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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington D.C. 20549

 

 

FORM 10-Q

 

 

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

 

For the quarterly period ended November 30, 2012

 

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

 

For the transition period from ____________ to ____________.

 

Commission File Number     333-166064

 

 

OBJ Enterprises, Inc.
(Exact Name of Registrant as Specified in Charter)

 

 

Florida

27-1070374

(State or Other Jurisdiction of

Incorporation or Organization)

(I.R.S. Employer

Identification Number)

 

677 N. Washington Blvd., Sarasota, FL 34236

(Address of Principal Executive Offices)

 

(941) 952-5825

(Registrant’s Telephone Number)

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 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.    Yes  x    No  ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “accelerated filer, large accelerated filer and smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer

¨

Accelerated filer

¨

Non-accelerated filer

¨

Smaller reporting company

x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

 

There were 7,027,500 shares of the Registrant’s common stock, $0.0001 par value outstanding as of January 10, 2013.

 



OBJ Enterprises, Inc.

(A Development Stage Enterprise)

 

Contents

 

Part I – Financial Information

 

 

 

 

Item 1.

Financial Statements

1

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operation

9

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

12

 

 

 

Item 4.

Controls and Procedures

12

 

 

Part II – Other Information

 

 

 

 

Item 1.

Legal Proceedings

12

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

12

 

 

 

Item 3.

Defaults Upon Senior Securities

12

 

 

 

Item 4.

Mine Safety Disclosures

12

 

 

 

Item 5.

Other Information

12

 

 

 

Item 6.

Exhibits

13

 

 

Signatures

13

 



PART I — FINANCIAL INFORMATION

 

Statements in this Quarterly Report on Form 10-Q may be “forward-looking statements.” Forward-looking statements include, but are not limited to, statements that express our intentions, beliefs, expectations, strategies, predictions or any other statements relating to our future activities or other future events or conditions. These statements are based on our current expectations, estimates and projections about our business based, in part, on assumptions made by our management. These assumptions are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in the forward-looking statements due to numerous factors, including those risks discussed in this Quarterly Report on Form 10-Q, under “Management’s Discussion and Analysis of Financial Condition or Plan of Operation” and in other documents which we file with the Securities and Exchange Commission (“SEC”).

 

In addition, such statements could be affected by risks and uncertainties related to our financial condition, factors that affect our industry, market and customer acceptance, changes in technology, fluctuations in our quarterly results, our ability to continue and manage our growth, liquidity and other capital resource issues, competition, fulfillment of contractual obligations by other parties and general economic conditions. Any forward-looking statements speak only as of the date on which they are made, and we do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of this Form 10-Q Quarterly Report, except as required by law.

 

 

Item 1.

Financial Statements

 

OBJ Enterprises, Inc.

(A Development Stage Enterprise)

 

Contents

 

Consolidated Financial Statements:

 

Consolidated Balance Sheets, as of November 30, 2012 (Unaudited) and August 31, 2012 (Audited)

2

 

 

Consolidated Statements of Operations, for three months ended November 30, 2012 and 2011 and for the period from September 21, 2009 (date of inception) through November 30, 2012 (Unaudited)

3

 

 

Consolidated Statements of Changes in Stockholders’ Equity, for the period from September 21, 2009 (date of inception) through November 30, 2012 (Unaudited)

4

 

 

Consolidated Statements of Cash Flows, for the three months ended November 30, 2012 and 2011 and for the period from September 21, 2009 (date of inception) through November 30, 2012 (Unaudited)

5

 

 

Notes to Unaudited Consolidated Financial Statements

6

 

- 1 -



OBJ Enterprises, Inc.

