1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 2003
---------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to ____________
Commission File No. 0-28535
-------
CUSTOM BRANDED NETWORKS, INC.
-----------------------------
(Exact name of Registrant as specified in its charter)
NEVADA 91-1975651
- ---------------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
821 E. 29TH
NORTH VANCOUVER, B.C. V7K 1B6
- ----------------------- --------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (604) 904-6949
---------------
Securities registered pursuant to Section 12(b) of the Act: none
Securities registered pursuant to Section 12 (g) of the Act:
50,000,000 common shares par value $0.001 per share
Check whether the issuer (l) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act 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. [ X ]Yes
[ ] No
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ ]
Revenues for the fiscal year ending June 30, 2003 were $ 0.
The aggregate market value of the voting stock held by non-affiliates computed
by reference to the last reported sale price of such stock as of September 29,
2003 is $ 495,338.
The number of shares of the issuer's Common Stock outstanding as of June 30,
2003 is 38,372,532.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [ X ]
1
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Corporate History
Custom Branded Networks, Inc. ("CBN", "Custom Branded" or the "Company") was
incorporated under the laws of the state of Nevada on February 2, 1999, under
the name of Aquistar Ventures (USA) Inc. The Company was organized for the
purpose of exploring for and , if possible, developing mineral properties
primarily in the province of Ontario, Canada, through its wholly owned
subsidiary, Aquistar Ventures Inc. ("Aquistar Canada"). Aquistar Canada was
incorporated under the laws of the province of British Columbia, Canada, on
April 13, 1995.
Initial business operations included the acquisition of various options to
search for mineral deposits on certain tracts of real property and to develop
any deposits that had potential for commercial viability. All such options have
now lapsed and Aquistar Canada is now a dormant entity as far as business
operations are concerned.
On February 2, 2001, the Company acquired 100% of the issued and outstanding
capital stock of Custom Branded Networks, Inc., a Delaware corporation in
exchange for 25,000,000 common shares of the Company. The Company then changed
its name to Custom Branded Networks, Inc. All current business operations of
the Company are the business operations of Custom Branded Networks, Inc., the
Delaware corporation which is the Company's wholly owned subsidiary.
Business Operations
The Company has been in the business of providing turnkey private label Internet
solutions to businesses and private organizations that desire to affiliate with
a customer base via the Internet. In this way, Custom Branded has sought to
create for itself a recurring revenue stream through the sale of
subscription-based services. Custom Branded has also attempted to sell
individual components of its services to established Internet Service Providers
("ISP's") at pricing that would be profitable for both parties, including
wholesale dialup port access and back-office services for ISP's.
However, even though the business plan of the Company has called for the Company
to provide turnkey private label Internet solutions to businesses and private
organizations that desire to affiliate with a customer base via the Internet,
our business has not developed as rapidly as we had originally anticipated. To
date, we have signed up one customer and the deployment of the Internet services
for this customer has not occurred as of yet. It is uncertain at the present
time whether we will be able to develop this business plan to commercial
viability.
Mr. John Platt, our former CEO, left the employ of the Company in December,
2002. Since that time, we have not had an officer, director or employee
experienced in the
2
private label Internet business. Since that time we have not
been able to pursue our business plan and will not be able to unless the Company
acquires new personnel with expertise in this area.
New Developments
On May 9, 2003, the Company acquired the rights to six mineral titles within the
Turquoise Hill area of the South Gobi Region of Mongolia. The Company paid
$50,000 toward the acquisition of the mineral titles and issued 5,000,000 shares
of common stock of the Company to complete the transaction. The shares will be
delivered at such time as legal title to the mineral titles is delivered.
Therefore, the Company is waiting for the vendor to make necessary legal
arrangements to be able to transfer title to the properties before delivering
the common shares.
