UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the annual period ended June 30, 2008
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from ________to _________
Commission File Number 333-108300
OBN Holdings, Inc.
(Exact name of registrant as specified in its Charter)
Nevada 81-0592921
(State of incorporation) (IRS Employer Identification No.)
8275 South Eastern Ave., Suite 200; Las Vegas, Nevada 89123
(Address of principal executive offices)
(702) 938-0467
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act Yes ( ) No ( X )
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes ( ) No ( X )
Indicate by check mark whether the registrant (1) filed all reports required
to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934
during the past 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ( ) No ( X )
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporate by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. ( X )
Indicate by check mark whether the registrant is a large accelerated filer, a
non-accelerated filer, or a smaller reporting company, See the definition of
"large accelerated filer," "accelerated filer" and "smaller reporting company"
in Rule 12b-2 of the Exchange Act.
Large accelerated filer( ) Accelerated filer ( )
Non-accelerated filer ( ) Smaller reporting company ( X )
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes ( ) No ( X )
Aggregate market value of the voting common equity held by non-affiliates of
the Company on December 31, 2008 was approximately $1,837,000.
As of March 31, 2009 the Company had 18,335,086 shares of its $.001 par value
common stock issued and outstanding.
TABLE OF CONTENTS
PART I
ITEM 1. Business 1
ITEM 2. Properties 4
ITEM 3. Legal Proceedings 4
ITEM 4. Submission of Matters to a Vote of Security Holders 5
PART II
ITEM 5. Market for Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchase of Equity Securities 6
ITEM 6. Selected Financial Data 6
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
ITEM 7A Quantitative and Qualitative Disclosures About Market Risk 13
ITEM 8. Financial Statements and Supplementary Data 14
ITEM 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure 40
ITEM 9A. Controls and Procedures 40
PART III
ITEM 10. Directors, Executive Officers, and Corporate Governance 42
ITEM 11. Executive Compensation 44
ITEM 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters 45
ITEM 13. Certain Relationships and Related Transactions, and
Director Independence 46
ITEM 14. Principal Accounting Fees and Services 47
PART IV
ITEM 15. Exhibits, Lists and Reports on Form 8-K 48
PART I
ITEM 1. Description of Business
Corporate History
- -----------------
OBN Holdings, Inc. ("OBNI" or the "Company") is a holding company with
operations in several industries, including the internet broadcasting,
television/film production, plastics recycling, intelligent traffic systems
the meat commodity trading industries. In addition, OBN has a subsidiary
devoted to providing publicly stock trading listing services. Moreover, the
Company is internationally diversified with subsidiaries in China, Japan and
the United States. As a holding company our primary objective is to identify
and acquire profitable small to medium sized companies as subsidiaries, then
manage the subsidiaries' growth and development.
The Company was incorporated in Nevada on January 21, 2003 as the holding
company for three wholly owned entertainment operating subsidiaries: Omni
Broadcasting Network ("OMNI"), Eclectic Entertainment ("Eclectic") and
Products On Demand Channel ("POD"). In August 2003, the Company acquired KSSY
television, which is located in San Luis Obispo County, California.
On May 21, 2004 the SEC/NASD granted formal approval for public trading by
existing shareholders of OBN shares. On June 25, 2004 OBN's initial public
offering was approved by the SEC and the Company began its effort to raise
the funds necessary to implement its business plan. However, in October 2004
management decided to cancel the public offering in order to protect the
stock price from "shorting" activity by third parties that had driven the
stock price down. As a result, management never received the funds it
required to fully implement its entertainment-based business plan.
The Company continued on with modest growth without the IPO funding. In
exchange for extinguishment of debt OBN acquired the name and program library
of All Sports Television Network ("ASTN"), which began broadcast operations
as a fourth subsidiary in July 2005.
In January 2006, the Company agreed to sell 60% ownership to a Sheikh from
Saudi Arabia in exchange for the long term funding it sought. Unfortunately,
personal circumstances prevented the Sheikh from performing on the agreement.
As a result the agreement was canceled and the funding never materialized.
Without funding, the Company was forced to suspend its broadcasting operations
and has been unable to implement its business plan.
In March 2007 the Company revised its business plan to focus on diversifying
into non-entertainment related industries, and to expand globally through
acquisition. The Company began to work with an investment banking firm that
was responsible for raising funds and identifying targets for acquisition. In
June 2007, the KSSY television station was fully impaired and ceased to be an
asset. In October 2007, the Company established OBN Holdings (HK) Ltd, a
wholly owned subsidiary based in Hong Kong to handle its China operations. In
February 2008, the Company signed an agreement to broadcast its film and
television properties over the world-wide broadband internet. Thus, internet
broadcasting replaced the U.S. television broadcasting operations. In
February 2008, the Company entered the intelligent traffic system industry by
purchasing the North American rights to proprietary technology that captures
traffic violation information on video and still media. In February 2008 the
Company entered the plastics recycling industry by purchasing the exclusive
North American rights to Chinese proprietary technology that allows
"unrecyclable plastics" to be recycled. In June 2008, the Company acquired a
trading company that currently sells pork to Japan from Mexico. In
October 2008, the Company established OBN Holdings Japan Co, Ltd, a wholly
owned subsidiary based in Tokyo, Japan to handle its Japan operations.
As a result the Company's success to date in implementing its acquisition and
diversification plan, the Company is currently a holding company with diverse
interests. The Company is negotiating the acquisition of companies in
several other geographical areas.
Employees
- ---------
As of March 2009 OBN Holdings, Inc. employs only eight full-time employees.
There are three employees in the corporate offices and three employees work in
our commodity trading company, one works in the Hong Kong office and one works
in the Japan office. Once the broadband broadcasting, television/film
production, plastics recycling, intelligent traffic system, listing service and
commodity trading operations are fully staffed we expect to employ over one
hundred full-time employees.
Competition
- -----------
Entertainment Industry. The Company transitioned from television satellite
broadcasting to broadband internet broadcasting which is a relatively new
distribution method. The switch allows our hundreds of film titles to be
broadcast worldwide for substantially reduced cost. We no long have satellite
uplink, television station affiliate or sales personnel expenses. Programming
is available for viewing on computers or televisions. Advertising revenues
are shared on a 60/40 basis with our broadband host. Competition among
broadband channels is not significant when you consider a worldwide audience.
Viewing statistics are available for potential advertisers.
Plastics Recycling Industry. There are hundreds of companies around the world
that recycle one or more of the 50 different types of plastic. For most
recyclers the polymers must be of nearly identical composition. The methods
they use include mechanical recycling, hydrogenation, gasification and
thermal cracking. Only a few facilities have the capability to recycle mixed
types and colors. Alternative processing methods that attempt to address
plastics' "macro-molecular" structure and allow recycling of mixed plastics
include condensation polymerization, thermal de-polymerization, and heat
compression. DuPont has opened a pilot condensation polymerization plant
which was essentially the inverse of the original polymerization reaction,
but the plant was closed for economic reasons. A pilot thermal
de-polymerization plant exists in Carthage Missouri. Heat compression plants,
where the plastics are melted and pumped through heated pipes into casting
moulds, exists in Australia and Japan. Our plastics recycling equipment uses
a proprietary process that enables it to recycle virtually any combination of
plastics and colors. It has little direct competition in China, the largest
market in the world. Plans are underway to construct a state of art facility
in China to meet increasing international demand for recycled plastics.
Intelligent Traffic System Industry. There are only a few companies worldwide
that specialize in the type of traffic intelligent systems for which the
Company has exclusive rights. The main competitors are the ISS Corporation of
the United States and Traficon Corporation of Belgium. Both of these firms
have encountered difficulties adapting their systems to China's and third
world traffic conditions, pricing structures and post sale service. There
problems were the impetus to the development our Lutong Tech's proprietary
technology. Lutong Tech Limited has product lines installed and operating
throughout China. In fact, Lutong Tech has been designated by the Chinese
government to undertake the ITS critical technology and application project
in the government's five year Social and Economic Development Plan. Moreover,
the Chinese National Video Laboratory has been in operation at Lutong
facilities since 2001. The Chinese cities of Beijing, Shanghai, Guangzhou,
Nanjing and other municipalities have installed Lutong's intelligent Traffic
Systems. The company will roll out this innovative technology to other
countries throughout North America, Asia, Africa and South America.
Commodity Trading Industry. Kyodo USA is among a limited number of firms that
have been issued a special USDA permit that is required to transport pork
through the United States for shipping to Japan. Since September 11, 2001,
obtaining permits have been more difficult. As a result, Kyodo USA is
positioned for substantial growth with limited competition. The Company has
plans to expand operations to include chicken and other meat products. In
addition, the Company has identified additional customers in China. Further,
there are plans to increase productivity and the profit margin.
Intellectual Properties
- -----------------------
Currently our entertainment group has the rights to several hundred
intellectual properties. Some programs were purchased and are wholly owned
as a part of our film library. Other programs are licensed. We typically
enter a multi-year licensing agreement with unlimited airing. In addition to
the licensed and wholly-owned programs, we have several programs in
development under the Eclectic Entertainment subsidiary. They include "Music
on Demand," "The LA Food Scene," "Adventures of Unit 28," and "The Mini-Movie
Hour." In addition, we have sports programming such as "After the Game,"
"Australian Rules Football" and "Destination Adventure." During the fiscal
year ended June 30, 2008 we have added over three hundred fifty (350)
additional titles to our film library.
The Company has acquired the exclusive North American rights to a Chinese
proprietary process for converting "unrecyclable" plastic into reusable
plastic pellets. The process requires specially engineered equipment that is
not available anywhere else in the world. The company will employ the process
in facilities in other geographical location outside the Peoples Republic of
China.
The company has acquired the exclusive North American rights to several
patents in Video Detection Technology, including auto-adapted target
characteristic extraction, video pretreatment, video coil, vehicle track
technologies and Correlative product Research and Development. These
exclusive technologies have been use to produce two intelligent traffic
system product lines whereby video and still pictures of automobiles as they
move through traffic intersections are captured and sent to government
agencies for ticket collections. Other product lines are currently in
development.
Marketing Strategy
- ------------------
OBN Holdings has multi-faceted marketing strategy based on the industries in
which it has operations. The OBN corporate office is responsible for
identifying, evaluating and negotiating the acquisition of suitable
profitable companies as wholly owned subsidiaries. The corporate marketing
strategy is to promote OBN as a business incubator following many of the
tenets of Warren Buffet's Berkshire Hathaway. The acquired businesses wish
to become part of a fully reporting publicly trading company to support their
continued growth and development. In all cases, the management of the
acquired subsidiary remains with the company and benefits from the OBN
development programs. Assets acquired are not limited to specific industries
or geographic regions.
Broadband Internet Broadcasting. OBN seeks to provide quality programming
suitable for family viewing from sources throughout the world. Our goal is
to entertain and enlighten our viewers with the sights, thoughts and visions
of independent producers worldwide. Broadcasting is the foundation on which
the business is built because it provides the Company with the distribution
outlets for its programming, and the medium to promote its products and
services. Our broadband channel guarantees that we have an outlet for our
programming. The Company will not be dependent on Nielsen ratings as a basis
for attracting advertising dollars, but by interesting and differentiated
content instead. We believe that advertisers who are continually seeking new
markets see the value in placing their advertisements with our programming.
Television/Film Production. There are literally thousands of television and
feature film production companies, all vying to have their completed projects
distributed. A few production companies are owned or aligned with the major
broadcast networks. The others are at the mercy of the relatively few
distribution outlets available. Through its sister company, Omni Broadcast
Networks, Eclectic productions are guaranteed a distribution outlet on its
sister companies' network. Alternatively, Eclectic may choose to syndicate a
program and have it aired on competing networks. Thus, the a major component
of our marketing strategy is to promote our completed productions via our
sister broadcast networks and syndicate distribution on other network when
advantageous. During 2005-06 our Four Tops Special production was
successfully syndicated to eighty million (80,000,000) households via several
networks, including ABC, CBS and PBS. We will continue to take advantage of
these established relationships. In addition, we plan to expand our
production operations by acquiring profitable production which will increase
our contacts in the industry. OBN's vertically integrated flat organizational
structure allows us to minimize costs and make quick decisions. Generated
revenues will cover the cost of operations, while outside funds are raised
for larger productions.
Plastics Recycling. There are two competitive advantages that our plastics
recycling operations has over other facilities: 1) low cost and 2) technology.
For the most this business is low tech, labor intensive work. Thus, the low
wage rates and large labor pool makes the Chinese workforce ideal. Many of
the industrialized countries such as the United Kingdom and Australia send
the plastics discards to China for recycling. We have plans to construct a
new facility that will double capacity and consolidate operations under one
roof. All equipment used in our recycling process is custom built in order
to protect the proprietary methods and to minimize costs. We recycle only
"non-recyclable" plastics for which there is no competition. Thus, marketing
for this technology will highlight its environmental and cost saving aspects.