(A Development Stage Enterprise)

 

Consolidated Balance Sheets

 

 

 

November 30, 2012

 

August 31, 2012

 

Assets

 

(Unaudited)

 

(Audited)

 

Current assets:

 

 

 

 

 

 

 

Cash

 

$

3,731

 

$

2,652

 

Prepaid expenses

 

 

 

 

 

Total current assets

 

 

3,731

 

 

2,652

 

 

 

 

 

 

 

 

 

Total assets

 

$

3,731

 

$

2,652

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

35,302

 

$

31,054

 

Advances payable

 

 

282,612

 

 

280,372

 

Total current liabilities

 

 

317,914

 

 

311,426

 

 

 

 

 

 

 

 

 

Convertible notes payable, net of discount of $96,636 and $151,219, respectively

 

 

194,529

 

 

190,546

 

 

 

 

 

 

 

 

 

Total liabilities

 

 

512,443

 

 

501,972

 

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

Preferred stock; $0.0001 par value; 10,000,000 shares authorized; no shares issued and outstanding at November 30, 2012 and August 31, 2012

 

 

 

 

 

Common stock; $0.0001 par value; 100,000,000 shares authorized; 7,027,500 and 337,500 issued and outstanding at November 30, 2012 and August 31, 2012, respectively

 

 

703

 

 

61

 

Additional paid in capital

 

 

1,837,763

 

 

1,675,205

 

Deficit accumulated during development stage

 

 

(2,347,178

)

 

(2,174,586

)

Total stockholders’ equity

 

 

(508,712

)

 

(499,320

)

 

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

3,731

 

$

2,652

 

 

The accompanying notes are an integral part of these financial statements.

 

- 2 -



OBJ Enterprises, Inc.

(A Development Stage Enterprise)

 

Consolidated Statements of Operations

(Unaudited)

 

 

 

Three months ended November 30,

 

Period from
September 21, 2009
(Date of Inception)
through
November 30,

 

 

 

2012

 

2011

 

2012

 

Expenses:

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative

 

$

58,009

 

$

390,226

 

$

1,953,636

 

 

 

 

 

 

 

 

 

 

 

 

Loss from operations

 

 

(58,009

)

 

(390,226

)

 

(1,953,636

)

 

 

 

 

 

 

 

 

 

 

 

Other income (expense), net

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(114,583

)

 

(4,141

)

 

(393,542

)

 

 

 

(114,583

)

 

(4,141

)

 

(393,542

)

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(172,592

)

$

(394,367

)

$

(2,347,178

)

 

 

 

 

 

 

 

 

 

 

 

Net loss per share

 

$

(0.12

)

$

(0.97

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding

 

 

1,467,720

 

 

405,412

 

 

 

 

 

The accompanying notes are an integral part of these financial statements.

 

- 3 -



OBJ Enterprises, Inc.

(A Development Stage Enterprise)

 

Consolidated Statement of Changes in Stockholders’ Equity

For the Period from September 21, 2009 (Date of Inception) through November 30, 2012

(Unaudited)

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

Shares

 

Amount

 

Additional
Paid-in
Capital

 

Accumulated
Deficit

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, September 21, 2009, Date of Inception

 

 

$

 

$

 

$

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock for cash,

 

225,000

 

 

23

 

 

8,977

 

 

 

 

9,000

 

Issuance of common stock for cash

 

75,000

 

 

8

 

 

52,492

 

 

 

 

52,500

 

Net loss for the period

 

 

 

 

 

 

 

(20,572

)

 

(20,572

)

Balance, August 31, 2010

 

300,000

 

$

31

 

$

61,469

 

$

(20,572

)

$

40,928

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock for services

 

37,500

 

 

3

 

 

619,997

 

 

 

 

620,000

 

Net loss for the period

 

 

 

 

 

 

 

(1,267,017

)

 

(1,267,017

)

Balance, August 31, 2011

 

337,500

 

$

34

 

$

681,466

 

$

(1,287,589

)

$

(606,089

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock for conversion of debt

 

247,500

 

 

25

 

 

241,828

 

 

 

 

241,853

 

Issuance of common stock for services

 

22,500

 

 

2

 

 

314,998

 

 

 

 

315,000

 

Discount on convertible notes payable

 

 

 

 

 

436,913

 

 

 

 

436,913

 

Net loss

 

 

 

 

 

 

 

(886,997

)

 

(886,997

)

Balance, August 31, 2012

 

607,500

 

$

61

 

$

1,675,205

 

$

(2,174,586

)

$

(499,320

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock for conversion of debt

 

6,420,000

 

 

642

 

 

109,958

 

 

 

 

110,600

 

Discount on convertible notes payable

 

 

 

 

 

52,600

 

 

 

 

52,600

 

Net loss

 

 

 

 

 

 

 

(172,592

)

 

(172,592

)

Balance, November 30, 2012

 

7,027,500

 

$

703

 

$

1,837,763

 

$

(2,347,178

)

$

(508,712

)

 

On November 13, 2012, the Company effected a one-for-40 reverse stock split.  All share and per share amounts have been retroactively restated to reflect the reverse split.


