving
revenues are greater than we anticipate. Increased operating costs will cause
the amount of additional financing that we require to increase. Investors may be
more reluctant to provide additional financing if we cannot demonstrate that we
can control our operating costs. There is no assurance that additional financing
required as a result of our operating costs being greater than anticipated will
be available to us. If we do not control our operating expenses, then we will
have less funds with which to carry out our plan of operations with the result
that our business may fail.
As there is a substantial doubt as to
our ability to continue as a goingconcern, there is a significant risk that our
business will fail.
As noted
in our audited financial statements, we intend to continue funding operations
through sales and equity financing arrangements, which may be insufficient to
fund our capital expenditures, working capital and other cash requirements for
the next fiscal year. Thereafter, we will be required to seek additional funds,
either through sales and/or equity financing, to finance our long-term
operations. The successful outcome of future activities cannot be determined at
this time, and there is no assurance that, if achieved, we will have sufficient
funds to execute our intended business plan or generate positive operating
results. In response to these conditions, our management intends to raise
additional funds through future private placement offerings. These factors,
among others, raise substantial doubt about our ability to continue as a going
concern. The accompanying financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
In their
report on our annual financial statements for fiscal years ended September 30,
2008 and 2007, our independent auditors included explanatory paragraphs
expressing doubt about our ability to continue as a going concern. Our auditors
noted that we are dependent upon financing to continue operations, have suffered
recurring losses from operations and our total liabilities that exceed total
assets. As a result, our auditors stated these matters raise substantial doubt
about our ability to continue as a going concern. As a result of these factors,
we caution investors that there is a substantial risk that our business may
fail.
We operate in a highly competitive
industry and our failure to competeeffectively may adversely affect our ability
to generate revenue.
Our
industry is highly competitive and subject to rapid change. Our PlayBOX online
music application is designed to provide musical artists and their
representatives with solutions that allow them to provide samples and sell their
music to consumers on the Internet. We cannot guarantee that our software
development resources will be able to modify our products fast enough to meet
customer and market requirements. We also expect to experience competition from
companies with similar technologies or technologies that accomplish similar
goals. Some of our current and potential competitors have greater technical,
financial, marketing, sales and other resources than we do. Such competition
will potentially affect our chances of achieving profitability and ultimately
adversely affect our ability to continue as a going concern.
Our products may become obsolete and unmarketable if we are unable torespond
adequately to rapidly changing technology and customer demands.
Our
industry is characterized by rapid changes in technology and customer demands.
As a result, our online music application may quickly become obsolete and
unmarketable. Our future success will depend on our ability to adapt to
technological advances, anticipate customer demands, develop new services and
enhance our current online music application on a timely and cost-effective
basis. Further, our products must remain competitive with those of other
companies with substantially greater resources. We may experience technical or
other difficulties that could delay or prevent the development, introduction or
marketing of new products or enhanced versions of existing products. Also, we
may not be able to adapt new or enhanced services to emerging industry
standards, and our new products may not be favorably received.
We
believe that our ability to offer a comprehensive range of online music-selling
solutions is key to enabling us to secure arrangements with artists, record
labels and strategic partners representing these parties. Failure to secure
access to new technologies will delay our development plans and our subsequent
ability to generate revenues.
As we contract out our software
development activities to independent thirdparty contractors, there can be no
assurance that we will be able to continuedevelopment work on our PlayBOX
software or that this work will becompleted on a continued or timely
basis.
We do not
have the internal ability to carry out software development work on our
products. Accordingly, we anticipate outsourcing future software upgrades and
developments on our services on a project-by-project basis to Xeris S.R.O., a
private software development company that is not a related party to us, or to
another independent website designer who has worked on projects for us from time
to time. There can be no assurance that Xeris or the other designer will be able
to carry out the development work we require when we require it or complete the
work on a cost-effective basis. If Xeris or the other designer is unable to
carry out our work when we require it or on a cost-effective basis, we will
either be forced to find another contractor to provide development services,
which may be very difficult to do, or run the risk of not responding to market
demands for improvements. This could harm our customer relationships and
negatively affect our operating results.
Substantially all of our assets and our
sole director and officer are locatedoutside the United States, with the result
that it may be difficult for investorsto enforce within the United States any
judgments obtained against us or our sole director and officer.
Substantially
all of our assets are located outside the United States and we do not currently
maintain a permanent place of business within the United States. In addition,
our sole director and officer is a resident of the United Kingdom, and all or a
substantial portion of his assets are located outside the United States. As a
result, it may be difficult for investors to enforce within the United States
any judgments obtained against us or our sole officer and director, including
judgments predicated upon the civil liability provisions of the securities laws
of the United States or any state thereof. Consequently, you may be effectively
prevented from pursuing remedies under U.S. federal securities laws against our
director and officer.
We could lose our competitive
advantages if we are not able to protect anyproprietary technology and
intellectual property rights against infringement,and any related litigation
could be time-consuming and costly.
Our
success and ability to compete depends to a significant degree on our
proprietary online music application. We have not achieved any trademark
protection of the “PlayBOX” name that we use in connection with our online music
application and our business. As we have not obtained any trademark protection,
we may not be able to prevent any competitor from adopting the same or similar
names to the names that we use. Further, there is a risk that a competitor or
other party may allege that our use of these names is a breach of the trademark
or other intellectual property rights of the party.
We also
do not have any patent protection that covers our PlayBOX online music
application. Accordingly, the only measure that we believe will be available to
us to protect our PlayBOX online music application will be based upon a
combination of trade secret and copyright law and our ability to ensure
confidentiality of the software source codes through non-disclosure agreements.
If any of our competitors copies or otherwise gains access to such proprietary
technology or software or develops similar technologies independently, our
competitive position will be damaged.
While we
believe that we have the rights to exploit the PlayBOX software, there is a risk
that other persons may bring actions against us claiming that we have infringed
on their intellectual property rights, including claims based upon the breach of
trademark or patent, or claims that our intellectual property rights are not
valid. Any claims against us, with or without merit, may be time-consuming and
costly to defend or litigate, may divert our attention and resources, may result
in the loss of goodwill associated with our business or may require us to make
changes to our technologies. We presently do not have sufficient financial
resources to defend any litigation that alleges a breach by us of another
party’s intellectual property rights.
As a
result of these factors, investors should be aware that we may be unable to
protect any intellectual property rights that we have or that we will be able to
exploit the intellectual property rights that we do have in order to secure a
competitive position in the market-place.
If our operating expenses are greater
than anticipated, then we will have lessfunds with which to pursue our plan of
operations and our additionalfinancing requirements will be greater than
anticipated.
Our
operating expenses over the past fiscal year have been approximately $15,000 per
month, which includes legal and auditing and accounting expenses that we have
incurred in connection with being a reporting company under the Securities
Exchange Act of 1934, as amended. We anticipate that our operating expenses will
increase as we undertake our marketing and sales activities in accordance with
our plan of operations. And, we may find that the costs of carrying out our plan
of operations prior to achieving revenues are greater than we anticipate. There
is also a risk that legal and auditing and accounting expenses will be greater
than anticipated. Increased operating costs will cause the amount of additional
financing that we require to increase. Investors may be more reluctant to
provide additional financing if we cannot demonstrate that we can control our
operating costs. There is no assurance that additional financing required as a
result of our operating costs being greater than anticipated will be available
to us. If we do not control our operating expenses, then we will have less funds
with which to carry out our plan of operations with the result that our business
may fail.
If we fail to effectively manage our
growth, our future business results couldbe harmed and our managerial and
operational resources may be strained.
As we
proceed with the commercialization of our online music application, we expect to
experience significant growth in the scope and complexity of our business. We
will need to add staff to market our services, manage operations, handle sales
and marketing efforts and perform finance and accounting functions. We will be
required to hire a broad range of additional personnel in order to successfully
manage our operations if we are successful in commercializing our online music
application. This growth is likely to place a strain on our management and
operational resources. The failure to develop and implement effective systems or
to hire and retain sufficient personnel for the performance of all of the
functions necessary to effectively service and manage our potential business, or
the failure to manage growth effectively, could have a materially adverse effect
on our business and financial condition.
If we lose the services of Mr. Gideon
Jung, our sole director and officer, thenwe may not be able to carry out our
plan of operations.
We will
be dependent upon the services of Mr. Gideon Jung, our sole director and officer
to carry out our plan of operations. The loss of the services of Mr. Jung could
have a serious effect on our ability to execute our business plan and succeed in
commercializing our online music application. If we should lose the services of
Mr. Jung, then we would be forced to hire another person to manage our business
and undertake the implementation of our plan of operations. We do not maintain
any ‘key man’ insurance on Mr. Jung.
If government regulations are adopted
that impose additional costs orrequirements on our ability to provide our online
music application, then ourcost of operations may be increased and we may not be
able to carry out our plan of operations.
Our
industry is highly regulated and both we and our future customers and clients
may be affected by changes in regulation of Internet commerce and online music
sales. The indirect impact of changes in regulation could affect our business
adversely even though the specific regulations do not apply directly to us or
our products. Changing governmental regulations may impose new and different
requirements with which our online music application must comply. We have no
control over regulations and regulatory change and cannot guarantee that our
online music application will meet the minimum standards as set out by
applicable future regulation. Establishing compliance may be costly and
time-consuming and our failure to do so could result in our inability to
commercialize our online music application and carry out our plan of operations.
Further, the existence of government regulation in markets into which we may
wish to enter may impose prohibitive costs of operation which could result in
our determination not to offer our online music application to artists and
record labels in these markets.
We Are Exposed to Fluctuations in
Currency Exchange Rates.
A
significant portion of our business is conducted outside the United States.
Although a majority of our proposed revenues will be transacted in U.S. Dollars,
we will be exposed to currency exchange fluctuations in other currencies such as
the British pound. Moreover, a portion of our expenses in the United Kingdom are
paid in pounds, which subjects us to the risks of foreign currency
fluctuations.
Because We Intend to Operate in
Multiple International Markets, We Will
Be Subject to Additional Risks.
.
We intend
to market our online music applications in a number of countries and we intend
to enter additional geographic markets. Our business is subject to risks, which
often characterize international markets, including: (i) potentially weak
protection of intellectual property rights; (ii) economic and political
instability; (iii) import or export licensing requirements; (iv) trade
restrictions; (v) difficulties in collecting accounts receivable; (vi) longer
payment cycles; (vii) unexpected changes in regulatory requirements and tariffs;
(viii) seasonal reductions in business activities in some parts of the world,
such as during the summer months in Europe; (ix) fluctuations in exchange rates;
and (x) potentially adverse tax consequences.
Risks
Relating to Our Common Stock
Sales
of a substantial number of shares of our common stock into the public market by
certain stockholders may result in significant downward pressure on the price of
our common stock and could affect your ability to realize the current trading
price of our common stock.
Sales of
a substantial number of shares of our common stock in the public market by
certain stockholders could cause a reduction in the market price of our common
stock. As of the date of this Annual Report, we have 54,186,299 shares of common
stock issued and outstanding. Of the total number of issued and outstanding
shares of common stock, certain stockholders are able to resell up to 9,850,139
shares of our common stock pursuant to the SB-2 Registration Statement declared
effective on August 6, 2007 and are available for immediate resale which could
have an adverse effect on the price of our common stock.
As of the
date of this Annual Report, there are 43,656,160 outstanding shares of our
common stock that are restricted securities as that term is defined in Rule 144
under the Securities Act of 1933, as amended (the “Securities Act”). Although
the Securities Act and Rule 144 place certain prohibitions on the sale of
restricted securities, restricted securities may be sold into the public market
under certain conditions. See “Item 5. Market for Registrant’s Common Equity,
Related Stockholder Matters and Issuer Purchases of Equity
Securities.”
Any
significant downward pressure on the price of our common stock as the selling
stockholders sell their shares of our common stock could encourage short sales
by the selling stockholders or others. Any such short sales could place further
downward pressure on the price of our common stock.
The
trading price of our common stock on the OTC Bulletin Board will fluctuate
significantly and stockholders may have difficulty reselling their
shares.
As of the
date of this Annual Report, our common stock trades on the Over-the-Counter
Bulletin Board. There is a volatility associated with Bulletin Board securities
in general and the value of your investment could decline due to the impact of
any of the following factors upon the market price of our common stock: (i)
disappointing results from our discovery or development efforts; (ii) failure to
meet our revenue or profit goals or operating budget; (iii) decline in demand
for our common stock; (iv) downward revisions in securities analysts' estimates
or changes in general market conditions; (v) technological innovations by
competitors or in competing technologies; (vi) lack of funding generated for
operations; (vii) investor perception of our industry or our prospects; and
(viii) general economic trends.
In
addition, stock markets have experienced price and volume fluctuations and the
market prices of securities have been highly volatile. These fluctuations are
often unrelated to operating performance and may adversely affect the market
price of our common stock. As a result, investors may be unable to sell their
shares at a fair price and you may lose all or part of your
investment.
Additional
issuance of equity securities may result in dilution to our existing
stockholders.
Our
Articles of Incorporation authorize the issuance of 100,000,000 shares of common
stock and 5,000,000 shares of preferred stock. The board of directors has the
authority to issue additional shares of our capital stock to provide additional
financing in the future and the issuance of any such shares may result in a
reduction of the book value or market price of the outstanding shares of our
common stock. If we do issue any such additional shares, such issuance also will
cause a reduction in the proportionate ownership and voting power of all other
stockholders. As a result of such dilution, your proportionate ownership
interest and voting power will be decreased accordingly. Further, any such
issuance could result in a change of control.
Our
common stock is classified as a “penny stock” under SEC rules which limits the
market for our common stock.
The SEC
has adopted rules that regulate broker-dealer practices in connection with
transactions in "penny stocks." Penny stocks generally are equity securities
with a price of less than $5.00 (other than securities registered on certain
national securities exchanges or quoted on the NASDAQ system, provided that
current price and volume information with respect to transactions in such
securities is provided by the exchange or system). Penny stock rules require a
broker-dealer, prior to a transaction in a penny stock not otherwise exempt from
those rules, to deliver a standardized risk disclosure document prepared by the
SEC, which specifies information about penny stocks and the nature and
significance of risks of the penny stock market. A broker-dealer must also
provide the customer with bid and offer quotations for the penny stock, the
compensation of the broker-dealer, and sales person in the transaction, and
monthly account statements indicating the market value of each penny stock held
in the customer's account. In addition, the penny stock rules require that,
prior to a transaction in a penny stock not otherwise exempt from those rules,
the broker-dealer must make a special written determination that the penny stock
is a suitable investment for the purchaser and receive the purchaser's written
agreement to the transaction. These disclosure requirements may have the effect
of reducing the trading activity in the secondary market for stock that becomes
subject to those penny stock rules. If a trading market for our common stock
develops, our common stock will probably become subject to the penny stock
rules, and shareholders may have difficulty in selling their
shares.
|
UNRESOLVED STAFF
COMMENTS
|
We
received a comment letter from the Securities and Exchange Commission dated
December 11, 2008 (the “SEC Comment Letter”). The comments pertained to the
disclosure in our Current Report on Form 8-K filed on December 8, 2008. As of
the date of this Annual Report, the comments are under consideration and review.
We intend to respond to the SEC Comment Letter within the next ten
days.
Our
executive office is located at Suite 3.19, 130 Shaftesbury Avenue, London,
England W1D 5EU. This space is provided to us rent free by one of our
shareholders.
