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, 2004
---------------
[ ] 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
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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, 2004 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 October 13,
2004 is $ 529,337.
The number of shares of the issuer's Common Stock outstanding as of June 30,
2004 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.
The Company was then 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, the Company has sought to
create for itself a recurring revenue stream through the sale of
subscription-based services. The Company 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 called for the Company to
provide turnkey private label Internet solutions to businesses and private
organizations that desired to affiliate with a customer base via the Internet,
the business did not developed as rapidly as we had originally anticipated. We
succeeded in signing up one customer and the deployment of the Internet services
for this customer never occurred. It now appears that we will not 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.
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.
Employees
At the present time, Mr. Paul G. Carter is the sole officer, director and
employee of the Company.
Government Regulations
3
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, 2004, 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. From a business standpoint, both
subsidiaries are dormant at the present time.
Patents and Trademarks
We do not own, either legally or beneficially, any patent or trademark.
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, 2004.
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.OB. Following is the high and low sales prices for each quarter
beginning with the third calendar quarter of 2002 through June 30, 2004. 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 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
Jul - Sep 2003 0.05 0.01
Oct - Dec 2003 0.05 0.02
Jan - Mar 2004 0.05 0.02
Apr - Jun 2004 0.02 0.02
On the date of this filing, being October 13, 2004, the best bid price of our
common shares is $0.017 and the best ask price is $0.020.
At June 30, 2004 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, 2004, the Company had cash of $0.00. 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
$892,119 in advances against the notes through June 30, 2004. 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, 2004, we incurred expenses of $95,430.00.
This is down $46,803 from the $142,233.00 in expenses incurred during the fiscal
year ended June 30, 2003. However, during the fiscal year ended June 30, 2003,
$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. This is our current
business plan, to 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
CUSTOM BRANDED NETWORKS, INC.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
(STATED IN U.S. DOLLARS)
F-1
MORGAN
& COMPANY
INDEPENDENT AUDITORS' REPORT
To the Shareholders of
Custom Branded Networks, Inc.
(An exploration stage company)
We have audited the consolidated balance sheets of Custom Branded Networks, Inc.
(an exploration stage company) as at June 30, 2004 and 2003, and the
consolidated statements of operations, cash flows and stockholders' deficiency
for the years then ended, and for the period from inception on June 28, 1999 to
June 30, 2004. 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 the standards of the Public Company
Accounting Oversight Board (United States). 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, 2004 and
2003, and the results of its operations, cash flows, and changes in
stockholders' deficiency for the years then ended, and for the period from
inception on June 28, 1999 to June 30, 2004 in conformity 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, Canada /s/ Morgan & Company
September 27, 2004 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-2
CUSTOM BRANDED NETWORKS, INC.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
(STATED IN U.S. DOLLARS)
JUNE 30
2004 2003
------------ ------------
ASSETS
CURRENT
Cash . . . . . . . . . . . . . . . . . . . . . . . . $ - $ 894
EQUIPMENT, net . . . . . . . . . . . . . . . . . . . 774 967
-------------------------
$ 774 $ 1,861
===============================================================================
LIABILITIES
CURRENT
Accounts payable and accrued liabilities . . . . . . $ 323,663 $ 316,398
CONVERTIBLE NOTE PAYABLE, net of discount (Note 3) . 449,306 388,029
-------------------------
772,969 704,427
-------------------------
STOCKHOLDERS' DEFICIENCY
SHARE CAPITAL
Authorized:
50,000,000 common shares with a par value of $0.001
per share at June 30, 2004 and 2003
Issued and outstanding:
38,372,532 common shares at June 30, 2004 and 2003 . 38,373 38,373
Additional paid-in capital . . . . . . . . . . . . . 636,281 632,980
DEFICIT ACCUMULATED DURING THE EXPLORATION STAGE . . (1,446,849) (1,351,419)
OTHER. . . . . . . . . . . . . . . . . . . . . . . . - (22,500)
--------------------------
(772,195) (702,566)
--------------------------
$ 774 $ 1,861
===============================================================================
F-3
CUSTOM BRANDED NETWORKS, INC.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(STATED IN U.S. DOLLARS)
INCEPTION
JUNE 28
YEARS ENDED 1999 TO
JUNE 30 JUNE 30
2004 2003 2004
------------------------------------------------------------------
REVENUE . . . . . . . . . $ - $ - $ 184,162
---------------------------------------
EXPENSES
Administrative expenses . 39,574 47,041 1,431,322
Interest expense. . . . . 55,856 45,192 137,244
Mineral property payment. - 50,000 50,000
Write down of equipment . - - 12,445
---------------------------------------
(95,430) 142,233 1,631,011
