Obn Holdings New (GREY:OBNI)

Obn Holdings Has been removed from the GeoSpecial on the Radar list due to a recurring inabilty to execute its business plan.

Plastics Recycling Operations

Currently there is insufficient funds to implement the marketing plan for the plastics recycling operations. As a result the Company has been unable to hire the required sales staff, or account manager. The Company believed that liquidity would not a concern because cash was not required until it began its own plastic recycling operation that would use the exclusive technology license. However, the Company has been unable to identify a suitable recycling entity in the United States to acquire. In order to generate cash, the Company sought to sell raw materials to the Chinese facility from which the exclusive license agreement was acquired. However, the company has not had adequate funding to purchase raw plastic material, nor is there funds to cover the cost for shipping the materials to the recycling facilities in China.

Intelligent Traffic Systems Operations

Currently there is insufficient funds to implement the marketing plan for the intelligent traffic systems operations. As a result the Company has been unable to hire the required sales staff or an account manager. The Company has been unable to submit any bids on traffic system installation projects at municipalities. Further, no traffic systems units have been independently sold (i.e., without installation responsibility). Since acquiring the proprietary technology license in February 2008, no revenues have been generated. Moreover, without a sales staff it is unlikely that revenue will be generated. As a result of the lack of revenue and immediate prospects, management recorded an impairment expense equal to 100% of the technology license value during the quarter ending March 31, 2010. Management continues to look for the capital to implement the marketing plan.

Added to the GeoSpecial list on January 20, 2010 @ $0.10

Catalyst: Shares were trading below book value per share of $0.21; Company is taking strides to achieve profitability.
Peak performance: Reached a high of  on $0.17 on January 21, 2010
Current Price: $0.10
 
Current road block:  Trades on the Pink Sheets; company has still failed to achieve consistent profitability; Negative working capital position; Going concern comment in the SEC filings.

Remains on the GeoSpecial list: While the company is still losing money, comments in its most recent quarterly filing indicate that profitability may just be around the corner, fueled by commercialization of  new business ventures and a stabilization in the swine flu epidemic that was affecting its pork export operations. Maximizing shareholder value is also high on management's list. Please see note or December 10Q for a detailed explanation of  OBNI's past and current situation.  OBNI is a high risk, high reward situation.  We are having a difficult time believing that management can turn this ship around, but at current prices investors may find a reason to take a chance.  Our cautious stance is also supported by the fact that the company has still not filed its 2010 fiscal third quarter 10Q ended March.

We also need to be concerned about dilution:

"Management's goal is to increase shareholder value. The Company's efforts to fully implement its business plan of acquisition and subsidiary development. Financial risks will be minimized by geographical and industry diversification.  In order to fund the remaining elements ofits business plan, management will file an S-1 to register 25 million free trading shares that will be sold into the markets for cash.  However, the revenues generated from the expanded operations may make the sale of all registered shares unnecessary."

Our bet is on the company having to issue shares, but maybe we will be pleasantly surprised

Going Concern

At June 30, 2009 the report of our independent registered public accounting firm included a "going concern" statement. Several factors influenced the their decision to include this statement as because the criteria for inclusion of a "going concern" statement was have changed since out last annual filing. The auditor considers factors such as the state of the economy, trends in earnings, current profitability, aging of liabilities and aging of receivables, whereas in the past the criteria was a measure of the Company's ability to meet obligations and operating expenses for upcoming twelve month period.

The Company recognizes that it must adequately address each of the above factors to have the "going concern" statement removed. Management's plans and progress toward achieving that end includes the following.

1) Economy. By all indications, except employment figures, the economy has begun to improve since the balance sheet of this report. This is evidence by increases in financial activity around the world. Management immediately initiated an educational and marketing plan upon learning that swine flu was not caused by eating pork products. News and scientific reports have helped our cause to educate customers and increase sales. We have seen positive results as customer sales have begun to increase. Sales for the quarter ending September 30, 2009 were more than twice those for the quarter ending June 30, 2009. Moreover, we have noted increased activity in our entertainment segment with several projects planned in China and Japan during this current fiscal year. Additionally, our continuing development of OBN's operations outside of the United States further insulates us from the economic problems one would experience when operating in a single region.

