Annual. Report. XOX Bhd ( X)

Transcription

1 Annual 2012 Report XOX Bhd ( X)

2 Contents Corporate Information... 2 Corporate Structure... 4 Directors' Profile... 5 Chairman's Statement... 8 Statement on Corporate Governance Audit Committee Report Statement on Internal Control Statement of Directors' Responsibility Other Compliance Disclosures Financial Statements Analysis Of Shareholdings Notice of Annual General Meeting Appendix I - Nomination of Auditors Appendix II - Proposed Amendments to the Articles of Association Form of Proxy XOX Bhd ( X) Annual Report 2012

3 Corporate Information Board of Directors Dato Seri Abdul Azim bin Mohd Zabidi Non-Independent Non-Executive Chairman Ng Kok Heng Managing Director and Chief Executive Officer Soo Pow Min Independent Non-Executive Director Khoo Chuin Yuen Independent Non-Executive Director Izaddeen bin Daud Independent Non-Executive Director Faidzan bin Hassan Independent Non-Executive Director Audit Committee Faidzan bin Hassan Chairman Izaddeen bin Daud Soo Pow Min Khoo Chuin Yen Nomination Committee Dato Seri Abdul Azim bin Mohd Zabidi Chairman Soo Pow Min Khoo Chuin Yen Remuneration Committee Izaddeen bin Daud Chairman Khoo Chuin Yen Faidzan bin Hassan Company Secretaries Tan Tong Lang (MAICSA ) Chong Voon Wah (MAICSA ) Principal Bankers Ambank (M) Berhad (8515-D) Public Bank Berhad (6463-H) Hong Leong Bank Berhad (97141-X) 2 XOX Bhd ( X) Annual Report 2012

4 Corporate Information Registered Office Suite 10.03, Level 10, The Gardens South Tower Mid Valley City, Lingkaran Syed Putra Kuala Lumpur Telephone: (03) Facsimile: (03) Business Office 31-3, Block C, Jaya One 72A, Jalan Universiti Petaling Jaya Selangor Darul Ehsan Telephone: (03) Facsimile: (03) Sponsor AmInvestment Bank Berhad (23742-V) 22 nd Floor, Bangunan AmBank Group 55 Jalan Raja Chulan Kuala Lumpur Telephone: (03) Facsimile: (03) Auditors Crowe Horwath Level 16 Tower C, Megan Avenue II 12 Jalan Yap Kwan Seng Kuala Lumpur Telephone: (03) Facsimile: (03) Share Registrar Symphony Share Registrars Sdn Bhd ( D) Level 6, Symphony House Pusat Dagangan Dana 1 Jalan PJU 1A/ Petaling Jaya Selangor Darul Ehsan Telephone: (03) Facsimile: (03) Listing ACE Market of Bursa Malaysia Securities Berhad Stock Name: XOX Stock Code: 0165 Website XOX Bhd ( X) Annual Report 2012

5 Corporate Structure XOX Bhd 100% XOX Com Sdn Bhd 100% XOX Media Sdn Bhd 100% XOX Management Services Sdn Bhd 100% XOX Wallet Sdn Bhd 100% XOX Mobile Sdn Bhd 4 XOX Bhd ( X) Annual Report 2012

6 Directors Profile Dato Seri Abdul Azim bin Mohd Zabidi Dato Seri Abdul Azim bin Mohd Zabidi, a Malaysian aged 53, is the Non-Independent Non- Executive Chairman of the Company having being appointed to the Board on 30 June He graduated with a Masters of Arts in Business Law from the London Metropolitan University, United Kingdom in He is a Fellow Member of The Institute of Chartered Secretaries and Administrators. Dato Seri Abdul Azim started his career in 1984 as an officer in Bank of Commerce (M) Berhad and was promoted to Assistant Branch Manager in In 1989, he was appointed as the Group Head of Corporate Banking Department, a position he held until Dato Seri Abdul Azim joined Commerce Property Trust Managers Berhad (now known as Amanah Property Trust Managers Berhad) in 1990 as an Assistant General Manager in 1995 for Commerce Property Trust Managers Berhad/Commerce Asset Fund Managers Sdn Bhd. In 1999, Dato Seri Abdul Azim was appointed as the Chairman of Bank Simpanan Nasional, a position he held until Dato Seri Abdul Azim was appointed Chairman of Sungei Wang Plaza Sdn Bhd in 2007, a position he holds to date. Dato Seri Abdul Azim also sits on the board of directors of Tadmax Resources Berhad (formerly known as Wijaya Baru Global Berhad), OSK Ventures International Berhad, Timberwell Berhad and Zygox Berhad. Dato Seri Abdul Azim is presently the Chairman of the Nomination Committee of the Company. Ng Kok Heng Ng Kok Heng, a Malaysian aged 49, is the Managing Director and Chief Executive Officer of the Company, having been appointed to the Board on 30 June He graduated with a Bachelor of Computer Science (Honours) from the Universiti Sains Malaysia, Penang in He started his career in 1987 as a Sales Manager in Communications Technology Sdn Bhd and was in charge of sales and marketing. In 1992, he was appointed Executive Director for MTL Communications Sdn Bhd and was responsible for the marketing, sales and business development of the company. Subsequently in 2000, he joined Wilco Systems Sdn Bhd as the Managing Director and was responsible for the performance as well as the day-to-day operations of the company. He was also a consultant to Teligent AB, Sweden, a telecommunications provider and has worked with key players in various South East Asian countries such as Telekom Malaysia Berhad, Singapore Telecommunications Limited and Smart Communications Inc. He leads highly specialised teams of IT integrators and implementers to implement systems for telecommunications providers. 5 XOX Bhd ( X) Annual Report 2012

7 Directors Profile Soo Pow Min Soo Pow Min, a Malaysian aged 47, was appointed to the Board on 30 June 2010 as a Non- Independent Non-Executive Director and was redesignated on 5 January 2012 to an Independent Non-Executive Director. He graduated in 1990 with a Bachelor of Architecture in Structural Engineering from the University of Illinois, Chicago, United States of America. He started his career in 1990 with YTL Corporation Berhad as an Architect and was responsible for overseeing the architectural work of the company. In 1994, he founded Urban Builder as a sole proprietorship but subsequently ceased business in 1999 when he was appointed Director of Pembinaan Wincon Sdn Bhd, a position which he held to date. In 2009, he founded DP Land Sdn Bhd and has been the Director of DP Land Sdn Bhd since. Mr Soo is presently the Member of the Audit Committee and Nomination Committee of the Company. Khoo Chuin Yuen Khoo Chuin Yuen, a Malaysian aged 38, was appointed to the Board on 29 September 2011, as an Independent Non-Executive Director. He graduated with a Bachelor of Finance from the University of New Orleans, United States of America. He started his career as a Credit and Marketing Executive in MBF Finance Bhd in In 1999, he joined Citibank Berhad as a management associate and within three years, became the Manager of Mortgage Sales & Share Margin Financing. From 2004 to 2007, he worked in Prudential Fund Management Bhd, beginning as the Senior Regional Manager of Northern Region, before being promoted to be the Director of Marketing & Communications in 2006, and Chief Retail Marketing Officer in He was subsequently Chief Executive Officer & Acting Chief Investment Officer of Inter- Pacific Asset Management Sdn Bhd from January 2008 to February From November 2009 to date, he is the Chief Executive Officer of Standard Financial Planner Sdn Bhd. He is presently the Member of the Audit Committee, Remuneration Committee and Nomination Committee of the Company. Izaddeen bin Daud Izaddeen bin Daud, a Malaysian aged 44, was appointed to the Board on 29 September 2011, as an Independent Non-Executive Director. He graduated with a B.Sc (Hons) Accounting and Law from De Monfort University, United Kingdom. He is a member of the Federation of Malaysian Unit Trust Managers and the Financial Planning Association of Malaysia. He started his career as a Junior Auditor in Ernst & Young in In 1992, he was a Senior Officer of Oriental Bank Berhad and from 1992 to 1998, he was a Senior Manager of Perwira 6 XOX Bhd ( X) Annual Report 2012

8 Directors Profile Affin Merchant Bank Berhad. From 1999 to 2006, he was an Assistant Vice President in Permodalan Nasional Berhad. He was then appointed in 2006 as Chief Executive Officer of ASM Investment Services Berhad. He was the Managing Director of MARA Incorporated Sdn Bhd from 2008 to At present, he holds major positions in several companies, including being the Chairman of Serindit Sdn Bhd, director in Uniutama Holdings Sdn Bhd, Gandingan Erajuta Sdn Bhd, Rhodium Capital Sdn Bhd, and Universiti Utara Malaysia. Encik Izaddeen is presently the Chairman of Remuneration Committee and Member of the Audit Committee of the Company. Faidzan bin Hassan Faidzan bin Hassan, a Malaysian aged 52, was appointed to the Board on 4 July 2012, as an Independent Non-Executive Director. He graduated with an Advanced Diploma in Accounting from the University Institute Technology Mara. He was the Executive Director of Innosabah Securities Sdn Bhd from 1992 to Since 1995, he has been the principal partner/trustee of Sititrust & Administrators Limited, and since 2003, the Deputy Chairman of KIC Oil & Gas Ltd and the KIC Group of Companies. Encik Faidzan is presently the Chairman of the Audit Committee and Member of the Remuneration Committee of the Company. Note : The Directors do not have any family relationship with any other Directors and/or major shareholders of the Company. The Directors do not have any conflict of interest with the Company and have no conviction for any offences, other than traffic offences, if any, within the past ten (10) years. 7 XOX Bhd ( X) Annual Report 2012

9 Chairman s Statement On behalf of the Board, I am pleased to present to you the Annual Report of the Group and Company for the financial period from 1 January 2011 to 30 June Financial Performance As at 30 June 2012, the Group acquired 1,315,000 subscribers compared to 315,000 at the beginning of the financial period under review. The Average Revenue per User (ARPU) for the period was RM14. The growth in subscribers was a result of the efforts and strategies undertaken to enhance the Group s branding via advertising in various media channels such as billboards, radio and the internet. In addition, new products and services such as data plans and subscriber acquisition programmes through Chinese New Village roadshows and food court kiosks coupled with wider availability in the distribution channels through 7- Eleven convenience stores and MOL Points contributed to the growth in subscriber base. As a result of the strategies above, the Group recorded revenues of RM62 million during the period under review, an increase over the 2010 financial period revenues of RM17 million. The Group faced intense competition from incumbent operators as well as having to deal with a challenging operating environment arising from the increased use of smartphones and mobile applications which led to lower industry wide ARPU from traditional voice and SMS. We also faced slower than expected response to some of our products and slower than intended launches of some planned products. In response to these challenges, the Group had to incur higher than expected subscriber acquisition and retention costs to acquire new and maintain its subscriber base in the form of higher commissions and discounts and selling and distribution expenses. The Group incurred administrative and other expenses of RM14 million and RM5 million respectively for the 18 months period to 30 June 2012 compared to RM5 million and RM1 million for the period ended 31 December The higher expenses were incurred as the Group required a bigger administrative base to support its growth strategies. As a result, despite the increase in revenue and gross profit, the Group incurred a loss of RM20.7 million compared to RM16 million in the previous financial period. Industry Trend and Development In Bank Negara Malaysia s Quarterly Economic Bulleting for quarter 2 of 2012, it was reported that the communication sub-sector grew by 9.4% in the first half of 2012, supported by high usage of data communication services. With the rapid proliferation of devices that use data services such as smartphones or tablets, the industry is expected to see growth of demand for mobile data services. The same increase of smartphone and tablet usages, will lead to lower demand for traditional mobile services such as voice, SMS and MMS. This is because more consumers will be able to use the widely available mobile applications such as WhatsApp, Viber, Skype, Line and many others to enjoy low or no cost voice, SMS and MMS services. 8 XOX Bhd ( X) Annual Report 2012

10 Chairman s Statement Future Prospects The Group remains committed in maintaining its focus on introducing innovative products and services to expand our subscriber base in accordance with the fast changing trends in the mobile telecommunications industry. In view of the changing consumer behavior in using more mobile applications on smartphones to communicate and the erosion in traditional voice, SMS and MMS revenues, we have realigned our Group s focus to ensure that it is in line with current consumer trends. Specific examples include the following: Focus and promotion and enhancements on the more attractive data plans launched in the fourth quarter of 2011; Introduction of a new product offering SIM-Free mobile numbers with mobile service through a mobile application brand named Voopee in February 2012 with continuous Voopee updates and upgrades; and Introduction of the Social Network Portal in March 2012 where customers can buy Starter Packs online and perform Mobile Number Portability (MNP) online. XOX has launched a beta version of its SIM-Free mobile number mobile service application under the brand name Voopee on 1 February Voopee is currently available to Android smart-phone users. An ios version for the iphone is expected to be launched in the fourth quarter of The official media launch of Voopee was done on 8 May The Group s financial performance is dependent on the growth of its subscriber base and the average monthly revenue from the sales of recharge voucher per subscriber which is expected to be supported by the following factors: a) Expected wider acceptance and availability of the Group s products and services amongst its target market via campaigns initiated in the past and increased new distribution channel via the Social Network Portal which allow our Group s subscribers wider access to recharge vouchers, as well as increase in traditional trade channels; b) Realignment of existing and addition of new large distributor; c) Sales to groups of users within a community or organisation; and d) Introduction of new products and services such as special 3G data packs and feature enhancements to data plans. Corporate Social Responsibility In pursuit of any business objective, the Group needs to strike a balance between profitability and social responsibilities. The group is committed and uses its best endeavour, on an on-going basis to integrate corporate social responsibility practices into its day to day business operations. The Group has reviewed and will constantly review the staff benefits to 9 XOX Bhd ( X) Annual Report 2012

11 Chairman s Statement enhance the quality of life of its employees. The Group also practices recycling by ensuring that its waste paper is sent for recycling. Branding In a report produced by Brand Finance Singapore entitled The Brand Finance Top 100 Malaysia Brands Report 2012, we are pleased and encouraged to be included into their Top 100 Malaysia brands. Appreciation Lastly, we would like to offer our sincere gratitude and appreciation to our shareholders, customers, business associates, bankers, government authorities for their continued support and to our Board of Directors for their wisdom and guidance. Our appreciation also goes out to our valued employees for their continuing commitment and dedication to the Group. Dato Seri Abdul Azim bin Mohd Zabidi Non-Independent Non-Executive Chairman 10 XOX Bhd ( X) Annual Report 2012

12 Statement on Corporate Governance The Board of Directors ( the Board ) of XOX Bhd ( XOX or the Group or the Company ) strives to ensure good corporate governance practices are implemented and maintained throughout the Company and its subsidiaries ( Group ) as a fundamental part of discharging its duties to enhance shareholders values consistent with the principles and best practices set out in the Malaysian Code on Corporate Governance ( the Code ). The statement below sets out the manner in which the Group has applied the key principles and the extent of its compliance with the best practices set out in the Code throughout the financial period under review. A. Board of Directors The Board assumes responsibility for leading and controlling the Group. The Board has the overall responsibilities for corporate governance, risk management, internal controls, strategic direction, succession planning, formulation of policies and overseeing the investment and business of the Group. In carrying out its functions, the Board has delegated specific responsibilities to three Board Committees, namely Audit Committee, Nomination Committee and Remuneration Committee. These committees have the authority for their own specific issues and their recommendations are reported back to the Board. A.1 Board Balance The current Board of Directors consists of six (6) members, comprising a Non-Independent Non-Executive Chairman, one (1) Executive Director who is also the Managing Director/Chief Executive Officer and four (4) Independent Non-Executive Directors. The Company thus complies with Rule of the ACE Market Listing Requirements of Bursa Malaysia Securities Berhad ( Listing Requirements ) whereby at least two (2) or one-third (1/3) of the Board of Directors, whichever is higher, are independent directors. There is a clear division of responsibilities between the Chairman of the Board and the Managing Director/Chief Executive Officer to ensure that there is a balance of power and authority. The Chairman is responsible for running the Board and ensuring that all Directors receive sufficient and reliable information on financial and non-financial matters to enable them to participate actively in Board decisions whilst the Managing Director/Chief Executive Officer is responsible over the operating units, organisation effectiveness and implementation of the Board s policies and decisions. The size and composition of the Board reflects a balance of executive and non-executive directors who are reputable and professional person of calibre in the business environment to provide leadership and exercise control of the Group. The independent non-executive directors provide an unbiased and independent judgement to ensure a balanced an impartial Board decision making process. 11 XOX Bhd ( X) Annual Report 2012

