UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the quarterly period ended September 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)
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 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 )
As of June 30, 2009 the Company had 18,925,566 shares of its $.001 par value
common stock issued and outstanding.
TABLE OF CONTENTS
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Balance Sheets at September 30, 2008 (Unaudited)
and June 30, 2008 1
Consolidated Statement of Operations (Unaudited) for the
three Month Periods Ended September 30, 2008 and 2007 2
Consolidated Statement of Cash Flows (Unaudited) for the
three Month Periods Ended September 30, 2008 and 2007 3
Notes to Unaudited Consolidated Financial Statements 4
ITEM 2. Management's Discussion and Analysis or Plan of Operation 16
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 22
ITEM 4. Controls and Procedures 22
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings 23
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds 23
ITEM 3. Default upon Senior Securities 23
ITEM 4. Submission of Matters to Vote of Securities Holders 23
ITEM 5. Other Information 23
Item 6. Exhibits 23
PART I: FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
OBN Holdings, Inc.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30 June 30,
2008 2008
(unaudited)
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents $ 694,757 $ 986,482
Accounts receivables 1,753,670 680,306
Inventory 1,612,877 1,239,423
---------- ----------
Total current assets 4,051,304 2,906,211
Fixed assets, net of accumulated depreciation
of $60,809 and $60,678, respectively 83 214
Programming rights, net of accumulated amortization
of $98,692 and $98,192, respectively 67,113 67,613
Film library, net of accumulated amortization
of $315,721 and $288,637, respectively 264,419 288,863
Other intellectual properties, net of accumulated
Depreciation of $9.900 and $5,250, respectively 9,900 11,550
Other tangible assets 4,846,031 4,846,031
---------- ----------
Total assets $ 9,248,850 $ 8,120,482
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 1,060,510 $ 1,019,342
Commissions payable 793,858 562,112
Accrued payroll and related 633,478 553,937
Deferred revenue 39,582 47,762
Capital lease obligations 49,396 49,396
Programming rights payable 80,030 80,030
Notes and accrued interest payable 274,447 274,322
Notes and accrued interest payable related parties 531,612 526,026
---------- ----------
Total current liabilities 3,462,913 3,112,927
---------- ----------
Stockholders' Equity:
Undesignated preferred stock, $0.001 par value;
20,000,000 shares authorized; no shares issued
and outstanding --- ---
Common stock; $0.001 par value; 500,000,000 shares
authorized; 11,762,409 and 11,357,465 shares
issued and outstanding 11,762 11,357
Additional paid-in capital 14,067,983 13,945,705
Accumulated deficit (8,339,052) (8,949,507)
Common stock subscriptions receivable (6,600) --
Accumulated comprehensive income (loss), net 51,844 --
---------- ----------
Total stockholders' equity 5,785,937 5,007,555
---------- ----------
Total liabilities and stockholders' equity $ 9,248,850 $8,120,482
========== ==========
See accompanying notes to consolidated financial statements.
OBN Holdings, Inc.
CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
------------------------------
2008 2007
------------- -------------
Unaudited Unaudited
Revenue, net of affiliate costs $ 6,432,560 $ -
Cost of sales 4,703,400 -
------------ ------------
Gross profit (loss) 1,729,160 -
Operating expenses:
General and administrative 1,130,493 165,955
------------ ------------
Loss from operations 598,667 (165,955)
------------ ------------
Other income (expense):
Other income 17,500 2,534
Interest expense (5,712) (5,711)
------------ ------------
Total other income (expense), net 11,788 (3,177)
------------ ------------
Loss before income taxes 610,455 (169,132)
Income taxes - -
------------ ------------
Net income (loss) $ 610,455 ($169,132)
============ ============
Net loss available to common
stockholders per common share:
Basic and diluted net loss per
common share $0.05 ($0.04)
============ ============
Basic and diluted weighted
average shares outstanding 11,379,389 4,104,717
============ ============
See accompanying notes to consolidated financial statements.
