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EXCEL - IDEA: XBRL DOCUMENT - GLOBAL LEADERSHIP INSTITUTE INC. | Financial_Report.xls |
EX-32 - GLOBAL LEADERSHIP INSTITUTE INC. | exhibit32.htm |
EX-31 - GLOBAL LEADERSHIP INSTITUTE INC. | exhibit31.htm |
EX-21 - GLOBAL LEADERSHIP INSTITUTE INC. | exhibit21.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 For the fiscal year ended December 31, 2011
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to -------------- -------------- Commission file number: 000-24835 Cephas Holding Corp. (Name of small business issuer in its charter) DELAWARE 38-3399098 (State or other jurisdiction of (I.R.S. Employer Identification No.) |
incorporation or organization)
2942 North 24th Street Ste. 114-508 Phoenix, AZ 85016
(Address of principal executive offices) (Zip Code)
Issuer's telephone number:
Securities registered under Section 12(b) of the Exchange Act: NONE
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, $0.001 PAR VALUE
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Check if no disclosure of delinquent filers in response to Item 405 of Regulation S-K is contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
State issuer's revenues for its most recent fiscal year: $268
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of a specified date within the past 60 days: $6,58,788 as of April 12, 2012
State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 25,435,155 AS OF April 12, 2012
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
CAUTIONARY STATEMENT FOR PURPOSES OF "SAFE HARBOR PROVISIONS" OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.
Certain statements contained in this Annual Report on Securities and Exchange Commission ("SEC") Form 10-K ("Form 10-K") constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve known and unknown risks, uncertainties and other factors that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different than any expressed or implied by these forward-looking statements. These statements may be contained in our filings with the Securities and Exchange Commission, press releases, and written or oral presentations made by our representatives to analysts, rating agencies, stockholders, news organizations and others. In some cases, you can identify forward-looking statements by terminology such as "may," "will," "should," "intend", "expects," "plans," "anticipates," "believes," "estimates," "predicts," "potential," "continue," or the negative of these terms or other comparable terminology. Although we believe that the expectations in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.
OUR BUSINESS
We are a developer and marketer of mobile applications. We are develop applications for the iPhone platform. Our focus is on entertainment themed applications. We have two subsidiaries, Legend Credit Inc which did not have any business operations as of December 31, 2011 and Legend Studios Inc.
OUR SOURCES OF REVENUE
SALES OF MOBILE PRODUCTS
We currently an applications on the iTunes store called The Iron Sheik Soundboard. The Iron Sheik is a popular character from professional wrestling.
We also distribute free of charge an iPhone application called MMAUnderboss which is a collection of newswires covering the sport of mixed martial arts. We believe that this application will allow us to advertise additional apps that will be sold on a per download basis. We also maintain the site www.twitter.com/mmaunderboss to promote our Underboss application. We have over 3000 followers to our Twitter promotional site.
We are also developing applications for the iPhone under license from MMA stars Wanderlai Silva and Rich Franklin.
We also market on iTunes free of charge a music themed application called Metal RSS. This application is a collection of newsfeeds targeted at music fans. We believe that this is a compliment to our activities in mixed martial arts.
We intend to develop more free applications with the intention of creating a large user base that can be attractive to advertisers as well as to allow us to sell virtual goods, , develop couponing and special sale opportunities for potential advertisers and for location based incentives..
INVESTMENT IN MODELING BUSINESS
Through our subsidiary, Legend Studios Inc, we have a 14.88% percent equity interest in The Network Talent, LLC (www.thenetworktalent.com) which is producing and marketing a new platform for the modeling industry. The platform includes the digital aggregation of talent from around the world.
The Network Talent,LLC's efforts were recently chronicled on a reality series called, Remodeled which aired in the United States on the CW Network.
MARKETING AND PROMOTION OF IPHONE PHONE PRODUCTS
We continually evaluate numerous ways to reach our potential customers and to promote our products. We intend to promote our products through the following means:
-Online advertising and promotion. We maintain both a Facebook page and a Twitter page. We continue to evaluate other new and emerging opportunities in the online field.
-Free products and promotions to early adopters, members of the media and other key influencers;
- Individual webpages for specific apps with special content such as behind the scenes videos.
-Personal and media appearances. Our contracts usually grant us the ability to at our option to have personal appearances. These appearances can be used for radio and television or autograph signings directly to with fans.
-Comarketing with other related companies.
RISKS THAT MAY AFFECT FUTURE RESULTS
The following risk factors and other information included in this Annual Report should be carefully considered. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations. If any of the following risks actually occur, our business, financial condition and operating results could be materially adversely affected.
WE HAVE AN ACCUMULATED DEFICIT AND ANTICIPATE FURTHER LOSSES.
We have incurred significant losses since we began doing business. For the year ended December 31, 2011we incurred a net loss of $ 812,307. There can be no assurance that our services and products will ever generate sufficient revenues or that our operations will ever be profitable. As of December 31, 2011, we had an accumulated deficit of $22,965,123 We expect to incur operating losses for the near future until we can generate sufficient sales to cover our operating expenses.
We have generated limited revenues to date from the business we conduct and there can be no assurance that we will ever generate sufficient revenues from the business we conduct to cover all of our operating expenses. We also expect to significantly increase our operating expenses to expand our sales and marketing operations, to fund greater levels of product development, and to develop other forms of revenue generating business and licensing of our proprietary materials to others.
WE RECEIVED AN OPINION FROM OUR ACCOUNTANTS FOR THE PERIOD ENDED DECEMBER 31, 2011, WHICH RAISED DOUBT ABOUT OUR ABILITY TO CONTINUE AFTER SUCH DATE AS A GOING CONCERN.
Our consolidated financial statements for the year ended December 31, 2011, which are included in this Form 10-K, indicate that there was substantial doubt as of December 31, 2011 about our ability to continue
as a going concern due to our need to generate cash from operations and obtain additional financing. We have had a going concern opinion from our auditors since our inception in 1997.
WE NEED TO RAISE ADDITIONAL FUNDS TO FUND OUR BUSINESS OPERATIONS.
We need to raise additional funds because our cash flows have proven to be insufficient to fund operations, including our obligations to pay minimum royalties under our agreements. Several of our trade creditors and licensors have outstanding balances and may elect to sue to recover their amounts owed. Management feels that these can be defended or settled on favorable terms. There can be no assurance that additional financing will be available to us on commercially reasonable terms, or at all. We may raise funds through equity or debt financings, depending on our opportunities. If we raise additional funds by issuing equity securities, this will further dilute the interests of our current stockholders. If we raise additional funds by issuing debt securities, we will be subject to the risks associated with incurring substantial indebtedness, including the risks that interest rates may fluctuate and cash flow may be insufficient to pay principal and interest on any such indebtedness. We have no current arrangements with respect to, or sources of, additional financing, and it is not anticipated that our existing stockholders will provide any portion of our future financing requirements.
WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY IN THE MOBILE PHONE, MOBILE ACCESSORY, MOBILE DATA AND GAMING, AND OPERATING SYSTEM SOFTWARE MARKETS. THIS WOULD HAVE A MATERIAL ADVERSE EFFECT ON OR BUSINESS, RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
As we attempt to expand into the iPhone app market our future growth will depend on the commercial success of our branded products. The markets for these products and services are highly competitive and we expect competition to increase in the future. Most of our competitors in this market have significantly greater financial, technical and marketing resources than we do. This will make it difficult for us to compete successfully.
WE MAY NOT BE ABLE TO COMPETE SUCCESSFULLY IN THE MARTIAL ARTS INDUSTRY.
We have entered into the mixed martial arts industry. However, we have no prior experience in this industry. To date we have not derived any revenue form the sale of mixed martial art products. In order to compete successfully in this industry we will need to increase our brand recognition. The markets for these products and services are highly competitive and we expect competition to increase in the future. Most of our competitors in this market have significantly greater financial, technical and marketing resources than we do. There can be no assurance that we will be able to develop brand recognition of our products in this industry or compete successfully.
THE LOSS OF OUR CHIEF EXECUTIVE OFFICER'S SERVICES WOULD HAVE A MATERIAL ADVERSE EFFECT ON US.
Our success will be largely dependent on the efforts of Peter Klamka, our Chairman, President and Chief Executive Officer, and his ability to forge new relationships with celebrities and to maintain such relationships, as well as to oversee the development and maintenance of our products. Our success will also be highly dependent on Mr. Klamka's ability, as well as the ability of others employed by us, to successful market new products and develop new products. The loss of his services would have a material adverse effect on our business and prospects.
We have not entered into an employment agreement with Mr. Klamka and Mr. Klamka has not entered into any agreement restricting his involvement in a business which competes with us. As a result, Mr. Klamka is an employee-at-will and has the right to leave us at any time. Mr. Klamka has informed us that he intends to devote a portion of his working time to our business and that he also intends to devote a portion of his time to other business interests that do not compete with our business. In addition, Mr. Klamka is not restricted from entering into a competing business after the term of his employment with us; provided, however, that he would not be permitted to use proprietary information and trade secrets belonging to us.
