State issuer's revenues for its most recent fiscal year: $ 1,164
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of a specified date within the past 60 days: $ 733,088 AS OF MARCH 31, 2008
State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 73,308,869 AS OF April 1, 2008
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
CAUTIONARY STATEMENT FOR PURPOSES OF "SAFE HARBOR PROVISIONS" OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.
Certain statements contained in this Annual Report on Securities and Exchange Commission ("SEC") Form 10-KSB ("Form 10-KSB") constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve known and unknown risks, uncertainties and other factors that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different than any expressed or implied by these forward-looking statements. These statements may be contained in our filings with the Securities and Exchange Commission, press releases, and written or oral presentations made by our representatives to analysts, rating agencies, stockholders, news organizations and others. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "intend", "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential," "continue," or the negative of these terms or other comparable terminology. Although we believe that the expectations in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.
OUR BUSINESS
We are a developer and marketer SMS services, and mobile data applications. Through our subsidiary Legend Credit, Inc. (which we own 50%), we also develop and market filmed entertainment products related to mixed martial arts and combat sports. Through our 91% subsidiary, Legend Studios, Inc., , we have entered into a letter of intent to acquire the Midnight Movies Group. a producer of feature motion pictures.
OUR SOURCES OF REVENUE
SALES OF MOBILE PRODUCTS
We derive limited revenues from the sale of mobile phone services. We currently operate a free SMS service called www.mmasms.com. This service allows users to send text messages for free to mobile phones. We intend to derive revenue by paid advertising on our site. To date, we have derived no revenue from this service.
We also own the domain names www.hollywoodfone.com and www.poker2cell.com. We intend to offer similar branded services for mobile phone SMS services.
We also intend to market premium SMS services through short codes. Short codes are special telephone numbers that are designed to be shorted to read out and easier to remember. Short codes are unique to each operator. We expect to use short codes to develop value added services such as television voting and order premium content. We expect to bill at a higher rate for these services.
SALES OF MIXED MARTIAL ARTS PRODUCTS.
Through Legend Credit, we are developing television, DVD, and Internet programming based on mixed martial arts. In October 2007, we taped an event called Champion CageFighters. We are currently exploring opportunities to monetize this footage.
The MMA market is fragmented. According to MMA Weekly, the Ultimate Fighting Championship currently holds the first mover advantage and is the preeminent entity in the sport. In 2001, UFC was purchased from Semaphore Entertainment Group by ZUFFA, LLC, which is headed by Stations Casinos owners Frank Fertitta and Lorenzo Fertitta. The first event sold less than 4,000 tickets and took in just over $215,000 at the gate. A recent December 30, 2006 event sold approximately 12,000 tickets and took in over
$5.3 million at the gate. The Ultimate Fighting Championship's pay-per-view numbers also continue to rise, exemplifying the sport's increased popularity. UFC is now consistently doing pay-per-view business
on a similar level as big-time boxing. UFC has exceeded World Wrestling Entertainment in domestic orders. The Randy Couture-Chuck Liddell show in February 2006, which originally projected at 350,000 pay-per-view buys, is now estimated to top 400,000 buys. The final buy rate for the UFC 60 event
will be in the range of 615,000 to 625,000 pay-per-view buys and the gross pay-per-view revenue will be approximately $25 million. The initial buy rate estimate for UFC 61 is expected to top 775,000 buys which equals to approximately $31 million in gross pay-per-view revenue. UFC recently announced its intent to acquire PRIDE, a popular mixed martial arts company based in Japan. Other notable participants in the MMA market include ProElite, K-1, King of the Cage and Cage Rage.
In July 2007, we entered into a letter of intent with Ultimate Combat Inc. to develop television programming around its mixed martial arts events. We have not yet entered into a definitive agreement with Ultimate Combat Inc. and are still in negotiations.
We are exploring other opportunities to develop television, Internet, and DVD products through licensing of existing events.
We have discontinued marketing prepaid and stored value cards.
MARKETING AND PROMOTION OF MOBILE PHONE PRODUCTS
We continually evaluate numerous ways to reach our potential customers and to promote our products. We intend to promote our products through the following means
-Alternative ways of advertising such as My Space and You Tube;
-Free products and promotions to early adopters and key influencers;
-Sponsorship of events and onsite marketing to reach targeted demographics.
MARKETING AND PROMOTION OF MIXED MARTIAL ARTS PRODUCTS
We evaluate numerous ways to reach potential customers to promote our mixed martial arts products. We intend to promote our products through a number of avenues including:
1. Affinity relationships. We seek to develop programming that has a regional following and that have a large base of customers to market to.
2. Co-marketing with brand partners and other licensees.
3. Public Relations. We anticipate adopt a very aggressive posture towards public relations for the launch of our card products.
4. Internet Marketing. We will use traditional and emerging methods to reach the emerging audience for mixed martial arts on the Internet.