13 Statement on Corporate Governance A.2 Board Meetings and Supply of Information to the Board Board meetings are held regularly and the details of the attendance during the financial period from 1 January 2011 to 30 June 2012 are as follows: No. of Meetings Name of Directors Attended Dato Seri Abdul Azim bin Mohd Zabidi 13/13 Ng Kok Heng 13/13 Soo Pow Min 10/13 Khoo Chuin Yuen (appointed on 29 September 2011) 7/8 Izaddeen bin Daud (appointed on 29 September 2011) 5/8 Faidzan bin Hassan (appointed 4 July 2012) Not applicable Wong Yip Kee (resigned on 12 October 2012) 13/13 Phoon Sow Cheng (resigned on 1 June 2012) 12/12 Lee Chong Hoe (resigned on 23 August 2011) 3/3 Yeoh Chong Keat (resigned on 23 August 2011) 3/3 The Directors have full and timely access to all information pertaining to the Group s business and affairs to enable them to discharge their duties. Senior management are invited to attend the Board meetings to explain and clarify matters as required. Prior to the Board meetings, the agenda for every meeting together with a full set of Board papers containing information relevant to the business of the meetings are circulated to the Directors for their perusal in advance before the meeting date. This is to allow the Directors to have sufficient time to review and consider the agenda items before the meeting and to obtain further explanations or clarifications, where necessary. The proceedings and resolutions reached at each Board meeting are documented in the minutes and signed by the Chairman of the next Board meeting. Besides Board meetings, the Board exercises control on matters that require Board s approval through circulation of Directors Resolutions. These documents are kept at the registered office. All Directors have access to all information within the Company as well as the advice and services of the Company Secretaries who are qualified professionals, whether as a full Board or in their individual capacity to assist them in their decision making. When necessary, Directors may also obtain independent professional advice at the Company s expense to enable the directors to discharge their duties with adequate knowledge on the matters being deliberated. A.3 Re-election of Directors In accordance with the Company s Articles of Association, at the first Annual General Meeting ( AGM ) of the Company, all the Directors shall retire from office, and at the AGM in every subsequent year, an election of directors shall take place and one-third (1/3) of the Directors (including the Managing Director) for the time being, or if their number is not three (3), or a multiple of three (3), then the number nearest to one-third (1/3) with a 12 XOX Bhd ( X) Annual Report 2012

14 Statement on Corporate Governance minimum of one (1) shall retire from office and be eligible for re-election PROVIDED ALWAYS that all Directors including a Managing Director shall retire from office at least once in every three (3) years but shall be eligible for re-election. A retiring Director shall retain office until the close of the meeting at which he retires and shall be eligible for re-election. Any Director appointed during the year is required to retire and seek re-election by shareholders at the first AGM following his appointment. Directors over seventy (70) years of age are required to submit themselves for re-appointment annually in accordance with the Section 129 (6) of the Companies Act, A.4 Nomination Committee In line with the Best Practices of the Code, the Board has established a Nomination Committee which comprise exclusively of Non-Executive Directors and majority are Independent Non-Executive Directors. The present members of the Nomination Committee of the Company are: Chairman Dato Seri Abdul Azim bin Mohd Zabidi (Non-Independent Non-Executive Chairman) Members Sow Pow Min (Independent Non-Executive Director) Khoo Chuin Yen (Independent Non-Executive Director) The functions of the Nomination Committee are summarise as following: a) Proposing new nominees for appointment to the board of directors. b) Recommend to the board, directors to fill the seats on other board committees. c) To annually assess the effectiveness of the Board as a whole, Board Committees and the contributions of each individual Director, taking into consideration the required mix of skills, expertise, experience and other requisite qualities including core competencies contributed by the Directors. d) Orientating and educating new directors as to the nature of the business, current issues within the company and the corporate strategies, the expectations of the company concerning input from the directors and the general responsibilities of directors. e) To recommend to the Board the re-election of directors who retire at annual general meeting. A.5 Directors Training All the Directors appointed to the Board have completed the Mandatory Accreditation Programme as prescribed by the Listing Requirements of Bursa Malaysia Securities Berhad. The Directors remain committed to undergoing further continuing education training programmes to upgrade and enhance their business acumen and professionalism in discharging their duties to the Group. 13 XOX Bhd ( X) Annual Report 2012

15 Statement on Corporate Governance The following Board members have attended several relevant courses/seminars during the financial period from 1 January 2011 to 30 June 2012 as detailed below: Name of Director Courses Attended Dato Seri Abdul Azim bin Mohd Zabidi The Politics of Economic and Social Transformation in the Era of Global Crises The Malaysian Code on Corporate Governance 2012 Seminar Ng Kok Heng Mobile Payments & NFC Asia 2011 Conference Khoo Chuin Yuen Professional Development Day Series 1/2012 : Building a Successful Financial Advisory Practise Professional Development Day Series 2/2012 : Wealth Distribution & Preservation, Creditors Protection & Business Succession Planning Faidzan bin Hassan Not applicable * * Encik Faidzan bin Hassan was appointed as a director of the Company on 4 July Saved as disclosed above, other Directors were not able to attend any Directors training during the financial period due to overseas travelling and busy schedule. However, they have kept themselves abreast on financial and business matters through readings to enable them to contribute to the Board. They are also aware of the duties and responsibilities and will continue to undergo other relevant training programmes to keep abreast with new regulatory developments and requirements in compliance with the Listing Requirements on continuing education. B. Directors Remuneration The determination of the remuneration for Non-executive Directors is decided by the Board as a whole. The remuneration of Executive Directors is the purview of the Remuneration Committee who will evaluate and recommend to the Board. Individual directors concerned have abstained from discussing and deciding on their own remuneration. B.1 Remuneration Committee In line with the Best Practices of the Code, the Board has established a Remuneration Committee which comprise exclusively of Independent Non-Executive Directors of the Company. The present members of the Remuneration Committee of the Company are: Chairman Izaddeen bin Daud (Independent Non-Executive Director) Members Khoo Chuin Yen (Independent Non-Executive Director) Faidzan bin Hassan (Independent Non-Executive Director) 14 XOX Bhd ( X) Annual Report 2012

16 Statement on Corporate Governance The Remuneration Committee is principally responsible for assessing and reviewing the remuneration packages of the Executive Directors including their fees and subsequently furnishes recommendations to the Board on specific adjustments in remuneration to commensurate with the respective contributions of the Directors. The functions of the Remuneration Committee are: a) Recommend to the board the framework of executive remuneration and its cost, and the remuneration package for each executive director, taking into account the performance of the individual, the inflation price index and information from independent sources on the rates of salary for similar jobs in selected group of comparable companies. b) To reimburse reasonable expenses incurred by the directors in course of their duties as directors. c) To review and determine the bonus scheme for executive directors depending on various performance measurements of the Group. d) To review and determine the other benefits in kind for the executive directors. e) To review annually the executive directors service contracts. B.2 Details of Directors Remuneration The details of directors remuneration for the financial period from 1 January 2011 to 30 June 2012 are as follows: Fee RM Salaries RM Allowances RM Total RM Category Executive Director - 2,088,000 72,600 2,160,600 Non-executive Director 50, , ,835 Total 50,000 2,088, ,435 2,408,435 The Directors remuneration within the following bands is as follows: Range of Remuneration Number of Executive Directors Number of Non- Executive Directors Below RM50,000-7 RM1,050,000 RM1,100, The Board is of the view that the detailed remuneration disclosure of each director is not disclosed as the information will not add significantly to the understanding and evaluation of the Group s corporate governance. 15 XOX Bhd ( X) Annual Report 2012

17 Statement on Corporate Governance C. Communication with Shareholders and Investors C.1 Relationship with Shareholders The Board recognises the need for transparency and accountability to the Company s shareholders as well as regular communication with its shareholders, stakeholders and investors on the performance and major developments in the Company. The Company ensures that timely releases of the quarterly financial results, press releases and corporate announcements are made to its shareholders and investors, which are clear, unambiguous, succinct, accurate and contains sufficient and relevant information. The Group also maintains a website whereby information can be obtained. C.2 Annual General Meeting The Annual General Meeting ( AGM ) represents the principal forum for dialogue and interaction with all the shareholders of the Company. At the AGM, the Board provides opportunities for shareholders to participate in the question and answer session where all Directors as well as the external auditors are present to respond to the shareholders questions during the AGM. The Company values feedback from its shareholders and encourages them to actively participate in discussion and deliberations. D. Accountability and Audit D.1 Financial Reporting The Board has a responsibility and aims to provide and present a fair and balanced assessment of the Group s financial performance and its prospects. The financial statements of the Company are drawn up in accordance with the requirements of the applicable accounting standards in Malaysia and provision of the Companies Act, With assistance from the Audit Committee, the Board oversees the Group s financial reporting processes and the quality of its financial reporting. D.2 Internal Control The Board is overall responsible for maintaining a sound system of internal controls to safeguard shareholders investment and Group s assets. The Statement on Internal Control as set out on page 23 of the annual report provides an overview of the state of internal controls within the Group. D.3 Relationship with Auditors Through the Audit Committee, the Group has established a transparent and appropriate relationship with the Group s auditors, in seeking professional advice and ensuring compliance with the applicable accounting standards and statutory requirements in 16 XOX Bhd ( X) Annual Report 2012

18 Statement on Corporate Governance Malaysia. The Audit Committee has been explicitly accorded the power to communicate directly with both the External Auditors and Internal Auditors. E. Statement of Compliance with the Code The Board is committed to ensure high standards of corporate governance and to their best ability and knowledge complied with the Best Practices set out in the Malaysian Code on Corporate Governance. 17 XOX Bhd ( X) Annual Report 2012

19 Audit Committee Report 1 Members of the Audit Committee The Board has established a Audit Committee to assists the Board in fulfilling its fiduciary responsibilities relating to corporate accounting, financial reporting practices, system of internal control, the audit process and the process of monitoring compliance with laws and regulations. The members of Audit Committee shall be appointed by the Board from amongst the Directors of the Company and shall comprise of at least three (3) members, all of whom must be Non-Executive Directors, with a majority of them being independent. The Board shall at all the times ensure that at least one (1) member of the Audit Committee: i) must be a member of the Malaysian Institute of Accountants ( MIA ); or ii) if he is not a member of the MIA, he must have at least three (3) years' working experience and: a) passed the examinations specified in Part I of the First Schedule of the Accountants Act 1967; or b) must be a member of one of the associations of accountants specified in Part II of the First Schedule of the Accountants Act 1967; or iii) fulfils such other requirements as prescribed or approved by Bursa Malaysia Securities Berhad. No alternate director shall be appointed as a member of the Audit Committee. The members of the Audit Committee shall elect a Chairman from among their number who shall be an Independent Director. The term of office and performance of the Audit Committee and each of its members shall be reviewed by the Board at least once every three (3) years to determine whether the members have carried out their duties in accordance with their terms of reference. If a member of the Audit Committee resigns or for any other reason ceases to be a member with the result that the number of members is reduced to below three (3), the Board shall, within three (3) months from the date of that event, appoint such number of new members as may be required to make up the minimum number of three (3) members. The Company Secretary or his nominee or such other persons authorised by the Board shall act as the Secretary of the Audit Committee. The present members of the Audit Committee are as follows: Designation Name Directorship Chairman Faidzan bin Hassan Independent Non-Executive Member Soo Pow Min Independent Non-Executive Member Khoo Chuin Yuen Independent Non-Executive Member Izaddeen bin Daud Independent Non-Executive 18 XOX Bhd ( X) Annual Report 2012

20 Audit Committee Report 2 Functions of the Audit Committee The Audit Committee assists the Board in discharging its oversight responsibilities. The objectives of the Audit Committee are to provide an additional assurance to the Board by giving objective and independent reviews of the financial, operational and administrative controls and procedures, establishing and maintaining internal controls and reinforce the independence of the external auditors, ensuring that the auditors have free reign in the audit process. The Audit Committee shall, amongst others, discharge the following functions: (a) Review the following and report the same to the Board of Directors of the Company: (i) with the external auditors, the audit plan, the nature and scope of work and ascertain that it will meet the needs of the Board, the shareholders and regulatory authorities; (ii) with the external auditors, their evaluation of the quality and effectiveness of the entire accounting system, the adequacy and integrity of the internal control system and the efficient of the Group s operations; (iii) with the external auditors, their audit report; (iv) the assistance given by employees of the Group to the external and internal auditors; (v) the adequacy of the scope, functions, competency and resources of the internal audit function and that it has the necessary authority to carry out its work including inter-alia the appointment of internal auditors; (vi) the internal audit programme, processes and results of the internal audit programme, processes, major findings of internal investigation and Management s response and whether or not appropriate action is taken on the recommendations of the internal audit function; (vii) review any appraisal or assessment of the performance of members of the internal audit function; (viii) the quarterly results and annual financial statements prior to the approval by the Board of Directors, focussing particularly on: i. changes in or implementation of major accounting policies and practices; ii. significant and unusual events; iii. significant adjustments arising from the audit; iv. compliance with accounting standards, other statutory and legal requirements and the going concern assumption; v. the accuracy and adequacy of the disclosure of information essential to a fair and full presentation of the financial affairs of the Group. (ix) any related party transactions and conflict of interest situations that may arise within the Company or the Group and any related parties outside the Group including any transaction, procedure or course of conduct that raises questions of management integrity; (x) any letter of resignation from the external auditors of the Company; (xi) whether there is any reason (supported by grounds) to believe that the Company s external auditors are not suitable for re-appointment; and 19 XOX Bhd ( X) Annual Report 2012

21 Audit Committee Report (xii) any significant audit findings, reservations, difficulties encountered or material weaknesses reported by the external and internal auditors, particularly any comments and responses in Management letters as well as the assistance given by the employees of the Group in order to be satisfied that appropriate action is being taken. (b) (c) (d) (e) (f) Recommend the nomination of a person or persons as external auditors and the external audit fee. Promptly report to Bursa Malaysia Securities Berhad on any matter reported by it to the Board of the Company which has not been satisfactorily resolved resulting in a breach of Bursa Malaysia Securities Berhad s Listing Requirements. To verify the allocation of option pursuant to a share scheme for employees at the end of each financial year and to prepare a statement verifying such allocation in the annual reports. Carry out any other functions that may be mutually agreed upon by the Committee and the Board of Directors which would be beneficial to the Company and ensure the effective discharge of the Committee s duties and responsibilities. To ensure the internal audit function of the Company reports directly to the Committee. 3 Authorities of the Audit Committee (a) (b) (c) (d) The Audit Committee is authorised by the Board to investigate any matter within the Audit Committee s terms of reference. It shall have full and unrestricted access to any information pertaining to the Group and shall have the resources it requires to perform its duties. All employees of the Group are required to comply with the requests made by the Audit Committee. The Audit Committee is authorised by the Board to obtain outside legal or external independent professional advice and secure the attendance of outsiders with relevant experience and expertise if it considers this necessary, the expenses of which will be borne by the Company. The Audit Committee shall have direct communication channels with the external auditors and person(s) carrying out the internal audit function or activity. The Audit Committee shall be able to convene meetings with the external auditors, the internal auditors or both, excluding the attendance of other Directors and employees of the Company, whenever deemed necessary, in order to enable the Audit Committee and the external auditors or the internal auditors or both, to discuss problems and reservations and any other matter the external auditors or internal auditors may wish to bring up to the attention of the Audit Committee. 20 XOX Bhd ( X) Annual Report 2012

22 Audit Committee Report (e) The Internal Auditors report directly to the Audit Committee and shall have direct access to the Chairman of the Audit Committee on all matters of control and audit. All proposals by Management regarding the appointment, transfer and removal of senior staff members of the Internal Audit of the Group shall require prior approval of the Audit Committee. The Audit Committee is also authorised by the Board to obtain information on any resignation of internal audit staff members and provide the staff member an opportunity to submit his reasons for resigning. 4 Meetings of the Audit Committee The Audit Committee shall meet at least four (4) times in a financial year, although additional meetings may be called at any time at the Audit Committee Chairman's discretion. The quorum for a meeting of the Audit Committee shall consist of not less than two (2) members, majority of whom must be Independent Directors. Other than in circumstances which the Chairman of the Audit Committee considers inappropriate, the Chief Financial Officer, the representatives of the internal auditors and external auditors will attend any meeting of the Audit Committee to make known their views on any matter under consideration by the Audit Committee or which in their opinion, should be brought to the attention of the Audit Committee. Other Board members, employees and external professional advisers shall attend any particular meetings upon invitation by the Audit Committee. At least twice in a financial year, the Audit Committee shall meet with the external auditors without the Executive Directors being present. The Audit Committee shall report to the Board and its minutes tabled and noted by the Board of Directors. The books containing the minutes of proceedings of any meeting of the Audit Committee shall be kept by the Company at the registered office or the principal office of the Company, and shall be open for inspection of any member of the Audit Committee and the Board. During the financial period under review, the Audit Committee held five (5) meetings and the details of the attendance are as follows: Members Meeting Attendance Faidzan bin Hassan (appointed on 4 July 2012) Not applicable Soo Pow Min 4/5 Khoo Chuin Yuen (appointed on 29 September 2011) 3/4 Izaddeen bin Daud (appointed on 29 September 2011) 3/4 Phoon Sow Cheng (resigned on 1 June 2012) 5/5 5 Summary of Activities of the Audit Committee The Audit Committee had carried out the following activities during the financial period under review in discharging their duties and responsibilities: Reviewed and assessed the adequacy of the scope and functions of the Internal Audit Plan. 21 XOX Bhd ( X) Annual Report 2012

23 Audit Committee Report Reviewed the resignation of the previous outsourced internal audit company and appointed a replacement internal audit company. Reviewed the External Audit Plan for the Company and the Group presented by the external auditors, with the external auditors to ensure the audit scope and activities is adequately covered. Reviewed quarterly and annual financial reports for the Company and the Group prior to submission to the Board for consideration and approval. Reviewed and approved the proposed final audit fees for the external auditors and internal auditors in respect of their audit of the Company and the Group. Considered the reappointment of the external auditors. Met with the external auditors to discuss various issues on the Company, excluding the attendance of the executive members of the Board and management. Reviewed related party transactions, if any, for compliance with the ACE Market Listing Requirements of Bursa Malaysia Securities Berhad. 6 Internal Audit Activities In discharging its duties, the Audit Committee is supported by an internal audit function which is outsourced to an independent internal audit service company ( Internal Auditor ), who undertakes the necessary activities to enable the Audit Committee to discharge its functions effectively. The Internal Auditor is independent of the activities audited by the external auditors. The Audit Committee has full access to the Internal Auditor and received reports on all audits performed. During the financial period under review, the internal audit has conducted various assignments on a quarterly basis and made recommendations in improving the system of internal controls to the Audit Committee. The areas internal audit covered were billing, collection and receivables, inventory, marketing, sales, customer services and call centre service. The cost incurred by the Group for the internal audit function during the financial period ended 30 June 2012 amounted to RM46, XOX Bhd ( X) Annual Report 2012