Intelligent Traffic Systems. There are several competitive advantages for
our traffic systems operations. The systems are uniquely designed to
determined acceleration and deceleration through an intersection, thereby
determining whether a driver is attempting to avoid detection. Further, the
technology captures illegal turns, crossing lines detection, and a host of
other traffic violations. To our knowledge, no other system has this unique
cadre of capabilities. Further, this technology allows for revenue sharing
with municipalities. Therefore, the marketing program for this technology
includes one for direct sales (BOT) to municipalities in developing countries
and another to contractors who will install/monitor the installation under a
Build-to-operate (BOO) contract.
Commodity Trading. The competitive advantage for our meat trading operations
is the USDA permits. Our marketing strategy is to expand operation to
additional types of meats and to additional customers. Existing management
has extensive contacts throughout the industry which have not previously been
exploited. Under OBN management numerous productivity improvement methods
will be instituted so that Kyodo management can focus on implementing the
marketing plan.
ITEM 2. Description of Properties
Our office headquarters is located at 8275 South Eastern Ave., Suite 200;
Las Vegas, Nevada 89123. It is a leased executive suite space at a monthly
rate of $250. In 2006 we were evicted from our Los Angeles office facilities
located at 4322 Wilshire Blvd., Suite 300, Los Angeles, California, for
non-payment of rents. Our Los Angeles based executives now use an executive
suite located at 1100 Glendon Avenue. In addition, we have a resident agents
and executive suite offices in Hong Kong and Japan for annual fees of $3,000
each. We expect to renew all of our agreements at current market rates.
ITEM 3. Legal Proceedings
In April 2006 OBN filed suit in California against Firestone Communications,
its satellite uplink provider claiming the "force majeure" clause in the
contract. Firestone filed suit against the Company in Texas for $141,000
claiming non-payment of lease amount. The Company agreed to a stipulated
judgment of $141,000 to be paid in full on or before December 31, 2007 by
making a $15,000 payment in June 2007, five monthly payments of $10,000 and
then the balance payment. The Company made the $15,000 and two subsequent
$10,000 monthly payments, but failed to make its October, November and
December payments. In September 2008 the Company agreed to settle the dispute
for $62,500 at which time the Company made a $50,000 payment followed by a
$12,500 payment. Thus, this debt has been paid in full.
In May 2006 WellGo, Inc. filed suit in Texas against the Company claiming
breach of contract when the Company gave DVD/CD distribution rights for its
Four Tops production to another company. Based on the contract, which was
written by WellGo, any lawsuits must be filed in California. Furthermore,
the contract clearly states that the Company, at our election, may provide a
replacement property or cancel the agreement. In October 2006 the Company
acknowledged a $7,500 contingent liability to WellGo. In June 2007 the
balance was paid with 15,000 shares of OBN stock valued at $0.90 per share.
Thus, the entire amount due has been paid in full.
In August 2006 General Electric Leasing Solutions filed suit in California
against the Company for non-payment of lease amounts totaling $46,272. Both
parties have agreed to an amicable resolution via a stipulated judgment
against the Company. The entire amount remains outstanding at the time of
this filing. The Company anticipates full payment by December 31, 2009.
The Company believes that none of the aforementioned legal proceedings will
impact its ability to continue operating.
ITEM 4. Submission of Matters to a Vote of Security Holders
None
PART II
ITEM 5. Market for Registrant's Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
Our common stock is currently an OTC pink sheets company and trades under
the symbol "OBNI." Our stock price, like that of holding companies, can be
highly volatile. The stock price may be affected by such factors as:
- Acquiring additional business entities
- Entering new industries
- Acquiring or development of important intellectual properties
- Announcements of distribution
- Regulatory or legal matters
- Broader industry and market trends
- Financial performance
In addition, if our revenues or earnings in any period fails to meet the
investment community's expectations, there could be an immediate adverse
impact on our stock price.
Set forth in the following table is the high and low closing prices for our
fiscal year ended June 30, 2008 for our common stock.
Quarter Ended High Low
September 30, 2007 $1.02 $0.40
December 31, 2007 1.02 0.40
March 31, 2008 1.00 0.20
June 30, 2008 1.00 0.28
As of June 30, 2008 there were approximately 200 shareholders of record of
our common stock. We have not paid any cash dividends since our inception
and do not contemplate paying dividends in the foreseeable future. It is
anticipated that earnings, if any, will be retained for the operation of our
business.
An executive compensation stock option plan was developed and approved by the
Board prior to the Company making its stock available to the public. However,
all options under the plan expired in August 26, 2005. No common shares were
issued under this option plan.
There have been no sales of unregistered securities through June 30, 2008 that
have not been previously reported.
ITEM 6. Selected Financial Data
The selected financial data contained in the chart below should be read in
conjunction with the consolidated financial statements and the notes thereto
included elsewhere in this document.
Years Ending June 30
----------------------------------------------------------
2008 2007 2006 2005 2004
OPERATING RESULTS
Revenue 2,001,589 - 247,382 35,210 (9,537)
Gross profit (loss) 1,122,350 - 33,779 (16,424) (478,238)
Net income (loss) 23,452 (2,239,282) (1,006,728) (1,296,092) (1,461,106)
PER SHARE DATA
Wgtd Avg Common Shares* 7,361,936 1,419,519 655,951 600,681 578,403
Loss per Common Share (0.02) (1.58) (1.50) (2.20) (2.50)
TOTAL ASSETS 8,120,482 585,580 523,030 646,020 323,172
CAPITALIZATION & DEBT
Total Liabilities 3,112,927 1,666,886 3,152,715 2,680,177 1,466,732
Capital Lease 49,396 49,396 49,396 54,530 97,858
Common Stock (000) 11,357 3,812 6,774 6,168 5,822
Paid in Capital 13,945,706 7,887,841 4,097,218 3,686,624 3,281,475
Accumulated Deficit (8,949,507) (8,972,959) (6,773,677) (5,726,949) (4,430,857)
* Adjusted for 10:1 reversed stock split implemented in April 2007
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
In an effort to increase shareholder value, management has elected to
accelerate its growth by implementing its long-term strategy immediately.
While it has been the Company's overall plan to grow through a combination
of horizontal integration and geographic expansion, it planned to do so
after first growing organically, and moving to a national exchange. Since
the Company has not received the capitalization previously committed by
third parties, management has decided that a more aggressive approach can
only benefit our shareholders. To that end, the Company has made some
significant changes. Management is actively seeking out and acquiring
profitable businesses.
The Company is not exiting the entertainment business. In fact, it is
becoming more involved by creating new products and services, such as its
broadband network "Film Hook" and internet broadcasting. Management views
promotion and distribution as being a very important element of the Company's
business. The Company's broadband broadcasting channel and internet portal
provide very cost effective outlets for promoting any products and services
that it will offer in the future.
The Company's new horizontal integration strategy also does not mean that
management is entering into industries of which it has no knowledge. Prior
to creating OBN, the top executives were business consultants to well over
300 companies in numerous industries and countries, ranging from very small
private firms to Fortune 500 conglomerates, in the areas of operations
management, productivity improvement, accounting, marketing and finance.
The acquisition and growth strategy is well underway. In October 2007, the
Company established OBN Holdings-Hong Kong, a wholly owned subsidiary. In
January 2007 the Company began development of its Film Hook internet
broadcasting operations to be launched in November 2009. In February 2008, the
Company signed an agreement to broadcast its film and television properties
over the broadband internet. In February 2008, the Company entered the
intelligent traffic system industry by acquiring the North American exclusive
rights to proprietary technology that for capturing traffic violation
information on video and still media. In February 2008 the Company entered
the plastics recycling industry by acquiring Chinese proprietary technology
that allows "unrecyclable plastics" to be recycled. In June 2008, the
Company acquired a commodity trading company that currently sells pork to
Japan from Mexico
Management's goal is to increase shareholder value. The Company's efforts
to fully implement its revised business plan will lead to growth and
profitability through acquisition and subsidiary development. Financial risks
will be minimized by geographical and industry diversification.
GENERAL OVERVIEW
The following discussion and analysis of our financial condition and results
of operations should be read in conjunction with the audited balance sheet,
income statement, cash flow statement and stockholder's equity statement as
of and for the year ended June 30, 2008, and the related notes. This
discussion contains forward-looking statements based upon current
expectations that involve risks and uncertainties, such as our plans,
objectives, expectations and intentions.
The Company reports positive operational results as the Company a profit of
$23,453 during the year ended June 30, 2008. Further, the Company has
a cash balance of $986,482 at June 30, 2008. In addition, at June 30, 2008
our accumulated deficit of $8,949,507 and the negative net working capital
was reduced to $206,716.
Management's plans include obtaining additional capital through equity
financing sources. During the six month period subsequent to June 30, 2008
have we raised $166,229. In addition, we plan to raise an additional
$25 million after filing an S-1 registration statement during the quarter
ending December 31, 2009.
Liquidity and Capital Resources
As of June 30, 2008 the Company's current liabilities of $3,112,927 exceeded
current assets of $2,906,211 by $206,716. Approximately 18% of current
liabilities represent accrued payroll for executives who have opted to defer
taking salaries until additional funding is received. A portion of the
payroll shall be paid once a private stock sale is completed. At the board
of directors meeting held January 10, 2006, the outside directors approved a
resolution allowing executives who have deferred their salaries to convert
any or all amounts due that exceed $50,000. The conversion price was $1.00
per share, or market value of the common stock, whichever was greater. As a
result, $200,000 of accrued salaries was converted into 200,000 shares in
January 2006. In December 2006 another $727,369 of accrued salaries were
converted into 1,091,051 shares. In March 2007 another $125,655 of accrued
salaries were converted into 158,988 shares. In April 2007, a total of
675,000 shares valued at $1.20 each was issued to executives as special
hardship for working without salaries for the past four years. These amounts
are being held in Company's Non Qualified Deferred Compensation Plan.
The Company had two capital lease expenditure commitments. In August 2003
the Company entered into a capital lease of KSSY, television station located
in California for $4,166 per month for three years, after which time OBN had
the option to acquire 95% ownership in the station, provided the Federal
Communications Commission approved the transfer. The Company failed to make
the lease payments in a timely manner and had an outstanding balance of
$68,638 and $24,172 of late fees under the lease on June 30, 2007. However,
the Company learned that in December 2007 the lessor finalized the sell of
the KSSY broadcast license to another party in violation of the lease
agreement. Therefore, as of June 30, 2007, the Company has written off the
KSSY license by recording $130,000 of impairment. In May 2008, the Company
signed a settlement agreement with the license owner whereby the Company
agreed to forgo any legal action and FCC complaint filings in exchange for
forgiveness of all debt obligations. Therefore, the total of $104,791 of debt
associated with the KSSY license was written off, including $68,638 of lease
payments, $24,172 of late fees and 11,981 of tower fees.
In July, 2005, the Company entered into a capital lease for broadcast master
control and play back equipment for $1,841 per month for three years, after
which time OBN had the option to purchase the equipment for one dollar. After
failing to make the lease payments in a timely manner, the Company has agreed
to a stipulated judgment to pay the $49,396 outstanding balance by
December 31, 2007 to settle the lease dispute. Currently, the entire $49,396
remains as a liability as no additional payments have been made. The Company
expects to pay the remaining balance by December 31, 2009.
All other expenses are variable, and we match them to the availability of
funds. Other details concerning the KSSY lease and the broadcast equipment
lease are contained in the footnotes 2 and 6 to the consolidated financial
statements in this document.
Management's believes that the acquisition of Kyodo USA in June 2008
addresses any future liquidity issues because of its strong cash flow and
the $1.2 million cash balances in its bank accounts. In addition, the Company
continues to raise additional capital through equity financing sources.
However, no assurance can be given that additional capital will be available
when required or upon terms acceptable to the Company. The Company intends
to raise gross proceeds of $25,000,000 through a S-1 filing and anticipates
implementing its business plan to expand its acquisition and development
plans.
Should the Company be unsuccessful in generating sufficient working capital,
the liquidity issues for each segment of operation will be addressed in the
manner described below.
Entertainment Operations
- ------------------------
The liquidity issues that have plagued our broadcasting operations have been
resolved by terminating our television broadcasts and satellite uplink. Thus,
the Company no longer has expenses for television affiliate stations and
satellite uplink. Instead, the Company has entered the Internet broadband
broadcasting industry by signing an agreement with an established Internet
network in February 2008. Under this agreement, the Company provides the
programming content and channel scheduling while the Internet Network covers
all related broadcasting costs, including costs for advertising sales and
technical support. The Company receives 60% of all generated revenues. As a
result our broadcast costs have been substantially reduced while our programs
now reach a worldwide market.
Liquidity for the television and film production operations remains
essentially unchanged. There are several television production projects
underway at various stages of development. These projects will be completed
with funds from OBN operations. The Company will seek project investors for
all future projects. Adopting this project funding practice will allow the
Company to realize revenues from licensing agreements, syndication agreements
and advertising without using much of its own funds. Again, the Company
anticipates investing very little of OBN funds into new television and film
projects, instead investor funds will be obtained.
Plastics Recycling Operations
- -----------------------------
Liquidity is not a major concern for the plastic recycling operations that
began as a result of acquiring the proprietary technology license in
February 2008. The Company will not require cash until it begins its own
plastic recycling operation using the exclusive technology license. In order
to generate cash, the Company will sell raw materials to the Chinese facility
from which the exclusive license agreement was acquired. At the same time,
the Company is looking to acquire a plastic recycling facility in North
America. After the acquisition is completed, the Company will be able to
exploit the exclusive recycling technology license.
