UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10K-A
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the annual period ended June 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)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act Yes ( ) No ( X )
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes ( ) No ( X )
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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporate by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. ( 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 )
Aggregate market value of the voting common equity held by non-affiliates of
the Company on December 31, 2008 was approximately $1,837,000.
As of November 1, 2009 the Company had 20,380,903 shares of its $.001 par
value common stock issued and outstanding.
TABLE OF CONTENTS
PART I
ITEM 1. Business 1
ITEM 2. Properties 4
ITEM 3. Legal Proceedings 4
ITEM 4. Submission of Matters to a Vote of Security Holders 5
PART II
ITEM 5. Market for Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchase of Equity Securities 6
ITEM 6. Selected Financial Data 6
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
ITEM 7A Quantitative and Qualitative Disclosures About Market Risk 13
ITEM 8. Financial Statements and Supplementary Data 14
ITEM 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure 40
ITEM 9A. Controls and Procedures 40
PART III
ITEM 10. Directors, Executive Officers, and Corporate Governance 42
ITEM 11. Executive Compensation 44
ITEM 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters 45
ITEM 13. Certain Relationships and Related Transactions, and
Director Independence 46
ITEM 14. Principal Accounting Fees and Services 47
PART IV
ITEM 15. Exhibits, Lists and Reports on Form 8-K 48
PART I
ITEM 1. Description of Business
Corporate History
-----------------
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.
Employees
---------
As of June 30, 2009 OBN Holdings, Inc. employs eight full-time employees.
There are three employees in the corporate offices and three employees work
in our commodity trading company, one works in the Hong Kong office and one
works in the Japan office. Once the funds are available and the broadband
broadcasting, television/film production, plastics recycling, intelligent
traffic system, listing service and commodity trading operations are fully
staffed we expect to employ over one hundred full-time employees.
Competition
-----------
Entertainment Industry. The Company transitioned from television satellite
broadcasting to broadband internet broadcasting which is a relatively new
distribution method. The switch allows our hundreds of film titles to be
broadcast worldwide for substantially reduced cost. We no long have satellite
uplink, television station affiliate or sales personnel expenses. Programming
is available for viewing on computers or televisions. Advertising revenues
are shared on a 60/40 basis with our broadband host. Competition among
broadband channels is not significant when you consider a worldwide audience.
Viewing statistics are available for potential advertisers. In addition,
the Company has several entertainment projects that will be staged in China
and Japan at selected venues. Competition in this market is significant
so the Company has agreements with a Chinese and Japanese promoter for these
projects
Plastics Recycling Industry. There are hundreds of companies around the world
that recycle one or more of the 50 different types of plastic. For most
recyclers the polymers must be of nearly identical composition. The methods
they use include mechanical recycling, hydrogenation, gasification and
thermal cracking. Only a few facilities have the capability to recycle mixed
types and colors. Alternative processing methods that attempt to address
plastics' "macro-molecular" structure and allow recycling of mixed plastics
include condensation polymerization, thermal de-polymerization, and heat
compression. DuPont has opened a pilot condensation polymerization plant
which was essentially the inverse of the original polymerization reaction,
but the plant was closed for economic reasons. A pilot thermal
de-polymerization plant exists in Carthage Missouri. Heat compression plants,
where the plastics are melted and pumped through heated pipes into casting
moulds, exists in Australia and Japan. Our plastics recycling equipment uses
a proprietary process that enables it to recycle virtually any combination of
plastics and colors. It has little direct competition in China, the largest
market in the world. Plans are underway to construct a state of art facility
in China to meet increasing international demand for recycled plastics.
Intelligent Traffic System Industry. There are only a few companies worldwide
that specialize in the type of traffic intelligent systems for which the
Company has exclusive rights. The main competitors are the ISS Corporation of
the United States and Traficon Corporation of Belgium. Both of these firms
have encountered difficulties adapting their systems to China's and third
world traffic conditions, pricing structures and post sale service. There
problems were the impetus to the development our Lutong Tech's proprietary
technology. Lutong Tech Limited has product lines installed and operating
throughout China. In fact, Lutong Tech has been designated by the Chinese
government to undertake the ITS critical technology and application project
in the government's five year Social and Economic Development Plan. Moreover,
the Chinese National Video Laboratory has been in operation at Lutong
facilities since 2001. The Chinese cities of Beijing, Shanghai, Guangzhou,
Nanjing and other municipalities have installed Lutong's intelligent Traffic
Systems. The company will roll out this innovative technology to other
countries throughout North America, Asia, Africa and South America.
Commodity Trading Industry. Kyodo USA is among a limited number of firms that
have been issued a special USDA permit that is required to transport pork
through the United States for shipping to Japan. Since September 11, 2001,
obtaining permits have been more difficult. As a result, Kyodo USA is
positioned for substantial growth with limited competition. The Company is
currently implementing a growth program whereby operations are expanded to
include additional suppliers, additional products (e.g., chicken, beef) and
additional customer customers in China, Columbia and Japan. Further, the
Company will began distributing an exclusive line of comestics from Japan.
Intellectual Properties
-----------------------
Currently our entertainment group has the rights to several hundred
intellectual properties. Some programs were purchased and are wholly owned
as a part of our film library. Other programs are licensed. We typically
enter a multi-year licensing agreement with unlimited airing. In addition to
the licensed and wholly-owned programs, we have several programs in
development under the Eclectic Entertainment subsidiary. They include "Music
on Demand," "The LA Food Scene," "Adventures of Unit 28," and "The Mini-Movie
Hour." In addition, we have sports programming such as "After the Game,"
"Australian Rules Football" and "Destination Adventure." During the fiscal
year ended June 30, 2008 we have added over three hundred fifty (350)
additional titles to our film library.
The Company has acquired the exclusive North American rights to a Chinese
proprietary "green" process for converting "unrecyclable" plastic into
reusable plastic pellets. The process requires specially engineered equipment
that is not available anywhere else in the world. The company will employ the
process in facilities in other geographical location outside the Peoples
Republic of China.
The company has acquired the exclusive North American rights to several
patents in Video Detection Technology, including auto-adapted target
characteristic extraction, video pretreatment, video coil, vehicle track
technologies and Correlative product Research and Development. These
exclusive technologies have been use to produce two intelligent traffic
system product lines whereby video and still pictures of automobiles as they
move through traffic intersections are captured and sent to government
agencies for ticket collections. Other product lines are currently in
development.
The Company developed two internet portals. The first supports our "Blues
in China" project wherein we are introducing the Blues music to China
through several venues, including concerts, contests and Blues cafes. We
are working with a Chinese promotion firm for this project. The second
internet portal supports our Music on Demand" project, which community based
portal focusing solely on interactive music promotions.
Marketing Strategy
------------------
OBN Holdings has multi-faceted marketing strategy based on the industries in
which it has operations. The OBN corporate office is responsible for
identifying, evaluating and negotiating the acquisition of suitable
profitable companies as wholly owned subsidiaries. The corporate marketing
strategy is to promote OBN as a business incubator following many of the
tenets of Warren Buffet's Berkshire Hathaway. The acquired businesses wish
to become part of a fully reporting publicly trading company to support their
continued growth and development. In all cases, the management of the
acquired subsidiary remains with the company and benefits from the OBN
development programs. Assets acquired are not limited to specific industries
or geographic regions.
Entertainment. The company's entertainment operations include Internet
broadcasting, staged entertainment events, music production and film
production. There is significant competition in each of these areas, but
the Company has competitive advantages. In the broadcast industry the
Company has contracted with an experienced Internet broadcasting company
to host its two broadcast channels. In exchange for covering the cost of
all operating activities the Internet company receive 40% of revenues.
The Company need only provide its programming content.
For the staged entertainment events, the Company has established a substantial
network of contacts in China and Japan. Western firms seldom have the
opportunity to stage these type of projects without the Chinese government
approvals or involvement. All of the Company's projects have the approval
of the Chinese government. The Company executives have established good
working relationships with attorneys, translators, bankers, promoters,
accountants and other professionals. They are in contant contact with
project leaders and the Company's Hong Kong office. The same is true for the
Japanese market.
As for television, film and music production, there are literally thousands
production companies, all vying to have their completed projects distributed.
A few production companies are owned or aligned with the major broadcast
networks. The others are at the mercy of the relatively few distribution
outlets available. Through the Company's Internet broadcast channels,
Eclectic productions are guaranteed a distribution outlet. Alternatively,
Eclectic may choose to syndicate a program and have it aired television
networks as it did with its 2006 Four Tops Special production that was
successfully syndicated to eighty million (80,000,000) households via several
networks, including ABC, CBS and PBS.
Plastics Recycling. There are two competitive advantages that our plastics
recycling operations has over other facilities: 1) low cost and 2) technology.
For the most part, this business is low tech, labor intensive work. Thus, the
low wage rates and large labor pool makes the Chinese workforce ideal. Many
of the industrialized countries such as the United Kingdom and Australia
send their plastics discards to China for recycling. We have plans to
construct a new facility that will double capacity and consolidate operations
under one roof. All equipment used in our recycling process is custom built
in order to protect the proprietary methods and to minimize costs. We recycle
only "non-recyclable" plastics for which there is no competition. Thus,
marketing for this technology will highlight its environmental and cost
saving aspects.
Intelligent Traffic Systems. There are several competitive advantages for
our traffic systems operations. The systems are uniquely designed to
determine acceleration and deceleration through an intersection, thereby
determining whether a driver is attempting to avoid detection. Further, the
technology captures illegal turns, crossing lines detection, and a host of
other traffic violations. To our knowledge, no other system has this unique
cadre of capabilities. Further, this technology allows for revenue sharing
with municipalities. Therefore, the marketing program for this technology
includes one for direct sales as Build to Transfer (BOT) to municipalities
in developing countries and another to contractors who will install/monitor
the installation under a Build-to-operate (BOO) contract.
Commodity Trading. Currently the Company exports pork products from Mexican
suppliers to Japanese customers. However, a substantial expansion program
is underway to increase the product line to beef, chicken and other meat
products. In addition, a cosmetics line is being added. Further, the program
expands the customer base to other countries in Asia, such as China, Korea
and Thailand, and to countries in South America, such as Columbia, Brazil and
Argentina. Each commodity has its own marketing strategy and competitive
advantage. The competitive advantages for our current pork trading operations
are the USDA permits and existing management's extensive contacts throughout
the industry. Under OBN management numerous productivity improvement methods
will be instituted so that Kyodo management can focus on implementing the
marketing plan.