24 Statement on Internal Control The Board is responsible to maintain a sound system of internal controls in the Group and is pleased to issue the following statement on internal control in line with the ACE Market Listing Requirements of Bursa Malaysia Securities Berhad. Board Responsibility The Board acknowledges its overall responsibility for reviewing the adequacy and integrity of the Group s system of internal controls, identifying principal risks and establishing an appropriate control environment and framework to manage risks. However, the effectiveness of the Group s system of internal control is designed to manage rather than to eliminate the risk of failure to achieve business objectives. Accordingly, the Group s system of internal control can only provide reasonable but not absolute assurance against material misstatement or loss. The Board either directly or via the Audit Committee, have an on-going process for identifying, evaluating and managing the significant risks of the Group with the management. Audit Committee The Audit Committee reviews the adequacy and effectiveness of the Group s systems of internal control as well as reviewing issues identified by the internal auditors. The Audit Committee also ensures that there is continuous effort by management to address and resolve areas where control weaknesses exist. The Audit Committee reviews the quarterly results of the Group and recommends adoption of such results to the Board before announcement to Bursa Malaysia Securities Berhad is made. Internal Audit The Group outsources the internal audit function to an external firm. The firm is appointed by and reports directly to the Audit Committee. Its role is to provide the Audit Committee with regular assurance on the continuity, integrity and effectiveness of the internal control system through regular monitoring and review of the internal control framework and management processes. The internal audit firm prepares audit plans for presentation to the Audit Committee for approval wherein the scope of work encompasses management and operational audit of functions in the Group. During the financial period under review, the internal audit has conducted various assignments on a quarterly basis and made recommendations in improving the system of internal controls to the Audit Committee. The areas internal audit covered were billing, collection and receivables, inventory, marketing, sales, customer services and call centre service. 23 XOX Bhd ( X) Annual Report 2012

25 Statement on Internal Control Other Key Internal Control Elements The Board meets on a regular basis to review the performance and operations of the Group. The Group has in place an organisational structure that is aligned to business and operational requirements, with clearly defined lines of accountability. Active involvement by the Executive Directors in the day-to-day business operations of the Group including weekly operational and management meetings to identify, discuss and resolve business and operational issues. Periodic review of management accounts by key personnel including the Executive Directors. The management accounts are also presented to the Board and Audit Committee during the respective meetings. Conclusion For the financial period under review, there were no significant internal control deficiencies or material weaknesses resulting in material losses or contingencies requiring disclosure in the Annual Report. The Board is of the view that the existing system of the internal control is adequate. Nevertheless, the Board recognises that the development of internal control system is an ongoing process. Therefore, in striving for continuous improvement, the Board will continue to take appropriate action plans to further enhance the Group s system of internal control. This statement is made in accordance with the resolution of the Board of Directors dated 25 October XOX Bhd ( X) Annual Report 2012

26 Statement of Directors Responsibility The Directors are required to take reasonable steps in ensuring that the financial statements of the Group are properly drawn up in accordance with the provisions of the Companies Act, 1965, applicable financial reporting standards and approved accounting standards in Malaysia so to give a true and fair view of the state of affairs of the Group and the Company as at the end of the financial year and of the results and the cash flows of the Group and the Company for that year then ended. The Directors consider that in preparing the financial statements for the financial period from 1 January 2011 to 30 June 2012: the Group and the Company have adopted the appropriate accounting policies and applied them consistently; reasonable and prudent judgements and estimates have been made; and all applicable approved accounting standards in Malaysia have been followed. The Directors are also responsible for ensuring that the Group and the Company maintain accounting records that disclose with reasonable accuracy at any time of the financial position of the Group and of the Company and which enable them to ensure that the financial statements comply with the Companies Act, The Directors have general responsibilities for taking such steps that are reasonably available to them to safeguard the assets of the Group and the Company, and to prevent and detect fraud and other irregularities and material misstatements. Such systems, by their nature, can only provide reasonable and not absolute assurance against material misstatement, loss or fraud. 25 XOX Bhd ( X) Annual Report 2012

27 Other Compliance Disclosures 1 Share Buyback The Company did not enter into any share buyback transactions during the financial period under review. 2 Options, Warrants or Convertible Securities There were no options, warrants or convertible securities were issued during the financial period under review. 3 Depository Receipt Programme The Company did not sponsor or participate in any depository receipt programme during the financial period under review. 4 Imposition of Sanctions and/or Penalties There were no public sanctions and/or penalties imposed on the Company and/or its subsidiaries, Directors or management by any regulatory bodies during the financial period under review. 5 Non-Audit Fee Paid to External Auditors The non-audit fee paid to the external auditors of the Company and the Group for the financial period under review amounting to RM291,074. The non-audit fee is for tax fees and services rendered for the Company s Initial Public Offering. 6 Profit Guarantee The Company does not provide any profit guarantees during the financial period under review. 7 Material Contracts and Contracts Relating to Loan There were no material contracts or contracts relating to loan entered into by the Company and its subsidiaries involving the interests of the Directors and major shareholders during the financial period under review. 26 XOX Bhd ( X) Annual Report 2012

28 Other Compliance Disclosures 8 Status of Utilisation of Proceeds The status of the gross proceeds of RM37,400,00 million raised from the Initial Public Offering ( IPO ) are as follows: Nature Revised utilisation as at 13 October 2011 RM 000 Balance as at 25 October 2012 RM 000 Reallocation RM 000 Revised Utilisation RM 000 Timeframe Payment to creditor 4, Capital Expenditure 11,200 1,097 (1,066) 31 Convergence charging system 6, SOA system (513) - Social network portal 3, (553) 31 Within 2 months Working capital 18,273 2,126 1,066 3,192 Branding, marketing, promotion 4,000 1,023-1,023 Within 12 months Other working capital requirements 14,273 1,103 1,066 2,169 Within 12 months Estimated listing expenses 3, ,400 3,223-3,223 The Company had on 31 October 2012 announced to Bursa Malaysia Securities Berhad that the Board of Directors had approved a revision of the utilisation of Company s IPO proceeds. The revised proceeds will be utilised for social network portal and working capital within 2 months and 12 months respectively from 31 October Variance in Results A. Variance Between Unaudited Results and Profit Forecast for the 12 Months Financial Period Ended 31 December 2011 The Group has not met the profit forecast for the 12 months financial period ended 31 December 2011 as set out in its Prospectus dated 24 May 2011 ( Profit Forecast ). The variance in the unaudited results against the Profit Forecast were mainly due to lower than expected revenue from recharge vouchers as a result of intense competition from incumbent operators as well as the challenging operating environment arising from the increased use of smartphones and mobile applications. These factors, coupled with the slower than expected response to some of our products had adversely affected the Group s achievement of the Profit Forecast. An analysis of the Profit Forecast as compared with the unaudited results for the 12 months ended 31 December 2011 is as follows: 27 XOX Bhd ( X) Annual Report 2012

29 Other Compliance Disclosures 12 months ended 31 December 2011 Unaudited Variance Notes Forecast (RM 000) Results (RM 000) RM 000 (%) Revenue ,466 65,675 (183,791) (74) Gross Profit ,374 23,753 (66,621) (74) Profit/(Loss) Before Tax ,833 (20,280) (42,113) (193) Income Tax Expenses (2,067) - Profit/(Loss) After Tax 19,766 (20,280) (40,046) (203) An analysis of the forecasted subscribers as compared with the actual subscribers as follows: 12 months ended 31 December 2011 Forecast ( 000) Actual ( 000) Variance 000 (%) Cumulative registered 1,487 1,169 (318) (21) Cumulative active 1, (384) (35) Further analyses of the reasons of the variations are discussed in the sections below. 9.1 Revenue The Group s revenue is derived from the sale of starter packs and recharge vouchers. A comparison of the forecasted and actual revenues from the sale of starter packs and recharge vouchers are as follows: 12 months ended 31 December 2011 Forecasted Actual Variance Revenue Revenue Notes (RM 000) (RM 000) RM 000 (%) Sales of starter packs ,669 7,676 (7,993) (51) Sales of recharge vouchers ,797 57,999 (175,798) (75) Total 249,446 65,675 (183,791) (74) 28 XOX Bhd ( X) Annual Report 2012

30 Other Compliance Disclosures Sales of starter packs The number of forecasted and actual sales of starter packs sold to distributors for the 12 months ended 31 December 2011 is as follows: 12 months ended 31 December 2011 Total registered XOX subscribers Forecasted Actual Variance (%) 1,172, ,197 (318,402) (27) Balance of starter packs at distribution channels Total starter packs sold to distributors 605,876 18,689 (587,187) (97) 1,778, ,886 (905,589) (51) During the 12 months ended 31 December 2011, XOX sold lower volume of starter packs compared to the forecast due to: (a) Unexpected shortages of SIM packs due to delivery delays from its principal supplier in the third quarter of This has since been rectified with the sourcing of additional suppliers; (b) Shortage of new mobile numbers. XOX was granted 1.5 million mobile numbers by the Malaysian Communications and Multimedia Commission in In view of XOX s rapid growth, and the time required to prepare mobile numbers before it can be distributed and finally sold, the management had applied to the MCMC for additional mobile numbers on 19 September However, the numbers were not granted on a timely basis and resulted in a shortage in available mobile numbers to supply to potential customers in the fourth quarter of To mitigate the shortage, the management had taken proactive steps to obtain more mobile numbers by recycling existing mobile numbers which had been previously inactive or cancelled; (c) XOX s prudent risk management led it to initiate stricter internal credit control procedures to limit and control the trade debt levels owing by the distributors to mitigate risks. For example, some of its sales on credit to certain suppliers have now been changed to cash sales only; and (d) Intense competitive pressure from incumbents. Since the listing of XOX and the resulting increase in the public profile of XOX, the Group had been encountering intensifying competition from incumbent operators which increased the cost and difficulty of XOX to gain more subscribers Sales of recharge vouchers The forecasted and actual revenue from the sale of recharge vouchers for the 12 months ended 31 December 2011 is as follows: 29 XOX Bhd ( X) Annual Report 2012

31 Other Compliance Disclosures 12 months ended 31 December 2011 Notes Forecast Revenue (RM 000) Actual Revenue (RM 000) Variance RM 000 (%) Convergent sales (i), (ii) 206,563 57,574 (148,989) (72) Post-paid sales (iii) 24,279 nil (24,279) (100) 3G Data (iv) 2, (2,530) (86) 233,797 57,999 The key factors which affected XOX Group s revenue are as follows: (i) Lower than expected average monthly sales of recharge vouchers per subscriber. This was the result of lower number of registered users and intense competition in the industry, despite various XOX s initiatives to support wider acceptance and availability of products. (ii) Industry wide erosion of ARPU based on traditional voice and SMS/MMS spending. The mobile telecommunications industry as a whole has also been facing a very challenging operating environment where the increased number of smartphone users coupled with the wide usage of mobile applications such as WhatsApp, Viber and Line have changed subscribers usage behavior from traditional voice calls, SMS and MMS to free IP calls, free SMS and free instant messaging services utilizing data, thus significantly reducing the amount of recharge sales per subscriber. (iii) (iv) There were no post-paid sales in 2011 as XOX only offered its Hybrid post-paid plan with convergent features. Even though the post-paid service was available in March 2011, the response had not been as good as expected. XOX decided to focus on the prepaid market and convergent subscription plans as it has less credit risk. The 3G data service commenced in January 2011 but did not have a significant impact on XOX s financial results as the data plan which was initially offered was not attractive enough to the customers. In the fourth quarter of 2011, XOX offered new and more attractive data plans and started aggressively promoting these new data plans. 9.2 Gross Profit XOX Group s lower gross profit is in line with the lower revenue. The Group was able to maintain its gross margins at approximately 36% as forecasted. 30 XOX Bhd ( X) Annual Report 2012

32 Other Compliance Disclosures 9.3 (Loss)/Profit Before Tax The Group recorded a Loss Before Tax ( LBT ) of RM20,280,000 for the 12 months ended 31 December An analysis of LBT is as follows: 12 months ended 31 December 2011 Unaudited Variance Notes Forecast (RM 000) Results (RM 000) RM 000 (%) Gross Profit 90,374 23,753 (66,621) (74) Other Income (27) (8) 90,718 24,070 Administrative Expenses (i) (16,621) (9,295) 7, Selling and Distribution Expenses (ii) (47,282) (31,770) 15, Other Expenses (iii) (4,850) (2,951) 1, Finance Cost (132) (334) (202) (153) PBT / (LBT) 21,833 (20,280) The variation in the PBT is mainly due to the lower revenue achieved by the Group offset by the following factors: (i) (ii) Lower administrative expenses due to lower human resources expenses compared to the forecast and lower service tax expenses in line with the lower revenue. Selling and Distribution Expenses Selling and distribution expenses were lower than the forecast due to: 1. Average marketing and branding expenses for the year was approximately RM372,000 per month compared to the forecast of RM345,000 per month. This was necessary to create brand awareness and enable fast market penetration of XOX s products and services to gain a substantial market share of subscribers. It also included aggressive sale campaigns to acquire new subscribers in 2011 such as the launch of the new Hybrid Plan and data plans towards the end of the year. 2. The above was offset by lower selling and distribution expenses. In line with the lower sales, total sales incentives and commission for the year was lower at RM27.3 million compared to the forecast of RM43.1 million. However, intense competition from incumbent operators had resulted in higher subscriber acquisition cost to XOX as it had to implement aggressive sale campaigns and distributor incentives to continue to attract and acquire new subscribers. In particular, the implementation of new campaigns in response to competitive pressures, such as promotional starter packs had significantly 31 XOX Bhd ( X) Annual Report 2012

33 Other Compliance Disclosures increased expenditures incurred for distributor incentives and commissions. (iii) Other Expenses Other expenses mainly consist of depreciation expense for the year. As a result of delays and longer than expected development periods for its projects, most of the fixed asset additions of the Group were incurred towards the end of the 12 months ended 31 December As such, the related depreciation expense had also been subsequently reduced for the period. B. Variance Between Unaudited Loss after Taxation and Audited Loss after Taxation for the Financial Period from 1 January 2011 to 30 June 2012 The Company had on 31 October 2012 announced that the Group s audited loss after taxation and minority interest for the financial period from 1 January 2011 to 30 June 2012 has deviated by approximately 15.54% from the unaudited loss after taxation and minority interest of RM24,475,000 as announced on 30 August The reconciliation of the difference is set out as follows: RM Loss after tax as per unaudited financial statements (24,475,000) Add/less: 1) Net effect of rate revisions and resolution of disputed items 4,855,676 2) Net overprovision of expenses 129,983 3) Additional depreciation expenses (1,180,855) Loss after tax as per audited financial statements (20,670,196) 10 Material Properties The Group does not own any properties during the financial period under review. 11 Recurrent Related Party Transactions of a Revenue and Trading Nature ( RRPT ) There was no material RRPT during the financial period under review. 32 XOX Bhd ( X) Annual Report 2012

34 Financial Statements Contents Directors Report...34 Statement by Directors 42 Statutory Declaration 42 Independent Auditors Report 43 Statements of Financial Position..47 Statements of Comprehensive Income 49 Statements of Changes in Equity.50 Statements of Cash Flows.52 Notes to the Financial Statements XOX Bhd ( X) Annual Report 2012

35 Company No : X DIRECTORS REPORT The directors hereby submit their report and the audited financial statements of the Group and of the Company for the financial period from 1 January 2011 to 30 June CHANGE OF ACCOUNTING YEAR END The Company changed its accounting year end from 31 December to 30 June to accommodate the Group s business strategy which requires concentration of its resources on the launching of new products, campaigns and promotions during the period commencing fourth quarter of each year till the first quarter of the following year which coincides with the major festival traditionally celebrated by the Company s main target market. PRINCIPAL ACTIVITIES The Company is principally engaged in the business of investment holding. The principal activities of the subsidiaries are set out in Note 5 to the financial statements. There have been no significant changes in the nature of these activities during the financial period. RESULTS THE GROUP RM THE COMPANY RM Loss after taxation for the financial period (20,670,196) (61,438,319) Attributable to:- Owners of the Company (20,670,196) (61,438,319) DIVIDENDS No dividend was paid since the end of the previous financial period and the directors do not recommend the payment of any dividend for the current financial period. RESERVES AND PROVISIONS All material transfers to or from reserves or provisions during the financial period are disclosed in the financial statements. 34 XOX Bhd ( X) Annual Report 2012