OBN Holdings, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED
SEPTEMBER 30,
-------------------------
2008 2007
---------- ----------
Unaudited Unaudited
Cash flows from operating activities:
Net income (loss) $610,455 ($169,132)
Adjustments to reconcile net loss to net cash
used in operating activities:
Gain on settlement of debt -- (2,534)
Depreciation and amortization 26,725 36,591
Shares issued for services 10,200 3
Changes in operating assets and liabilities:
Accounts receivable, net (1,073,364) --
Purchased inventory (373,454) --
Deferred recognize revenue (8,180) --
Accounts payable and accrued expenses 338,955 74,805
----------- ----------
Net cash used in operating activities (468,663) (60,267)
----------- ----------
Cash flows from investing activities:
Purchase of fixed assets -- (130,000)
----------- ----------
Net cash used in investing activities -- (130,000)
----------- ----------
Cash flows from financing activities:
Proceeds from notes payable, net of issuance costs 125 125
Proceeds from notes payable to related parties 5,586 18,587
Repayments on notes payable -- (500)
Proceeds from stock subscriptons receivable 6,600 --
Repayments on notes payable to related parties -- (25,733)
Proceeds from issuance of common stock 112,783 179,985
----------- ----------
Net cash provided by financing activities 125,094 172,464
----------- ----------
Effect of foreign currency rate changes 51,844 --
----------- ----------
Net change in cash and cash equivalents (291,725) (17,803)
Cash, and cash equivalents, beginning of period 986,482 19,919
----------- ----------
Cash, and cash equivalents, end of period $ 694,757 $2,116
=========== ==========
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 -- $ 150,000
=========== ==========
See accompanying notes to consolidated financial statements.
OBN HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2008 and 2007
NOTE 1 - MANAGEMENT'S REPRESENTATION
The consolidated financial statements included herein have been prepared by
OBN Holdings, Inc. (the "Company"), without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information
normally included in financial statements prepared in accordance with
accounting principles generally accepted in the United States of America has
been omitted pursuant to such rules and regulations. However, the Company
believes that the disclosures are adequate to make the information presented
not misleading. In the opinion of management, all adjustments (consisting
primarily of normal recurring accruals) considered necessary for a fair
presentation have been included.
Operating results for the three-month period ended September 30, 2008 are not
necessarily indicative of the results that may be expected for the year ending
June 30, 2009. It is suggested that the consolidated financial statements be
read in conjunction with the audited consolidated financial statements and
notes thereto included in the Company's annual report on Form 10-K for the
fiscal year ended June 30, 2008.
NOTE 2 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Background and Organization
OBN Holdings, Inc. ("OBNI" or the "Company") is a holding company with
operations in internet broadcasting, television/film production, commodity
trading, plastics recycling and intelligent traffic systems 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 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. 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 commodity trading firm that provides products to Japan
from Mexico.
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.
Segment Information Reporting
As of September 30, 2008 Management measures the Company's performance in
three distinct segments: (1) Broadcasting Operations for which performance is
measured by the types of advertisers attracted; (2) Production Operations, for
which performance is measured by distribution sales resulting from creative
talent; and (3) commodity sales, for which performance is measured by the
volume of product sold.
A summary of the segments for the three months ended September 30, 2008 and
2007 is presented in the tables below:
As of and for the three months ended September 30, 2008
Broadcasting Production Commodity Corporate Reconciling Total
Operations Operations Items
Assets $ 76,813 $ 65,284 $4,060,992 $5,065,761 ($20,000) $9.248,850
Liabilities (434,974) (239,916) (1,638,628) (1,169,395) 20,000 (3,462,913)
Revenues, net of
affiliate costs - - 6,432,560 - - 6,432,560
Costs & expenses* (12,937) (16,999) (5,651,644) (158,025) - (5,839,605)
Other income (exp) - - 17,337 163 - 17,500
Net income (loss) ($12,937) ($16,999) $798,253 (157,862) - 610,455
As of and for the three months ended September 30, 2007
Broadcasting Production Commodity Corporate Reconciling Total
Operations Operations Trading Items
Assets $206,966 $65,284 - $2,890,560 ($1,706,843) $1,455,967
Liabilities (575,248) (171,920) - (989,127) 8,258 (1,728,037)
Revenues, net of
affiliate costs - - - - - -
Costs & expenses* (23,436) (16,999) - (131,231) - (171,666)
Other income (exp) - - - 2,534 - 2,534
Net income (loss) ($23,436) ($16,999) - ($128,697) - ($169,132)
*Expenses include operating expenses and cost of sales.
Reconciling items consist of intercompany balances. Balance sheet reconciling
amounts consist primarily of corporate-level loans to subsidiaries and the
elimination of intercompany receivables/payables. All revenues are from
customers in the United States and all long-lived assets are located in the
United States.
