UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the annual period ended June 30, 2012
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from ________to _________
Commission File Number 333-108300
OBN Holdings, Inc.
(Exact name of registrant as specified in its Charter)
Nevada 81-0592921
(State of incorporation) (IRS Employer Identification No.)
8275 South Eastern Ave., Suite 200; Las Vegas, Nevada 89123
(Address of principal executive offices)
(702) 938-0467
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act Yes ( ) No ( X )
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes ( x ) No ( )
Indicate by check mark whether the registrant (1) filed all reports required
to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934
during the past 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes ( ) No ( X )
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporate by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. ( X )
Indicate by check mark whether the registrant is a large accelerated filer, a
non-accelerated filer, or a smaller reporting company, See the definition of
"large accelerated filer," "accelerated filer" and "smaller reporting company"
in Rule 12b-2 of the Exchange Act.
Large accelerated filer( ) Accelerated filer ( )
Non-accelerated filer ( ) Smaller reporting company ( X )
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes ( ) No ( X )
Aggregate market value of the voting common equity held by non-affiliates of
the Company on December 31, 2011 was approximately $520,000.
As of December 31, 2012 the Company had 22,414,862 shares of its $.001 par
value common stock issued and outstanding.
TABLE OF CONTENTS
PART I
ITEM 1. Business 1
ITEM 2. Properties 6
ITEM 3. Legal Proceedings 6
ITEM 4. Submission of Matters to a Vote of Security Holders 6
PART II
ITEM 5. Market for Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchase of Equity Securities 6
ITEM 6. Selected Financial Data 7
ITEM 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
ITEM 7A Quantitative and Qualitative Disclosures About Market Risk 13
ITEM 8. Financial Statements and Supplementary Data 13
ITEM 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure 30
ITEM 9A. Controls and Procedures 30
PART III
ITEM 10. Directors, Executive Officers, and Corporate Governance 31
ITEM 11. Executive Compensation 32
ITEM 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters 32
ITEM 13. Certain Relationships and Related Transactions, and
Director Independence 33
ITEM 14. Principal Accounting Fees and Services 34
PART IV
ITEM 15. Exhibits, Lists and Reports on Form 8-K 35
PART I
ITEM 1. Description of Business
Corporate History
-----------------
OBN Holdings, Inc. ("OBNI" or the "Company") is a holding company with
operations in several industries, including the internet broadcasting,
television/film production, plastics recycling, intelligent traffic systems
the meat commodity trading industries. 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, OBN corporate provides consulting
services to firms seeking publicly stock trading listing services 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's initial public
offering was approved by the SEC and the Company began its effort to raise
the funds necessary to implement its business plan. However, in October 2004
management decided to cancel the public offering in order to protect the
stock price from "shorting" activity by third parties that had driven the
stock price down. As a result, management never received the funds it
required to fully implement its entertainment-based business plan.
The Company continued on with modest growth without the IPO funding. In
exchange for extinguishment of debt OBN acquired the name and program library
of All Sports Television Network ("ASTN"), which began broadcast operations
as a fourth subsidiary in July 2005.
In January 2006, the Company agreed to sell 60% ownership to a Sheikh from
Saudi Arabia in exchange for the long term funding it sought. Unfortunately,
personal circumstances prevented the Sheikh from performing on the agreement.
As a result the agreement was cancelled and the funding never materialized.
Without funding, the Company was forced to suspend its broadcasting operations
and has been unable to implement its business plan.
In March 2007 the Company revised its business plan to focus on diversifying
into non-entertainment related industries, and to expand globally through
acquisition. The Company began to work with an investment banking firm that
was responsible for raising funds and identifying targets for acquisition. In
June 2007, the KSSY television station was fully impaired and ceased to be an
asset. In October 2007, the Company established OBN Holdings (HK) Ltd, a
wholly owned subsidiary based in Hong Kong to handle its China operations. In
February 2008, the Company signed an agreement to broadcast its film and
television properties over the world-wide broadband internet. Thus, internet
broadcasting replaced the U.S. television broadcasting operations. In
February 2008, the Company entered the intelligent traffic system industry by
purchasing the North American rights to proprietary technology that captures
traffic violation information on video and still media. In February 2008 the
Company entered the plastics recycling industry by purchasing the exclusive
North American rights to Chinese proprietary technology that allows
"unrecyclable plastics" to be recycled. In June 2008, the Company acquired
Kyodo USA, a trading company that sells pork to Japan from Mexico. In
October 2008, the Company established OBN Holdings Japan Co, Ltd, a wholly
owned subsidiary based in Tokyo, Japan to handle its Japan operations.
As a result the Company's success to date in implementing its acquisition and
diversification plan, the Company is currently a holding company with diverse
interests. The Company is negotiating the acquisition of companies in
several other geographical areas.
Employees
---------
As of June 2010 OBN Holdings, Inc. employs only five full-time employees.
There are two employees in the corporate offices and two employees work in
our commodity trading company, one works in the Hong Kong office and one works
in the Japan office. Once the broadband broadcasting, television/film
production, plastics recycling, intelligent traffic system, listing service
and commodity trading operations are fully staffed we expect to employ over
fifty full-time employees.
Competition
-----------
Entertainment Industry. The Company transitioned from television satellite
broadcasting to broadband internet broadcasting which is a relatively new
distribution method. The switch allows our hundreds of film titles to be
broadcast worldwide for substantially reduced cost. We no long have satellite
uplink, television station affiliate or sales personnel expenses. Programming
is available for viewing on computers or televisions. Advertising revenues
are shared on a 60/40 basis with our broadband host. Competition among
broadband channels is not significant when you consider a worldwide audience.
Viewing statistics are available for potential advertisers.
Plastics Recycling Industry. There are hundreds of companies around the world
that recycle one or more of the 50 different types of plastic. For most
recyclers the polymers must be of nearly identical composition. The methods
they use include mechanical recycling, hydrogenation, gasification and
thermal cracking. Only a few facilities have the capability to recycle mixed
types and colors. Alternative processing methods that attempt to address
plastics' "macro-molecular" structure and allow recycling of mixed plastics
include condensation polymerization, thermal de-polymerization, and heat
compression. DuPont has opened a pilot condensation polymerization plant
which was essentially the inverse of the original polymerization reaction,
but the plant was closed for economic reasons. A pilot thermal
de-polymerization plant exists in Carthage, Missouri. Heat compression plants,
where the plastics are melted and pumped through heated pipes into casting
moulds, exists in Australia and Japan. Our plastics recycling equipment uses
a proprietary process that enables it to recycle virtually any combination of
plastics and colors. It has little direct competition in China, the largest
market in the world. Plans are underway to construct a state of art facility
in China to meet increasing international demand for recycled plastics.
Intelligent Traffic System Industry. There are only a few companies worldwide
that specialize in the type of traffic intelligent systems for which the
Company has exclusive rights. The main competitors are the ISS Corporation of
the United States and Traficon Corporation of Belgium. Both of these firms
have encountered difficulties adapting their systems to China's and third
world traffic conditions, pricing structures and post sale service. There
problems were the impetus to the development our Lutong Tech's proprietary
technology. Lutong Tech Limited has product lines installed and operating
throughout China. In fact, Lutong Tech has been designated by the Chinese
government to undertake the ITS critical technology and application project
in the government's five year Social and Economic Development Plan. Moreover,
the Chinese National Video Laboratory has been in operation at Lutong
facilities since 2001. The Chinese cities of Beijing, Shanghai, Guangzhou,
Nanjing and other municipalities have installed Lutong's intelligent Traffic
Systems. The company will roll out this innovative technology to other
countries throughout North America, Asia, Africa and South America.
Commodity Trading Industry. Kyodo USA has been issued a USDA permit that is
required to transport pork through the United States for shipping to Japan.
Since September 11, 2001, obtaining permits have been more difficult. As a
result, Kyodo USA is positioned for substantial growth with limited
competition. The Company has plans to expand operations to include chicken and
other meat products. In addition, the Company has identified additional
customers in China. Further, there are plans to increase productivity and the
profit margin.
Intellectual Properties
-----------------------
Currently our entertainment group has the rights to several hundred
intellectual properties. Some programs were purchased and are wholly owned
as a part of our film library. Other programs are licensed. We typically
enter a multi-year licensing agreement with unlimited airing. In addition to
the licensed and wholly-owned programs, we have several programs in
development under the Eclectic Entertainment subsidiary. They include "Music
on Demand," "The LA Food Scene," "Adventures of Unit 28," and "The Mini-Movie
Hour." In addition, we have sports programming such as "After the Game,"
"Australian Rules Football" and "Destination Adventure." During the fiscal
year ended June 30, 2008 we have added over three hundred fifty (350)
additional titles to our film library.
