UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Unreviewed)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2010
[ ] 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 August 20, 2010 the Company had 2,173,735 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 March 31, 2010 (Unaudited)
and June 30, 2009 1
Consolidated Statement of Operations (Unaudited) for the
three Month Periods Ended March 31, 2010 and 2009 2
Consolidated Statement of Cash Flows (Unaudited) for the
three Month Periods Ended March 31 , 2010 and 2009 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)
March 31, June 30,
2010 2009
(unaudited)
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents $ 696,588 $ 616,581
Accounts receivables, net of $150,000 and $150,000
allowance for doubtful accounts, respectively 647,173 882,872
Inventory 370,319 948,080
---------- ----------
Total current assets 1,714,080 2,447,533
Fixed assets, net of accumulated depreciation of
$60,892 and $60,692, respectively - -
Programming rights, net of accumulated amortization
of $100,529 and $100,192, respectively 65,275 65,613
Film library, net of accumulated amortization
of $459,745 and $390,373, respectively 117,755 187,127
Other intellectual properties, net of accumulated
Depreciation of $41,673 and $19,387, respectively 184,373 195,113
Other tangible assets 71,250 4,846,031
---------- ----------
Total assets $ 2,152,733 $ 7,741,417
=========== ===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable $ 518,573 $ 472,344
Commissions payable 213,149 786,792
Accrued payroll and related 943,913 691,142
Deferred revenue 541,073 790,650
Capital lease obligations 49,396 49,396
Programming rights payable 80,030 80,030
Notes and accrued interest payable 270,416 277,709
Notes and accrued interest payable related parties 439,910 547,870
---------- ----------
Total current liabilities 3,056,460 3,695,933
---------- ----------
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; 21,573,735 and 19,930,930 shares
issued and outstanding 21,574 19,931
Additional paid-in capital 16,484,089 16,330,449
Accumulated deficit (17,419,033) (12,317,038)
Common stock subscriptions receivable -- (7,500)
Accumulated comprehensive income (loss), net 9,643 19,642
---------- ----------
Total stockholders' equity ( 903,727) 4,045,484
---------- ----------
Total liabilities and stockholders' equity $ 2,152,733 $ 7,741,417
=========== ===========
See accompanying notes to consolidated financial statements.
OBN Holdings, Inc.
CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME
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 $ 2,780,471 $ 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 686,760 1,891,301 1,687,843 4,942,518
Operating expenses:
General and administrative 787,605 998,288 2,149,181 5,133,991
Impairment expense 4,774,781 -- 4,774,781 --
------------ ---------- ---------- -----------
Subtotal operating expenses 5,562,386 998,288 6,923,962 5,133,991
Loss from operations (4,875,626) (893,013) (5,236,119) (191,473)
------------ ---------- ---------- -----------
Other income (expense):
Other income 5,667 (59,431) 42,327 163,751
Gain on debt extinguishment -- -- 98,659 57,500
Interest expense 415 (5,711) (6,862) (17,134)
------------ ---------- ----------- -----------
Total other income (expense), net 6,082 (65,142) 134,124 204,117
------------ ---------- ----------- -----------
Net income before income taxes (4,869,544) 827,871 (5,101,995) 12,644
Income taxes -- -- -- --
------------ ---------- ---------- ----------
Net income ($4,869,544) ($827,871) ($5,101,995) $12,644
============ ============ =========== ===========
Foreign currency transaction adjustment 457 (24,256) 9,643 (76,100)
Comprehensive income, net of 0 taxes($4,869,087) ($803,615) ($5,092,352) ($63,456)
Net loss available to common
stockholders per common share:
Basic and diluted net income (loss)
per common share ($0.23) $0.05 ($0.25) ($0.00)
============ ========== =========== ===========
Basic and diluted weighted
average shares outstanding 20,266,818 18,106,636 20,587,623 13,301,116
============ =========== =========== ===========
See accompanying notes to consolidated financial statements.
OBN Holdings, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED
March 31,
-------------------------
2010 2009
---------- ----------
Unaudited Unaudited
Cash flows from operating activities:
Net income ($ 5,101,995) $ 12,644
Adjustments to reconcile net loss to net cash
used in operating activities:
Gain on settlement of debt (98,659) 57,500
Depreciation and amortization 92,498 85,276
Shares issued for services 36,500 50,123
Changes in operating assets and liabilities:
Accounts receivable, net 235,699 (554,890)
Purchased inventory 577,761 (1,872,815)
Impairment of technology licenses 4,774,781 --
Deferred recognize revenue (249,577) (18,181)
Accounts payable and accrued expenses (270,356) 1,746,037
----------- ----------
Net cash used in operating activities 3,348 (494,306)
----------- ----------
Cash flows from investing activities:
Purchase of fixed assets -- --
---------- ----------
Net cash used in investing activities -- --
---------- ----------
Cash flows from financing activities:
Proceeds from notes payable, net of issuance costs 1,691 375
Proceeds from notes payable to related parties (15,372) 16,258
Proceeds from stock subscriptons receivable 5,000 (7,500)
Repayments on notes payable to related parties 24,205 --
Proceeds from issuance of common stock 77,830 165,683
----------- ----------
Net cash provided by financing activities 93,354 174,816
----------- ----------
Effect of foreign currency rate changes (9,999) 47,349
----------- ----------
Net change in cash and cash equivalents 80,007 (272,141)
Cash, and cash equivalents, beginning of period 616,581 986,482
----------- ----------
Cash, and cash equivalents, end of period $ 696,588 $ 714,341
=========== ==========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest -- --
=========== ==========
Income taxes -- --
=========== ==========
Supplemental disclosure of noncash investing and
financing activities:
Common stock issued for services 275,000 --
=========== ==========
Conversion of accrued salary to stock -- 200,000
=========== ==========
Shares issued as payment of executive bonuses -- 1,680,000
=========== ==========
Shares issued as payment for accounts payables -- 1,303
=========== ==========
See accompanying notes to consolidated financial statements.