There was $1,753,670 of outstanding receivables as of September 30, 2008. For
the three month periods ended September 30, 2008 there were $6,432,560 of
sales recognized as compared to no sales during the same period ending
September 30, 2007.
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.
Other Long-Lived Assets
The Filmhook internet portal asset is discussed in Note 4. The portal is an
indefinite life intellectual property. The property is subject annual
impairment analysis.
The programming rights assets are discussed in Note 5. Programming rights are
recorded for the purchase of the right to air programming on the Company's
networks. 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 6. These assets are being amortized
over their estimated useful life of 10 years.
Intangible Assets
The Company has adopted Statement of Financial Accounting Standards ("SFAS")
No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 requires that
goodwill and intangible assets that have indefinite useful lives not be
amortized but rather be tested at least annually for impairment, and
intangible assets that have finite useful lives be amortized over their
useful lives. In addition, SFAS No. 142 expands the disclosure requirements
about goodwill and other intangible assets in the years subsequent to their
acquisition.
SFAS No. 142 provides specific guidance for testing goodwill and intangible
assets that will not be amortized (i.e., the Company's technology licenses
and Filmhook internet portal) for impairment. The intangible assets are
subject to impairment reviews by applying a fair-value-based test at the
reporting unit level, which generally represents operations one level below
the segments reported by the Company. An impairment loss will be recorded
for any portion of the technology licenses and internet portal that is
determined to be impaired. The Company performs impairment testing on its
intangible assets at least annually. Based on its analysis, the Company's
management believes that no impairment of the carrying value of its technology
licenses or internet portal existed at September 30, 2008. There can be no
assurance however, that market conditions will not change or demand for the
Company's products and services will continue which could result in impairment
of its intangible assets in the future.
Impairment of Long-Lived Assets
The Company's management assesses the recoverability of its long-lived assets
by determining whether the depreciation and amortization of long lived assets
over their remaining lives can be recovered through projected undiscounted
future cash flows. The amount of long-lived asset impairment is measured
based on fair value and is charged to operations in the period in which long-
lived asset impairment is determined by management. During the quarter ended
September 30, 2005 the Company recorded an impairment change of $18,092.
During the quarter ending June 30, 2007 the Company recorded impairment of
$130,000. During the quarter ended June 30, 2008 the Company recorded an
impairment expense of $165,000. Based on its analysis, the Company believes
that no additional impairment of the carrying value of its long lived assets
existed at September 30, 2008. 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/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.
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 capitalizable production
costs, overhead and interest costs expected to benefit future periods.
These costs, as well as participations and talent residuals, will be
recognized as operating expenses on an individual film basis in the ratio
that the current year's gross revenues bear to management's estimate of total
ultimate gross revenues from all sources. Marketing and development costs
under term deals will be expensed as incurred.
Filmed entertainment costs are stated at the lower of unamortized cost or
estimated fair value on an individual film or television series basis.
Revenue forecasts for both motion pictures and television products 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 quarters ending
September 30, 2008 and 2007, the Company's had no advertising costs.
Stock-Based Compensation
Through September 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.
SFAS No. 123 allows an entity to continue to measure compensation cost
related to stock and stock options issued to employees using the intrinsic
method accounting prescribed by Accounting Principles Board Opinion No. 25
("APB 25"), Accounting for Stock Issued to Employees. Under APB 25,
compensation cost, if any, is recognized over the respective vesting period
based on the difference, on the date of grant, between the fair value of the
Company's common stock and the grant price. Entities electing to remain with
the accounting method of APB 25 must make pro forma disclosures of net income
and earnings per share, as if the fair value method of accounting defined in
SFAS No. 123 had been applied.
The Company has a stock-based employee compensation plan. The Company will
account for employee options granted under this plan under the recognition
and measurement principles of APB 25, and related interpretations. No stock-
based employee compensation cost is reflected in the consolidated statements
of operations, as all employee warrants previously granted had no intrinsic
value, and no new employee options or warrants were granted for the quarter
ended September 30, 2008. There is also no pro forma impact of 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 September, 2008, the Company had no options
outstanding and therefore believes the adoption of SFAS 123(R) to have an
immaterial 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.