The Company has acquired the exclusive North American rights to a Chinese
proprietary process for converting "unrecyclable" plastic into reusable
plastic pellets. The process requires specially engineered equipment that is
not available anywhere else in the world. The company will employ the process
in facilities in other geographical location outside the Peoples Republic of
China.
The company has acquired the exclusive North American rights to several
patents in Video Detection Technology, including auto-adapted target
characteristic extraction, video pretreatment, video coil, vehicle track
technologies and Correlative product Research and Development. These
exclusive technologies have been use to produce two intelligent traffic
system product lines whereby video and still pictures of automobiles as they
move through traffic intersections are captured and sent to government
agencies for ticket collections. Other product lines are currently in
development.
The Company developed two internet portals. The first supports our "Blues
in China" project wherein we are introducing the Blues music to China
through several venues, including concerts, contests and Blues cafes. We
are working with a Chinese promotion firm for this project. The second
internet portals support our Music on Demand" project which entails
interactive music promotions.
Marketing Strategy
------------------
OBN Holdings has multi-faceted marketing strategy based on the industries in
which it has operations. The OBN corporate office is responsible for
identifying, evaluating and negotiating the acquisition of suitable
profitable companies as wholly owned subsidiaries. The corporate marketing
strategy is to promote OBN as a business incubator following many of the
tenets of Warren Buffet's Berkshire Hathaway. The acquired businesses wish
to become part of a fully reporting publicly trading company to support their
continued growth and development. In all cases, the management of the
acquired subsidiary remains with the company and benefits from the OBN
development programs. Assets acquired are not limited to specific industries
or geographic regions.
Broadband Internet Broadcasting. OBN seeks to provide quality programming
suitable for family viewing from sources throughout the world. Our goal is
to entertain and enlighten our viewers with the sights, thoughts and visions
of independent producers worldwide. Broadcasting is the foundation on which
the business is built because it provides the Company with the distribution
outlets for its programming, and the medium to promote its products and
services. Our broadband channel guarantees that we have an outlet for our
programming. The Company will not be dependent on Nielsen ratings as a basis
for attracting advertising dollars, but by interesting and differentiated
content instead. We believe that advertisers who are continually seeking new
markets see the value in placing their advertisements with our programming.
Television/Film Production. There are literally thousands of television and
feature film production companies, all vying to have their completed projects
distributed. A few production companies are owned or aligned with the major
broadcast networks. The others are at the mercy of the relatively few
distribution outlets available. Through its sister company, Omni Broadcast
Networks, Eclectic productions are guaranteed a distribution outlet on its
sister companies' network. Alternatively, Eclectic may choose to syndicate a
program and have it aired on competing networks. Thus, the a major component
of our marketing strategy is to promote our completed productions via our
sister broadcast networks and syndicate distribution on other network when
advantageous. During 2005-06 our Four Tops Special production was
successfully syndicated to eighty million (80,000,000) households via several
networks, including ABC, CBS and PBS. We will continue to take advantage of
these established relationships. In addition, we plan to expand our
production operations by acquiring profitable production companies which will
increase our contacts in the industry. OBN's vertically integrated flat
organizational structure allows us to minimize costs and make quick decisions.
Generated revenues will cover the cost of operations, while outside funds are
raised for larger productions.
Plastics Recycling. There are two competitive advantages that our plastics
recycling operations has over other facilities: 1) low cost and 2) technology.
For the most this business is low tech, labor intensive work. Thus, the low
wage rates and large labor pool makes the Chinese workforce ideal. Many of
the industrialized countries such as the United Kingdom and Australia send
the plastics discards to China for recycling. We have plans to construct a
new facility that will double capacity and consolidate operations under one
roof. All equipment used in our recycling process is custom built in order
to protect the proprietary methods and to minimize costs. We recycle only
"non-recyclable" plastics for which there is no competition. Thus, marketing
for this technology will highlight its environmental and cost saving aspects.
Intelligent Traffic Systems. There are several competitive advantages for
our traffic systems operations. The systems are uniquely designed to
determined acceleration and deceleration through an intersection, thereby
determining whether a driver is attempting to avoid detection. Further, the
technology captures illegal turns, crossing lines detection, and a host of
other traffic violations. To our knowledge, no other system has this unique
cadre of capabilities. Further, this technology allows for revenue sharing
with municipalities. Therefore, the marketing program for this technology
includes one for direct sales (BOT) to municipalities in developing countries
and another to contractors who will install/monitor the installation under a
Build-to-operate (BOO) contract.
Commodity Trading. The competitive advantage for our meat trading operations
is the USDA permits. Our marketing strategy is to expand operation to
additional types of meats and to additional customers. Existing management
has extensive contacts throughout the industry which have not previously been
exploited. Under OBN management numerous productivity improvement methods
will be instituted so that Kyodo management can focus on implementing the
marketing plan.
ITEM 2. Description of Properties
Our office headquarters is located at 8275 South Eastern Ave., Suite 200;
Las Vegas, Nevada 89123. It is a leased executive suite space at a monthly
rate of $250. Our Los Angeles based executives now use an executive
suite located at 1100 Glendon Avenue. In addition, we have a resident agents
and executive suite offices in Hong Kong and Japan for annual fees of $3,000
each. We expect to renew all of our agreements at current market rates.
ITEM 3. Legal Proceedings
There are no legal proceedings that will impact the Company's ability to
continue operating.
ITEM 4. Submission of Matters to a Vote of Security Holders
None
PART II
ITEM 5. Market for Registrant's Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
Our common stock is currently an OTC pink sheets company and trades under
the symbol "OBNI." Our stock price, like that of holding companies, can be
highly volatile. The stock price may be affected by such factors as:
- Acquiring additional business entities
- Entering new industries
- Acquiring or development of important intellectual properties
- Announcements of distribution
- Regulatory or legal matters
- Broader industry and market trends
- Financial performance
In addition, if our revenues or earnings in any period fails to meet the
investment community's expectations, there could be an immediate adverse
impact on our stock price.
Set forth in the following table is the high and low closing prices for our
fiscal year ended June 30, 2012 for our common stock.
Quarter Ended High Low
September 30, 2011 $0.16 $0.06
December 31, 2011 0.06 0.04
March 31, 2012 0.04 0.01
June 30, 2012 0.05 0.01
As of June 30, 2012 there were approximately 200 shareholders of record of
our common stock. We have not paid any cash dividends since our inception
and do not contemplate paying dividends in the foreseeable future. It is
anticipated that earnings, if any, will be retained for the operation of our
business.
An executive compensation stock option plan was developed and approved by the
Board prior to the Company making its stock available to the public. However,
all options under the plan expired in August 26, 2005. No common shares were
issued under this option plan.
There have been no sales of unregistered securities through June 30, 2012 that
have not been previously reported.
ITEM 6. Selected Financial Data
The selected financial data contained in the chart below should be read in
conjunction with the consolidated financial statements and the notes thereto
included elsewhere in this document.
Years Ending June 30
--------------------------------------------------------------
2012 2011 2010 2009 2008
OPERATING RESULTS
Revenue 2,613,125 7,270,698 11,268,519 18,310,437 2,001,589
Gross profit (loss) 858,785 5,189,904 2,320,553 3,283,179 1,122,350
Net income (loss) 494,508 (351,772) (5,141,230) (3,367,532) 23,452
PER SHARE DATA
Wgtd Avg Common Shares 22,414,862 22,318,904 21,084,190 15,350,738 7,361,936
Loss per Common Share 0.02 (0.02) (0.24) (0.22) 0.00
TOTAL ASSETS 304,892 1,437,624 2,387,666 7,741,417 8,120,482
CAPITALIZATION & DEBT
Total Liabilities 1,420,352 2,664,521 3,227,777 3,695,933 3,112,927
Capital Lease 0 49,396 49,396 49,396 49,396
Common Stock (000) 22,415 22,415 22,194 19,931 11,357
Paid in Capital 16,833,471 16,555,613 16,544,793 16,330,449 13,945,706
Accumulated Deficit (17,936,556) (17,758,980) (17,438,626) (12,317,038) (8,949,507)
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
In an effort to increase shareholder value, management is implementing
the Company's plan to grow through a combination of horizontal integration
and geographic expansion. Management is actively seeking out and acquiring
profitable businesses. In addition, the Company is creating new products
and services, such as its internet portals and internet broadcasting.