ITEM 2. Description of Properties
Our office headquarters is located at 8275 South Eastern Ave., Suite 200;
Las Vegas, Nevada 89123. It is a leased executive suite space at a monthly
rate of $250. Our Los Angeles based executives now use an executive
suite located at 1100 Glendon Avenue, 17th Floor, Los Angeles, California.
In addition, we have a resident agents and executive suite offices in Hong
Kong and Japan for annual fees of $3,000 each. OBN also has office facilities
available to us in Shenzhen, China (South), Beijing, China (Central) and
Shenyang, China (North). We expect to renew all of our agreements at current
market rates.
ITEM 3. Legal Proceedings
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 of lease amount. The Company agreed to a stipulated
judgment of $141,000 to be paid in full on or before December 31, 2007 by
making a $15,000 payment in June 2007, five monthly payments of $10,000 and
then the balance payment. The Company made the $15,000 and two subsequent
$10,000 monthly payments, but failed to make its October, November and
December payments. In September 2008 the Company agreed to settle the dispute
for $62,500 at which time the Company made a $50,000 payment followed by a
$12,500 payment. Thus, this debt has been paid in full.
In May 2006 WellGo, Inc. filed suit in Texas against the Company claiming
breach of contract when the Company gave DVD/CD distribution rights for its
Four Tops production to another company. Based on the contract, which was
written by WellGo, any lawsuits must be filed in California. Furthermore,
the contract clearly states that the Company, at our election, may provide a
replacement property or cancel the agreement. In October 2006 the Company
acknowledged a $7,500 contingent liability to WellGo. In June 2007 the
balance was paid with 15,000 shares of OBN stock valued at $0.90 per share.
Thus, the entire amount due has been paid in full.
In August 2006 General Electric Leasing Solutions filed suit in California
against the Company for non-payment of lease amounts totaling $46,272. Both
parties have agreed to an amicable resolution via a stipulated judgment
against the Company. The entire amount remains outstanding at the time of
this filing. The Company anticipates full payment by December 31, 2009.
The Company believes that none of the aforementioned legal proceedings will
impact its ability to continue operating.
ITEM 4. Submission of Matters to a Vote of Security Holders
None
PART II
ITEM 5. Market for Registrant's Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
Our common stock is currently trading on the Pink Sheets under the symbol
"OBNI." Our stock price, like that of other Pink Sheet companies, can be
highly volatile. The stock price may be affected by such factors as:
- Acquiring additional business entities
- Entering new industries
- Acquiring or development of important intellectual properties
- Announcements of distribution
- Regulatory or legal matters
- Broader industry and market trends
- Financial performance
In addition, if our revenues or earnings in any period fails to meet the
investment community's expectations, there could be an immediate adverse
impact on our stock price.
Set forth in the following table is the high and low closing prices for our
fiscal year ended June 30, 2009 for our common stock.
Quarter Ended High Low
September 30, 2008 $0.80 $0.30
December 31, 2008 0.80 0.30
March 31, 2009 0.65 0.24
June 30, 2009 0.44 0.11
As of June 30, 2009 there were approximately 200 shareholders of record who
own our common stock. We have not paid any cash dividends since our inception
and do not contemplate paying dividends in the foreseeable future. It is
anticipated that earnings, if any, will be retained for the operation of our
business.
An executive compensation stock option plan was developed and approved by the
Board of Directors prior to the Company making its stock available to the
public. However, all options under the plan expired in August 26, 2005. No
common shares were issued under this option plan.
There have been no sales of unregistered securities through June 30, 2009
that have not been previously reported.
ITEM 6. Selected Financial Data
The selected financial data contained in the chart below should be read in
conjunction with the consolidated financial statements and the notes thereto
included elsewhere in this document.
Years Ending June 30
----------------------------------------------------------
2009 2008 2007 2006 2005
OPERATING RESULTS
Revenue 18,310,437 2,001,589 - 247,382 35,210
Gross profit (loss) 3,283,179 1,122,350 - 33,779 (16,424)
Net income (loss) (3,367,531)* 23,452 (2,239,282) (1,006,728) (1,296,092)
PER SHARE DATA
Wgtd Avg Common Shares** 15,350,738 7,361,936 1,419,519 655,951 600,681
Loss per Common Share (0.22) 0.00 (1.58) (1.50) (2.20)
TOTAL ASSETS 7,741,417 8,120,482 585,580 523,030 646,020
CAPITALIZATION & DEBT
Total Liabilities 3,695,933 3,112,927 1,666,886 3,152,715 2,680,177
Capital Lease 49,396 49,396 49,396 49,396 54,530
Common Stock (000) 19,931 11,357 3,812 6,774 6,168
Paid in Capital 16,330,449 13,945,706 7,887,841 4,097,218 3,686,624
Accumulated Deficit (12,317,038) (8,949,507) (8,972,959) (6,773,677) (5,726,949)
* Includes a one time special performance bonus of $1,680,000 to executives
and $981,458 spoilage charges due to swine flu concerns
** Adjusted for 10:1 reversed stock split implemented in April 2007
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of 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. 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 June 30, 2009 sales 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.
GENERAL OVERVIEW
The following discussion and analysis of our financial condition and results
of operations should be read in conjunction with the audited balance sheet,
income statement, cash flow statement and stockholder's equity statement as
of and for the year ended June 30, 2009, and the related notes. 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 reports a loss of $3,367,532 during the year ended June 30,
2009. Further, the accumulated deficit was $12,317,038 and the net working
capital was a negative $1,248,400 at June 30, 2009. The cash balance was
$616,581.
Management's plans include obtaining additional capital through equity
financing sources. During the three month period subsequent to June 30, 2009
have we raised $30,000. In addition, the Company plans to raise additional
funds from the sell of the 25 million shares it will register when it files
its S-1 registration statement during the quarter ending December 31, 2009.
Liquidity and Capital Resources
As of June 30, 2009 the Company's current liabilities of $3,695,933 exceeded
current assets of $2,447,533 by $1,248,400. Approximately 19% of current
liabilities represent accrued payroll for executives who have opted to defer
taking salaries until additional funding is received. During 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 into OBN common stock.
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 an additional
$727,369 of accrued salaries were converted into 1,091,051 shares. In
March 2007 an additional $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 per share were issued as executive bonuses. In
December, executives converted $200,000 of accrued salary into 666,667
shares valued at $0.30 per share. In May 2009, executives converted $50,000
of accrued salary into 416,667 shares valued at $0.12 per share. These
amounts are being held in Company's Non Qualified Deferred Compensation Plan.
Management believes that the acquisition of Kyodo USA in June 2008
minimizes 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 registration 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 over-the-air television broadcasts and satellite
uplink. Thus, the Company no longer has expenses for television affiliate
stations, satellite uplink and satellite transponder space. 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 an international
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.
Staging overseas entertainment tours and events have not experienced
liquidity concerns. The Company works with international partners that
typically cover the out-of-pocket costs for these events. Our primary
contribution to projects is obtaining the talent and managing U.S based
logistics.
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. At the same time,
the Company is looking to acquire a plastic recycling facility in North
America. 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 within the next eighteen (18) months. In addition,
some traffic systems units will be sold without installation responsibility,
thus requiring no cash other than sales expenses.
Commodity Trading Operations
----------------------------
There is no liquidity issue 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. However, no
formal arrangements for intercompany transfers exist as of June 30, 2009.
Critical Accounting Policies
This document was prepared prior to the requirement to reference the new
accounting codifications. Reference to codification is required for filings
beginning with the September 30, 2009 period.
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 June 30, 2009 the allowance
for doubtful accounts was $150,000.
Intangible Assets
The Company has adopted Statement of Financial Accounting Standards ("SFAS")
No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 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, SFAS No. 142 expands the disclosure requirements
about goodwill and other intangible assets in the years subsequent to their
acquisition.
SFAS No. 142 provides specific guidance for testing goodwill and intangible
assets that will not be amortized (i.e., the Company's technology licenses
and Filmhook internet portal) 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 June 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 June 30, 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
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. SFAS No. 63, 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.
4) 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 ownership of the product.
5) Revenue generated from intelligent traffic system operations and recycling
is recognized after the customer is invoiced and the product has been
delivered to the customer. If the system is to be installed, then
a percentage of completion method is used to recognize revenue.
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 period ending June 30, 2009
a total of $1,750,769 was expensed for shipping related services.
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
The figures as of and for the year ended June 30, 2009 are shown in the
chart below:
Broadcasting Production Commodity Corporate Reconciling Total
Operations Operations Items
Assets $ 42,288 $ 194,753 $2,455,401 $7,917,416 ($2,868,541) $ 7,741,417
Liabilities (438,123) (420,282) (1,873,264) (1,108,633) 144,369 (3,695,933)
Revenues, net of
affiliate costs 337 100 18,309,693 307 - 18,310,437
Costs & expenses* 50,848 67,996 19,483,676 2,298,254 - 21,900,774
Other income (exp) 0 - 163,988 58,817 - 222,805
Net income (loss) ($ 50,511) ($67,896) ($1,009,995)($2,239,130) - ($3,367,532)
For year ended June 30, 2008
Broadcasting Production Commodity Corporate Reconciling Total
Operations Operations Trading Items
Assets $87,022 $65,284 $2,905,053 $7.787,295 ($2,724,172) $ 8,120,482
Liabilities (434,887) (222,917) (1,330,144) (1,124,979) - (3,112,927)
Revenues, net of
affiliate costs 125,098 - 1,876,491 - - 2,001,589
Costs & expenses* 143,742 67,996 1,262,332 972,506 - 2,446,576
Other income (exp) 15,624 - (64,836) 357,254 - 308,042
Net income (loss) ($3,019) ($67,996) $549,323 ($454,856) - $ 23,452
*Expenses include operating expenses and cost of sales.
There were $18,310,437 of revenues for the fiscal year ended June 30, 2009
as compared to revenues that totalled $2,001,589 for the 2008 fiscal year.