Management is pleased with the acquisitions due to their close proximity to
mineral rich deposits that have been recently discovered within the South Gobi
Region. Preliminary reports have indicated that the Ivanhoe Mines Ltd. Turquoise
Hill (Oyu Tolgoi) deposit within the Turquoise Hill area is one of the largest
copper and gold porphyry deposits in the world. With Ivanhoe's proposed
construction of an 80 km railway link from China to Turquoise Hill and with at
least 7 km of the railway link running through or close to one of the mineral
titles we have acquired, management is optimistic about this project. Proximity
of our mineral titles to the Ivanhoe deposit does not assure our mineral titles
will possess the same mineral qualities as the Ivanhoe deposit.
It is the intention of management to commence geological and geophysical testing
immediately upon receipt of legal title to the mineral properties, with primary
focus on pursuing and identifying any mineral occurrences within the project
areas.
Competition
The e-commerce industry is intensely competitive. Many persons and entities are
looking to the Internet for business opportunity, including many ISP's. CBN had
hoped to compete successfully in this market through its business structure of
being able to service the small as well as the large Internet provider.
Employees
At the present time, Mr. Paul G. Carter is the sole officer, director and
employee of the Company.
Government Regulations
Due to the increasing popularity and use of the Internet, it is possible that a
number of laws and regulations may be adopted with respect to the Internet
generally, covering issues such as user privacy, pricing, and characteristics
and quality of products and services. Similarly, the growth and development of
the market for Internet commerce may prompt calls for more stringent consumer
protection laws that may impose
3
additional burdens on those companies conducting
business over the Internet. The adoption of any such laws or regulations may
decrease the growth of commerce over the Internet, increase our cost of doing
business or otherwise have a harmful effect on our business and out business
partners.
With respect to our possible mining operations in Mongolia, the Company will be
subject to the mining laws and regulations of Mongolia as well as business laws
of Mongolia generally. Because Mongolia is just beginning to develop many of
its natural resources in a more free economy, it is uncertain how these business
regulations will effect potential mining operations of the Company. It is
likely that potential future dealings with this foreign government could prove
to be very challenging.
Research and Development Expenditures
During the fiscal year ended June 30, 2003, we did not incur any research or
development expenditures.
Subsidiaries
Custom Branded Networks, Inc., a Delaware corporation, through which we have
conducted our Internet business is a wholly owned subsidiary. Aquistar Ventures
Inc., a corporation formed under the laws of the province of British Columbia,
Canada, is a wholly owned subsidiary which from a business standpoint is dormant
at the present time.
Patents and Trademarks
We do not own, either legally or beneficially, any patent or trademark. There
is little or no necessity to have patented technology in order to conduct our
business over the Internet. This increases the ease with which potential
competition can enter this industry.
ITEM 2. DESCRIPTION OF PROPERTY
Property located at 821 E. 29th, North Vancouver, British Columbia, Canada is
made available to the Company by our president as an accommodation to the
Company for its current minimal operations. The Company does not have an
interest in any real property.
ITEM 3. LEGAL PROCEEDINGS
CBN is not a party to any legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the share holders during the fiscal
year ended June 30, 2003.
4
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS
MARKET INFORMATION
The common shares of the Company are listed on the OTC Bulletin Board under the
symbol CBNK. Following is the high and low sales prices for each quarter
beginning with the third calendar quarter of 2001 through June 30, 2003. The
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not represent actual transactions.
Quarter High Low
- -------------- ----- -----
Jul - Sep 2001 0.60 0.07
Oct - Dec 2001 0.19 0.03
Jan - Mar 2002 0.09 0.03
Apr - Jun 2002 0.09 0.03
Jul - Sep 2002 0.04 0.005
Oct - Dec 2002 0.031 0.01
Jan - Mar 2003 0.09 0.009
Apr - Jun 2003 0.09 0.025
On the date of this filing, being September 29, 2003, the best bid price of our
common shares is $0.017 and the best ask price is $0.030.
At June 30, 2003 there were approximately 60 record holders of CBN's Common
Stock.
CBN has not previously declared or paid any dividends on its common stock and
does not anticipate declaring any dividends in the foreseeable future.
