Registration No. 333-108300
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
(Amendment Number 2)
----------------------
OBN Holdings, Inc.
(Name of Small Business Issuer in its Charter)
NEVADA 4833 81-0592921
- ------------------------------ ------------------------ ------------------
(State of Other Jurisdiction of (Primary Standard Industrial (IRS Employer
Incorporation or Organization) Classification Code Number) Identification No.)
8275 South Eastern Ave., Suite 200
Las Vegas, Nevada 89123
(702) 938-0467
(Address and telephone number of principal executive offices
and principal place of business)
Roger Neal Smith
8275 South Eastern Ave., Suite 200
Las Vegas, Nevada 89123
(702) 938-0467
(Name, address and telephone number of agent for service)
Copies to:
Van Stillman, Esq. James G. Dodrill II, Esq.
Van Stillman, P.A. James G. Dodrill II, P.A.
1177 George Bush Blvd., Suite 308 5800 Hamilton Way
Delray Beach, FL 33483 Boca Raton, FL 33496
(561) 330-9903 (561) 862-0529
----------------------
Approximate date of proposed sale to the public:
As soon as practicable after the effective date of this registration
statement.
----------------------
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under
the Securities Act of 1933, check the following box. (X)
If this Form is filed to register additional securities for an
offering pursuant to Rule 462 (b) under the Securities Act, check the
following box and list the Securities Act registration statement
number of earlier effective registration statement for the same
offering. ( )
If this Form is a post-effective amendment filed pursuant to Rule
462 (c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. ( ).
If delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box. ( ).
CALCULATION OF REGISTRATION FEE
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH OFFERING AGGREGATE AMOUNT OF
CLASS OF SHARES AMOUNT TO BE PRICE OFFERING REGISTRATION
TO BE REGISTERED REGISTERED PER SHARE <F1> PRICE FEE
- ------------------- ------------ -------------- --------- ------------
common stock, 2,000,000 $3.00 $7,800,000 $ 631.80
$.001 par value
to be sold by
the Company
common stock, 6,785,360 $3.00 $20,356,080 $1,648.84
$.001 par value
to be sold by
selling shareholders
Total 9,385,360 $28,156,080 $2,280.64
- ----------------------
<FN>
<F1>
(1) Estimated solely for the purpose of calculating the
registration fee pursuant to Rule 457.
</FN>
<FN>
<F2>
(2) Includes 5,785,360 outstanding shares and 1,000,000 common
shares to be issued upon exercise of underlying warrants.
</FN>
-------------------------------------------
The registrant hereby amends this registration statement on such
date or dates as may be necessary to delay its effective date until
the registrant shall file a further amendment which specifically
states that this registration statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of
1933 or until the registration statement shall become effective on
such date as the Commission, acting pursuant to said Section 8(a),
may determine.
Information contained herein is subject to completion or
amendment. A registration statement relating to these securities
has been filed with the Securities and Exchange Commission. We may
not sell these securities until the registration statement filed
with the Securities and Exchange Commission is effective. This
prospectus is not an offer to sell these securities and it is not
soliciting an offer to buy these securities in any state in which
the offer or sale is not permitted.
PROPECTUS
SUBJECT TO COMPLETION, DATED DECEMBER 3, 2003
9,385,360 Shares of Common Stock
OBN HOLDINGS, INC.
The Offering:
This is our initial public offering. We are registering a total of
9,385,360 shares of our common stock. All of the shares being registered
by us will be sold at a price per share of $3.00. The selling
shareholders will sell their shares at a price per share of $3.00 until
our shares are traded on the OTC Bulletin Board and thereafter at
prevailing market prices or privately negotiated prices. Of the shares
being registered:
1) 2,600,000 shares of common stock at an initial public offering price
of $3.00 per share are being registered for sale by us, and
2) 6,785,360 shares of common stock are being registered for sale by
selling shareholders, which includes 5,785,360 shares at a price of
$3.00 per share, and 1,000,000 shares which may be issued upon
exercise of warrants held by selling shareholders, at a price of
$4.00 per share.
We will be selling all of the 2,600,000 shares of common stock we are
offering on a "best efforts basis" We will conduct the sale of the shares we
are offering on a self-underwritten basis through our company officers, and
will not use an underwriter or pay a commission for the sale of the shares.
There is no minimum amount we are required to raise in this offering and any
funds received will be immediately available to us. The actual proceeds
received from this offering could range between $0 and $7.8 million. This
offering will terminate on the earlier of the sale of all of the shares or
365 days after effectiveness of this registration statement. We will not
receive any proceeds from the sale of any of the shares by selling
shareholders.
We are registering all of our currently outstanding common stock,
including all shares held by our officers and directors. All of our officers
and directors have signed lockup agreements prohibiting them from selling
their personal shares for a minimum of one year following the effective date
of this prospectus, which coincides with the conclusion of this offering.
There is no public market for our common stock.
_________________________________
Investing in our stock involves risks. You should carefully
consider the Risk Factors beginning on page 6 of this prospectus.
______________________
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these securities or
passed upon the adequacy or accuracy of this prospectus. Any
representation to the contrary is a criminal offense.
_______________________
The information in this prospectus is not complete and may be
changed. None of these securities may be sold until a registration
statement filed with the Securities and Exchange Commission is effective.
The prospectus is not an offer to sell these securities and it is not
soliciting an offer to buy these securities in any state where the offer
or sale is not permitted.
The date of this prospectus is December 3, 2003
TABLE OF CONTENTS
Page
----
PROSPECTUS SUMMARY 3
THE OFFERING 5
RISK FACTORS 6
USE OF PROCEEDS 12
DETERMINATION OF OFFERING PRICES 14
DIVIDEND POLICY 14
DILUTION 15
PLAN OF OPERATION 16
BUSINESS 29
MANAGEMENT 57
PRINCIPAL SHAREHOLDERS 61
SELLING SHAREHOLDERS 63
CERTAIN TRANSACTIONS 66
DESCRIPTION OF SECURITIES 67
INDEMNIFICATION 69
PLAN OF DISTRIBUTION 70
LEGAL MATTERS 71
EXPERTS 72
WHERE YOU CAN FIND MORE INFORMATION 73
INDEX TO FINANCIAL STATEMENTS Page
----
June 30, 2003 Financial Statements:
Independent Auditors' Report F-1
Consolidated Balance Sheet F-2
Consolidated Statements of Operations F-3
Consolidated Statements of Stockholders' Equity F-4
Consolidated Statements of Cash Flows F-7
Notes to Consolidated Financial Statements F-8
September 30, 2003 Financial Statements (unaudited):
Consolidated Balance Sheet F-25
Consolidated Statements of Operations F-26
Consolidated Statements of Cash Flows F-27
Notes to Consolidated Financial Statements F-28
PROSPECTUS SUMMARY
Because this is a summary, it does not contain all of the
information that may be important to you. You should read the entire
prospectus. You should consider the information set forth under "Risk
Factors" and our consolidated financial statements and accompanying notes
that appear elsewhere in this prospectus.
We are a holding company for three wholly owned operating
subsidiaries: Omni Broadcasting Network, Eclectic Entertainment and
Products On Demand Channel. The Omni Broadcasting Network ("Omni")
currently broadcasts programming targeted toward adults twenty-five years
of age and above, and children between eight and thirteen years of age.
Programming is being aired on over-the-air, cable and satellite
television stations throughout the United States, and reaches
approximately 40,000,000 households. A program entitled The MovieTime
Showcase is currently airing during primetime hours. Programs entitled
Birdz and Flutemaster are currently airing primarily Saturday and Sunday
mornings. Currently, Omni broadcasts its programming six hours per week -
8:00 p.m. to 10:00 p.m. Monday and Tuesday, and 8:00 a.m. to 9:00 a.m.
Saturday and Sunday (Eastern Standard Time). By Spring 2004, Omni plans
to broadcast a total of thirty-two hours per week - 8:00 p.m. to 11:00
p.m. seven days per week, 8:00 a.m. to 11:00 a.m. Saturday and Sunday
mornings, and 8:00 a.m. to 9:00 a.m. Monday through Friday. To
accomplish our objective to increase the broadcast hours, we are
currently in discussions with numerous program developers and producers
worldwide, and have already identified additional content that will be
aired once signed agreements are completed. To achieve our goal to have a
full broadcast schedule by Spring 2004, significant proceeds from the
offering are needed.
Eclectic Entertainment ("Eclectic") is a television and feature film
production company. Eclectic currently produces The MovieTime Showcase,
which is currently airing on Omni, and is developing The Mini Movie Hour,
which will begin airing on Omni in December 2003. Additionally, Eclectic
is developing The Vegas Variety Hour and The Adventures of Unit 28; which
are scheduled to air on Omni by Summer 2004. Eclectic is also in the
process of securing feature film properties for development and
distribution, and expects to be in production of our first feature film
by Summer 2004. Additionally, Eclectic is in the process of developing
Retro Records, which is a record distribution company specializing in
releasing new music recorded by well established recording artists.
Retro Records is planning to release its first product by Spring 2004.
Products On Demand Channel ("POD") is a broadcast television network
specializing in airing infomercials and other forms of paid programming.
POD uses the same satellite uplink as Omni, but broadcasts programming
during the hours not used by Omni. Currently, POD primarily airs
infomercials. However, we plan to reduce the number of infomercials
aired to focus on programming developed by independent producers seeking
an outlet on national broadcast television. We have begun implementing
plans for the transition, and expect it to be completed by December 2004.
We were incorporated in Nevada in 2003, and our subsidiaries were
incorporated in 2001 and 2002. For the three month period ended
September 30, 2003, we generated revenues of $53,597. OBN is a
development stage business that has incurred losses totaling $3,419,214
since our inception on January 17, 2001 through September 30, 2003, and
has limited tangible assets. In addition, we have negative working
capital. As a result, our independent auditors have stated in their
independent auditors' report that there is substantial doubt about our
ability to continue as a going concern.
3
OBN will need to either raise at least $2,000,000, or generate an
equal amount of revenue in order to stay in business during the next
twelve months. However, there is no minimum amount of securities that
must be sold in this offering, and accordingly, no minimum amount of
proceeds that will be raised. Therefore, there is a chance that
investors could end up holding shares in a company that has not raised
sufficient proceeds from the offering to continue operations and has an
illiquid, small market for its shares.
All of the officers, directors and 5% beneficial holders are
registering their shares. We are registering all of our currently
outstanding common stock, including all shares held by our officers and
directors. Since we are conducting the sale of shares on a self-
underwritten basis through our company officers and directors, there is a
potential conflict of interest between them selling company stock and
them selling their personal shares. To reduce the conflict, all of our
officers and directors have signed lockup agreements prohibiting them
from selling their shares for a minimum of one year from the effective
date of this prospectus, which coincides with the conclusion of this
offering.
Our principal office is located at 8275 South Eastern Avenue, Suite
200, Las Vegas, Nevada 89123. Our telephone number is (702) 938-0467 and
our fax number is (702) 990-8681.
4
THE OFFERING
Securities Offered 9,385,360 shares of
common stock, 2,600,000
which is being offered by
the Company and
6,785,360 which is being
offered by the selling
shareholders; See
"Description of
Securities"
Common Stock Outstanding, before offering 5,785,360
Common Stock Outstanding, after offering(1) 9,385,360
Use of Proceeds Any and all proceeds
received from this
offering will be used for
acquiring and producing
programming, increasing
our broadcast affiliate
base, purchasing and/or
leasing television
stations, working capital
and other general
corporate purposes. We
will not receive any
proceeds from the sale of
common stock by our
selling shareholders. Of
the shares being
registered, 1,000,000 may
be acquired by the
selling shareholders by
exercising warrants to
purchase such shares from
us at a price of $4.00
per share. We will
receive proceeds to the
extent that any of the
warrants are exercised
and intend to use the
proceeds from the
exercise of any of the
warrants as described
above.
Dividend Policy We do not intend to pay
dividends on our common
stock. We plan to retain
any earnings for use in
the operation of our
business and to fund
future growth.
(1) Assumes the exercise of all 1,000,000 warrants.
5
RISK FACTORS
The securities offered are highly speculative. You should purchase
them only if you can afford to lose your entire investment in us. You
should carefully consider the following risk factors, as well as all
other information in this prospectus.
Risks Related to Our Business
Our Limited Operating Capital Could Result In Us Not Being Able To
Execute Our Business Plan, Thereby Preventing Our Company From Reaching
Profitability And Expanding.
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Operating capital has typically been a barrier to entry for the
television and production industry. Other fledging networks had as much
as $50 million in operating capital when operations began. We have
launched the network and plan to expand with less than $2 million of
operating capital. The growth of a television network will require
significant additional investment. We do not presently have adequate
cash from operations or financing activities to meet our long-term needs.
As of September 30, 2003 we had $26,960 in cash resources to use in
executing our business plan. We anticipate that unless we are able to
raise net proceeds of at least $2,000,000 within the next twelve months
that we will not be able to execute our business plan, thereby preventing
our company from reaching profitability and expanding. Due to our
untested business strategy to expand our operations with significant
bartering, revenue sharing and low overhead, regardless of the amount of
funds we raise, there is a significant risk that we many not achieve
profitability and all investors may lose all of their investment. Even
if we sell all shares offered through this registration statement, we
expect that we will seek additional financing in the future to support
future growth.
We May Not Be Able To Attract Sufficient Advertising And Paid Programming
Revenue To Be Profitable If Our Advertisers Develop Apathy Toward Doing
Business With A New Network.
- -------------------------------------------------------------------------
Advertising agencies, advertising brokers and advertising departments of
companies are the primary customers of Omni Broadcasting Network and
Products on Demand Channel. Our revenues, for a large part, depend on
establishing and maintaining good relationships with the advertising
community. Therefore, it is important to make a good first impression
with the decision makers of these entities. Because we are a new
network, there is a risk that advertising placed on our network will not
produce the results sought by advertisers. Once an advertiser concludes
that it is not beneficial to place their commercials on the network, it
may be difficult to convince them otherwise. Should a substantial number
of advertisers reach the conclusion that advertising on our network is
not prudent, the revenues of the networks will be negatively affected and
profitability will suffer.
Because We Have Very Little Operating Capital, We Might Not Be Able To
Implement Our Business Plan Within The Desired Timeframe.
- ----------------------------------------------------------------------
The growth of our business will require significant additional
investment. We do not presently have adequate cash from operations or
financing activities to meet our long-term needs. As of September 30,
6
2003 we had $26,960 in cash resources to use in executing our business
plan. We anticipate that unless we are able to raise or generate
proceeds of at least $2,000,000 within the next twelve months, although
operations will continue, we will be unable to fully execute our business
plan within the desired timeframe, which will result in us not growing at
the desired rate. However, even if all shares offered through this
prospectus are sold, and we raise gross proceeds of $7,800,000, and if
the 1,000,000 warrants are exercised to raise an additional $4,000,000,
there is no guarantee that we will be successful in executing our plan or
achieving profitability. There is a risk that all investors may lose all
of their investment. Even if we sell all shares offered through this
registration statement, we expect that we will seek additional financing
in the future to support further growth. However, we may not be able to
obtain additional capital or generate sufficient revenues to fund our
operations. As a result, our independent auditors have stated in their
independent auditors' report that there is substantial doubt about our
ability to continue as a going concern.
If we are unable to raise any proceeds from this offering, we will
continue to function utilizing the revenues generated by Omni and POD,
which is continually increasing, but will not be able to expand Omni's
broadcast hours as quickly as planned. We will be able to continue
establishing Retro Records, our primary music label because a major cash
outlay is not required - the recording artist is responsible for covering
the cost of producing the music, the music distributor covers the
distribution costs and deducts them from sales, and we will promote the
products on the networks. Additionally, Eclectic will be able to
continue developing television and feature film projects because it is
continuing to seek outside funds for project development.
We May Not Be Able To Achieve Or Maintain Profitability.
- --------------------------------------------------------
We are a young company and our proposed operations are impacted by the
risks inherent in an entertainment company. The likelihood of our
success must be considered in light of the problems, expenses,
difficulties, complications, and delays frequently encountered in
connection with the development of a business in a competitive and
rapidly changing industry. As with an investment in any emerging growth
company, ownership of common shares may involve a high degree of risk,
and is not recommended if you cannot reasonably bear the risk of a total
loss of your investment. We have been broadcasting on a limited basis
since February 2003. From inception in January 2001 through September
2003, we have generated total revenues of $87,236.
The Company May Be Unable To Successfully Develop The Network At The Rate
It Desires.
- -------------------------------------------------------------------------
The success of the Company will depend on its management establishing and
marketing the Networks. Currently, the Company has entered into
agreements with distributors and producers to provide programming, and is
currently negotiating with additional programming providers. The Company
also has agreements with over 100 television stations nationwide to
become network affiliates. The Company has agreements with a company to
provide a satellite uplink. The Company will incur monthly expenses
regardless of whether revenues are being received. In addition, the
receipt of revenues does not assure that revenues will exceed Company
expenses. There can be no assurance that the Company will be able to
enter into arrangements for the broadcasting of the Network or that these
arrangements will be profitable. See "BUSINESS."
7
The Entertainment Industry is Competitive, Speculative and Unpredictable,
Which Might Result In The Company Being Unable To Operate Successfully.
- -------------------------------------------------------------------------
The television program industry is extremely competitive. The
competition comes from both companies within the same business and
companies in other entertainment media that create alternative forms of
leisure entertainment. The Company will compete with several major
television networks such as ABC, NBC, CBS, Fox, PAX, UPN, and the WB.
Many of the television organizations with which the Company will compete
have significantly greater financial and other resources than does the
Company. Competitive pressures could result in reduced market share and
price reductions and increased spending on marketing and product
development, which could adversely affect the Company's financial
condition and operating results. There can be no assurance that the
Company will be able to operate successfully in this competitive
environment.
The Company's Policy in Programming May Not Attract A Large Number Of
Viewers.
- ---------------------------------------------------------------------
The Company will adhere to a policy that all of its programming will be
suitable for all viewers. The Company will not offer programming with
sexually explicit or excessively violent content. There can be no
assurance this programming will attract sufficient audiences to make the
Network profitable.
The Company Might Not Be Capable Of Adapting To Rapid Technological
Changes.
- -------------------------------------------------------------------
The television broadcasting industry is characterized by continual change
due to technological developments both from a broadcast standpoint as
well as from that of the viewer. The Company's success depends upon its
ability to keep pace with these changes in conjunction with changes in
consumer requirements. The Company, in its efforts to provide
appropriate and timely enhancements to systems, cannot assure that it
will always be successful in doing so or that the marketplace will accept
that the changes made.
The Company Might Not Have The Ability to Manage Growth Effectively.
- --------------------------------------------------------------------
The Company believes that as its business plan is more fully realized,
the Company may experience a period of rapid growth that will result in
new and increased responsibilities for management personnel and will
place a significant strain upon the Company's management, operating and
financial systems and resources. To accommodate any rapid growth and to
compete effectively and manage future growth, if any, the Company will be
required to implement and improve its operational, financial and
management information systems, procedures and controls on a timely basis
and to expand, train, motivate and manage its workforce. There can be no
assurance that the Company's personnel, systems, procedures and controls
will be adequate to support the Company's existing and future operations.
Any failure to implement and improve the Company's operational, financial
and management systems or to expand, train, motivate or manage employees
could have a material adverse effect on the Company's business, operating
results and financial condition.
8
Success Of The Company Is Heavily Dependent Upon The Current Officers.
- ----------------------------------------------------------------------
The Company's success is heavily dependent upon the continued active
participation of its current executive officers and management personnel,
especially its Chief Executive Officer, Presidents and Chief Financial
Officer. Although the Company has entered into employment agreements
with its executive officers, such executive officers could still choose
to leave the Company at any time. If such executive officers, and
especially the chief executive officer, did leave the Company, the
Company would have difficulty replacing them in a timely manner with
individuals who have an equal level of experience in the entertainment
industry, and would be willing to accept the modest salary being received
by the current officers. This could affect the Company's daily
operations, creative development and ultimately its financial
performance.
No Dividends Are Currently Paid.
- --------------------------------
The Company, by reason of its anticipated financial status and its
contemplated financial requirements, does not contemplate or anticipate
paying any dividends upon its Common Stock in the foreseeable future.
Any payment of cash dividends in the future will be dependent upon the
amount of funds legally available, the earnings, financial conditions,
capital requirements and other factors that the Board of Directors may
think are relevant.
Management and the Board of Directors Total Discretion In The Use Of
Proceeds.
- --------------------------------------------------------------------
Although the Company intends to apply the proceeds of this offering in
the manner described under "Use of Proceeds," the Company's management
and the Board of Directors have broad discretion within such proposed
uses as to the precise allocation of the net proceeds, the timing of
expenditures and all other aspects of the use thereof. The Company
reserves the right to reallocate the net proceeds of this offering among
the various categories set forth under "Use of Proceeds" as it, in its
sole discretion, deems necessary or advisable based upon prevailing
business conditions and circumstances. See "USE OF PROCEEDS."
Risks Related to This Offering
- ------------------------------
The Price You Pay For Our Common Stock May Not Accurately Reflect The
Value Of Our Common Stock Because We Have Arbitrarily Determined The
Offering Price.
- ---------------------------------------------------------------------
We have arbitrarily determined the offering price of the common stock
because there is no market for any of our securities. There can be no
assurance that the offering price accurately reflects the value of our
common stock or that investors will be able to sell the common stock for
at least the offering price or at any price at any time. As of September
30, 2003, the total assets of the Company are $311,003.
9
There Could Be A Conflict Of Interest Between Our Officers Selling
Company Stock And Their Personal Shares Into The Market.
- ------------------------------------------------------------------
We are registering all shares of our common stock held by our officers
and directors, who will also be responsible for the sale of company
stock. Although they have signed lockup agreements prohibiting them from
selling their shares for a minimum of one year from the effective date of
this prospectus, which coincides with the conclusion of this offering,
our officers and directors may not have an interest in fully promoting
the sale of our common stock if such sales would reduce the opportunity
for them to sell their own shares.
Current Stockholders Could Immediately Sell Their Shares For A Profit,
Which Could Result In A Depressive Effect On The Stock Price.
- ----------------------------------------------------------------------
All 5,785,360 of the currently outstanding shares of common stock were
issued at prices lower than the price of the shares of common stock in
this offering. Because all of our currently outstanding shares were
issued at prices lower than the price of the shares in this offering our
existing shareholders will have the ability to sell their shares at a
profit immediately upon the development of a trading market for our
shares. In the future, sales of these securities may have an adverse
effect on the market price of our common stock should a public trading
market develop for such shares.
Since There Is No Minimum Amount That Must Be Raised Through This
Offering, We Might Not Raise An Amount Sufficient To Implement Our
Business Plan.
- ------------------------------------------------------------------
We are offering these shares of common stock on a best-efforts, no
minimum basis. There is no guarantee that we will sell all or any
specific amount of the shares being offered. We will not place any funds
raised into any trust, escrow or similar account. Any proceeds raised
from the sale of any shares will be placed in our general operating
account and will be available for our use immediately. Accordingly, even
if we do not raise enough funds to execute our business plan fully, any
funds raised will be used in attempting to execute our business plan. If
we are unable to raise any proceeds from this offering, Omni, Eclectic
and POD will continue to operate. Omni and POD will continue
broadcasting their programming, and finance operations from the revenue
being generated, which is continually increasing. However, because of
the inability to license additional content due to limited financial
resources, Omni programming will air only six to ten hours per week
instead of the desired thirty-two hours per week. Eclectic will continue
seeking investors from outside sources for its productions, which is a
normal activity for production companies.
Investors May Not Be Able To Buy Or Sell Our Stock At Will Because There
Has Never Been A Market For Our Common Stock.
- ------------------------------------------------------------------------
Prior to this offering, there has been no public trading market for our
common stock and there can be no assurances that a public trading market
for the common stock will develop or, if developed, will be sustained. As
a result, investors may end up holding shares they may not be able to
sell.
Although we hope to be accepted for quotations on the Over the Counter
Bulletin Board, we are not listed on any stock exchange at this time and
there can be no assurance that a regular trading market will develop for
10
the common stock offered through this prospectus, or, if developed, that
it will be maintained. OTC Bulletin Board stocks are often known as
"penny stocks" and are subject to various regulations involving
disclosures to be given to you prior to the purchase of any penny stocks.
These disclosures require you to acknowledge you understand the risk
associated with buying penny stocks and that you can absorb the entire
loss of your investment. Penny stocks are low priced securities that do
not have a very high trading volume. Consequently, the price of the
stock is oftentimes volatile and you may not be able to buy or sell the
stock when you want.
Risks Associated With Forward Looking Statements.
- -------------------------------------------------
This prospectus contains certain forward-looking statements regarding
management's plans and objectives for future operations, including plans
and objectives relating to our planned marketing efforts and future
economic performance. The forward-looking statements and associated risks
set forth in this prospectus includes or relate to:
(1) Our ability to obtain a meaningful degree of consumer acceptance for
our products now and in the future,
(2) Our ability to market our products now and in the future,
(3) Our ability to maintain brand-name recognition for our products now
and in the future,
(4) Our ability to maintain pricing and thereby maintain adequate profit
margins,
(5) Our ability to achieve adequate intellectual property protection,
(6) Our ability to obtain and retain sufficient capital for future
operations,
(7) Our ability to develop new products that will be of interest to our
target markets, and
(8) Our ability to expand into new markets.
11
USE OF PROCEEDS
We will not receive any proceeds from the sale of securities being
offered by our selling shareholders.
Our proceeds from this offering will vary depending on how many
shares of our common stock we are able to sell. If we sell all shares of
common stock being registered in this offering, we will receive proceeds
of $7,800,000. Additionally, we will receive proceeds to the extent that
any of the warrants are exercised. If all 1,000,000 warrants are
exercised we will receive additional proceeds of $4,000,000. Any and all
proceeds received will be used for licensing programming that will be
aired on the Omni Broadcasting Network, internally produce programming
that will be aired on the Omni Broadcasting Network and that will be sold
to other U.S. and foreign television networks and stations, increasing
the number of affiliate television stations, maintaining our satellite
uplink capabilities, for purchasing and/or leasing other television
stations, and for working capital and general corporate purposes.
We expect to incur expenses of approximately $129,280 in connection
with the registration of the shares.
The table below shows how proceeds from this offering would be used
for scenarios where we sell various amounts of the shares and the
priority of the use of net proceeds in the event actual proceeds are not
sufficient to accomplish the uses set forth. The table assumes that none
of the warrants are exercised. While management has developed the
following estimates to the best of its ability, there can be no assurance
that we will spend the use of proceeds exactly as laid out in the table.
Total shares offered 2,600,000 2,600,000 2,600,000 2,600,000
Percent of total shares offered 25% 50% 75% 100%
Shares Sold 650,000 1,300,000 1,950,000 2,600,000
Gross proceeds from offering $1,950,000 $3,900,000 $5,850,000 $7,800,000
Less: offering expenses 129,280 129,280 129,280 129,280
---------- ---------- ---------- ----------
Net proceeds from offering $1,820,720 $3,770,720 $5,720,720 $7,670,720
========== ========== ========== ==========
Use of net proceeds:
Content Development $340,000 $1,014,000 $1,872,000 $2,730,000
Content Acquisition 170,000 312,000 409,500 624,000
TV Station Affiliation Expenses 331,500 585,000 585,000 546,000
TV Station Purchase/Lease 145,000 382,000 694,000 1,045,000
Satellite Uplink Expenses 432,000 432,000 432,000 432,000
Working Capital 292,500 663,000 1,170,000 1,560,000
General Operating Expenses 109,720 382,720 558,220 733,720
12
It is possible that no proceeds may be raised from this offering. It
is also possible that some, but not all of the 2,600,000 shares offered
will be sold. If fewer than all of the shares are sold, we may ultimately
need to modify or delay our business plan. There can be no assurance
that any delay or modification will not adversely affect our development
and ultimately our chance of success. If we require additional funds to
develop our plan, such funds may not be available on terms acceptable to
us, or at all.
The amounts set forth above are estimates developed by our
management for allocation of net proceeds of this offering based upon our
current plans and prevailing economic and industry conditions and assumes
that we are able to sell the numbers of the shares set forth in each
column above. Although we do not currently contemplate material changes
in the proposed use of proceeds set forth above, to the extent that our
management finds that adjustments are required, the amounts shown may be
adjusted among the uses indicated above. Our proposed use of proceeds is
subject to changes in general, economic and competitive conditions,
timing and management discretion, each of which may change the amount of
proceeds expended for the purposes intended. The proposed application of
proceeds is also subject to changes in market conditions and our
financial condition in general. Changes in general, economic,
competitive and market conditions and our financial condition would
include, without limitation, the occurrence of a national economic
slowdown or recession, a significant change in the entertainment industry
and the environment in which we operate, and/or regulatory changes in
general. While our management is not currently aware of the existence or
pending threat of any of the foregoing reasons, we provide you no
assurance that one or more of such events will not occur.
13
DETERMINATION OF OFFERING PRICES
Prior to this offering, there has been no market for our common
stock. The offering price of the shares was arbitrarily determined and
bears no relationship to assets, book value, net worth, earnings, actual
results of operations, or any other established investment criteria.
Among the factors considered in determining the price were our historical
sales levels, estimates of our prospects, the background and capital
contributions of management, the degree of control which the current
shareholders desired to retain, current conditions of the securities
markets and other information.
DIVIDEND POLICY
It is our present policy not to pay cash dividends and to retain
future earnings for use in the operations of the business and to fund
future growth. Any payment of cash dividends in the future will be
dependent upon the amount of funds legally available, our earnings,
financial condition, capital requirements and other factors that the
Board of Directors may think are relevant.
14
DILUTION
Net tangible book value per share represents the amount of our total
tangible assets less total liabilities, divided by the total number of
shares of common stock outstanding. Our net tangible book value at
September 30, 2003 was $(360,786) or $(0.06) per share of common stock.
Dilution per share represents the difference between the stock offering
price of $3.00 per share and warrant price of $4.00 per share, and the
net tangible book value per share of common stock, as adjusted,
immediately after this offering.
After giving effect to the completion of the offering, the exercise
of all the warrants, and after deducting offering expenses estimated to
be $129,280; our pro forma net tangible book value will be $11,309,934 or
$1.21 per share. This represents an immediate increase in pro forma net
tangible book value of $1.27 per share to existing stockholders and an
immediate dilution of $1.79 per share, or approximately 60% of the
offering price, to investors purchasing shares of common stock in the
offering, and $2.79 per share, or approximately 70% of the warrant price
to investors exercising their warrants.
