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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
December 30, 2010
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Date of Report (Date of earliest event reported)
Mondial Ventures, Inc.
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(Exact name of Registrant as specified in its charter)
Nevada 0-51033 Applied For
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(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification No.)
4625 West Nevso Drive, Suite 2, Las Vegas, Nevada 89103
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(Address of principal executive offices)
(Zip Code)
(702) 253-7870
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Registrant's telephone number, including area code
388 Richmond St. Suite 916, Tornoto, Ontario, Canada MV5 3P1
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(Former Address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions (see General Instruction A.2. below):
o Written communications pursuant to Rule 425 under the Securities Act (17
CFR 230.425)
o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
o Pre-commencement communications pursuant to Rule 14d-2(b) under the
Exchange Act (17 CFR 240.14d-2(b))
o Pre-commencement communications pursuant to Rule 13e-4(c) under the
Exchange Act (17 CFR 240.13e-4(c))
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS AND INFORMATION
This Current Report on Form 8-K (this "Report"), the other reports,
statements, and information that we have previously filed or that we may
subsequently file with the Securities and Exchange Commission (the "SEC"), and
public announcements that we have previously made or may subsequently make
include, may include or may incorporate by reference certain statements that may
be deemed to be "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 and are intended to enjoy the benefits
of that act. Unless the context is otherwise, the forward-looking statements
included or incorporated by reference in this Report and those reports,
statements, information and announcements address activities, events or
developments that Mondial Ventures, Inc. a Nevada corporation (together with its
subsidiaries hereinafter referred to as "we," "us," "our," or "the Company"
unless context otherwise requires) expects or anticipates, will or may occur in
the future. Any statements in this Report about expectations, beliefs, plans,
objectives, assumptions or future events or performance are not historical facts
and are forward-looking statements. These statements are often, but not always,
made through the use of words or phrases such as "may," "should," "could,"
"predict," "potential," "believe," "will likely result," "expect," "will
continue," "anticipate," "seek," "estimate," "intend," "plan," "projection,"
"would" and "outlook," and similar expressions. Accordingly, these statements
involve estimates, assumptions and uncertainties, which could cause actual
results to differ materially from those expressed in them. Any forward-looking
statements are qualified in their entirety by reference to the factors discussed
throughout this Report. All forward-looking statements concerning economic
conditions, rates of growth, rates of income or values as may be included in
this document are based on information available to us on the dates noted, and
we assume no obligation to update any such forward-looking statements. It is
important to note that our actual results may differ materially from those in
such forward-looking statements due to fluctuations in interest rates,
inflation, government regulations, economic conditions and competitive product
and pricing pressures in the geographic and business areas in which we conduct
operations, including our plans, objectives, expectations and intentions and
other factors discussed elsewhere in this Report.
The risk factors referred to in this Report could materially and adversely
affect our business, financial conditions and results of operations and cause
actual results or outcomes to differ materially from those expressed in any
forward-looking statements made by us, and you should not place undue reliance
on any such forward-looking statements. Any forward-looking statement speaks
only as of the date on which it is made and we do not undertake any obligation
to update any forward-looking statement or statements to reflect events or
circumstances after the date on which such statement is made or to reflect the
occurrence of unanticipated events. The risks and uncertainties described below
are not the only ones we face. New factors emerge from time to time, and it is
not possible for us to predict which will arise. There may be additional risks
not presently known to us or that we currently believe are immaterial to our
business. In addition, we cannot assess the impact of each factor on our
business or the extent to which any factor, or combination of factors, may cause
actual results to differ materially from those contained in any forward-looking
statements. If any such risks occur, our business, operating results, liquidity
and financial condition could be materially affected in an adverse manner. Under
such circumstances, you may lose all or part of your investment.
The industry and market data contained in this Report are based either on
our management's own estimates or, where indicated, independent industry
publications, reports by governmental agencies or market research firms or other
published independent sources and, in each case, are believed by our management
to be reasonable estimates. However, industry and market data is subject to
change and cannot always be verified with complete certainty due to limits on
the availability and reliability of raw data, the voluntary nature of the data
gathering process and other limitations and uncertainties inherent in any
statistical survey of market shares. We have not independently verified market
and industry data from third-party sources. In addition, consumption patterns
and customer preferences can and do change. As a result, you should be aware
that market share, ranking and other similar data set forth herein, and
estimates and beliefs based on such data, may not be verifiable or reliable.
