The Company accrued interest in the amount of $34,867 during the nine months ended May 31, 2012. This amount was unpaid as of May 31, 2012 and is included in convertible notes payable as of that date. During the nine months ended May 31, 2012, discount on convertible notes payable in the amount of $213,751 was amortized to interest expense.
On September 27, 2011, the Company issued 600,000 shares of common stock as a result of the conversion of the Convertible Note Payable in the amount of $6,000.
On October 20, 2011, the Company issued 4,500,000 shares of common stock as a result of the conversion of the Convertible Note Payable in the amount of $45,000.
On November 3, 2011, the Company issued 900,000 shares of common stock to a third party for services. The shares were valued at $315,000 based on the closing market price of the stock on the date of issuance.
On March 5, 2012, the Company issued 4,800,000 shares of common stock as a result of the conversion of Convertible Notes Payable in the amount of $240,000.
On July 9, 2012, we revised the Joint Venture Agreement (the “Revised Joint Venture Agreement”) with State Street. Under the terms of the Revised Joint Venture Agreement, we are required to provide oversight and management toward the development of online and social games. State Street will identify and coordinate the development team. We will provide funding for the joint venture in the amount of $2,500 per week during the period of development of the first game. Ownership of the game and profits and losses will be split 80% to OBJE and 20% to State Street. The Revised Joint Venture Agreement can be terminated by a 30-day notice from either party.
PART I — FINANCIAL INFORMATION
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operation |
THIS FILING CONTAINS FORWARD-LOOKING STATEMENTS. THE WORDS “ANTICIPATED,” “BELIEVE,” “EXPECT,” “PLAN,” “INTEND,” “SEEK,” “ESTIMATE,” “PROJECT,” “WILL,” “COULD,” “MAY,” AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. THESE STATEMENTS INCLUDE, AMONG OTHERS, INFORMATION REGARDING FUTURE OPERATIONS, FUTURE CAPITAL EXPENDITURES, AND FUTURE NET CASH FLOW. SUCH STATEMENTS REFLECT THE COMPANY’S CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND FINANCIAL PERFORMANCE AND INVOLVE RISKS AND UNCERTAINTIES, INCLUDING, WITHOUT LIMITATION, GENERAL ECONOMIC AND BUSINESS CONDITIONS, CHANGES IN FOREIGN, POLITICAL, SOCIAL, AND ECONOMIC CONDITIONS, REGULATORY INITIATIVES AND COMPLIANCE WITH GOVERNMENTAL REGULATIONS, THE ABILITY TO ACHIEVE FURTHER MARKET PENETRATION AND ADDITIONAL CUSTOMERS, AND VARIOUS OTHER MATTERS, MANY OF WHICH ARE BEYOND THE COMPANY’S CONTROL. SHOULD ONE OR MORE OF THESE RISKS OR UNCERTAINTIES OCCUR, OR SHOULD UNDERLYING ASSUMPTIONS PROVE TO BE INCORRECT, ACTUAL RESULTS MAY VARY MATERIALLY AND ADVERSELY FROM THOSE ANTICIPATED, BELIEVED, ESTIMATED, OR OTHERWISE INDICATED. CONSEQUENTLY, ALL OF THE FORWARD-LOOKING STATEMENTS MADE IN THIS FILING ARE QUALIFIED BY THESE CAUTIONARY STATEMENTS AND THERE CAN BE NO ASSURANCE OF THE ACTUAL RESULTS OR DEVELOPMENTS.
The following discussion and analysis of our financial condition and plan of operations should be read in conjunction with our financial statements and related notes appearing elsewhere herein. This discussion and analysis contains forward-looking statements including information about possible or assumed results of our financial conditions, operations, plans, objectives and performance that involve risk, uncertainties and assumptions. The actual results may differ materially from those anticipated in such forward-looking statements. For example, when we indicate that we expect to increase our product sales and potentially establish additional license relationships, these are forward-looking statements. The words expect, anticipate, estimate or similar expressions are also used to indicate forward-looking statements.
