Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of May 31, 2013. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values due to the short-term nature of these instruments
The Company accounts for stock-based compensation issued to non-employees and consultants in accordance with the provisions of ASC 505-50,Equity – Based Payments to Non-Employees. Measurement of share-based payment transactions with non-employees is based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The fair value of the share-based payment transaction is determined at the earlier of performance commitment date or performance completion date.
Share-based expense for the nine months ended May 31, 2013 and 2012 was $0 and $315,000, respectively.
During the nine months ended May 31, 2013, the Company received net, non-interest bearing advances from certain third parties totaling $361,110. The total amount due under these advances as of May 31, 2013 and August 31, 2012 was $220,760 and $280,372, respectively. These advances are not collateralized and are due on demand.
During the nine months ended May 31, 2013, the Company agreed with the lender to refinance a portion of these advances in the total amount of $420,722 into convertible promissory notes. See Note 5.
On August 31, 2011, the Company signed a Convertible Promissory Note which refinanced non-interest bearing advances in the amount of $511,468 into a convertible note payable. The Convertible Promissory Note bears interest at 10% per annum and is payable along with accrued interest on August 31, 2013. The Convertible Promissory Note is convertible into common stock at the option of the holder at the rate of $0.05 per share.
On September 26, 2011, the Company signed a Convertible Promissory Note which refinanced non-interest bearing advances in the amount of $78,885 into a convertible note payable. The Convertible Promissory Note bears interest at 10% per annum and is payable along with accrued interest on August 31, 2013. The Convertible Promissory Note is convertible into common stock at the option of the holder at the rate of $0.01 per share.
On September 4, 2012, the Company signed a Convertible Promissory Note which refinanced non-interest bearing advances in the amount of $25,260 into a convertible note payable. The Convertible Promissory Note bears interest at 10% per annum and is payable along with accrued interest on September 4, 2013. The Convertible Promissory Note is convertible into common stock at the option of the holder at the rate of $0.01 per share.
On October 31, 2012, the Company signed a Convertible Promissory Note which refinanced non-interest bearing advances in the amount of $52,600 into a convertible note payable. The Convertible Promissory Note bears interest at 10% per annum and is payable along with accrued interest on October 31, 2013. The Convertible Promissory Note is convertible into common stock at the option of the holder at the rate of $0.01 per share.
On January 31, 2013, the Company signed a Convertible Promissory Note which refinanced non-interest bearing advances in the amount of $170,413 into a convertible note payable. The Convertible Promissory Note bears interest at 10% per annum and is payable along with accrued interest on January 31, 2015. The Convertible Promissory Note is convertible into common stock at the option of the holder at the rate of $0.10 per share.
On May 31, 2013, the Company signed a Convertible Promissory Note which refinanced non-interest bearing advances in the amount of $172,450 into a convertible note payable. The Convertible Promissory Note bears interest at 10% per annum and is payable along with accrued interest on May 31, 2015. The Convertible Promissory Note is convertible into common stock at the option of the holder at the rate of $0.05 per share.
The Company evaluated the terms of these note in accordance with ASC 815 – 40,Derivatives and Hedging - Contracts in Entity’s Own Stock and determined that the underlying common stock is indexed to the Company’s common stock. The Company determined that the conversion feature did not meet the definition of a liability and therefore did not bifurcate the conversion feature and account for it as a separate derivative liability. The Company evaluated the conversion feature for a beneficial conversion feature. The effective conversion price was compared to the market price on the date of the notes and was deemed to be less than the market value of underlying common stock at the inception of the note. Therefore, the Company recognized a beneficial conversion feature in the amount of $25,260 on September 4, 2012, $52,600 on October 31, 2012, $170,413 on January 31, 2013 and $172,450 on May 31, 2013. The beneficial conversion feature was recognized as an increase in additional paid-in capital and a discount to the Convertible Note Payable. The discount to the Convertible Note Payable is being amortized to interest expense over the life of the note.