Management views promotion and distribution as being a very important element
of the Company's business. The Company's broadband broadcasting channel and
internet portal provide very cost effective outlets for promoting any products
and services that it will offer in the future.
The Company's new horizontal integration strategy also does not mean that
management is entering into industries of which it has no knowledge. Prior
to creating OBN, the top executives were business consultants to well over
300 companies in numerous industries and countries, ranging from very small
private firms to Fortune 500 conglomerates, in the areas of operations
management, productivity improvement, accounting, marketing and finance.
The acquisition and growth strategy is well underway. In October 2007, the
Company established OBN Holdings-Hong Kong, a wholly owned subsidiary. In
January 2007 the Company began development of its Film Hook internet
broadcasting operations to be launched in November 2009. In February 2008, the
Company signed an agreement to broadcast its film and television properties
over the broadband internet. In February 2008, the Company entered the
intelligent traffic system industry by acquiring the North American exclusive
rights to proprietary technology that for capturing traffic violation
information on video and still media. In February 2008 the Company entered
the plastics recycling industry by acquiring Chinese proprietary technology
that allows "unrecyclable plastics" to be recycled. In June 2008, the
Company acquired a commodity trading company that currently sells pork to
Japan from Mexico.
Management's goal is to increase shareholder value. The Company's efforts
to fully implement its revised business plan will lead to growth and
profitability through acquisition and subsidiary development. Financial risks
will be minimized by geographical and industry diversification.
GENERAL OVERVIEW
The following discussion and analysis of our financial condition and results
of operations should be read in conjunction with the audited balance sheet,
income statement, cash flow statement and stockholder's equity statement as
of and for the year ended June 30, 2012 , and the related notes. This
discussion contains forward-looking statements based upon current
expectations that involve risks and uncertainties, such as our plans,
objectives, expectations and intentions.
The Company reports net income of $494,508 for the year ended June 30, 2012 and
a cash balance of $74 at June 30, 2012. In addition, at June 30, 2012
our accumulated deficit was reduced to $17,936,556 and the net working capital
was a negative $1,376,198.
Management's plans include obtaining additional capital through equity
financing sources. During the three month period subsequent to June 30, 2012
we did not raise any funds.
Liquidity and Capital Resources
As of June 30, 2012 the Company's current liablities of $1,420,352 exceeded
current assets of $44,154 by $1,376,198. Further, 100% of current
liabilities represent accrued payroll for executives who have opted to defer
taking salaries until additional funding is received. A portion of the
payroll shall be paid once a private stock sale is completed. At the board
of directors meeting held January 10, 2006, the outside directors approved a
resolution allowing executives who have deferred their salaries to convert
any or all amounts due that exceed $50,000. The conversion price was $1.00
per share, or market value of the common stock, whichever was greater. As a
result, $200,000 of accrued salaries was converted into 200,000 shares in
January 2006. In December 2006 another $727,369 of accrued salaries were
converted into 1,091,051 shares. In March 2007 another $125,655 of accrued
salaries were converted into 158,988 shares. In April 2007, a total of
675,000 shares valued at $1.20 each was issued to executives as special
hardship for working without salaries for the past four years. In December
2008 a total of 5,600,000 shares valued at $0.30 per share were issued as
executive bonuses. In December, executives converted $200,000 of accrued
salary into 666,667 shares valued at $0.30 per share. In May 2009, executives
converted $50,000 of accrued salary into 416,667 shares valued at $0.12 per
share.
Management's believes that the acquisition of Kyodo USA in June 2008
addresses any future liquidity issues because of its strong cash flow and
cash balances in its bank accounts. In addition, the Company continues to
raise additional capital through equity financing sources. However, no
assurance can be given that additional capital will be available when
required or upon terms acceptable to the Company.
The liquidity issues for each segment are addressed below.
Entertainment Operations
------------------------
The liquidity issues that have plagued our broadcasting operations have been
resolved by terminating our television broadcasts and satellite uplink. Thus,
the Company no longer has expenses for television affiliate stations and
satellite uplink. Instead, the Company has entered the Internet broadband
broadcasting industry by signing an agreement with an established Internet
network in February 2008. Under this agreement, the Company provides the
programming content and channel scheduling while the Internet Network covers
all related broadcasting costs, including costs for advertising sales and
technical support. The Company receives 60% of all generated revenues. As a
result our broadcast costs have been substantially reduced while our programs
now reach a worldwide market.
Liquidity for the television and film production operations remains
essentially unchanged. There are several television production projects
underway at various stages of development. These projects will be completed
with funds from OBN operations. The Company will seek project investors for
all future projects. Adopting this project funding practice will allow the
Company to realize revenues from licensing agreements, syndication agreements
and advertising without using much of its own funds. Again, the Company
anticipates investing very little of OBN funds into new television and film
projects, instead investor funds will be obtained.
Plastics Recycling Operations
-----------------------------
Liquidity is not a major concern for the plastic recycling operations that
began as a result of acquiring the proprietary technology license in
February 2008. The Company will not require cash until it begins its own
plastic recycling operation using the exclusive technology license. In order
to generate cash, the Company will sell raw materials to the Chinese facility
from which the exclusive license agreement was acquired. At the same time,
the Company is looking to acquire a plastic recycling facility in North
America. After the acquisition is completed, the Company will be able to
exploit the exclusive recycling technology license.
Intelligent Traffic Systems Operations
--------------------------------------
Liquidity is not a major concern for the intelligent traffic systems
operations that began as a result of acquiring the proprietary technology
license in February 2008. The Company plans to bid on traffic system
installation projects at municipalities throughout North American. As
contracts are awarded, the Company will engage the Chinese company that owns
the proprietary technology to supervise the installation. Little cash is
required during the bidding process. We anticipate installation of the first
system in North America within the next eighteen (18) months. In addition,
some traffic systems units will be sold without installation responsibility,
thus requiring no cash other than sales expenses.
Commodity Trading Operations
----------------------------
There is no liquidity issue related to the commodity trading operations that
were acquired in June 2008 as Kyodo USA has adequate cash flow. In fact, the
Company anticipates that some of the excess cash from these operations will
support other OBN operations via intercompany transfers.
Critical Accounting Policies
Our Consolidated Financial Statements have been prepared in accordance with
accounting principles generally accepted in the United States of America.
The preparation of these financial statements requires us to make estimates
and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. We base our estimates on historical experience and on various
other assumptions that are believed to be reasonable under the circumstances,
the results of which form the basis of making judgments about the carrying
values of assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under different
assumptions or conditions.
We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our
consolidated financial statements:
Allowance for Doubtful Accounts
We maintain an allowance for doubtful accounts for estimated losses resulting
from the inability of our customers to make required payments. The allowance
for doubtful accounts is based on specific identification of customer
accounts and our best estimate of the likelihood of potential loss, taking
into account such factors as the financial condition and payment history of
major customers. We evaluate the collectability of our receivables at least
quarterly. If the financial condition of our customers were to deteriorate,
resulting in an impairment of their ability to make payments, additional
allowances may be required. The differences could be material and could
significantly impact our operating results.
Intangible Assets
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.
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 fiscal year ending June 30, 2010. The
Company wrote down the value of istream Film Hook portal to zero, by recording
an impairment of $71,250 for the fiscal year ending June 30, 2011.
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.
4) Revenue is recognized from meat trading operations after the order is
received and the Company invoices the customer. At that time the meats
have been already purchased from our supplier and are on their way to the
customer. Similarly, revenue generated from plastic raw material sales
is recognized when the customer is invoiced.
5) Revenue generated from intelligent traffic system operations is recognized
when municipalities are invoiced.
Deferred Taxes
We record a valuation allowance to reduce the deferred tax assets to the
amount that is more likely than not to be realized. We have considered
estimated future taxable income and ongoing tax planning strategies in
assessing the amount needed for the valuation allowance. If actual results
differ favorably from those estimates used, we may be able to realize a
larger portion or all of our net deferred tax assets. Such realization could
positively impact our operating results and cash flows from operating
activities.
