UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended December 31, 2001
[ ] Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act
of 1934
For the transition period from to
Commission File Number: 0-28535
CUSTOM BRANDED NETWORKS, INC.
-----------------------------
(Exact name of Small Business Issuer as specified in its charter)
Nevada 91-1975651
- ------ ----------
(State or other jurisdiction of (IRS Employer
incorporation ) Identification No.)
535 Chesterfield Circle
San Marcos, CA 920069 89102
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(Address of principal executive (Zip Code)
offices
Issuer's telephone number, including area code (760) 471-7575
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N/A: Unchanged since last report
--------------------------------
(Former name, former address and former fiscal year, if
changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the issuer was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days [X] Yes [ ] No
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 33,872,532 shares of Common Stock
as of December, 2001.
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The accompanying un-audited financial statements have been prepared in
accordance with the instructions to Form 10-QSB and, therefore, do not include
all information and footnotes necessary for a complete presentation of financial
position, results of operations, cash flows, and stockholders' deficit in
conformity with generally accepted accounting principles. In the opinion of
management, all adjustments considered necessary for a fair presentation of the
results of operations and financial position have been included and all such
adjustments are of a normal recurring nature. Operating results for the six
months ended December 31, 2001 are not necessarily indicative of the results
that can be expected for the year ending June 30, 2002.
2
CUSTOM BRANDED NETWORKS, INC.
(A Development Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001
(Unaudited)
(Stated in U.S. Dollars)
3
CUSTOM BRANDED NETWORKS, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
(Unaudited)
(Stated in U.S. Dollars)
- --------------------------------------------------------------------------------------
DECEMBER 31 JUNE 30
2001 2001
- --------------------------------------------------------------------------------------
ASSETS
Current
Cash $ 622 $ 6,230
Prepaid expenses and advances 34,342 28,384
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34,964 34,614
Loan Receivable From Shareholder 37,000 25,000
Capital Assets, net 2,113 2,414
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$ 74,077 $ 62,028
=========== ==========
LIABILITIES
Current
Accounts payable and accrued liabilities $ 309,988 $ 160,188
Convertible Note Payable 789,713 734,713
----------- ----------
1,099,701 894,901
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STOCKHOLDERS' DEFICIENCY
Share Capital
Authorized:
50,000,000 common shares with a par value of $0.001
per share at December 31, 2001
Issued and outstanding:
33,872,532 common shares at December 31, 2001
and at June 30, 2001 15,231 15,231
Additional paid-in capital 35,044 35,044
Deficit Accumulated During The Development Stage (1,075,899) (883,148)
----------- ----------
(1,025,624) (832,873)
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$ 74,077 $ 62,028
4
CUSTOM BRANDED NETWORKS, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF OPERATIONS AND DEFICIT
(Unaudited)
(Stated in U.S. Dollars)
- --------------------------------------------------------------------------------------------------------
INCEPTION
JUNE 18
THREE MONTHS ENDED SIX MONTHS ENDED 1999 TO
DECEMBER 31 DECEMBER 31 DECEMBER 31
2001 2000 2001 2000 2001
- --------------------------------------------------------------------------------------------------------
Revenue $ 2,170 $ - $ 3,714 $ - $ 177,241
Operating Expenses (31,868) (212,727) (196,731) (417,417) (1,247,616)
-------------------------------------------------------------------
Loss From Operations (29,698) (212,727) (193,017) (417,417) (1,070,375)
Other Income - 29 266 29 6,921
Write Down Of Capital Assets - - - - (12,445)
-------------------------------------------------------------------
Net Loss For The Period (29,698) (212,698) (192,751) (417,388) $ (1,075,899)
=============
Accumulated Deficit,
Beginning Of Period (1,046,201) (364,599) (883,148) (159,909)
-----------------------------------------------------
Accumulated Deficit, End Of Period $(1,075,899) $ (577,297) $(1,075,899) $ (577,297)
=====================================================
Loss Per Share $ (0.01) $ (0.01) $ (0.01) $ (0.01)
=====================================================
Weighted Average Number
Of Shares Outstanding 33,872,532 15,463,008 33,622,532 15,463,008
=====================================================
5