5. Event Marketing. We look for opportunities to drive sales of our products at live events including fights, shopping malls, and fighter appearances
Do you have any info on the industry or competition?
RISKS THAT MAY AFFECT FUTURE RESULTS
The following risk factors and other information included in this Annual Report should be carefully considered. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations. If any of the following risks actually occur, our business, financial condition and operating results could be materially adversely affected.
WE HAVE AN ACCUMULATED DEFICIT AND ANTICIPATE FURTHER LOSSES.
We have incurred significant losses since we began doing business. For the year ended December 31, 2007 we incurred a net loss of 41,110,823. There can be no assurance that our services and products will ever generate sufficient revenues or that our operations will ever be profitable. As of December 31, 2007, we had an accumulated deficit of $20,438,974_ We expect to incur operating losses for the near future until we can generate sufficient sales to cover our operating expenses.
We have generated limited revenues to date from the business we conduct and there can be no assurance that we will ever generate sufficient revenues from the business we conduct to cover all of our operating expenses. We also expect to significantly increase our operating expenses to expand our sales and marketing operations, to fund greater levels of product development, and to develop other forms of revenue generating business and licensing of our
proprietary materials to others.
WE RECEIVED AN OPINION FROM OUR ACCOUNTANTS FOR THE PERIOD ENDED DECEMBER 31, 2007, WHICH RAISED DOUBT ABOUT OUR ABILITY TO CONTINUE AFTER SUCH DATE AS A GOING CONCERN.
Our consolidated financial statements for the year ended December 31, 2007, which are included in this Form 10-KSB, indicate that there was substantial doubt as of December 31, 2007 about our ability to continue as a going concern due to our need to generate cash from operations and obtain additional financing. We have had a going concern opinion from our auditors since our inception in 1997.
WE NEED TO RAISE ADDITIONAL FUNDS TO FUND OUR BUSINESS OPERATIONS.
We need to raise additional funds because our cash flows have proven to be insufficient to fund operations, including our obligations to pay minimum royalties under our agreements. Several of our trade creditors and licensors have outstanding balances and may elect to sue to recover their amounts owed. Management feels that these can be defended or settled on favorable terms. There can be no assurance that additional financing will be available to us on commercially reasonable terms, or at all. We may raise funds through equity or debt financings, depending on our opportunities. If we raise additional funds by issuing equity securities, this will further dilute the interests of our current stockholders. If we raise additional funds by issuing debt securities, we will be subject to the risks associated with incurring substantial indebtedness, including the risks that interest rates may fluctuate and cash flow may be insufficient to pay principal and interest on any such indebtedness. We have no current arrangements with respect to, or sources of, additional financing, and it is not anticipated that our existing stockholders will provide any portion of our future financing requirements.
WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY IN THE MOBILE PHONE, MOBILE ACCESSORY, MOBILE DATA AND GAMING, AND OPERATING SYSTEM SOFTWARE MARKETS. THIS WOULD HAVE A MATERIAL ADVERSE EFFECT ON OR BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
As we attempt to expand into the mobile services software markets, our future growth will depend on the commercial success of our branded accessory products. The markets for these products and services are highly competitive and we expect competition to increase in the future. Most of our competitors in this market have significantly greater financial, technical and marketing resources than we do. This will make it difficult for us to compete successfully in the hand-held device and operating system software markets.
WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY IN THE MARTIAL ARTS INDUSTRY.
In an attempt to diversify our business, we have entered into the mixed martial arts industry. However, we have no prior experience in this industry. To date we have not derived any revenue form the sale of mixed martial art products. In order to compete successfully in this industry we will need to increase our brand recognition. The markets for these products and services are highly competitive and we expect competition to increase in the future. Most of our competitors in this market have significantly greater financial, technical and marketing resources than we do. There can be no assurance that we will be able to develop brand recognition of our products in this industry or compete successfully.
THE LOSS OF OUR CHIEF EXECUTIVE OFFICER'S SERVICES WOULD HAVE A MATERIAL ADVERSE EFFECT ON US.
Our success will be largely dependent on the efforts of Peter Klamka, our Chairman, President and Chief
Executive Officer, and his ability to forge new relationships with celebrities and to maintain such relationships, as well as to oversee the development and maintenance of our products. Our success will also be highly dependent on Mr. Klamka's ability, as well as the ability of others employed by us, to successful market new products and develop new products. The loss of his services would have a material adverse effect on our business and prospects.
We have not entered into an employment agreement with Mr. Klamka and Mr. Klamka has not entered into any agreement restricting his involvement in a business which competes with us. As a result, Mr. Klamka is an employee-at-will and has the right to leave us at any time. Mr. Klamka has informed us that he intends to devote a portion of his working time to our business and that he also intends to devote a portion of his time to other business interests that do not compete with our business. In addition, Mr. Klamka is not restricted from entering into a competing business after the term of his employment with us; provided, however, that he would not be permitted to use proprietary information and trade secrets belonging to us. Our success will also be dependent upon our ability to hire and retain marketing, financial and other personnel. Competition for qualified personnel is intense and there can be no assurance that we will be able to hire or retain additional qualified personnel. The loss of our Chief Executive Officer’s service would have a material adverse effect on us .
