ITEM 1. BUSINESS
BUSINESS DEVELOPMENT
We were incorporated on April 5, 2005 as Emcor Holdings Inc. under the laws of the state of Nevada. During September 2005, Emcor Holdings Inc entered into a share exchange agreement (the “Share Exchange Agreement”) with Coloured Industry Limited (“Coloured UK”), a privately held corporation. Coloured UK was incorporated in the United Kingdom on May 2, 2003. In accordance with the terms and provisions of the Share Exchange Agreement, we acquired Coloured UK by way of acquisition of 100% of the total issued and outstanding shares of Coloured UK (which was 2,087,000 shares) in exchange for 12,000,000 shares of our restricted common stock issued and outstanding. The founding shareholders of Coloured UK were Coloured Industry, Inc. (“CII”), Outlander Management Ltd. (“Outlander Management”) and four businessmen including Lars Brannvall, the managing director of Coloured UK and our sole director and officer. CII is a private Antiguan corporation that is one of our principal shareholders. Outlander Management is a private corporation that is now one of our shareholders. On December 8, 2005, we changed our name to Coloured (US) Inc. See “Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.”
Subsidiary
We carried out our business operations through our wholly owned subsidiary, Coloured UK located in the United Kingdom. On July 1, 2008, we wound up Coloured UK and the financial results of Coloured UK have been reclassified as discontinued operations in our financial statements. See “Item 7. Management’s Discussion and Analysis of Financial Condition 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 1189 and our fax number is +44(0)20 7031 1199.
CURRENT BUSINESS OPERATIONS
General
We are the owner of six mobile games designed to be played on GSM-network mobile phones using the Short Message Service (“SMS”) features of these phones. The SMS short message service refers to an industry adopted standard for sending and receiving text messages to and from mobile telephones and other mobile devices. Our games are played entirely via regular text messages sent back and forth between players via the servers on which our games are stored. Text messages are relatively short and easily translated into virtually any language.
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All of our games are multi-player games which allow players to interact with and play against others located in the player’s vicinity. And all of our games support optional value-added features such as location-based services (LBS) where the actual location of each player has an effect of the outcome, and Multimedia Messaging Services (MMS) which facilitates the inclusion of graphics in each text message. Players send their commands to our server by way of text message. Our server receives the messages, integrates the commands within the context of the game being played, and automatically sends responses by text message to each player. Three of our games will utilize support from our website, where players may check their individual playing statistics, view high scores and get tips and strategies on improving their skills. Our mobile games may also be played without the LBS feature for networks which do not support it.
The primary target market for our games are teenage and young adult mobile phone users. Our games have been designed with the objective that they are quick to learn, enjoyable to play and may be played in a relatively short period of time over many sessions. Text messages are relatively short and easily translated into a variety of languages for distribution into major foreign language markets. Each of our games has been fully developed and is ready for commercial deployment. We plan further developments to these games as our future resources permit. Specifically, we plan to develop software, which players may choose to download onto mobile phones which support the technology, that will enable our games to integrate more advanced graphics and video into our games in a way that will further increase their playability.
We intend to market and distribute our games through a number of different “gateway owners”, or companies that sell mobile phone products and services to the general public. Gateway owners include wireless network providers (such as Vodafone, Orange, T-Mobile, Sprint), Internet portals (MSN and Lycos) and media companies that publish or distribute products in which mobile services are generally advertised (Bertelsmann and Bonnier). To assist us in marketing our games to these gateway owners, we have established and intend to build relationships with various agents and resellers located in Europe, America and Asia whom we intend to partner with to distribute our games worldwide. We intend to expand our dealings to include gateway owners in North America and eventually South America and Australasia. Each of these regions has shown growth in the use of text-messaging among mobile phone users in recent years.
We have not earned revenues to date. Our plan of operations is, as described below, to partner with gateway owners, either directly or indirectly through third party resellers, in the marketing and distribution of our mobile games.
INDUSTRY BACKGROUND
Text messaging (SMS) was created during the late 1980s to work with GSM (Global System for Mobile Communications), the digital technology which is the basis for most modern cell phones. This technology was defined as the standard in 1989 by the European Telecommunications Standards Institute (ETSI). It is widely believed that the first SMS was sent in December of 1992 from a personal computer to a mobile phone on the Vodafone GSM network in the United Kingdom. In 1994, SMS became a commercially available product to mobile subscribers. Today there are GSM networks in approximately 220 countries worldwide.
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In Europe, SMS was quickly adopted as an effective means of communicating between parties, and as a less expensive alternative to voice calls. The youth market was the fastest adopter of SMS. Mass-market acceptance grew quickly as the user base expanded beyond the youth segment. The European success with SMS-services spread to the rest of the wireless world in the nineties, and was soon adopted in most markets. The last large region to adopt the concept of messaging has been North America, but the growth in numbers of messages sent in the US and Canada has been similar to the European experience. The tremendous growth of SMS around the world is the result of high growth in mobile penetration in most markets, general adoption of the concept among a broad range of user groups and the launch of value-added services. Consumers worldwide have accepted SMS as an alternative to direct voice communication, and the greatest usage of traffic is generated by consumer applications.
SMS has also offered opportunities to strengthen customer loyalty and generate significant additional revenue streams through the development of other SMS services, including personalized ring tones, games and simple information requests such as weather reports.
The mobile gaming market is evolving as many mobile operators are offering third party service providers such as ourselves access to the location of their users in a similar manner that they provided third parties access to their networks for sending SMS text messages or supplying mobile phone ringtones.
OVERVIEW OF THE COLOURED SMS-BASED MOBILE GAMES
Our goal is to provide SMS-based mobile entertainment to owners of mobile phones on the GSM networks. Our software consists of multi-player, location based mobile action and role-playing games. We currently own six such mobile games as described below, each of which is fully developed and ready for market. Our mobile games are hosted on two different servers. Mobile Warrior is hosted by agreement on a server owned by TrackWell, the Icelandic company that developed this game. The other five mobile games we own are hosted on our own server which is located in space rented from Internet Border Technologies AB, a Swedish computing services company. These games feature location-based service (LBS) technology which allows users the ability to play the games against other registered players located in the user’s vicinity. The physical location of the user therefore has a direct impact on the ongoing play of the game. The result is a new dimension of interactivity in game play through a web-based community of similar users. A graphical representation of the connections between the servers and a player’s mobile phone is as follows:
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LDT (Location Determination Technology) in the diagram refers to software which permits the player to utilize the LBS features of our games. This service is provided to companies providing mobile phone services such as ours. The SMS-C gateway is the connection point between our server and a particular player’s wireless network provider (represented by the GSM Network in the above diagram). The SMS-C gateway provides a number of services, in particular the regulation of the transfer of text messages to mobile phones via the wireless network provider. There are a number of companies that aggregate gateway connections to the SMS-C’s, ensuring a single point of access to a global network of SMS gateways and wireless network providers.
All our games are played entirely by text messages sent between players via our servers, and do not require any software to be downloaded onto a player’s mobile phone. Players do not have any direct communication with each other, protecting each player’s identity and privacy, while still having a completely interactive experience through the game. To illustrate, each player will go through the following series of steps:
1.
Once a player has registered by text message or on the Internet to play a game, they are sent a text message containing the telephone number to the server on which that particular game is stored and a key code for the game. When the player wishes to play, they send a text message through their operator’s network to our server via a phone number provided to the player. The key code indicates what game the player wants to play.
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2.
This text message, including LBS information about the player’s location, is received by our server. Depending on what message the player has sent, that player’s location, and the presence and number of other potential players in the vicinity, the server responds accordingly and sends a response to the player’s mobile phone.
3.
This message triggers another message to be sent by the mobile phone user.
The games drive revenue-generation through the use of text messages by the players who are charged by their wireless network provider for the text messages they send, a portion of which we intend to receive by agreement with the gateway owner through which the player registered to play.
Our games have been designed with the objective that they are quick to learn, each requiring only the memorization of a few simple commands which they communicate by text message to our servers, and enjoyable to play. The user can access registration and support information either through their mobile phone or, for most of our games, on the Internet. Several of the games are designed to enable each user to enjoy the added benefit of joining and interacting with a community of users with similar game-playing interests. Our games can also support Multimedia Messaging Service (MMS) technology, which will eventually allow the addition of sound, graphics and even video to our existing games.
Mobile Warrior Game
One of our six mobile games titled Mobile Warrior was developed by TrackWell Software, a mobile software development company located in Iceland (“TrackWell”). In an arm’s length negotiation, ABS Global Capital Inc. (“ABS Global Capital”) acquired from TrackWell the rights to the Mobile Warrior game in March 2003. In March 2003, ABS Global Capital subsequently sold to The Mobile Warrior Technology Partnership LLP (“MW Technology Partnership”), the intellectual property rights to the Mobile Warrior game.
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Agency Exploitation Agreement. On March 31, 2003, MW Technology Partnership entered into an agency exploitation agreement (the “Mobile Warrior Agency Exploitation Agreement”) with LDC Network (“LDC Network”). In accordance with the terms and provisions of the Mobile Warrior Agency Exploitation Agreement, LDC Network was appointed as the agent of the licensee for the purpose of undertaking the commercial exploitation of the license rights. LDC Network was obligated to carry out the commercial exploitation of the mobile warrior technology platform and to use its best efforts to achieve an exploitation result in accordance with an agreed upon exploitation forecast. MW Technology Partnership agreed to pay to LDC Network an amount equal to 25% of the net profit of the partnership derived from the exploitation of these license rights. LDC Network did not realize any gross income from the exploitation of the mobile warrior technology platform during the term of the Mobile Warrior Agency Exploitation Agreement.