OBN HOLDINGS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2010 and 2009
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 nine-month period ended March 31, 2010 are not
necessarily indicative of the results that may be expected for the year ending
June 30, 2010. 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, 2009.
Going Concern
At June 30, 2009 the report of our independent registered public accounting
firm included a "going concern" statement. Several factors influenced the
their decision to include this statement. The auditor considers factors such
as the state of the economy, trends in earnings, current profitability, aging
of liabilities and aging of receivables.
The Company recognizes that it must adequately address each of the above
factors to have the "going concern" statement removed. Management's plans
and progress toward achieving that end includes the following.
1) Economy. By all indications, except employment figures, the economy has
begun to improve since the balance sheet date of this report. This is
evident by increases in financial activity around the world. However, in
response to the economy the pork industry has experience an increase in
downsizing, mergers and acquisitions which have changed our client base.
As a result, pork sales recovery continues to be slow. Management has
began to concentrate our efforts on increasing our product line. Further,
we have designed plans to increase activity in our entertainment segment
with several projects planned in China and Japan during the next fiscal
year.
2) Profitability. The Company's most recent losses are due to impairment of
its technology licenses. Unfortunately, the Company lacks sufficient
capital to implement its marketing plans related to these intellectual
properties. As a result limited marketing efforts and expenses have not
generated any revenues which negatively affects the Company's
profitability. Moreover, the lack of revenues have caused management to
record significant impairment expenses related to the technology licenses.
Management anticipates that adequate capital will be raised that will
allow the marketing plan to be fully implemented or the licenses will be
sold. In either case, the negative impact on profitability will be
eliminated.
3) Trends. The Company reported a loss in four of the last five annual
filings. The first year with positive earnings was the fiscal year ending
June 30 2008. Management had every reason to believe that a profit would
be posted for for year ended June 30, 2009, but the swine flu pandemic
caused sales to significantly fall in the third and fourth quarters of
that year. The recovery was hampered by the global economic crisis that
began soon afterwards. Fortunately, sales have recently stablized with a
modest growth. A positive revenue growth trend has been established during
the past few quarters. Management is still mindful of its increasing
positive trend in sales and expects to see continued positive revenue
trends in future periods.
4) Aging of Liabilities. At March 31, 2010 the outstanding liabilities
totaled $3,056,460. Management retired $111,252 of liabilities during the
quarter ending September 30, 2009 by successfully negotiating agreements to
convert the debt to stock equity. A significant portion of the debt was
deferred revenue that has been recognized as revenue. A total of $404,000
was reduced from Commissions payable as the sales broker purchased the
receivables. A total of $295,822 of accounts payable was paid during the
nine month period March 31, 2010. A total of $214,000 of debt has been on
the books past the statute of limitations for collection and will be
written off during the next fiscal year. The remaining debt represents
accrued salaries, commission payables and related party loans. All of
these parties have indicated that they will wait until the Company is more
profitable before requesting payment.
5) Aging of Receivables. At March 31, 2010 the outstanding receivables totaled
$647,173. All receivables are less than 30 days old. Thus, the
receivables aging does not impact the "going concern" issue.
In addition, to the above plans and actions that address the "going concern"
issues, Management is expanding its product line and marketing activities.
Additions to the product line include wine, scotch and additional food
products are being implemented currently.
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 several industries, including the internet broadcasting,
television/film production, plastics recycling, intelligent traffic systems
the commodity import/export industries. 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. In addition, the OBN corporate office
provides consulting services to firms seeking to become listed on an American
stock market and import/export services.
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 was approved by the
NASD for trading on the Over-The-Counter Bulletin Board 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 "naked 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. Using funds from its founders and friends, the Company continued to
broadcast its programming and operate its television station.
In July 2005, the Company acquired the All Sports Television Network and
its film library in exchange for forgiveness of debt owed to the Company.
That same year, the Company produced a major television special entitled
the "50th Anniversary of the Four Tops" that was broadcast on the Omni
Broadcast Network and syndicated to several other competing broadcast networks
reaching 80 million viewers.
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 satellite broadcasting
operations and began to explore alternative methods to broadcast its
programming content. In June 2007, the KSSY television station was fully
impaired and ceased to be an asset. In February 2008, the Company signed an
agreement to broadcast its film and television properties over the internet
via a broadband network. Thus, internet broadcasting replaced the U.S.
television broadcasting operations and eliminated the need for satellite
uplink and television station operational expenditures.
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 working with an investment banking firm that
was responsible for raising funds and identifying targets for acquisition.
Unfortunately, the Company never received funds under this arrangement and
was forced to seek alternative acquisition strategies. The Company was
introduced to two potential acquisition targets in the China. After intensive
negotiations the acquistion agreements were complete. Unfortunately, attempts
to complete the SEC required acquisition audits dragged on for months and
eventually abandoned so the acquisitions were never consummated. Under SEC
regulations the Company could not file its quarterly or annual filing until
the acquisiton audits were complete. As a result the Company was delisted
from the trading exhange. The company began the arduous task of getting
current with its filings and reapplying to be traded on the exchanges while
using a combination of Company stock and cash to consummate other successful
acquisitions.
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 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 "green"
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.