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Item 1.01 - Entry into Material Definitive Agreement
Item 2.01 - Completion of Acquisition or Disposition of Assets
Item 5.01 - Changes in Control of Registrant
Summary of Principal Terms of the Merger Agreement
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Pursuant to an Agreement and Plan of Merger (the "Merger Agreement") dated
as of December 14, 2010, entered into by and between Legacy Athletic Apparel
LLC, a Virginia limited liability company ("Legacy") and Mondial Ventures, Inc.,
a Nevada corporation ("Mondial" or the "Company"), on December 30, 2010, Legacy
merged into Mondial, with Mondial being the surviving entity (the "Merger"). As
a result of the Merger, Mondial succeeded to the business and acquired all the
assets and assumed all the liabilities of Legacy. Upon the closing of the
Merger, each percent of common membership interest of Legacy (such percentages,
the "Legacy Shares") issued and outstanding were converted automatically into
the right to receive 510,000 shares of Mondial common stock, par value $.001 per
share (the "Common Stock"), or up to an aggregate of 51,000,000 shares of Common
Stock, subject to the rights of the former members of Legacy to exercise and
perfect their dissenters' rights, if any, under applicable provisions of
Virginia law to accept cash in lieu of shares of Common Stock. The securities
were issued pursuant to an exemption from registration under Rule 506 of
Regulation D of the Securities Act of 1933, as amended (the "Securities Act").
Prior to the closing of the transactions contemplated by the Merger
Agreement, there were 9,800,000 shares of Common Stock issued and outstanding.
Concurrent or promptly following the closing of the Merger we converted $28,099
of outstanding indebtedness of the Company into 10,670,000 shares of Common
Stock and we converted outstanding convertible note indebtedness in the amount
of $50,609 into 15,200,000 shares of Common Stock for the purpose of making our
capitalization more attractive to future equity investors. In addition,
concurrent or promptly following the closing, we issued 13,330,000 shares of
Common Stock to two director nominees in consideration of their agreement to
serve as directors of the Company. The securities were issued pursuant to
exemptions from registration under Regulation S, Rule 506 of Regulation D and
Section 3(a)(9) of the Securities Act, as applicable.
Following the completion of the transactions contemplated by the Merger
Agreement, there were 100,000,000 shares of Common Stock issued and outstanding
(subject to the rights of the former members of Legacy to exercise and perfect
their dissenters' rights, if any, under applicable provisions of Virginia law).
In connection with the closing of the Merger, the sole member of Legacy has
waived any dissenters' rights, and so we believe no Legacy Shares are entitled
to dissenters' rights.
Description of Business
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Historical Development
Mondial Ventures, Inc. was incorporated in the State of Nevada on May 29,
2002.
From our formation we have been an exploration stage mineral exploration
company. As such, there was no assurance that a commercially viable mineral
deposit exists on the sole mineral property interest we had, the Q29 property.
Further exploration would have been required before a final evaluation as to the
economic and legal feasibility of the Q29 property could be determined.
Prior to the Merger, we were engaged in the acquisition, and exploration
of mineral properties with a view to exploiting any mineral deposits we would
discover that demonstrate economic feasibility. Prior to December 15, 2010, we
owned a 100% interest in four contiguous mineral claims collectively known as
the Q29 property. The claims expired on December 15, 2010, and in light of our
determination to change our business as contemplated in the Merger, we did not
re-stake the claims.
Prior to the Merger, our plan of operation was to conduct exploration work
on the Q29 property in order to ascertain whether it possesses economic
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quantities of copper or gold. There could be no assurance that economic mineral
deposits or reserves, existed on the Q29 property until appropriate exploration
work could be done and an economic evaluation based on such work concluded that
production of minerals from the property is economically feasible.
Q29 Property Purchase Agreement
On December 22, 2003, we entered into an agreement with Mr. Edward
McCrossan of Vancouver, British Columbia, whereby he agreed to sell to us a
total of four mineral claims located approximately 20 kilometers west of Port
Alice, British Columbia. In order to acquire a 100% interest in these claims, on
January 5, 2004 we paid $6,000 from our corporate bank account to Mr. McCrossan.
