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, 2002
---------------
[ ] 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)
2110 Ft. Stockton Dr.
San Diego, CA 92103
- ------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (559) 284-6914
---------------
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, 2002 were $ 3,714.
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 June 30, 2002
is $ 470,876.
The number of shares of the issuer's Common Stock outstanding as of June 30,
2002 is 33,872,532.
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 provides 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 is seeking to create for itself a
recurring revenue stream through the sale of subscription-based services.
Custom Branded also sells the individual components of its services to
established Internet Service Providers ("ISP's") at pricing that is profitable
for both parties, including wholesale dialup port access and back-office
services for ISP's.
CBN's ability to reduce the high costs, delays and risks associated with branded
Internet services makes CBN a desirable business partner. Unlike other private
label Internet providers, CBN through it proprietary business model is able to
provide customized turnkey Internet service to partners who have as few as 100
subscribers. This enables CBN to reach virtually any group thereby
substantially increasing its available pool of customers. Additionally, CBN has
developed marketing tools to assist its partners in generating better services
to their subscribers and higher profits for the partner.
CBN has its core services in operation and is acquiring customers to establish
that portion of its business. Ideally the Company is hoping to acquire an
established leader in the
2
Virtual Internet Service Provider market space to become the Company's division
for providing private label services. CBN will then evolve into the public
holding company with several wholly owned strategic business units conducting
all operations. These units will include:
- Private label division
- UsefulWare division
- Web development division
- Traditional ISP division
To date, the Company has signed up one customer but deployment on the ISP's
network has not occurred.
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
believes that it can 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. John Platt 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 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.
To date, governmental regulations have not materially restricted the use or
expansion of the Internet. However, the legal and regulatory environment that
pertains to the Internet is uncertain and may change. New and existing laws may
cover issues that include:
- Sales and other taxes;
- User privacy;
- Pricing controls;
- Characteristics and quality of products and services;
- Consumer protection;
- Cross-border commerce;
3
- Libel and defamation;
- Copyright, trademark and patent infringement; and
- Other claims based on the nature and content of Internet materials.
We are not aware of any environmental laws that will be applicable to the
operation of our business.
Research and Development Expenditures
During the fiscal year ended June 30, 2002, we did not incur any research or
development expenditures.
Subsidiaries
Custom Branded Networks, Inc., a Delaware corporation, through which we conduct
our 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 fact makes it easier for us to implement our
business model. It also increases the ease with which potential competition can
enter our industry.
Item 2. Description of Property
Property located at 2110 Ft. Stockton Dr., San Diego, California 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, 2002.
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. There was no trading market in the stock prior to the fourth
calendar quarter of 2000. Following is the high and low sales prices for each
quarter beginning with the fourth calendar quarter of 2000 through June 30,
2002. The quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not represent actual transactions.
Quarter High Low
- ------- ---- ---
Oct - Dec 2000 2.00 1.25
Jan - Mar 2001 1.75 0.75
Apr - Jun 2001 0.75 0.32
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
On the date of this filing, being October 15, 2002, the best bid price of our
common shares is $0.02 and the best ask price is $0.045.
At June 30, 2002 there were approximately 52 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:
- ---------------------
For the fiscal year ended June 30, 2002, the Company had operational expenses of
$293,822 against revenues of $3,714. However, to date, we have had no revenues
from
5
operations. The Company has signed up one customer but deployment on the ISP's
network has not occurred.
At June 30, 2002, the Company had cash of $902. To sustain the business
operations of the Company, it is necessary for the Company to raise capital in
the immediate future. The Company's current plans are to borrow money as needed
to sustain the current operations of the Company. If our business prospects
become more promising than at the present time, we will attempt to raise
additional operating capital through the sale of equity capital. 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.
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.
Item 7. Financial Statements
Index to the Financial Statements
As of June 30, 2002 and 2001 and for
For Each of the Two Years in the Period Ended June 30, 2002
- --------------------------------------------------------------------------------
Report of Independent Auditors F-1
Balance Sheets, June 30, 2002 and 2001 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-6
6
CUSTOM BRANDED NETWORKS, INC.
(A Development Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2001
(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, 2002, and 2001 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, 2002,
and 2001 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.
These consolidated financial statements have been restated from those previously
presented as explained in Note 8.