Our success will also be dependent upon our ability to hire and retain marketing, financial and other personnel. Competition for qualified personnel is intense and there can be no assurance that we will be able to hire or retain additional qualified personnel. The loss of our Chief Executive Officers service would have a material adverse effect on us.
At the present time we are unable to pay any dividends.
The Company has not paid any cash dividends and does not anticipate paying any cash dividends on its common stock in the foreseeable future. It is anticipated that earnings, if any, which may be generated from operations will be used to finance the continued operations of the Company. Investors who anticipate the immediate need of cash dividends from their investment should refrain from purchasing any of the securities offered hereby.
Future issuance of securities could cause dilution to existing shareholders.
The Company has the authority to issue up to 300,000,000 shares of common stock, and to issue options and warrants to purchase shares of our common stock without stockholder approval. The company expects to issue shares to fund operations and to satisfy outstanding convertible notes. Future issuances of common will dilute the holdings of our existing stockholders and may reduce the market price of our common stock. Holders of our common stock are not entitled to preemptive rights.
There is currently a limited trading market for our common stock and our stock experiences price fluctuations.
There is currently a limited market for our common stock and we can provide no assurance to investors that a more robust market will develop. If a more robust market for our common stock does not develop, our shareholders may not be able to resell the shares of our common stock they have purchased and they may lose all of their investment. Our stock is thinly traded and is therefore subject to significant fluctuations if the amount of trading increases significantly for a short period of time. Even one large trade could materially affect the price of the stock even though the status of the Company remains unchanged.
The trading price of our common stock may be subject to wide fluctuations. Trading prices of our common stock may fluctuate in response to a number of factors, many of which will be beyond our control, including, without limitation, public announcements regarding our Company, purchases or sales by existing stockholders, changes in government regulations, conditions in our market segment or changes in earnings estimates by analysts. These fluctuations may have a material adverse effect on the trading price of our common stock.
In addition, the stock market in general, and the market for technology related companies in particular, has experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of such companies. Market and industry factors may adversely affect the market price of our common stock, regardless of our operating performance. In the past, following periods of volatility in the market price of a companys securities, securities class-action litigation has often been instituted. Such litigation, if instituted, could result in substantial costs and a diversion of managements attention and resources.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
EMPLOYEES
As of December 31, 2011, we had a total of one full-time employee. None of our employees is covered by a collective bargaining agreement.
ITEM 2. DESCRIPTION OF PROPERTY.
We currently maintain a mailing address at an executive office suite at 2942 North 24th Street Ste. 114-508 Phoenix, AZ 85016. We do not have the need for office space at this time.
ITEM 3. LEGAL PROCEEDINGS.
The company is party to legal proceedings from time to time. None of the legal proceedings in managements opinion would have an adverse material impact on the company.
There are several judgments against our company that could effect our operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
MARKET INFORMATION
Our common stock is traded on the Pink Sheets under the symbol CEHC. The following table sets forth the range of high and low bid quotations for each of the prior eight (8) fiscal quarters. The quotations represent inter-dealer quotations without adjustment for retail mark-ups, mark-downs or commissions and may not represent actual transactions.
FISCAL QUARTER ENDING HIGH BID LOW BID March 31, 2010....................... $ 0.007 $ 0.006 June 30, 2010........................ $ 0.007 $ 0.006 September 30, 2010................... $ 0.14 $ 0.0095 December 31, 2010.................... $ 0.0125 $ 0.009 March 31, 2011....................... $ 0.016 $ 0.012 June 30, 2011........................ $ 0.0045 $ 0.0045 September 30, 2011................... $ 0.002 $ 0.002 December 31, 2010.................... $ 0.0035 $ 0.0035 |
On April 8 ,2012 the closing bid price for the common stock on the Pink Sheets was $.15
HOLDERS
As of March 1, 2012 there were 172 record holders of our common stock. This does not include shares held in street names.
DIVIDENDS
Since our inception, no cash dividends have been declared on our common stock.
SALES OF UNREGISTERED SECURITIES
During 2011 the Company issued common shares to consultants for services provided. We have recorded compensation costs at the fair value at the time of issuance and expensed in the periods the service were performed. Total common shares issued for these services were 15,645,000 (62,580 post split) and recorded expenses of $110,000 related to the issuances.
During the quarter ended March 31, 2011, the Company issued a total of 54,600,000 (218,400 post split) shares for services of $2,000 and to reduce notes and loans by $85,600.
During the three months ended June 30, 2011 a total of 10,750,000 (43,000 post split) shares were issued to reduce notes payable by $21,750.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
FORWARD LOOKING STATEMENTS
This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Shareholders are cautioned that all forward-looking statements involve risks and uncertainty, including without limitation, our ability develop our mobile applications. 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, 2011 elsewhere in this Annual Report on Form 10-K. 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. In October 2008, the Company amended its articles to change the name to Cephas Holding Corp.
We are a developer and marketer of mobile phone applications for the iPhone platform. We currently have three apps available to consumers. Our apps are Iron Sheik Soundboard, MMAUnderboss and Metal News.
Since our inception, we have incurred net losses of $22,965,123 at December 31, 2011 current liabilities exceeded current assets by $6,339,573. 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 Iphone and Ipad applications.
Our business model is to grow in the area of mobile content and mobile applications specifically in the area of mixed martial arts and more generally content that reaches a young male demographic. This business model includes seeking to obtain licenses with well-known MMA figures and brands, develop large
promotional programs that permit us to market our products more effectively and develop other distribution channels.
Significant Accounting Policies and Estimates
Management's Discussion and Analysis of Financial Condition and Results of Operations discusses the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management bases its estimates and judgments on historical experiences and on various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The most significant accounting estimates inherent in the preparation of the Company's financial statements relate to the allowance for doubtful accounts. These accounting policies are described at relevant sections in this discussion and analysis and in the notes to the consolidated financial statements included in this Annual Report on Form l0-K for the year ended December 31, 2011.
Results of Operations
Year ended December 31, 2011 vs. December 31, 2010
Revenue for the year ended December 31, 2011 decreased by $653 from $921 for the year ended December 31, 2010 to $268 for the year ended December 31, 2011. Revenue for the year ended December 31, 2011 was from sales of the Iron Sheik Iphone application.
Cost of revenue for the year ended December 31, 2011was the same as the year ended December 31, 2010 to which was $0. Cost of revenue as a percentage of revenue was 0% and 0% for the year ended December 31, 2011 and 2010, respectively.
Selling, general and administrative expenses for the year ended December 31, 2011 increased by $184,627from $213,671 for the year ended December 31, 2010 to $398,298 for the year ended December 31, 2011. A majority of selling, general and administrative expenses in 2011 are related to professional and consulting fees paid with shares of our common stock.
Interest expense and financing costs for the year ended December 31, 2011 increased by 130,815 from 202,595 the year ended December 31, 2010 to$333,410 for the year ended December 31, 2011.
Equity loss in Legend Credit, Inc. was $0 for both the year ended December 31, 2010 and 2011. We own a 50% interest in Legend Credit, which previously marketed prepaid debit cards.
Net loss for the year ended December 31, 2011 was $812,307 as compared with $490,514 for the year ended December 31, 2010. The loss was attributable primarily to the increase in selling, general and administrative expenses.
LIQUIDITY AND CAPITAL RESOURCES
We have incurred net losses since our inception of $22,965,123,. In order for us to continue in existence, we will have to raise additional capital through the sale of equity or debt or generate sufficient profits from operations, or a combination of both.
ITEM 7. FINANCIAL STATEMENTS.
See pages beginning with page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
ITEM 8A(T). CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
The Company has adopted and maintains disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in the reports filed under the Exchange Act, such as this annual report, is collected, recorded, processed, summarized and reported within the time periods specified in the rules of the SEC. The Companys disclosure controls and procedures are also designed to ensure that such information is accumulated and communicated to management to allow timely decisions regarding required disclosure. As required under Exchange Act Rule 13a-15, the Companys management, including the Chief Executive Officer and Principal Financial Officer, has conducted an evaluation of the effectiveness of disclosure controls and procedures as of the end of the period covered by this report. Inasmuch as we only have one individual serving as our officer, director and employee we have determined that the Company has, per se, inadequate controls and procedures over financial reporting due to the lack of segregation of duties despite the fact that the Company has very little operating activity. Management recognizes that its controls and procedures would be substantially improved if there was a greater segregation of the duties of Chief Executive Officer and Chief Financial Officer and as such is actively seeking to remediate this issue. Management believes that the material weakness in its controls and procedures referenced did not have an effect on our financial results. Based on that evaluation, the Chief Executive Office and Principal Financial Officer concluded that the disclosure controls and procedures are ineffective.