Other than selling the Q29 claims to us, Mr. McCrossan has not had and does not
have any relationship or affiliation with us or our management.
In October 2008, due to inactivity the claims expired. We were not able to
obtain the necessary funds to re-stake the properties until December 2009. On
December 29, 2009 we re-staked the claims to move forward with further
exploration of the property. Up to December 31, 2009, we had spent $16,542 on
the acquisition and exploration of the Q29 property. The Q29 claims expired
December 15, 2010, and we did not re-stake them.
Title to the Q29 Property
The Q29 property consisted of four mineral claims. These claims would only
have been valid as long as we spent a minimum of $880 in exploration work on
each claim per year. If we spend more than $880 on exploration in one calendar
year, an excess amount may be carried forward to subsequent years.
Alternatively, we may pay the same amount per claims in cash to the British
Columbia government in order to maintain the claims in good standing. We
determined not to re-stake the Q29 claim on December 15, 2010 in light of our
determination to change our line of business.
A "mineral claim" refers to a specific section of land over which a title
holder owns rights to exploration to ground. Such rights may be transferred or
held in trust. Mr. McCrossan held the four mineral claims comprising the Q29
property in trust for us. It is a common procedure to have such claims held in
trust given the expense that we would have incurred in registering as a recorded
claim holder and as an extraprovincial company in British Columbia. We could
have requested that the claims be registered in our name at any time.
The fee simple owner of the real property underlying the claims that
comprised the Q29 property is the government of British Columbia. The government
has the right to sell title to this land to a third party, but is unlikely to do
so given the remote location of the property. We had the right through December
15, 2010 to explore the property for mineralization, provided such exploration
does not unreasonably disturb the fee simple owner's use of the land. We would
be required to undertake remediation work on any exploration that results in
physical disturbance to the land.
Description, Location and Access
The Q29 property is located in the Nanaimo Mining Division on Vancouver
Island, British Columbia approximately 20 kilometers west of Port Alice. The
property is road accessible by Western Forest Products logging roads which being
south of Port Alice on the east side of Neroutsos Inlet. Topography within the
claims area is moderate with elevations ranging between 250 feet and 1,300 feet.
There are no power lines close to the Q29 property. Accordingly, a portable
generator was necessary in order to supply power during exploration.
Mineralization
The northwestern portion of Vancouver Island, including the property area,
is underlain primarily by volcanic, limestone and marine sediment rocks. On the
Q29 property, these rock formations were altered by intrusions. An intrusion
occurs when molten rock containing a mixture of minerals and gases enters into
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the existing rock formation. Such intrusions often contain concentrations of
precious minerals such as gold and silver and base metals such as copper and
molybdenum.
No reserves or economically significant mineralization has been discovered
on the Q29 property. Very limited sampling results from the property indicate
low level anomalies of zinc and silver.
Exploration History
To date, no mineral deposit has been delineated on the Q29 property.
Consequently there has been no reserve or resource calculated. All proposed
property work is exploratory in nature. There is no known historical work from
the property prior to 2000. There is no equipment or infrastructure on the
property. As well, no mining operations have ever been conducted on the
property.
During October of 2000, Ed McCrossan, P.Geo., collected sixteen rock grab
samples along logging road cut exposures within the Q29 claims. Grab samples are
soil samples or pieces of rock that appear to contain precious metals such as
gold or industrial metals such as copper. All samples gathered were sent to a
laboratory where they were crushed and analyzed for metal content. The samples
indicate low level anomalies of zinc, silver, barium and arsenic.
Geological Report: Q29 Group Property
We obtained a geological report on the Q29 property that was prepared by
Mr. Edward McCrossan, a professional geologist, of Vancouver, British Columbia.
The geological report summarized the results of exploration in the area of the
Q29 property and made a recommendation for further exploration work.
In his report, Mr. McCrossan concluded that the Q29 property has the
potential to host precious metal and polymetallic mineral occurrences and
deposits given its location on northern Vancouver Island. He noted that previous
sampling results from an area of the property that appears to contain altered,
mineralized rock returned between 0.15% and 0.60% copper. If such mineralization
continued over a significant area, the Q29 property could potentially host a
mineral deposit.