Public offering Price per share (stock) $ 3.00
Warrant Exercise Price $ 4.00
Net Tangible Book Value per share before offering $ (0.06)
Increase Per Share attributable to sale of these shares $ 1.27
Pro-Forma Net Tangible Book Value after offering $ 11,309,934
Dilution per share to Public Investors $ 1.79
Dilution per share to Warrant Holders $ 2.79
The following table summarizes as of November 17, 2003, the number
of shares purchased as a percentage of our total outstanding shares, the
aggregate amount paid for such shares, the aggregate amount paid figured
as a percentage of the total amount paid, and the average amount paid per
share for such shares. For purposes of this table, the sale to the public
of these shares, and exercise of all of the warrants, is assumed to have
taken place on November 17, 2003.
Shares Purchased Total Consideration Paid Average Price
Number Percent Amount Percent per Share
------ ------- ------ ------- -------------
Existing Shareholders 5,785,360 61.64% $3,212,512 21.40% $0.56
New Investors 2,600,000 27.70% $7,800,000 51.96% $3.00
Exercised Warrants 1,000,000 10.65% $4,000,000 26.64% $4.00
------------ --------- ------------ --------- --------
Total 9,385,360 100.00% $15,012,512 100.00% $1.60
============ ========= ============ ========= ========
The following table sets forth the estimated net tangible book value
("NTBV") per share after the offering (net of assumed offering costs of
$129,280) and the dilution to persons purchasing shares based upon
various levels of sales of the shares and exercise of the warrants:
Shares outstanding prior to offering 5,785,360
Total shares offered 2,600,000 2,600,000 2,600,000 2,600,000
Public offering price $ 3.00 $ 3.00 $ 3.00 $ 3.00
Shares sold 650,000 1,300,000 1,950,000 2,600,000
Total warrants 1,000,000 1,000,000 1,000,000 1,000,000
Warrant exercise price $ 4.00 $ 4.00 $ 4.00 $ 4.00
Warrants exercised 250,000 500,000 750,000 1,000,000
Per share increase attributable to new investors $ 0.43 $ 0.77 $ 1.04 $ 1.26
NTBV per share prior to offering (0.06) (0.06) (0.06) (0.06)
------------ ------------- ------------- ------------
Post offering pro forma NTBV per share $ 0.37 $ 0.71 $ 0.99 $ 1.21
============ ============= ============= ============
Dilution to new investors (stock) $ 2.63 $ 2.29 $ 2.01 $ 1.79
Percent of dilution of the offering price (stock) 87.73% 76.23% 67.16% 59.83%
Dilution to new investors (warrants) $ 3.63 $ 3.29 $ 3.01 $ 2.79
Percent of dilution of the offering price (warrants) 90.80% 82.17% 75.37% 69.87%
15
PLAN OF OPERATION
The following is a discussion of our plan of operations, and our
liquidity and capital resources. To the extent that our analysis
contains statements that are not of a historical nature, these statements
are forward-looking statements, which involve risks and uncertainties.
See "Risks Associated With Forward Looking statements". The following
should be read in conjunction with our Financial Statements and the
related Notes included elsewhere in this prospectus.
Description of Operations
- -------------------------
OBN Holdings, Inc. ("OBN") was established in February 2003 as an
entertainment company with three primary subsidiaries - Omni Broadcasting
Network, Inc. ("Omni"), Eclectic Entertainment, Inc. ("Eclectic") and the
Products on Demand Channel, Inc. ("POD"). The three subsidiaries existed
before OBN: Omni was incorporated in January 2001, Eclectic in July 2002
and POD in December 2002. OBN is a developmental stage company since
all of its activities have been devoted to developing program content,
establishing TV station affiliations, securing broadcast uplink
capabilities and creating advertiser relations. In order for a network
to effectively operate, it must have must have content to broadcast,
television stations to air the content and a satellite uplink to cost-
effectively deliver the content to the television stations. Now that
management believes that all the key requirements for an effective
television network (i.e., content, TV stations and satellite uplink) have
been obtained and our key relationships have been established, the
Company officially launched its broadcast operations in September 2003.
Omni Broadcasting Plan of Operation:
------------------------------------
The Omni Broadcasting Network is a broadcast television network that
targets adults 25 years of age and older, but contains no gratuitous sex
or violence, which also makes it safe for children to view. (The chart
below provides a more complete profile of our target audience.) Omni
currently broadcasts to 40 million households through a network of
affiliated broadcast and cable television stations nationwide. We have
contracted use of a satellite uplink on a 24 hour per day basis. As of
September 9, 2003 Omni began airing a two-hour program twice a week that
presents feature films, and two half-hour children programs twice a week.
The remaining satellite time is sold to our affiliate POD at cost. We
are currently in the process of expanding our broadcast hours so that
within the next four months we will be broadcasting primetime (8:00 p.m.
to 11:00 p.m., Eastern Standard Time) seven days a week, as well as
weekend mornings. The current and planned programming for Omni is
contained in the "Business" section of this document.
16
Omni Target Audience
Age: 25+ (Prime time)
8 to 13 (Saturday and Sunday mornings)
Sex: Male and Female
Annual Income: $50,000 +
Geographic Location: Areas adjacent to major metropolitan
cities and cities and towns across the
United States with populations between
100,000 and 5,000,000.
Education: High School to Bachelor's Degree
Employment: Typically works a 9 to 5 job, and takes
a vacation once a year.
Children: May have 1 or 2 children in the family
who are in between the ages of 8 and 15
years of age.
Television Viewing: Watches television on a regular basis.
Owns multiple televisions, VCRs, and is
thinking about purchasing a DVD player.
Computer: Owns a computer, and is capable of
getting on the Internet.
Movie Viewing: Goes to the movies sometimes, but often
waits for it to reach the video store
or television.
Prior to OBN's incorporation, Omni generated $200,000 of other
income by providing consulting services to FOCEN Inc. FOCEN, Inc. is an
entertainment production company that is developing a television program
that traces the history of music through jazz, blues, roll & roll, rap,
etc. Throughout much of 2001 and 2002 FOCEN unsuccessfully sought funding
for this project. The principals approached Omni for assistance. We
negotiated an agreement to assist by providing expertise for a fixed fee
of $200,000 in lieu of stock in FOCEN. Omni provided management and
production support services, including entertainment accounting,
budgeting and contract negotiations. After securing funding, FOCEN
proceeded with script development and production tapings. Further, it
signed a contract with PAX television to air the program when complete.
The terms of the agreement are for Omni to be paid the $200,000 owed
when the program is aired. The program was originally scheduled for
airing in late September 2003, when the fall programs begin and
collectibility was assessed as very good. However, the program has since
been rescheduled and we have recorded an allowance for bad debt for the
entire receivable balance at September 30, 2003. We are monitoring the
airdates for the program. If the airdate is not finalized by December
2003, we will consider acquiring the rights and airing the program on
Omni.
Game Show Products is a company involved in securing the rights from
high profile entertainers and brand names, and creating merchandising
opportunities in areas different from their primary line of business.
For example, through its affiliated entity, the company previously
negotiated an agreement with baseball star Sammy Sosa to develop and
market barbecue grills in the shape of a baseball. Game Show Products
has been negotiating an agreement with a high profile entertainer to
create a line of products for children and working to secure another
sports figure to develop products for merchandising.
17
Understanding the inherent cost normally associated with advertising
on a television network, as Omni began to develop, Game Show Products
approached the company to purchase advertising time on the network. The
terms of the agreement is that Game Show Products will purchase
advertising time on Omni for a period of one year. Although Game Show
Products has the ability of utilizing the air time at any point in time,
in order for the agreement to be in full force and effect, Omni must be
broadcasting, and have affiliate agreements with broadcast and/or cable
television stations in the top twenty television markets, which include
the following cities: New York, Los Angeles, Chicago, Philadelphia, San
Francisco, Boston, Dallas, Washington, Atlanta, Detroit, Houston,
Seattle, Tampa, Minneapolis, Cleveland, Phoenix, Miami, Denver,
Sacramento and Orlando. In addition to the airtime being sold to the
company, Omni will be assisting Game Show Products with developing their
advertising campaign. Through Eclectic Entertainment, we will be
developing the long-form advertising (infomercials) as well as the 30-
second and 60-second advertising spots for the company.
Omni will require $600,000 in additional funding in order to
continue licensing content, increasing our affiliate station base and
maintaining our uplink facility. The business plan calls for Omni to
increase our affiliate base to cover 70% of the US market and begin
subscribing to the Nielsen rating service by Spring 2004. Without
additional funding, growth at our desired rate will be extremely
difficult, if not impossible. Without the expansion, attracting
advertisers will be difficult and revenues will fall substantially short
of projections. Even though we expect to generate sales from
broadcasting operations in December 2003, we will still have very little
operating capital without funds from this offering. Should this offering
fail to produce adequate finances to fund our expansion, our broadcast
operations will not cease, but will be forced to continue on a much
smaller scale than planned. The lack of funding will result in Omni not
being able to license sufficient programming to broadcast thirty-two
hours per week as desired. Instead, the broadcast hours will increase at
a much slower rate. Moreover, a lack of funding will result in Omni
receiving a lesser amount of advertising and sponsorship revenue. This
will be due to Omni's inability to subscribe to the Nielsen reporting
services, which is one of the major tools used by advertisers and
advertising agencies to determine their interest in advertising on
various television programs, and the amount they are willing to spend for
commercial time. Finally, a lack of funding will result in Omni not
being able to increase its affiliate base to cover 70% of the US
households as quickly as it desires. This will also affect the amount
that the network will be able to charge for advertising and sponsorships.
Omni generates revenue primarily by securing sponsors and
advertisers for the television shows that it airs over the network, with
the majority of the revenue coming from sponsors rather than advertisers.
The primary difference between the two is the length of commitment
(sponsors normally commit for a longer period of time), and the size of
the dollar commitment. The advertising and sponsorship dollars are
normally much greater for programming targeted toward adults than it is
for children. The Federal Communications Commission has strict
guidelines for the type of advertising and the number of advertising
minutes that can be inserted into children's programming. As a result,
larger networks, such as UPN and the WB have elected to cease airing
children's programming. A secondary source of revenue is from selling
advertising and merchandise on the Omni website (www.obn-tv.com).
18
Omni's primary expenses are the satellite uplink and master control,
content licenses, and television station affiliates. The satellite
uplink and master control is the major fixed expense. Since Omni does
not utilize the satellite 24 hours a day, 7 days a week, it sells most of
the time to POD, which resells the time to various entities. The content
license expense varies with each licensor. In certain instances Omni
pays a cash license fee for the rights to broadcast the material for a
set period of time. In other instances, rather than paying an upfront
licensing fee, it enters into a revenue sharing model whereby Omni sells
the advertising time and shares the revenue with the licensor. The
television affiliate expense also varies greatly. In most cases, Omni
does not pay an affiliate to carry its programs. Instead, Omni enters
into a barter arrangement. In this type of arrangement, the television
affiliate and Omni divide the advertising minutes available in a
television program. For example, a thirty-minute television program
aired during the evening has a total of seven minutes available for
placing advertising. In this scenario, Omni would have three and one-
half minutes that can be used for its advertisers, and the affiliate
station would have three and one-half minutes available. Each entity
would sell their own advertising, and retain all of the monies generated.
An additional expense associated with broadcasting is the cost of editing
the programming that will be aired on the network. Currently, all of the
programming is on videotape. It is Omni's responsibility to "build out"
the tape, which means to add commercials, graphics and other elements to
the final tape so that it will fit in the allotted time slot.
Eclectic Entertainment Plan of Operation:
-----------------------------------------
Eclectic Entertainment is a producer and distributor of television
shows, feature films and music. Currently there are four television
series under development - L.A. Food Scene, The Vegas Variety Hour, The
Mini Movie Hour and The Adventures Of Unit 28. The Mini Movie Hour is
scheduled to begin airing during November 2003. We are finalizing
negotiations with the USC Film School, Apollo Cinema and a number of
independent producers worldwide who wish to have their productions
featured on the show. The other three shows are scheduled for airing on
Omni during the first half of 2004. Eclectic has one program, called The
MovieTime Showcase, that is currently being aired on Omni. The program
development schedule for Eclectic is contained in the Business section of
this document.
As of June 30, 2003, the Company formed two record companies to
produce and/or distribute music. Retro Records, which is focusing on
distributing music produced by established recording artists, is
currently in negotiations with three such artists. Eclectic Recording
Artists will focus on releasing music from television series and feature
film soundtracks. On behalf of the record companies, Eclectic is
finalizing negotiations with Pyramid/Universal to distribute music and
DVDs released by our two record companies through the Universal
distribution network. The agreement should be complete before
the end of November. Eclectic is also finalizing an agreement with a
foreign television program distributor to market our television programs
in Europe and Asia. This agreement should be complete by the end
of November. Finally, Eclectic is in discussions with two U.S. feature
film distributors to release its future films in theaters. Contracts for
one of the companies are being drawn up currently, and will be signed
prior to the end of November.
Eclectic has not generated any revenues, as all of our activities to
date have been developmental in nature. We will require $800,000 to meet
our production schedule for the next twelve months. Should we not
receive the aforementioned amount, we will continue to grow, but will do
so at a slower pace. The production and broadcasting of some of the
programs that are currently in development will be delayed. The lack of
funding will result in Eclectic having to raise monies from outside
19
sources in order to produce its television programs, which is the method
normally used by independent production companies. This will delay the
production schedule and the dates that programs first air on Omni.
However, unlike most production companies, Eclectic can assure potential
investors that any program it produces will be aired since it is
associated with Omni. Additionally, the lack of funding will result in
the company not wholly owning some of its productions, which reduces the
overall earning potential. This lack of funding will have minimal impact
on feature film production activities because Eclectic has always planned
to seek separate funding for producing feature films.
Revenue generation for Eclectic will be in two primary forms -
production and licensing. In situations where an entity engages Eclectic
to produce a television show or feature film, Eclectic will receive a fee
for providing the production services. In situations where Eclectic
either raises the funds or personally invests in a production, a license
fee will be charged to licensors. Currently Omni is in discussions with
potential sponsors for television shows that will be aired on the
network. In instances such as this, Eclectic will be paid a fee for
producing the show. Additionally, Eclectic will be responsible for
licensing the program to other networks, and Eclectic and Omni will share
any license fees received. A secondary source of revenue for Eclectic
will be from merchandising. Eclectic will be responsible for developing
merchandising opportunities for any shows owned by OBN and its
affiliates, and for programs aired on Omni in which merchandising
licensing agreements can be obtained. With the exception of third-party
obligations, Eclectic will retain all merchandising revenue.
Eclectic will incur expenses primarily from production costs. When
Eclectic is hired to produce a television or film project, all of the
production expenses will be incorporated into the budget of the project,
which will result in no out-of-pocket expenses. However, when it
produces its own projects Eclectic will incur expenses that must be
recouped through the collection of licensing fees. Moreover, expenses
will be incurred when either seeking investors for projects and
purchasing the rights for intellectual properties such as books and
scripts. Additionally, marketing and promotion of merchandise will also
result in expenses.
Products on Demand Channel Plan of Operation:
---------------------------------------------
POD began broadcasting in February 2003. At that time, we aired
infomercials 168 hours per week (24 hours a day, 7 days a week). POD
currently broadcasts 162 hours per week, with Omni using the remaining 6
hours. The types of programming include approved infomercials and paid
programming.
Total revenue generated since inception totals $33,639. The revenue
is primarily from advertisers purchasing time. POD has already sold
$216,000 of air time for the fiscal year 2003-2004 to the All Sports
Television Network (an independent network without uplink capabilities)
and anticipates selling the remainder of its air time to paid programming
providers and other entities wishing to have their programming aired.
Raising additional capital will greatly increase the speed in which
we can expand our affiliate base. In order to fully implement our
business plan for POD, we are in need of approximately $600,000. If, for
some reason, we are unable to obtain the needed funding, we will still
continue to grow, but at a slower pace. The lack of funding will result
in POD not being able to purchase airtime on as many affiliate stations
20
as it would like, which reduces the amount that it can charge for
advertising. When selling airtime to advertisers and networks, the price
one can charge for the time is solely a function of the number of
households that the network reaches. POD is currently generating
revenue, and will be able to continue to do so. POD's revenue will
continue to grow, even if the company is unable to raise funds through
the offering.
POD generates revenue by selling time on the network to advertisers,
distributors and other networks. Unlike Omni, which sells advertising
spots within it programs, POD just sells blocks of time - it does not
produce or broadcast television programs. The advertising time that POD
sells is in blocks of thirty minutes. If selling time to an infomercial
company, POD sells twenty-eight minutes and thirty seconds to the
infomercial company, and then broadcasts an additional ninety seconds of
commercials. If selling time to other television networks, distributors
or producers, POD sells the full thirty-minute block of time.
The primary expenses that POD incurs is the cost of the satellite
uplink and master control, which is purchased from Omni at cost, and the
expense of purchasing time on affiliate television stations. Unlike
Omni, POD is not able to offer affiliates time inside of a television
show in which to air their own commercials. There is no time available
for sale inside of the show since the program is a half-hour commercial.
The only way that the affiliate can make money is by selling the time to
POD. Since most television stations offer time to sell, POD has the
ability to obtain as many affiliates as it wishes, and for which it is
willing to pay. A minor expense that POD must incur is the processing of
the tapes that it receives for broadcasting. All tapes to be aired on
the network are shipped to POD, recorded, put into the broadcast rotation
and shipped out to Jones Media for airing.
Other Operations
- ----------------
Television station KSSY, which was recently acquired by the Company
through a three-year capital lease agreement, will be airing Omni and POD
programming as well as broadcasting programming originated from the local
area. Currently, the television station broadcasts programming from the
Shop at Home network. The Company is currently negotiating with two
other television networks to broadcast their programming during late
evening hours.
KSSY is a low power station located in San Luis Obispo County,
California, which is approximately 200 miles north of Los Angeles and 200
miles south of San Francisco. The broadcast area covers the middle and
south part of San Luis Obispo County and northern Santa Barbara County.
Since its acquisition in August 2003 the station has generated little
revenue. However, we plan to invest $150,000 in the station, increase
its viewership and generate advertising and paid programming sales.
Results of Operations
- ---------------------
Revenues generated by OBN and its subsidiaries totaled $33,639 in fiscal
year ended June 2003. Cost of Sales was $10,800, which consisted of
expenses incurred primarily to identify and assess films for broadcasting
licensing. Thus, the gross profit was $22,839.
The selling, general and administrative expenses during fiscal 2003
totaled $3,118,165, most of which were one-time expense items. The loss
from operations was $3,095,326. Among the items expensed during that
21
period are $112,000 of accrued payroll costs, $100,000 of TV station
affiliate development costs, $115,000 of satellite uplink costs and
$25,000 for website development. The expenses included $2,715,352 of non-
cash expenses to various consultants, most of which related to the cost
of this offering. All of these expenses were necessary to establish a
strong foundation and infrastructure for OBN Holdings.
The major on-going expenses include the affiliate station charges,
satellite uplink expenses, salaries, sales commissions and program
development expenses. These ongoing costs are expected to be
substantially less than the initial one-time expenses shown in the fiscal
2003 statement of operations.
The Company recognized $200,000 of other income by providing consulting
services to another entertainment company. A loss of $27,352 was
incurred from the sale of production equipment. Interest expense related
to outstanding loans totaled $10,665, Thus the other income netted to
$161,983. Income taxes were $800 resulting in a net loss for the year of
$2,934,143.
Revenues generated by OBN and its subsidiaries totaled $53,597 in the
three-month period ending September 30, 2003. Cost os Sales was $24,050, which
consisted of expenses incurred primarily to identify films for licensing and
for satellite uplink time directly related to airtime sales. Thus, the
gross profit was $29,547. The selling, general and
administrative expenses during the period totaled $479,319. Among the
items expensed during that period are marketing-related costs, TV station
affiliate development costs, product distribution development costs, bad
debt expense, satellite uplink and program development content.
Liquidity and Capital Resources
- -------------------------------
We do not presently have adequate cash from operations or financing
activities to meet our short term and long-term needs. As of September
30, 2003 we had $26,960 in cash resources to use in executing our
business plan. We anticipate that unless we are able to raise or
generate proceeds of at least $2,000,000 within the next twelve months,
although operations will continue, we will be unable to fully execute our
business plan, which will result in us not growing at the desired rate.
We anticipate raising gross proceeds of at least $5,000,000 from our
public offering in the next few months so we can expand our affiliate
base, develop more programming and achieve profitability. However,
there is no minimum amount of shares that must be sold during this
offering and none of the holders of warrants may exercise them for a
period of 180 days following the effective date of this prospectus, which
could impact our ability to continue as a going concern. Should this
situation occur, management is committed to operating on smaller scale
until generated revenues can support expansion. In order to ensure we
continue as a going concern should no proceeds result from this offering,
management has began taking the following steps:
1) The Company is aggressively developing new television programs for
the Omni Broadcasting Network. We are continually meeting with
independent television producers who have approached us with ideas
for shows that they would like to have aired on the network. We
expect the new television programs to attract a greater audience
interest, which will also result in a larger number of affiliate
television stations.
2) The Company is identifying and creating production and distribution
opportunities for Eclectic Entertainment. We are continually
developing new ideas for television programs for airing on the Omni
Broadcasting Network as well as licensing the programs to cable
22
networks. Additionally, we are currently structuring feature film
production and distribution joint ventures with other independent
producers in both the United States and Europe.
3) We are marketing the airtime available on the Products On Demand
Channel to independent television program distributors and small
television networks. To date, the All Sports Television Network has
contracted with the Products On Demand Channel to purchase twelve
hours of airtime per day.
4) The Company has hired additional sales and marketing people to
secure advertising and sponsorship revenue for the programs being
aired by the Omni Broadcasting Network. The people recently hired
have successfully sold advertising time for small and startup
television networks. Eclectic is currently in discussions with two
major hotels in Las Vegas interested in the Vegas Variety Hour, one
of Eclectic's productions, being broadcast from their venues. The
final decision should be made within the next 30 days.
5) The Company is continually increasing the number of affiliate
television stations that will broadcast programming aired on both
the Omni Broadcasting Network and the Products On Demand Channel.
The increased number of households being reached by our broadcast
will result in the Company being able to increase the amount charged
for advertising on the networks. The Company has engaged the
services of a person solely dedicated to affiliate relations. Her
responsibility is to negotiate carriage on Omni, and secure the
contracts, determine the stations' coverage areas and the times in
which the stations air the programming.
6) The Company is taking steps to increase the awareness of its
subsidiaries. Press releases related to the Omni Broadcasting
Network and Eclectic Entertainment are being distributed to the
media, and have been published nationally. We have, and will
continue to use the services of professional publicists on a
project-by-project basis.
7) The Company has, and will continue to keep tight controls over it
expenses, will hire additional staff only as needed, and when
feasible, will continue to have support and production staff provide
services to all of the OBN entities.
Management anticipates that the proceeds from this offering will provide
over 24 months of operating capital, which may allow our auditors to
remove the going concern qualification.
As of September 30, 2003 the Company's current liabilities of $457,964
exceeded current assets of $88,552 by $369,412. Approximately 47% of
current liabilities represented accrued payroll ($213,272) for executives
who opted to defer taking salaries until the offering was completed.
The capital lease of KSSY represents our only capital expenditure
commitment. It is approximately $4,200 per month for three years, after
which time OBN will own 95% of the station. All other expenses are
variable, and we match them to the availability of funds. The station
lease will be paid from funds generated from operations. Other details
concerning the KSSY lease are contained in the Subsequent Events footnote
to the consolidated financial statements of this document.
23
The Stockholders' Equity section of the balance sheet as of September 30,
2003 includes $24,085 of prepaid expenses. This amount represents
common stock issued to an outside consultant for the continued support in
the development of our TV station affiliate network through January 2004.
Should the Company receive little or no funding from the offering, we
will continue to function utilizing the revenues generated by Omni,
Eclectic and POD, which is continually increasing. Each entity is
addressed below:
Omni Broadcasting Network
-------------------------
The lack of funding will result in Omni not being able to license
sufficient programming to broadcast thirty-two hours per week as desired.
Instead, the broadcast hours will increase at a much slower rate.
Moreover, a lack of funding will result in Omni receiving a lesser amount
of advertising and sponsorship revenue. This will be due to Omni's
inability to subscribe to the Nielsen reporting services, which is one of
the major tools used by advertisers and advertising agencies to determine
their interest in advertising on various television programs, and the
amount they are willing to spend for commercial time. Finally, a lack
of funding will result in Omni not being able to increase its affiliate
base to cover 70% of the US households as quickly as it desires. This
will also affect the amount that the network will be able to charge for
advertising and sponsorships.
Eclectic Entertainment
----------------------
With no funding, Eclectic will have to raise monies from outside
sources in order to produce its television programs, which is the method
normally used by independent production companies. This will delay the
production schedule and the dates that programs first air on Omni.
However, unlike most production companies, Eclectic can assure potential
investors that any program it produces will be aired since it is
associated with Omni. Additionally, the lack of funding will result in
the company not wholly owning some of its productions, which reduces the
overall earning potential. This lack of funding will have minimal impact
on feature film production activities because Eclectic has always planned
to seek separate funding for producing feature films.
Products On Demand Channel
--------------------------
The absence of funding will result in POD not being able to purchase
airtime on as many affiliate stations as it would like, which reduces the
amount that it can charge for advertising. When selling airtime to
advertisers and networks, the price one can charge for the time is solely
a function of the number of households that the network reaches. POD is
currently generating revenue, and will be able to continue to do so.
POD's revenue will continue to grow, even if the company is unable to
raise funds through the offering.
Trends and Uncertainties
- ------------------------
A number of trends have provided us the opportunity to enter the
broadcast industry with little operating capital. Included are the
following:
* FCC regulations previously prevented television networks from
producing the programming that they broadcast. The rescission of
that regulation has resulted in all of the major networks creating
or acquiring their own production entities, which has reduced the
amount of content licensed from independent producers. Omni has
24
benefited from this situation because independent producers are
becoming much more competitive in their licensing fees in an effort
to continue having their content distributed.
* Recently UPN and the WB networks ceased airing children's
programming, citing that it was not as profitable as other
programming. However, because full-power and Class "A" television
stations have an FCC requirement to air a minimum amount of
children's programming, we have been contacted, and are in
negotiations with full-power television stations that want to
broadcast our children's programming.
* For various reasons, the PAX television network finds itself in
serious financial trouble with $900 million in debt and, according
to industry reports, no solid way to address the problem. This has
resulted in an advantage to Omni because in light of PAX's financial
problems, and because they have no new programming currently
planned, we are currently in negotiations with some of their
affiliate stations that are interested in becoming Omni affiliates.
* Competing with larger, well established networks would not have a
major impact on Omni because we are currently filling a niche that
is not being directly addressed by the other networks. With few
exceptions, the primary target market of the major networks are
viewers 17 to 35 years of age. Omni is targeting viewers 25 years
of age, and older. Additionally, the networks are becoming more
"edgy" to attempt to attract viewers - that is, there is much more
graphic language, sex and violence. Omni is the network with "less
edge" - we are offering programming that can be viewed comfortably
by all ages. Finally, the cost for producing a one-hour program on
a major network is approximately $2,000,000 per episode, which
results in them having to either get the Nielsen rating points to
support the amount charged for advertising, or drop the program.
Omni's budget for a one-hour program is between $150,000 and
$200,000 per episode. This budget does not result in a lesser
quality production; we do not have the same amount of overhead as
the other networks. However, our budget results in Omni being
capable of realizing a profit more quickly, and being able to give a
program more time to develop an audience.
* In many instances, major record companies have elected to not
release music by recording artists who previously sold records that
have reached gold (500,000 units) and platinum (1,000,000 units)
sales levels if the companies do not believe that the artists will
continue selling at that rate. As a result, many well known
recording artists have no recording contract. Eclectic, through
Retro Records, is taking advantage of this situation by structuring
deals to release new music produced by recording artists who have
previously attained gold and platinum record sales levels, and are
still in the public eye.
* Recently, more companies are engaging in creating and airing long-
form advertising (infomercials) to promote their products and
services. To this point, direct-marketing firms were the primary
advertisers. However, a September 2003 article in Television Week
newspaper cited that major manufacturers are beginning to utilize
this medium for advertising, which they expect will drive prices up.
This situation could result in an advantage to POD because of the
increased amount of potential advertisers on the network, and the
amount paid for the advertisement.
As Omni's affiliate base expands our margins will increase, because
we will be able to charge higher rates to advertisers. Currently, we
charge advertisers between $1,000 and $3,000 for a 30-second commercial
spot on Omni. We expect to charge between $5,000 and $10,000 per spot
when we reach our goal of 70% of coverage and have Nielsen ratings.
Additionally, as our affiliate base changes so that it includes more
full-power stations, we can raise advertising rates.
25
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.
Recent Accounting Pronouncements
- --------------------------------
In December 2002, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 148, "Accounting for Stock-Based Compensation -
Transition and Disclosure - an amendment of FASB Statement No. 123." SFAS
No. 148 amends SFAS No. 123 to provide alternative methods of transition
for a voluntary change to the fair value based method of accounting for
stock-based employee compensation. In addition, SFAS No. 148 amends the
disclosure requirements of SFAS No. 123 to require prominent disclosures
in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the
method used on reported results. The transition guidance and annual
disclosure provisions of SFAS No. 148 are effective for financial
statements issued for fiscal years ending after December 15, 2002. The
Company has applied the disclosure provisions of SFAS No. 148 in its
consolidated financial statements and the accompanying notes.
In November 2002, the FASB issued Interpretation No. 45 ("FIN 45"),
"Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others." FIN 45
elaborates on the disclosures to be made by a guarantor in its interim
and annual financial statements about its obligations under certain
guarantees that it has issued. It also clarifies that a guarantor is
required to recognize, at the inception of a guarantee, a liability for
the fair value of the obligation undertaken in issuing the guarantee. The
initial recognition and initial measurement provisions of FIN 45 are
applicable on a prospective basis to guarantees issued or modified after
December 31, 2002. The disclosure requirements in FIN 45 are effective
for financial statements of interim or annual periods ending after
December 15, 2002. The Company's adoption of FIN 45 in fiscal 2003 did
not have a material impact on its financial position or results of
operations.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and
Equity." SFAS No. 150 establishes standards for how an issuer classifies
and measures certain financial instruments with characteristics of both
liabilities and equity. It requires that an issuer classify a financial
instrument that is within its scope as a liability (or an asset in some
circumstances). SFAS No. 150 is effective for financial instruments
entered into or modified after May 31, 2003, and otherwise is effective
at the beginning of the first interim period beginning after June 15,
2003. It is to be implemented by reporting the cumulative effect of a
change in an accounting principle for financial instruments created
before the issuance date of the Statement and still existing at the
beginning of the interim period of adoption. Restatement is not
permitted. The Company does not expect the adoption of SFAS No. 150 to
have a material impact on its financial position or results of
operations.