There are no restrictions in our articles of incorporation or bylaws that
restrict us from declaring dividends. The Nevada Revised Statutes, however, do
prohibit us from declaring dividends where, after giving effect to the
distribution of the dividend:
(1) we would not be able to pay our debts as they become due in the usual
course of business; or
(2) our total assets would be less that the sum of our total
liabilities.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
PLAN OF OPERATIONS:
- ---------------------
At June 30, 2003, the Company had cash of $894. To sustain the business
operations of the Company, the Company must obtain additional capital. The
Company's current plans
5
are to borrow money as needed to sustain current
operations. Since inception, the Company has executed $1,000,000 in the
aggregate principal amount of convertible notes. The Company has received
$882,719 in advances against the notes through June 30, 2003. The Company hopes
to obtain additional advances against the notes in order to sustain the business
operations of the Company. However, the holder of the notes is not obligated to
fund the notes further and may not be willing to do so, in which event the
Company will need to obtain funding from some other source.
During the fiscal year ended June 30, 2003, we incurred expenses of $142,233.00.
Of the $142,233.00 in expenses incurred, $50,000.00 was a payment toward the
acquisition of six mineral properties in Mongolia. The decision by management
to acquire these properties is a departure from the pursuit of continued
development of the business plan of the Company to provide certain Internet
solutions to businesses and private organizations. It is the intention of
management to pursue avenues that will allow the Company to begin to investigate
the potential for developing the mineral properties. As these possibilities
develop, it is likely that the Company will abandon its Internet solutions
business plan and focus on the acquisition and development of mineral interests
during the next 12 months and beyond.
Forward-Looking Statements:
- ----------------------------
Many statements made in this report are forward-looking statements that are not
based on historical facts. Because these forward-looking statements involve
risks and uncertainties, there are important factors that could cause actual
results to differ materially from those expressed or implied by these
forward-looking statements. The forward-looking statements made in this report
relate only to events as of the date on which the statements are made.
6
ITEM 7. FINANCIAL STATEMENTS
INDEX TO THE FINANCIAL STATEMENTS
AS OF JUNE 30, 2003 AND 2002 AND FOR
FOR EACH OF THE TWO YEARS IN THE PERIOD ENDED JUNE 30, 2003
Report of Independent Auditors F-1
Balance Sheets, June 30, 2003 and 2002 F-2
Consolidated Statements of Operations and Deficit F-3
Consolidated Statement of Cash Flows F-4
Consolidated Statements of Shareholders' Deficiency F-5
Notes to the Financial Statements F-7
7
CUSTOM BRANDED NETWORKS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003 AND 2002
(STATED IN U.S. DOLLARS)
MORGAN
& COMPANY
Chartered Accountants
INDEPENDENT AUDITORS' REPORT
To the Shareholders of
Custom Branded Networks, Inc.
(A development stage company)
We have audited the consolidated balance sheets of Custom Branded Networks, Inc.
(a development stage company) as at June 30, 2003 and 2002, and the consolidated
statements of operations and deficit accumulated during the development stage,
cash flows and stockholders' equity for the years then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with United States generally accepted
auditing standards. Those standards require that we plan and perform an audit
to obtain reasonable assurance whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at June 30, 2003 and
2002, and the results of its operations, cash flows, and changes in
stockholders' equity for the years then ended in accordance with United States
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to
the consolidated financial statements, the Company has suffered recurring losses
and net cash outflows from operations since inception. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also discussed in Note 1.
These consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
Vancouver, B.C.