Mr. McCrossan recommended an initial exploration program on the property
to determine the extent to which mineral levels continue over different areas of
the property. He suggested that such a program consist of grid emplacement
accompanied by geological, geochemical and geophysical surveys. Additional
phases consisting of trenching and diamond drilling were also recommended. We
determined not to incur the expenses associated with this additional exploration
once presented with the business opportunity contemplated in the Merger
Agreement.
Our Business - Legacy
Legacy Athletic Apparel LLC is a Virginia limited liability company formed
in July 2010. Legacy's principal business activities are the development,
design, marketing and distribution of branded performance apparel, footwear and
accessories for men, women and youth. We intend to sell our products worldwide
to be worn by athletes at all levels, from youth to professional, on playing
fields around the globe, as well as by consumers with active lifestyles
interested in fashion-forward products. Our initial focus will be distribution
in the lower-tier and mid-tier mass market with potential expansion into the
higher tier markets once brand recognition has been established.
We have licensed the applications for the trademarks "Alltimate Ball" and
the "AB" logo. We intend to apply to register for additional trademarks and
tradenames as well as to license additional trademarks and tradenames from their
respective holders. We therefore intend to have numerous brands geared to
differing demographics and consumer groups. We will begin in the athletic arena
and then carry extensions into lifestyle and casual wear.
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Industry Overview
The U.S. footwear manufacturing industry primarily consists of about 100
manufacturers with sales of about $2 billion. The major shoe companies in the
U.S., including NIKE, Skechers USA, and Timberland, are mainly owners of brand
names that "source" their shoes from independent manufacturers outside the U.S.
Some U.S. manufacturers, like New Balance, make a percentage of their shoes in
the U.S. while other smaller operations manufacture all their shoes in the U.S.
The U.S. footwear retail industry includes about 30,000 stores with
combined annual revenue of about $25 billion. Major companies include Payless,
ShoeSource, Brown Shoe Company (which owns Famous Footwear and Naturalizer),
Foot Locker, and DSW. Shoe manufacturers, such as Nike, also have retail
operations.
The U.S. apparel manufacturing industry includes about 8,000 companies
that have combined annual revenue of about $20 billion. Large companies include
Levi Strauss, Phillips-Van Heusen, VF Corporation, and Warnaco. The industry is
fragmented: the 50 largest companies generate less than 40 percent of revenue.
The industry includes knitting mills, but most apparel is cut and sewn.
The U.S. clothing retail industry includes about 100,000 stores with
combined annual revenue of about $150 billion. Large companies include TJX
Companies (TJ Maxx, Marshalls); Gap; Limited Brands; Ross; and Abercrombie &
Fitch. The industry is concentrated: the 50 largest companies account for about
65 percent of industry revenue.
The U.S. athletic apparel market is the world's largest sportswear market,
accounting for 41% of total sales, followed by the European Union, which
accounts for about 38% of total sporting apparel turnover. There is a stiff
competition among the sportswear brands that control a majority of the share of
this market. These companies spend heavily on innovation and sponsorship events
which act as major barriers for the new entrants to this industry.
Our Products
Our product offerings will consist of footwear, apparel and accessories
for men, women and youth. We will market our products at multiple price levels,
but our primary and initial target will be the lower-tier and mid-tier mass
market. We will provide consumers with what we believe to be a more economical
and fashionable alternative to traditional athletic products.
Apparel
Our apparel will be offered in a variety of styles and fits intended to
enhance comfort and mobility, as well as to exhibit a current fashionability
that is suitable to wear off the field and out on the town.
Footwear
We plan to begin by offering footwear for men, women and youth, and each
year will expand our footwear offerings. Our footwear offerings will begin with
the basketball shoe. We will then expand into developing new footwear
categories, such as baseball, football and soccer shoes, as well as skater and
casual athletic shoes.
Accessories
We will also enter into agreements with our licensees to develop
accessories related to our apparel and footwear products. Our product, marketing
and sales teams will be actively involved in all steps of the design process in
order to maintain brand standards and consistency. Our licensees will include
bags, socks, headwear, watches, eyewear and other products designed to be used
and worn in a manner complementary to our other product offerings.
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Our Business Strategy
Our revenues will be generated primarily from the licensing and wholesale
distribution of our products to national and regional retailers, primarily in
the lower-tier and mid-tier mass market. We will also generate revenue from
product licensing and from the sale of our products through our direct to
consumer sales channel, which includes sales through our website and catalogs.
