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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2009
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from ________to _________
Commission File Number 333-108300
OBN Holdings, Inc.
(Exact name of registrant as specified in its Charter)
Nevada 81-0592921
(State of incorporation) (IRS Employer Identification No.)
8275 South Eastern Ave., Suite 200; Las Vegas, Nevada 89123
(Address of principal executive offices)
(702) 938-0467
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) filed all reports required
to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934
during the past 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ( ) No ( X )
Indicate by check mark whether the registrant is a large accelerated filer, a
non-accelerated filer, or a smaller reporting company, See the definition of
"large accelerated filer," "accelerated filer" and "smaller reporting company"
in Rule 12b-2 of the Exchange Act.
Large accelerated filer( ) Accelerated filer ( )
Non-accelerated filer ( ) Smaller reporting company ( X )
Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). Yes ( ) No ( X )
As of November 10, 2009 the Company had 20,430,903 shares of its $.001 par
value common stock issued and outstanding.
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets at September 30, 2009 (Unaudited)
and June 30, 2009 1
Consolidated Statement of Operations (Unaudited) for the
three Month Periods Ended September 30, 2009 and 2008 2
Consolidated Statement of Cash Flows (Unaudited) for the
three Month Periods Ended September 30, 2009 and 2008 3
Notes to Unaudited Consolidated Financial Statements 4
ITEM 2. Management's Discussion and Analysis or Plan of Operation 16
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 22
ITEM 4. Controls and Procedures 22
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings 23
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds 23
ITEM 3. Default upon Senior Securities 23
ITEM 4. Submission of Matters to Vote of Securities Holders 23
ITEM 5. Other Information 23
Item 6. Exhibits 23
PART I: FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
OBN Holdings, Inc.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30 June 30,
2009 2009
(unaudited)
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents $ 555,247 $ 616,581
Accounts receivables, net of $150,000 and $150,000
allowance for doubtful accounts, respectively 934,433 882,872
Security collateral receivable 30,000 --
Inventory 598,068 948,080
---------- ----------
Total current assets 2,117,748 2,447,533
Fixed assets, net of accumulated depreciation of
$60,892 and $60,892, respectively - -
Programming rights, net of accumulated amortization
of $100,529 and $100,192, respectively 65,275 65,613
Film library, net of accumulated amortization
of $413,497 and $390,373, respectively 164,003 187,127
Other intellectual properties, net of accumulated
Depreciation of $26,481 and $19,387, respectively 188,019 195,113
Other tangible assets 4,846,031 4,846,031
---------- ----------
Total assets $ 7,381,076 $ 7,741,417
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 409,643 $ 472,344
Commissions payable 636,792 786,792
Accrued payroll and related 787,508 691,142
Deferred revenue 387,212 790,650
Capital lease obligations 49,396 49,396
Programming rights payable 80,030 80,030
Notes and accrued interest payable 309,067 277,709
Notes and accrued interest payable related parties 446,298 547,870
---------- ----------
Total current liabilities 3,105,946 3,695,933
---------- ----------
Stockholders' Equity:
Undesignated preferred stock, $0.001 par value;
20,000,000 shares authorized; no shares issued
and outstanding --- ---
Common stock; $0.001 par value; 500,000,000 shares
authorized; 20,430,903 and 19,930,930 shares
issued and outstanding 20,431 19,931
Additional paid-in capital 16,393,649 16,330,449
Accumulated deficit (12,138,868) (12,317,038)
Common stock subscriptions receivable (7,500) (7,500)
Accumulated comprehensive income (loss), net 7,418 19,642
---------- ----------
Total stockholders' equity 4,275,130 4,045,484
---------- ----------
Total liabilities and stockholders' equity $ 7,381,076 $ 7,741,417
=========== ===========
See accompanying notes to consolidated financial statements.
OBN Holdings, Inc.
CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
------------------------------
2009 2008
------------- -------------
Unaudited Unaudited
Revenue, net of affiliate costs $ 2,736,308 $ 6,432,560
Cost of sales 2,195,755 4,703,400
------------ ------------
Gross profit 540,553 1,729,160
Operating expenses:
General and administrative 492,794 1,130,493
------------ ------------
Net income from operations 47,759 598,667
------------ ------------
Other income (expense):
Other income 38,697 17,500
Gain on debt extinguishment 98,659 --
Interest expense (6,945) (5,712)
------------ ------------
Total other income (expense), net 130,411 11,788
------------ ------------
Net income before income taxes 178,170 610,455
Income taxes - -
------------ ------------
Net income $ 178,170 610,455
============ ============
Foreign currency transaction adjustement 7,418 51,844
Comprehensive income, net of 0 taxes $ 185,588 $ 662,299
Net loss available to common
stockholders per common share:
Basic and diluted net income (loss) per
common share $0.01 ($0.05)
============ ============
Basic and diluted weighted
average shares outstanding 20,003,642 11,379,389
============ ============
See accompanying notes to consolidated financial statements.
OBN Holdings, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
-------------------------
2009 2008
---------- ----------
Unaudited Unaudited
Cash flows from operating activities:
Net income $ 178,170 $ 610,455
Adjustments to reconcile net loss to net cash
used in operating activities:
Gain on settlement of debt (98,659) --
Depreciation and amortization 159,925 26,725
Shares issued for intangible assets (129,369) --
Shares issued for services 25,500 10,200
Changes in operating assets and liabilities:
Accounts receivable, net (51,561) (1,073,364)
Purchased inventory 350,012 (373,454)
Deferred recognize revenue (403,438) (8,180)
Accounts payable and accrued expenses (139,190) 338,955
----------- ----------
Net cash used in operating activities (108,610) (468,663)
----------- ----------
Cash flows from investing activities:
Purchase of fixed assets -- --
---------- ----------
Net cash used in investing activities -- --
---------- ----------
Cash flows from financing activities:
Proceeds from notes payable, net of issuance costs 1,358 125
Proceeds from notes payable to related parties -- 5,586
Repayments on notes payable -- --
Proceeds from stock subscriptons receivable -- 6,600
Repayments on notes payable to related parties 8,500 --
Proceeds from issuance of common stock 30,000 112,783
----------- ----------
Net cash provided by financing activities 39,858 125,094
----------- ----------
Effect of foreign currency rate changes 7,418 51,844
----------- ----------
Net change in cash and cash equivalents (61,334) (291,725)
Cash, and cash equivalents, beginning of period 616,581 986,482
----------- ----------
Cash, and cash equivalents, end of period $ 555,247 $ 694,757
=========== ==========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest -- --
=========== ==========
Income taxes -- --
=========== ==========
Supplemental disclosure of noncash investing and
financing activities:
Purchase of intangible property with common stock 129,369 --
=========== ==========
Common stock issued to retire debt 8,500 --
=========== ==========
Common stock issued to pay for services 25,500 --
=========== ==========
See accompanying notes to consolidated financial statements.
OBN HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2009 and 2008
NOTE 1 - MANAGEMENT'S REPRESENTATION
The consolidated financial statements included herein have been prepared by
OBN Holdings, Inc. (the "Company"), without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information
normally included in financial statements prepared in accordance with
accounting principles generally accepted in the United States of America has
been omitted pursuant to such rules and regulations. However, the Company
believes that the disclosures are adequate to make the information presented
not misleading. In the opinion of management, all adjustments (consisting
primarily of normal recurring accruals) considered necessary for a fair
presentation have been included.
Operating results for the three-month period ended September 30, 2009 are not
necessarily indicative of the results that may be expected for the year ending
June 30, 2010. It is suggested that the consolidated financial statements be
read in conjunction with the audited consolidated financial statements and
notes thereto included in the Company's annual report on Form 10-K for the
fiscal year ended June 30, 2009.
Going Concern
At June 30, 2009 the report of our independent registered public accounting
firm included a "going concern" statement. Several factors influenced the
their decision to include this statement as because the criteria for inclusion
of a "going concern" statement was have changed since out last annual filing.
The auditor considers factors such as the state of the economy, trends in
earnings, current profitability, aging of liabilities and aging of
receivables, whereas in the past the criteria was a measure of the Company's
ability to meet obligations and operating expenses for upcoming twelve month
period.
The Company recognizes that it must adequately address each of the above
factors to have the "going concern" statement removed. Management's plans
and progress toward achieving that end includes the following.
1) Economy. By all indications, except employment figures, the economy has
begun to improve since the balance sheet of this report. This is evidence
by increases in financial activity around the world. Management immediately
initiated an educational and marketing plan upon learning that swine flu
was not caused by eating pork products. News and scientific reports have
helped our cause to educate customers and increase sales. We have seen
positive results as customer sales have begun to increase. Sales for the
quarter ending September 30, 2009 were more than twice those for the
quarter ending June 30, 2009. Moreover, we have noted increased activity
in our entertainment segment with several projects planned in China and
Japan during this current fiscal year. Additionally, our continuing
development of OBN's operations outside of the United States further
insulates us from the economic problems one would experience when operating
in a single region.
2) Profitability. The loss reported for the year ending June 30, 2009 is
attributable to three major reasons. First, the Company made one time
special stock bonus to executives in the amount of $1,680,000. The stock
is being held in a non-qualified deferred compensation plan until May 2011.
Secondly, the Company incurred $980,000 of pork product spoilage associated
with the swine flu concerns. Thirdly, sales of pork products took
precipitously decrease as result of the swine flu. Management believes that
each of these is special one time events that are unlikely to occur in the
future. Further, Management believes that if not for these events the
Company would have reported a profit for the period ending June 30, 2009
as evidenced by the profit reported for the quarter ending September 30,
2009.