Vancouver, B.C. /s/ Morgan & Company
September 20, 2002 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 SHEET (RESTATED - NOTE 8)
(Stated in U.S. Dollars)
- ----------------------------------------------------------------------
JUNE 30
2002 2001
- ----------------------------------------------------------------------
(Restated)
ASSETS
Current
Cash $ 902 $ 6,230
Prepaid expenses and advances - 28,384
------------------------
902 34,614
Loan Receivable From Shareholder (Note 3) - 25,000
Capital Assets, net (Note 4) 1,812 2,414
------------------------
$ 2,714 $ 62,028
======================================================================
LIABILITIES
Current
Accounts payable and accrued liabilities $ 307,860 $ 160,188
Convertible Note Payable, net of discount
(Note 5) 322,803 313,499
------------------------
630,663 473,687
------------------------
STOCKHOLDERS' DEFICIENCY
Share Capital
Authorized:
50,000,000 common shares with a
par value of $0.001 per share at
June 30, 2002 and 2001
Issued and outstanding:
33,872,532 common shares at
June 30, 2002 and
32,372,532 common shares
at June 30, 2001 15,231 15,231
Additional paid-in capital 566,006 456,258
Deficit Accumulated During
The Development Stage (1,209,186) (883,148)
------------------------
(627,949) (411,659)
------------------------
$ 2,714 $ 62,028
======================================================================
F-2
CUSTOM BRANDED NETWORKS, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF OPERATIONS AND DEFICIT
(RESTATED - NOTE 8)
(Stated in U.S. Dollars)
- ----------------------------------------------------------------------------
INCEPTION
JUNE 28
YEAR ENDED 1999 TO
JUNE 30 JUNE 30
2002 2001 2002
- ----------------------------------------------------------------------------
(Restated)
Revenue $ 3,714 $ 173,527 $ 177,241
Operating Expenses (293,822) (884,776) (1,344,707)
----------------------------------------
Loss From Operations (290,108) (711,249) (1,167,466)
Other Income 266 455 6,921
Interest Expense (36,196) - (36,196)
Write Down Of Capital Assets - (12,445) (12,445)
----------------------------------------
Net Loss For The Year (326,038) (723,239) $(1,209,186)
============
Accumulated Deficit, Beginning
Of Year (883,148) (159,909)
--------------------------
Accumulated Deficit, End Of Year $(1,209,186) $ (883,148)
==============================================================
Loss Per Share, Basic And Diluted $ (0.01) $ (0.01)
==============================================================
Weighted Average Number Of
Shares Outstanding 33,745,135 22,508,643
==============================================================
F-3
CUSTOM BRANDED NETWORKS, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS (RESTATED - NOTE 8)
(Stated in U.S. Dollars)
- --------------------------------------------------------------------------
INCEPTION
JUNE 28
YEAR ENDED 1999 TO
JUNE 30 JUNE 30
2002 2001 2002
- --------------------------------------------------------------------------
(Restated)
Cash Flows From Operating Activities
Loss for the year $(326,038) $(723,239) $(1,140,844)
Adjustments To Reconcile Loss To Net
Cash Used By Operating Activities
Amortization 602 603 1,205
Amortization of interest 36,196 - 36,196
Write down of capital assets - 12,445 12,445
Change in prepaid expenses and
advances 28,384 (27,588) (28,546)
Change in accounts payable and
accrued liabilities 147,672 135,475 307,860
Change in deferred revenue - (101,639) -
------------------------------------
(113,184) (703,943) (811,684)
------------------------------------
Cash Flows From Investing Activity
Purchase of capital assets - (1,808) (1,808)
------------------------------------
Cash Flows From Financing Activities
Proceeds from loan payable to
shareholder - - 16,097
Loan receivable from shareholder 25,000 (25,000) (39,000)
Issue of common shares - - 18,950
Convertible note payable 82,856 734,713 817,569
Cash acquired on acquisition of
subsidiary - 778 778
------------------------------------
107,856 710,491 814,394
------------------------------------
(Decrease) Increase In Cash (5,328) 4,740 902
Cash, Beginning Of Year 6,230 1,490 -
------------------------------------
Cash, End Of Year $ 902 $ 6,230 $ 902
=============================================================================
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING AND INVESTING ACTIVITIES:
During the year 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 issuing 25,000,000 common
shares at the fair value of $15,228.
F-4
CUSTOM BRANDED NETWORKS, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' DEFICIENCY
(RESTATED - NOTE 8)
JUNE 30, 2002
(Stated in U.S. Dollars)
Deficit
Accumulated
Common Stock Additional During The
-------------------- 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)
--------------------------------------------------------
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)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2001
(Stated in U.S. Dollars)
1. 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 generated limited operating revenues 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.
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
issue of 25,000,000 shares of the Company to the former shareholders of
Custom Branded.
F-6
CUSTOM BRANDED NETWORKS, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2001
(Stated in U.S. Dollars)
1. NATURE OF OPERATIONS (Continued)
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 issuing 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.
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.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2001
(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) 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.
f) Financial Instruments
The Company's financial instruments consist of cash, accounts receivable, and
accounts payable.
F-8
CUSTOM BRANDED NETWORKS, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2001
(Stated in U.S. Dollars)
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
f) Financial Instruments (Continued)
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.
g) 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.
h) 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.
i) 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.
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.
F-9
CUSTOM BRANDED NETWORKS, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2001
(Stated in U.S. Dollars)
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
i) New Accounting Pronouncements (Continued)
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. LOAN RECEIVABLE FROM SHAREHOLDER
The loan receivable was due from a shareholder with interest at 3% per annum,
due on December 18, 2004.