Results of Operations
The figures as of and for the year ended June 30, 2012 are shown in the
chart below:
Broadcasting Production Commodity Corporate Reconciling Total
Operations Operations Trading Items
Assets $ - $ 129,369 $ - $ 175,523 $ - $ 304,892
Liabilities - - - (1,420,352) - (1,420,352)
Revenues, net of
affiliate costs - - 2,567,381 45,744 - 2,613,125
Costs & expenses* 832 550 2,565,074 200,498 - 2,766,954
Other income (exp) 135,282 115,282 32,483 365,560 - 648,337
Net income (loss) $ 134,450 $ 114,450 $ 34,790 $ 210,806 $ - $ 494,508
For year ended June 30, 2011
Broadcasting Production Commodity Corporate Reconciling Total
Operations Operations Trading Items
Assets $ - $ 129,369 $1,240,770 $2,806,958 ($2,739,472) $ 1,437,624
Liabilities (430,544) (293,959) (451,500) (1,503,518) 15,000 (2,664,521)
Revenues, net of
affiliate costs - - 7,253,874 16,824 - 7,270,698
Costs & expenses* 9,789 66,264 7,299,987 349,948 - 7,725,988
Other income (exp) 10,331 129,369 99,387 (135,569) - 103,518
Net income (loss) $ 542 $ 63,105 $ 53,274 ($ 468,693) - ($ 351,772)
*Expenses include operating expenses and cost of sales.
There were $2,613,125 of revenues for the fiscal year ended June 30, 2012
as compared to revenues that totalled $7,270,698 for the 2011 fiscal year.
Expenses incurred during the year ended June 30, 2012 totaled $2,766,954
as compared to $7,725,988 for the 2011 fiscal year. The 2012 expenses
include $1,754,340 for cost of goods sold. Other income for the fiscal year
ended June 30, 2012 was $648,337 as compared to other income of $103,518 for
fiscal year ended June 30, 2011. This included a $397,743 gain on debt
settlement. Changes in interest expense and tax expense are insignificant.
The net income for the fiscal year ended June 30, 2012 was $494,508 as compared
to a net loss of $351,772 for the 2011 fiscal year.
Reconciling items consist of inter-company balances. There were no reconciling
items for revenue and expenses. Balance sheet reconciling amounts represent
the elimination of subsidiary accounts. All revenues are from customers in
the United States and Japan, and all long-lived assets are located in the
United States.
Broadcasting Operations
-----------------------
Revenues generated from this segment of operations during fiscal 2012 were
$0 compared to $0 revenues in fiscal 2011. Expenses were $832 for
the year ended June 30, 2012, as compared to $9,789 for fiscal 2011. The
2012 expenses were primarily amortization expenses. Other income for 2012
was $135,282 and $10,331 of income in 2011. Net income in 2012 for this
segment of operations was $134,450, as compared to net income totaling $542
in 2011.
TV & Film Production Operations
-------------------------------
Revenues generated from this segment of operations during 2012 was $0 as
compared to $0 for 2011. The Company incurred $550 in 2012 and $66,264
of expense during 2011. There was $115,012 of other income for 2012 and
$129,369 for 2011. The net income for 2012 was $114,462 as compared to a
net loss $63,105 in 2011.
Commodity Trading
----------------
Revenues generated from this segment of operations during fiscal 2012 were
$2,567,381 as compared to $7,253,874 revenues in fiscal 2011. Expenses
were $2,565,074 for the period ending June 30, 2012 and $7,299,987 for
the year ended June 30, 2011. Included were $1,754,340 for cost of goods
sold. Other expense for the year ending June 30, 2012 was $32,483 as
compared to $99,387 for same period ending June 30, 2011. The net income
for commodity trading operations for the year ending June 30, 2012 was
$34,790 as compared to a $53,274 income in 2011.
OBN Corporate
-------------
OBN corporate generated $45,744 in revenue during the fiscal year ended
June 30, 2012 and $16,824 revenue for the year ended June 30, 2011. The
expenses incurred by OBN corporate were $200,498 for the fiscal year ending
June 30, 2012 as compared to $349,948 for the year ended June 30, 2011.
Other iincome for 2012 was $365,560 compared to $135,569 of other expense
for 2011. The 2012 net income for the corporate office was $210,806, as
compared to a $468,693 loss for 2011.
Forward Looking Statements
Certain statements in this report are forward-looking statements within the
meaning of the federal securities laws. Although the Company believes that
the expectations reflected in its forward-looking statements are based on
reasonable assumptions, there are risks and uncertainties that may cause
actual results to differ materially from expectations.
ITEM 7A Quantitative and Qualitative Disclosures About Market Risk
Not applicable
ITEM 8. Financial Statements and Supplementary Data
Reports of Independent Registered Public Accounting Firms 13
Balance Sheet as of June 30, 2012 and 2011 13
Statements of Operations for the years ended June 30, 2012 and 2011 14
Statements of Stockholders' Deficit for the
years ended June 30, 2012 and 2011 15
Statements of Cash Flows for the years ended June 30, 2012 and 2011 16
Notes to Financial Statements 17
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
This 10K filing has not been reviewed by a registered public accounting firm,
as such it is substantially deficient and not timely filed. Management will
have this document reviewed and refiled as soon as possible.
OBN Holdings, Inc.
CONSOLIDATED BALANCE SHEETS
June 30,
2012 2011
----------- ----------
ASSETS
Current assets:
Cash and cash equivalents $ 74 $ 93,177
Accounts receivables, net of $150,000 and $0 allowance 44,080 544,522
for doubtful accounts, respectively
Inventory -- 205,681
---------- ----------
Total current assets 44,154 843,380
Fixed assets, net of accumulated depreciation of
$60,892 and $60,892, respectively -- --
Programming rights, net of accumulated amortization
of $100,192 and $100,192, respectively -- --
Film library, net of accumulated amortization of
$577,501 and $542,840, respectively -- 34,661
Other intellectual properties, net of accumulated
amortization of $122,179 and $74,415 respectively 129,369 177,133
Other tangible assets 131,369 --
Long term notes receivables -- 382,450
---------- ----------
Total assets $ 304,892 $ 1,437,624
========== ==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable -- 268,250
Commissions payable -- 240,023
Accrued payroll and related -- 663,006
Deferred revenue -- 118,049
Capital lease obligations -- 49,396
Programming rights payable -- 80,030
Notes and accrued interest payable 1,420,352 805,857
Notes and accrued interest payable to related parties -- 439,910
---------- ---------
Total current liabilities 1,420,352 2,644,521
---------- ---------
Stockholders' deficit:
Undesignated preferred stock, $0.001 par value;
20,000,000 shares authorized; no shares issued and
outstanding -- --
Common stock; $0.001 par value; 500,000,000 shares
authorized; 22,414,862 and 22,194,492 shares issued
and outstanding, respectively 22,415 22,415
Additional paid-in capital 16,833,471 16,555,613
Accumulated deficit (17,936,556)(17,758,980)
Accumulatd compreshensive income, net (34,790) (45,945)
---------- ---------
Total stockholders' deficit (1,115,460) (1,226,897)
---------- ---------
Total liabilities and stockholders' equity $ 304,892 $1,437,624
========== ==========
See accompanying notes to consolidated financial statements.
OBN Holdings, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED
JUNE 30,
------------------------------
2012 2011
------------- -------------
Revenue, net of affiliate costs $ 2,613,125 $ 7,270,698
Cost of sales 1,754,340 5,189,904
------------ ------------
Gross profit 858,785 2,080,794
Operating expenses:
General and administrative 1,007,300 2,531,390
------------ ------------
Loss from operations (148,515) (450,596)
------------ ------------
Other income (expense):
Other (expense) 32,483 103,330
Gain on debt extinguishment 778,984 188
Extra ordinary loss (163,130) --
Interest expense (5,314) (4,694)
------------ ------------
Total other income, net 643,023 98,824
------------ ------------
Loss before income taxes 494,508 (351,772)
Income taxes -- --
------------ ------------
Net income 494,508 (351,772)
============ ============
Foreign currency transaction adjustment (34,790) (45,945)
Compreshensive income, net of 0 taxes (459,718) (397,717)
Net loss available to common
stockholders per common share:
Basic and diluted net loss per
common share 0.02 (0.02)
============ ============
Basic and diluted weighted
average shares outstanding 22,414,862 22,318,904
============ ============
See accompanying notes to consolidated financial statements.
OBN HOLDINGS, INC.