36 Company No : X DIRECTORS REPORT ISSUES OF SHARES AND DEBENTURES During the financial period, (a) (b) the Company increased its authorised share capital from RM100,000 to RM100,000,000 by the creation of 99,900,000 new ordinary shares RM1.00 each. On 4 April 2011, pursuant to a share split, the authorised share capital of RM100,000,000 comprising 100,000,000 ordinary shares of RM1.00 each was subdivided into 1,000,000,000 ordinary shares of RM0.10 each; the Company increased its issued and paid-up share capital from RM2 to RM30,200,000 as part of its flotation scheme on the ACE Market of Bursa Malaysia Securities Berhad. The increase in the issued and paid-up share capital was by way of:- (i) Acquisition of XOX Com Sdn. Bhd. ( XOX Com ) Acquisition of the entire issued and paid-up share capital of XOX Com comprising 24,879,998 ordinary shares of RM1.00 each for a purchase consideration of RM24,879,998 satisfied by the issuance of 24,879,998 new ordinary shares of RM1.00 each in the Company at an issue price of RM1.00 per ordinary share. (ii) Acquisition of XOX Media Sdn. Bhd. ( XOX Media ) Acquisition of the entire issued and paid-up share capital of XOX Media comprising 100,000 ordinary shares of RM1.00 each for a purchase consideration of RM100,000 satisfied by the issuance of 100,000 new ordinary shares of RM1.00 each in the Company at an issue price of RM1.00 per ordinary share. (iii) Acquisition of XOX Management Sdn. Bhd. ( XOX Management ) Acquisition of the entire issued and paid-up share capital of XOX Management comprising 40,000 ordinary shares of RM1.00 each for a purchase consideration of RM40,000 satisfied by the issuance of 40,000 new ordinary shares of RM1.00 each in the Company at an issue price of RM1.00 per ordinary share. (iv) Share split Sub-division of the 25,020,000 ordinary shares at par value of RM1.00 each into 250,200,000 ordinary shares of RM0.10 each; (v) Special issue Special issue of 5,000,000 new ordinary shares of RM0.10 each to selected Directors and long-serving employees at an issue price of RM0.36 per ordinary share; 35 XOX Bhd ( X) Annual Report 2012

37 Company No : X DIRECTORS REPORT ISSUES OF SHARES AND DEBENTURES (CONT D) During the financial period (Cont d), (b) the Company increased its issued and paid-up share capital from RM2 to RM30,200,000 as part of its flotation scheme on the ACE Market of Bursa Malaysia Securities Berhad. The increase in the issued and paid-up share capital was by way of (Cont d):- (vi) Public issue Upon the completion of the Public Issue, the issued and paid-up share capital of the Company increased from RM25,520,000 to RM30,200,000 by the allotment of 46,800,000 new ordinary shares of RM0.10 each at an issue price of RM0.80 per ordinary share. The new ordinary shares issued rank pari passu in all respects with the existing ordinary shares of the Company; and (c) there were no issues of debentures by the Company. OPTIONS GRANTED OVER UNISSUED SHARES During the financial period, no options were granted by the Company to any person to take up any unissued shares in the Company. BAD AND DOUBTFUL DEBTS Before the financial statements of the Group and of the Company were made out, the directors took reasonable steps to ascertain that action had been taken in relation to the writing off of bad debts and the making of allowance for impairment losses on receivables, and satisfied themselves there are no known bad debts and that adequate allowance had been made for impairment losses on receivables. At the date of this report, the directors are not aware of any circumstances that would require the writing off of bad debts, or the additional allowance for impairment losses on receivables in the financial statements of the Group and of the Company. 36 XOX Bhd ( X) Annual Report 2012

38 Company No : X DIRECTORS REPORT CURRENT ASSETS Before the financial statements of the Group and of the Company were made out, the directors took reasonable steps to ascertain that any current assets other than debts, which were unlikely to be realised in the ordinary course of business, including their value as shown in the accounting records of the Group and of the Company, have been written down to an amount which they might be expected so to realise. At the date of this report, the directors are not aware of any circumstances which would render the values attributed to the current assets in the financial statements misleading. VALUATION METHODS At the date of this report, the directors are not aware of any circumstances which have arisen which render adherence to the existing methods of valuation of assets or liabilities of the Group and of the Company misleading or inappropriate. The financial statements are prepared on the basis of accounting principles applicable to a going concern as the Group has entered into an arrangement with a trade creditor where this trade creditor has agreed to defer the repayment of its debts beyond 12 months subsequent to the end of the reporting period and to extend credit terms to the Group. CONTINGENT AND OTHER LIABILITIES The contingent liability is disclosed in Note 34 to the financial statements. At the date of this report, there does not exist:- (i) (ii) any charge on the assets of the Group and of the Company that has arisen since the end of the financial period which secures the liabilities of any other person; or any contingent liability of the Group and of the Company which has arisen since the end of the financial period. No contingent or other liability of the Group and of the Company has become enforceable or is likely to become enforceable within the period of twelve months after the end of the financial period which, in the opinion of the directors, will or may substantially affect the ability of the Group and of the Company to meet their obligations when they fall due. 37 XOX Bhd ( X) Annual Report 2012

39 Company No : X DIRECTORS REPORT CHANGE OF CIRCUMSTANCES At the date of this report, the directors are not aware of any circumstances not otherwise dealt with in this report or the financial statements of the Group and of the Company which would render any amount stated in the financial statements misleading. ITEMS OF AN UNUSUAL NATURE The results of the operations of the Group and of the Company during the financial period were not, in the opinion of the directors, substantially affected by any item, transaction or event of a material and unusual nature. There has not arisen in the interval between the end of the financial period and the date of this report any item, transaction or event of a material and unusual nature likely, in the opinion of the directors, to affect substantially the results of the operations of the Group and of the Company for the financial period. DIRECTORS The directors who served since the date of the last report are as follows:- DATO SERI ABDUL AZIM BIN MOHD ZABIDI NG KOK HENG SOO POW MIN KHOO CHUIN YUEN (APPOINTED ON 29 SEPTEMBER 2011) IZADDEEN BIN DAUD (APPOINTED ON 29 SEPTEMBER 2011) FAIDZAN BIN HASSAN (APPOINTED ON 4 JULY 2012) LEE CHONG HOE (RESIGNED ON 23 AUGUST 2011) YEOH CHONG KEAT (RESIGNED ON 23 AUGUST 2011) PHOON SOW CHENG (RESIGNED ON 1 JUNE 2012) WONG YIP KEE (RESIGNED ON 12 OCTOBER 2012) 38 XOX Bhd ( X) Annual Report 2012

40 Company No : X DIRECTORS REPORT DIRECTORS INTERESTS According to the register of directors shareholdings, the interests of directors holding office at the end of the financial period in shares in the Company and its related corporations during the financial period are as follows:- NUMBER OF ORDINARY SHARES OF RM0.10 EACH AT AT BOUGHT SOLD Direct Interests DATO SERI ABDUL AZIM BIN MOHD ZABIDI - 43,161,160-43,161,160 WONG YIP KEE - 48,951,100-48,951,100 NG KOK HENG - 47,464,060-47,464,060 IZADDEEN BIN DAUD - 2,611,151 (209,000) 2,402,151 INDIRECT INTERESTS WONG YIP KEE (1) - 15,984,590 (9,550,251) 6,434,339 DATO SERI ABDUL AZIM BIN MOHD ZABIDI (1) - 5,733,600 (1,992,000) 3,741,600 SOO POW MIN (1) - 5,322,510 (5,000,000) 322,510 (1) Deemed interested through spouse s shareholdings in the Company. By virtue of their shareholdings in the Company, Dato Seri Abdul Azim Bin Mohd Zabidi, Wong Yip Kee and Ng Kok Heng are deemed to have interests in shares in its related corporations during the financial period to the extent of the Company s interests, in accordance with Section 6A of the Companies Act XOX Bhd ( X) Annual Report 2012

41 Company No : X DIRECTORS REPORT DIRECTORS BENEFITS Since the end of the previous financial period, no director has received or become entitled to receive any benefit (other than a benefit included in the aggregate amount of emoluments received or due and receivable by directors as shown in the financial statements, or the fixed salary of a full-time employee of the Company) by reason of a contract made by the Company or a related corporation with the director or with a firm of which the director is a member, or with a company in which the director has a substantial financial interest except for any benefits which may be deemed to arise from transactions entered into in the ordinary course of business with companies in which certain directors have substantial financial interests as disclosed in Note 31 to the financial statements. Neither during nor at the end of the financial period was the Group or the Company a party to any arrangements whose object is to enable the directors to acquire benefits by means of the acquisition of shares in or debentures of the Company or any other body corporate. SIGNIFICANT EVENTS DURING THE FINANCIAL PERIOD The significant events during the financial period are disclosed in Note 37 to the financial statements. SIGNIFICANT EVENTS OCCURRING AFTER THE REPORTING PERIOD The significant events occurring after the reporting period are disclosed in Note 38 to the financial statements. 40 XOX Bhd ( X) Annual Report 2012

42 Company No : X DIRECTORS REPORT SIGNED IN ACCORDANCE WITH A RESOLUTION OF THE DIRECTORS DATED 31 OCTOBER 2012 Dato Seri Abdul Azim Bin Mohd Zabidi Ng Kok Heng 41 XOX Bhd ( X) Annual Report 2012

43 Company No : X STATEMENT BY DIRECTORS We, Dato Seri Abdul Azim Bin Mohd Zabidi and Ng Kok Heng, being two of the directors of XOX Bhd. state that, in the opinion of the directors, the financial statements set out on pages 47 to 116 are drawn up in accordance with Financial Reporting Standards and the Companies Act 1965 in Malaysia so as to give a true and fair view of the state of affairs of the Group and of the Company at 30 June 2012 and of their results and cash flows for the financial period ended on that date. The supplementary information set out in Note 39, which is not part of the financial statements, is prepared in all material respects, in accordance with Guidance on Special Matter No. 1, Determination of Realised and Unrealised Profits or Losses in the Context of Disclosure Pursuant to Bursa Malaysia Securities Berhad Listing Requirements, as issued by the Malaysian Institute of Accountants and the directive of Bursa Malaysia Securities Berhad. SIGNED IN ACCORDANCE WITH A RESOLUTION OF THE DIRECTORS DATED 31 OCTOBER 2012 Dato Seri Abdul Azim Bin Mohd Zabidi Ng Kok Heng STATUTORY DECLARATION I, Chu Chiu Loc, I/C No , being the officer primarily responsible for the financial management of XOX Bhd., do solemnly and sincerely declare that the financial statements set out on pages 47 to 116 are, to the best of my knowledge and belief, correct, and I make this solemn declaration conscientiously believing the same to be true and by virtue of the provisions of the Statutory Declarations Act Subscribed and solemnly declared by Chu Chiu Loc, I/C No , at Petaling Jaya on this 31 October 2012 Before me N. Madhavan Nair (No. B 064) Chu Chiu Loc 42 XOX Bhd ( X) Annual Report 2012

44 INDEPENDENT AUDITORS REPORT TO THE MEMBERS OF XOX BHD. Company No : X We were engaged to audit the financial statements of XOX Bhd, which comprise the statements of financial position as at 30 June 2012 of the Group and of the Company, and the statements of comprehensive income, statements of changes in equity and statements of cash flows of the Group and of the Company for the financial period then ended, and a summary of significant accounting policies and other explanatory information, as set out on pages 47 to 116. Directors' Responsibility for the Financial Statements The directors of the Company are responsible for the preparation of financial statements that give a true and fair view in accordance with Financial Reporting Standards and the Companies Act 1965 in Malaysia, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors' Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with approved standards on auditing in Malaysia. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on our judgement, including the assessment of risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Company s preparation of financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 43 XOX Bhd ( X) Annual Report 2012

45 INDEPENDENT AUDITORS REPORT TO THE MEMBERS OF XOX BHD. (CONT'D) Company No : X Basis of Qualified Opinion We set out the following matters arising from the audit: 1. Trade receivables Included in trade receivables of the Group as at 30 June 2012, were outstanding amounts owing by 2 major trade receivables of approximately RM4.9 million. The directors are of the opinion that these amounts outstanding from the trade receivables are recoverable and accordingly, no impairment losses on receivables have been made in the financial statements. However, as the amounts have been long outstanding and due to the nature of the debt, we are of the opinion that these receivables may not be recoverable and hence impairment losses on receivables should be provided for. Had impairment losses on these amounts been provided for, the carrying value of trade receivables would have been decreased by RM4.9 million. Similarly, the accumulated losses and loss for the financial period ended 30 June 2012 would have been increased by RM4.9 million. 2. Impairment of capital work-in-progress Included in equipment of the Group as at 30 June 2012, were capital work-in-progress amounting to approximately RM3.5 million. The directors are of the opinion that, although the development of the capital work-in-progress has been halted, their development will continue and accordingly, no impairment losses have been made in the financial statements. As at the date of this report, we are unable to obtain sufficient appropriate audit evidence that the capital work-in-progress is not impaired and that the Group has sufficient financial resources to complete the development of the capital work-in-progress for their intended use. Had impairment losses on capital work-in-progress been provided for, the carrying value of equipment would have been decreased by RM3.5 million. Similarly, the accumulated losses and loss for the financial period ended 30 June 2012 would have been increased by RM3.5 million. 3. Accrual of cost for unrealised sales We are unable to obtain sufficient appropriate audit evidence to substantiate the nonaccrual of cost for unrealised sales amounting to approximately RM2.3 million. Had this accrual been taken up in the financial statements, the loss for the financial period ended 30 June 2012 and the accumulated losses as at 30 June 2012 would have been increased by RM2.3 million accordingly. 44 XOX Bhd ( X) Annual Report 2012

46 Report Of The Auditors To The Members Of XOX BHD. (CONT D) Company No: X Qualified Opinion In our opinion, except for the effects of such adjustments, if any, as might have been determined to be necessary on the matters as set out in the foregoing paragraphs on the Basis of Qualified Opinion, the financial statements have been properly drawn up in accordance with Financial Reporting Standards and the Companies Act 1965 in Malaysia so as to give a true and fair view of the financial position of the Group and of the Company as of 30 June 2012 and of their financial performance and cash flows for the financial period then ended. Report on Other Legal and Regulatory Requirements In accordance with the requirements of the Companies Act 1965 in Malaysia, we also report the following:- (a) (b) (c) (d) In our opinion, the accounting and other records and the registers required by the Act to be kept by the Company and its subsidiary of which we have acted as auditors have been properly kept in accordance with the provisions of the Act. We have considered the financial statements and the auditors reports of all the subsidiaries of which we have not acted as auditors, which are indicated in Note 5 to the financial statements. We are satisfied that the financial statements of the subsidiaries that have been consolidated with the Company s financial statements are in form and content appropriate and proper for the purposes of the preparation of the financial statements of the Group and we have received satisfactory information and explanations required by us for those purposes. The audit reports on the financial statements of the subsidiaries did not contain any qualification, other than as disclosed in Note 5 to the financial statements, and did not include any adverse comment made under Section 174(3) of the Act. The supplementary information set out in Note 39 on page 117 is disclosed to meet the requirement of Bursa Malaysia Securities Berhad and is not part of the financial statements. The directors are responsible for the preparation of the supplementary information in accordance with Guidance on Special Matter No. 1, Determination of Realised and Unrealised Profits or Losses in the Context of Disclosure Pursuant to Bursa Malaysia Securities Berhad Listing Requirements, as issued by the Malaysian Institute of Accountants ("MIA Guidance") and the directive of Bursa Malaysia Securities Berhad. In our opinion, the supplementary information is prepared, in all material respects, in accordance with the MIA Guidance and the directive of Bursa Malaysia Securities Berhad. 45 XOX Bhd ( X) Annual Report 2012

47 REPORT OF THE AUDITORS TO THE MEMBERS OF XOX BHD. (CONT D) Company No: X Other Matters This report is made solely to the members of the Company, as a body, in accordance with Section 174 of the Companies Act 1965 in Malaysia and for no other purpose. We do not assume responsibility to any other person for the content of this report. Crowe Horwath Firm No: AF 1018 Chartered Accountants Lee Kok Wai Approval No: 2760/06/14 (J) Chartered Accountant 31 October 2012 Kuala Lumpur 46 XOX Bhd ( X) Annual Report 2012

48 STATEMENTS OF FINANCIAL POSITION AT 30 JUNE 2012 (CONT D) ASSETS THE GROUP THE COMPANY NOTE RM RM RM RM NON-CURRENT ASSETS Investments in subsidiaries ,002 - Equipment 6 32,989,626 12,950, Goodwill ,989,626 12,950, ,002 - CURRENT ASSETS Inventories 8 793, , Trade receivables 9 7,080,477 1,842, Other receivables, deposits and prepayments 10 3,777,113 6,983,613 28, ,734 Tax recoverable 5, Amount owing by subsidiaries ,000 - Deposits with a licensed bank 12 8,000, Short-term investment 13 9,049 2,422, Cash and bank balances 1,021, ,175 31, ,688,052 12,193, , ,219 TOTAL ASSETS 53,677,678 25,144, , ,219 The annexed notes form an integral part of these financial statements. Page 47

49 STATEMENTS OF FINANCIAL POSITION AT 30 JUNE 2012 (CONT D) EQUITY AND LIABILITIES THE GROUP THE COMPANY Note RM RM RM RM EQUITY Share capital 14 30,200,000 24,880,000 30,200,000 2 Share premium 15 32,610, ,002 32,410,009 - Capital reserve 16 2,200,000-2,200,000 - Accumulated losses (53,404,827) (30,534,631) (62,289,040) (850,721) TOTAL EQUITY 11,605,184 (5,454,629) 320,969 (850,719) NON-CURRENT LIABILITY Hire purchase payables , CURRENT LIABILITIES Trade payables 18 29,658, , Other payables and accruals 19 11,659,612 27,698, ,597 1,013,438 Amount owing to a director Short-term borrowings ,790 2,778, ,492,844 30,599, ,597 1,013,938 TOTAL LIABILITIES 42,072,494 30,599, ,597 1,013,938 TOTAL EQUITY AND LIABILITIES 53,677,678 25,144, , ,219 The annexed notes form an integral part of these financial statements. Page 48