"MORGAN & COMPANY"
September 16, 2003 Chartered Accountants
Tel: (604)687-5841 Member of P.O. Box 10007 Pacific Centre
Fax: (604)687-0075 ACPA Suite 1488-700 West Georgia Street
www.morgan-cas.com International Vancouver, B.C. V7Y 1A1
F-1
CUSTOM BRANDED NETWORKS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
(STATED IN U.S. DOLLARS)
- -----------------------------------------------------------------------------------------------------------
JUNE 30
2003 2002
------------ ------------
ASSETS
CURRENT
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 894 $ 902
CAPITAL ASSETS (Note 3). . . . . . . . . . . . . . . . . . . . . . . 967 1,812
-------------------------
$ 1,861 $ 2,714
===============================================================================================
LIABILITIES
CURRENT
Accounts payable and accrued liabilities . . . . . . . . . . . . . . $ 316,398 $ 307,860
CONVERTIBLE NOTE PAYABLE, net of discount (Note 4) . . . . . . . . . 388,029 322,803
-------------------------
704,427 630,663
-------------------------
STOCKHOLDERS' DEFICIENCY
SHARE CAPITAL
Authorized:
50,000,000 common shares with a par value of
$0.001 per share at June 30, 2003 and 2002
Issued and outstanding:
38,372,532 common shares at June 30, 2003 and
33,872,532 common shares at June 30, 2002. . . . . . . . . . . . . 19,731 15,231
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . 651,622 566,006
DEFICIT ACCUMULATED DURING THE DEVELOPMENT STAGE . . . . . . . . . . (1,351,419) (1,209,186)
OTHER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (22,500) -
-------------------------
(702,566) (627,949)
-------------------------
$ 1,861 $ 2,714
===============================================================================================
F-2
CUSTOM BRANDED NETWORKS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
(STATED IN U.S. DOLLARS)
- ---------------------------------------------------------------------------------------
INCEPTION
JUNE 28
YEARS ENDED 1999 TO
JUNE 30 JUNE 30
2003 2002 2003
- --------------------------------------------------------------------------------
REVENUE . . . . . . . . . . . . . . . . . . . $ - $ 3,980 $ 184,162
---------------------------------------
EXPENSES
Administrative expenses . . . . . . . . . . . 47,041 293,822 1,391,748
Interest expense. . . . . . . . . . . . . . . 45,192 36,196 81,388
Mineral property payment. . . . . . . . . . . 50,000 - 50,000
Write down of capital assets. . . . . . . . . - - 12,445
---------------------------------------
142,233 330,018 1,535,581
---------------------------------------
NET LOSS FOR THE YEAR . . . . . . . . . . . . (142,233) (326,038) $(1,351,419)
===========
ACCUMULATED DEFICIT, BEGINNING OF YEAR. . . . (1,209,186) (883,148)
-------------------------
ACCUMULATED DEFICIT, END OF YEAR. . . . . . . $(1,351,419) $(1,209,186)
=========================================================================
LOSS PER SHARE, BASIC AND DILUTED . . . . . . $ (0.01) $ (0.01)
=========================================================================
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 36,030,066 33,745,135
=========================================================================
F-3
CUSTOM BRANDED NETWORKS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(STATED IN U.S. DOLLARS)
INCEPTION
JUNE 28
YEARS ENDED 1999 TO
JUNE 30 JUNE 30
2003 2002 2003
- -----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Loss for the year. . . . . . . . . . . . . . . . . . . . . . . . . . . $(142,233) $(326,038) $(1,283,077)
ADJUSTMENTS TO RECONCILE LOSS TO NET CASH USED BY OPERATING ACTIVITIES
Shares issued for other than cash. . . . . . . . . . . . . . . . . . . 22,500 - 22,500
Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 845 602 2,050
Amortization of interest . . . . . . . . . . . . . . . . . . . . . . . 45,192 36,196 81,388
Write down of capital assets . . . . . . . . . . . . . . . . . . . . . - - 12,445
Change in prepaid expenses and advances. . . . . . . . . . . . . . . . - 28,384 (28,546)
Change in accounts payable and accrued liabilities . . . . . . . . . . 8,538 147,672 316,398
----------------------------------
(65,158) (113,184) (876,842)
----------------------------------
CASH FLOWS FROM INVESTING ACTIVITY
Purchase of capital assets . . . . . . . . . . . . . . . . . . . . . . - - (1,808)
----------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from loan payable to shareholder. . . . . . . . . . . . . . . - - 16,097
Loan receivable from shareholder . . . . . . . . . . . . . . . . . . . - 25,000 (39,000)
Issue of common shares . . . . . . . . . . . . . . . . . . . . . . . . - - 18,950
Convertible note payable . . . . . . . . . . . . . . . . . . . . . . . 65,150 82,856 882,719
Cash acquired on acquisition of subsidiary . . . . . . . . . . . . . . - - 778
----------------------------------
65,150 107,856 879,544
----------------------------------
(DECREASE) INCREASE IN CASH. . . . . . . . . . . . . . . . . . . . . . (8) (5,328) 894
CASH, BEGINNING OF YEAR. . . . . . . . . . . . . . . . . . . . . . . . 902 6,230 -
----------------------------------
CASH, END OF YEAR. . . . . . . . . . . . . . . . . . . . . . . . . . . $ 894 $ 902 $ 894
===========================================================================================================
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING AND INVESTING ACTIVITIES:
During the year ended June 30, 2003, the Company issued 4,500,000 common shares
for consulting services at a fair value of $45,000.