Consolidated Statement of Stockholders' Deficit
For the years ended June 30, 2012 and 2011
Undesignated
Preferred Stock Common Stock Additional Total
--------------- ---------------- Paid-in Accumulated Stockholders'
Shares Amount Shares Amount Capital Deficit Deficit
------ ------ ------ ------ --------- ----------- ------------
Balance, June 30, 2010 -- -- 22,194,462 22,194 16,544,793 (17,438,626) (840,111)
------ ------ ---------- ------ ---------- ------------ -----------
Stock issued for cash -- -- 220,400 220 10,821 -- 11,042
Prior year RE adjustment -- -- -- -- -- (110) (110)
Foreign currency transaction -- -- -- -- -- 31,528 (45,945)
Net income (loss) -- -- -- -- -- (351,772) (351,772)
------ ------ ---------- ------ --------- ------------ -----------
Balance, June 30, 2011 -- -- 22,414,862 22,414 16,555,613 (17,758,980) (1,226,897)
------ ------ ---------- ------ ---------- ------------ -----------
Extra ordinary item: spin
off of subsidiaries -- -- -- -- 277,858 (626,139) (348,281)
Foreign currency transaction -- -- -- -- -- (45,945) (34,790)
Net income (loss) -- -- -- -- -- 494,508 494,508
------ ------ ---------- ------ ---------- ------------ -----------
Balance, June 30, 2012 -- -- 22,414,862 22,414 16,833,471 (17,936,556) (1,115,460)
OBN Holdings, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED
JUNE 30,
-----------------------
2012 2011
---------- ----------
Cash flows from operating activities
Net profit 494,508 (351,772)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization (48,943) 151,233
Impairment expense -- 71,250
Extra ordinary gain (loss) (163,130) --
Gain on settlement of debt (778,984) --
Changes in operating assets and liabilities:
Accounts receivable, net 500,442 313,986
Purchased inventory 205,681 253,521
Deferred revenue (118,049) (527,368)
Accounts payable and accrued expenses (810,278) (1,028,965)
----------- ------------
Net cash used in operating activities (718,753) (1,108,115)
----------- ------------
Cash flows from investing activities:
Purchase of intangible assets -- --
----------- ------------
Net cash used in investing activities -- --
----------- ------------
Cash flows from financing activit
Proceeds from notes payable, net of issuance costs -- 36,159
Proceeds from notes payable to related parties 614,495 498,949
Proceeds from stock subscriptions receivable -- --
Repayments on notes payable to related parties -- --
Proceeds from issuance of common stock -- 11,041
----------- ------------
Net cash provided by financing activities 614,495 546,149
----------- ------------
Effect of foreign currency rate changes 11,155 19,463
Net change in cash and cash equivalents (92,103) (542,503)
Cash, and cash equivalents, beginning of period 93,177 635,680
----------- ------------
Cash, and cash equivalents, end of period $ 74 93,177
=========== ============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest -- --
=========== ============
Income taxes $ -- $ --
=========== ============
Supplemental disclosure of noncash investing and
financing activities:
None
See accompanying notes to consolidated financial statements.
OBN Holdings, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2012 and 2011
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Background and Organization
Nature of Operations and Principles of Consolidation
----------------------------------------------------
OBN Holdings, Inc. ("OBNI" or the "Company") is a holding company with
operations in entertainment, pork commodity trading, plastics recycling and
intelligent traffic systems industries. Moreover, the Company is
internationally diversified with subsidiaries in China and the United States.
As a holding company its primary objective is to identify and acquire
profitable small to medium sized companies as subsidiaries, then manage the
subsidiaries growth and development.
The Company was incorporated in Nevada in 2003 as the holding company for
three wholly owned entertainment operating subsidiaries: Omni Broadcasting
Network ("OMNI"), Eclectic Entertainment ("Eclectic") and Products On Demand
Channel ("POD"). Omni was incorporated in January 2001 as a television
broadcast company. Eclectic Entertainment was incorporated July 2002 as a
motion picture and television production company. Products On Demand Channel
was incorporated in December 2002 as a broadcast television network
specializing in providing airtime to independent producers and companies
seeking to market their products on television. In August 2003, the Company
acquired the KSSY television broadcast license. In February 2004, OBN
acquired the name and program library of All Sports Television Network
("ASTN"), which began broadcast operations as a fourth subsidiary in July
2005. In January 2007 the Company began development of its Film Hook internet
broadcasting operations to be launched in June 2008. In October 2007 the OBN
Holdings Hong Kong subsidiary was incorporated. In February 2008, the Company
signed an agreement to broadcast its film and television properties over the
broadband internet. In March 2008 the Company entered the plastics recycling
industry by acquiring the exclusive North American rights to Chinese
proprietary technology that allows "unrecyclable plastics" to be recycled.
In March 2008 the Company entered the intelligent traffic systems industry by
acquiring the exclusive North American rights to Chinese patents that
captures video and still pictures of traffic violations real time. In June
2008 the Company acquired Kyodo USA, a trading company that sells pork from
Mexico to Japan. In October 2008, the Company formed OBN Holdings Japan Co.,
Ltd, a wholly owned subsidiary of OBN Holdings.
Principles of Consolidation
The consolidated financial statements include the accounts of OBN Holdings,
Inc. and its wholly owned subsidiaries. All significant inter-company
transactions and balances have been eliminated in consolidation.
Segment Information Reporting
Management measures the Company's performance in three distinct segments:
(1) Broadcasting Operations, which is measured advertising dollars attracted;
and, (2) Production Operations, which requires creative talent and has a
longer lead time to determine success; and 3) Commodity trading which is
measure by volume sold. A summary for the years ended June 30, 2012 and 2011
is presented in the table below:
The figures as of and for the year ended June 30, 2012 are shown in the chart
below:
Broadcasting Production Commodity Corporate Reconciling Total
Operations Operations Trading Items
Assets $ - $ 129,369 $ - $ 175,523 $ - $ 304,892
Liabilities - - - (1,420,352) - (1,420,352)
Revenues, net of
affiliate costs - - 2,567,381 45,744 - 2,613,125
Costs & expenses* 832 550 2,565,074 200,498 - 2,766,954
Other income (exp) 135,282 115,282 32,483 365,560 - 648,337
Net income (loss) $ 134,450 $ 114,450 $ 34,790 $ 210,806 $ - $ 494,508
For year ended June 30, 2011
Broadcasting Production Commodity Corporate Reconciling Total
Operations Operations Trading Items
Assets $ - $ 129,369 $1,240,770 $2,806,958 ($2,739,472) $ 1,437,624
Liabilities (430,544) (293,959) (451,500) (1,503,518) 15,000 (2,664,521)
Revenues, net of
affiliate costs - - 7,253,874 16,824 - 7,270,698
Costs & expenses* 9,789 66,264 7,299,987 349,948 - 7,725,988
Other income (exp) 10,331 129,369 99,387 (135,569) - 103,518
Net income (loss) $ 542 $ 63,105 $ 53,274 ($ 468,693) - ($ 351,772)
*Expenses include operating expenses and cost of sales.
Reconciling items consist of inter-company balances. Revenues are from U.S
and Japanese customers in the United States and all long-lived assets are
located in the United States.
Use of Estimates
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the reported period. Actual results could differ from
estimated amounts. The Company's significant estimates include the
realizability of long-lived assets and deferred tax assets.
Concentration of Credit Risk
The Company maintains its cash and cash equivalent accounts in financial
institutions. Accounts at these institutions are insured by the Federal
Deposit Insurance Corporation ("FDIC") up to $250,000. At June 30, 2012, the
Company had no bank account balances that was in excess of the FDIC insurance
limit. The Company performs ongoing evaluations of these institutions to
limit its concentration risk exposure.
The Company grants credit to customers within the United States of America
and does not require collateral. The Company's ability to collect receivables
is affected by economic fluctuations in the geographic areas and industries
served by the Company. Reserves for uncollectible amounts are provided based
on past experience and a specific analysis of the accounts which management
believes is sufficient. Although the Company expects to collect amounts due,
actual collections may differ from the estimated amounts.
Sales for the year ended June 30, 2012 was $2,613,125. Sales for the two
largest customers in 2012 totaled approximately 45% of revenue.
Fair Value of Financial Instruments
The carrying amounts of the Company's cash and cash equivalents, accounts
payable, accrued expenses and third-party notes payable approximate their
estimated fair values due to the short-term maturities of those financial
instruments. The estimated fair values of related-party notes payable are
not determinable as the transactions are with related parties.