As our brand recognition grows, we intend to build flagship stores in the major
metropolitan areas of the U.S. such as New York, Los Angeles, Miami and Chicago.
We intend to offer our products in retail stores worldwide. A large majority of
our products will be sold in North America; however we believe that our products
will appeal to athletes and consumers with active lifestyles around the globe.
We will seek international distributors and licensees for our products. We plan
to continue to grow our business over the long term through increased sales of
our apparel, footwear and accessories, expansion of our wholesale distribution,
growth in our direct to consumer sales channel and expansion in international
markets. Virtually all of our products will be manufactured by unaffiliated
manufacturers operating outside of the United States.
Sales and Marketing
We will focus on marketing and selling our products to consumers for use
in athletics, fitness, and lifestyle activities. We will maintain control over
our brand image with an in-house marketing and promotions department that
designs and produces most of our advertising campaigns. We will seek to drive
consumer demand for our products by building brand equity and awareness as a
leading athletic brand and lifestyle brand.
Sports/Entertainment Marketing
Our marketing and promotion efforts will begin with a strategy of selling
our products to mass market consumers by advertising the product being worn by
high-performing athletes and teams on the collegiate and professional levels,
legendary streetballers, and by these same athletes as well as entertainment
celebrities out on the town. As a result, our products will be seen on the field
as well at high-profile events, giving our products exposure to various consumer
audiences through the internet, television, magazines and live at sporting and
other events. This exposure to consumers will help us establish both performance
and fashion forward authenticity as consumers can see our products being worn by
high-performing athletes during athletic events as well as by entertainment
celebrities during entertainment events.
We will also have sponsorship agreements with individual athletes. Our
strategy is to find the next generation of stars as well as mid-tier athletes.
We will begin initially with NBA athletes and then expand into sponsorship
agreements with athletes in other sports. As our revenues increase, we will have
the opportunity to solicit higher tier players as well. We will seek sponsorship
agreements with entertainment celebrities, including actors and musical artists,
as well.
We will seek to sponsor events to drive awareness and brand authenticity
from a grassroots level. For example, we plan to enter into an agreement with
the NFL Combine to associate the brand with the development of an athletic
training platform. In 2011, we plan to also sponsor a number of combines, camps
and clinics for many sports at regional sites across the country for male and
female athletes. We will sponsor a bus tour which will carry our grassroots
marketing team across the country -- to high school and college events,
professional sporting events, neighborhood events, and concerts - doing
give-aways as part of our promotional campaign. The bus will be wrapped with our
advertising and also appear at major sporting events such as the Superbowl and
NBA All-Star Weekend.
We will reach young basketball athletes at all levels by sponsoring
basketball events, camps and clinics in association with established youth
organizations. We will also solicit agreements with high schools and colleges
teams to provide uniforms and utilize the team games as advertising
opportunities for our products.
We plan to be a sponsor of BET's RIP the RUNWAY, the BET awards, award
shows on MTV and VH1, and the ESPY Awards Show and will use the national
platforms to launch our commercial campaigns. We believe these relationships
will create significant product and brand exposure that will contribute to our
on-field and off-field authenticity.
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Media and Promotion
We intend to feature our products in a variety of national publications
such as Vibe, SPIN, ESPN the Magazine, Sports Illustrated, Complex, NBA Magazine
and Source, and to advertise regularly in several sport-specific and
fashion-specific publications. We also plan to purchase advertising spots on the
major networks, on children's shows and on TNT, NBATV, ESPN, BET, and MTV. We
also plan to advertize our brand and products on billboards nationwide.
Our media campaigns will run in a variety of lengths and formats and will
include campaigns featuring several NBA players initially, and subsequently
featuring athletes from other sports as well as entertainment celebrities. We
plan to host several events at 2011 NBA All-Star Weekend in Los Angeles to
launch our inaugural product line. Our ability to secure product placement in
movies, television shows and video games will also allow us to reinforce our
authenticity as well as establish our brand with broader audiences who may not
otherwise be exposed to our advertising and brand efforts.