F-4
CUSTOM BRANDED NETWORKS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' DEFICIENCY
JUNE 30, 2003
(STATED IN U.S. DOLLARS)
Deficit
Accumulated
Common Stock Additional During The
--------------------- Paid-In Development
Shares Amount Capital Other Stage Total
---------------------------------------------------------------------
Issuance of shares
to founders 3,465 $ 3 $ 18,947 $ - $ - $ 18,950
Net loss for the Period - - - - (159,909) (159,909)
---------------------------------------------------------------------
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 - - - - -
---------------------------------------------------------------------
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) - - - - -
Common stock
conversion rights - - 421,214 - - 421,214
Net loss for the
Year - - - - (723,239) (723,239)
---------------------------------------------------------------------
Balance, June 30,
2001 32,372,532 15,231 456,258 - (883,148) (411,659)
Additional shares
issued in connection
with the acquisition
of Custom Branded
Networks, Inc. 1,500,000 - - - - -
Common stock
Conversion rights - - 109,748 - - 109,748
Net loss for the year - - - - (326,038) (326,038)
---------------------------------------------------------------------
Balance, June 30,
2002 33,872,532 15,231 566,006 - (1,209,186) (627,949)
F-5
CUSTOM BRANDED NETWORKS, INC.
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' DEFICIENCY (Continued)
JUNE 30, 2003
(STATED IN U.S. DOLLARS)
Deficit
Accumulated
Common Stock Additional During The
--------------------- Paid-In Development
Shares Amount Capital Other Stage Total
---------------------------------------------------------------------
Balance, June 30,
2002 33,872,532 15,231 566,006 - (1,209,186) (627,949)
Issue of common
Stock for deferred
Compensation
Expense 4,500,000 4,500 40,500 (45,000) - -
Amortization of
deferred
compensation - - - 22,500 - 22,500
Common stock
conversion rights - - 45,116 - - 45,116
Net loss for the year - - - - (142,233) (142,233)
--------------------------------------------------------------------
Balance, June 30,
2003 38,372,532 $ 19,731 $ 651,622 $(22,500)$(1,351,419) $(702,566)
F-6
CUSTOM BRANDED NETWORKS, INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003 AND 2002
(STATED IN U.S. DOLLARS)
1. NATURE OF OPERATIONS AND GOING CONCERN
Custom Branded Networks, Inc. (the "Company") was previously engaged in the
business of providing turnkey private label internet services to organizations
throughout the domestic United States and Canada. During the year ended June
30, 2003, the Company became an exploration staged company engaged in the
acquisition and exploration of mining claims. Upon location of a commercial
minable reserve, the Company expects to actively prepare the site for its
extraction and enter a development stage.
Going Concern
The accompanying financial statements have been prepared assuming the Company
will continue as a going concern.
As shown in the accompanying financial statements, the Company has incurred a
net loss of $1,351,419 for the period from April 12, 2002 (inception) to June
30, 2003, and has no sales. The future of the Company is dependent upon its
ability to obtain financing and upon future profitable operations from the
development of its mineral claims. Management has plans to seek additional
capital through a private placement and public offering of its common stock.
The financial statements do not include any adjustments relating to the
recoverability and classification of recorded assets, or the amounts of and
classification of liabilities that might be necessary in the event the Company
cannot continue in existence.