Consumer
Protection Corporation vs. Playbox (US) Inc. – Consumer Protection Corporation
(CPP), an Arizona corporation, alleges that we and several other defendants
engaged in a unsolicited fax campaign to promote our stock. CPP claims to have
suffered damages resulting from being a recipient of one of the faxes. We have
denied any knowledge or involvement in the campaign and have joined a motion for
dismissal filed by another of the defendants. The court has not yet ruled on the
motion. However, we believe the likelihood of an unfavorable outcome
is remote and the range of potential loss is immaterial
Other
than as stated above we are not a party to any other material legal proceedings
and to our knowledge, no such proceedings are threatened or
contemplated.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY
HOLDERS
|
No matters were submitted to our
security holders for a vote during the year ended September 30,
2008
.
PART
II – FINANCIAL INFORMATION
|
MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED
STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES
|
MARKET
FOR COMMON EQUITY
Shares of
our common stock commenced trading on the OTC Bulletin Board under the symbol
“PYBX:OB” on approximately September 2007. The market for our common stock is
limited, and can be volatile. The following table sets forth the high and low
bid prices relating to our common stock on a quarterly basis for the periods
indicated as quoted by the NASDAQ stock market. These quotations reflect
inter-dealer prices without retail mark-up, mark-down, or commissions, and may
not reflect actual transactions.
Quarter
Ended
|
High
Bid
|
Low
Bid
|
December
31, 2008
|
$0.07
|
$0.04
|
September
30, 2008
|
$0.51
|
$0.20
|
June
30, 2008
|
$1.52
|
$0.98
|
March
31, 2008
|
$1.31
|
$1.28
|
December
31, 2007
|
$1.30
|
$1.30
|
As of
September 30, 2008, we had 194 shareholders of record, which does not include
shareholders whose shares are held in street or nominee names.
DIVIDEND
POLICY
No
dividends have ever been declared by the Board of Directors on our common stock.
Our losses do not currently indicate the ability to pay any cash dividends, and
we do not indicate the intention of paying cash dividends either on our common
stock in the foreseeable future. Moreover, the Nevada Revised Statutes prohibit
us from declaring dividends where, after giving effect to the distribution of
the dividend:
1.
|
We
would not be able to pay our debts as they become due in the usual course
of business; or
|
|
|
2.
|
Our
total assets would be less than the sum of our total liabilities plus the
amount that would be needed to satisfy the rights of shareholders who have
preferential rights superior to those receiving the
distribution.
|
We have
not declared any dividends and we do not plan to declare any dividends in the
foreseeable future.
SECURITIES
AUTHORIZED FOR ISSUANCE UNDER COMPENSATION PLANS
We do not
have any stock option plans. The table set forth below presents information
relating to our equity compensation plans as of the date of this Annual
Report:
|
Number
of Securities to be Issued Upon Exercise of Outstanding Options, Warrants
and Rights
(a)
|
Weighted-Average
Exercise Price of Outstanding Options, Warrants and Rights
(b)
|
Number
of Securities Remaining Available for Future Issuance Under Equity
Compensation Plans (excluding column (a))
|
Equity
Compensation Plans Approved by Security Holders
|
-0-
|
-0-
|
-0-
|
Equity
Compensation Plans Not Approved by Security Holders
|
-0-
|
-0-
|
-0-
|
Warrants
|
-0-
|
-0-
|
-0-
|
RECENT
SALES OF UNREGISTERED SECURITIES
As of the
date of this Annual Report and during fiscal year ended March 31, 2008, to
provide capital, we sold stock in private placement offerings pursuant to
contractual agreements as set forth below.
Maloney
Settlement Agreement
On
October 15, 2008, we entered into a settlement agreement (the “Maloney
Settlement Agreement”) with Henry C. Maloney, our prior officer and sole
director (“Maloney”). In accordance with the terms and provisions of the
Settlement Agreement: (i) we issued 700,000 shares of our restricted common
stock; and (ii) Maloney agreed to accept the issuance of the 700,000 shares our
restricted common stock in consideration of settling and relating any debt due
and owing by us to Maloney for his services as an officer and a director. The
shares of stock were issued in reliance on Regulation S promulgated under the
United States Securities Act of 1933, as amended (the “Securities Act”). The
shares of stock have not been registered under the Securities Act or under any
state securities laws and may not be offered or sold without registration with
the United States Securities and Exchange Commission or an applicable exemption
from the registration requirements. The per share price was arbitrarily
determined by our Board of Directors based upon analysis of certain factors
including, but not limited to, stage of development and exploration of
properties, industry status, investment climate, perceived investment risks, our
assets and net estimated worth. See “Item 11. Executive
Compensation.”
Director
Service Agreement
On
November 14, 2008, we entered into a director service agreement (the “Director
Service Agreement) with Gideon Jung, our sole director and President/Chief
Executive Officer, Chief Financial Officer/Treasurer and Secretary. In
accordance with the terms and provisions of the Director Service Agreement: (i)
Mr. Jung consented to his appointment as the President/Chief Executive Officer,
Chief Financial Officer/Treasurer for a three-year period; and (ii) we agreed to
issue Mr. Jung 7,200,000 shares of our restricted common stock in consideration
of his appointment. The shares of stock were issued in reliance on Regulation S
promulgated under the Securities Act. The shares of stock have not been
registered under the Securities Act or under any state securities laws and may
not be offered or sold without registration with the United States Securities
and Exchange Commission or an applicable exemption from the registration
requirements. The per share price was arbitrarily determined by our Board of
Directors based upon analysis of certain factors including, but not limited to,
stage of development and exploration of properties, industry status, investment
climate, perceived investment risks, our assets and net estimated worth. See
“Item 9. Directors, Executive Officers, Promoters, Control Persons and Corporate
Governance; Compliance with Section 16(a) of the Exchange Act; “Item 10.
Executive Compensation”; and “Item 12. Certain Relationships and Related
Transactions and Director Independence”.
Jabeco
Consulting Agreement
On
November 25, 2008, we entered into the Consulting Agreement Jabeco. In
accordance with the terms and provisions of the Consulting Agreement: (i) Jabeco
shall provide consulting services to us in the area of securing music content
from Asia in the form of music video content, music distribution technology,
music distribution through Asian channels and portals both online and on mobile
networks, and other directly related advisory services; and (ii) we shall issue
to Jabeco 9,000,000 shares of our restricted common stock. The shares of stock
were issued in reliance on Regulation S promulgated under the Securities Act.
The shares of stock have not been registered under the Securities Act or under
any state securities laws and may not be offered or sold without registration
with the United States Securities and Exchange Commission or an applicable
exemption from the registration requirements. The per share price was
arbitrarily determined by our Board of Directors based upon analysis of certain
factors including, but not limited to, stage of development and exploration of
properties, industry status, investment climate, perceived investment risks, our
assets and net estimated worth. See “Item 12 Security Ownership of Certain
Beneficial Owners and Management and Related Stockholder Matters”.
Debondo Settlement
Agreement
On
November 19, 2008, we entered into a settlement agreement and general mutual
release (the “Debondo Settlement Agreement”) with Debondo Capital Inc., a
corporation incorporated in London, England (“Debondo”). In accordance with the
terms and provisions of the Debondo Settlement Agreement: (i) we issued to
Debondo an aggregate of 5,623,006 shares of our restricted common stock; and
(ii) Debondo agreed to accept the issuance of the 5,623,006 shares of our
restricted common stock in consideration of settling and releasing the debt due
and owing by us to Debondo of $224,920.24. We had previously entered into a
consulting services agreement on August 1, 2006 with Debondo pursuant to which
Debondo provided to us consulting and technical support services. At
September 30, 2008, the amount due and owing Debondo was $224,920.24. The shares
of stock were issued in reliance on Regulation S promulgated under the
Securities Act. The shares of stock have not been registered under the
Securities Act or under any state securities laws and may not be offered or sold
without registration with the United States Securities and Exchange Commission
or an applicable exemption from the registration requirements. The per share
price was arbitrarily determined by our Board of Directors based upon analysis
of certain factors including, but not limited to, stage of development and
exploration of properties, industry status, investment climate, perceived
investment risks, our assets and net estimated worth. See “Item 12 Security
Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters” and “Item 13. Certain Relationships and Related Transactions and
Director Independence.”
Private
Offering
Effective
on October 2, 2008, we completed a private placement offering (the “Private
Placement”) with a certain non-United States resident (the “Investor”). In
accordance with the terms and provisions of the Private Placement, we issued to
the Investor an aggregate of 2,000,000 shares of our restricted common stock at
a price of $0.05 per share for aggregate proceeds of $100,000.
The
shares under the Private Placement were sold to one non-United States Investor
in reliance on Regulation S promulgated under the United States Securities Act
of 1933, as amended (the “Securities Act”). The Private Placement has not been
registered under the Securities Act or under any state securities laws and may
not be offered or sold without registration with the United States Securities
and Exchange Commission or an applicable exemption from the registration
requirements. The per share price of the shares was arbitrarily determined by
our Board of Directors based upon analysis of certain factors including, but not
limited to, stage of development and exploration of properties, industry status,
investment climate, perceived investment risks, our assets and net estimated
worth. The Investor executed a subscription agreement and acknowledged that the
securities to be issued have not been registered under the Securities Act, that
he understood the economic risk of an investment in the securities, and that he
had the opportunity to ask questions of and receive answers from our management
concerning any and all matters related to acquisition of the
securities.
Karada
Ltd.
On May 8,
2008, we entered into a settlement agreement and general mutual release (the
“Karada Settlement Agreement”) with Karada Ltd. (“Karada”). In accordance with
the terms and provisions of the Karada Settlement Agreement: (i) we issued to
Karada an aggregate of 538,154 shares of our restricted common stock; and (ii)
Karada agreed to accept the issuance of the 538,154 shares of our restricted
common stock in consideration of settling and releasing the loan made to us of
$31,975. The shares of stock were issued in reliance on Regulation S promulgated
under the Securities Act. The shares of stock have not been registered under the
Securities Act or under any state securities laws and may not be offered or sold
without registration with the United States Securities and Exchange Commission
or an applicable exemption from the registration requirements. The per share
price was arbitrarily determined by our Board of Directors based upon analysis
of certain factors including, but not limited to, stage of development and
exploration of properties, industry status, investment climate, perceived
investment risks, our assets and net estimated worth.
The
Capai Trust
On May
29, 2008, we entered into a settlement agreement and general mutual release (the
“Capai Settlement Agreement”) with The Capai Trust (“Capai”). In accordance with
the terms and provisions of the Capai Settlement Agreement: (i) we issued to
Capai an aggregate of 200,000 shares of our restricted common stock; and (ii)
Capai agreed to accept the issuance of the 200,000 shares of our restricted
common stock in consideration of settling and releasing the amount of $20,000
due and owing under a convertible debenture. The shares of stock were issued in
reliance on Regulation S promulgated under the Securities Act. The shares of
stock have not been registered under the Securities Act or under any state
securities laws and may not be offered or sold without registration with the
United States Securities and Exchange Commission or an applicable exemption from
the registration requirements. The per share price was arbitrarily determined by
our Board of Directors based upon analysis of certain factors including, but not
limited to, stage of development and exploration of properties, industry status,
investment climate, perceived investment risks, our assets and net estimated
worth.
Report
of Independent Registered Public Accounting Firm Dated December __, 2008
.
Consolidated
Balance Sheets as at September 30, 2008 and September 30, 2007.
Statements
of Operations For Fiscal Years Ended September 30, 2008 and September 30, 2007
and for the Period From May 2, 2003 (Inception) to September 30, 2008
.
Statement
of Changes in Stockholders’ Equity/(Deficiency) for the Period From May 2, 2003
(Inception) to September 30, 2008.
Statements
of Cash Flows for the Fiscal Years Ended September 30, 2008 and September 30,
2007 and for the Period From May 2, 2003 (Inception) to September 30, 2008
.
Notes
to Financial Statements.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF
OPERATION
|
The
summarized financial data set forth in the table below is derived from and
should be read in conjunction with our audited financial statements for the
period from inception (May 2, 2003) to year ended September 30, 2008, including
the notes to those financial statements which are included in this Annual
Report. The following discussion should be read in conjunction with our audited
financial statements and the related notes that appear elsewhere in this Annual
Report. The following discussion contains forward-looking statements that
reflect our plans, estimates and beliefs. Our actual results could differ
materially from those discussed in the forward looking statements. Factors that
could cause or contribute to such differences include, but are not limited to
those discussed below and elsewhere in this Annual Report, particularly in the
section entitled "Risk Factors". Our audited financial statements are stated in
United States Dollars and are prepared in accordance with United States
Generally Accepted Accounting Principles.
We are a
developmental company and have generated little revenue to date. We achieved our
initial sales from the PlayBOX online music application in fiscal 2005. We
achieved further sales in fiscal 2006 and 2007. Our initial sales have been
attributable to sales of web hosting services that we provide to The Little
Bazaar, which is our initial and only current paying customer. Our sales
continue to be insignificant in terms of our overall operating expenses. Our
costs of sales are primarily comprised of costs to our network service provider
that provides us with the network services that we require in order to enable us
to provide web hosting services to customers. The following table sets forth
selected financial information for the periods indicated.
RESULTS
OF OPERATIONS
Fiscal
Year Ended September 30, 2008 Compared to Fiscal Year September 30,
2007.
|
|
|
|
|
|
|
|
Cumulative
|
|
|
|
|
|
|
|
|
|
From
|
|
|
|
|
|
|
|
|
|
Incorporation
|
|
|
|
For the
|
|
|
For
the
|
|
|
May
2, 2003
|
|
|
|
Year
Ended
|
|
|
Year
Ended
|
|
|
To
|
|
|
|
September
30,
|
|
|
September
30,
|
|
|
September
30,
|
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
General and Administrative
Expenses
|
|
|
|
|
|
|
|
|
|
Accounting
and auditing
|
|
|
$42,022
|
|
|
|
$80,375
|
|
|
|
$266,258
|
|
Bank
Charges
|
|
|
702
|
|
|
|
772
|
|
|
|
1,934
|
|
Consulting
fees
|
|
|
119,604
|
|
|
|
119,599
|
|
|
|
267,004
|
|
Depreciation
|
|
|
-0-
|
|
|
|
568
|
|
|
|
1,887
|
|
Filing
fees
|
|
|
2,969
|
|
|
|
2,532
|
|
|
|
8,226
|
|
Intellectual
properties
|
|
|
-0-
|
|
|
|
-0-
|
|
|
|
2,500,000
|
|
Investor
relations
|
|
|
-0-
|
|
|
|
18,000
|
|
|
|
18,000
|
|
Legal
|
|
|
31,026
|
|
|
|
33,726
|
|
|
|
121,027
|
|
Marketing
|
|
|
7,513
|
|
|
|
-0-
|
|
|
|
38,838
|
|
Office
and Miscellaneous
|
|
|
-0-
|
|
|
|
4,755
|
|
|
|
13,990
|
|
Salaries
and Benefits
|
|
|
57,542
|
|
|
|
11,750
|
|
|
|
214,811
|
|
Transfer
agent fees
|
|
|
4,585
|
|
|
|
135
|
|
|
|
6,625
|
|
Travel
and Entertainment
|
|
|
474
|
|
|
|
875
|
|
|
|
4,038
|
|
Total General and
Administrative Expenses
|
|
|
465,977
|
|
|
|
273,088
|
|
|
|
3,691,331
|
|
Loss from Continuing
Operations
|
|
|
(465,977
|
)
|
|
|
(273,088
|
)
|
|
|
(3,691,331
|
)
|
Loss
from Discontinued Operations
|
|
|
(24,261
|
)
|
|
|
(11,372
|
)
|
|
|
(61,924
|
)
|
Other Income
(Expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
Exchange Gain (Loss)
|
|
|
1,616
|
|
|
|
(10,266
|
)
|
|
|
(7,786
|
)
|
Interest
Expense
|
|
|
(4,657
|
)
|
|
|
( 499
|
)
|
|
|
(11,391
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
|
$(165,031
|
)
|
|
|
$(275,972
|
)
|
|
|
$(4,037,449
|
)
|
Our
loss from operations for fiscal year ended September 30, 2008 was
($165,031) compared to loss from operations of ($275,972) during fiscal
year ended September 30, 2007 (a decrease of $110,941). During fiscal
years ended September 30, 2008 and September 30, 2007, we did not generate
any revenue.
|
During
fiscal year ended September 30, 2008, we incurred general and administrative
expenses of $465,977 compared to $273,088 incurred during fiscal year ended
September 30, 2007 (an increase of $192,889). These expenses incurred during
fiscal year ended September 30, 2008 consisted of: (i) accounting and auditing
of $42,022 (2007: $80,375); (ii) bank charges of $702 (2007: $772); (iii)
consulting fees of $119,604 (2007: $119,599); (iv) depreciation of $-0- (2007:
$568); (v) development of $199,540 (2007: $-0-); (vi) filing fees of $2,969
(2007: $2,532); (vii) investor relations of $-0- (2007: $18,000); (viii) legal
of $31,026 (2007: $33,726); (ix) marketing of $7,513 (2007: $-0-); (x) office
and miscellaneous of $-0- (2007: $4,755); (xi) salaries and benefits of $57,542
(2007: $11,750); (xii) transfer agent fees of $4,585 (2007: $135); and (xiii)
travel and entertainment of $474 (2007: $875).