EMPLOYEES
As of December 31, 2007, we had a total of one full-time employee. None of our employees is covered by a collective bargaining agreement.
ITEM 2. DESCRIPTION OF PROPERTY.
We currently maintain our executive offices, consisting of an executive office suite at 244 Fifth Avenue , Suite P203 in New York, New York . The monthly rent is variable based on usage and is renewable annually.
ITEM 3. LEGAL PROCEEDINGS.
The company is party to legal proceedings from time to time. None of the legal proceedings in management’s opinion would have an adverse material impact on the company.
On June 14, 2005, Betty Brown Revocable Trust (the “Trust”) by and through Betty Brown, trustee, Betty Brown individually, and Nancy Larson filed suit in the Iowa District Court for Polk County, Iowa, against Legend Mobile and Peter Klamka, our CEO. On January 10, 2007, the case against Legend Mobile and Peter Klamka was dismissed.
There are several judgments against our company that could effect our operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
MARKET INFORMATION
Our common stock is traded on NASD Electronic Bulletin Board under the symbol LGMB. Prior to July 5, 2002, it traded under the symbol PTMN. The following table sets forth the range of high and low bid quotations for each of the prior eight (8) fiscal quarters. The quotations represent inter-dealer quotations without adjustment for retail mark-ups, mark-downs or commissions and may not represent actual transactions.
FISCAL QUARTER ENDING HIGH BID LOW BID March 31, 2006....................... $ 0.06 $ 0.06 June 30, 2006........................ $ 0.08 $ 0.08 September 30, 2006................... $ 0.04 $ 0.039 December 31, 2006.................... $ 0.05 $ 0.04 March 31, 2007....................... $ 0.03 $ 0.03 June 30, 2007........................ $ 0.03 $ 0.03 September 30, 2007................... $ 0.03 $ 0.03 December 31, 2007.................... $ 0.01 $ 0.01 |
On April 9, 2008, the closing bid price for the common stock on the OTC Bulletin Board was $0.005
HOLDERS
As of March 31, 2008 there were 153 record holders of our common stock. This does not include shares held in street names.
DIVIDENDS
Since our inception, no cash dividends have been declared on our common stock.
SALES OF UNREGISTERED SECURITIES
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
FORWARD LOOKING STATEMENTS
This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Shareholders are cautioned that all forward-looking statements involve risks and uncertainty, including without limitation, our ability to fully establish our proposed websites and our ability to conduct business with Palm, Inc. and be successful in selling products. Although we believe the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore, there can be no assurance that the forward-looking statements contained in the report will prove to be accurate.
GENERAL
The following discussion and analysis should be read in conjunction with our consolidated financial statements and related footnotes for the year ended December 31, 2007 elsewhere in this Annual Report on Form 10-KSB. The discussion of results, causes and trends should not be construed to imply any conclusion that such results or trends will necessarily continue in the future.
We were incorporated in Delaware on January 13, 1998 and are the successor to Interactive Entertainment Studio, Inc. (IES). IES was incorporated in the State of Nevada on May 27, 1997 and was merged into us in March 1998 for the sole purpose of changing the domicile of the company to Delaware. This merger was retroactively reflected in the December 31, 1997 financial statements. On June 27, 2002 we changed our name to Legend Mobile, Inc.
We are a developer and marketer of branded mobile phone products including faceplates, phone accessories, SMS services, and mobile data applications. Through our subsidiary Legend Credit, Inc. (which we own 50%), we also develop and market recorded entertainment programs related to mixed martial arts and combat sports.
Since our inception, we have incurred accumulated net losses of $20,599,430 and at December 31, 2007 current liabilities exceeded current assets by $4,349,696. In addition, we are delinquent in certain payments due for license fees and notes payable. We may be unable to continue in existence unless we are able to arrange additional financing and achieve profitable operations. We plan to raise additional capital and expect to generate cash from the sale of the our SMS services and our mixed martial arts video products.
