Financial Statements
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Consolidated Balance Sheet as of June 30, 2008 (unaudited)
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Consolidated Statements of Operations for the six months ended June 30,
2008 and 2007 three months ended June 30, 2008 and 2007 (unaudited)
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Consolidated Statements of Cash Flows for the
six months ended June 30, 2008 and 2007 (unaudited)
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Notes to Consolidated Interim Financial Statements (unaudited)
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Item 2.
Management's Discussion and Analysis or Plan of Operation
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Item 3.
Controls and Procedures
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PART II.
OTHER INFORMATION
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Item 1.
Legal Proceedings
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Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
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Item 3.
Defaults Upon Senior Securities
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Item 4.
Submission of Matters to a Vote of Security Holders
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Item 5.
Other Information
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Item 6.
Exhibits
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SIGNATURES
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LEGEND MOBILIE AND SUBSIDIARIES |
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CONSOLIDATED BALANCE SHEETS |
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| JUNE | DECEMBER |
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| 30, 2008 | 31, 2007 |
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| (UNAUDITED) | (AUDITED) |
CURRENT ASSETS: |
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Cash |
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| $ 64 | $ 47 |
Prepaid expenses |
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| 1,000 | - |
Investments |
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| 29,562 | 29,562 |
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TOTAL CURRENT ASSETS |
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| 30,626 | 29,609 |
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FIXED ASSETS - at cost |
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Computer and office equipment |
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| 11,376 | 11,376 |
Less: Accumulated depreciation |
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| (10,945) | (10,677) |
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NET FIXED ASSETS |
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| 431 | 699 |
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TOTAL ASSETS |
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| $ 31,057 | $ 30,308 |
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LIABILITIES AND STOCKHOLDERS' DEFICIT |
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CURRENT LIABILITIES: |
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Accounts payable |
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| $ 190,635 | $ 190,635 |
Accrued expenses |
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| 643,408 | 555,908 |
Accrued interest |
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| 1,280,208 | 1,113,330 |
Accrued derivative liability |
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| 250,744 | 250,744 |
License fees payable |
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| 200,000 | 200,000 |
Advances from an officer |
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| 102,516 | 95,300 |
Due to related parties |
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| 74,689 | 83,688 |
Notes payable - other |
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| 95,000 | 95,000 |
Notes payable |
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| 565,750 | 565,750 |
Note payable - officer |
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| 1,229,649 | 1,229,649 |
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TOTAL CURRENT LIABILITIES |
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| 4,632,599 | 4,380,004 |
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COMMITMENTS AND CONTINGENCIES |
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STOCKHOLDERS' DEFICIT |
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Series A Preferred Stock, $0.001 par value, 1,000,000 shares |
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authorized; 2,225 shares issued and outstanding |
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| 22 | 22 |
Series B Convertible Preferred Stock, $0.01 par value; 850,000 |
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shares authorized; 850,000 shares issued and outstanding |
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authorized; 1,000,000 Class A shares issued and outstanding |
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| 8,500 | 8,500 |
Series C Convertible Preferred Stock, $0.01 par value; 147,775 |
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shares authorized; 147,775 shares issued and outstanding |
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| 1,478 | 1,478 |
Common stock; $0.001 par value; 75,000,000 shares |
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authorized; 73,813,521(December 31, 2007-71,513,521) issued and outstanding |
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| 73,813 | 71,513 | |||
Additional paid-in capital |
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| 16,334,721 | 16,324,521 |
Stock subscription receivable |
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| (156,300) | (156,300) |
Accumulated deficit |
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| (20,863,776) | (20,599,430) |
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TOTAL STOCKHOLDERS' DEFICIT |
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| (4,601,542) | (4,349,696) |
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TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT |
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| $ 31,057 | $ 30,308 |
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The accompanying notes are an integral part of these |
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financial statements. |
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LEGEND MOBILE, INC. AND SUBSIDIARIES |
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CONSOLIDATED INTERIM STATEMENT OF OPERATIONS |
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(UNAUDITED) |
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| THREE MONTHS ENDED | SIX MONTHS ENDED |
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| JUNE 30, | JUNE 30, |
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| 2008 | 2007 | 2008 | 2007 |
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REVENUE | $ - | $ - | $ - | $ 165 |
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COST OF REVENUE | - | - | - | 125 |
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GROSS PROFIT | - | - | - | 40 |
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EXPENSES: |
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Selling, general and administrative | 49,955 | 618,749 | 98,467 | 621,045 |
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TOTAL EXPENSES | 49,955 | 618,749 | 98,467 | 621,045 |
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LOSS FROM OPERATIONS | (49,955) | (618,749) | (98,467) | (621,005) |
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OTHER INCOME (EXPENSE): |
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Interest expense and financing costs | (83,439) | (88,802) | (166,878) | (177,604) |
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TOTAL OTHER INCOME (EXPENSE) | (83,439) | (88,802) | (166,878) | (177,604) |
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LOSS BEFORE PROVISION FOR INCOME TAXES | $ (133,394) | $ (707,551) | $ (265,345) | $ (798,609) |
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PROVISION FOR INCOME TAXES | - | - | - | - |
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NET LOSS | $ (133,394) | $ (707,551) | $ (265,345) | $ (798,609) |
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BASIC AND DILUTED LOSS PER |
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COMMON SHARE | $ (0.002) | $ (0.028) | $ (0.004) | $ (0.032) |
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WEIGHTED AVERAGE NUMBER OF |
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COMMON SHARES OUTSTANDING - |
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BASIC AND DILUTED | 73,002,046 | 25,298,021 | 73,002,046 | 25,298,021 |
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The accompanying notes are an integral part of these financial statements.