On April 2, 2004, LDC Network subsequently assigned its rights under the Mobile Warrior Agency Exploitation Agreement to Coloured UK. We did not realize any gross income from the exploitation of the mobile warrior technology platform during the balance of the term of the Mobile Warrior Agency Exploitation Agreement. The Mobile Warrior Agency Exploitation Agreement was terminated on February 28, 2006 concurrently with our acquisition of the Mobile Warrior game.
Intellectual Property Asset Purchase Agreement. On January 31, 2006, we entered into an intellectual property asset purchase agreement effective February 28, 2006 (the “Mobile Warrior Intellectual Asset Purchase Agreement”) with ABS Capital pursuant to which we purchased the intellectual property rights to the Mobile Warrior game. This acquisition was subsequent to the re-acquisition by ABS Capital of the Mobile Warrior game from MW Technology Partnership. We issued 6,000,000 shares of our restricted common stock to ABS Capital in consideration of the acquisition and transfer to us of the Mobile Warrior game. ABS Capital subsequently transferred the 6,000,000 shares of our common stock to MW Technology Partnership in connection with its concurrent acquisition of the Mobile Warrior game from MW Technology Partnership. See “ - Material Contracts”.
The Mobile Warrior Game. Mobile Warrior is a battle game set in the Viking era. Players initially register and create a character for the game on our website, choosing their weapons and armour from a list provided. The player then sends a simple text message to our server when they want to play the game. The LBS feature of the game determines what other potential players are located in the sender’s vicinity, and our server communicates this information to the sender by a text message. Players can then choose whom they wish to challenge to a duel by sending a text message back to the server, which then informs the player chosen. That player may then choose whether or not they wish to play at that time. If they decline, they will lose points and drop in the overall ranking of players playing the game. If they accept, the game begins and both players attempt to defeat the other with attack commands sent by text message to the server. Battles generally consist of between five and eight text messages per player. Outcomes depend on a number of factors including each player’s weapons, armour, experience, choice of commands and other such factors. Players collect points by winning battles, which they may redeem on our website for better weapons and armour. The game is supported by our website on which players can check their ranking against other players, see the results of other battles and change their weapons, armour and other features of their characters.
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Five Remaining Games
The five remaining mobile games to which we currently hold the rights were originally developed by BF Studios AB of Sweden (“Blue Factory”). During March 2003, CII acquired the five mobile games and during March 2003 subsequently sold the five mobile games to The Coloured Industry Technology Partnership LLP. (“Coloured Industry Technology Partnership”). On August 6, 2003, Coloured Industry Technology Partnership granted a license to Coloured UK to exploit those intellectual property rights. Each of the licenses held by Coloured UK was subsequently terminated on February 28, 2006 upon our acquisition of the games.
Agency Exploitation Agreement. On August 6, 2003, Coloured UK entered into an agency exploitation agreement (the “Agency Exploitation Agreement”) with Coloured Industry Technology Partnership. In accordance with the terms and provisions of the Agency Exploitation Agreement, Coloured UK was appointed as the agent of the licensee for the purpose of undertaking the commercial exploitation of the license rights. Coloured UK was obligated to carry out the commercial exploitation of the five mobile software games and to use its best efforts to achieve an exploitation result in accordance with an agreed upon exploitation forecast. Coloured Industry Technology Partnership agreed to pay to Coloured UK an amount equal to 25% of the net profit of the partnership derived from the exploitation of these license rights. Coloured UK did not realize any gross income from the exploitation of the mobile warrior technology platform during the term of the Agency Exploitation Agreement. The Agency Exploitation Agreement was terminated on February 28, 2006 concurrently with our acquisition of the intellectual property rights to the five mobile software games.
Intellectual Property Asset Purchase Agreement. On January 31, 2006, we entered into intellectual property rights purchase agreements effective February 28, 2006 (collectively, the “Intellectual Asset Purchase Agreement”) with CII pursuant to which we purchased the intellectual property rights to the remaining five mobile games. The acquisition was subsequent to the re-acquisition by CII of these five mobile games from Coloured Industry Technology Partnership. We issued 6,000,000 shares of our restricted common stock to CII in consideration of the acquisition and transfer to us of these five mobile games. CII in turn transferred these 6,000,000 shares of our common stock to Coloured Industry Technology Partnership in connection with its acquisition of these five mobile games from Coloured Industry Technology Partnership. See “ - Material Contracts”.
The Flirtylizer Game. The Flirtylizer mobile game allows a user to send pre-set text messages to another user’s mobile phone to allow chat with another user they know without that other user knowing the identity of the person sending the message. The receiver gets a text message informing him or her that someone they know is flirting with them, and they must correctly guess the sender’s identity in order to have it revealed. Both parties then receive a message confirming that the receiver has correctly guessed the identity of the sender.
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The Voodolizer Game. The Voodolizer game provides a casual spin on the idea behind Flirtylizer. The receiver will get text message “spell” saying that something will happen to their mobile phone (for example, all the phone numbers stored in the receiver’s mobile phone will be deleted) unless the receiver can “throw the spell” by guessing the sender’s identity with a text message. If the guess is correct, both parties are informed that the spell has been lifted.
The Banana Battle Game. The Banana Battle game is a simple dueling game where players must hit their opponents with a banana by guessing the distance between themselves and their opponents by text message. Players send their guess as to their distance to the other player by text message, with the computer automatically sending back responses after each throw (hit or miss), until one player correctly guesses the distance and hits their opponent, ending the game.
The Get Nessie! Game. Players of Get Nessie! try to become the top ranked scientist by catching the Loch Ness Monster. Doing so requires a player to send text messages containing coordinates for the placement of sonar buoys in the lake in which Nessie lives and analyzing the data that comes back from the server via text message. The lake is full of things other than Nessie, and a player has a choice of several actions they may take with the information received, such as attempting to take pictures of whatever they find or try catching it. Players can check our website at any time to see the latest news on their progress in the hunt.
The Hunters & Collectors Game. The Hunters & Collectors is a “soft” battle game where players duel each other with weapons such as sticks and water balloons. It is similar to Mobile Warrior in the manner in which players register and play, but with a less battle-like tone. Players initially register and create a character for the game on our website, and then challenge and battle players in the same manner as with Mobile Warrior. This game is also supported by a website on which players can check their ranking against other players and see the results of other battles.
MATERIAL CONTRACTS
Intellectual Asset Purchase Agreements
On February 28, 2006, we acquired the intellectual property rights to our six mobile games concurrently from CII and ABS Capital in accordance with the terms and provisions of the Mobile Warrior Intellectual Asset Purchase Agreement and the respective Intellectual Asset Purchase Agreements for total consideration of the issuance of 12,000,000 shares of our restricted common stock, of which 6,000,000 shares were issued to CII and 6,000,000 shares were issued to ABS Capital. Concurrent with the completion of this acquisition, CII transferred 6,000,000 shares of our common stock to Coloured Industry Technology Partnership as part of its arrangement to re-acquire five of the six mobile games from Coloured Technology Partnership. Coloured Industry Technology Partnership is a limited liability partnership that was at arm’s length to CII. Coloured Industry Technology Partnership became one of our principal shareholders as a result of the completion of these transactions.
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At the same time, ABS Capital transferred its 6,000,000 shares of our common stock to Mobile Warrior Technology Partnership as part of its own arrangement to re-acquire the Mobile Warrior game from Mobile Warrior Technology Partnership. Mobile Warrior Technology Partnership LLP is a limited liability partnership that is at arm’s length to ABS Capital Inc. The Mobile Warrior Technology Partnership LLP 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”.
DEVELOPMENT OF OUR MOBILE GAMES
Our mobile games were all developed during the period from 2000-2002. Mobile Warrior was developed by TrackWell Software and continues to be hosted on their server by agreement with us, while the others were developed by the Swedish company Blue Factory. Each development company sought distribution for the games they developed. Blue Factory’s games were available in 2001 and 2002 to mobile phone users in Europe through a number of operators including Vodafone, T-Mobile (UK and Germany), Telia (Sweden), i100 (Hong Kong), TIM (Italian), and Sonera Zed (Finland). None of the games achieved widespread commercial success; we believe this was due to a variety of factors, including the lack of an existing LBS infrastructure among mobile operators, the market’s relative unfamiliarity with MMS technology and under-funded marketing efforts.
On April 2, 2004, LDC Network assigned its rights under the Mobile Warrior Agency Exploitation Agreement to Coloured UK for the intellectual property rights relating to the Mobile Warrior Mobile Game. On August 6, 2003, Coloured UK entered into the Agency Exploitation Agreement with Coloured Industry Technology Partnership whereby it undertook to commercially exploit the five remaining Coloured Mobile Games on behalf of Coloured Technology Partnership. Effective August 15, 2003, Lars Brannvall was hired as managing director of Coloured UK with a view to establishing a commercially viable sales and marketing plan for the distribution and sales of our mobile games. At the time Coloured UK acquired the rights to exploit our mobile games, the games were fully developed and ready for commercial roll-out.
Current Status of Development and Future Plans
Each of our games is currently fully developed and ready for commercial roll-out.
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In 2004, we commissioned SIA Limited, a UK-based software developer, to develop a test version of a software program that could be downloaded onto the mobile phone of anyone playing our Mobile Warrior game. This program utilizes the advanced MMS graphics capabilities that most mobile phones currently support to add graphics to Mobile Warrior. Rather than typing their text messages into their phones, players will be able to choose their commands from a list. Players will also see graphical representations of their characters, and other such features that will enhance their playing experience. The test program was successful, and we intend to add this feature to Mobile Warrior as we secure additional funding.
We also intend to have the most popular of our games translated into languages suitable for other foreign markets once we have secured the necessary funding. Our initial plans call for translations of one or more of the Coloured Mobile Games into Spanish, German and French.
We do not have the internal ability to carry out any software development work on our mobile games should we decide in the future that such work is necessary. We anticipate engaging SIA Limited for any future software development work we might decide to undertake. We presently do not have any agreements with SIA Limited in place for any current or future software development work.