26
Critical Accounting Policies
- ----------------------------
Our Consolidated Financial Statements have been prepared in
accordance with accounting principles generally accepted in the United
States of America. The preparation of these financial statements
requires us to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and related
disclosure of contingent assets and liabilities. We base our estimates
on historical experience and on various other assumptions that are
believed to be reasonable under the circumstances, the results of which
form the basis of making judgments about the carrying values of assets
and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions or
conditions.
We believe the following critical accounting policies affect our
more significant judgments and estimates used in the preparation of our
consolidated financial statements:
Allowance for Doubtful Accounts
- -------------------------------
We maintain an allowance for doubtful accounts for estimated losses
resulting from the inability of our customers to make required payments.
The allowance for doubtful accounts is based on specific identification
of customer accounts and our best estimate of the likelihood of potential
loss, taking into account such factors as the financial condition and
payment history of major customers. We evaluate the collectibility 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.
Web Site Development
- --------------------
We capitalize costs related to our web site development in
accordance with the Emerging Issues Task Force Issue No. 00-2,
"Accounting for Web Site Development Costs." Web site development costs
are amortized using the straight-line method over the estimated useful
life of three years. We assess the recoverability of our web site
development costs by determining whether the amortization of these costs
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.
Intangible Assets
- -----------------
We have adopted SFAS No. 142, "Goodwill and Other Tangible 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.
SFAS No. 142 provides specific guidance for testing goodwill and
intangible assets that will not be amortized for impairment. Goodwill
27
will be 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 us. An impairment loss will be
recorded for any goodwill that is determined to be impaired. We perform
impairment testing on all existing goodwill at least annually.
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.
Based on these estimates, all of our deferred tax assets have been
reserved. If actual results differ favorably from those estimates used,
we may be able to realize all or part of our net deferred tax assets.
Such realization could positively impact our operating results and cash
flows from operating activities.
28
BUSINESS
GENERAL
OBN consists of three wholly owned subsidiaries: Omni Broadcasting
Network, Inc. ("Omni"); Eclectic Entertainment, Inc. ("Eclectic"); and
the Products on Demand Channel, Inc. ("Products on Demand"). Omni was
created to function as a broadcast television network. Eclectic was
developed as a television and feature film production company, and the
licensing and merchandising arm of the organization. Products on Demand
was created to broadcast infomercials and other forms of paid
programming. The current and planned operations for each entity is
described below:
OMNI BROADCASTING NETWORK
- -------------------------
Omni is a national broadcast television network designed to deliver
quality programming to viewers nationwide. The network's target viewing
audience is adults 25 years of age and older. However Omni will air
programming that can be comfortably viewed by the whole family - i.e.,
no gratuitous sex or violence.
CURRENT OMNI OPERATIONS
- -----------------------
Omni began broadcasting on Tuesday, September 9, 2003. Our current
broadcast hours are 8:00 p.m. to 10:00 p.m. (Eastern Standard Time)
Monday and Tuesday, and 8:00 a.m. to 9:00 a.m. Saturday and Sunday.
Although some of Omni's affiliate stations air the program at the time
Omni sends it up to our satellite, others tape the programs and air them
at different times. For example, the programming that Omni broadcasts
Saturday and Sunday mornings from 8:00 a.m. to 9:00 a.m. is aired on
KADY, a television station in the Los Angeles Designated Market Area
(DMA) from 7:00 a.m. to 8:00 a.m. on Saturday and Sunday. The same
program is broadcast on WRNN, a television station in the New York DMA
on Friday afternoons from 5:00 p.m. to 6:00 p.m.
29
Current Omni Programming
The following chart contains a listing of Omni current and scheduled
programs, the date they are scheduled to begin airing, and the status of
their licenses.
Airing Time Start Contract
Program Distributor Date Time Date Signed
- --------------------------------------------------------------------------------------------
The MovieTime Showcase Eclectic Mon & Tue 09:00-11:00PM 9/03 N/A
Birdz Nelvana Sat & Sun 08:00-08:30AM 9/03 Yes
The Flutemaster Whamo/MarVista Sat & Sun 08:30-09:00AM 9/03 Yes
The Mini-Movie Hour Eclectic Fri & Sun 08:00-09:00PM 12/03 N/A
Wizards Tales Mar Vista Mon- Fri 08:00-09:00PM 01/04 Yes
Halifax F.P. Beyond Distribution Wed & Sat 09:00-11:00PM 01/04 Pending
Marrons WAMC To Be Determined 01/04 Pending
10+2 WAMC To Be Determined 01/04 Pending
Bug House Rock Eclectic To Be Determined 01/04 Pending
The LA Food Scene Eclectic To Be Determined 3/04 N/A
Vegas Variety Show Eclectic To Be Determined 3/04 N/A
Adventures of Unit 28 Eclectic To Be Determined 6/04 N/A
Currently there are three programs being aired on the Omni Broadcasting
Network.
The programs currently being aired on Omni are The MovieTime Showcase,
Birdz and The Flutemaster. The MovieTime Showcase is produced by
Eclectic Entertainment, our production company, and presents feature
films that were licensed by Omni. Every Tuesday, a new program is
aired, and on the following Monday it is rebroadcast. Birdz, which airs
Saturday and Sunday mornings, is an animated series that was developed
by the Canadian company, Nelvana. Birdz originally aired on the CBS
network. The Flutemaster, which also airs Saturday and Sunday mornings,
is an animated series that was produced in America, and financed by a
television company in China.
Omni, in conjunction with Eclectic Entertainment, is developing a new
series entitled The Mini Movie Hour. This series features short films
produced by both professional and amateur filmmakers worldwide. The
program is scheduled to begin airing Monday and Tuesday evenings from
8:00 p.m. to 9:00 p.m. (Eastern Standard Time) beginning the first week
in December 2003. The MovieTime Showcase will be moved to the 9:00 p.m.
to 10:00 p.m. time slot on Monday and Tuesday evenings. Contracts with
Ben Gleiberman, the host of the show, and with the University of
Southern California Film School, Apollo Cinema and some of the featured
producers have already been signed. In addition to the programming
currently being aired or produced in-house, Omni has signed agreements
for additional programming. Omni has signed an agreement with MarVista
Entertainment in Los Angeles to broadcast an animated series entitled
Wizard's Tales, which will air Monday through Friday from 8:00 a.m. to
30
9:00 a.m. beginning in January 2004. Omni is finalizing an agreement
with Westwood Audiovisual and Multimedia Consultants (WAMC) for the live
action series Maroons, which is scheduled to air on Sunday mornings at
9:00 a.m. beginning January 2004. Omni is also negotiating with WAMC
for the license to air the animated series 10+2, which is an animated
series for young children. As part of the 10+2 license, we are seeking
worldwide distribution rights for merchandise related to the series.
Omni is finalizing an agreement with Beyond Distribution, based in
Australia; to broadcast an Australian hit series entitled Halifax, F.P.
This program is scheduled to air Wednesday and Saturday nights from 8:00
p.m. to 10:00 p.m. beginning January 2004.
Current Omni Content Licenses and Licensing Fees
- ------------------------------------------------
Licenses to broadcast the content that is not produced by Eclectic are
secured in a variety of ways. Omni either pays a license fee prior to
airing the programming, enter into a revenue-sharing licensing agreement
or negotiate a barter licensing arrangement.
We have three types of revenue-sharing licensing agreements.
1) The first type is an arrangement whereby Omni and the licensor share
a percentage of all revenue generated from advertising sales, with
no guarantee minimum amount being paid to the licensor. In these
agreements, the licensor normally receives approximately 60% of the
revenue, and Omni receives the remainder. We believe that this is
an equitable split because Omni does not have to utilize its
financial resources to license the product.
2) The second type of revenue-sharing agreement is an arrangement
whereby Omni and the licensor share a percentage of all revenue
generated from advertising sales, but if an agreed on minimum amount
is not received by the licensor, Omni must pay the difference. In
this revenue-sharing model, the licensor normally receives
approximately 60% of the revenue until the minimum guarantee has
been earned, and then both parties receive 50% of the revenue.
3) The third type of revenue-sharing model is an arrangement whereby
Omni pays the licensor a smaller fee than the licensor normally
requests, and then share in the revenue generated from advertising
sales. In this scenario, Omni normally receives 100% of the revenue
generated until we recoup the license fee paid to the licensor.
After the fee is recouped, the licensor receives approximately 30%
of the revenue generated from advertising sales.
In our barter licensing agreements, rather than Omni sharing the revenue
we generate from the sale of advertising with licensors, we give the
licensor an agreed on number of unsold advertising minutes in the
television program. For example, if there is a total of 6 minutes of
time available to air commercials in a half-hour television program, in
a barter arrangement, the licensor receives two minutes of time. With
that two minutes, the licensor can either secure their own advertisers
or promote their own products - as long as the commercials placed in our
show do not offend and does not conflict with our core philosophy, we
will air the advertising.
All of our current agreements are either upfront licensing fees or
revenue sharing - we do not currently have any barter licensing
agreements. The length of most of the agreements is for a one-year
period. However, our agreement with Nelvana is for three years. Since
we are continually identifying new content for the network, there is no
risk that we will be unable to continually provide new programming to
our audience. In fact, because the major television networks are
31
producing a majority of their programming in-house, there has been an
increased amount of content available, and the producers and
distributors are extremely amenable to making nontraditional licensing
deals. All of the licensing agreements allow us to air the content as
often as we wish during the licensing period. However, we are precluded
from showing the content over the Internet.
Our current agreements consist of a three-year agreement with Nelvana
for the animated series Birdz, which is being aired presently on
Saturday and Sunday mornings from 8:00 a.m. to 8:30 a.m., a one-year
agreement with MarVista for the animated series Flute Master, which is
airing from 8:30 a.m. to 9:00 a.m. Saturday and Sunday mornings.
Additionally, Omni has an agreement in place with IndieVision Films for
the licensing of nine feature films that are aired on The MovieTime
Showcase Monday and Tuesday evenings from 8:00 p.m. to 10:00 p.m.
Because the current commercials in these programs consists primarily of
"per inquiry" advertisements, which pay only if a sale of the product
being aired is made, the revenue being generated by the commercial spots
are inconsequential at this point.
Current Omni Affiliates
- -----------------------
Omni's current affiliate base consists of a combination of independent
television stations, and small broadcast and cable television networks.
Omni programming currently reaches approximately 40 million households,
with additional affiliates continually being added. Given the vast
amount of coordination and communication that is required for
interfacing with affiliates, Omni recently engaged the services of an
individual who specializes in that area. The primary responsibility of
this individual is to maintain a database of Omni affiliates, which
includes their locations, the number of households they reach and the
hours that they air Omni programming. She is also responsible for
building our affiliate base.
Omni programming can be viewed on broadcast television stations, basic
cable television stations, digital cable television stations, and on
Direct TV, the Dish Network and Echostar. The cable systems that Omni
programming is being aired on include Time Warner Cable, Adelphia,
Charter Communications, NCTC, Cable One and Comcast. Our programming
can also be seen over the broadcast airwaves in Alabama, Arkansas,
Arizona, California, Florida, Georgia, Iowa, Idaho, Illinois, Indiana,
Louisiana, Michigan, Missouri, Mississippi, North Carolina, New Jersey,
Nevada, New York, Ohio, Oklahoma, Oregon, Pennsylvania, South Carolina,
South Dakota, Tennessee, Washington and Wyoming. The chart below
provides a breakdown of the Omni affiliate stations. However, the list
is still a work-in-process because new affiliates are being added on a
continual basis. With the exception of WRNN in New York, KJLA in Los
Angeles and KADY in Santa Barbara, CA, all of the agreements are on a
barter basis whereby the affiliate stations receive advertising slots in
exchange for having the ability to carry Omni programming. Although
stations have the ability to insert their own commercials into our
programming, some of the stations do not use the time. To prevent our
programs from having any commercial spots that are "dead air", we insert
commercials in all of the time slots, and allow affiliates to "cover
over" the spots. Normally we insert public service announcements in the
commercial spots allocated to affiliate stations.
Omni delivers the programming to most of the stations via satellite. We
have a contract with Jones Media ("Jones"), which is located in
Englewood, Colorado. Omni leases satellite space from Jones until the
year 2005, which is when the satellite is expected to go out of service.
Omni has use of the satellite on a 24-hour basis. We also use the
32
services provided by Jones to send our programming up to the satellite.
Once it is on the satellite, our affiliates have the ability to capture
the feed, and broadcast it to their audience. This is the most
efficient method of delivering the signal because it eliminates the need
for sending videotapes to the affiliate stations. In special cases,
Omni sends videotapes out to affiliates, but we try to avoid doing so as
much as possible.
When Omni is not using satellite to air our programming, we sell the
unused time to the Products On Demand Channel at cost. Products On
Demand then uses the time to broadcast infomercials, or resells it. Any
time Omni wants to expand our broadcast hours, we take back the time.
Omni Affiliate Station List - Winter 2003
Rank (1) Designated City of State Call Contract Type of
Market Area (2) License Letters Status (3) Agreement (4)
- ----------------------------------------------------------------------------------------------------------------
1 New York Kingston NY WRNN Signed Independent
1 New York New York City NY LTV Pending Bulk/Cable
1 New York South Hampton NY WVVH-TV Signed Bulk
1 New York Bridgeport CT WSAH Pending Independent
2 Los Angeles, CA Victorville CA KHIZ Pending Independent
2 Los Angeles, CA Joshua Tree CA KVMD-TV Signed Bulk
2 Los Angeles, CA Santa Barbara CA KADY Signed Independent
2 Los Angeles, CA Los Angeles CA KJLA Signed Independent
3 Chicago, IL Plano IL WSPY Signed Bulk
4 Philadelphia Bethlehem PA WBPH Signed Independent
5 San Francisco-Oakland-San Jose, CA San Francisco CA KCNS Pending Independent
5 San Francisco-Oakland-San Jose, CA Lakeport CA K68AL/K62AY Signed Bulk
6 Boston, MA/Manchester, NH Boston MA WMFP Pending Independent
7 Dallas-Ft. Worth, TX Mesquite TX KATA-LP Signed Bulk
10 Detroit, MI Shelby Township MI Shelby TV Signed Bulk
14 Minneapolis-St. Paul, MN Bemidji MN KBSU Signed Bulk
14 Minneapolis-St. Paul, MN St. Cloud MN WCMN-TV Signed Bulk
15 Cleveland-Akron(Canton), OH Cleveland OH WAOC Pending Independent
16 Phoenix, AZ Kingman AZ KKAX-LP Signed Bulk
16 Phoenix, AZ Casa Grande AZ K47FW Signed Bulk
16 Phoenix, AZ Flagstaff AZ KCFG Signed Bulk
17 Miami-Ft. Lauderdale, FL West Palm Beach FL WBWP Signed Bulk
18 Denver, CO Craig CO K27FA Signed Bulk
19 Sacramento, CA Modesto CA KAZV Signed Bulk
20 Orlando, FL Orlando FL WRCF Signed Bulk
20 Orlando, FL Orlando FL TV98 Signed Independent
21 Pittsburgh, PA Indiana PA WLLS Signed Bulk
24 Baltimore, MD Towson MD WMJF-TV Signed Bulk
25 Indianapolis, IN Martinsville IN WREP Signed Bulk
27 Hartford, CT Litchfield CT Cable 5 Signed Bulk
29 Raleigh-Durham, NC Raleigh NC WRAY Pending Independent
29 Raleigh-Durham, NC Henderson NC W34AX Signed Bulk
29 Raleigh-Durham, NC Sanford NC W67CD Signed Bulk
29 Raleigh-Durham, NC Southern Pines NC WYBE Signed Bulk
29 Raleigh-Durham, NC Rocky Mount NC WACW-LP Signed Bulk
30 Nashville, TN Hopkinsville KY WKAG Signed Bulk
30 Nashville, TN Nashville TN W52CT Signed Bulk
31 Milwaukee, WI Milwaukee WI WMLW Signed Bulk
33
34 Columbus, OH Columbus OH WCLL Signed Bulk
36 Salt Lake City, UT Vernal UT VTV Signed Bulk
39 West Palm Beach, FL Stuart FL WTCN Pending Independent
39 West Palm Beach, FL West Palm Beach FL WBWP Signed Independent
39 West Palm Beach, FL Vero Beach FL WWCI Signed Independent
40 Birmingham, AL Sylacauga AL TV6 Signed Bulk
42 New Orleans, LA Hammond LA WSTY Signed Independent
43 Memphis, TN Clarksdale MS WPRQ Signed Bulk
45 Oklahoma City, OK Oklahoma City OK KXOC/KSBI Signed Bulk
45 Oklahoma City, OK Stillwater OK KWEM-TV31 Signed Bulk
45 Oklahoma City, OK Enid OK KXOK Signed Bulk
47 Harrisburg-Lancaster, PA Lancaster PA WLYH Signed Independent
49 Albuquerque, NM Cortez CO SCTTA Signed Bulk
51 Jacksonville, FL St. Augustine FL WQXT Signed Bulk
51 Jacksonville, FL St. Augustine FL AncCityTV Signed Independent
52 Las Vegas, NV Las Vegas NV KTUD Pending Independent
52 Las Vegas, NV Pahrump NV KPVM Signed Bulk
52 Las Vegas, NV Las Vegas NV KEEN Signed Bulk
53 Wilkes Barre, PA Hazelton PA WYLN Signed Bulk
55 Albany-Schenectady, NY Glens Falls NY WNCE Signed Bulk
56 Little Rock, AR Little Rock AR KJLR Signed Bulk
57 Fresno, CA Fresno CA KVHF Signed Bulk
58 Dayton, OH Dayton OH WRCX Signed Bulk
58 Dayton, OH Troy OH WPFS-TV9 Signed Bulk
62 Mobile, AL-Pensacola, FL Pensacola FL WBQP-LP Signed Bulk
62 Mobile, AL-Pensacola, FL Brewton AL BCC7 Signed Bulk
63 Knoxville, TN Lenoir City TN W38AQ Signed Bulk
63 Knoxville, TN Heiskell TN WFEM-TV12 Signed Bulk
65 Lexington, KY London KY WMPG Pending Independent
65 Lexington, KY Moorehead KY Ultavision Pending Independent
65 Lexington, KY E. Bernstadt KY WOBZ-TV9 Signed Bulk
65 Lexington, KY Mt. Sterling KY W02BP/W06BC Signed Bulk
65 Lexington, KY Morehead KY W07BY/W10BM Signed Bulk
66 Wichita, KS Wichita KS KCTU Signed Bulk
72 Des Moines, IA Marshalltown IA KDAO Signed Bulk
75 Paducah, KY-Cape Girardeau, MO Union City TN WOBT Signed Bulk
79 Spokane, WA Coeur d' Alene ID KTYJ Signed Bulk
80 Syracuse, NY Oneonta NY WISF Signed Bulk
81 Shreveport, LA Natchitoches LA NSU22 Signed Bulk
81 Shreveport, LA Hope AR KTSS Signed Bulk
83 Huntsville-Decatur (Florence), AL Florence AL WBCF-TV3 Signed Bulk
85 Chattanooga, TN Tracy City TN GCTV Signed Bulk
87 South Bend, IN Michigan City IN MCTV-48 Signed Bulk
92 Davenport, IA-Rock Island-Moline, IL Davenport IA WBQD Signed Bulk
95 Baton Rouge, LA Baton Rouge LA WBTR Pending Independent
95 Baton Rouge, LA Morgan City LA KWBJ Signed Bulk
95 Baton Rouge, LA Baton Rouge LA KPBN Signed Bulk
98 Savannah, GA Vidalia GA WPHJ Signed Bulk
98 Savannah, GA Hilton Head Island SC W35AY Signed Bulk
99 Evansville, IN Winslow IN WPO Cable 4 Signed Bulk
99 Evansville, IN Jasper IN WJTS Signed Bulk
99 Evansville, IN Mt. Carmel IL WCJT Signed Bulk
108 Fort Smith, AR Fayettville AR K64FO Signed Bulk
112 Sioux Falls (Mitchell), SD Worthington MN WGTN Signed Bulk
34
119 Santa Barbara-Santa Maria-
San Luis Obispo, CA San Luis Obispo CA KCCE Signed Bulk
119 Santa Barbara-Santa Maria-
San Luis Obispo, CA San Luis Obispo CA KSSY Signed Independent
122 Macon, GA Dublin GA W35BB Signed Bulk
123 La Crosse-Eau Claire, WI La Crosse WI KQEG-TV23 Signed Bulk
124 Boise, ID Ontario OR KMBA Signed Bulk
128 Corpus Christi, TX Corpus Christi TX KTOV Signed Bulk
128 Corpus Christi, TX Corpus Christi TX KCBO Signed Bulk
133 Monroe, LA -El Dorado, AR Monroe LA KMNO Signed Independent
139 Columbia, MO Columbia MO KXI Signed Bulk
140 Sioux City, IA Spirit Lake IA Lakes TV Signed Bulk
141 Medford-Klamath Falls, OR Brookings OR KBSC Signed Bulk
153 Bangor, ME Machias ME WVBC Signed Bulk
157 Biloxi-Gulfport, MS Pascagoula MS WKFK Signed Bulk
162 Gainesville, FL Gainesville FL WYPN Signed Bulk
163 Abilene, TX Abilene TX KIDZ Signed Bulk
171 Dothan, AL Dothan AL WJJN-TV5 Signed Bulk
172 Yuma, AZ-El Centro, CA Lake Havasu City AZ K23BJ Signed Bulk
173 Elmira, NY Hornell NY UPN 23 Signed Bulk
176 Watertown, NY Watertown NY WLOT-TV Signed Bulk
177 Marquette, MI Crystal Falls MI WUPT Signed Bulk
179 Alexandria, LA Alexandria LA KCLA Signed Bulk
182 Greenwood-Greenville, MS Webb MS WEBU Signed Bulk
182 Greenwood-Greenville, MS Cleveland MS WHCQ Signed Bulk
191 Twin Falls, ND Twin Falls ID KBAX Signed Bulk
194 Lima, OH Lima OH WLQP Signed Bulk
194 Lima, OH Lima OH WLMO Signed Bulk
210 Glendive, MT Glendive MT KXGN Signed Bulk
(1) The rank of the Designated Market Areas, and the geographic
regions included in each area, is defined by Nielsen Market
Research.
(2) We have multiple affiliates in the same Designated Market Area
because one station might not be capable of covering the total
area.
(3) This column indicates whether we have a signed contract, or
whether we have a commitment, but are awaiting the return of the
signed agreement.
(4) If the designation in this column is "independent," Omni has
an agreement directly with the station. If the designation is
"bulk," it means that Omni has an agreement with a small network
that has signed agreements with the affiliate station.
Current Affiliate Agreements
- ----------------------------
Omni's affiliate agreements are normally three forms -fee for the
airtime, a barter arrangement, or a combination of fee and barter.
Given the limited number of viewers that smaller television stations and
networks can reach, most choose to secure public domain or older
programming on a nonexclusive basis. Moreover, because of the stations'
limited coverage, content licensors are not motivated to enter into the
same type of revenue-sharing models as they have with Omni. As a result
of this situation, stations interested in becoming affiliates are
continually approaching Omni.
The majority of affiliate agreements are on a barter arrangement. In
this type of arrangement, the affiliate receives half of the advertising
time for a program, and Omni receives the other half. Each entity is
responsible for securing its own advertisers and collecting the fees -
there is no transferring of money between entities. Although Omni
35
shares the advertising time equally, we insert commercials into all of
the commercial slots with our own advertising, and then tell the
stations which commercial slots they can insert their own advertising.
Normally, either "per-inquiry" (PI) commercials or public service
announcements (PSA's) are inserted into the slots provided for local
stations. PI's are commercials that generate revenue for Omni only if a
viewer buys the product or service offered. Since Omni receives no
revenue from the advertiser in advance, the advertiser is not harmed if
a local station inserts their commercial in its place. PSA's are also
free advertising. Omni must fill all of the commercial time to ensure
that there is no "dead air" if a local station does not have a
commercial to place.
Omni has a few arrangements where we purchase time on local stations.
This is done in special situations where we determine that it is
important for us to be broadcasting in a given market, and have not
identified a station interested in a barter arrangement. To this point,
we are buying time to reach the New York and Los Angeles markets. We
also have one agreement whereby we pay the television station a minimal
fee, and it has half of the time to place its local advertising, i.e.,
combination of fee and barter.
In most cases, our affiliates are reporting our shows to TV Guide and
other television program-listing firms. Also, Omni programs are being
listed in the program guides on Direct TV and Dish Network.
Current Omni Products and Services
- ----------------------------------
The sole product being offered by Omni is commercial airtime, that is
affording potential advertisers the ability to have their products and
services seem by a nationwide audience. To that end, Omni is focusing
on three primary areas of revenue generation - program sponsorship
sales, direct-response advertiser sales and commercial spot sales. Omni
is currently seeking sponsors for the programs The MovieTime Showcase
and The Mini Movie Hour. We have an in-house person currently
developing promotional materials for sponsors, and have begun making
initial contacts. Omni has also engaged the services of Feature This, a
company specializing in product placement and sponsorships for feature
films and television. Feature This and Omni have signed an agreement
whereby the company is responsible for assisting Omni to secure
companies to sponsor the television programs that we air on the network,
and locate companies that are interested in having their products appear
on our shows. In consideration for their services, Feature This will
receive a commission of 20% of the revenue they generate for the
network.
Direct-response advertisers are the companies that, after promoting
their product, provide an 800 number for the viewer to call immediately
to order. Omni has engaged the services of an individual who possesses
a great deal of knowledge and experience in direct-response advertising
to work with us. To date, she has secured advertisers for all three
programs that we are currently airing. She is also in the process of
finalizing agreements with direct response advertisers to sponsor The
MovieTime Showcase.
Commercial spot sales involve securing advertisers to place 10, 15, 30
or 60-second commercials advertisements into our programming. Unlike
direct-response, there are no 800 numbers for one to call. Omni has
developed promotional material for spot sales, and is currently in the
process of interviewing individuals to function as in-house sales
representatives. Omni has also established a New York office to handle
inquiries about advertising on the network.
36
The price that we charge for program sponsorship and commercial spot
sales is based on the number of households we reach, the cities in which
our programming is aired and our Nielsen ratings. Since we do not
currently have Nielsen ratings, our rates are considerable lower than
other networks. Currently, our advertising rates vary between $2,000
and $4,000 for a thirty-second spot, and are adjusted accordingly for
commercial spots longer or shorter than thirty seconds. Like many other
networks, Omni does not publish our rates. Our sales staff has
guidelines by which they negotiate the advertising rates. As Omni
continues to increase our coverage, advertising rates will increase. As
with advertising sales, the price for direct-response advertising is
also negotiated, but typically lower than commercial spots.
PLANNED OMNI OPERATIONS
- -----------------------
Omni plans to extend our broadcast from our current level of six hours
per week to thirty-two hours per week. The planned times are from 8:00
p.m. to 11:00 p.m. (Eastern Standard Time) Monday through Sunday, 8:00
a.m. to 11:00 a.m. (Eastern Standard Time) Saturday and Sunday, and 8:00
a.m. to 9:00 a.m. (Eastern Standard Time) Monday through Friday. Since
we have twenty-four hour satellite uplink capabilities, expanding our
broadcast hours is more of a function of obtaining content that we wish
to air, rather than attempting to secure additional uplink time.
Planned Omni Programming
- ------------------------
Omni is planning to continue seeking programs from independent producers
and distributors worldwide. Our major objective is to offer product
that is different from what one is seeing on all of the other networks.
Since the current trend has been a move toward reality programs, we do
not see a value in providing another reality show. In addition to the
movies and children's shows that we are currently airing, by Winter
2003, Omni plans to begin airing sporting events such as football,
basketball and volleyball. We are now in negotiations with a sports
broadcasting company that wishes to license live college football and
basketball games to our network.
In addition to the programs that Omni will be licensing, we have a
number of in-house programs currently in development. The Mini Movie
Hour, is scheduled to begin airing the first week in November. This
series features short films produced by both professional and amateur
filmmakers worldwide. Contracts with the host of the show and with some
of the featured producers have already been signed. The LA Food Scene,
which is a show that takes viewers into the world of food not previously
experienced, is scheduled to begin airing the first quarter of 2004.
The Vegas Variety Show, which is a variety show that will originate from
the showroom of a Las Vegas casino located on the Strip, is scheduled to
begin airing during Spring 2004. The Adventures of Unit 28, which is a
adventure/educational show exploring man-made and natural wonders of the
world, is scheduled to begin airing during the second quarter of 2004.
Omni and Eclectic are in the final stages of negotiations with WAMC for
the licensing of an animated situation comedy entitled Bug House Rock.
The program is scheduled to be aired during prime time (between 8:00
p.m. and 11:00 p.m. Eastern Standard Time). As time progresses, we plan
to research the marketplace and develop new ideas for our audience.
Planned Omni Content Licenses and Licensing Fees
- ------------------------------------------------
For at least the next year, Omni plans to continue structuring as many
revenue-sharing licensing agreements possible. These agreements make it
37
possible for Omni to retain as much cash as possible for other
activities. Once Omni programs are covered by Nielsen ratings, we plan
to switch to flat licensing fees.
Planned Omni Affiliates
- -----------------------
Omni plans to increase our affiliate base with larger stations in the
top fifty markets. This will be accomplished by increasing the
awareness of our network, which comes in time, and by offering more
programs of interest to our target audience. Additionally, when
feasible, we will purchase time on certain stations to assure that our
programs are aired in the desired time slots. Our affiliates
coordinator is responsible for identifying affiliate opportunities, and
negotiating agreements. Additionally, Omni plans to continually look
for television stations to purchase or lease as an alternative way of
increasing our number of affiliations. Our primary objective is to
reach 70% of the total American households, which equates to 70 million
households covered. In order to reach our stated goal, we must have
affiliates in the top twenty-five markets, which include the following
cities:
RANK DESIGNATED MARKET AREA (DMA)* TOTAL TV Households
- ----------------------------------------------------------------------------
1 New York, NY 7,301,060
2 Los Angeles, CA 5,303,490
3 Chicago, IL 3,360,770
4 Philadelphia, PA 2,801,010
5 San Francisco-Oakland-San Jose, CA 2,426,010
6 Boston, MA (Manchester, NH) 2,315,700
7 Dallas-Ft. Worth, TX 2,201,170
8 Washington, DC (Hagerstown, MD) 2,128,430
9 Atlanta, GA 1,990,650
10 Detroit, MI 1,878,670
11 Houston, TX 1,831,680
12 Seattle-Tacoma, WA 1,647,230
13 Minneapolis-St. Paul, MN 1,573,640
14 Tampa-St. Petersburg (Sarasota), FL 1,568,180
15 Miami-Ft. Lauderdale, FL 1,549,680
16 Phoenix, AZ 1,536,950
17 Cleveland-Akron (Canton), OH 1,513,130
18 Denver, CO 1,381,620
19 Sacramento-Stockton-Modesto, CA 1,226,670
20 Orlando-Daytona Beach-Melbourne, FL 1,182,420
21 Pittsburgh, PA 1,148,340
22 St. Louis, MO 1,143,690
23 Portland, OR 1,069,260
24 Baltimore, MD 1,023,530
25 Indianapolis, IN 1,013,290
* The DMA is defined by Nielsen Market Research.