Fixed Assets
Depreciation and amortization of fixed assets are provided using the
straight-line method over the following useful lives:
Furniture and fixtures 5 years
Machinery and equipment 3-5 years
Leasehold improvements Life of lease
Maintenance, repairs and minor renewals are charged directly to expense as
incurred. Additions and betterments to fixed assets are capitalized. When
assets are disposed of, the related costs and accumulated depreciation and
amortization are removed from the accounts and any resulting gain or loss
is included in operations. At June 30, 2012, the Company's fixed assets
consist primarily of computers and office editing equipment which were
fully depreciated.
Other Long-Lived Assets
The programming rights assets are discussed in Note 2. Programming rights
are recorded for the purchase of the right to air programming on the
Company's broadband internet network. An asset is recorded for the programming
rights when the license period begins. These rights are amortized to expense
over the expected useful life of the programming, as the Company has the
right to unlimited broadcasting of the programming.
The film library is discussed in Note 3. These assets are being amortized
over their estimated useful life of 10 years.
The internet media portal is discussed in Note 4. This asset is an intangible
asset with an indefinite life. It began operations in November 2009.
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 fiscal year ending June 30,
2012 a total of $293,830 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 year ended June 30, 2012
and 2011, there were no advertising costs.
Stock-Based Compensation
Through June 30, 2012, 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 fiscal year
ended June 30, 2012. 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 June 30, 2011, 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.
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
fiscal year ended June 30, 2012 and 2011.
Recent 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.
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 fiscal year
periods ended June 30, 2012 and 2011 are as follows:
Fiscal Years
Ended June 30,
---------------------
2011 2010
Net income $ 494,508 ($ 351,722)
Foreign currency cumulative translation adjustments (34,790) (45,945)
----------- ----------
Comprehensive income (loss) $ 459,718 ($ 397,717)
============ ===========
NOTE 2 - PROGRAMMING RIGHTS
Eclectic expects to continue to produce its own programming. However, during
the fiscal year end periods ended June 30, 2011 and 2010, there were no
production costs, respectively. At June 30, 2012 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 fiscal years ended June 30, 2012 and 2011, the Company recorded no
amortization expense related to its programming rights.
NOTE 3 - 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. This asset has been fully
amortized.
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. This asset has been
fully amortized.
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. This asset has been fully amortized.
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. This asset has been fully amortized.
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. This asset has been fully amortized.
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. This asset has been fully amortized.
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. This asset has been
fully amortized.
During the fiscal year end periods ended June 30, 2012 and 2011, the Company
recorded amortization expense of $34,661 and $60,161, respectively, related
to its film library.
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 debt was extinguished
and operations abandoned.
In April 2009 the Company began construction of its "Music on Demand" internet
portal. This interactive portal provides an outlet for advertising the
Company's products. As of June 30, 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 June 30,
2012, 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 - COMMITMENTS AND CONTINGENCIES
Lease Obligations
Prior to June 30, 2012, 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 debt has been fully extinguished.
Prior to June 30, 2012, 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 debt has been fully extinguished.
Litigation
The Company is not currently engaged in any litigation that will effect its
current operations.
Indemnities and Guarantees
The Company has made certain indemnities and guarantees, under which it may
be required to make payments to a guaranteed or indemnified party, in
relation to certain transactions. The Company indemnifies its directors,
officers, employees and agents to the maximum extent permitted under the laws
of the State of Nevada. In connection with a certain facility lease and a
transponder agreement, the Company has indemnified its lessor for certain
claims arising from the use of the facilities and transponder capacity. The
duration of the guarantees and indemnities varies, and in many cases is
indefinite. These guarantees and indemnities do not provide for any
limitation of the maximum potential future payments the Company could be
obligated to make. Historically, the Company has not been obligated to make
any payments for these obligations and no liabilities have been recorded for
these indemnities and guarantees in the accompanying consolidated balance
sheet.
NOTE 6 - INCOME TAXES
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 fiscal year ended
June 30, 2012:
June 30, June 30,
2012 2011
------------ -----------
Tax benefit at statutory rates (34.00%) (34.00%)
Difference resulting from:
State taxes (5.83%) (5.83%)
Changes in valuation allowance 39.83% 39.83%
============ ===========
Total 0% 0%
The valuation allowance decreased by $27,996 during the fiscal year ended
June 30, 2012. No current provision for income taxes, other than California
minimum taxes, is expected for the year ending June 30, 2012. No operating
profits are expected to be generated in California, during the year ended
June 30, 2012.
Net deferred income taxes are as follows as of the following dates:
June 30, June 30,
2012 2011
----------- -----------
Deferred tax liabilities $ -- $ --
Deferred tax assets:
Net operating losses $ 5,987,281 $ 6,055,414
Reserves and accruals -- ( 40,137)
---------- ----------
Total deferred tax assets 5,987,281 6,015,277
Less valuation allowance (5,987,281) (6,015,277)
------------- -------------
$ --- $ ---
============= =============
The Company has approximately $18,000,000 in Federal and California State net
operating loss carryforwards as of June 30, 2012, 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 June 30, 2012.
NOTE 7 - NOTES PAYABLE
At June 2011, 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. This debt has been fully extinguished.
In October 2009 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.
At June 30, 2012, the Company had a $176,041 balance of notes payable
to a ex-company executive that bears interest at 0.5%. The note has no set
maturity date, and is payable upon demand. As of June 30, 2012, the accrued
interest on the note totaled $1,744.
At June 30, 2012, the Company had a $501,432 balance of notes payable
to a ex-company executive that bears interest at 0.5%. The note has no set
maturity date, and is payable upon demand. As of June 30, 2012, the accrued
interest on the note totaled $4,965.
At June 30, 2012, the Company had a $469,632 balance of notes payable
to a ex-company executive that bears interest at 0.5%. The note has no set
maturity date, and is payable upon demand. As of June 30, 2012, the accrued
interest on the note totaled $897.
Related party interest expense under these notes for the fiscal year ended
June 30, 2012 and 2011 was $7,606 and $3,354, respectively.
In October 2009 the Company repaid the loan balance that was outstanding
under a $5,000 10% promissory note from a third party. The note was paid 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 June 30, 2012, the Company had a $273,416 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 June 30, 2012, the accrued
interest on the note totaled $6,885.
In October 2009 the Company repaid the loan balance that was outstanding under
a $30,000 loan to a third party that had a 18% interest rate by issuing 525,000
shares of its stock. At the time of retirement the accrued interest on the
note totaled $900.
Non-related party interest expense under these notes for the fiscal years
ended June 30, 2012 and 2011 was $1,333 and $1,333, respectively.
NOTE 8 - STOCKHOLDERS' EQUITY
Preferred Stock
---------------
The Company has authorized 20,000,000 shares of preferred stock. As of
June 30, 2012, the Company has not designated any series of preferred stock
or entered into any agreements.
Common Stock
------------
There were no stock transactions during the fiscal year ended June 30, 2012.
NOTE 9 - STOCK OPTIONS
In May 2003, the Company established the OBN Holdings, Inc. 2003 Stock Option
Plan (the "Plan"). The Plan provides for the granting of up to 60,000 options
to purchase the Company's common stock at prices no less than fair market
value (as determined by the Board of Directors) at the date of grant. Options
granted under the Plan will be exercisable over a period of ten years from
the date of the grant. These options will vest on a pro rata basis over the
term of the options. At the end of the term of the options or upon termination
of employment, outstanding options will be cancelled. As of June 30, 2008,
no options have been granted under the Plan.
On March 31, 2003, the Company committed to issue warrants to purchase 100,000
shares of common stock to various investors and employees. Each warrant
entitles the holder thereof to purchase one share of common stock at a price
per share of $40.00 beginning 180 days following the effectiveness of the
Company's registration statement and ending on August 25, 2006. Each
unexercised warrant is redeemable by the Company at a redemption price of
$0.01 per warrant at any time, upon 30 days written notice to holders thereof,
if (a) the Company's common stock is traded on NASDAQ or listed on an exchange
and (b) the market price (defined as the average closing bid price for
twenty (20) consecutive trading days) equals or exceed 120% of the $40.00 per
share exercise price. No expense was recorded for the issuance of these
warrants as the warrants (1) were issued to new investors in connection with
fundraising activities or (2) had no intrinsic value under APB 25 for those
warrants granted to employees (since the warrant exercise price was higher
than the estimated fair value of the common stock on the date of grant). As
of June 30, 2007 and 2008 no warrants had been exercised and there were no
warrants outstanding.
