July 28, 2010
Mr. Robert Babula
Staff Accountant
Division of Corporation Finance
Securities and Exchange Commission
Re: Reponses to July 23, 2010 Questions about 10K for File No. 0-51021
Mr. Babula:
Below are the responses to your July 23, 2010 questions about our June
30, 2009 10K filing. As requested each response has been keyed to your
question/comment by restatement of the question followed by our
responses.
1. We note your responses to comments one and two of our letter dated
June 22, 2010. We await the filing of your March 31, 2010 Form 10-Q.
In this regard, we note you recorded 50% impairment for both
technology licenses for the quarterly period ended March 31, 2010.
Please explain to us and disclose your methodology used to assess
impairment. In this regard, tell us how you reasonably concluded
the remaining carrying value of the licenses were recoverable in
light of your statement to us indicating you do not have adequate
capital to implement the marketing plans. Further, provide us your
impairment analysis used to record the 50% write down of the
licenses. Show us what your disclosures will look like. Refer to
FASB ASC 350-30-50-3.
Response: The proposed language for the technology license
impairment to be included in the March 31, 2010 quarterly 10Q filing
is as follows.
Impairment of Long-lived Assets
In March 2008 the Company acquired the North American rights to two
proprietary technology licenses. The first was the intelligent
traffic system (i.e., red light camera system) license from a
Chinese developer for stock and cash valued at $1,880,000. The
second was a plastic recycling license for stock valued at
$2,894,781. In August 2009 the Company engaged the services of an
independent appraisal firm to determine the value of its technology
licenses. The appraiser, a member of the National Association of
Certified Valuation Analysts, indicated in its report that market
value the traffic system license was $4,640,000 and the market value
of the plastics recycling license was $ 3,792,000, both
significantly higher that their respective carrying values.
Therefore, no impairment was recorded at June 30, 2009. However,
because no revenue has been generated since the appraisal, due to
the fact that the Company did not have sufficient capital to
implement the related marketing plans, impairment was deemed
appropriate for the quarter ended March 31, 2010. Management is
unable to provide acceptable revenue projections because it does not
know if or when adequate working capital will be available to
implement the technology license marketing plans. Because no
definitive timeframe can be determined as to when revenue will be
generated, management has elected to fully impair the licenses as of
March 31, 2010 under the conservative principle of GAAP.
The disclosure in the income statement will look like the following:
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED MARCH 31, ENDED MARCH 31,
--------- --------- --------- ---------
2010 2009 2010 2009
--------- --------- --------- ---------
Unaudited Unaudited Unaudited Unaudited
Revenue, net of
affiliate costs $2,780,470 $4,459,093 $8,162,384 $16,703,708
Cost of sales 2,093,711 2,567,792 6,474,541 11,761,190
---------- ---------- ---------- -----------
Gross profit 686,759 1,891,301 1,687,843 4,942,518
Operating expenses:
General and administrative 788,107 998,288 2,149,181 5,133,991
Impairment Expense 4,774,781 -- 4,774,781 --
---------- ---------- ---------- -----------
Total Operating Expenses 5,562,888 998,288 6,923,962 5,133,991
Loss from operations (4,876,129) (893,013) (5,236,119) (191,473)
---------- ---------- ---------- -----------
2. We note your response to comments three and four of our letter dated
June 22, 2010. We read your proposed disclosures regarding your
report on internal controls over financial reporting ("ICFR").
Since you discuss a material weakness, please ensure you
specifically state your ICFR were not effective as of June 30, 2009
in the amended Form 10K. Further, disclose if you had any changes
in ICFR during the last fiscal quarter ended June 30, 2009. Refer
to Item 308T(a)(4)(b) of Regulations S-K. Lastly, we do not concur
with your apparent continued assessment that your disclosure
controls and procedures ("DCP") were effective as of June 30, 2009
given that the omission of the report on ICFR is a major reporting
deficiency. Please revise your DCP conclusion.
Response: The language for Item 9A of our amended June 30, 2009
annual filing is presented below.
ITEM 9A. Disclosure Controls and Procedures
An evaluation of the effectiveness of the design and operation of
our disclosure controls and procedures (as defined 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 using the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in
Internal Control Integrated Framework. Based upon that evaluation,
the CEO and CFO concluded that the design and operations of these
disclosure controls and procedures were not effective. Our
disclosure controls and procedures failed to alert management to
the omission of Management' Report on Internal Control Over
Financial Reporting which is presented below in this amended 10K
filing. Information relating to the Company's (or the Company's
consolidated subsidiaries) periodic filing with the SEC, subject to
the various limitations on the effectiveness are set forth below.
Information relating to the Company, required to be disclosed in SEC
reports was not recorded, processed, summarized and reported within
the time periods specified in SEC rules and forms, and was not
accumulated and communicated to the Company's management, including
our CEO and CFO, as the internal control over financial reporting
(ICFR) was not effective at June 30, 2009. More specifically,
Management's Report on Internal Control Over Financial Reporting was
not included in the initial June 30, 2009 filing. The report is now
included in this amended filing below.
(b) Changes in Internal Control over Financial Reporting. There had
been no change in the Company's internal control over financial
reporting that occurred during the year ended June 30, 2009 that
materially affected the Company's internal control over financial
reporting. However, subsequent to June 30, 2009 the controls were
changed to ensure Management's Report on Internal Control Over
Financial Reporting is included in the filing.
We are hopeful that the above responses adequately addresses each of your
questions; however should you have additional questions or need to
communicate further on any of these matters, please do not hesitate to
contact me by e-mail at larry.taylor@obnholdings, or by fax at
(323) 299-3118 or by telephone at (310) 988-1077. Again, please be aware
that I am located in Los Angeles, not the Las Vegas office. Mailings to
Las Vegas would slow my responses.
Sincerely,
/s/ Larry Taylor
Larry Taylor
Chief Financial Officer