Although we are currently in a number of the markets, funding through
this offering will make it easier to have a presence in all the markets
more rapidly.
38
Planned Omni Affiliate Agreements
- ---------------------------------
Omni plans to continue seeking barter arrangements with its affiliates,
but will pay for airtime when necessary. Barter arrangements are a more
favorable option for the Company because no capital expenditure is
required. The reason that affiliates are willing to enter into barter
agreements is because we offer a product that would normally be
unaffordable to many of the television stations - quality programming
that cannot be acquired elsewhere. Moreover, they are able to obtain
the programming free of charge. We believe that, as there is an
increased awareness of the network and our programming strategy, Omni
should be able to negotiate more favorable affiliate agreements.
Planned Omni Products and Services
- ----------------------------------
Omni plans to transition from direct-response advertising, and focus
more on program sponsorship and commercial spot sales. By increasing
our coverage to the top fifty markets, reaching 70% of the US households
and a Nielsen rating of just one point, Omni will be able to increase
our advertising rates from $3,000 per thirty-second spot to
approximately $10,000 per thirty-second spot. To that end, we are
actively working on achieving 70% coverage. When we deem it
appropriate, we will subscribe to the Nielsen ratings service, which
should occur by the time that we reach 65% coverage.
OMNI FUNDING REQUIREMENTS
- -------------------------
Omni is in need of additional funding to expand our broadcasting
operations at a more rapid pace. The company has begun generating
revenues from advertising sales, and is currently negotiating program
sponsorship with advertisers. Raising additional capital will greatly
increase the speed in which we can increase our affiliate base to cover
70% of the market and begin being rated by Nielsen. (Note: Nielsen
rating is a paid subscription service, and can be started at any time.
However, until our coverage increases, it is not practical to pay for
the service.) Also, with addition funding, we will be able to secure
addition content at a much faster rate, which will allow us to increase
our broadcast hours. In order to fully implement our business plan for
Omni, we are in need of approximately $600,000. If, for some reason, we
are unable to obtain the needed funding, we will still continue to grow,
but at a slower pace.
ECLECTIC ENTERTAINMENT
- ----------------------
Eclectic is responsible for producing television programs and feature
films, and for distributing television programs, feature films and
music. While the majority of the television shows will be produced for
Omni Broadcasting, feature films will be produced for theatrical
release, and may or may not be aired on Omni.
CURRENT ECLECTIC OPERATIONS
- ---------------------------
Eclectic is currently involved in the production and/or development of a
variety of television, film and music related activities. The current
activities are described below.
39
Current Eclectic Television Program Production
- ----------------------------------------------
Eclectic is currently producing The MovieTime Showcase, a program
featuring movies from independent producers and distributors. The show
is airing on the Omni Broadcasting Network. Six of thirteen episodes
currently scheduled for production are complete. The remainder will be
finished by the end of October 2003.
The Mini Movie Hour, a one-hour program featuring quality short films
produced by professional and amateur filmmakers worldwide, is currently
in development. Every year, well known, and not so well known filmmakers
make thousands of hours of films that are seen by only a select few.
This program is designed to bring these treasures to the general public,
and provide commentary to viewing audience. Eclectic is developing
thirteen episodes initially, and will then produce an additional twenty-
six. The Mini Movie Hour is scheduled to begin airing on Omni in
November 2003. The budget for this project is approximately $22,000 for
thirteen episodes. Eclectic is fully financing this project.
Eclectic is also developing The Vegas Variety Hour, a one-hour revisit
to the variety days of yesteryear in this updated version showcasing the
types of variety acts our parents grew up with. Not unlike the Ed
Sullivan Show, each program will feature a combination of new talent and
seasoned professionals. Unlike the shows currently airing, there will be
no competition component in the program, just good old-fashioned
entertainment for the entire family. We are currently considering two
major Las Vegas casinos from which to originate the program, and have
begun negotiations with one of them. We expect negotiations with the
casinos to be completed by the middle of October. The budget for this
project is $1.5 million for thirteen episodes. Eclectic will finance
approximately 25% from this offering, 25% will be financed from presales
in foreign markets and sponsorships, and the remainder will be financed
by third-party investors. We are currently negotiating with the
investors.
Eclectic is currently developing a cooking show called The LA Food
Scene. This one-hour cooking extravaganza is set in Los Angeles. Not
only will viewers learn the secrets of creating a great meal, but also
our host will take them into the glamour and glitter of the world of
food in Hollywood. This show will take viewers to the tables of the most
exciting and fun events around town. Eclectic has produced promotional
material, which includes both print and video presentations, and is
preparing to begin taping the first thirteen episodes starting the first
week of December 2003. The projected budget for this project is
$390,000. Eclectic will finance approximately 50% of the budget from
this offering, and with balance will be financed through foreign
presales, sponsorships and product placement.
Current Eclectic Feature Film Production
- ----------------------------------------
Eclectic currently has no feature films in production. However, we are
in the process of packaging two feature film projects. "Packaging"
entails taking a script or story and adding elements that will be
attractive to potential investors and distributors. Elements include
certain key actors, Directors, Producers, etc. None of the funds raised
through this offering will be used to produce feature films. Film
production financing will come from outside sources.
Eclectic is currently in the process of structuring a limited
partnership. The purpose of the partnership is to raise between $40
40
million and $60 million to produce a package of no less than seven low-
budget feature films. The average budget of each film will be between
$1 million and $10 million. Additionally, a portion of the funds will
be used to acquire film libraries. The films in the libraries will be
distributed through various outlets such as premium cable channels, pay-
per-view, home video, etc. Limited partnership documentation is still
being prepared. Our overall business plan will be unaffected if we are
unable to raise the funds for this project.
Current Eclectic Television Program and Feature Film Distribution
- -----------------------------------------------------------------
At this point, Eclectic has no products to distribute. However, we are
finalizing an agreement with WAMC to market our television film projects
to foreign markets. WAMC specializes in television and film financing
and distribution in Europe and Asia. Currently, Omni is finalizing
agreements to license content that they control. Part of our agreement
includes WAMC identifying foreign financing and securing presales. The
contract should be finalized in December 2003.
Eclectic is currently in discussions with a number feature film
distributors. The purpose of the discussions is to structure a
distribution deal making it possible for the distributor to release
Eclectic's films through their theatrical outlets, with no financial
exposure to the distribution company. We are currently preparing a
distribution agreement with one film distribution company, and are
currently in discussions with two others. If we are unable to come to
an agreement with the film distributors, it will not have a negative
impact on our overall operations. Revenue is normally derived from
television program distribution by receiving fees for licensing the
programs to television networks and stations. The license grants them
the right to air the program for either a predetermined number of times,
or for an unlimited number of times during a certain period.
Distribution companies use this strategy on a regular basis. Most of
the popular television shows have been resold to independent television
stations and cable networks. Recent trends have also shown that
producers are also distributing television through DVD and home video
outlets, which Eclectic also plans to do.
Revenue from feature film distribution is derived in a number of ways.
The initial revenue source comes from exhibiting the film in movie
theatres in the United States. The second source of revenue is derived
from exhibiting the product in foreign markets. Additional revenue
sources include pay-per-view, premium cable networks such as HBO and
Showtime, DVD and home video sales, and licensing the product to
television networks and stations.
Current Eclectic Music Distribution
- -----------------------------------
Eclectic has formed two record companies - Retro Records and Eclectic
Recording Artists. Retro Records specializes in distributing music of
recording artists who do not currently have a recording contract with a
record label, but have previously sold between 500,000 units (gold album
sales level) and 1,000,000 units (platinum albums sales level).
Additionally, the artist must be currently involved in the music
industry in a capacity other just than recording records - for example,
making personal appearances and performing as a guest artist on other
performers' albums. We are currently negotiating agreements with
artists whereby they produce an album at their own expense, and Eclectic
will distribute, promote and market the product. Proceeds from the sale
of the product will be divided on a 50/50 basis. The projected cost to
Eclectic is $30,000 per product. We will release no more than three
projects initially. Advertising is not included in the cost because the
Omni Network and Products On Demand will be the primary advertising
outlet. The projected release date for the first album is Spring 2004.
Funds from this offering will be used for this project. If we do not
successfully enter into agreements with artists, it will negatively
impact our music distribution operation, but will not negatively impact
the overall operations of the company.
41
Eclectic Recording Artists is responsible for marketing and distributing
music that will be used on feature film and television series
soundtracks. Additionally, in special situations, Eclectic Recording
Artists will release music performed by a select number of new artists.
Eclectic does not currently have product to distribute through Eclectic
Recording Artists.
Eclectic is currently inthe process of finalizing a distribution
agreement with Pyramid/Universal for the distribution of music and DVDs
through the Universal system. The distribution deal will make it
possible for the distributor to release Eclectic's soundtracks and music
projects through its outlets, with no financial exposure to the
distribution company. Under this agreement, the distributor will
receive a fee for selling through its distribution channels. Eclectic
will not pay the distributor any advance fees for its services.
Instead, the company's fee will be deducted prior to disbursing funds to
Eclectic. All marketing and promotion expenses will be borne by
Eclectic. Additionally, Eclectic will be able to cancel the agreement
at any time, and will not be obligated to distribute our product through
the company. If we are unable to reach a final agreement with the
distributor, it will negatively impact our music distribution operation,
but it will not have a negative impact on our overall operations.
Eclectic has been in discussions with a number of recording artists who
are interested in entering into an agreement with Eclectic for music
distribution. Eclectic has purposely delayed signing the artists until
it was confident that the distribution was in place. We expect to have
contracts signed within the next 45 to 60 days. Eclectic's goal of
having its first release in Spring 2004 is still possible. Many of the
artists have already been producing music in hopes of having their
material released by a record label. In many cases, the artist will go
into the recording to further enhance the material rather than begin
recording from scratch.
Current Eclectic Products and Services
- --------------------------------------
To date, Eclectic has not generated any revenue. Our primary function
has been to support the efforts of the Omni Broadcasting Network.
Eclectic expects to generate a minimal amount of revenue from our
television production activities since we are providing content in-
house. However, the content that we are developing, such as The Vegas
Variety Hour, The LA Food Scene and The Adventures of Unit 28, is
designed to appeal to foreign markets. WAMC, our foreign distributor is
providing Eclectic with information about their markets in order to
assist in creating a more worldwide appeal.
PLANNED ECLECTIC OPERATIONS
- ---------------------------
Eclectic plans to increase the activities in all of the areas in which
we are involved. Below is a detailed description of our planned
operations.
Planned Eclectic Television Program Production
- ----------------------------------------------
In addition to the projects currently in production and development,
Eclectic is in the process of developing a program entitled The
Adventures of Unit 28, which is a one-hour show geared toward kids, but
will be of interest to adults as well. Similar to the series Mission:
Impossible, the program centers around two of a group of twenty-eight
agents who secretly work for a scientific center. Each week, the agents
42
receive instructions to explore and report on various natural and man-
made phenomena throughout the world. Once the information is obtained,
it is loaded into a computer database that can actually be seen by
viewers on the website. The projected budget for this project is $1.9
million for thirteen episodes. None of the funds raised through this
offering will be used for the production of this program. We plan to
raise funds from outside sources, and through product placement,
sponsorship and presales in foreign markets. If funds are not
successfully raised for this project, it may negatively affect the
project, but will have no negative impact on our overall operations.
Eclectic is finalizing an agreement with WAMC for the co-production of
an animated situation comedy entitled Bug House Rock, which will air on
the Omni Broadcasting Network. The basic terms of the agreement is that
WAMC and Eclectic will each raise half of the production budget, which
is currently set at approximately $5.6 million for twenty-six episodes.
None of the funds raised through this offering will be used toward the
production of the program. Eclectic plans to raise the funds for this
project through other sources, and through product placement,
sponsorships and presales in foreign markets. If funds are not
successfully raised for this project, it may negatively affect the
project, but will have no negative impact on our overall operations.
Planned Eclectic Feature Film Production
- ----------------------------------------
Eclectic plans to produce a minimum of two feature films per year
beginning in Summer 2004. We are continually reviewing scripts, meeting
with producers and forming strategic alliances. Producers who have
raised a portion of the budget for their film projects, and are seeking
assistance from Eclectic to raise the remaining amounts through our
relationships are approaching us. We are also continually talking to
companies specializing in securing funds from foreign sources. If we
are unable to accomplish our goal of producing two films per year, it
will negatively impact the profitability of Eclectic's film production
operations, but will not negatively impact our overall operations.
Eclectic is in the process of creating a limited partnership to raise
between $30 million and $50 million to produce feature films with
budgets between $1 million and $10 million, and to acquire film
libraries. The limited partnership is still in the development stage
because, prior to its formation, we wanted to secure feature film and
music distribution agreements, which we feel will further enhance the
total package. Since we are finalizing agreements with film and music
distributors, the limited partnership materials will be developed.
Planned Eclectic Television Program and Feature Film Distribution
- -----------------------------------------------------------------
Eclectic is planning to distribute all of the content that we produce to
various cable networks. For example, we believe that The LA Food Scene
will be of interest to the Food Network, and that The Adventures of Unit
28 will be of interest to The Travel Channel and to one or more of the
channels targeting children. This activity will begin as soon as we have
completed product. There is no additional expense to Eclectic
associated with this activity.
Eclectic is also planning to distribute all of our content to foreign
markets. WAMC, based in France; Beyond Distribution, based in
Australia; and MarVista Entertainment, based in America have all
indicated an interest in distributing our television programs to foreign
markets. Eclectic is currently in the process of finalizing an
agreement with WAMC to represent us in certain foreign territories.
This activity will begin as soon as we have completed product. There is
no additional expense to Eclectic associated with this activity.
43
Eclectic is planning to distribute feature films to foreign markets, and
through outlets such as pay-per-view, home video, premium cable networks
and broadcast television. When distributing product to television,
Eclectic will strive to make the best financial deal for the overall
company. This means that, in many instances, a feature film will air on
another network prior to airing on Omni.
Planned Eclectic Music Distribution
- -----------------------------------
Eclectic plans to release one new recording project from ten artists
annually beginning in the third quarter of 2004. Additionally, we plan
to release performance DVD's through the same distribution channels use
for CD's. The estimated budget for this activity is $400,000 for all
ten projects. If we are unable to accomplish this activity, it will
negatively affect the profitability of Eclectic's music distribution
operations, but will not impact our overall operations.
At this time, Eclectic has not generated any revenue from the
distribution of music. However, we estimate that, of the product
distributed through Retro Records, between 100,000 and 200,000 units
will be sold worldwide by each artist signed, at an album wholesale
price of $8.00 per unit. These estimates are based on the fact that
each artist signed has previously had gold and platinum album sales, and
are continually making personal appearances and performing on other
artists' albums. Given the fact that the artists have sustained a level
of popularity with their core audience, and the competition among the
demographics of our artists is not as competitive as it is with younger
demographic, sales should be as projected. After paying the
distribution fee, revenue will be shared with the artist on a 50/50
basis. Donald Wilson, the president of Eclectic, developed these
estimates. Mr. Wilson has been an entertainment attorney for more than
twenty years, and has specialized in the music industry. Moreover, he
has previously served as the president of Qwest Entertainment.
ECLECTIC FUNDING REQUIREMENTS
- -----------------------------
Eclectic will require approximately $800,000 in order to expand our
operations, and implement the aforementioned activities. If the
proceeds are less than this amount, the plan will still be implemented,
but at a slower rate. If no funds are raised, we will focus primarily
on producing television programs for Omni, and less on feature film
production. Additionally, we will continually distribute properties
that we produce.
PRODUCTS ON DEMAND CHANNEL
- --------------------------
POD is a cable and broadcast television network designed to deliver
informational and direct-response programming to audiences throughout
the United States. The company's primary business is providing
companies the ability to air 30-minute infomercials to a national
audience, and affording independent producers and distributors the
ability to air programming to the general market.
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CURRENT POD OPERATIONS
- ----------------------
POD began broadcasting February 2003. It that time, it aired
infomercials 168 hours per week (24 hours a day, 7 days a week). POD
currently broadcasts 162 hours per week, Omni using the remaining 6
hours.
Current POD Programming
- -----------------------
The programming currently aired on the Products On Demand Channel is
long-form and short-form direct-response advertising. A direct-
marketing company is one that sells products directly to the public
through the use of toll-free telephone numbers, and via the Internet.
Long-form advertising, also known as "infomercials," is advertising that
is normally twenty-eight minutes, thirty seconds in length. Short-form
advertising is 15, 30, 45, 60, 90 or 120 seconds in duration. POD is
also airing programming originating from the All Sports Television
Network, a small network located in Fort Worth, Texas.
Current POD Affiliates
- ----------------------
The POD affiliate base is different from the Omni affiliates base. That
is, some stations are Omni affiliates and not POD affiliates, and vice
versa. However, there are a number of stations that are affiliates of
both networks. POD's current affiliate base consists of a combination
of independent television stations, and small broadcast and cable
television networks. POD programming currently reaches approximately 25
million households during various times of the day, with additional
affiliates continually being added. Our affiliates coordinator will
maintain a database of POD affiliates, which includes their locations,
the number of households they reach and the hours that they air POD
programming.
Similar to Omni, POD programming can be viewed on broadcast television
stations, basic cable television stations, digital cable television
stations. The cable systems that POD programming is being aired on
include Time Warner Cable, Adelphia, Charter Communications, NCTC, Cable
One and Comcast. Our programming can also be seen over the broadcast
airwaves in Alabama, Arkansas, Arizona, California, Florida, Georgia,
Iowa, Idaho, Illinois, Indiana, Louisiana, Michigan, Missouri,
Mississippi, North Carolina, New Jersey, Nevada, New York, Ohio,
Oklahoma, Oregon, Pennsylvania, South Carolina, South Dakota, Tennessee,
Washington and Wyoming. The chart below provides a breakdown of the POD
and Omni affiliate stations. However, the list is still a work-in-
process because new affiliates are being added on a continual basis. All
of the agreements are on a basis whereby the affiliate stations receive
a fee to carry POD programming. Currently POD and Omni have many of the
same affiliates. However, as time progresses, there will a major
divergence between POD and Omni affiliates. The reason for the
difference is because Omni provides entertainment programming with
commercial spots that allow affiliates to generate their own revenue by
selling advertising spots within the program. The ability to generate
money through selling advertising time, and the nature of the
programming being offered make barter arrangements attractive to
affiliate stations. In contrast, POD sells blocks of time with no
commercial spots available for local stations. As a result, the only
revenue that can be generated is by the affiliate stations selling the
time to POD. The reason that Omni and POD affiliates will differ over
time is because Omni will be securing larger television affiliates, but
those same stations will not be a cost effective option from which POD
to purchase time.
45
POD delivers programming via satellite. It leases time from Omni, which
has a contract with Jones Media, which is located in Englewood, Colorado.
POD also use the services provided by Jones to send our programming up to
the satellite. Once it is on the satellite, our affiliates have the
ability to capture the feed, and broadcast it to their audience. As Omni
expands its broadcast hours, POD's broadcast hours will decrease. Once
Omni is broadcasting fully, POD will still have 136 hours of airtime
available for sale.
Rank (1) Designated City of State Call Type of POD Omni
Market Area License Letters Status (2) Agreement (3) Affil. Affil.
- ---------------------------------------------------------------------------------------------------------------------------------
1 New York Kingston NY WRNN Signed Independent X
1 New York New York City NY LTV Pending Bulk/Cable X X
1 New York South Hampton NY WVVH-TV Signed Bulk X X
1 New York Bridgeport CT WSAH Pending Independent X
2 Los Angeles, CA Victorville CA KHIZ Pending Independent X
2 Los Angeles, CA Joshua Tree CA KVMD-TV Signed Bulk X X
2 Los Angeles, CA Santa Barbara CA KADY Signed Independent X
2 Los Angeles, CA Los Angeles CA KJLA Signed Independent X
3 Chicago, IL Plano IL WSPY Signed Bulk X X
4 Philadelphia Bethlehem PA WBPH Signed Independent X X
5 San Francisco-Oakland-San Jose, CA San Francisco CA KCNS Pending Independent X
5 San Francisco-Oakland-San Jose, CA Lakeport CA K68AL/K62AY Signed Bulk X X
6 Boston, MA/Manchester, NH Boston MA WMFP Pending Independent X
7 Dallas-Ft. Worth, TX Mesquite TX KATA-LP Signed Bulk X X
10 Detroit, MI Shelby Township MI Shelby TV Signed Bulk X X
14 Minneapolis-St. Paul, MN Bemidji MN KBSU Signed Bulk X X
14 Minneapolis-St. Paul, MN St. Cloud MN WCMN-TV Signed Bulk X X
15 Cleveland-Akron(Canton), OH Cleveland OH WAOC Pending Independent X
16 Phoenix, AZ Kingman AZ KKAX-LP Signed Bulk X X
16 Phoenix, AZ Casa Grande AZ K47FW Signed Bulk X X
16 Phoenix, AZ Flagstaff AZ KCFG Signed Bulk X X
17 Miami-Ft. Lauderdale, FL West Palm Beach FL WBWP Signed Bulk X X
18 Denver, CO Craig CO K27FA Signed Bulk X X
19 Sacramento, CA Modesto CA KAZV Signed Bulk X X
20 Orlando, FL Orlando FL WRCF Signed Bulk X X
20 Orlando, FL Orlando FL TV98 Signed Independent X X
21 Pittsburgh, PA Indiana PA WLLS Signed Bulk X X
24 Baltimore, MD Towson MD WMJF-TV Signed Bulk X X
25 Indianapolis, IN Martinsville IN WREP Signed Bulk X X
27 Hartford, CT Litchfield CT Cable 5 Signed Bulk X X
29 Raleigh-Durham, NC Raleigh NC WRAY Pending Independent X
29 Raleigh-Durham, NC Henderson NC W34AX Signed Bulk X X
29 Raleigh-Durham, NC Sanford NC W67CD Signed Bulk X X
29 Raleigh-Durham, NC Southern Pines NC WYBE Signed Bulk X X
29 Raleigh-Durham, NC Rocky Mount NC WACW-LP Signed Bulk X X
30 Nashville, TN Hopkinsville KY WKAG Signed Bulk X X
30 Nashville, TN Nashville TN W52CT Signed Bulk X X
31 Milwaukee, WI Milwaukee WI WMLW Signed Bulk X X
34 Columbus, OH Columbus OH WCLL Signed Bulk X X
36 Salt Lake City, UT Vernal UT VTV Signed Bulk X X
39 West Palm Beach, FL Stuart FL WTCN Pending Independent X
39 West Palm Beach, FL West Palm Beach FL WBWP Signed Independent X X
39 West Palm Beach, FL Vero Beach FL WWCI Signed Independent X X
40 Birmingham, AL Sylacauga AL TV6 Signed Bulk X X
42 New Orleans, LA Hammond LA WSTY Signed Independent X X
43 Memphis, TN Clarksdale MS WPRQ Signed Bulk X X
45 Oklahoma City, OK Oklahoma City OK KXOC/KSBI Signed Bulk X X
46
45 Oklahoma City, OK Stillwater OK KWEM-TV31 Signed Bulk X X
45 Oklahoma City, OK Enid OK KXOK Signed Bulk X X
47 Harrisburg-Lancaster, PA Lancaster PA WLYH Signed Independent X X
49 Albuquerque, NM Cortez CO SCTTA Signed Bulk X X
51 Jacksonville, FL St. Augustine FL WQXT Signed Bulk X X
51 Jacksonville, FL St. Augustine FL AncCityTV Signed Independent X X
52 Las Vegas, NV Las Vegas NV KTUD Pending Independent X
52 Las Vegas, NV Pahrump NV KPVM Signed Bulk X X
52 Las Vegas, NV Las Vegas NV KEEN Signed Bulk X X
53 Wilkes Barre, PA Hazelton PA WYLN Signed Bulk X X
55 Albany-Schenectady, NY Glens Falls NY WNCE Signed Bulk X X
56 Little Rock, AR Little Rock AR KJLR Signed Bulk X X
57 Fresno, CA Fresno CA KVHF Signed Bulk X X
58 Dayton, OH Dayton OH WRCX Signed Bulk X X
58 Dayton, OH Troy OH WPFS-TV9 Signed Bulk X X
62 Mobile, AL-Pensacola, FL Pensacola FL WBQP-LP Signed Bulk X X
62 Mobile, AL-Pensacola, FL Brewton AL BCC7 Signed Bulk X X
63 Knoxville, TN Lenoir City TN W38AQ Signed Bulk X X
63 Knoxville, TN Heiskell TN WFEM-TV12 Signed Bulk X X
65 Lexington, KY London KY WMPG Pending Independent X X
65 Lexington, KY Moorehead KY Ultavision Pending Independent X X
65 Lexington, KY E. Bernstadt KY WOBZ-TV9 Signed Bulk X X
65 Lexington, KY Mt. Sterling KY W02BP/W06BC Signed Bulk X X
65 Lexington, KY Morehead KY W07BY/W10BM Signed Bulk X X
66 Wichita, KS Wichita KS KCTU Signed Bulk X X
72 Des Moines, IA Marshalltown IA KDAO Signed Bulk X X
75 Paducah, KY-Cape Girardeau, MO Union City TN WOBT Signed Bulk X X
79 Spokane, WA Coeur d' Alene ID KTYJ Signed Bulk X X
80 Syracuse, NY Oneonta NY WISF Signed Bulk X X
81 Shreveport, LA Natchitoches LA NSU22 Signed Bulk X X
81 Shreveport, LA Hope AR KTSS Signed Bulk X X
83 Huntsville-Decatur (Florence), AL Florence AL WBCF-TV3 Signed Bulk X X
85 Chattanooga, TN Tracy City TN GCTV Signed Bulk X X
87 South Bend, IN Michigan City IN MCTV-48 Signed Bulk X X
92 Davenport, IA-Rock Island-Moline, IL Davenport IA WBQD Signed Bulk X X
95 Baton Rouge, LA Baton Rouge LA WBTR Pending Independent X
95 Baton Rouge, LA Morgan City LA KWBJ Signed Bulk X X
95 Baton Rouge, LA Baton Rouge LA KPBN Signed Bulk X X
98 Savannah, GA Vidalia GA WPHJ Signed Bulk X X
98 Savannah, GA Hilton Head Island SC W35AY Signed Bulk X X
99 Evansville, IN Winslow IN WPO Cable 4 Signed Bulk X X
99 Evansville, IN Jasper IN WJTS Signed Bulk X X
99 Evansville, IN Mt. Carmel IL WCJT Signed Bulk X X
108 Fort Smith, AR Fayettville AR K64FO Signed Bulk X X
112 Sioux Falls (Mitchell), SD Worthington MN WGTN Signed Bulk X X
119 Santa Barbara-Santa Maria-
San Luis Obispo, CA San Luis Obispo CA KCCE Signed Bulk X X
119 Santa Barbara-Santa Maria-
San Luis Obispo, CA San Luis Obispo CA KSSY Signed Independent X X
122 Macon, GA Dublin GA W35BB Signed Bulk X X
123 La Crosse-Eau Claire, WI La Crosse WI KQEG-TV23 Signed Bulk X X
124 Boise, ID Ontario OR KMBA Signed Bulk X X
128 Corpus Christi, TX Corpus Christi TX KTOV Signed Bulk X X
128 Corpus Christi, TX Corpus Christi TX KCBO Signed Bulk X X
133 Monroe, LA -El Dorado, AR Monroe LA KMNO Signed Independent X X
139 Columbia, MO Columbia MO KXI Signed Bulk X X
140 Sioux City, IA Spirit Lake IA Lakes TV Signed Bulk X X
141 Medford-Klamath Falls, OR Brookings OR KBSC Signed Bulk X X
153 Bangor, ME Machias ME WVBC Signed Bulk X X
47
157 Biloxi-Gulfport, MS Pascagoula MS WKFK Signed Bulk X X
162 Gainesville, FL Gainesville FL WYPN Signed Bulk X X
163 Abilene, TX Abilene TX KIDZ Signed Bulk X X
171 Dothan, AL Dothan AL WJJN-TV5 Signed Bulk X X
172 Yuma, AZ-El Centro, CA Lake Havasu City AZ K23BJ Signed Bulk X X
173 Elmira, NY Hornell NY UPN 23 Signed Bulk X X
176 Watertown, NY Watertown NY WLOT-TV Signed Bulk X X
177 Marquette, MI Crystal Falls MI WUPT Signed Bulk X X
179 Alexandria, LA Alexandria LA KCLA Signed Bulk X X
182 Greenwood-Greenville, MS Webb MS WEBU Signed Bulk X X
182 Greenwood-Greenville, MS Cleveland MS WHCQ Signed Bulk X X
191 Twin Falls, ND Twin Falls ID KBAX Signed Bulk X X
194 Lima, OH Lima OH WLQP Signed Bulk X X
194 Lima, OH Lima OH WLMO Signed Bulk X X
210 Glendive, MT Glendive MT KXGN Signed Bulk X X
(1) The Designated Market Areas are defined by Nielsen Market
Research. We have multiple affiliates in the same Designated
Market Area because one station might not be capable of covering
the total area.
(2) This column indicates whether we have a signed contract, or
whether we have a commitment, but are awaiting the return of the
signed agreement.
(3) If the designation in this column is "independent," Omni has
an agreement directly with the station. If the designation is
"bulk," it means that Omni has an agreement with a small network
that has signed agreements with the affiliate station.
Current POD Affiliate Agreements
- --------------------------------
POD's affiliate agreements are normally pay a fee for the airtime on the
affiliate station. However, we are in the process of developing
relationships with broadcast and cable stations. These special
agreements are structured whereby Omni allows a station to carry its
programming in exchange for carrying an equal amount of POD programming
at no charge.
Current POD Products and Services
- ---------------------------------
The sole product being offered by POD is airtime. Like Omni, it
provides businesses the ability to have their products and services seem
by a nationwide audience. POD has identified three types of entities as
our target markets - direct-response companies, independent producers
and distributors, and small television networks.
