NOTES
TO THE FINANCIAL STATEMENTS
FOR
THE YEAR ENDED DECEMBER 31, 2007
Note
1 – Organization and summary of significant accounting principles
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 will provide 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
companies that perform services to larges telecommunications companies. 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.
LEGENDS
BUSINESS GROUP, INC
(A
DEVELOPMENTAL STAGE COMPANY)
NOTES
TO THE FINANCIAL STATEMENTS
(continued)
Estimated
useful lives range as follows:
|
|
Years
|
|
|
|
|
|
Furniture
and equipment
|
|
|
3
– 5
|
|
|
|
|
|
|
Computer
hardware
|
|
|
3
|
|
|
|
|
|
|
Vehicles
|
|
|
5
|
|
Fair
value of financial instruments
Fair
value estimates discussed herein are based upon certain market assumptions
and
pertinent information available to management as of December 31, 2006. 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.
LEGENDS
BUSINESS GROUP, INC
(A
DEVELOPMENTAL STAGE COMPANY)
NOTES
TO THE FINANCIAL STATEMENTS
(continued)
Recent
pronouncements
In
June
2003, the Securities and Exchange Commission (“SEC”) adopted final rules under
Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”). Commencing with
our annual report for the year ended December 31, 2009, we will be required
to
include a report of management on our internal control ever financial reporting.
The internal control report must include a statement,
|
•
|
of
management’s responsibility for establishing and maintaining adequate
internal control over our financial
reporting;
|
|
•
|
of
management’s assessment of the effectiveness of our internal control over
financial reporting as of year end;
|
|
•
|
of
the framework used by management to evaluate the effectiveness of
our
internal control over financial reporting;
and
|
|
•
|
that
our independent accounting firm has issued an attestation report
on
management’s assessment of our internal control over financial reporting,
which report is also required to be
filed.
|
In
December 2005 the SEC’s advisory committee on small business recommended that
the SEC allow most companies with market values of less than $700 million to
avoid having their internal controls certified by auditors. The advisory
committee recommended that most companies with market capitalizations under
$100
million be exempted totally. It further recommended that companies with market
capitalizations of $100 million to $700 million not face audits of internal
controls. Some Companies with large revenues but low market values would still
be required to comply with the act. There can be no assurances that these
proposals or similar proposals will be adopted.
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. For financial statements
issued for fiscal years beginning after November 15, 2007 and interim periods
within those fiscal years.
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 FASB 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. 258 and does not expect that
it will have a material impact on its financial statements.
LEGENDS
BUSINESS GROUP, INC
(A
DEVELOPMENTAL STAGE COMPANY)
NOTES
TO THE FINANCIAL STATEMENTS
(continued)
In
February 2008, the FASB issued Statement of Financial Accounting Standards
No.
159, “The Fair Value Option for Financial Assets and Financial Liabilities”,
including an amendment to FASB Statements 115 (SFAS No. 159). SFAS 159 permits
entities to chose to measure many financial instruments and certain other items
at fair value. The objective is to improve financial reporting by providing
entities with the opportunity to mitigate volatility. In reported earnings
caused by measuring related assets and liabilities differently without having
to
apply complex hedge accounting provisions. This Statements is expected to expand
the use of fair value measurement, which is consistent with the Board’s
long-term measurement objectives for accounting for financial instruments.
Effective for reporting periods beginning after November 15, 2007.
In
December 2007, the FASB issued Statement of Financial Accounting Standards
No.
141(R), “Business Combinations”. SFAS No. 141(R) improves the relevance,
representational faithfulness and comparability of the information that a
reporting entity provides in its financial reports about a business combination
and its effects. To accomplish that, this Statements establishes principles
and
requirements for how the acquirer:
|
a.
|
Recognizes
and measures in its financial statements the identifiable assets
acquires,
the liabilities assumed and any noncontrolling interest in the
acquire
|
|
b.
|
Recognizes
and measures the goodwill acquired in the business combination or
a gain
from a bargain purchase
|
|
c.
|
Determines
what information to disclose th enable users of the financial statements
to evaluate the nature and financial effects of the business
combination.
|
This
Statement applies prospectively to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008.
In
December 2007, the FASB issued Statements of Financial Accounting Standards
No.
160 “Noncontrolling Interests in Consolidated Financial Statements” an amendment
of ARB No 51 (SFAS No. 160). A noncontrolling interest, sometimes called a
minority interest, is the portion of the equity in a subsidiary not
attributable, directly or indirectly, to a parent. The objective of this
Statement is to improve the relevance, comparability and transparency of the
financial information that a reporting entity provides in its consolidated
financial statements by establishing accounting and reporting standards that
require:
|
a.
|
The
ownership interests in subsidiaries held by parties other than the
parent
be clearly identified, labeled and presented in consolidated statement
of
financial position within equity, but separate from the parent’s
equity.
|
|
b.
|
The
amount of consolidated net income attributable to the parent and
to the
noncontrolling interest be clearly identified and presented on the
face of
the consolidated statement of
income.
|
|
c.
|
Changes
in a parent’s ownership interest while the parent retains its controlling
financial interest in its subsidiary be accounted for consistently.