Expenses incurred during the year ended June 30, 2009 totaled $21,900,774
as compared to $2,446,576 for the 2008 fiscal year. The 2009 expenses
include $15,027,258 for cost of goods sold and $1,680,000 of deferred
executive bonuses, $315,181 of deferred salaries and $981,458 of spoilage
associated with the swine flu concerns. Other income for the fiscal year
ended June 30, 2009 was $222,805 as compared to other income of $308,042 for
fiscal year ended June 30, 2008. This was comprised of $163,988 gain on
foreign currency rate exchanges and a $57,500 gain on debt settlement.
Changes in interest expense and tax expense are insignificant. The net
loss for the fiscal year ended June 30, 2009 was $3,367,532 as compared
to a net income of $23,452 for the 2008 fiscal year.
Reconciling items consist of inter-company balances. There were no
reconciling items for revenue and expenses. Balance sheet reconciling
amounts represent the elimination of subsidiary accounts. All revenues are
from customers in the United States and all long-lived assets are located in
the United States.
Broadcasting Operations
-----------------------
Revenues generated from this segment of operations during fiscal 2009 were
$337 compared to $125,098 revenues in fiscal 2008. Expenses were $50,848 for
the year ended June 30, 2009, as compared to $143,741 for fiscal 2008. The
2009 expenses were primarily amortization expenses. There was no Other
income or Other Expenses in 2009 as compared to $15,624 for 2008. Net loss
in 2009 for this segment of operations was $50,511, as compared to net
income totaling $3,019 in 2008.
TV & Film Production Operations
-------------------------------
Revenues generated from this segment of operations during 2009 was $100 as
compared to zero for 2008. The Company incurred $67,996 of expense during
2009, 2008. Both years included $62,496 of accrued payroll expenses and
$5,500 of general and administrative expenses. There was no other income for
2009 or 2008. The 2009 and 2008 net loss for this segment of operations was
$67,896 and $67,996, respectively.
Commodity Trading
----------------
Revenues generated from this segment of operations during fiscal 2009 were
$18,309,693 as compared to $1,876,491 revenues in fiscal 2008. Expenses
were $19,483,6763 for the period ending June 30, 2009 and $1,262,332 for
the year ended June 30, 2008. Included were $15,027,258 for cost of goods
sold and $6,847,783 for general administrative expenses. Other income
for the year ending June 30, 2009 was $163,988 as compared to $64,836 of
Other Expense for same period ending June 30, 2008. The net loss for
commodity trading operations for the year ending June 30, 2009 $1,009,995
as compared to $549,323 of income in 2008.
OBN Corporate
-------------
OBN corporate generated $307 in revenue during the year ended June 30, 2009,
and no revenue for the year ended June 30, 2008. The expenses incurred by
OBN corporate were $2,298,254 for the year ending June 30, 2009 as compared
to $972,506 for the year ended June 30, 2008. The 2009 amount included
$315,181 of deferred salaries and $1,680,000 of special one time deferred
executive bonuses. Other income for 2009 was $58,817 compared to $517,651
for 2008. The 2009 net loss for the corporate office was $2,239,130, as
compared to $454,856 for 2008.
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 7A Quantitative and Qualitative Disclosures About Market Risk
Not applicable
ITEM 8. Financial Statements and Supplementary Data
Reports of Independent Registered Public Accounting Firms 15
Balance Sheet as of June 30, 2009 and 2008 17
Statements of Operations for the years ended June 30, 2009 and 2008 18
Statements of Stockholders' Deficit for the
years ended June 30, 2009 and 2008 19
Statements of Cash Flows for the years ended June 30, 2009 and 2008 20
Notes to Financial Statements 21
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
OBN Holdings, Inc.
We have audited the accompanying consolidated balance sheets of OBN
Holdings, Inc. (a Nevada corporation) and subsidiaries (the "Company") as of
June 30, 2009 and 2008, and the related consolidated statements of earnings
and comprehensive income, stockholders' equity and cash flows for each of
the years then ended. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material misstatement. The
Company is not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but
not for the purpose of expressing an opinion of the effectiveness of the
Company's internal control over financial reporting. Accordingly, we express
no such opinion. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of OBN
Holdings, Inc. as of June 30, 2009 and 20008, and the consolidated results
of its operations and its cash flows for each of the years then ended in
conformity with accounting principles generally accepted in the United States
of America.
The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern. As more fully
discussed in Note 1, the Company has limited operating cash flows and does
not have sufficient working capital to fully fund its operations, which
creates substantial doubt about the Company's ability to continue as a going
concern. Management's plan in regard to this matter is also discussed in
Note 1. The financial statements do not include any adjustments that might
result from this uncertainty.
/s/ Tarvraran Askelson & Company LLP
Laguna Niguel, California
November 6, 2009
OBN HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
June 30,
2009 2008
----------- ----------
ASSETS
Current assets:
Cash and cash equivalents $ 616,581 $ 986,482
Accounts receivables, net of $150,000 and $0
allowance for doubtful accounts, respectively 882.872 680,306
Inventory 948,080 1,239,423
---------- ----------
Total current assets 2,447,533 2,906,211
Fixed assets, net of accumulated depreciation of
$60,892 and $60,678, respectively - 214
Programming rights, net of accumulated amortization
of $100,192 and $98,192, respectively 65,613 67,613
Film library, net of accumulated amortization of
$390,373 and $288,637, respectively 187,127 288,863
Other intellectual properties, net of accumulated
depreciation of $19,387 and $5,250, respectively 195,113 11,550
Other tangible assets 4,846,031 4,846,031
---------- ----------
Total assets $ 7,741,417 $8,120,482
============ ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable 472,344 $1,019,342
Commissions payable 786,792 562,112
Accrued payroll and related 691,142 553,937
Deferred revenue 790,650 47,762
Capital lease obligations 49,396 49,396
Programming rights payable 80,030 80,030
Notes and accrued interest payable 277,709 274,322
Notes and accrued interest payable to related parties 547,870 526,026
---------- ---------
Total current liabilities 3,695,933 3,112,927
---------- ---------
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; 19,930,903 and 11,357,465 shares issued
and outstanding, respectively 19,931 11,357
Additional paid-in capital 16,330,449 13,945,705
Accumulated deficit (12,317,038) (8,949,507)
Subscription receivable (7,500) --
Accumulated comprehensive income, net 19,642 --
---------- ---------
Total stockholders' equity 4,045,484 5,007,555
---------- ---------
Total liabilities and stockholders' equity $ 7,741,417 $8,120,482
=========== ==========
See accompanying notes to consolidated financial statements.
OBN HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED
JUNE 30,
------------------------------
2009 2008
------------- -------------
Revenue, net of affiliate costs $ 18,310,437 $ 2,001,589
Cost of sales 15,027,258 879,239
------------ ------------
Gross profit 3,283,179 1,122,350
Operating expenses:
General and administrative 6,847,782 1,544,491
------------ ------------
Loss from operations (3,564,603) (422,141)
------------ ------------
Other income (expense):
Other (expense) 165,305 (11,109)
Impairment of programming rights - (165,000)
Gain on debt extinguishment 57,500 58,564
Interest expense (25,733) (22,846)
------------ ------------
Total other income (expense), net 197,072 (140,391)
------------ ------------
Loss before income taxes (3,367,531) (562,532)
Income taxes - -
------------ ------------
Income (loss) before extraordinary item:
Extraordinary item: Kyodo Acquisition (less
applicable taxes of $0) - 585,984
Net income (loss) ($3,367,531) $ 23,452
============ ============
Foreign currency transaction adjustment 19,642 -
------------ ------------
Comprehensive loss, net of $0 taxes ($3,347,889) -
============ ============
Net loss available to common
stockholders per common share:
Basic and diluted net loss per
common share (0.22) -
============ ============
Basic and diluted weighted
average shares outstanding 15,350,738 7,261,936
============ ============
See accompanying notes to consolidated financial statements.
OBN HOLDINGS, INC.
Consolidated Statement of Stockholders' Deficit
For the years ended June 30, 2009 and 2008
Undesignated
Preferred Stock Common Stock Additional Total
--------------- --------------- Paid-in Accumulated Stockholders'
Shares Amount Shares Amount Capital Deficit (Deficit)Equity
------ ------ ------ ------ --------- ----------- ------------
Balance, June 30, 2007 -- -- 3,812,157 3,812 $7,887,841 ($8,972,959) ($1,081,306)
Stock issued for cash -- -- 645,344 645 233,264 -- 233,909
Stock issued for purchase
of technology licenses -- -- 4,348,125 4,348 4,195,852 -- 4,200,200
Stock issued for purchase
of Kyodo USA, Inc. -- -- 800,000 800 599,200 -- 600,000
Stock issued to retire
debt -- -- 9,000 9 5,091 -- 5,100
Stock issued for services -- -- 1,742,849 1,743 1,024,457 -- 1,026,200
Net income (loss) -- -- -- -- -- 23,452 23,452
------ ------ --------- ------ --------- ------------ -----------
Balance, June 30, 2008 -- -- 11,357,465 11,357 13,945,705 (8,949,507) 5,007,555
------ ------ --------- ------ --------- ------------ -----------
Stock issued for cash -- -- 1,115,276 1,115 216,107 -- 217,222
Stock issued for services -- -- 6,374,828 6,375 1,919,721 -- 1,926,096
Stock issued for conversion
of salaries payables -- -- 1,083,334 1,084 248,916 -- 250,000
Subscripion receivable -- -- -- -- -- -- (7,500)
Comprehensive income -- -- -- -- -- -- 19,642
Net income (loss) -- -- -- -- -- (3,367,531) (3,367,531)
------ ------ --------- ------ --------- ------------ -----------
Balance, June 30, 2008 -- -- 19,930,903 19,931 16,330,449 (12,317,038) 4,045,484
------ ------ --------- ------ --------- ------------ -----------
OBN HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED
JUNE 30,
-------------------------
2009 2008
---------- ----------
Cash flows from operating activities
Net profit (loss) ($3,367,531) $ 23,452
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization 117,548 161,371
Impairment expense - 165,000
Extraordinary gain - (585,984)
Other income (expense) - (58,564)
Gain on settlement of debt 57,500 -
Shares issued for intangible assets (194,700) -
Shares issued for services 1,926,096 1,026,200
Changes in operating assets and liabilities:
Accounts receivable, net (202,566) (680,306)
Purchased inventory 291,343 (1,239,423)
Deferred revenue 742,888 (77,238)
Accounts payable and accrued expenses 4,967 1,866,898
----------- -----------
Net cash provided by (used in) operating activities (624,555) 601,406
----------- -----------
Cash flows from investing activities:
Purchase of intangible assets - 130,000
----------- -----------
Net cash provided by investing activities - 130,000
----------- -----------
Cash flows from financing activities:
Proceeds from notes payable, net of issuance costs 3,387 500
Proceeds from notes payable to related parties 21,844 35,848
Repayments on notes payable - (2,500)
Proceeds from stock subscriptions receivable (7,500) -
Repayments on notes payable to related parties - (32,600)
Proceeds from issuance of common stock 217,181 233,909
----------- -----------
Net cash provided by financing activities 234,912 235,157
----------- -----------
Effect of foreign currency rate changes 19,642 -
Net change in cash and cash equivalents (369,901) 966,563
Cash, and cash equivalents, beginning of period 986,482 19,919
----------- -----------
Cash, and cash equivalents, end of period $ 616,581 986,482
=========== ===========
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 intellectual properties with common stock $ -- $ 194,700
------------ ---------
Shares issued to pay off debt $ -- $ 1,500
------------ -----------
Conversion of salaries payable to common stock $ 250,000 $ --
----------- -----------
Payments of executive bonuses with common stock $ 1,681,303 $ --
---------- -----------
Purchase of intangible assets $ $ 4,774,781
----------- ------------
Purchase of commodity trading subsidiary $ -- $ 600,000
----------- ------------
See accompanying notes to consolidated financial statements.