We use the services of Infomercial Sales, Inc. (ISI), located in Las
Vegas, Nevada to assist in direct-response sales. (a direct-response
advertiser was defined under the Omni Products and Services section).
ISI has been in the business of selling long-form advertising
(infomercials) for more than a decade. When POD began broadcasting in
February, ISI was instrumental in securing direct-response advertising
for the network. Our agreement with ISI is that they receive a 15%
commission for all sales that they generate. It is non-exclusive, and
may be cancelled at any time. There is no written agreement.
In addition to offering time to direct-response companies, we have begun
contacting producers and distributors of television programs, and
offering them time on POD. Many of these individuals believe that they
have a product that has mass appeal, but do not have a way of making it
available to the public. POD is offering them that capability. For a
48
flat fee, a producer can have their product aired on POD. It is their
sole responsibility to secure advertisers or sponsors, and they retain
all revenue generated by their program. Although POD does not engage in
censorship, we do require certain standards that are normal for
broadcast networks and television stations. POD has just begun offering
this service, and has not generated any revenue from it to this point.
The third revenue source is from small television networks. There are a
number of regional broadcast and cable television networks around the
country. Moreover, companies are attempting to enter into the industry
continually. One of the major problems is the absence of an affiliate
base. For a flat hourly fee, POD offers airtime to these networks. It
is their sole responsibility to secure advertisers or sponsors, and they
retain all revenue generated by their program. Again, although POD does
not engage in censorship, we do require certain standards that are
normal for broadcast networks and television stations. POD currently
has an agreement with the All Sports Television Network (ASTN). Under
the agreement, ASTN buys 12 hours of time per day from POD. The
contract is for a period of one year. POD cannot cancel the agreement,
but change the hours of broadcast with a 30-day notice. The agreement
was entered into July 2003.
POD is currently in negotiations with two cable networks that are
interested in buying time as well. We expect the negotiations to be
complete by the beginning of November 2003.
PLANNED POD OPERATIONS
- ----------------------
POD plans to continue broadcasting 136 hours per week. If the demand
for our services increases, we might elect to obtain an additional
satellite uplink, and have both and East Coast and a West Coast feed.
Planned POD Programming
- -----------------------
POD is planning to continue airing paid programming from direct-response
companies, independent producers and distributors, and small broadcast
and cable networks. Additionally, once Retro Records begin releasing
music on its label, POD will begin airing promotional programs and
specials produced by Eclectic to promote the products.
Planned POD Affiliates
- ----------------------
POD plans to continue increasing its affiliate base. Unlike Omni, the
affiliate base can only increase by buying additional time from various
stations and cable systems. POD's goal is to have an affiliate base
consisting of no less than 60 million households by the third quarter of
2004. The cost to accomplish this will be approximately $600,000
annually. If we are unable to achieve our goal, POD will continue to
operate at its current capacity and not reach its growth potential. Due
to the nature of the advertising content of POD programming, which
consists primarily of long-form commercials (infomercials), cable and
broadcast affiliates are paid by the advertiser to air the infomercial
content. POD acts as a syndicator of advertising content, and brings
together the advertiser and the supplier of available airtime.
POD must increase its affiliate base in order to provide the coverage
required by advertisers. Advertisers normally measure effectiveness in
terms of the number of commercials, homes reached, target audience
impressions and gross ratings points. In order for the advertiser to
49
reach cost efficiency or CPM (cost per thousand), a quantitative measure
of media evaluation is used and is based upon the number of television
households reached by the network.
POD will always cultivate and maintain contractual relationships with
broadcasters and cable casters in order to supply the advertiser with a
distribution vehicle for their commercial advertising, and must maintain
a certain level of FTE (full time equivalent) carriers. Our marketing
sources and industry standard generally considers approximately
20,000,000 households with FTE distribution to be an adequate range of
distribution to achieve positive results.
Unlike POD, Omni provides an entertainment avenue or service to the
broadcasters and cable casters and, therefore, will attract affiliation
arrangements based upon the quality of the entertainment programming
supplied. These affiliates will carry the programming by paying Omni
for the programming or by sharing the advertising time for resale on a
barter basis.
Planned POD Products and Services
- ---------------------------------
POD plans to continue offering airtime to direct-response companies,
independent producers and distributors, and television networks.
However, we plan to focus more attention to the producers and
distributors, and the television networks. We believe that these two
segments will result in greater revenues because, unlike direct-response
advertisers, they are not strictly performance-based industries.
However, POD will still be profitable if we are unable to shift our
target market away from direct-response advertising.
POD Funding Requirements
- ------------------------
POD needs additional funding to expand its broadcasting operations at a
more rapid pace. The company has begun generating revenues from
advertising sales, and is currently negotiating agreements with two
small cable television networks. Raising additional capital will
greatly increase the speed in which we can increase our affiliate base.
In order to fully implement our business plan for POD, we are in need of
approximately $600,000. If, for some reason, we are unable to obtain
the needed funding, we will not only be able to sustain our current
activities, but will still continue to grow, but at a slower pace.
Revenue is continually increasing as a result of sales of time to direct
marketing advertisers. Although this area is growing, more independent
producers who are seeking a television outlet for programs that they
have produced are approaching POD. This segment of the market is
actually more attractive because the producers do not measure success
solely by the number of products be ordered by consumers. In fact, the
producers are normally not soliciting sales of any kind. POD plans to
increase the sale of time to producers and distributors of programming,
and to small television networks, and reduce the amount of infomercials
being aired. Over time, this strategy will generate more revenue than
infomercial sales.
In addition to the aforementioned strategy, POD has been, and will
continue to utilize its association with Omni in securing additional
affiliates. When feasible, agreements will be structured whereby a
station will be able to air Omni programming at no cost to them if they
provide POD with an equivalent amount of time at no cost.
50
PRODUCT DEVELOPMENT
- -------------------
We are continually performing research. Our research involves the
following:
* Constantly monitoring the current and upcoming programs on the other
television networks. (Our executives subscribe to a myriad of
industry publications.)
* Identifying producers and distributors to determine the availability
of content.
* Reviewing box office receipts for newly released feature films, and
classifying them based on genre and budget size.
* Reviewing industry articles for sales by content
* Viewing tapes of television programs and feature films for potential
airing on the network.
* Talking with agencies for availability of clients for being in
programs.
* Reading scripts for consideration as feature films and television
series.
* Attending film screenings to determine what is in the marketplace,
to look for ideas, to review the performances of various talent,
etc.
INDUSTRY ANALYSIS
- -----------------
Contained in this section is information about the overall television
industry and the existing television networks.
A. Television Stations
In July 2003, the Federal Communications Commission (FCC) announced that
as of the second quarter of fiscal year 2003, a total of 4,447 television
broadcast licenses were issued. The total consisted of 1,345 commercial
VHF and UHF stations, 381 educational VHF and UHF stations, 600 Class "A"
VHF and UHF stations, and 2,121 low-power VHF and UHF stations. Since an
FCC broadcast license is not required to broadcast on cable television,
the FCC statistics do not include stations that broadcast only on cable
television. The term "low-power" (LP) refers to the power of a station's
broadcast signal. Although a low-power station has a limited reach over
the airwaves, cable companies have made it possible for LP stations to
greatly increase their exposure. TBS in Atlanta and WGN in Chicago are
prime examples of LP stations that became "super stations" by being aired
on cable systems.
51
Although some LP stations have state-of-the-art facilities, many have
very basic broadcast equipment. The major equipment necessary for a
television station to broadcast is an antenna and a transmitter. It is
not uncommon for LP stations to be housed in an owner's home or garage.
Unless a station actually develops its own programming, cameras and
studio equipment are unnecessary. Due to the limited area covered by
low-power stations, and the limited revenue that can be generated, most
LP station owners do not have the resources or desire to produce original
programming. In many cases, except for local news and shows relating to
the community, most commercial stations also refrain from producing much
of their own programming. This is also due to expense associated with
producing a quality product.
B. Television Networks
TVRadio World, an industry trade publication, reports that there are
currently twenty-three national television networks in existence. The
following is a breakdown of the types of programming being provided.
General Market Programming 9 networks Hispanic Programming 4 networks
Religious Programming 4 networks Home Shopping Programming 3 networks
Music Programming 1 network Infomercial Programming 1 network
Public Broadcasting 1 network
The major providers of original general market programming are ABC, CBS,
NBC and Fox. Primarily full-power television stations air their
programming. PAX, UPN and The WB provide programming primarily to
commercial stations and larger low-power stations. America One (A1) and
the American Independent Network (AIN) are the primary providers of
general market programming to low-power stations. Normally, if an LP
station seeks an affiliate relationship, A1 or AIN is contacted. If no
affiliate station exists in the station's market, terms are negotiated.
Although there are no regulations banning more than one station airing a
network's programming in the same area, affiliates prefer an exclusive
relationship.
During prime-time hours, UPN and The WB air programming that is primarily
designed for a young audience. PAX broadcasts programming consisting
primarily of old television series and specialty shows. PAX recently
reduced its California sales and marketing staff by 60%, and relocated
the remaining staff to Florida. Additionally, it has reduced the amount
of entertainment programs being broadcast, and replacing the programs
with infomercials. America One and AIN programming primarily consists of
public domain films and television series dating back to the 1920's,
1930's and 1940's. AIN has experienced major managerial and financial
problems, and filed for Chapter 11 bankruptcy protection. Our management
team believes that the situations in which both PAX and AIN finds
themselves has created a greater opportunity for a new general-market
television network.
The Product Information Network (PIN), which was formed as a result
of a joint venture between Jones Media and Cox Communications, is
currently the only infomercial network. PIN focuses on broadcasting
infomercials and other forms of paid programming on broadcast and cable
television 24 hours a day. Recently, PIN was sold to Access Television
Network, which broadcasts infomercials on cable television systems 24
hours a day. After acquiring PIN, Access television fired all but two
employees and began reorganizing the company. Many of PIN's broadcast
affiliates have terminated their contracts. Our management team believes
that this situation creates an opportunity for another infomercial
company to enter the market.
COMPETITION
- -----------
As with any industry we are faced with competition. The film and
television production and broadcasting industries have an enormous amount
of large and small production companies and distributors. These
companies range from networks such as ABC, NBC, CBS, FOX and UPN, to
independent television stations, to major film studios such as Universal
and Warner Bros.
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Broadcasting - Omni Broadcasting Network
- ----------------------------------------
Although Omni Broadcasting has limited capital, and is newly formed,
we have the ability to compete in the market successfully. The primary
factors that lead to our ability to compete is centered on: 1) the
smaller television stations and 2) independent and foreign
television/film producers. Both are addressed below.
Television Stations
- -------------------
The vast number of broadcast television stations (more than 4,000
television stations), and the limited number of network affiliations
available (7 major broadcast networks) has resulted in smaller stations
not having any type of affiliation with a television network.
Affiliation is considered important by most stations because many cannot
afford to air original or quality programming to their audiences, which
results in low viewership. Low viewship results in limited revenue
generated by the station as well as the inability to have a position on
their local cable company. Many stations are relying on broadcasting old
movies and television series produced in the 1930's to 1960's that are in
the public domain, as well as poorly- produced local programming.
Independent Television/Film Producers and Foreign Television/Film Producers
- ---------------------------------------------------------------------------
Every year, companies not affiliated with television stations or
networks produce hundreds of television programs and motion pictures
worldwide. In the past, the major networks licensed the properties for
broadcasting. However, because the Federal Communications Commission
rescinded its regulations barring television networks from owning
production companies, all of the major networks both produce and
broadcast television programs. This situation has resulted in
independent producers having far fewer outlets.
The two situations above have resulted in Omni Broadcasting, a
television network with very limited resources, being able to effectively
enter into the market. Omni has successfully negotiated licensing deals
with independent producers and production companies worldwide to air
their programming on our network. The types of contracts vary - some
require an upfront licensing fee, some involve a revenue-sharing model
with a back-end licensing fee guarantee and others are solely revenue-
sharing. As a result of the being able to successfully negotiate
licensing agreements for programming, Omni has had, and continues to have
independent television stations wanting to become network affiliates.
The primary reason is because we have the ability to offer them
programming that is much newer than what they are currently broadcasting,
and programming that cannot be seen elsewhere. Moreover, because our
objective is to cater primarily to adults twenty-five years of age and
older, but broadcast only content that is suitable for family viewing, we
have become a welcome alternative to television stations that wish to
offer programming based on that concept. Our model is in place, and is
rapidly growing. As of September 30, 2003, during various times of the
day, Omni is reaching approximately 40,000,000 households. We are
currently negotiating affiliate contracts that will result in us reaching
approximately 50,000,000 households by November, and 70,000,000
households by Spring 2004. Currently, Omni Broadcasting can be seen on
broadcast (over-the-air) television, basic cable, digital cable, and on
Direct TV, the Dish Network and Echostar.
Our competitors, which are the broadcast television networks, have a
major advantage over us because of their financial resources and because
of name recognition. Because of their financial position, they have the
ability to obtain the best resources that money can buy, and to
continually promote their company and the television programs that they
broadcast. Omni is unable to do this, which results in a much slower
growth. Name recognition is very important because it affects not only
53
the types and sizes of deals that can be structured; it also affects the
availability of financial support. Since Omni, to this point, is not a
recognized name, raising capital for projects is much more challenging
than it is for major networks.
Although Omni has a major disadvantage when compared with the larger
established networks, we do not believe that it will serious impede our
growth because we are targeting an audience that is, for the most part,
underserved by the major networks. Additionally, we are utilizing
distribution outlets that are being ignored and product (programming)
that is being overlooked.
Broadcasting - Products On Demand Channel
- -----------------------------------------
The Products on Demand Channel (POD) concentrates on selling
broadcast time to infomercial companies and independent producers and
distributors. Our primary competitors are television stations and cable
companies. Our competitive edge over television stations is that we
afford companies seeking to buy time the ability to do "one stop
shopping." That is, rather than negotiating deals and purchasing air
time station by station, by making one purchase on the Products On Demand
Channel, they obtain national coverage. Moreover, because POD is new, in
certain cases it is much less expensive to buy airtime from POD. We also
have a competitive advantage over cable companies because we offer buyers
the ability to have their products and productions seen on both all forms
of broadcast media - over-the-air, basic cable, digital cable, and Direct
TV, Echostar and Dish Network. Although we have very limited financial
resources, POD has, and continues to broadcast our programming by
successfully negotiating deals with television stations and regional
television networks to carry our programming. POD has been broadcasting
since February 2003.
The larger television stations and cable companies have an advantage
over us because they have the financial resources to promote themselves,
giving them the much greater name recognition. Those entities also have
the ability to hire the staff required to actively seek out potential
advertisers.
We do not believe that our competitors' strengths will adversely
affect our efforts to grow in this market. An article dated September
29,2003 in Television Week magazine indicated that mainstream companies
such as General Motors, BMW, Tropicana, Bissell, Radio Shack and Dell are
beginning to broadcast infomercials. As a result, prices are rising,
which will result in the traditional infomercial advertisers being priced
out of the market. This situation makes it possible for POD, with our
competitive pricing, to begin focusing on the smaller advertisers.
Production - Eclectic Entertainment
- -----------------------------------
Eclectic Entertainment's primary competitors are television and film
production companies. Eclectic is in a very unique position because,
unlike most television production companies, we have our own television
network, which guarantees distribution. Additionally, we have the
capability to heavily promote any feature film that we release.
Television Distribution
- -----------------------
The primary objective of any television producer is to get their
program aired. As previously mentioned, because the major networks have
their own in-house production companies, they do not have an incentive to
buy outside programming. Also, since the broadcast networks, or their
parent companies own most of the major cable networks, independent
producers are finding it more difficult to place products on cable.
54
However, Eclectic does not have that problem. All of the television
programs currently in development have a guaranteed distribution outlet
on Omni. The primary reason for this is that all of the programs are
developed using two primary criteria - developing programming that will
be of interest to Omni's target market, and develop the program designed
to appeal to an international audience. We believe that we have met both
criteria. In addition to airing on the Omni network, we are in
negotiations with two companies that want to market our shows in Europe
and Asia. Currently, we have one program, called "The MovieTime
Showcase," that is airing on Omni, and "The Mini Movie Hour" that is
scheduled to begin airing in November, 2003.
Feature Film Promotion
- ----------------------
Once a feature film is produced, the primary expense associated with
the film's distribution is prints and advertising (P&A). The cost of
prints (copies of the film that go to the theatre for showing) is
relatively nominal. The major expense is the cost of advertising. If
there is a limited budget for advertising, theatres are reluctant to show
the film. Many independent films are made, but very few are ever shown
in movie theatres because of the lack of money for P&A. Eclectic does
not have the same problem experienced by most filmmakers because we have
Omni. The Omni Broadcasting Network affords us the ability to heavily
promote any feature film that Eclectic produces. Through the use of
commercial spots within our shows and infomercials, we can promote our
films in a way that would normally cost millions of dollars.
As with the other two OBN subsidiaries, the major advantages that
our competitors have are strong financial resources and name recognition.
Their financial resources give them the ability to promote themselves and
develop new projects more quickly. Name recognition makes it easier to
secure funding for projects from individual investors and commercial
lenders.
Major studios might have an adverse affect because there are a
finite number of movie screens on which feature films can be shown.
Since Eclectic will be producing low budget films ($1,000,000 to
$10,000,000), our films will not be shown in as many theatres. However,
because our budgets will be low, the amount of time it should take to
begin making a profit is much shorter than for large budget films.
PATENTS AND TRADEMARKS
- ----------------------
The Company currently has a variety of trademarks, service marks and
trade names. OBN Holdings and its three subsidiaries - Omni, Eclectic
and POD - all have logo designs, website addresses and websites. Logo
designs and website addresses have also been created for Eclectic
Entertainment's productions - Vegas Variety Hour, Mini Movie Hour,
Adventures of Unit 28, MovieTime Showcase and LA Food Scene have also
been developed. Logo designs for Eclectic Entertainment's two record
companies - Retro Records and Eclectic Recording Artists are currently
under development.
The Company has either registered, or is currently in the process of
registering the logo designs with the United States Patent and Trademark
Office.
55
LEGAL PROCEEDINGS
- -----------------
Neither OBN nor any of its subsidiaries have ever been involved in
litigation, nor is there any litigation pending.
EMPLOYEES
- ---------
As of the date of this prospectus we have a total of six (6) full-
time employees, including five (5) serving in executive capacities and 1
in administration. We presently do not have any labor union contract
between with any union nor do we anticipate unionization of our personnel
in the foreseeable future. We believe our relationships with our
employees are good.
DESCRIPTION OF PROPERTY
- -----------------------
Our principal office facility is presently located in a temporary
office pending building out new space in the same office complex. The
current principal office is a 200 square foot facility located at 8275
South Eastern Avenue, Suite 200, Las Vegas, NV 89123. We lease this
office at a rate of $400 per month under a lease that runs through August
2003 at which point our lease will be converted into a one-year lease.
Additionally, we lease approximately a 1,500 square foot facility located
at 4233 Wilshire Boulevard, Suite 300, Los Angeles, CA 90010. Our lease
runs through 2008 and provides for rent at an annual rate of
approximately $39,000, with an annual increase based on the consumer
price index.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND/FINANCIAL DISCLOSURE.
- -----------------------------------------------------------
Not applicable.
56
MANAGEMENT
Directors and Executive Officers
Our directors, executive officers and key employees are as follows:
Director
Name Age Position Since
- ---- --- -------- --------
Roger Neal Smith 51 President and CEO, OBN Holdings, Inc. 2003
Director
Larry Taylor, PhD 52 CFO, OBN Holdings, Inc. 2003
Director
Dennis Johnson 58 President and General Manager, 2003
Omni Broadcasting Network, Inc.
Director
Donald Wilson, Esq. 49 President, Eclectic Entertainment, Inc. N/A
Anita L. DeFrantz, Esq. 50 Director 2003
Barry Allen 63 Director 2003
Angela Oh, Esq. 48 Director 2003
Dennis Severson 48 Director 2003
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.
Dennis Johnson. Mr. Johnson began serving as President and General
Manager of the Omni Broadcasting Network, a wholly owned subsidiary of
OBN Holdings, in April 2003. From 1998 until joining us, Mr. Johnson
operated Dennis Johnson Productions, a film and television production
company that had a "first look" deal with Showtime Networks. From 1985
until 1998 Mr. Johnson worked for Showtime Networks, Inc. As Senior Vice
President at Showtime Networks, Mr. Johnson was responsible for
development and production of all original programming, including
budgets, post-production, press, and on-air and direct marketing
campaigns. Prior to his position with Showtime Networks, he served in
executive positions at the ABC and NBC television networks.
57
Donald Wilson, Esq. Mr. Wilson began serving as President of Eclectic
Entertainment, a wholly owned subsidiary of OBN Holdings, in April 2003.
Mr. Wilson 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.
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 1976 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 hold 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.
Angela Oh, Esq. Ms. Oh became a member of the Company's board of
directors since August 2003. She has been a partner with the law firm Oh
& Berra since 2002. Ms. Oh's community and professional involvements
include serving as Commissioner to the Los Angeles City Human Relations
Commission from 1996 to 2002, President of the Korean American Bar
Association of Southern California from 1993 to 1994, board member of the
California Women's Law Center from 1991 to 1997, board member of Lawyers'
Mutual Insurance Company from 1994 to present, and Lawyer Representative
to the Ninth Circuit Judicial Conference from 1994 to 1999.
Dennis Severson. Mr. Severson became a member of the Company's board of
directors since July 2003. He is the Chief Operating Officer with
Commerce Street Venture Group, and has served in that capacity since
2002. Prior to his position as COO, he held the position of Vice
President of Business Development with Commerce Street, and served in
that role from December 2000. For a period of three years, which began
in 1986, he served as a financial consultant with Dean Witter, where he
specialized in private placements. He has also functioned as a member of
the Minneapolis Grain Exchange between 1980 and 1983, and then again from
1996 to 1999, and worked in a management capacity for the organization
from 1988 to 1990.
Directors' Remuneration
- -----------------------
Our directors are presently not compensated for serving on the board
of directors.
58
Executive Compensation
- ----------------------
Employment Agreements
- ---------------------
Roger Neal Smith, President and Chief Executive of OBN Holdings;
Larry Taylor, Vice President and Chief Financial Officer of OBN Holdings;
Dennis Johnson, President and General Manager of Omni Broadcasting
Network; and Donald Wilson, President of Eclectic Entertainment have a
three-year compensation package, whereby they will receive a base salary
and a maximum bonus of 100% of salary should they meet all established
goals. Employment agreements for the officers were entered into on April
1, 2003.
Summary Compensation Table
- --------------------------
The following table sets forth the total compensation paid to or
accrued up to September 30, 2003 to our officers. None of our executives
have received a salary to date. Although the Company's operational
period began in February 2003, employment contracts with the officers
were not entered into until April 1, 2003. Prior to signing employment
agreements, Dennis Johnson and Donald Wilson were working with the
Company as consultants. Dennis Johnson received a combination of cash
and restricted stock for his services. Donald Wilson received restricted
stock for his services. Roger Smith and Larry Taylor, founders of the
Company, received no consideration. Accrued salaries will be paid with
the proceeds of the offering.
Annual Compensation
Long Term Compensation
Long Term Compensation
Annual Compensation Awards
------------------------------ -----------------------
Name and Principal Restricted Securities
Position Year Salary Bonus* Other** Stock Options***
- ------------------ ---- ------ ----- ------------ ---------- ----------
Roger Smith 2003 $ 62,500 0 $ 0 0 146,366
CEO/President 2002 0 0 0 0 0
Larry Taylor 2003 $57,500 0 $ 0 0 134,663
CFO 2002 0 0 0 0 0
Dennis Johnson 2003 $57,500 0 $179,276 0 134,663
Omni President 2002 0 0 0 0 0
Donald Wilson 2003 $36,000 0 $103,080 0 84,308
Eclectic President 2002 0 0 0 0 0
* Bonuses paid to executives are based on the entity for which the
executive is responsible exceeding its projected financial goals.
** Of the amount paid to Dennis Johnson, $179,276 was paid in common
stock at $0.90 per share for consulting services prior to his
appointment as the President of Omni Broadcasting. Of the amount paid
to Donald Wilson, $103,080 was paid in common stock at $0.90 per share
for consulting services prior to his appointment as the President of
Eclectic Entertainment.
*** Represents warrants to purchase shares of common stock that may be
acquired at an exercise price of $4.00 per share commencing 180 days
following the effective date of this prospectus. The shares were
granted to the individuals as performance incentives. A total of
500,000 warrants were divided among the individuals as a percentage of
each person's salary. The warrants listed in this table represent all
warrants granted to employees since the inception of the company.
None of the warrants are in the money. No other options have been
granted to employees.
59
Stock Option Grants in the past fiscal year
- -------------------------------------------
We have not issued any grants of stock options since inception.
60
PRINCIPAL SHAREHOLDERS
The following table sets forth information regarding beneficial
ownership of our common stock as of the date of this prospectus 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 Percent Percent
Name and Address of Shares Before After
Beneficial Owner<1> Owned Offering Offering<2> Notes
- -------------------- -------- -------- ------------ ------------
Roger N. Smith (Director and Officer) 2,049,809 30.21% 0% <3>
Magellan Capital Management 640,000 9.43% 0% <4>
Commerce Street Venture Group 625,000 9.21% 0% <5>
Larry Taylor (Director and Officer) 634,663 9.35% 0% <6>
Capitol City Investments 480,000 7.07% 0% <7>
Integrity Capital Management 465,000 6.85% 0% <8>
Dennis Johnson (Director and Officer) 335,091 4.94% 0% <9>
Dennis Severson (Director) 140,000 2.06% 0% <10>
Donald Wilson (Officer) 199,915 2.95% 0% <11>
L. G. Hancher, Jr. 350,000 5.16% 0% <12>
Anita L. DeFrantz (Director) 10,000 * 0% <13>
Barry Allen (Director) 0 * 0%
Angela Oh (Director) 0 * 0%
All Directors and Officers as a Group 3,369,478 49.66% 0%
(8 Persons)
_____________
* 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) Assumes the sale of all shares registered for sale by us
hereunder, including the warrants.
(3) Includes 192,678 shares personally owned by R.N. Smith family
members. Also includes warrants to purchase 146,366 shares of
common stock that may be acquired at an exercise price of $4.00
per share commencing 180 days following the effective date of this
prospectus. Mr. Smith has signed a lockup agreement prohibiting
him from selling his shares for a minimum of one year from the
effective date of this prospectus, which coincides with the
conclusion of this offering.
(4) Includes warrants to purchase 100,000 shares of common stock that
may be acquired at an exercise price of $4.00 per share commencing
180 days following the effective date of this prospectus.
Managing Partner David Dozier of Magellan Capital Management has
the ultimate voting or investment control over shares owned by
this company.
61
(5) Includes warrants to purchase 95,000 shares of common stock that
may be acquired by Commerce Street Venture Group at an exercise
price of $4.00 per share commencing 180 days following the
effective date of this prospectus. A five-member committee has
equal voting or investment control over shares owned by Commerce
Street Venture Group. Mr. Hancher is a member of that group.
(6) Includes 10,000 shares personally owned by L. Taylor family
members. Also includes warrants to purchase 134,663 shares of
common stock that may be acquired at an exercise price of $4.00
per share commencing 180 days following the effective date of this
prospectus. Mr. Taylor has signed a lockup agreement prohibiting
him from selling his shares for a minimum of one year from the
effective date of this prospectus, which coincides with the
conclusion of this offering.
(7) Ted London has the ultimate voting or investment control over
shares owned by Capitol City Investments.
(8) Includes warrants to purchase 155,000 shares of common stock that
may be acquired at an exercise price of $4.00 per share commencing
180 days following the effective date of this prospectus. A
finance committee holds the ultimate voting or investment control
over shares owned by Integrity Capital Management. No OBN officer
or director or 5% beneficial holder is a member of the committee.
(9) Includes warrants to purchase 134,663 shares of common stock that
may be acquired at an exercise price of $4.00 per share commencing
180 days following the effective date of this prospectus. Mr.
Johnson has signed a lockup agreement prohibiting him from selling
his shares for a minimum of one year from the effective date of
this prospectus, which coincides with the conclusion of this
offering. Mr. Johnson owns 7,750 shares of stock with no lock-up
period.
(10) Dennis Severson is an officer of Commerce Street Venture Group.
Mr. Severson has signed a lockup agreement prohibiting him from
selling his shares for a minimum of one year from the effective
date of this prospectus, which coincides with the conclusion of
this offering.
(11) Includes warrants to purchase 84,308 shares of common stock that
may be acquired at an exercise price of $4.00 per share commencing
180 days following the effective date of this prospectus. Mr.
Wilson has signed a lockup agreement prohibiting him from selling
his shares for a minimum of one year from the effective date of
this prospectus, which coincides with the conclusion of this
offering.
(12) Includes warrants to purchase 100,000 shares of common stock that
may be acquired at an exercise price of $4.00 per share commencing
180 days following the effective date of this prospectus.
(13) Ms. DeFrantz has signed a lockup agreement prohibiting her from
selling her shares for a minimum of one year from the effective
date of this prospectus, which coincides with the conclusion of
this offering.
62
SELLING SHAREHOLDERS
The selling shareholders are selling 6,785,360 shares, which includes
1,000,000 shares that will be issued from exercised warrants. The
Company is registering all of its outstanding common stock, including
stock owned by its executive officers and directors. The following table
sets forth certain information with respect to the ownership of our
common stock by selling shareholders as of November 21, 2003. Unless
otherwise indicated, none of the selling shareholders has or had a
position, office or other material relationship with us within the past
three years.