50 STATEMENTS OF COMPREHENSIVE INCOME to THE GROUP to # to THE COMPANY to NOTE RM RM RM RM REVENUE 22 61,719,436 16,788, COST OF SALES (51,836,758) (18,846,838) - - GROSS PROFIT/(LOSS) 9,882,678 (2,058,017) - - OTHER INCOME 463, ,700 53,353-10,346,454 (1,671,317) 53,353 - SELLING AND DISTRIBUTION EXPENSES (11,337,084) (6,011,784) (7,398) - ADMINISTRATIVE EXPENSES (14,463,065) (4,979,413) (507,747) (14,596) OTHER EXPENSES 23 (4,832,190) (1,147,458) (60,976,527) (836,125) FINANCE COSTS (384,280) (2,163,808) - - LOSS BEFORE TAXATION 24 (20,670,165) (15,973,780) (61,438,319) (850,721) INCOME TAX EXPENSE 25 (31) (171) - - LOSS AFTER TAXATION (20,670,196) (15,973,951) (61,438,319) (850,721) OTHER COMPREHENSIVE INCOME, NET OF TAX TOTAL COMPREHENSIVE EXPENSES FOR THE FINANCIAL PERIOD (20,670,196) (15,973,951) (61,438,319) (850,721) LOSS AFTER TAXATION/TOTAL COMPREHENSIVE EXPENSES ATTRIBUTABLE TO:- Owners of the Company (20,670,196) (15,973,951) (61,438,319) (850,721) LOSS PER SHARE (SEN) Basic: 26 (7.19) (6.42) Diluted: Note:- # - The financial statements of the subsidiary, XOX Com Sdn. Bhd. have been consolidated using the merger method of accounting. Accordingly, the results of the Group incorporated the results of XOX Com Sdn. Bhd. for the financial period from 1 January 2010 to 31 December The annexed notes form an integral part of these financial statements. Page 49

51 STATEMENTS OF CHANGES IN EQUITY NON- DISTRIBUTABLE DISTRIBUTABLE SHARE SHARE CAPITAL ACCUMULATED TOTAL NOTE CAPITAL PREMIUM RESERVE LOSSES EQUITY THE GROUP RM RM RM RM RM Balance at (date of incorporation) # 15,940,002 4,140,000 - (14,560,680) 5,519,322 Issuance of shares 940,000 4,060, ,000,000 Bonus issue 7,999,998 (7,999,998) Loss after taxation/total comprehensive expenses for the financial period (15,973,951) (15,973,951) Balance at / ,880, ,002 - (30,534,631) (5,454,629) Shares issued pursuant to the listing scheme: - acquisition of subsidiaries , ,000 - special Issue ,000 1,300,000 2,200,000 (2,200,000) 1,800,000 - public issue 14 4,680,000 32,760, ,440,000 Loss after taxation/total comprehensive expenses for the financial period (20,670,196) (20,670,196) Listing expenses - (1,649,991) - - (1,649,991) Balance at ,200,000 32,610,011 2,200,000 (53,404,827) 11,605,184 Note:- # - The Company was incorporated on 10 May As the financial statements of the subsidiary have been consolidated using the merger method of accounting, the balance brought forward as at 10 May 2010 represents the brought forward balances of the subsidiary. Accordingly, the comparative results of the Group incorporated the results of the subsidiary from 1 January 2010 to 31 December The annexed notes form an integral part of these financial statements. Page 50

52 STATEMENTS OF CHANGES IN EQUITY NON- DISTRIBUTABLE DISTRIBUTABLE SHARE SHARE CAPITAL ACCUMULATED TOTAL NO CAPITAL PREMIUM RESERVE LOSSES EQUITY THE COMPANY RM RM RM RM RM Balance at (date of incorporation) Loss after taxation/total comprehensive expenses for the financial period (850,721) (850,721) Balance at / (850,721) (850,719) Shares issued pursuant to the listing scheme: - acquisition of subsidiaries 25,019, ,019,998 - public issue 500,000 1,300,000 2,200,000 (2,200,000) 1,800,000 - acquisition of subsidiaries 4,680,000 32,760, ,440,000 Loss after taxation/total comprehensive expenses for the financial period (61,438,319) (61,438,319) Listing expenses - (1,649,991) - - (1,649,991) Balance at ,200,000 32,410,009 2,200,000 (64,489,040) 320,969 The annexed notes form an integral part of these financial statements. Page 51

53 STATEMENTS OF CASH FLOWS to The Group to # to The Company to NOTE RM RM RM RM CASH FLOWS (FOR)/FROM OPERATING ACTIVITIES Loss before taxation (20,670,165) (15,973,780) (61,438,319) (850,721) Adjustments for:- Depreciation of equipment 3,499, , Equipment written off 9, Interest expense 384,280 2,163, Impairment on goodwill 44, Interest income (395,699) (31,010) (53,353) - Negative goodwill (6,905) Allowance for impairment losses - of non-financial assets 100,000-33,099,998 Allowance for impairment losses - on receivables 253,800-27,039,315 Unrealised loss/(gain) on foreign exchange 21,110 (303,535) - - Operating loss before working capital changes (16,758,989) (13,833,184) (1,352,359) (850,721) (Increase)/Decrease in inventories (575,921) 508, (Increase)/Decrease in trade and other receivables (2,282,993) (4,249,676) 133,914 (162,734) Increase/(Decrease) in trade and other payables 13,468,822 18,402,876 (903,842) 1,013,438 CASH (FOR)/FROM OPERATIONS (6,149,081) 828,458 (2,122,287) (17) Interest paid (384,280) (2,163,808) - - Income tax paid (5,381) (2,229) - - NET CASH FOR OPERATING ACTIVITIES (6,538,742) (1,337,579) (2,122,287) (17) CASH FLOWS FOR INVESTING ACTIVITIES Acquisition of a subsidiary, - net of cash and cash equivalents acquired 27 (32,855) Interest income received 395,699 31,010 53,353 - Purchase of equipment equipment 28 (22,728,491) (1,988,355) - - Additional investment in subsidiaries - - (33,240,000) - NET CASH FOR INVESTING ACTIVITIES (22,365,647) (1,957,345) (33,186,647) - BALANCE CARRIED FORWARD (28,904,389) (3,294,924) (35,308,934) (17) The annexed notes form an integral part of these financial statements. Page 52

54 STATEMENTS OF CASH FLOWS (CONT D) The Group The Company to to # to to NOTE RM RM RM RM BALANCE BROUGHT FORWARD (28,904,389) (3,294,924) (35,308,934) (17) CASH FLOWS FROM FINANCING ACTIVITIES Repayment of short-term bank borrowings - (3,775,468) - - Advances from/(repayment to) directors (500) (506,549) (500) 500 Advances to subsidiaries - - (27,269,314) - Proceeds from issuance of shares 39,380,000 10,000,002 64,259,998 2 Listing expenses (1,649,991) - (1,649,991) - Repayment of hire purchase obligations (165,560) Repayment of revolving credit facilities (2,778,848) NET CASH FROM FINANCING ACTIVITIES 34,785,101 5,717,985 35,340, NET INCREASE IN CASH AND CASH EQUIVALENTS 5,880,712 2,423,061 31, CASH AND CASH EQUIVALENTS AT BEGINNING OF THE FINANCIAL PERIOD 3,150, , CASH AND CASH EQUIVALENTS AT END OF THE FINANCIAL PERIOD 29 9,031,014 3,150,302 31, Note:- # - The financial statements of the subsidiary, XOX Com Sdn. Bhd. have been consolidated using the merger method of accounting. Accordingly, the results of the Group incorporated the results of XOX Com Sdn. Bhd. for the financial period from 1 January 2010 to 31 December The annexed notes form an integral part of these financial statements. Page 53

55 NOTES TO THE FINANCIAL STATEMENTS 1. GENERAL INFORMATION The Company is a public company limited by shares and is incorporated under the Companies Act 1965 in Malaysia. The domicile of the Company is Malaysia. The registered office and principal place of business are as follows:- Registered office : Suite 10.03, Level 10, The Gardens South Tower, Mid Valley City, Lingkaran Syed Putra, Kuala Lumpur. Principal place of : 31-3, Block C, Jaya One, business No. 72A, Jalan Universiti, Petaling Jaya, Selangor. The financial statements were authorised for issue by the Board of Directors in accordance with a resolution of the directors dated 31 October PRINCIPAL ACTIVITIES The Company is principally engaged in the business of investment holding. The principal activities of the subsidiaries are set out in Note 5 to the financial statements. There have been no significant changes in the nature of these activities during the financial period. 3. BASIS OF PREPARATION The financial statements of the subsidiary, XOX Com have been consolidated using the merger method of accounting as disclosed in Note 4(b) to the financial statements. Accordingly, the results of the Group incorporated the results of XOX Com for the financial period from 1 January 2010 to 31 December The financial statements of the Group for the financial period from 1 January 2010 to 31 December 2010 are prepared on the assumption that the Group had been in existence throughout the financial period from 1 January 2010 to 31 December XOX Bhd ( X) Annual Report 2012

56 NOTES TO THE FINANCIAL STATEMENTS 3. BASIS OF PREPARATION (CONT D) The financial statements of the Group are prepared under the historical cost convention and modified to include other bases of valuation as disclosed in other sections under significant accounting policies, and in compliance with Financial Reporting Standards ( FRS ) and the Companies Act 1965 in Malaysia. (a) During the current financial period, the Group has adopted the following new accounting standards and interpretations (including the consequential amendments):- FRSs and IC Interpretations (including the Consequential Amendments) FRS 1 (Revised) First-time Adoption of Financial Reporting Standards FRS 3 (Revised) Business Combinations FRS 127 (Revised) Consolidated and Separate Financial Statements Amendments to FRS 1 (Revised): Limited Exemption from Comparative FRS 7 Disclosures for First-time Adopters Amendments to FRS 1 (Revised): Additional Exemptions for First-time Adopters Amendments to FRS 2: Scope of FRS 2 and FRS 3 (Revised) Amendments to FRS 2: Group Cash-settled Share-based Payment Transactions Amendments to FRS 5: Plan to Sell the Controlling Interest in a Subsidiary Amendments to FRS 7: Improving Disclosures about Financial Instruments Amendments to FRS 138: Consequential Amendments Arising from FRS 3 (Revised) IC Interpretation 4 Determining Whether An Arrangement Contains a Lease IC Interpretation 12 Service Concession Arrangements 55 XOX Bhd ( X) Annual Report 2012

57 NOTES TO THE FINANCIAL STATEMENTS 3. BASIS OF PREPARATION (CONT D) (a) FRSs and IC Interpretations (including the Consequential Amendments) IC Interpretation 16 Hedges of a Net Investment in a Foreign Operation IC Interpretation 17 Distributions of Non-cash Assets to Owners IC Interpretation 18 Transfers of Assets from Customers IC Interpretation 19 Extinguishing Financial Liabiilties with Equity Instruments Amendments to IC Interpretation 14: Prepayments of a Minimum Funding Requirement Amendments to IC Interpretation 9: Scope of IC Interpretation 9 and FRS 3 (Revised) Annual Improvement to FRSs (2010) The adoption of the above accounting standards and interpretations (including the consequential amendments) did not have any material impact on the Group s financial statements, other than the following: (i) FRS 3 (Revised) introduces significant changes to the accounting for business combinations, both at the acquisition date and post acquisition, and requires greater use of fair values. In addition, all transaction costs, other than share and debt issue costs, will be expensed as incurred. The adoption of this FRS have no material impact on the Group s financial statements for the current financial period. The Group has applied FRS 3 (Revised) prospectively. Accordingly, business combinations entered into prior to 1 January 2011 have not been adjusted to comply with this revised standard. 56 XOX Bhd ( X) Annual Report 2012

58 NOTES TO THE FINANCIAL STATEMENTS 3. BASIS OF PREPARATION (CONT D) (a) FRSs and IC Interpretations (including the Consequential Amendments) (ii) FRS 127 (Revised) requires accounting for changes in ownership interests by the group in a subsidiary, whilst maintaining control, to be recognised as an equity transaction. When the group loses control of a subsidiary, any interest retained in the former subsidiary will be measured at fair value with the gain or loss recognised in profit or loss. The revised standard also requires all losses attributable to the non-controlling interests to be absorbed by the non-controlling interests instead of by the parent. The adoption of this FRS has no material impact on the Group s financial statements for the current financial period. (iii) Amendments to FRS 7 expand the disclosure requirements in respect of fair value measurements and liquidity risk. In particular, the amendments require additional disclosure of fair value measurements by level of a fair value measurement hierarchy. The adoption of this amendments have no material impacts on the Group s financial statements for the current financial period. Comparatives are not presented by virtue of the exemption given in the amendments. (iv) Annual Improvements to FRSs (2010) contain amendments to 11 accounting standards that result in accounting changes for presentation, recognition or measurement purposes. These amendments have no material impact on the financial statements of the Group. Furthermore, the amendments to FRS 101 (Revised) clarify that an entity may choose to present the analysis of the items of other comprehensive income either in the statement of changes in equity or in the notes to the financial statements. The Group has chosen to present the items of other comprehensive income in the statement of changes in equity. 57 XOX Bhd ( X) Annual Report 2012

59 NOTES TO THE FINANCIAL STATEMENTS 3. BASIS OF PREPARATION (CONT D) (b) The Group has not applied in advance the following accounting standards and interpretations (including the consequential amendments) that have been issued by the Malaysian Accounting Standards Board (MASB) but are not yet effective for the current financial period:- FRSs and IC Interpretations (including the Consequential Amendments) Effective Date FRS 9 Financial Instruments 1 January 2015 FRS 10 Consolidated Financial Statements 1 January 2013 FRS 11 Joint Arrangements 1 January 2013 FRS 12 Disclosure of Interests in Other Entities 1 January 2013 FRS 13 Fair Value Measurement 1 January 2013 FRS 119 (Revised) Employee Benefits 1 January 2013 FRS 124 (Revised) Related Party Disclosures 1 January 2012 FRS 127 (2011) Separate Financial Statements 1 January 2013 FRS 128 (2011) Investments in Associates and Joint Ventures 1 January 2013 Amendments to FRS 1 (Revised): Severe Hyperinflation and Removal of Fixed Dates for First-time Adopters Amendments to FRS 1 (Revised): Government Loans 1 January January 2013 Amendments to FRS 7: Disclosures Transfers of Financial Assets 1 January 2012 Amendments to FRS 7: Disclosures Offsetting Financial Assets and Financial Liabilities 1 January 2013 Amendments to FRS 9: Mandatory Effective Date of FRS 9 and Transition Disclosures Amendments to FRS 10, FRS 11 and FRS 12: Transition Guidance 1 January January XOX Bhd ( X) Annual Report 2012

60 NOTES TO THE FINANCIAL STATEMENTS 3. BASIS OF PREPARATION (CONT D) (b) FRSs and IC Interpretations (including the Consequential Amendments) Effective Date Amendments to FRS 101 (Revised): Presentation of Items of Other Comprehensive Income 1 July 2012 Amendments to FRS 112: Recovery of Underlying Assets Amendments to FRS 132: Offsetting Financial Assets and Financial Liabilities IC Interpretation 15 Agreements for the Construction of Real Estate 1 January January 2014 Withdrawn on 19 November 2011 IC Interpretation 19 Extinguishing Financial Liabilities with Equity Instruments 1 July 2011 IC Interpretation 20 Stripping Costs in the Production Phase of a Surface Mine 1 January 2013 Amendments to IC Interpretation 14: Prepayments of a Minimum Funding Requirement Annual Improvements July January 2013 The Group s next set of financial statements for the annual period beginning on 1 July 2012 will be prepared in accordance with the Malaysian Financial Reporting Standards ( MFRSs ) issued by the MASB that will also comply with International Financial Reporting Standards ( IFRSs ). As a result, the Group will not be adopting the above accounting standards and interpretations (including the consequential amendments). (c) The adoption of MFRSs in the next financial year is expected to have no material impact on the financial statements of the Group upon their initial application. 59 XOX Bhd ( X) Annual Report 2012

61 NOTES TO THE FINANCIAL STATEMENTS 3. BASIS OF PREPARATION (CONT D) (d) Going Concern The accompanying financial statements have been prepared assuming that the Group and the Company will continue as a going concern as the Group has entered into an arrangement with a trade creditor whereby this trade creditor has agreed to defer the repayment of its debts beyond 12 months subsequent to the end of the reporting period and to extend credit terms to the Group, details as disclosed in Note 38 to the financial statements. 4. SIGNIFICANT ACCOUNTING POLICIES (a) Critical Accounting Estimates and Judgements Estimates and judgements are continually evaluated by the directors and management and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The estimates and judgements that affect the application of the Group s accounting policies and disclosures, and have a significant risk of causing a material adjustment to the carrying amounts of assets, liabilities, income and expenses are discussed below:- (i) Depreciation of Equipment The estimates for the residual values, useful lives and related depreciation charges for the equipment are based on commercial factors which could change significantly as a result of technical innovations and competitors actions in response to the market conditions. The Group anticipates that the residual values of its equipment will be insignificant. As a result, residual values are not being taken into consideration for the computation of the depreciable amount. Changes in the expected level of usage and technological development could impact the economic useful lives and the residual values of these assets, therefore future depreciation charges could be revised. 60 XOX Bhd ( X) Annual Report 2012