2) Profitability. The loss reported for the year ending June 30, 2009 is attributable to three major reasons. First, the Company made one time special stock bonus to executives in the amount of $1,680,000. The stock is being held in a non-qualified deferred compensation plan until May 2011. Secondly, the Company incurred $980,000 of pork product spoilage associated with the swine flu concerns. Thirdly, sales of pork products took precipitously decrease as result of the swine flu. Management believes that each of these is special one time events that are unlikely to occur in the future.

3) Trends. As indicated above, the Company reported a loss in four of last five year annual filings. The first year with positive earnings was last year and Management had every reason to believe that a profit would be posted for this year end at June 30, 2009 until the swine flu pandemic was announced. Management is still mindful of its increasing positive trend of sales and expects to see positive net income trends in future periods.

4) Aging of Liabilities. At June 30, 2009 the outstanding receivables liabilities totaled $3,695,933. Since that date Management has retired $111,252 of the debt by successfully negotiating agreements to convert the debt to stock equity. A significant portion of the debt was deferred revenue that has been recognized as revenue. A total of $404,000 was reduced from Commissions payable as the sales broker purchased the receivables. A total of $295,822 of accounts payable was paid during the six month period December 31, 2009. A total of $214,000 of debt has been on the books past the statute of limitations for collection and will be written off prior to June 30, 2010. The remaining debt represents accrued salaries, commission payables and related party loans. All of these parties have indicated that they will wait until the Company is more profitable before requesting payment.

5) Aging of Receivables. Currently there is $404,000 of receivables related to pork sales made in October 2008. This amount is the total of four shipments to a new customer that was referred to Management by one of our commissioned sales brokers. Management has finalized negotiations for the broker to purchase the receivable at the face amount in exchange for not having to return the paid commission. Thus, these receivables have been as of December 31, 2009. All remaining receivables are less than thiry (30) days old.

In addition, to the above plans and actions that address the "going concern" issues, Management is expanding its product line and marketing activities. Plans to sale an established cosmetics line and additional food products are being implemented currently. Details of upcoming entertainment projects, plastics recycling projects and intelligent traffic system projects are discussed in the marketing section of this document.

As a result of its activities, the Company has been successful in partially implementing its acquisition and diversification plan. With this filing the company is current with its SEC filings and is currently applying to be reinstated for trading on the OTCBB trading exchange. Further, the company will immediately file an S-1 to register 25 million free trading shares that will be sold into the marketplace to raise the funds necessary to more fully implement its business plan. With the stricter "naked shorting" regulations and our more robust financials, the Company does not expect to encounter the problem it had with its initial public offering.

On January 20, 2010 we coded OBNI as low tier GeoSpecial at $0.10. The company just turned profitable and as in banking that its business model centered on creating a portfolio of profitable companies will build on this trend.

Year Ends in June	1st Quarter 2010	1st Quarter 2009
GAAP Revenue	$2.74 million	$6.43 million
GAAP EPS	$0.01	$-0.05
Tax Rate	0.00%	0.00%
Fully Diluted Shares	20,003,642	11,379,389

Source: Filing For the quarterly period ended September 30, 2009

Even though revenues declined, the company is leaner now, which bodes well for it if revenues begin to increase. Comments in its last press financial press release stating, that “OBN expects profits to continue increasing in future quarters as we continue developing our business model,” raises our comfort level.

The company’s roots originated from its satellite broadcasting operations, a business segment it later abandoned. It replaced those operations with an internet broadcasting and television/film production business that targets the Japanese market. However, this endeavor is still not a significant contributor to OBN Holding's business.