Managements Report on Internal Control over Financial Reporting
The Companys management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f). The Companys internal control over financial reporting is designed to provide reasonable assurance to the Companys management and board of directors regarding the preparation and fair presentation of published financial statements. Management conducted an assessment of the Companys internal control over financial reporting based on the framework and criteria established by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control Integrated Framework. Based on the assessment, management concluded that, as of December 31, 2011, the Companys internal control over financial reporting is ineffective based on those criteria.
The Companys management, including its Chief Executive Officer and Principal Financial Officer, does not expect that the Companys disclosure controls and procedures and its internal control processes will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of error or fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that the breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected.
However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
Changes in Internal Control
There have been no changes in internal controls over the financial reporting that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect our internal controls over financial reporting.
This annual report does not include an attestation report of the Companys registered public accounting firm regarding internal control over financial reporting. Managements report was not subject to attestation by the Companys registered public accounting firm pursuant to temporary rules of the SEC that permit the Company to provide only managements report in this annual report.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
DIRECTORS AND EXECUTIVE OFFICERS
Our executive officers and directors are:
NAME AGE POSITION ---- --- -------- Peter Klamka 43 Chairman of the Board, CEO, President, Treasurer & Secretary |
The business experience, principal occupations and employment, as well as the periods of service, of our sole director and executive officer during the last five years are set forth below.
Peter Klamka has been our Chairman of the Board and Chief Executive Officer since our inception in May 1997. Mr. Klamka is a former licensed Mixed Martial Arts promoter in the State of Nevada. He also has worked with numerous professional athletes, celebrities, and well known brands. Mr. Klamka received his Bachelor of Arts degree from the University of Michigan.
EMPLOYMENT AND CONSULTING AGREEMENTS
We have no employment or other written agreement with Peter Klamka, our President and Chief Executive Officer. Mr. Klamka has an oral agreement with the Company to receive a base salary of $175,000 per year and such other compensation as the Board of Directors shall designate. The Company believes that Mr. Klamka will continue to waive a portion of the base salary for the foreseeable future, although no assurance thereof can be given.
Mr. Klamka is involved in other business ventures, including the ownership and management other private and public businesses. Mr. Klamka is formerly the President of Solar Acquisition Corp., a reporting company. He is currently on the Board of Directors and a vice president of Solar Acquisition Corp. Mr. Klamka is also the President of WTTJ Corp., a reporting company.
We have no employment or other written agreement with Mr. Klamka. Mr. Klamka has stated he will not enter into any business that competes directly with Cephas Holding Corp.
AUDIT COMMITTEE FINANCIAL EXPERT
The audit committee is responsible for recommending independent auditors and reviewing management actions in matters relating to audit functions. The committee reviews, with independent auditors, the scope and results of its audit engagement, the system of internal controls and procedures and reviews the effectiveness of procedures intended to prevent violations of laws.
The audit committee, consistent with the Sarbanes-Oxley Act of 2002 and the rules adopted thereunder, meets with management and the auditors prior to filing of officers certifications with the SEC to receive information concerning, among other things, significant deficiencies in the design or operation of internal controls.
Our board of directors currently acts as our audit committee. Our audit committee member is not independent in accordance with rule 4200(a)(14) of the Nasdaq Marketplace Rules. Our board of directors does not have an audit committee financial expert, within the meaning of that phrase under applicable regulations of the Securities and Exchange Commission, serving on the audit committee. The board of directors believes that the member of the audit committee is financially literate and experienced in business matters and is capable of (1) understanding generally accepted accounting principles (GAAP) and financial statements, (2) assessing the general application of GAAP principles in connection with our accounting for estimates, accruals and reserves, (3) analyzing and evaluating our financial statements, (4) understanding our internal controls and procedures for financial reporting, and (5) understanding audit committee functions, all of which are attributes of an audit committee financial expert. However, the board of directors believes that no audit committee member has obtained these attributes through the experience specified in the SEC's definition of audit committee financial expert. Further, as is the case with many small companies, it would be difficult for us to attract and retain board members who qualify as audit committee financial experts, and competition for such individuals is significant. The board of directors believes that its current audit committee is able to fulfill its role under SEC regulations despite not having a designated audit committee financial expert.
CODE OF ETHICS
We have not yet adopted a code of ethics that applies to our principal executive officers, principal financial officer, principal accounting officer or controller, or persons performing similar functions, since we have been focusing our efforts on obtaining financing for the company. We expect to adopt a code by the end of the current fiscal year.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires our officers, directors, and persons who beneficially own more than 10% of our common stock to file reports of securities ownership and changes in such ownership with the Securities and Exchange Commission ("SEC"). Officers, directors and greater than 10% beneficial owners are also required by rules promulgated by the SEC to furnish us with copies of all Section 16(a) forms they file.
Based solely upon a review of the copies of such forms furnished to us, or written representations that no Form 5 filings were required, we believe that during the fiscal year ended December 31, 2011 , there was compliance with all Section 16(a) filing requirements applicable to our officers, directors and greater than 10% beneficial owners.
ITEM 10. EXECUTIVE COMPENSATION.
The following table sets forth information the remuneration of our chief executive officer:
FIX Format of the table SUMMARY COMPENSATION TABLE ---------------------------------------------------------------------------------------------------------------------- NAME AND PRINCIPAL POSITION ANNUAL COMPENSATION LONG TERM COMPENSATION ------------------ ----------------------------------------------- -------------------------------------- AWARDS PAYOUTS ------------------------- ------------ OTHER RESTRICTED SECURITIES ANNUAL STOCK UNDERLYING LTIP ALL OTHER FISCAL COMPENSATION AWARD(S) OPTIONS/ PAYOUTS COMPENSATION YEAR SALARY ($) BONUS ($) ($) ($) SARS (#) ($) ($) ------------------ -------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ Peter Klamka, CEO 2010 $175,000 (1) -0- -0- -0- -0- -0- -0- 2011 $175,000 (2) -0- -0- -0- -0- -0- -0- ------------------ -------- ------------ ------------ ------------ ------------ ------------ ------------ ------------ |
(1) In 2010 and 2011, Mr. Klamka was not paid any of his salary, the total $175,000 has been accrued
OPTION/SAR GRANTS IN LAST FISCAL YEAR ---------------------------------------------------------------------------------------------------------------------- INDIVIDUAL GRANTS ---------------------------------------------------------------------------------------------------------------------- NUMBER OF SECURITIES PERCENT OF TOTAL UNDERLYING OPTIONS/SARS GRANTED OPTIONS/SARS GRANTED TO EMPLOYEES IN EXERCISE OR BASE NAME (#) FISCAL YEAR PRICE ($/SH) EXPIRATION DATE --------------------------- ----------------------- ----------------------- ----------------------- ------------------ Peter Klamka -0- 0% $ --------------------------- ----------------------- ----------------------- ----------------------- ------------------ |
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUES ------------------------ ---------------------- ---------------------- ----------------------- ----------------------- NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED UNEXERCISED IN-THE-MONEY OPTIONS/SARS AT OPTIONS/SARS AT FISCAL YEAR END (#) FISCAL YEAR END ($) ----------------------- ----------------------- SHARES ACQUIRED ON EXERCISABLE/ EXERCISABLE/ NAME EXERCISE (#) VALUE REALIZED ($) UNEXERCISABLE UNEXERCISABLE ------------------------ ---------------------- ---------------------- ----------------------- ----------------------- Peter Klamka -0- -0- 1,240,500/-0- 260,505/-0- ------------------------ ---------------------- ---------------------- ----------------------- ----------------------- |
COMPENSATION OF DIRECTORS
Directors do not receive compensation but are reimbursed for their expenses for each meeting of the board that they attend.
STOCK OPTION PLANS
The Company adopted the 1998 Stock Option Plan and the Year 2000 Stock Option Plan (the Plans), which provides for the grant of options to purchase up to 1,250,000 shares of the Company's common stock. Under these Plans incentive stock options may be granted to employees and non-statutory stock options may be granted to employees and non-employees. During the year ended December 31, 2011, 0 options were granted under this plan.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding our Common Stock beneficially owned on March 1, 2012 (i) each person who is known by us to own beneficially or exercise voting or dispositive control over 5% or more of our Common Stock, (ii) each Director and (iii) all executive officers and Directors as a group. Except as otherwise indicated, all stockholders have sole voting and investment power with respect to the shares listed as beneficially owned by them, subject to the rights of spouses under applicable community property laws.