LEGEND MOBILE, INC. AND SUBSIDIARIES |
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CONSOLIDATED INTERIM STATEMENT OF CASH FLOWS |
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(UNAUDITED) |
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| 2008 | 2007 | |||||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net loss | $ (265,345) | $ (798,609) | |||||||||
Adjustment to reconcile net loss to net cash used in operating activities |
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Stock issued for services rendered | 3,500 | 542,474 | |||||||||
Depreciation | 268 | 268 | |||||||||
Changes in operating assets and liabilities: |
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Inventory | - | 125 | |||||||||
Prepaid expenses | (1,000) |
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Accounts payable | 87,500 | 71,000 | |||||||||
Accrued interest | 166,878 | 177,604 | |||||||||
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Net cash used in operating activities | (8,199) | (7,138) | |||||||||
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Advances from an officer, net | 7,216 | - | |||||||||
Notes payable in exchange for accrued salaries - net | - | - | |||||||||
Advances (to)from related parties, net | 1,000 | 6,757 | |||||||||
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Net cash provided by financing activities | 8,216 | 6,757 | |||||||||
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INCREASE (DECREASE) IN CASH | 17 | (381) | |||||||||
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CASH, Beginning of period | 47 | 386 | |||||||||
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CASH, End of period | $ 64 | $ 5 | |||||||||
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: |
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Interest paid | $ 166,878 | $ 177,604 | |||||||||
Income taxes paid | $ - | $ - | |||||||||
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The accompanying notes are an integral part of these financial statements. |
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LEGEND MOBILE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The unaudited consolidated financial statements have been prepared by Legend Mobile, Inc. (the "Company") pursuant to the rules and regulations of the Securities and Exchange Commission. The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments), which are in the opinion of management necessary to fairly present the operating results for the respective periods. Certain information and footnote disclosures normally present in annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes for the year ended December 31, 2007 included in the Company's Annual Report on Form 10-KSB. The results of the six months ended June 30, 2008 are not necessarily indicative of the results to be expected for the full year ending December 31, 2008.
The Company was incorporated in Delaware on January 13, 1998 and is the successor to Interactive Entertainment Studio, Inc. (IES). IES was incorporated in the State of Nevada on May 27, 1997 and was merged into the Company 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, the Company filed a Certificate of Amendment to its Certificate of Incorporation to amend the Company's Certificate of Incorporation name from PTN Media, Inc. to Legend Mobile, Inc.