NOTE 10 - LOSS PER SHARE
Basic and diluted loss per common share is computed as follows for the fiscal
years ended June 30, 2012 and 2011:
Basic and diluted loss per common share is computed as follows:
For the Fiscal Years Ended
-------------------------------
June 30, June 30,
2012 2011
------------- -------------
Numerator for basic and diluted
loss per common share:
Net loss $ 494,508 ($ 351,772)
Denominator for basic and diluted
loss per common share
Weighted average common
shares outstanding 22,414,862 22,318,904
Net loss available to common
stockholders per common share $0.02 ($0.02)
NOTE 11 - RELATED PARTY TRANSACTIONS
See Note 7 for information related to the Company's related party notes
payable.
In March 2006, a total of $200,000 of deferred salaries was converted into
200,000 of OBN shares after the Board of Directors approved a December 2005
resolution to allow executives to convert all but $50,000 of each of their
deferred salaries into shares of OBN stock during a six month period beginning
January 1, 2006. The conversion rate was set at $1.00 per share, which was
above the closing price on the date of the resolution. The conversion period
ended June 30, 2006.
In December 2006, the Company created a Non-Qualified Deferred Compensation
Plan ("the Plan"). The accrued salaries and salary-related deductions for
Roger Smith, CEO of the Company, totaling $308,685, Larry Taylor, CFO of the
Company, totaling $402,815 and Donald Wilson, Senior Vice President of the
Company, totaling $379,553, were converted from debt into the Company's
common stock at a price of $1.50 per share, which totaled 205,790 shares;
268,543 shares; and 253,036 shares, respectively. The common stock is being
held by the Company in the Plan. Access to the shares is prohibited for a
period of not less than thirteen (13) months from the time of deferral. At
the time of participation, the participants were required to specify when the
stock would be distributed, which varies per participant. The value of the
shares on the conversion date was $0.80 per share. The resulting gain on
extinguishment of the liability of $509,158 was recorded in additional paid
in capital due to the related-party nature of the transaction.
In March 2007 accrued salaries of $58,988 were converted into 58,988 shares
of common stock at a conversion rate of $1.00 per share and $100,000 was
converted into 66,667 shares at $1.50 per share. The value of the shares on
the conversion date was $1.00 per share. The resulting gain on extinguishment
of the liability of $33,334 was recorded in additional paid in capital due
to the related-party nature of the transaction.
In April 2007, the Board of Directors approved a resolution to grant special
hardship compensation to executives for working without salaries for the past
four years. In April 2007 a total of 675,000 shares valued at $1.20 per share
were issued to three executives. The shares are being held in a deferred
compensation plan.
In December 2008 the Board authorized management to convert accrued salaries
into shares at the market rate. A total of $200,000 of accrued executive
salaries was converted into 666,667 shares of common stock at a market rate
of $0.30 per share. The shares are being held in the Company's non-qualified
deferred compensation plan
In December 2008 the Company directors purchased 16,667 of company stock
valued at $0.30 per share for a total purchase price of $5,000.
In December 2008 a total of 5,600,000 shares were issued to executives as
bonus compensation for meeting and exceeding established performance goals
during the 2007-08 fiscal year. The market price was $0.30 at the time of
authorization. Therefore, a $1,680,000 compensation expense will be recorded
for the quarter ending December 31, 2008. The shares are being held in the
deferred compensation plan.
In May 2009 a total of 416,667 shares were issued to executives as
$50,000 of accrued salaries were converted to stock at $0.12 per share. The
market price was $0.10 at the time of conversion. The shares are being
held in the deferred compensation plan.
NOTE 12 - SUBSEQUENT EVENTS
In October 2011 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 December 2011, the OBN Holdings Board of Directors passed a resolution to
spin off Satori Beverages International, Kyodo USA and Kyodo UK from the
Company, along with assets directly related to the aforementioned entities.
Satori Beverages will be the parent company and Kyodo USA and Kyodo UK will be
wholly owned subsidiaries. All holders of record of February 15, 2012 will
receive one share of Satori Beverages common stock for each share of OBN
Holdings stock owned.
In February 2012, Satori Beverages International, Kyodo USA and Kyodo UK
spun off from OBN Holdings. All of the shareholders of record on February 15,
2012 received one share of Satori Beverages common stock for each share of
OBN Holdings stock owned.
In February 2013, OBN Holdings filed a Form 15 with the Securities and
Exchange Commision to suspend reporting requirements.
In February 2013, Barry Allen retired from the OBN Holdings board of
directors.
ITEM 9. Changes and Disagreements with Accountants on Accounting and Financial
Disclosure
None.
ITEM 9A. Disclosure Controls and Procedures
An evaluation of the effectiveness of the design and operation of our
disclosure controls and procedures (as define in Rule 131-15(e) and 15d-15(c)
under the Securities Exchange Act of 1934 is routinely conducted.
(a) Evaluation of Disclosure Controls and Procedures. The Company carried
out an evaluation under the supervision and with the participation of
the Company's management, including the Chief Executive Officer ("CEO")
and Chief Financial Officer ("CFO") of the effectiveness of the Company's
disclosure controls and procedures. Based upon that evaluation, the CEO
and CFO concluded that the design and operations of these disclosure
controls and procedures were effective. Our disclosure controls and
procedures were effective in timely alerting them to the material
information relating to the Company's (or the Company's consolidated
subsidiaries) required to be included in the Company's periodic filing
with the SEC, subject to the various limitations on the effectiveness set
forth below. Information relating to the Company, required to be disclosed
in SEC reports is recorded, processed, summarized and reported within the
time periods specified in SEC rules and forms, and is accumulated and
communicated to the Company's management, including our CEO and CFO, as
appropriated to allow timely decisions regarding required disclosure.
(b) Changes in Internal Control over Financial Reporting. There has been no
change in the Company's internal control over financial reporting that
occurred during the year ended June 30, 2012 that has materially affected,
or is reasonably likely to materially affect, the Company's internal
control over financial reporting.
Limitations on the Effectiveness of Internal Controls
The Company's management, including the CEO and CFO, does not expect that
our disclosure controls and procedures or our internal controls over financial
reporting will necessarily prevent all fraud and material error. An internal
control system, no mater how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system
are met. Further, the design of the control system must reflect the fact that
there are resource constraints and the benefits of controls must be considered
relative to their costs. Because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within the Company have been
detected. These inherent limitations include the realities that judgments in
decision-making can be faulty and that breakdowns can occur because of simple
effort or mistake. Additionally, controls can be circumvented by the
individual acts of some persons, by collusion of two or more people, or by
management override of the internal control. The design of any system of
controls also is based in part upon certain assumptions about the likelihood
of future events and there can be no assurance that any design will succeed
in achieving its stated goals under all potential future conditions. Over
time, control may become inadequate because of changes in conditions, and/or
the degree of compliance with the policies or procedures may deteriorate.
PART III
ITEM 10. Directors, Executive Officers, Promoters and Control Persons,
Compliance with Section 16(A) of the Exchange Act
The following table sets forth the name and age of each director, the year
he (she) was first elected a director and his (her) position(s) with OBN
Holdings, Inc.
Name Age Year Elected Position
----------------- --- ------------ --------------------
Roger Neal Smith 60 2001 CEO & Board Chairman
Larry Taylor, Ph.D. 60 2002 Director
Barry Allen 72 2003 Director
Roger Neal Smith. Mr. Smith has served as our President and CEO since
inception and has been responsible for creating and managing all of the
operations of OBN and its subsidiaries. From 1996 through 2000 Mr. Smith
served as a financial consultant for Salomon Smith Barney and was responsible
for managing the investments of his clients, which included individuals and
businesses throughout the world.
Larry Taylor, PhD. Dr. Taylor was our CFO from April 2003 to June 2010. He
was responsible for accounting, tax preparation and planning. From 1989 until
joining us, Dr. Taylor was the owner of The Creighton Group where he was
responsible for all management activities, including accounting, tax
preparation and planning. Dr. Taylor previously served as a Senior Manager
in the consulting practice with Ernst and Young (during his tenure, he was
with Arthur Young), and with Deloitte and Touche.
Barry Allen. Mr. Allen began serving on the Company's board of directors since
August 2003. Since 1998 he has operated International FieldWorks, Inc., a
management consulting firm, and holds the title of CEO. Additionally, since
2000, Mr. Allen has served as Vice President of RxDispense, Inc. His
responsibilities include business development, advisory committee development,
partnership development and development of professional service providers.