Name and Address(1) |
| Amount and Nature Of Beneficial Ownership |
| Percentage of Class(1) | ||
|
|
|
|
|
|
|
Peter Klamka |
| 1,240,500 Common(2) |
|
| 0.06 | % |
|
| 850,000 Series B Preferred(3) |
|
| 100 | % |
|
| 147,775 Series C Preferred(4) |
|
| 100 | % |
|
| 1,000,000 Series D Preferred(5) |
|
| 100 | % |
Barton PK, LLC |
| 4,000,000 Common(6) |
|
| 2.1 | % |
(1) Figures based on an estimated 183,533,679 shares of common stock outstanding as of March 1,2011.
(2) Includes 1,125,000 currently exercisable options to purchase 1,125,000, shares of the Company's common stock, and 115,500 currently exercisable warrants to purchase 115,500 shares of the Company's common stock. The number of common shares beneficially owned does not included 4,000,000 shares transferred by Mr. Klamka to Barton PK, LLC, a limited liability company managed by Mr. Klamka for the benefit of two family members and the Peter Klamka Living Trust.
(3) Series B preferred stock is entitled to 10 votes per share.
(4) Series C preferred stock is entitled to 100 votes per share.
(5) Series D preferred stock is entitled to vote 135 votes per share.
(6) Barton PK, LLC is a limited liability company managed by Mr. Klamka for the benefit of two family members and the Peter Klamka Living Trust.
EQUITY COMPENSATION PLANS
As of December 31, 2011, our equity compensation plans were as follows:
------------------------------- ---------------------------- ---------------------------- ---------------------------- NUMBER OF SECURITIES TO BE WEIGHTED AVERAGE EXERCISE ISSUED UPON EXERCISE OF PRICE OF OUTSTANDING NUMBER OF SECURITIES OUTSTANDING OPTIONS, OPTIONS, WARRANTS AND REMAINING AVAILABLE FOR PLAN CATEGORY WARRANTS AND RIGHTS RIGHTS FUTURE ISSUANCE ------------------------------- ---------------------------- ---------------------------- ---------------------------- Equity compensation plans approved by security holders 1,150,000 $0.10 None ------------------------------- ---------------------------- ---------------------------- ---------------------------- Equity compensation plans not approved by security holders None N/A None ------------------------------- ---------------------------- ---------------------------- ---------------------------- Total 1,150,000 $0.10 None ------------------------------- ---------------------------- ---------------------------- ---------------------------- |
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits to this Form 10-K:
REGULATION EXHIBIT S-K NUMBER ------------------- -------------------------------------------------------------------------------------------------- Certificate of Incorporation of PTN Media, Inc. dated as of January 13, 1998 (1) ---------------------------------------------------------------------------------------------------------------------- 1.1 Certificate Of Designations Of Class A Convertible Preferred Stock 1.2 Certificate Of Decrees of Class A Convertible Preferred Stock 1.3 Certificate Of Designations Of C Convertible Preferred Stock ------------------- -------------------------------------------------------------------------------------------------- 3.5 By-Laws of PTN Media, Inc. (1) ------------------- -------------------------------------------------------------------------------------------------- 4.2 PTN Media, Inc. 2000 Stock Option Plan (2) ------------------- -------------------------------------------------------------------------------------------------- 10.1 Amendment to Palm, Inc. and PTN Media, Inc. Agreement of October 5, 2000 (3) ------------------- -------------------------------------------------------------------------------------------------- 10.2 License Agreement dated February 19, 2001 between 3 Wishes Production f/s/o Christina Aguilera and PTN Media, Inc. (3) ------------------- -------------------------------------------------------------------------------------------------- 10.3 General Agreement dated July 28, 2000, between PTN Media, Inc. and NeoHand, Inc. (4) ------------------- -------------------------------------------------------------------------------------------------- 10.4 Partnering Agreement dated October 27, 2000, between PTN Media, Inc. and TWEC.com, LLC (4) ------------------- -------------------------------------------------------------------------------------------------- 10.5 Palm, Inc. OEM Partner Agreement dated October 5, 200, between PTN Media, Inc. and Palm, Inc. (4) ------------------- -------------------------------------------------------------------------------------------------- 10.6 Merchant and Partner Network Agreement dated May 8, 2000, between PTN Media, Inc. and Dynamic Trade Inc. (4) ------------------- -------------------------------------------------------------------------------------------------- 10.7 License Agreement dated January 4, 2001 between PTN Media, Inc. and Michael Jordan (5) ------------------- -------------------------------------------------------------------------------------------------- 10.8 License Supply and Distributor Agreement between PTN Media, Inc. and Motorola, Inc. dated February 25, 2002 (6) ------------------- -------------------------------------------------------------------------------------------------- 10.9 License Amendment between PTN Media, Inc. and Christina Aguilera (6) ------------------- -------------------------------------------------------------------------------------------------- 21.1 List of Cephas Subsidiaries (7) ------------------- -------------------------------------------------------------------------------------------------- ------------------- -------------------------------------------------------------------------------------------------- 31.1 Rule 13a-14(a) Certification of Chief Executive Officer and Chief Financial Officer (7) ------------------- -------------------------------------------------------------------------------------------------- 32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 of Chief Executive Officer and Chief Financial Officer (7) ------------------- -------------------------------------------------------------------------------------------------- |
|
(1) Incorporated by reference from the Company's Registration Statement on Form SB-2 (File #333-51933).
(2) Incorporated by reference from the Company's Definitive Proxy Statement filed on July 24, 2000.
(3) Incorporated by reference from the Company's Form 10-K for the fiscal year ended December 31, 2000.
(4) Incorporated by reference from the Company's Registration Statement on Form S-3 filed on December 11, 2000.
(5) Incorporated by reference from the Company's Form 8-K filed January 9, 2001.
(6) Incorporated by reference from the Company's Form 10-K filed April 16, 2002
(7) Filed herewith.
(b) Reports on Form 8-K
None
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
AUDIT FEES
For the audited fiscal years ended December 31, 2010 and 2011, our principal accountants have billed approximately $7,250 and approximately $5,250 respectively, for the audit of our annual financial statements and Form 10-K and review of financial statements included in our Form 10-Q filings.
AUDIT-RELATED FEES
There were no fees billed for services reasonably related to the performance of the audit or review of our financial statements outside of those fees disclosed above under "Audit Fees" for fiscal years 2011 and 2010.
TAX FEES
There were not fees billed for the fiscal years ended December 31, 2011 and 2010, for tax compliance, tax advice, and tax planning services.
ALL OTHER FEES
There were no fees billed for services by our principal accountant, other than those disclosed above.
PRE-APPROVAL POLICIES AND PROCEDURES
Prior to engaging our accountants to perform a particular service, our board of directors obtains an estimate for the service to be performed.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Cephas Holding Corp..
Date: 4/18/2012 By: /s/ Peter Klamka ------------------------------------------ Peter Klamka, Chairman, President, Secretary and Chief Executive Officer |
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- Chairman, President, 4/18/2012 Secretary and Chief Executive Officer /s/ Peter Klamka (Principal Executive ---------------------------- and Accounting Officer) Peter Klamka |
CEPHAS HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
INDEX
|
| Page |
|
|
|
Report of Independent Registered Public Accounting Firm |
|
|
|
|
|
Consolidated Balance Sheets |
|
|
|
|
|
Consolidated Statements of Operations |
|
|
|
|
|
Consolidated Statements of Changes in Stockholders Deficit |
|
|
|
|
|
Consolidated Statements of Cash Flows |
|
|
|
|
|
Notes to Consolidated Financial Statements |
|
|
| Peter Messineo Certified Public Accountant 1982 Otter Way Palm Harbor FL 34685 peter@pm-cpa.com T 727.421.6268 F 727.674.0511 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Cephas Holding Corp.:
I have audited the consolidated balance sheets of Cephas Holding Corp. and Subsidiaries as of December 31, 2011 and 2010 and the related consolidated statement of operations, consolidated changes in stockholders deficit, and consolidated cash flows for the years then ended. These financial statements are the responsibility of the Companys management. My responsibility is to express an opinion on these financial statements based on my audits.
I conducted my audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that I plan and perform the audits to obtain reasonable assurance about whether the financial statements were free of material misstatement. The Company was not required to have, nor was I engaged to perform, an audit of its internal control over financial reporting. My audit included consideration of internal control over financial reporting as a basis for designing audit procedures that were appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, I express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that my audits provide a reasonable basis for my opinion.