Intelligent Traffic Systems Operations
- --------------------------------------
Liquidity is not a major concern for the intelligent traffic systems
operations that began as a result of acquiring the proprietary technology
license in February 2008. The Company is bidding on traffic system
installation projects at municipalities throughout North American. As
contracts are awarded, the Company will engage the Chinese company that owns
the proprietary technology to supervise the installation. Little cash is
required during the bidding process. We anticipate installation of the first
system in North America within the next eighteen (18) months. In addition,
some traffic systems units will be sold without installation responsibility,
thus requiring no cash other than sales expenses.
Commodity Trading Operations
- ----------------------------
There is no liquidity issue related to the commodity trading operations that
were acquired in June 2008 as Kyodo USA has adequate cash flow. In fact, the
Company anticipates that some of the excess cash from these operations will
support other OBN operations via intercompany transfers.
Critical Accounting Policies
Our Consolidated Financial Statements have been prepared in accordance with
accounting principles generally accepted in the United States of America.
The preparation of these financial statements requires us to make estimates
and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. We base our estimates on historical experience and on various
other assumptions that are believed to be reasonable under the circumstances,
the results of which form the basis of making judgments about the carrying
values of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under different
assumptions or conditions.
We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our
consolidated financial statements:
Allowance for Doubtful Accounts
We maintain an allowance for doubtful accounts for estimated losses resulting
from the inability of our customers to make required payments. The allowance
for doubtful accounts is based on specific identification of customer
accounts and our best estimate of the likelihood of potential loss, taking
into account such factors as the financial condition and payment history of
major customers. We evaluate the collectability of our receivables at least
quarterly. If the financial condition of our customers were to deteriorate,
resulting in an impairment of their ability to make payments, additional
allowances may be required. The differences could be material and could
significantly impact our operating results.
Intangible Assets
We have adopted Statement of Financial Accounting Standards ("SFAS") No. 142,
"Goodwill and Other Intangible Assets." SFAS No. 142 requires that goodwill
and intangible assets that have indefinite useful lives not be amortized but
rather be tested at least annually for impairment, and intangible assets
that have finite useful lives be amortized over their useful lives. In
addition, SFAS No. 142 expands the disclosure requirements about goodwill
and other intangible assets in the years subsequent to their acquisition.
SFAS No. 142 provides specific guidance for testing goodwill and intangible
assets that will not be amortized (i.e., the Company's plastics
recycling and intelligent traffic system licenses) for impairment. The
licenses are subject to impairment reviews by applying a fair-value-based
test at the reporting unit level, which generally represents operations one
level below the segments reported by the Company. An impairment loss will be
recorded for any portion of the licenses that is determined to be impaired.
We perform impairment testing on our licenses at least annually. The
broadcast license was fully impaired in June 2007 as a result of dispute over
the sale of the license. In addition, the Company recorded an impairment
of $165,000 for its film libraries for the year ended June 30, 2008.
Impairment of Long-Lived Assets
We continue to assess the recoverability of our 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.
Revenue Recognition
1) Revenue from licensing TV programs and feature films can come from several
sources. As projects are completed, we will have the option of airing the
TV programs on our own Internet broadcasting channels and/or licensing
the programs to be aired on other networks. Likewise, feature films can be
licensed to foreign markets for distribution. Thus, among the revenue
sources are other networks in the case of short form programming or
foreign markets for feature films.
A licensing agreement that specifies the license fee, availability dates
and/or agreement duration is required for all projects licensed. Licensing
fees are typically paid in advance of providing the project to the
customer. Upon receipt of payment, deferred revenue is recorded. Revenue
is recognized as the project is aired over the life of the agreement. We
do not recognize revenue for projects that are not been completed, even
if the licensing agreement for the project is signed. The revenue is
recognized only after both the production product is completed and in
accordance with the product availability dates in a signed agreement.
2) Revenue can also result from "revenue sharing" with program licensors.
Some programs will be obtained by paying a licensing fee. Additionally,
some licenses will be obtained via a cash-plus-barter arrangement, where
we air the program for a contracted number of times and, in consideration
for the programming, the licensor receives a specified number of
advertising minutes. SFAS No. 63, Financial Reporting by Broadcasters,
sets forth accounting and reporting standards for the broadcast industry.
Under a cash-plus-barter arrangement, we recognize a licensing asset at
the estimated fair value of the programming received. The difference
between the cash paid (obligation incurred) for the license and its fair
value is recorded as a liability (deferred barter revenue), as the license
is received before the broadcast of the licensor-provided commercials.
As the licensor-provided commercials are aired, barter revenue is
recognized ratably based on the recorded fair value of the barter
transaction in relation to the total granted licensor-provided commercials.
For cash purchases and revenue sharing, as rights are acquired, the
programs are recorded as assets and are amortized as the programs are
aired over the network. For agreements with unlimited airing of a program
the asset is amortized over the license period.
3) Revenue can be generated from advertising and paid programming. Advertising
and paid programming revenue are recognized as the commercials/programs
are aired. For small advertisers that must pay for services in advance,
upon receipt of the payment, the signed contract and the tapes, deferred
revenue is recorded. Deferred revenue is recognized as sales when the
commercial is aired.
4) Revenue is recognized from meat trading operations after the order is
received and the Company invoices the customer. At that time the meats
have been already purchased from our supplier and are on their way to the
customer. Similarly, revenue generated from plastic raw material sales
is recognized when the customer is invoiced.
5) Revenue generated from intelligent traffic system operations is recognized
when municipalities are invoiced.
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.
Results of Operations
The figures as of and for the year ended June 30, 2008 are shown in the
chart below:
Broadcasting Production Commodity Corporate Reconciling Total
Operations Operations Items
Assets $87,022 $65,284 $2,905,053 $7.787,295 ($2,724,172) $8,120,482
Liabilities (434,887) (222,917) (1,330,144) (1,124,979) - (3,112,927)
Revenues, net of
affiliate costs 125,098 - 1,876,491 - - 2,001,589
Costs & expenses* 143,742 67,996 1,262,332 972,506 - 2,446,576
Other income (exp) 15,624 - (64,836) 357,254 - 308,042
Net income (loss) ($3,019) ($67,996) $549,323 (454,856) - 23,452
For year ended June 30, 2007
Broadcasting Production Commodity Corporate Reconciling Total
Operations Operations Trading Items
Assets $230,315 $65,284 - $1,988,566 ($1,698,585) $585,580
Liabilities (575,161) (154,921) - (936,804) - (1,666,886)
Revenues, net of
affiliate costs - - - - - -
Costs & expenses* 108,096 70,324 - 2,598,268 - 2,776,688
Other income (exp) 505,353 - - 32,053 - 537,406
Net income (loss) $397,257 ($70,324) - ($2,566,215) - ($2,239,282)
*Expenses include operating expenses and cost of sales.
There were $2,001,589 of revenues for the fiscal year ended June 30, 2008 as
compared to no revenues for the 2007 fiscal year. All operating units were
dormant for much of 2007 as the Company revised and implemented its
acquisition strategy.
Expenses incurred during the year ended June 30, 2008 totaled $2,446,576,
as compared to $2,776,688 for the 2007 fiscal year. The 2008 expenses
include $879,239 for cost of goods sold, $370,746 of salaries and$165,000 of
impairment expense. Other income for the fiscal year ended June 30, 2008 was
$308,042 as compared to other income of $537,406 for fiscal year ended
June 30, 2007. This was comprised of $585,984 extraordinary gain on
acquisitions, a $58,564 gain on debt settlement, and $176,124 of other
expenses attributable fund raising. Changes in interest expense and tax
expense are insignificant. The net profit for the fiscal year ended June 30,
2008 was $23,452 as compared to a net loss of $2,239,282 for the 2007 fiscal
year.
Reconciling items consist of inter-company balances. There were no reconciling
items for revenue and expenses. Balance sheet reconciling amounts represent
the elimination of subsidiary accounts. All revenues are from customers in
the United States and all long-lived assets are located in the United States.
Broadcasting Operations
- -----------------------
Revenues generated from this segment of operations during fiscal 2008 were
$125,098 compared to zero revenues in fiscal 2007. Expenses were $143,741 for
the year ended June 30, 2008, as compared to $108,096 for fiscal 2007. Among
the items expensed during 2008 was $50,000 impairment expense and $90,750 of
amortization expenses. For 2007, impairment expense was $0 and amortization
expenses were $14,341 and $91,386, respectively. Other income in 2008 was
$15,624 as compared to $505,353 for 2007. In both years the other income was
due to the extinguishment of a debt. Net loss in 2008 for this segment of
operations was $3,019, as compared to net income totaling $397,257 in 2007.
TV & Film Production Operations
- -------------------------------
There were no revenues generated from this segment of operations during
fiscal 2008 and 2007. The Company incurred $67,996 of expense during 2008,
as compared to $70,324 during fiscal 2007. The 2008 expenses included $62,496
of accrued payroll expenses and $5,500 of general and administrative expenses.
There was no other income for 2008 or 2007. The 2008 net loss for this segment
of operations was $67,996, as compared to $70,324 for 2007.
Commodity Trading
- ----------------
Revenues generated from this segment of operations during fiscal 2008 were
$1,876,491 compared to zero revenues in fiscal 2007. The Company did not
have commodity trading operations in 2007. Expenses were $1,262,332 for
the year ended June 30, 2008. Included were $879,238 for cost of goods sold
and $374,844 for general administrative expenses. Other expense for the
year ending Jund 30, 2008 total $64,836. The net income for commodity
trading operations for the year ending June 30, 2008 was $549,323.
OBN Corporate
- -------------
OBN corporate generated no revenue during the year ended June 30, 2008, and
no revenue for the year ended June 30, 2007. The expenses incurred by OBN
corporate were $972,506 for the year ended June 30, 2008, as compared to
$2,598,268 for fiscal 2007. The 2008 amount included $300,000 of accrued
salaries, $115,000 of impairment expense and $310,775 of broker fee expenses.
The 2007 amount included $230,400 of satellite uplink expenses, $413,532 of
accrued salaries, $810,000 of hardship compensation, $130,000 impairment
expense, and $1,141,500 consulting service expense. The consultant and
executive compensation expenses relate to the development and implementation
of the new acquisition strategy. Other income for 2008 was $357,254 compared
to $32,053 for 2007 was the net of the extinguishment of debt, extra ordinary
gain on acquisitions and other expenses. The 2008 net loss for the corporate
office was $454,856, as compared to $2,566,215 for 2007.
Forward Looking Statements
Certain statements in this report are forward-looking statements within the
meaning of the federal securities laws. Although the Company believes that
the expectations reflected in its forward-looking statements are based on
reasonable assumptions, there are risks and uncertainties that may cause
actual results to differ materially from expectations.
ITEM 7A Quantitative and Qualitative Disclosures About Market Risk
Not applicable
ITEM 8. Financial Statements and Supplementary Data
Reports of Independent Registered Public Accounting Firms 15
Balance Sheet as of June 30, 2008 and 2007 17
Statements of Operations for the years ended June 30, 2008 and 2007 18
Statements of Stockholders' Deficit for the
years ended June 30, 2008 and 2007 19
Statements of Cash Flows for the years ended June 30, 2008 and 2007 20
Notes to Financial Statements 21
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of
OBN Holdings, Inc.
We have audited the accompanying consolidated balance sheets of OBN
Holdings, Inc. (a California corporation) and subsidiaries (the "Company")
as of June, 2007 and 2008, and the related consolidated statements of
operations, stockholders' deficit, and cash flows for the years then ended.
These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). 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. The
Company is not required to have, nor were we engaged to perform, an audit of
its internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances but not
for the purpose of expressing an opinion on the effectiveness of the
Company's internal control over financial reporting. Accordingly, we express
no such opinion. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall consolidated financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of OBN
Holdings, Inc. and subsidiaries as of June 30, 2007 and 2008, and the
results of its operations and its cash flows for the years then ended, in
conformity with accounting principles generally accepted in the United
States of America.
Tarvaran & Askelson, LLP
Irvine, California
June 12, 2009
OBN Holdings, Inc.
CONSOLIDATED BALANCE SHEETS
June 30,
2008 2007
----------- ----------
ASSETS
Current assets:
Cash and cash equivalents $ 986,482 $ 19,919
Accounts receivables 680,306 --
Inventory 1,239,423 --
---------- ----------
Total current assets 2,906,211 19,919
Fixed assets, net of accumulated depreciation of
$60,678 and $42,881, respectively 214 20,508
Programming rights, net of accumulated amortization
of $98,192 and $96,192, respectively 67,613 69,613
Film library, net of accumulated amortization of
$288,637 and $156,160, respectively 288,863 386,140
Other intellectual properties, net of accumulated
depreciation of $5,250 and $1,650, respectively 11,550 18,150
Other tangible assets 4,846,031 71,250
---------- ----------
Total assets $8,120,482 $ 585,580
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $1,019,342 $ 416,894
Commissions payable 562,112 --
Accrued payroll and related 553,937 196,466
Deferred revenue 47,762 125,000
Capital lease obligations 49,396 49,396
Programming rights payable 80,030 80,030
Notes and accrued interest payable 274,322 276,322
Notes and accrued interest payable to related parties 526,026 522,778
---------- ---------
Total current liabilities 3,112,927 1,666,886
---------- ---------
Stockholders' deficit:
Undesignated preferred stock, $0.001 par value; 20,000,000
shares authorized; no shares issued and outstanding -- --
Common stock; $0.001 par value; 500,000,000 shares
authorized; 11,357,465 and 3,812,157 shares issued
and outstanding, respectively 11,357 3,812
Additional paid-in capital 13,945,706 7,887,841
Accumulated deficit (8,949,507) (8,972,959)
---------- ---------
Total stockholders' deficit 5,007,555 (1,081,306)
---------- ---------
Total liabilities and stockholders' equity $8,120,482 $ 585,580
========== ==========
See accompanying notes to consolidated financial statements.