---------------------------------------
NET LOSS FOR THE YEAR . . $ (95,430) $ (142,233) $(1,446,849)
==================================================================
NET LOSS PER SHARE, BASIC
AND DILUTED. . . . . . $ (0.01) $ (0.01)
====================================================
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING,
Basic and diluted. . . 38,372,532 36,030,066
====================================================
F-4
CUSTOM BRANDED NETWORKS, INC.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(STATED IN U.S. DOLLARS)
INCEPTION
JUNE 28
YEARS ENDED 1999 TO
JUNE 30 JUNE 30
2004 2003 2004
----------------------------------------------------------------------
OPERATING ACTIVITIES
Loss for the year . . . . . . . . $(95,430) $(142,233) $(1,446,849)
ADJUSTMENTS TO RECONCILE LOSS
TO NET CASH USED BY OPERATING
ACTIVITIES
Shares issued for other than cash 22,500 22,500 45,000
Amortization. . . . . . . . . . . 193 845 3,039
Amortization of interest. . . . . 55,178 45,192 136,566
Write down of equipment . . . . . - - 12,445
Change in accounts payable and
accrued liabilities. . . . . . 7,265 8,538 323,663
-----------------------------------
(10,294) (65,158) (926,136)
-----------------------------------
INVESTING ACTIVITY
Purchase of equipment . . . . . . - - (1,808)
-----------------------------------
FINANCING ACTIVITIES
Proceeds from loan payable to
shareholder. . . . . . . . . . - - 16,097
Issue of common shares. . . . . . - - 18,950
Note payable advances . . . . . . 9,400 65,150 892,119
Cash acquired on acquisition
of subsidiary. . . . . . . . . - - 778
-----------------------------------
9,400 65,150 927,944
-----------------------------------
DECREASE IN CASH. . . . . . . . . (894) (8) -
CASH, BEGINNING OF YEAR . . . . . 894 902 -
-----------------------------------
CASH, END OF YEAR . . . . . . . . $ - $ 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-5
CUSTOM BRANDED NETWORKS, INC.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' DEFICIENCY
PERIOD FROM INCEPTION ON JUNE 28, 1999 TO JUNE 30, 2004
(STATED IN U.S. DOLLARS)
DEFICIT
ACCUMULATED
ADDITIONAL DURING THE
COMMON STOCK PAID-IN EXPLORATION
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) (1) 16,098 - - 16,097
------------------------------------------------------------------
2,020 2 35,045 - (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) (2) 2 - - -
Aquistar Ventures
(USA) Inc. . . . . . . . 15,463,008 15,463 (15,463) - - -
------------------------------------------------------------------
15,463,008 15,463 19,584 - (159,909) (124,862)
Shares allotted in
connection with the
acquisition of Custom
Branded Networks, Inc. . 25,000,000 25,000 (9,772) - - 15,228
Less: Allotted and not
yet issued . . . . . . . (8,090,476) (8,090) 8,090 - - -
Common stock
conversion rights. . . . - - 421,214 - - 421,214
Net loss for the year. . . - - - - (723,239) (723,239)
------------------------------------------------------------------
Balance, June 30, 2001 . . 32,372,532 32,373 439,116 - (883,148) (411,659)
Additional shares issued
in connection with the
acquisition of Custom
Branded Networks, Inc.. 1,500,000 1,500 (1,500) - - -
Common stock
conversion rights. . . . - - 109,748 - - 109,748
Net loss for the year. . . - - - - (326,038) (326,038)
------------------------------------------------------------------
Balance, June 30, 2002 . . 33,872,532 33,873 547,364 - (1,209,186) (627,949)
F-6
CUSTOM BRANDED NETWORKS, INC.
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED STATEMENT OF SHAREHOLDERS' DEFICIENCY (CONTINUED)
PERIOD FROM INCEPTION ON JUNE 28, 1999 TO JUNE 30, 2004
(STATED IN U.S. DOLLARS)
DEFICIT
ACCUMULATED
ADDITIONAL DURING THE
COMMON STOCK PAID-IN EXPLORATION
SHARES AMOUNT CAPITAL OTHER STAGE TOTAL
------------------------------------------------------------------
Balance, June 30, 2002 . 33,872,532 $33,873 $547,364 $ - $(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 38,373 632,980 (22,500) (1,351,419) (702,566)
Amortization of deferred
compensation. . . . . - - - 22,500 - 22,500
Common stock
conversion rights . . - - 3,301 - - 3,301
Net loss for the year. . - - - - (95,430) (95,430)
------------------------------------------------------------------
Balance, June 30, 2004 . 38,372,532 $38,373 $636,281 $ - $(1,446,849) $(772,195)
==================================================================
F-7
CUSTOM BRANDED NETWORKS, INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
(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 mineral 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 $1,446,849 since inception, 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 (a Delaware
corporation) and its wholly-owned subsidiary, Custom Branded Networks, Inc. (a
Nevada corporation).
F-8
CUSTOM BRANDED NETWORKS, INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
(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) Equipment
Equipment is recorded at cost and is amortized over its useful life at a rate of
20% on a declining balance 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, and accounts payable and
accrued liabilities.
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-9
CUSTOM BRANDED NETWORKS, INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
(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.
The Company has not granted any stock options during the years ended June 30,
2004 and 2003.
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 dilutive 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.
F-10
CUSTOM BRANDED NETWORKS, INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
(STATED IN U.S. DOLLARS)
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
j) New Accounting Pronouncements
In May 2003, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 150 - "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity".