3) Trends. As indicated above, the Company reported a loss in four of last
five year annual filings. The first year with positive earnings was last
year and Management had every reason to believe that a profit would be
posted for this year end at June 30, 2009 until the swine flu pandemic was
announced. Management is still mindful of its increasing positive trend of
sales and expects to see positive net income trends in future periods.
Again, the profit reported for the quarter ending September 30, 2009 is a
strong indication that management has successfully ended the trend of
reported losses.
4) Aging of Liabilities. At June 30, 2009 the outstanding receivables
liabilities totaled $3,695,933. Since that date Management has retired
$111,252 of the debt by successfully negotiating agreements to convert the
debt to stock equity. An additional $763,068 of debt was deferred revenue
that has been recognized as revenue in the period ending September 30,
2009. A total of $404,000 will be reduced from Commissions payable as the
sales broker purchases receivables. A total of $295,822 of accounts payable
was paid during the quarter ending September 30, 2009. A total of $214,000
of debt has been on the books past the statute of limitations for
collection and will be written off prior to June 30, 2010. The remaining
debt represents accrued salaries, commission payables and related party
loans. All of these parties have indicated that they will wait until the
Company is more profitable before requesting payment.
5) Aging of Receivables. Currently there is $404,000 of receivables related
to pork sales made in October 2008. This amount is the total of four
shipments to a new customer that was referred to Management by one of our
commissioned sales brokers. Management is finalizing negotiations for the
broker to purchase the receivable at the face amount in exchange for not
having to return the paid commission. Thus, we expect these receivables to
be paid by December 31, 2009. All remaining receivables are less than 30
days old.
In addition, to the above plans and actions that address the "going concern"
issues, Management is expanding its product line and marketing activities.
Plans to sale an established cosmetics line and additional food products are
being implemented currently. Details of upcoming entertainment projects,
plastics recycling projects and intelligent traffic system projects are
discussed in the marketing section of this document.
NOTE 2 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Background and Organization
OBN Holdings, Inc. ("OBNI" or the "Company") is a holding company with
operations in several industries, including the internet broadcasting,
television/film production, plastics recycling, intelligent traffic systems
the commodity import/export industries. The Company is internationally
diversified with subsidiaries in China, Japan and the United States. As a
holding company our primary objective is to identify and acquire profitable
small to medium sized companies as subsidiaries, then manage the
subsidiaries' growth and development. In addition, the OBN corporate office
provides consulting services to firms seeking to become listed on an American
stock market and import/export services.
The Company was incorporated in Nevada on January 21, 2003 as the holding
company for three wholly owned entertainment operating subsidiaries: Omni
Broadcasting Network ("OMNI"), Eclectic Entertainment ("Eclectic") and
Products On Demand Channel ("POD"). In August 2003, the Company acquired KSSY
television, which is located in San Luis Obispo County, California.
On May 21, 2004 the SEC/NASD granted formal approval for public trading by
existing shareholders of OBN shares. On June 25, 2004 OBN was approved by the
NASD for trading on the Over-The-Counter Bulletin Board and the Company began
its effort to raise the funds necessary to implement its business plan.
However, in October 2004 management decided to cancel the public offering in
order to protect the stock price from "naked shorting" activity by third
parties that had driven the stock price down. As a result, management never
received the funds it required to fully implement its entertainment-based
business plan. The Company continued on with modest growth without the IPO
funding. Using funds from its founders and friends, the Company continued to
broadcast its programming and operate its television station.
In July 2005, the Company acquired the All Sports Television Network and
its film library in exchange for forgiveness of debt owed to the Company.
That same year, the Company produced a major television special entitled
the "50th Anniversary of the Four Tops" that was broadcast on the Omni
Broadcast Network and syndicated to several other competing broadcast networks
reaching 80 million viewers.
In January 2006, the Company agreed to sell 60% ownership to a Sheikh from
Saudi Arabia in exchange for the long term funding it sought. Unfortunately,
personal circumstances prevented the Sheikh from performing on the agreement.
As a result the agreement was canceled and the funding never materialized.
Without funding, the Company was forced to suspend its satellite broadcasting
operations and began to explore alternative methods to broadcast its
programming content. In June 2007, the KSSY television station was fully
impaired and ceased to be an asset. In February 2008, the Company signed an
agreement to broadcast its film and television properties over the internet
via a broadband network. Thus, internet broadcasting replaced the U.S.
television broadcasting operations and eliminated the need for satellite
uplink and television station operational expenditures.
In March 2007 the Company revised its business plan to focus on diversifying
into non-entertainment related industries, and to expand globally through
acquisition. The Company began working with an investment banking firm that
was responsible for raising funds and identifying targets for acquisition.
Unfortunately, the Company never received funds under this arrangement and
was forced to seek alternative acquisition strategies. The Company was
introduced to two potential acquisition targets in the China. After intensive
negotiations the acquistion agreements were complete. Unfortunately, attempts
to complete the SEC required acquisition audits dragged on for months and
eventually abandoned so the acquisitions were never consummated. Under SEC
regulations the Company could not file its quarterly or annual filing until
the acquisiton audits were complete. As a result the Company was delisted
from the trading exhange. The company began the arduous task of getting
current with its filings and reapplying to be traded on the exchanges while
using a combination of Company stock and cash to consummate other successful
acquisitions.
In October 2007, the Company established OBN Holdings (HK) Ltd, a wholly
owned subsidiary based in Hong Kong to handle its China operations. In
February 2008, the Company entered the intelligent traffic system industry
by purchasing the North American rights to proprietary technology that
captures traffic violation information on video and still media. In
February 2008 the Company entered the plastics recycling industry by
purchasing the exclusive North American rights to Chinese proprietary "green"
technology that allows "unrecyclable plastics" to be recycled. In June 2008,
the Company acquired a trading company that currently sells pork to Japan
from Mexico. In October 2008, the Company established OBN Holdings Japan Co,
Ltd, a wholly owned subsidiary based in Tokyo, Japan to handle its Japan
operations.
As a result of its activities, the Company has been successful in partially
implementing its acquisition and diversification plan. With this filing the
company is current with its SEC filings and is currently applying to
be reinstated for trading on the OTCBB trading exchange. Further, the
company will immediately file an S-1 to register 25 million free trading
shares that will be sold into the marketplace to raise the funds necessary
to more fully inplement its business plan. With the stricter "naked shorting"
regulations and our more robust financials, the Company does not expect to
encounter the problem it had with its initial public offering.
The Company is continually seeking and negotiating the acquisition of
companies in several other geographical areas.
Segment Information Reporting
As of September 30, 2009 Management measures the Company's performance in
three distinct segments: (1) Broadcasting Operations for which performance is
measured by the types of advertisers attracted; (2) Production Operations,
for which performance is measured by distribution sales resulting from
creative talent; and (3) commodity sales, for which performance is measured
by the volume of product sold.
A summary of the segments for the three months ended September 30, 2009 and
2008 is presented in the tables below:
As of and for the three months ended September 30, 2009
Broadcasting Production Commodity Corporate Reconciling Total
Operations Operations Items
Assets $ 33,661 $194,753 $2,099,121 $5,167,910 ($144,369) $7,381,076
Liabilities (438,544) (413,448) (1,256,825) (1,141,498) 144,369 (3,105,946)
Revenues, net of
affiliate costs - - 2,736,308 - - 2,736,308
Costs & expenses* (9,147) (16,999) (2,502,623) (166,725) - (2,695,494)
Other income (exp) - 23,833 38,697 74,826 - 137,356
Net income (loss) ($ 9,147) $ 6,834 $ 272,382 ($ 91,899) - 178,170
As of and for the three months ended September 30, 2008
Broadcasting Production Commodity Corporate Reconciling Total
Operations Operations Trading Items
Assets $ 76,813 $ 65,284 $4,060,992 $5,065,761 ($20,000) $9.248,850
Liabilities (434,974) (239,916) (1,638,628) (1,169,395) 20,000 (3,462,913)
Revenues, net of
affiliate costs - - 6,432,560 - - 6,432,560
Costs & expenses* (12,937) (16,999) (5,651,644) (158,025) - (5,839,605)
Other income (exp) - - 17,337 163 - 17,500
Net income (loss) ($12,937) ($16,999) $798,253 (157,862) - 610,455
*Expenses include operating expenses and cost of sales.
Reconciling items consist of intercompany balances. Balance sheet reconciling
amounts consist primarily of corporate-level loans to subsidiaries and the
elimination of intercompany receivables/payables. All revenues are from
customers in the United States and all long-lived assets are located in the
United States.
There was $934,433 of outstanding receivables as of September 30, 2009. For
the three month periods ended September 30, 2009 there were $2,736,308 of
sales recognized as compared to $6,432,560 of sales during the same period
ending September 30, 2008.
Fixed Assets
Depreciation and amortization of fixed assets are provided using the
straight-line method over the following useful lives:
Furniture and fixtures 5 years
Machinery and equipment 3-5 years
Leasehold improvements Life of lease
Maintenance, repairs and minor renewals are charged directly to expense as
incurred. Additions and betterments to fixed assets are capitalized. When
assets are disposed of, the related costs and accumulated depreciation and
amortization are removed from the accounts and any resulting gain or loss is
included in operations.
Other Long-Lived Assets
The internet portal assets are discussed in Note 4. The portals are
indefinite life intellectual properties. The properties are subject annual
impairment analysis.
The programming rights assets are discussed in Note 5. Programming rights are
recorded for the purchase of the right to air programming on the Company's
networks. An asset is recorded for the programming rights when the license
period begins. These rights are amortized to expense over the expected useful
life of the programming, as the Company has the right to unlimited
broadcasting of the programming.
The film library is discussed in Note 6. These assets are being amortized
over their estimated useful life of 10 years.
