Note
1
–
Organization and summary of significant accounting principles
Interim
Reporting
The
Accompanying unaudited financial statements have been prepared in accordance
with accounting principles generally accepted in the United States of American
and the rules and regulations of the Securities and Exchange Commission for
interim financial information. Accordingly, they do not include all of the
information and footnotes necessary for a comprehensive presentation of
financial position and results of operations.
It
is
management’s opinion, however, that all material adjustments (consisting of
normal recurring adjustments) have been made which are necessary for a fair
financial statement presentation. The results of the interim period are not
necessarily indicative of the results to be expected for the year.
For
further information, refer to the audited financial statements and footnotes
for
the year ended December 31, 2006 included in the Company’s Form SB-2 (Amendment
5).
Organization
The
company was organized March 2, 2006 (Date of Inception) under the laws of the
State of Nevada. The company has not commenced significant operations and,
in
accordance with Statement of Financial Accounting Standards No. 7
Accounting
and Reporting by Development Stage Enterprises
(“SFAS
No. 7”), the company is considered a development stage company.
The
company provides consulting services to
companies
that may offer any or all of the following services: provide
ISP
(Internet Service Provider), long distance provider, VOIP (Voice Over Internet
Protocol) provider, and digital content providers, and such client companies
will make their services available to small and medium size companies.
These clients will use an independent billing house to bill their
monthly fees directly to their customers’ telephone bill. The company
currently focuses on three stages of consulting with client businesses: billing,
customer service and scripting.
Accounting
period
The
company has adopted an annual accounting period of January through
December.
Use
of
estimates
The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that
affect the reported amounts of assets and liabilities and disclosure 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 significantly from those estimates.
Cash
and cash equivalents
For
the
purpose of the statements of cash flows, all highly liquid investments with
a
maturity of three months or less are considered to be cash
equivalents.
Revenue
recognition
The
company provides consulting services (marketing, billing and script writing)
to
small and medium size business that are ISP (Internet Service Providers), long
distance providers, VOIP (Voice Over Internet Protocol) providers, and digital
content providers that rely on the services of third party billing
clearinghouses, and to companies that make their sales through direct mailings
and through direct website sales. The company enters into contracts for one
year
payable monthly. Revenue is recognized as monthly billings are
completed.
Furniture
and equipment
Furniture
and equipment are stated at cost less accumulated depreciation. It is the policy
of the company to capitalize items greater than or equal to $1,000 and provide
depreciation based on the estimated useful life of individual assets, calculated
using the straight line method.
Estimated
useful lives range as follows:
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Years
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Furniture
and equipment
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3
–
5
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|
|
|
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Computer
hardware
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|
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3
|
|
|
|
|
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Vehicles
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5
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Fair
value of financial instruments
Fair
value estimates discussed herein are based upon certain market assumptions
and
pertinent information available to management as of September 30, 2007. The
respective carrying value of certain on-balance-sheet financial instruments
approximated their fair values. These financial instruments include cash,
accounts payable and notes payable. Fair values were assumed to approximate
carrying values for cash and payables because they are short term in nature
and
their carrying amounts approximate fair values or they are payable on
demand.
Earnings
per share
The
company has adopted Statement of Financial Accounting Standards No. 128.
Earnings
Per Share
("SFAS
No. 128"). Basic earnings per common share ("EPS") calculations are determined
by dividing net income by the weighted average number of shares of common stock
outstanding during the year. Diluted earning per common share calculations
are
determined by dividing net income by the weighted average number of common
shares and dilutive common share equivalents outstanding. During periods when
common stock equivalents, if any, are anti- dilutive they are not considered
in
the computation.