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 reconciliation of income taxes computed at the federal statutory rate of 34%
to the provision for income taxes is as follows for the quarter ended
September 30, 2008:
September 30, June 30,
2008 2008
----------- ------------
Tax benefit at statutory rates (34.00%) (34.00%)
Difference resulting from:
State taxes (5.83%) (5.83%)
Changes in valuation allowance 39.83% 39.83%
=========== ==========
Total 0% 0%
The valuation allowance decreased by $177,000 during the quarter ended
September 30, 2008 primarily from utilization of net operating losses. No
current provision for income taxes, other than California minimum taxes, is
expected for the year ending June 30, 2009. The September 30, 2008 profit
will be netted against prior year net operating losses; further, no operating
profits are expected to be generated in California, during the year ended
June 30, 2009.
Net deferred income taxes are as follows as of the following dates:
September 30, June 30,
2008 2008
----------- -----------
Deferred tax liabilities $ -- $ --
Deferred tax assets:
Net operating losses $ 2,835,000 $ 3,042,000
Reserves and accruals (13,400) (16,000)
---------- ----------
Total deferred tax assets 2,821,600 3,026,000
Less valuation allowance (2,821,600) (3,026,000)
------------- -------------
$ --- $ ---
============= =============
The Company has approximately $9,000,000 in Federal and California State net
operating loss carryforwards as of September 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 September 30, 2008.
Basic and Diluted Loss Per Share
The Company has adopted SFAS No. 128, "Earnings Per Share" (see Note 9).
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 are the same as the effect of stock options and warrants on loss per
share are anti-dilutive and thus not included in the diluted loss per share
calculation. The impact of dilutive convertible debt and stock options and
warrants would not have resulted in an increase in incremental shares for the
three months ended September 30, 2008 and 2007.
Recent Accounting Pronouncements
In September 2006 the Financial Accounting Standards Board issued SFAS 157,
Fair Value Measurements. This standard defines fair value as the price that
would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date. It
establishes a framework for measuring fair value in generally accepted
accounting principles (GAAP), and expands disclosures about fair value
measurements. It does not require any new fair value measurements, but
emphasizes that fair value is a market-based measurement, not an entity-
specific measurement. Therefore, a fair value measurement should be
determined based on the assumptions that market participants would use in
pricing the asset or liability. As a basis for considering market participant
assumptions in fair value measurements, this Statement establishes a fair
value hierarchy that distinguishes between (1) market participant assumptions
developed based on market data obtained from sources independent of the
reporting entity (observable inputs) and (2) the reporting entity's own
assumptions about market participant assumptions developed based on the best
information available in the circumstances (unobservable inputs). The
effective date of this standard is for fiscal period beginning after November
15, 2007. The Company has determined that adoption of SFAS 157 does not
result in any additional expense as it does not change the Company's current
practices.
In February 2007, the Financial Accounting Standards Board issued SFAS 159,
Fair Value Option for Financial Assets and Financial Liabilities. This
standard permits entities to choose to measure many financial instruments and
certain other items at fair value. The objective is to improve financial
reporting by providing entities with the opportunity to mitigate volatility
in reported earnings caused by measuring related assets and liabilities
differently without having to apply complex hedge accounting provisions. This
Statement is expected to expand the use of fair value measurement, which is
consistent with the Board's long-term measurement objectives for accounting
for financial instruments. This Statement is effective as of the beginning
of an entity's first fiscal year that begins after November 15, 2007. The
Company has determine that adoption of SFAS 159 does not result in additional
expense as it does not change the Company's current practices.
In September 2007 the Financial Accounting Standards Board issued SFAS 141r,
Business Combinations. It is a revision to the FASB's Statement of Financial
Accounting Standards No. 141, Business Combinations (SFAS 141), and will
effect how companies approach financial planning and reporting around business
combinations. SFAS 141r requires recognition for in-process R&D as assets at
fair value; transaction cost to be expensed, contingent consideration to be
measured at fair value; reacquired assets to be recorded as identifiable
intangible asset; assets held for sale to be measured at fair value; and
contingencies to be recognized at fair value. The Company has determined that
the adoption of SFAS 141r will require it to analyze additional aspects in
future potential acquisitions and possibly incur additional expense. SFAS 141R
is effective for fiscal years beginning after December 15, 2008. Thus, this
standard will affect the Company's June 30, 2009 10K filing.
In July 2006 the Financial Accounting Standards Board issued FIN 48,
Accounting for Uncertainty in Income Taxes- an interpretation of FASB
Statement No. 109 (FIN 48). FIN 48 clarifies the accounting for uncertainty
in income taxes recognized in an enterprise's financial statements in
accordance with FASB Statement No. 109, Accounting for Income Taxes
(SFAS 109). This Interpretation prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement
of a tax position taken or expected to be taken in a tax return. This
Interpretation also provides guidance on de-recognition, classification,
interest and penalties, accounting in interim periods, disclosure, and
transition. FIN 48 became effective for fiscal years beginning after
December 15, 2006. The Company has adopted of FIN 48 among its current
practices.