The accompanying notes are an integral part of these financial statements

 

- 4 -



OBJ Enterprises, Inc.

(A Development Stage Enterprise)

 

Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

Three months ended November 30,

 

Period from
September 21, 2009
(date of inception)
through
November 30,

 

 

 

2012

 

2011

 

2012

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(172,592

)

$

(394,367

)

$

(2,347,178

)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

 

 

 

 

 

 

 

Common stock issued for services

 

 

 

 

315,000

 

 

935,000

 

Amortization of discount on convertible note payable

 

 

107,183

 

 

3,347

 

 

343,730

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

 

4,248

 

 

(45,330

)

 

35,302

 

Accrued interest payable

 

 

7,400

 

 

794

 

 

49,812

 

Net cash used by operating activities

 

 

(53,761

)

 

(120,556

)

 

(983,334

)

 

 

 

 

 

 

 

 

 

 

 

FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

Proceeds from advances

 

 

54,840

 

 

80,645

 

 

925,565

 

Proceeds from issuance of common stock

 

 

 

 

 

 

61,500

 

Net cash provided by financing activities

 

 

54,840

 

 

80,645

 

 

987,065

 

 

 

 

 

 

 

 

 

 

 

 

NET (DECREASE) INCREASE IN CASH

 

 

1,079

 

 

(39,911

)

 

3,731

 

CASH, BEGINNING OF PERIOD

 

 

2,652

 

 

45,169

 

 

 

CASH, END OF PERIOD

 

$

3,731

 

$

5,258

 

$

3,731

 

 

 

 

 

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

 

 

 

Interest

 

$

 

$

 

$

 

Taxes

 

$

 

$

 

$

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued for services

 

$

 

$

315,000

 

$

935,000

 

Common Stock issued for conversion of debt

 

$

110,600

 

$

 

$

352,453

 

 

The accompanying notes are an integral part of these financial statements.

 

- 5 -



OBJ Enterprises, Inc.

(A Development Stage Enterprise)

 

Notes to Unaudited Consolidated Financial Statements

 

1. Background Information

 

OBJ Enterprises, Inc. (the “Company”), a Florida corporation, was originally formed as Obscene Jeans Corp. to design, develop, wholesale, market, distribute and sell a woman’s line of apparel using the name “Obscene Brand Jeans.” On July 27, 2012, the Company changed its name to OBJ Enterprises, Inc.

 

On November 10, 2011, the Company formed Obscene Interactive, LLC (“Obscene Interactive”), a wholly-owned subsidiary to pursue emerging opportunities in the digital gaming industry.  Obscene Interactive actively pursues potential acquisition targets in the online and social media industry while exploring consumer gaming trends to develop games internally and through joint venture agreements.

 

On May 9, 2012 (revised on June 9, 2012), the Company engaged Street Source, LLC to act as an independent gaming developer for the Company through a joint venture agreement. The primary focus of this partnership is to develop online and social games that leverage emerging consumer gaming portals; such as smart phones and mobile devices. See Note 4.


The Company was incorporated on September 21, 2009 (Date of Inception) with its corporate headquarters located in Sarasota, Florida. Its fiscal year-end is August 31.

 

2. Going Concern

 

For the three months ended November 30, 2012, the Company had a net loss of $172,592 and negative cash flow from operating activities of $53,761. As of November 30, 2012, the Company has negative working capital of $314,183.  The Company has not emerged from the development stage.

 

These factors raise a substantial doubt about the Company’s ability to continue as a going concern.  The accompanying consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the possible inability of the Company to continue as a going concern.

 

The Company does not have the resources at this time to repay its credit and debt obligations, make any payments in the form of dividends to its shareholders or fully implement its business plan. Without additional capital, the Company will not be able to remain in business.