The Company is a developer and marketer of branded mobile phone products, including faceplates, phone accessories, SMS services, and mobile data applications. Through the Company's 50% owned subsidiary, Legend Credit, Inc. (formerly PTN Wireless, Inc. ("Legend Credit"), the Company also develops and markets stored value cards, including gift cards bearing the Visa and MasterCard logo. Effective October 1, 2004, Mr. Klamka, the Company's CEO and 60% owner of Legend Credit, contributed an additional 10% interest in Legend Credit to the Company. Legend Credit currently markets the Hello Kitty reloadable debit MasterCard card. The Hello Kitty card is sold via the www.hellokittycard.com. Hello Kitty is one of the most recognized animated characters in the world. Legend Credit generates revenues on the Hello Kitty Debit MasterCard card by charging cardholders a suite of fees, including an initial processing fee of up to $14.95, a monthly fee of up to $2.95, and an ATM withdrawal fee of up to $1.50. The Company derives limited revenues from the sale of covers for mobile phones. The Company's suppliers require it to purchase these products and resell them to consumers and wholesalers. The Company created products under its licenses from athletes, entertainers, and popular trademarks. The Company also sells a NASCAR-themed, SMS-based text messaging service called "Racemobile.com". The Company also is seeking to sell mobile application software either via over-the-air download or bundled with a particular mobile phone. These applications may be sold as a subscription or as a single download. The Company has entered into an agreement with the American Society of Composers, Authors and Publishers ("ASCAP") for the licensing of ringtones for mobile phones. ASCAP maintains the rights to 8 million copyrighted musical works.
In February 2001, the Company formed Legend Credit as a wholly owned subsidiary. On April 1, 2003, Mr. Peter Klamka, CEO of the Company, contributed the rights to an affinity credit card business valued at $37,000 to Legend Credit. Mr. Klamka's contribution has been determined pursuant to Accounting Principles Board Opinion No. 29, "Nonmonetary Transactions," using his cost basis in the investment, which is the most readily determinable cost. In exchange for this contribution, Legend Credit issued to Mr. Peter Klamka 60% of the issued and outstanding shares of Legend Credit common stock and the Company issued to Mr. Klamka 850,000 shares of Series B convertible preferred stock. These issuances were valued at $22,200 and $14,800, respectively. The Company retains a 40%
LEGEND MOBILE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
minority interest in Legend Credit which is accounted for using the equity method. Effective October 1, 2004, Mr. Klamka contributed an additional 10% interest in Legend Credit to the Company at was valued at $3,700 (10% of $37,000, the original value of the affinity credit card business).
Legend Credit signed a two-year license agreement with Mark Burnett Productions to create gift cards, debit cards, and virtual cards using the trademarks of "The Apprentice" television show, including the name and likeness of Donald Trump. "The Apprentice" premiered January 8, 2004, and immediately became a cultural phenomenon, scoring the highest ratings for any new series introduced throughout the 2003-04 season. "The Apprentice" resumed its hot streak in the fall, delivering the strongest ratings among viewers aged 18-49 of any unscripted series through the first half of the 2004-05 television season and the third-highest average among viewers aged 18-49 for all series. The show also continues to deliver the strongest concentration on primetime network television of upscale viewers in such key categories as viewers aged 18-49 living in homes with incomes of $75,000 and more. Legend Credit expects to market the cards in the third quarter of 2005.
In July 1999, the Company formed, Legend Studios, Inc. (formerly FragranceDirect.com, Inc.) ("Legend Studios"), a majority owned subsidiary. Through this entity, the Company sold fragrance products over the Internet. On June 28, 2004, Legend Studios entered into a definitive agreement to begin operating seven radio stations owned by Quorum Radio Partners, Inc. and Quorum Radio Partners of Virginia, Inc. Under the terms of the agreement, Legend Studios was to operate for a 12-month term, beginning July 1, 2004, seven stations located in Virginia, West Virginia and Missouri. Under this agreement, Legend Studios paid $50,000 for the right to operate the ratio stations, and that amount is being amortized over for a 12-month period. In February 2005, the Quorum entities forced Legend Studios to cease operating the radio stations and indicated that they were unwilling to proceed with Legend Studios' acquisition of the stations. Consequently, in February 2005, Legend Studios filed a lawsuit with the Supreme Court of New York County against Quorum Radio Partners, Inc., Quorum Radio Partners of Virginia, Inc, and Quorum Communications, Inc. This lawsuit alleges that the defendants breached the asset purchase agreement and local marketing agreement. The Company has expensed the unamortized portion of the $50,000 payment that Legend Studios made under the operating agreement and has discontinued recognition of this revenue, given that the Company is no longer able to control the radio operations.
Going Concern
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. The Company incurred a net loss for the six months ended June 30, 2008 and at June 30, 2007, had an accumulated deficit and a working capital deficit. In addition, the Company generates minimal revenue from its operations and is in default on the payment of note payable and license fee payable obligations. These conditions raise substantial doubt as to the Company's ability to continue as a going concern. These consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. These consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
The Company plans to take the following steps that it believes will be sufficient to provide the Company with the ability to continue in existence. The Company, through its subsidiary, Legend Credit, Inc., continues to sell branded debit cards. The Company is also seeking additional equity capital to expand its cellular phones faceplates, mobile data services, and mobile applications business.