On December 29, 2000, we entered into a three-year license agreement with Michael Jordan, the National Basketball Association player, granting us the right to use Mr. Jordan's name, likeness and image in connection with the proposed advertisement, promotion and sale of certain branded Palm Inc. products, including the Palm Pilot series. In addition to the standard features of Palm products, we planned that the Michael Jordan edition include branding, identification and software applications that will appeal to the market segment associated with Mr. Jordan. On June 27, 2002, we entered into a settlement agreement with Michael Jordan pursuant to the aforementioned three year agreement. The settlement calls for us to pay Mr. Jordan $468,750, discontinue making any reference to Jordan's name, image, likeness and endorsement, and returning any products associated with Mr. Jordan's name. As a result of this settlement agreement, we have recognized a gain of $111,662 which was included in selling, general and administrative expenses in the statement of operations for the year ended December 31, 2002. This gain resulted by removing the remaining license fee payable of $625,000, offset by the $468,750 accrual to settle the agreement and the return of $44,588 in inventory. The amount due to Mr. Jordan was to be paid $234,375 in October 2002 and the remaining $234,375 in January 2003. We have not made the payment due in October 2002 or the payment due in January 2003. Since we are in default on the amounts due to Mr. Jordan, we have accrued interest in accordance with the terms of the contract. update
Our business model is to grow in the area of mobile content and mixed martial arts programming. This business model includes seeking to obtain licenses with well-known motor entertainment figures, develop large promotional programs that permit us to market our products more effectively and develop other distribution channels. We also intend to license broadcast and DVD rights to mixed martial arts events.
We currently offer a free computer to SMS service called www.mmasms.com. We also own domain names for two services called www.hollywoodfone.com and www.poker2cell.com. .
We are also developing video programming aimed at fans of mixed martial arts.
Significant Accounting Policies and Estimates
Management's Discussion and Analysis of Financial Condition and Results of Operations discusses the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements 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. Management bases its estimates and judgments on historical experiences and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The most significant accounting estimates inherent in the preparation of the Company's financial statements relate to the allowance for doubtful accounts. These accounting policies are described at relevant sections in this discussion and analysis and in the notes to the consolidated financial statements included in this Annual Report on Form l0-KSB for the year ended December 31, 2007.
Results of Operations
Year ended December 31, 2007 vs. December 31, 2006
Revenue for the year ended December 31, 2007 increased by $672 or 136 %
from $492 for the year ended December 31, 2006 to $1,164 for the year ended December 31, 2007. Revenue for the year ended December 31, 2006 was principally from sale of the Hello Kitty Debit card. Revenue for the year ended December 31, 2007 was from sales of the Apprentice Debit card.
Cost of revenue for the year ended December 31, 2006 increased by 92 from $0 for the year ended December 31, 2006 to $92 for the year ended December 31, 2007. This is a direct result of the increase in revenue. Cost of revenue as a percentage of revenue was 8% and 0% for the year ended December 31, 2007 and 2006, respectively.
Product development costs for the year ended December 31, 2006 decreased from from $1,450 for the year ended December 31, 2006 to $0 for the year ended December 31, 2007. This is related to the Apprentice Debit card
Selling, general and administrative expenses for the year ended December 31, 2007 increased by $366,267 or 124% from $294,631 for the year ended December 31, 2006 to $660,898 for the year ended December 31, 2007. A majority of selling, general and administrative expenses in 2007 are related to professional and consulting fees paid with shares of our common stock.
Interest expense and financing costs for the year ended December 31, 2007 increased by $52,029 or 18% from $288,771 for the year ended December 31, 2006 to $340,800 for the year ended December 31, 2007. The difference is principally due to interest on notes payable
Equity loss in Legend Credit, Inc. was $0 for both the year ended December 31, 2006 and 2007. We own a 50% interest in Legend Credit, who started selling Hilary Duff Visa gift card in October 2003, and the Hello Kitty Debit MasterCard in September 2004. We account for Legend Credit using the equity method
and have recorded 50% of Legend Credits loss in our consolidated statements of operations.
Net loss for the year ended December 31, 2007 was $1,271,279 as compared with $632,548 for the year ended December 31, 2006. The loss was attributable primarily to the increase in selling, general and administrative expenses.
LIQUIDITY AND CAPITAL RESOURCES
In 2007, we raised $0 from the sale of our common stock.
We have incurred net losses since our inception of $20,599,430. In order for us to continue in existence, we will have to raise additional capital through the sale of equity or debt or generate sufficient profits from operations, or a combination of both.
ITEM 7. FINANCIAL STATEMENTS.
See pages beginning with page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None
ITEM 8A(T). CONTROLS AND PROCEDURES
Internal control over financial reporting refers to the process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer, and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, and includes those policies and procedures that:
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorization of our management and directors; and
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisitions, use or disposition of our assets that could have a material effect on the financial statements.
Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. It is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. It also can be circumvented by collusion or improper management override.
Because of such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process certain safeguards to reduce, thought not eliminate, this risk. Management is responsible for establishing and maintaining adequate internal control over our financial reporting.
Management has used the framework set forth in the report entitled Internal Control – Integrated Framework published by the Committee of Sponsoring Organizations of the Treadway Commission, known as COSO, to evaluate the effectiveness of our internal control over financial reporting. Based upon this assessment, management has concluded that our internal control over financial reporting was effective as of and for the year ended December 31, 2007 with the following exceptions:
As a part of our year end review of our disclosure controls and procedures, we determined that several of our procedures require additional documentation. It is our belief that those control procedures are being performed, however documentation of their execution is not available. We are implementing additional documentation procedures in order to address this weakness.