2. 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 judgment.
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).
F-7
CUSTOM BRANDED NETWORKS, INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003 AND 2002
(STATED IN U.S. DOLLARS)
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
b) Use of Estimates
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from management's best
estimates as additional information becomes available in the future.
c) 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
d) 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.
e) Mineral Claim Payments and Exploration Costs
The Company expenses all costs related to the acquisition, maintenance and
exploration of mineral claims in which it has secured exploration rights prior
to establishment of proven and probable reserves. To date, the Company has not
established the commercial feasibility of its exploration prospects, therefore,
all costs are being expensed.
f) Financial Instruments
The Company's financial instruments consist of cash, accounts receivable, 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-8
CUSTOM BRANDED NETWORKS, INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003 AND 2002
(STATED IN U.S. DOLLARS)
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
g) Stock Based Compensation
The Company measures compensation cost for stock based compensation using the
intrinsic value method of accounting as prescribed by A.P.B. Opinion No. 25 -
"Accounting for Stock Issued to Employees". The Company has adopted those
provisions of Statement of Financial Accounting Standards No. 123 - "Accounting
for Stock Based Compensation", which require disclosure of the pro-forma effect
on net earnings and earnings per share as if compensation cost had been
recognized based upon the estimated fair value at the date of grant for options
awarded.
h) Loss Per Share
The Company computes net loss per share in accordance with SFAS No. 128 -
"Earnings Per Share". Under the provisions of SFAS No. 128, basic loss per
share is computed using the weighted average number of common stock outstanding
during the periods. Diluted loss per share is computed using the weighted
average number of common and potentially dilative common stock outstanding
during the period. As the Company generated net losses in each of the periods
presented, the basic and diluted net loss per share is the same as any exercise
of options or warrants would anti-dilutive.
i) Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of
The Company reviews long-lived assets and including identifiable intangibles for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceed the fair value of
the assets. Assets to be disposed of are reported at the lower of the carrying
amount or fair value less costs to sell.
j) New Accounting Pronouncements
In June 2001, the Financial Accounting Standards Board ("FASB") issued Statement
No. 141 - "Business Combinations". The Statement requires that all business
combinations initiated after June 30, 2001 be accounted for under the purchase
method of accounting. The Company believes that the adoption of FASB No. 141
will not have a significant impact on its financial statements.
F-9
CUSTOM BRANDED NETWORKS, INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003 AND 2002
(STATED IN U.S. DOLLARS)
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
j) New Accounting Pronouncements (Continued)
In July 2001, the FASB issued Statement No. 142 - "Goodwill and Other Intangible
Assets". The Statement will require discontinuing the amortization of goodwill
and other intangible assets with indefinite useful lives. Instead, these assets
will be tested periodically for impairment and written down to their fair market
value as necessary. This Statement is effective for fiscal years beginning
after December 15, 2001. The Company believes that the adoption of FASB No. 142
will not have a material impact on its financial statements.
In August 2001, the FASB issued Statement No. 144 - "Accounting for the
Impairment of Long-Lived Assets" which is effective for fiscal years beginning
after December 15, 2001. FASB No. 144 addresses accounting and reporting of
long-lived assets, except goodwill, that are either held and used or disposed of
through sale or other means. The Company believes that the adoption of FASB No.
144 will not have a material impact on its financial statements.
3. CAPITAL ASSETS
2003 2002
-------------------------------------- --------
ACCUMULATED NET BOOK NET BOOK
COST DEPRECIATION VALUE VALUE
-------------------------------------------------
Computer equipment $1,808 $ 1,808 $ - $ 603
Office equipment . 3,380 2,413 967 1,209
-------------------------------------- --------
$5,188 $ 4,221 $ 967 $1,812
4. CONVERTIBLE NOTE PAYABLE
On January 31, 2002, the Company executed $1,000,000 aggregate principal amount
of convertible notes due not earlier than January 31, 2009. The Company has
received $882,719 in advances through to June 30, 2003. The notes bear no
interest until the maturity date, and interest at 5% per annum on any remaining
principal balance after the maturity date. The notes are convertible, at the
option of the holder, at any time on or prior to maturity into shares of the
Company's common stock at a conversion price of $0.05 per share, and each
converted share includes a warrant to purchase an additional common stock share
at an exercise price of $0.05 per share. The warrants expire three years from
the grant day.