OBN HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2009 and 2008
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Background and Organization
Nature of Operations and Principles of Consolidation
----------------------------------------------------
OBN Holdings, Inc. ("OBNI" or the "Company") is a holding company with
operations in entertainment, importing/exporting of meat products, plastics
recycling and intelligent traffic systems industries. Moreover, the Company
is internationally diversified with subsidiaries in China and the United
States. As a holding company its primary objective is to identify and acquire
profitable small to medium sized companies as subsidiaries, then manage the
subsidiaries growth and development.
The Company was incorporated in Nevada in 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"). Omni was incorporated in January 2001 as a television
broadcast company. Eclectic Entertainment was incorporated July 2002 as a
motion picture and television production company. Products On Demand Channel
was incorporated in December 2002 as a broadcast television network
specializing in providing airtime to independent producers and companies
seeking to market their products on television. In August 2003, the Company
acquired the KSSY television broadcast license. In February 2004, OBN
acquired the name and program library of All Sports Television Network
("ASTN"), which began broadcast operations as a fourth subsidiary in July
2005. In January 2007 the Company began development of its Film Hook internet
broadcasting operations to be launched in June 2008. In October 2007 the OBN
Holdings Hong Kong subsidiary was incorporated. In February 2008, the Company
signed an agreement to broadcast its film and television properties over the
broadband internet. In March 2008 the Company entered the plastics recycling
industry by acquiring the exclusive North American rights to Chinese
proprietary technology that allows "unrecyclable plastics" to be recycled.
In March 2008 the Company entered the intelligent traffic systems industry by
acquiring the exclusive North American rights to Chinese patents that
captures video and still pictures of traffic violations real time. In June
2008 the Company acquired Kyodo USA, a trading company that sells pork from
Mexico to Japan. In October 2008, the Company formed OBN Holdings Japan Co.,
Ltd, a wholly owned subsidiary of OBN Holdings.
Going Concern
At June 30, 2009 the report of our independent registered public accounting
firm includes 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 economy has had a negative impact on the Company's operations. More
specifically, the swine flu (H1N1 virus) concerns have resulted in less
customer orders of pork products and lower margins. Trends in earnings
were also negative as the Company experienced losses during four of the last
five annual reports. The company reported a $3,367,532 loss for the fiscal
year ending June 30, 2009. Most of the $3,695,933 of outstanding liabilities
had been on the books for more than twelve months and nearly 50% of the
$882,872 of receivables was recorded more than twelve months ago. Thus,
inclusion of a "going concern" statement was appropriate.
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.
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.
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.
Acquisitions
In June 1, 2008 the Company acquired 100% ownership of Kyodo USA, a trading
company incorporated under the laws of Delaware, that sells pork purchased
from Mexican suppliers to Japanese customers. The Company issued 800,000
shares at $0.75 per share for all the outstanding shares of Kyodo USA.
Thus, the total consideration paid was $600,000 and significant components of
the transaction were as follows:
Cash $1,248,437
Receivables 436,344
Inventory 536,075
Accounts payables (987,111)
Notes payables (47,761)
---------
Net liabilities assumed in a excess of assets ($1,185,984)
Value of common stock paid 600,000
------------
Gain ($ 585,984)
The owners of Kyodo USA sold at a bargain price in order to be part of a
publicly traded company and receive management guidance to expand the
business to new products and geographical markets.
There were no other contingent considerations.
Principles of Consolidation
The consolidated financial statements include the accounts of OBN Holdings,
Inc. and its wholly owned subsidiaries. All significant inter-company
transactions and balances have been eliminated in consolidation.
Segment Information Reporting
Management measures the Company's performance in three distinct segments:
(1) Broadcasting Operations, which is measured advertising dollars attracted;
and, (2) Production Operations, which requires creative talent and has a
longer lead time to determine success; and 3) Commodity trading which is
measure by volume sold. A summary for the years ended June 30, 2009 and 2008
is presented in the table below:
The figures as of and for the year ended June 30, 2009 are shown in the chart
below:
Broadcasting Production Commodity Corporate Reconciling Total
Operations Operations Items
Assets $ 42,288 $ 194,753 $2,455,401 $7,917,416 ($2,868,541) $ 7,741,417
Liabilities (438,123) (420,282) (1,873,264) (1,108,633) 144,369 (3,695,933)
Revenues, net of
affiliate costs 337 100 18,309,693 307 - 18,310,437
Costs & expenses* 50,848 67,996 19,483,676 2,298,254 - 21,900,774
Other income (exp) 0 - 163,988 58,817 - 222,805
Net income (loss) ($ 50,511) ($67,896) ($1,009,995)($2,239,130) - ($3,367,532)
For year ended June 30, 2008
Broadcasting Production Commodity Corporate Reconciling Total
Operations Operations Trading Items
Assets $87,022 $65,284 $2,905,053 $7.787,295 ($2,724,172) $ 8,120,482
Liabilities (434,887) (222,917) (1,330,144) (1,124,979) - (3,112,927)
Revenues, net of
affiliate costs 125,098 - 1,876,491 - - 2,001,589
Costs & expenses* 143,742 67,996 1,262,332 972,506 - 2,446,576
Other income (exp) 15,624 - (64,836) 357,254 - 308,042
Net income (loss) ($3,019) ($67,996) $549,323 ($454,856) - $ 23,452
*Expenses include operating expenses and cost of sales.
Reconciling items consist of inter-company balances. Revenues are from the
following sources:
United States China Japan Other Total Revenue
$ 744 $ -- $ 18,309,693 $ ---- $ 18,310,437
Thus, all revenues are from U.S and Japanese customers in the United States
and all long-lived assets are located in the United States.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reported period. Actual results could differ from
estimated amounts. The Company's significant estimates include the
realizability of long-lived assets and deferred tax assets.
Concentration of Credit Risk
The Company maintains its cash and cash equivalent accounts in financial
institutions. Accounts at these institutions are insured by the Federal
Deposit Insurance Corporation ("FDIC") up to $250,000. At June 30, 2009, the
Company had two bank account balances that was in excess of the FDIC
insurance limit. The Company performs ongoing evaluations of these
institutions to limit its concentration risk exposure.
The Company grants credit to customers within the United States of America
and does not require collateral. The Company's ability to collect receivables
is affected by economic fluctuations in the geographic areas and industries
served by the Company. Reserves for uncollectible amounts are provided based
on past experience and a specific analysis of the accounts which management
believes is sufficient. Although the Company expects to collect amounts due,
actual collections may differ from the estimated amounts.
Sales for the year ended June 30, 2009 was $18,310,437. Sales for the two
largest customers in 2009 totaled approximately 77% of revenue. Purchases
during this period was $14,735,915. Approximately 90% of the purchases
were from two suppliers.
Fair Value of Financial Instruments
The carrying amounts of the Company's cash and cash equivalents, accounts
payable, accrued expenses and third-party notes payable approximate their
estimated fair values due to the short-term maturities of those financial
instruments. The estimated fair values of related-party notes payable are
not determinable as the transactions are with related parties.
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 June 30, 2009 the allowance
for doubtful accounts was $150,000.
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 period ending June 30, 2009
a total of $1,750,769 was expensed for shipping related services.
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. At June 30, 2009, the Company's fixed assets
consist primarily of computers and office editing equipment which were
fully depreciated.
Other Long-Lived Assets
The programming rights assets are discussed in Note 2. Programming rights
are recorded for the purchase of the right to air programming on the
Company's broadband internet network. 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 3. These assets are being amortized
over their estimated useful life of 10 years.
The internet media portal is discussed in Note 4. This asset is an intangible
asset with an indefinite life. It is expected to begin operations by
November 2009.
Intangible Assets
The Company has adopted Statement of Financial Accounting Standards ("SFAS")
No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 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, SFAS No. 142 expands the disclosure requirements
about goodwill and other intangible assets in the years subsequent to their
acquisition.
SFAS No. 142 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 June 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
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 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.
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. SFAS No. 63,
"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
and 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.
Bartering with Affiliate Stations
Under a cash-plus-barter arrangement, the Company provides a specified amount
of cash, the programming content and a specified number of program advertising
slots to affiliate stations. In exchange the affiliate agrees to broadcast
the program to its subscriber's households. The cash fee paid to affiliates
is recorded as a reduction of revenue as the Company pays this fee to
affiliates in lieu of accepting fewer advertising slots to be sold and
recognized as revenue. There were no affiliate costs totaled during the
fiscal years ending June 30, 2009 and 2008.
Under a barter agreement, the Company exchanged advertising for sponsorship
rights for a music festival. The total of services to be provided under the
contract was $100,000. No revenue from this barter agreement was recognized
during the fiscal years ending June 30, 2009 and 2008.
Accounting for Filmed Entertainment and Television Programming Costs
In accordance with American Institute of Certified Public Accountants
Statement of Position ("SOP") 00-2, Accounting by Producers or Distributors
of Films, filmed entertainment costs will include capitalized 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 year ended June 30, 2009
and 2008, there were no advertising costs.