Management has concluded that other than as described above, our internal control over financial reporting was effective as of and for the year ended December 31, 2007.
The Company is not an “accelerated filer” for the 2006 fiscal year because it is qualified as a “small business issuer”. Hence, under current law, the internal controls certification and attestation requirements of Section 404 of the Sarbanes-Oxley act will not apply to the Company. This Annual report on Form 10-KSB does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities Exchange Commission that permit us to provide only management’s report in this Annual Report on Form 10-KSB.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
DIRECTORS AND EXECUTIVE OFFICERS
Our executive officers and directors are:
NAME AGE POSITION ---- --- -------- Peter Klamka 39 Chairman of the Board, CEO, President, Treasurer & Secretary |
The business experience, principal occupations and employment, as well as the periods of service, of our sole director and executive officer during the last five years are set forth below.
Peter Klamka has been our Chairman of the Board and Chief Executive Officer since our inception in May 1997. In 1994, Mr. Klamka founded Wilshire Fragrance, a company that developed and marketed men's fragrance products. Mr. Klamka was the chief executive officer of Wilshire Fragrance from 1994 through 1996. In connection with his fragrance business, in 1996, Mr. Klamka developed, what he
believes to have been one of the first authorized celebrity web sites, featuring Anna Nicole Smith promoting fragrances for Wilshire Fragrance. Mr. Klamka continued working on this web site until early 1997. Mr. Klamka received his Bachelor of Arts degree from the University of Michigan.
EMPLOYMENT AND CONSULTING AGREEMENTS
We have no employment or other written agreement with Peter Klamka, our President and Chief Executive Officer. Mr. Klamka has an oral agreement with the Company to receive a base salary of $175,000 per year and such other compensation as the Board of Directors shall designate. The Company believes that Mr. Klamka will continue to waive a portion of the base salary for the foreseeable future, although no assurance thereof can be given.
Mr. Klamka is involved in other business ventures, including the ownership and management other private businesses. Mr. Klamka is the President of two reporting, blank check companies, Solar Acquisition Corp. and Barton Solar Inc. Mr. Klamka is also the President of Miss World Holdings Inc. a reporting company.
We have no employment or other written agreement with Mr. Klamka.
AUDIT COMMITTEE FINANCIAL EXPERT
The audit committee is responsible for recommending independent auditors and reviewing management actions in matters relating to audit functions. The committee reviews, with independent auditors, the scope and results of its audit engagement, the system of internal controls and procedures and reviews the effectiveness of procedures intended to prevent violations of laws.
The audit committee, consistent with the Sarbanes-Oxley Act of 2002 and the rules adopted thereunder, meets with management and the auditors prior to filing of officers’ certifications with the SEC to receive information concerning, among other things, significant deficiencies in the design or operation of internal controls.
Our board of directors currently acts as our audit committee. Our audit committee member is not “independent” in accordance with rule 4200(a)(14) of the Nasdaq Marketplace Rules. Our board of directors does not have an “audit committee financial expert,” within the meaning of that phrase under applicable regulations of the Securities and Exchange Commission, serving on the audit committee. The board of directors believes that the member of the audit committee is financially literate and experienced in business matters and is capable of (1) understanding generally accepted accounting principles (“GAAP”) and financial statements, (2) assessing the general application of GAAP principles in connection with our accounting for estimates, accruals and reserves, (3) analyzing and evaluating our financial statements, (4) understanding our internal controls and procedures for financial reporting, and (5) understanding audit committee functions, all of which are attributes of an audit committee financial expert. However, the board of directors believes that no audit committee member has obtained these attributes through the experience specified in the SEC's definition of “audit committee financial expert.” Further, as is the case with many small companies, it would be difficult for us to attract and retain board members who qualify as “audit committee financial experts,” and competition for such individuals is significant. The board of directors believes that its current audit committee is able to fulfill its role under SEC regulations despite not having a designated “audit committee financial expert.”
CODE OF ETHICS
We have not yet adopted a code of ethics that applies to our principal executive officers, principal financial officer, principal accounting officer or controller, or persons performing similar functions, since
we have been focusing our efforts on obtaining financing for the company. We expect to adopt a code by the end of the current fiscal year.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our officers, directors, and persons who beneficially own more than 10% of our common stock to file reports of securities ownership and changes in such ownership with the Securities and Exchange Commission ("SEC"). Officers, directors and greater than 10% beneficial owners are also required by rules promulgated by the SEC to furnish us with copies of all Section 16(a) forms they file.