Segment Information Reporting
As of March 31, 2010 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 nine months ended March 31, 2010 and
2009 is presented in the tables below:
As of and for the nine months ended March 31, 2010
Broadcasting Production Commodity Corporate Reconciling Total
Operations Operations Items
Assets $ 16,883 $194,753 $1,726,813 $ 365,041 ($150,757) $2,152,733
Liabilities (439,210) (416,448) 1,101,173) (1,247,386) 150,757 (3,056,460)
Revenues, net of
affiliate costs - - 8,161,747 637 - 8,162,384
Costs & expenses* (26,591) (22,999) (8,150,573) (5,205,202) - (13,405,365)
Other income (exp) - 23,833 42,327 74,826 - 140,986
Net income (loss) ($26,591) $ 834 $ 53,501 ($5,129,739) - (5,101,995)
As of and for the nine months ended March 31, 2009
Broadcasting Production Commodity Corporate Reconciling Total
Operations Operations Trading Items
Assets $ 51,252 $ 65,284 $5,070,282 $5,020,852 ($17,000) $10,190,770)
Liabilities (435,149) (273,914) (1,262,552) (1,079,288) 17,000 (3,033,903)
Revenues, net of
affiliate costs 237 100 16,703,356 15 - 16,703,708
Costs & expenses* (38,909) (50,997) (14,677,932) (2,144,477) - (16,912,315)
Other income (exp) - - 162,434 58,817 - 221,251
Net income (loss) ($38,672) ($50,897) $2,187,858 ($2,085,645) - 12,644
*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 $647,173 of outstanding receivables as of March 31, 2010. For
the nine month period ended March 31, 2010 there was $8,162,384 of
sales recognized as compared to $16,703,708 of sales during the same period
ending March 31, 2009.
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 internet portal assets are discussed in Note 4. The portals are
indefinite life intellectual properties. The properties are 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 ASC
350-10, "Goodwill and Other Intangible Assets." ASC 350-10 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, ASC 350-10 expands the disclosure requirements
about goodwill and other intangible assets in the years subsequent to their
acquisition.
ASC 350-10 provides specific guidance for testing goodwill and intangible
assets that will not be amortized (i.e., the Company's technology licenses
and internet portals) 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
impairment of the carrying value of its technology licenses was appropriate
at March 31, 2010 because no revenue had been generated and there still was
insufficient capital to implement related marketing plans. As a result, the
two technology licenses were fully impaired at March 31, 2010.
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.
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
technology license $4,640,000 and the market value of the 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 appropriate for the quarter ended March 31,
2010 even though the revenue and cost projections contained in our impairment
analysis provided in our early submissions are still valid. The numbers
have not changed (i.e., the licenses acquisition costs are recoverable as
the undiscounted cash flow projections from the license exceeds the carrying
value), only the expected transactions dates have changed (i.e., pushed back).
Thus, management expects to fully recover the acquisition costs from the
technology licenses by either implementing the associated marketing plans
when funds are available or selling the licenses at some future date.
However, because no definite 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.
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. AS 920-10,
"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.
Revenue Recognition for Meat Exports
Revenue is recognized from meat export operations after the order is
received, the customer invoice is issued and the customer receives
the product. Invoices issued prior to the customer receiving the product
are recorded as deferred revenue. Deferred revenue is then recognized
as revenue when the customer takes ownership of the product.
Inventories
Inventories are valued at the lower of cost or market. Inventory includes
direct material costs, whereby product is typically in inventory for periods
less than three weeks due to spoilage concerns. Morover, the majority of
inventory is in-transit to customers.
Shipping costs are considered general and administrative expense and are
not included in cost of goods sold. During the nine months ending March 31,
2010 a total of $891,562 was expensed for shipping related services.
Accounting for Filmed Entertainment and Television Programming Costs
In accordance with ASC 926-10, "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 nine months ending
March 31, 2010 and 2009, the Company's had no advertising costs.
Stock-Based Compensation
Through March 31, 2010, the Company accounts for equity instruments issued
to non-employees in accordance with the provisions of ASC 718-10, Accounting
for Stock-Based Compensation, and ASC 505-50, 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.
ASC 718-10 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
ASC 718-10 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 March 31, 2010. There is also no pro forma impact of warrants as
they have no fair value under ASC 718-10.
Effective July 1, 2006, on the first day of the Company's fiscal year 2007,
the Company adopted the fair value recognition provisions of ASC 718-10,
"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 ASC 718-10, 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 ASC 718-10.
ASC 718-10 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 March 31, 2010, the Company had no options
outstanding and therefore believes the adoption of ASC 718-10 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
ASC 718-10 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 ASC 740-10,
"Accounting for Income Taxes." Under the asset and liability method of ASC
740-10, 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 ASC
740-10, 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 nine months ended
March 31, 2010:
March 31, June 30,
2010 2009
------------ -----------
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 $1,007,822 during the nine months ended
March 31, 2010. No current provision for income taxes, other than California
minimum taxes, is expected for the year ending June 30, 2010. No operating
profits are expected to be generated in California, during the year ended
June 30, 2010.
Net deferred income taxes are as follows as of the following dates:
March 31, June 30,
2010 2009
----------- -----------
Deferred tax liabilities $ -- $ --
Deferred tax assets:
Net operating losses $ 5,922,472 $ 4,187,793
Reserves and accruals (183,965) (268,821)
---------- ----------
Total deferred tax assets 5,738,507 3,918,972
Less valuation allowance (5,738,507) (3,918,972)
------------- -------------
$ --- $ ---
============= =============
The Company has approximately $17,000,000 in Federal and California State net
operating loss carryforwards as of March 31, 2010, which, if not utilized,
expires through 2029.
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 March 31, 2010.
Basic and Diluted Loss Per Share
The Company has adopted ASC 260-10, "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
nine months ended March 31, 2010 and 2009.