In my opinion, the consolidated financial statements, referred to above, present fairly, in all material respects, the consolidated financial position of Cephas Holding Corp. and Subsidiaries. as of December 31, 2011 and 2010, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has no revenues from operation, has not emerged from the development stage, and is requiring traditional financing or equity funding to commence its operating plan. These conditions raise substantial doubt about the Companys ability to continue as a going concern. Further information and managements plans in regard to this uncertainty were also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Peter Messineo, CPA
Peter Messineo, CPA
Palm Harbor, Florida
April 17, 2012
CEPHAS HOLDING CORP. AND SUBSIDIARIES | ||||||
CONSOLIDATED BALANCE SHEETS | ||||||
| ||||||
ASSETS |
| |||||
|
|
|
|
| December 31, | |
|
|
|
|
| 2011 | 2010 |
CURRENT ASSETS: |
|
|
|
| ||
| Cash |
|
| $ 35,327 | $ 1,539 | |
| Prepaid expenses |
| 36,000 | 36,000 | ||
|
|
|
|
|
|
|
TOTAL CURRENT ASSETS |
| 71,327 | 37,539 | |||
|
|
|
|
|
|
|
FIXED ASSETS - at cost |
|
|
| |||
| Computer and office equipment |
| 54,124 | 52,930 | ||
| Less: Accumulated depreciation |
| (53,183) | (52,930) | ||
|
|
|
|
|
|
|
NET FIXED ASSETS |
| 941 | - | |||
|
|
|
|
|
|
|
INVESTMENTS, at cost |
| 220,000 | 135,000 | |||
|
|
|
|
|
|
|
TOTAL ASSETS |
|
| $ 292,268 | $ 172,539 | ||
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' DEFICIT |
| |||||
|
|
|
|
|
|
|
CURRENT LIABILITIES: |
|
|
| |||
| Accounts payable |
| $ 235,757 | $ 229,307 | ||
| Accrued expenses |
| 865,500 | 1,040,500 | ||
| Accrued interest |
| 2,349,135 | 2,015,726 | ||
| Accrued derivative liability |
| 212,031 | 305,864 | ||
| License fees payable |
| 200,000 | 200,000 | ||
| Due to related parties |
| 58,563 | 52,698 | ||
| Advances from an officer |
| 106,648 | 112,670 | ||
| Notes payable |
|
| 951,200 | 699,000 | |
| Note payable - officer |
| 1,432,066 | 1,217,149 | ||
TOTAL CURRENT LIABILITIES |
| 6,410,900 | 5,872,914 | |||
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES |
| - | - | |||
|
|
|
|
|
|
|
STOCKHOLDERS' DEFICIT |
|
|
| |||
| Series A Preferred Stock, $0.001 par value, 1,000,000 shares |
|
| |||
|
| authorized; 44,500 shares issued and outstanding | 44 | 44 | ||
| Series B Convertible Preferred Stock, $0.01 par value; 850,000 |
|
| |||
|
| shares authorized; 850,000 shares issued and outstanding |
|
| ||
|
| authorized; 1,000,000 Class A shares issued and outstanding | 8,500 | 8,500 | ||
| Series C Convertible Preferred Stock, $0.01 par value; 147,775 |
|
| |||
|
| shares authorized; 147,775 shares issued and outstanding | 1,478 | 1,478 |
| Common stock; $0.001 par value; 75,000,000,000 shares |
|
| |||
|
| authorized; 784,715 and 459,935 issued and outstanding, respectively' | 785 | 460 | ||
|
| issued and outstanding |
|
|
| |
| Additional paid-in capital |
| 17,001,152 | 16,607,427 | ||
| Stock subscription receivable |
| (156,300) | (156,300) | ||
| Non-controlling interest |
| (9,168) | (9,168) | ||
| Accumulated deficit |
| (22,965,123) | (22,152,816) | ||
|
|
|
|
|
|
|
TOTAL STOCKHOLDERS' DEFICIT |
| (6,118,632) | (5,700,375) | |||
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT | $ 292,268 | $ 172,539 | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* On October 11, 2011 the Company's Board of Directors approved a 1:250 reverse split, effective in first quarter of 2012. The above shares have been retroactively restated to reflect the effects of the reverse stock-split. |
The accompanying notes are an integral part of these financial statements.
CEPHUS HOLDING CORP. AND SUBSIDIARIES |
|
|
|
|
CONSOLIDATED STATEMENT OF OPERATIONS |
|
|
|
|
|
|
|
|
|
|
|
| YEAR ENDED | |
|
|
| DECEMBER 31, | |
|
|
| 2011 | 2010 |
REVENUE |
|
| $ 268 | $ 921 |
|
|
|
|
|
COST OF REVENUE |
|
| - | - |
|
|
|
|
|
GROSS PROFIT |
|
| 268 | 921 |
|
|
|
|
|
EXPENSES: |
|
|
|
|
Selling, general and administrative |
|
| 398,298 | 213,671 |
|
|
|
|
|
TOTAL EXPENSES |
|
| 398,298 | 213,671 |
|
|
|
|
|
LOSS FROM OPERATIONS |
|
| (398,030) | (212,750) |
|
|
|
|
|
OTHER INCOME (EXPENSE): |
|
|
|
|
Interest expense and financing costs |
|
| (333,410) | (202,595) |
Change in derivative liability |
|
| 93,833 | (75,169) |
Beneficial conversion |
|
| (174,700) | - |
|
|
|
|
|
TOTAL OTHER INCOME (EXPENSE) |
|
| (414,277) | (277,764) |
|
|
|
|
|
|
|
| (812,307) | (490,514) |
LOSS ATTRIBUTABLE TO NON-CONTROLLING INTEREST |
|
| - | - |
|
|
|
|
|
NET LOSS |
|
| $ (812,307) | $ (490,514) |
|
|
|
|
|
BASIC AND DILUTED LOSS PER |
|
|
|
|
COMMON SHARE |
|
| 696,625 | 409,129 |
|
|
|
|
|
WEIGHTED AVERAGE NUMBER OF |
|
|
|
|
COMMON SHARES OUTSTANDING - |
|
|
|
|
BASIC AND DILUTED |
|
| $ (1.17) | $ (1.20) |
The accompanying notes are an integral part of these financial statements.
CEPHUS HOLDING CORP. AND SUBSIDIARIES | ||||||||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||||||||
|
|
|
|
|
|
|
|
|
| YEAR ENDED | ||
|
|
|
|
|
|
|
|
|
| DECEMBER 31, |
| |
|
|
|
|
|
|
|
|
|
| 2011 | 2010 |
|
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
| |||||||
| Net loss |
|
|
|
|
| $ (812,307) | $ (490,514) |
| |||
| Adjustment to reconcile net loss to net cash |
|
|
|
|
|
| |||||
|
| used in operating activities: |
|
|
|
|
|
|
| |||
|
|
| Depreciation |
|
|
|
|
| 253 | - |
| |
|
|
| Change in derivative liability |
|
|
| (93,833) | 75,169 |
| |||
|
|
| Beneficial conversion, notes payable |
|
|
| 174,700 | - |
| |||
|
|
| Issuance of common stock for services and expenses |
|
| 112,000 | 19,000 |
| ||||
| Changes in operating assets and liabilities: |
|
|
|
|
|
| |||||
|
| Accounts payable |
|
|
|
| 6,450 | - |
| |||
|
| Accrued expenses - net |
|
|
|
| 255,000 | 175,000 |
| |||
|
| Accrued interest |
|
|
|
|
| 333,409 | 202,594 |
| ||
Net cash used in operating activities |
|
|
| (24,328) | (18,751) |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
| |||||||
| Acquisition of computer equipment |
|
|
| (1,194) | - |
| |||||
| Investment |
|
|
|
|
| (85,000) | (135,000) |
| |||
Net cash used in investing activities |
|
|
|
| (86,194) | (135,000) |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
| |||||||
| Advances to/from related parties |
|
|
|
| 5,865 | (90) |
| ||||
| Increase in notes payable |
|
|
|
| 144,467 | 135,000 |
| ||||
| Advances from an officer - net |
|
|
|
| (6,022) | 20,204 |
| ||||
Net cash provided by financing activities |
|
|
| 144,310 | 155,114 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
INCREASE (DECREASE) IN CASH |
|
|
| 33,788 | 1,363 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH, Beginning of year |
|
|
|
| 1,539 | 176 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH, End of year |
|
|
|
|
| $ 35,327 | $ 1,539 |
| ||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOWS INFORMATION: |
| |||||||||||
| Interest paid |
|
|
|
|
| $ - | $ - |
| |||
| Income taxes paid |
|
|
|
|
| $ - | $ - |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Stock issued for reduction in notes payable and advances |
|
| $ 107,350 | $ 88,000 |
| ||||||
| Converted accrued salaries to notes payable |
|
|
| $ 350,000 | $ - |
| |||||
| Converted accrued salaries to notes payable |
|
|
| $ 80,000 | $ - |
|
The accompanying notes are an integral part of these financial statements.