Based solely upon a review of the copies of such forms furnished to us, or written representations that no Form 5 filings were required, we believe that during the fiscal year ended December 31, 2003, there was compliance with all
Section 16(a) filing requirements applicable to our officers, directors and greater than 10% beneficial owners.
ITEM 10. EXECUTIVE COMPENSATION.
The following table sets forth information the remuneration of our chief executive officer:
SUMMARY COMPENSATION TABLE ---------------------------------------------------------------------------------------------------------------------- NAME AND PRINCIPAL POSITION ANNUAL COMPENSATION LONG TERM COMPENSATION ------------------ ----------------------------------------------- -------------------------------------- AWARDS PAYOUTS ------------------------- ------------ OTHER RESTRICTED SECURITIES ANNUAL STOCK UNDERLYING LTIP ALL OTHER FISCAL COMPENSATION AWARD(S) OPTIONS/ PAYOUTS COMPENSATION YEAR SALARY ($) BONUS ($) ($) ($) SARS (#) ($) ($) ------------------ -------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ Peter Klamka, CEO 2007 $175,000 (1) -0- -0- -0- -0- -0- -0- 2006 $175,000 (2) -0- -0- -0- -0- -0- -0- ------------------ -------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ |
(1) In 2006 and 2007, Mr. Klamka was not paid any of his salary, the total $175,000 has been accrued
OPTION/SAR GRANTS IN LAST FISCAL YEAR ---------------------------------------------------------------------------------------------------------------------- INDIVIDUAL GRANTS ---------------------------------------------------------------------------------------------------------------------- NUMBER OF SECURITIES PERCENT OF TOTAL UNDERLYING OPTIONS/SARS GRANTED OPTIONS/SARS GRANTED TO EMPLOYEES IN EXERCISE OR BASE NAME (#) FISCAL YEAR PRICE ($/SH) EXPIRATION DATE --------------------------- ----------------------- ----------------------- ----------------------- ------------------ Peter Klamka -0- 0% $ --------------------------- ----------------------- ----------------------- ----------------------- ------------------ |
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES ------------------------ ---------------------- ---------------------- ----------------------- ----------------------- NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED UNEXERCISED IN-THE-MONEY OPTIONS/SARS AT OPTIONS/SARS AT FISCAL YEAR END (#) FISCAL YEAR END ($) ----------------------- ----------------------- SHARES ACQUIRED ON EXERCISABLE/ EXERCISABLE/ NAME EXERCISE (#) VALUE REALIZED ($) UNEXERCISABLE UNEXERCISABLE ------------------------ ---------------------- ---------------------- ----------------------- ----------------------- Peter Klamka -0- -0- 1,240,500/-0- 260,505/-0- ------------------------ ---------------------- ---------------------- ----------------------- ----------------------- |
COMPENSATION OF DIRECTORS
Directors do not receive compensation but are reimbursed for their expenses for each meeting of the board that they attend.
STOCK OPTION PLANS
The Company adopted the 1998 Stock Option Plan and the Year 2000 Stock Option Plan (the Plans), which provides for the grant of options to purchase up to 1,250,000 shares of the Company's common stock. Under these Plans incentive stock options may be granted to employees and non-statutory stock options may be granted to employees and non-employees. During the year ended December 31, 2007, 0 options were granted under this plan.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding our Common Stock beneficially owned on March 31, 2008 (i) each person who is known by us to own beneficially or exercise voting or dispositive control over 5% or more of our Common Stock, (ii) each Director and (iii) all executive officers and Directors as a group. Except as otherwise indicated, all stockholders have sole voting and investment power with respect to the shares listed as beneficially owned by them, subject to the rights of spouses under applicable community property laws.
Name
Amount and Nature of Beneficial Ownership
Percentage of Class(1)
Peter Klamka
1,240,500 Common(2)
1.8%
850,000 Series B Preferred(3)
100%
147,775 Series C Preferred(4)
100%
1,000,000 Series D Preferred(5)
100%
Barton PK, LLC
4,000,000 Common(6)
6.2%
(1) Figures based on an estimated 70,398,679 shares of common stock outstanding as of December 31, 2007.
(2) Includes 1,125,000 currently exercisable options to purchase 1,125,000, shares of the Company's common stock, and 115,500 currently exercisable warrants to purchase 115,500 shares of the Company's common stock. The number of common shares beneficially owned does not included 4,000,000 shares transferred by Mr. Klamka to Barton PK, LLC, a limited liability company owned and controlled by Mr. Klamka.
(3) Series B preferred stock is entitled to 10 votes per share.
(4) Series C preferred stock is entitled to 100 votes per share.
(5) Series D preferred stock is entitled to vote 135 votes per share.
(6) Barton PK, LLC is a limited liability company owned and controlled by Mr. Klamka.