Ownership of Shares of Number Ownership of Shares of
Common Stock Prior to of Shares Common Stock After
Offering Offered Offering
-------- ------- --------
Selling Shareholder Shares Percentage Hereby Shares Percentage Notes
- ------------------- ------ ---------- ------ ------ ---------- -----
Roger Neal Smith 1,857,131 27.37% 1,857,131 0 0% <F1>
Magellan Capital Management, Inc. 640,000 9.43% 640,000 0 0% <F2>
Commerce Street Venture Group 625,000 9.21% 625,000 0 0% <F3>
Larry Taylor 624,663 9.21% 624,663 0 0% <F4>
Capitol City Investments 480,000 7.07% 480,000 0 0% <F5>
Integrity Capital Management, LLC. 465,000 6.85% 465,000 0 0% <F6>
L.G. Hancher Jr. 350,000 5.16% 350,000 0 0% <F7>
SAC Financial Management, Inc. 300,000 4.42% 300,000 0 0% <F8>
Dennis Johnson 335,091 4.94% 335,091 0 0% <F9>
Dennis Severson 140,000 2.06% 140,000 0 0% <F10>
Donald Wilson 199,915 2.95% 199,915 0 0% <F11>
Keiko Smith 115,607 1.70% 115,607 0 0% <F12>
Teresa Elaqua 115,607 1.70% 115,607 0 0%
Rikiya Smith 77,071 1.14% 77,071 0 0% <F12>
David Finke 70,000 1.03% 70,000 0 0%
Michael Walker 50,000 * 50,000 0 0%
Marwan T. Abboushi 45,000 * 45,000 0 0%
Barry Robinson 38,536 * 38,536 0 0%
Timothy Williams 38,536 * 38,536 0 0%
Robert Armstrong 20,000 * 20,000 0 0%
Carolyn Hajebi 19,268 * 19,268 0 0%
Gerald Nelson 17,500 * 17,500 0 0%
Anita L. DeFrantz 10,000 * 10,000 0 0% <F13>
Mashahiko Yagyu 10,000 * 10,000 0 0%
Richard Sindicich 10,000 * 10,000 0 0%
Tina McBride 10,000 * 10,000 0 0%
Yeah, Inc. 10,000 * 10,000 0 0% <F14>
Robert Kealing 9,924 * 9,924 0 0%
Megumi Shibata 8,000 * 8,000 0 0%
Corine Taylor 5,000 * 5,000 0 0% <F15>
Cory Caldwell 5,000 * 5,000 0 0%
Creighton Taylor 5,000 * 5,000 0 0% <F15>
Josh Cureton 5,000 * 5,000 0 0%
Kay Black 5,000 * 5,000 0 0%
Natalie Caldwell 5,000 * 5,000 0 0%
Nathan Caldwell 5,000 * 5,000 0 0%
Robin Armstrong-Irving 5,000 * 5,000 0 0%
Takeo Suzuki 5,000 * 5,000 0 0%
Tanisha Cureton 5,000 * 5,000 0 0%
Tiffany Caldwell 5,000 * 5,000 0 0%
63
Toshi Murakami 5,000 * 5,000 0 0%
Charles Hayes 3,854 * 3,854 0 0%
Norma Black 3,154 * 3,154 0 0%
Susan Johnson 3,083 * 3,083 0 0%
Terral Santiel 2,500 * 2,500 0 0%
Milano Mellon 2,158 * 2,158 0 0%
Jacqueline Alexander 2,000 * 2,000 0 0%
Tony Haynes 2,000 * 2,000 0 0%
Patrick Muccio 1,927 * 1,927 0 0%
Kokayi Ampah 1,541 * 1,541 0 0%
Global Wealth Investing 1,250 * 1,250 0 0% <16>
Gertrude Arrington 1,000 * 1,000 0 0%
Sheila A. Stamps 1,000 * 1,000 0 0%
Georgia Smith 925 * 925 0 0%
Kalvin Cressel 771 * 771 0 0%
Renae Johnson 700 * 700 0 0%
Cedric Carpenter 531 * 531 0 0%
David Nelson 500 * 500 0 0%
DeWayne Porter 500 * 500 0 0%
Kirk Gardner 500 * 500 0 0%
Marceil Wright 500 * 500 0 0%
Marcus Carpenter 500 * 500 0 0%
William Medlock 500 * 500 0 0%
Nathaniel Caldwell 308 * 308 0 0%
Randy Scott 200 * 200 0 0%
Rommel Baker 200 * 200 0 0%
Mayme Clayton 154 * 154 0 0%
Taunee English 154 * 154 0 0%
Samia Lee 150 * 150 0 0%
Dawn Johnson 100 * 100 0 0%
Gifty Painstil 100 * 100 0 0%
Patricia Johnson 100 * 100 0 0%
Share Lee 100 * 100 0 0%
Sheila E. Hale 100 * 100 0 0%
Stephanie Reynolds 100 * 100 0 0%
Sunzie Sene 100 * 100 0 0%
Ana Thorne 77 * 77 0 0%
Isadore Hall 77 * 77 0 0%
James Tanner 77 * 77 0 0%
Katy Kim 20 * 20 0 0%
_______________________
* Indicates less than 1%
(1) Roger Smith is the President and CEO of OBN Holdings, Inc. and a
Director. Includes warrants to purchase 146,366 shares of common
stock that may be acquired at an exercise price of $4.00 per share
commencing 180 days following the effective date of this prospectus.
Mr. Smith has signed a lockup agreement prohibiting him from selling
his shares for a minimum of one year from the effective date of this
prospectus, which coincides with the conclusion of this offering.
(2) Includes warrants to purchase 100,000 shares of common stock that may
be acquired at an exercise price of $4.00 per share commencing 180
days following the effective date of this prospectus. Managing
Partner David Dozier of Magellan Capital Management has the ultimate
voting or investment control over shares owned by this company.
64
(3) Includes warrants to purchase 95,000 shares of common stock that may
be acquired at an exercise price of $4.00 per share commencing 180
days following the effective date of this prospectus. A five-member
committee has equal voting or investment control over shares owned by
Commerce Street Venture Group. Mr. Hancher is a member of the
committee.
(4) Larry Taylor is the CFO of OBN Holdings, Inc. and a Director.
Includes warrants to purchase 134,663 shares of common stock that may
be acquired at an exercise price of $4.00 per share commencing 180
days following the effective date of this prospectus. Mr. Taylor has
signed a lockup agreement prohibiting him from selling his shares for
a minimum of one year from the effective date of this prospectus,
which coincides with the conclusion of this offering.
(5) Ted London has the ultimate voting or investment control over shares
owned by Capitol City Investments.
(6) Includes warrants to purchase 155,000 shares of common stock that may
be acquired at an exercise price of $4.00 per share commencing 180
days following the effective date of this prospectus. A finance
committee holds the ultimate voting or investment control over shares
owned by Integrity Capital Management.
(7) L. G. Hancher is an officer with Commerce Street Venture Group.
Includes warrants to purchase 100,000 shares of common stock that may
be acquired at an exercise price of $4.00 per share commencing 180
days following the effective date of this prospectus.
(8) Includes warrants to purchase 50,000 shares of common stock that may
be acquired at an exercise price of $4.00 per share commencing 180
days following the effective date of this prospectus. Michael Ager
has the ultimate voting or investment control over shares owned by
SAC Financial Management.
(9) Dennis Johnson is the President & General Manager of Omni
Broadcasting Network and a Director. Includes warrants to purchase
134,663 shares of common stock that may be acquired at an exercise
price of $4.00 per share commencing 180 days following the effective
date of this prospectus. Mr. Johnson has signed a lockup agreement
prohibiting him from selling his shares for a minimum of one year
from the effective date of this prospectus, which coincides with the
conclusion of this offering.
(10) Dennis Severson is a Director of the Company and an officer with
Commerce Street Venture Group. Mr. Severson has signed a lockup
agreement prohibiting him from selling his shares for a minimum of
one year from the effective date of this prospectus, which coincides
with the conclusion of this offering.
(11) Donald Wilson is the President of Eclectic Entertainment, Inc.
Includes warrants to purchase 84,308 shares of common stock that may
be acquired at an exercise price of $4.00 per share commencing 180
days following the effective date of this prospectus. Mr. Wilson has
signed a lockup agreement prohibiting him from selling his shares for
a minimum of one year from the effective date of this prospectus,
which coincides with the conclusion of this offering.
(12) Keiko Smith and Rikiya Smith are related to the CEO of OBN Holdings.
(13) Anita L. DeFrantz is a Director of the Company. Ms. DeFrantz has
signed a lockup agreement prohibiting her from selling her shares for
a minimum of one year from the effective date of this prospectus,
which coincides with the conclusion of this offering.
(14) Melvin Van Peebles has the ultimate voting or investment control over
shares owned by Yeah, Inc.
(15) Corine Taylor and Creighton Taylor are related to the CFO of OBN
Holdings.
(16) Jamee Duruso has the ultimate voting or investment control over
shares owned by Global Wealth Investing.
65
CERTAIN TRANSACTIONS
In fiscal 2003, the Company issued 316,035 shares of common stock to
two officers of the Company in exchange for services performed. The
shares issued ranged in value from $0.65 to $2.00 per share totaling
$282,356, which is recorded in selling, general and administrative
expenses in the consolidated statement of operations included elsewhere
in the prospectus. The following is a breakdown of the shares issued.
Recipient Company Position Date of Number Price Total
Issuance of Shares Per Share Value
Dennis Johnson Director 7/26/02 9,634 0.65 $6,262
President and General 12/1/02 28,902 0.65 $18,786
Manager, Omni
Broadcasting 1/15/03 154,142 0.15 $138,728
Network
6/1/03 7,750 2.00 $15,500
TOTAL COMPENSATION $179,276
Donald Wilson Director 7/26/02 3,854 0.65 $2,502
President 1/15/03 111,753 0.15 $100,578
Eclectic Entertainment
TOTAL COMPENSATION $103,080
TOTAL 316,035 $282,356
On April 1, 2003, Mr. Johnson and Mr. Wilson signed employment
agreements with the company. Prior to that time, they performed services
to the company in the capacity of consultants. The services performed by
Mr. Johnson were primarily on behalf of Omni Broadcasting, and were
related to programming, securing content and developing strategic
entertainment relationships. Mr. Johnson was paid a combination of cash
and stock for his services. The $0.65 per share rate recorded in July
2002 and December 2002 reflects the cash price paid for stock by third-
party investors during that time period. The $0.90 per share value
recorded on January 15, 2003 reflects a discounted value for the shares
based on restrictions that came into force, and are currently in force,
when Mr. Johnson joined the Board. Of the total 154,142 shares issued at
the $0.90 rate, 50% of the shares have a lock-up period of one year, 25%
of the shares have a lock-up period of two years, and 25% of the shares
have a lock-up period of three years. The $2.00 per share rate recorded
in June 2003 reflects the conversion of cash owed to Mr. Johnson for
consulting services rendered prior to April 1, 2003. The $2.00 share
price was based on the price stock was sold to third-party cash investors
during that time period.
The services performed by Mr. Wilson were on behalf of Omni
Broadcasting and Eclectic Entertainment, and were related to contracts,
legal matters and developing strategic entertainment relationships. Mr.
Wilson was paid stock for his services. The $0.65 per share rate
recorded in July 2002 reflects the cash price paid for stock by third-
party investors during that time period. The $0.90 per share value
recorded on January 15, 2003 reflects a discounted value for the shares
based on restrictions that came into force, and are currently in force,
when he became a Board member. Of the total 111,753 shares issued at the
$0.90 rate, 50% of the shares have a lock-up period of one year, 25% of
the shares have a lock-up period of two years, and 25% of the shares have
a lock-up period of three years.
66
DESCRIPTION OF SECURITIES
General
- -------
Our authorized capital stock consists of 50,000,000 shares of common
stock, par value $0.001 per share, and 20,000,000 shares of preferred
stock, par value $.0001 per share. As of the date of this prospectus,
5,785,360 shares of common stock and no shares of preferred stock were
outstanding. The transfer agent for our common stock is Atlas Stock
Transfer in Salt Lake City, Utah.
Common Stock
- ------------
We are authorized to issue 50,000,000 shares of our common stock,
$0.001 par value, of which 5,785,360 shares are issued and outstanding as
of the date of this prospectus. The issued and outstanding shares of
common stock are fully paid and non-assessable. Except as provided by law
or our certificate of incorporation with respect to voting by class or
series, holders of common stock are entitled to one vote on each matter
submitted to a vote at a meeting of shareholders.
Subject to any prior rights to receive dividends to which the
holders of shares of any series of the preferred stock may be entitled,
the holders of shares of common stock will be entitled to receive
dividends, if and when declared payable from time to time by the board of
directors, from funds legally available for payment of dividends. Upon
our liquidation or dissolution, holders of shares of common stock will be
entitled to share proportionally in all assets available for distribution
to such holders.
Preferred Stock
- ---------------
The board of directors has the authority, without further action by
our shareholders, to issue up to 20,000,000 shares of preferred stock,
par value $.001 per share, in one or more series and to fix the rights,
preferences, privileges and restrictions thereof, including dividend
rights, conversion rights, voting rights, terms of redemption,
liquidation preferences and the number of shares constituting any series
or the designation of such series. No shares of preferred stock are
currently issued and outstanding. The issuance of preferred stock could
adversely affect the voting power of holders of common stock and could
have the effect of delaying, deferring or preventing a change of our
control.
Warrants
- --------
Certain shares of common stock offered by OBN had warrants attached,
which were issued on March 31, 2003. We presently have 1,000,000
warrants outstanding. Each warrant entitles the holder thereof to
purchase one share of common stock at a price per share of $4.00
beginning 180 days following the effectiveness of this registration
statement and ending on August 25, 2006. Each unexercised warrant is
redeemable by us at a redemption price of $0.001 per warrant at any time,
upon 30 days written notice to holders thereof, if (a) our 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 exercise price.
67
Pursuant to applicable federal and state securities laws, in the
event a current prospectus is not available, the warrant holders may be
precluded from exercising the warrants and we would be precluded from
redeeming the warrants. There can be no assurance that we will not be
prevented by financial or other considerations from maintaining a current
prospectus. Any warrant holder who does not exercise prior to the
redemption date, as set forth in our notice of redemption, will forfeit
the right to purchase the common stock underlying the warrants, and after
the redemption date or upon conclusion of the exercise period, any
outstanding warrants will become void and be of no further force or
effect, unless extended by our Board of Directors.
The number of shares of common stock that may be purchased with the
warrants is subject to adjustment upon the occurrence of certain events,
including a dividend distribution to our shareholders or a subdivision,
combination or reclassification or our outstanding shares of common
stock. The warrants do not confer upon holders any voting or any other
rights as our shareholders.
We may at any time, and from time to time, extend the exercise
period of the warrants, provided that written notice of such extension is
given to the warrant holders prior to the expiration date then in effect.
Also, we may reduce the exercise price of the warrants for limited
periods or through the end of the exercise period if deemed appropriate
by the Board of Directors. Any extension of the term and/or reduction of
the exercise price of the warrants will be subject to compliance with
Rule 13e-4 under the Exchange Act including the filing of a Schedule 14E-
4. Notice of any extension of the exercise period and/or reduction of
the exercise price will be given to the warrant holders. We do not
presently contemplate any extension of the exercise period or any
reduction in the exercise price of the warrants. The warrants are also
subject to price adjustment upon the occurrence of certain events
including subdivisions or combinations of our common stock.
Market for Common Equity and Related Stockholder Matters
- --------------------------------------------------------
There is no established public market for our common stock and we
have arbitrarily determined the offering price. Although we hope to be
quoted on the OTC Bulletin Board, our common stock is not currently
listed or quoted on any quotation service. There can be no assurance that
our common stock will ever be quoted on any quotation service or that any
market for our stock will ever develop or, if developed, will be
sustained.
As of November 21, 2003, there were 80 shareholders of record of our
common stock and a total of 5,785,360 shares outstanding. All 5,785,360
shares are being registered in this offering and accordingly there are no
outstanding shares at this time that would be subject to Rule 144.
68
INDEMNIFICATION
Article 11 of our Articles of Incorporation includes certain
provisions permitted by the Nevada Revised Statutes, which provides for
indemnification of directors and officers against certain liabilities.
Pursuant to our Articles of Incorporation, our officers and directors are
indemnified, to the fullest extent available under Nevada Law, against
expenses actually and reasonably incurred in connection with threatened,
pending or completed proceedings, whether civil, criminal or
administrative, to which an officer or director is, was or is threatened
to be made a party by reason of the fact that he or she is or was one of
our officers, directors, employees or agents. We may advance expenses in
connection with defending any such proceeding, provided the indemnitee
undertakes to repay any such amounts if it is later determined that he or
she was not entitled to be indemnified by us.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to our directors, officers and
controlling persons pursuant to the foregoing provisions or otherwise, we
have been advised that in the opinion of the SEC such indemnification is
against public policy as expressed in the Securities Act and is
therefore, unenforceable.
69
PLAN OF DISTRIBUTION
Our offering:
- -------------
We will conduct the sale of the shares we are offering on a
self-underwritten, best-efforts basis. This means that we do not have an
underwriter and that we will sell the shares directly to investors.
Participating on our behalf in the distribution is Roger Neal Smith, our
President and CEO, Larry Taylor, our Principal Financial Officer, Dennis
Johnson, an officer of the company and Donald Wilson, our Secretary, each
of whom is exempt from registration as a broker dealer under Rule 3a4-1
of the Securities Exchange Act. Any officer or director involved with
the distribution of the stock will act in reliance on and in compliance
with Rule 3a4-1. All shares of our common stock that we are registering
for sale by us that we are able to sell will be sold at a price per share
of $3.00. There can be no assurance that we will sell all or any of the
shares offered. We have no arrangement or guarantee that we will sell
any shares. All subscription checks shall be made to the order of OBN
Holdings, Inc. Our offering will terminate on the earlier of the sale of
all of the shares or 365 days after the date of the prospectus. Please
remember that there is no minimum amount of shares that we are required
to sell in the offering.
Shares of common stock personally held by Messrs. Smith, Taylor,
Johnson, Wilson and our outside directors are also being registered,
which could result in a conflict of interest between the selling of
company stock and the selling of shares owned by these individuals. To
reduce the conflict, all officers and directors have signed lockup
agreements that prohibit them from selling their shares for a minimum of
one year from the effective date of this prospectus, which coincides with
the conclusion of this offering.
Offering by the selling shareholders:
- -------------------------------------
The selling shareholders will sell their shares at a price per share
of $3.00 per share until our shares are traded on the Over The Counter
Bulletin Board and thereafter at prevailing market prices or in privately
negotiated transactions. Accordingly, the prices at which the selling
shareholder's shares are sold may be different than the price of shares
that we sell. These sales by selling shareholders may occur
contemporaneously with sales by us. The selling shareholders offering
will terminate on the sale of all of the shares. The sale of the common
stock offered by the selling shareholders through this prospectus may be
affected in one or more of the following methods:
* Ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
* Block trades in which the broker-dealer will attempt to sell the
shares as agent but may position and resell a portion of the block as
principal to facilitate the transaction;
* Purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
* An exchange distribution in accordance with the rules of the
applicable exchange;
* Privately negotiated transactions;
* A combination of any such methods of sale; and
* Any other method permitted pursuant to applicable law.
70
In order to comply with the securities laws of certain states, if
applicable, the shares may be sold only through registered or licensed
brokers or dealers. In addition, in certain states, the shares may not
be sold unless they have been registered or qualified for sale in such
state or an exemption from such registration or qualification requirement
is available and complied with.
The selling stockholders may pledge their shares to their brokers
under the margin provisions of customer agreements. If a selling
stockholder defaults on a margin loan, the broker may, from time to time,
offer and sell the pledged shares.
Broker-dealers engaged by the selling stockholders may arrange for
other brokers-dealers to participate in sales. Broker-dealers may
receive commissions or discounts from the selling stockholders (or, if
any broker-dealer acts as agent for the purchaser of shares, from the
purchaser) in amounts to be negotiated. The selling stockholders do not
expect these commissions and discounts to exceed what is customary in the
types of transactions involved.
The selling stockholders and any broker-dealers or agents that are
involved in selling the shares may be deemed to be "underwriters" within
the meaning of the Securities Act in connection with such sales. In such
event, any commissions received by such broker-dealers or agents and any
profit on the resale of the shares purchased by them may be deemed to be
underwriting commissions or discounts under the Securities Act.
We will pay all of the expenses incident to the registration,
offering and sale of the shares to the public, but will not pay
commissions and discounts, if any, of underwriters, broker-dealers or
agents, or counsel fees or other expenses of the selling shareholders.
We have also agreed to indemnify the selling shareholders and related
persons against specified liabilities, including liabilities under the
Securities Act.
We have advised the selling shareholders that while they are engaged
in a distribution of the shares included in this prospectus they are
required to comply with Regulation M promulgated under the Securities
Exchange Act of 1934, as amended. With certain exceptions, Regulation M
precludes the selling shareholders, any affiliated purchasers, and any
broker-dealer or other person who participates in such distribution from
bidding for or purchasing, or attempting to induce any person to bid for
or purchase any security which is the subject of the distribution until
the entire distribution is complete. Regulation M also prohibits any
bids or purchases made in order to stabilize the price of a security in
connection with the distribution of that security. All of the foregoing
may affect the marketability of the shares offered hereby in this
prospectus.
Selling shareholders will be free to sell their shares at a price
per share of $3.00 through this offering until the Company's shares are
traded on the OTC Bulletin Board and thereafter at prevailing market
prices or privately negotiated prices.
LEGAL MATTERS
The Law Office of L. Van Stillman, P.A. of Delray Beach, Florida
will give an opinion for us regarding the validity of the common stock
offered in this prospectus.
71
EXPERTS
The financial statements as of June 30, 2003 and for the years ended
June 30, 2003 and 2002, and for the period from January 17, 2001 (date of
inception) to June 30, 2003 included in this prospectus have been so
included in reliance on the report of Corbin & Company, LLP, independent
accountants, given on the authority of said firm as experts in auditing
and accounting.
72
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement under the Securities Act with
respect to the securities offered hereby with the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549. This prospectus, which is a part
of the registration statement, does not contain all of the information
contained in the registration statement and the exhibits and schedules
thereto, certain items of which are omitted in accordance with the rules
and regulations of the Commission. For further information with respect
to OBN Holdings, Inc. and the securities offered hereby, reference is made
to the registration statement, including all exhibits and schedules
thereto, which may be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N. W., Room
1024, Washington, D. C. 20549 at prescribed rates during regular business
hours. You may obtain information on the operation of the public
reference facilities by calling the Commission at 1-800-SEC-0330. Also,
the SEC maintains an Internet site that contains reports, proxy and
information statements, and other information regarding issuers that file
electronically with the Commssion at http://www.sec.gov. Statements
contained in this prospectus as to the contents of any contract or other
document are not necessarily complete, and in each instance reference is
made to the copy of such contract or document filed as an exhibit to the
registration statement, each such statement being qualified in its
entirety by such reference. We will provide, without charge upon oral or
written request of any person, a copy of any information incorporated by
reference herein. Such request should be directed to us at OBN Holdings,
Inc., 8275 South Eastern Avenue, Suite 200, Las Vegas, Nevada 89123,
Attention: Roger Neal Smith, President.
Following the effectiveness of this registration statement, we will
file reports and other information with the Commission. All of such
reports and other information may be inspected and copied at the
Commission's public reference facilities described above. The Commission
maintains a web site that contains reports, proxy and information
statements and other information regarding issuers that file
electronically with the Commission. The address of such site is
http://www.sec.gov. In addition, we intend to make available to our
shareholders annual reports, including audited financial statements,
unaudited quarterly reports and such other reports as we may determine.
73
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
OBN Holdings, Inc.
We have audited the accompanying consolidated balance sheet of OBN
Holdings, Inc. (a California corporation) and subsidiaries (the
"Company") as of June 30, 2003 and the related consolidated statements
of operations, stockholders' equity and cash flows for each of the
years in the two-year period then ended and for the period from
January 17, 2001 (date of inception) to June 30, 2003. These
consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the consolidated financial statements are free
of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the
consolidated 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, based on our audits, the consolidated financial
statements referred to above present fairly, in all material respects,
the financial position of OBN Holdings, Inc. and subsidiaries (a
development stage company) as of June 30, 2003, and the results of
their operations and their cash flows for each of the years in the
two-year period then ended and for the period from January 17, 2001
(date of inception) to June 30, 2003 in conformity with accounting
principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. The Company is in the
development stage, has limited cash resources and has a working
capital deficit as of June 30, 2003. These conditions raise
substantial doubt about its ability to continue as a going concern.
As discussed in Note 1 to the financial statements, successful
completion of the Company's programming content and ultimately the
attainment of profitable operations is dependent on future events,
including obtaining adequate financing to complete development
activities and achieving a level of sales adequate to support the
Company's cost structure. Management's plans regarding those matters
also are described in Note 1. The financial statements do not include
any adjustments that might result from the outcome of this
uncertainty.
CORBIN & COMPANY, LLP
Irvine, California
August 7, 2003, except for Note 8,
as to which the date is August 18, 2003
F-1
OBN HOLDINGS, INC.
(A Developmental Stage Company)
CONSOLIDATED BALANCE SHEET
ASSETS June 30, 2003
--------------
Current assets:
Cash and cash equivalents $ 28,795
Accounts receivable, net of allowance for doubtful
accounts of $14,500 206,900
--------------
Total current assets 235,695
Fixed assets, net -
Website development costs, net of accumulated amortization of $13,675 58,800
Deposits 36,060
---------------
$ 330,555
===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 82,237
Accrued payroll and related 114,224
Obligations under capital lease 50,771
Related party note payable 7,000
---------------
Total current liabilities 254,232
---------------
Commitments and contingencies
Stockholders' equity:
Undesignated preferred stock, $.001 par value; 20,000,000 shares
authorized; no shares issued and outstanding -
Common stock, $0.001 par value; 50,000,000 shares authorized;
5,730,310 shares issued and outstanding 5,730
Additional paid-in capital 3,096,683
Prepaid consulting expense (56,339)
Deficit accumulated during development stage (2,969,751)
---------------
Total stockholders' equity 76,323
---------------
$ 330,555
===============
See independent auditors' report and accompanying notes to consolidated
financial statements.
F-2
OBN HOLDINGS, INC.
(A Developmental Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
For The
Period
January 17,
2001
(Date of
Inception)
For The Years Ended June 30, To June 30,
2003 2002 2003
------- ------ ------------
Revenue $ 33,639 $ - $ 33,639
Cost of sales 10,800 - 10,800
--------- --------- --------------
Gross profit 22,839 - 22,839
Selling, general and administrative expenses 3,118,165 33,481 3,173,773
--------- --------- --------------
Loss from operations (3,095,326) (33,481) (3,150,934)
--------- --------- --------------
Other income (expense):
Other income 200,000 21,600 221,600
Loss on sale of equipment (27,352) - (27,352)
Interest expense (10,665) - (10,665)
--------- --------- --------------
Total other income,net 161,983 21,600 183,583
--------- --------- --------------
Loss before income taxes (2,933,343) (11,881) (2,967,351)
Income taxes 800 800 2,400
--------- --------- -------------
Net loss $(2,934,143) $ (12,681) $ (2,969,751)
=========== ========= =============
Net loss available to common stockholders
per common share:
Net loss per common share - basic
and diluted $ (0.88) $ (0.01)
=========== ============
Weighted average shares outstanding:
Basic and diluted 3,336,156 2,394,038
=========== ============
See independent auditors' report and accompanying notes to consolidated
financial statements.
F-3
OBN HOLDINGS, INC.
(A Developmental Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS'EQUITY
For The Years Ended June 30, 2003 and 2002 and
For The Period From January 17, 2001(Date of Inception)
To June 30, 2003
Deficit
Accumulated
Undesignated Additional Prepaid During Total
Preferred Stock Common Stock Paid-in Consulting Development Stockholders'
Shares Amount Shares Amount Capital Expenses Stage Equity
------ ------ --------- ------ ---------- ---------- ----------- ------------
Balance, January 17, 2001 - $ - - $ - $ - $ - $ - $ -
Stock issued to founders - - 2,386,571 2,387 (2,387) - - -
Stock issued for cash at $1.30
per share in June 2001 - - 462 - 600 - - 600
Net loss - - - - - - (22,927) (22,927)
------- ------- --------- ------ ---------- ---------- ----------- ------------
Balance, June 30, 2001 - - 2,387,033 2,387 (1,787) - (22,927) (22,327)
Stock issued for cash at $0.65 to
$1.30 per share in July and
August 2001 - - 4,316 4 2,896 - - 2,900
Stock issued for services at
$0.65 per share in April 2002 - - 11,561 12 7,502 - - 7,514
Net loss - - - - - - (12,681) (12,681)
------- ------- --------- ------ ----------- ---------- ----------- ------------
Balance, June 30, 2002 - - 2,402,910 2,403 8,611 - (35,608) (24,594)
Stock issued for services at $0.65
per share in July and December
2002 - - 47,785 48 31,015 - - 31,063
See independent auditors' report and accompanying notes to consolidated
financial statements.
Continued... F-4
OBN HOLDINGS, INC.
(A Developmental Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS'EQUITY - Continued
For The Years Ended June 30, 2003 and 2002 and
For The Period From January 17, 2001(Date of Inception)
To June 30, 2003
Deficit
Accumulated
Undesignated Additional Prepaid During Total
Preferred Stock Common Stock Paid-in Consulting Development Stockholders'
Shares Amount Shares Amount Capital Expenses Stage Equity
------ ------ --------- ------ ---------- ---------- ----------- ------------
Stock issued for cash at $0.50 to
$1.00 per share in March and
April 2003 - - 90,500 91 50,409 - - 50,500
Restricted stock issued for services
at $0.90 per share in January
and March 2003 - - 2,795,896 2,795 2,513,512 - - 2,516,307
Stock issued for services at $1.00
per share in January to April
2003 - - 274,909 275 274,634 (56,339) - 218,570
Stock issued for conversion of
related party notes payable at
$1.00 per share in March and
April 2003 - - 18,000 18 17,982 - - 18,000
Stock issued for cash at $2.00 per
share in May and June 2003 - - 62,500 62 124,938 - - 125,000
See independent auditors' report and accompanying notes to consolidated
financial statements.
F-5
OBN HOLDINGS, INC.
(A Developmental Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS'EQUITY - Continued
For The Years Ended June 30, 2003 and 2002 and
For The Period From January 17, 2001(Date of Inception)
To June 30, 2003
Deficit
Accumulated
Undesignated Additional Prepaid During Total
Preferred Stock Common Stock Paid-in Consulting Development Stockholders'
Shares Amount Shares Amount Capital Expenses Stage Equity
------ ------ --------- ------ ---------- ---------- ----------- ------------
Stock issued for services at $2.00
per share in June 2003 - - 7,750 8 15,492 - - 15,500
Stock issued for conversion of
related party notes payable at $2.00
per share in June 2003 - - 30,060 30 60,090 - - 60,120
Net loss - - - - - - (2,934,143) (2,934,143)
------- ------- --------- ------ ---------- --------- ----------- ------------
Balance, June 30, 2003 - $ - 5,730,310 $5,730 $3,096,683 $(56,339) $(2,969,751 $ 76,323
======= ======= ========= ====== ========== ========= =========== ============
See independent auditors' report and accompanying notes to consolidated
financial statements.
F-6
OBN HOLDINGS, INC.