Recent Accounting Pronouncements
In June 2009, the Financial Accounting Standards Board ("FASB") issued a
"The FASB Accounting Standards Codification" and the Hierarchy of Generally
Accepted Accounting Principles to establish the FASB Accounting Standards
Codification" (also referred to as Codification or ASC) as the single source
of authoritative nongovernmental U.S. generally accepted accounting
principles ("GAAP"). The ASC is effective for interim and annual periods
ending after September 15, 2009. The ASC did not change GAAP but reorganized
existing US accounting and reporting standards issued by the FASB and other
related private sector standard setters. The Company began to reference the
ASC when referring to GAAP in its financial statements starting with the
third quarter of 2009. Additionally, because the ASC does not change GAAP,
the Company references the applicable ASC section for all periods presented
(including periods before the authoritative release of ASC), except for the
grandfathered guidance not included in the Codification. The change to ASC
did not have an impact on the Company's financial position, results of
operations, or cash flows.
In December 2007, the FASB issued accounting guidance regarding business
combinations. This accounting guidance, found under the Business Combinations
Topic of the Codification, ASC 805, retains the requirement that the purchase
method of accounting for acquisitions be used for all business combinations.
ASC 805 expands the disclosures previously required, better defines the
acquirer and the acquisition date in a business combination, and establishes
principles for recognizing and measuring the assets acquired (including
goodwill), the liabilities assumed and any noncontrolling interests in the
acquired business. ASC 805 changes the accounting for acquisition related
costs from being included as part of the purchase price of a business
acquired to being expensed as incurred and will require the acquiring company
to recognize contingent consideration arrangements at their acquisition date
fair values, with subsequent changes in fair value generally to be reflected
in earnings, as opposed to additional purchase price of the acquired business.
As the Company has a history of growing its business through acquisitions,
the Company anticipates that the adoption of FASB guidance included in the
Business Combinations Topic of the Codification will have an impact on its
results of operations in future periods, which impact depends on the size and
the number of acquisitions it consummates in the future.
According to the Transition and Open Effective Date Information of the ASC
Business Combinations Topic, ASC 805-10-65, the acquirer shall record an
adjustment to income tax expense for changes in valuation allowances or
uncertain tax positions related to the acquired businesses. Certain of the
Company's acquisitions consummated in prior years would be subject to changes
in accounting for the changes in valuation allowances on deferred tax assets.
After December 31, 2008, reductions of valuation allowances would reduce the
income tax provision as opposed to goodwill. ASC 805, effective for all
business combinations with an acquisition date in the first annual period
following December 15, 2008, was adopted by the Company as of January 1, 2009.
In December 2007, the FASB issued accounting guidance regarding
non-controlling interests in consolidated financial statements. This guidance,
found under the Consolidations Topic of the Codification, ASC 810-10-45, and
effective for fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2008, requires the recognition of a
non-controlling interest as equity in the consolidated financial statements
and separate from the parent's equity. The amount of net earnings
attributable to the non-controlling interest will be included in consolidated
net income on the face of the income statement. This guidance also includes
expanded disclosure requirements regarding the interests of the parent and
its non-controlling interest. The Company adopted ASC 810-10-45 as of
January 1, 2009. The adoption of this guidance did not have a material impact
on the Company's consolidated financial statements.
In April 2008, the FASB issued guidance on determining the useful life of
intangible assets. The Implementation Guidance and Illustrations for
Intangibles Other than Goodwill, ASC 350-30-55, discussed in the
Intangibles - Goodwill and Other Topic of the Codification, amends the factors
to be considered in determining the useful life of intangible assets. Its
intent is to improve the consistency between the useful life of an intangible
asset and the period of expected cash flows used to measure its fair value by
allowing an entity to consider its own historical experience in renewing or
extending the useful life of a recognized intangible asset. The new guidance
became effective for fiscal years beginning after December 15, 2008 and was
adopted by the Company as of January 1, 2009. The adoption of this guidance
did not have a material impact on the Company's consolidated financial
statements.
In May 2009, the FASB issued accounting guidance regarding subsequent events.
This guidance, found under the Subsequent Events Topic of the Codification,
ASC 855, and effective for interim or annual periods ending after June 15,
2009, establishes general standards of accounting for disclosure of events
that occur after the balance sheet date but before financial statements are
issued or 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. The Company adopted
this guidance as of June 30, 2009. The adoption of this guidance did not have
a material impact on the Company's consolidated financial statements
In April 2009, the FASB issued new guidance regarding the accounting for
assets acquired and liabilities assumed in a business combination that arise
from contingencies. This new guidance, found under the Identifiable Assets
and Liabilities, and Any Noncontrolling Interest Subtopic within the Business
Combinations Topic of the Codification, ASC 805-20,
- Requires that assets acquired and liabilities assumed in a business
combination that arise from contingencies be recognized at fair value if
fair value can be reasonably estimated. If fair value of such an asset or
liability cannot be reasonably estimated, the asset or liability would
generally be recognized in accordance with the Contingencies Topic of the
Codification, ASC 450;
- Eliminates the requirement to disclose an estimate of the range of
outcomes of recognized contingencies at the acquisition date. For
unrecognized contingencies, the FASB decided to require that entities
include only the disclosures required by the Contingencies Topic of the
Codification, ASC 450, and that those disclosures be included in the
business combination footnote;
- Requires that contingent consideration arrangements of an acquiree
assumed by the acquirer in a business combination be treated as contingent
consideration of the acquirer and should be initially and subsequently
measured at fair value in accordance with ASC 805-20.
ASC 805-20 is effective for assets or liabilities arising from contingencies
in business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after
December 15, 2008. The Company adopted ASC 805-20 effective January 1, 2009
and it did not have any material impact on the Company's financial condition,
results of operations, or cash flows.
Note 3 - Comprehensive Income
The Company reports certain changes in equity during a period in accordance
with ASC 220-10 "Reporting Comprehensive Income". Accumulated Comprehensive
Income, net includes foreign currency cumulative translation adjustments,
net of tax. The components of comprehensive income for the nine month
periods ended March 31, 2010 and 2009 are as follows:
Nine Months
Ended March 31,
---------------------
2010 2009
Net income ($5,101,995) $12,644
Foreign currency cumulative translation adjustments ( 9,999) 47,349
----------- ----------
Comprehensive income (loss) ($5,111,994) $ 59,993
============ ===========
NOTE 4 - INTERNET PORTALS
In October 2006 the Company has entered into an agreement to have an internet
portal constructed and operated. Construction of the portal began 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 completed the media portal. The Company expects to pay
the outstanding debt and begin operations by March 2011.