EQUITY COMPENSATION PLANS
As of December 31, 2007, our equity compensation plans were as follows:
NUMBER OF SECURITIES TO BE WEIGHTED AVERAGE EXERCISE
ISSUED UPON EXERCISE OF PRICE OF OUTSTANDING NUMBER OF SECURITIES
OUTSTANDING OPTIONS, OPTIONS, WARRANTS AND REMAINING AVAILABLE FOR
PLAN CATEGORY WARRANTS AND RIGHTS RIGHTS FUTURE ISSUANCE
------------------------------- ---------------------------- ----------------------------
Equity compensation plans
approved by security holders 1,150,000 $0.10 None
------------------------------- ---------------------------- ----------------------------
Equity compensation plans not
approved by security holders None N/A None
------------------------------- ---------------------------- ---------------------------- -------
Total 1,150,000 $0.10 None
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In June 1997, Mr. Klamka, the Company's Chief Executive Officer, purchased 2,117,008 shares of our Common Stock for an aggregate purchase price, paid by delivery of a promissory note of $2,117.01. In June 1997 Chris Giordano, the Company's former Chief Operating Officer, purchased 540,340 shares of our Common Stock for an aggregate purchase price, paid by delivery of a promissory note, of $540.34. In June 1997 Michael Giordano, the brother of Mr. Chris Giordano, purchased 300,000 shares of our Common Stock for an aggregate purchase price, paid by delivery of a promissory note, of $300.00. All three promissory notes have been paid in full. Messrs. Klamka, Chris Giordano and Michael Giordano are each deemed to be founders and promoters of the Company.
In April 1998, Mr. Klamka provided the Company with a revolving credit line with a maximum of $500,000 available. In September 1998, the Board of Directors of the Company authorized an increase in this line to $610,000, and in November and December 1998, further increases to $1,000,000 were authorized. Loans drawn on the credit line bear interest at a rate of 9% per annum from the date they are made and are payable by May 2001. Monies loaned were used to make certain payments to Niki Taylor's company, to provide a payment required under the Calendar Agreement with Claudia Schiffer, and for working capital. In January 2000 the then current balance of $548,500 owed to Mr. Klamka was converted into 110,000 shares of Common Stock.
Item 13. Exhibits
------------------- --------------------------------------------------------------------------------------------------
Certificate of Incorporation of PTN Media, Inc. dated as of January 13, 1998 (1)
----------------------------------------------------------------------------------------------------------------------
1.1
Certificate Of Designations Of Class A Convertible Preferred Stock
1.2
Certificate Of Decrees of Class A Convertible Preferred Stock
1.3
Certificate Of Designations Of C Convertible Preferred Stock
------------------- --------------------------------------------------------------------------------------------------
3.5 By-Laws of PTN Media, Inc. (1)
------------------- --------------------------------------------------------------------------------------------------
4.2 PTN Media, Inc. 2000 Stock Option Plan (2)
------------------- --------------------------------------------------------------------------------------------------
10.1 Amendment to Palm, Inc. and PTN Media, Inc. Agreement of October 5, 2000 (3)
------------------- --------------------------------------------------------------------------------------------------
10.2 License Agreement dated February 19, 2001 between 3 Wishes Production f/s/o Christina Aguilera
and PTN Media, Inc. (3)
------------------- --------------------------------------------------------------------------------------------------
10.3 General Agreement dated July 28, 2000, between PTN Media, Inc. and NeoHand, Inc. (4)
------------------- --------------------------------------------------------------------------------------------------
10.4 Partnering Agreement dated October 27, 2000, between PTN Media, Inc. and TWEC.com, LLC (4)
------------------- --------------------------------------------------------------------------------------------------
10.5 Palm, Inc. OEM Partner Agreement dated October 5, 200, between PTN Media, Inc. and Palm, Inc. (4)
------------------- --------------------------------------------------------------------------------------------------
10.6 Merchant and Partner Network Agreement dated May 8, 2000, between PTN Media, Inc.
and Dynamic Trade Inc. (4)
------------------- --------------------------------------------------------------------------------------------------
10.7 License Agreement dated January 4, 2001 between PTN Media, Inc. and Michael Jordan (5)
------------------- --------------------------------------------------------------------------------------------------
10.8 License Supply and Distributor Agreement between PTN Media, Inc. and Motorola, Inc. dated
February 25, 2002 (6)
------------------- --------------------------------------------------------------------------------------------------
10.9 License Amendment between PTN Media, Inc. and Christina Aguilera (6)
------------------- --------------------------------------------------------------------------------------------------
21.1 List of Legend Mobile Subsidiaries (7)
------------------- --------------------------------------------------------------------------------------------------
------------------- --------------------------------------------------------------------------------------------------
31.1 Certification (7)
------------------- --------------------------------------------------------------------------------------------------
32.1 Certification(7)
(1) Incorporated by reference from the Company's Registration Statement on Form SB-2 (File #333-51933).
(2) Incorporated by reference from the Company's Definitive Proxy Statement filed on July 24, 2000.