OVERVIEW OF THE COMPANY
OVERVIEW
We are a development stage company and were incorporated in the State of Florida on September 21, 2009, as a for-profit company, with an established fiscal year end of August 31. The original intent of the Company is to design a woman’s line of jeans branded as “Obscene Brand Jeans” internally and enter into outsourcing agreements for the manufacturing, marketing, selling and distributing agreements with independent agents, each of whom is to be granted exclusive rights to market and sell “Obscene Brand Jeans” in its respective territory. The intent was to include a line of complimentary t-shirts, jackets and sweatshirts to accent the base of our intended collection.
On November 10, 2011, the Company formed Obscene Interactive, LLC, a wholly-owned subsidiary. Obscene Interactive was established to identify emerging trends and companies within the social media space for the purpose of acquisitions, joint ventures and global licensing of technology platforms and algorithms. As of the date of this filing, Obscene Interactive has no assets or liabilities; however, it is in the final stages of negotiating a funding arrangement for an early stage gaming company based in California, and has other online and mobile games to launch within the next quarter.
On November 2, 2011, our former Chief Executive Officer, Rachel Stark-Cappelli, resigned all positions with the Company. As a result of Ms. Stark-Cappelli’s resignation, the Company is reviewing its jeans and apparel business. The Company established a subsidiary to pursue opportunities in the social networking sector. As a result of the Company’s review of its jeans and apparel business, the Company may decide to cease the jeans and apparel business and concentrate on its social networking business. Alternatively, the Company could pursue both opportunities simultaneously and use the Company’s social networking business as a marketing platform for its jeans and apparel. During the period of review, the Company continues to pursue both opportunities.
On May 9, 2012, we entered into a joint venture agreement (the “Joint Venture Agreement”) with Source Street, LLC, a Texas limited liability company (“Source Street”). The purpose of the joint venture is to fund the planning, development and launch of online and mobile games across social platforms for fun, educational and corporate training purposes. We will contribute the working capital for the joint venture and Source Street will contribute its knowledge and development skills to complete the design and launch of online and mobile games. We paid $5,000 to the joint venture upon signing the agreement and will make weekly payments of $1,500 for the term of the joint venture. We will share profits and losses of the joint venture equally with Source Street.
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On July 9, 2012, we revised the Joint Venture Agreement (the “Revised Joint Venture Agreement”) with State Street. Under the terms of the Revised Joint Venture Agreement, we are required to provide oversight and management toward the development of online and social games. State Street will identify and coordinate the development team. We will provide funding for the joint venture in the amount of $2,500 per week during the period of development of the first game. Ownership of the game and profits and losses will be split 80% to OBJE and 20% to State Street. The Revised Joint Venture Agreement can be terminated by a 30-day notice from either party.
We have not generated any revenues to date and our activities have been limited to developing our business plan. We will not have the necessary capital to develop our business plan until we are able to secure additional financing.
There can be no assurance that such financing will be available on suitable terms.
We have no revenues; have incurred losses since inception, have been issued a going concern opinion from our auditors and rely upon the sale of our securities to fund operations.
As of May 31, 2012, we had $9,356 cash on hand. We believe that this cash will satisfy our operating requirements for less than one month.
Plan of Operations
We believe we do not have adequate funds to satisfy our working capital requirements for the next twelve months. We will need to raise additional capital to continue our operations. During the next 18 months, we intend to continue implementing our business and marketing plan. We believe we must raise an additional $120,000 to pay for expenses associated with our development over the next 18 months.
We intend to pursue capital through public or private financing as well as borrowings and other sources, such as our officer and director, in order to finance our businesses activities. We cannot guarantee that additional funding will be available on favorable terms, if at all. If adequate funds are not available, then our ability to continue our operations may be significantly hindered.