CEPHUS HOLDING CORP. AND SUBSIDIARIES |
|
|
|
|
|
| ||||
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT |
|
|
|
| ||||||
FROM DECEMBER 31, 2009 TO DECEMBER 31, 2011 |
|
|
|
|
|
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| Preferred Stock |
|
|
|
|
|
| |
| Series A | Series B | Series C |
|
|
|
| |||
| Shares | Amount | Shares | Amount | Shares | Amount |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - December 31, 2009 | 44,500 | 44 | 850,000 | 8,500 | 147,775 | 1,478 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for services and expenses | - | - | - | - | - | - |
|
|
|
|
Shares issued to reduce notes payable | - | - | - | - | - | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - December 31, 2010 | 44,500 | 44 | 850,000 | 8,500 | 147,775 | 1,478 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for services and expenses | - | - | - | - | - | - |
|
|
|
|
Shares issued to reduce notes payable | - | - | - | - | - | - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - December 31, 2011 | 44,500 | $ 44 | $ 850,000 | $ 8,500 | $ 147,775 | $ 1,478 |
|
|
|
|
CONTINUED |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CEPHUS HOLDING CORP. AND SUBSIDIARIES |
|
|
|
|
|
|
|
| ||
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT |
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Additional |
| Non- |
|
|
|
|
|
| Common Stock | Paid-In | Shareholder | Controlling | Accumulated |
|
|
|
| |
| Shares | Amount | Capital | Receivable | Interest | Deficit | Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - December 31, 2009 | 379,535 | 380 | 16,500,507 | (156,300) | (9,168) | (21,662,302) | (5,316,861) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for services and expenses | 10,000 | 10 | 18,990 | - |
| - | 19,000 |
|
|
|
Shares issued to reduce notes payable | 70,400 | 70 | 87,930 | - |
| - | 88,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss | - | - | - | - |
| (490,514) | (490,514) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - December 31, 2010 | 459,935 | 460 | 16,607,427 | (156,300) | (9,168) | (22,152,816) | (5,700,375) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for services | 800 | 1 | 1,999 | - |
| - | 2,000 |
|
|
|
Shares issued for services | 62,580 | 63 | 109,937 | - |
| - | 110,000 |
|
|
|
Shares issued to reduce notes payable | 261,400 | 261 | 107,089 | - |
| - | 107,350 |
|
|
|
Beneficial conversion on notes payable | - | - | 174,700 | - |
| - | 174,700 |
|
|
|
|
|
|
|
|
|
| - |
|
|
|
Net Loss | - | - | - | - | - | (812,307) | (812,307) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance - December 31, 2011 | 784,715 | $ 785 | $ 17,001,152 | $ (156,300) | (9,168) | $ (22,965,123) | $ (6,118,632) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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* On October 11, 2011 the Company's Board of Directors approved a 1:250 reverse split, effective in first quarter of 2012. The above shares have been retroactively restated to reflect the effects of the reverse stock-split. |
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The accompanying notes are an integral part of these financial statements.
CEPHAS HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2011
Note 1 - Organization and Significant Accounting Policies
Organization and Lines of Business
CEPHAS Holding Corp formerly Legend Mobile, Inc., (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. 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. In October 2008, the Company amended its articles to change the name to CEPHAS Holding Corp.
The Company is a developer and marketer of branded mobile phone applications for the iPhone platform. The Company is an approved developer by Apple Computer to distribute its products on their iTunes store. The Company currently sells the Iron Sheik Soundboard and it distributes free of charge MMA Underboss -a newswire dedicated to mixed martial arts news. The Company also has a license from Mixed Martial Arts Champion, Fedor Emelianeko to produce iPhone applications under his brand and is currently developing that application.
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, "Non monetary 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% 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 that was valued at $3,700 (10% of $37,000, the original value of the affinity credit card business). The Company now owns 50% of Legend Credit and accounts for the subsidiary using the acquisition method. The subsidiary currently has no business operations.
In July 1999, the Company formed Legend Studios, Inc. (formerly FragranceDirect.com, Inc.) ("Legend Studios"), a majority owned subsidiary. As of June 30, 2011, Legend Studios did not have any operations.
Basis of Presentation and 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 years ended December 31, 2011 and 2010, 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 notes 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 accompanying financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States. The financial statements have, in management's opinion, been properly prepared within the framework of the significant accounting policies summarized below:
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 is seeking additional equity or debt capital to expand its mobile application business.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its 91%-owned subsidiary, Legend Studios, and its 50% owned subsidiary, Legend Credit. Significant intercompany accounts and transactions have been eliminated.
Cash and Cash Equivalents
For purposes of the statements of cash flows, the Company defines cash equivalents as all highly liquid debt instruments purchased with a maturity of three months or less, plus all certificates of deposit.
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting periods. As of December 31,, 2011 the Company used estimates in determining the value of common stock issued to consultants for services. Actual results could differ from these estimates.
Concentration of Credit Risk
Financial instruments, which potentially subject the Company to concentrations of credit risk, consist of cash. The Company places its cash with high quality financial institutions and at times may exceed the FDIC $250,000 insurance limit. The Company extends credit based on an evaluation of the customer's financial condition, generally without collateral. Exposure to losses on receivables is principally dependent on each customer's financial condition. The Company monitors its exposure for credit losses and maintains allowances for anticipated losses, as required.
Comprehensive Income
The Company has adopted SFAS No. 130 (ASC220-10), "Reporting Comprehensive Income." This statement establishes standards for reporting comprehensive income and its components in a financial statement. Comprehensive income as defined includes all changes in equity (net assets) during a period from non-owner sources. Examples of items to be included in comprehensive income, which are excluded from net income, include foreign currency translation adjustments and unrealized gains and losses on available-for-sale securities. Comprehensive income (loss) is not presented in the Company's financial statements since there is no difference between net loss and comprehensive loss in any period presented.
Stock Based Compensation
Stock-based compensation is accounted for at fair value in accordance with ASC 718. During the year ended December 31, 2011, the Company has not adopted a stock option plan and has not granted any stock options.
Stock-based compensation represents the cost related to common stock and options to purchase common stock granted to employees and related parties of the Company. The Company determines the cost of common stock grants at the date the common stock was issued, based on the quoted market price of the Companys common stock and recognizes the cost as expense over the requisite service period. The Company estimates the fair value of all warrants and options issued during the period using the Black-Scholes option-pricing model with the assumptions appropriate to the circumstances of the Company at the time of the transaction. There were no options or warrants issued during the year ended December 31, 2011.
The Company records deferred tax assets for awards that result in deductions on the Companys income tax returns, based on the amount of compensation cost recognized and the Companys statutory tax rate in the jurisdiction in which it will receive a deduction. Differences between the deferred tax assets recognized for financial reporting purposes and the actual tax deduction reported on the Companys income tax return are recorded in Additional Paid-In Capital.
Fair Value of Financial Instruments
In September 2006, the Financial Accounting Standards Board (FASB) introduced a framework for measuring fair value and expanded required disclosure about fair value measurements of assets and liabilities. The Company adopted the standard for those financial assets and liabilities as of the beginning of the 2008 fiscal year and the impact of adoption was not significant. FASB Accounting Standards Codification (ASC) 820 Fair Value Measurements and Disclosures (ASC 820) defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entitys own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:
· | Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. |
· | Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means. |
· | Level 3 - Inputs that are both significant to the fair value measurement and unobservable. |
The Company applied ASC 820 for all non-financial assets and liabilities measured at fair value on a non-recurring basis. Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of December 31, 2011. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values due to the short-term nature of these instruments. These financial instruments include cash, investments, accounts payable, accrued expenses, accrued interest, license fee payable, due to related parties, and advances from an officer. The fair value of the Companys notes payable is estimated based on current rates that would be available for debt of similar terms which is not significantly different from its stated value.
Financial Asset | Total | Level 1 | Level 2 | Level 3 |
Investment, at cost | $ 220,000 |
|
| $ 220,000 |
| $ 220,000 | $ -- | $ -- | $ 220,000 |
Property and equipment
Property and equipment is recorded at cost. Depreciation is provided on a straight-line basis over estimated useful lives of the assets.
Expenditures for maintenance and repairs are charged to operations as incurred while renewals and betterments are capitalized. Gains and losses on disposals are included in the results of operations.
Revenue Recognition
The Company generates revenue from the sale of products on its web sites and through other channels, the sale of advertisements on radio stations it operated and service fees from the sale of debit cards. The Company recognizes revenue for these product sales when the product is shipped to the customer. The Company recognizes revenue from the radio stations it operated when advertisements were aired. The Company recognizes service fee revenue from the sale of debit cards at the time the customer is sent the debit card. Shipping and handling costs are recorded as revenue and related costs are charged to cost of sales. No revenues have been recognized for the years ended December 31, 2011 and 2010.
Income Taxes
Income taxes are computed using the asset and liability method. Under the asset and liability method, deferred income tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the currently enacted tax rates and laws. A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, are not expected to be realized.