62 NOTES TO THE FINANCIAL STATEMENTS 4. SIGNIFICANT ACCOUNTING POLICIES (CONT D) (a) Critical Accounting Estimates and Judgements (Cont d) (ii) Income Taxes There are certain transactions and computations for which the ultimate tax determination may be different from the initial estimate. The Group recognises tax liabilities based on its understanding of the prevailing tax laws and estimates of whether such taxes will be due in the ordinary course of business. Where the final outcome of these matters is different from the amounts that were initially recognised, such difference will impact the income tax and deferred tax provisions in the year in which such determination is made. (iii) Impairment of Non-financial Assets When the recoverable amount of an asset is determined based on the estimate of the value-in-use of the cash-generating unit to which the asset is allocated, the management is required to make an estimate of the expected future cash flows from the cash-generating unit and also to apply a suitable discount rate in order to determine the present value of those cash flows. (iv) Write-down of Inventories Reviews are made periodically by management on damaged, obsolete and slow-moving inventories. These reviews require judgement and estimates. Possible changes in these estimates could result in revisions to the valuation of inventories. 61 XOX Bhd ( X) Annual Report 2012

63 NOTES TO THE FINANCIAL STATEMENTS 4. SIGNIFICANT ACCOUNTING POLICIES (CONT D) (a) Critical Accounting Estimates and Judgements (Cont d) (v) Impairment of Trade and Other Receivables An impairment loss is recognised when there is objective evidence that a financial asset is impaired. Management specifically reviews its loans and receivables financial assets and analyses historical bad debts, customer concentrations, customer creditworthiness, current economic trends and changes in the customer payment terms when making a judgment to evaluate the adequacy of the allowance for impairment losses. Where there is objective evidence of impairment, the amount and timing of future cash flows are estimated based on historical loss experience for assets with similar credit risk characteristics. If the expectation is different from the estimation, such difference will impact the carrying value of receivables. (v) Impairment of Goodwill Goodwill is tested for impairment annually and at other times when such indicators exist. This requires management to estimate the expected future cash flows of the cash-generating unit to which goodwill is allocated and to apply a suitable discount rate in order to determine the present value of those cash flows. The future cash flows are most sensitive to budgeted gross margins, growth rates estimated and discount rate used. If the expectation is different from the estimation, such difference will impact the carrying value of goodwill. (vi) Fair Value Estimates for Certain Financial Assets and Liabilities The Group carries certain financial assets and liabilities at fair value, which requires extensive use of accounting estimates and judgement. While significant components of fair value measurement were determined using verifiable objective evidence, the amount of changes in fair value would differ if the Group uses different valuation methodologies. Any changes in fair value of these assets and liabilities would affect profit and/or equity. 62 XOX Bhd ( X) Annual Report 2012

64 NOTES TO THE FINANCIAL STATEMENTS 4. SIGNIFICANT ACCOUNTING POLICIES (CONT D) (b) Basis of Consolidation The consolidated financial statements include the financial statements of the Company and its subsidiaries made up to 30 June A subsidiary is defined as a company in which the parent company has the power, directly or indirectly, to exercise control over its financial and operating policies so as to obtain benefits from its activities. Subsidiaries are consolidated from the date on which control is transferred to the Group up to the effective date on which control ceases, as appropriate. Intragroup transactions, balances, income and expenses are eliminated on consolidation. Where necessary, adjustments are made to the financial statements of subsidiaries to ensure consistency of accounting policies with those of the Group. Non-controlling interests are presented within equity in the consolidated statement of financial position, separately from the Company s shareholders equity, and are separately disclosed in the consolidated statement of comprehensive income. Transactions with non-controlling interests are accounted for as transactions with owners and are recognised directly in equity. Profit or loss and each component of other comprehensive income are attributed to the owners of the parent and to the non-controlling interests. Total comprehensive income is attributed to non-controlling interests even if this results in the non-controlling interests having a deficit balance. At the end of each reporting period, the carrying amount of non-controlling interests is the amount of those interests at initial recognition plus the noncontrolling interests share of subsequent changes in equity. All changes in the parent s ownership interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions. Any difference between the amount by which the non-controlling interest is adjusted and the fair value of consideration paid or received is recognised directly in equity and attributed to owners of the parent. Upon loss of control of a subsidiary, the profit or loss on disposal is calculated as the difference between:- (i) (ii) the aggregate of the fair value of the consideration received and the fair value of any retained interest in the former subsidiary; and the previous carrying amount of the assets (including goodwill), and liabilities of the former subsidiary and any non-controlling interests. 63 XOX Bhd ( X) Annual Report 2012

65 NOTES TO THE FINANCIAL STATEMENTS 4. SIGNIFICANT ACCOUNTING POLICIES (CONT D) (b) Basis of Consolidation (Cont d) Amounts previously recognised in other comprehensive income in relation to the former subsidiary are accounted for (i.e. reclassified to profit or loss or transferred directly to retained profits) in the same manner as would be required if the relevant assets or liabilities were disposed of. The fair value of any investments retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under FRS 139. Acquisitions of businesses are accounted for using the acquisition method. Under the acquisition method, the consideration transferred for acquisition of a subsidiary is the fair value of the assets transferred, liabilities incurred and the equity interests issued by the Group at the acquisition date. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Acquisition-related costs, other than the costs to issue debt or equity securities, are recognised in profit or loss when incurred. In a business combination achieved in stages, previously held equity interests in the acquiree are remeasured to fair value at the acquisition date and any corresponding gain or loss is recognised in profit or loss. Non-controlling interests in the acquiree may be initially measured either at fair value or at the non-controlling interests proportionate share of the fair value of the acquiree s identifiable net assets at the date of acquisition. The choice of measurement basis is made on a transaction-by-transaction basis. The acquisition of XOX Com Sdn Bhd by the Company has been accounted for as a business combination amongst entities under common control. Accordingly, the financial statements of the Group have been consolidated using the merger method of accounting. Under the merger method of accounting, the results of the subsidiaries are presented as if the merger had been effected throughout the current and previous financial years. The assets and liabilities combined are accounted for based on the carrying amounts from the perspective of common control shareholder at the date of transfer. On consolidation, the cost of the merger is cancelled with the values of the shares received. Any resulting debit or credit difference is classified as a non- distributable reserve. 64 XOX Bhd ( X) Annual Report 2012

66 NOTES TO THE FINANCIAL STATEMENTS 4. SIGNIFICANT ACCOUNTING POLICIES (CONT D) (b) Basis of Consolidation (Cont d) The subsidiaries of XOX Bhd., namely XOX Media Sdn. Bhd., XOX Wallet Sdn. Bhd. and XOX Management Services Sdn. Bhd., are consolidated using the purchase method of accounting. Under the purchase method of accounting, the results of subsidiaries acquired or disposed of are included from the date of acquisition or up to the date of disposal. At the date of acquisition, the fair values of the subsidiaries net assets are determined and these values are reflected in the consolidated financial statements. The cost of acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, and equity instruments issued by the Group. in exchange for control of the acquiree, plus any costs directly attributable to the business combination. Intragroup transactions, balances and unrealised gains on transactions are eliminated; unrealised losses are also eliminated unless cost cannot be recovered. Where necessary, adjustments are made to the financial statements of the subsidiary to ensure consistency of accounting policies with those of the Group. The gain or loss on the disposal of a subsidiary is the difference between the net disposal proceeds and the Group s share of its net assets. (c) Goodwill Goodwill is measured at cost less accumulated impairment losses, if any. The carrying value of goodwill is reviewed for impairment annually. The impairment value of goodwill is recognised immediately in profit or loss. An impairment loss recognised for goodwill is not reversed in a subsequent period. Under the acquisition method, any excess of the sum of the fair value of the consideration transferred in the business combination, the amount of noncontrolling interests recognised and the fair value of the Group s previously held equity interest in the acquiree (if any), over the net fair value of the acquiree s identifiable assets and liabilities at the date of acquisition is recorded as goodwill. Where the latter amount exceeds the former, after reassessment, the excess represents a bargain purchase gain and is recognised as a gain in profit or loss. 65 XOX Bhd ( X) Annual Report 2012

67 NOTES TO THE FINANCIAL STATEMENTS 4. SIGNIFICANT ACCOUNTING POLICIES (CONT D) (d) Functional and Foreign Currencies (i) Functional and Presentation Currency The individual financial statements of each entity in the Group are presented in the currency of the primary economic environment in which the entity operates, which is the functional currency. The consolidated financial statements are presented in Ringgit Malaysia, which is the Company s functional and presentation currency. (ii) Transactions and Balances Transactions in foreign currencies are converted into the respective functional currencies on initial recognition, using the exchange rates approximating those ruling at the transaction dates. Monetary assets and liabilities at the end of the reporting period are translated at the rates ruling as of that date. Non-monetary assets and liabilities are translated using exchange rates that existed when the values were determined. All exchange differences are recognised in profit or loss. (e) Financial Instruments Financial instruments are recognised in the statements of financial position when the Group has become a party to the contractual provisions of the instruments. Financial instruments are classified as liabilities or equity in accordance with the substance of the contractual arrangement. Interest, dividends, gains and losses relating to a financial instrument classified as a liability, are reported as an expense or income. Distributions to holders of financial instruments classified as equity are charged directly to equity. Financial instruments are offset when the Group has a legally enforceable right to offset and intends to settle either on a net basis or to realise the asset and settle the liability simultaneously. A financial instrument is recognised initially, at its fair value plus, in the case of a financial instrument not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial instrument. Financial instruments recognised in the statements of financial position are disclosed in the individual policy statement associated with each item. 66 XOX Bhd ( X) Annual Report 2012

68 NOTES TO THE FINANCIAL STATEMENTS 4. SIGNIFICANT ACCOUNTING POLICIES (CONT D) (e) Financial Instruments (Cont d) (i) Financial Assets On initial recognition, financial assets are classified as either financial assets at fair value through profit or loss, held-to-maturity investments, loans and receivables financial assets, or available-for-sale financial assets, as appropriate. Financial Assets at Fair Value Through Profit or Loss Financial assets are classified as financial assets at fair value through profit or loss when the financial asset is either held for trading or is designated to eliminate or significantly reduce a measurement or recognition inconsistency that would otherwise arise. Derivatives are also classified as held for trading unless they are designated as hedges. Financial assets at fair value through profit or loss are stated at fair value, with any gains or losses arising on remeasurement recognised in profit or loss. Dividend income from this category of financial assets is recognised in profit or loss when the Group s right to receive payment is established. Held-to-maturity Investments Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the management has the positive intention and ability to hold to maturity. Held-to-maturity investments are measured at amortised cost using the effective interest method less any impairment loss, with revenue recognised on an effective yield basis. 67 XOX Bhd ( X) Annual Report 2012

69 NOTES TO THE FINANCIAL STATEMENTS 4. SIGNIFICANT ACCOUNTING POLICIES (CONT D) (e) Financial Instruments (Cont d) (i) Financial Assets (Cont d) Loans and Receivables Financial Assets Trade receivables and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as loans and receivables financial assets. Loans and receivables financial assets are measured at amortised cost using the effective interest method, less any impairment loss. Interest income is recognised by applying the effective interest rate, except for short-term receivables when the recognition of interest would be immaterial. Available-for-sale Financial Assets Available-for-sale financial assets are non-derivative financial assets that are designated in this category or are not classified in any of the other categories. After initial recognition, available-for-sale financial assets are remeasured to their fair values at the end of each reporting period. Gains and losses arising from changes in fair value are recognised in other comprehensive income and accumulated in the fair value reserve, with the exception of impairment losses. On derecognition, the cumulative gain or loss previously accumulated in the fair value reserve is reclassified from equity into profit or loss. Dividends on available-for-sale equity instruments are recognised in profit or loss when the Group s right to receive payments is established. Investments in equity instruments whose fair value cannot be reliably measured are measured at cost less accumulated impairment losses, if any. 68 XOX Bhd ( X) Annual Report 2012

70 NOTES TO THE FINANCIAL STATEMENTS 4. SIGNIFICANT ACCOUNTING POLICIES (CONT D) (e) Financial Instruments (Cont d) (ii) Financial Liabilities All financial liabilities are initially at fair value plus directly attributable transaction costs and subsequently measured at amortised cost using the effective interest method other than those categorised as fair value through profit or loss. Fair value through profit or loss category comprises financial liabilities that are either held for trading or are designated to eliminate or significantly reduce a measurement or recognition inconsistency that would otherwise arise. Derivatives are also classified as held for trading unless they are designated as hedges. (iii) Equity Instruments Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from proceeds. Dividends on ordinary shares are recognised as liabilities when approved for appropriation. (f) Investments in Subsidiaries Investments in subsidiaries are stated at cost in the statement of financial position of the Company, and are reviewed for impairment at the end of the reporting period if events or changes in circumstances indicate that the carrying values may not be recoverable. On the disposal of the investments in subsidiaries, the difference between the net disposal proceeds and the carrying amount of the investments is recognised in profit or loss. (g) Equipment Equipment are stated at cost less accumulated depreciation or amortisation and impairment losses, if any. 69 XOX Bhd ( X) Annual Report 2012

71 NOTES TO THE FINANCIAL STATEMENTS 4. SIGNIFICANT ACCOUNTING POLICIES (CONT D) (g) Equipment (Cont d) Depreciation is calculated under the straight-line method to write off the depreciable amount of the assets over their estimated useful lives. Depreciation of an asset does not cease when the asset becomes idle or is retired from active use unless the asset is fully depreciated. The principal annual rates used for this purpose are:- Telecommunication network and equipment 10% Office equipment 20% Furniture and fittings 10% Renovation Motor vehicles 10% 20% The depreciation method, useful life and residual values are reviewed, and adjusted if appropriate, at the end of each reporting period to ensure that the amounts, method and periods of depreciation are consistent with previous estimates and the expected pattern of consumption of the future economic benefits embodied in the items of the equipment. Capital work-in-progress represents assets under construction, and which are not ready for commercial use at the end of the reporting period. Capital work-inprogress is stated at cost, transferred to the relevant category of assets and depreciated accordingly when the assets are completed and ready for commercial use. Subsequent costs are included in the assets carrying amount or recognised as a separate asset, as appropriate, only when the cost is incurred and it is probable that the future economic benefits associated with the asset will flow to the Group and the cost of the asset can be measured reliably. The carrying amount of parts that are replaced is derecognised. The costs of the day-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred. Cost also comprises the initial estimate of dismantling and removing the asset and restoring the site on which it is located for which the Group is obligated to incur when the asset is acquired, if applicable. An item of equipment is derecognised upon disposal or when no future economic benefits are expected from its use. Any gain or loss arising from derecognition of the asset is included in the statement of comprehensive income in the year the asset is derecognised. 70 XOX Bhd ( X) Annual Report 2012

72 NOTES TO THE FINANCIAL STATEMENTS 4. SIGNIFICANT ACCOUNTING POLICIES (CONT D) (g) Equipment (Cont d) During the financial period, the Group changed the depreciation rates for its telecommunication network and equipment from 20% per annum to 10% per annum. The change in the depreciation rates arose from a review of the useful lives of the assets concerned. The effect of the change in the depreciation rates is to reduce the loss before taxation of the Group by RM1,224,666 for the current financial period. (h) Impairment (i) Impairment of Financial Assets All financial assets (other than those categorised at fair value through profit or loss), are assessed at the end of each reporting period whether there is any objective evidence of impairment as a result of one or more events having an impact on the estimated future cash flows of the asset. For an equity instrument, a significant or prolonged decline in the fair value below its cost is considered to be objective evidence of impairment. An impairment loss in respect of held-to-maturity investments and loans and receivables financial assets is recognised in profit or loss and is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows, discounted at the financial asset s original effective interest rate. An impairment loss in respect of available-for-sale financial assets is recognised in profit or loss and is measured as the difference between its cost (net of any principal payment and amortisation) and its current fair value, less any impairment loss previously recognised in the fair value reserve. In addition, the cumulative loss recognised in other comprehensive income and accumulated in equity under fair value reserve, is reclassified from equity to profit or loss. 71 XOX Bhd ( X) Annual Report 2012

73 NOTES TO THE FINANCIAL STATEMENTS 4. SIGNIFICANT ACCOUNTING POLICIES (CONT D) (h) Impairment (Cont d) (i) Impairment of Financial Assets (Cont d) With the exception of available-for-sale equity instruments, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised. In respect of available-for-sale equity instruments, impairment losses previously recognised in profit or loss are not reversed through profit or loss. Any increase in fair value subsequent to an impairment loss made is recognised in other comprehensive income. (ii) Impairment of Non-Financial Assets The carrying values of assets, other than those to which FRS Impairment of Assets does not apply, are reviewed at the end of each reporting period for impairment when there is an indication that the assets might be impaired. Impairment is measured by comparing the carrying values of the assets with their recoverable amounts. The recoverable amount of the assets is the higher of the assets' fair value less costs to sell and their value-in-use, which is measured by reference to discounted future cash flow. An impairment loss is recognised in profit or loss immediately unless the asset is carried at its revalued amount. Any impairment loss of a revalued asset is treated as a revaluation decrease to the extent of a previously recognised revaluation surplus for the same asset. 72 XOX Bhd ( X) Annual Report 2012

74 NOTES TO THE FINANCIAL STATEMENTS 4. SIGNIFICANT ACCOUNTING POLICIES (CONT D) (h) Impairment (Cont d) (ii) Impairment of Non-Financial Assets (Cont d) In respect of assets other than goodwill, and when there is a change in the estimates used to determine the recoverable amount, a subsequent increase in the recoverable amount of an asset is treated as a reversal of the previous impairment loss and is recognised to the extent of the carrying amount of the asset that would have been determined (net of amortisation and depreciation) had no impairment loss been recognised. The reversal is recognised in profit or loss immediately, unless the asset is carried at its revalued amount. A reversal of an impairment loss on a revalued asset is credited to other comprehensive income. However, to the extent that an impairment loss on the same revalued asset was previously recognised as an expense in the statements of comprehensive income, a reversal of that impairment loss is recognised as income in the statements of comprehensive income. (i) Assets under Hire Purchase Assets acquired under hire purchase are capitalised in the financial statements and are depreciated in accordance with the policy set out in Note 4(g) above. Each hire purchase payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding. Finance charges are recognised in profit or loss over the period of the respective hire purchase agreements. 73 XOX Bhd ( X) Annual Report 2012