LEGEND MOBILE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
Accounting Policies
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The accounting policies followed by the Company are set forth in Note 1 to the Company's consolidated financial statements included in its annual report on Form 10-KSB for the year ended December 31, 2007 and which is incorporated herein by reference. Specific reference is made to this report for a description of the Company's securities and the notes to the financial statements included therein.
Minority Interest
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The accompanying consolidated financial statements do not reflect a minority interest liability as of June 30, 2008, as Legend Studios, on a stand-alone basis, had a stockholders' deficit as of such date. The accompanying consolidated statements of operations for the six months ended June 30, 2008 and 2007 do not reflect the minority interest's share of Legend Studios' losses for said periods as the related accrual would result in the Company's recording of a minority interest receivable.
In addition, during the year ended December 31, 2004, the Company's ownership in Legend Credit increased to 50% resulting in the Company consolidating the financial statement of Legend Credit with the Company. The accompanying consolidated financial statements do not reflect a minority interest liability as of March 31, 2008 as Legend Credit, on a stand-alone basis, had a stockholders' deficit as of such date. The accompanying consolidated statements of operations for the six months ended June 30, 2008 do not reflect the minority interest's share of Legend Credits' losses for the six months ended June 30, 2008 as the related accrual would result in the Company's recording of a minority interest receivable.
NOTE 2 - STOCKHOLDERS' DEFICIT
Series A Convertible Preferred Stock
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The Company has 2,225 shares of $0.001 par value Series A Convertible Preferred Stock authorized of which 2,225 shares are issued and outstanding at March 31, 2008. Each share of Series A can be converted into 20 shares of common stock. Series A shares have no voting rights.
Series B Convertible Preferred Stock
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The Company has 850,000 shares of $0.01 par value Series B Convertible Preferred Stock authorized of which 850,000 shares are issued and outstanding at March 31, 2008.
In the event of a voluntary or involuntary liquidation, dissolution or winding up of the Company, prior to the time the Series B becomes convertible into common shares, the holders of Series B shall be entitled to $0.01 per share. In the event of a voluntary or involuntary liquidation, dissolution or winding up of the Company after the time the Series B becomes convertible into common shares, the holders of Series B shall be entitled to share with the holders of common stock pari passu in the assets of the Company, on an as converted basis, whether such assets are capital or surplus of any nature. The Series B shall be convertible upon the earlier to occur of: (i) the date the Company generates net profits in any two consecutive fiscal quarters or (ii) April 1, 2006.
The conversion of Series B shall be on the basis of ten shares of common stock for one Series B share, as may be adjusted from time to time. Upon conversion, the holder of the Series B will be required to pay to the Company a conversion price for each share of common stock equal to $0.10.
LEGEND MOBILE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
The holders of the Series B shall vote on all matters with the holders of the common stock (and not as a separate class) on a ten votes per share basis. The holders of the Series B shall be entitled to receive all notices relating to voting as are required to be given to the holders of the common stock.
During 2003, the Company issued to Mr. Peter Klamka, the Company's CEO, 850,000 shares of Series B as consideration for the contribution of an affinity credit card business to Legend Credit.
Series C Convertible Preferred Stock
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The Company has 147,775 shares of $0.01 par value Series C Convertible Preferred Stock authorized of which 147,775 shares are issued and outstanding at March 31, 2008.
In the event of a voluntary or involuntary liquidation, dissolution or winding up of the Company prior to the time the Series C becomes convertible into common shares, the holders of Series C shall be entitled to $0.01 per share. In the event of a voluntary or involuntary liquidation, dissolution or winding up of the Company after the time the Series C becomes convertible into common shares, the holders of Series C shall be entitled to share with the holders of shares of common stock and Series B convertible preferred stock pari passu in the assets of the Company, on an as converted basis, whether such assets are capital or surplus of any nature. . The Series C shall be convertible upon the earlier to occur of: (i) the date the Company generates net profits in any two consecutive fiscal quarters; (ii) April 1, 2006; or (iii) any date that the market price per share of common stock equals or exceeds $0.50.
The conversion of Series C shall be on the basis of one hundred shares of common stock for one Series C share, as may be adjusted from time to time. Upon conversion, the holder of the Series C will be required to pay to the Company a conversion price for each share of common stock equal to $0.10.