CUSTOM BRANDED NETWORKS, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(Stated in U.S. Dollars)
- ----------------------------------------------------------------------------------------------------------
INCEPTION
JUNE 28
THREE MONTHS ENDED SIX MONTHS ENDED 1999 TO
DECEMBER 31 DECEMBER 31 DECEMBER 31
2001 2000 2001 2000 2001
- -----------------------------------------------------------------------------------------------------------
Cash Flows From Operating Activities
Loss for the period $ (29,698) $ (212,698) $ (192,751) $ (417,388) $(1,075,899)
Adjustments To Reconcile Loss To Net
Cash Used By Operating Activities
Amortization 151 150 301 300 904
Write down of capital assets - - - - 12,445
Change in prepaid expenses and advances (5,000) (27,629) (5,958) (31,129) (33,546)
Change in accounts payable and accrued
liabilities 355 (4,354) 149,800 (10,776) 309,988
Change in deferred revenue - - - 71,888 -
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(34,192) (244,531) (48,608) (387,105) (786,108)
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Cash Flows From Investing Activity
Purchase of capital assets - - - (1,808) (1,808)
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Cash Flows From Financing Activities
Proceeds from loan payable to
shareholder - - - - 16,097
Loan receivable from shareholder (12,000) - (12,000) - (37,000)
Issue of common shares - - - - 18,950
Convertible note payable 45,000 215,000 55,000 425,000 789,713
Cash acquired on acquisition of
subsidiary - - - - 778
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33,000 215,000 43,000 425,000 788,538
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(Decrease) Increase In Cash (1,192) (29,531) (5,608) 36,087 622
Cash, Beginning Of Period 1,814 67,108 6,230 1,490 -
-------------------------------------------------------------
Cash, End Of Period $ 622 $ 37,577 $ 622 $ 37,577 $ 622
=============================================================
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING AND INVESTING ACTIVITIES:
During the period ended June 30, 2001, a loan payable to a shareholder in the
amount of $16,097 was reclassified as a contribution to capital in connection
with the Company's repurchase of common stock in preparation for the reverse
take-over transaction.
Effective February 2, 2001, the Company acquired 100% of the issued and
outstanding shares of Custom Branded Networks, Inc. by allotting 25,000,000
common shares at the fair value of $15,228 (Note 2(iii)).
6
CUSTOM BRANDED NETWORKS, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' DEFICIENCY
DECEMBER 31, 2001
(Unaudited)
(Stated in U.S. Dollars)
Deficit
Accumulated
Additional During The
Common Stock Paid-In Development
------------------
Shares Amount Capital Stage Total
-------------------------------------------------------------
Issuance of shares to founders 3,465 $ 3 $ 18,947 $ - $ 18,950
Net loss for the period - - - (159,909) (159,909)
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Balance, June 30, 2000 3,465 3 18,947 (159,909) (140,959)
Repurchase of common stock by
consideration of forgiveness
of loan payable to shareholder (1,445) - 16,097 - 16,097
-------------------------------------------------------------
2,020 3 35,044 (159,909) (124,862)
Adjustment to number of shares
issued and outstanding as a
result of the reverse take-over
transaction
Custom Branded Networks, Inc. (2,020) - - - -
Aquistar Ventures (USA) Inc. 15,463,008 - - - -
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15,463,008 3 35,044 (159,909) (124,862)
Shares allotted in connection with
the acquisition of Custom
Branded Networks, Inc. 25,000,000 15,228 - - 15,228
Less: Allotted and not yet issued (8,090,476) - - - -
Net loss for the year - - - (723,239) (723,239)
-------------------------------------------------------------
Balance, June 30, 2001 32,372,532 15,231 35,044 (883,148) (832,873)
Additional shares issued in
connection with the acquisition
of Custom Branded Networks, I 1,500,000 - - - -
Net loss for the period - - - (192,751) (192,751)
-------------------------------------------------------------
Balance, December 31, 2001 33,872,532 $ 15,231 $ 35,044 $(1,075,899) $(1,025,624)
=============================================================
7
CUSTOM BRANDED NETWORKS, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001
(Unaudited)
(Stated in U.S. Dollars)
1. BASIS OF PRESENTATION
The unaudited consolidated financial statements as of December 31, 2001 included
herein have been prepared without audit pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with United States generally accepted accounting principles have been condensed
or omitted pursuant to such rules and regulations. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. It is suggested that
these consolidated financial statements be read in conjunction with the June 30,
2001 audited consolidated financial statements and notes thereto.