Income
taxes
The
company has adopted Statement of Financial Accounting Standard No. 109,
Accounting
for Income Taxes
("SFAS
No. 109") for recording the provision for income taxes. Deferred tax assets
and
liabilities are computed based upon the difference between the financial
statement and income tax basis of assets and liabilities using the enacted
marginal tax rate applicable when the related asset or liability is expected
to
be realized or settled. Deferred income tax expenses or benefits are based
on
the changes in the asset or liability each period. If available evidence
suggests that it is more likely than not that some portion or all of the
deferred tax assets will not be realized, a valuation allowance is required
to
reduce the deferred tax assets to the amount that is more likely than not to
be
realized. Future changes in such valuation allowance are included in the
provision for deferred income taxes in the period of change.
The
provision for income taxes differs from the amount computed by applying the
statutory federal income tax rate to income before provision for income taxes
because of differences in amounts deductible for tax purposes. Deferred income
taxes may arise from temporary differences resulting from income and expense
items reported for financial accounting and tax purposes in different periods.
Deferred taxes are classified as current or non-current, depending on the
classification of assets and liabilities to which they relate. Deferred taxes
arising from temporary differences that are not related to an asset or liability
are classified as current or non-current depending on the periods in which
the
temporary differences are expected to reverse.
Recent
pronouncements
In
February 2006, the FASB issued SFAS 155, “Accounting for Certain Hybrid
Financial Instruments." This Statement amends FASB Statements No. 133,
Accounting for Derivative Instruments and Hedging Activities, and No. 140,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities. This Statement resolves issues addressed in Statement 133
Implementation Issue No. Dl, “Application of Statement 133 to Beneficial
Interests in Securitized Financial Assets.” This Statement:
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a)
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Permits
fair value remeasurement for any hybrid financial instrument that
contains
an embedded derivative that otherwise would require
bifurcation.
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b)
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Clarifies
which interest-only strips and principal-only strips are not subject
to
the requirements of Statement 133.
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c)
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Establishes
a requirement to evaluate interests in securitized financial assets
to
identify interests that are freestanding derivatives or that are
hybrid
financial instruments that contain an embedded derivative requiring
bifurcation.
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d)
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Clarifies
that concentrations of credit risk in the form of subordination are
not
embedded derivatives.
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e)
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Amends
Statement 140 to eliminate the prohibition on a qualifying special-purpose
entity from holding a derivative financial instrument that pertains
to a
beneficial interest other than another derivative financial
instrument.
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The
fair
value election provided for in paragraph 4(e) of this Statement may also be
applied upon adoption of this Statement for hybrid financial instruments that
had been bifurcated under paragraph 12 of Statement 133 prior to the adoption
of
this Statement. Earlier adoption is permitted as of the beginning of our fiscal
year, provided we have not yet issued financial statements, including financial
statements for any interim period, for that fiscal year. Provisions of this
Statement may be applied to instruments that we hold at the date of adoption
on
an instrument-by-instrument basis.
Adoption
of this Statement is required as of the beginning of the first fiscal year
that
begins after September 15, 2005. The adoption of this statement is not expected
to have a material impact on the company’s financial statements.
In
March
2006, The FASB issued SEAS 156
,
“Accounting
for Servicing of Financial Assets.” This Statement amends FASB Statement No.
140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, with respect to the accounting for separately
recognized servicing assets and servicing liabilities. This
Statement:
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a)
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Requires
an entity to recognize a servicing asset or servicing liability each
time
it undertakes an obligation to service a financial asset by entering
into
a servicing contract in certain
situations.
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b)
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Requires
all separately recognized servicing assets and servicing liabilities
to be
initially measured at fair value, if
practicable.
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c)
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Permits
an entity to choose either the amortization method or the fair value
measurement method for each class of separately recognized servicing
assets and servicing liabilities.
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d)
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At
its initial adoption, permits a one-time reclassification of
available-for-sale securities to trading securities by entities with
recognized servicing rights, without calling into question the treatment
of other available-for-sale securities under Statement 115, provided
that
the available-for-sale securities are identified in some manner as
offsetting the entity’s exposure to changes in fair value of servicing
assets or servicing liabilities that a servicer elects to subsequently
measure at fair value.