In December 2007 the Financial Accounting Standards Board issued SFAS 160,
Non-controlling Interest in Consolidated Financial Statements. The objective
of this Statement is to improve the relevance, comparability, and transparency
of the financial information that a reporting entity provides in its
consolidated financial statements. It requires that the ownership interests
in subsidiaries held by parties other than the parent be clearly identified,
labeled, and presented in the consolidated statement of financial position
within equity, but separate from the parent's equity. Further, it requires
that the amount of consolidated net income attributable to the parent be
clearly identified, accounted for consistently, and that changes of interests
be disclosed. This Statement is effective for fiscal years, and interim
periods within those fiscal years, beginning on or after December 15, 2008.
The Company 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.
In June 2009 the Financial Accounting Standards Board issued SFAS 165,
Subsequent Events. This Statement introduces the concept of financial
statements being available to be issued. It requires the disclosure of the
date through which an entity has evaluated subsequent events and the basis
for that date, that is, whether that date represents the date the financial
statements were issued or were available to be issued. This disclosure should
alert all users of financial statements that an entity has not evaluated
subsequent events after that date in the set of financial statements being
presented. The standard applies to interim or annual financial periods ending
after June 15, 2009. Thus, this standard become applicable to the Company's
June 30, 2009 10K filing. However, the Company has adopted and currently
complies with SFAS 165.
In June 2009 the Financial Accounting Standards Board issued SFAS 166,
Accounting for Transfers of Financial Assets. The concept of a qualifying
special-purpose entities is no longer relevant for accounting purposes. All
entities (as defined under previous accounting standards) should be evaluted
for consolidation by reporting entities on and after the effective date in
accordance with the applicable consolidation guidance. This Statement must
be applied as of the beginning of each reporting entity's first annual
reporting period that begins after November 15, 2009. Thus becomes effective
for the Company at its June 30, 2009 10K filing. The Company has concluded
that this standard will have no impact on its operations because it has not
special purpose entities.
In June 2009 the Financial Accounting Standards Board issued SFAS 167,
Amendments to FASB Intrepretation No. 46(R). This Statement improves the
financial reporting by enterprises involved with variable interest entities.
It requires consolidation of Variable Interest Entities when the Company
receive the primary benefit or loss related to an entity regardless of voting
rights. This Statement will be effective at annual filing periods after
November 15, 2009. The Company has no variable interest entities, but will
adopt this statement should it become applicable in the future.
In June 2009 the Financial Accounting Standards Board issued SFAS 168,The
FASB Accounting Standards Codification and the Hierarchy of Generally
Accepted Accounting Principles. Following this Statement, the Board will
not issue new standards in the form of Statements, FASB Staff Positions, or
Emerging Issues Task Force Abstracts. Instead, it will issue Accounting
Standards Updates. Once the Codification is in effect, all of its content
will carry the same level of authority, effectively superseding Statement
162. In other words, the GAAP hierarchy will be modified to include only
two levels of GAAP: authoritative and nonauthoritative. This Statement is
effective for financial statements issued for interim and annual periods
ending after September 15, 2009. The Company will adopt SFAS 168 at that
time.
Note 3 - Comprehensive Income
The Company reports certain changes in equity during a period in accordance
with SFAS No. 130 "Reporting Comprehensive Income". Accumulated Comprehensive
Income, net includes foreign currency cumulative translation adjustments,
net of tax. The components of comprehensive income for the three month periods
ended September 30, 2008 and 2007 are as follows:
Three Months
Ended September 30,
2008 2007
Net income (loss) $ 610,455 $ (169,132)
Foreign currency cumulative translation adjustments 51,844 --
---------- ----------
Comprehensive income (loss) $ 662,299 $ (169,132)
========== ===========
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
September 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
December 31, 2009.
NOTE 5 - PROGRAMMING RIGHTS
Eclectic continues to produce its own programming. During the three-month
periods ended September 30, 2008 and 2007, there were no production costs,
respectively. At September 30, 2008 cumulative production costs totaled
$82,775.
OMNI has purchased various programming rights assets totaling $105,130 as of
September 30, 2008. Accumulated amortization for these asset totaled $103,292
leaving a $1,838 carry value at September 30, 2008.