Board of Directors Meetings and Committees
During the fiscal year ended June 30, 2012, there was one meeting of the
board of directors where numerous actions were taken with the unanimous
written consent of the directors. The board of directors established its
compensation and audit committees, but has yet to establish a governance
committee.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires
our officers and directors and those persons who beneficially own more than
10% of our outstanding shares of common stock to file reports of securities
ownership and changes in such ownership with the Securities and Exchange
Commission. Officers, directors and greater than 10% beneficial owners are
also required by rules promulgated by the SEC to furnish us with copies of
all Section 16(a) forms they file.
Based solely upon a review of the copies of such forms furnished to us, we
believe that during the year ended June 30, 2012 all of our officers,
directors and greater than 10% beneficial owners complied within the
applicable Section 16(a) filing requirements.
Code of Ethics for Financial Professionals
The Company has adopted a Code of Ethics for Financial Professionals. The
Code of Ethics has been posted and may be viewed on our website at:
http://www.obnholdings.com
ITEM 11. Executive Compensation
Deferred Compensation to Executive Officers.
In April 2007, the Board of Directors approved a resolution that granted
executives 675,000 shares for "hardship compensation" because the executives
had been working without paid salaries for past four years. The market price
of the shares was $1.20 at the time of issuance. The shares were placed in
the Company's Non-Qualified Deferred Compensation Plan. The shares will be
available to the executives after May 2011.
In December 2008 a total of 5,600,000 shares were issued to executives as
bonus compensation for meeting and exceeding established performance goals
during the 2007-08 fiscal year. The market price was $0.30 at the time of
authorization. Therefore, a $1,680,000 compensation expense was recorded
FYE 2009 for the quarter ending December 31, 2008. The shares were being
held in the deferred compensation plan.
Cash Compensation of Executive Officers. The following table sets forth the
total compensation earned by the Chief Executive Officer and all other
executive officers that earned in excess of $100,000 per annum during any of
our last three fiscal years. A portion of salaries to executives have been
converted to stock which are being held in the Company's deferred compensation
plan; the remainder of the salaries continues to accrue. Accrued salaries will
be paid as monies become available.
Annual Compensation Long-Term
Compensation
Other Common Shares
Name and 6/30 Awards Underlying All Other
Position Year Compensation Warrants Compensation
End *Salary($) Bonus($) ($) Granted(#) ($)
Roger Smith 2012 $150,000 -0- -0- -0- -0-
President 2011 $150,000 -0- -0- -0- -0-
and CEO 2010 $150,000 -0- -0- -0- -0-
Larry Taylor 2010 $150,000 -0- -0- -0- -0-
CFO
* All salaries are being accrued. No salaries have been paid to Larry Taylor
Roger Smith receives a small portion of his salary.
No options or warrants were exercised or granted in fiscal 2012.
Aggregated Warrant/SAR Exercises and Fiscal Year-End Warrant/SAR Value Table
All warrants/SAR expired in August 2006. There are no warrants/SAR pending at
this time.
Director Compensation
Board members that have not been compensated.
..
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information regarding beneficial ownership of
our common stock at June 30, 2011 by (i) those shareholders known to be the
beneficial owners of more than five percent of the voting power of our
outstanding capital stock, (ii) each director, and (iii) all executive
officers and directors as a group:
Number of
Name and Address of Shares
Beneficial Owner (1) Owned Percent Notes
--------------------- ------------ --------- -------
Roger N. Smith (Director and Officer) 4,213,067 18.98%
Larry Taylor (Director) 3,078,125 13.87%
Jia Lao 2,250,000 10.14%
Qualico Capital LLP 1,616,277 7.28% (2)
Qing Wu 1,300,000 5.86%
Takeo Suzuki (Executive) 810,500 3.65%
Barry Allen (Director) 5,000 *
All Directors and Officers
as a Group (4 Persons) 8,106,692 36.16%
_____________
* Less than 1%
(1) Unless otherwise indicated, the address of the beneficial owner is c/o
OBN Holdings, Inc., 8275 South Eastern Avenue, Suite 200, Las Vegas,
Nevada 89123.
(2) Shares paid to Canadian investment banking firm for assistance with
implementation of the Company's acquisition strategy.
ITEM 13. Certain Relationships and Related Transactions, and Director
Independence
Prior to June 30, 2012, the Company had $439,910 in loans from related
parties under 5% promissory notes, of which $0 was advanced to the Company
during either years. The principal and interest is due and payable on demand.
As of June 30, 2011 and 2010, the accrued interest on these notes was zero
as the interest prior and future interest had been forgiven. The entire
debt was extinguished on June 30, 2012.
In October 2009 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.
The Company had short-term loans with its executives for a total of $500
and $19,598 at June 30, 2010 and 2009, respectively. The loans have no
interest rate and is payable upon demand. As of June 30, 2010 any outstanding
loan balances were paid.
Related party interest expense under these notes for the year ended June 30,
2012 and 2011 was $0 and $0, respectively.
In December 2005 the Board of Directors approved a resolution to allow
executives to convert all but $50,000 of each of their deferred salaries into
shares of OBN stock during a six month period beginning January 1, 2006. The
conversion rate was set at $10.00 per share, which was above the closing price
on the date of the resolution. The conversion period ended June 30, 2006. In
March, 2006 a total of $200,000 of deferred salaries was converted into
20,000 of OBN shares.
In December 2006, accrued salaries and salary-related deductions for Roger
Smith, CEO of the Company, totaling $308,685, Larry Taylor, CFO of the
Company, totaling $402,815 and Donald Wilson, Senior Vice President of the
Company, totaling $379,553, were converted from debt into the Company's
common stock at a price of $1.50 per share, which totaled 205,790 shares;
268,543 shares; and 253,036 shares, respectively. The value of the shares on
the conversion date was $0.80 per share. The resulting gain on extinguishment
of the liability of $509,158 was recorded in additional paid in capital due
to the related-party nature of the transaction.
In March 2007 accrued salaries of $58,988 were converted into 58,988 shares of
common stock at a conversion rate of $1.00 per share and $100,000 was
converted into 66,667 shares at $1.50 per share. The value of the shares on
the conversion date was $1.00 per share. The resulting gain on extinguishment
of the liability of $33,334 was recorded in additional paid in capital due to
the related-party nature of the transaction.
In April 2007, the Board of Directors approved a resolution to grant special
hardship compensation to executives for working without salaries for the past
four years. In April 2007 a total of 675,000 shares valued at $1.20 per share
were issued to three executives. The shares are being held in the Company's
Non-Qualified Deferred Compensation Plan.
In December 2008 the Company directors purchased 16,667 of company stock
valued at $0.30 per share for a total purchase price of $5,000.
In December 2008 Company executives converted $200,000 of accrued salary into
666,667 shares of OBNI shares at the $0.30 per share market rate. The shares
are being held in the Company's deferred compensation plan.
In December 2008 a total of 5,600,000 shares were issued to executives as
bonus compensation for meeting and exceeding established performance goals
during the 2007-08 fiscal year. The market price was $0.30 at the time of
authorization. Therefore, a $1,680,000 compensation expense was recorded
in the quarter ending December 31, 2008. The shares are being held in the
Company's deferred compensation plan.
ITEM 14. Principal Accountant Fees and Services
Tarvaran & Askelson Company, LLP was selected as independent registered
public accounting firm to audit our financial statements for the year ended
June 30, 2008. The firm did not audit our financial statements for the fiscal
years ended June 30, 2012 and 2011 at the request of Management.
Audit and Non-Audit Fees
Aggregate fees for professional services rendered to the Company by Tarvaran &
Askelson Company, LLC for the year ending June 30, 2012 and 2011 were as
follows:
Services Provided 2012 2011
Audit Fees $ - $ -
Audit Related Fees $ - $ -
Tax Fees $ - $ -
All Other Fees $ - $ -
Total $ - $ -
Audit Fees. The aggregate fees billed for the years ended June 30, 2012 and
2011 were for the audits of our financial statements and reviews of our
interim financial statements included in our annual and quarterly reports.
Audit Related Fees. There were no fees billed for the years ended June 30,
2012 and 2011 for the audit or review of our financial statements that are
not reported under Audit Fees.
Tax Fees. There were no fees billed for the years ended June 30, 2012 and
2011 for professional services related to tax compliance, tax advice and tax
planning.
PART IV
ITEM 15 Exhibits, Financial Statement Schedules
None
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
OBN HOLDINGS, INC
(Registrant)
Date: February 12, 2013 /s/ ROGER Neal SMITH
-----------------------
Roger Neal Smith
Chief Executive Officer