Our
general and administrative expenses increased during fiscal year ended September
30, 2008 from fiscal year ended September 30, 2007 primarily based upon
increases in development and salaries and benefits. Accounting and auditing
expenses are attributable to the preparation and audit of our financial
statements. Accounting and auditing expenses decreased to $82,287 during fiscal
2007 compared to $136,503 during the fiscal 2006. Accounting and audited
expenses in fiscal 2007 were attributable to our audited annual and unaudited
interim financial statements prepared in connection with the filing of a
registration statement with the SEC during fiscal 2006. Current accounting and
auditing expenses are attributable to compliance by us with our reporting
obligations under the Securities Exchange Act of 1934, as amended.
Accounting
and auditing expenses are attributable to the preparation and audit of our
financial statements. Our accounting and auditing expenses were $42,022 during
fiscal 2008 as compared to $80,375 during fiscal 2007, which decreased as a
result of the completion of the filing of our registration statement with the
Securities and Exchange Commission.
Our
consulting expenses remained unchanged of $119,604 during fiscal year 2008
compared to $119,599 during fiscal year 2007 relating to the consulting services
agreement we entered into with DeBondo.
Development
fees substantially increased from $199,540 during fiscal year 2008 compared to
$-0- during fiscal year 2007 relating to the increased scope of developmental
operations relating to our online music application.
Our legal
expenses have been primarily attributable to expenses related to our
organization and the preparation and filing of a registration statement with the
Securities and Exchange Commission and our ongoing reporting obligations under
the Securities Exchange Act of 1934. Our legal expenses decreased to $31,026
during fiscal 2008 as compared to $33,726 during fiscal 2007.
Office
expenses are comprised of general office and administrative expenses not covered
under our agreement with Azuracle. These expenses decreased to $-0- during
fiscal 2008 as compared to $4,755 during fiscal 2007.
Salaries
and benefits are primarily comprised of salary paid to Gideon Jung, our current
President/Chief Executive Officer and Chief Financial Officer, and to Robert
Burden, our prior President/Chief Executive Officer and Chief Financial Officer.
Our salaries and benefits increased to $57,542 during fiscal 2008 as compared to
$11,750 during fiscal 2007.
We did
not incur any expenses on any intellectual properties during fiscal year ended
September 30, 2008 and September 30, 2007. We have determined that the cost of
the intellectual property purchased during our fiscal year 2006 does not meet
the criteria for capitalization as set out in SFAS No. 86.
Our loss
from operations during fiscal year ended September 30, 2008 increased to
($465,077) compared to ($273,088) during fiscal year ended September 30, 2007,
primarily as a result of the increase in development expenses and salaries and
benefits.
During
fiscal year ended September 30, 2008, we recorded a loss from discontinued
operations of ($24,261) compared to ($11,372) incurred during fiscal year ended
September 30, 2007. This resulted from the winding up of our subsidiary. During
fiscal year ended September 30, 2008, we recorded: (i) a gain from foreign
exchange rates of $1,616 (2007: ($10,286)); and (ii) interest income of $147
(2007: $40).
This
resulted in a net loss during fiscal year ended September 30, 2008 of ($488,476)
compared to a net less of ($294,638) during fiscal year ended September 30,
2007. The weighted average number of shares outstanding was 29,180,031 for
fiscal year ended September 30, 2008 compared to 28,632,075 for fiscal year
ended September 30, 2007.
LIQUIDITY
AND CAPITAL RESOURCES
Fiscal
Year Ended September 30, 2008
As at
fiscal year ended September 30, 2008, our current assets were $6,522 and our
current liabilities were $623,961, which resulted in a working capital deficit
of $617,439. As at fiscal year ended September 30, 2008, current assets were
comprised of: (i) $382 in cash of continuing operations; (ii) $4,749 in cash of
discontinued operations; and (iii) $1,391 in other current assets – discontinued
operations. As at fiscal year ended September 30, 2008, current liabilities were
comprised of: (i) $49,636 in accounts payable; (ii) $4,500 in accrued
liabilities; (iii) $323,858 in amount due to related party; (iv) $181,750 in
amounts owing pursuant to agreement for acquisition of Delta Music Limited; and
(v) $64,217 in current liabilities – discontinued operations.
As at
fiscal year ended September 30, 2008, our total assets were $6,522 comprised of
current assets. The slight increase in total assets during fiscal year ended
September 30, 2008 from fiscal year ended September 30, 2007 was primarily due
to the increase in other current assets – discontinued operations.
As at
fiscal year ended September 30, 2008, our total liabilities were $623,961
comprised of current liabilities. The increase in total liabilities during
fiscal year ended September 30, 2008 from fiscal year ended September 30, 2007
was primarily due to the increase in amounts due to related parties and amounts
owing pursuant to agreement for acquisition of Delta Music Limited. See “ –
Material Commitments.”
Stockholders’
equity (deficit) increased from ($348,953) for fiscal year ended September 30,
2007 to ($617,439) for fiscal year ended September 30, 2008.
Cash
Flows from Operating Activities
We have
not generated positive cash flows from operating activities. For fiscal year
ended September 30, 2008, net cash flows used in operating activities was
($306,225) consisting primarily of a net loss of ($488,476). For fiscal year
ended September 30, 2007, net cash flows used in operating activities was
($232,093) consisting primarily of a net loss of ($294,636). During fiscal year
ended September 30, 2008, net cash flows used in operating activities was
adjusted by items not requiring the use of cash for: (i) shares for consulting
services of $50,000 (2007: $-0-); and (ii) shares issued for settlement of debt
of $31,975 ($-0-).
Net cash
flows used in operating activities was further changed by:
(i) accounts payable of ($35,330) (2007: $50,797); (ii) accrued
liabilities of ($23,070) (2007: ($3,947)); (iii) amounts owing pursuant to
agreement for acquisition of Delta Music Limited of $181,750 (2007: $-0-); (iv)
effects of effects of accounts receivable in discontinued operation of ($1,069)
(2007: $961; (v) effects of accounts payable in discontinued operation of
$21,803 (2007: ($2,944); (vi) effects of accrued liabilities in discontinued
operations of ($7,535) (2007: $504); and (vii) effects of amounts owing to
related parties in discontinued operations of ($36,273) (2007:
$16,614).
Cash
Flows from Investing Activities
For
fiscal year ended September 30, 2008, net cash flows used in investing
activities was $-0-. For fiscal year ended September 30, 2007, net cash flows
used in investing activities was also $-0-.
Cash
Flows from Financing Activities
We have
financed our operations primarily from either advancements or the issuance of
equity and debt instruments. For fiscal year ended September 30, 2008, net cash
flows provided from financing activities was $287,433 compared to $217,699 for
fiscal year ended September 30, 2007. Cash flows from financing activities for
fiscal year ended September 30, 2008 consisted primarily of: (i) $185,533 (2007:
$119,599) due to related parties; (ii) ($18,100) (2007: $18,100); and $120,000
(2007: $80,000) from share issuance for cash.
We have
applied cash generated from financing activities to fund cash used in operating
activities. We expect that working capital requirements will continue to be
funded through a combination of our existing funds and further issuances of
securities and debt instruments. Our working capital requirements are expected
to increase in line with the growth of our business.
PLAN
OF OPERATION
We
estimate that our total expenditures over the next twelve months will be
approximately $175,000. We anticipate that our cash and working capital will not
be sufficient to enable us to undertake our plan of operations over the next
twelve months without our obtaining additional financing. We presently require
immediate financing in order that we have the cash necessary for us to continue
our operations. In view of our working capital deficit, we anticipate that we
will require additional financing in the approximate amount of $500,000 in order
to enable us to sustain our operations for the next twelve months.
Our plan
of operations is to commercialize and generate revenues from our PlayBOX online
music application. We have targeted unsigned music acts and small- to
medium-sized record labels as the potential customer base for the PlayBOX music
application. The PlayBOX music application is able to provide artists and
content owners with a range of services which incorporate the latest MP3 and
Windows Multimedia music formats. We also offer a number of services to
supplement these interfaces such as hosting, streaming, e-commerce and digital
rights management (DRM). We pool these services together to offer potential
customers a cost-effective and professional platform on which to sell and
promote their music products.
Our plan
of operations for the next twelve months is to complete the following objectives
within the time periods and budgets specified:
1.
|
We
plan to carry out sales and marketing of our PlayBOX online music service
with the objective of securing sales of our White Label interface to music
artists and our Aggregator interface to record labels. Our Bespoke
interfaces will be targeted predominantly towards companies involved in
the music industry. We plan to undertake a number of marketing and
promotional campaigns over the next 12 months with the objective of
establishing sales momentum. We estimate $7,000 per month will be spent on
our proposed marketing campaigns and promotions in that 12-month period,
for anticipated total annual expenditures of $84,000.
|
|
|
2.
|
We
anticipate spending approximately $10,000 over the next 12 months to
various third parties to run our PlayBOX service. These parties’ elements
are: (i) dedicated server through Open Hosting Ltd., (ii) ePDQ payment
interface, provided by Barclaycard UK, (iii) Digital Rights Management
Interface, provided by IFDNRG Ltd., (iv) the administration of these
elements in the PlayBOX system.
|
|
|
3.
|
We
anticipate spending approximately $17,000 over the next twelve months in
continuing the upgrading, development and design of our PlayBOX
system.
|
|
|
4.
|
We
anticipate spending approximately $2,000 in ongoing general and
administrative expenses per month for the next twelve months, for a total
anticipated expenditure of $24,000 over the next twelve months. The
general and administrative expenses for the year will consist primarily of
rent and office services, technical support and hosting services and
general office expenses.
|
|
|
5.
|
We
anticipate spending approximately $40,000 in complying with our
obligations as a reporting company under the Securities Exchange Act of
1934, as amended. These expenses will consist primarily of professional
fees relating to the preparation of our financial statements and
completing our annual report, quarterly report, current report and proxy
statement filings with the Securities and Exchange
Commission.
|
We
anticipate continuing to rely on equity sales of our common shares in order to
continue to fund our business operations. Issuances of additional shares will
result in dilution to our existing stockholders. We believe that debt financing
will not be an alternative for funding of our planned activities as we do not
have tangible assets to secure any debt financing.
We have
not entered into any financing agreements and we cannot provide investors with
any assurance that any financing we obtain will be sufficient to fund our plan
of operations. At this time, all potential investors and all discussions are
taking place outside of the United States. We may also seek to obtain additional
financing from our principal shareholders, although none of our shareholders
have committed to advance any shareholder loans to us. In the absence of such
financing, we may not be able to continue our plan of operations beyond the next
few months and our business plan will fail. If we do not continue to obtain
additional financing, we will be forced to abandon our plan of operations and
our business activities.
CRITICAL
ACCOUNTING POLICIES/RECENTLY ADOPTED ACCOUTING STANDARDS
Development
Stage Company
We are a
development stage company as defined by Financial Accounting Standards No. 7. We
are presently devoting all of our present efforts to establishing a new
business. All losses accumulated since inception have been considered as part of
our development stage activities.
Revenue
Recognition
We
recognize revenue when all of the following criteria have been met: persuasive
evidence for an arrangement exists; delivery has occurred; the fee is fixed or
determinable and collection is reasonably assured. Upfront contract payments
received from the sale of services not yet earned are initially recorded as
deferred revenue on the balance sheet. The amount is recognized as income over
the term of the contract.
Revenue
from time and material service contracts is recognized as the services are
provided. Revenue from fixed price, long-term service or development contracts
is recognized over the contract term based on the percentage of services that
are provided during the period compared with the total estimated services to be
provided over the entire contract. Losses on fixed price contracts are
recognized during the period in which the loss first becomes apparent. Payment
terms vary by contract.
Foreign
Currency Translations
Our
functional currency is pounds sterling (“₤”). Our reporting currency is the U.S.
dollar. All transactions initiated in other currencies are translated into U.S.
dollars as follows:
(i)
|
assets
and liabilities at the rate of exchange in effect at the balance sheet
date;
|
|
|
(ii)
|
equity
at historical rates; and
|
|
|
(iii)
|
revenue
and expense items at the average rate of exchange prevailing during the
period.
|
Unrealized
exchange gains and losses arising from such translations are deferred until
realization and are included as a separate component of shareholder’s equity as
a component of comprehensive income or loss. Upon realization, the amount
deferred is recognized as income in the period when it is realized.
Recently
Adopted Accounting Standards
In
December 2007, the FASB issued SFAS No. 160 “Noncontrolling Interests in
Consolidated Financial Statements-an amendment of ARB No. 51”. SFAS 160
establishes accounting and reporting standards for the noncontrolling interest
in a subsidiary and for the deconsolidation of a subsidiary. The guidance will
become effective for the fiscal year beginning after December 15, 2008.
Management is in the process of evaluating the impact SFAS 160 will have on our
financial statements upon adoption.
In
February 2007, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 159,
The Fair Value Option for Financial
Assets and Financial Liabilities - Including an amendment of FASB Statement No.
115
(“SFAS No. 159”). This statement permits entities to choose to
measure many financial instruments and certain other items at fair value. The
objective is to improve financial reporting by providing entities with the
opportunity to mitigate volatility in reported earnings cause by measuring
related assets and liabilities differently without having to apply complex hedge
accounting provisions. This Statement is expected to expand the use of fair
value measurement, which is consistent with the Board’s long-term measurement
objectives for accounting for financial instruments. This statement is effective
as of the beginning of our first fiscal year that begins after November 15,
2007, although earlier adoption is permitted. As of the date of this Annual
Report, we have not adopted this statement and management has not determined the
effect that adopting this statement would have on our financial position or
results of operations.