OUR BUSINESS MODEL
Text messaging and game-playing are two of the most popular uses of today’s mobile phones. Recently, mobile phone users have seen the introduction of games that utilize the SMS features of their phones. We believe that the market for location-based SMS mobile gaming is poised for substantial growth. Our multi-player, location-based SMS games are intended to represent the next level in the development of this market. Our games offer users a more interactive experience and the opportunity to become part of an online community.
Our success will depend on our ability to establish a distribution network for our games. Due to the high cost and relatively low efficiency of marketing directly to our target market, we intend to approach gateway owners serving mobile markets, either directly or through third party resellers and agents who will leverage their industry contacts to sell our games in exchange for a portion of the revenues generated from text messages sent in connection with our games. This approach is illustrated below:
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While we plan to pursue gateway owners as part of our plan of operations, we are in the early stages of the commercialization of our games. Accordingly, there is no assurance that our business model will be successful. Further, we may elect to change our business model in response to our success or lack of success in pursuing commercialization of our games. At present, we are not able to pursue our business model due to a lack of financing. We may determine not to pursue commercialization of our products in accordance with our business model if we determine to complete the acquisition of another business or assets.
Gateway Owners
Gateway owners include wireless network providers (such as Vodafone, Orange, T-Mobile, Sprint), Internet portals (MSN and Lycos) or other specialized websites which provide content for mobile phone users for which they have revenue-sharing agreements with various wireless network providers (MonsterMob), and a variety of media companies that may produce television programs or publish or distribute newspapers, websites or other forms of media in which mobile products and services are generally advertised (Bertelsmann and Bonnier). In addition to mobile phone service, these gateway owners provide or advertise a wide range of products and services to our target market, including ringtones and games, and in doing so have established themselves as destinations for members of our target market looking for entertainment to use with their mobile phones.
Under our business model, gateway owners would agree to distribute our games through their particular media and would be responsible for the marketing of our games to their customers. If the gateway owner in question is not a wireless network provider, they would also be responsible for setting up the billing arrangements with the wireless network providers they deal with. Gateway owners promote their products and services in a variety of ways. We expect that the primary methods through which our games would be marketed would be print and Internet advertisements. Although we expect that the precise terms of the agreements will vary, our objective is to secure fees that would be not less than 25% of the revenue derived from text messages generated through the playing of our games.
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Resellers
Given the early stage of development we are at and because of the time and expense required in marketing directly to gateway owners, we intend to use agents and third party resellers to market our games at their own cost to gateway owners while we build an internal sales force. Under this business model, the goal of our resellers would be to enter into sub-license agreements with gateway owners located in their particular territory. Those sub-license agreements would specify the division of the fees received from each text message sent in connection with our games between the gateway owner and the reseller.
We have entered into a number of reseller agreements with agents and resellers located around the world. Each of these agreements grants the reseller in question non-exclusive rights (unless otherwise specified) to a particular market territory. The agreements also contain standardized terms setting out the rights and obligations of each reseller, and specify any applicable set-up costs and the fees to be paid to us by the reseller in connection with the use of our games. All the agreements are for a term of one year from the date they were signed, and are automatically renewed for additional one year periods unless otherwise terminated by either party. Details of the unique terms of the individual agreements are as follows:
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Reseller: Tele-Publishing UK Ltd. (also known as G8wave) - Territory: United Kingdom; Fees: reseller will pay ₤0,05 (USD$0.1 based on a foreign exchange rate on December 27, 2006 of $1.96:£1.00) per text message sent.
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Reseller: iTech Solutions India PVT Ltd. - Territory: India and the Indian Subcontinent; Fees: reseller will pay a fee to be agreed upon per text message sent.
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Reseller: Mobiletones Asia Pte Ltd. - Territory: Asia, excluding Singapore; Fees: reseller will pay 50% of the revenue generated from our mobile games. We have has the right to reject any sub-license agreement which the reseller.
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Reseller: Nostromo ICT - Territory: Czech Republic; Fees: reseller will pay 25% of the charge to the customer per text message sent (a minimum of 0,625 CZK (USD$0.03 based on a foreign exchange rate on December 27, 2006) per text message).
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Reseller: Mtertainment Korea - Territory: Asia, with exclusivity in Singapore; Fees: reseller will pay 30% of the revenue generated from our mobile games.
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Reseller: Mobile Minds - Territory: Hungary, Slovakia, Czech Republic and Pakistan; Fees: reseller will pay a fee to be agreed upon per text message sent.
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Reseller: Net People International Inc. - Territory: Latin America (South & Central America), Mexico and the Caribbean; Fees: reseller will pay 50% of the revenue generated from our mobile games.
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Reseller: Mobilkraft - Territory: Sweden; Fees: reseller will pay a fee to be negotiated per text message sent.
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Reseller: Mocondi Ltd. - Territory: No specific territory; Fees: reseller will pay a fee to be agreed upon per text message sent. Coloured UK has the right to reject any sub-license agreement which the reseller proposes to enter into.
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Reseller: Voicelock Ltd. (also known as Trust5) - Territory: United Kingdom & Ireland; Fees: reseller will pay fees generated from our games, to be based upon a model to be agreed upon.
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Reseller: Tracebit Ltd. - Territory: Worldwide; Fees: reseller will pay 50% of the revenue generated from our games.
To date, we have not been successful in generating any revenues from these reseller agreements.
We also have a marketing co-operation agreement with Ericsson AB under which Ericsson has agreed to provide us with access to their Ericsson Mobility World members network, as well as introductions to potential customers and invitations to participate with them in various marketing events. We have agreed to pay Ericsson 15% of the gross revenues generated from the use of our games by their customers. The agreement was signed on May 14, 2004 and runs for a period of two years with automatic renewals until terminated by either party. We intend to continue seeking such strategic partnerships for the distribution of our games worldwide.
MARKETING STRATEGY
We plan to implement a sales and marketing strategy with the objective of signing our first distribution agreements with gateway owners for our games. In addition to licensing our games directly to such gateway owners for distribution, we intend to continue our current relationships with various agents and third party resellers to distribute our games to gateway owners with whom they have already established relationships. Once we are able to secure the necessary financing, we plan to begin the process of hiring additional personnel and building an internal sales network for the support of our distribution strategy. There is no guarantee we will secure sufficient funding to build such a network.
Marketing
Our first challenge will be to use our third party resellers to build a base of gamers who play our mobile games. Once this has been achieved, we plan to promote viral marketing efforts with that base of gamers. We recognize that in the gaming community, current players are often the most effective and cost-efficient promoters of the games they enjoy to new players. Because our games are all designed to support multiple players and utilize the concept of gamer communities, we believe they lend themselves very well to this kind of marketing. Our strategy is to encourage gateway owners to use other products and services they promote and sell as prizes for players who successfully encourage others to try our games.
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Another cost-effective method of marketing our games is by partnering with resellers to market our games at industry trade shows. These trade shows provide a convenient forum to demonstrate our games to numerous gateway owners as well as explaining to them how our games can be integrated into their current product offering. We expect to have strong support for this idea, as resellers generally seek to offer multi-dimensional product lines appealing to a wide variety of customers at such shows. We have identified trade shows located in a number of European cities in which we would attempt to participate including London, Barcelona, Los Angeles and Singapore.
Pricing and Revenue Generation
Set Up, Adaptation and Installation Costs. We may charge gateway owners fees in connection with the costs of set-up, hosting and maintenance adaptation and installation of our games, as well as for any upgrades of the games or their operations which we may develop in the future. These fees will be dependent on each gateway owner’s environment and requirements. To encourage gateway operators and resellers to offer our games, we do not intend to charge fees which exceed our costs to any large degree.
Revenue-Sharing. We do not anticipate that users of our mobile games will pay us directly to play them, nor is our infrastructure set up to support this. Rather, we will generate revenue through revenue-sharing agreements with gateway operators and resellers based on revenue received by those parties from the text messages generated by players playing our games. There are a number of ways that mobile phone users may be charged for sending text messages while playing our games, but the most common ones will likely be:
1.
Premium SMS (P-SMS): where a gateway owner charges a flat fee per text message sent while playing our games, which fee is generally higher than the cost of text message levied by the wireless network operator; and
2.
Subscription: where a player may send up to an agreed number of text messages during a certain time period, perhaps a week or month, for a set fee.
Our revenue-sharing model is based on SMS messages sent by a player while playing our games, under which we anticipate that we would typically earn a fixed percentage of either the price paid per message or the revenues earned from the number of messages the player is estimated to send during an upcoming time period. These fees are all exclusive of local taxes.
Our Web Site
Our website, www.cimobilegaming.com is intended to provide information on our mobile gaming software for gateway owners and resellers/agents, and not for the mobile phone users.
INTELLECTUAL PROPERTY
We own intellectual property rights including trade secrets and copyright relating to our mobile games. We 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.
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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
We hold the following trademarks registered in the United Kingdom for each of our mobile games:
Game
TM Registration Number
Classes
Filing Date
Banana Battle
9, 28, 38, 41 and 42
October 7, 2004
Flirtylizer
9, 28, 38, 41 and 42
October 7, 2004
Get Nessie!
9, 28, 38, 41 and 42
October 7, 2004
Hunters & Collectors
9, 28, 38, 41 and 42
October 7, 2004
Voodoolizer
9, 28, 38, 41 and 42
October 7, 2004
Mobile Warrior
9, 28, 38, 41 and 42
November 28, 2002
Patents
CII filed for patent protection in the United Kingdom for all of mobile games except for Mobile Warrior as of October 7, 2004. CII was later advised by the UK Patent Office that evidence had been found that the technologies associated with these mobile games appeared to have been in the public domain before the patent applications were filed and that as a result, the patent applications would likely be denied. As a result, a request to withdraw the patent applications was filed effective February 20, 2006. Accordingly, we believe that we will not be able to obtain any patent protection for our mobile games.