75 NOTES TO THE FINANCIAL STATEMENTS 4. SIGNIFICANT ACCOUNTING POLICIES (CONT D) (j) Inventories Inventories are stated at the lower of cost and net realisable value. Cost is determined on the weighted average basis and comprises the purchase price and incidentals incurred in bringing the inventories to their present location and condition. Net realisable value represents the estimated selling price less the estimated costs necessary to make the sale. Where necessary, due allowance is made for all damaged, obsolete and slowmoving items. The Group writes down its obsolete or slow moving inventories based on assessment of the condition and the future demand for the inventories. These inventories are written down when events or changes in circumstances indicate that the carrying amounts may not be recovered. (k) Income Taxes Income tax for the year comprises current and deferred tax. Current tax is the expected amount of income taxes payable in respect of the taxable profit for the year and is measured using the tax rates that have been enacted or substantively enacted at the end of the reporting period. Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. Deferred tax liabilities are recognised for all taxable temporary differences other than those that arise from goodwill or excess of the acquirer s interest in the net fair value of the acquiree s identifiable assets, liabilities and contingent liabilities over the business combination costs or from the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction, affects neither accounting profit nor taxable profit. 74 XOX Bhd ( X) Annual Report 2012

76 NOTES TO THE FINANCIAL STATEMENTS 4. SIGNIFICANT ACCOUNTING POLICIES (CONT D) (k) Income Taxes (Cont d) Deferred tax assets are recognised for all deductible temporary differences, unused tax losses and unused tax credits to the extent that it is probable that future taxable profits will be available against which the deductible temporary differences, unused tax losses and unused tax credits can be utilised. The carrying amounts of deferred tax assets are reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient future taxable profits will be available to allow all or part of the deferred tax assets to be utilised. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period when the asset is realised or the liability is settled, based on the tax rates that have been enacted or substantively enacted at the end of the reporting period. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when the deferred income taxes relate to the same taxation authority. Deferred tax relating to items recognised outside profit or loss is recognised outside profit or loss. Deferred tax items are recognised in correlation to the underlying transactions either in other comprehensive income or directly in equity and deferred tax arising from a business combination is included in the resulting goodwill or excess of the acquirer s interest in the net fair value of the acquiree s identifiable assets, liabilities and contingent liabilities over the business combination costs. (l) Borrowing Costs Borrowing costs, directly attributable to the acquisition and construction of property, plant and equipment are capitalised as part of the cost of those assets, until such time as the assets are ready for their intended use or sale. Capitalisation of borrowing costs is suspended during extended periods in which active development is interrupted All other borrowing costs are recognised in profit or loss as expenses in the period in which they incurred. 75 XOX Bhd ( X) Annual Report 2012

77 NOTES TO THE FINANCIAL STATEMENTS 4. SIGNIFICANT ACCOUNTING POLICIES (CONT D) (m) Cash and Cash Equivalents Cash and cash equivalents comprise cash in hand, bank balances, demand deposits, deposits pledged with financial institutions, bank overdrafts and short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. (n) Provisions Provisions are recognised when the Group has a present obligation as a result of past events, when it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and when a reliable estimate of the amount can be made. Provisions are reviewed at the end of each reporting period and adjusted to reflect the current best estimate. Where the effect of the time value of money is material, the provision is the present value of the estimated expenditure required to settle the obligation. (o) Employee Benefits (i) Short-term Benefits Wages, salaries, paid annual leave and sick leave, bonuses and nonmonetary benefits are recognised in profit or in the period in which the associated services are rendered by employees of the Group. (ii) Defined Contribution Plans The Group s contributions to defined contribution plans are recognised in profit or loss in the period to which they relate. Once the contributions have been paid, the Group has no further liability in respect of the defined contribution plans. 76 XOX Bhd ( X) Annual Report 2012

78 NOTES TO THE FINANCIAL STATEMENTS 4. SIGNIFICANT ACCOUNTING POLICIES (CONT D) (p) Related Parties A party is related to an entity if:- (i) (ii) (iii) (iv) (v) (vi) (vii) directly, or indirectly through one or more intermediaries, the party:- controls, is controlled by, or is under common control with, the entity (this includes parents, subsidiaries and fellow subsidiaries); has an interest in the entity that gives it significant influence over the entity; or has joint control over the entity; the party is an associate of the entity; the party is a joint venture in which the entity is a venturer; the party is a member of the key management personnel of the entity or its parent; the party is a close member of the family of any individual referred to in (i) or (iv); the party is an entity that is controlled, jointly controlled or significantly influenced by, or for which significant voting power in such entity resides with, directly or indirectly, any individual referred to in (iv) or (v); or the party is a post-employment benefit plan for the benefit of employees of the entity, or of any entity that is a related party of the entity. Close members of the family of an individual are those family members who may be expected to influence, or be influenced by, that individual in their dealings with the entity. (q) Contingent Liabilities A contingent liability is a possible obligation that arises from past events and whose existence will only be confirmed by the occurrence of one or more uncertain future events not wholly within the control of the Group. It can also be a present obligation arising from past events that is not recognised because it is not probable that an outflow of economic resources will be required or the amount of obligation cannot be measured reliably. A contingent liability is not recognised but is disclosed in the notes to the financial statements. When a change in the probability of an outflow occurs so that the outflow is probable, it will then be recognised as a provision. 77 XOX Bhd ( X) Annual Report 2012

79 NOTES TO THE FINANCIAL STATEMENTS 4. SIGNIFICANT ACCOUNTING POLICIES (CONT D) (r) Revenue and Other Income (i) Sale of Goods Revenue is recognised upon delivery of goods and customers acceptance and where applicable, net of sales tax, returns and trade discounts. (ii) Interest Income Interest income is recognised on an accrual basis. (iii) Rental Income Rental income is recognised on an accrual basis. 5. INVESTMENTS IN SUBSIDIARIES THE COMPANY RM RM Unquoted shares, at cost 33,240,000 - Accumulated impairment losses:- At 1 January 2011/ Addition during the financial period (33,099,998) - (33,099,998) , XOX Bhd ( X) Annual Report 2012

80 NOTES TO THE FINANCIAL STATEMENTS 5. INVESTMENTS IN SUBSIDIARIES (CONT D) The details of the subsidiaries, which are incorporated in Malaysia are as follows:- Name of Company Effective Equity Interest Principal Activities XOX Com Sdn Bhd 100% - Provider of mobile telecommunication products and services. XOX Management Services Sdn Bhd ^ 100% - Provision of management services. XOX Media Sdn Bhd ^ 100% - Provision of mobile application services. XOX Wallet Sdn Bhd ^ 100% - Dormant. Company held by XOX Com Sdn. Bhd. XOX Mobile Sdn Bhd^ 100% - Agent for marketing, promotion, support services and managing the distribution channels of mobile telecommunication products and services. ^ These subsidiaries were audited by other firms of chartered accountants. 79 XOX Bhd ( X) Annual Report 2012

81 NOTES TO THE FINANCIAL STATEMENTS 5. INVESTMENTS IN SUBSIDIARIES (CONT D) The auditors report has drawn attention to the following in respect of the financial statements of the following subsidiary for the financial period ended 30 June 2012:- XOX Com Sdn. Bhd. a) Trade receivables Included in trade receivables of the Company as at 30 June 2012, were outstanding amounts owing by 2 major trade receivables of approximately RM4.9 million. The directors are of the opinion that these amounts outstanding from the trade receivables are recoverable and accordingly, no impairment losses on receivables have been made in the financial statements. However, as the amounts have been long outstanding and due to the nature of the debt, the auditors are of the opinion that these receivables may not be recoverable and hence impairment losses on receivables should be provided for. Had impairment losses on these amounts been provided for, the carrying value of trade receivables would have been decreased by RM4.9 million. Similarly, the accumulated losses and loss for the financial period ended 30 June 2012 would have been increased by RM4.9 million. b) Impairment of capital work-in-progress Included in equipment of the Company as at 30 June 2012, were capital work-inprogress amounting to approximately RM3.5 million. The directors are of the opinion that, although the development of the capital work-in-progress has been halted, their development will continue and accordingly, no impairment losses have been made in the financial statements. As at the date of this report, the auditors are unable to obtain sufficient appropriate audit evidence that the capital work-in-progress is not impaired and that the Company has sufficient financial resources to complete the development of the capital work-in-progress for their intended use. Had impairment losses on capital work-in-progress been provided for, the carrying value of equipment would have been decreased by RM3.5 million. Similarly, the accumulated losses and loss for the financial period ended 30 June 2012 would have been increased by RM3.5 million. c) Accrual of cost for unrealised sales The auditors are unable to obtain sufficient appropriate audit evidence to substantiate the non-accrual of cost for unrealised sales amounting to approximately RM2.3 million. Had this accrual been taken up in the financial statements, the loss for the financial period ended 30 June 2012 and the accumulated losses as at 30 June 2012 would have been increased by RM2.3 million accordingly. 80 XOX Bhd ( X) Annual Report 2012

82 NOTES TO THE FINANCIAL STATEMENTS 6. EQUIPMENT THE GROUP AT ADDITIONS WRITTEN OFF IMPAIRMENT LOSS TRANSFERS DEPRECIATION CHARGE AT RM RM RM RM RM RM RM NET BOOK VALUE Capital work-in-progress 10,927,733 16,621,563 - (100,000) (17,249,718) - 10,199,578 Telecommunication network and equipment 898,268 4,430, ,249,718 (2,637,044) 19,941,102 Office equipment 801,738 1,148,207 (9,897) - - (523,777) 1,416,271 Furniture and fittings 99,716 71, (24,909) 145,841 Renovation 223, , (63,417) 380,086 Motor vehicles - 1,157, (250,802) 906,748 12,950,981 23,648,491 (9,897) (100,000) - (3,499,949) 32,989, XOX Bhd ( X) Annual Report 2012

83 NOTES TO THE FINANCIAL STATEMENTS 6. EQUIPMENT (CONT D) THE GROUP AT ADDITIONS TRANSFERS DEPRECIATION CHARGE AT RM RM RM RM RM NET BOOK VALUE Capital work-in-progress 10,382,519 1,521,560 (976,346) - 10,927,733 Telecommunication network and equipment - 33, ,346 (111,609) 898,268 Office equipment 536, ,866 - (160,248) 801,738 Furniture and fittings 106,898 4,568 - (11,750) 99,716 Renovation 248,422 2,830 - (27,726) 223,526 11,273,959 1,988,355 - (311,333) 12,950, XOX Bhd ( X) Annual Report 2012

84 NOTES TO THE FINANCIAL STATEMENTS 6. EQUIPMENT (CONT D) AT ACCUMULATED ACCUMULATED NET BOOK COST DEPRECIATION IMPAIRMENT VALUE THE GROUP RM RM RM RM At Capital work-in-progress 10,299,578 - (100,000) 10,199,578 Telecommunication network and equipment 22,689,755 (2,748,653) - 19,941,102 Office equipment 2,198,449 (782,178) - 1,416,271 Furniture and fittings 191,019 (45,178) - 145,841 Renovation 498,895 (118,809) - 380,086 Motor vehicles 1,157,550 (250,802) - 906,748 37,035,246 (3,945,620) (100,000) 32,989,626 At Capital work-in-progress 10,927, ,927,733 Telecommunication network and equipment 1,009,877 (111,609) - 898,268 Office equipment 1,062,104 (260,366) - 801,738 Furniture and fittings 119,985 (20,269) - 99,716 Renovation 278,918 (55,392) - 223,526 13,398,617 (447,636) - 12,950,981 Included in the assets of the Group at the end of the reporting period were motor vehicles with a total net book value of RM906,748 ( NIL), which were acquired under hire purchase terms. 83 XOX Bhd ( X) Annual Report 2012

85 NOTES TO THE FINANCIAL STATEMENTS 7. GOODWILL THE GROUP RM RM At 1 January 2011/ Acquisition of a new subsidiary 44,744-44,744 - Accumulated impairment losses (44,744) INVENTORIES THE GROUP RM RM Sim cards and recharge cards, at cost 793, ,849 None of the inventories is carried at net realisable value. 9. TRADE RECEIVABLES THE GROUP RM RM Trade receivables 7,334,277 1,842,148 Allowance for impairment losses (253,800) - 7,080,477 1,842,148 Allowance for impairment losses: - At 1 January - - Addition during the financial period (253,800) - (253,800) - 84 XOX Bhd ( X) Annual Report 2012

86 NOTES TO THE FINANCIAL STATEMENTS 9. TRADE RECEIVABLES (CONT D) The Group s normal trade credit terms range from 7 to 60 days. Other credit terms are assessed and approved on a case-by-case basis. Included in the trade receivables of the Group at the end of the reporting period, is a total amount of approximately RM4.9 million (2010 RM1.1 million), owing by 2 customers which have been long outstanding and overdue as at the end of the reporting date. The directors are of the opinion that the debts will be recoverable as evidenced by the partial settlement of the debts during the financial period under review. Accordingly, no allowance for impairment losses has been made as the Directors are confident of the full recovery of these debts. 10. OTHER RECEIVABLES, DEPOSITS AND PREPAYMENTS THE GROUP THE COMPANY RM RM RM RM Other receivables 1,181,640 5,395, ,104 Staff advance 848, Deposits 240, ,389 21,800 - Prepayments 1,506,737 1,418,479 7, ,777,113 6,983,613 28, , AMOUNT OWING BY SUBSIDIARIES THE COMPANY RM RM Amount owing by subsidiaries 27,269,315 - Allowance for impairment losses (27,039,315) - 230,000 - The amount owing is non-trade in nature, unsecured, interest-free and receivable on demand. The amount is to be settled in cash. 85 XOX Bhd ( X) Annual Report 2012

87 NOTES TO THE FINANCIAL STATEMENTS 12. DEPOSITS WITH A LICENSED BANK The deposits with a licensed bank of the Group at the end of the reporting period are noninterest bearing and are pledged as security for guarantees provided by the bank to a trade creditor. The bank guarantees of RM3 million and RM5 million will be expiring on 4 June 2013 and 27 June 2013 respectively. 13. SHORT-TERM INVESTMENT THE GROUP RM RM At cost:- ING Cash Plus - 2,422,127 AmIncome 9,049-9,049 2,422,127 Market value of investment:- ING Cash Plus - 2,303,427 AmIncome 9,049-9,049 2,422, XOX Bhd ( X) Annual Report 2012

88 NOTES TO THE FINANCIAL STATEMENTS 14. SHARE CAPITAL The movements in the authorised share capital of the Company are as follows:- ORDINARY SHARES PAR VALUE NUMBER OF SHARES SHARE CAPITAL PAR VALUE NUMBER OF SHARES SHARE CAPITAL RM 000 RM 000 RM 000 RM 000 AUTHORISED At / (date of incorporation) Increase during the financial period ,900 99, Sub-division of the par value of ordinary shares of RM1.00 each into RM0.10 each - 900, At / ,000, , XOX Bhd ( X) Annual Report 2012

89 NOTES TO THE FINANCIAL STATEMENTS 14. SHARE CAPITAL (CONT D) The movements in the issued and paid-up share capital of the Company are as follows: NUMBER OF SHARES NUMBER OF SHARES PAR SHARE PAR SHARE VALUE CAPITAL VALUE CAPITAL ORDINARY SHARES RM 000 RM 000 RM 000 RM 000 ISSUED AND FULLY PAID-UP At / (date of incorporation) 1.00 ^ * 1.00 ^ * Allotment of shares pursuant to the acquisition of subsidiaries ,020 25, Sub-division of the par value of ordinary shares of RM1.00 each into RM0.10 each , Special issue , Public Issue ,800 4, At / ,000 30, ^ * Note:- * - RM2 ^ - 2 ordinary shares During the financial period, (a) the Company increased its authorised share capital from RM100,000 to RM100,000,000 by the creation of 99,900,000 new ordinary shares RM1.00 each. On 4 April 2011, pursuant to a share split, the authorised share capital of RM100,000,000 comprising 100,000,000 ordinary shares of RM1.00 each was subdivided into 1,000,000,000 ordinary shares of RM0.10 each; 88 XOX Bhd ( X) Annual Report 2012