For the three months ended September 30, 2008 and 2007, the Company recorded
amortization expense of $500 and $1,500, respectively, related to its
programming rights.
NOTE 6 - FILM LIBRARY
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 film titles from Crawford
Communications. The Company recorded a $3,900 increase in film library and a
corresponding increase in programming rights payable.
In September 2005, the Company acquired 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 acquired an additional 15% interest in the Four
Tops program for 300,000 shares of stock with average per share value of
$0.70. The program is being amortized over its estimate useful life of
10 years.
In June 2007, the Company acquired 460 film titles for 138,000 shares of stock
valued at $0.90 per share. The titles are being amortized over its estimate
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 three-month periods ended September 30, 2008 and 2007, the Company
recorded amortization expense of $25,973 and $29,367, respectively, related
to its film library.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
Lease Obligations
As of September 30, 2008, the Company accrued $84,032 in arrears relating to
an office lease. The Company has vacated the Wilshire Boulevard office and is
currently utilizes an executive suite located in Westwood California when .
the need arises. The Company expects to negotiate a payment settlement
for the debt by December 31, 2009.
As of September 30, 2008, the Company had capital lease obligations totaling
$49,396 in arrears relating to its General Electric master equipment lease.
The lease has been canceled. The Company expects to negotiate a payment
settlement for the debt by December 31, 2009.
Litigation
In April 2006 OBN filed suit in California against Firestone Communications,
its satellite uplink provider claiming the "force majeure" clause in the
contract. Firestone filed suit against the Company in Texas for $141,000
claiming non-payment lease amount. The Company agreed to a stipulated
judgment to repay the debt by December 31, 2007. Monthly cash payments of
$15,000, $10,000 and $10,000 were made in accordance with the agreement in
June, July and August of 2007, respectively. The $10,000 payments for
September, October and November were not made. In September 2008 the Company
agreed to a $62,500 payoff amount when a $50,000 payment was made followed
by the $12,500 final payment. Thus, this debt has been fully paid.
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 8 - NOTES PAYABLE
The Company has $110,000 in loans from related parties under 5% promissory
notes, none of which was advanced to the Company during the quarter ended
September 30, 2008. The principal and interest is due and payable on demand.
As of September 30, 2008, the accrued interest on these notes totaled $18,833.
The Company has $329,910 in loans from related parties under 5% promissory
notes, none of which was advanced to the Company during the quarter ended
September 30, 2008. The principal and interest is due and payable on demand.
As of September 30, 2008, the accrued interest on these notes totaled $66,830.
The Company has a loan balance under a 10% promissory note from family members
of the Company's officers totaling $3,500 at September 30, 2008. The note
has no set maturity date, and is payable upon demand. As of September 30,
2008, the accrued interest on this note totaled $2,538.
The Company has short-term loans with its executives for a total of $500,
of which $0 was advanced to the Company during the quarter ended September
30, 2008. The loans have no interest rate and are payable upon demand.
Related party interest expense under these notes for the three months ended
September 30, 2008 and 2007 was $5,587 and $5,587, respectively.
At September 30, 2008, the Company had a $5,000 balance of notes payable to
a third party that bears interest at 10%. The note has no set maturity date,
and is payable upon demand. The accrued interest on the note totaled $2,917.
Non-related party interest expense under these notes for the three months
ended September 30, 2008 and 2007 was $125 and $125, respectively.
NOTE 9 - STOCKHOLDERS' EQUITY
Preferred Stock
- ---------------
The Company has authorized 20,000,000 shares of preferred stock. As of
September 30, 2008, the Company has not designated any series of preferred
stock or entered into any agreements.
Common Stock
- ------------
During the quarter ending September 30, 2008 the Company issued a total of
375,944 shares of stock (valued at rates between $0.30 and $0.50 per share)
to raise $112,783.
During the quarter ending September 30, 2008 the Company issued a total of
29,000 shares of stock (valued at between $0.30 and $ $0.60 per share) as
payment for $10,200 of broker fees to consultants.
NOTE 10 - LOSS PER SHARE
Basic and diluted loss per common share is computed as follows for the three
months ended September 30, 2008 and 2007:
Basic and diluted loss per common share is computed as follows:
For The three Months Ended
------------------------------
September 30, September 30,
2008 2007
------------- -------------
Numerator for basic and diluted
loss per common share:
Net loss $610,455 ($169,133)
Denominator for basic and diluted
loss per common share
Weighted average common
shares outstanding 11,379,389 4,104,717
Net loss available to common
stockholders per common share $0.05 ($0.04)
NOTE 10 - SUBSEQUENT EVENTS
This section contains subsequent events that have been evaluated from the
September 30, 2008 balance sheet date through July 15, 2009 which is the
date that this document was available to be filed.