The holders of the Series C shall vote on all matters with the holders of the common stock (and not as a separate class) on a hundred votes per share basis. The holders of the Series C shall be entitled to receive all notices relating to voting as are required to be given to the holders of the common stock.
During 2004, the Company issued to Mr. Peter Klamka, the Company's CEO, 147,775 shares of Series C as consideration for the contribution of an additional 10% ownership in Legend Credit.
Common Stock
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In February 2008, the Company issued 1,800,000 of common stock to retire $9,000 in notes payable.
In June 2008, the Company issued 500,000 shares of S8 common stock for services rendered totaling $3,500.
LEGEND MOBILE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 3 – EARNING(LOSS) PER SHARE
The Company reports earnings (loss) per share in accordance with SFAS No. 128, "Earnings per Share." Basic earnings (loss) per share is computed by dividing income (loss) available to common shareholders by the weighted average number of common shares available. Diluted earnings (loss) per share is computed similar to basic earnings (loss) per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. Diluted earnings (loss) per share has not been presented since the effect of the assumed conversion of options and warrants to purchase common shares would have an anti-dilutive effect. The following potential common shares have been excluded from the computation of diluted net loss per share for the six months ended June 30, 2008 and 2007 because the effect would have been anti-dilutive:
2008 2007
Conversion of Series A preferred stock
44,500 44,500
Conversion of Series B convertible preferred stock
8,500,000 8,500,000
Conversion of Series C convertible preferred stock 14,777,500 14,777,500
Stock options issued to employees and consultants
under the Company's stock option plan
1,150,000 1,150,000
Warrants issued to officers
231,000 231,000
Warrants issued for services
50,000 50,000
Warrants issued with notes
100,000 100,000
Warrants issued for penalty/interest
234,000 234,000
Warrants issued with note conversion3
300,000 300,000
25,387,000 25,387,000
NOTE 4 – RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measures" ("SFAS No. 157"). SFAS No157 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles ("GAAP"), expands disclosures about fair value measurements, and applies under other accounting pronouncements that require or permit fair value measurements. SFAS No. 157 does not require any new fair value measurements, however the FASB anticipates that for some entities, the application of SFAS No. 157 will change current practice. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, which for the Company would be its fiscal year beginning November 1, 2008. The implementation of SFAS No. 157 is not expected to have a material impact on the Company's results of operations and financial condition.
LEGEND MOBILE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(UNAUDITED)
In September 2006, the Financial Accounting Standards Board ("FASB") issued SFAS No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement Plans - an amendment of FASB Statements No. 87, 88, 106, and 132(R)". This statement requires employers to recognize the overfunded or underfunded status of a defined benefit postretirement plan (other than a multi-employer plan) as an asset or liability in its statement of financial position and to recognize changes in that funded status in the year in which the changes occur through comprehensive income of a business entity or changes in unrestricted net assets of a not-for-profit organization. This statement also requires an employer to measure the funded status of a plan as of the date of its year-end statement of financial position, with limited exceptions. The provisions of SFAS No. 158 are effective for employers with publicly traded equity securities as of the end of the fiscal year ending after December 15, 2006. The adoption of this statement is not expected to have a material effect on the Company's future reported financial position or results of operations.
In September 2006, the Securities and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 108 (Topic 1N), "Quantifying Misstatements in Current Year Financial Statements" ("SAB No. 108"). SAB No. 108 addresses how the effect of prior year uncorrected misstatements should be considered when quantifying misstatements in current year financial statements. SAB No. 108 requires SEC registrants (i) to quantify misstatements using a combined approach which considers both the balance sheet and income statement approaches; (ii) to evaluate whether either approach results in quantifying an error that is material in light of relevant quantitative and qualitative factors; and (iii) to adjust their financial statements if the new combined approach results in a conclusion that an error is material. SAB No. 108 addresses the mechanics of correcting misstatements that include effects from prior years. It indicates that the current year correction of a material error that includes prior year effects may result in the need to correct prior year financial statements even if the misstatement in the prior year or years is considered immaterial. Any prior year financial statements found to be materially misstated in years subsequent to the issuance of SAB No. 108 would be restated in accordance with SFAS No. 154, "Accounting Changes and Error Corrections." Because the combined approach represents a change in practice, the SEC staff will not require registrants that followed an acceptable approach in the past to restate prior years' historical financial statements. Rather, these registrants can report the cumulative effect of adopting the new approach as an adjustment to the current year's beginning balance of retained earnings. If the new approach is adopted in a quarter other than the first quarter, financial statements for prior interim periods within the year of adoption may need to be restated. SAB No. 108 is effective for fiscal years ending after November 15, 2006, which for Company would be its fiscal year beginning December 1, 2007. The implementation of SAB No. 108 is not expected to have a material impact on the Company's results of operations and financial condition.