MATERIAL
COMMITMENTS
As of the
date of this Annual Report, we do not have any material commitments other than
as disclosed below:
Delta
Music Limited
On March
28, 2008, we entered into the Share Purchase Agreement the Seller
s
for the proposed acquisition
of Delta Music. The acquisition would have been effected through the acquisition
from the Sellers of 100% of the total issued and outstanding shares of Delta
Leisure, a private company that owned 75% interest of the total issued and
outstanding shares of Delta Music, and 25% of the share capital of Delta Music.
The consideration for the acquisition would have been a combination of cash and
shares of our common stock, as follows: (i) cash of 1,400,000 Pounds Sterling
payable on closing of the acquisition, and (ii) a number of shares of our common
stock equal to 10% of our common stock, on a fully diluted basis, to be issued
on closing of the acquisition.
The
completion of the acquisition was subject to the satisfaction of certain
conditions precedent to closing set forth in the Share Purchase Agreement by no
later than June 30, 2008. These conditions included the following in addition to
customary conditions of closing: (i) the completion by us of a private placement
financing to raise gross proceeds of no less than $4,000,000, and (ii) the
delivery to us of financial statements of Delta Music and Delta Leisure as
required to enable us to satisfy our reporting obligations under the Securities
Exchange Act of 1934 arising as a result of the completion of the
acquisition.
On July
2, 2008, we received notice of termination from the Sellers of termination of
the Share Purchase Agreement. The terms of the Share Purchase Agreement provided
that either party could terminate if the acquisition contemplated thereunder had
not occurred prior to June 30, 2008. Therefore, as of the date of this Annual
Report, the Share Purchase Agreement is deemed terminated.
However,
under the terms of the Share Purchase Agreement, we agreed to pay up to $181,750
as of September 30, 2008 to the attorneys of the Sellers to fund certain
expenses to be incurred by the Sellers and Delta Music in connection with the
acquisition regardless of whether or not the acquisition was completed. As of
September 30, 2008, the amount has not been paid.
Loan
From Related Party
A
material commitment for us during fiscal year 2009 is the amount of $314,858 due
to related parties as at September 30, 2008. The amounts are due and owing are
non-interest bearing, unsecured and due on demand. See “Item 13. Certain
Relationships and Related Transactions and Director Independence.”
PURCHASE
OF SIGNIFICANT EQUIPMENT
We do not
intend to purchase any significant equipment during the next twelve
months.
OFF-BALANCE
SHEET ARRANGEMENTS
As of the
date of this Annual Report, we do not have any 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 investors.
GOING
CONCERN
The
independent auditors' report accompanying our September 30, 2008 and September
30, 2007 financial statements contains an explanatory paragraph expressing
substantial doubt about our ability to continue as a going concern. The
financial statements have been prepared "assuming that we will continue as a
going concern," which contemplates that we will realize our assets and satisfy
our liabilities and commitments in the ordinary course of business.
|
QUANTITY AND QUALITATIVE
DISCLOSURE ABOUT MARKET
RISKS
|
Market
risk represents the risk of loss that may impact our financial position, results
of operations or cash flows due to adverse change in foreign currency and
interest rates.
Exchange
Rate
Our
reporting currency is United States Dollars (“USD”). The Britsh Pound has
been pegged to the USD with regards to the exchange rate system. Exchange rate
fluctuations may have a material impact on our consolidated financial reporting
and make realistic revenue projections difficult. Recently the British
Pound rose in value compared to the USD. This has not had an appreciable effect
on our operations and seems unlikely to do so.
The
exchange rate of the British Pound or other foreign currency may have positive
or negative impacts on our results of operations. Since all proposed
future sale revenues and expenses may be dominated in the British Pound or other
foreign currency, the net income effect of appreciation and devaluation of such
currency against the USD may be limited to our net operating
results.
Interest
Rates
Interest
rates in the United Kingdom are relatively low and stable and inflation is
controlled, due to the habit of the population to deposit and save money in the
banks (among with other reasons, such as the balance of trade surplus). Any
potential loans may relate mainly to trade payables and may be mainly
short-term. However our debt may be likely to rise in connection with
expansion and were interest rates to rise at the same time, this could become a
significant impact on our operating and financing activities.
We have
not entered into derivative contracts either to hedge existing risks or for
speculative purposes.
Report
of Independent Registered Public Accounting Firm Dated January 12,
2009.
Consolidated
Balance Sheets as at September 30, 2008 and September 30, 2007.
Statements
of Operations For Fiscal Years Ended September 30, 2008 and September 30, 2007
and for the Period From May 2, 2003 (Inception) to September 30,
2008.
Statement
of Changes in Stockholders’ Equity/(Deficiency) for the Period From May 2, 2003
(Inception) to September 30, 2008.
Statements
of Cash Flows for the Fiscal Years Ended September 30, 2008 and September 30,
2007 and for the Period From May 2, 2003 (Inception) to September 30,
2008.
MOORE
& ASSOCIATES, CHARTERED
ACCOUNTANTS AND
ADVISORS
PCAOB
REGISTERED
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors
Playbox
(US) Inc.
(A
Development Stage Company)
We have
audited the accompanying balance sheet of Playbox (US) Inc. (A Development Stage
Company) as of September 30, 2008 and 2007, and the related statements of
operations, stockholders’ equity and cash flows for the years then ended and
since May 2, 2003 through September 30, 2008. These financial statements are the
responsibility of the Company’s management. Our responsibility is to
express an opinion on these financial statements based on our
audits.
We
conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Playbox (US) Inc. as of September
30, 2008 and 2007, and the related statements of operations, stockholders’
equity and cash flows for the years then ended and since May 2, 2003 through
September 30, 2008, in conformity with accounting principles generally accepted
in the United States of America.
The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 7 to the
financial statements, the Company has an accumulated deficit of $3,560,621,
which raises substantial doubt about its ability to continue as a going
concern. Management’s plans concerning these matters are also
described in Note 7. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/
Moore & Associates, Chartered
Moore
& Associates Chartered
Las
Vegas, Nevada
January
12, 2009
6490 West Desert Inn Rd, Las
Vegas, NV 89146 (702) 253-7499 Fax (702) 253-7501
F-1
Playbox
(US) Inc.
|
|
(A
Development Stage Company)
|
|
Consolidated
Balance Sheets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As
of
|
|
|
As
of
|
|
|
|
September
30, 2008
|
|
|
September
30, 2007
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
Cash
of Continuing Operations
|
|
$
|
382
|
|
|
$
|
382
|
|
Cash
of Discontinued Operations
|
|
|
4,749
|
|
|
|
5,527
|
|
Other
current assets - Discontinued Operations
|
|
|
1,391
|
|
|
|
322
|
|
Total
Current Assets
|
|
|
6,522
|
|
|
|
6,231
|
|
|
|
|
|
|
|
|
|
|
Equipment,
net of depreciation
|
|
|
0
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
|
6,522
|
|
|
|
6,231
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
49,636
|
|
|
$
|
84,967
|
|
Accrued
liabilities
|
|
|
4,500
|
|
|
|
27,570
|
|
Due
to Related Parties
|
|
|
323,858
|
|
|
|
138,325
|
|
Amounts
owing pursuant to agreement for acquisition of Delta Music
Limited
|
|
|
181,750
|
|
|
|
0
|
|
Current
Liabilities - Discontinued Operations
|
|
|
64,217
|
|
|
|
86,223
|
|
Total
Current Liabilities
|
|
|
623,961
|
|
|
|
337,084
|
|
|
|
|
|
|
|
|
|
|
Long
Term Liabilities
|
|
|
|
|
|
|
|
|
Loans
Payable
|
|
|
0
|
|
|
|
18,100
|
|
Total
Long Term Liabilites
|
|
|
0
|
|
|
|
18,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
623,961
|
|
|
|
355,184
|
|
STOCKHOLDERS’
DEFICIENCY
|
|
|
|
|
|
|
|
|
Capital
Stock
|
|
|
|
|
|
|
|
|
Preferred
Stock
|
|
|
|
|
|
|
|
|
Authorized: 5,000,000
shares with $0.001 par value. Issued: Nil
|
|
|
-
|
|
|
|
-
|
|
Common
Stock
|
|
|
|
|
|
|
|
|
Authorized:
100,000,000 common shares with $0.001 par value
|
|
|
|
|
|
Issued: 29,663,293
(September 30, 2008)
|
|
|
29,663
|
|
|
|
28,845
|
|
28,845,139
(September 30, 2007)
|
|
|
|
|
|
|
|
|
Obligation
to issue shares
|
|
|
2,000
|
|
|
|
-
|
|
Additional
paid-in capital
|
|
|
3,105,212
|
|
|
|
2,906,055
|
|
Accumulated
Comprehensive Loss
|
|
|
5,847
|
|
|
|
(12,168
|
)
|
Deficit
- Accumulated during the development stage
|
|
|
(3,760,161
|
)
|
|
|
(3,271,685
|
)
|
|
|
|
(617,439
|
)
|
|
|
(348,953
|
)
|
|
|
$
|
6,522
|
|
|
$
|
6,231
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financials
statements.
|
F-2
Playbox
(US) Inc.
|
|
(A
Development Stage Company)
|
|
Statements
of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative
|
|
|
|
|
|
|
|
|
|
From
|
|
|
|
|
|
|
|
|
|
Incorporation
|
|
|
|
For
the Year
|
|
|
For
the Year
|
|
|
May
02, 2003
|
|
|
|
Ended
|
|
|
Ended
|
|
|
to
|
|
|
|
September
30, 2008
|
|
|
September
30, 2007
|
|
|
September
30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
General
and Administrative Expenses
|
|
|
|
|
|
|
|
|
|
Accounting
and auditing
|
|
|
42,022
|
|
|
|
80,375
|
|
|
|
266,258
|
|
Bank
Charges
|
|
|
702
|
|
|
|
772
|
|
|
|
1,934
|
|
Consulting
fees
|
|
|
119,604
|
|
|
|
119,599
|
|
|
|
267,004
|
|
Depreciation
|
|
|
0
|
|
|
|
568
|
|
|
|
1,887
|
|
Development
|
|
|
199,540
|
|
|
|
0
|
|
|
|
228,692
|
|
Filing
fees
|
|
|
2,969
|
|
|
|
2,532
|
|
|
|
8,226
|
|
Intellectual
properties
|
|
|
0
|
|
|
|
0
|
|
|
|
2,500,000
|
|
Investor
relations
|
|
|
0
|
|
|
|
18,000
|
|
|
|
18,000
|
|
Legal
|
|
|
31,026
|
|
|
|
33,726
|
|
|
|
121,027
|
|
Marketing
|
|
|
7,513
|
|
|
|
0
|
|
|
|
38,838
|
|
Office
& Miscellaneous
|
|
|
0
|
|
|
|
4,755
|
|
|
|
13,990
|
|
Salaries
& Benefits
|
|
|
57,542
|
|
|
|
11,750
|
|
|
|
214,811
|
|
Transfer
agent fees
|
|
|
4,585
|
|
|
|
135
|
|
|
|
6,625
|
|
Travel
& Entertainment
|
|
|
474
|
|
|
|
875
|
|
|
|
4,038
|
|
Total
General and Administrative Expenses
|
|
|
465,977
|
|
|
|
273,088
|
|
|
|
3,691,331
|
|
|
|
|
(465,977
|
)
|
|
|
(273,088
|
)
|
|
|
(3,691,331
|
)
|
Income
(loss) from Continuing Operations
|
|
|
|
|
|
|
|
|
|
Income
(loss) from Discontinued Operations
|
|
|
(24,261
|
)
|
|
|
(11,372
|
)
|
|
|
(61,924
|
)
|
Other
Income (Expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
exchange gain (loss)
|
|
|
1,616
|
|
|
|
(10,266
|
)
|
|
|
(7,786
|
)
|
Interest
income
|
|
|
147
|
|
|
|
49
|
|
|
|
881
|
|
Loss
for the period
|
|
$
|
(488,476
|
)
|
|
$
|
(294,636
|
)
|
|
$
|
(3,760,161
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
per Share – Basic and Diluted
|
|
$
|
-0.02
|
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average Shares Outstanding
|
|
|
29,160,031
|
|
|
|
28,632,975
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
|
(488,476
|
)
|
|
|
(294,636
|
)
|
|
|
(3,760,161
|
)
|
Gain
(loss) on foreign exchange translation
|
|
|
18,015
|
|
|
|
(6,130
|
)
|
|
|
5,847
|
|
Total
Comprehensive Loss
|
|
|
(470,461
|
)
|
|
|
(300,766
|
)
|
|
|
(3,754,314
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financials
statements.
|
|
F-3
Playbox
(US) Inc.