Intangible Assets
The Company has adopted Statement of Financial Accounting Standards ASC 350-10,
"Goodwill and Other Intangible Assets." ASC 350-10 requires that
goodwill and intangible assets that have indefinite useful lives not be
amortized but rather be tested at least annually for impairment, and
intangible assets that have finite useful lives be amortized over their
useful lives. In addition, AS 350-10 expands the disclosure requirements
about goodwill and other intangible assets in the years subsequent to their
acquisition.
ASC 35-10 provides specific guidance for testing goodwill and intangible
assets that will not be amortized (i.e., the Company's technology licenses
and internet portals) for impairment. The intangible assets are subject to
impairment reviews by applying a fair-value-based test at the reporting unit
level, which generally represents operations one level below the segments
reported by the Company. An impairment loss will be recorded for any portion
of the technology licenses and internet portal that is determined to be
impaired. The Company performs impairment testing on its intangible assets at
least annually. Based on its analysis, the Company's management believes that
no impairment of the carrying value of its technology licenses or internet
portal existed at September 30, 2009. There can be no assurance however, that
market conditions will not change or demand for the Company's products and
services will continue which could result in impairment of its intangible
assets in the future.
Impairment of Long-Lived Assets
The Company's management assesses the recoverability of its long-lived assets
by determining whether the depreciation and amortization of long lived assets
over their remaining lives can be recovered through projected undiscounted
future cash flows. The amount of long-lived asset impairment is measured
based on fair value and is charged to operations in the period in which long-
lived asset impairment is determined by management. During the quarter ended
September 30, 2005 the Company recorded an impairment change of $18,092.
During the quarter ending June 30, 2007 the Company recorded impairment of
$130,000. During the quarter ended June 30, 2008 the Company recorded an
impairment expense of $165,000.
In August 2009 the Company engaged the services of an independent appraisal
firm to determine the value of its technology licenses which are being carried
on the books at $4,774,781. The appraiser is a member of the National
Association of Certified Valuation Analysts. Based on the appraiser's
valuation analyses, no additional impairment of the carrying value of the
Company's long lived assets existed at March 31, 2009. There can be no
assurance, however, that market conditions will not change which could result
in additional impairment of its long-lived assets in the future.
Revenue Recognition
Revenue From Licensing TV Programs and Feature Films
The Company has completed several projects that can be licensed, and
additional projects are underway. As projects are completed, the Company will
have the option of airing the TV programs on its own network and/or licensing
the programs to be aired on other networks. Likewise, feature films can be
licensed to foreign markets for distribution. Thus, among the revenue sources
are other networks in the case of TV projects or foreign markets for feature
films.
A licensing agreement that specifies the license fee, availability dates
and/or agreement duration is required for all projects licensed. Licensing
fees are typically paid in advance of providing the project to the customer.
Upon receipt of payment, deferred revenue is recorded. Revenue is recognized
as the project is aired over the life of the agreement. The Company does not
recognize revenue for projects that are not completed, even if the licensing
agreement for the project is signed. The revenue is recognized only after both
the production of the product is completed and is aired in accordance with the
signed agreement.
Revenue Sharing With Program Licensors
Some programs will be obtained by paying a licensing fee. Additionally, some
licenses will be obtained via a cash-plus-barter arrangement, where the
Company airs the program for a contracted number of times and grants the
licensor a negotiated number of unsold advertising slots. AS 920-10,
"Financial Reporting by Broadcasters," sets forth accounting and reporting
standards for the broadcast industry. Under a cash-plus-barter arrangement,
the Company recognizes a licensing asset at the estimated fair value of the
programming received. The difference between the cash paid (obligation
incurred) for the license and its fair value is recorded as a liability
(deferred barter revenue), as the license is received before the broadcast of
the licensor-provided commercials. As the licensor-provided commercials are
aired, barter revenue is recognized ratably based on the recorded fair value
of the barter transaction in relation to the total granted licensor-provided
commercials.
For cash purchases and revenue sharing, as rights are acquired, the programs
are recorded as assets and are amortized as the programs are aired over the
network. For agreements with unlimited airing of a program the asset is
amortized over the license period (see above).
Revenue from Advertising (and Paid Programming)
Advertising and paid programming revenue are recognized as the
commercials/programs are aired. For small advertisers that must pay for
services in advance, upon receipt of the payment, the signed contract and the
tapes, deferred revenue is recorded. Deferred revenue is recognized as
revenue when the commercial is aired.
Revenue Recognition for Meat Exports
Revenue is recognized from meat export operations after the order is
received, the customer invoice is issued and the customer receives
the product. Invoices issued prior to the customer receiving the product
are recorded as deferred revenue. Deferred revenue is then recognized
as revenue when the customer takes ownership of the product.
Inventories
Inventories are valued at the lower of cost or market. Inventory includes
direct material costs, whereby product is typically in inventory for periods
less than three weeks due to spoilage concerns. Morover, the majority of
inventory is in-transit to customers.
Shipping costs are considered general and administrative expense and are
not included in cost of goods sold. During the quarter ending September 30,
2009 a total of $197,832 was expensed for shipping related services.
Accounting for Filmed Entertainment and Television Programming Costs
In accordance with ASC 926-10, "Accounting by Producers or Distributors
of Films", filmed entertainment costs will include capitalizable production
costs, overhead and interest costs expected to benefit future periods.
These costs, as well as participations and talent residuals, will be
recognized as operating expenses on an individual film basis in the ratio
that the current year's gross revenues bear to management's estimate of total
ultimate gross revenues from all sources. Marketing and development costs
under term deals will be expensed as incurred.
Filmed entertainment costs are stated at the lower of unamortized cost or
estimated fair value on an individual film or television series basis.
Revenue forecasts for both motion pictures and television products are
continually reviewed by management and revised when warranted by changing
conditions. When estimates of total revenues and other events or changes in
circumstances indicate that a television production has a fair value that is
less than its unamortized cost, a loss will be recognized for the amount by
which the unamortized cost exceeds television production's fair value.
Advertising Costs
Advertising costs are expensed as incurred. For the quarters ending
September 30, 2009 and 2008, the Company's had no advertising costs.
Stock-Based Compensation
Through September 30, 2009, the Company accounts for equity instruments issued
to non-employees in accordance with the provisions of ASC 718-10, Accounting
for Stock-Based Compensation, and ASC 505-50, Accounting for Equity
Instruments that are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling Goods or Services. All transactions in which goods
or services are the consideration received for the issuance of equity
instruments are accounted for based on the fair value of the consideration
received or the fair value of the equity instrument issued, whichever is more
reliably measurable. The measurement date used to determine the fair value
of the equity instrument issued is the earlier of the date on which the
third-party performance is complete or the date on which it is probable that
performance will occur.
ASC 718-10 allows an entity to continue to measure compensation cost
related to stock and stock options issued to employees using the intrinsic
method accounting prescribed by Accounting Principles Board Opinion No. 25
("APB 25"), Accounting for Stock Issued to Employees. Under APB 25,
compensation cost, if any, is recognized over the respective vesting period
based on the difference, on the date of grant, between the fair value of the
Company's common stock and the grant price. Entities electing to remain with
the accounting method of APB 25 must make pro forma disclosures of net income
and earnings per share, as if the fair value method of accounting defined in
ASC 718-10 had been applied.
The Company has a stock-based employee compensation plan. The Company will
account for employee options granted under this plan under the recognition
and measurement principles of APB 25, and related interpretations. No stock-
based employee compensation cost is reflected in the consolidated statements
of operations, as all employee warrants previously granted had no intrinsic
value, and no new employee options or warrants were granted for the quarter
ended September 30, 2009. There is also no pro forma impact of warrants as
they have no fair value under ASC 718-10.
Effective July 1, 2006, on the first day of the Company's fiscal year 2007,
the Company adopted the fair value recognition provisions of ASC 718-10,
"Share-Based Payment", using the modified-prospective transition method.
Under this transition method, compensation cost includes: (a) compensation
cost for all share-based payments granted and not yet vested prior to July 1,
2006, based on the grant date fair value estimated in accordance with the
original provisions of ASC 718-10, and (b) compensation cost for all share-
based payments granted subsequent to June 30, 2006 based on the grant-date
fair value estimated in accordance with the provisions of ASC 718-10.
ASC 718-10 requires forfeitures to be estimated at the time of grant and
revised, if necessary, in subsequent periods if actual forfeitures differ
from those estimates. As of September30, 2009, the Company had no options
outstanding and therefore believes the adoption of ASC 718-10 to have an
immaterial effect on the accompanying financial statements.
The Company calculates stock-based compensation by estimating the fair value
of each option using the Black-Scholes option pricing model. The Company's
determination of the fair value of share-based payment awards are made as of
their respective dates of grant using the option pricing model and that
determination is affected by the Company's stock price as well as assumptions
regarding the number of subjective variables. These variables include, but
are not limited to, the Company's expected stock price volatility over the
term of the awards, and actual and projected employee stock option exercise
behavior. The Black-Scholes option pricing model was developed for use in
estimating the value of traded options that have no vesting or hedging
restrictions and are fully transferable. Because the Company's employee stock
options have certain characteristics that are significantly different from
traded options, the existing valuation models may not provide an accurate
measure of the fair value of the Company's employee stock options. Although
the fair value of employee stock options is determined in accordance with
ASC 718-10 using an option-pricing model, that value may not be
indicative of the fair value observed in a willing buyer/willing seller
market transaction. The calculated compensation cost, net of estimated
forfeitures, is recognized on a straight-line basis over the vesting period
of the option.