In October 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position (“FSP”) Financial Accounting Standard (“FAS”) 123(R)-5, Amendment of FSP FAS 123(R)-1, (“FSP FAS 123(R)-5”) to address whether a change to an equity instrument in connection with an equity restructuring should be considered a modification for the purpose of applying FSP No. FAS 123(R)-1, Classification and Measurement of Freestanding Financial Instruments Originally Issued in Exchange for Employee Services under FAS Statement No 123(R) (“FSP FAS 123(R)-1”). FSP FAS 123(R)-1 states that financial instruments issued to employees in exchange for past or future services are subject to the provisions of SFAS 123(R) unless the terms of the award are modified when the holder is no longer an employee. In FSP FAS 123(R)-5, the FASB staff concluded that changes to the terms of an award that are
made solely due to an equity restructuring are not considered modifications as described in FSP FAS 123(R)-1 unless the fair value of the award increases, anti-dilution provisions are added, or holders of the same class of equity instruments are treated unequally. FSP FAS 123(R)-5 is effective for the first reporting period beginning after October 10, 2006. The adoption of FSP FAS 123(R)-5 did not have a material impact on the Company’s condensed consolidated financial statements.
On February 15, 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Liabilities” (SFAS No. 159). Under this Standard, the Company may elect to report financial instruments and certain other items at fair value on a contract-by-contract basis with changes in value reported in earnings. This election is irrevocable. SFAS No. 159 provides an opportunity to mitigate volatility in reported earnings that is caused by measuring hedged assets and liabilities that were previously required to use a different accounting method than the related hedging contracts when the complex provisions of SFAS No. 133 are not met. SFAS No. 159 is effective for years beginning after November 15, 2007. The Company does not believe it will have an impact on its consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations” (“SFAS 141R”). SFAS 141R amends SFAS 141 and provides guidance for recognizing and measuring identifiable assets and goodwill acquired, liabilities assumed, and any non-controlling interest in the acquiree. It also provides disclosure requirements to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS 141R will be effective for fiscal years beginning on or after December 15, 2008 and will be applied prospectively.
In December 2007, the FASB issued FASB Statement No. 160, “Noncontrolling Interests in Consolidated Financial Statements — An Amendment of ARB No. 51” (“Statement 160”). Statement 160 establishes new accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. Specifically, Statement 160 requires the recognition of a noncontrolling interest (minority interest) as equity in the consolidated financial statements and separate from the parent’s equity. The amount of net income attributable to the noncontrolling interest will be included in consolidated net income on the face of the income statement. Statement 160 clarifies that changes in a parent’s ownership interest in a subsidiary that do not result in deconsolidation are equity transactions if the parent retains its controlling financial interest. In addition, Statement 160 requires that a parent recognize a gain or loss in net income when a subsidiary is deconsolidated. Such gain or loss will be measured using the fair value of the noncontrolling equity investment on the deconsolidation date. Statement 160 also includes expanded disclosure requirements regarding the interests of the parent and its noncontrolling interest. Statement 160 is effective for fiscal years, and interim periods within those fiscal years, beginning with the quarter ended December 31, 2008. Earlier adoption is prohibited.
Item 2.
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 included in our 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 stored value cards including gift cards bearing the Visa and MasterCard logo. Legend Credit intends to develop and market additional branded consumer payment products including debit cards, gift cards, and credit cards. We currently market a MasterCard debit card using the trademarks of “The Apprentice” television show. Through our 91% subsidiary, Legend Studios, Inc., (formerly Fragrancedirect.com Inc.), we have entered into a local marketing agreement to operate and asset purchase agreement to purchase seven radio stations in Virginia, West Virginia, and Missouri on June 30, 2004. These agreements became the subject of litigation in February 2005.
Since our inception, we have incurred significant losses and at March 31, 2007 our current liabilities exceeded current assets. 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 Apprentice" gift card through Legend Credit, Inc.
We will continue to seek out licenses for popular trademarks in the areas of mobile communications and stored value products.