Retail Marketing and Product Presentation
The primary component of our retail marketing strategy will be to
effectively exploit the floor space dedicated to our products within our major
retail accounts. The design and funding of our concept shops within our major
retail accounts will be a key initiative for securing prime floor space,
educating the consumer and creating an exciting environment to introduce the
consumer to our brand. Our concept shops will enhance our brand's presentation
within our major retail accounts with a shop-in-shop approach, using dedicated
floor space exclusively for our products, including flooring, lighting, walls,
displays and images. We will use a similar approach with our international
retail accounts. Our flagship stores will have a design consistent with our
concept shops in order to enhance our brand recognition.
Across our many retailers and flagship stores, we will also use in-store
fixtures and displays that highlight our logo and have an athletic but
fashion-forward look. We believe our in-store fixtures and displays will be are
exciting and unique. These displays will provide an easily identifiable place
for consumers to look for our products and are intended to reinforce the message
that our brand is distinct from our competitors.
We will work with our retailers to establish optimal placement for our
products and to have the brand represented in the many departments of large
national or regional retail chains. The fixtures and displays will enable us to
achieve placement of our products throughout stores by providing retailers with
outposts to use in various store sections.
Manufacturing and Distribution
Manufacturing and Sourcing
Substantially all of our products will be manufactured by unaffiliated
manufacturers, primarily in the People's Republic of China, the Philippines and
India. All manufacturers will be evaluated for quality systems, social
compliance and financial strength by our quality assurance team prior to being
selected and on an ongoing basis. Where appropriate, we will strive to qualify
multiple manufacturers for particular product types and fabrications. We will
also seek out vendors that can perform multiple manufacturing stages, such as
procuring raw materials and providing finished products, which will help us to
control the cost of goods sold. We will enter into a variety of agreements with
our manufacturers, including non-disclosure and confidentiality agreements, and
we will require that all of our manufacturers adhere to a code of conduct
regarding quality of manufacturing and working conditions and other social
concerns. In the next several years, we intend to have offices in Asia to
support our manufacturing, quality assurance and sourcing efforts for footwear
and apparel.
Many of the specialty fabrics and other raw materials which will be used
in our products are technically advanced products developed by third parties and
may be available, in the short term, from a limited number of sources. The
fabric and the raw materials used to manufacture our products will be sourced by
our manufacturers from a limited number of suppliers pre-approved by us. The
fabrics used by our suppliers and manufacturers will primarily be synthetic
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fabrics and involve raw materials, including petroleum based products, that may
be subject to price fluctuations and shortages.
Some products may be manufactured locally in order to build and ship
apparel products on tight deadlines for athletes endorsing our products,
high-profile athletes, teams and leagues. While these apparel products
manufactured represent an immaterial portion of our total net revenues, we
believe this will help us to provide superior service to our product endorsers
and select customers.
Inventory Management
Our initial objective is to secure a license agreement with a major
retailer, wherein we will not be required to carry inventory. In the event we
are required to carry inventory, inventory management will be important to the
financial condition and operating results of our business. We will manage our
inventory levels based on any existing orders, anticipated sales and the
rapid-delivery requirements of our customers. Our inventory strategy will be
focused on continuing to meet consumer demand while improving our inventory
efficiency over the long term by putting systems and procedures in place to
improve our inventory management. We expect to achieve this by being in stock in
core product offerings, which includes products that we plan to have available
for sale over the next twelve months and beyond at full price. In addition, we
expect to achieve our inventory strategy by ordering our seasonal products based
on current bookings, shipping seasonal product at the start of the shipping
window in order to maximize the productivity of floor space at our retailers and
earmarking any seasonal excess for liquidation sales to third parties.
Our practice, and the general practice in the apparel and footwear
industries, is to offer retail customers the right to return defective or
improperly shipped merchandise. Because of long lead-times for design and
production of our products, from time to time we will commence production of new
products before receiving orders for those products. This will affect our
inventory levels for new products.
Licensing/Wholesale Distribution
We plan to have our products in retail stores primarily in North America,
but also in retail stores worldwide. We will also sell our products directly to
consumers through our website and catalogs as well as through our flagship
stores.