In April 2009 the Company began construction of its "Music on Demand" internet
portal. This interactive portal supports the Company's program in promote
music groups via contests and concerts. The program will work injunction
with the Filmhook internet portal. As of March 31, 2010 the portal has not
been completed.
In June 2009 the Company began construction on its "Blues in China" internet
portal. This interactive portal supports the Company's program to introduce
blues music throughout China via concerts, contests and blues cafes. An
Chinese promoter has been engaged to assist with this project. As of
March 31, 2010, the portal has not been completed.
Website development costs for new websites and internet portals is
capitalized and amortized over the site's useful life (i.e., 36 months).
Maintenance costs for existing websites is expensed in the period that the
cost is incurred.
NOTE 5 - PROGRAMMING RIGHTS
Eclectic expects to continue to produce its own programming. However, during
the nine-month periods ended March 31, 2010 and 2009, there were no
production costs, respectively. At March 31, 2010 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
$105,130 leaving a carry value of zero at March 31, 2010.
For the nine months ended March 31, 2010 and 2009, the Company recorded
amortization expense of $337 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 nine-month periods ended March 31, 2010 and 2009, the Company
recorded amortization expense of $69,372 and $78,612, respectively, related
to its film library.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
Lease Obligations
As of March 31, 2010, 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 remove this debt from its books
during next quarter as the statute of limitation for collection has passed
and the creditor has not sought payment.
As of March 31, 2010, 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 remove this debt from its
books during next quarter as the statute of limitation for collection has
passed and the creditor has not sought payment.
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
At March 31, 2010, the Company had a $439,000 balance of notes payable
to a third party. During the quarter ending September 30, 2009 the loan was
converted to a no interest loan with no set maturity date, and is payable
upon demand. A total of $98,659 of accrued interest was forgiven. An
additional $8,500 of interest was paid with 50,000 shares of company stock
valued at $0.17 per share.
Duing the period the Company repaid the loan balance that was outstanding
under a 10% promissory note from family members of the Company's officers
totaling $3,500 by issuing 37,576 shares of its stock. The note had no set
maturity date, and was payable upon demand. At the time of retirement the
accrued interest on the note had totaled $2,888.
Related party interest expense under these notes for the nine months ended
March 31, 2010 and 2009 was $5,587 and $16,761, respectively.
During the period the Company repaid the loan balance that was outstanding
under a $5,000 10% promissory note from a third party. The note by issuing
49,511 Shares of its stock. The note had no set maturity date and was payable
upon demand. At the time of retirement the accrued interest on the note
totaled $3,417.
At March 31, 2010, the Company had a $270,416 balance of notes payable
to a third party that bears interest at 0.5%. The note has no set maturity
date, and is payable upon demand. As of March 31, 2010, the accrued
interest on the note totaled $3,887.
During the period the Company repaid the loan balance that was outstanding
under a $30,000 loan a third party that had a 18% interest rate by issuing
525,000 shares of its stock. The principal and interest was due on
October 2, 2009. At the time of retirement the accrued interest on the note
totaled $900.
Non-related party interest expense under these notes for the nine months
ended March 31, 2010 and 2009 was $2,024 and $3,387, respectively.
NOTE 9 - STOCKHOLDERS' EQUITY
Preferred Stock
- ---------------
The Company has authorized 20,000,000 shares of preferred stock. As of
March 31, 2010, the Company has not designated any series of preferred
stock or entered into any agreements.
Common Stock
- ------------
During the nine month period ending March 31, 2010 the Company issued a
total of 212,087 shares of stock (valued at various rates per share) to
retire $24,205 of outstanding debt
During the nine month period ending March 31, 2010 the Company issued a
total of 915,913 shares of stock (valued at various rates per share) to
raise $77,830 cash.
During the nine month period ending March 31, 2010 the Company issued a
total of 425,000 shares of stock (valued at $0.17 per share) to pay $36,500
of consulting and broker services.
During the nine month period ending March 31, 2010 the Company issued a
total of 29,412 shares of stock (valued at $0.17 per share) for $5,000 of
subscription receivables.
During the nine month period ending March 31, 2010 the Company issued a
total of 60,420 shares of stock (valued at $0.20 per share) to purchase
$12,048 of product logos.
NOTE 10 - LOSS PER SHARE
Basic and diluted loss per common share is computed as follows for the nine
months ended March 31, 2010 and 2009:
Basic and diluted loss per common share is computed as follows:
For the Nine Months Ended
-------------------------------
March 31, March 31,
2010 2009
------------- -------------
Numerator for basic and diluted
loss per common share:
Net loss ($5,101,995) $ 12,644
Denominator for basic and diluted
loss per common share
Weighted average common
shares outstanding 20,587,623 13,301,116
Net loss available to common
stockholders per common share ($0.25) ($0.00)
NOTE 10 - SUBSEQUENT EVENTS
This section contains subsequent events that have been evaluated from the
March 31, 2010 balance sheet date through August 30, 2010 which is the
date that this document was available to be filed.
In March 2010 the Company created a new brand of California wines called
"Malcolm House". The products are produced by a vineyard located in the
north-central part of California. Initially, the types of wines offered
are Cabernet Sauvignon, Merlot, Pinot Noir, White Zinfandel and Chardonnay.
In April 2010 the Company entered into a marketing services agreement with
the Global Computer Services Group wherein the Company receives marketing
support in exchange for 300,000 shares of stock (valued at $0.04 per share).