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 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 of new
Company websites.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
OPERATIONS
OBN Holdings, Inc. ("OBNI" or the "Company") is a holding company with
operations in entertainment, commodity trading, plastics recycling and
intelligent traffic systems industries. Moreover, the Company is
internationally diversified with subsidiaries in China, Japan 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. 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 commodity trading firm that currently provides product to Japan
from Mexico.
GENERAL OVERVIEW
The following discussion and analysis of our financial condition and results
of operations should be read in conjunction with the unaudited statements of
operations and cash flows for the three months ended September, 2008 and 2007,
and the related notes thereto as well as the audited financial statements of
the Company for the year ended June 30, 2008. 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 cautions readers that important facts and factors described in
this Management's Discussion and Analysis of Financial Condition and Results
of Operations and elsewhere in this document sometimes have affected, and in
the future could affect, the Company's actual results, and could cause the
Company's actual results during 2007-08 and beyond to differ materially from
those expressed in any forward-looking statements made by, or on behalf of,
the Company.
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 account
and our best estimate of the likelihood of potential loss, taking into
account such factors as the financial condition and payment history of major
customers. We evaluate the collectibility of our receivables at least
quarterly. If the financial condition of our customers were to deteriorate,
resulting in an impairment of their ability to make payments, additional
allowances may be required. The differences could be material and could
significantly impact our operating results.
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 broadcast, 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.
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. If actual results
differ favorably from those estimates used, we may be able to realize a
larger portion or all of our net deferred tax assets. Such realization could
positively impact our operating results and cash flows from operating
activities.
RESULTS OF OPERATIONS
Total revenues for the Company were $6,432,560 and $0 for the three-month
periods ended September 30, 2008 and 2007, respectively. Revenues were
generated from the Company's commodity trading subsidiary that began
during the quarter ending June 30, 2008.
Expenses incurred during the three-month period ended September 30, 2008
totaled $5,839,605 as compared to $171,666 for the three-month period
ended September 30, 2007. Expenses increased primarily due to purchases
of pork products and consulting services. Other income for three-month
period ended September 30, 2008 was $17,500, as compared to $2,534 of
for the same period in 2007. Changes in interest expense and tax expense
are insignificant. The net income for the three-month period ended September
30, 2008 was $610,455 as compared to a net loss of $169,132 for the three
month period ended September 30, 2007.
Results of operations for the three-month periods ended September 30, 2008
and 2007 are detailed in the charts below. Included are the revenues,
expenses, other income and net income for the three segments and corporate
office. In addition, the results from accounting consolidation are presented
as reconciling items.
As of and for three months ended September 30, 2008:
Broadcasting Production Commodity Corporate Reconciling Total
Operations Operations Items
Assets $ 76,813 $ 65,284 $4,060,992 $5,065,761 ($20,000) $9.248,850
Liabilities (434,974) (239,916) (1,638,628) (1,169,395) 20,000 (3,462,913)
Revenues, net of
affiliate costs - - 6,432,560 - - 6,432,560
Costs & expenses* (12,937) (16,999) (5,651,644) (158,025) - (5,839,605)
Other income (exp) - - 17,337 163 - 17,500
Net income (loss) ($12,937) ($16,999) $798,253 (157,862) - 610,455
As of and for three months ended September 30, 2007
Broadcasting Production Commodity Corporate Reconciling Total
Operations Operations Trading Items
Assets $206,966 $65,284 - $2,890,560 ($1,706,843) $1,455,967
Liabilities (575,248) (171,920) - (989,127) 8,258 (1,728,037)
Revenues, net of
affiliate costs - - - - - -
Costs & expenses* (23,436) (16,999) - (131,231) - (171,666)
Other income (exp) - - - 2,534 - 2,534
Net income (loss) ($23,436) ($16,999) - ($128,697) - ($169,132)
*Expenses include operating expenses and cost of sales.
Broadcasting Operations (Omni, ASTN and POD)
Revenues generated in this segment of operations totaled $0 for the three
months ended September 30, 2008 and 2007. Expenses were $12,937 for the
three months ended September 30, 2008 as compared to $23,436 for the
same period in 2007. The net loss for this segment of operations was
$12,937 for the three months ended September 30, 2008 as compared to a
net loss of $23,436 for the same period in 2007.