A
parent’s ownership interest in a subsidiary changes if the parent
purchases additional ownership interests in its subsidiary or if
the
parent sells some of its ownership interests in its subsidiary. It
also
changes it the subsidiary reacquires some of its ownership interests
or
the subsidiary issues additional ownership interests. All of those
transactions are economically similar and this Statement requires
that
they be accounted for similarly, as equity
transactions.
|
LEGENDS
BUSINESS GROUP, INC
(A
DEVELOPMENTAL STAGE COMPANY)
NOTES
TO THE FINANCIAL STATEMENTS
(continued)
|
d.
|
When
a subsidiary is deconsolidated, any retained noncontrolling equity
investment in the former subsidiary be initially measured at fair
value.
The gain or loss on the deconsolidation of the subsidiary is measured
using the fair value of any noncontrolling equity investment rather
than
the carrying amount of that retained
investment.
|
|
e.
|
Entities
provide sufficient disclosures that clearly identify and distinguish
between the interests of the parent and the interests of the
noncontrolling owners.
|
This
Statement is effective e for fiscal years, and interim periods within the fiscal
years, beginning on or after December 15, 2008.
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.
Note
2 – Going concern
The
accompanying financial statements have been prepared assuming that the company
will continue as a going concern, which contemplates the recoverability of
assets and the satisfaction of liabilities in the normal course of business.
As
noted above, the company is in the development stage and, accordingly, has
not
yet generated significant revenues from operations. Since its inception, the
company has generated small amounts of revenues through a consulting contract
with a related company; however, there is a need for the consulting services
provided by the company within the industry. The company, as consultants, will
provide assistance to established companies with their billing, customer service
and scripting, allowing client companies to continue billing their services
through Local Exchange Carriers. As stated the company is a development stage
company and generated revenues totaling $40,000 and incurred accumulated net
losses from March 2, 2006 (inception) through the period ended December 31,
2007
of approximately $7,754,000.
The
ability of the company to continue as a going concern is dependent upon its
ability to raise additional capital from the sale of common stock and,
ultimately, the achievement of significant operating revenues. The accompanying
financial statements do not include any adjustments that might be required
should the company be unable to recover the value of its assets or satisfy
its
liabilities.
LEGENDS
BUSINESS GROUP, INC
(A
DEVELOPMENTAL STAGE COMPANY)
NOTES
TO THE FINANCIAL STATEMENTS
(continued)
Note
3 – Furniture and Equipment
Furniture
and equipment consists of the following categories at December 31,
2007:
Computers
|
|
$
|
3,000
|
|
Software
|
|
|
7,474
|
|
|
|
|
10,474
|
|
Less
accumulated depreciation
|
|
|
4,809
|
|
Total
|
|
$
|
5,665
|
|
Depreciation
expense for the year ended December 31, 2007 and for the ten months ended
December 31, 2006 totaled $2,748 and $2,061, respectively.
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
|
|
|
34
|
%
|
Effect
of operating losses
|
|
|
-34
|
%
|
|
|
|
0
|
%
|
Net
deferred tax assets consist of the following:
|
|
For the year ended
|
|
|
|
December
31,
|
|
|
|
2007
|
|
Gross
deferred tax asset
|
|
$
|
127,000
|
|
Gross
deferred tax liability
|
|
|
-
|
|
Valuation
allowance
|
|
|
(127,000
|
)
|
|
|
|
|
|
Net
deferred tax asset
|
|
$
|
-
|
|
The
company did not pay any income taxes during the year ended December 31, 2007
or
the ten months ended December 31, 2006.
LEGENDS
BUSINESS GROUP, INC
(A
DEVELOPMENTAL STAGE COMPANY)
NOTES
TO THE FINANCIAL STATEMENTS
(continued)
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 32,500,00
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 approximately $2,671 at
December 31, 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, 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 December 2007, the Company has received $40,000 under the terms of
the
consulting contract.
The
$40,000 revenue reported for the year ended December 31, 2007 represents revenue
from consulting services provided based on the above two year
contract.
The
company is using space rent free that is owned by the founding
shareholder.
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.
LEGENDS
BUSINESS GROUP, INC
(A
DEVELOPMENTAL STAGE COMPANY)
NOTES
TO THE FINANCIAL STATEMENTS
(continued)
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.
On
November 1, 2007 the Company signed an agreement with Billing Concepts, Inc.,
a
provider of billings services, to locate and contract with customers to provide
services.