In June 2010 the Company paid Infinite Media Group $25,000 for the
development of the Blues In China Logo. The Company paid the design fee
by issuing Infinite Media Group 250,000 shares of restricted OBN common
stock (valued at $0.10 per share).
In June 2010 the Kyodo subsidiary obtained United States Department of
Agriculture (USDA) certification through the Foreign Agricultural Services.
The terms authorizes Kyodo to offer buyers of agricultural products produced
in the United States payment terms of up to two years, and the USDA will
guarantee Kyodo's bank payment. As a result, Kyodo can receive that total
amount of the invoice shortly after the shipment is sent out to the buyer.
In June 2010 the Company created a new brand of Scotch whisky called
"Highland Axe Scotch Whisky". The products are distilled and bottled in
Scotland. Initially, the types of whisky being offered are a three-year
old blended whisky, a twelve year old premium blended whisky and a ten year
of single malt whisky.
In July 2010 the Company created a new brand of Irish whiskey called
"Emerald Isle Irish Whiskey". Initially, the types of whiskey being offered
are a four year old blended whiskey, a four year of single malt whiskey and
an eight year old single malt whiskey.
In July 2010 the Company formed a new subsidiary called "Kyodo UK Ltd". The
company was formed under the laws of the United Kingdom. The company was
formed to handle the operations related to the Scotch whisky and Irish
whiskey, and to take advantage of various United Kingdom programs related to
the export of products produced in the country.
In July 2010 the Company form a new subsidiary called "Satori Beverages
International Ltd". The subsidiary was formed to house all of the beverage
related trademarks and licenses, to manage and market the beverage brands
owned by OBN, and to manage and market brands owned by third party companies.
Satori Beverages International Ltd is a Nevada corporation.
In July 2010 Kyodo subsidiary was approved for two basic permits by the
Alcohol and Tobacco Trade and Tax Bureau (TTB). One permit allows Kyodo to
purchase alcoholic products in the United States as a wholesaler. The other
permit allows Kyodo to import and export alcoholic products in the United
States. The permit is ongoing, and has no expiration date.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
OPERATIONS
After years of losses, the Company reported its first profitable year with
its fiscal year ending June 30, 2008 10K. Unfortunately, market conditions
in its pork exporting operations were negatively affected by the news of
the swine flu in 2009 which was the primarily reason for a loss reported
in the fiscal year ending June 30, 2009. The company was forced to launch
a customer educational campaign and reduce it gross profit margin to under
20% during the quarter ending March 31, 2009 and June 30, 2009 in order to
spur sales. Further, the Company expensed $981,458 as soilage charges as
customer reduced orders. It took several months for customers to renew
orders after they learned that pork consumption was not the cause of the
swine flu. Currently the Company is seeking to increase its customer base
and re-establish a higher gross profit margin. Thus, management believes
that the reported loss for the fiscal year ending June 30, 2009 is not
indicative of future profitability.
During the fiscal year ending June 30, 2009, sales in the Company's
commodity export segment were strong in the first two quarters with
$6,432,560 and $5,811,803, respectively. However, with the swine flu
out break sales declined to $4,458,993 and $1,606,336 for the third and
forth quarters. Sales increased to $2,736,308 in the quarter ending
September 30, 2009, remained steady at $2,645,606 for the quarter ending
December 31, 2009 and $2,780,226 for the quarter ending March 31, 2010.
Commodity export segment sales increases are expected to be significant
in the coming quarters as the Company is expanding its product lines and
services. For example, the exporting food products will be expanded to
include beef and chicken. Further, we have acquired the rights to export
an established Japanese cosmetics line. These and other products will be
sold in Asian countries, such as China, Korea and Thailand, and in South
American Countries, such as Columbia, Brazil and Argentina. Thus, the Company
anticipates the most significant growth in its commodities export segment.
During the fiscal year ending June 30, 2009 sales in the entertainment
segment were only $437 as there was inadequate working capital to complete
projects. However, growth in this segment is also expected to be significant
during coming quarters. Several projects that were in the developmental
stages in past years will come to fruition during the upcoming fiscal year.
Among them is the Micheal Jackson impersonation China tour that is now
scheduled for the summer of 2010. Several dates are scheduled in major cities.
Another project is the "Blues in China" project where numerous Blues
artists will tour China and Japan. The tour is scheduled to begin in the
spring of 2011 and an interactive Internet portal will solicit participation
in "Blues" contests throughout China. Utimately, the project will lead to
the opening of Blues cafes in selected cities. The Company is working on
scheduling a tour for professional basketball players to play games and
conduct clinics in mid-sized cities in China during the Summer of 2011.
These projects are being developed with our Chinese promotional partner
who is sanctioned by Chinese government to stage the events under cultural
expansion and exchange programs. With adequate working capital an advertising
sales program will be implemented to suport our internet broadcasting
operations and we will add another sports channel. Further, the Company's
"Music on Demand" and "Filmhook" Internet portals will be online within the
next few months. The Company's broadband broadcasting channels and internet
portals provide very cost effective outlets for promoting any products and
services that it will offer in the future.
During the nine month period ending March 31, 2010 there were no sales
generated from the Company's "green" technology licences which were
acquired in 2008. The intelligent Traffic System license provides for
exclusive North American and nonexclusive rights elsewhere outside
China for a period of seventy years. The proprietary plastics recycling
gives exclusive North American and nonexclusive rights elsewhere outside
China for a period of seventy years. Both licenses were appraised by an
independent firm as part of the impairment analysis and were valued at
$4,640,000 and $3,793,000, respectively. The Company has developed
marketing plans for both licenses. Unfortunately, there is insufficient
working capital to implement the marketing plans. As a result no revenues
have been generated from either license and both were fully impaired
at March 31, 2010. At that time Management elected to move onto the
pink sheets while it continues its efforts to raise the necessary capital
to implement the marketing plans.