Stock-Based Compensation
Through June 30, 2009, the Company accounts for equity instruments issued to
non-employees in accordance with the provisions of SFAS No. 123, Accounting
for Stock-Based Compensation, and EITF Issue No. 96-18, Accounting for Equity
Instruments that are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling Goods or Services. 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.
Through June 30, 2006 SFAS No. 123 allowed 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, was 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 made pro forma
disclosures of net income and earnings per share, as if the fair value method
of accounting defined in SFAS No. 123 had been applied.
The Company has a stock-based employee compensation plan. Through June 30,
2006 the Company accounted 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 year ended June 30, 2009 and 2008. There is also no pro forma
impact of these warrants as they have no fair value under SFAS No. 123.
Effective July 1, 2006, on the first day of the Company's fiscal year 2007,
the Company adopted the fair value recognition provisions of SFAS No. 123(R),
"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 SFAS No. 123, 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 SFAS
No. 123(R). SFAS No. 123(R) 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 June 30, 2009, the Company
had no options outstanding and therefore the adoption of SFAS 123(R) had no
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
SFAS No. 123(R) 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.
Recent Pronouncements
In September 2006 the Financial Accounting Standards Board issued SFAS 157,
Fair Value Measurements. This standard defines fair value as the price that
would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date. It
establishes a framework for measuring fair value in generally accepted
accounting principles (GAAP), and expands disclosures about fair value
measurements. It does not require any new fair value measurements, but
emphasizes that fair value is a market-based measurement, not an entity-
specific measurement. Therefore, a fair value measurement should be
determined based on the assumptions that market participants would use in
pricing the asset or liability. As a basis for considering market participant
assumptions in fair value measurements, this Statement establishes a fair
value hierarchy that distinguishes between (1) market participant assumptions
developed based on market data obtained from sources independent of the
reporting entity (observable inputs) and (2) the reporting entity's own
assumptions about market participant assumptions developed based on the best
information available in the circumstances (unobservable inputs). The
effective date of this standard is for fiscal period beginning after
November 15, 2007. The Company has determined that adoption of SFAS 157 does
not result in any additional expense as it does not change the Company's
current practices.
In February 2007, the Financial Accounting Standards Board issued SFAS 159,
Fair Value Option for Financial Assets and Financial Liabilities. This
standard permits entities to choose to measure many financial instruments and
certain other items at fair value. The objective is to improve financial
reporting by providing entities with the opportunity to mitigate volatility
in reported earnings caused by measuring related assets and liabilities
differently without having to apply complex hedge accounting provisions. This
Statement is expected to expand the use of fair value measurement, which is
consistent with the Board's long-term measurement objectives for accounting
for financial instruments. This Statement is effective as of the beginning
of an entity's first fiscal year that begins after November 15, 2007. The
Company has determine that adoption of SFAS 159 does not result in additional
expense as it does not change the Company's current practices.
In September 2007 the Financial Accounting Standards Board issued SFAS 141r,
Business Combinations. It is a revision to the FASB's Statement of Financial
Accounting Standards No. 141, Business Combinations (SFAS 141), and will
effect how companies approach financial planning and reporting around business
combinations. SFAS 141r requires recognition for in-process R&D as assets at
fair value; transaction cost to be expensed, contingent consideration to be
measured at fair value; reacquired assets to be recorded as identifiable
intangible asset; assets held for sale to be measured at fair value; and
contingencies to be recognized at fair value. The Company has determined that
the adoption of SFAS 141r will require it to analyze additional aspects in
future potential acquisitions and possibly incur additional expense. SFAS 141R
is effective for fiscal years beginning after December 15, 2008. Thus, this
standard will affect the Company's June 30, 2009 10K filing.
In July 2006 the Financial Accounting Standards Board issued FIN 48,
Accounting for Uncertainty in Income Taxes- an interpretation of FASB
Statement No. 109 (FIN 48). FIN 48 clarifies the accounting for uncertainty
in income taxes recognized in an enterprise's financial statements in
accordance with FASB Statement No. 109, Accounting for Income Taxes
(SFAS 109). This Interpretation prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement
of a tax position taken or expected to be taken in a tax return. This
Interpretation also provides guidance on de-recognition, classification,
interest and penalties, accounting in interim periods, disclosure, and
transition. FIN 48 became effective for fiscal years beginning after
December 15, 2006. The Company has adopted of FIN 48 among its current
practices.
In December 2007 the Financial Accounting Standards Board issued SFAS 160,
Non-controlling Interest in Consolidated Financial Statements. The objective
of this Statement is to improve the relevance, comparability, and transparency
of the financial information that a reporting entity provides in its
consolidated financial statements. It requires that the ownership interests
in subsidiaries held by parties other than the parent be clearly identified,
labeled, and presented in the consolidated statement of financial position
within equity, but separate from the parent's equity. Further, it requires
that the amount of consolidated net income attributable to the parent be
clearly identified, accounted for consistently, and that changes of interests
be disclosed. This Statement is effective for fiscal years, and interim
periods within those fiscal years, beginning on or after December 15, 2008.
The Company has determined that it will have little impact on its operating
income or net earnings.
In March 2008 the Financial Accounting Standards Board issued SFAS 161,
Disclosures about Derivative Instruments and Hedging Activities-an amendment
of FASB Statement No. 133. This Statement changes the disclosure requirements
for derivative instruments and hedging activities. Entities are required to
provide enhanced disclosures about (a) how and why an entity uses derivative
instruments, (b) how derivative instruments and related hedged items are
accounted for under Statement 133 and its related interpretations, and (c) how
derivative instruments and related hedged items affect an entity's financial
position, financial performance, and cash flows. This Statement is effective
for financial statements issued for fiscal years and interim periods beginning
after November 15, 2008, Thus, this standard became applicable at our
December 31, 2008 quarterly filing. The Company has concluded that SFAS
No. 161 will have little impact on its reporting requirements.
In June 2009 the Financial Accounting Standards Board issued SFAS 165,
Subsequent Events. This Statement introduces the concept of financial
statements being 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. This disclosure should
alert all users of financial statements that an entity has not evaluated
subsequent events after that date in the set of financial statements being
presented. The standard applies to interim or annual financial periods ending
after June 15, 2009. Thus, this standard become applicable to the Company's
June 30, 2009 10K filing. However, the Company has adopted and currently
complies with SFAS 165.
In June 2009 the Financial Accounting Standards Board issued SFAS 166,
Accounting for Transfers of Financial Assets. The concept of a qualifying
special-purpose entities is no longer relevant for accounting purposes. All
entities (as defined under previous accounting standards) should be evaluted
for consolidation by reporting entities on and after the effective date in
accordance with the applicable consolidation guidance. This Statement must
be applied as of the beginning of each reporting entity's first annual
reporting period that begins after November 15, 2009. Thus becomes effective
for the Company at its June 30, 2009 10K filing. The Company has concluded
that this standard will have no impact on its operations because it has not
special purpose entities.
In June 2009 the Financial Accounting Standards Board issued SFAS 167,
Amendments to FASB Intrepretation No. 46(R). This Statement improves the
financial reporting by enterprises involved with variable interest entities.
It requires consolidation of Variable Interest Entities when the Company
receive the primary benefit or loss related to an entity regardless of voting
rights. This Statement will be effective at annual filing periods after
November 15, 2009. The Company has no variable interest entities, but will
adopt this statement should it become applicable in the future.
In June 2009 the Financial Accounting Standards Board issued SFAS 168,The
FASB Accounting Standards Codification and the Hierarchy of Generally
Accepted Accounting Principles. Following this Statement, the Board will
not issue new standards in the form of Statements, FASB Staff Positions, or
Emerging Issues Task Force Abstracts. Instead, it will issue Accounting
Standards Updates. Once the Codification is in effect, all of its content
will carry the same level of authority, effectively superseding Statement
162. In other words, the GAAP hierarchy will be modified to include only
two levels of GAAP: authoritative and nonauthoritative. This Statement is
effective for financial statements issued for interim and annual periods
ending after September 15, 2009. The Company acknowledges the new
codification and will follow the Accounting Standards updates.
Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." Under the asset and liability method of SFAS
No. 109, 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 SFAS No.
109, 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.
Basic and Diluted Loss Per Share
The Company has adopted SFAS No. 128, Earnings Per Share (see Note 10). 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 is 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
years ended June 30, 2009 and 2008. There were no options or warrants issued
in 2009 or 2008.
Note 2 - Comprehensive Income
The Company reports certain changes in equity during a period in accordance
with SFAS No. 130 "Reporting Comprehensive Income". Accumulated Comprehensive
Income, net includes foreign currency cumulative translation adjustments,
net of tax. The components of comprehensive income for the years ended
June 30, 2009 and 2008 are as follows:
Fiscal Year
Ended June 30,
2009 2008
Net income (loss) $ 3,367,531 $ 23,452
Foreign currency cumulative translation adjustments 19,642 --
------------ ----------
Comprehensive income (loss) $ 3,347,889 $ 23,452
============ ===========
NOTE 3 - PROGRAMMING RIGHTS
During the year ended June 30, 2009 and 2008, the Company had no production
cost. At June 30, 2009 cumulative production costs totaled $82,775.
An agreement exists between Eclectic, The Four Tops, and Lee Tofanelli &
Associates (the production company), whereby each of the three entities share
one third of the revenue generated from the exploitation of "From The Heart:
The Four Tops 50th Anniversary and Celebration" after Eclectic and the other
parties recoup all of their production expenses. In addition, Eclectic has
sold 50% of its 1/3 interest in the Four Tops Television Special for
$500,000, which has been recorded as a reimbursement of capitalized
programming rights as the agreement requires the third-party investor to be
reimbursed for this investment as part of Eclectic's production expenses
before recoupment. However, Eclectic retains ownership of all rights.
Eclectic originally capitalized $300,000 of programming costs related to this
program. In April 2006, $195,000 was received for recoupment of production
expenses and the Company reduced the carrying cost of the asset to $105,000.
In June 2006, the Company impaired the remaining asset balance of $105,000,
which has been recorded in the accompanying statement of operations for the
year ended June 30, 2006.
OMNI has purchased various programming rights assets totaling $83,030 as of
June 30, 2008.