Income Taxes
The Company accounts for income taxes in accordance with ASC 740-10,
"Accounting for Income Taxes." Under the asset and liability method of ASC
740-10, deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Under ASC
740-10, the effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
A reconciliation of income taxes computed at the federal statutory rate of 34%
to the provision for income taxes is as follows for the quarter ended
September 30, 2009:
September 30, June 30,
2009 2009
------------ -----------
Tax benefit at statutory rates (34.00%) (34.00%)
Difference resulting from:
State taxes (5.83%) (5.83%)
Changes in valuation allowance 39.83% 39.83%
============ ===========
Total 0% 0%
The valuation allowance decreased by $76,172 during the quarter ended
September 30, 2009 primarily from utilization of net operating losses. No
current provision for income taxes, other than California minimum taxes, is
expected for the year ending June 30, 2010. The September 30, 2009 profit
will be netted against prior year net operating losses; further, no operating
profits are expected to be generated in California, during the year ended
June 30, 2010.
Net deferred income taxes are as follows as of the following dates:
September 30, June 30,
2009 2009
----------- -----------
Deferred tax liabilities $ -- $ --
Deferred tax assets:
Net operating losses $ 4,127,215 $ 4,187,793
Reserves and accruals (131,652) (268,821)
---------- ----------
Total deferred tax assets 3,995,563 3,918,972
Less valuation allowance (3,995,563) (3,918,972)
------------- -------------
$ --- $ ---
============= =============
The Company has approximately $12,000,000 in Federal and California State net
operating loss carryforwards as of September 30, 2009, which, if not utilized,
expires through 2029.
The utilization of the net operating loss carryforwards might be limited due
to restrictions imposed under federal and state laws upon a change in
ownership. The amount of the limitation, if any, has not been determined at
this time. A valuation allowance is provided when it is more likely than not
that some portion or all of the deferred tax assets will not be realized. As
a result of the Company's continued losses and uncertainties surrounding the
realization of the net operating loss carryforwards, management has
determined that the realization of the deferred tax assets is questionable.
Accordingly, the Company has recorded a valuation allowance equal to the net
deferred tax asset balance as of September 30, 2009.
Basic and Diluted Loss Per Share
The Company has adopted ASC 260-10, "Earnings Per Share" (see Note 9).
Basic loss per common share is computed based on the weighted average number
of shares outstanding for the period. Diluted loss per share is computed by
dividing net loss by the weighted average shares outstanding assuming all
dilutive potential common shares were issued. Basic and diluted loss per
share are the same as the effect of stock options and warrants on loss per
share are anti-dilutive and thus not included in the diluted loss per share
calculation. The impact of dilutive convertible debt and stock options and
warrants would not have resulted in an increase in incremental shares for the
three months ended September 30, 2009 and 2008.
Recent Accounting Pronouncements
In June 2009, the Financial Accounting Standards Board ("FASB") issued a
"The FASB Accounting Standards Codification" and the Hierarchy of Generally
Accepted Accounting Principles to establish the FASB Accounting Standards
Codification" (also referred to as Codification or ASC) as the single source
of authoritative nongovernmental U.S. generally accepted accounting principles
("GAAP"). The ASC is effective for interim and annual periods ending after
September 15, 2009. The ASC did not change GAAP but reorganized existing US
accounting and reporting standards issued by the FASB and other related
private sector standard setters. The Company began to reference the ASC when
referring to GAAP in its financial statements starting with the third quarter
of 2009. Additionally, because the ASC does not change GAAP, the Company
references the applicable ASC section for all periods presented (including
periods before the authoritative release of ASC), except for the grandfathered
guidance not included in the Codification. The change to ASC did not have an
impact on the Company's financial position, results of operations, or cash
flows.
In December 2007, the FASB issued accounting guidance regarding business
combinations. This accounting guidance, found under the Business Combinations
Topic of the Codification, ASC 805, retains the requirement that the purchase
method of accounting for acquisitions be used for all business combinations.
ASC 805 expands the disclosures previously required, better defines the
acquirer and the acquisition date in a business combination, and establishes
principles for recognizing and measuring the assets acquired (including
goodwill), the liabilities assumed and any noncontrolling interests in the
acquired business. ASC 805 changes the accounting for acquisition related
costs from being included as part of the purchase price of a business acquired
to being expensed as incurred and will require the acquiring company to
recognize contingent consideration arrangements at their acquisition date fair
values, with subsequent changes in fair value generally to be reflected in
earnings, as opposed to additional purchase price of the acquired business.
As the Company has a history of growing its business through acquisitions, the
Company anticipates that the adoption of FASB guidance included in the
Business Combinations Topic of the Codification will have an impact on its
results of operations in future periods, which impact depends on the size and
the number of acquisitions it consummates in the future.
According to the Transition and Open Effective Date Information of the ASC
Business Combinations Topic, ASC 805-10-65, the acquirer shall record an
adjustment to income tax expense for changes in valuation allowances or
uncertain tax positions related to the acquired businesses. Certain of the
Company's acquisitions consummated in prior years would be subject to changes
in accounting for the changes in valuation allowances on deferred tax assets.
After December 31, 2008, reductions of valuation allowances would reduce the
income tax provision as opposed to goodwill. ASC 805, effective for all
business combinations with an acquisition date in the first annual period
following December 15, 2008, was adopted by the Company as of January 1, 2009.
In December 2007, the FASB issued accounting guidance regarding
non-controlling interests in consolidated financial statements. This guidance,
found under the Consolidations Topic of the Codification, ASC 810-10-45, and
effective for fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2008, requires the recognition of a
non-controlling interest as equity in the consolidated financial statements
and separate from the parent's equity. The amount of net earnings attributable
to the non-controlling interest will be included in consolidated net income
on the face of the income statement. This guidance also includes expanded
disclosure requirements regarding the interests of the parent and its
non-controlling interest. The Company adopted ASC 810-10-45 as of January 1,
2009. The adoption of this guidance did not have a material impact on the
Company's consolidated financial statements.
In April 2008, the FASB issued guidance on determining the useful life of
intangible assets. The Implementation Guidance and Illustrations for
Intangibles Other than Goodwill, ASC 350-30-55, discussed in the
Intangibles - Goodwill and Other Topic of the Codification, amends the factors
to be considered in determining the useful life of intangible assets. Its
intent is to improve the consistency between the useful life of an intangible
asset and the period of expected cash flows used to measure its fair value by
allowing an entity to consider its own historical experience in renewing or
extending the useful life of a recognized intangible asset. The new guidance
became effective for fiscal years beginning after December 15, 2008 and was
adopted by the Company as of January 1, 2009. The adoption of this guidance
did not have a material impact on the Company's consolidated financial
statements.
In May 2009, the FASB issued accounting guidance regarding subsequent events.
This guidance, found under the Subsequent Events Topic of the Codification,
ASC 855, and effective for interim or annual periods ending after June 15,
2009, establishes general standards of accounting for disclosure of events
that occur after the balance sheet date but before financial statements are
issued or available to be issued. It requires the disclosure of the date
through which an entity has evaluated subsequent events and the basis for
that date, that is, whether that date represents the date the financial
statements were issued or were available to be issued. The Company adopted
this guidance as of June 30, 2009. The adoption of this guidance did not have
a material impact on the Company's consolidated financial statements
In April 2009, the FASB issued new guidance regarding the accounting for
assets acquired and liabilities assumed in a business combination that arise
from contingencies. This new guidance, found under the Identifiable Assets
and Liabilities, and Any Noncontrolling Interest Subtopic within the Business
Combinations Topic of the Codification, ASC 805-20,
- Requires that assets acquired and liabilities assumed in a business
combination that arise from contingencies be recognized at fair value if fair
value can be reasonably estimated. If fair value of such an asset or liability
cannot be reasonably estimated, the asset or liability would generally be
recognized in accordance with the Contingencies Topic of the Codification,
ASC 450;
- Eliminates the requirement to disclose an estimate of the range of
outcomes of recognized contingencies at the acquisition date. For unrecognized
contingencies, the FASB decided to require that entities include only the
disclosures required by the Contingencies Topic of the Codification, ASC 450,
and that those disclosures be included in the business combination footnote;
- Requires that contingent consideration arrangements of an acquiree
assumed by the acquirer in a business combination be treated as contingent
consideration of the acquirer and should be initially and subsequently
measured at fair value in accordance with ASC 805-20.
ASC 805-20 is effective for assets or liabilities arising from contingencies
in business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after December
15, 2008. The Company adopted ASC 805-20 effective January 1, 2009 and it did
not have any material impact on the Company's financial condition, results of
operations, or cash flows.
Note 3 - Comprehensive Income
The Company reports certain changes in equity during a period in accordance
with ASC 220-10 "Reporting Comprehensive Income". Accumulated Comprehensive
Income, net includes foreign currency cumulative translation adjustments,
net of tax. The components of comprehensive income for the three month
periods ended September 30, 2009 and 2008 are as follows:
Three Months
Ended September 30,
---------------------
2009 2008
Net income $ 178,170 $ 610,455
Foreign currency cumulative translation adjustments 7,418 51,844
---------- ----------
Comprehensive income (loss) $ 185,588 $ 662,299
========== ===========
NOTE 4 - INTERNET PORTALS
In October 2006 the Company has entered into an agreement to have an internet
portal constructed and operated. Construction of the portal was completed in
June 2007. The agreement specifies that the Company owns the site and will
provide the content for the media portal. Revenues generated from the site
will be shared on a 50/50 basis between the Company and the contractor. As of
June 30, 2008 the Company has not paid the $71,250 construction fee and
the contractor has not granted the Company access to the media portal. The
Company expects to pay the outstanding debt and begin operations by March
2010.