The Company evaluated the application of ASC 470-50-40/55,Debtor’s Accounting for a Modification or Exchange of Debt Instrumentas it applies to the three notes listed above and concluded that the revised terms constituted a debt modification rather than a debt extinguishment because the present value of the cash flow under the terms of each of the new instruments was less than 10% from the present value of the remaining cash flows under the terms of the original notes. No gain or loss on the modifications was required to be recognized.
On September 4, 2012, the holder of the Convertible Note Payable, dated on the same date, elected to convert principal in the amount of $25,260 into 126,300 shares of common stock. On that date, the unamortized discount related to this principal was $25,260. The unamortized discount was immediately amortized to interest expense upon conversion.
On November 16, 2012, the holder of the Convertible Note Payable, dated October 31, 2012, elected to convert principal in the amount of $52,600 into 5,260,000 shares of common stock. On that date, the unamortized discount related to this principal was $52,600. The unamortized discount was immediately amortized to interest expense upon conversion.
On November 26, 2012, the holders of the Convertible Note Payable dated August 31, 2011 elected to convert principal in the amount of $58,000 into 1,160,000 shares of common stock. On that date, the unamortized discount related to this principal was $24,591. The unamortized discount was immediately amortized to interest expense upon conversion.
On February 5, 2013, the holders of the Convertible Note Payable dated August 31, 2011 elected to convert principal in the amount of $35,000 into 700,000 shares of common stock. On that date, the unamortized discount related to this principal was $11,130. The unamortized discount was immediately amortized to interest expense upon conversion.
On April 2, 2013, the holders of the Convertible Note Payable dated September 26, 2011 elected to convert principal in the amount of $7,800 into 780,000 shares of common stock in accordance with the terms of the note.
On April 8, 2013, the holders of the Convertible Note Payable dated September 26, 2011 elected to convert principal in the amount of $7,800 into 780,000 shares of common stock in accordance with the terms of the note.
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On April 26, 2013, the holders of the Convertible Note Payable dated September 26, 2011 elected to convert principal in the amount of $4,600 into 460,000 shares of common stock in accordance with the terms of the note.
On May 17, 2013, the holders of the Convertible Note Payable dated September 26, 2011 elected to convert principal and unpaid accrued interest in the total amount of $9,800 into 980,000 shares of common stock in accordance with the terms of the note.
On May 23, 2013, the holders of the Convertible Note Payable dated August 31, 2011 elected to convert principal in the amount of $24,500 into 490,000 shares of common stock in accordance with the terms of the note. On that date, the unamortized discount related to this principal was $4,896. The unamortized discount was immediately amortized to interest expense upon conversion.
Convertible notes payable consist of the following as of May 31, 2013 and August 31, 2012:
| | | | | | | |
| | May 31, 2013
(unaudited) | | August 31,
2012 | |
Convertible note payable, dated September 26, 2011, bearing interest at 10% per annum, matured on February 28, 2013 and convertible into shares of common stock at $0.01 per share | | $ | — | | $ | 27,885 | |
Convertible note payable, dated August 31, 2011, bearing interest at 10% per annum, matures on August 31, 2013 and convertible into shares of common stock at $0.05 per share | | | 153,968 | | | 271,468 | |
Convertible note payable, dated January 31, 2013, bearing interest at 10% per annum, matures on January 31, 2015 and convertible into shares of common stock at $0.10 | | | 170,412 | | | — | |
Convertible note payable, dated May 31, 2013, bearing interest at 10% per annum, matures on May 31, 2015 and convertible into shares of common stock at $0.05 | | | 172,450 | | | — | |
Accrued interest payable | | | 63,865 | | | 42,412 | |
Total convertible notes payable and accrued interest | | | 560,695 | | | 341,765 | |
Less: current portion of convertible notes payable and accrued interest | | | (209,677 | ) | | — | |
Less: discount on noncurrent convertible notes payable | | | (314,849 | ) | | (151,219 | ) |
Noncurrent convertible notes payable, net of discount | | $ | 36,169 | | $ | 190,546 | |
| | | | | | | |
Current portion of convertible notes payable | | $ | 153,968 | | $ | — | |
Current portion of accrued interest payable | | | 55,709 | | | — | |
Total current portion of convertible notes payable and accrued interest | | | 209,677 | | | — | |
Less: discount on current portion of convertible notes payable | | | (22,730 | ) | | — | |
Current portion of convertible notes payable, net of discount | | $ | 186,947 | | $ | — | |
The Company accrued interest in the amount of $23,568 during the nine months ended May 31, 2013. This amount was unpaid as of May 31, 2013 and is included in convertible notes payable as of that date. During the nine months ended May 31, 2013, discount on convertible notes payable in the amount of $234,362 was amortized to interest expense.