For the year ended June 30, 2009 and 2008, the Company recorded amortization
expense of $2,000 and $2,000, respectively, related to its programming
rights.
NOTE 4 - FILM LIBRARY
The Company has purchased various film property assets totaling $742,500 as
of June 30, 2009.
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 "extreme sports" film titles from
Crawford Communications. The Company recorded a $3,900 increase in film
library and a corresponding increase in Film Library.
In September 2005, the Company purchased 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 purchased an interest in the Four Tops 50th
Anniversary Special for 50,000 shares at $1.20 per share and 250,000 shares
at $0.60 per share. The Company recorded a $60,000 increase in film library
in April and an additional $150,000 increase in July 2007. Thus, a $210,000
increase to film property and a corresponding credit to common stock was
recorded. The property will be amortized over its estimated useful life of
10 years.
In June 2007, the Company acquired 200 film titles from Indie Vision Films,
Inc. for 138,000 shares of Company stock. The Company recorded a $124,200
increase in film library and credit to common stock. The Company amortizes
the film library titles over its estimated 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 year ended June 30, 2009 and 2008, the Company recorded
amortization expense of $101,736 and $132,477, respectively, related to
its film library.
NOTE 5 - 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 6 - COMMITMENTS AND CONTINGENCIES
Lease Obligations
As of June 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 December 31, 2009.
As of June 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 December 31, 2009
The Company recognized no expenses under these commitments during fiscal
2009 and 2008, respectively.
Revenue Sharing Agreement
As of June 30, 2009, the Company has two current revenue share agreements
with third parties. An internet broadcasting agreement was signed in
February 2008 that required 60/40 revenue sharing basis. Under this
agreement the Company provided the programming and scheduling while a
third party provided the operations, equipment, technical and administrative
support services for 60% of the generated revenues. Under another revenue
sharing agreement signed in October 2006 an internet portal was developed
and operated by a third party. The company owned the portal and provided
the programming. Revenues generated under this agreement will be shared
on a 50/50 basis.
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.
In the opinion of management, this legal matter involving the Company does
not have a material adverse effect on the Company's financial condition or
results of operations.
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 7 - INCOME TAXES
The Company files a consolidated U.S. federal income tax return. The provision
for current tax expense includes its effect on the consolidated return.
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes." Under the asset and liability method of SFAS
No. 109, 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 SFAS No.
109, 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 year ended
June 30, 2009:
June 30, June 30,
2009 2008
----------- ----------
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%
Net deferred income taxes are as follows as of the following dates:
June 30, June 30,
2009 2008
----------- -----------
Deferred tax liabilities $ -- $ --
Deferred tax assets:
Net operating losses $ 4,190,000 $ 3,042,000
Reserves and accruals (270,000) (16,000)
------------ -----------
Total deferred tax assets 3,920,000 3,026,000
Less valuation allowance (3,920,000) (3,026,000)
------------ ------------
$ --- $ ---
============ ============
The Company has approximately $12,000,000 in Federal and California State net
operating loss carryforwards as of June 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 June 30, 2009.
NOTE 8 - NOTES PAYABLE
At June 30, 2009 and 2008, the Company has $439,910 in loans from related
parties under 5% promissory notes, of which $0 was advanced to the Company
during either years. The principal and interest is due and payable on demand.
As of June 30, 2009 and 2008, the accrued interest on these notes totaled
$101,660 and $79,664,respectively.
At June 30, 2009 and 2008, the Company has a loan balance under a 10%
promissory note from family members of the Company's officers totaling $3,500.
The note has no set maturity date, and is payable upon demand. As of June 30,
2009 and 2008, the accrued interest on this note totaled $2,800 and $2,450,
respectively.
Related party interest expense under these notes for the year ended June 30,
2009 and 2008 was $22,346 and $22,345, respectively.
At June 30, 2009 and 2008, 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. As of June 30, 2009 and 2008, the accrued
interest on the note totaled $3,292 and $2,792, respectively.
At June 30, 2009 and 2008, 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 June 30, 2009 and 2008, the accrued
interest on the note totaled $2,887 and $0, respectively.
For the year ended June 30, 2009 and 2008, the interest expense on all
non-related notes payable totaled $3,387 and $500, respectively.
NOTE 9 - STOCKHOLDERS' EQUITY
Preferred Stock
---------------
The Company has authorized 20,000,000 shares of preferred stock. As of
June 30, 2009, the Company has not designated any series of preferred stock
or entered into any agreements.
Common Stock
------------
During the year ending June 30, 2009 the Company issued a total of 1,115,276
shares of stock (valued at rates between $0.10 and $0.30 per share) to raise
$217,223.
During the year ending June 30, 2009 the Company issued a total of 34,503
shares of stock (valued at between $0.30 and $0.60 per share) as payment for
$9,427 of broker fees to consultants.
During the year ending June 30, 2009 the Company issued a total of
5,600,000 shares of stock (valued at $0.30 per share) for $1,680,000 of
deferred executive bonuses.
During the year ending June 30, 2009 Company executives converted $250,000
of accrued salary into 1,083,334 shares of stock (valued at between $0.12
and $0.30 per share).
During the year ending June 30, 2009 the Company issued a total of 740,325
shares of stock (valued at rates between $0.15 and $0.60 per share) to pay
for $236,700 of services.
As of June 30, 2009 subscription receivables totaled 37,500 shares valued
at $0.20 per share. Thus, outstanding subscription receivables was $7,500.
During the year ended June 30, 2008 a total of 645,334 shares (valued between
$0.20 and $0.50 each) were issued for $233,909 cash. A total of 527,900
shares (valued at $0.30 each) were issued to pay $296,179 of broker fees.
A total of 250,000 shares of stock (valued at $0.60 per share) to purchase
additional programming. A total of 6,000 shares (valued at $0.60) were issued
as payment for a $5,500 accounts payable to the KSSY engineer. A total of
five (5) shares (valued at $1.00 per share) of stock were issued to the agent
for services rendered. A total of 1,207,944 shares were issued (valued at
$0.60 per share) for consulting fees. A total of 50,000 Shareas (valued at
$0.51 each) were issued to purchase 200 film titles. A total of 1,750,000
shares (valued at $1.00 per share) and $130,000 cash were issued to acquire
the exclusive North American rights to intelligent traffic systems technology.
A total of 2,894,781 shares (valued at $1.00 each) were issued to acquire the
exclusive North American rights to a Chinese proprietary plastics recyling
process. A total of 3,000 shares valued at $1,500 ($0.50 per share) was
issued to retire a debt to an individual. A total of 48,125 shares valued
at $24,700 ($0.51 per share) was issued to purchase a film library. A total
of 5,000 shares valued at at $3,750 ($0.75 per share) were issued for Chinese
consulting services. A total of 800,000 shares (valued at $0.75 each) were
issued to acquire Kyodo USA, a pork commodity trading company. A total of
2,000 shares valued at $1,500 ($0.75 per share) was issued for Japanese
website support and translation services.
NOTE 10 - STOCK OPTIONS
In May 2003, the Company established the OBN Holdings, Inc. 2003 Stock Option
Plan (the "Plan"). The Plan provides for the granting of up to 60,000 options
to purchase the Company's common stock at prices no less than fair market
value (as determined by the Board of Directors) at the date of grant. Options
granted under the Plan will be exercisable over a period of ten years from
the date of the grant. These options will vest on a pro rata basis over the
term of the options. At the end of the term of the options or upon termination
of employment, outstanding options will be cancelled. As of June 30, 2008,
no options have been granted under the Plan.
On March 31, 2003, the Company committed to issue warrants to purchase 100,000
shares of common stock to various investors and employees. Each warrant
entitles the holder thereof to purchase one share of common stock at a price
per share of $40.00 beginning 180 days following the effectiveness of the
Company's registration statement and ending on August 25, 2006. Each
unexercised warrant is redeemable by the Company at a redemption price of
$0.01 per warrant at any time, upon 30 days written notice to holders thereof,
if (a) the Company's common stock is traded on NASDAQ or listed on an exchange
and (b) the market price (defined as the average closing bid price for
twenty (20) consecutive trading days) equals or exceed 120% of the $40.00 per
share exercise price. No expense was recorded for the issuance of these
warrants as the warrants (1) were issued to new investors in connection with
fundraising activities or (2) had no intrinsic value under APB 25 for those
warrants granted to employees (since the warrant exercise price was higher
than the estimated fair value of the common stock on the date of grant). As
of June 30, 2007 and 2008 no warrants had been exercised and there were no
warrants outstanding.
NOTE 11 - LOSS PER SHARE
Basic and diluted loss per common share is computed as follows:
For the Year Ended
------------------------------
June 30, June 30,
2009 2008
------------- -------------
Numerator for basic and diluted
profit per common share:
Net loss ($3,367,532) $23,452
Denominator for basic and diluted
loss per common share
Weighted average common
shares outstanding 15,350,738 7,361,936
Net loss available to common
stockholders per common share (0.22) -
NOTE 12 - RELATED PARTY TRANSACTIONS
See Note 7 for information related to the Company's related party notes
payable.
In March 2006, a total of $200,000 of deferred salaries was converted into
200,000 of OBN shares after the Board of Directors approved a December 2005
resolution to allow executives to convert all but $50,000 of each of their
deferred salaries into shares of OBN stock during a six month period
beginning January 1, 2006. The conversion rate was set at $1.00 per share,
which was above the closing price on the date of the resolution. The
conversion period ended June 30, 2006.
In December 2006, the Company created a Non-Qualified Deferred Compensation
Plan ("the Plan"). The accrued salaries and salary-related deductions for
Roger Smith, CEO of the Company, totaling $308,685, Larry Taylor, CFO of the
Company, totaling $402,815 and Donald Wilson, Senior Vice President of the
Company, totaling $379,553, were converted from debt into the Company's
common stock at a price of $1.50 per share, which totaled 205,790 shares;
268,543 shares; and 253,036 shares, respectively. The common stock is being
held by the Company in the Plan. Access to the shares is prohibited for a
period of not less than thirteen (13) months from the time of deferral. At
the time of participation, the participants were required to specify when the
stock would be distributed, which varies per participant. The value of the
shares on the conversion date was $0.80 per share. The resulting gain on
extinguishment of the liability of $509,158 was recorded in additional paid
in capital due to the related-party nature of the transaction.