Management's goal is to increase shareholder value. The Company's efforts
are designed to fully implement its business plan of acquisition and
subsidiary development.
Going Concern
At June 30, 2009 the report of our independent registered public accounting
firm included a "going concern" statement. Several factors influenced the
their decision to include this statement as because the criteria for inclusion
of a "going concern" statement was have changed since out last annual filing.
The auditor considers factors such as the state of the economy, trends in
earnings, current profitability, aging of liabilities and aging of
receivables, whereas in the past the criteria was a measure of the Company's
ability to meet obligations and operating expenses for upcoming twelve month
period.
The Company recognizes that it must adequately address each of the above
factors to have the "going concern" statement removed. Management's plans
and progress toward achieving that end includes the following.
1) Economy. By all indications, except employment figures, the economy has
begun to improve since the balance sheet date of this report. This is
evident by increases in financial activity around the world. However, in
response to the economy the pork industry has experience an increase in
downsizing, mergers and acquisitions which have changed our client base.
As a result, pork sales recovery continues to be slow. Management has
begun to concentrate our efforts on increasing our product line. Further,
we have designed plans to increase activity in our entertainment segment
with several projects planned in China and Japan during the next fiscal
year.
2) Profitability. The Company's most recent losses are due to impairment of
its technology licenses. Unfortunately, the Company lacks sufficient
capital to implement its marketing plans related to these intellectual
properties. As a result limited marketing efforts and expenses have not
generated any revenues which negatively affects the Company's
profitability. Moreover, the lack of revenues have caused management to
record significant impairment expenses related to the technology licenses.
Management anticipates that adequate capital will be raised that will
allow the marketing plan to be fully implemented or the licenses will be
sold. In either case, the negative impact on profitability will be
eliminated.
3) Trends. The Company reported a loss in four of the last five annual
filings. The first year with positive earnings was the fiscal year ending
June 30, 2008. Management had every reason to believe that a profit
would be posted for for year ended June 30, 2009, but the swine flu
pandemic caused sales to significantly fall in the third and fourth
quarters of that year. The recovery was hampered by the global economic
crisis that began soon afterwards. Fortunately, sales have recently
stablized with a modest growth. A positive revenue growth trend has been
established during the past few quarters. Management is still mindful of
its increasing positive trend in sales and expects to see continued
positive revenue trends in future periods.
4) Aging of Liabilities. At March 31, 2010 the outstanding liabilities
totaled $3,056,460. Management retired $111,252 of liabilities during the
quarter ending September 30, 2009 by successfully negotiating agreements
to convert the debt to stock equity. A significant portion of the debt
was deferred revenue that has been recognized as revenue. A total of
$404,000 was reduced from Commissions payable as the sales broker
purchased the receivables. A total of $295,822 of accounts payable was
paid during the nine month period March 31, 2010. A total of $214,000 of
debt has been on the books past the statute of limitations for collection
and will be written off during the next fiscal year. The remaining debt
represents accrued salaries, commission payables and related party loans.
All of these parties have indicated that they will wait until the Company
is more profitable before requesting payment.
5) Aging of Receivables. At March 31, 2010 the outstanding receivables
totaled $647,173. All receivables are less than 30 days old. Thus, the
receivables aging does not impact the "going concern" issue.
In addition, to the above plans and actions that address the "going concern"
issues, Management is expanding its product line and marketing activities.
Additions to the product line include wine, scotch and additional food
products are being implemented currently.
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 nine months ended March 31, 2010 and
2009, and the related notes thereto as well as the audited financial
statements of the Company for the year ended June 30, 2009. 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 2009-10 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
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. At March 31, 2010 the
allowance for doubtful accounts was $150,000.
Intangible Assets
The Company has adopted Statement of Financial Accounting Standards
ASC 350-10, "Goodwill and Other Intangible Assets." ASC 350-10 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, ASC 350-10 expands the disclosure requirements
about goodwill and other intangible assets in the years subsequent to their
acquisition.
ASC 350-10 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 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
technology licenses that is determined to be impaired. The Company performs
impairment testing on its intangible assets at least annually. However,
because no revenue has been generated and insufficient capital to implement
related marketing plans. As a result, for the quarter ended March 31, 2010
the Company recorded $2,387,391 of impairment expense.
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 an impairment of $165,000 for the year ending June 30, 2008. The
Company wrote down the value of its technology licenses to zero, by recording
an impairment of $4,774,781 for the quarter ending March 31, 2010.
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
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. ASC 920-10, 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.
Revenue From Meat Trading Operatons
Revenue is recognized from meat trading operations after the order is
received, the customer invoice is issued and the customer receives the
product. Invoices issued prior to the customer receiving the product are
recorded as deferred revenue. Deferred revenue is then recognized as revenue
when the customer takes ownerhip of the product.
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 $8,162,384 and $16,703,704 for the
nine-month periods ended March 31, 2010 and 2009, respectively. Revenues
were generated from the Company's commodity trading subsidiary.
Expenses incurred during the nine-month period ended March 31, 2010
totaled $13,405,365 as compared to $16,912,315 for the nine-month period
ended March 31, 2009. Expenses decreased primarily due less pork purchases
as a result of swine flu scare, but expenses also included a substantial
impairment of $4,774,781 for intellectual properties. Other income for
nine-month period ended March 31, 2010 was $140,986, as compared to $221,251
for the same period in 2009. Changes in interest expense and tax expense
are insignificant. The net loss for the nine-month period ended March 31,
2010 was $5,101,995 as compared to net income of $12,644 for the nine month
period ended March 31, 2009.