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COMPLIANCE WITH GOVERNMENT REGULATION
We must abide by regulations imposed by government regulatory authorities in deploying our mobile games. Because our mobile games result only in the creation of SMS messages, we believe we will only be subject to rules and regulations pertaining to mobile messaging. The majority of regulations within the telecommunications industry that apply to mobile messaging are created by industry bodies producing codes of conduct that outline the rules that network operators, content providers, carriers, technology providers and advertisers must adhere to when providing telecommunication services to the public. These codes of conduct generally focus on protecting consumers against unwanted SMS messages being delivered to their mobile devices.
We intend to thoroughly investigate the regulations imposed in each jurisdiction in which we intend to expand our business prior to commencing any marketing efforts in such jurisdiction. In some cases, the cost of compliance with a jurisdiction’s regulations may preclude us from providing our services to customers in such jurisdiction.
COMPETITION
The mobile gaming market is a highly competitive but very fragmented marketplace in which no single company holds a dominant share. We believe technology plays the key role in differentiating the types of games available in this marketplace to be played on a mobile phone. As opposed to graphics-based (non-SMS) games which use software that must be downloaded onto a user’s mobile phone, our focus is on the SMS-based gaming sector. The feature of the Coloured mobile games which we believe differentiates them from the majority of the other SMS-based mobile games available on the market is the location-based (LBS) feature that integrates a player’s actual physical location relative to other players into play of the game. Of the SMS-based games currently on the market, we believe that there are at present few competitors that can offer multi-player games with the LBS and MMS features present in the Coloured mobile games. The following tables list the companies that we believe to be our key competitors in various parts of the world in which we plan to eventually make the Coloured mobile games available.
SMS -Based Games with LBS Capabilities
Company
Game
Description
Mikoishi Studios Pte Ltd.
“Gunslinger”
A multi-player western showdown game. Can be seen as in direct competition with our game “Mobile Warrior”. Currently available only in Singapore.
Mopius
“The Journey”
An adventure game where the player takes the role of a detective finding clues in a virtual world, similar to our “Get Nessie!” game. Available in several languages including English, German and Russian.
Daydream Software AB
“BotFighter”
Another multi-player game. BotFighter was the first LBS mobile game and has been launched in several markets including Sweden and Russia.
Blisterent Entertainment Inc.
“Swordfish”
“Torpedo Bay”
A virtual fishing game, similar to our “Get Nessie!” game.
A submarine fighting game.
Each of these games is available in North America
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Unlike our mobile games, each of the games listed in the table above requires the user to first download software to their mobile phone before the game may be played. As a result, each game may not work on all brands and models of mobile phones or all networks.
SMS -Based Games without LBS Capabilities
Company
Game
Description
Cellular Magic S.A
Several games
This company’s primary focus is on offering its own mobile services platform to mobile operators to help them host, sell and deliver services to mobile phone users. Their games are offered as an added service.
Cascata Games Limited
“Reversi”
SMS version of this popular game, it requires the user to first download software to their mobile phone before the game may be played
SMS Prank (website)
Several games
Gives the user the opportunity to send prank SMS messages for which the sender pays by buying credits.
COMPETITIVE STRATEGY
We believe our mobile games and our sales and marketing strategy provide us with several competitive advantages over our competitors which we plan to use to gain market share in this industry.
·
As we host our mobile games on our own servers rather than just licensing the software to gateway owners, we anticipate that we will normally able to provide for gateway owners to begin distributing our mobile games within two to three weeks of reaching a distribution agreement with them.
·
Our mobile games can be delivered in versions without MMS or LBS functions such that we can expand into markets whose networks do not yet have the technology to support these features, such as China, India and Nigeria. Expansion into these markets is dependent only upon having the text messages used to play the games translated into the appropriate language, which can be done relatively easily given the small number of words actually used in each text message.
·
The fact that our mobile games can be played on any GSM phone without the requirement to download unique software (as is the case with most of our competitors) means that we do not require a large technical support division to adapt our mobile games to different types of mobile phones.
·
The reseller agreements currently in place between us and our third party resellers are highly flexible and adaptable to the unique mobile telecommunications “culture” of each market. This gives us the ability to provide the appropriate incentives to each reseller to market our games in the most effective manner in that market.
Since the mobile gaming market is highly fragmented, we believe the primary competitive advantage of our mobile games is the ease with which they can be launched in the majority of existing markets. While our mobile games lack the graphic features of many of our competitors, that factor also gives them the advantage of being compatible with many more types of mobile phones and on more networks of differing technological advancement.
While our current size makes it difficult for us to compete with the service and technical support offered by several of our existing competitors, our mobile games and systems are designed to minimize the amount of technical support necessary. We plan to seek strategic partnerships with companies to whom we can outsource these functions. By securing such partnerships, we believe we will be able to offer a competitive level of service and improve our competitive position within the market.
Our primary strategy upon receiving the additional financing we require is to greatly expand our sales and marketing activities by entering agreements with more third party agents and resellers. We believe our profit-sharing model to be very competitive, offering potential agents and resellers an attractive portion of the revenues from SMS fees and any applicable license fees generated by our mobile games.
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EMPLOYEES
As of the date of this Annual Report, we have one employee, namely Mr. Lars Brannvall, who is our sole director and executive officer.
RESEARCH AND DEVELOPMENT EXPENDITURES
Since inception in May 2003, we have not incurred any development costs to date, as all development work carried out by SIA to develop the test software to integrate MMS graphic features into our Mobile Warrior game was done on a revenue-sharing arrangement. The purpose of the software was to demonstrate the feasibility of adding MMS features to our games.
ITEM 1A.
ITEM 1A. RISK FACTORS
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 commerciallyexploit our mobile gaming software is untested, we may never earn revenuesor achieve profitability.
We were incorporated on April 5, 2005 and acquired Coloured UK on September 30, 2005. Coloured UK was incorporated in the United Kingdom on May 2, 2003. We acquired the intellectual property underlying our mobile games in February 2006, and we have no experience as the owner of the software. Our operating history is limited, and to date we have been involved primarily in organizational and development activities. We have not earned any revenues to date, and our ability to commercially exploit our mobile games is untested. We had an accumulated deficit of $4,037,449 as at September 30, 2008. Accordingly, there is no assurance that we will ever achieve revenues or profitability.
As we have yet to establish commercial sales of our mobile games, there is noassurance that we will ever achieve revenues.
Our plan of operation is focused on the commercialization of our mobile gaming software. We have not obtained any sales or distribution for our mobile games to date. Further, our business model to earn revenues from a percentage of fees generated by SMS messages generated by users playing our mobile games is unproven in the marketplace. As we have no current revenues or fee generating arrangements, our ability to achieve revenues and future profitability will depend on our ability to successfully market and sell our games. There is no assurance that we will be able to successfully enter into arrangements with gateway owners for the distribution of our mobile games to users that will result in us earning revenues. 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 technologies, 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, the reluctance of mobile gateway operators to accept our business model, the inability of our resellers to sell our games to mobile phone operators, the inability of mobile phone operators to successfully market our games to their customers, and our games not being accepted by mobile phone customers. If we are unsuccessful in addressing these risks, then we will not achieve revenues and our business will most likely fail.
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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 market and sell our mobile games and to generate revenues from sales of SMS text messages created while playing these games. Our planned expenditures over the next year to implement this plan of operations is in excess of our current financial resources. We had cash of $28,111 from continued and discontinued operations and a working capital deficit of $291,729 as of September 30, 2008. We may not be able to fund our operations beyond the end of September 2009 without additional financing. Accordingly, we will require additional financing in order to carry out our plan of operations. We anticipate that we will pursue equity financings, either through sales of our common stock or sales of convertible promissory notes that are convertible into shares of our common stock, in order to further finance our operations. 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 arrangements with gateway owners for thedistribution of our mobile games, then our plans to achieve revenues fromfees based on SMS text messaging traffic generated by users playing our games will fail.
A significant aspect of our business plan involves entering into arrangements, either directly or indirectly through third party resellers, with mobile operators and other “gateway owners” such as mobile operators and other content providers for mobile phones to whom we would license our mobile games for fees based on SMS text messages generated by users playing the games. There is no assurance that gateway owners will enter into these arrangements with us for the distribution of our mobile games. To date, we have approached over thirty gateway owners directly and over an additional twenty gateway owners indirectly through resellers with the objective of securing distribution arrangements, without any success of securing a revenue generating arrangement. We believe that the primary reasons for our lack of success are the facts that we do not have a track record in the industry or any prior sales experience, we do not have personal relationships with the management and employees of the gateway owners and our company does not offer any name brand recognition. We believe that these factors result in a reluctance of gateway owners to enter into arrangements with us, either directly or through our resellers. If we are not able to enter into these arrangements, then our mobile games will not be distributed in order to generate the SMS text messaging traffic from which we plan to earn revenues. Further, even if we are successful in entering into license arrangements with gateway owners, there is no assurance that SMS text messages and corresponding revenues will be generated as our mobile games may not be accepted by users. In this event, we would have to devise a new marketing strategy, with the result that there will be a significantly higher risk that our business will fail.
We have a history of losses and negative cash flows, which are likely tocontinue unless our products gain sufficient market acceptance to generate acommercially viable level of revenues through SMS text messages sent by players.
Since our inception through March 31, 2006, we have incurred an accumulated deficit of ($4,037,449). For fiscal year ended September 30, 2008, we had a loss of ($165,031). There is no assurance that we will be able to successfully commercialize the Coloured mobile games to generate revenues, operate profitability or 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 mobile games gain market acceptance sufficient to generate a commercially viable and sustainable level of revenues. 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 products, the unpredictability of when customers will order products, the size of customers’ orders, the demand for our products, and the level of competition and general economic conditions.