In March 2007 accrued salaries of $58,988 were converted into 58,988 shares
of common stock at a conversion rate of $1.00 per share and $100,000 was
converted into 66,667 shares at $1.50 per share. The value of the shares on
the conversion date was $1.00 per share. The resulting gain on extinguishment
of the liability of $33,334 was recorded in additional paid in capital due
to the related-party nature of the transaction.
In April 2007, the Board of Directors approved a resolution to grant special
hardship compensation to executives for working without salaries for the past
four years. In April 2007 a total of 675,000 shares valued at $1.20 per share
were issued to three executives. The shares are being held in a deferred
compensation plan.
In December 2008 the Board authorized management to convert accrued salaries
into shares at the market rate. A total of $200,000 of accrued executive
salaries was converted into 666,667 shares of common stock at a market rate
of $0.30 per share. The shares are being held in the Company's non-qualified
deferred compensation plan
In December 2008 the Company directors purchased 16,667 of company stock
valued at $0.30 per share for a total purchase price of $5,000.
In December 2008 a total of 5,600,000 shares were issued to executives as
bonus compensation for meeting and exceeding established performance goals
during the 2007-08 fiscal year. The market price was $0.30 at the time of
authorization. Therefore, a $1,680,000 compensation expense will be recorded
for the quarter ending December 31, 2008. The shares are being held in the
deferred compensation plan.
In May 2009 a total of 416,667 shares were issued to executives as
$50,000 of accrued salaries was converted to stock at $0.12 per share. The
market price was $0.10 at the time of conversion. The shares are being
held in the deferred compensation plan.
NOTE 13 - SUBSEQUENT EVENTS
This section contains subsequent events that have been evaluated from the
June 30, 2009 balance sheet date through September 30, 2009 which is the
date that this document was available to be filed.
In July 2009 the Company entered into a $30,000 loan agreeement with a
third party lender. A total of 300,000 restricted shares were issued as
collateral for the loan. The entire loan amount is due and payable in
sixty days with the option to extend. As remuneration, the lender
received annualized interest of 18% to be paid at the end of loan period.
In July 2009 the Company issued 150,000 shares (valued at $0.17 each)
for broker services. Thus, $35,500 of expense was recorded in the
quarter ending September 30, 2000.
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 150,000 shares of stock (valued at $0.17
each) to the broker in exchange for arranging for payment of an outstanding
short term $30,000 loan. The 300,000 shares of collateral which was
previously recorded was used as payment for the loan. 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 9. Changes and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
ITEM 9A. Disclosure Controls and Procedures
An evaluation of the effectiveness of the design and operation of our
disclosure controls and procedures (as defined 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 using the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO)
in Internal Control - Integrated Framework. Based upon that evaluation,
the CEO and CFO concluded that the design and operations of these
disclosure controls and procedures were not effective. Our disclosure
controls and procedures failed to alert management to the omission of
Management' Report on Internal Control Over Financial Reporting, which is
presented below in this amended 10K filing. Information relating to the
Company's (or the Company's consolidated subsidiaries) periodic filing
with the SEC, subject to the various limitations on the effectiveness are
set forth below. Information relating to the Company, required to be
disclosed in SEC reports was not recorded, processed, summarized and
reported within the time periods specified in SEC rules and forms, and
was not accumulated and communicated to the Company's management,
including our CEO and CFO, as the internal control over financial
reporting (ICFR) was not effective at June 30, 2009. Further, Management's
Report on Internal Control Over Financial Reporting was not included in
the initial June 30, 2009 filing. The report is now included in this
amended filing below.
b. Changes in Internal Control over Financial Reporting. There had been no
change in the Company's internal control over financial reporting that
occurred during the year ended June 30, 2009 that materially affected the
Company's internal control over financial reporting. However, subsequent
to June 30, 2009 the controls were changed to ensure Management's Report
on Internal Control Over Financial Reporting is included in the filing.
The report is presented below.
Management's Report on Internal Control Over Financial Reporting
OBN Holdings understands that it is management's responsibility to establish
and maintain adequate internal control over financial reporting as defined in
Rules 13a-15(f) and 15d-15(f) under the Securities and Exchange Act of 1934,
as amended. Management's internal control over financial reporting is
designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statement for external
purposes in accordance with generally accepted accounting principles. The
Company's internal control over financial reporting includes policies and
procedures that recognize:
a. All financial reporting is centralized at the corporate office and is
managed by the Chief Financial Officer and/or Chief Executive Officer. No
other persons are involved in financial reporting.
b. The framework for financial reporting is task-oriented and investigative
in nature. Financial information is gathered from all subsidiary
personnel by the Chief Financial Officer during weekly meetings, telephone
conversations, faxes and/or e-mails. Requests for data and explanation
are made by the Chief Financial Officer who in turn is questioned by the
Board of Directors and the independent financial auditors. The
effectiveness of this approach for a small business has proven to be
effective as there have been no incidences of fraud or inadequately
explained transactions.
c. All required information is obtained and verified by the Chief Financial
Officer which provides reasonable assurance of accuracy regarding:
- prevention or timely detection of unauthorized acquisition, use or
disposition of the Company's assets;
- recording of receipts and expenditures in accordance with authorizations
of management and directors; and
- maintenance of records that accurately and fairly reflects accounting
transactions.
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.
Management assessed the effectiveness of the Company's internal control over
financial reporting as of June 30, 2009. In making this assessment,
management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal Control -
Integrated Framework. Based on management's assessment and those criteria,
management concluded that the Company's internal control over financial
reporting had one material weakness as of June 30, 2009; inadequate review
of all temporary reporting requirements as this report was omitted from the
original filing of this document. Management is committed to be better apprised
of changing reporting requirements.
This annual report does not include an attestation report of OBN Holdings'
registered public accounting firm regarding internal controls over financial
reporting. Management's report was not subject to attestation by our
registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permit OBN Holdings to provide only
management's report in this annual report.
PART III
ITEM 10. Directors, Executive Officers, Promoters and Control Persons,
Compliance with Section 16(A) of the Exchange Act
The following table sets forth the name and age of each director, the year
he (she) was first elected a director and his (her) position(s) with OBN
Holdings, Inc.
Name Age Year Elected Position
----------------- --- ------------ --------------------
Roger Neal Smith 57 2001 CEO & Board Chairman
Larry Taylor, Ph.D. 58 2002 CFO
Anita L. DeFrantz 57 2003 Director
Barry Allen 69 2003 Director
Christine Ohama 54 2004 Director
Peter Lindhout 56 2007 Director
Alan Pemberton 54 2007 Director
Roger Neal Smith. Mr. Smith has served as our President and CEO since
inception and has been responsible for creating and managing all of the
operations of OBN and its subsidiaries. From 1996 through 2000 Mr. Smith
served as a financial consultant for Salomon Smith Barney and was responsible
for managing the investments of his clients, which included individuals and
businesses throughout the world.
Larry Taylor, PhD. Dr. Taylor became our CFO in April 2003 and has been
responsible for accounting, tax preparation and planning. From 1989 until
joining us, Dr. Taylor was the owner of The Creighton Group where he was
responsible for all management activities, including accounting, tax
preparation and planning. Dr. Taylor previously served as a Senior Manager
in the consulting practice with Ernst and Young (during his tenure, he was
with Arthur Young), and with Deloitte and Touche.
Anita L. DeFrantz, Esq. Ms. DeFrantz began serving on our board of directors
in June 2003. From 1985 through the present Ms. DeFrantz has served as the
President and a member of the Board of Directors of Amateur Athletic
Foundation of Los Angeles, a non-profit foundation. She has also served from
1986 through the present as a member of the International Olympic Committee
and from 1996 through the present as a member of the Executive Board of the
United States Olympic Committee. Additionally, from 1994 through the present
she has served as the President of Kids In Sports, Los Angeles, a non-profit
foundation that works with children in sports.
Barry Allen. Mr. Allen began serving on the Company's board of directors
since August 2003. Since 1998 he has operated International FieldWorks,
Inc., a management consulting firm, and holds the title of CEO. Additionally,
since 2000, Mr. Allen has served as Vice President of RxDispense, Inc. His
responsibilities include business development, advisory committee development,
partnership development and development of professional service providers.
Christine Ohama. Ms. Ohama became a member of the Company's board of directors
in May 2004. She is Senior Vice President of Marketing for Enviro Board with
over 20 years experience in retail and wholesale sales and marketing
management. Prior to Enviro Board, Ms. Ohama served as Director of Sales
Strategy for Bravo Cable Networks, and Regional Sales Director Western Region
for MuchMusic USA, with the primary responsibility for increasing and
retaining the network's viewers. She also spent many years in the financial
services industry, as a retail stockbroker for a major NYSE member firm;
served as Project Manager for a large prototype retail banking sales program
and as associate director of a wholesale retail brokerage service program
owned by Security Pacific Bank and used by over three hundred banks and
saving and loans nationwide.
Peter Lindout. Mr. Lindhout began serving on the Board in April 2007. He is
the President & co-founder of Qualico Capital Corp., an Investment Banking
firm based in Vancouver, British Columbia, with offices in Toronto, Hong Kong,
Curasel, and Frankfurt. The Company manages a fund of $30,000,000 Euro. He is
also Managing Partner of the Qualico Group of Companies, a subsidiary of
Qualico Capital that facilitates market awareness and increasing exposure for
public companies. Mr. Lindhout's role in Business Development has aided in
the successful increase of shareholder equity for many a client company and
has been instrumental in providing advice in successful asset management.
Alan Pemberton. Mr. Pemberton began serving on the Board in July 2007. He is
currently a member of the Board of Directors of PBC, Inc., and an advisor to
the Trustee of NewMar, Inc. His responsibilities include financial and systems
review, capital expenditures, compensation approval, mentoring of management,
and coordination of appraisals and asset disposition. He served as the
Executive Vice President, Regional Vice President of Cenveo, Inc., and
President of the Anderson Lithograph Division. Mr. Pemberton served as Vice
President of Finance and Treasurer of Anderson Lithograph where he was
responsible for all finance and accounting, credit, human resources and
information systems. Mr. Pemberton served as a Senior Audit Manager for
Ernst and Young.