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e)
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Requires
separate presentation of servicing assets and servicing liabilities
subsequently measured at fair value in the statement of financial
position
and additional disclosures for all separately recognized servicing
assets
and servicing liabilities.
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Adoption
of this Statement is required as of the beginning of the first fiscal year
that
begins after September 15, 2006. The adoption of this statement is not expected
to have a material impact on the company’s financial statements.
In
September 2006, the FASB issued Statement No. 157, “Fair Value Measurements.”
This Statement defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles and expands disclosure about
fair value measurement. The implementation of this guidance is not expected
to
have any impact on the company’s financial statements.
In
September 2006, the FASB issued Statement of Financial Accounting Standards
No.
158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement
Plans, an amendment of PASS Statements No. 87, 106, and 132(R)” (“SFAS No.
158”). SFAS No. 158 requires companies to recognize a net liability or asset and
an offsetting adjustment to accumulated other comprehensive income to report
the
funded status of defined benefit pension and other postretirement benefit plans.
SFAS No. 158 requires prospective application, recognition and disclosure
requirements effective for the company’s fiscal year ending December 31, 2007.
Additionally, SFAS No. 158 requires companies to measure plan assets and
obligations at their year-end balance sheet date. This requirement is effective
for the company’s fiscal year ending December 31, 2009. The company is currently
evaluating the impact of the adoption of SFAS No. 158 and does not expect that
it will have a material impact on its financial statements.
In
September 2006, the United States Securities and Exchange Commission (“SEC”),
adopted SAB No. 108, “Considering the Effects of Prior Year Misstatements when
Quantifying Misstatements in Current Year Financial Statements.” This SAB
provides guidance on the consideration of the effects to prior year
misstatements in quantifying current year misstatements for the purpose of
a
materiality assessment. SAB 108 establishes an approach that requires
quantification of financial statement errors based on the effects of each of
the
company’s balance sheet and statement of operations financial statements and the
related financial statement disclosures. The SAB permits existing public
companies to record the cumulative effect of initially applying this approach
in
the first year ending after November 15, 2006 by recording the necessary
correcting adjustments to the carrying values of assets and liabilities as
of
the beginning of that year with the offsetting adjustment recorded to the
opening balance of retained earnings. Additionally, the use of the cumulative
effect transition method requires detailed disclosure of the nature and amount
of each individual error being corrected through the cumulative adjustment
and
how and when it arose. The company is currently evaluating the impact, if any,
that SAB 108 may have on the company’s results of operations or financial
position.
In
July
2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes-an interpretation of FASB Statement No. 109.” This Interpretation
prescribes a recognition threshold and measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to
be
taken in a tax return. Interpretation No. 48 also provides guidance on
derecognition, classification, interest and penalties,
accounting
in interim periods, disclosure, and transition. Interpretation No. 48 is
effective for fiscal years beginning after December 15, 2006 and the company
is
currently evaluating the impact, if any, that FASB Interpretation No. 48 may
have on it’s results of operations or financial position.
Note
2
–
Going
concern
As
shown
in the accompanying financial statements, as is typical of companies going
through the development stage, the Company incurred a net loss for the period
ended September 30, 2007. The Company is currently in the development stage
and
there is no guarantee whether the Company will be able to generate enough
revenue and/or raise capital to support current operations and generate
anticipated sales. This raises substantial doubt about the Company’s ability to
continue as a going concern. Management believes that the Company’s future
capital requirements will depend on many factors, including the success of
the
Company’s consulting and marketing services. The financial statements do not
include any adjustments that might result from the outcome of these
uncertainties.
Note
3 – Furniture and Equipment
Furniture
and equipment consists of the following categories at September 30,
2007:
Computers
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$
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3,000
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Software
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7,474
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10,474
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Less
accumulated depreciation
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4,121
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Total
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$
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6,353
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Depreciation
expense for the nine months ended September 30, 2007 totaled
$2,061.