OBN Holdings, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED
JUNE 30,
------------------------------
2008 2007
------------- -------------
Revenue, net of affiliate costs $ 2,001,589 $ -
Cost of sales 879,239 -
------------ ------------
Gross profit 1,122,350 -
Operating expenses:
General and administrative 1,544,491 2,740,557
------------ ------------
Loss from operations (422,141) (2,740,557)
------------ ------------
Other income (expense):
Other (expense) (11,109) 1,559
Impairment of programming rights (165,000) -
Gain on debt extinguishment 58,564 537,209
Interest expense (22,846) (36,131)
------------ ------------
Total other income, net (140,391) 502,637
------------ ------------
Loss before income taxes (562,532) (2,237,920)
Income taxes - 1,362
------------ ------------
Income (loss) before extraordinary item:
Extraordinary item: Kyodo Acquisition (less
applicable taxes of $0) 585,984 -
Net income $23,452 ($2,239,282)
============ ============
Net loss available to common
stockholders per common share:
Basic and diluted net loss per
common share - ($1.58)
============ ============
Basic and diluted weighted
average shares outstanding 7,261,936 1,419,519
============ ============
See accompanying notes to consolidated financial statements.
OBN HOLDINGS, INC.
Consolidated Statement of Stockholders' Deficit
For the years ended June 30, 2008 and 2007
Undesignated
Preferred Stock Common Stock Additional Total
--------------- --------------- Paid-in Accumulated Stockholders'
Shares Amount Shares Amount Capital Deficit Deficit
------ ------ ------ ------ --------- ----------- ------------
Balance, June 30, 2006 -- -- 677,380 677 4,103,315 (6,733,677) (2,629,685)
Stock issued for cash -- -- 138,333 138 105,218 -- 105,356
Stock for purchases of
intangible assets -- -- 204,500 205 203,975 -- 204,000
Stock issued to extinguish
outstanding debt -- -- 27,920 28 120,338 -- 120,366
Stock issued for services -- -- 1,911,000 1,911 2,105,989 -- 2,107,900
Stock issued for conversion
of salaries -- -- 835,024 853 1,249,186 -- 1,250,039
Net Loss -- -- -- -- -- (2,239,282) (2,239,282)
------ ------ --------- ------ --------- ------------ -----------
Balance, June 30, 2007 -- -- 3,812,157 3,812 $7,887,841 ($8,972,959) ($1,081,306)
------ ------ --------- ------ --------- ------------ -----------
Stock issued for cash -- -- 645,344 645 233,264 -- 233,909
Stock issued for purchase
of technology licenses -- -- 4,348,125 4,348 4,195,852 -- 4,200,200
Stock issued for purchase
of Kyodo USA, Inc. -- -- 800,000 800 599,200 -- 600,000
Stock issued to retire
debt -- -- 9,000 9 5,091 -- 5,100
Stock issued for services -- -- 1,742,849 1,743 1,024,457 -- 1,026,200
Net income (loss) -- -- -- -- -- 23,452 23,452
------ ------ --------- ------ --------- ------------ -----------
Balance, June 30, 2008 -- -- 11,357,465 11,357 13,945,706 (8,949,507) 5,007,554
------ ------ --------- ------ --------- ------------ -----------
OBN Holdings, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED
JUNE 30,
-------------------------
2008 2007
---------- ----------
Cash flows from operating activities
Net profit $ 23,452 ($2,239,282)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 161,371 100,126
Impairment expense 165,000 130,000
Extraordinary gain (585,984) --
Gain on settlement of debt (58,564) (537,209)
Shares issued for services 1,026,200 2,107,900
Changes in operating assets and liabilities:
Accounts receivable, net (680,306) --
Purchased inventory (1,239,423) --
Deferred revenue (77,238) --
Accounts payable and accrued expenses 1,866,898 75,224
----------- ------------
Net cash used in operating activities 601,406 (363,241)
----------- ------------
Cash flows from investing activities:
Purchase of intangible assets 130,000 --
----------- ------------
Net cash used in investing activities 130,000 --
----------- ------------
Cash flows from financing activities:
Proceeds from notes payable, net of issuance costs 500 267,030
Proceeds from notes payable to related parties 35,848 23,438
Repayments on notes payable (2,500) (3,000)
Repayments on notes payable to related parties (32,600) (12,157)
Proceeds from issuance of common stock 233,909 105,356
----------- ------------
Net cash provided by financing activities 235,157 380,667
----------- ------------
Net change in cash and cash equivalents 966,563 17,426
Cash, and cash equivalents, beginning of period 19,919 2,493
----------- ------------
Cash, and cash equivalents, end of period $986,482 $ 19,919
=========== ============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest -- --
=========== ============
Income taxes $ -- $ --
=========== ============
Supplemental disclosure of noncash investing and
financing activities:
Purchase of programming rights with common stock $ 200,200 $ 204,000
----------- ----------
Shares issued to pay off debt $ 1,500 $ 120,366
----------- ------------
Conversion of salaries payable to common stock $ -- $1,250,039
----------- ------------
Payment of accrued payables with common stock $ -- 40,552
----------- ------------
Purchase of intangible assets $4,774,781 $ --
----------- ------------
Purchase of commodity trading subsidiary $ 600,000 $ --
----------- ------------
See accompanying notes to consolidated financial statements.
OBN Holdings, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2008 and 2007
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Background and Organization
Nature of Operations and Principles of Consolidation
- ----------------------------------------------------
OBN Holdings, Inc. ("OBNI" or the "Company") is a holding company with
operations in entertainment, pork commodity trading, plastics recycling and
intelligent traffic systems industries. Moreover, the Company is
internationally diversified with subsidiaries in China and the United States.
As a holding company its primary objective is to identify and acquire
profitable small to medium sized companies as subsidiaries, then manage the
subsidiaries growth and development.
The Company was incorporated in Nevada in 2003 as the holding company for
three wholly owned entertainment operating subsidiaries: Omni Broadcasting
Network ("OMNI"), Eclectic Entertainment ("Eclectic") and Products On Demand
Channel ("POD"). Omni was incorporated in January 2001 as a television
broadcast company. Eclectic Entertainment was incorporated July 2002 as a
motion picture and television production company. Products On Demand Channel
was incorporated in December 2002 as a broadcast television network
specializing in providing airtime to independent producers and companies
seeking to market their products on television. In August 2003, the Company
acquired the KSSY television broadcast license. In February 2004, OBN
acquired the name and program library of All Sports Television Network
("ASTN"), which began broadcast operations as a fourth subsidiary in July
2005. In January 2007 the Company began development of its Film Hook internet
broadcasting operations to be launched in June 2008. In October 2007 the OBN
Holdings Hong Kong subsidiary was incorporated. In February 2008, the Company
signed an agreement to broadcast its film and television properties over the
broadband internet. In March 2008 the Company entered the plastics recycling
industry by acquiring the exclusive North American rights to Chinese
proprietary technology that allows "unrecyclable plastics" to be recycled.
In March 2008 the Company entered the intelligent traffic systems industry by
acquiring the exclusive North American rights to Chinese patents that
captures video and still pictures of traffic violations real time. In June
2008 the Company acquired Kyodo USA, a trading company that sells pork from
Mexico to Japan. In October 2008, the Company formed OBN Holdings Japan Co.,
Ltd, a wholly owned subsidiary of OBN Holdings.
Principles of Consolidation
The consolidated financial statements include the accounts of OBN Holdings,
Inc. and its wholly owned subsidiaries. All significant inter-company
transactions and balances have been eliminated in consolidation.
Segment Information Reporting
Management measures the Company's performance in three distinct segments:
(1) Broadcasting Operations, which is measured advertising dollars attracted;
and, (2) Production Operations, which requires creative talent and has a
longer lead time to determine success; and 3) Commodity trading which is
measure by volume sold. A summary for the years ended June 30, 2008 and 2007
is presented in the table below:
The figures as of and for the year ended June 30, 2008 are shown in the chart
below:
Broadcasting Production Commodity Corporate Reconciling Total
Operations Operations Items
Assets $87,022 $65,284 $2,905,053 $7.787,295 ($2,724,172) $8,120,482
Liabilities (434,887) (222,917) (1,330,144) (1,124,979) - (3,112,927)
Revenues, net of
affiliate costs 125,098 - 1,876,491 - - 2,001,589
Costs & expenses* 143,741 67,996 1,262,332 972,506 - 2,446,576
Other income (exp) 15,624 - (64,836) 357,254 - 308,042
Net income (loss) ($3,019) ($67,996) $549,323 (454,856) - $23,452
For year ended June 30, 2007
Broadcasting Production Commodity Corporate Reconciling Total
Operations Operations Trading Items
Assets $230,315 $65,284 - $1,988,566 ($1,698,585) $585,580
Liabilities (575,161) (154,921) - (936,804) - (1,666,886)
Revenues, net of
affiliate costs - - - - - -
Costs & expenses* 108,096 70,324 - 2,598,268 - 2,776,688
Other income (exp) 505,353 - - 32,053 - 537,406
Net income (loss) $397,257 ($70,324) - ($2,566,215) - ($2,239,282)
*Expenses include operating expenses and cost of sales.
Reconciling items consist of inter-company balances. Revenues are from U.S
and Japanese customers in the United States and all long-lived assets are
located in the United States.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reported period. Actual results could differ from
estimated amounts. The Company's significant estimates include the
realizability of long-lived assets and deferred tax assets.
Concentration of Credit Risk
The Company maintains its cash and cash equivalent accounts in financial
institutions. Accounts at these institutions are insured by the Federal
Deposit Insurance Corporation ("FDIC") up to $250,000. At June 30, 2008, the
Company had two bank account balances that was in excess of the FDIC insurance
limit. The Company performs ongoing evaluations of these institutions to
limit its concentration risk exposure.
The Company grants credit to customers within the United States of America
and does not require collateral. The Company's ability to collect receivables
is affected by economic fluctuations in the geographic areas and industries
served by the Company. Reserves for uncollectible amounts are provided based
on past experience and a specific analysis of the accounts which management
believes is sufficient. Although the Company expects to collect amounts due,
actual collections may differ from the estimated amounts.
Sales for the year ended June 30, 2008 was $2,001,589. Sales for the two
largest customers in 2008 totaled approximately 55% of revenue.
Fair Value of Financial Instruments
The carrying amounts of the Company's cash and cash equivalents, accounts
payable, accrued expenses and third-party notes payable approximate their
estimated fair values due to the short-term maturities of those financial
instruments. The estimated fair values of related-party notes payable are
not determinable as the transactions are with related parties.
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, 2008, the Company's fixed assets
consist primarily of computers and office editing equipment. Depreciation
expense for the years ended June 30, 2007 and 2006 totaled $17,797 and
$20,819, respectively.
Other Long-Lived Assets
The programming rights assets are discussed in Note 2. Programming rights
are recorded for the purchase of the right to air programming on the
Company's broadband internet network. An asset is recorded for the programming
rights when the license period begins. These rights are amortized to expense
over the expected useful life of the programming, as the Company has the
right to unlimited broadcasting of the programming.
The film library is discussed in Note 3. These assets are being amortized
over their estimated useful life of 10 years.
The internet media portal is discussed in Note 4. This asset is an intangible
asset with an indefinite life. It is expected to begin operations by
November 2009.
Intangible Assets
The Company has adopted Statement of Financial Accounting Standards ("SFAS")
No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 requires that
goodwill and intangible assets that have indefinite useful lives not be
amortized but rather be tested at least annually for impairment, and
intangible assets that have finite useful lives be amortized over their
useful lives. In addition, SFAS No. 142 expands the disclosure requirements
about goodwill and other intangible assets in the years subsequent to their
acquisition.
SFAS No. 142 provides specific guidance for testing goodwill and intangible
assets that will not be amortized (i.e., the Company's technology licenses) for
impairment. The leased broadcast license is subject to impairment reviews by
applying a fair-value-based test at the reporting unit level, which generally
represents operations one level below the segments reported by the Company.
An impairment loss will be recorded for any portion of the technology licenses
that is determined to be impaired. The Company performs impairment testing on
its technology licenses at least annually and will completed the applicable
valuation analysis prior to filing its June 30, 2009 10K.