 

Management has plans to address the Company’s financial situation as follows:

 

In the near term, management plans to continue to focus on raising the funds necessary to fully implement the Company’s business plan.  Management will continue to seek out debt financing to obtain the capital required to meet the Company’s financial obligations.  There is no assurance, however, that lenders will continue to advance capital to the Company or that the new business operations will be profitable.  The possibility of failure in obtaining additional funding and the potential inability to achieve profitability raise doubts about the Company’s ability to continue as a going concern.

 

In the long term, management believes that the Company’s projects and initiatives will be successful and will provide cash flow to the Company which will be used to finance the Company’s future growth.  However, there can be no assurances that the Company’s planned activities will be successful, or that the Company will ultimately attain profitability.  The Company’s long term viability depends on its ability to obtain adequate sources of debt or equity funding to meet current commitments and fund the continuation of its business operations, and the ability of the Company to ultimately achieve adequate profitability and cash flows from operations to sustain its operations.

 

3. Financial Statements

 

Basis of Presentation – The Company’s consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”).  In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the result of operations for the periods presented have been reflected herein.

 

- 6 -



Consolidated Financial Statements – The consolidated financial statements of the Company include the accounts of the Company and its wholly-owned subsidiary, Obscene Interactive, from the date of its formation. Significant intercompany transactions have been eliminated in consolidation.

 

Interim Financial Statements – These financial statements are prepared on the accrual basis of accounting in conformity with GAAP and the rules of the Securities and Exchange Commission (“SEC”), and should be read in conjunction with the audited financial statements for the year ended August 31, 2012 and notes thereto contained in the Company’s Annual Report filed with the SEC on Form 10-K. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein.  The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosures contained in the audited financial statements for the most recent fiscal year ended August 31, 2012, as reported in the Form 10-K, have been omitted.

 

Development Stage Company – The Company is considered to be in the development stage as defined in ASC 915, “Accounting and Reporting by Development Stage Enterprises”. The Company has devoted substantially all of its efforts to the corporate formation, the raising of capital and attempting to generate initial revenues.

 

Use of Estimates – The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ.

 

Cash and cash equivalents – All cash is maintained with a major financial institution in the United States of America. Deposits with this bank may occasionally exceed the amount of insurance provided on such deposits. Temporary cash investments with an original maturity of three months or less are considered to be cash equivalents.

 

Recent accounting pronouncements – Except for rules and interpretive releases of the SEC under authority of federal securities laws and a limited number of grandfathered standards, the FASB Accounting Standards Codification™ (“ASC”) is the sole source of authoritative GAAP literature recognized by the FASB and applicable to the Company.  Management has reviewed the aforementioned rules and releases and believes any effect will not have a material impact on the Company’s present or future financial statements.


4. Joint Venture Agreement

 

On May 9, 2012, the Company entered into a joint venture agreement (the “Joint Venture Agreement”) with Source Street, LLC, a Texas limited liability company (“Source Street”). Source Street then established Novalon Games (“Novalon”) as the gaming development entity and brand name of the joint venture.


The purpose of the joint venture is to fund the planning, development and launch of digital games delivered across social platforms and mobile devices for fun, educational and corporate training purposes. The Company will contribute the working capital for the joint venture and Source Street will contribute its knowledge and development skills to complete the design and launch of online, mobile and social games.


The Company paid $5,000 to the joint venture upon signing the agreement and will make weekly payments of $2,500 for the term of the joint venture. The Company will share profits and losses of the joint venture equally with Source Street.

 

5. Advances from Third Parties

 

During the three months ended November 30, 2012, the Company received net, non-interest bearing advances from certain third parties totaling $54,840.  The total amount due under these advances as of November 30, 2012 was $282,612.  These advances are not collateralized and are due on demand.  Interest was not imputed on these advances due to immateriality.

 

On October 31, 2012, the Company agreed with the lender to refinance a portion of these advances in the amount of $52,600 into a convertible promissory note. See Note 6.

 

- 7 -



6. Convertible note payable

 

On October 31, 2012, the Company signed a Convertible Promissory Note which refinanced non-interest bearing advances in the amount of $52,600 into a convertible note payable. The Convertible Promissory Note bears interest at 10% per annum and is payable along with accrued interest on October 31, 2013.  The Convertible Promissory Note is convertible into common stock at the option of the holder at the rate of $0.01 per share.