Board of Directors Meetings and Committees
During the fiscal year ended June 30, 2009, there were one meeting of the
board of directors where numerous actions were taken with the unanimous
written consent of the directors. The board of directors established its
compensation committee, but has yet to establish the audit and governance
committees.
The Company has one executive officer that does not serve on the Board as a
director. Donald Wilson, President of the Eclectic Entertainment subsidiary,
specializes in all areas of entertainment law and represents clients from the
recording, film, television, book publishing and sports industries, and has
been running his private practice since 1987. He began his career in 1979 at
the law firm, Mason & Sloane. In 1983, he joined Quincy Jones Productions
where he was instrumental in promoting and developing "We Are the World,"
"The Color Purple," and Michael Jackson's "Thriller" and "Bad" albums. In
addition, he was the Executive Producer of the award winning Frank Sinatra
documentary, "Portrait of an Album." In 1986, Mr. Wilson capped his tenure at
Quincy Jones Production as President of Qwest Entertainment Company, which is
the parent organization of Quincy Jones Productions.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
our officers and directors and those persons who beneficially own more than
10% of our outstanding shares of common stock to file reports of securities
ownership and changes in such ownership with the Securities and Exchange
Commission. Officers, directors and greater than 10% beneficial owners are
also required by rules promulgated by the SEC to furnish us with copies of
all Section 16(a) forms they file.
Based solely upon a review of the copies of such forms furnished to us, we
believe that during the year ended June 30, 2009 all of our officers,
directors and greater than 10% beneficial owners complied within the
applicable Section 16(a) filing requirements.
Code of Ethics for Financial Professionals
The Company has adopted a Code of Ethics for Financial Professionals. The
Code of Ethics has been posted and may be viewed on our website at:
http://www.obnholdings.com
ITEM 11. Executive Compensation
Deferred Compensation to Executive Officers.
In April 2007, the Board of Directors approved a resolution that granted
executives 675,000 shares for "hardship compensation" because the executives
had been working without paid salaries for past four years. The market price
of the shares was $1.20 at the time of issuance. The shares were placed in
the Company's Non-Qualified Deferred Compensation Plan. The shares will be
available to the executives after May 2011.
In December 2008 a total of 5,600,000 shares were issued to executives as
bonus compensation for meeting and exceeding established performance goals
during the 2007-08 fiscal year. The market price was $0.30 at the time of
authorization. Therefore, a $1,680,000 compensation expense will be recorded
FYE 2009 for the quarter ending December 31, 2008. The shares are being
held in the deferred compensation plan.
Cash Compensation of Executive Officers. The following table sets forth the
total compensation earned by the Chief Executive Officer and all other
executive officers that earned in excess of $100,000 per annum during any of
our last three fiscal years. A portion of salaries to executives have been
converted to stock which are being held in the Company's deferred
compensation plan; the remainder of the salaries continues to accrue. Accrued
salaries will be paid as monies become available.
Annual Compensation Long-Term
Compensation
Other Common Shares
Name and 6/30 Awards Underlying All Other
Position Year Compensation Warrants Compensation
End Salary($) Bonus($) ($) Granted(#) ($)
Roger Smith 2009 $150,000 900,000 -0- -0- -0-
President 2008 $150,000 -0- -0- -0- -0-
and CEO 2007 $150,000 -0- 360,000* -0- -0-
Larry Taylor 2009 $150,000 750,000 -0- -0- -0-
CFO 2008 $150,000 -0- -0- -0- -0
2007 $150,000 -0- 270,000* -0- -0-
Donald Wilson 2009 $ 62,496 30,000 -0- -0- -0-
President 2008 $ 62,496 -0- -0- -0- -0-
Eclectic 2007 $150,000 -0- 180,000* -0- -0-
* Value of hardship shares awarded to executives who have had their
salaries accrued for the past five years.
** Accrued salary converted to Company stock at price of $1.00 per share
No options or warrants were exercised or granted in fiscal 2009.
Aggregated Warrant/SAR Exercises and Fiscal Year-End Warrant/SAR Value Table
All warrants/SAR expired in August 2006. There are no warrants/SAR pending at
this time.
Director Compensation
Board members that have been compensated include:
Amount Date
---------- -----------
Anital DeFrantz $5,000 March, 2008
Barry Allen $5,000 March, 2008
Christine Ohama $5,000 March, 2008
Alan Pemberton $2,500 March, 2009
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information regarding beneficial ownership of
our common stock at October 15, 2009 by (i) those shareholders known to be
the beneficial owners of more than five percent of the voting power of our
outstanding capital stock, (ii) each director, and (iii) all executive
officers and directors as a group:
Number of
Name and Address of Shares
Beneficial Owner (1) Owned Percent Notes
--------------------- ------------ --------- -------
Roger N. Smith (Director and Officer) 4,629,734 22.72%
Larry Taylor (Director and Officer) 3,078,125 15.10%
Jia Liang Lao 2,250,000 11.04%
Qualico Capital Corporation 1,616,277 7.93% (2)
Qing Xiang Wu 1,300,000 6.38%
Takeo Suzuki (Executive) 810,500 3.98%
Donald Wilson (Officer) 516,645 2.53%
Anita L. DeFrantz (Director) 22,667 *
Barry Allen (Director) 5,000 *
Christine Ohama (Director) 5,000 *
Peter Lindhout (Director) 0 *
Alan Pemberton (Director) 0 *
All Directors and Officers
as a Group (8 Persons) 8,257,171 40.51%
_________________
* Less than 1%
(1) Unless otherwise indicated, the address of the beneficial owner is c/o
OBN Holdings, Inc., 8275 South Eastern Avenue, Suite 200, Las Vegas,
Nevada 89123.
(2) Shares are subject to Section 144 restrictions because they are
controlled by Peter Lindhout, a Managing Partner of Qualico
Capital Corporation, and an OBN Holdings board member.
ITEM 13. Certain Relationships and Related Transactions, and Director
Independence
At June 30, 2009 and 2008, the Company has $439,910 in loans from related
parties under 5% promissory notes, of which $0 was advanced to the Company
during either years. The principal and interest is due and payable on demand.
As of June 30, 2009 and 2008, the accrued interest on these notes totaled
$101,660 and $79,664,respectively.
At June 30, 2009 and 2008, the Company has a loan balance under a 10%
promissory note from family members of the Company's officers totaling $3,500.
The note has no set maturity date, and is payable upon demand. As of June 30,
2009 and 2008, the accrued interest on this note totaled $2,800 and $2,450,
respectively.
Related party interest expense under these notes for the year ended June 30,
2009 and 2008 was $22,346 and $22,345, respectively.
In December 2005 the Board of Directors approved a resolution to allow
executives to convert all but $50,000 of each of their deferred salaries into
shares of OBN stock during a six month period beginning January 1, 2006. The
conversion rate was set at $10.00 per share, which was above the closing
price on the date of the resolution. The conversion period ended June 30,
2006. In March, 2006 a total of $200,000 of deferred salaries was converted
into 20,000 of OBN shares.
In December 2006, accrued salaries and salary-related deductions for Roger
Smith, CEO of the Company, totaling $308,685, Larry Taylor, CFO of the
Company, totaling $402,815 and Donald Wilson, Senior Vice President of the
Company, totaling $379,553, were converted from debt into the Company's
common stock at a price of $1.50 per share, which totaled 205,790 shares;
268,543 shares; and 253,036 shares, respectively. The value of the shares on
the conversion date was $0.80 per share. The resulting gain on extinguishment
of the liability of $509,158 was recorded in additional paid in capital due
to the related-party nature of the transaction.
In March 2007 accrued salaries of $58,988 were converted into 58,988 shares
of common stock at a conversion rate of $1.00 per share and $100,000 was
converted into 66,667 shares at $1.50 per share. The value of the shares on
the conversion date was $1.00 per share. The resulting gain on extinguishment
of the liability of $33,334 was recorded in additional paid in capital due to
the related-party nature of the transaction.
In April 2007, the Board of Directors approved a resolution to grant special
hardship compensation to executives for working without salaries for the past
four years. In April 2007 a total of 675,000 shares valued at $1.20 per share
were issued to three executives. The shares are being held in the Company's
Non-Qualified Deferred Compensation Plan.
In December 2008 the Company directors purchased 16,667 of company stock
valued at $0.30 per share for a total purchase price of $5,000.
In December 2008 Company executives converted $200,000 of accrued salary into
666,667 shares of OBNI shares at the $0.30 per share market rate. The shares
are being held in the Company's deferred compensation plan.
In December 2008 a total of 5,600,000 shares were issued to executives as
bonus compensation for meeting and exceeding established performance goals
during the 2007-08 fiscal year. The market price was $0.30 at the time of
authorization. Therefore, a $1,680,000 compensation expense will be recorded
for the quarter ending December 31, 2008. The shares are being held in the
Company's deferred compensation plan.
In May 2009 a total of 416,667 shares were issued to executives as
$50,000 of accrued salaries was converted to stock at $0.12 per share. The
market price was $0.10 at the time of conversion. The shares are being
held in the deferred compensation plan.
ITEM 14. Principal Accountant Fees and Services
Tarvaran & Askelson Company, LLP was selected as the Company's independent
registered public accounting firm to audit the financial statements for the
year ended June 30, 2009, 2008 and 2007.
Audit and Non-Audit Fees
Aggregate fees for professional services rendered to the Company by Tarvaran &
Askelson Company, LLC for the year ending June 30, 2009 and 2008 were as
follows:
Services Provided 2009 2008
Audit Fees $ 29,250 $ 25,800
Audit Related Fees $ - $ -
Tax Fees $ - $ -
All Other Fees $ - $ -
--------- ---------
Total $ 29,250 $ 25,800
Audit Fees. The aggregate fees billed for the years ended June 30, 2009 and
2008 were for the audits of our financial statements and reviews of our
interim financial statements included in our annual and quarterly reports.
Audit Related Fees. There were no fees billed for the years ended June 30,
2009 and 2008 for the audit or review of our financial statements that are
not reported under Audit Fees.
Tax Fees. There were no fees billed for the years ended June 30, 2009 and
2008 for professional services related to tax compliance, tax advice and tax
planning.
PART IV
ITEM 15 Exhibits, Financial Statement Schedules
None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
OBN HOLDINGS, INC
(Registrant)
Date: August 30, 2010 /s/ ROGER Neal SMITH
-----------------------
Roger Neal Smith
Chief Executive Office