Results of operations for the nine-month periods ended March 31, 2010
and 2009 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 the nine months ended March 31, 2010
Broadcasting Production Commodity Corporate Reconciling Total
Operations Operations Items
Assets $ 16,883 $194,753 $1,726,813 $ 365,041 ($150,757) $2,152,733
Liabilities (439,210) (416,448) 1,101,173) (1,247,386) 150,757 (3,056,460)
Revenues, net of
affiliate costs - - 8,161,747 637 - 8,162,384
Costs & expenses* (26,591) (22,999) (8,150,573) (5,205,202) - (13,405,365)
Other income (exp) - 23,833 42,327 74,826 - 140,986
Net income (loss) ($26,591) $ 834 $ 53,501 ($5,129,739) - (5,101,995)
As of and for the nine months ended March 31, 2009
Broadcasting Production Commodity Corporate Reconciling Total
Operations Operations Trading Items
Assets $ 51,252 $ 65,284 $5,070,282 $5,020,852 ($17,000) $10,190,770)
Liabilities (435,149) (273,914) (1,262,552) (1,079,288) 17,000 (3,033,903)
Revenues, net of
affiliate costs 237 100 16,703,356 15 - 16,703,708
Costs & expenses* (38,909) (50,997) (14,677,932) (2,144,477) - (16,912,315)
Other income (exp) - - 162,434 58,817 - 221,251
Net income (loss) ($38,672) ($50,897) $2,187,858 ($2,085,645) - 12,644
*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
nine months ended March 31, 2010 and 2009. Expenses were $26,591
for the nine months ended March 31, 2010 as compared to $38,909 for
the same period in 2009. The net loss for this segment of operations was
$26,591 for the nine months ended March 31, 2010 as compared to a
net loss of $38,672 for the same period in 2009.
Production Operations (Eclectic)
Revenues generated in this segment of operations totaled $0 for the nine
months ended March 31, 2010 as compared to $0 during the same period
in 2009. This segment incurred $22,999 of expense during the nine month
period ending March 31, 2010 as compared to $50,997 for the nine months
ending March 31, 2009. Expenses included $21,624 of accrued salaries
during the nine months ending March 31, 2010 and $46,872 during the
same period in 2009. Other income was $23,833 for the nine months ending
March 31, 2010 as compared to $0 for the same period in 2009. The net
income for this segment was $834 for the nine months ended March 31, 2010,
as compared to a loss of $59,897 for the period in 2009.
Commodity Trading Operations
Revenues generated in this segment of operations totaled $8,161,747 for
the nine months ended March 31, 2010 as compared to $16,703,356 during
the same period in 2009. This segment incurred $8,150,573 of expense during
the nine months ending March 31, 2010 as compared to $14,677,932 for
the same period in 2009. Expenses included $6,474,541 of pork product
purchases and $891,562 of shipping costs. Other income during the nine
month period ending March 31, 2010 and 2009 was $42,327 and $162,434,
respectively. The net income for this segment was $53,501 for the nine
months ended March 31, 2010, as compared to $2,187,858 for the period
in 2009.
OBN Corporate
Revenues generated from OBN corporate operations totaled $637 during the
nine months ended March 31, 2010 and $15 for the same period in 2009.
The expenses incurred by OBN corporate were $5,205,202 for the nine months
ended March 31, 2010 as compared with $2,144,477 in 2009. Expenses for the
nine month period ending March 31, 2010 included $243,747 of accrued
salary expenses and $4,774,781 of impairment expense. The other income
for this period was $74,826 as compared to $58,817 for the same period
in 2009. The net loss for OBN corporate was $5,129,739 during the period
ended March 31, 2010 as compared to a net loss of $2,085,645 for the
same period in 2009.
LIQUIDITY AND CAPITAL RESOURCES
As of March 31, 2010 the Company's current liabilities of $3,056,460
exceeded current assets of $1,714,080 by $1,342,380. Approximately 30%
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. In December 2008 a total of 5,600,000 shares valued at
$0.30 each were issued to executives as bonus compensation 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 could
address 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 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
- -----------------------------
Currently there is insufficient funds to implement the marketing plan for
the plastics recycling operations. As a result the Company has been unable
to hire the required sales staff, or account manager. The Company believed
that liquidity would not a concern because cash was not required until it
began its own plastic recycling operation that would use the exclusive
technology license. However, the Company has been unable to identify a
suitable recycling entity in the United States to acquire.
In order to generate cash, the Company sought to sell raw materials to the
Chinese facility from which the exclusive license agreement was acquired.
However, the company has not had adequate funding to purchase raw plastic
material, nor is there funds to cover the cost for shipping the materials
to the recycling facilities in China.
Thus, since acquiring the proprietary technology license in February 2008,
no revenues have been generated. As a result 100% of the technology license
value was impaired during the quarter ending March 31, 2010. Management
continues to look for the capital to implement the marketing plan.
Intelligent Traffic Systems Operations
- --------------------------------------
Currently there is insufficient funds to implement the marketing plan for
the intelligent traffic systems operations. As a result the Company has
been unable to hire the required sales staff or an account manager. The
Company has been unable to submit any bids on traffic system installation
projects at municipalities. Further, no traffic systems units have been
independently sold (i.e., without installation responsibility). Since
acquiring the proprietary technology license in February 2008, no revenues
have been generated. Moreover, without a sales staff it is unlikely that
revenue will be generated.
As a result of the lack of revenue and immediate prospects, management
recorded an impairment expense equal to 100% of the technology license value
during the quarter ending March 31, 2010. Management continues to look for
the capital to implement the marketing plan.
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 not effective. Our disclosure controls and
procedures has not allowed for timely reporting and disclosure of the
required financial information. This represents a material weakness in
the internal control over financia reporting which management is
currently addressing. However, as of March 31, 2010 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 is not 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 nine month period ended March 31, 2010 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 25, 2010 By: /s/ Roger Neal Smith
--------------------------
Roger Neal Smith
Chief Executive Officer