F-10
CUSTOM BRANDED NETWORKS, INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2003 AND 2002
(STATED IN U.S. DOLLARS)
4. CONVERTIBLE NOTE PAYABLE (Continued)
Because the market interest rate on similar types of notes was approximately 14%
per annum the day the notes were issued, the Company has recorded a discount of
$576,078 related to the beneficial conversion feature. The discount will be
amortized as interest expense over the life of the convertible notes, or sooner
upon conversion. During the year, the Company recorded interest expense of
$45,192.
5. MINERAL PROPERTIES
On February 5, 2003, the Company entered into an agreement to acquire 100%
interest in mineral properties located in outer Mongolia by making a cash
payment of $50,000 (paid) and issuing 5,000,000 common shares.
F-11
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
We have had no disagreements with our accountants on accounting or financial
disclosures.
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the names, ages, and positions with CBN for each
of the directors and officers of CBN.
Name Age Position (1) Since
- ---- --- ---------------- -----
Paul G. Carter 41 President, Secretary, 2002
Treasurer, Director
(1) All executive officers are elected by the Board and hold office until
the next Annual Meeting of shareholders and until their successors
are elected and agree to serve.
Mr. Carter is employed by Tempco Oil and Gas Drilling Contractors. From May
2000 through February 2001 he was production manager for Dealer Equipment Ltd.
From 1998 through 2000, Mr. Carter was special projects manager for Streamside
Management Ltd. From 1994 through 1998, he was project manager for the
Tajikistan Development Project that reactivated an open pit mine in Northern
Tajikistan.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The following persons have failed to file, on a timely basis, the identified
reports required by Section 16(a) of the Exchange Act during the most recent
fiscal year:
Number Transactions Known Failures
Of late Not Timely To File a
Name and principal position Reports Reported Required Form
- ------------------------------ --------- ------------ ----------------
John Platt, Former Chairman 0 0 1
Paul G. Carter, President 0 0 1
8
ITEM 10. EXECUTIVE COMPENSATION
The following table sets forth certain information as to our officers and
directors.
Annual Compensation Table
Annual Compensation Long Term Compensation
------------------- ----------------------
Other All
Annual Other
Com- Com-
pen- Restricted pen-
Fiscal sa- Stock Options/ LTIP sa-
Name Title Year Salary Bonus tion Awarded SARs (#)payouts($)tion
- ---- ------- ---- ------- ----- ------ ------- ------- --------- ----
John Former
Platt CEO and 2000-
Director 2001 $20,000 0 0 0 0 0 0
2001-
2002 0 0 0 0 0 0 0
Paul G.
Carter CEO
and 2002-
Director 2003 0 0 0 0 0 0 0
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table provides the beneficial ownership of our common stock by
each person known by us to beneficially own more than 5% of our common stock
outstanding as of June 30, 2002 and by the officers and directors of CBN as a
group. Except as otherwise indicated, all shares are owned directly.
Common Percent of
Name and Address Shares Class
Paul G. Carter 0 0%
821 E. 29th
North Vancouver, B.C. V7K 1B6
Power Products Australia Pty Ltd. 7,235,026 19.0%
200-220 Toogood Road
Bayview Heights, Caims 4870
Queensland, Australia
All Executive officers and
Directors as a Group (one) 0 0%
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The law firm of Catanese and Wells has provided legal services to the Company
for which it has been compensated by the Company in cash and stock valued at a
total of approximately $125,000. At the time the work was done, Mr. T. Randolph
Catanese, a principal in the law firm was also a director of the Company.