5. Stockholders’ Equity
Preferred
The Company’s Board of Directors has authorized 10,000,000 million shares of preferred stock with a par value of $0.0001 to be issued in series with terms and conditions to be determined by the Board of Directors. As of May 31, 2013 and August 31, 2012, no preferred stock was issued or outstanding.
Common
The Company has authorized 100,000,000 shares of $0.0001 par value common stock. There were 11,344,339 and 607,500 shares of common stock outstanding as of May 31, 2013 and August 31, 2012, respectively.
On November 13, 2012, the Company effected a one-for-forty reverse stock split. All share and per share amounts have been retroactively restated to reflect the reverse split.
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On September 4, 2012, the Company issued 126,300 shares of common stock as a result of the conversion of the Convertible Note Payable in the amount of $25,260.
On November 16, 2012, the Company issued 5,260,000 shares of common stock as a result of the conversion of the Convertible Note Payable in the amount of $52,600.
On November 26, 2012, the Company issued 1,160,000 shares of common stock as a result of the conversion of the Convertible Note Payable in the amount of $58,000.
On February 5, 2013, the Company issued 700,000 shares of common stock as a result of the conversion of the Convertible Note Payable in the amount of $35,000.
On April 2, 2013, the Company issued 780,000 shares of common stock as a result of the conversion of the Convertible Note Payable in the amount of $7,800.
On April 8, 2013, the Company issued 780,000 shares of common stock as a result of the conversion of the Convertible Note Payable in the amount of $7,800.
On April 26, 2013, the Company issued 460,000 shares of common stock as a result of the conversion of the Convertible Note Payable in the amount of $4,600.
On May 17, 2013, the Company issued 980,000 shares of common stock as a result of the conversion of the Convertible Note Payable in the amount of $9,800.
On May 23, 2013, the Company issued 490,000 shares of common stock as a result of the conversion of the Convertible Note Payable in the amount of $24,500.
6. Subsequent Events
Management has evaluated subsequent events through the date the financial statements were issued:
On June 4, 2013, the holders of the Convertible Note Payable dated August 31, 2011 elected to convert principal in the amount of $24,500 into 490,000 shares of common stock in accordance with the terms of the note.
On June 6, 2013, the holders of the Convertible Note Payable dated August 31, 2011 elected to convert principal in the amount of $25,000 into 500,000 shares of common stock in accordance with the terms of the note.
On June 19, 2013, the holders of the Convertible Note Payable dated August 31, 2011 elected to convert principal in the amount of $25,000 into 500,000 shares of common stock in accordance with the terms of the note.
On June 20, 2013, the Company signed a joint venture agreement with Bluff Wars, Inc. to develop the Bluff Wars mobile game application for the Android operating system and market (“Bluff Wars Game”). Under the terms of the joint venture agreement, the Company will provide funding of up to $30,000 for the development costs and consulting services for marketing the Bluff Wars Game. The Company will receive between 10 and 20 percent of the profits from the Bluff Wars Game depending on the amount of the Company’s contribution to the project.
Based on our evaluation no other events have occurred requiring adjustment or disclosure.
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PART I — FINANCIAL INFORMATION
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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, online and mobile 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 Texas, and is scheduled to submit its first internally developed mobile gaming application to the Apple App Store in April 2013, with Android versions submitted shortly thereafter.
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.