In order to fuel growth, OBN Holdings set out to use minimal investment to acquire companies that required the management skill and business relationships possessed by OBNI. This “Buffet-inspired" strategy has led to the purchase of three companies:

Near-Term Emphasis

1. Export trading business. In June 2008, OBNI acquired Kyodo USA Inc., a profitable exporter of pork to Japan. OBNI felt that its relationships established with its prior dealings in Japan, China and the Caribbean could provide additional growth drivers for Kyodo. To that end, it is in the midst of expanding its food product lines to include more consumer oriented items, as well as grow its customer base in Japan and other markets. Kyodo is just beginning to experience an uptick in business that was negatively impacted by the swine flu pandemic.

The entry into the export business has also spawned other initiatives unrelated to Kyodo, such as bottle water, nutraceutical, wine and batteries. This division is expected to be the main driver of growth for the near future.

Longer-Term Emphasis

2. Traffic violation information. In February 2008, OBNI acquired the United States rights, from a Chinese entity, to proprietary technology that captures traffic violation information on video and still media. Its goal is to monetize this technology by selling sub licenses or acquiring a company that can utilize this technology.

3. Plastics recylcing. In February 2008, OBNI entered the plastics recycling industry by purchasing the exclusive North American rights, from Foshan Plastics to a Chinese proprietary "green" technology that allows "unrecyclable plastics" to be recycled. In return, OBNI will provide the raw material, equipment and labor costs to Foshan to manufacture products for OBNI's customers. In North America, OBNI plans to acquire a company that will utilize this technology.

Caveats:

• We are assuming that the company will require additional capital to implement its long-term strategy.   
• We generally shy away from firms that are involved in many different endeavors
• Current ratio is below 1.
• Working capital deficit of $988,000.

We are taking somewhat of a chance here, as we normally would wait for the resolution of liquidity problems before coding a stock as a GeoSpecial. However, positive company comments and the following statement from its filings could indicate that OBN Holdings liquidity problems may be on the path to a recovery, possibly giving investors a reason to push shares to book:

"Management's believes that the acquisition of Kyodo USA in June 2008 addresses any future liquidity issues because of its strong cash flow and cash balances in its bank accounts."

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Positions: Long OBNI

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We are coding Obn Holdings Inc. as low tier GeoSpecial at $0.10 based on the following:

• November 11, 2009 (Business Wire)

Excerpt from the CEO's letter to shareholders - "The remainder of 2009 and all of 2010 will be an extremely active time for your company. We have developed a very aggressive plan to increase OBN’s value and profitability by acquiring and developing profitable companies. OBN is currently developing in the regions that we have entered, and are planning to enter into new regions."

• November 22, 2009 (Business Wire)

From Press release - "OBN Holdings, Inc. (Pink Sheets:OBNI) today announces the filing of its Q1, 2010 10-Q, and that the company posted a profit for the period." The statements reveal that the company posted net income of $178,000, or $0.01 per share, on sales that exceeded $2.7 million for the period. “We are very pleased with the results,” stated Roger Neal Smith, OBN Holdings President and CEO. “We expect OBN profits to continue increasing in future quarters as we continue developing our business model."

• December 1, 2009 (Business Wire)

From Press release - "OBN Holdings, Inc. (OTCBB:OBNI) today announces that, as of November 25, 2009, its common stock has commenced trading on the Over-The-Counter Bulletin Board."

• At $0.10 the stock is trading below its book value per share of $0.21.

Caveats:

• We have yet to interview the company about its growth plans and liquidity needs.
• We generally shy away from firms that are involved in many different endeavors
• Current ratio is below 1.
• Working capital deficit of $988,000.

We are taking somewhat of a chance here, as we normally would wait for the resolution of liquidity problems before coding a stock as a GeoSpecial. But positive company comments and the following statement from its filings could indicate that Obn Holdings liquidity problems may be on the path to a recovery, possibly giving investors a reason to push shares to book:

"Management's believes that the acquisition of Kyodo USA in June 2008 addresses any future liquidity issues because of its strong cash flow and cash balances in its bank accounts."