|
|
(A
Development Stage Company)
|
|
Statements
of Stockholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
During
the
|
|
|
Accumulated
|
|
|
Total
|
|
|
|
Common
Stock
|
|
|
Common
Stock Issuable
|
|
|
Paid-in
|
|
|
Development
|
|
|
Comprehensive
|
|
|
Stockholders’
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Stage
|
|
|
Gain
(Loss)
|
|
|
Deficiency
|
|
Shares
issued for cash at $2.00 per share – August 21, 2003
|
|
|
6
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
2
|
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
2.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
Split– April 30, 2004
|
|
|
570
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Shares
issued for cash at $0.18 per share – April 30, 2004
|
|
|
4,344,749
|
|
|
|
4,345
|
|
|
|
-
|
|
|
|
-
|
|
|
|
9,046
|
|
|
|
-
|
|
|
|
-
|
|
|
|
13,391
|
|
Shares
issued for consulting at $0.18 per share -September 30,
2004
|
|
|
235,010
|
|
|
|
235
|
|
|
|
-
|
|
|
|
-
|
|
|
|
498
|
|
|
|
-
|
|
|
|
-
|
|
|
|
733
|
|
Loss
for the year
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(74,576
|
)
|
|
|
-
|
|
|
|
(74,576
|
)
|
Foreign
currency translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
710
|
|
|
|
710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for consulting at $0.019 per share -November 2,
2004
|
|
|
235,010
|
|
|
|
235
|
|
|
|
-
|
|
|
|
-
|
|
|
|
548
|
|
|
|
-
|
|
|
|
-
|
|
|
|
783
|
|
Shares
issued for consulting at $0.019 per share - February 1,
2005
|
|
|
235,010
|
|
|
|
235
|
|
|
|
-
|
|
|
|
-
|
|
|
|
548
|
|
|
|
-
|
|
|
|
-
|
|
|
|
783
|
|
Shares
issued for consulting at $0.144 per share – April 21, 2005
|
|
|
57,553
|
|
|
|
58
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,378
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,436
|
|
Shares
issued for consulting at $0.019 per share – April 28, 2005
|
|
|
705,042
|
|
|
|
705
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,645
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,350
|
|
Shares
issued for debt at $0.148 per share - April 28, 2005
|
|
|
6,187,050
|
|
|
|
6,187
|
|
|
|
-
|
|
|
|
-
|
|
|
|
152,877
|
|
|
|
-
|
|
|
|
-
|
|
|
|
159,064
|
|
Loss
for the period
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(176,296
|
)
|
|
|
-
|
|
|
|
(176,296
|
)
|
Foreign
currency translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,823
|
)
|
|
|
(2,823
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition
of PlayBOX MEDIA LIMITED-Recapitalization - March 24, 2006
|
|
|
5,705,139
|
|
|
|
5,705
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(34,538
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(28,833
|
)
|
Shares
issued for debt at $0.25 per share - March 31, 2006
|
|
|
520,000
|
|
|
|
520
|
|
|
|
-
|
|
|
|
-
|
|
|
|
129,671
|
|
|
|
-
|
|
|
|
-
|
|
|
|
130,191
|
|
Shares
issued for intellectual property at $0.025 per share - March 31,
2006
|
|
|
10,000,000
|
|
|
|
10,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,490,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,500,000
|
|
Shares
issued for cash at $0.25 per share - July 14, 2006
|
|
|
300,000
|
|
|
|
300
|
|
|
|
-
|
|
|
|
-
|
|
|
|
74,700
|
|
|
|
-
|
|
|
|
-
|
|
|
|
75,000
|
|
Loss
for the period
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,726,177
|
)
|
|
|
-
|
|
|
|
(2,726,177
|
)
|
Foreign
currency translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,925
|
)
|
|
|
(3,925
|
)
|
Balance
- September 30, 2006
|
|
|
28,525,139
|
|
|
|
28,525
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,826,375
|
|
|
|
(2,977,049
|
)
|
|
|
(6,038
|
)
|
|
|
(128,187
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
issued for cash at $0.25 per share - May 30, 2007
|
|
|
320,000
|
|
|
|
320
|
|
|
|
-
|
|
|
|
-
|
|
|
|
79,680
|
|
|
|
-
|
|
|
|
-
|
|
|
|
80,000
|
|
Loss
for the period
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(294,636
|
)
|
|
|
-
|
|
|
|
(294,636
|
)
|
Foreign
currency translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(6,130
|
)
|
|
|
(6,130
|
)
|
Balance
- September 30, 2007
|
|
|
28,845,139
|
|
|
|
28,845
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,906,055
|
|
|
|
(3,271,685
|
)
|
|
|
(12,168
|
)
|
|
|
(348,953
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share
subscription for cash at $0.05 per share - April 21, 2008
|
|
|
-
|
|
|
|
-
|
|
|
|
2,000,000
|
|
|
|
2,000
|
|
|
|
98,000
|
|
|
|
|
|
|
|
|
|
|
|
100,000
|
|
Shares
issued pursuant to a convertible debenture agreement at $0.25 per share -
May 8, 2008
|
|
|
80,000
|
|
|
|
80
|
|
|
|
|
|
|
|
|
|
|
|
19,920
|
|
|
|
-
|
|
|
|
-
|
|
|
|
20,000
|
|
Shares
issued for debt settlement at $0.06 per share - May 8,
2008
|
|
|
538,154
|
|
|
|
538
|
|
|
|
-
|
|
|
|
-
|
|
|
|
31,437
|
|
|
|
-
|
|
|
|
-
|
|
|
|
31,975
|
|
Shares
issued pursuant to a consulting agreement at $0.25 per share - May 29,
2008
|
|
|
200,000
|
|
|
|
200
|
|
|
|
|
|
|
|
|
|
|
|
49,800
|
|
|
|
|
|
|
|
|
|
|
|
50,000
|
|
Loss
for the period
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(488,476
|
)
|
|
|
-
|
|
|
|
(488,476
|
)
|
Foreign
currency translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
18,015
|
|
|
|
18,015
|
|
Balance
- September 30, 2008
|
|
|
29,663,293
|
|
|
|
29,663
|
|
|
|
2,000,000
|
|
|
|
2,000
|
|
|
|
3,105,212
|
|
|
|
(3,760,161
|
)
|
|
|
5,847
|
|
|
|
(617,439
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financials
statements.
|
|
F-4
Playbox
(US) Inc.
|
|
(A
Development Stage Company)
|
|
Statements
of Cash Flow
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Year Ending September 30,2008
|
|
|
For
the Year Ending September 30,2007
|
|
|
Cumulative
from Incorporation May 2, 2003 to September 30, 2008
|
|
Operating
|
|
|
|
|
|
|
|
|
|
Net
Loss
|
|
$
|
(488,476
|
)
|
|
$
|
(294,636
|
)
|
|
$
|
(3,760,161
|
)
|
Items
not involving cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
-
|
|
|
|
568
|
|
|
|
1,887
|
|
Shares
for consulting services
|
|
|
50,000
|
|
|
|
-
|
|
|
|
56,085
|
|
Shares
for intellectual properties
|
|
|
-
|
|
|
|
-
|
|
|
|
2,500,000
|
|
Shares
issued for settlement of debt
|
|
|
31,975
|
|
|
|
-
|
|
|
|
31,975
|
|
Changes
in non-cash working capital items:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts
payable
|
|
|
(35,330
|
)
|
|
|
50,797
|
|
|
|
49,636
|
|
Accrued
liabilities
|
|
|
(23,070
|
)
|
|
|
(3,947
|
)
|
|
|
13,500
|
|
Amounts
owing pursuant to agreement for acquisition of Delta Music
Limited
|
|
|
181,750
|
|
|
|
-
|
|
|
|
181,750
|
|
Effects
of accounts receivable in discontinued operation
|
|
|
(1,069
|
)
|
|
|
951
|
|
|
|
(1,391
|
)
|
Effects
of accounts payable in discontinued operation
|
|
|
21,803
|
|
|
|
(2,944
|
)
|
|
|
(15,532
|
)
|
Effects
of accrued liabilities in discontinued operations
|
|
|
(7,535
|
)
|
|
|
504
|
|
|
|
(8,321
|
)
|
Effects
of amounts owing to related parties in discontinued
operations
|
|
|
(36,273
|
)
|
|
|
16,614
|
|
|
|
185,697
|
|
Net
cash flows provided by (used in) operations
|
|
|
(306,225
|
)
|
|
|
(232,093
|
)
|
|
|
(764,874
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
acquired in purchase of Playbox Media Limited
|
|
|
-
|
|
|
|
-
|
|
|
|
130,626
|
|
Acquisition
of property and equipment
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,887
|
)
|
Net
cash flows from investing activities
|
|
|
0
|
|
|
|
0
|
|
|
|
128,739
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing
|
|
|
|
|
|
|
|
|
|
|
|
|
Due
to Boyd Holdings Inc.
|
|
|
-
|
|
|
|
-
|
|
|
|
32,170
|
|
Due
to related parties
|
|
|
185,533
|
|
|
|
119,599
|
|
|
|
314,858
|
|
Loan
payable
|
|
|
(18,100
|
)
|
|
|
18,100
|
|
|
|
-
|
|
Share
issuances for cash
|
|
|
120,000
|
|
|
|
80,000
|
|
|
|
288,393
|
|
Net
cash flows from financing activities
|
|
|
287,433
|
|
|
|
217,699
|
|
|
|
635,421
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect
of foreign rate changes on cash
|
|
|
18,015
|
|
|
|
(6,130
|
)
|
|
|
5,847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in Cash
|
|
|
(777
|
)
|
|
|
(20,524
|
)
|
|
|
5,131
|
|
Cash
- Beginning
|
|
|
5,909
|
|
|
|
26,433
|
|
|
|
-
|
|
Cash
- Ending
|
|
$
|
5,131
|
|
|
$
|
5,909
|
|
|
$
|
5,131
|
|
Supplemental
Cash Flow Information
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
paid for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
Taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Interest
Paid
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of these consolidated financials
statements.
|
|
F-5
Playbox
(US) Inc.
|
(Formerly
Boyd Holdings Inc.)
|
(A
Development Stage Company)
|
Notes
to Consolidated Financial Statements
|
September
30, 2008
|
US
Funds
|
|
1.
Basis of Presentation
Organization
Playbox
(US) Inc. (the “Company” or "Boyd") was incorporated on April 1, 2005 under the
laws of the State of Nevada, under the name of Boyd Holdings Inc. On April 12,
2006, the Company changed its name to Playbox (US) Inc.
By letter
of intent dated April 18, 2005 and a Share Exchange Agreement ("Agreement")
dated May 23, 2005 and as amended June 30, 2005 with PlayBOX MEDIA LIMITED
("PlayBOX"), a United Kingdom corporation, wherein Boyd agreed to issue to the
shareholders of Playbox 12,000,000 Boyd shares in exchange for the 2,085,000
shares that constituted all the issued and outstanding shares of Playbox. On
March 24, 2006, Playbox completed the reverse acquisition (“RTO”) under the
Agreement with Boyd. Immediately before the date of the RTO, Boyd had
100,000,000 common shares authorized and 5,705,139 shares of common stock issued
and outstanding. Pursuant to the RTO, all of the 2,085,000 issued and
outstanding shares of common stock of Playbox were exchanged for 12,000,000 Boyd
shares on an approximate 5.755 to 1 basis.
PlayBOX
was incorporated on August 21, 2003 and is a technology and marketing company,
headquartered in London, England. The accompanying financial statements are the
historical financial statements of PlayBOX.
The major
asset of Playbox is the worldwide license (the “License”) to exploit software
that provides an integrated music interface and music collection manager running
on Windows, Linux and Macintosh operating systems. This software is currently
being marketed to both the end-user music listener and to record industry
companies to enable such companies to embed this software into their websites in
order to provide seamless access to on-line music for sale. The software has
also been developed to enable the end-user to control their music collection
being managed by the Playbox software wirelessly from commonly used devices such
as the listeners’ music system or cell phone and to be able to synchronize their
music cross-platform with portable music players (iPod, MP3 player, or
PDA).
Effective
July 1, 2008, the Company wound up Playbox Media Limited, the UK Subsidiary,
such that all operations are now conducted through Playbox (US) Inc. The
historical results of the wound-up subsidiary have been reclassified as
discontinued operations in these financial statements. This wind-up
is described in more detail in Note 7.
F-6
2.
|
Significant
Accounting Policies
|
|
The
following is a summary of significant accounting policies used in the
preparation of these financial statements.
|
|
a)
|
Basis
of Consolidation
|
|
|
These
consolidated financial statements include the accounts of PlayBOX MEDIA
LIMITED since its incorporation on August 21, 2003 and Playbox (US) Inc.
since the reverse acquisition on March 24, 2006. All intercompany balances
and transactions have been eliminated.
|
|
b)
|
Use
of Estimates
|
|
|
The
preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make certain estimates and assumptions that affect the
reported amounts and timing of revenues and expenses, the reported amounts
and classification of assets and liabilities, and disclosure of contingent
assets and liabilities. These estimates and assumptions are based on the
Company’s historical results as well as management’s future expectations.
The Company’s actual results could vary materially from management’s
estimates and assumptions.
|
|
c)
|
Development
Stage Company
|
|
|
The
Company is a development stage company as defined by SFAS No. 7. The
Company is devoting substantially all of its present efforts to establish
a new business. All losses accumulated since inception have been
considered as part of the Company’s development stage
activities.
|
|
d)
|
Cash
and Cash Equivalents
|
|
|
Cash
equivalents consist of highly liquid instruments purchased with an initial
maturity of three months or less.
|
|
e)
|
Revenue
Recognition
|
|
|
Revenues
are recognized when all of the following criteria have been met under SAB
No. 104, “
Revenue
Recognition in Financial Statements
”: persuasive evidence of an
agreement exists; delivery has occurred or services have been rendered;
the fee is fixed or determinable; and collectibility is reasonably
assured.
|
|
|
Revenue
arises from the following sources: creation of web-based music interfaces;
provision of hosting and bandwidth services; and revenue share
services.
|
|
|
Revenues
from the creation of web-based music interfaces come from set-up fees
based on the number of tracks to be uploaded and the number of hours of
development time to complete the interface and are recognized when all of
the following SAB No. 104 criteria are met: a web-based interface
development agreement is signed with an estimate of the total cost based
on agreed upon specifications. Revenue from the development of web-based
interfaces is recognized in accordance with the completed performance
method. Under this method, revenue is recognized at the completion of the
web-based interface as the service transaction taken as a whole can be
deemed to have taken place on completion of the development.
Collectability is reasonably assured as the Company receives the agreed
set-up fee prior to allowing access to the web- based
interface.
|
|
|
Revenues
from the provision of hosting and bandwidth services come from a one time
hosting set-up fee and monthly fees based on disk space and bandwidth to
be provided and are recognized when all of the following SAB No. 104
criteria are met: a website hosting agreement is signed with an initial
term of six months and from month to month thereafter until terminated by
either party. Each agreement has a hosting price structure where prices
can be determined.
|
|
|
Revenue
from the one time set-up fee is deferred and recognized over the initial
term of six months and revenue received from monthly fees is recognized at
the end of the month, when hosting services, server bandwidth and customer
support was made available to the client for the month. Collectability is
reasonably assured as the Company receives a one time set-up fee prior to
the provision of the services. Monthly fees are received in advance of
each month, which is recorded as deferred revenue, and are recognized when
the monthly service is rendered.
|
|
|
Revenues
from the revenue share services element come from a set revenue share
percentage of music download purchases, as set out in each customer’s
agreement and are recognized when all of the following SAB No. 104
criteria are met: a distributor agreement is signed with initial and
renewal terms determined on a case-by-case basis. Revenue is recognized
when the minimum revenue share threshold of British Pounds Sterling
(“GBP”) 100, every payment period, is achieved. If the revenue share is
less than GBP 100, payments shall be carried over to the next due payment
date. Collectability is reasonably assured as the Company collects its
revenue share directly from the secure online payment system which it
utilizes prior to transferring net revenues to the
customer.
|
F-7
|
f)
|
Foreign
Currency Translations
|
|
|
The
Company’s reporting currency is the U.S. dollar. All of the Company's
transactions are denominated in Canadian currency so the Company has
adopted the Canadian dollar as its functional and reporting
currency. All transactions initiated in other currencies are
re-measured into the functional currency as follows:
·
Assets
and liabilities at the rate of exchange in effect at the balance sheet
date,
·
Equity
at historical rates, and
·
Revenue
and expense items at the prevailing rate on the date of the
transaction.
Translation
adjustments resulting from translation of balances are accumulated as a
separate component of shareholders’ equity and reported as a component of
comprehensive income or loss.
|
|
g)
|
Income
Taxes
|
|
|
Income
taxes are accounted for using the asset and liability method. Deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of assets and liabilities and their respective tax bases and
operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date. A valuation allowance is provided for
deferred tax assets when it is more likely than not that such assets will
not be recovered.
|
|
h)
|
Fair
Value of Financial Instruments
|
|
|
The
Company’s financial instruments consist of cash, accounts receivable,
accounts payable, accrued liabilities and amounts due to related parties.