Impairment of Long-Lived Assets
In October 2001, the FASB issued SFAS No. 144 (ASC 360), "Accounting for Impairment or Disposal of Long-Lived Assets". This statement also amends ARB No. 51 (ASC 810), "Consolidated Financial Statements", to eliminate the exception to consolidation for a subsidiary for which control is likely to be impaired. SFAS No. 144 (ASC 360) requires that long-lived assets to be disposed of by sale, including those of discontinued operations, be measured at the lower of carrying amount or fair value less cost to sell, whether reported in continuing operations or in discontinued operations. SFAS No. 144 (ASC 360) broadens the reporting of discontinued operations to include all components of an entity with operations that can be distinguished from the rest of the entity and that will be eliminated from the ongoing operations of the entity in a disposal transaction. SFAS No. 144 (ASC 360) also establishes a "primary-asset" approach to determine the cash flow estimation period for a group of assets and liabilities that represents the unit of accounting for a long-lived asset to be held and used. The Company's adoption effective January 1, 2002 did not have a material impact to the Company's financial position or results of operations.
Earnings (Loss) Per Share
The Company reports earnings (loss) per share in accordance with SFAS No. 128 (ASC 260), "Earnings per Share." Basic earnings (loss) per share are 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 have 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 years ended December 31, 2011 and 2010 respectively because the effect would have been anti-dilutive:
|
| 2011 |
|
| 2010 |
| ||
Conversion of Series A preferred stock |
|
| 44,500 |
|
|
| 44,500 |
|
Conversion of Series B preferred stock |
|
| 8,500,000 |
|
|
| 8,500,000 |
|
Conversion of Series C preferred stock |
|
| 14,777,500 |
|
|
| 14,777,500 |
|
Total |
|
| 23,322,000 |
|
|
| 23,322,000 |
|
All warrants and stock options were cancelled during the year ended December 31, 2007.
Non-Controlling Interest
In December 2007, the FASB issued SFAS No. 160 (ASC 810), Non-controlling Interests in Consolidated Financial Statements, an amendment of ARB No. 51 (ASC 810), which addresses the accounting and reporting framework for minority interests by a parent company. SFAS 160 (ASC 810) also addresses disclosure requirements to distinguish between interests of the parent and interests of the non-controlling owners of a subsidiary. SFAS 160 (ASC 810) became effective beginning with our first quarter of 2009. We will be reporting minority interest as a component of equity in our Consolidated Balance Sheets and below income tax expense in our Consolidated Statement of Operations. As minority interest will be recorded below income tax expense, it will have an impact to our total effective tax rate, but our total taxes will not change. For comparability, we will be retrospectively applying the presentation of our prior year balances in our Consolidated Financial Statements.
Recently Issued Accounting Pronouncements
In May 2011, the FASB issued ASU No. 2011-04, Fair Value Measurements (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. (ASU 2011-04). This guidance contains certain updates to the fair value measurement guidance as well as enhanced disclosure requirements. The most significant change in disclosures is an expansion of the information required for Level 3 measurements, including enhanced disclosure for: (1) the valuation processes used by the reporting entity; and (2) the sensitivity of the fair value measurement to changes in unobservable inputs and the interrelationships between those unobservable inputs, if any. The provisions of this update are effective for interim and annual periods beginning on or after December 15, 2011, with early adoption prohibited. The Companys adoption of this standard is not expected to have a significant impact on the Companys fair value measurements, financial condition, results of operations or cash flows.
In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income. This update requires that all non-owner changes in stockholders equity be presented either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This update eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders equity. These changes will be effective for the first quarter filing of 2012. The adoption of this update will change the manner in which the Company presents comprehensive income in the future.
In September 2011, the FASB issued ASU 2011-08, Intangibles Goodwill and Other (Topic 350), Testing Goodwill for Impairment. This update provides companies with the option to perform a qualitative assessment to determine whether it is more likely than not (a likelihood of more than 50%) that the fair value of a reporting unit is less than its carrying amount. If, after assessing updated qualitative factors, a company determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, a fair value calculation is not required.
Except for rules and interpretive releases of the SEC under authority of federal securities laws and a limited number of grandfathered standards, the FASB Accounting Standards Codification™ (“ASC”) is the sole source of authoritative GAAP literature recognized by the FASB and applicable to the Company. The Company has reviewed the FASB issued Accounting Standards Update (ASU) accounting pronouncements and interpretations thereof that have effectiveness dates during the periods reported and in future periods. The Company has carefully considered the new pronouncements that alter previous generally accepted accounting principles and does not believe that any new or modified principles will have a material impact on the corporations reported financial position or operations in the near term. The applicability of any standard is subject to the formal review of our financial management and certain standards are under consideration.
Note 2 Property and Equipment
Property and equipment as at December 31, 2011 and 2010 consisted of the following:
|
| 2011 |
|
| 2010 |
| ||
Computer equipment |
| $ | 54,124 |
|
| $ | 52,930 |
|
Less: Accumulated depreciation |
|
| (53,183 | ) |
|
| (52,930 | ) |
Net Fixed Assets |
| $ | 941 |
|
| $ | 0 |
|
Depreciation expense for the years ended December 31, 2011 and 2010 was $253 and $0, respectively.
Note 3 Investments
The Company has made investments in a private company, in the amount of $220,000 and $135,000 as of December 31, 2011 and 2010, respectively. Cephas does not have a controlling interest (less than 20%) or participate in management or share in profits or losses of the Company. Cephas accounts for the investment at cost, as the investments are collateralized by demand notes payable. There has been no negative evidence of impairment or reasons to reduce the investment. Management has considered like values of like investment, future discounted cash flows, estimated return on investment and other unobservable considerations in determining that cost represents fair market value. See Note 10 Commitment and Contingencies.
Note 4 - Accrued Expenses
Accrued expenses at December 31, 2011 and December 31, 2010 consisted of the following:
The amount owing to Michael Jordan bears interest at 12% per annum and is currently in default. Accrued interest on settlement, to date, amounts to $488,018.
An officer of the Company, as approved by the Board of Directors, is paid a salary of $175,000 per annum, renewable annually upon mutual consent until terminated by either party. Amounts are currently being accrued until sufficient cash flows from operation allow payment.
|
|
|
|
|
|
| ||
|
| Dec 31, 2011 |
|
| Dec 31, 2010 |
| ||
Michael Jordan settlement |
| $ | 468,750 |
|
| $ | 468,750 |
|
Management salary |
|
| 393,750 |
|
|
| 568,750 |
|
Professional fees |
|
| 3,000 |
|
|
| 3,000 |
|
Total Accrued Expenses |
| $ | 865,500 |
|
| $ | 1,040,500 |
|
On December 30, 2011 the Companys Board of Directors approved the conversion of $350,000 of accrued salaries into a promissory note payable.
Note 5 - Notes Payable - Officer
An officer, the controlling shareholder, has pledged his support to fund continuing operations; however there is no written commitment to this effect. The Company is dependent upon continued support.
As of September 30, 2004, the Company converted $291,000 of advances from its CEO, Mr. Klamka, into a note payable that bears interest at 21% per annum and is payable upon demand. As of December 31, 2011, the balance on this note is $263,496 with accrued interest related to this note amounted to $394,562.
During the year ended December 2006 the Company converted certain of the accrued amounts owing to the CEO and for salaries payable to the CEO into a note totaling $758,920. This note is unsecured and bears interest at the rate of 21% per annum. Accrued interest to date is $841,957.
A promissory note were issued during 2007 to Peter Klamka for prior year (2006) unpaid salaries of $175,000 bearing interest at the rate of 8% per annum. In 2011 payments, in the amount of $8,000 were applied to this note, resulting in a balance due of $167,000 as of December 31, 2011. Interest accrued to date is $57,334.
On December 30, 2011 a promissory note was issued for accrued salaries for the last 2 years, issued to Peter Klamka, in the amount of $350,000 bearing interest at the rate of 8% per annum, payable upon written demand. The note is convertible, at the option of the holder, at a fixed share price of $.875, the closing bid for the common shares as of December 30, 2011. At December 30, 2011, the Company, at the request of the holder, issued 261,400 (post split) shares, reducing this note in the amount of $107,350. There was no discount to the stated share conversion price at the date of the agreement; therefore no beneficial conversion rate is recognized. The remaining balance on this note is $242,650 as of December 31, 2011. No interest has accrued on this note as of December 31, 2011.
Per the convertible debt agreements the conversion price is to be calculated by dividing the amount of outstanding principal by the stated conversion price. Since the convertible debt can be converted at anytime from the signing of the agreement forward, the closing prices of the convertible debt agreement dates were used for the calculation of the beneficial conversion feature, in accordance with ASC 470. There was no beneficial conversion feature associated with the convertible debt, as the conversion rate approximated the fair market value of the trading shares at the date of signing.
Note 6 - Notes Payable
In July and August 1997, the Company received $56,250 through the issuance of 8% promissory notes and common stock purchase warrants to acquire Company stock. In 1999, one of the note holders converted $25,000 of principal and $5,500 of accrued interest into 6,100 shares of the Company's common stock. The remainder of the notes, which amounts to $31,250, continues to be outstanding notwithstanding the fact that payments owed by the Company there under are now past due. Interest accrued to date is $32,875.