Production Operations (Eclectic)
Revenues generated in this segment of operations totaled $0 for the three
months ended September 30, 2008 as compared to $0 during the same period
in 2007. This segment incurred $16,999 of expense during the both the
three months ending September 30, 2008 and 2007. Expenses included $15,625
of accrued salaries during both periods. The net loss for this segment was
$16,999 for the three months ended September 30, 2008, as compared to an
identical loss of $16,999 for the period in 2007.
Commodity Trading Operations
Revenues generated in this segment of operations totaled $6,432,560 for
the three months ended September 30, 2008 as compared to $0 during the
same period in 2007. This segment incurred $5,651,644 of expense during
the three months ending September 30, 2008 as compared to $0 for the
same period in 2007. Expenses included $4,703,400 of pork product
purchases, $342,827 of sales commissions and $462,504 of shipping costs.
Other income during the three month period ending September 30, 2008 and
2007 was $17,337 and $0, respectively. The net income for this segment was
$798,253 for the three months ended September 30, 2008, as compared to $0
for the period in 2007.
OBN Corporate
Revenues generated from OBN corporate operations totaled $0 during the three
months ended September 30, 2008 and 2007. The expenses incurred by OBN
corporate were $158,025 for the three months ended September 30, 2008 as
compared with $131,231 in 2007. Expenses for the three-month period ending
September 30, 2008 included $75,000 of accrued salary expenses. The other
income for this period was $163 as compared to $2,534 for the same period
in 2007. The net loss for OBN corporate was $157,862 during the period ended
September 30, 2008 as compared to a net loss of $128,697 for the same period
in 2007.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 2008 the Company's current assets of $4,061,304
exceeded current liabilities of $3,462,913 by $598,391. Approximately 16%
of current liabilities represent accrued payroll for executives who have
opted to defer taking salaries until additional funding is received. 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.
Management's believes that the acquisition of Kyodo USA in June 2008
addresses any future liquidity issues because of its strong cash flow and
cash balances in its bank accounts. In addition, the Company continues to
raise additional capital through equity financing sources. However, no
assurance can be given that additional capital will be available when
required or upon terms acceptable to the Company. The Company intends to
raise additional funds through a S-1 filing and anticipates implementing its
business plan to expand its acquisition and development plans.
The liquidity issues for each segment are addressed below.
Entertainment Operations
- - ------------------------
The liquidity issues that have plagued our broadcasting operations have been
resolved by terminating our 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. In January 2009 the
Company entered into negotiations to acquire a plastics recycling facility in
the USA. 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 by December 31, 2009. In addition, some traffic
systems units will be sold without installation responsibility, thus
requiring no cash other than sales expenses.
Commodity Trading Operations
- ------------------------------
There are no liquidity issues 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.
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 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable
Item 4. 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 fiscal quarter ended September 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 matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system
are met. Further, the design of the control system must reflect the fact that
there are resource constraints and the benefits of controls must be
considered relative to their costs. Because of the inherent limitations in
all control systems, no evaluation of controls can provide absolute assurance
that all control issues and instances of fraud, if any, within the Company
have been detected. These inherent limitations include the realities that
judgments in decision-making can be faulty and that breakdowns can occur
because of simple effort or mistake. Additionally, controls can be
circumvented by the individual acts of some persons, by collusion of two or
more people, or by management override of the internal control. The design of
any system of controls also is based in part upon certain assumptions about
the likelihood of future events and there can be no assurance that any design
will succeed in achieving its stated goals under all potential future
conditions. Over time, control may become inadequate because of changes in
conditions, and/or the degree of compliance with the policies or procedures
may deteriorate.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information.
None
Item 6. Exhibits
(31.1) Certification of Chief Executive Officer pursuant to Rule-15(e) and
15d-15(e) of the Securities Exchange Act of 1934, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
(31.2) Certification of Chief Financial Officer pursuant to Rule 13a-15(e)
and 15d-15(e) of the Securities Exchange Act of 1934, as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
(32.1) Certification of Chief Executive Officer and Chief Financial Officer
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
OBN HOLDINGS, INC
(Registrant)
Dated: August 5, 2009 By: /s/ Roger Neal Smith
------------------------------
Roger Neal Smith
Chief Executive Officer