2. NATURE OF OPERATIONS
Custom Branded Networks, Inc. (the "Company") engages in the business of
providing turnkey private label internet services to organizations throughout
the domestic United States and Canada. The Company plans to provide wholesale
internet access service acting as the internet service provider ("ISP") through
its relationships with other ISPs who will provide the service for the Company
and perform the billing services directly to the customer. Currently, the
Company has one ISP relationship in place for dial-up modem service. The
Company also provides the customer set-up, and the branded compact disc with the
customer's unique content and packaging. The Company is considered a
development stage company in accordance with Statement of Financial Accounting
Standards No. 7. The Company has not commenced planned principal operations.
i) Going Concern
The Company has not generated any operating revenue and it has used cash in its
operations since its inception, thereby generating operating losses. Such
losses are due primarily to the Company's efforts to develop and promote its
products and services, which efforts include internal staffing, travel and other
promotional expenses. The Company has signed up certain customers but
deployment on the ISP's network has not occurred. Management expects deployment
to occur in the near future. The Company plans to continue to focus on
deployment and acquiring customers, which will require additional expenditures
for operating costs. There can be no assurance that the Company will be able to
successfully deploy customers, be successful in raising sufficient funds for its
operations, or achieve or sustain profitability or positive cash flows from its
operations. The Company's ability to continue as a going concern is dependent
on its ability to raise additional amounts of capital.
8
CUSTOM BRANDED NETWORKS, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001
(Unaudited)
(Stated in U.S. Dollars)
2. NATURE OF OPERATIONS (Continued)
ii) Acquisition of Custom Branded Networks, Inc. and Name Change
On February 2, 2001, the shareholders of the Company, formerly known as Aquistar
Ventures (USA) Inc. ("Aquistar"), a Nevada corporation, approved an agreement
and plan of reorganization (the "reorganization") involving the acquisition of
Custom Branded Networks, Inc. ("Custom Branded"), a Delaware corporation, and
the change of the name Aquistar to Custom Branded.
As a consequence of the implementation of the reorganization, the following
occurred:
a) The Company acquired all the shares of Custom Branded in exchange for the
allotment of 25,000,000 shares of the Company to the former shareholders of
Custom Branded.
b) The Company changed its name from Aquistar to Custom Branded Networks,
Inc.
As a result of the reorganization, the former shareholders of Custom Branded
hold 61.8% of the outstanding common shares of the Company.
iii) Reverse Take-Over
Effective February 2, 2001, Aquistar Ventures (USA) Inc. ("Aquistar") acquired
100% of the issued and outstanding shares of Custom Branded Networks, Inc.
("Custom Branded") by allotting 25,000,000 common shares. Since the transaction
resulted in the former shareholders of Custom Branded owning the majority of the
issued shares of Aquistar, the transaction, which is referred to as a "reverse
take-over", has been treated for accounting purposes as an acquisition by Custom
Branded of the net assets and liabilities of Aquistar. Under this purchase
method of accounting, the results of operations of Aquistar are included in
these financial statements from February 2, 2001.
Control of the net assets of Aquistar was acquired for the total consideration
of $15,228 representing the fair value of the assets of Aquistar. Custom
Branded is deemed to be the purchaser for accounting purposes. Accordingly, its
net assets are included in the balance sheet at their previously recorded
values.
9
CUSTOM BRANDED NETWORKS, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001
(Unaudited)
(Stated in U.S. Dollars)
3. SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements of the Company have been prepared in
accordance with generally accepted accounting principles in the United States.
Because a precise determination of many assets and liabilities is dependent upon
future events, the preparation of financial statements for a period necessarily
involves the use of estimates which have been made using careful judgement.
The financial statements have, in management's opinion, been properly prepared
within reasonable limits of materiality and within the framework of the
significant accounting policies summarized below:
a) Consolidation
These financial statements include the accounts of the Company and its
wholly-owned subsidiary, Custom Branded Networks, Inc. (a Nevada corporation).
b) Capital Assets
Capital assets are recorded at cost and are amortized at the following rates:
Office equipment - 20% declining balance basis
Computer equipment - 3 years straight line basis
c) Income Taxes
The Company has adopted Statement of Financial Accounting Standards No. 109 -
"Accounting for Income Taxes" (SFAS 109). This standard requires the use of an
asset and liability approach for financial accounting and reporting on income
taxes. If it is more likely than not that some portion of all of a deferred tax
asset will not be realized, a valuation allowance is recognized.