(3) Incorporated by reference from the Company's Form 10-KSB for the fiscal year ended December 31, 2000.
(4) Incorporated by reference from the Company's Registration Statement on Form S-3 filed on December 11, 2000.
(5) Incorporated by reference from the Company's Form 8-K filed January 9, 2001.
(6) Incorporated by reference from the Company's Form 10-KSB filed April 16, 2002
(7) Filed herewith.
(b) Reports on Form 8-K
None
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.
LEGEND MOBILE, INC.
Date: April 14, 2008 By: /s/ Peter Klamka
------------------------------------------
Peter Klamka, Chairman, President,
Secretary and Chief Executive Officer
In accordance with the 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.
SIGNATURE TITLE DATE
--------- ----- ----
Chairman, President,
Secretary and
Chief Executive Officer
/s/ Peter Klamka (Principal Executive
---------------------------- and Accounting Officer) April 14, 2008
Peter Klamka
Legend Mobile, Inc. and Subsidiaries
Consolidated Financial Statements
Years Ended December 31, 2007 and 2006
Contents
Page
Report of Independent Registered Public Accounting Firm
F-1
Financial Statements:
Consolidated Balance Sheet as of December 31, 2007 and 2006
F-2
Consolidated Statements of Operations for the years ended December 31, 2006 and 2007
F-3
Consolidated Statement of Stockholders' Deficit for the years ended
December 31, 2006 and 2007
F-4
Consolidated Statements of Cash Flows for the years ended December 31, 2006 and 2007
F-5 - F-6
Notes to Consolidated Financial Statements
F-7
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
LEGEND MOBILE, INC. AND SUBSIDIARIES
We have audited the accompanying consolidated balance sheets of Legend Mobile, Inc. and Subsidiaries as of December 31, 2007 and 2006 and the related consolidated statements of operations, stockholders’ (deficit), and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
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 the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform an audit of the Company's internal control over its financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Legend Mobile, Inc. and Subsidiaries as of December 31, 2007 and 2006 and the results of its consolidated operations and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As described in Note 1 to the financial statements conditions exist which raise substantial doubt about the Company’s ability to continue as a going concern unless it is able to generate sufficient cash flows to meet its obligations and sustain its operations. Those conditions raise substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Gruber & Company, LLC
Lake Saint Louis, Missouri
April 8, 2008
Member: American Institute of Certified Public Accountants
Registered: Public Company Accounting Oversight Board (PCAOB)
The accompanying notes are an integral part of these financial statements.
LEGEND MOBILE, INC. AND SUBSIDIARIES | ||||
CONSOLIDATED STATEMENT OF OPERATIONS | ||||
YEAR ENDED | ||||
DECEMBER 31, | ||||
2007 | 2006 | |||
|
| |||
REVENUE | $ 1,164 | $ 492 | ||
COST OF REVENUE |
|
| 92 | - |
GROSS PROFIT |
|
| 1,072 | 492 |
EXPENSES: | ||||
Selling, general and administrative | 660,898 | 294,631 | ||
Impairment of goodwill | - | 48,188 | ||
Impairment of inventory | 19,909 | - | ||
Product development |
|
| - | 1,450 |
TOTAL EXPENSES |
|
| 680,807 | 344,269 |
LOSS FROM OPERATIONS |
|
| (679,735) | (343,777) |
OTHER INCOME (EXPENSE): | ||||
Interest expense and financing costs | (340,800) | (288,771) | ||
Change in derivative liability | (250,744) | - | ||
Other income (expense), net |
|
| - | - |
TOTAL OTHER INCOME (EXPENSE) |
|
| (591,544) | (288,771) |
LOSS BEFORE PROVISION FOR INCOME TAXES | (1,271,279) | (632,548) | ||
PROVISION FOR INCOME TAXES |
|
| - | - |
NET LOSS |
|
| $ (1,271,279) | $ (632,548) |
BASIC AND DILUTED LOSS PER | ||||
COMMON SHARE | 45,005,008 | 24,464,688 | ||
WEIGHTED AVERAGE NUMBER OF |
| |||
COMMON SHARES OUTSTANDING - | ||||
BASIC AND DILUTED | $ (0.03) | $ (0.04) | ||
The accompanying notes are an integral part of these financial statements.
LEGEND MOBILE, INC. AND SUBSIDIARIES | |||||||||
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT | |||||||||
FROM DECEMBER 31, 2005 TO DECEMBER 31, 2007 | |||||||||
|
| Preferred Stock |
|
|
| ||||
Series A | Series B | Series C | |||||||
Shares | Amount | Shares | Amount | Shares | Amount | ||||
Balance, December 31, 2005 | 2,225 | $ 22 | 850,000 | $ 8,500 | $ 147,775 | $ 1,478 | |||
Shares issued for cash | - | - | - | - | - | - | |||