 

The Company evaluated the terms of this note in accordance with ASC Topic No. 815 – 40, Derivatives and Hedging - Contracts in Entity’s Own Stock and determined that the underlying common stock is indexed to the Company’s common stock. The Company determined that the conversion feature did not meet the definition of a liability and therefore did not bifurcate the conversion feature and account for it as a separate derivative liability. The Company evaluated the conversion feature for a beneficial conversion feature. The effective conversion price was compared to the market price on the date of the notes and was deemed to be less than the market value of underlying common stock at the inception of the note.  Therefore, the Company recognized a beneficial conversion feature in the amount of $52,600 on October 31, 2012. The beneficial conversion feature was recognized as an increase in additional paid-in capital and a discount to the Convertible Note Payable. The discount to the Convertible Note Payable is being amortized to interest expense over the life of the note.

 

The Company evaluated the application of ASC 470-50-40/55, Debtor’s Accounting for a Modification or Exchange of Debt Instrumentas it applies to the two notes listed above and concluded that the revised terms constituted a debt modification rather than a debt extinguishment because the present value of the cash flow under the terms of each of the new instruments was less than 10% from the present value of the remaining cash flows under the terms of the original notes. No gain or loss on the modifications was required to be recognized.

 

On November 16, 2012, the holder of the Convertible Note Payable elected to convert principal in the amount of $52,600 into 5,260,000 shares of common stock. On that date, the unamortized discount related to this principal was $52,600. The unamortized discount was immediately amortized to interest expense upon conversion.

 

On November 26, 2012, the holders of the Convertible Note Payable dated August 31, 2011 elected to convert principal in the amount of $58,000 into 1,160,000 shares of common stock. On that date, the unamortized discount related to this principal was $24,591. The unamortized discount was immediately amortized to interest expense upon conversion.

 

The Company accrued interest in the amount of $7,400 during the three months ended November 30, 2012. This amount was unpaid as of November 30, 2012 and is included in convertible notes payable as of that date. During the three months ended November 30, 2012, discount on convertible notes payable in the amount of $107,183 was amortized to interest expense.

 

7. Common Stock

 

On November 13, 2012, the Company effected a one-for-40 reverse stock split.  All share and per share amounts have been retroactively restated to reflect the reverse split.


On November 16, 2012, the Company issued 5,260,000 shares of common stock as a result of the conversion of the Convertible Note Payable in the amount of $52,600.


On November 26, 2012, the Company issued 1,160,000 shares of common stock as a result of the conversion of the Convertible Note Payable in the amount of $58,000.


8. Subsequent Events

 

Management has evaluated subsequent events through January 10, 2013, the date the financial statements were available to be issued.  Management is not aware of any significant events that occurred subsequent to the balance sheet date that would have a material effect on the financial statements thereby requiring adjustment or disclosure.

 

- 8 -



PART I — FINANCIAL INFORMATION

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operation

 

THIS FILING CONTAINS FORWARD-LOOKING STATEMENTS. THE WORDS “ANTICIPATED,” “BELIEVE,” “EXPECT,” “PLAN,” “INTEND,” “SEEK,” “ESTIMATE,” “PROJECT,” “WILL,” “COULD,” “MAY,” AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. THESE STATEMENTS INCLUDE, AMONG OTHERS, INFORMATION REGARDING FUTURE OPERATIONS, FUTURE CAPITAL EXPENDITURES, AND FUTURE NET CASH FLOW. SUCH STATEMENTS REFLECT THE COMPANY’S CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND FINANCIAL PERFORMANCE AND INVOLVE RISKS AND UNCERTAINTIES, INCLUDING, WITHOUT LIMITATION, GENERAL ECONOMIC AND BUSINESS CONDITIONS, CHANGES IN FOREIGN, POLITICAL, SOCIAL, AND ECONOMIC CONDITIONS, REGULATORY INITIATIVES AND COMPLIANCE WITH GOVERNMENTAL REGULATIONS, THE ABILITY TO ACHIEVE FURTHER MARKET PENETRATION AND ADDITIONAL CUSTOMERS, AND VARIOUS OTHER MATTERS, MANY OF WHICH ARE BEYOND THE COMPANY’S CONTROL. SHOULD ONE OR MORE OF THESE RISKS OR UNCERTAINTIES OCCUR, OR SHOULD UNDERLYING ASSUMPTIONS PROVE TO BE INCORRECT, ACTUAL RESULTS MAY VARY MATERIALLY AND ADVERSELY FROM THOSE ANTICIPATED, BELIEVED, ESTIMATED, OR OTHERWISE INDICATED. CONSEQUENTLY, ALL OF THE FORWARD-LOOKING STATEMENTS MADE IN THIS FILING ARE QUALIFIED BY THESE CAUTIONARY STATEMENTS AND THERE CAN BE NO ASSURANCE OF THE ACTUAL RESULTS OR DEVELOPMENTS.