We have not yet begun the development of any of our anticipated products and even if we do secure adequate financing, there can be no assurance that our products will be accepted by the marketplace and that we will be able to generate revenues.
Our management does not plan to hire any employees at this time. Our sole officer and director will be responsible for implementing our business plan. We intend to hire independent consultants and sales representatives to carry out sales, marketing and distribution activities.
RESULTS OF OPERATIONS
We incurred a net loss of $771,683 for the nine months ended May 31, 2012, and had a working capital deficit of $223,801 as of May 31, 2012. We do not anticipate having positive net income in the immediate future. Net cash used by operations for the nine months ended May 31, 2012 was $258,325. These conditions create an uncertainty as to our ability to continue as a going concern.
We continue to rely on advances to fund operating shortfalls and do not foresee a change in this situation in the immediate future. There can be no assurance that we will continue to have such advances available. We will not be able to continue operations without them. We are pursuing alternate sources of financing, but there is no assurance that additional capital will be available to the Company when needed or on acceptable terms.
We have not generated any revenues from our operations. We cannot guarantee we will be successful in our business operations. Our business is subject to risks inherent in the establishment of a new business enterprise, including the financial risks associated with the limited capital resources currently available to us for the implementation of our business strategies. To become profitable and competitive, we must develop the business and marketing plan and execute the plan. Our management will attempt to secure financing through various means including borrowing and investment from institutions and private individuals.
Since inception, the majority of our time has been spent refining our business plan and collection design sketches.
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Results of Operations for the nine months ended May 31, 2012 compared to the nine months ended May 31, 2011
General and Administrative Expenses
General and administrative expenses increased in the nine months ended May 31, 2012 as compared to the nine months ended February 28, 2011 from $340,713 to $523,065.General and administrative expense for the nine months ended May 31, 2012 included expense in the amount of $315,000 for common stock issued for services compared to $50,000 during the nine months ended May 31, 2011.
Loss from Operations
The increase in our operating loss for the nine months ended May 31, 2012 as compared to the comparable period of 2011 from $340,713 to $523,065 is due to the increase in general and administrative expenses described above.
Interest Expense
We incurred interest expense of $248,618 during the nine months ended May 31, 2012 as a result of accrued interest on convertible notes payable and amortization of discounts on notes payable into interest expense. There was no such interest expense during the nine months ended May 31, 2011.
Net Income (Loss)
We recognized a net loss of $771,683 for the nine months ended May 31, 2012 as compared to a loss of $340,713 for the same period of 2011. The change in net loss is primarily attributable to the changes in operating loss and interest expense described above.
Results of Operations for the three months ended May 31, 2012 compared to the three months ended May 31, 2011
General and Administrative Expenses
General and administrative expenses decreased in the three months ended May 31, 2012 as compared to the three months ended May 31, 2011 from $172,386 to $64,911. Professional fees were lower during the three months ended May 31, 2012 as compared to the same period of 2011 as a result of a smaller number of consultants during 2012.
Loss from Operations
The decrease in our operating loss for the three months ended May 31, 2012 as compared to the comparable period of 2011 from $172,386 to $64,911 is due to the decrease in general and administrative expenses described above.
Interest Expense
We incurred interest expense of $109,452 during the three months ended May 31, 2012 as a result of accrued interest on convertible notes payable and amortization of discounts on notes payable into interest expense. There was no such interest expense during the three months ended May 31, 2011.
Net Income (Loss)
We recognized a net loss of $174,363 for the three months ended May 31, 2012 as compared to a loss of $172,386 for the same period of 2011. The change in net loss is primarily attributable to the decrease in operating loss described above offset by the increase in interest expense.
LIQUIDITY AND CAPITAL RESOURCES
As of the date of this filing, we have yet to generate any revenues from our business operations.