4. CAPITAL ASSETS
2002 2001
------------------------------------ ---------
Accumulated Net Book Net Book
Cost Depreciation Value Value
-----------------------------------------------
Computer equipment $ 1,808 $ 1,205 $ 603 $ 1,205
Office equipment 3,380 2,171 1,209 1,209
-----------------------------------------------
$ 5,188 $ 3,376 $ 1,812 $ 2,414
5. 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 $817,569 in advances through to June 30, 2002. 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.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2001
(Stated in U.S. Dollars)
5. 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
$520,962 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 fiscal 2002, the Company recorded interest expense of
$36,196.
6. INCOME TAXES
No provision for income taxes has been recorded as the Company has incurred an
operating loss from the commencement of operations through June 30, 2002. At
June 30, 2002, the Company has a net operating loss carryforward available to
offset future taxable income for federal and California income tax purposes of
approximately $1,346,000. These carryforwards will expire in the years 2021 and
2009, respectively. Deferred tax assets total approximately $484,000 and
represent the effects of these net operating loss carryforwards. The Company
has provided a valuation allowance to offset all deferred tax assets due to the
uncertainty of realization.
7. RELATED PARTY TRANSACTIONS
During the years indicated, the Company incurred the following amounts with
shareholders, officers and directors, and with a related company:
2002 2001
---------------------
Legal fees $ - $100,000
=====================
Rent $ 16,200 $ 46,800
=====================
Consulting fees $ 30,000 $ 75,000
=====================
Wages $139,693 $180,000
=====================
8. PRIOR PERIOD ADJUSTMENT
During the year ended June 30, 2002, the Company adjusted its accounting for
convertible notes. The notes bear no interest until maturity date. Amounts
advanced up to June 30, 2002 have been restated to record a discount of $421,214
related to the beneficial conversion feature of the note, using a market
interest rate of 14% per annum.
F-11
CUSTOM BRANDED NETWORKS, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002 AND 2001
(Stated in U.S. Dollars)
8. PRIOR PERIOD ADJUSTMENT (Continued)
The following summarizes the effects of the restatement:
AS
PREVIOUSLY AS
PRESENTED RESTATED
2001 2001
----------------------
Convertible note payable $734,713 $313,499
Additional paid in capital 35,044 456,258
There was no effect on net loss for the year and loss per share for the year
ended June 30, 2001.
F-12
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
- -------- ------- ------------- -----
John Platt 42 Chairman, CEO and 2001
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. Platt has been chairman and CEO of CBN since the acquisition of
Custom Branded Networks, Inc., a Delaware corporation ("Custom Branded
Delaware"), on February 2, 2001. Mr. Platt had been the CEO of Custom Branded
Delaware since its inception in 1997. From 1995 through 1997, Mr. Platt was the
director or marketing and sales of Internet Services and Technology 1999. From
1991 through 1993, he was the national sales manager of Home Watch, a subsidiary
of AT&T. From 1985 through 1991, he was a Vice President at American
Contractors, a defense contractor.
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:
Known Failures
Number Transactions To File
Of Late Not Timely a Required
Name and Princeton Position Report Reported Form
- --------------------------------------------------------------------------------
John Platt, Chairman 0 0 1
7
Item 10. Executive Compensation
The following table sets forth certain information as to our sole officer and
director.
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 CEO, 2000-2001 $20,000 0 0 0 0 0 0
Platt Chairman 2001-2002 $0.00 0 0 0 0 0 0
and
Director
CBN has entered into an employment arrangement with Mr. Platt wherein he is to
receive salary of $10,000 per month if and when the Company has the ability to
pay such salary.
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
John Platt (1) 1,654,000 5.1%
535 Chesterfield Circle
San Marcos, CA 92069
Right Mind LLC 8,270,000 25.5%
535 Chesterfield Circle
San Marcos, CA 92069
All Executive officers and
Directors as a Group (one) 1,654,000 5.1%
(1) The shares attributed to Mr. Platt are held by Right Mind LLC, an entity
in which Mr. Platt has a 20% beneficial interest.
8
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.
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 $300,000 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, 2002, the
total advances received on the Notes totaled in the aggregate $817,569.
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.
9
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/ JOHN PLATT
___________________________________
JOHN PLATT, President and Chief Executive Officer
Director
Date: October 15, 2002
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/ JOHN PLATT
___________________________________
JOHN PLATT, President and Chief Executive Officer
Secretary and Treasurer and Sole Director
(Principal Executive Officer)
(Principal Financial Officer)
(Principal Accounting Officer)
(Director)
Date: October 15, 2002
10
CERTIFICATIONS
I, JOHN PLATT, President, Secretary, Treasurer, Chief Executive Officer and
Chief Financial Officer certify that;
A I have reviewed this annual report on Form10-KSB of Custom Branded
Networks, Inc.;
B 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;
C 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;
Date: October 15, 2002
/s/ JOHN PLATT
___________________________________
(Signature)
President, Secretary, Treasurer
Chief Executive Officer
Chief Financial Officer
11