 

The following discussion and analysis of our financial condition and plan of operations should be read in conjunction with our financial statements and related notes appearing elsewhere herein. This discussion and analysis contains forward-looking statements including information about possible or assumed results of our financial conditions, operations, plans, objectives and performance that involve risk, uncertainties and assumptions. The actual results may differ materially from those anticipated in such forward-looking statements. For example, when we indicate that we expect to increase our product sales and potentially establish additional license relationships, these are forward-looking statements. The words expect, anticipate, estimate or similar expressions are also used to indicate forward-looking statements.

 

OVERVIEW OF THE COMPANY

 

OVERVIEW

 

We are a development stage company and were incorporated in the State of Florida on September 21, 2009, as a for-profit company, with an established fiscal year end of August 31. The original intent of the Company is to design a woman’s line of jeans branded as “Obscene Brand Jeans” internally and enter into outsourcing agreements for the manufacturing, marketing, selling and distributing agreements with independent agents, each of whom is to be granted exclusive rights to market and sell “Obscene Brand Jeans” in its respective territory. The intent was to include a line of complimentary t-shirts, jackets and sweatshirts to accent the base of our intended collection.

 

On November 10, 2011, the Company formed Obscene Interactive, LLC, a wholly-owned subsidiary. Obscene Interactive was established to identify emerging trends and companies within the social media space for the purpose of acquisitions, joint ventures and global licensing of technology platforms and algorithms. As of the date of this filing, Obscene Interactive has no assets or liabilities; however, it is in the final stages of negotiating a funding arrangement for an early stage gaming company based in California, and has other online and mobile games to launch within the next quarter.

 

On November 2, 2011, our former Chief Executive Officer, Rachel Stark-Cappelli, resigned all positions with the Company. As a result of Ms. Stark-Cappelli’s resignation, the Company is reviewing its jeans and apparel business. The Company established a subsidiary to pursue opportunities in the social networking sector. As a result of the Company’s review of its jeans and apparel business, the Company may decide to cease the jeans and apparel business and concentrate on its social networking business. Alternatively, the Company could pursue both opportunities simultaneously and use the Company’s social networking business as a marketing platform for its jeans and apparel. During the period of review, the Company continues to pursue both opportunities.

 

On May 9, 2012, we entered into a joint venture agreement (the “Joint Venture Agreement”) with Source Street, LLC, a Texas limited liability company (“Source Street”). The purpose of the joint venture is to fund the planning, development and launch of online and mobile games across social platforms for fun, educational and corporate training purposes. We will contribute the working capital for the joint venture and Source Street will contribute its knowledge and development skills to complete the design and launch of online and mobile games. We paid $5,000 to the joint venture upon signing the agreement and will make weekly payments of $1,500 for the term of the joint venture. We will share profits and losses of the joint venture equally with Source Street.

 

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On July 9, 2012, we revised the Joint Venture Agreement (the “Revised Joint Venture Agreement”) with Source Street. Under the terms of the Revised Joint Venture Agreement, we are required to provide oversight and management toward the development of online and social games. Source Street will identify and coordinate the development team. We will provide funding for the joint venture in the amount of $2,500 per week during the period of development of the first game. Ownership of the game and profits and losses will be split 80% to OBJE and 20% to Source Street. The Revised Joint Venture Agreement can be terminated by a 30-day notice from either party.

 

We have not generated any revenues to date and our activities have been limited to developing our business plan. We will not have the necessary capital to develop our business plan until we are able to secure additional financing.

 

There can be no assurance that such financing will be available on suitable terms.