Impairment of Long-Lived Assets
The Company's management assesses the recoverability of its long-lived assets
by determining whether the depreciation and amortization of long-lived assets
over their remaining lives can be recovered through projected undiscounted
future cash flows. The amount of long-lived asset impairment is measured
based on fair value and is charged to operations in the period in which
long-lived asset impairment is determined by management. Based on
uncertainties in the realizability of its "Four Tops Television Special"
production and "One Last Ride" film, the Company wrote down the value of
these assets, recording an impairment of $123,092 for the year ended June 30,
2006. In 2007, the Company wrote off the value of the KSSY broadcast license,
recording an impairment of $130,000 for the fiscal year ended June 30, 2007.
In June 2008, the Company wrote down the value of its Film Libraries, by
recording a impairment of $165,000 for the year ending June 30, 2008.
Based on its analysis, the Company believes that no additional impairment of
the carrying value of its long-lived assets is required. There can be no
assurance, however, that market conditions will not change which could result
in additional impairment of its long-lived assets in the future.
Revenue Recognition
Revenue From Licensing TV Programs and Feature Films
The Company has completed several projects that can be licensed, and
additional projects are underway. As projects are completed, the Company will
have the option of airing the TV programs on its own network and/or licensing
the programs to be aired on other networks. Likewise, feature films can be
licensed to foreign markets for distribution. Thus, among the revenue sources
are other networks in the case of TV projects or foreign markets for feature
films.
A licensing agreement that specifies the license fee, availability dates
and/or agreement duration is required for all projects licensed. Licensing
fees are typically paid in advance of providing the project to the customer.
Upon receipt of payment, deferred revenue is recorded. Revenue is recognized
as the project is aired over the life of the agreement. The Company does not
recognize revenue for projects that are not completed, even if the licensing
agreement for the project is signed. The revenue is recognized only after
both the production of the product is completed and is aired in accordance
with the signed agreement.
Revenue Sharing With Program Licensors
Some programs will be obtained by paying a licensing fee. Additionally, some
licenses will be obtained via a cash-plus-barter arrangement, where the
Company airs the program for a contracted number of times and grants the
licensor a negotiated number of unsold advertising slots. SFAS No. 63,
"Financial Reporting by Broadcasters," sets forth accounting and reporting
standards for the broadcast industry. Under a cash-plus-barter arrangement,
the Company recognizes a licensing asset at the estimated fair value of the
programming received. The difference between the cash paid (obligation
incurred) for the license and its fair value is recorded as a liability
(deferred barter revenue), as the license is received before the broadcast of
the licensor-provided commercials. As the licensor-provided commercials are
aired, barter revenue is recognized ratably based on the recorded fair value
of the barter transaction in relation to the total granted licensor-provided
commercials.
For cash purchases and revenue sharing, as rights are acquired, the programs
are recorded as assets and are amortized as the programs are aired over the
network. For agreements with unlimited airing of a program the asset is
amortized over the license period (see above).
Revenue from Advertising (and Paid Programming)
Advertising and paid programming revenue are recognized as the Commercials
and programs are aired. For small advertisers that must pay for services in
advance, upon receipt of the payment, the signed contract and the tapes,
deferred revenue is recorded. Deferred revenue is recognized as revenue when
the commercial is aired.
Bartering with Affiliate Stations
Under a cash-plus-barter arrangement, the Company provides a specified amount
of cash, the programming content and a specified number of program advertising
slots to affiliate stations. In exchange the affiliate agrees to broadcast
the program to its subscriber's households. The cash fee paid to affiliates
is recorded as a reduction of revenue as the Company pays this fee to
affiliates in lieu of accepting fewer advertising slots to be sold and
recognized as revenue. There were no affiliate costs totaled during the
fiscal years ending June 30, 2008 and 2007.
Under a barter agreement, the Company exchanged advertising for sponsorship
rights for a music festival. The total of services to be provided under the
contract was $100,000. No revenue from this barter agreement was recognized
during the fiscal years ending June 30, 2008 and 2007.
Accounting for Filmed Entertainment and Television Programming Costs
In accordance with American Institute of Certified Public Accountants
Statement of Position ("SOP") 00-2, Accounting by Producers or Distributors
of Films, filmed entertainment costs will include capitalized production
costs, overhead and interest costs expected to benefit future periods. These
costs, as well as participations and talent residuals, will be recognized as
operating expenses on an individual film basis in the ratio that the current
year's gross revenues bear to management's estimate of total ultimate gross
revenues from all sources. Marketing and development costs under term deals
will be expensed as incurred.
Filmed entertainment costs are stated at the lower of unamortized cost or
estimated fair value on an individual film or television series basis.
Revenue forecasts for both motion pictures and television products are
continually reviewed by management and revised when warranted by changing
conditions. When estimates of total revenues and other events or changes in
circumstances indicate that a television production has a fair value that is
less than its unamortized cost, a loss will be recognized for the amount by
which the unamortized cost exceeds television production's fair value.
Advertising Costs
Advertising costs are expensed as incurred. For the year ended June 30, 2008
and 2007, there were no advertising costs.
Stock-Based Compensation
Through June 30, 2008, the Company accounts for equity instruments issued to
non-employees in accordance with the provisions of SFAS No. 123, Accounting
for Stock-Based Compensation, and EITF Issue No. 96-18, Accounting for Equity
Instruments that are Issued to Other Than Employees for Acquiring, or in
Conjunction with Selling Goods or Services. All transactions in which goods
or services are the consideration received for the issuance of equity
instruments are accounted for based on the fair value of the consideration
received or the fair value of the equity instrument issued, whichever is more
reliably measurable. The measurement date used to determine the fair value of
the equity instrument issued is the earlier of the date on which the third-
party performance is complete or the date on which it is probable that
performance will occur.
Through June 30, 2006 SFAS No. 123 allowed an entity to continue to measure
compensation cost related to stock and stock options issued to employees
using the intrinsic method accounting prescribed by Accounting Principles
Board Opinion No. 25 ("APB 25"), Accounting for Stock Issued to Employees.
Under APB 25, compensation cost, if any, was recognized over the respective
vesting period based on the difference, on the date of grant, between the
fair value of the Company's common stock and the grant price. Entities
electing to remain with the accounting method of APB 25 made pro forma
disclosures of net income and earnings per share, as if the fair value method
of accounting defined in SFAS No. 123 had been applied.
The Company has a stock-based employee compensation plan. Through June 30,
2006 the Company accounted for employee options granted under this plan under
the recognition and measurement principles of APB 25, and related
interpretations. No stock-based employee compensation cost is reflected in
the consolidated statements of operations, as all employee warrants previously
granted had no intrinsic value, and no new employee options or warrants were
granted for the year ended June 30, 2008 and 2007. There is also no pro forma
impact of these warrants as they have no fair value under SFAS No. 123.
Effective July 1, 2006, on the first day of the Company's fiscal year 2007,
the Company adopted the fair value recognition provisions of SFAS No. 123(R),
"Share-Based Payment", using the modified-prospective transition method.
Under this transition method, compensation cost includes: (a) compensation
cost for all share-based payments granted and not yet vested prior to
July 1, 2006, based on the grant date fair value estimated in accordance with
the original provisions of SFAS No. 123, and (b) compensation cost for all
share-based payments granted subsequent to June 30, 2006 based on the
grant-date fair value estimated in accordance with the provisions of SFAS
No. 123(R). SFAS No. 123(R) requires forfeitures to be estimated at the time
of grant and revised, if necessary, in subsequent periods if actual
forfeitures differ from those estimates. As of June 30, 2008, the Company
had no options outstanding and therefore the adoption of SFAS 123(R) had no
effect on the accompanying financial statements.
The Company calculates stock-based compensation by estimating the fair value
of each option using the Black-Scholes option pricing model. The Company's
determination of the fair value of share-based payment awards are made as of
their respective dates of grant using the option pricing model and that
determination is affected by the Company's stock price as well as assumptions
regarding the number of subjective variables. These variables include, but
are not limited to, the Company's expected stock price volatility over the
term of the awards, and actual and projected employee stock option exercise
behavior. The Black-Scholes option pricing model was developed for use in
estimating the value of traded options that have no vesting or hedging
restrictions and are fully transferable. Because the Company's employee stock
options have certain characteristics that are significantly different from
traded options, the existing valuation models may not provide an accurate
measure of the fair value of the Company's employee stock options. Although
the fair value of employee stock options is determined in accordance with
SFAS No. 123(R) using an option-pricing model, that value may not be
indicative of the fair value observed in a willing buyer/willing seller market
transaction. The calculated compensation cost, net of estimated forfeitures,
is recognized on a straight-line basis over the vesting period of the option.
Recent Pronouncements
In September 2006 the Financial Accounting Standards Board issued SFAS 157,
Fair Value Measurements. This standard defines fair value as the price that
would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date. It
establishes a framework for measuring fair value in generally accepted
accounting principles (GAAP), and expands disclosures about fair value
measurements. It does not require any new fair value measurements, but
emphasizes that fair value is a market-based measurement, not an entity-
specific measurement. Therefore, a fair value measurement should be
determined based on the assumptions that market participants would use in
pricing the asset or liability. As a basis for considering market participant
assumptions in fair value measurements, this Statement establishes a fair
value hierarchy that distinguishes between (1) market participant assumptions
developed based on market data obtained from sources independent of the
reporting entity (observable inputs) and (2) the reporting entity's own
assumptions about market participant assumptions developed based on the best
information available in the circumstances (unobservable inputs). The
effective date of this standard is for fiscal period beginning after
November 15, 2007. The Company has determined that adoption of SFAS 157 will
not have an effect on the accompanying financial statements.
In February 2007, the Financial Accounting Standards Board issued SFAS 159,
Fair Value Option for Financial Assets and Financial Liabilities. This
standard permits entities to choose to measure many financial instruments and
certain other items at fair value. The objective is to improve financial
reporting by providing entities with the opportunity to mitigate volatility
in reported earnings caused by measuring related assets and liabilities
differently without having to apply complex hedge accounting provisions. This
Statement is expected to expand the use of fair value measurement, which is
consistent with the Board's long-term measurement objectives for accounting
for financial instruments. This Statement is effective as of the beginning of
an entity's first fiscal year that begins after November 15, 2007. The
Company has determined that SFAS 159 has no significant impact on its
operations.
In September 2007 the Financial Accounting Standards Board issued SFAS 141r,
Business Combinations. It is a revision to the FASB's Statement of Financial
Accounting Standards No. 141, Business Combinations (SFAS 141), and will
effect how companies approach financial planning and reporting around
business combinations. SFAS 141r requires recognition for in-process R&D as
assets at fair value; transaction cost to be expensed, contingent
consideration to be measured at fair value; reacquired assets to be recorded
as identifiable intangible asset; assets held for sale to be measured at fair
value; and contingencies to be recognized at fair value. The Company has
determined that the adoption of SFAS 141r will require it to analyze
additional aspects in future potential acquisitions and possibly incur
additional expense. SFAS 141R is effective for fiscal years beginning after
December 15, 2008. Thus, this standard will affect the Company's June 30, 2009
10K filing.
In July 2006 the Financial Accounting Standards Board issued FIN 48, Accounting
for
Uncertainty in Income Taxes- an interpretation of FASB Statement No. 109 (FIN
48). FIN 48 clarifies the accounting for uncertainty in income taxes
recognized in an enterprise's financial statements in accordance with FASB
Statement No. 109, Accounting for Income Taxes (SFAS 109). This Interpretation
prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. This Interpretation also provides
guidance on de-recognition, classification, interest and penalties, accounting
in interim periods, disclosure, and transition. FIN 48 became effective for
fiscal years beginning after December 15, 2006. The Company has adopted FIN 48
in fiscal 2007.
In December 2007 the Financial Accounting Standards Board issued SFAS 160,
Non-controlling Interest in Consolidated Financial Statements. The objective
of this Statement is to improve the relevance, comparability, and
transparency of the financial information that a reporting entity provides in
its consolidated financial statements. It requires that the ownership
interests in subsidiaries held by parties other than the parent be clearly
identified, labeled, and presented in the consolidated statement of financial
position within equity, but separate from the parent's equity. Further, it
requires that the amount of consolidated net income attributable to the
parent be clearly identified, accounted for consistently, and that changes of
interests be disclosed. This Statement is effective for fiscal years, and
interim periods within those fiscal years, beginning on or after December 15,
2008. The Company is currently evaluating the impact, if any, the adoption of
SFAS No. 160 will have on its operating income or net earnings.
In March 2008 the Financial Accounting Standards Board issued SFAS 161,
Disclosures about Derivative Instruments and Hedging Activities-an amendment
of FASB Statement No. 133. This Statement changes the disclosure requirements
for derivative instruments and hedging activities. Entities are required to
provide enhanced disclosures about (a) how and why an entity uses derivative
instruments, (b) how derivative instruments and related hedged items are
accounted for under Statement 133 and its related interpretations, and (c)
how derivative instruments and related hedged items affect an entity's
financial position, financial performance, and cash flows. This Statement
is effective for financial statements issued for fiscal years and interim
periods beginning after November 15, 2008, Thus, this standard will become
applicable our December 31, 2008 quarterly filing. The Company is currently
evaluating the impact, if any; the adoption of SFAS No. 161 will have on its
reporting requirements
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. 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 10). Basic
loss per common share is computed based on the weighted average number of
shares outstanding for the period. Diluted loss per share is computed by
dividing net loss by the weighted average shares outstanding assuming all
dilutive potential common shares were issued. Basic and diluted loss per
share is the same as the effect of stock options and warrants on loss per
share are anti-dilutive and thus not included in the diluted loss per share
calculation. The impact of dilutive convertible debt and stock options and
warrants would not have resulted in an increase in incremental shares for the
years ended June 30, 2008 and 2007. There were no options or warrants issued
in 2008 or 2007.