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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. On May 21, 2013, the joint venture formed Novalon Technologies, LLC as the operating entity for the joint venture.
On July 9, 2012, we revised the Joint Venture Agreement (the “Revised Joint Venture Agreement”) with Source 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. Source 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 Source Street. The Revised Joint Venture Agreement can be terminated by a 30-day notice from either party.
On July 20, 2013, we entered into a joint venture agreement (the “Agreement”) with Bluff Wars, Inc (BWI) to develop the Android version of their existing game Bluff Wars. The purpose of the Agreement is to fund the development and launch of Bluff Wars within the Android marketplace. OBJE will fund the development of Bluff Wars (Android version) for $30,000 based on monthly development milestones with a scheduled launch date in August and the option to work further with developer Fangtooth Studios and BWI to market, design and distribute existing and planned games for online, social and mobile applications.
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, 2013, we had $76,626 cash on hand. We believe that this cash will satisfy our operating requirements for less than one month.
Critical Accounting Policies
We prepare our condensed consolidated financial statements in conformity with GAAP, which requires management to make certain estimates and apply judgments. We base our estimates and judgments on historical experience, current trends and other factors that management believes to be important at the time the condensed consolidated financial statements are prepared. Due to the need to make estimates about the effect of matters that are inherently uncertain, materially different amounts could be reported under different conditions or using different assumptions. On a regular basis, we review our critical accounting policies and how they are applied in the preparation of our condensed consolidated financial statements.
While we believe that the historical experience, current trends and other factors considered support the preparation of our condensed consolidated financial statements in conformity with GAAP, actual results could differ from our estimates and such differences could be material.
For a full description of our critical accounting policies, please refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report for the period ended August 31, 2012 on Form 10-K.
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 $250,000 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.
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OBJE has developed its first three mobile gaming applications Phantasmic, Stupid Pixels and Creature Tavern through its partnership with Source Street, LLC under the brand name Novalon Games and plans to submit Creature Tavern to the app stores in the Apple and Android marketplaces, in the third calendar quarter of 2013.
OBJE signed a joint venture agreement in July 2013 to develop the Android version of Bluff Wars with the option to develop, market and distribute additional games with Bluff Wars, Inc. for the Android and Apple marketplace.
In conjunction with the aforementioned developments, the Company has completed due diligence and is in the final stages of deal structuring and negotiations for the partnering and funding of several independent (“indie”) developers; primarily focused on startup gaming companies and studios. We plan to build an online application and development platform, provide social media marketing tools, and formulate efficient practices for the submission and distribution of social and mobile applications for gaming and educational purposes.
The development strategy to create a utility platform for online, social and mobile games began in January 2013. OBJE has already begun budgeting and accepting bids for the development of an indie application platform, social marketing campaign, and plans to generate revenue streams through game sales, advertising partnerships and monetizing mobile applications.
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 $575,135 for the nine months ended May 31, 2013, and had a working capital deficit of $392,204. We do not anticipate having positive net income in the immediate future. Net cash used by operations for the nine months ended May 31, 2013 was $287,136. 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.
Results of Operations for the Three Months ended May 31, 2013 compared to the Three Months ended May 31, 2012
General and Administrative Expenses
General and administrative expenses increased in the three months ended May 31, 2013 as compared to the three months ended May 31, 2012 from $64,911 to $113,513. General and administrative expense for the three months ended May 31, 2013 increased primarily due to an increase in fees associated with designing games from $8,000 during the three months ended May 31, 2012 to $35,000 during the three months ended May 31, 2013.
Loss from Operations
The increase in our operating loss for the three months ended May 31, 2013 as compared to the comparable period of 2012 from $64,911 to $113,513 as a result of the increase in general and administrative expenses as discussed above.
Interest Expense
We incurred interest expense of $58,222 during the three months ended May 31, 2013 as a result of accrued interest on convertible notes payable and amortization of discounts on notes payable into interest expense. There was $109,452 of interest expense during the three months ended May 31, 2012.