10
CUSTOM BRANDED NETWORKS, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001
(Unaudited)
(Stated in U.S. Dollars)
3. SIGNIFICANT ACCOUNTING POLICIES (Continued)
d) Revenue Recognition
Revenues will consist of recurring monthly fees from internet access and from
set-up fees. Subscriber contract terms vary by customer, although, the monthly
internet access fees are generally paid by the subscriber at the beginning of
the month. Subscribers canceling service are not entitled to receive funds of
the monthly access fee per the service contract, unless it is prepaid for future
periods. Revenues for monthly internet access fees are earned and recognized
when received for the current month. Internet access fees prepaid for future
months are deferred until the beginning of the service month. Revenues for
set-up fees are recognized once the customer is deployed and internet access
service is active. Customers are entitled to refunds of set-up fees if
deployment does not occur.
e) Financial Instruments
The Company's financial instruments consist of cash, accounts receivable,
prepaid expenses and accounts payable.
Unless otherwise noted, it is management's opinion that this Company is not
exposed to significant interest or credit risks arising from these financial
instruments. The fair value of these financial instruments approximate their
carrying values, unless otherwise noted.
f) Loss Per Share
Loss per share is calculated using the weighted average number of common shares
outstanding during the period.
All references to loss per share, weighted average number of shares outstanding,
and common shares issued and outstanding have been restated to reflect the
impact of the reverse take-over.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Custom Branded Networks, Inc. (the "Company"), provides turnkey private label
Internet solutions to businesses and private organizations that desire to
affiliate with a customer base via the Internet. The company anticipates that,
in order to achieve its business plan over the next 12 months, the Company must
raise additional capital through either the private placement or public
registration for sale of its securities. In addition, the company intends to
acquire one or more private companies whose earnings will support the capital
needs of the company on a consolidated basis. Although we are pursuing these
avenues, it cannot be guaranteed that satisfactory arrangements can be reached.
In the event that the Company is unable to raise capital as discussed above, the
Company will have sufficient capital to meet its plan of operations for only the
next 30 days. The Company expects to incur additional research and development
costs over the next twelve months. However, such expenditures are dependent
upon the Company's ability to raise capital to support such operations.
The Company has signed up certain customers but deployment on the ISP's network
has not occurred. Management expects deployment to occur in the second quarter
of 2002. At such time, the Company will begin to generate revenue from regular
business operations.
At December 31, 2001, the Company had cash of $622. It is necessary for the
Company to raise capital in the immediate future or we will experience adverse
results. We intend to raise financing through additional equity financing until
such time as cash flows are generated from operations sufficient to support us.
We are currently pursuing financing from various potential investors. Due to
cash constraints, the Company has been limited in its ability to make progress
towards achievement of its business plan. The Company intends to raise
$1,500,000 in investment capital within the next 12 months. This capital will
sustain the operations of the Company for approximately 24 months. During the
same period of time, we expect to generate revenue from business operations. It
is impossible to predict at the present time how fast revenues will be generated
or how soon they might become significant when compared to the operational
expenses of the Company.
Operational expenses are incurred primarily due to the Company's efforts to
develop and to promote its products and services, which efforts include internal
staffing, travel and other promotional expenses. John Platt, the only executive
officer of the Company, earns a salary of $10,000 per month. However, since
March, 2001, Mr. Platt has been paid no salary and such amounts have been
accrued as current liabilities on the books of the Company.
Forward Looking Statements
The information contained in this section and elsewhere may at times represent
management's best estimates of the Company's future financial and technological
performance, based upon assumptions believed to be reasonable. Management makes
no representation or warranty, however, as to the accuracy or completeness of
any of these assumptions, and nothing contained in this document should be
relied upon as a promise or representation as to any future performance or
events. The Company's ability to accomplish these objectives, and whether or
not it will be financially successful is dependent upon numerous factors, each
of which could have a material effect on the results obtained. Some of these
factors are within the discretion and control of management and others are
beyond management's control. Management considers the assumptions
12
and hypothesis used in preparing any forward looking assessments of
profitability contained in this document to be reasonable; however, we cannot
assure investors that any projections or assessments contained in this document,
or otherwise made by management, will be realized or achieved at any level.
13
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULT UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
None
(b) Reports on Form 8-K
None
14
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Custom Branded Networks, Inc.
DATED: February 18, 2002 By: /s/ John Platt
------------------------------------
John Platt, President, CEO,
Principal Financial Officer and
Director
15