NOTE 2 - PROGRAMMING RIGHTS
During the year ended June 30, 2008 and 2007, the Company had no production
cost. At June 30, 2008 cumulative production costs totaled $82,775.
An agreement exists between Eclectic, The Four Tops, and Lee Tofanelli &
Associates (the production company), whereby each of the three entities share
one third of the revenue generated from the exploitation of "From The Heart:
The Four Tops 50th Anniversary and Celebration" after Eclectic and the other
parties recoup all of their production expenses. In addition, Eclectic has
sold 50% of its 1/3 interest in the Four Tops Television Special for
$500,000, which has been recorded as a reimbursement of capitalized
programming rights as the agreement requires the third-party investor to be
reimbursed for this investment as part of Eclectic's production expenses
before recoupment. However, Eclectic retains ownership of all rights.
Eclectic originally capitalized $300,000 of programming costs related to this
program. In April 2006, $195,000 was received for recoupment of production
expenses and the Company reduced the carrying cost of the asset to $105,000.
In June 2006, the Company impaired the remaining asset balance of $105,000,
which has been recorded in the accompanying statement of operations for the
year ended June 30, 2006.
OMNI has purchased various programming rights assets totaling $83,030 as of
June 30, 2008.
For the year ended June 30, 2008 and 2007, the Company recorded amortization
expense of $2,000 and $2,000, respectively, related to its programming
rights.
NOTE 3 - FILM LIBRARY
The Company has purchased various film property assets totaling $742,500 as
of June 30, 2008.
In January 2004, the Company acquired the name and film library of All Sports
Television Network ("ASTN") in exchange for ASTN's outstanding payable to the
Company of $79,200. The Company began amortizing this library over its
estimated useful life of 10 years in April 2004.
In February 2005, the Company purchased 200 "extreme sports" film titles from
Crawford Communications. The Company recorded a $3,900 increase in film
library and a corresponding increase in Film Library.
In September 2005, the Company purchased 550 film titles from Indie Vision
Films, Inc. as payment for purchased advertising time. The Company recorded a
$275,000 increase in film library and a corresponding increase in deferred
revenues, as the advertisements will be broadcast over future months. The
Company amortizes the film library titles over its estimated useful life of
10 years.
In April 2007, the Company purchased an interest in the Four Tops 50th
Anniversary Special for 50,000 shares at $1.20 per share and 250,000 shares
at $0.60 per share. The Company recorded a $60,000 increase in film library
in April and an additional $150,000 increase in July 2007. Thus, a $210,000
increase to film property and a corresponding credit to common stock was
recorded. The property will be amortized over its estimated useful life of
10 years.
In June 2007, the Company acquired 200 film titles from Indie Vision Films,
Inc. for 138,000 shares of Company stock. The Company recorded a $124,200
increase in film library and credit to common stock. The Company amortizes
the film library titles over its estimated useful life of 10 years.
In January 2008, the Company acquired film titles from Liang Films for
50,000 shares at $0.51 per share. The Company recorded a $25,500 increase
in film library and credit to common stock. The films are being amortized
over the estimate useful life of 10 years.
In February 2008, the Company acquired film titles from Indie Vision Films
for 48,125 shares at $0.513 per share. The Company recorded a $24,700
increase in film library and credit to common stock. The films are being
amortized over the estimate useful life of 10 years.
During the year ended June 30, 2008 and 2007, the Company recorded
amortization expense of $132,477 and $72,655, respectively, related to
its film library. In addition, the Company recorded impairment expense
that totaled $165,000 for the year ended June 30, 2008.
NOTE 4 - FILM HOOK INTERNET PORTAL
In October 2006 the Company has entered into an agreement to have an internet
portal constructed and operated. Construction of the portal was completed in
June 2007. The agreement specifies that the Company owns the site and will
provide the content for the media portal. Revenues generated from the site
will be shared on a 50/50 basis between the Company and the contractor. As of
June 30, 2008 the Company has not paid the $71,250 construction fee and
the contractor has not granted the Company access to the media portal. The
Company expects to pay the outstanding debt and begin operations by November
2009.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
Lease Obligations
The Company has negotiated payment settlements for its office facilities,
satellite uplink services, master control equipment non-cancelable operating
leases and capital lease of the KSSY broadcast license.
As of June 30, 2008, the Company had accounts payable of $84,032 in arrears
relating to its office lease. As a result the lease has been terminated. The
Company is utilizing temporary facilities in a different office suite located
in the same building. The Company expects to resolve its issues with the
landlord by September 30, 2009.
As of June 30, 2008, the Company had account payables of $141,000 in arrears
relating to its satellite uplink lease. The Company agreed to a stipulated
judgment to repay the debt by December 31, 2007. Monthly cash payments of
$15,000, $10,000 and $10,000 were made in accordance with the agreement in
June, July and August of 2007, respectively. The $10,000 payments for
September, October and November were not made. In September 2008 the Company
agreed to a $62,500 payoff amount when a $50,000 payment was made followed by
the $12,500 final payment. Thus, this debt has been fully paid.
As of June 30, 2008, the Company had account payables of $49,396 in arrears
relating to its General Electric master equipment lease. The company as
agreed to a stipulated judgment and expects to pay off the lease obligation
by December 31, 2009.
As of June 30, 2008, the Company had account payables of $104,791, including
$68,638 lease payments, $24,172 of late fees and 11,981 of tower fees, in
arrears relating to its KSSY television station lease. In July 2007, a
dispute regarding ownership arose when the Company discovered that the Owner
had violated the lease-purchase contract by selling the broadcast license to
another company. As of June 30, 2007, the company has written off the KSSY
license by recording a $130,000 impairment. In May 2008 the Company settled
the dispute whereby the Company agreed to forgo any legal action and FCC
complaint filings in exchange for forgiveness of all debt obligations. Thus,
the entire $104,791 of debt was extinguished.
The Company recognized no expenses under these commitments during fiscal
2008 and 2007, respectively.
Revenue Sharing Agreement
As of June 30, 2008, the Company has two current revenue share agreements
with third parties. An internet broadcasting agreement was signed in
February 2008 that required 60/40 revenue sharing basis. Under this
agreement the Company provided the programming and scheduling while a thir=
d
party provided the operations, equipment, technical and administrative
support services for 60% of the generated revenues. Under another revenue
sharing agreement signed in October 2006 an internet portal was developed
and operated by a third party. The company owned the portal and provided
the programming. Revenues generated under this agreement will be shared
on a 50/50 basis.
Litigation
In April 2006 OBN filed suit in California against Firestone Communications,
its satellite uplink provider claiming the "force majeure" clause in the
contract. Firestone filed suit against the Company in Texas for $141,000
claiming non-payment lease amount. Both parties have agreed to $141,000 as
the payoff amount and to hold off pursuing the lawsuits, in anticipation of
the Company's receipt of investment funds. Monthly cash payments of $15,000,
$10,000 and $10,000 were made in accordance with the agreement in June, July
and August of 2007, respectively. However, the Company failed to make
subsequent payments. In September 2008, a settlement agreement for $62,500
was reached. The Company made $50,000 and $12,500 payments. Thus, this debt
has been fully paid.
In August 2006 General Electric Leasing Solutions filed suit in California
against the Company for non-payment of lease amounts totaling $49,396. Both
parties have agreed to amicable resolution via a stipulated judgment against
the Company. The Company expects to complete the payments by December 31,
2009.
In the opinion of management, these legal matters involving the Company do
not have a material adverse effect on the Company's financial condition or
results of operations.
Indemnities and Guarantees
The Company has made certain indemnities and guarantees, under which it may
be required to make payments to a guaranteed or indemnified party, in
relation to certain transactions. The Company indemnifies its directors,
officers, employees and agents to the maximum extent permitted under the laws
of the State of Nevada. In connection with a certain facility lease and a
transponder agreement, the Company has indemnified its lessor for certain
claims arising from the use of the facilities and transponder capacity. The
duration of the guarantees and indemnities varies, and in many cases is
indefinite. These guarantees and indemnities do not provide for any
limitation of the maximum potential future payments the Company could be
obligated to make. Historically, the Company has not been obligated to make
any payments for these obligations and no liabilities have been recorded for
these indemnities and guarantees in the accompanying consolidated balance
sheet.
NOTE 6 - 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,
2008 and 2007:
2008 2007
----------- ------------
Tax benefit at statutory rates (34.00%) (34.00%)
Difference resulting from:
State taxes (5.83%) (5.83%)
Changes in valuation allowance 39.83% 39.83%
=========== ==========
Total 0% 0%
The valuation allowance increased by $18,000 and $317,000 during the years
ended June 30, 2008 and 2007, respectively. No current provision for income
taxes, other than California minimum taxes, is required for the years ended
June 30, 2008 and 2007. The 2008 profit was netted against prior year net
operating losses; further, no operating profits were generated in California.
The Company incurred taxable losses during 2007.
Net deferred income taxes are as follows as of June 30, 2008 and 2007:
2008 2007
----------- ------------
Deferred tax liabilities $ -- $ --
Deferred tax assets:
Net operating losses $ 3,042,000 $ 3,051,000
Reserves and accruals (16,000) (43,000)
---------- ----------
Total deferred tax assets 3,026,000 3,008,000
Less valuation allowance (3,026,000) (3,008,000)
------------- -------------
$ --- $ ---
============= =============
The Company has approximately $9,600,000 in Federal and California State net
operating loss carryforwards as of June 30, 2008, which, if not utilized,
expires through 2028.
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, 2008.
NOTE 7 - NOTES PAYABLE
At June 30, 2008 and 2007, the Company has $439,910 in loans from related
parties under 5% promissory notes, of which $0 was advanced to the Company
during either years. The principal and interest is due and payable on demand.
As of June 30, 2008 and 2007, the accrued interest on these notes totaled
$62,709 and $57,670,respectively.
At June 30, 2008 and 2007, the Company has a loan balance under a 10%
promissory note from family members of the Company's officers totaling $3,500.
The note has no set maturity date, and is payable upon demand. As of June 30,
2008 and 2007, the accrued interest on this note totaled $2,450 and $2,100,
respectively.
The Company has short-term loans with its executives for a total of $500
and $19,598 at June 30, 2008 and 2007, respectively. A total of $19,098 and
$12,157 was repaid to the executives during the year ended June 30, 2008 and
2007, respectively. The loans have no interest rate and is payable upon
demand.
Related party interest expense under these notes for the year ended June 30,
2008 and 2007 was $22,345 and $22,245, respectively.
At June 30, 2008 and 2007, the Company had a $5,000 balance of notes payable
to a third party that bears interest at 10%. The note has no set maturity
date, and is payable upon demand. As of June 30, 2008 and 2007, the accrued
interest on the note totaled $2,792 and $2,292, respectively.
For the year ended June 30, 2008 and 2007, the interest expense on all
non-related notes payable totaled $500 and $6,312, respectively.
NOTE 8 - STOCKHOLDERS' EQUITY
Preferred Stock
- ---------------
The Company has authorized 20,000,000 shares of preferred stock. As of
June 30, 2008, the Company has not designated any series of preferred stock
or entered into any agreements.
Common Stock
- ------------
During the year ended June 30, 2008 a total of 645,334 shares were issued
for $233,909 cash used to paid various operational expenses. The shares were
sold for a share price ranging from $0.20 to $0.50.
During the year ending June 30, 2008 a total of 527,900 shares valued at
$296,179 ($0.30 per share) for broker fees.
In July a total of 100,000 shares valued at $100,000 ($1.00 per share) was
issued for a deposit on the acquisition of an intelligent traffic system
technology license.
In July 2007 the Company issued a total of 250,000 shares of stock (valued
at $0.60 per share) as part of the April 2007 agreement to purchase the
interest in the Four Tops 50th Anniversary Special program. The Company will
record additional intellectual assets of $150,000 as a result of this
transaction.
In July 2007 a total of 6,000 shares (valued at $0.60) were issued as payment
for a $5,500 accounts payable to the KSSY engineer. The Company will record a
$1,900 gain on debt extinguishment as a result of this transaction.
In July 2007 the Company initiated the process for opening a Hong Kong office
and hired a resident agent to coordinate activities in China. A total of
five (5) shares (valued at $1.00 per share) of stock were issued to the agent
for services rendered. The office was officially opened in November 2007.
In July 2007 a total of 1,207,944 shares were issued (valued at $0.60 per
share) as a fee to a Consultant firm that is assisting the Company implement
its acquisition strategy. The consultant will pay for the stock by cash
payments or services in the future.
In January 2008, the Company purchased 200 film titles from Angela Films
for 50,000 shares of stock at $0.51 per share. The film library asset
valued at $25,500 was recorded. The asset will be amortized on a 10 year
period.