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Net Loss
We recognized a net loss of $171,735 for the three months ended May 31, 2013 as compared to a net loss of $174,363 for the same period of 2012. The change in net loss is primarily attributable to the changes in operating loss and interest expense described above.
Results of Operations for the Nine months ended May 31, 2013 compared to the Nine months ended May 31, 2012
General and Administrative Expenses
General and administrative expenses decreased in the nine months ended May 31, 2013 as compared to the nine months ended May 31, 2012 from $523,065 to $317,205. 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. There was no common stock issued for services during the nine months ended May 31, 2013. Excluding the expense for common stock issued for services, general and administrative expense for the nine months ended May 31, 2012 would have been $208,065. Excluding the expense for common stock issued for services, general and administrative expense increased by $109,140. The primary reason for the increase is due to the increase in fees associated with designing games from $8,000 during the nine months ended May 31, 2012 to $97,500 during the nine months ended May 31, 2013.
Loss from Operations
The decrease in our operating loss for the nine months ended May 31, 2013 as compared to the comparable period of 2012 from $523,065 to $317,205 is due to the decrease general and administrative expenses described above.
Interest Expense
We incurred interest expense of $248,618 during the nine months ended May 31, 2013 as a result of accrued interest on convertible notes payable and amortization of discounts on notes payable into interest expense. There was $257,930 of interest expense during the nine months ended May 31, 2012.
Net Loss
We recognized a net loss of $575,135 for the nine months ended May 31, 2013 as compared to a loss of $771,683 for the same period of 2012. The change in net loss is primarily attributable to the changes in operating loss and interest expense described above.
LIQUIDITY AND CAPITAL RESOURCES
As of the date of this filing, we have yet to generate any revenues from our business operations.
We anticipate needing a minimum of $250,000 for our business plan which includes the development of games under our joint venture agreement with Source Street, internal development of an indie publishing, marketing and distribution platform, and the implementation of this go to market strategy for a range of social and mobile applications. 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, 2013, we used cash in the amount of $287,136 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, 2013, we had $76,626 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.
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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.
We have no known demands or commitments and are not aware of any events or uncertainties as of May 31, 2013 that will result in or that are reasonably likely to materially increase or decrease our current liquidity.
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.
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Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Not applicable.
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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; lack of a functioning audit committee; and, lack of a majority of outside directors on our board of directors. 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.
For a full discussion of our internal control over financial reporting, please refer to Item 9, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report for the period ended August 31, 2012 on Form 10-K.
Changes in Internal Control Over Financial Reporting
No change in the Company’s internal control over financial reporting occurred during the nine months ended May 31, 2013, that materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
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.
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Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
On April 2, 2013, the Company issued 780,000 shares of common stock as a result of the conversion of the Convertible Note Payable in the amount of $7,800.
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On April 8, 2013, the Company issued 780,000 shares of common stock as a result of the conversion of the Convertible Note Payable in the amount of $7,800.
On April 26, 2013, the Company issued 460,000 shares of common stock as a result of the conversion of the Convertible Note Payable in the amount of $4,600.
On May 17, 2013, the Company issued 980,000 shares of common stock as a result of the conversion of the Convertible Note Payable in the amount of $9,800.
On May 23, 2013, the Company issued 490,000 shares of common stock as a result of the conversion of the Convertible Note Payable in the amount of $24,500.
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Item 3. | Defaults upon Senior Securities |
There have been no defaults in any material payments during the covered period.
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Item 4. | Mine Safety Disclosures |
Not applicable.
On November 13, 2012, the Company effected a one-for-40 reverse stock split. All share and per share amounts have been retroactively restated to reflect the reverse split.
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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. (incorporated by reference to our Form 10-Q filed on July 16, 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
** To be submitted by amendment.
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.
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| OBJ ENTERPRISES, INC. |
| | |
Dated: July 16, 2013 | By: | /s/ Paul Watson |
| | Paul Watson President, Chief Executive Officer, Chief Financial Officer, Principal Accounting Officer, Secretary, Treasurer and Director |
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