(A Developmental Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The
Period
January 17, 2001
For The Years Ended June 30, (Date of
----------------------------- Inception)
2003 2002 To June 30, 2003
--------- --------- -----------------
Cash flows from operating activities:
Net loss $(2,934,143) $ (12,681) $ (2,969,751)
Adjustments to reconcile net loss to
net cash used in operating activities:
Amortization 13,143 532 13,675
Bad debt provision - 14,500 14,500
Loss on sale of equipment 27,352 - 27,352
Shares issued for services 2,715,352 1,127 2,716,479
Changes in operating assets and liabilities:
Accounts receivable, net (449,800) (21,600) (471,400)
Prepaid expenses and other current assets - 3,000 -
Deposits (36,060) - (36,060)
Accounts payable and accrued expenses 443,002 3,312 446,461
------------ ------------ ------------------
Net cash used in operating activities (221,154) (11,810) (258,744)
------------ ------------ ------------------
Cash flows provided by investing activities:
Proceeds on sale of equipment 24,309 - 24,309
------------ ------------ ------------------
Cash flows from financing activities:
Proceeds from related party notes payable 85,120 20,552 131,652
Repayments on related notes payable (34,532) (12,000) (46,532)
Repayments under capital lease obligations (890) - (890)
Proceeds from issuance of common stock 175,500 2,900 179,000
------------- ------------ -----------------
Net cash provided by financing activities 225,198 11,452 263,230
------------- ------------ -----------------
Net change in cash 28,353 (358) 28,795
Cash, beginning of year 442 800 -
------------- ------------- -----------------
Cash, end of year $ 28,795 $ 442 $ 28,795
Supplemental disclosure of cash flow information: ============= ============= =================
Cash paid during the year for:
Interest $ 9,835 $ - $ 9,835
============= ============= =================
Income taxes $ 800 $ 800 $ 1,600
============= ============= =================
Supplemental disclosures of noncash investing
and financing activities:
Purchase of property and equipment under
capital lease $ 51,661 $ - $ 51,661
============= ============= ================
Shares issued in exchange for website
development costs $ 66,088 $ 6,387 $ 72,475
============= ============= ================
Related party notes converted to common stock $ 78,120 $ - $ 78,120
============= ============= ================
See independent auditors' report and accompanying notes to consolidated
financial statements.
F-7
OBN HOLDINGS, INC.
(A Developmental Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended June 30, 2003 and 2002 and
For The Period From January 17, 2001(Date of Inception)
To June 30, 2003
NOTE 1 - SUMMARY AND SIGNIFICANT ACCOUNTING POLICIES
- ----------------------------------------------------
Nature of Operations and Principles of Consolidation
- ----------------------------------------------------
OBN Holdings, Inc. (the "Company") is an entertainment company engaged
in television broadcasting, feature film and television production,
music production and distribution, and merchandising.
The Company's wholly owned subsidiaries consist of Omni Broadcasting
Network, Inc. ("Omni"), Products on Demand Channel, Inc. and Eclectic
Entertainment, Inc. (with its wholly owned subsidiaries consisting of
Adventures of Unit 28, L.A. Food Scene, Inc., The Mini Movie Hour, "B"
Movie Classics, The Vegas Variety Hour, Retro Records, Inc. and
Eclectic Recording Artists, Inc.). All intercompany transactions and
balances have been eliminated in consolidation.
Development Stage Enterprise and Going Concern
- ----------------------------------------------
The Company is a development stage company as defined in Statement of
Financial Accounting Standards ("SFAS") No. 7, "Accounting and
Reporting by Development Stage Enterprises." The Company is devoting
substantially all of its present efforts to establish a new business,
and its planned principal operations have not yet commenced. All
losses accumulated since inception have been considered as part of the
Company's development stage activities.
The accompanying consolidated financial statements have been prepared
in conformity with accounting principles generally accepted in the
United States of America, which contemplate continuation of the
Company as a going concern. The Company has not generated significant
revenues from operations and has no assurance of any future revenues.
The Company incurred a net loss of $2,934,143 during the year ended
June 30, 2003 and had a cash balance of approximately $29,000 at June
30, 2003. In addition, at June 30, 2003, the Company's deficit
accumulated during the development stage was $2,969,751 and the
Company had negative working capital of $18,537. Management recognizes
that the Company must obtain additional capital for the eventual
achievement of sustained profitable operations. Management's plans
include obtaining additional capital through an initial public
offering, other equity financing sources and the extension of existing
debt. However, no assurance can be given that additional capital, if
needed, will be available when required or upon terms acceptable to
the Company or that the Company will be successful in its efforts to
negotiate the extension of its existing debt.
F-8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended June 30, 2003 and 2002 and
For The Period From January 17, 2001(Date of Inception)
To June 30, 2003
NOTE 1 - SUMMARY AND SIGNIFICANT ACCOUNTING POLICIES, continued
- ---------------------------------------------------------------
Segment Information Reporting
- -----------------------------
Prior to fiscal 2003, the Company had no segments as it was in the
early stages of development. Beginning in fiscal 2003, management
measures the Company's performance in three distinct segments: (1)
Prime Time Broadcasting, which will be measured by program ratings and
the types of advertisers attracted by such ratings; (2) TV and Film
Production, which requires creative talent and has a longer lead time
to determine success; and (3) Infomercial Broadcasting, which is
measured based on traditional selling techniques and metrics.
A summary of the segments as of and for the year ended June 30, 2003
is presented in the table below:
Segment Reporting as of June 30, 2003
------------------------------------------------------------------------------
OBN Segments
---------------------------------------
Prime Time TV & Film Infomercial Corporate Reconciling Total
Broadcasting Produciton Broadcasting Items
Assets $ 402,058 $25,574 $10,676 $ 24,573 ($132,326) $330,555
Liabilities (164,936) (35,412) (123,010) (64,200) 133,326 (254,232)
Revenues 145,160 0 9,739 0 (121,260) 33,639
Expenses* (447,322) (367,083) (315,734) (2,121,886) 122,260 (3,129,765)
Other
income, net 161,983 0 0 0 0 161,983
Net Income $(140,179) $ (367,083) $(305,995) $(2,121,886) $0 $(2,934,143)
* Expenses include operating expenses, cost of goods sold and income
taxes.
Reconciling items consist of intercompany balances. The revenue and
expense reconciling items primarily represent billings from the
primetime broadcasting segment to the infomercial broadcasting
segment for use of the satellite uplink. Balance sheet reconciling
amounts consist primarily of corporate-level loans to subsidiaries
and the elimination of intercompany receivables/payables. All
revenues are from customers in the United States and all long-lived
assets are located in the United States.
F-9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended June 30, 2003 and 2002 and
For The Period From January 17, 2001(Date of Inception)
To June 30, 2003
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally
accepted accounting principles 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 accounts receivable, capitalized website
development costs 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 $100,000. At
June 30, 2003, the Company had no balances which were 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.
One customer comprises 97% of accounts receivable as of June 30, 2003
and 100% of other income for the year ended June 30, 2003.
Fair Value of Financial Instruments
- -----------------------------------
The carrying amounts of the Company's cash, receivables, trade
payables and accrued expenses approximate their estimated fair values
due to the short-term maturities of those financial instruments. The
estimated fair value of related-party note payable is not determinable
as the transaction is with a related party.
F-10
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended June 30, 2003 and 2002 and
For The Period From January 17, 2001(Date of Inception)
To June 30, 2003
NOTE 1 - SUMMARY AND SIGNIFICANT ACCOUNTING POLICIES, continued
- ---------------------------------------------------------------
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, 2003, the Company's fixed assets consist primarily of office
furniture and equipment contributed by a founder at the Company's
formation.
Accounting for Website Development Costs
- ----------------------------------------
Website development costs are accounted for using Emerging Issues Task
Force Issue No. 00-2, "Accounting for Web Site Development Costs"
("EITF 00-2"). Web site development costs and the accounting for such
costs should be accounted for under AICPA Statement of Position 98-1
("SOP 98-1"). "Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use." The use of EITF 00-2 resulted in
capitalized web site costs of $66,088 and $6,387 for the years ended
June 30, 2003 and 2002, respectively. Web site costs incurred are
being amortized over a three year period and resulted in amortization
included in general and administrative expenses on the consolidated
statement of operations of $13,143 and $532 for the years ended June
30, 2003 and 2002, respectively.
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 its analysis, the Company believes
that no impairment of the carrying value of its long-lived assets
existed at June 30, 2003. There can be no assurance, however, that
market conditions will not change which could result in future long-
lived asset impairment.
F-11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended June 30, 2003 and 2002 and
For The Period From January 17, 2001(Date of Inception)
To June 30, 2003
NOTE 1 - SUMMARY AND SIGNIFICANT ACCOUNTING POLICIES, continued
- ---------------------------------------------------------------
Other Income
- ------------
In fiscal 2003, the officers of the Company performed consulting
services on behalf of the Company for an unrelated third party
totaling $200,000.
Revenue Recognition
- -------------------
Revenue From Licensing TV Programs and Feature Films:
The Company has not yet completed any projects that could be
licensed, although three 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 product is completed and in accordance
with the product availability dates in a signed agreement.
Revenue Sharing With Program Licensors:
Some programs will be obtained by paying a licensing fee.
Additionally, some licenses will be obtained via a cash-plus-barter
arrangement, where the Company airs the program for a contracted
number of times and grants the licensor a negotiated number of
unsold advertising slots. 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 does not recognize advertising revenue for the advertising
time allotted to the licensor. Granting the licensor advertising
time is considered payment for the rights to air the program. The
Company only recognizes the advertising revenue it generates for
selling advertising during its allotted time slots. For accounting
purposes, the Company records the licensing fee paid as the cash
amount plus the fair market value of the advertising time granted
the licensor.
F-12
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended June 30, 2003 and 2002 and
For The Period From January 17, 2001(Date of Inception)
To June 30, 2003
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. As of
June 30, 2003 no programs rights had been acquired and no programs
had been aired over the network.
Revenue from Advertising (and Paid Programming):
Advertising and paid programming revenue are recognized as the
commercials/programs are aired.
For small advertisers that must pay for services in advance, upon
receipt of the payment, the signed contract and the tapes, deferred
revenue is recorded. Deferred revenue is recognized as sales 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 station. In
exchange the affiliate agrees to broadcast the program to its
subscribers/households. The affiliate expense is recorded monthly
as the cash amount paid and is not associated with any particular
program.
Accounting for Filmed Entertainment and Television Programming Costs
- --------------------------------------------------------------------
In accordance with American Institute of Certified Public Accountants
Statement of Position ("SOP") 00-2, filmed entertainment costs will
include capitalizable production costs, overhead and interest costs
expected to benefit future periods. These costs, as well as
participations and talent residuals, will be recognized as operating
expenses on an individual film basis in the ratio that the current
year's gross revenues bear to management's estimate of total ultimate
gross revenues from all sources. Marketing and development costs
under term deals will be expensed as incurred.
Filmed entertainment costs are stated at the lower of unamortized cost
or estimated fair value on an individual film or television series
basis. Revenue forecasts for both motion pictures and television
products will be 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.
F-13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended June 30, 2003 and 2002 and
For The Period From January 17, 2001(Date of Inception)
To June 30, 2003
NOTE 1 - SUMMARY AND SIGNIFICANT ACCOUNTING POLICIES, continued
As of June 2003, the Company has not yet begun these activities.
Advertising Costs
- -----------------
Advertising costs are expensed as incurred. In 2003 and 2002, the
Company's advertising costs were insignificant.
Stock-Based Compensation
- ------------------------
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.
SFAS No. 123 allows an entity to continue to measure compensation cost
related to stock and stock options issued to employees using the
intrinsic method accounting prescribed by Accounting Principles Board
Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to Employees."
Under APB 25, compensation cost, if any, is recognized over the
respective vesting period based on the difference, on the date of
grant, between the fair value of the Company's common stock and the
grant price. Entities electing to remain with the accounting method
of APB 25 must make pro forma disclosures of net income and earnings
per share, as if the fair value method of accounting defined in SFAS
No. 123 had been applied.
At June 30, 2003, the Company has a stock-based employee compensation
plan, which is described more fully in Note 4. The Company will
account for employee options granted under this plan under the
recognition and measurement principles of APB 25, and related
interpretations. No stock-based employee compensation cost is
reflected in the consolidated statement of income, as all employee
warrants granted had no recorded fair value under SFAS No. 123 as of
June 30, 2003.
F-14
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended June 30, 2003 and 2002 and
For The Period From January 17, 2001(Date of Inception)
To June 30, 2003
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. A
valuation allowance is provided for certain deferred tax assets if it is
more likely than not that the Company will not realize tax assets
through future operations (see Note 5). The Company is a subchapter "C"
corporation and files a consolidated federal income tax return. The
Company files separate state income tax returns for California and
Nevada.
Basic and Diluted Loss Per Share
- --------------------------------
The Company has adopted SFAS No. 128, "Earnings Per Share" (see Note
7).
Basic earnings (loss) per common share is computed based on the
weighted average number of shares outstanding for the period. Diluted
earnings (loss) per share is computed by dividing net income (loss) by
the weighted average shares outstanding assuming all dilutive
potential common shares were issued. Basic and diluted loss per share
are the same as the effect of stock options and warrants on loss per
share are anti-dilutive and thus not included in the diluted loss per
share calculation. The impact under the treasury stock method of
dilutive stock options and warrants would not have resulted in an
increase of incremental shares for the years ended June 30, 2003 and
2002.
Recent Accounting Pronouncements
- --------------------------------
In December 2002, the Financial Accounting Standards Board ("FASB")
issued SFAS No. No. 148, "Accounting for Stock-Based Compensation -
Transition and Disclosure - an amendment of FASB Statement No. 123."
SFAS No. 148 amends SFAS No. 123 to provide alternative methods of
transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, SFAS
No. 148 amends the disclosure requirements of SFAS No. 123 to require
prominent disclosures in both annual and interim financial statements
about the method of accounting for stock-based employee compensation
and the effect of the method used on reported results. The transition
guidance and annual disclosure provisions of SFAS No. 148 are
effective for financial statements issued for fiscal years ending
after December 15, 2002. The Company has applied the disclosure
provisions in SFAS No. 148 in its consolidated financial statements
and the accompanying notes.
F-15
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended June 30, 2003 and 2002 and
For The Period From January 17, 2001(Date of Inception)
To June 30, 2003
In November 2002, the FASB issued Interpretation No. 45 ("FIN 45"),
"Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness of Others." FIN 45
elaborates on the disclosures to be made by a guarantor in its interim
and annual financial statements about its obligations under certain
guarantees that it has issued. It also clarifies that a guarantor is
required to recognize, at the inception of a guarantee, a liability
for the fair value of the obligation undertaken in issuing the
guarantee. The initial recognition and initial measurement provisions
of FIN 45 are applicable on a prospective basis to guarantees issued
or modified after December 31, 2002. The disclosure requirements in
FIN 45 are effective for financial statements of interim or annual
periods ending after December 15, 2002. The Company's adoption of FIN
45 in fiscal 2003 did not have a material impact on its financial
position or results of operations.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and
Equity." SFAS No. 150 establishes standards for how an issuer
classifies and measures certain financial instruments with
characteristics of both liabilities and equity. It requires that an
issuer classify a financial instrument that is within its scope as a
liability (or an asset in some circumstances). SFAS No. 150 is
effective for financial instruments entered into or modified after
May 31, 2003, and otherwise is effective at the beginning of the first
interim period beginning after June 15, 2003. It is to be implemented
by reporting the cumulative effect of a change in an accounting
principle for financial instruments created before the issuance date
of the Statement and still existing at the beginning of the interim
period of adoption. Restatement is not permitted. The Company does not
expect the adoption of SFAS No. 150 to have a material impact upon its
financial position or results of operations.
NOTE 2 - COMMITMENTS AND CONTINGENCIES
- --------------------------------------
Lease Obligations
- -----------------
The Company leases its office facilities, certain equipment and
satellite transponder services under noncancellable agreements. The
Company also leases certain equipment under a capital lease agreement
at an implicit interest rate of 9%. Total rental expense under
noncancellable operating leases was approximately $180,000 and $0 for
the years ended June 30, 2003 and 2002, respectively.
F-16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended June 30, 2003 and 2002 and
For The Period From January 17, 2001(Date of Inception)
To June 30, 2003
NOTE 2 - COMMITMENTS AND CONTINGENCIES, continued
- -------------------------------------------------
As of June 30, 2003, the minimum commitments required under existing
noncancellable operating agreements and capital leases are as follows:
Operating
Years ending June 30: Agreements Capital Leases
-------------------- ---------- --------------
2004 $ 469,000 $ 60,536
2005 218,000 -
2006 39,000 -
2007 39,000 -
2008 35,000 -
----------- ---------
Total minimum lease payments $ 800,000 60,536
===========
Less amounts representing interest (9,765)
---------
Present value of minimum lease payments 50,771
Less current maturities (50,771)
---------
$ -
---------
The Company disposed of the equipment under capital lease in the year
ended June 30, 2003. As the Company has disposed of the secured
equipment under the capital lease, it is in default under the capital
lease and therefore all payments have been presented as current
liabilities on the balance sheet as of June 30, 2003. Subsequent to
June 30, 2003, the Company paid off the remaining capital lease
obligation.
Litigation
- ----------
The Company may become a party to litigation in the normal course of
business. In the opinion of management, there are no legal matters
involving the Company that would have a material adverse effect upon
the Company's financial condition or results of operations.
F-17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended June 30, 2003 and 2002 and
For The Period From January 17, 2001(Date of Inception)
To June 30, 2003
NOTE 3 - STOCKHOLDERS' EQUITY
- -----------------------------
Preferred Stock
- ---------------
The Company has authorized 20,000,000 shares of preferred stock. As
of June 30, 2003, the Company has not designated any series of
preferred stock or entered into any agreements.
Common Stock
- ------------
In January 2003, OBN Holdings, Inc. was created by issuing 0.3854
shares of OBN common stock for each share of Omni common stock. All
references to shares prior to January 2003 have been adjusted to
reflect this exchange rate.
At the formation of the Company, the Company issued 2,386,571 shares
of common stock at no cost basis to various founders. Shortly after
the formation of the Company, in fiscal 2001 the Company sold 462
shares of common stock at a price of $1.30 per share for proceeds of
$600.
In fiscal 2002, the Company sold a total of 4,316 shares of common
stock as follows: 154 shares at $1.30 per share and 4,162 shares at
$0.65 per share for proceeds of $2,900.
Additionally, the Company received consulting services during fiscal
2002 in exchange for issuing 11,561 shares at $0.65 per share
resulting in consulting expenses of $1,127 and website development
costs of $6,387.
During fiscal 2003, the Company received consulting services in
exchange for stock. The Company issued a total of 3,126,340 shares
with 7,750 shares issued at $2.00 per share, 274,909 shares issued at
$1.00 per share, 47,785 shares issued at $0.65 per share and 2,795,896
restricted shares issued at $0.90 per share, resulting in consulting
expenses of $2,715,352 and website development costs of $66,088. As
of June 30, 2003, shares issued for consulting services valued at
$56,339 were fully vested and nonforfeitable at the dates the Company
entered into the agreements; however, the related services have not
yet been performed. Therefore, the value of the shares were recorded
at the dates of the agreement as a prepaid consulting expense in
stockholders' equity and will be amortized over the respective service
periods.
During fiscal 2003, the Company received advances in the form of notes
payable from related parties totaling $78,120. The related party
notes payable were converted into 18,000 shares of common stock at
$1.00 per share and 30,060 shares of common stock at $2.00 per share.
The conversion of related party notes payable was not pursuant to the
original terms. The conversion price was based on the most recent
cash amount paid by outside investors from common stock at the time of
the conversion. For accounting purposes, the Company divided each
F-18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended June 30, 2003 and 2002 and
For The Period From January 17, 2001(Date of Inception)
To June 30, 2003
related party's outstanding debt by the market price at the time to
determine the number of shares issued to each related party. As the
conversions were at the fair market value of the common stock at the
time of conversion, no amounts have been recorded in the statement of
operations related to the conversions.
Additionally, in fiscal 2003, the Company sold a total of 153,000
shares of common stock as follows: 80,000 shares sold at $0.50 per
share, 10,500 shares sold at $1.00 per share and 62,500 shares sold at
$2.00 per share resulting in total proceeds of $175,500 to the
Company.
F-19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended June 30, 2003 and 2002 and
For The Period From January 17, 2001(Date of Inception)
To June 30, 2003
NOTE 4 - STOCK OPTIONS AND WARRANTS
- -----------------------------------
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
600,000 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,
2003, no options have been granted under the Plan.
On March 31, 2003, the Company committed to issue warrants to purchase
1,000,000 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 $4.00 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 $0.001 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
$4.00 per share exercise price. As the warrants were either issued in
connection with fundraising activities or had no value using the
Black-Scholes value for employee warrants, no expense will be recorded
under SFAS No. 123 for the value of these warrants.
NOTE 5 - INCOME TAXES
- ---------------------
A reconciliation of income taxes computed at the federal statutory
rate of 34% to the provision for income taxes is as follows for the
years ended June 30, 2003 and 2002:
2003 2002
----------- -----------
Tax benefit at statutory rates $ (998,000) $ (4,000)
Difference resulting from:
State taxes (171,000) (700)
Changes in valuation allowance 1,169,800 5,500
----------- -----------
$ 800 $ 800
=========== ===========
F-20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended June 30, 2003 and 2002 and
For The Period From January 17, 2001(Date of Inception)
To June 30, 2003
NOTE 5 - INCOME TAXES, continued
- --------------------------------
The valuation allowance increased by approximately $1,169,000 and
$5,500 during the years ended June 30, 2003 and 2002. No current
provision for income taxes, other than California minimum tax of $800,
is required for the years ended June 30, 2003 and 2002 since the
Company incurred taxable losses during the year.
Net deferred income taxes are as follows as of June 30, 2003:
Deferred tax liabilities $ -
Deferred tax assets:
Net operating losses 1,185,000
Total deferred tax assets 1,185,000
Less valuation allowance (1,185,000)
$ -
=============
The Company has approximately $3,000,000 in Federal and California
State net operating loss carryforwards as of June 30, 2003, which, if
not utilized, expire through 2023 and 2010, respectively.
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, 2003.
F-21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended June 30, 2003 and 2002 and
For The Period From January 17, 2001(Date of Inception)
To June 30, 2003
NOTE 6 - RELATED PARTY TRANSACTIONS
- -----------------------------------
Due From Related Party
- ----------------------
At June 30, 2003, these advances are non-interest bearing and are due on
demand. The balance outstanding as of June 30, 2003 was $7,000. During
the year ended June 30, 2003, the Company incurred interest expense of
$9,835 in interest-bearing related party notes payable that were fully
repaid by June 30, 2003.
Services Provided by Related Parties
- ------------------------------------
Prior to June 30, 2003, certain services were provided by related
parties at no cost to the Company. Such services included strategic
development, accounting and management services provided by the
Company's founders, and other strategic services provided by certain
directors of the Company.
Officer-Stockholder Transactions
- --------------------------------
At the inception of the Company, 2,386,571 shares of common stock were
issued as founders shares to two officers of the Company. No proceeds
were received.
In fiscal 2003, the Company issued 316,035 shares of common stock to
two officers of the Company in exchange for services performed. Such
services included legal, management and network development
consultation. The shares issued ranged in value from $0.65 to $2.00
per share totaling $282,356, which is recorded in selling, general and
administrative expenses in the accompanying consolidated statement of
operations.
F-22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended June 30, 2003 and 2002 and
For The Period From January 17, 2001(Date of Inception)
To June 30, 2003
NOTE 7 - EARNINGS PER SHARE
- ---------------------------
Basic and diluted loss per common share is computed as follows for the
years ended June 30, 2003 and 2002:
2003 2002
Numerator for basic and diluted
loss per common share:
Net loss $(2,934,143) $ (12,681)
=========== ===========
Denominator for basic and diluted
loss per common share:
Weighted average common shares outstanding 3,356,156 2,394,038
=========== ===========
Net loss per common share available to
common stockholders $ (0.88) $ (0.01)
=========== ===========
F-23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For The Years Ended June 30, 2003 and 2002 and
For The Period From January 17, 2001(Date of Inception)
To June 30, 2003
NOTE 8 - SUBSEQUENT EVENTS
- --------------------------
Subsequent to year end, the Company sold 55,050 shares of the
Company's common stock at $2.00 per share for total proceeds of
$110,100.
The Company has received advances from a shareholder for operating
expenses totaling $60,000. The advances are not interest bearing and
are due upon successful completion of an initial public offering by
the Company.
The Company has entered into a capital lease agreement for television
station KSSY located in Arroyo Grande, California, which is located in
central California. The lease agreement, which is for a period of
three years, calls for the Company to pay the lessor $4,166 per month
- - resulting in an annual payment of $50,000. At the end of the third
year, when the Company's payments total $150,000, title will be
transferred to the Company for a 95% interest in the television
station. The lease agreement also includes a provision that if the
lessor is prohibited by the Federal Communications Commission ("FCC") to
transfer ownership to the Company, the Company has the right to lease
the television station for an additional ninety-nine years at a rate
of $1 per year. The Company has the right to pay off the total
balance of the lease at any time, and no penalty will be imposed.
Under the terms of the lease, the Company is responsible for total
management of the station. It has total control over the programming
aired on the station, any and all contractual arrangements and is the
sole recipient of any revenue generated by the station. The lessor's
only obligation is to execute any documentation required by the FCC.
The primary asset of the television station agreement is its
broadcasting license.
For accounting purposes, the capital lease will be recorded on the
books of the Company at the present value of the future lease payments
(totaling approximately $130,000). The net assets acquired will be
accounted for as a business combination under SFAS No. 141, whereby
the purchase price will be allocated to the net assets acquired based
on their estimated fair values at the date of the agreement. Revenues
and expenses of the television station will be recognized by the
Company on an ongoing basis from the date of the agreement, along with
a minority interest representing the ownership retained in the
television station by the seller.
F-24
OBN HOLDINGS, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET (UNAUDITED)
Sept. 30,
2003
------------
ASSETS
Current assets:
Cash and cash equivalents $ 26,960
Accounts receivable, net of allowance for
doubtful accounts of $214,500 61,592
------------
Total current assets 88,552
Fixed assets, net 1,000
Intangible assets 130,000
Website development costs, net of accumulated
amortization of $18,358 54,117
Deposits 37,334
------------
Total assets $ 311,003
============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 124,149
Accrued payroll and related 213,272
Current portion of capital lease obligation 39,951
Notes payable 70,000
Notes payable to related parties 10,592
------------
Total current liabilities 457,964
Capital lease obligation, net of current portion 83,825
------------
Total liabilities 541,789
------------
Stockholders' deficit:
Undesignated preferred stock, $.001 par value;
20,000,000 shares authorized; no shares issued
and outstanding -
Common stock; $.001 par value; 50,000,000 shares
authorized 5,785,360 shares issued
and outstanding 5,785
Additional paid-in capital 3,206,728
Prepaid consulting expense (24,085)
Deficit accumulated during the development stage (3,419,214)
------------
Total stockholders' deficit (230,786)
------------
$ 311,003
============
See accompanying notes to unaudited consolidated financial statements.
F-25
OBN HOLDINGS, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For The
Period
FOR THE THREE MONTHS January
Ended September 30, 17, 2001
---------------------- (Date of
Inception)
2003 2002 To Septem-
ber 30, 2003
---------------------- ------------
Revenue $ 53,597 $ 14,900 $ 87,236
Cost of sales 24,050 - 34,850
---------- --------- ---------
Gross profit 29,547 14,900 52,386
Operating expenses:
Selling, general and administrative 479,319 24,660 3,653,092
---------- --------- ----------
Loss from operations (449,772) (9,760) (3,600,706)
---------- --------- ----------
Other income (expense):
Other income 1,314 - 222,914
Loss on sale of equipment - - (27,352)
Interest expense (1,005) - (11,670)
---------- --------- ----------
Total other income, net 309 - 183,892
---------- --------- ----------
Loss before income taxes (449,463) (9,760) (3,416,814)
Income taxes - - 2,400
---------- --------- ----------
Net loss $(449,463) $ (9,760) $(3,419,214)
========== ========= ==========
Net loss available to common shareholders
per common share:
Basic and diluted net loss per
common share $ (0.08) $ (0.00)
========== ==========
Basic and diluted weighted
average shares outstanding 5,760,378 2,416,457
========== ==========
See accompanying notes to unaudited consolidated financial statements.
F-26
OBN HOLDINGS, INC.
(A Deveopment Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For The
Period
FOR THE THREE MONTHS January 17, 2001
ENDED SEPTEMBER 30, (Date of
----------------------------- Inception)
2003 2002 To September 30, 2003
--------- --------- -----------------------
Cash flows from operating activities
Net loss $ (449,463) $ (9,760) $(3,419,214)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 4,683 - 18,358
Bad debt provision 200,000 - 214,500
Loss on sale of equipment - - 27,352
Shares issued for services - (9,583) 2,716,479
Changes in operating assets and liabilities:
Accounts receivable, net (54,692) (16,028) (526,092)
Prepaid expenses and other current assets 32,254 - 32,254
Deposits (1,274) - (37,334)
Accounts payable and accrued expenses 140,960 6,245 587,421
---------- ------------- ------------
Net cash used in operating activities (127,532) (9,960) (386,276)
---------- ------------- ------------
Cash flows from investing activities:
Purchase of leasehold improvements (1,000) - (1,000)
Proceeds on sale of equipment - - 24,309
---------- ------------- -------------
Net cash (used in) provided by
investing activities (1,000) - 23,309
---------- ------------- -------------
Cash flows from financing activities
Proceeds from notes payable 70,000 - 77,000
Proceeds from notes payable to related parties 7,000 13,859 131,652
Repayments on notes payable to related parties (3,408) - (49,940)
Repayments under capital lease obligations (56,995) - (57,885)
Proceeds from issuance of common stock 110,100 - 289,100
---------- ------------- -------------
Net cash provided by financing activities 126,697 13,859 389,927
---------- ------------- -------------
Net (decrease) increase in cash (1,835) 3,899 26,960
Cash, beginning of period 28,795 442 -
---------- ------------- -------------
Cash, end of period $ 26,960 $ 4,341 $ 26,960
========== ============= =============
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 1,835 $ - $ 11,670
Income taxes $ - $ - $ 1,600
Supplemental disclosure of noncash investing and
financing activities:
Purchase of property/equipment/intangibles from cap. lease $ 130,000 $ - $181,661
Shares issued in exchange for website development $ - $ 1,222 $ 72,475
Related party notes converted to common stock $ - $ - $ 78,120
See accompanying notes to unaudited consolidated financial statements.
F-27
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For The Three Months Ended September 30, 2003.