In February 2008 the company acquired the exclusive North American rights
to the Lutong Tech intelligent traffic systems patents for a seventy year
period in exchange for 1,750,000 shares of stock valued at $1.00 each share
and $130,000 cash. The license valued at $1,880,000 was recorded as an
intellectual property asset.
In February 2008 the Company acquired the exclusive North American rights
to the Chinese proprietary process that allows "unrecyclable" plastics to
be converted into reusable plastic pellets for a seventy year period in
exchange for 2,894,781 shares valued at $1.00 each, including 2,250,000
to the Chinese recycler, 644,781 for broker services. The license valued
at $2,894,781 was recorded as an intellectual property asset.
In February 2008 a total of 3,000 shares valued at $1,500 ($0.50 per share)
was issued to retire a debt to an individual.
In February 2008 a total of 48,125 shares valued at $24,700 ($0.51 per
share)was issued to purchase a film library.
In May 2008 a total of 5,000 shares valued at at $3,750 ($0.75 per share)
was issued for Chinese consulting services.
In June 2008 the Company acquired Kyodo USA, a pork commodity trading
company for 800,000 shares of stock valued at $0.75 per share. Kyodo USA
is now a wholly owned subsidiary that trades Mexican pork products to
Japan. The subsidiary asset valued at $1,025,586 was recorded and
$585,984 extraordinary gain was recognized.
In June 2008 a total of 2,000 shares valued at $1,500 ($0.75 per share)
was issued for Japanese website support and translation services.
During the year ended June 30, 2007, a 1:10 reverse stock split was
implemented which required a $15,937 adjustment to Paid in Capital. A
total of 10,800,000 shares at $0.90 per share were issued to Company
executives as incentive deferred compensation and their shares will not
be available until 2011. A total of 1,927,500 shares valued at $2,127,700
(share prices ranging from $0.33 to $2.00) were issued to third parties
for various services. A total of 138,333 shares valued at $105,356 (share
price ranging from $0.33 to $2.00) were issued for cash. A total of 853,024
shares valued at $1,250,039 (share prices ranging from $1.00 to $1.50) were
issued to convert deferred salaries to equity. A total of 40,000 shares
valued at $33,500 (share prices ranging from $0.90 to $1.00) to extinguish
debt. A total of $204,500 shares valued at $204,000 (share prices ranging
$0.90 to $1.20) to purchase intellectual film titles.
NOTE 9 - STOCK OPTIONS
In May 2003, the Company established the OBN Holdings, Inc. 2003 Stock Option
Plan (the "Plan"). The Plan provides for the granting of up to 60,000 options
to purchase the Company's common stock at prices no less than fair market
value (as determined by the Board of Directors) at the date of grant. Options
granted under the Plan will be exercisable over a period of ten years from
the date of the grant. These options will vest on a pro rata basis over the
term of the options. At the end of the term of the options or upon termination
of employment, outstanding options will be cancelled. As of June 30, 2008,
no options have been granted under the Plan.
On March 31, 2003, the Company committed to issue warrants to purchase 100,000
shares of common stock to various investors and employees. Each warrant
entitles the holder thereof to purchase one share of common stock at a price
per share of $40.00 beginning 180 days following the effectiveness of the
Company's registration statement and ending on August 25, 2006. Each
unexercised warrant is redeemable by the Company at a redemption price of
$0.01 per warrant at any time, upon 30 days written notice to holders thereof,
if (a) the Company's common stock is traded on NASDAQ or listed on an exchange
and (b) the market price (defined as the average closing bid price for
twenty (20) consecutive trading days) equals or exceed 120% of the $40.00 per
share exercise price. No expense was recorded for the issuance of these
warrants as the warrants (1) were issued to new investors in connection with
fundraising activities or (2) had no intrinsic value under APB 25 for those
warrants granted to employees (since the warrant exercise price was higher
than the estimated fair value of the common stock on the date of grant). As
of June 30, 2007 and 2008 no warrants had been exercised and there were no
warrants outstanding.
NOTE 10 - LOSS PER SHARE
Basic and diluted loss per common share is computed as follows:
For the Year Ended
------------------------------
June 30, June 30,
2008 2007
------------- -------------
Numerator for basic and diluted
profit per common share:
Net loss $23,452 ($2,239,282)
Denominator for basic and diluted
loss per common share
Weighted average common
shares outstanding 7,361,936 1,419,519
Net loss available to common
stockholders per common share - ($1.58)
NOTE 11 - RELATED PARTY TRANSACTIONS
See Note 7 for information related to the Company's related party notes
payable.
In March 2006, a total of $200,000 of deferred salaries was converted into
200,000 of OBN shares after the Board of Directors approved a December 2005
resolution to allow executives to convert all but $50,000 of each of their
deferred salaries into shares of OBN stock during a six month period beginning
January 1, 2006. The conversion rate was set at $1.00 per share, which was
above the closing price on the date of the resolution. The conversion period
ended June 30, 2006.
In December 2006, the Company created a Non-Qualified Deferred Compensation
Plan ("the Plan"). The accrued salaries and salary-related deductions for
Roger Smith, CEO of the Company, totaling $308,685, Larry Taylor, CFO of the
Company, totaling $402,815 and Donald Wilson, Senior Vice President of the
Company, totaling $379,553, were converted from debt into the Company's
common stock at a price of $1.50 per share, which totaled 205,790 shares;
268,543 shares; and 253,036 shares, respectively. The common stock is being
held by the Company in the Plan. Access to the shares is prohibited for a
period of not less than thirteen (13) months from the time of deferral. At
the time of participation, the participants were required to specify when the
stock would be distributed, which varies per participant. The value of the
shares on the conversion date was $0.80 per share. The resulting gain on
extinguishment of the liability of $509,158 was recorded in additional paid
in capital due to the related-party nature of the transaction.
In March 2007 accrued salaries of $58,988 were converted into 58,988 shares
of common stock at a conversion rate of $1.00 per share and $100,000 was
converted into 66,667 shares at $1.50 per share. The value of the shares on
the conversion date was $1.00 per share. The resulting gain on extinguishment
of the liability of $33,334 was recorded in additional paid in capital due
to the related-party nature of the transaction.
In April 2007, the Board of Directors approved a resolution to grant special
hardship compensation to executives for working without salaries for the past
four years. In April 2007 a total of 675,000 shares valued at $1.20 per share
were issued to three executives. The shares are being held in a deferred
compensation plan.
In December 2008 the Board authorized management to convert accrued salaries
into shares at the market rate. A total of $200,000 of accrued executive
salaries was converted into 666,667 shares of common stock at a market rate
of $0.30 per share. The shares are being held in the Company's non-qualified
deferred compensation plan
In December 2008 the Company directors purchased 16,667 of company stock
valued at $0.30 per share for a total purchase price of $5,000.
In December 2008 a total of 5,600,000 shares were issued to executives as
bonus compensation for meeting and exceeding established performance goals
during the 2007-08 fiscal year. The market price was $0.30 at the time of
authorization. Therefore, a $1,680,000 compensation expense will be recorded
for the quarter ending December 31, 2008. The shares are being held in the
deferred compensation plan.
NOTE 12 - SUBSEQUENT EVENTS
In October 2008 the Company settled a dispute with Firestone Communications,
a satellite uplink provider. The Company paid $62,500 as the negotiated final
payment for the $120,000 of accounts payable on the Company's books.
Therefore, a $57,500 gain on the extinguishment of debt will be recognized in
the quarter ending December 31, 2008.
In October 2008, the Company established OBN Holdings Japan Co, Ltd, a wholly
owned subsidiary based in Tokyo, Japan to handle its Japan operations.
In December 2008 the Company directors purchased 16,667 of company stock
valued at $0.30 per share for a total purchase price of $5,000.
In December 2008 Company executives converted $200,000 of accrued salary into
666,667 shares of OBNI shares at the $0.30 per share market rate. The shares
are being held in the Company's deferred compensation plan.
In December 2008 a total of 4,343 shares were issued as broker fees. The
market per share price was $0.30 at the time. Therefore, $1,303 of expense
will be recorded during the quarter ending December 31, 2008.
In December 2008 a total of 5,600,000 shares were issued to executives as
bonus compensation for meeting and exceeding established performance goals
during the 2007-08 fiscal year. The market price was $0.30 at the time of
authorization. Therefore, a $1,680,000 compensation expense will be recorded
for the quarter ending December 31, 2008. The shares are being held in the
deferred compensation plan.
During the quarter ending December 31, 2008 a total of 31,667 shares valued
at $0.30 per share were issued to raise $9,500.00 of cash.
During the quarter ending December 31, 2008 a total of 4,343 shares valued
at $0.30 per share were issued to pay for $1,303 of broker fees.
In February 2009 the Company issued 80,000 shares valued at $0.30 per share
to pay $24,000 for investor relations services.
During the quarter ending March 31, 2009 a total of 190,000 shares valued
between $0.20 to $0.29 per share were issued to raise $43,940.00 of cash.
In May 2009 executives converted $50,000 of accrued salary into 416,667
shares at $0.12 per share. The stock was trading at $0.10 per share at the
time of conversion.
During May 2009 a total of 392,000 shares was sold for $0.10 per share which
netted the Company $39,200 in cash.
In May 2009 a total of 348,480 shares valued at $0.10 per share were issued
as payment for $34,848 of expenses associated with the development and
maintenance of Company websites.
ITEM 9. Changes and Disagreements with Accountants on Accounting and Financial
Disclosure
None.
ITEM 9A. Disclosure Controls and Procedures
An evaluation of the effectiveness of the design and operation of our
disclosure controls and procedures (as define in Rule 131-15(e) and 15d-15(c)
under the Securities Exchange Act of 1934 is routinely conducted.
(a) Evaluation of Disclosure Controls and Procedures. The Company carried
out an evaluation under the supervision and with the participation of
the Company's management, including the Chief Executive Officer ("CEO")
and Chief Financial Officer ("CFO") of the effectiveness of the Company's
disclosure controls and procedures. Based upon that evaluation, the CEO
and CFO concluded that the design and operations of these disclosure
controls and procedures were effective. Our disclosure controls and
procedures were effective in timely alerting them to the material
information relating to the Company's (or the Company's consolidated
subsidiaries) required to be included in the Company's periodic filing
with the SEC, subject to the various limitations on the effectiveness set
forth below. Information relating to the Company, required to be disclosed
in SEC reports is recorded, processed, summarized and reported within the
time periods specified in SEC rules and forms, and is accumulated and
communicated to the Company's management, including our CEO and CFO, as
appropriated to allow timely decisions regarding required disclosure.
(b) Changes in Internal Control over Financial Reporting. There has been no
change in the Company's internal control over financial reporting that
occurred during the year ended June 30, 2008 that has materially affected,
or is reasonably likely to materially affect, the Company's internal
control over financial reporting.
Limitations on the Effectiveness of internal controls
The Company's management, including the CEO and CFO, does not expect that
our disclosure controls and procedures or our internal controls over financial
reporting will necessarily prevent all fraud and material error. An internal
control system, no mater how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system
are met. Further, the design of the control system must reflect the fact that
there are resource constraints and the benefits of controls must be considered
relative to their costs. Because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within the Company have been
detected. These inherent limitations include the realities that judgments in
decision-making can be faulty and that breakdowns can occur because of simple
effort or mistake. Additionally, controls can be circumvented by the
individual acts of some persons, by collusion of two or more people, or by
management override of the internal control. The design of any system of
controls also is based in part upon certain assumptions about the likelihood
of future events and there can be no assurance that any design will succeed
in achieving its stated goals under all potential future conditions. Over
time, control may become inadequate because of changes in conditions, and/or
the degree of compliance with the policies or procedures may deteriorate.
PART III
ITEM 10. Directors, Executive Officers, Promoters and Control Persons,
Compliance with Section 16(A) of the Exchange Act
The following table sets forth the name and age of each director, the year
he (she) was first elected a director and his (her) position(s) with OBN
Holdings, Inc.
Name Age Year Elected Position
- ----------------- --- ------------ --------------------
Roger Neal Smith 57 2001 CEO & Board Chairman
Larry Taylor, Ph.D. 57 2002 CFO
Anita L. DeFrantz 56 2003 Director
Barry Allen 69 2003 Director
Christine Ohama 53 2004 Director
Peter Lindhout 55 2007 Director
Alan Pemberton 53 2007 Director
Roger Neal Smith. Mr. Smith has served as our President and CEO since
inception and has been responsible for creating and managing all of the
operations of OBN and its subsidiaries. From 1996 through 2000 Mr. Smith
served as a financial consultant for Salomon Smith Barney and was responsible
for managing the investments of his clients, which included individuals and
businesses throughout the world.
Larry Taylor, PhD. Dr. Taylor became our CFO in April 2003 and has been
responsible for accounting, tax preparation and planning. From 1989 until
joining us, Dr. Taylor was the owner of The Creighton Group where he was
responsible for all management activities, including accounting, tax
preparation and planning. Dr. Taylor previously served as a Senior Manager
in the consulting practice with Ernst and Young (during his tenure, he was
with Arthur Young), and with Deloitte and Touche.