SFAS No. 150 establishes standards for how an issuer classifies and measures
certain financial instruments with characteristics of both liabilities and
equity. It requires that an issuer classify a financial instrument that is
within its scope as a liability (or an asset in some circumstances). The
requirements of SFAS No. 150 apply to issuers' classification and measurement of
freestanding financial instruments, including those that comprise more than one
option or forward contract. SFAS No. 150 does not apply to features that are
embedded in a financial instrument that is not a derivative in its entirety.
SFAS No. 150 is effective for financial instruments entered into or modified
after May 31, 2003, and otherwise is effective at the beginning of the first
interim period beginning after June 15, 2003, except for mandatorily redeemable
financial instruments of non-public entities. It is to be implemented by
reporting the cumulative effect of a change in an accounting principle for
financial instruments created before the issuance date of SFAS No. 150 and still
existing at the beginning of the interim period of adoption. Restatement is not
permitted. The adoption of this standard did not have a material effect on the
Company's results of operations or financial position.
3. 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 $892,119 in advances through to June 30, 2004. 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 share of common
stock at an exercise price of $0.05 per share. The warrants expire three years
from the grant day.
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
$579,378 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
$55,178.
F-11
CUSTOM BRANDED NETWORKS, INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
(STATED IN U.S. DOLLARS)
4. 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, as such time as
legal title to the mineral property is delivered. As at June 30, 2004, the
Company has not received legal title to the mineral property.
5. RELATED PARTIES
As at June 30, 2004, an amount of $303,526 (2003 - $303,526) is due to officers
and directors, and it is included in accounts payable and accrued liabilities.
6. INCOME TAX LOSSES
The Company's provision for income taxes differs from the amounts computed by
applying the United States federal statutory income tax rates to the loss as a
result of the following:
2004 2003
========= =========
Statutory rates. . . . . . . . . . . . . . . . . . . 35% 35%
--------------------
Recovery of income taxes computed at statutory rates $(33,000) $(50,000)
Mineral property . . . . . . . . . . . . . . . . . . 1,000 5,000
Tax benefit not recognized on current year's losses. 32,000 45,000
--------------------
$ - $ -
=======================
The tax effects of temporary timing differences that give rise to significant
components of the future tax assets and future tax liabilities are as follows:
2004 2003
========== ==========
Net operating loss carry forward $ 500,000 $ 468,000
Mineral property . . . . . . . . 4,000 5,000
Less: Valuation allowance . . . (504,000) (473,000)
----------------------
Deferred tax asset . . . . . . . $ - $ -
======================
F-12
CUSTOM BRANDED NETWORKS, INC.
(AN EXPLORATION STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2004 AND 2003
(STATED IN U.S. DOLLARS)
6. INCOME TAX LOSSES (Continued)
At June 30, 2004, the Company has net operating losses of approximately
$1,428,000, which may be carried forward to apply against future years' income
for tax purposes expiring as follows:
2020 $160,000
========
2021 $723,000
2022 $326,000
2023 $127,000
2024 $ 92,000
F-13
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.
ITEM 8A. 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.
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 42 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
------------------------------ --------- ------------ ----------------
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
---- ------- ---- ------- ----- ------ ------- ------- --------- ----
Paul G.
Carter CEO
and 2002-
Director 2003 0 0 0 0 0 0 0
2003-
2004 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
OTC Investments, Ltd. 17,842,380(1) 32.0%
1710-1177 West Hastings Street
Vancouver, B.C. V6E 2L3
All Executive officers and
Directors as a Group (one) 0 0%
(1) OTC Investments, Ltd. does not hold any shares directly but is the bene-
ficial holder of the shares as the holder of a senior security with the
right to convert to 17,842,380 common shares within 60 days.
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 $392,119 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, 2004, the
total advances received on the Notes totaled in the aggregate $892,119.
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)
14.1 Code of Ethics
21.1 Subsidiaries (2)
31.1 Certification of CEO and CFO pursuant to Securities Exchange Act
rules 13a-15 and 15d-15(c) as adopted pursuant to section 302
of the Sarbanes-Oxley act of 2002.
32.1 Certification of CEO and CFO 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. PRINCIPAL ACCOUNTANT FEES AND SERVICES
AUDIT FEES
The aggregate fees billed by our auditors for professional services rendered in
connection with the audit of our annual financial statements for the fiscal year
ended June 30, 2003 was CAN$5,950. The aggregate fees billed by our auditors
for professional services rendered in connection with the audit of our annual
financial statements for the fiscal year ended June 30, 2004 was CAN$4,500.
AUDIT-RELATED FEES
Our auditors did not bill any additional fees for assurance and related services
that are reasonably related to the performance of the audit or review of our
financial statements.
TAX FEES
The aggregate fees billed by our auditors for professional services for tax
compliance, tax advice, and tax planning were $0 and $0 for the fiscal years
ended June 30, 2003 and 2004.
ALL OTHER FEES
The aggregate fees billed by our auditors for all other non-audit services, such
as attending meetings and other miscellaneous financial consulting, for the
fiscal years ended June 30, 2003 and 2004 were $0 and $0 respectively.
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: October 13, 2004
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: October 13, 2004
11