Unless otherwise noted, it is management’s opinion that this Company is
not exposed to significant interest or credit risks arising from these
financial instruments. The fair value of these financial instruments
approximate their carrying values, unless otherwise
noted.
|
|
i)
|
Segment
Reporting
|
|
|
SFAS
No. 131, "
Disclosures
about Segments of an Enterprise and Related Information
,” changed
the way public companies report information about segments of their
business in their quarterly reports issued to stockholders. It also
requires entity-wide disclosures about the products and services an entity
provides, the material countries in which it holds assets and reports
revenues and its major customers. The Company currently operates in two
segments, Western Europe and United States.
|
|
j)
|
Stock-Based
Compensation
|
|
|
Effective
January 1, 2006, the Company adopted the provisions of Statement of
Financial Accounting Standards (“SFAS”) No. 123(R), “
Share-Based Payment
”,
which establishes accounting for equity instruments exchanged for employee
services. Under the provisions of SFAS 123(R), stock-based compensation
cost is measured at the grant date, based on the calculated fair value of
the award, and is recognized as an expense over the employees’ requisite
service period (generally the vesting period of the equity grant). Before
January 1, 2006, the Company accounted for stock-based compensation to
employees in accordance with Accounting Principles Board Opinion No. 25,
“Accounting for Stock Issued to Employees,” and complied with the
disclosure requirements of SFAS No. 123, “Accounting for Stock-Based
Compensation”.
|
|
|
The
Company adopted FAS 123(R) using the modified prospective method, which
requires the Company to record compensation expense over the vesting
period for all awards granted after the date of adoption, and for the
unvested portion of previously granted awards that remain outstanding at
the date of adoption. As the Company had no invested stock options
outstanding on the adoption date the financial statements for the periods
prior to January 1, 2006 have not been restated to reflect the fair value
method of expensing share-based compensation. Adoption of SFAS No. 123(R)
does not change the way the Company accounts for share-based payments to
non-employees, with guidance provided by SFAS 123 (as originally issued)
and Emerging Issues Task Force Issue No. 96-18, “
Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling, Goods or Services
”.
|
|
k)
|
Comprehensive
Income
|
|
|
SFAS
No. 130,
"Reporting
Comprehensive Income,"
establishes standards for reporting and
display of comprehensive income and its components in a full set of
general-purpose financial
statements.
|
F-8
|
l)
|
Loss
per Share
|
|
|
The
Company computes net loss per share in accordance with SFAS No. 128,
“
Earnings per
Share
”, which requires presentation of both basic and diluted loss
per share (“LPS”) on the face of the statement of operations. Basic LPS is
computed by dividing the net loss available to common shareholders by the
weighted average number of outstanding common shares during the period.
Diluted LPS gives effect to all potentially dilutive common shares
outstanding including convertible debt, stock options and share purchase
warrants, using the treasury stock method. The computation of diluted LPS
does not assume conversion, exercise or contingent exercise of securities
that would have an anti-dilutive effect on LPS. The diluted LPS equals the
basic LPS since the potentially dilutive securities are
anti-dilutive.
|
|
m)
|
Recently
Adopted Accounting Standards
|
|
|
|
|
|
In
December 2007, the FASB issued SFAS No. 160, “
Non-controlling Interests in
Consolidated Financial Statements
”. This Statement amends ARB 51 to
establish accounting and reporting standards for the non-controlling
(minority) interest in a subsidiary and for the deconsolidation of a
subsidiary. It clarifies that a non-controlling interest in a subsidiary
is an ownership interest in the consolidated entity that should be
reported as equity in the consolidated financial statements. The Company
has not yet determined the impact, if any, that SFAS No. 160 will have on
its consolidated financial statements. SFAS No. 160 is effective for the
Company’s fiscal year beginning October 1, 2009
.
|
|
|
In
December 2007, the FASB issued SFAS 141R,
Business Combinations
.
SFAS 141R replaces SFAS 141. The statement retains the purchase method of
accounting for acquisitions, but requires a number of changes, including
changes in the way assets and liabilities are recognized in the purchase
accounting. It changes the recognition of assets acquired and liabilities
assumed arising from contingencies, requires the capitalization of
in-process research and development at fair value, and requires the
expensing of acquisition-related costs as incurred. The statement will
apply prospectively to business combinations occurring in the Comapnys
fiscal year beginning October 1, 2009. We are evaluating the impact
adopting SFAS 141R will have on our financial
statements.
|
3.
|
Intellectual
Property
|
|
On
March 31, 2006 the Company acquired from its majority stockholder, the
PlayBOX Technology by issuing 10,000,000 common shares. The PlayBOX
Technology is an integrated music interface and music collection manager
running on Windows, Linux and Macintosh operating systems. The acquisition
is a related party transaction. The value assigned was $2,500,000, being
equal to the most recent share transaction of the Company of $0.25 per
share. This amount was written-off as the Company determined the PlayBOX
Technology was impaired in accordance with paragraph 34 of SOP 98-1 and
FASB 144, “
Accounting
for the Impairment or Disposal of Long-Lived
Assets
.”
|
4.
|
Related
Party Balances and Transactions
|
|
a)
|
The
amounts due to related parties of $314,858 for year ended September 30,
2008 are non-interest bearing, unsecured and due on demand. Included in
due to related parties are amounts owing to a corporate shareholder, two
separate companies with directors in common with a corporate shareholder,
and to a company with an officer in common with a corporate
shareholder.
|
|
b)
|
By
Agreement dated December 14, 2007, the Company entered into an Executive
Employment Agreement with Mr. Henry C. Maloney with respect to the
appointment of Mr. Maloney as an executive officer of the
Company. The annual salary for Mr. Maloney’s services is
$99,865 (GBP50,000). As of September 30, 2008, $63,042 has been
accrued.
|
|
|
5.
|
Amounts
Payable Pursuant to Agreement for Acquisition of Delta Music
Limited
|
|
On
March 28, 2008, the Company entered into a Share Purchase Agreement (the
“Agreement”) for the proposed acquisition of UK based Delta Music Limited
(“Delta Music”). The acquisition never completed.
However,
under the terms of the Agreement, the Company agreed to pay GBP 100,000
(USD 181,750 as of September 30, 2008) to the attorneys of the Sellers to
fund certain expenses to be incurred by the Sellers and Delta Music in
connection with the acquisition regardless of whether or not the
acquisition completed.
As
of September 30, 2008, this amount has not been paid.
|
6.
|
Capital
Stock
|
|
The
Company’s capitalization is 100,000,000 common shares with a par value of
$0.001 per share and 5,000,000 preferred shares with a par value of
$0.001.
|
|
a)
|
On
April 21, 2008, the Company received $100,000 (GBP 49,192), from an
unrelated party, for 2,000,000 common shares at $0.05 per share. As of
September 30, 2008, the shares had not been issued.
|
|
b)
|
On
May 8, 2008, the Company issued 538,154 common shares at $0.06 per share
in full settlement of a $31,975 loan and accrued interest with Karada
Ltd., an unrelated third party.
|
|
c)
|
On
May 8, 2008, the Company issued 80,000 common shares at $0.25 per share in
full settlement of the $20,000 convertible debenture with The Capai
Trust.
|
|
d)
|
On
May 29, 2006, the Company issued 200,000 common shares in fulfillment of a
Consulting agreement dated November 5, 2007 with Westport Strategic
Partners Inc.
|
F-9
7.
|
Wind-up
of UK Subsidiary
|
Because
the Company has had a history of accumulating debt through its UK subsidiary,
the Company’s Board of Directors determined that it was in the best interests of
the Company to wind-up the UK subsidiary. An effective date of July
1, 2008 was set by the Board.
The
following table summarizes the net assets disposed of and accounted for in these
financials as discontinued operations:
Assets
|
|
|
|
Cash
|
|
|
4,749
|
|
Accounts
Receivable
|
|
|
1,391
|
|
Total
Assets Disposed of
|
|
$
|
6,140
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
Accounts
Payable
|
|
|
37,043
|
|
Accrued
Liabilities
|
|
|
541
|
|
Due
to related parties
|
|
|
26,633
|
|
Total
Liabilities disposed of
|
|
$
|
64,217
|
|
|
|
|
|
|
Net
Liabilities disposed of
|
|
$
|
58,077
|
|
|
|
|
|
|
8.
|
Going
Concern
|
|
The
accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern, which contemplates,
among other things, the realization of assets and satisfaction of
liabilities in the normal course of business. As at September 30, 2008,
the Company has an accumulated deficit of $3,560,621 and has incurred an
accumulated operating cash flow deficit of $747,084 since incorporation.
The Company intends to continue funding operations through equity
financing arrangements, which may be insufficient to fund its capital
expenditures, working capital and other cash requirements for the next
fiscal year.
Thereafter,
the Company will be required to seek additional funds, either through
equity financing, to finance its long-term operations. The successful
outcome of future activities cannot be determined at this time, and there
is no assurance that, if achieved, the Company will have sufficient funds
to execute its intended business plan or generate positive operating
results. In response to these conditions, management intends to raise
additional funds through future private placement offerings.
These
factors, among others, raise substantial doubt about the Company's ability
to continue as a going concern. The accompanying consolidated financial
statements do not include any adjustments that might result from the
outcome of this uncertainty.
|
9.
|
Subsequent
Events
|
|
On
October 2, 2008, the Company issued 2,000,000 common shares at $0.05 per
share in fulfillment of a subscription agreement dated April 21, 2008 with
an unrelated party.
On
October 15, 2008, the Company issued 700,000 common shares at $0.09 per
share in full and final settlement of any cash compensation payable to
Henry Maloney, a former officer and director of the Company.
On
November 14, 2008, the Company issued 7,200,000 common shares at $0.05 per
share in fulfillment of a three year Director’s Agreement with Mr. Gideon
Jung.
On
November 19, 2008, the Company issued 5,623,006 common shares at $0.04 per
share in full and final settlement of a $224,920 debt with Debondo Capital
Ltd.
On
November 25, 2008, the Company issued 9,000,000 common shares at $0.04 per
share in fulfillment of a Consulting Agreement (the “Agreement”) with
Jabeco Inc, a music industry consulting firm located in the Commonwealth
of Dominica .
|
F-10
|
CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
|
On July
23, 2008, our Board of Directors dismissed Dale Matheson Carr-Hilton Labonte LLP
(“DM”) as our independent registered public accounting firm. The
dismissal was approved by our Board of Directors.
During
the fiscal year ended September 30, 2007 and the subsequent interim periods up
through the date of termination, there were no disagreements with DM on any
matter of accounting principles or practices, financial statement disclosure or
auditing scope or procedure, which disagreements, if not resolved to the
satisfaction of DM, would have caused DM to make reference thereto in its report
on our financial statements for such years. Further, there were no reportable
events as described in Item 304(a)(1)(iv)(B) of Regulation SK occurring within
our two most recent fiscal years and the subsequent interim period up through
the date of termination (July 23, 2008). Other than as set forth
below, the report issued by DM with respect to our financial statements for the
year ended September 30, 2007 did not contain any adverse or disclaimer of
opinion, and were not modified as to uncertainty, scope or accounting
principals.
The audit
report of DM for our financial statements as of September 30, 2007 contained a
separate paragraph stating:
“The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 1 to the financial
statements, the Company is in the development stage and has incurred losses in
developing its business, and further losses are anticipated. The Company
requires additional funds to meet its obligations and the costs of its
operations. These factors raise substantial doubt about the Company’s ability to
continue as a going concern. Management’s plans in this regard are described in
Note 1. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.”
During
our two most recent fiscal years and the subsequent interim periods up through
the date of this Report, neither we nor anyone on our behalf consulted with any
other independent auditor regarding the application of accounting principles to
a specific, completed or contemplated transaction, or the type of audit opinion
that might be rendered on our financial statements. Further, no other
independent auditor has provided written or oral advice to us that was an
important factor considered by us in reaching a decision as to any accounting,
auditing or financial reporting issues during the period that DM served as our
independent auditor.
We
provided a copy of the foregoing disclosures to DM prior to the date of the
filing of the Current Report on Form 8-K and requested that DM furnish us with a
letter addressed to the Securities and Exchange Commission stating whether or
not it agrees with the statements in this Report.
On July
23, 2008, our Board of Directors engaged Moore & Associates as the
Registrant’s independent registered public accounting
firm.
We have
not consulted with Moore regarding the application of accounting principles to a
specified transaction or the type of audit opinion that might be rendered on our
financial statements during the two most recent fiscal years through
present.
“Our
management is responsible for establishing and maintaining a system of
disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e)
under the Exchange Act) that is 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 Commission’s rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed by an issuer in the reports
that it files or submits under the Exchange Act is accumulated and communicated
to the issuer’s management, including its principal executive officer or
officers and principal financial officer or officers, or persons performing
similar functions, as appropriate to allow timely decisions regarding required
disclosure.
An
evaluation was conducted under the supervision and with the participation of our
management, including Gideon Jung, our President/Chief Executive Officer/Chief
Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures as of September 30, 2008. Based on that
evaluation, Mr. Jung concluded that our disclosure controls and procedures were
not effective as of such date to ensure that information required to be
disclosed in the reports that we file or submit under the Exchange Act, is
recorded, processed, summarized and reported within the time periods specified
in SEC rules and forms. This evaluation included review of the documentation of
controls, evaluation of the design effectiveness of controls, testing of the
operating effectiveness of controls and a conclusion on this evaluation. Based
on this evaluation, management concluded that the Company’s internal control
over financial reporting was not effective as of September 30,
2008.
Specifically,
we have noted the following material weaknesses and significant deficiencies in
our internal controls over financial reporting and disclosure:
·
|
we
do not have sufficient segregation of
duties;
|
·
|
we
do not have sufficient documentation for accounting or business
transactions;
|
·
|
we
have noted material weaknesses in the authorization and posting of general
ledger transactions, particularly those related to accruing liabilities
resulting from contractual commitments;
and
|
·
|
we
do not have an Audit Committee;
|
It is our
responsibility and that of our management to identify any deficiencies in
internal controls over financial reporting. We discovered certain deficiencies
in our internal control over financial reporting, which resulted in the
restatement of our balance sheets and our statements of operations and
statements of cash flows, respectively, at March 31, 2008 and June 30, 2008 to
properly reflect an obligation.
As a
result of the restatements of our financial statements, we have determined that
such significant deficiency did rise to the level of a material weakness in our
internal control over financial reporting. The restatement was undertaken to
properly reflect an obligation after further consultation with our independent
auditors. We believe that the research engaged in by us and our auditors
regarding the obligation has resulted in effective controls and
procedures.
Moreover,
we have implemented measures as part of our internal controls to determine and
ensure that information required to be disclosed in reports filed under the
Exchange Act are recorded, processed, summarized and reported within the time
periods specified in the rules and forms including, but not limited to, the
following: (i) documentation of processes, performing testing and reviewing our
internal control over financial reporting in connection with our assessment
under Section 404 of the Sarbanes-Oxley Act; (ii) evaluation and implementation
of improvements to our accounting and management information systems; and (iii)
development and implementation of a remediation plan to address any perceived
deficiencies identified in our internal control over financial reporting. The
costs of these additional measures did not have a material impact on our future
results or operations liquidity. Management is in the process of creating a new
audit committee to remediate such material weakness; furthermore, we intend to
hire a consulting firm to assess, review and conduct appropriate operational
testing effectiveness of our internal control over financial
reporting.
This
Annual Report does not include an attestation report of the Company’s registered
public accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by the Company’s registered
public accounting firm pursuant to temporary rules of the Security and Exchange
Commission that permit the Company to provide only management’s report in this
Annual Report.
Changes
in Internal Controls
No change
in our internal control over financial reporting (as defined in Rules 13a-15(f)
and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended
September 30, 2008; however, we do not currently have an audit committee and
management recognizes this a material weakness which affect our internal control
over financial reporting, management intend to remediate such material weakness
before the end of the fiscal year 2009.”
Not
applicable.
PART
III
|
DIRECTORS, EXECUTIVE OFFICERS
AND CORPORATE GOVERNANCE
|
IDENTIFICATION
OF DIRECTORS AND EXECUTIVE OFFICERS
All of
our directors hold office until the next annual general meeting of the
shareholders or until their successors are elected and qualified. Our officers
are appointed by our board of directors and hold office until their earlier
death, retirement, resignation or removal.
Our
executive officer and director and his age as of the date of this Annual Report
is as follows:
Name of
Director
|
Age
|
|
|
|
|
Gideon
Jung
|
35
|
|
|
|
|
Name of Executive
Officer
|
Age
|
Office
|
|
|
|
Gideon
Jung
|
35
|
President
and Chief Executive Officer
|
Gideon Jung.