Note
4 – Income taxes
Deferred
income taxes may arise from temporary differences resulting from income and
expense items reported for financial accounting and tax purposes in different
periods. Deferred taxes are classified as current or non-current, depending
on
the classification of assets and liabilities to which they relate. Deferred
taxes arising from temporary differences that are not related to an asset or
liability are classified as current or non-current depending on the periods
in
which the temporary differences are expected to reverse.
The
provision for income taxes differs from the amount computed by applying the
statutory federal income tax rate to income before provision for income taxes.
The sources and tax effects of the differences for the periods presented are
as
follows:
Income
tax provision at the
federal
statutory rate
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34
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%
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Effect
of operating losses
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-34
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%
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0
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%
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Net
deferred tax assets consist of the following:
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For the nine months ended
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September
30, 2007
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Gross
deferred tax asset
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$
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3,000,000
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Gross
deferred tax liability
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-
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Valuation
allowance
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(3,000,000
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)
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Net
deferred tax asset
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$
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-
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The
company did not pay any income taxes during the nine months ended September
30,
2007.
Note
5 – Stockholders’ equity
In
March
2006, the Company issued 45,000,000 shares of its $0.001 par value common stock
as founder's shares. In connection with the issuance of these 45,000,000 shares,
the company recorded compensation expense in the amount of $4,500,000. The
shares were deemed to have been issued pursuant to an exemption provided by
Section 4(2) of the Act, which exempts from registration "transactions by an
issuer not involving any public offering."
In
May
2006, the Company issued 115,000 shares of its $0.001 par value common stock
for
$11,500 cash. The shares were deemed to have been issued pursuant to an
exemption provided by Section 4(2) of the Act, which exempts from registration
"transactions by an issuer not involving any public offering."
In
May
2006, the Company issued 32,500,000 shares of its $0.001 par value common stock
for consulting services. In connection with the issuance of these 32,500,000
shares, the company recorded compensation expense in the amount of $3,250,000.
The shares were deemed to have been issued pursuant to an exemption provided
by
Section 4(2) of the Act, which exempts from registration "transactions by an
issuer not involving any public offering."
There
have been no other issuances of common stock.
Note
6 – Warrants and options
There
are
no warrants or options outstanding to acquire any additional shares of common
stock.
Note
7 – Related party transactions
Amounts
due to the company’s chief executive officer totaled $2,671 at September 30,
2007. These amounts primarily represent loans to pay company startup
expenses.
On
March
31, 2006, the Company entered into a two year contract to provide consulting
services for K&L International, Inc., a company solely owned by our
Chairman, CEO, and President. The contract, with a value of approximately
$48,000, provides that the Company will receive $2,000 per month, which
commenced April 2006. Through September 2007, the Company has received $34,000
under the terms of the consulting contract.
The
$18,000 revenue reported for the nine months ended September 30, 2007 represents
revenue from consulting services provided based on the above two year
contract.
The
Company’s operations are located in an office facility owned by the founding
shareholder, who is providing the Company office space rent free.
Note
8 – Commitments and contingent liabilities
Legal
matters
- The
Company is occasionally party to litigation or threat of litigation arising
in
the normal course of business. Management, after consultation with legal
counsel, does not believe that the resolution of any such matters will have
a
material effect on the company’s financial position or results of
operations.
Note
9 – Agent agreement
On
August
3, 2007 the Company signed an agreement with ILD Telecommunications, Inc.,
a
provider of billings services, to locate and contract with customers to provide
services.
FORWARD-LOOKING
STATEMENTS
This
document contains “forward-looking statements” within the meaning of the Private
Securities Litigation Reform Act of 1995. All statements other than statements
of historical fact are “forward-looking statements” for purposes of federal and
state securities laws, including, but not limited to, any projections of
earnings, revenue or other financial items; any statements of the plans,
strategies and objections of management for future operations; any statements
concerning proposed new services or developments; any statements regarding
future economic conditions or performance; any statements or belief; and any
statements of assumptions underlying any of the foregoing.