 

We have no revenues; have incurred losses since inception, have been issued a going concern opinion from our auditors and rely upon the sale of our securities to fund operations.

 

As of November 30, 2012, we had $3,731 cash on hand.  We believe that this cash will satisfy our operating requirements for less than one month.

 

Plan of Operations

 

We believe we do not have adequate funds to satisfy our working capital requirements for the next twelve months. We will need to raise additional capital to continue our operations. During the next 18 months, we intend to continue implementing our business and marketing plan. We believe we must raise an additional $120,000 to pay for expenses associated with our development over the next 18 months.

 

We intend to pursue capital through public or private financing as well as borrowings and other sources, such as our officer and director, in order to finance our businesses activities. We cannot guarantee that additional funding will be available on favorable terms, if at all. If adequate funds are not available, then our ability to continue our operations may be significantly hindered.

 

We have not yet begun the development of any of our anticipated products and even if we do secure adequate financing, there can be no assurance that our products will be accepted by the marketplace and that we will be able to generate revenues.

 

Our management does not plan to hire any employees at this time. Our sole officer and director will be responsible for implementing our business plan. We intend to hire independent consultants and sales representatives to carry out sales, marketing and distribution activities.

 

RESULTS OF OPERATIONS

 

We incurred a net loss of $172,592 for the three months ended November 30, 2012, and had a working capital deficit of $314,183 as of November 30, 2012.  We do not anticipate having positive net income in the immediate future.  Net cash used by operations for the three months ended November 30, 2012 was $53,761.  These conditions create an uncertainty as to our ability to continue as a going concern.

 

We continue to rely on advances to fund operating shortfalls and do not foresee a change in this situation in the immediate future. There can be no assurance that we will continue to have such advances available. We will not be able to continue operations without them. We are pursuing alternate sources of financing, but there is no assurance that additional capital will be available to the Company when needed or on acceptable terms.

 

We have not generated any revenues from our operations. We cannot guarantee we will be successful in our business operations. Our business is subject to risks inherent in the establishment of a new business enterprise, including the financial risks associated with the limited capital resources currently available to us for the implementation of our business strategies. To become profitable and competitive, we must develop the business and marketing plan and execute the plan. Our management will attempt to secure financing through various means including borrowing and investment from institutions and private individuals.

 

Since inception, the majority of our time has been spent refining our business plan and collection design sketches.

 

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Results of Operations for the Three months ended November 30, 2012 compared to the Three months ended November 30, 2011

 

General and Administrative Expenses

 

General and administrative expenses decreased in the three months ended November 30, 2012 as compared to the three months ended November 30, 2011 from $390,226 to $58,009. General and administrative expense for the three months ended November 30, 2011 included expense in the amount of $315,000 for common stock issued for services. There was no common stock issued for services during the three months ended November 30, 2012. Excluding the expense for common stock issued for services, general and administrative expense for the three months ended November 30, 2011 would have been $75,226.

 

Loss from Operations

 

The increase in our operating loss for the three months ended November 30, 2012 as compared to the comparable period of 2011 from $390,226 to $58,009 is due to the increase in general and administrative expenses described above.

 

Interest Expense

 

We incurred interest expense of $114,583 during the three months ended November 30, 2012 as a result of accrued interest on convertible notes payable and amortization of discounts on notes payable into interest expense. There was $4,141 of interest expense during the three months ended November 30, 2011.

 

Net Income (Loss)

 

We recognized a net loss of $172,592 for the three months ended November 30, 2012 as compared to a loss of $394,367 for the same period of 2011.  The change in net loss is primarily attributable to the changes in operating loss and interest expense described above.

 

LIQUIDITY AND CAPITAL RESOURCES

 

As of the date of this filing, we have yet to generate any revenues from our business operations.

 

We anticipate needing a minimum of $120,000 for our business plan which includes the development of games under our joint venture agreement with Source Street. Currently available cash is not sufficient to allow us to commence full execution of our business plan. Our business expansion will require significant capital resources that may be funded through the issuance of common stock or of notes payable or other debt arrangements that may affect our debt structure. Despite our current financial status, we believe that we may be able to issue notes payable or debt instruments in order to start executing our business plan. However, there can be no assurance that we will be able to raise money in this fashion and have not entered into any agreements that would obligate a third party to provide us with capital.