Anita L. DeFrantz, Esq. Ms. DeFrantz began serving on our board of directors
in June 2003. From 1985 through the present Ms. DeFrantz has served as the
President and a member of the Board of Directors of Amateur Athletic
Foundation of Los Angeles, a non-profit foundation. She has also served from
1986 through the present as a member of the International Olympic Committee
and from 1996 through the present as a member of the Executive Board of the
United States Olympic Committee. Additionally, from 1994 through the present
she has served as the President of Kids In Sports, Los Angeles, a non-profit
foundation that works with children in sports.
Barry Allen. Mr. Allen began serving on the Company's board of directors since
August 2003. Since 1998 he has operated International FieldWorks, Inc., a
management consulting firm, and holds the title of CEO. Additionally, since
2000, Mr. Allen has served as Vice President of RxDispense, Inc. His
responsibilities include business development, advisory committee development,
partnership development and development of professional service providers.
Christine Ohama. Ms. Ohama became a member of the Company's board of directors
in May 2004. She is Senior Vice President of Marketing for Enviro Board with
over 20 years experience in retail and wholesale sales and marketing
management. Prior to Enviro Board, Ms. Ohama served as Director of Sales
Strategy for Bravo Cable Networks, and Regional Sales Director Western Region
for MuchMusic USA, with the primary responsibility for increasing and
retaining the network's viewers. She also spent many years in the financial
services industry, as a retail stockbroker for a major NYSE member firm;
served as Project Manager for a large prototype retail banking sales program
and as associate director of a wholesale retail brokerage service program
owned by Security Pacific Bank and used by over three hundred banks and
saving and loans nationwide.
Peter Lindout. Mr. Lindhout began serving on the Board in April 2007. He is
the President & co-founder of Qualico Capital Corp., an Investment Banking
firm based in Vancouver, British Columbia, with offices in Toronto, Hong Kong,
Curasel, and Frankfurt. The Company manages a fund of $30,000,000 Euro. He is
also Managing Partner of the Qualico Group of Companies, a subsidiary of
Qualico Capital that facilitates market awareness and increasing exposure for
public companies. Mr. Lindhout's role in Business Development has aided in
the successful increase of shareholder equity for many a client company and
has been instrumental in providing advice in successful asset management.
Alan Pemberton. Mr. Pemberton began serving on the Board in July 2007. He is
currently a member of the Board of Directors of PBC, Inc., and an advisor to
the Trustee of NewMar, Inc. His responsibilities include financial and systems
review, capital expenditures, compensation approval, mentoring of management,
and coordination of appraisals and asset disposition. He served as the
Executive Vice President, Regional Vice President of Cenveo, Inc., and
President of the Anderson Lithograph Division. Mr. Pemberton served as Vice
President of Finance and Treasurer of Anderson Lithograph where he was
responsible for all finance and accounting, credit, human resources and
information systems. Mr. Pemberton served as a Senior Audit Manager for Ernst
and Young.
Board of Directors Meetings and Committees
During the fiscal year ended June 30, 2008, there were one meeting of the
board of directors where numerous actions were taken with the unanimous
written consent of the directors. The board of directors has yet to establish
the compensation, audit and governance committees.
The Company has one executive officer that does not serve on the Board as a
director. Donald Wilson, President of the Eclectic Entertainment subsidiary,
specializes in all areas of entertainment law and represents clients from the
recording, film, television, book publishing and sports industries, and has
been running his private practice since 1987. He began his career in 1979 at
the law firm, Mason & Sloane. In 1983, he joined Quincy Jones Productions
where he was instrumental in promoting and developing "We Are the World,"
"The Color Purple," and Michael Jackson's "Thriller" and "Bad" albums. In
addition, he was the Executive Producer of the award winning Frank Sinatra
documentary, "Portrait of an Album." In 1986, Mr. Wilson capped his tenure at
Quincy Jones Production as President of Qwest Entertainment Company, which is
the parent organization of Quincy Jones Productions.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
our officers and directors and those persons who beneficially own more than
10% of our outstanding shares of common stock to file reports of securities
ownership and changes in such ownership with the Securities and Exchange
Commission. Officers, directors and greater than 10% beneficial owners are
also required by rules promulgated by the SEC to furnish us with copies of
all Section 16(a) forms they file.
Based solely upon a review of the copies of such forms furnished to us, we
believe that during the year ended June 30, 2008 all of our officers,
directors and greater than 10% beneficial owners complied within the
applicable Section 16(a) filing requirements.
Code of Ethics for Financial Professionals
The Company has adopted a Code of Ethics for Financial Professionals. The
Code of Ethics has been posted and may be viewed on our website at:
http://www.obnholdings.com
ITEM 11. Executive Compensation
Deferred Compensation to Executive Officers.
In April 2007, the Board of Directors approved a resolution that granted
executives 675,000 shares for "hardship compensation" because the executives
had been working without paid salaries for past four years. The market price
of the shares was $1.20 at the time of issuance. The shares were placed in
the Company's Non-Qualified Deferred Compensation Plan. The shares will be
available to the executives after May 2011.
In December 2008 a total of 5,600,000 shares were issued to executives as
bonus compensation for meeting and exceeding established performance goals
during the 2007-08 fiscal year. The market price was $0.30 at the time of
authorization. Therefore, a $1,680,000 compensation expense will be recorded
FYE 2009 for the quarter ending December 31, 2008. The shares are being
held in the deferred compensation plan.
Cash Compensation of Executive Officers. The following table sets forth the
total compensation earned by the Chief Executive Officer and all other
executive officers that earned in excess of $100,000 per annum during any of
our last three fiscal years. A portion of salaries to executives have been
converted to stock which are being held in the Company's deferred compensation
plan; the remainder of the salaries continues to accrue. Accrued salaries will
be paid as monies become available.
Annual Compensation Long-Term
Compensation
Other Common Shares
Name and 6/30 Awards Underlying All Other
Position Year Compensation Warrants Compensation
End Salary($) Bonus($) ($) Granted(#) ($)
Roger Smith 2008 $150,000 -0- -0- -0- -0-
President 2007 $150,000 -0- 360,000* -0- -0-
and CEO 2006 $150,000 -0- -0- -0- -0-
Larry Taylor 2008 $150,000 -0- -0- -0- -0-
CFO 2007 $150,000 -0- 270,000* -0- -0-
2006 $150,000 -0- -0- -0- -0-
Donald Wilson 2008 $ 62,496 -0- -0- -0- -0-
President 2007 $150,000 -0- 180,000* -0- -0-
Eclectic 2006 $150,000 -0- -0- -0- -0-
* Value of hardship shares awarded to executives who have had their
salaries accrued for the past five years.
** Accrued salary converted to Company stock at price of $1.00 per share
No options or warrants were exercised or granted in fiscal 2007.
Aggregated Warrant/SAR Exercises and Fiscal Year-End Warrant/SAR Value Table
All warrants/SAR expired in August 2006. There are no warrants/SAR pending at
this time.
Director Compensation
Board members that have been compensated include:
Amount Date
---------- -----------
Anital DeFrantz $5,000 March, 2008
Barry Allen $5,000 March, 2008
Christine Ohama $5,000 March, 2008
Alan Pemberton $2,500 March, 2009
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information regarding beneficial ownership of
our common stock at March 31, 2009 by (i) those shareholders known to be the
beneficial owners of more than five percent of the voting power of our
outstanding capital stock, (ii) each director, and (iii) all executive
officers and directors as a group:
Number of
Name and Address of Shares
Beneficial Owner (1) Owned Percent Notes
- --------------------- ------------ --------- -------
Roger N. Smith (Director and Officer) 4,213,067 23.17%
Larry Taylor (Director and Officer) 3,078,125 16.93%
Jia Lao 2,250,000 12.37%
Qualico Capital LLP 1,616,277 8.89% (2)
Qing Wu 1,300,000 7.15%
Takeo Suzuki (Executive) 810,500 4.46%
Donald Wilson (Executive) 516,645 2.84%
Anita L. DeFrantz (Director) 21,667 *
Barry Allen (Director) 5,000 *
Christine Ohama (Director) 5,000 *
Peter Lindhout (Director) 0 *
Alan Pemberton (Director) 0 *
All Directors and Officers
as a Group (9 Persons) 10,266,281 56.29%
_____________
* Less than 1%
(1) Unless otherwise indicated, the address of the beneficial owner is c/o
OBN Holdings, Inc., 8275 South Eastern Avenue, Suite 200, Las Vegas,
Nevada 89123.
(2) Shares paid to Canadian investment banking firm for assistance with
implementation of the Company's acquisition strategy.
ITEM 13. Certain Relationships and Related Transactions, and Director
Independence
At June 30, 2008 and 2007, the Company has $439,910 in loans from related
parties under 5% promissory notes, of which $0 was advanced to the Company
during either years. The principal and interest is due and payable on demand.
As of June 30, 2008 and 2007, the accrued interest on these notes totaled
$62,709 and $57,670,respectively.
At June 30, 2008 and 2007, the Company has a loan balance under a 10%
promissory note from family members of the Company's officers totaling $3,500.
The note has no set maturity date, and is payable upon demand. As of June 30,
2008 and 2007, the accrued interest on this note totaled $2,450 and $2,100,
respectively.
The Company has short-term loans with its executives for a total of $500
and $19,598 at June 30, 2008 and 2007, respectively. A total of $19,098 and
$12,157 was repaid to the executives during the year ended June 30, 2008 and
2007, respectively. The loans have no interest rate and is payable upon
demand.
Related party interest expense under these notes for the year ended June 30,
2008 and 2007 was $22,345 and $22,245, respectively.
In December 2005 the Board of Directors approved a resolution to allow
executives to convert all but $50,000 of each of their deferred salaries into
shares of OBN stock during a six month period beginning January 1, 2006. The
conversion rate was set at $10.00 per share, which was above the closing price
on the date of the resolution. The conversion period ended June 30, 2006. In
March, 2006 a total of $200,000 of deferred salaries was converted into
20,000 of OBN shares.
In December 2006, accrued salaries and salary-related deductions for Roger
Smith, CEO of the Company, totaling $308,685, Larry Taylor, CFO of the
Company, totaling $402,815 and Donald Wilson, Senior Vice President of the
Company, totaling $379,553, were converted from debt into the Company's
common stock at a price of $1.50 per share, which totaled 205,790 shares;
268,543 shares; and 253,036 shares, respectively. The value of the shares on
the conversion date was $0.80 per share. The resulting gain on extinguishment
of the liability of $509,158 was recorded in additional paid in capital due
to the related-party nature of the transaction.
In March 2007 accrued salaries of $58,988 were converted into 58,988 shares of
common stock at a conversion rate of $1.00 per share and $100,000 was
converted into 66,667 shares at $1.50 per share. The value of the shares on
the conversion date was $1.00 per share. The resulting gain on extinguishment
of the liability of $33,334 was recorded in additional paid in capital due to
the related-party nature of the transaction.
In April 2007, the Board of Directors approved a resolution to grant special
hardship compensation to executives for working without salaries for the past
four years. In April 2007 a total of 675,000 shares valued at $1.20 per share
were issued to three executives. The shares are being held in the Company's
Non-Qualified Deferred Compensation Plan.
In December 2008 the Company directors purchased 16,667 of company stock
valued at $0.30 per share for a total purchase price of $5,000.
In December 2008 Company executives converted $200,000 of accrued salary into
666,667 shares of OBNI shares at the $0.30 per share market rate. The shares
are being held in the Company's deferred compensation plan.
In December 2008 a total of 5,600,000 shares were issued to executives as
bonus compensation for meeting and exceeding established performance goals
during the 2007-08 fiscal year. The market price was $0.30 at the time of
authorization. Therefore, a $1,680,000 compensation expense will be recorded
for the quarter ending December 31, 2008. The shares are being held in the
Company's deferred compensation plan.
ITEM 14. Principal Accountant Fees and Services
Tarvaran & Askelson Company, LLP was selected as independent registered
public accounting firm to audit our financial statements for the year ended
June 30, 2008. The firm audited our financial statements for the years
ended June 30, 2007 and 2008.
Audit and Non-Audit Fees
Aggregate fees for professional services rendered to the Company by Tarvaran &
Askelson Company, LLC for the year ending June 30, 2008 and 2007 were as
follows:
Services Provided 2008 2007
Audit Fees 15,812 $ 17,700
Audit Related Fees $ - $ -
Tax Fees $ - $ -
All Other Fees $ - $ -
Total $ 15,812 $ 17,700
Audit Fees. The aggregate fees billed for the years ended June 30, 2008 and
2007 were for the audits of our financial statements and reviews of our
interim financial statements included in our annual and quarterly reports.
Audit Related Fees. There were no fees billed for the years ended June 30,
2008 and 2007 for the audit or review of our financial statements that are
not reported under Audit Fees.
Tax Fees. There were no fees billed for the years ended June 30, 2008 and
2007 for professional services related to tax compliance, tax advice and tax
planning.
PART IV
ITEM 15 Exhibits, Financial Statement Schedules
None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
OBN HOLDINGS, INC
(Registrant)
Date: June 12, 2009 /s/ ROGER Neal SMITH
-----------------------
Roger Neal Smith
Chief Executive Officer