In April 2009 the Company began construction of its "Music on Demand" internet
portal. This interactive portal supports the Company's program in promote
music groups via contests and concerts. The program will work injunction
with the Filmhook internet portal.
In June 2009 the Company began construction on its "Blues in China" internet
portal. This interactive portal supports the Company's program to introduce
blues music throughout China via concerts, contests and blues cafes. An
Chinese promoter has been engaged to assist with this project.
Website development costs for new websites and internet portals is capitalized
and amortized over the site's useful life (i.e., 36 months). Maintenance
costs for existing websites is expensed in the period that the cost is
incurred.
NOTE 5 - PROGRAMMING RIGHTS
Eclectic continues to produce its own programming. During the three-month
periods ended September 30, 2009 and 2008, there were no production costs,
respectively. At September 30, 2009 cumulative production costs totaled
$82,775.
OMNI has purchased various programming rights assets totaling $105,130 as of
September 30, 2008. Accumulated amortization for these asset totaled $105,130
leaving a carry value of zero at September 30, 2009.
For the three months ended September 30, 2009 and 2008, the Company recorded
amortization expense of $337 and $500, respectively, related to its
programming rights.
NOTE 6 - FILM LIBRARY
In January 2004, the Company acquired the name and film library of All Sports
Television Network ("ASTN") in exchange for ASTN's outstanding payable to the
Company of $79,200. The Company began amortizing this library over its
estimated useful life of 10 years in April 2004.
In February 2005, the Company purchased 200 film titles from Crawford
Communications. The Company recorded a $3,900 increase in film library and a
corresponding increase in programming rights payable.
In September 2005, the Company acquired 550 film titles from Indie Vision
Films, Inc. as payment for purchased advertising time. The Company recorded
a $275,000 increase in film library and a corresponding increase in deferred
revenues, as the advertisements will be broadcast over future months. The
Company amortizes the film library titles over its estimated useful life of
10 years.
In April 2007, the Company acquired an additional 15% interest in the Four
Tops program for 300,000 shares of stock with average per share value of
$0.70. The program is being amortized over its estimate useful life of
10 years.
In June 2007, the Company acquired 460 film titles for 138,000 shares of stock
valued at $0.90 per share. The titles are being amortized over its estimate
useful life of 10 years.
In January 2008, the Company acquired film titles from Liang Films for
50,000 shares at $0.51 per share. The Company recorded a $25,500 increase
in film library and credit to common stock. The films are being amortized
over the estimate useful life of 10 years.
In February 2008, the Company acquired film titles from Indie Vision Films
for 48,125 shares at $0.513 per share. The Company recorded a $24,700
increase in film library and credit to common stock. The films are being
amortized over the estimate useful life of 10 years
During the three-month periods ended September 30, 2009 and 2008, the Company
recorded amortization expense of $23,124 and $25,973, respectively, related
to its film library.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
Lease Obligations
As of September 30, 2009, the Company accrued $84,032 in arrears relating to
an office lease. The Company has vacated the Wilshire Boulevard office and is
currently utilizes an executive suite located in Westwood California when .
the need arises. The Company expects to negotiate a payment settlement
for the debt by March 31, 2010.
As of September 30, 2009, the Company had capital lease obligations totaling
$49,396 in arrears relating to its General Electric master equipment lease.
The lease has been canceled. The Company expects to negotiate a payment
settlement for the debt by March 31, 2010.
Litigation
In April 2006 OBN filed suit in California against Firestone Communications,
its satellite uplink provider claiming the "force majeure" clause in the
contract. Firestone filed suit against the Company in Texas for $141,000
claiming non-payment lease amount. The Company agreed to a stipulated
judgment to repay the debt by December 31, 2007. Monthly cash payments of
$15,000, $10,000 and $10,000 were made in accordance with the agreement in
June, July and August of 2007, respectively. The $10,000 payments for
September, October and November were not made. In September 2008 the Company
agreed to a $62,500 payoff amount when a $50,000 payment was made followed
by the $12,500 final payment. Thus, this debt has been fully paid.
Indemnities and Guarantees
The Company has made certain indemnities and guarantees, under which it may
be required to make payments to a guaranteed or indemnified party, in
relation to certain transactions. The Company indemnifies its directors,
officers, employees and agents to the maximum extent permitted under the laws
of the State of Nevada. In connection with a certain facility lease and a
transponder agreement, the Company has indemnified its lessor for certain
claims arising from the use of the facilities and transponder capacity. The
duration of the guarantees and indemnities varies, and in many cases is
indefinite. These guarantees and indemnities do not provide for any
limitation of the maximum potential future payments the Company could be
obligated to make. Historically, the Company has not been obligated to make
any payments for these obligations and no liabilities have been recorded for
these indemnities and guarantees in the accompanying consolidated balance
sheet.
NOTE 8 - NOTES PAYABLE
At September 30, 2009, the Company had a $439,000 balance of notes payable
to a third party. During the quarter ending September 30, 2009 the loan was
converted to a no interest loan with no set maturity date, and is payable
upon demand. A total of $98,659 of accrued interest was forgiven. An
additional $8,500 of interest was paid with 50,000 shares of company stock
valued at $0.17 per share.
The Company has a loan balance under a 10% promissory note from family
members of the Company's officers totaling $3,500 at September 30, 2009.
The note has no set maturity date, and is payable upon demand. As of
September 30, 2009, the accrued interest on this note totaled $2,888.
Related party interest expense under these notes for the three months ended
September 30, 2009 and 2008 was $5,586 and $5,587, respectively.
At September 30, 2009, the Company had a $5,000 balance of notes payable to
a third party that bears interest at 10%. The note has no set maturity date,
and is payable upon demand. The accrued interest on the note totaled $3,417
at September 30, 2009.
At September 30, 2009, the Company had a $266,530 balance of notes payable
to a third party that bears interest at 0.5%. The note has no set maturity
date, and is payable upon demand. As of September 30, 2009, the accrued
interest on the note totaled $3,221.
At September 30, 2009, the Company had a $30,000 balance on a short term
note to a third party that bears interest at 18%, The note is collarterized
by 300,000 shares of company stock. The principal and interest is due on
October 2, 2009. As of September 30 2009, the accrued interest on the note
totaled $900.
Non-related party interest expense under these notes for the three months
ended September 30, 2009 and 2008 was $1,358 and $125, respectively.
NOTE 9 - STOCKHOLDERS' EQUITY
Preferred Stock
---------------
The Company has authorized 20,000,000 shares of preferred stock. As of
September 30, 2009, the Company has not designated any series of preferred
stock or entered into any agreements.
Common Stock
------------
During the quarter ending September 30, 2009 the Company issued a total of
300,000 shares of stock (valued at $0.10 per share) to raise $30,000 cash.
During the quarter ending September 30, 2009 the Company issued a total of
150,000 shares of stock (valued at $0.17 each to pay $25,500 of consulting
and broker fees.
During the quarter ending September 30, 2009 the Company issued a total of
50,000 shares of stock (valued at $0.17 per share) as payment for $8,500
of interest on an outstanding loan.
NOTE 10 - LOSS PER SHARE
Basic and diluted loss per common share is computed as follows for the three
months ended September 30, 2009 and 2008:
Basic and diluted loss per common share is computed as follows:
For the Three Months Ended
------------------------------
September 30, September 30,
2009 2008
------------- -------------
Numerator for basic and diluted
loss per common share:
Net loss $ 178,170 610,455
Denominator for basic and diluted
loss per common share
Weighted average common
shares outstanding 20,003,642 11,379,389
Net loss available to common
stockholders per common share $0.01 ($0.05)
NOTE 10 - SUBSEQUENT EVENTS
This section contains subsequent events that have been evaluated from the
September 30, 2009 balance sheet date through November 13, 2009 which is the
date that this document was available to be filed.
In October 2009 the Company issued 37,576 shares (valued at $0.17 per
share) as the $6,388 payment for the principal and interest due an
outstanding loan. Thus, this loan has been paid in full.
In October 2009 the Company issued 49,511 shares (valued at $0.17 per
share) as the $8,417 payment for the principal and interest due an
outstanding loan. Thus, this loan has been paid in full.
In October 2009 the Company issued 450,000 shares of stock (valued at 0.17
each) as payment of an outstanding short term $30,000 and broker fees for
negotiating the repayment terms. The 300,000 shares of collateral which was
previously recorded was retired. Thus, the loan is paid in full.
In October 2009 a total of 29,412 shares (valued at $0.17 per share) were
issued under a subscription agreement to a relative of the Company
executive.
In October 2009 a total of 10,000 shares (valued at $0.10) were issued to
raise $1,000.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
OPERATIONS
After years of losses, the Company reported its first profitable year with
its fiscal year ending June 30, 2008 filing. Unfortunately, this
milestone was reached at time when the Company was not trading on the
OTCBB, having been delisted a year early because SEC regulations prevented
it from submitting any filings until the acquisition audits related to two
attempted Chinese acquisitions were completed. By the time the Company
concluded that impediments in Chinese operations precluded the acquisition
audits from ever being completed the Company was several periods behind
its filings. Thus, the Company canceled the acquisition agreements and
began the arduous task of catching up on its filings. With this filing
the Company is current with it SEC filing and has begun the application
back to trading on the OTCBB. Moreover, it will immediately file an S-1
to register 25 millions shares of free trading stock to be sold into
the market to raise the working capital it sought for so long.