Mr. Jung has been
our President/Chief Executive Officer, Secretary and Chief Financial
Officer/Treasurer November 17, 2008. Previously Mr. Jung has been our Director
of Business since October 23, 2008. Mr. Jung is an IT specialist with many years
of experience in conventional, web, and mobile based business management
systems. Since October 2004, he was an IT Manager and Technical Advisor to the
London, UK offices of Korean Air. Prior to that he was the Business Development
Manager of CI Mobile Gaming Ltd , a London based provider of mobile platform
gaming technologies in Asia and the Middle East. In 2003, he headed the
marketing and mobile content divisions of LDC Network Ltd, another London based
company, which specialized in mobile applications to the Korean and European
mobile phone industry.
AUDIT
COMMITTEE AND AUDIT COMMITTEE FINANCIAL EXPERT
Our board
of directors has not established an audit committee
.
Our Board of Directors has not
established an audit committee. The respective role of an audit
committee has been conducted by our Board of Directors. We are contemplating
establishment of an audit committee during fiscal year 2009. When established,
the audit committee's primary function will be to provide advice with respect
our financial matters and to assist our Board of Directors in fulfilling its
oversight responsibilities regarding finance, accounting, and legal compliance.
The audit committee's primary duties and responsibilities will be to: (i) serve
as an independent and objective party to monitor our financial reporting process
and internal control system; (ii) review and appraise the audit efforts of our
independent accountants; (iii) evaluate our quarterly financial performance as
well as its compliance with laws and regulations; (iv) oversee management's
establishment and enforcement of financial policies and business practices; and
(v) provide an open avenue of communication among the independent accountants,
management and our Board of Directors.
Our board
of directors has determined that Mr. Gideon Jung, our sole director and officer,
does not qualify as an “audit committee financial expert”, as defined by the
rules of the SEC. Further, Mr. Jung is not “independent”, as that term is
defined in Rule 121 of the American Stock Exchange (“AMEX”) listing standards,
as he is our sole executive officer in addition to being our sole
director.
CODE
OF ETHICS
Our Board
of Directors has not adopted a code of ethics due to the fact that we presently
only have one director, officer and shareholder, namely Mr. Gideon Jung, and we
are in the development stage of our operations. We anticipate that we will adopt
a code of ethics when we increase either the number of our directors and
officers or the number of our employees.
SIGNIFICANT
EMPLOYEES
We have
no significant employees other than Mr. Gideon Jungl, our President/Chief
Executive Officer, Secretary, and Chief Financial
Officer/Treasurer.
COMMITTEES
OF THE BOARD OF DIRECTORS
At
present, we do not have an audit committee, compensation committee, nominating
committee, an executive committee of our board of directors, stock plan
committee or any other committees. However, we will consider seeking suitable
candidates for election as directors, and establishing various committees,
during the current fiscal year.
FAMILY
RELATIONSHIPS
We do not
currently anticipate the election or appointment as directors and officers of
our company any persons who are related to each other or to our existing officer
and director.
INVOLVEMENT
IN CERTAIN LEGAL PROCEEDINGS
None of
our directors, executive officers and control persons have been involved in any
of the following events during the past five years:
1.
|
any
bankruptcy petition filed by or against any business of which such person
was a general partner or executive officer either at the time of the
bankruptcy or within two years prior to that time;
|
|
|
2.
|
any
conviction in a criminal proceeding or being subject to a pending criminal
proceeding (excluding traffic violations and other minor
offences);
|
|
|
3.
|
being
subject to any order, judgment, or decree, not subsequently reversed,
suspended or vacated, of any court of competent jurisdiction, permanently
or temporarily enjoining, barring, suspending or otherwise limiting his
involvement in any type of business, securities or banking activities;
or
|
|
|
4.
|
being
found by a court of competent jurisdiction (in a civil action), the
Securities and Exchange Commission or the Commodity Futures Trading
Commission to have violated a federal or state securities or commodities
law, and the judgment or decision has not been reversed, suspended, or
vacated.
|
PROMOTERS
The term
“promoter” is defined in Rule 405 under the Securities Act of 1933 to include,
with reference to an issuer such as the Company, any person who, acting alone or
in conjunction with one more persons, directly or indirectly takes initiative in
founding and organizing the business of the issuer, as well as any person who,
in connection with the founding and organizing of business of the issuer,
directly or indirectly receives in consideration of services and/or property, 10
percent or more of any class of securities of the issuer or 10 percent or more
of the proceeds from the sale of any class of such securities.
Ms.
Cocker, Mr. Burden, Mr. Maloney, Outlander Management and PlayBOX Inc. are
considered our promoters having taken the initiative in organizing our current
business.
COMPLIANCE
WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section
16(a) of the Exchange Act requires our executive officers and directors, and
persons who beneficially own more than ten percent of our equity securities, to
file reports of ownership and changes in ownership with the Securities and
Exchange Commission. Officers, directors and greater than ten percent
shareholders are required by SEC regulation to furnish us with copies of all
Section 16(a) forms they file. Based on our review of the copies of such forms
received by us, we believe that during the fiscal year ended September 30, 2008
all such filing requirements applicable to our officers and directors were
complied with.
SUMMARY
COMPENSATION TABLE
The
following table sets forth certain compensation information as to our
President/Chief Executive Officer for the fiscal years ended September 30, 2008,
2007 and 2006. No compensation was paid to our officers other than the
compensation set forth below.
Name and
Principal
Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-
Equity
Incentive
Plan
Compen-
sation
($)
|
Non-
Qualified
Deferred
Compen-
sation
Earnings
($)
|
All
Other
Compen-
sation
($)
|
Total
($)
|
Robert
Burden (1)
|
2008
|
$Nil
|
Nil
|
$Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
$Nil
|
|
2007
|
$10,417
|
Nil
|
$Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
$10,417
|
|
2006
|
$45,314
|
Nil
|
$Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
$45,314
|
Henry
Maloney (2)
|
2008
|
$36,823
|
Nil
|
$63,042
|
Nil
|
Nil
|
Nil
|
Nil
|
$99,865
|
|
2007
|
$Nil
|
Nil
|
$Nil
|
Nil
|
Nil
|
Nil
|
Nil
|
$Nil
|
Gideon
Jung (3)
|
2008
|
$Nil
|
Nil
|
$15,000
|
Nil
|
Nil
|
Nil
|
Nil
|
$15,000
|
(1)
|
Mr.
Burden had been our President/Chief Executive Officer, Secretary and Chief
Financial Officer/Treasurer since March 24, 2006. Mr. Burden resigned on
November 17, 2008.
|
(2)
|
Mr.
Maloney had been our Director of Business Strategy since December 14,
2007. Mr. Maloney resigned on October 23,
2008.
|
(3)
|
Mr.
Jung has been our President/Chief Executive Officer, Secretary and Chief
Financial Officer/Treasurer since November 17,
2008.
|
EMPLOYMENT
AGREEMENTS
Robert
Burden
Robert
Burden provided his services as managing director and employee of PlayBOX UK
under agreement between Mr. Burden and PlayBOX UK dated April 13, 2004 (the
“Burden Agreement”). Mr. Burden’s salary was £30,000 per annum ($60,600 per
annum based on a foreign exchange rate on July 10, 2007 of $2.02:£1.00);
however, effective July 1, 2006, Mr. Burden agreed to a salary reduction, such
that his salary was approximately £12,000 per annum ($24,240 per annum based on
a foreign exchange rate on July 10, 2007 of $2.02:£1.00) . In addition, PlayBOX
UK agreed to issue to Mr. Burden 245,000 ordinary shares of PlayBOX UK. By
agreement, all 245,000 shares were issued to Mr. Burden prior to the execution
of the Share Exchange Agreement. These shares were exchanged for 1,460,072
shares of our common stock upon completion of our acquisition of PlayBOX UK. No
additional shares are issuable to Mr. Burden pursuant to his employment
contract. As of the date of this Annual Report, the Burden Agreement has been
terminated.
Harry
Maloney
On
December 14, 2007, we entered into an Employment Agreement with Henry Maloney
with respect to his appointment as our Director of Business Strategy. In
accordance with the terms and provisions of the Employment Agreement, the annual
salary for Mr. Maloney was $99,865. As of September 30, an aggregate of $63,042
has been accrued.
On
October 15, 2008, we entered into the Maloney Settlement Agreement with Mr.
Maloney. In accordance with the terms and provisions of the Settlement
Agreement: (i) we issued 700,000 shares of our restricted common stock; and (ii)
Maloney agreed to accept the issuance of the 700,000 shares our restricted
common stock in consideration of settling and relating any debt due and owing by
us to Maloney for his services as an officer and a director.
Gideon
Jung
On
November 14, 2008, we entered into the Director Service Agreement with Gideon
Jung, our sole director and President/Chief Executive Officer, Chief Financial
Officer/Treasurer and Secretary. In accordance with the terms and provisions of
the Director Service Agreement: (i) Mr. Jung consented to his appointment as the
President/Chief Executive Officer, Chief Financial Officer/Treasurer for a
three-year period; and (ii) we agreed to issue Mr. Jung 7,200,000 shares of our
restricted common stock in consideration of his appointment.
STOCK
OPTIONS/SAW GRANTS IN FISCAL YEAR ENDED SEPTEMBER 30, 2008
As of the
date of this Annual Report, we do not have a stock option plan. The following
table reflects as at September 30, 2008 no stock options have been granted to
the Named Executive Officer:
OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR-END
|
OPTION
AWARDS
|
STOCK
AWARDS
|
Name
|
Number
of Securities Underlying Unexercised Options
Exercisable
(#)
|
Number
of Securities Underlying Unexercised Options
Unexercisable
(#)
|
Equity
Incentive Plan Awards: Number of Securities Underlying Unexercised
Unearned Options
(#)
|
Option
Exercise Price
($)
|
Option
Expiration Date
|
Number
of Shares or Units of Stock That Have Not Vested
(#)
|
Market
Value of Shares or Units of Stock That Have Not Vested
($)
|
Equity
Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights
That Have Not Vested
(#)
|
Equity
Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or
Other Rights That Have Not Vested
(#)
|
Robert
Burden, our prior President/CEO
|
-0-
|
-0-
|
-0-
|
-0-
|
n/a
|
-0-
|
-0-
|
-0-
|
-0-
|
Henry
Maloney, our prior President/CEO
|
-0-
|
-0-
|
-0-
|
-0-
|
n/a
|
-0-
|
-0-
|
-0-
|
-0-
|
Gideon
Jung, our current President/CEO
|
-0-
|
-0-
|
-0-
|
-0-
|
n/a
|
-0-
|
-0-
|
-0-
|
-0-
|
The
following table sets forth information relating to compensation paid to our
director during fiscal year ended September 30, 2008:
DIRECTOR
COMPENSATION TABLE
|
Name
|
Fees
Earned
or
Paid
in
Cash
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-Equity
Incentive
Plan
Compensation
($)
|
Change
in
Pension
Value
and
Nonqualified
Deferred
Compensation
Earnings
($)
|
All
Other
Compensation
($)
|
Total
($)
|
|
Robert
Burden
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
|
Henry
Maloney
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
|
Gideon
Jung
|
-0-
|
$15,000
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
|
|
|
|
|
|
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND
MANAGEMENT AND RELATED STOCKHOLDER
MATTERS.
|
|
|
|
The
following table sets forth certain information concerning the number of shares
of our common stock owned beneficially as of January 11, 2009 by: (i) each
person (including any group) known to us to own more than five percent (5%) of
any class of our voting securities, (ii) each of our directors, (iii) each of
our officers, and (iv) our officers and directors as a group. Each person has
sole voting and investment power with respect to the shares of common stock,
except as otherwise indicated. Beneficial ownership consists of a direct
interest in the shares of common stock, except as otherwise indicated. As of the
date of this Annual Report, there are 54,186,299 shares of common stock issued
and outstanding
|
Name and
address
|
Amount and
nature
|
|
Title of
class
|
of beneficial owner
(2)
|
of beneficial
owner
|
Percentage of
class
(1)
|
|
|
|
|
Directors
and
|
|
|
|
Officers
|
|
|
|
|
|
|
|
Common
Stock
|
Gideon
Jung
|
7,200,000
|
13.29%
|
|
Suite
3.19, 130 Shaftesbury Avenue
|
|
|
|
London,
England
|
|
|
|
WID
5EU
|
|
|
|
|
|
|
Common
Stock
|
All
executive officers and
|
7,200,000
|
13.29%
|
|
Directors
as a group (one
|
|
|
|
person)
|
|
|
|
|
|
|
5%
Shareholders
|
|
|
|
|
|
|
|
Common
Stock
|
PlayBOX
Inc.
(3)
|
5,831,835
|
10.76%
|
|
306
Victoria House
|
|
|
|
Victoria
|
|
|
|
Mahe,
Seychelles
|
|
|
|
|
|
|
Common
Stock
|
The
Keydata Technology Partnership
|
10,000,000
|
18.46%
|
|
4
Bedford Row
(4)
|
|
|
|
London,
England
|
|
|
|
WC1R
4DF
|
|
|
|
|
|
|
Common
Stock
|
Debondo
Capital
|
5,623,006
|
10.38%
|
|
130
Shaftesbury Avenue, Suite 518
|
|
|
|
London,
United Kingdom
|
|
|
|
W1D
5EU
|
|
|
|
|
|
|
Common
Stock
|
Jabeco
Inc.
|
9,000,000
|
16.61%
|
|
Leopold
House
|
|
|
|
Bayfront,
Roseau
|
|
|
|
Commonwealth
of Dominca
|
|
|
(1) The
percentage of class is based on 54,186,299 shares of common stock issued and
outstanding as of the date of this Annual Report.
(2) Under
Rule 13d-3, a beneficial owner of a security includes any person who, directly
or indirectly, through any contract, arrangement, understanding, relationship or
otherwise, has or shares: (i) voting power, which includes the power to vote, or
to direct the voting of shares; and (ii) investment power, which includes the
power to dispose or direct the disposition of shares. Certain shares may be
deemed to be beneficially owned by more than one person (if, for example,
persons share the power to vote or the power to dispose of the shares). In
addition, shares are deemed to be beneficially owned by a person if the person
has the right to acquire the shares (for example, upon exercise of an option)
within 60 days of the date as of which the information is provided. In computing
the percentage ownership of any person, the amount of shares outstanding is
deemed to include the amount of shares beneficially owned by such person (and
only such person) by reason of these acquisition rights.
(3) PlayBOX
Inc. is beneficially owned by The Capai Trust. The trustee of The Capai Trust is
Ultra Tech Systems Inc. The sole director of Ultra Tech Systems Inc. is N.D.
Holdings Ltd., company whose sole director is Laura Mouck. As such, Laura Mouck
has sole voting and dispositive power over the shares held of record by PlayBOX
Inc.
(4) The
Keydata Technology Partnership 1 LLP is a limited liability partnership
comprised of 165 equity partners and two designated partners, each of whom is a
limited partner. Mr. Stuart Ford is a designated partner and is the
administrator of the partnership pursuant to a services agreement between him
and the partnership. The administrator is responsible for the administration of
the business of the partnership and, subject to the partnership’s operating
agreement, makes decisions regarding management of the business of the
partnership. Accordingly, Mr. Ford has sole voting and dispositive power over
the securities held by The Keydata Technology Partnership 1 LLP.