9
Effective January 31, 2002, the Company, restructured its debt with OTC
Investments, Ltd. ("OTC Investments") at 1710-1177 West Hastings Street,
Vancouver, B.C. V6E 2L3. The restructuring was necessary to obtain additional
financing from OTC Investments to stabilize the current financial position of
the Company. The Company issued two convertible promissory notes (the "Notes")
to OTC Investments. Each of the Notes is in the face amount of $500,000. One
of the Notes, however, is structured as a line of credit against which
approximately $382,719 has been drawn at the present time. The Notes replaced a
convertible note then held by OTC Investments in the face amount of $750,000.
The Notes also documented additional financing that OTC Investments had extended
to the Company over the $750,000 amount. The restructuring allows OTC
Investments to extend additional financing to the Company at OTC Investment's
discretion until a total of $1,000,000, or the full face amount of both of Notes
is reached. At OTC Investment's option, the Notes, or any portion thereof, are
convertible into common shares of the Company at the rate of $0.05 of the
principal balance of the Notes per common share. The conversion rate of $0.05
is not altered by any reverse split of the common shares or any recapitalization
or other roll back of the equity capital of the Company. At June 30, 2003, the
total advances received on the Notes totaled in the aggregate $882,719.
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Reports on Form 8-K
None
(b) Exhibits
3.1. Articles of Incorporation (1)
3.2. By-laws (1)
21.1 Subsidiaries (2)
99.1 Certification of Chief Executive Officer and Chief Financial
Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
(1) Previously filed as an exhibit to the Form 10SB on December 17, 1999.
(2) As filed with Form 10-KSB for the fiscal year ended June 30, 2001.
ITEM 14. CONTROLS AND PROCEDURES.
As required by Rule 13a-14 under the Securities Exchange Act of 1934 (the
"Exchange Act"), we carried out an evaluation of the effectiveness of the design
and operation of our disclosure controls and procedures within the 90 days prior
to the filing date of this report. This evaluation was carried out under the
supervision and with the participation of our Chief Executive Officer and Chief
Financial Officer, Paul G. Carter. Based upon that evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that our disclosure
controls and procedures are effective in timely alerting management to material
information relating to us which is required to be included in our periodic SEC
filings. There have been no significant changes in our internal controls or in
other factors that could significantly affect internal controls subsequent to
the date we carried out our evaluation.
Disclosure controls and procedures are controls and other procedures that are
designed to ensure that information required to be disclosed our reports filed
or submitted under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the Securities and Exchange
Commission's rules and forms. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed in our reports filed under the Exchange Act is
accumulated and communicated to management, including our Chief Executive
Officer and Chief Financial Officer, to allow timely decisions regarding
required disclosure.
10
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CUSTOM BRANDED NETWORKS, INC.
By: /s/ Paul G. Carter
----------------------------------------------
Paul G. Carter, Chief Executive Officer
Director
Date: September 29, 2003
In accordance with the Securities Exchange Act, this report has been signed
below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
By: /s/ Paul G. Carter
----------------------------------------------
Paul G. Carter, President,
Secretary and Treasurer and Sole Director
(Principal Executive Officer)
(Principal Financial Officer)
(Principal Accounting Officer)
(Director)
Date: September 29, 2003
CERTIFICATION PURSUANT TO RULE 13a-14 OR 15d-14 OF THE
SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Paul G. Carter, the chief executive officer and chief financial officer of
Custom Branded Networks, Inc., certify that:
1. I have reviewed this annual report on Form 10-KSB of Custom Branded Networks,
Inc. (the Registrant);
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;
4. I am responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated subsidiaries,
is made known to me by others within those entities, particularly during the
period in which this annual report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this annual
report (the "Evaluation Date"); and
c) presented in this annual report my conclusions about the effectiveness
of the disclosure controls and procedures based on my evaluation as of the
Evaluation Date;
5. I have disclosed, based on my most recent evaluation, to the registrant's
auditors and the audit committee of registrant's board of directors (or persons
performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal controls; and
6. I have indicated in this annual report whether there were significant changes
in internal controls or in other factors that could significantly affect
internal controls subsequent to the date of my most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Dated: September 29, 2003
/s/ Paul G. Carter
- -------------------------------------
Paul G. Carter
Chief Executive Officer
Chief Financial Officer