Having reached the profitability milestone, the Board rewarded executives
with a one time special stock bonus valued at $1,680,000. The shares are
being held in a Non-Qualified Deferred Compensation Plan and will not be
available to executives until May 2011. The award was expensed during
the fiscal year ending June 30, 2009 and accounts for much of the loss
reported this year. In addition, market conditions in its pork exporting
operations were negatively affected by the news of the swine flu. Sales
in this segment of the business dropped significantly. As a result the
company was forced to launch a customer educational campaign and reduce
it gross profit margin to under 20% during the third and forth quarters in
order to spur sales. Moreover, the Company expensed $981,458 as soilage
charges as customer reduced orders. It took several months for customers
to renew orders after learning that pork consumption was not the cause of
the swine flu. Customers are beginning to place new orders and sales are
increasing again. Further, the Company will increase its customer base and
re-establish a higher gross profit margin in future months. Thus, management
believes that the reported loss for this year is not indicative of future
profitability.
During the fiscal year ending June 30, 2009, sales in the Company's
commodity export segment were strong in the first two quarters with
$6,432,560 and $5,811,803, respectively. However, with the swine flu
out break sales declined to $4,458,993 and $1,606,336 for the third and
forth quarters. Sales increased to $2,736,308 in the quarter ending
September 30, 2009. Commodity export segment sales increases are expected
to be significant in the coming quarters as the Company is expanding
its product lines and services. For example, the exporting food products
will be expanded to include beef and chicken. Further, we have acquired
the rights to export an established Japanese cosmetics line. These and
other products will be sold in Asian countries, such as China, Korea
and Thailand, and in South American Countries, such as Columbia, Brazil
and Argentina. Thus, the Company anticipates the most significant growth
in its commodities export segment.
During the fiscal year ending June 30, 2009 sales in the entertainment
segment were only $437 as there was inadequate working capital to complete
projects. However, growth in this segment is also expected to be significant
during coming quarters. Several projects that were in the developmental
stages in past years will come to fruition during the upcoming fiscal year.
Among them is the Micheal Jackson impersonation China tour that will
begin in December 2009. Several dates are scheduled in major cities.
Another project is the "Blues in China" project where numerous "Blues"
artists will tour China and Japan. The tour is scheduled to begin in the
summer of 2010 and an interactive Internet portal will solicit participation
in "Blues" contests throughout China. Utimately, the project will lead to
the opening of Blues cafes in selected cities. In addition, the Company
has booked talent to participate in the 2010 World Exposition that will be
held in Shanghai from May through October. Over 70,000,000 people are
expected to attend the Expo. Further, the Company has scheduled a tour
for professional basketball players to play games and conduct clinics in
mid-sized cities in China during the Spring of 2010. These projects are
being staged with our Chinese promotional partner who is sanctioned by
Chinese government to stage the events under cultural expansion and
exchange programs. With adequate working capital an advertising sales
program will be implemented to suport our internet broadcasting operations
and we will add another sports channel. Further, the Company's "Music on
Demand" and "Filmhook" Internet portals will be online within the next
few months. The Company's broadband broadcasting channels and internet
portals provide very cost effective outlets for promoting any products and
services that it will offer in the future.
During the fiscal year ending September 30, 2009 there were no sales
generated from the Company's "green" technology licences which were
acquired last year. The intelligent Traffic System license gives
exclusive North American and nonexclusive rights elsewhere outside
China for a period of seventy years. The proprietary plastics recycling
gives exclusive North American and nonexclusive rights elsewhere outside
China for a period of seventy years. Both licensed were appraised by an
independent firm as part of the impairment analysis and were valued at
$4,640,000 and $3,793,000, respectively. The Company has developed
marketing plans for both licenses and will begin implementation during
the coming quarters. Use of the intelligent traffic system technology
will lead to reductions pollutants in the atmosphere. Use of the
proprietary plastics recycling technology will allow certain types of
plastics that were deemed "unrecyclable" to be diverted from landfills.
The Company will establish a "green" technologies segment of operations
once these programs are underway.
In an effort to increase shareholder value, management continues to
implement the Company's plan to grow through a combination of horizontal
integration and geographic expansion. Management is actively seeking out
and acquiring profitable businesses. We believe that our management team
is well suited to enhance operations of acquired entities. Prior to
creating OBN, the top executives were business consultants to well over
300 companies in numerous industries and countries, ranging from small
private firms to Fortune 500 conglomerates, in the areas of operations
management, productivity improvement, accounting, marketing and finance.
The Company is an "incubator" that nutures and expands the operations of
its acquired subsidaries.
Management's goal is to increase shareholder value. The Company's efforts
to fully implement its business plan of acquisition and subsidiary
development. Financial risks will be minimized by geographical and
industry diversification. In order to fund the remaining elements of
its business plan, management will immediately file an S-1 to register
25 million free trading shares that will be sold into the markets as
cash is required. However, the revenues generated from the current
operations may make the sale of all registered shares unnecessary.
Going Concern
At June 30, 2009 the report of our independent registered public accounting
firm included a "going concern" statement. Several factors influenced the
their decision to include this statement as because the criteria for inclusion
of a "going concern" statement was have changed since out last annual filing.
The auditor considers factors such as the state of the economy, trends in
earnings, current profitability, aging of liabilities and aging of
receivables, whereas in the past the criteria was a measure of the Company's
ability to meet obligations and operating expenses for upcoming twelve month
period.
The Company recognizes that it must adequately address each of the above
factors to have the "going concern" statement removed. Management's plans
and progress toward achieving that end includes the following.
1) Economy. By all indications, except employment figures, the economy has
begun to improve since the balance sheet of this report. This is evidence
by increases in financial activity around the world. Management immediately
initiated an educational and marketing plan upon learning that swine flu
was not caused by eating pork products. News and scientific reports have
helped our cause to educate customers and increase sales. We have seen
positive results as customer sales have begun to increase. Sales for the
quarter ending September 30, 2009 were more than twice those for the
quarter ending June 30, 2009. Moreover, we have noted increased activity
in our entertainment segment with several projects planned in China and
Japan during this current fiscal year. Additionally, our continuing
development of OBN's operations outside of the United States further
insulates us from the economic problems one would experience when operating
in a single region.
2) Profitability. The loss reported for the year ending June 30, 2009 is
attributable to three major reasons. First, the Company made one time
special stock bonus to executives in the amount of $1,680,000. The stock
is being held in a non-qualified deferred compensation plan until May 2011.
Secondly, the Company incurred $980,000 of pork product spoilage associated
with the swine flu concerns. Thirdly, sales of pork products took
precipitously decrease as result of the swine flu. Management believes that
each of these is special one time events that are unlikely to occur in the
future. Further, Management believes that if not for these events the
Company would have reported a profit for the period ending June 30, 2009
as evidenced by the profit reported for the quarter ending September 30,
2009.
3) Trends. As indicated above, the Company reported a loss in four of last
five year annual filings. The first year with positive earnings was last
year and Management had every reason to believe that a profit would be
posted for this year end at June 30, 2009 until the swine flu pandemic was
announced. Management is still mindful of its increasing positive trend of
sales and expects to see positive net income trends in future periods.
Again, the profit reported for the quarter ending September 30, 2009 is a
strong indication that management has successfully ended the trend of
reported losses.
4) Aging of Liabilities. At June 30, 2009 the outstanding receivables
liabilities totaled $3,695,933. Since that date Management has retired
$111,252 of the debt by successfully negotiating agreements to convert the
debt to stock equity. An additional $763,068 of debt was deferred revenue
that has been recognized as revenue in the period ending September 30,
2009. A total of $404,000 will be reduced from Commissions payable as the
sales broker purchases receivables. A total of $295,822 of accounts payable
was paid during the quarter ending September 30, 2009. A total of $214,000
of debt has been on the books past the statute of limitations for
collection and will be written off prior to June 30, 2010. The remaining
debt represents accrued salaries, commission payables and related party
loans. All of these parties have indicated that they will wait until the
Company is more profitable before requesting payment.
5) Aging of Receivables. Currently there is $404,000 of receivables related
to pork sales made in October 2008. This amount is the total of four
shipments to a new customer that was referred to Management by one of our
commissioned sales brokers. Management is finalizing negotiations for the
broker to purchase the receivable at the face amount in exchange for not
having to return the paid commission. Thus, we expect these receivables to
be paid by December 31, 2009. All remaining receivables are less than 30
days old.
In addition, to the above plans and actions that address the "going concern"
issues, Management is expanding its product line and marketing activities.
Plans to sale an established cosmetics line and additional food products are
being implemented currently. Details of upcoming entertainment projects,
plastics recycling projects and intelligent traffic system projects are
discussed in the marketing section of this document.
GENERAL OVERVIEW
The following discussion and analysis of our financial condition and results
of operations should be read in conjunction with the unaudited statements of
operations and cash flows for the three months ended September 30, 2009 and
2008, and the related notes thereto as well as the audited financial
statements of the Company for the year ended June 30, 2009. This discussion
contains forward-looking statements based upon current expectations that
involve risks and uncertainties, such as our plans, objectives, expectations
and intentions.
The Company cautions readers that important facts and factors described in
this Management's Discussion and Analysis of Financial Condition and Results
of Operations and elsewhere in this document sometimes have affected, and in
the future could affect, the Company's actual results, and could cause the
Company's actual results during 2009-10 and beyond to differ materially from
those expressed in any forward-looking statements made by, or on behalf of,
the Company.
CRITICAL ACCOUNTING POLICIES
Our Consolidated Financial Statements have been prepared in accordance with
accounting principles generally accepted in the United States of America. The
preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues
and expenses, and related disclosure of contingent assets and liabilities. We
base our estimates on historical experience and on various other assumptions
that are believed to be reasonable under the circumstances, the results of
which form the basis of making judgments about the carrying values of assets
and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions or
conditions.