Forward-looking
statements may include the words “may,” “could,” “estimate,” “intend,”
“continue,” “believe,” “expect,” “anticipate” or other similar words. These
forward-looking statements present our estimates and assumptions only as of
the
date of this report. Except for our ongoing securities laws, we do not intend,
and undertake no obligation, to update any forward-looking
statement.
Although
we believe that the expectations reflected in any of our forward-looking
statements are reasonable, actual results could differ materially from those
projected or assumed in any of our forward-looking statements. Our future
financial condition and results of operations, as well as any forward-looking
statements, are subject to change and inherent risks and uncertainties. The
factors impacting these risks and uncertainties include, but are not limited
to:
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•
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our
ability to successfully compete in the professional services
industry;
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•
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difficulties
developing a new line of business in the professional services
industry;
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•
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failure
to identify, develop or profitably manage additional
businesses;
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•
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failure
to obtain new customers or retain existing
customers;
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•
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inability
to efficiently manage our
operations;
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•
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inability
to achieve future operating
results;
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•
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inability
to obtain capital for future
growth;
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•
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loss
of key executives; and
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•
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general
economic and business conditions.
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For
a detailed description of these and other factors that could cause actual
results to differ materially from those expressed in any forward-looking
statement, please see “Factors That May Affect Our Results of Operation” in this
document and in our Prospectus and SB-2 filing SEC on February 13, 2007, as
amended June 25, 2007, available at our website at
www.LGSB.net
or at the SEC’s website at www.sec.gov.
ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS
Plan
of Operation
Since
the
inception of Legends Business Group, Inc. (hereinafter LGSB), we have not been
engaged in significant operation, nor have we had significant revenues, as
we
are a development stage company. Our plan of operation for the next twelve
months will be to expand our client base. We intend to market our consulting
services to small and medium size businesses that are ISP (Internet Service
Providers), long distance providers, VOIP (Voice Over Internet Protocol)
providers, and digital content providers that rely on the services of third
party billing clearinghouses, and to companies that make their sales though
direct mailings and though direct website sales.
As
we
continue to implement our business plan, we will need to raise additional funds.
We anticipate obtaining additional financing to fund operations through common
stock offerings, to the extent available, or to obtain additional financing
to
the extent necessary to augment our working capital.
Our
current related party contract is providing sufficient revenue to continue
current operations, and will provide sufficient revenue to meet our needs over
the next twelve months.
In
addition to our related party contract, on August 3, 2007 we entered into a
contract with ILD Telecommunications, Inc. (hereinafter “ILD”). Under the terms
of the agreement Legends Business Group will act as a non-exclusive agent for
ILD, allowing LGBS to act as agent for ILD and to earn a commission from any
contracts placed with ILD.
We
are
not currently performing any product research or development, and do not have
plans to do so for the next twelve month period.
LGSB
does
intend to continue to use the income from our current client to continue to
meet
our operating expenses.
We
do not
have need for the purchase of any property or equipment at this time.
LGSB
will
not have any significant changes in the current number of employees.
Interim
Period
This
is
an interim period report. For a full discussion of our business, please see
our
Prospectus and SB-2 filing available at our website at
www.LBGI.net
or also
available at the SEC’s website at www.sec.gov.
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 or operations, liquidity, capital
expenditures or capital resources that is material to investors.
Going
Concern
The
accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States, which
contemplates continuation of the Company as a going concern. The Company’s
operations generated limited income during the current period
ended.
The
future success of the Company is likely dependent on its ability to attain
additional capital to develop its proposed consulting offerings and ultimately,
upon its ability to attain future profitable operations. There can be no
assurance that the Company will be successful in obtaining such financing,
or
that it will attain positive cash flow from operations.