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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.
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.
As Lars Brannvall is our sole executive officer and director, we do not haveany independent directors on our board of directors who are able toindependently and objectively review decisions made by Mr. Branval in hiscapacity as our sole executive officer and director.
Mr. Lars Brannvall is our sole executive officer and director. Mr. Brannvall is not an independent director and we have no independent directors who may be able to independently and objectively review decisions made Mr. Brannvall, either in his capacity as sole director or in his capacity as the sole member of our senior management. Mr. Brannvall may, as our sole director, approve transactions on behalf of our corporation in which he has a personal interest. We do not have in place any independent directors who would be able to review these conflicts of interest and provide an objective assessment prior to any transaction in which Mr. Brannvall has an interest being approved by our board of directors. Accordingly, there is a risk that Mr. Brannvall may, in his capacity as sole director, approve transactions in which Mr. Brannvall has a personal interest, but that may not be in our best interests or the best interests of our shareholders.
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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 mobile gaming software allows users to play a variety of SMS-based text messages and location-based games on their mobile phones. We expect to experience competition from companies involved in gaming software technology. We have identified the following companies as competitors as they offer SMS mobile games that may be played by our target market: Mikoishi Studios Pte. Ltd., Mopius, Daydream Software AB, Blisterent Entertainment Inc., Cellular Magic S.S., Cascata Games Limited and SMS Prank (a web site). We believe that many, if not all, of these competitors have greater technical, financial, marketing, sales and other resources than we do. As a result, we believe that our competitors will have more resources with which to market and sell their mobile gaming products to mobile gateway owners. We are currently constrained by our lack of financial and marketing resources which reduces our ability to make contact with and secure arrangements with mobile gateway operators. These constraints mean that our competitors may be able to sell their mobile gaming products and secure arrangements with mobile gateway operators who might otherwise be potential customers to us. Further, we cannot guarantee that our technical and knowledge resources will be able to modify our products fast enough to meet customer and market requirements in the face of new and enhanced mobile games that may be offered by competitors. Such competition may reduce our chances of achieving revenues and profitability, and ultimately adversely affect our ability to continue as a going concern.
Our mobile games may become obsolete and unmarketable if we are unableto respond adequately to rapidly changing technology and customerdemands.
Our industry is characterized by rapid changes in technology and customer demands. As a result, our products may quickly become obsolete and unmarketable. Our future success will depend on our ability to adapt to technological advances, anticipate customer demands, develop new products and enhance our current products 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 products to emerging industry standards, and our new products may not be favourably received.
Our mobile gaming software is designed to be distributed seamlessly by mobile operators, and are therefore subject to technology changes and developments that are outside our control. If we are unsuccessful in responding to such changes and developments, the competitiveness of our products will be hurt.
As we anticipate that we will contract out any future software developmentactivities to an independent third party contractor, there can be no assurancethat we will be able to continue development work on our mobile games, or that this work will be completed on a timely and cost-effective 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 mobile games to SIA Limited, a private arm’s-length software development company. We do not have any agreements in place with SIA Limited for any current development work. There can be no assurance that SIA 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 SIA 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.
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Substantially all 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.
Our success and ability to compete depends to a significant degree on our mobile games. We hold trademarks for all of the Coloured mobile games, however, 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 do not have any patent protection that covers the Coloured mobile games. Accordingly, the only measures that we believe will be available to us to protect our mobile games will be based upon a combination of trademark, 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 our mobile games, 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 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 trademarks 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 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 mobile gaming software, we expect to experience 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 financial 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 mobile games. 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.
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If we lose the services of Mr. Lars Brannvall, our sole director and officer,then we may not be able to carry out our plan of operations.
We will be dependent upon the services of Mr. Lars Brannvall, our sole director and officer, to carry out our plan of operations. The loss of the services of Mr. Brannvall could have a serious effect on our ability to execute our business plan and succeed in commercializing our mobile games. If we should lose the services of Mr. Brannvall, 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. Brannvall.
If government regulations are adopted that impose additional costs orrequirements on our ability to provide our SMS messaging solutions, thenour cost 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 electrical wireless telecommunication devices and SMS messaging. 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 mobile games must comply. We have no control over regulations and regulatory change and cannot guarantee that our mobile games 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 mobile games 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 mobile games.
Errors or Defects in Our Mobile Game Products Could Diminish Demand For Our Products and Reduce Our Operating Results.
Our mobile game products are complex and may contain errors that could be detected at any point. We cannot assure you that errors will not be found in new products or releases after shipment. This could result in diminished demand for our mobile game products, delays in market acceptance and sales, diversion of development resources, injury to our reputation or increased service and warranty costs. If any of these were to occur, our operating results could be adversely affected.
Mobile Gaming is a New Platform and May Not Gain Popularity.
The market for our mobile game products and platforms on which they operate may not grow. Consumer behavior may change and consumers may lean towards technologies and/or leisure activities which are not within our sphere of activity.
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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 revenues are transacted in U.S. Dollars, we are 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 sell our mobile game products 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 73,494,610 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 9,898,660 shares of our common stock pursuant to the SB-2 Registration Statement declared effective on July 26, 2006 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 64,422,110 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 Common Equity and Related Stockholder Matters.”
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.
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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.
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ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS
No report required.
ITEM 2.
ITEM 2.
PROPERTY
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 a shareholder of the Company.
ITEM 3.
ITEM 3.
LEGAL PROCEEDINGS
We currently are not a party to any material legal proceedings and to our knowledge, no such proceedings are threatened or contemplated.
ITEM 4.
ITEM 4.
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
ITEM 5.
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUERS PURCHASES OF EQUITY SECURITIES
MARKET FOR COMMON EQUITY
Shares of our common stock commenced trading on the OTC Bulletin Board under the symbol “COUS: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.
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.
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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:
Plan Category
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
Equity Compensation Plans Not Approved by Security Holders
Warrants
8,000,000
$0.05
n/a
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RECENT SALES OF UNREGISTERED SECURITIES
As of the date of this Annual Report and during fiscal year ended September 30, 2008, to provide capital, we sold stock in private placement offerings pursuant to contractual agreements as set forth below.
December 2007 Private Placement Offering
Effective December 2007, we completed a private placement offering (the “Private Placement”) with certain non-United States residents (collectively, the “Investors”). In accordance with the terms and provisions of the Private Placement, we issued to the Investors an aggregate of 8,000,000 units at a per unit price of $0.025 (the “Unit”) in our capital for aggregate proceeds of $200,000. Each Unit was comprised of one share of restricted common stock and one-share purchase warrant (the “Warrant”) entitling the Investor to purchase one share of common stock at $0.025. Each Warrant is exercisable for a period of two years from the date of issuance.
The Units under the Private Placement were sold to non-United States Investors 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 Units 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 Investors executed subscription agreements and acknowledged that the securities to be issued have not been registered under the Securities Act, that they understood the economic risk of an investment in the securities, and that they had the opportunity to ask questions of and receive answers from our management concerning any and all matters related to acquisition of the securities.
Settlement Agreement
On December 12, 2008, we entered into a settlement agreement and general mutual release (the “Settlement Agreement”) with Karada Ltd., a company incorporated in the Republic of the Marshall Islands (“Karada”). In accordance with the terms and provisions of the Settlement Agreement: (i) we issued to Karada an aggregate of 34,845,950 shares of our restricted common stock; and (ii) Karada agreed to accept the issuance of the 34,845,950 shares of our restricted common stock in consideration of settling and releasing the debt due and owing by us to Karada of $34,846. We had previously entered into a loan agreement with Karada for debt financing. The loan was a draw down facility, which was unsecured and available in minimum traunches of $5,000 up to a maximum of $250,000 bearing interest at a rate of 5% per annum calculated monthly for a period of five years ending July 1, 2002. At September 30, 2008, the loan balance was $32,425 and interest in the amount of $2,421 was accrued. See “Item 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters”.
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ITEM 6.
ITEM 6.
SELECTED FINANCIAL DISCLOSURE
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ITEM 7.
ITEM 7.
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 not generated any revenue to date. 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.
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 $140,982 compared to $218,117 incurred during fiscal year ended September 30, 2007 (a decrease of $77,135). These expenses incurred during fiscal year ended September 30, 2008 consisted of: (i) accounting and auditing of $38,572 (2007: $56,593); (ii) amortization and depreciation of $3,364 (2007: $10,500); (iii) bank charges of $76 (2007: $-0-); (iv) consulting fees of $60,604 (2007: $119,599); (v) filing fees, net of recovery of $3,355 (2007: ($1,629)); (vi) investor relations of $-0- (2007: $18,250); (vii) legal of $31,819 (2007: $14,414); and (viii) transfer agent fees of $3,192 (2007: $390).
Our general and administrative expenses decreased during fiscal year ended September 30, 2008 from fiscal year ended September 30, 2007 primarily based upon decreases in accounting and auditing fees, consulting fees and amortization and depreciation. 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.
Consulting fees are primarily comprised of consulting fees that we pay to Debondo Capital Limited on account of consulting services. Our consulting fees decreased significantly to $60,604 during fiscal 2008 compared to $119,599 during fiscal 2007, which decrease reflects the consulting agreement that we entered into with Debondo Capital on August 1, 2006. This agreement was terminated on June 30, 2008.
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We incurred $3,364 in amortization expenses during fiscal 2008 compared to $10,000 during fiscal 2007 as a result of the amortization of the server and software platform we needed to host and operate the Coloured mobile games (excluding Mobile Warrior, which is hosted by agreement with TrackWell). We purchased the server and platform in 2005, and it was slated to be amortized over a three year period.
Legal expenses increased during fiscal year ended September 30, 2008, which are attributable to legal fees paid to our legal counsel in connection with our statutory obligations as a reporting company under the Securities Exchange Act of 1934, including the preparations and filings of our quarterly and annual reports with the SEC.