90 NOTES TO THE FINANCIAL STATEMENTS 14. SHARE CAPITAL (CONT D) During the financial period (Cont d), (b) the Company increased its issued and paid-up share capital from RM2 to RM30,200,000 as part of its flotation scheme on the ACE Market of Bursa Malaysia Securities Berhad. The increase in the issued and paid-up share capital was by way of:- (i) Acquisition of XOX Com Sdn. Bhd. ( XOX Com ) Acquisition of the entire issued and paid-up share capital of XOX Com comprising 24,879,998 ordinary shares of RM1.00 each for a purchase consideration of RM24,879,998 satisfied by the issuance of 24,879,998 new ordinary shares of RM1.00 each in the Company at an issue price of RM1.00 per ordinary share. (ii) Acquisition of XOX Media Sdn. Bhd. ( XOX Media ) Acquisition of the entire issued and paid-up share capital of XOX Media comprising 100,000 ordinary shares of RM1.00 each for a purchase consideration of RM100,000 satisfied by the issuance of 100,000 new ordinary shares of RM1.00 each in the Company at an issue price of RM1.00 per ordinary share. (iii) Acquisition of XOX Management Sdn. Bhd. ( XOX Management ) Acquisition of the entire issued and paid-up share capital of XOX Management comprising 40,000 ordinary shares of RM1.00 each for a purchase consideration of RM40,000 satisfied by the issuance of 40,000 new ordinary shares of RM1.00 each in the Company at an issue price of RM1.00 per ordinary share. (iv) Share split Sub-division of the 25,020,000 ordinary shares at par value of RM1.00 each into 250,200,000 ordinary shares of RM0.10 each; (v) Special issue Special issue of 5,000,000 new ordinary shares of RM0.10 each to selected Directors and long-serving employees at an issue price of RM0.36 per ordinary share; 89 XOX Bhd ( X) Annual Report 2012

91 NOTES TO THE FINANCIAL STATEMENTS 14. SHARE CAPITAL (CONT D) During the financial period (Cont d), (b) the Company increased its issued and paid-up share capital from RM2 to RM30,200,000 as part of its flotation scheme on the ACE Market of Bursa Malaysia Securities Berhad. The increase in the issued and paid-up share capital was done by way of (Cont d):- (vi) Public issue Upon the completion of the Public Issue, the issued and paid-up share capital of the Company increased from RM25,520,000 to RM30,200,000 by the allotment of 46,800,000 new ordinary shares of RM0.10 each at an issue price of RM0.80 per ordinary share. The new ordinary shares issued rank pari passu in all respects with the existing ordinary shares of the Company. 15. SHARE PREMIUM The movements in the share premium of the Group and the Company are as follows:- THE GROUP THE COMPANY # RM RM RM RM At 1 January 2011 / (date of incorporation) 200,002 4,140, Issue of new shares - 4,060, Bonus issue - (7,999,998) - - Special issue 1,300,000-1,300,000 - Issue of new shares pursuant to public issue 32,760,000-32,760,000 - Listing expenses (1,649,991) - (1,649,991) - 32,610, ,002 32,410,009 - Note:- # - The comparative figures are prepared on the assumption that the Group had been in existence as at the previous reporting date. The consolidated share premium represents the share premium of XOX Bhd adjusted for the share premium issued for the purposes of the business combination. 90 XOX Bhd ( X) Annual Report 2012

92 NOTES TO THE FINANCIAL STATEMENTS 15. SHARE PREMIUM (CONT D) The share premium is not distributable by way of dividends and may be utilised in the manner set out in Section 60(3) of the Companies Act RESERVES The capital reserve arose from the special issue of shares to selected pioneer management team of the Group and is not distributable by way of dividends. 17. HIRE PURCHASE PAYABLES THE GROUP RM RM Minimum hire purchase payments: - not later than one year 207, later than one year and not later than five years 414, later than five years 207, ,820 - Less: Future finance charges (75,380) - Present value of hire purchase payables 754,440 - Current portion: - not later than one year (Note 21) 174,790 - Non-current portion: - later than one year and not later than five years 377, later than five years 202, , ,440 - The hire purchase payable bore a weighted average effective interest rate of 4.8% (2010 Nil) per annum at the end of the reporting period. The Group has hire purchase contracts for certain motor vehicles as disclosed in Note 6 to the financial statements. There are no restrictions imposed on the Group by the hire purchase arrangements and the Group has not entered into any arrangements for contingent rent payments. 91 XOX Bhd ( X) Annual Report 2012

93 NOTES TO THE FINANCIAL STATEMENTS 18. TRADE PAYABLES The normal trade credit terms granted to the Group and the Company range from 30 to 45 days. 19. OTHER PAYABLES AND ACCRUALS THE GROUP THE COMPANY RM RM RM RM Other payables 7,374,311 7,046,743 10,497 19,459 Accruals 4,209,641 20,290,159 99, ,979 Deposit received 75, , ,659,612 27,698, ,597 1,013,438 Included in deposits received of the Group were security deposits paid by distributors amounting to RM3,660 ( RM301,500). Included in accruals of the Group was an amount of RM3,103,368 ( RM19,007,595) being accrual for the cost of recharge usage. Included in accruals of the Group and of the Company in the previous financial year was an amount of RM992,979 accrued for listing expenses. 20. AMOUNT OWING TO A DIRECTOR The amount owing was non-trade in nature, unsecured, interest free and repayable on demand. The amount owing was fully settled during the financial period. 92 XOX Bhd ( X) Annual Report 2012

94 NOTES TO THE FINANCIAL STATEMENTS 21. SHORT-TERM BANK BORROWINGS THE GROUP RM RM Hire purchase payables (Note 17) 174,790 - Revolving credit - 2,778, ,790 2,778,848 The revolving credit in the previous financial period was repayable in 10 monthly instalments of at least RM150,000 each from 29 January 2010 until 30 June 2010, RM100,000 each from 31 July 2010 until 30 November 2010, RM150,000 on December 2010, RM200,000 each from January 2011 until February The revolving credit was fully settled in March The revolving credit was denominated in United States Dollar. The revolving credit in the previous financial period bore an effective interest rate of 2.5% per month and was secured by:- (a) (b) a specific charge over certain computer equipment and software system of the Group; and a joint and several guarantee of all the directors of the Group. 22. REVENUE Revenue of the Group represents the invoiced value of goods sold less discounts, commissions and returns. 93 XOX Bhd ( X) Annual Report 2012

95 NOTES TO THE FINANCIAL STATEMENTS 23. OTHER EXPENSES to THE GROUP to to THE COMPANY to RM RM RM RM Allowance for impairment loss on receivables 253,800-27,039,314 - Allowance for impairment loss on non-financial assets 100,000-33,099,998 - Depreciation of equipment 3,499, , Equipment written off 9, Impairment of goodwill 44,744 - Listing expenses 837, , , ,125 Loss on foreign exchange - realised 65, unrealised 21, ,832,190 1,147,458 60,976, , XOX Bhd ( X) Annual Report 2012

96 NOTES TO THE FINANCIAL STATEMENTS 24. LOSS BEFORE TAXATION Loss before taxation is arrived at after charging/ (crediting): to THE GROUP to to THE COMPANY to RM RM RM RM Allowance for impairment losses on receivables 253,800-27,039,314 - Allowance for impairment losses on non-financial assets 100,000-33,099,998 - Audit fee - for the financial period 193,200 31,400 30,000 3,000 - underprovision in previous financial period - 1, Depreciation of equipment 3,499, , Directors fee 50,000-50,000 - Directors non-fee emoluments 2,358, , ,435 - Equipment written off 9, Impairment loss on goodwill 44, Interest expense: - hire purchase 41, term loans 342,360 2,163, Incorporation expenses 4,500 5,316-5,316 Listing expenses 837, , , ,125 Loss/(gain) on foreign exchange - realised 65,475 (20,100) unrealised 21,110 (303,535) - - Rental of office 735, , Staff costs: - salaries, wages and allowance 5,276,333 1,778, defined contribution plan 628, , other benefits 485, , Interest income (395,699) (31,010) (53,353) - Rental income (45,000) (30,000) XOX Bhd ( X) Annual Report 2012

97 NOTES TO THE FINANCIAL STATEMENTS 25. INCOME TAX EXPENSE to THE GROUP to to THE COMPANY to RM RM RM RM Current tax: - for the financial period - 1, underprovision in previous financial period 31 (1,283) A reconciliation of income tax expense applicable to the loss before taxation at the statutory tax rate to income tax expense at the effective tax rate of the Group and the Company is as follows: to THE GROUP to to THE COMPANY to RM RM RM RM Loss before taxation (20,670,163) (15,973,780) (61,438,319) (850,721) Tax at statutory rate of 25% (5,167,500) (3,993,400) (15,359,600) (212,680) Tax effects of :- Non-deductible expenses 692, , ,680 Under/(over)provision in the previous financial period 31 (1,283) - - Deferred tax assets not recognised during the financial period 4,475,000 3,655,000 15,359,600 - Income tax expense XOX Bhd ( X) Annual Report 2012

98 NOTES TO THE FINANCIAL STATEMENTS 25. INCOME TAX EXPENSE (CONT D) The deferred tax consists of the tax effects of the following temporary differences: to THE GROUP to to THE COMPANY to RM RM RM RM Deferred tax liability:- Accelerated capital allowances 12,439, , Deferred tax asset:- Unabsorbed capital allowances (12,439,000) (293,000) No deferred tax assets are recognised on the following items: to THE GROUP to to THE COMPANY to RM RM RM RM Unabsorbed capital allowances 2,203, Unutilised tax losses 40,065,000 8,463,000 61,438,000 - Provision for cost of recharge usage 3,103,000 19,007, ,371,000 27,470,000 61,438, XOX Bhd ( X) Annual Report 2012

99 NOTES TO THE FINANCIAL STATEMENTS 26. LOSS PER SHARE The basic loss per share is arrived at by dividing the Group s loss attributable to the owners of the Group of RM20,670,194 (2010 RM15,973,951) by the following weighted average number of ordinary shares in issue during the financial period. THE GROUP Issued ordinary shares at / (date of incorporation) 248,800, ,800,000 Effect of acquisition of subsidiaries 1,161,974 - Effect of special issue 4,149,909 - Effect of public issue 33,367, ,479, ,800,000 The fully diluted loss per share for the Group was not presented as there were no dilutive potential ordinary shares outstanding at the end of the reporting period. 98 XOX Bhd ( X) Annual Report 2012

100 NOTES TO THE FINANCIAL STATEMENTS 27. ACQUISITION OF SUBSIDIARIES During the financial period, the Group acquired a 100% equity interest in XOX Management Services Sdn. Bhd. and XOX Media Sdn. Bhd. The fair values of the identifiable assets and liabilities of the following subsidiaries as at the date of acquisition were as follows:- THE GROUP AT DATE OF ACQUISITION CARRYING AMOUNT FAIR VALUE RECOGNISED Other receivables 2,636 2,636 Cash and cash equivalents 107, ,145 Other payables and accruals (7,902) (7,902) Tax recoverable Net identifiable assets and liabilities 102, ,161 Goodwill on acquisition 37,839 Total purchase consideration 140,000 Less: Cash and cash equivalents of subsidiaries acquired (107,145) Net cash outflow for acquisition of subsidiaries 32,855 RM RM The effects of the acquisition of the subsidiaries on the financial results of the Group at the end of the financial period are as follows: to RM Other income 1,968 Loss after taxation (478,426) If the acquisitions have taken place at the beginning of the financial period, the Group s loss after taxation would have been RM21,146, XOX Bhd ( X) Annual Report 2012

101 NOTES TO THE FINANCIAL STATEMENTS 28. PURCHASE OF EQUIPMENT THE GROUP RM RM Cost of equipment purchased 23,648,491 1,988,355 Amount financed through hire purchase (920,000) - Cash disbursed for purchase of equipment 22,728,491 1,988, CASH AND CASH EQUIVALENTS For the purpose of the statements of cash flows, cash and cash equivalents comprise the following:- THE GROUP THE COMPANY RM RM RM RM Deposits with a licensed bank 8,000, Short-term investments 9,049 2,422,127 Cash and bank balances 1,021, ,175 31, ,031,014 3,150,302 31, XOX Bhd ( X) Annual Report 2012

102 NOTES TO THE FINANCIAL STATEMENTS 30. DIRECTORS REMUNERATION (a) The aggregate amounts of emoluments received and receivable by directors of the Group and the Company during the financial period are as follows: to THE GROUP to to THE COMPANY to RM RM RM RM Executive directors: - non-fee emoluments 2,088, , allowances 72,600-72,600-2,160, ,000 72,600 - Non-executive directors: - fees 50,000-50, allowances 197, , , ,835 - Total 2,408, , ,435 - (b) The details of directors emoluments of the Group and the Company received/receivable for the financial period in bands of RM50,000 are as follows: to THE GROUP to to THE COMPANY to RM RM RM RM Executive directors:- Below RM50, RM400,000-RM450, RM1,050,000- RM1,100, Non-executive directors:- Below RM50, XOX Bhd ( X) Annual Report 2012

103 NOTES TO THE FINANCIAL STATEMENTS 31. SIGNIFICANT RELATED PARTY DISCLOSURES (a) Identities of related parties The Company s controlling related party relationships with:- (i) (ii) its subsidiaries as disclosed in Note 5 to the financial statements; entities controlled by certain key management personnel, directors and/or substantial shareholders; and (iii) the directors who are the key management personnel. (b) In addition to the information detailed elsewhere in the financial statements, the Group carried out the following significant transactions with the related parties during the financial period: to THE GROUP to to THE COMPANY to RM RM RM RM (i) Related party - rental received 45, legal fee paid , secretarial fees paid 79, (ii) Key management personnel compensation - short-term employee benefits 2,160, ,000 72,600-2,285, , , OPERATING SEGMENTS No segmental information has been provided as the Group operates principally in Malaysia and in one major business segment. 102 XOX Bhd ( X) Annual Report 2012

104 NOTES TO THE FINANCIAL STATEMENTS 33. CAPITAL COMMITMENTS THE GROUP RM RM Approved and contracted for: - - equipment 6,142,085 8,855, CONTINGENT LIABILITY On 30 July 2012, a subsidiary, XOX Com Sdn. Bhd. was served a Writ of Summons and Statement of Claim by one of its suppliers. The total outstanding sum of approximately RM422,000 together with interest at the rate of 1.5% per month on the amount claimed from the date of accrual until the date of full settlement. The Group is not expected to incur any material loss arising from the Writ of Summons and the Statement of Claim as the Group has provided for the amount comprising invoices from December 2011 to May 2012 which represent approximately 91% of the total outstanding sum claimed by the said supplier. XOX Com Sdn. Bhd. has filed a defence and counterclaim on 3 September 2012 against the said supplier. The total counterclaim filed amounted to approximately RM323,000. The Court has fixed the case management to be held on 21 November 2012 and 12 and 13 December 2012 for trial. 103 XOX Bhd ( X) Annual Report 2012

105 NOTES TO THE FINANCIAL STATEMENTS 35. FOREIGN EXCHANGE RATE The principal closing foreign exchange rate used (expressed on the basis of one unit of foreign currency to Ringgit Malaysia equivalent) for the translation of foreign currency balance at the end of the reporting period is as follows: RM RM United States Dollar FINANCIAL INSTRUMENTS The Group s activities are exposed to a variety of market risk (including foreign currency risk, interest rate risk and equity price risk), credit risk and liquidity risk. The Group s overall financial risk management policy focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group s financial performance. The Group s policies in respect of the major areas of treasury activity are as follows:- (i) Market Risk (i) Foreign Currency Risk The Group is exposed to foreign currency risk on transactions and balances that are denominated in currencies other than Ringgit Malaysia. The currency giving rise to this risk is primarily the United States Dollar. Foreign currency risk is monitored closely on an on going basis to ensure that the net exposure is at an acceptable level. The Group s exposure to foreign currency is as follows:- THE GROUP United States Dollar RM RM Financial liabilities Other payables 6,204,136 - Revolving credit - 2,778,848 Currency exposure 6,204,136 2,778, XOX Bhd ( X) Annual Report 2012

106 NOTES TO THE FINANCIAL STATEMENTS 36. FINANCIAL INSTRUMENTS (CONT D) (a) Financial Risk Management Policies The Group s policies in respect of the major areas of treasury activity are as follows:- (i) Market Risk (ii) Foreign Currency Risk The Group is exposed to foreign currency risk on transactions and balances that are denominated in currencies other than Ringgit Malaysia. The currency giving rise to this risk is primarily the United States Dollar. Foreign currency risk is monitored closely on an on going basis to ensure that the net exposure is at an acceptable level. The Group s exposure to foreign currency is as follows:- THE GROUP United States Dollar RM RM Financial liabilities Other payables 6,204,136 - Revolving credit - 2,778,848 Currency exposure 6,204,136 2,778,848 Foreign currency risk sensitivity analysis The following table illustrates the sensitivity analysis to a 5% strengthening/weakening of Ringgit Malaysia against the United States Dollar. The 5% rate is used when reporting foreign currency risk internally to key management personnel and represents management s assessment of the possible change in foreign exchange rates. The sensitivity analysis includes outstanding currency denominated monetary items of the Group. The sensitivity analysis assumes that all the other variables, in particular interest rates, remain constant. 105 XOX Bhd ( X) Annual Report 2012

107 NOTES TO THE FINANCIAL STATEMENTS 36. FINANCIAL INSTRUMENTS (CONT D) (a) Financial Risk Management Policies (Cont d) (i) Market Risk (Cont d) (i) Foreign Currency Risk (Cont d) THE GROUP Increase/ (Decrease) Increase/ (Decrease) RM RM Effects on profit after taxation United States Dollar - strengthened 5% 310, ,942 - weakened 5% (310,207) (138,942) Effects on equity United States Dollar - strengthened 5% 310, ,942 - weakened 5% (310,207) (138,942) (ii) (iii) Interest Rate Risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group s exposure to interest rate risk arises mainly from interest-bearing financial assets and liabilities. The Group s policy is to obtain the most favourable interest rate available. The Group is not exposed to interest rate risk as the interest-bearing financial instruments carry fixed interest rate and are measured at amortised cost. As such, sensitivity analysis is not disclosed. Equity Price Risk The Group does not have any quoted investments and hence is not exposed to equity price risk. 106 XOX Bhd ( X) Annual Report 2012