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We anticipate needing a minimum of $120,000 for our business plan which includes the development of Game One. Currently available cash is not sufficient to allow us to commence full execution of our business plan. Our business expansion will require significant capital resources that may be funded through the issuance of common stock or of notes payable or other debt arrangements that may affect our debt structure. Despite our current financial status, we believe that we may be able to issue notes payable or debt instruments in order to start executing our business plan. However, there can be no assurance that we will be able to raise money in this fashion and have not entered into any agreements that would obligate a third party to provide us with capital.
For the nine months ended May 31, 2012, we used cash in the amount of $258,325 on operating activities. We raised the cash amounts to be used in these activities from the sale of common stock and through non-interest bearing advances.
As of May 31, 2012, we had $9,356 of cash on hand.
As of the date of this filing, the current funds available to the Company may not be sufficient to continue maintaining its reporting status with the SEC. Management believes that if the Company cannot maintain its reporting status with the SEC, it will have to cease all business activity. As such, any investment previously made would be lost in its entirety.
The Company currently has no external sources of liquidity such as arrangements with credit institutions or off-balance sheet arrangements that will have or are reasonably likely to have a current or future effect on our financial condition or immediate access to capital.
The Company intends to seek additional financing through means such as borrowings from institutions or private individuals. There can be no assurance that the Company will be able to keep costs from being more than these estimated amounts or that the Company will be able to raise such funds. The Company may not be able to obtain additional capital or generate sufficient revenues to fund our operations. If we are unsuccessful at raising sufficient funds, for whatever reason, to fund our operations, the Company may be forced to seek a buyer for our business or another entity with which we could create a joint venture. If all of these alternatives fail, we expect that the Company will be required to seek protection from creditors under applicable bankruptcy laws.
Our independent auditor has expressed substantial doubt about our ability to continue as a going concern and believes that our ability is dependent on our ability to implement our business plan, raise capital and generate revenues. See Note 2 of our financial statements.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Not applicable.
| Item 4. | Controls and Procedures |
The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of and for the period covered by this Quarterly Report on Form 10-Q. Based upon such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were not effective. The controls were determined to be ineffective due to the lack of segregation of duties. Currently, management contracts with an outside CPA to perform certain crucial accounting and financial reporting activities. However, the Company will be unable to remediate this weakness until it has received additional funding to hire additional administrative personnel.
Changes in Internal Control Over Financial Reporting
No change in the Company’s internal control over financial reporting occurred during the three months ended May 31, 2012, that materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
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PART II — OTHER INFORMATION
As of the date of this Quarterly Report, neither we nor any of our officers or directors is involved in any litigation either as plaintiffs or defendants. As of this date, there is not any threatened or pending litigation against us or any of our officers or directors.
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
None
| Item 3. | Defaults upon Senior Securities |
There have been no defaults in any material payments during the covered period.
| Item 4. | Mine Safety Disclosures |
Not applicable.
The Company does not have any other material information to report with respect to the three month period ended May 31, 2012.
| 3.1 | Articles of Incorporation (incorporated by reference to our Form S-1 filed on April 14, 2010) |
| | |
| 3.2 | Bylaws (incorporated by reference to our Form S-1 filed on April 14, 2010) |
| | |
| 3.3 | Amended Articles of Incorporation dated June 27, 2012. * |
| | |
| 31.1 | Certification of the Chief Executive Officer and Chief Financial Officer * |
| | |
| 32.1 | Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 * |
| | |
| 101 | XBRL Interactive Data *, ** |
* Filed or furnished herewith
** In accordance with Regulation S-T, the Interactive Data Files in Exhibit 101 to the Quarterly Report on Form 10-Q shall be deemed “furnished” and not “filed”.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned, thereto duly authorized.
| | OBJ ENTERPRISES, INC. |
| | | |
| Dated: July 16, 2012 | By: | /s/ Paul Watson |
| | | Paul Watson President, Chief Executive Officer, Chief Financial Officer,
Principal Accounting Officer, Secretary, Treasurer and Director |
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