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 decreased significantly to $140,982 compared to $218,117 during fiscal year ended September 30, 2006, primarily as a result of the decrease in accounting and auditing expenses, consulting fees and amortization and depreciation.
During fiscal year ended September 30, 2008, we recorded a loss from discontinued operations of ($36,897) compared to ($50,835) 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 settlement of debt of $20,144 (2007: $-0-); (ii) a loss from foreign exchange rates of ($2,639) (2007: $(6,521)); and (ii) interest expense of ($4,657) (2007: $499)).
This resulted in a net loss during fiscal year ended September 30, 2008 of ($165,031) compared to a net less of ($275,972) during fiscal year ended September 30, 2007. The weighted average number of shares outstanding was 35,654,124 for fiscal year ended September 30, 2008 compared to 30,634,824 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 $28,111 and our current liabilities were $319,840, which resulted in a working capital deficit of $291,729. As at fiscal year ended September 30, 2008, current assets were comprised of $21,181 in cash of continuing operations and $6,930 in cash of discontinued operations. As at fiscal year ended September 30, 2008, current liabilities were comprised of: (i) $2,835 in accounts payable; (ii) $6,608 in accrued liabilities; and (iii) $310,396 in current liabilities of discontinued operations.
As at fiscal year ended September 30, 2008, our total assets were $28,111 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 cash of continuing operations and cash of discontinued operations.
As at fiscal year ended September 30, 2008, our total liabilities were $382,265 comprised of current liabilities and of long term liability consisting of loan payable in the amount of $62,425. The decrease in total liabilities during fiscal year ended September 30, 2008 from fiscal year ended September 30, 2007 of $405,269 was primarily due to the decrease in accounts payable and accrued liabilities. See “ - Material Commitments.”
Stockholders’ equity (deficit) decreased from ($390,871) for fiscal year ended September 30, 2007 to ($354,153) for fiscal year ended September 30, 2008.
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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 ($209,948) consisting primarily of a net loss of ($165,031). For fiscal year ended September 30, 2007, net cash flows used in operating activities was ($24,154) consisting primarily of a net loss of ($275,972). 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) amortization and depreciation of $5,463 (2007: $10,500); (ii) gain on settlement of debt of ($20,144) (2007: $-0-); (iii) interest accrued on promissory note of $2,309 (2007: $-0-); and (iv) shares for consulting services of $-0- (2007: $6,250).
Net cash flows used in operating activities was further changed by: (i) prepaid expenses of $2,624 (2007: ($2,624)); (ii) accounts payable of ($69,515) (2007: $54,191); (iii) accrued liabilities of ($23,560) (2007: $2,878); (iv) effects of current assets in discontinued operations of $403 (2007: $3,596); (v) effects of accounts payable in discontinued operations of ($63,749) (2007: $33,726); (vi) effects of accrued liabilities in discontinued operations of ($12,798) (2007: 6,993); and (vii) effects of amounts owing to related parties in discontinued operations of $134,050 (2007: $136,308).
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 $230,000 compared to $32,425 for fiscal year ended September 30, 2007. Cash flows from financing activities for fiscal year ended September 30, 2008 consisted primarily of $30,000 (2007: $32,425) in loan proceeds and $200,000 (2007: $-0-) from sale of stock issued 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.
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PLAN OF OPERATION
We estimate that our total expenditures over the next twelve months will be approximately $168,000. 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. We anticipate that we will require additional financing in the approximate amount of $526,000 in order to enable us to sustain our operations for the next twelve months.
We plan to exploit our mobile games in their present form. While our strategy in each geographic market will vary according to a number of factors including the maturity of the local mobile gaming market and the telecom infrastructure available, our overall objective is to establish greater awareness of our mobile games in each marketplace in order to generate initial revenues. We plan to achieve this objective by undertaking sales and marketing campaigns in each market directed at local gateway owners. We will also continue creating relationships with strategic partners/resellers in different markets where we have few direct contacts. We also anticipate proceeding with the continued enhancement of our mobile games with a view to increasing their features and functionality.
We are presently inactive in our business operations due to a lack of financing. We are presently seeking financing that would enable us to continue our plan of operations or target the acquisition of a new business or properties. There is no assurance that we will be able to achieve the necessary financing to enable us to continue our plan of operations or complete any acquisition.
Our plan of operations for the next twelve months is to complete the following objectives within the time periods and within the budgets specified, subject to our achieving the necessary financing:
1.
We plan to carry out our sales and marketing efforts for our applications and games with the objective of securing sales to gateway owners and entering into further agreements with resellers. We anticipate that marketing activities will be carried throughout the course of the next twelve months. We anticipate that we will spend approximately $7,000 per month on sales and marketing activities during the next twelve months, for a total anticipated expenditure of $84,000.
2.
We anticipate spending approximately $20,000 over the next twelve months on the development of new features for our mobile games.
3.
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.
4.
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 SEC.
During the twelve month period following the date of this Annual Report, we anticipate that we will not generate revenues that exceed our operating costs. We anticipate based on our current cash and working capital and our planned expenses that we will be able to continue our plan of operations for three more months without additional financing. We believe that we will require substantial additional financing in order to commercialize our mobile games in order to earn revenues that exceed our operating expenses. We believe that debt financing from third parties will not be an alternative for funding of our planned activities as we do not have tangible assets to secure any debt financing. We anticipate that additional funding will be in the form of equity financing from the sale of our common stock or sales of convertible promissory notes that are convertible into shares of our common stock. If we do not obtain the necessary additional financing, we will be forced to abandon our plan of operations and our business activities.
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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.
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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:
Loan Agreement
On April 15, 2008, we entered into a loan agreement with Green Shoe Investments Ltd., an unrelated third party (“Green Shoe”), for debt financing. The loan was for $30,000 bearing interest at a rate of 5% per annum calculated monthly for a period of one year ending April 15, 2009. The loan is due on demand after the maturity date. As of September 30, 2008, interest in the amount of $688 was accrued.
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.
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ITEM 7A.
ITEM 7A.
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 Pund 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.
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ITEM 8.
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
Page
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as at September 30, 2008 and September 30,
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,
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,
Notes to Financial Statements
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MOORE & ASSOCIATES, CHARTERED
ACCOUNTANTS AND ADVISORS
PCAOB REGISTERED
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Coloured (US), Inc.
(A Development Stage Company)
We have audited the accompanying balance sheets of Coloured (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 (Incorporation) 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 Coloured (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 (Incorporation) 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 $4,062,596, which raises substantial doubt about its ability to continue as a going concern. Management’s plans concerning these matters are also described in Note [insert note #]. 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
December 23, 2008
6490 West Desert Inn Rd, Las Vegas, NV 89146 (702) 253-7499 Fax (702) 253-7501
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Coloured (US) Inc.
(Formerly Emcor Holdings Inc.)
(A Development Stage Company)
Notes to Consolidated Financial Statements
September 30, 2008
US Funds
1. Basis of Presentation
Organization
Coloured (US) Inc. (the “Company” or "Emcor") was incorporated on April 5, 2005 under the laws of the State of Nevada, under the name of Emcor Holdings Inc. Effective September 30, 2005, the Company completed a Share Exchange Agreement (“Agreement”) with Coloured Industry Limited (“Coloured”). Coloured, a technology and marketing company headquartered in London, England, was incorporated on May 2, 2003. Pursuant to the Agreement, the Company agreed to issue to the shareholders of Coloured 12,000,000 common shares in exchange for 100% of the issued and outstanding shares of Coloured. On September 30, 2005, Coloured complete the reverse acquisition under a Stock Exchange Agreement (“RTO”) with Emcor. Immediately before the date of the RTO, Emcor had 100,000,000 shares authorized and 5,667,660 shares of common stock issued and outstanding. Pursuant to the RTO, all of the 2,087,000 issued and outstanding shares of common stock of Coloured were exchanged for 12,000,000 shares of Emcor, on an approximately 5.75 to 1 basis. The transaction was accounted for as a recapitalization of the Company. On December 8, 2005, the Company changed its name to Coloured (US) Inc. The accompanying financial statements are the historical financial statements of Coloured.
Effective July 1, 2008, the Company wound up Coloured Industry Limited, the UK Subsidiary. The Company does not currently have any ongoing business operations. 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 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 have reclassified the accounts of Coloured Industry Limited since its incorporation on May 3, 2003 as discontinued operations.
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.
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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)
Foreign Currency Translations
The Company’s reporting currency is the U.S. dollar. All transactions initiated in other currencies are re-measured into the reporting 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.
e)
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.
f)
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.
g)
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.
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h)
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”.
i)
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. At June 30, 2008, comprehensive loss consisted of the net loss for the period and foreign currency translation adjustments.
j)
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.
k)
Recently Adopted Accounting Standards
In February 2007, the Financial Accounting Standards Board (the “FASB”) issued Statement of Financial Accounting Standards (“SFAS”) 159, “The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”). SFAS 159 allows the Company to choose to measure many financial assets and financial liabilities at fair value. Unrealized gains and losses on items for which the fair value option has been elected are reported in earnings. SFAS 159 is effective for fiscal years beginning after November 15, 2007. The adoption of SFAS 158 is not expected to have a material impact on the Company’s financial position, results of operation or cash flows.
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6.
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:
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ITEM 9.
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
On July 23, 2008, we terminated the services of Dale Matheson Carr-Hilton Labonte LLP (“DM”) as our independent registered public accounting firm.
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 the Registrants financial statements for such years. Further, there were no reportable events as described in Item 304(a)(1)(iv)(B) of Regulation S-B occurring within the Registrant's 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 consolidated 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 has not generated revenues since inception, 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 the Registrant's 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 this Report 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.
Index
On July 23, 2008, we engaged Moore & Associates, CHTD (“Moore”), as our 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.
ITEM 9A.
ITEM 9A.