We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our
consolidated financial statements:
Allowance for Doubtful Accounts
We maintain an allowance for doubtful accounts for estimated losses resulting
from the inability of our customers to make required payments. The allowance
for doubtful accounts is based on specific identification of customer
accounts and our best estimate of the likelihood of potential loss, taking
into account such factors as the financial condition and payment history of
major customers. We evaluate the collectability of our receivables at least
quarterly. If the financial condition of our customers were to deteriorate,
resulting in an impairment of their ability to make payments, additional
allowances may be required. The differences could be material and could
significantly impact our operating results. At September 30, 2009 the
allowance for doubtful accounts was $150,000.
Intangible Assets
The Company has adopted Statement of Financial Accounting Standards
ASC 350-10, "Goodwill and Other Intangible Assets." ASC 350-10 requires that
goodwill and intangible assets that have indefinite useful lives not be
amortized but rather be tested at least annually for impairment, and
intangible assets that have finite useful lives be amortized over their
useful lives. In addition, ASC 350-10 expands the disclosure requirements
about goodwill and other intangible assets in the years subsequent to their
acquisition.
ASC 350-10 provides specific guidance for testing goodwill and intangible
assets that will not be amortized (i.e., the Company's technology licenses)
for impairment. The leased broadcast license is subject to impairment reviews
by applying a fair-value-based test at the reporting unit level, which
generally represents operations one level below the segments reported by the
Company. An impairment loss will be recorded for any portion of the
technology licenses and internet portal that is determined to be impaired.
The Company performs impairment testing on its intangible assets at least
annually. Based on its analysis, the Company's management believes that no
impairment of the carrying value of its technology licenses or internet
portal existed at September 30, 2009. There can be no assurance however, that
market conditions will not change or demand for the Company's products and
services will continue which could result in impairment of its intangible
assets in the future.
Impairment of Long-Lived Assets
The Company's management assesses the recoverability of its long-lived
assets by determining whether the depreciation and amortization of long-lived
assets over their remaining lives can be recovered through projected
undiscounted future cash flows. The amount of long-lived asset impairment is
measured based on fair value and is charged to operations in the period in
which long-lived asset impairment is determined by management. Based on
uncertainties in the realizability of its "Four Tops Television Special"
production and "One Last Ride" film, the Company wrote down the value of
these assets, recording an impairment of $123,092 for the year ended June 30,
2006. In 2007, the Company wrote off the value of the KSSY broadcast license,
recording an impairment of $130,000 for the fiscal year ended June 30, 2007.
In June 2008, the Company wrote down the value of its Film Libraries, by
recording a impairment of $165,000 for the year ending June 30, 2008.
Based on its analysis, the Company believes that no additional impairment of
the carrying value of its long-lived assets is required. There can be no
assurance, however, that market conditions will not change which could result
in additional impairment of its long-lived assets in the future.
Revenue Recognition
1) Revenue from licensing TV programs and feature films can come from several
sources. As projects are completed, we will have the option of airing the
TV programs on our own Internet broadcasting channels and/or licensing the
programs to be aired on other networks. Likewise, feature films can be
licensed to foreign markets for distribution. Thus, among the revenue
sources are other networks in the case of short form programming or foreign
markets for feature films.
A licensing agreement that specifies the license fee, availability dates
and/or agreement duration is required for all projects licensed. Licensing
fees are typically paid in advance of providing the project to the
customer. Upon receipt of payment, deferred revenue is recorded. Revenue
is recognized as the project is aired over the life of the agreement. We
do not recognize revenue for projects that are not been completed, even if
the licensing agreement for the project is signed. The revenue is
recognized only after both the production product is completed and in
accordance with the product availability dates in a signed agreement.
2) Revenue can also result from "revenue sharing" with program licensors. Some
programs will be obtained by paying a licensing fee. Additionally, some
licenses will be obtained via a cash-plus-barter arrangement, where we air
the program for a contracted number of times and, in consideration for the
programming, the licensor receives a specified number of advertising
minutes. ASC 920-10, Financial Reporting by Broadcasters, sets forth
accounting and reporting standards for the broadcast industry. Under a
cash-plus-barter arrangement, we recognize a licensing asset at the
estimated fair value of the programming received. The difference between
the cash paid (obligation incurred) for the license and its fair value is
recorded as a liability (deferred barter revenue), as the license is
received before the broadcast of the licensor-provided commercials. As the
licensor-provided commercials are aired, barter revenue is recognized
ratably based on the recorded fair value of the barter transaction in
relation to the total granted licensor-provided commercials.
For cash purchases and revenue sharing, as rights are acquired, the
Programs are recorded as assets and are amortized as the programs are
aired over the network. For agreements with unlimited airing of a program
the asset is amortized over the license period.
3) Revenue can be generated from advertising and paid programming. Advertising
and paid programming revenue are recognized as the commercials/programs are
aired. For small advertisers that must pay for services in advance, upon
receipt of the payment, the signed contract and the tapes, deferred revenue
is recorded. Deferred revenue is recognized as sales when the commercial is
aired.
Revenue From Meat Trading Operatons
Revenue is recognized from meat trading operations after the order is
received, the customer invoice is issued and the customer receives the
product. Invoices issued prior to the customer receiving the product are
recorded as deferred revenue. Deferred revenue is then recognized as revenue
when the customer takes ownerhip of the product.
Deferred Taxes
We record a valuation allowance to reduce the deferred tax assets to the
amount that is more likely than not to be realized. We have considered
estimated future taxable income and ongoing tax planning strategies in
assessing the amount needed for the valuation allowance. If actual results
differ favorably from those estimates used, we may be able to realize a
larger portion or all of our net deferred tax assets. Such realization could
positively impact our operating results and cash flows from operating
activities.
RESULTS OF OPERATIONS
Total revenues for the Company were $2,736,308 and $6,432,560 for the
three-month periods ended September 30, 2009 and 2008, respectively. Revenues
were generated from the Company's commodity trading subsidiary.
Expenses incurred during the three-month period ended September 30, 2009
totaled $2,695,494 as compared to $5,839,605 for the three-month period
ended September 30, 2008. Expenses increased primarily due to purchases
of pork products and consulting services. Other income for three-month
period ended September 30, 2009 was $137,356, as compared to $17,500 of
for the same period in 2008. Changes in interest expense and tax expense
are insignificant. The net income for the three-month period ended
September 30, 2009 was $178,170 as compared to a net income of $610,455 for
the three month period ended September 30, 2008.
Results of operations for the three-month periods ended September 30, 2009
and 2008 are detailed in the charts below. Included are the revenues,
expenses, other income and net income for the three segments and corporate
office. In addition, the results from accounting consolidation are presented
as reconciling items.
As of and for three months ended September 30, 2009:
Broadcasting Production Commodity Corporate Reconciling Total
Operations Operations Items
Assets $ 33,661 $194,753 $2,099,121 $5,167,910 ($144,369) $7,381,076
Liabilities (438,544) (413,448) (1,256,825) (1,141,498) 144,369 (3,105,946)
Revenues, net of
affiliate costs - - 2,736,308 - - 2,736,308
Costs & expenses* (9,147) (16,999) (2,502,623) (166,725) - (2,695,494)
Other income (exp) - 23,833 38,697 74,826 - 137,356
Net income (loss) ($ 9,147) $ 6,834 $ 272,382 ($ 91,899) - 178,170
As of and for three months ended September 30, 2008
Broadcasting Production Commodity Corporate Reconciling Total
Operations Operations Trading Items
Assets $ 76,813 $ 65,284 $4,060,992 $5,065,761 ($20,000) $9.248,850
Liabilities (434,974) (239,916) (1,638,628) (1,169,395) 20,000 (3,462,913)
Revenues, net of
affiliate costs - - 6,432,560 - - 6,432,560
Costs & expenses* (12,937) (16,999) (5,651,644) (158,025) - (5,839,605)
Other income (exp) - - 17,337 163 - 17,500
Net income (loss) ($12,937) ($16,999) $798,253 (157,862) - 610,455
*Expenses include operating expenses and cost of sales.
Broadcasting Operations (Omni, ASTN and POD)
Revenues generated in this segment of operations totaled $0 for the
three months ended September 30, 2009 and 2008. Expenses were $9,147
for the three months ended September 30, 2009 as compared to $12,937 for
the same period in 2008. The net loss for this segment of operations was
$9,147 for the three months ended September 30, 2009 as compared to a
net loss of $12,937 for the same period in 2008.
Production Operations (Eclectic)
Revenues generated in this segment of operations totaled $0 for the three
months ended September 30, 2009 as compared to $0 during the same period
in 2008. This segment incurred $16,999 of expense during the three month
period ending September 30, 2009 as compared to $ 16,999 for the three months
ending September 30, 2008. Expenses included $15,625 of accrued salaries
during both periods. Other income was $23,833 as compared to $0 for the
same period in 2008. The net income for this segment was $6,834 for the three
months ended September 30, 2009, as compared to a loss of $16,999 for the
period in 2008.
Commodity Trading Operations
Revenues generated in this segment of operations totaled $2,736,308 for
the three months ended September 30, 2009 as compared to $6,432,560 during
the same period in 2008. This segment incurred $2,502,623 of expense during
the three months ending September 30, 2009 as compared to $5,651,644 for
the same period in 2008. Expenses included $1,806,064 of pork product
purchases, and $197,833 of shipping costs. Other income during the three
month period ending September 30, 2009 and 2008 was $38,697 and $17,337,
respectively. The net income for this segment was $272,382 for the three
months ended September 30, 2009, as compared to $798,253 for the period
in 2008.
OBN Corporate
Revenues generated from OBN corporate operations totaled $0 during the
three months ended September 30, 2009 and $0 for the same period in 2008.