FACTORS
THAT MAY AFFECT OUR RESULTS OF OPERATION
We
are a development stage company organized in March 2006 and have no operating
history, which makes an evaluation of us extremely difficult. At this stage
of
our business operations, even with our good faith efforts, potential investors
have a high probability of losing their investment.
We
were
incorporated in March of 2006 as a Nevada corporation. As a result of our recent
start up, we have generated limited revenues from operations and have been
focused on organizational, start-up, and market analysis activities since we
incorporated. Our operating activities during this period consisted primarily
of
developing contacts for our consulting services. There is nothing at this time
on which to base an assumption that our business operations will prove to be
successful or that we will ever be able to operate profitably. Our future
operating results will depend on many factors, including our ability to raise
adequate working capital, demand for our services, the level of our competition
and our ability to attract and maintain key management and
employees.
Our
prospects are subject to the risks and expenses encountered by start-up
companies, such as ours, which are establishing a business as consulting firm.
Our limited operating history makes it difficult or impossible to predict future
results of our operations. We may not establish a client base that will make
us
profitable, which might result in the loss of some or all of your investment
in
our common stock.
You
should consider our prospects in light of the risks and difficulties frequently
encountered by early stage companies in the rapidly evolving consulting market.
These risks include, but are not limited to, an unpredictable business
environment, the difficulty of managing growth and the use of our business
model. To address these risks, we must, among other things:
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expand
our customer base;
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enhance
our name recognition;
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Ÿ
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expand
our product and service offerings;
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successfully
implement our business and marketing
strategy;
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provide
superior customer service;
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respond
effectively to competitive and technological developments;
and
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Ÿ
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attract
and retain qualified personnel.
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Because
our common stock is deemed a low-priced “Penny” stock, an investment in our
common stock should be considered high risk and subject to marketability
restrictions. These marketability restrictions may prevent you from liquidating
your stock, thus causing a loss of your investment.
Since
our
common stock is a penny stock, as defined in Rule 3a51-1 under the Securities
Exchange Act, it will be more difficult for investors to liquidate their
investment even if and when a market develops for the common stock. Until the
trading price of the common stock rises above $5.00 per share, if ever, trading
in the common stock is subject to the penny stock rules of the Securities
Exchange Act specified in rules 15g-1 through 15g-10. Those rules require
broker-dealers, before effecting transactions in any penny stock,
to:
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Deliver
to the customer, and obtain a written receipt for, a disclosure
document;
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Ÿ
|
Disclose
certain price information about the
stock;
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Ÿ
|
Disclose
the amount of compensation received by the broker-dealer or any
associated
person of the broker-dealer;
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Send
monthly statements to customers with market and price information
about
the penny stock; and
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•
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In
some circumstances, approve the purchaser’s account under certain
standards and deliver written statements to the customer with information
specified in the rules.
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Consequently,
the penny stock rules may restrict the ability or willingness of broker-dealers
to sell the common stock and may affect the ability of holders to sell their
common stock in the secondary market and the price at which such holders can
sell any such securities. These additional procedures could also limit our
ability to raise additional capital in the future.
NASD
sales practice requirements may also limit a stockholder's ability to buy and
sell our stock, if and when we are quoted on the OTC Bulletin
Board.
In
addition to the “penny stock” rules described above, the National Association of
Securities Dealers (NASD) has adopted rules that require that in recommending
an
investment to a customer, a broker-dealer must have reasonable grounds for
believing that the investment is suitable for that customer. Prior to
recommending speculative low priced securities to their non-institutional
customers, broker-dealers must make reasonable efforts to obtain information
about the customer's financial status, tax status, investment objectives and
other information. Under interpretations of these rules, the NASD believes
that
there is a high probability that speculative low priced securities will not
be
suitable for at least some customers. The NASD requirements make it more
difficult for broker-dealers to recommend that their customers buy our common
stock, which may limit your ability to buy and sell our stock and have an
adverse effect on the market for our shares.