CONTROLS AND PROCEDURES
As required by Rule 13a-15 under the Securities Exchange Act of 1934 (the “Exchange Act”), we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2008, being the date of our most recently completed fiscal year. This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, Mr. Lars Brannvall. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective 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 by the rules and forms of the Securities and Exchange Commission (the “SEC”) .
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and our Chief Financial Officer, to allow timely decisions regarding required disclosure.
During the fiscal year ended September 30, 2008, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to affect, our internal control over financial reporting during the fiscal year ended September 30, 2008.
The term “internal control over financial reporting” is defined as a process designed by, or under the supervision of, the registrant’s principal executive and principal financial officers, or persons performing similar functions, and effected by the registrant’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
(a)
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the registrant;
(b)
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the registrant are being made only in accordance with authorizations of management and directors of the registrant; and
(c)
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the registrant’s assets that could have a material effect on the financial statements.
Index
ITEM 9B.
ITEM 9B.
OTHER INFORMATION
No report required.
PART III
ITEM 10.
ITEM 10.
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
Lars Brannvall
Name of Executive Officer
Age
Office
Lars Brannvall
President and Chief Executive Officer
Lars Brannvall. Mr. Brannvall is our president, secretary, treasurer and sole director, having been appointed to those roles concurrent with the closing of our acquisition of our subsidiary, Coloured UK on September 30, 2005. Mr. Brannvall was the managing director of Coloured UK since August 15, 2003, and serves as our sole officer and director. His focus is on our distribution and sales channels, building relationships with mobile operators, portals, media houses, resellers and agents to create new opportunities for the company and its products.
Prior to joining Coloured UK, Mr. Brannvall was the Business Development Manager at LDC Network Limited, a UK-based mobile gaming company, from July 2002 until June 2003. He was also the European Marketing and Business Development Manager for Pricejamieson, a UK-based recruitment consultant, for the period from August 2000 until February 2002. In his career, Mr. Brannvall has over 10 years of experience in sales, marketing and international business development with various companies in the recruitment and hospitality industries, in addition to his experience in the wireless industry. He has a Bachelor of Arts in Business Management and Economics from Orebro University, Sweden.
Mr. Brannvall currently devotes his efforts to our business on a part-time basis. Mr. Brannvall has not been a director of any reporting company under the Exchange Act or any other publicly traded company.
Index
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. Lars Brannvall, our sole director and officer, does not qualify as an “audit committee financial expert”, as defined by the rules of the SEC. Further, Mr. Brannvall 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. Lars Brannvall, 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. Lars Brannvall, our president, chief executive officer and sole director.
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.
Index
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.
Debra Rosales, Lars Brannvall, Colour Industry Inc. and Outlander Management are considered promoters of our company, having taken initiative in organizing our current business. (For additional details, please see the discussion under the heading “Description of 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 the 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.
ITEM 11.
ITEM 11.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain compensation information as to our president and chief executive officer, Lars Brannvall 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
($)
Lars Brannvall
$Nil
Nil
$Nil
Nil
Nil
Nil
Nil
$Nil
$Nil
Nil
$Nil
Nil
Nil
Nil
Nil
$Nil
(1)
$1,851
Nil
$Nil
Nil
Nil
Nil
Nil
$1,851
(1) Mr. Brannvall has been our Chief Executive Officer since September 30, 2005.
Index
STOCK OPTIONS/SAW GRANTS IN FISCAL YEAR ENDED MARCH 31, 2008
As of the date of this Annual Report, we do not have a stock option plan. The following table reflects as at September 30, 2008 no stock options have been granted to the Named Executive Officer:
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
OPTION AWARDS
STOCK AWARDS
Name
Number of Securities Underlying Unexercised Options
Exercisable
(#)
Number of Securities Underlying Unexercised Options
Unexercisable
(#)
Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options
(#)
Option Exercise Price
($)
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
($)
Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested
(#)
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested
(#)
Lars Brannvall, President
n/a
Index
The following table sets forth information relating to compensation paid to our director during fiscal year ended September 30, 2008:
DIRECTOR COMPENSATION TABLE
Name
Fees
Earned or
Paid in
Cash
($)
Stock
Awards
($)
Option
Awards
($)
Non-Equity
Incentive
Plan
Compensation
($)
Change in
Pension
Value and
Nonqualified
Deferred
Compensation
Earnings
($)
All
Other
Compensation
($)
Total
($)
Lars Brannvall
EMPLOYMENT AGREEMENT
Lars Brannvall provides his services as managing director to Coloured UK under a contract dated August 6, 2003. Mr. Brannvall is obligated to devote his full business time to our business. We have agreed to pay to Mr. Brannvall a salary of ₤24,000 per annum ($47,040 based on a foreign exchange rate on December 27, 2006 of $1.96: ₤1.00). In addition, Coloured UK agreed to issue to Mr. Brannvall ordinary shares of Coloured UK up to a maximum of 245,000 shares. By agreement, all 245,000 shares were issued to Mr. Brannvall prior to the execution of the Share Exchange Agreement. These shares were exchanged for 1,408,720 shares of our common stock upon completion of our acquisition of Coloured UK. No additional shares are issuable to Mr. Brannvall pursuant to his employment contract.
Effective November 1, 2005, Mr. Brannvall has agreed not to take any salary until such time as we secure an arrangement with a gateway owner to provide our mobile games and which has the potential to generate earnings for us. Effective as of September 30, 2008 and based upon the winding up of the subsidiary, the employment agreement between Mr. Brannvall and Coloured UK has been terminated. See “Item 12.
ITEM 12.
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 73,494,610 shares of common stock issued and outstanding
Index
Title of class
Name and address of beneficial owner(2)
Amount and nature of beneficial owner
Percentage of class(1)
Directors and Officers
Common Stock
Lars Brannvall
1,608,721
2.18%
Buckingham Road
Brighton, UK
BN1 3RQ
Common Stock
All executive officers and
1,608,721
2.18%
directors as a group (one
person)
5% Shareholders
Common Stock
Colour Industry Inc.(3)
5,772,292
7.85%
FD ICIC Building,
Lower Factory Road,
St. John’s, Antigua
Common Stock
The Coloured Industry
6,000,000
8.16%
Technology Partnership 2
LLP(4)
Bedford Road
London, UK WC1R 4DF
Common Stock
The Mobile Warrior
6,000,000
8.16%
Technology Partnership LLP(5)
Bedford Road
London, UK WC1R 4DF
Common Stock
Karada Ltd.
34,845,950
47.41%
Ajeltake Rd
Ajeltake, Majuro
Marshall Islands
Index
(1) The percentage of class is based on 73,494,610 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) All of the shares of Coloured Industry Inc. are owned by The Outlander Trust. The trustees of The Outlander Trust have voting and dispositive control over the shares held by The Outlander Trust. There are two co-trustees of The Outlander Trust, namely Wealth Management Inc. and United Trust Company Limited. The director of Wealth Management Inc. is Laura Mouck. The directors of United Trust Company Limited are Margaret Ferrari, Andrew Cummings, G. Grahame Bollers and Monica Roberts.
(4) The Coloured Industry Technology Partnership 2 LLP is a limited liability partnership comprised of twenty three equity partners and two designated partners, each of whom is a limited partner. Mr. Paul Carter is a designated partner and is the administrator of the partnership pursuant to a services agreement between Mr. Paul Carter 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. Paul Carter exercises voting and investment control over the securities held by The Coloured Industry Technology Partnership 2 LLP.
(5) The Mobile Warrior Technology Partnership LLP is a limited liability partnership comprised of forty equity partners and two designated partners, each of whom is a limited partner. Mr. Paul Carter is a designated partner and is the administrator of the partnership pursuant to a services agreement between Mr. Paul Carter 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. Paul Carter exercises voting and investment control over the securities held by The Mobile Warrior Technology Partnership LLP.
Index
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.
ITEM 13.
ITEM 13.
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
Sharon 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.
EMPLOYMENT AGREEMENT
Lars Brannvall is our sole officer and director. Prior to our acquisition of Coloured UK, Mr. Brannvall was the managing director and a shareholder of Coloured UK. Under the share exchange agreement whereby we acquired Coloured UK as our wholly-owned subsidiary, Mr. Brannvall received 1,408,720 shares in our company in exchange for his shares in Coloured UK. Upon the acquisition of Coloured UK, Mr. Brannvall was appointed to replace Ms. Cocker as our sole officer and director.
Mr. Brannvall previously provided services as chief executive officer to us under a contract between Mr. Brannvall and Coloured UK dated August 6, 2003. Mr. Brannvall is obligated to devote his full business time to our business. We agreed to pay to Mr. Brannvall a salary of ₤24,000 per annum. In addition, Coloured UK agreed to issue to Mr. Brannvall up to a maximum of 245,000 ordinary shares of Coloured UK. By agreement, all 245,000 shares were issued to Mr. Brannvall prior to the execution of the Share Exchange Agreement. These shares were exchanged for 1,408,720 shares of our common stock upon completion of our acquisition of Coloured UK. No additional shares are issuable to Mr. Brannvall pursuant to his employment contract. Effective approximately June 30, 2008 and based upon the winding up of the subsidiary, the employment agreement between Mr. Brannvall and Coloured UK has been terminated.
Index
COLOUR INDUSTRY INC.
Coloured UK’s initial corporate activities were funded by CII. Coloured UK entered into a loan agreement dated October 8, 2003 with CII whereby CII agreed to extend a secured loan facility to Coloured UK in the maximum amount of ₤120,000 ($199,211.16, based on the foreign exchange rate on October 8, 2003 of $1.6601: ₤1.0000). As at April 26, 2005, Coloured UK’s outstanding debt to CII under the secured loan facility was ₤108,450 ($206,722, based on a foreign exchange rate on April 26, 2005 of $1.9062: ₤1.0000). Coloured UK and CII entered into a debt settlement agreement on April 26, 2005 whereby the outstanding debt was settled by the issuance to CII of 1,075,000 Ordinary A shares in the capital of Coloured UK at a deemed value of ₤0.1009 per share. CII subsequently exchanged these shares for shares of our common stock upon completion of the share exchange agreement on September 30, 2005.