In July and August of 1999, the Company's Subsidiaries, Legend Studios issued 10% promissory notes aggregating to $160,000. The notes are due the earlier of one year or the completion of an initial public offering of Legend Studios common stock. In addition, Legend Studios issued to the note holders an aggregate of 96,000 two-year stock purchase warrants to purchase Legend Studios common stock at $3.50 per share. During the year ended December 31, 2002, two note holders converted principal and accrued interest of $35,000 and $13,358 into 48,358 shares of the Company's common stock. As of December 31, 2011, $125,000 of these notes and accrued interest of $152,084 are still outstanding. These notes were in default as of December 31, 2006.
In August 2001, the Company issued notes payable for $100,000 and $300,000 which were due in 60 days and 14 days, respectively. The balance of those loans as of December 31, 2011 was $304,000.
The loan for $100,000 plus accrued interest of $132,000 was in default and has now been settled for a total of $110,000 including accrued interest. The loan is repayable in installments and has a balance owing as of December 31, 2011 of $50,000 plus accrued interest of $28,000.
During the year ended December 31, 2010, the Company converted $88,000 of certain notes payable into 17,600,000 (70,400 post split) shares of the companys common stock.
During the year ended December 31, 2010, an outside party loaned the Company a total $85,000. This loan is repayable interest only at the rate of 7% per annum with no fixed terms of repayment and may be converted into common stock at $.005 per share. In 2011 an additional 70,000 was advanced by the party. The balance of the loan as at December 31, 2011 is $155,000 and accrued interest of $6,154. The conversion feature of the notes resulted in a beneficial conversion expense of $155,000, which has been recognized in 2011.
During 2011 the company issued a series of notes for expenses paid on behalf of the Company. The notes totaled $19,700, payable upon demand, stated interest rate of 7%, convertible into shares of common stock at a fixed conversion price of $.005 per share. A beneficial conversion has been recognized in the amount
of $19,700, based on the fair market value of the stock at the time of agreement. Interest accrued to date is $315 on these notes.
In December 2011 an outside party advanced an additional $45,000 bearing interest at 7% per annum. The note is payable on demand and there are no fixed terms of repayment.
The Company issued a note to an employee for unpaid salaries for 2006 for $100,000 of which $23,750 was repaid. The remaining balance of $76,250 bears interest at 7% per annum and accrued interest to date is $27,996. An additional note for unpaid salary for 2011 was issued for $80,000 bearing interest at 7% per annum.
Note 7 - Stockholders' Deficit
Series A Preferred Stock
The Company has 1,000,000 shares of $0.001 par value Series A Preferred Stock ("Series A") authorized of which 44,500 shares are issued and outstanding at December 31, 2011. Each share of Series A can be converted into 20 shares of common stock.
Series B Convertible Preferred Stock
The Company has 850,000 shares of $0.01 par value Series B Convertible Preferred Stock (Series B) authorized of which 850,000 shares are issued and outstanding at September 30, 2011.
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.
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 vote 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
The Company has 147,775 shares of $0.01 par value Series C Convertible Preferred Stock (Series C) authorized of which 147,775 shares are issued and outstanding at September 30, 2011.
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 ten vote 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. (See Note 3)
Common Stock
During the quarter ended March 31, 2010 the Company issued a total of 3,100,000 (12,400 post split) common shares to convert notes payable for a total consideration of $15,500.
During the quarter ended September 2010 the Company issued a total of 8,000,000 (32,000 post split) shares of common stock to convert certain notes payable in the amount of $40,000.
During the quarter ended September 30, 2010 the Company issued a total of 2,000,000 (8,000 post split) shares of common stock for services rendered totaling $14,000.
During the quarter ended December 31, 2010, the Company issued a total of 7,000,000 (28,000 post split) shares of common stock for services totaling $5,000 and to reduce notes payable by $32,500.
During 2011 the Company issued common shares to consultants for services provided. We have recorded compensation costs at the fair value at the time of issuance and expensed in the periods the service were performed. Total common shares issued for these services were 15,645,000 (62,580 post split) and recorded expenses of $110,000 related to the issuances.
During the quarter ended March 31, 2011, the Company issued a total of 54,600,000 (218,400 post split) shares for services of $2,000 and to reduce notes and loans by $85,600.
During the three months ended June 30, 2011 a total of 10,750,000 (43,000 post split) shares were issued to reduce notes payable by $21,750.
Note 8 - Income Taxes
The components of income tax (benefit) expense for the years ended December 31, 2011 and 2010 respectively, are as follows:
|
| 2011 |
|
| 2010 |
| ||
|
|
|
|
|
|
| ||
Federal: |
|
|
|
|
|
| ||
Current |
| $ | - |
|
| $ | - |
|
Deferred |
|
| - |
|
|
| - |
|
|
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
State: |
|
|
|
|
|
|
|
|
Current |
|
| - |
|
|
| - |
|
Deferred |
|
| - |
|
|
| - |
|
|
|
| - |
|
|
| - |
|
|
| $ | - |
|
| $ | - |
|
The Company has a net operating loss carry forward to offset future taxable income of $22,774,256 for federal purposes and $21,249,606 for state purposes. Subject to current regulations, this carry forward will begin to expire in 2012 in varying amounts until 2021. The amount and availability of the net operating
loss carry forwards may be subject to limitations set forth by the Internal Revenue Code. Factors such as the number of shares ultimately issued within a three year look-back period; whether there is a deemed more than 50 percent change in control; the applicable long-term tax exempt bond rate; continuity of historical business; and subsequent income of the Company all enter into the annual computation of allowable annual utilization of the carry forwards.
The Companys income tax expense (benefit) for the years ended December 31, 2011 and 2010 respectively, differed from the statutory federal rate of 34 percent as follows:
|
| 2011 |
|
| 2010 |
| ||
|
|
|
|
|
|
| ||
Statutory rate applied to loss before income taxes |
| $ | (7,743,247 | ) |
| $ | (7,531,957 | ) |
|
|
|
|
|
|
|
|
|
Increase(decrease) in income taxes resulting from: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State, income taxes |
|
| - |
|
|
| - |
|
Other, including reserve for deferred tax asset |
|
| 7,743,247 |
|
|
| 7,531,957 |
|
|
|
|
|
|
|
|
|
|
Income Tax Expense |
| $ | - |
|
| $ | - |
|
Temporary differences due to statutory requirements in the recognition of assets and liabilities for tax and financial reporting purposes, generally including such items as organizational costs, accumulated depreciation and amortization, allowance for doubtful accounts, organizational and start-up costs and vacation accruals. These differences give rise to the financial statement carrying amounts and tax bases of assets and liabilities causing either deferred tax assets or liabilities, as necessary, as of December 31, 2011 and 2010, respectively:
|
| December 31, |
| |||||
|
| 2011 |
|
| 2010 |
| ||
Deferred tax assets |
|
|
|
|
|
| ||
Net operating loss carry forwards |
| $ | 22,774,256 |
|
| $ | 22,152,816 |
|
Less: valuation allowances |
|
| (22,774,256 | ) |
|
| (22,152,816 | ) |
|
|
|
|
|
|
|
|
|
Net Deferred Tax Asset |
| $ | - |
|
| $ | - |
|
Note 9 - Commitments and Contingencies
Litigation
Legend Studios, Inc. vs. Quorum Radio Partners, Inc., Quorum Radio Partners of Virginia, Inc. and Quorum Communications, Inc.
Legend Studios lawsuit arises from defendants' breach of the parties' Asset Purchase Agreement and Time Brokerage Agreement that govern the sale, programming, operations and revenues of certain radio stations (KELE-AM, KELE-FM, WIQO, WKEY and WKCI). Legend Studios seeks specific performance of the agreements, as well as in excess of $1.5 million in damages. Defendants have been served with the complaint, but have not filed answers and may be subject to entry of default. Quorum Radio Partners of Virginia, Inc., however, filed a bankruptcy petition after being served with the complaint, which stays Legend Studios proceedings solely against that entity.
In the ordinary course of business, the Company is generally subject to claims, complaints, and legal actions. At December 31, 2011, management believes that the Company is not a party to any action which result would have a material impact on its financial condition, operations, or cash flows.
Commitments
In September, 2007, Legend Credit, Inc. entered into an agreement with UCE, Inc. in which the Company agreed to contribute $500,000 toward production, marketing and promotion costs for a weekly mixed martial arts event scheduled and produced by UCE, Inc. The Company contributed $29,562 toward the agreed-upon. The investment of $29,562 was fully impaired during the year ended December 31, 2008.
During the year ended December 31, 2010 the Company invested a total of $135,000 worth of units in Network Talent, LLC, (Network), a modeling agency in California.
The Company has committed to advance by way of purchase of units of Network a total of $400,000 of which $220,000 has been advanced to date.