The expenses incurred by OBN corporate were $166,725 for the three months
ended September 30, 2009 as compared with $158,025 in 2008. Expenses for the
three month period ending September 30, 2009 included $75,000 of accrued
salary expenses. The other income for this period was $74,826 as compared to
$163 for the same period in 2008. The net loss for OBN corporate was $91,899
during the period ended September 30, 2009 as compared to a net loss of
$157,862 for the same period in 2008.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2009 the Company's current liabilities of $3,105,946
exceeded current assets of $2,117,748 by $988,198. Approximately 25%
of current liabilities represent accrued payroll for executives who have
opted to defer taking salaries until additional funding is received. At
the board of directors meeting held January 10, 2006, the outside directors
approved a resolution allowing executives who have deferred their salaries
to convert any or all amounts due that exceed $50,000. The conversion price
was $1.00 per share, or market value of the common stock, whichever was
greater. As a result, $200,000 of accrued salaries was converted into
200,000 shares in January 2006. In December 2006 another $727,369 of
accrued salaries were converted into 1,091,051 shares. In March 2007
another $125,655 of accrued salaries were converted into 158,988 shares.
In April 2007, a total of 675,000 shares valued at $1.20 each was issued
to executives as special hardship for working without salaries for the
past four years. In December 2008 a total of 5,600,000 shares valued at
$0.30 each were issued to executives as bonus compensation These amounts
are being held in Company's Non Qualified Deferred Compensation Plan.
Management's believes that the acquisition of Kyodo USA in June 2008
addresses any future liquidity issues because of its strong cash flow and
cash balances in its bank accounts. In addition, the Company continues to
raise additional capital through equity financing sources. However, no
assurance can be given that additional capital will be available when
required or upon terms acceptable to the Company. The Company intends to
raise additional funds through a S-1 filing and anticipates implementing its
business plan to expand its acquisition and development plans.
The liquidity issues for each segment are addressed below.
Entertainment Operations
------------------------
The liquidity issues that have plagued our broadcasting operations have been
resolved by terminating our television broadcasts and satellite uplink. Thus,
the Company no longer has expenses for television affiliate stations and
satellite uplink. Instead, the Company has entered the Internet broadband
broadcasting industry by signing an agreement with an established Internet
network in February 2008. Under this agreement, the Company provides the
programming content and channel scheduling while the Internet Network covers
all related broadcasting costs, including costs for advertising sales and
technical support. The Company receives 60% of all generated revenues. As a
result our broadcast costs have been substantially reduced while our programs
now reach a worldwide market.
Liquidity for the television and film production operations remains
essentially unchanged. There are several television production projects
underway at various stages of development. These projects will be completed
with funds from OBN operations. The Company will seek project investors for
all future projects. Adopting this project funding practice will allow the
Company to realize revenues from licensing agreements, syndication agreements
and advertising without using much of its own funds. Again, the Company
anticipates investing very little of OBN funds into new television and film
projects, instead investor funds will be obtained.
Plastics Recycling Operations
-----------------------------
Liquidity is not a major concern for the plastic recycling operations that
began as a result of acquiring the proprietary technology license in February
2008. The Company will not require cash until it begins its own plastic
recycling operation using the exclusive technology license. In order to
generate cash, the Company will sell raw materials to the Chinese facility
from which the exclusive license agreement was acquired. In January 2009 the
Company entered into negotiations to acquire a plastics recycling facility in
the USA. After the acquisition is completed, the Company will be able to
exploit the exclusive recycling technology license.
Intelligent Traffic Systems Operations
--------------------------------------
Liquidity is not a major concern for the intelligent traffic systems
operations that began as a result of acquiring the proprietary technology
license in February 2008. The Company is bidding on traffic system
installation projects at municipalities throughout North American. As
contracts are awarded, the Company will engage the Chinese company that owns
the proprietary technology to supervise the installation. Little cash is
required during the bidding process. We anticipate installation of the first
system in North America by December 31, 2009. In addition, some traffic
systems units will be sold without installation responsibility, thus
requiring no cash other than sales expenses.
Commodity Trading Operations
-----------------------------
There are no liquidity issues related to the commodity trading operations
that were acquired in June 2008 as Kyodo USA has adequate cash flow. In fact,
the Company anticipates that some of the excess cash from these operations
will support other OBN operations via intercompany transfers.
FORWARD LOOKING STATEMENTS
Certain statements in this report are forward-looking statements within the
meaning of the federal securities laws. Although the Company believes that
the expectations reflected in its forward-looking statements are based on
reasonable assumptions, there are risks and uncertainties that may cause
actual results to differ materially from expectations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable
Item 4. CONTROLS AND PROCEDURES
An evaluation of the effectiveness of the design and operation of our
disclosure controls and procedures (as define in Rule 131-15(e) and 15d-15(c)
under the Securities Exchange Act of 1934 is routinely conducted.
(a) Evaluation of Disclosure Controls and Procedures. The Company carried out
an evaluation under the supervision and with the participation of the
Company's management, including the Chief Executive Officer ("CEO") and
Chief Financial Officer ("CFO) of the effectiveness of the Company's
disclosure" controls and procedures. Based upon that evaluation, the CEO
and CFO concluded that the design and operations of these disclosure
controls and procedures were effective. Our disclosure controls and
procedures were effective in timely alerting them to the material
information relating to the Company's (or the Company's consolidated
subsidiaries) required to be included in the Company's periodic filing
with the SEC, subject to the various limitations on the effectiveness set
forth below. Information relating to the Company, required to be
disclosed in SEC reports is recorded, processed, summarized and reported
within the time periods specified in SEC rules and forms, and is
accumulated and communicated to the Company's management, including our
CEO and CFO, as appropriated to allow timely decisions regarding
required disclosure.
(b) Changes in Internal Control over Financial Reporting. There has been no
change in the Company's internal control over financial reporting that
occurred during the fiscal quarter ended September 30, 2009 that has
materially affected, or is reasonably likely to materially affect, the
Company's internal control over financial reporting.
Limitations on the Effectiveness of internal controls
The Company's management, including the CEO and CFO, does not expect that our
disclosure controls and procedures or our internal controls over financial
reporting will necessarily prevent all fraud and material error. An internal
control system, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system
are met. Further, the design of the control system must reflect the fact that
there are resource constraints and the benefits of controls must be
considered relative to their costs. Because of the inherent limitations in
all control systems, no evaluation of controls can provide absolute assurance
that all control issues and instances of fraud, if any, within the Company
have been detected. These inherent limitations include the realities that
judgments in decision-making can be faulty and that breakdowns can occur
because of simple effort or mistake. Additionally, controls can be
circumvented by the individual acts of some persons, by collusion of two or
more people, or by management override of the internal control. The design of
any system of controls also is based in part upon certain assumptions about
the likelihood of future events and there can be no assurance that any design
will succeed in achieving its stated goals under all potential future
conditions. Over time, control may become inadequate because of changes in
conditions, and/or the degree of compliance with the policies or procedures
may deteriorate.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information.
None
Item 6. Exhibits
(31.1) Certification of Chief Executive Officer pursuant to Rule-15(e) and
15d-15(e) of the Securities Exchange Act of 1934, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
(31.2) Certification of Chief Financial Officer pursuant to Rule 13a-15(e)
and 15d-15(e) of the Securities Exchange Act of 1934, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
(32.1) Certification of Chief Executive Officer and Chief Financial Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
OBN HOLDINGS, INC
(Registrant)
Dated: November 16, 2009 By: /s/ Roger Neal Smith
--------------------------
Roger Neal Smith
Chief Executive Officer
EXHIBIT 31.1 CEO CERTIFICATION
Exhibit 31.1 - CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
I, Roger Neal Smith, certify that:
1. I have reviewed this quarterly report on Form 10-Q of OBN Holdings, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15 and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this
report is being prepared;
b) designed such internal control over financial reporting, or cause such
internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting
principles;
c) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based
on our most recent evaluation of the internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have significant role in the registrant's internal
control over financial reporting.
Date: November 16, 2009 /s/ ROGER N. SMITH
------------------------
Roger N. Smith
Chief Executive Officer
EXHIBIT 31.2 CFO CERTIFICATION
Exhibit 31.2 - Certification of Chief Financial Officer
I, Larry Taylor, certify that:
1. I have reviewed this quarterly report on Form 10-Q of OBN Holdings, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15 and 15d-15(e)) and internal control
over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this
report is being prepared;
b) designed such internal control over financial reporting, or cause such
internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting
principles;
c) evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and
d) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based
on our most recent evaluation of the internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant's board of directors (or persons performing the equivalent
functions):
a) all significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or other
employees who have significant role in the registrant's internal
control over financial reporting.
Date: November 16, 2009 /s/ LARRY TAYLOR
------------------------
Larry Taylor
Chief Executive Officer
EXHIBIT 32 CERTIFICATIONS
EXHIBIT 32 - CEO AND CFO CERTIFICATION
Exhibit 32.1
Statement Furnished Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
The undersigned are the Chief Executive Officer and Chief Financial Officer of
OBN Holdings, Inc. (the "Company"). This Certificate is made pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. This Certification accompanies
the Quarterly Report on Form 10-Q of the Company for the quarter ended
September 30, 2008 (the "10-Q Report").
The undersigned certifies that the 10-Q Report fully complies with the
requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934,
as amended, and that the information contained in the 10-Q Report fairly
presents, in all material respects, the financial condition and results of
operations of the Company on the dates and for the periods presented therein.
Date: November 16, 2009 /s/ ROGER N. SMITH
--------------------------------
Roger N. Smith
Chief Executive Officer
Date: November 16, 2009 /s/ LARRY TAYLOR
--------------------------------
Larry Taylor
Chief Financial Office