CII was issued 9,947,292 shares of our common stock on September 30, 2005 upon the completion of our acquisition of Coloured UK pursuant to the Share Exchange Agreement. These shares were issued by us in exchange for CII’s shares in Coloured UK. The cost to CII of its shares in Coloured UK was $218,458, being: (i) $206,722 for the shares issued upon the debt settlement, (ii) ₤5,000 ($8,893 based on a foreign exchange rate on December 22, 2003 of $1.7786: ₤1.0000) for the purchase of its initial shares of Coloured UK, and (iii) ₤1,550 ($2,843 based on a foreign exchange rate on April 30, 2004 of $1.8341: ₤1.0000) for a subsequent purchase of shares of Coloured UK. CII subsequently transferred 4,175,000 shares to five of the selling shareholders named herein in private transactions.
We purchased five of our six mobile games from CII on February 28, 2006 pursuant to the an intellectual property acquisition agreement between us and CII dated January 31, 2006. This acquisition followed the re-acquisition by CII of the intellectual property for those mobile games from the Coloured Technology Partnership. We issued 6,000,000 shares of our common stock to CII in consideration of these intellectual property assets. CII in turn paid as consideration 6,000,000 shares of our common stock to The Coloured Technology Partnership 2 LLP in connection with the acquisition of these five mobile games from The Coloured Technology Partnership 2 LLP.
CONTRACTUAL ARRANGEMENTS
Outlander Management Ltd.
Outlander Management, a private corporation that provided administration services to Coloured UK, was issued 574,992 shares of our common stock on September 30, 2005 in exchange for the shares of Coloured UK held by Outlander Management. The cost to Outlander Management of its shares in Coloured UK was ₤1,000 ($1,834 based on a foreign exchange rate on April 30, 2004 of $1.8341: ₤1.000).
We paid or accrued the following fees to Outlander Management during 2008 and 2007 in respect of administrative services provided by Outlander Management:
Expense
Year ended
September 30,
Year ended
September 30,
Accounting
$Nil
$Nil
Legal fees
$Nil
$Nil
Salaries and Wages
$Nil
$Nil
As at September 30, 2008, we have an amount payable to Outlander Management of $27,224.72 for management services. Effective approximately June 30, 2008 and based upon the winding up of the subsidiary, the agreement between Outlander Management and Coloured UK has been terminated.
Index
Azuracle Ltd.
As at September 30, 2008, we owed $35,917.20 to Azuracle for accrued rent. Azuracle is a related party to our company because it had a director in common, namely Ulrik DeBo, with Outlander Management, one of our promoters. Mr. DeBo was previously, but is no longer, a director of Outlander Management. Effective approximately June 30, 2008 and based upon the winding up of the subsidiary, the agreement between Azuracle and Coloured UK has been terminated. Azuracle has agreed to provide the Company the same office space rent free until such time as we have arranged and received sufficient funding to pay our accrued liabilities. At that point, new rental terms will be negotiated.
DeBondo Capital Inc.
As at September 30, 2008, we owed $236,583.43 to DeBondo for advances made to pay for some of our expenses. DeBondo is a related party to our company because it had a director in common, namely Ulrik DeBo, with Outlander Management, one of our promoters. Mr. DeBo was previously, but is no longer, a director of Outlander Management.
DeBondo Capital Limited
We entered into a one year consulting agreement dated August 1, 2006 with DeBondo Capital Limited, a related company that has an officer in common with a corporate shareholder of the Company. The monthly payments for general consulting services is $9,326 (GBP 5,000) per month for a minimum of one year beginning on the agreement date. During fiscal 2008, $117,460 was accrued on account of amounts owing under this agreement, such that the amount owing as at September 30, 2008 was $138,325. The agreement will automatically renew on a month-to-month basis with the same terms and conditions. At any time after August 1, 2007, either party may terminate this agreement with one month’s advance written notice. Effective approximately June 30, 2008 and based upon the winding up of the subsidiary, the agreement between DeBondo Capital Limited and Coloured UK has been terminated.
ITEM 14.
ITEM 14.
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:
Index
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.
ITEM 15.
ITEM 15.
EXHIBITS AND FINCIAL STATEMENT SCHEDULES
The following exhibits are included with this Annual Report on Form 10-KSB:
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 31, 2003, between The Mobile Warrior Technology Partnership LLP and LDC Network Limited
10.2(1)
Letter Agreement dated effective April 2, 2004, between LDC Network Limited and Coloured UK
10.3(1)
Agency Exploitation Agreement dated August 6, 2003, between The Coloured Industry Technology Partnership and Coloured UK
10.4(1)
Employment Agreement between Coloured UK and Lars Brannvall dated August 6,
10.5(1)
Loan Agreement dated October 8, 2003, between Coloured UK and CII
10.6(1)
Debt Settlement Agreement dated April 26, 2005, between Coloured UK and CII
10.7(1)
Share Exchange Agreement dated May 23, 2005, as amended, among Emcor Holdings Inc., Coloured UK and the stockholders of Coloured UK
10.8(1)
Asset Purchase Agreement dated January 31, 2006, between Coloured (US) Inc. and CII (Coloured Mobile Games)
10.9(1)
Asset Purchase Agreement dated January 31, 2006, between Coloured (US) Inc. and ABS Capital (Mobile Warrior Game)
10.10(1)
Debt Conversion Agreement dated February 28, 2006, between Emcor Holdings Inc. and CISA Holdings APS
10.11(1)
Debt Conversion Agreement dated February 28, 2006, between Emcor Holdings Inc. and Dan Simmons
10.12(1)
Termination and Release Agreement dated February 28, 2006, among Coloured UK and the Coloured Industry Technology Partnership LLP
10.13(1)
Termination and Release Agreement dated February 28, 2006, among Coloured UK and The Mobile Warrior Technology Partnership LLP
10.14(1)
Debenture Agreement dated October 8, 2003 between Coloured UK and CII evidencing The indebtedness of Coloured UK under the Loan Agreement
10.15(1)
Service Agreement dated August 4, 2004, between Coloured UK and Outlander Management
10.16(1)
Reseller Agreement dated February 19, 2004, between Coloured UK and Mtertainment Korea covering the territory of Asia, with exclusivity in Singapore
10.17(1)
Reseller Agreement dated February 20, 2004, between Coloured UK and Tele- Publishing UK Ltd. (also known as G8wave) covering the territory of the United Kingdom
Index
Exhibit Number
Description of Exhibit
10.18(1)
Worldwide Reseller Agreement dated February 20, 2004, between Coloured UK and Mocondi Ltd.
10.19(1)
Reseller Agreement dated March 13, 2004, between Coloured UK and Mobiletones Asia Pte Ltd. covering the territory of Asia, excluding Singapore
10.20(1)
Reseller Agreement dated March 10, 2005, between Coloured UK and Net People International Inc. covering the territory of Latin America (South & Central America), Mexico and the Caribbean
10.21(1)
Reseller Agreement dated April 19, 2004, between Coloured UK and Mobilkraft covering the territory of Sweden
10.22(1)
Reseller Agreement dated September 27, 2004, between Coloured UK and Nostromo ICT covering the territory of the Czech Republic
10.23(1)
Reseller Agreement dated November 25, 2004, between Coloured UK and Voicelock Ltd. (also known as Trust5) covering the territory of the United Kingdom and Ireland
10.24(1)
Worldwide Reseller Agreement dated December 12, 2004, between Coloured UK and Tracebit Ltd
10.25(1)
Reseller Agreement dated December 22, 2004, between Coloured UK and Mobile Minds covering the territory of Hungary, Slovakia, Czech Republic and Pakistan
10.26(1)
Reseller Agreement dated February 3, 2005, between Coloured UK and iTech Solutions India PVT Ltd covering the territory of India and the Indian Subcontinent
10.27(1)
Subscription agreement between the Company and Sharon Cocker dated April 8, 2005 relating to the Company’s private offering of 500,000 shares
10.28(1)
Form of subscription agreement relating to the Company's May 31, 2005 private offering of 4,500,000 common shares at $0.01 per share
10.29(1)
Administration Agreement dated July 1, 2005 between Coloured UK and Azuracle Limited
10.30(1)
Closing Agreement dated September 30, 2005 amongst Emcor Holdings Inc., and the shareholders of Coloured UK
10.31(1)
Form of subscription agreement and amendment agreement relating to the Company’s September 30, 2005 private offering of 677,660 common shares at $0.05 per share
10.32(1)
Form of subscription agreement relating to the Company’s March 13, 2006 private offering of 202,000 common shares at $0.25 per share
10.33(2)
Consulting agreement dated August 1, 2006 between the Company and DeBondo Capital Limited
10.34 (4)
Release and Settlement Agreement between Coloured (US) Inc. and Karada Ltd. dated December 12, 2008.
16 (5)
Letter from Dale Matheson Carr-Hilton Labonte dated July 24, 2008.
31.1(3)
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act
32.1(3)
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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(1)
Filed as an exhibit to the original registration statement on Form SB-2 filed with the Securities and Exchange Commission on April 24, 2006.
(2)
Filed as an exhibit to our annual report on Form 10-K filed with the Securities and Exchange Commission on January 4, 2007.
(3)
Filed as an exhibit to this annual report on Form 10-K.
(4)
Filed as an exhibit to the current report on Form 8-K filed with the Securities and Exchange Commission on December 22, 2008.
(5)
Filed as an exhibit to the current report on Form 8-K filed with the Securities and Exchange Commission on July 25, 2008.
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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.
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