NOTE 1 - MANAGEMENT REPRESENTATION
- ----------------------------------
The consolidated financial statements included herein have been
prepared by OBN Holdings, Inc. (the "Company"), without audit,
pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information normally included in the financial
statements prepared in accordance with accounting principles generally
accepted in the United States of America has been omitted pursuant to
such rules and regulations. However, the Company believes that the
disclosures are adequate to make the information presented not
misleading. In the opinion of management, all adjustments (consisting
primarily of normal recurring accruals) considered necessary for a
fair presentation have been included.
Operating results for the three months ended September 30, 2003 are
not necessarily indicative of the results that may be expected for the
year ending June 30, 2004. It is suggested that the financial
statements be read in conjunction with the audited financial
statements and notes for the fiscal year ended June 30, 2003 included
in this prospectus.
NOTE 2 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------
Background and Organization
- ---------------------------
We are a holding company for three wholly owned operating
subsidiaries: Omni Broadcasting Network, Eclectic Entertainment and
Products On Demand Channel. The Omni Broadcasting Network ("Omni")
currently broadcasts programming targeted toward adults twenty-five
years of age and above, and children between eight and thirteen years
of age. Programming is being aired on over-the-air, cable and
satellite television stations throughout the United States, and
reaches approximately 40,000,000 households. A program entitled The
MovieTime Showcase is currently airing during primetime hours.
Programs entitled Birdz and Flutemaster are currently airing primarily
Saturday and Sunday mornings. By Spring 2004, Omni plans to broadcast
a total of thirty-two hours per week - 8:00 p.m. to 11:00 p.m. seven
days per week, 8:00 a.m. to 11:00 a.m. Saturday and Sunday mornings,
and 8:00 a.m. to 9:00 a.m. Monday through Friday. To accomplish our
objective to increase the broadcast hours, we are currently in
discussions with numerous program developers and producers worldwide,
and have already identified additional content that will be aired once
signed agreements are completed.
Eclectic Entertainment ("Eclectic") is a television and feature film
production company. Eclectic currently produces The MovieTime
Showcase, which is currently airing on Omni, and is developing The
Mini Movie Hour, which will begin airing on Omni in December 2003.
Additionally, Eclectic is developing The Vegas Variety Hour and The
Adventures of Unit 28; which are scheduled to air on Omni by Summer
2004. Eclectic is also in the process of securing feature film
F-28
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For The Three Months Ended September 30, 2003.
properties for development and distribution, and expects to be in
production on our first feature film by Summer 2004. Additionally,
Eclectic is in the process of developing Retro Records, which is a
record distribution company specializing in releasing new music
recorded by well established recording artists. Retro Records is
planning to release its first product by Spring 2004.
Products On Demand Channel ("POD") is a broadcast television network
specializing in airing infomercials and other forms of paid
programming. POD uses the same satellite uplink as Omni, but
broadcasts programming during the hours not used by Omni. Currently,
POD primarily airs infomercials. However, we plan to reduce the
number of infomercials aired to focus on programming developed by
independent producers seeking an outlet on national broadcast
television. We have begun implementing plans for the transition, and
expect it to be completed by December 2004.
Principles of Consolidation
- ---------------------------
The condensed consolidated financial statements include the accounts
of OBN Holdings and its wholly owned and controlled subsidiaries. All
significant inter-company transactions and balances have been
eliminated in consolidation.
Development Stage Enterprise and Going Concern
- ----------------------------------------------
The Company is a development stage company as defined in Statement of
Financial Accounting Standards ("SFAS") No. 7, "Accounting and
Reporting by Development Stage Enterprises." The Company is devoting
substantially all of its present efforts to establish a new business,
and its planned principal operations have not yet commenced. All
losses accumulated since inception have been considered as part of the
Company's development stage activities.
The accompanying consolidated financial statements have been prepared
in conformity with accounting principles generally accepted in the
United States of America, which contemplate continuation of the
Company as a going concern. The Company has not generated significant
revenues from operations and has no assurance of any future revenues.
The Company incurred a net loss of $449,463 during the three month
period ended September 30, 2003 and had a cash balance of
approximately $26,960 at September 30, 2003. In addition, at
September 30, 2003, the Company's deficit accumulated during the
development stage was $3,419,214 and the Company had negative working
capital of $369,412. Management recognizes that the Company must
obtain additional capital for the eventual achievement of sustained
profitable operations. Management's plans include obtaining additional
capital through an initial public offering, other equity financing
sources and the extension of existing debt. However, no assurance can
be given that additional capital, if needed, will be available when
required or upon terms acceptable to the Company or that the Company
will be successful in its efforts to negotiate the extension of its
existing debt.
F-29
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For The Three Months Ended September 30, 2003.
Segment Information Reporting
- -----------------------------
Prior to fiscal 2003, the Company had no segments as it was in the
early stages of development. Beginning in the second quarter of
fiscal 2003, management measures the Company's performance in three
distinct segments: (1) Prime Time Broadcasting, which will be
measured by the number of consumer households reached (coverage) and
program ratings, and the types of advertisers attracted by such
coverage and ratings; (2) TV and Film Production, which requires
creative talent and has a longer lead time to determine success; and
(3) Infomercial-Paid Programming Broadcasting, which is measured based
on traditional selling techniques and metrics.
A summary of the segments as of and for the quarter ended September
30, 2003 is presented in the table below:
Prime Time TV & Film Infomercial Corporate Reconciling Total
Broadcasting Produciton Broadcasting Items
Assets $ 272,774 $18,959 $68,271 $ 145,989 ($194,990) $331,003
Liabilities (186,004) (48,333) (188,266) (314,176) 194,990 (541,789)
Revenues 72,756 0 52,036 1,561 (72,756) 53,597
Expenses* (223,176) (34,436) (94,086) (170,830) 19,159 (503,369)
Other
income, net 1,314 0 0 (1,005) 0 309
Net Income $(149,106) $ (34,436) $ (42,050) $ (170,274) $0 $(449,463)
* Expenses include operating expenses, cost of goods sold and income taxes.
Reconciling items consist of intercompany balances. The revenue and
expense reconciling items primarily represent billings from the
primetime broadcasting segment to the infomercial broadcasting segment
for use of the satellite uplink. Balance sheet reconciling amounts
consist primarily of corporate-level loans to subsidiaries and the
elimination of intercompany receivables/payables. All revenues are
from customers in the United States and all long-lived assets are
located in the United States.
Use of Estimates
- ----------------
The preparation of financial statements in conformity with generally
accepted accounting principles 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
F-30
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For The Three Months Ended September 30, 2003.
from estimated amounts. The Company's significant estimates include
the realizability of accounts receivable, intangible assets,
capitalized website development costs 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 $100,000. At
September 30, 2003, the Company had no balances which were 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. During the three month period ended September 30, 2003
the Company did not collect a $200,000 receivable when it was due. As
a result of this and other information it obtained about the financial
condition of the customer, the Company established a reserved for the
entire $200,000 balance. Although the Company expects to collect
amounts due, actual collections may differ from the estimated amounts.
One customer comprises 90% of accounts receivable as of September 30, 2003.
Fair Value of Financial Instruments
- -----------------------------------
The carrying amounts of the Company's cash, receivables, trade
payables and accrued expenses approximate their estimated fair values
due to the short-term maturities of those financial instruments. The
carrying amounts of the Company's notes payable approximates their
estimate fair values as their interest rates approximate market rates
for similar instruments. The estimated fair value of related-party
note payable is not determinable as the transaction is with a related
party.
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
F-31
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For The Three Months Ended September 30, 2003.
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
September 30, 2003, the Company's fixed assets consist primarily of
office furniture and equipment contributed by a founder at the
Company's formation and have not been recorded on the Company's books.
Intangible Assets
- -----------------
The Company has adopted SFAS No. 142, "Goodwill and Other Tangible
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 for impairment. Goodwill
will be 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 recoded for any goodwill that is determined to
be impaired. The Company performs impairment testing on all existing
goodwill at least annually. Based on its analysis, the Company's
management believes that no impairment of the carrying value of its
goodwill and other intangible assets existed at September 30, 2003.
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 goodwill in the future.
Accounting for Website Development Costs
- ----------------------------------------
Website development costs are accounted for using Emerging Issues Task
Force Issue No. 00-2, "Accounting for Web Site Development Costs"
("EITF 00-2"). Web site development costs and the accounting for such
costs should be accounted for under AICPA Statement of Position 98-1
("SOP 98-1"). "Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use." Web site costs incurred are being
amortized over a three year period and resulted in amortization
included in selling, general and administrative expenses in the consolidated
statement of operations of $3,291 and $0 for the three-month periods
ended September 30, 2003 and 2002, respectively.
F-32
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For The Three Months Ended September 30, 2003.
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 its analysis, the Company believes
that no impairment of the carrying value of its long-lived assets
existed at September 30, 2003. There can be no assurance, however,
that market conditions will not change which could result in future
long-lived asset impairment.
Revenue Recognition
- -------------------
Revenue From Licensing TV Programs and Feature Films:
The Company has not yet completed any projects that could be
licensed, although three 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 product is completed and in accordance
with the product availability dates in a signed agreement.
Revenue Sharing With Program Licensors:
Some programs will be obtained by paying a licensing fee.
Additionally, some licenses will be obtained via a cash-plus-barter
arrangement, where the Company airs the program for a contracted
number of times and grants the licensor a negotiated number of
unsold advertising slots. 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 does not recognize advertising revenue for the advertising
time allotted to the licensor. Granting the licensor advertising
time is considered payment for the rights to air the program. The
Company only recognizes the advertising revenue it generates for
selling advertising during its allotted time slots. For accounting
purposes, the Company records the licensing fee paid as the cash
amount plus the fair market value of the advertising time granted
the licensor.
F-33
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For The Three Months Ended September 30, 2003.
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. As of
September 30, 2003 no programs rights had been acquired and no
programs had been aired over the network.
Revenue from Advertising (and Paid Programming):
Advertising and paid programming revenue are recognized as the
commercials/programs are aired.
For small advertisers that must pay for services in advance, upon
receipt of the payment, the signed contract and the tapes, deferred
revenue is recorded. Deferred revenue is recognized as sales 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 station. In
exchange the affiliate agrees to broadcast the program to its
subscribers/households. The affiliate expense is recorded monthly
as the cash amount paid and is not associated with any particular
program.
Stock-Based Compensation
- ------------------------
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.
SFAS No. 123 allows an entity to continue to measure compensation cost
related to stock and stock options issued to employees using the
intrinsic method accounting prescribed by Accounting Principles Board
Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to Employees."
Under APB 25, compensation cost, if any, is recognized over the
respective vesting period based on the difference, on the date of
grant, between the fair value of the Company's common stock and the
grant price. Entities electing to remain with the accounting method
of APB 25 must make pro forma disclosures of net income and earnings
per share, as if the fair value method of accounting defined in SFAS
No. 123 had been applied.
F-34
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For The Three Months Ended September 30, 2003.
At September 30, 2003, the Company has a stock-based employee
compensation plan. The Company will account for employee options
granted under this plan under the recognition and measurement
principles of APB 25, and related interpretations. No stock-based
employee compensation cost is reflected in the consolidated statement
of income, as no new employee options or warrants have been granted as
of September 30, 2003.
Basic and Diluted Loss Per Share
- --------------------------------
The Company has adopted SFAS No. 128, "Earnings Per Share" (see Note 7).
Basic earnings (loss) per common share is computed based on the
weighted average number of shares outstanding for the period. Diluted
earnings (loss) per share is computed by dividing net income (loss) by
the weighted average shares outstanding assuming all dilutive
potential common shares were issued. Basic and diluted loss per share
are the same as the effect of stock options and warrants on loss per
share are anti-dilutive and thus not included in the diluted loss per
share calculation. The impact of convertible debt and additional
shares under the treasury stock method of dilutive stock options and
warrants would have resulted in an increase of 5,000 and 0 incremental
shares for the three months ended September 30, 2003 and 2002,
respectfully.
NOTE 3 - ACQUISITION
- --------------------
During the three months ended September 30, 2003, the Company acquired
a 95% equity interest in a television station through the capital
lease referenced in Note 4. The television station is comprised of
an FCC license, various transmission equipment and current
liabilities. As of September 30, 2003, the Company has not yet been
able to determine the allocation to the net assets acquired as
required by SFAS No. 141; therefore, the acquisition value of the
television station has been included in intangible assets until such
time the individual components of the acquisition can be determined
and allocated. The Company intends to complete the valuation and
allocation of the acquisition within the current fiscal year.
NOTE 4 - COMMITMENTS AND CONTINGENCIES
- --------------------------------------
Capital Lease Obligation
- ------------------------
During the three months ended September 30, 2003, the Company entered
into a capital lease of the KSSY television station with an imputed
interest rate of 9.5% (see Note 3), requiring monthly payments of
$4,167 through July 2006. Interest expense of $1,005 was recognized
for the three month period ended September 30, 2003 under this capital
lease.
F-35
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For The Three Months Ended September 30, 2003.
Litigation
- ----------
The Company may become a party to litigation in the normal course of
business. In the opinion of management, there are no legal matters
involving the Company that would have a material adverse effect upon
the Company's financial condition or results of operations.
Indemnities and Guarantees
- --------------------------
During the normal course of business, the Company has made certain
indemnities and guarantees under which it may be required to make
payments in relation to certain transactions. These indemnities
include certain agreements with the Company's officers, under which
the Company may be required to indemnify such person for liabilities
arising out of their employment relationship. The duration of these
indemnities and guarantees varies and, in certain cases, is
indefinite. The majority of these indemnities and guarantees 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 significant payments for these obligations
and no liabilities have been recorded for these indemnities and
guarantees in the accompanying condensed consolidated balance sheet.
NOTE 5 - NOTES PAYABLE
- ----------------------
In September 2003, the Company entered into a 10% convertible
promissory note with a third party for $10,000. At the election of
the holder, the outstanding principal of the note can be converted
into shares of the Company's common stock at $2.00 per share after the
Company's registration becomes effective. The conversion must be
exercised before December 31, 2003 otherwise the note plus accrued
interest will be paid to the holder.
In addition, the Company received a $60,000 loan under a 10%
promissory note. The principal and interest is due and payable by
December 31, 2003.
The Company received a $10,592 loan under a 10% promissory note from
family members of the Company's officers. The note has no set date
due, and is payable upon demand.
NOTE 6 - STOCKHOLDERS' EQUITY
- -----------------------------
Common Stock
- ------------
During the three month period ending September 30, 2003 a total of
55,050 shares of Company common stock were sold at $2.00 per share
generating $110,100 in proceeds.
F-36
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
For The Three Months Ended September 30, 2003.
NOTE 7 - EARNINGS PER SHARE
- ---------------------------
Basic and diluted loss per common share is computed as follows for the
three months ended September 30, 2003 and 2002:
2003 2002
Numerator for basic and diluted loss per common share:
Net loss $ (449,463) $ (9,760)
Denominator for basic and diluted loss per common share:
Weighted average common shares outstanding 5,760,378 2,416,457
Net loss per common share available to common
stockholders $ (0.08) $ (0.00)
NOTE 8 - SUBSEQUENT EVENTS
- --------------------------
After September 30, 2003, the Company issued a total of $40,000 in
convertible notes, whereby the note holder has the option of receiving
10% interest or converting the note into common stock at a $2.00 per
share rate after the Company's common stock begins trading publicly.
The notes must be converted by December 31, 2003 or they must be
repaid. In addition, the Company issued a $30,000 note payable with a
10% interest rate that is due and payable on December 30, 2003.
F-37
No dealer, salesman or other
person is authorized to give any
information or to make any
representations not contained in
this prospectus in connection with
the offer made hereby, and, if
given or made, such information or
representations must not be relied
upon as having been authorized by
OBN Holdings. This prospectus does
not constitute an offer to sell or
a solicitation to an offer to buy
the securities offered hereby to
any person in any state or other
jurisdiction in which such offer or
solicitation would be unlawful.
Neither the delivery of this
prospectus nor any sale made
hereunder shall, under any
circumstances, create any
implication that the information
contained herein is correct as of
any time subsequent to the date
hereof.
Until February 28, 2004 (90 days
after the date of this prospectus)
all dealers that effect
transactions in these securities,
whether or not participating in
this offering, may be required to
deliver a prospectus. This is in
addition to the dealer's obligation
to deliver a prospectus when acting
as underwriters and with respect to
their unsold allotments or
subscriptions.
TABLE OF CONTENTS
Page
Prospectus Summary 3 OBN Holdings, Inc.
The Offering 5
Risk Factors 6
Use of Proceeds 12
Determination of Offering Price 14
Dividend Policy 14
Dilution 15 9,385,360 SHARES
Plan of Operation 16
Business 29
Management 57
Principal Shareholders 61
Selling Shareholders 63
Certain Transactions 66
Description of Securities 67
Indemnification 69 PROSPECTUS
Plan of Distribution 70
Legal Matters 71
Experts 72
Where You Can Find More Information 73
Financial Statements F1
December 3, 2003
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article 11 of our Articles of Incorporation includes
certain provisions permitted by the Nevada Revised Statutes,
which provides for indemnification of directors and officers
against certain liabilities. Pursuant to our Articles of
Incorporation, our officers and directors are indemnified, to the
fullest extent available under Nevada Law, against expenses
actually and reasonably incurred in connection with threatened,
pending or completed proceedings, whether civil, criminal or
administrative, to which an officer or director is, was or is
threatened to be made a party by reason of the fact that he or
she is or was one of our officers, directors, employees or
agents. We may advance expenses in connection with defending any
such proceeding, provided the indemnitee undertakes to repay any
such amounts if it is later determined that he or she was not
entitled to be indemnified by us.
Insofar as indemnification for liabilities arising under
the Securities Act may be permitted to our directors, officers
and controlling persons pursuant to the foregoing provisions or
otherwise, we have been advised that in the opinion of the SEC
such indemnification is against public policy as expressed in the
Securities Act and is therefore, unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
We estimate that expenses in connection with this
registration statement will be as follows:
SEC registration fee* $ 2,280
Legal fees and expenses* $ 100,000
Accounting fees and expenses* $ 25,000
Miscellaneous* $ 2,000
----------
Total $ 129,280
* Estimated amounts.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
The following information is furnished with regard to all
securities sold by OBN Holdings, Inc. within the past three years
that were not registered under the Securities Act. The issuances
described hereunder were made in reliance upon the exemptions from
registration set forth in Section 4(2) of the Securities Act
relating to sales by an issuer not involving any public offering.
None of the foregoing transactions involved a distribution or
public offering.
Name of Date Number
Shareholder Acquired of Shares Consideration Notes
- ----------------------------------------------------------------------------
Roger Smith 02/01/2001 1,901,970 $0 (1)
Larry Taylor 02/01/2001 197,587 $0 (1)
Larry Taylor 02/01/2001 192,678 $0 (1)
Larry Taylor 03/01/2001 77,072 $0 (1)
Teresa Elaqua 03/01/2001 15,414 $0 (1)
Georgia Smith 06/01/2001 925 $0 (1)
Kalvin Cressel 06/01/2001 771 $0 (1)
Norma Black 06/01/2001 154 $0 (1)
Taunee English 06/14/2001 154 $200
Cedric Carpenter 06/15/2001 231 $300
James Tanner 06/25/2001 77 $100
Ana Thorne 07/01/2001 77 $100
Isadore Hall 07/01/2001 77 $100
Milano Mellon 07/12/2001 2,158 $1,400
Kokayi Ampah 07/13/2001 1,541 $1,000
Nathan Caldwell 07/13/2001 308 $200
Mayme Clayton 08/24/2001 154 $100
Carolyn Hajebi 04/01/2002 3,854 $2,505 (2)
Timothy Williams 04/01/2002 7,707 $5,010 (2)
Dennis Johnson 07/26/2002 9,634 $6,262 (3)
Donald Wilson 07/26/2002 3,854 $2,505 (3)
Susan Johnson 07/26/2002 1,541 $1,002 (3)
Teresa Elaqua 07/26/2002 3,854 $2,505 (3)
Dennis Johnson 12/01/2002 28,902 $18,786 (3)
Charles Hayes 01/02/2003 3,854 $3,854 (2)
Patrick Muccio 01/02/2003 1,927 $1,927 (3)
Barry Robinson 01/15/2003 38,536 $38,536 (2)
Carolyn Hajebi 01/15/2003 15,414 $15,414 (2)
Dennis Johnson 01/15/2003 154,142 $138,728 (3)
Donald Wilson 01/15/2003 111,753 $100,578 (3)
Susan Johnson 01/15/2003 1,542 $1,542 (3)
Teresa Elaqua 01/15/2003 96,339 $96,339 (3)
Timothy Williams 01/15/2003 30,829 $30,829 (2)
Corine Taylor 03/01/2003 5,000 $5,000 (3)
Name of Date Number
Shareholder Acquired of Shares Consideration Notes
- ----------------------------------------------------------------------------
Cory Caldwell 03/01/2003 5,000 $5,000 (3)
Creighton Taylor 03/01/2003 5,000 $5,000 (3)
Jacqueline Alexander 03/01/2003 2,000 $2,000 (3)
Josh Cureton 03/01/2003 5,000 $5,000 (3)
Kay Black 03/01/2003 5,000 $5,000 (3)
Natalie Caldwell 03/01/2003 5,000 $5,000 (3)
Nathan Caldwell 03/01/2003 5,000 $5,000 (3)
Richard Sindicich 03/01/2003 10,000 $10,000 (3)
Takeo Suzuki 03/01/2003 5,000 $5,000 (3)
Tanisha Cureton 03/01/2003 5,000 $5,000 (3)
Tiffany Caldwell 03/01/2003 5,000 $5,000 (3)
Tony Haynes 03/01/2003 2,000 $2,000 (3)
Toshi Murakami 03/01/2003 5,000 $5,000 (3)
Dawn Johnson 03/29/2003 100 $100
Marwan T. Abboushi 03/29/2003 20,000 $10,000
Randy Scott 03/29/2003 200 $200
Capitol City
Investments 03/31/2003 480,000 $432,000 (3)
Commerce Street 03/31/2003 480,000 $432,000 (3)
David Finke 03/31/2003 70,000 $63,000 (3)
Dennis Severson 03/31/2003 140,000 $126,000 (3)
Gerald Nelson 03/31/2003 5,000 $5,000
Gerald Nelson 03/31/2003 10,000 $10,000 (4)
Gifty Painstil 03/31/2003 100 $100
Integrity
Capital Mgmt 03/31/2003 310,000 $279,000 (3)
L.G. Hancher Jr. 03/31/2003 250,000 $225,000 (3)
Magellan
Capital Mgmt 03/31/2003 540,000 $486,000 (3)
Renae Johnson 03/31/2003 700 $700
Robert Armstrong 03/31/2003 20,000 $10,000
SAC Financial Mgmt. 03/31/2003 250,000 $225,000 (3)
Roger Neal Smith 03/31/2003 146,366 $0 (5)
Larry Taylor 03/31/2003 134,663 $0 (5)
Dennis Johnson 03/31/2003 134,663 $0 (5)
Donald Wilson 03/31/2003 84,308 $0 (5)
Commerce Street 03/31/2003 95,000 $0 (5)
L. G. Hancher, Jr. 03/31/2003 100,000 $0 (5)
SAC Financial Mgmt 03/31/2003 50,000 $0 (5)
Magellan
Capital Mgmt 03/31/2003 100,000 $0 (5)
Integrity
Capital Mgmt. 03/31/2003 155,000 $0 (5)
Samia Lee 03/31/2003 150 $150 (3)
Share Lee 03/31/2003 100 $100 (3)
Sheila E. Hale 03/31/2003 100 $100 (3)
Stephanie Reynolds 03/31/2003 100 $100 (3)
Name of Date Number
Shareholder Acquired of Shares Consideration Notes
- ----------------------------------------------------------------------------
Sunzie Sene 03/31/2003 100 $100 (3)
Tina McBride 03/31/2003 10,000 $9,000 (3)
Gertrude Arrington 04/01/2003 1,000 $1,000 (3)
Katy Kim 04/01/2003 20 $20 (3)
Patricia Johnson 04/02/2003 100 $100 (3)
Michael Walker 04/03/2003 40,000 $20,000
Rommel Baker 04/03/2003 200 $200
Mashahiko Yagyu 04/07/2003 10,000 $10,000 (3)
Megumi Shibata 04/07/2003 8,000 $8,000
DeWayne Porter 04/10/2003 500 $500
Norma Black 04/10/2003 3,000 $3,000 (4)
William Medlock 04/10/2003 500 $500
Robert Kealing 04/12/2003 5,000 $5,000 (4)
Kirk Gardner 04/14/2003 500 $500
Marceil Wright 04/14/2003 500 $500
Commerce Street 05/30/2003 50,000 $100,000
Dennis Johnson 06/01/2003 7,750 $15,500 (3)
Larry Taylor 06/01/2003 4,500 $9,000 (4)
Robert Kealing 06/01/2003 4,924 $9,848 (4)
Roger Smith 06/01/2003 20,636 $41,274 (4)
Anita L. DeFrantz 06/06/2003 10,000 $20,000
Gerald Nelson 06/17/2003 2,500 $5,000
Yeah, Inc. 07/07/2003 10,000 $20,000
Global Wealth
Investing 07/29/2003 1,250 $2,500
David Nelson 08/03/2003 500 $1,000
Michael Walker 08/12/2003 10,000 $20,000
Robin Armstrong-
Irving 08/18/2003 5,000 $10,000
Cedric Carpenter 08/18/2003 300 $600
Marcus Carpenter 08/18/2003 500 $1,000
Marwan T. Abboushi 08/18/2003 25,000 $50,000
Terral Santiel 08/18/2003 2,500 $5,000
Anil Lalchandani 09/27/2003 5,000 $10,000 (6)
Dale Daniel 10/24/2003 5,000 $10,000 (6)
John F. Slavin 10/24/2003 10,000 $20,000 (6)
David Jackson 10/24/2003 5,000 $10,000 (6)
NOTES TO RECENT SALES OF UNREGISTERED SECURITIES
(1) Founders' Shares
(2) Design Services Rendered (a portion of this amount has been capitalized)
(3) Management Services Rendered
(4) Conversion of debt to stock.
(5) Warrants issued to purchase shares of common stock that may be acquired
at an exercise price of $4.00 per share commencing 180 days following
the effective date of this prospectus.
(6) The Company entered into 10% convertible promissory notes with these
individuals. At the election of the holders, the outstanding
principal of the notes can be converted into shares of the Company's
common stock at $2.00 per share after the registration statement becomes
effective.
Other than shares issued to founders or for services, all
shares were sold to friends and family of our officers to raise
operating capital. Officers individually contacted friends and
family to discuss the Company's business plans. Although none of
the purchasers were considered sophisticated investors, all
investors were given access to corporate books and records as
well as the ability to ask questions of the company's management.
No general solicitation or advertising was used in approaching
the investors. All shares issued have been and will remain
restricted and may not be transferred unless and until the
effectiveness of this registration statement or pursuant to
another applicable exemption.
ITEM 27. EXHIBITS
Exhibit Number Description
3.1 Articles of Incorporation
3.2 Bylaws
3.3 Specimen certificate of the Common Stock of OBN Holdings, Inc.
5.1 Opinion of Law Office of L. Van Stillman, P.A. as to legality
of securities being registered
10.1 Employment Agreement with Roger Neal Smith
10.2 Employment Agreement with Dr. Larry Taylor
10.3 Employment Agreement with Dennis Johnson
10.4 Employment Agreement with Donald Wilson
10.5 Lockup Agreement with Roger Neal Smith
10.6 Lockup Agreement with Larry Taylor
10.7 Consulting Agreement with Dennis Johnson
10.8 Consulting Agreement with Donald Wilson
10.9 Lockup Agreement with Dennis Severson
10.10 Lockup Agreement with Anita L. DeFrantz
10.11 Transponder Capacity Agreement with Jones Media
10.12 License Agreement with MarVista Entertainment (Whamo)
10.13 Agreement with Nelvana International
10.14 Agreement with Feature This
23.1 Consent of Corbin & Company, LLP
23.2 Consent of L. Van Stillman (included in Exhibit 5.1)
ITEM 28. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors,
officers and controlling persons of the Company pursuant to the
foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy and as expressed in
the Act and is, therefore, unenforceable.
The Company hereby undertakes to:
(1) File, during any period in which it offers or sells
securities, a post-effective amendment to this registration
statement to:
i. Include any prospectus required by Section 10(a)(3) of
the Securities Act;
ii. Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental
change in the information in the registration
statement.
iii. Include any additional or changed material information
on the plan of distribution.
(2) For determining liability under the Securities Act, treat
each post-effective amendment as a new registration statement of
the securities offered, and the offering of the securities at
that time to be the initial bona fide offering.
(3) File a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the
offering.
(4) For determining any liability under the Securities Act,
treat the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon Rule 430A
and contained in a form of prospectus filed by the Company under
Rule 424(b)(1) or (4) or 497(h) under the Securities Act as part
of this registration statement as of the time the Commission
declared it effective.
(5) For determining any liability under the Securities Act,
treat each post-effective amendment that contains a form of
prospectus as a new registration statement for the securities
offered in the registration statement, and that offering of the
securities at that time as the initial bona fide offering of
those securities.
(6) Insofar as indemnification for liabilities arising under
the Securities Act of 1933 (the "Act") may be permitted to our
directors, officers and controlling persons pursuant to the
foregoing provisions, or otherwise, we have been advised by the
Securities and Exchange Commission that such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by us of expenses incurred or paid by one of
our directors, officers or controlling persons in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, we will, unless in the opinion of our
counsel the matter has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the question whether such
indemnification by us is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such
issue.
Signatures
In accordance with the requirements of the Securities Act of
1933, the registrant certifies that it has reasonable ground to
believe that it meets all of the requirements for filing on Form
SB-2/A and authorized this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the
city of Los Angeles state of California, on December 3, 2003
OBN HOLDINGS, INC.
By: /s/ Roger Neal Smith
-------------------------------
Roger Neal Smith
Principal Executive Officer,
President and Director
In accordance with the requirements of the Securities Act of
1933, this registration statement has been signed by the following
persons in the capacities indicated on December 3, 2003.
By: /s/ Roger Neal Smith Principal Executive Officer, President and
------------------------
Roger Neal Smith Director
By: /s/ Larry Taylor Principal Financial Officer and -
------------------------
Larry Taylor Principal Accounting Officer and Director
By: /s/ Dennis Johnson Director
-------------------------
Dennis Johnson
By: /s/ Anita L. DeFrantz Director
------------------------
Anita L. DeFrantz
By: /s/ Dennis Severson Director
------------------------
Dennis Severson
By: /s/ Barry Allen Director
------------------------
Barry Allen