 

For the three months ended November 30, 2012, we used cash in the amount of $53,761 on operating activities. We raised the cash amounts to be used in these activities from the sale of common stock and through non-interest bearing advances.

 

As of November 30, 2012, we had $3,731 of cash on hand.

 

As of the date of this filing, the current funds available to the Company may not be sufficient to continue maintaining its reporting status with the SEC.  Management believes that if the Company cannot maintain its reporting status with the SEC, it will have to cease all business activity. As such, any investment previously made would be lost in its entirety.

 

The Company currently has no external sources of liquidity such as arrangements with credit institutions or off-balance sheet arrangements that will have or are reasonably likely to have a current or future effect on our financial condition or immediate access to capital.

 

The Company intends to seek additional financing through means such as borrowings from institutions or private individuals. There can be no assurance that the Company will be able to keep costs from being more than these estimated amounts or that the Company will be able to raise such funds. The Company may not be able to obtain additional capital or generate sufficient revenues to fund our operations. If we are unsuccessful at raising sufficient funds, for whatever reason, to fund our operations, the Company may be forced to seek a buyer for our business or another entity with which we could create a joint venture. If all of these alternatives fail, we expect that the Company will be required to seek protection from creditors under applicable bankruptcy laws.

 

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Our independent auditor has expressed substantial doubt about our ability to continue as a going concern and believes that our ability is dependent on our ability to implement our business plan, raise capital and generate revenues. See Note 2 of our financial statements.

 

OFF-BALANCE SHEET ARRANGEMENTS

 

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

Not applicable.

 

Item 4.

Controls and Procedures

 

The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of and for the period covered by this Quarterly Report on Form 10-Q. Based upon such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were not effective. The controls were determined to be ineffective due to the lack of segregation of duties. Currently, management contracts with an outside CPA to perform certain crucial accounting and financial reporting activities. However, the Company will be unable to remediate this weakness until it has received additional funding to hire additional administrative personnel.

 

Changes in Internal Control Over Financial Reporting

 

No change in the Company’s internal control over financial reporting occurred during the three months ended November 30, 2012, that materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

PART II — OTHER INFORMATION

 

Item 1.

Legal Proceedings

 

As of the date of this Quarterly Report, neither we nor any of our officers or directors is involved in any litigation either as plaintiffs or defendants. As of this date, there is not any threatened or pending litigation against us or any of our officers or directors.

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

On November 16, 2012, the Company issued 5,260,000 shares of common stock as a result of the conversion of the Convertible Note Payable in the amount of $52,600.


On November 26, 2012, the Company issued 1,160,000 shares of common stock as a result of the conversion of the Convertible Note Payable in the amount of $58,000.

 

Item 3.

Defaults upon Senior Securities

 

There have been no defaults in any material payments during the covered period.

 

Item 4.

Mine Safety Disclosures

 

Not applicable.

 

Item 5.

Other Information

 

On November 13, 2012, the Company effected a one-for-40 reverse stock split.  All share and per share amounts have been retroactively restated to reflect the reverse split.

 

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Item 6.

Exhibits

 

3.1

Articles of Incorporation (incorporated by reference to our Form S-1 filed on April 14, 2010)

 

 

3.2

Bylaws (incorporated by reference to our Form S-1 filed on April 14, 2010)

 

 

3.3

Amended Articles of Incorporation dated June 27, 2012. (incorporated by reference to our Form 10-Q filed on July 16, 2012)

 

 

31.1

Certification of the Chief Executive Officer and Chief Financial Officer *

 

 

32.1

Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 *

 

 

101

XBRL Interactive Data *, **

 

*    Filed or furnished herewith

 

**  In accordance with Regulation S-T, the Interactive Data Files in Exhibit 101 to the Quarterly Report on Form 10-Q shall be deemed “furnished” and not “filed”.

 

SIGNATURES

 

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned, thereto duly authorized.

 

 

 

OBJ ENTERPRISES, INC.

 

 

 

Dated: January 14, 2013

By:

/s/ Paul Watson

 

 

Paul Watson

President, Chief Executive Officer, Chief Financial Officer,

Principal Accounting Officer, Secretary, Treasurer and Director

 

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