Changes
in Control
We are
unaware of any contract, or other arrangement or provision of our articles of
incorporation or our by-laws, the operation of which may at a subsequent date
result in a change of control of our company.
|
CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
|
Except as
described below, none of the following parties has, since our date of
incorporation, had any material interest, direct or indirect, in any transaction
with us or in any presently proposed transaction that has or will materially
affect us:
·
|
Any
of our directors or officers;
|
·
|
Any
person proposed as a nominee for election as a
director;
|
·
|
Any
person who beneficially owns, directly or indirectly, shares carrying more
than 10% of the voting rights attached to our outstanding shares of common
stock;
|
·
|
Any
member of the immediate family (including spouse, parents, children,
siblings and in-laws) of any of the above
persons.
|
PURCHASE
OF FOUNDER’S SHARES
Annette
Cocker
Annette
Cocker, our initial director and officer, acquired 500,000 shares of our common
stock effective May 31, 2005, at a price of $0.001 per share. Ms. Cocker paid a
total purchase price of $500 for these shares. Annette Cocker is the wife of
Timothy M. Cocker, Director of MIR Technologies LLC, one of the four entities
that had a license with respect to intellectual property rights in the PlayBOX
application, which license was terminated on March 31, 2006, concurrent with our
acquisition of the intellectual property rights in the PlayBOX
application.
Robert
Burden
Robert
Burden was our prior President/Chief Executive Officer, Chief Financial
Officer/Treasurer and Secretary and a director. Prior to our acquisition of
PlayBOX UK, Mr. Burden was the managing director and a shareholder of PlayBOX
UK. Under the share exchange agreement whereby we acquired PlayBOX UK as our
wholly-owned subsidiary on March 24, 2006, Mr. Burden received 1,410,072 shares
of our restricted common stock in exchange for his shares in PlayBOX UK. Upon
the acquisition of PlayBOX UK, Mr. Burden was appointed to replace Ms. Cocker as
our sole officer and director.
PlayBOX
Inc.
PlayBOX
Inc. was one of the founding shareholders of PlayBOX UK and funded PlayBOX UK’s
initial corporate activities. PlayBOX UK entered into a loan agreement dated
October 4, 2003 with PlayBOX Inc. whereby PlayBOX Inc. agreed to extend a
secured loan facility to PlayBOX UK in the maximum amount of £150,000 ($303,000,
based on the foreign exchange rate on July 10, 2007 of $2.02:£1.00) . As at
April 28, 2005, PlayBOX UK’s outstanding debt to PlayBOX Inc. under the secured
loan facility was $159,064. PlayBOX UK and PlayBOX Inc. entered into a debt
settlement agreement on April 28, 2005 whereby the outstanding debt was settled
by the issuance to PlayBOX Inc. of 1,075,000 Ordinary A shares in the capital of
PlayBOX UK. PlayBOX Inc. subsequently exchanged these shares for shares of our
common stock upon completion of the Share Exchange Agreement on March 24,
2006.
PlayBOX
Inc. was issued 9,956,835 shares of our common stock on March 24, 2006 upon the
completion of our acquisition of PlayBOX UK pursuant to the Share Exchange
Agreement. These shares were issued by us in exchange for PlayBOX Inc.’s shares
in PlayBOX UK. The cost to PlayBOX Inc. of its shares in PlayBOX UK was
$170,683, being: (i) $159,064 for the shares issued upon the debt settlement,
(ii) £1 ($2 based on a foreign exchange rate on August 21, 2003 of $1.5845:
£1.0000) for the purchase of its initial shares of PlayBOX UK, and (iii) £6,549
($11,617 based on a foreign exchange rate on April 30, 2004 of $1.7744: £1.0000)
for a subsequent purchase of shares of PlayBOX UK. PlayBOX Inc. subsequently
transferred 4,125,000 shares to five of the selling shareholders named herein in
private transactions.
PlayBOX
Inc. and The Keydata Technology Partnership 1 LLP
We
purchased the PlayBOX online music application from PlayBOX Inc. on March 31,
2006 pursuant to an intellectual property acquisition agreement between us and
PlayBOX Inc. dated March 31, 2006. This acquisition followed the concurrent
re-acquisition by PlayBOX Inc. of the intellectual property from Keydata
Technology Partnership. We issued 10,000,000 shares of our common stock to
PlayBOX Inc. in consideration of these intellectual property assets. PlayBOX
Inc. in turn transferred 10,000,000 shares of our common stock to The Keydata
Technology Partnership in connection with the acquisition of the PlayBOX
application from The Keydata Technology Partnership.
Keydata
Technology Partnership was not a party that was related to us at the time of our
execution of the asset purchase agreement with PlayBOX Inc. Keydata Technology
Partnership became one of our principal shareholders as a result of the
completion of these transactions. Keydata Technology Partnership is a limited
liability partnership organized under the laws of the United Kingdom. We are
advised that there are 165 equity partners in Keydata Technology Partnership and
that Mr. Stuart Ford is the administrator of the partnership and a designated
partner. The divestiture by Keydata Technology Partnership of the PlayBOX online
music application was approved by the limited partners at an extraordinary
general meeting of the limited partners called for that purpose of approving the
transaction.
Keydata
Technology Partnership 1 LLP is not a related party to PlayBOX Inc.
OUTLANDER
MANAGEMENT
Outlander
Management, a private corporation that was one of PlayBOX UK’s founding
shareholders and provided administration services to PlayBOX UK, was issued
575,540 shares of our common stock on March 24, 2006 in exchange for the shares
of PlayBOX UK held by Outlander Management. The cost to Outlander Management of
its shares in PlayBOX UK was £1,000
Effective
June 30, 2008 and based upon the winding up of the subsidiary, the agreement
between Azuracle and Coloured UK has been terminated such that as of September
30, 2008, we owed $Nil to Outlander Management.
AZURALCE
As at
September 30, 2008, we owed $35,896 to Azuracle for rent as of June 30,
2008. Azuracle is a related party to us because Azuracle had a
director in common with Outlander Management, one of our promoters, during an
approximately two-month period from November to December 2004. The name of the
director in common is Ulrik Debo, who has served as director of Azuracle since
November 2004. Mr. Debo served as director of Outlander Management from February
to December 2004. Azuracle has agreed to provide office space rent-free until
such time as we have arranged and received sufficient funding to pay our accrued
liabilities.
DEBOND
CAPITAL LIMITED
As at
September 30, 2008, we owed $18,726 to DeBondo Capital Limited under a
consulting services agreement that we entered into with them on August 1, 2006.
This agreement has since been terminated. We paid consulting fees of $119,599 to
Debondo Capital during fiscal 2007. As at September 30, 2007, we owed $138,325
to DeBondo Capital Limited under this agreement. DeBondo Capital Limited is a
related party to us because it has a director in common (Ulrik Debo) with
Azuracle, which is a related party to us as described in the immediately
preceding paragraph.
DEBONDO
CAPITAL INC.
As at
September 30, 2008, we owed $224,920.24 to DeBondo for advances made to pay for
some of our expenses. DeBondo is a related party to us because it has a director
in common with Outlander Management, one of our promoters. The name of the
director in common is Joachim Bondo. The advances from DeBondo were made at our
request in order to provide funds for our operating expenses. The advances were
not subject to any written loan or other agreement and were not subject to any
interest accrual. The advances were payable upon demand, but DeBondo agreed to
defer the payment of the outstanding amount that we owed them until such time as
arranged and received sufficient funding to pay our accrued
liabilities.
On
November 19, 2008, we entered into the Debondo Settlement Agreement with
Debondo. In accordance with the terms and provisions of the Debondo Settlement
Agreement: (i) we issued to Debondo an aggregate of 5,623,006 shares of our
restricted common stock; and (ii) Debondo agreed to accept the issuance of the
5,623,006 shares of our restricted common stock in consideration of settling and
releasing the debt due and owing by us to Debondo of $224,920.24.
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|
The
following table sets forth information regarding amounts billed to us by our
independent auditors for each of our last two fiscal years:
|
|
Year Ended September
30,
|
|
|
|
2008
|
|
|
2007
|
|
Audit
Fees
|
|
$
42,022
|
|
|
$80,375
(1) (2)
|
|
Audit Related
Fees
|
|
$Nil
|
|
|
$Nil
|
|
Tax Fees
|
|
$Nil
|
|
|
$Nil
|
|
All Other
Fees
|
|
$Nil
|
|
|
$Nil
|
|
Total
|
|
$42,022
|
|
|
$80,375
|
|
(1) Attributable
to services provided by our current independent public accountant, Dale Matheson
Carr-Hilton LaBonte LLP, Chartered Accountants
.
(2) Attributable
to services provided by our former independent public accountant, Staley Okada
& Partners, Chartered Accountants.
AUDIT
FEES
Audit
fees are the aggregate fees billed by our independent auditor for the audit of
our annual consolidated financial statements, reviews of our interim
consolidated financial statements and attestation services that are provided in
connection with statutory and regulatory filings or engagements.
During
fiscal year ended September 30, 2008, we did not incur any other fees for
professional services rendered by our principal independent accountant for all
other non-audit services which may include, but is not limited to, tax-related
services, actuarial services or valuation services.
|
EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES
|
The
following exhibits are included with this Annual Report on Form
10-K:
Exhibit
|
|
Number
|
Description of
Exhibit
|
3.1
(1)
|
Articles
of Incorporation
|
3.2
(1)
|
Certificate
of Amendment to Articles of Incorporation
|
3.3
(1)
|
By-Laws
|
10.1
(1)
|
Agency
Exploitation Agreement dated March 30, 2004 among PlayBOX UK, HBI Sales
Private Limited, Zacan Holdings Proprietary Limited, ICT/Europetec Limited
and MIR Technologies LLC
|
10.2
(1)
|
Letter
Agreement between PlayBOX UK and Robert Burden regarding appointment of
Robert Burden as Managing Director of PlayBOX UK dated effective April 13,
2004
|
10.3
(1)
|
Employment
Agreement between PlayBOX UK and Robert Burden dated effective May 1,
2004
|
10.4
(1)
|
Service
Agreement dated August 4, 2004 between PlayBOX UK and Outlander
Management
|
10.5
(1)
|
Loan
Agreement dated October 4, 2004 between PlayBOX UK and PlayBOX
Inc.
|
10.6
(1)
|
Debenture
Agreement dated October 4, 2004 between PlayBOX UK and PlayBOX Inc.
evidencing the indebtedness of PlayBOX UK under the Loan
Agreement
|
10.7
(1)
|
Debt
Settlement Agreement dated April 28, 2005 between PlayBOX UK and PlayBOX
Inc.
|
10.8
(1)
|
Share
Exchange Agreement dated May 23, 2005, as amended, among Boyd Holdings
Inc., PlayBOX UK and the stockholders of PlayBOX UK
|
10.9
(1)
|
Closing
Agreement dated March 24, 2006 amongst PlayBOX (US) Inc. and PlayBOX UK
and the shareholders of PlayBOX UK
|
10.10
(1)
|
Asset
Purchase Agreement dated March 31, 2006 between PlayBOX (US) Inc. and
PlayBOX Inc.
|
10.11
(1)
|
Termination
and Release Agreement dated March 31, 2006 among PlayBOX UK, HBI Sales
Private Limited, Zacan Holdings Proprietary Limited, ICT/Europetec Limited
and MIR Technologies LLC
|
10.12
(1)
10.13
(1)
|
Subscription
agreement between the Company and Annette Cocker dated April 8, 2005
relating to the Company's private offering of 500,000 shares Form of
subscription agreement relating to our May 31, 2005 private offering of
securities.
|
10.14
(1)
|
Form
of subscription agreement relating to our August 31, 2005 private offering
of securities.
|
10.15
(1)
10.16
(2)
|
Regulation
S Debt Conversion Agreement dated March 31, 2006 between the Company and
Hillside Investment Corporation. Form of subscription agreement relating
to our July 14, 2006 private offering of securities.
|
10.17
(3)
|
Service
Agreement dated July 1, 2005 between PlayBOX UK and Azuracle
Limited
|
10.18
(3)
|
Letter
Agreement dated December 28, 2006 between PlayBOX UK and Robert
Burden
|
10.19
(3)
|
Consulting
Services Agreement dated August 1, 2006 between PlayBOX (US) Inc. and
DeBondo Capital Limited
|
10.20
(4)
|
Form
of subscription agreement relating to our May 25, 2007 private offering of
securities.
|
10.21
(5)
|
Executive
Employment Agreement between the Company and Henry (Harry) C. Maloney
dated December 14, 2007.
|
10.22
(6)
|
Release
and Settlement Agreement between the Company and Harry Maloney dated
October 15, 2008.
|
10.23
(7)
|
Director
Services Agreement between the Company and Gideon Jung dated November 14,
2008.
|
10.24
(8)
|
Release
and Settlement Agreement between the Company and Debondo Capital Ltd.
dated November 19, 2008.
|
10.25
(9)
|
Consulting
Agreement between the Company and Jabeco Inc. dated November 25,
2008.
|
16
(10)
|
Letter
from Dale Matheson Carr-Hilton LaBonte dated July 24,
2008.
|
31.1
|
Certification of Chief Executive Officer and Chief
Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
32.1
|
Certification of Chief Executive Officer and Chief
Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of
2002
|
(1)
|
Filed
as an exhibit to our registration statement on Form SB-2 filed with the
Securities and Exchange Commission on June 8, 2006.
|
|
|
(2)
|
Filed
as an exhibit to our registration statement on Form SB-2/A (Amendment No.
1) filed with the Securities and Exchange Commission on October 10,
2006.
|
|
|
(3)
|
Filed
as an exhibit to our registration statement on Form SB-2/A (Amendment No.
3) filed with the Securities and Exchange Commission on January 18,
2007.
|
|
|
(4)
|
Filed
as an exhibit to our registration statement on Form SB-2/A (Amendment No.
6) filed with the Securities and Exchange Commission on July 12,
2007.
|
|
|
(5)
|
Filed
as an exhibit to our current report on Form 8-K filed with the Securities
and Exchange Commission on December 20, 2007.
|
|
|
(6)
|
Filed
as an exhibit to our Current Report on Form 8-K filed with the Securities
and Exchange Commission on November 10, 2008.
|
|
|
(7)
|
Filed
as an exhibit to our Current Report on Form 8-K filed with the Securities
and Exchange Commission on November 18, 2008.
|
|
|
(8)
|
Filed
as an exhibit to our Current Report on Form 8-k filed with the Securities
and Exchange Commission on November 25, 2008.
|
|
|
(9)
|
Filed
as an exhibit to our Current Report on Form 8-K filed with the Securities
and Exchange Commission on November 26, 2008.
|
|
|
(10)
|
Filed
as an exhibit to our Current Report on Form 8-K filed with the Securities
and Exchange Commission on July 25, 2008, as amended with Current Report
on Form 8-K filed with the Securities and Exchange Commission on September
2, 2008.,
|
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.
|
PLAYBOX (US)
INC.
|
|
|
|
|
|
Date:
June 9, 2009
|
By:
|
/s/ GIDEON
JUNG
|
|
|
|
Gideon
Jung,President/Chief
|
|
|
|
Executive
Officer
|
|
|
|
|
|
|
PLAYBOX (US)
INC.
|
|
|
|
|
|
Date:
June 9, 2009
|
By:
|
/s/ GIDEON
JUNG
|
|
|
|
Gideon
Jung, Treasurer/Chief
|
|
|
|
Financial
Officer
|
|
|
|
|
|