We expect that the majority of our net revenues will be generated from our
licensing arrangements and wholesale distribution. We intend to secure license
agreements with national and regional retail chains such K-mart, Wal-mart,
Target, Kohl's, and JC Penneys. Additional wholesale distribution is intended to
be derived from independent and specialty retailers, institutional athletic
departments, leagues and teams. The independent and specialty retailers will be
serviced by a combination of in-house sales personnel and third-party
commissioned manufacturer's representatives and will represent an important part
of our product distribution strategy and help build on the authenticity of our
products.
If we are required to distribute goods domestically, we intend to secure
distribution facilities for the distribution of our products. We will also seek
third-party logistics providers in international territories for distribution in
these respective territories. We will secure additional distribution facilities
as needed.
Direct to Consumer Sales
In the next several years, we also expect a portion of our net revenues to
be generated through direct to consumer sales. Direct-to-consumer sales would
include discounted sales through our flagship stores and sales through our
global website and catalog. Through our flagship stores, consumers will
experience our brand first-hand and have full access to the entire line of our
products.
Product Licensing and Sublicensing
In addition to generating revenues through wholesale distribution and
direct to consumer sales, we plan to generate revenues from licensing and
sub-licensing arrangements to manufacture and distribute our branded products.
To maintain consistent quality and performance, we will pre-approve all products
manufactured and sold by our licensees, and our quality assurance team will
strive to ensure that the products meet the same quality and compliance
standards as the products that we sell directly.
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International Revenues
We intend to secure third-party distributors and licensees in Asia, Europe
and other territories. We believe that the trend toward fashionable athletic
wear is global, and given the popularity of American sports and athletes, we
intend over time to introduce our products throughout the world. In
international markets, we are introducing our apparel, footwear and accessories
in a manner consistent with our past brand-building strategy, including selling
our products directly to teams, individual athletes and entertainment
celebrities in these markets, thereby providing us with product exposure to
broad audiences of potential consumers.
Competition
The market for athletic footwear and apparel is highly competitive and
includes many new competitors as well as increased competition from established
companies expanding their production and marketing of products. The fabrics and
technology used in manufacturing our products are generally not unique to us,
and we do not currently own any fabric or process patents. Many of our
competitors are large apparel, footwear and sporting goods companies with strong
worldwide brand recognition and significantly greater resources than us, such as
Nike and Adidas. Smaller brands that have current popularity amongst athletes
and youth are our competitors as well. We will also compete with other
manufacturers and private label offerings of certain retailers, including some
of our customers.
In addition, we must compete with others for purchasing decisions as well
as limited floor space at retailers. We believe we can be successful in this
area because of the good relationships we will develop and as a result of the
uniquely fashion forward nature of our products in our specific markets.
However, if retailers earn greater margins from our competitors' products, they
may favor the display and sale of those products.
We believe that we will be able to compete successfully because of our
brand image and recognition, our competitive price point, the relative
performance and quality of our products, our fashion-forward designs and our
selective distribution policies. In the future we expect to compete for consumer
preferences and expect that we may face greater competition on pricing. This may
favor larger competitors with lower costs per unit of product produced that can
spread the effect of price discounts across a larger array of products and
across a larger customer base than ours. The purchasing decisions of consumers
for our products will often reflect highly subjective preferences that can be
influenced by many factors, including advertising, media, product sponsorships,
product improvements and changing styles.
Intellectual Property
We believe we own the internally developed material trademarks used in
connection with the marketing, distribution and sale of all our products, both
domestically and internationally, where our products will be sold or
manufactured. We have licensed our major trademarks, "ALLTIMATE BALL" and the
"AB" logo, both of which are currently intent-to-use applications in the U.S.
Patent and Trademark office. We intend to continue to strategically register,
both domestically and internationally, trademarks and copyrights we utilize
today and those we develop in the future. We will continue to aggressively
police our trademarks and pursue those who infringe, both domestically and
internationally.
We believe that the distinctive trademarks that we use in connection with
our products are important in building our brand image and distinguishing our
products from those of others. These trademarks are among our most valuable
assets. In addition to our distinctive trademarks, we also place significant
value on our trade dress, which is the overall image and appearance of our
products, and we believe that our trade dress will help to distinguish our
products in the marketplace.
The intellectual property rights in the technology, fabrics and processes
used to manufacture our products generally are owned or controlled by our
suppliers. As a result, our ability to obtain patent protection for our products
is limited and we currently do not own any issued fabric or process patents. In
the event we develop new product applications, we will focus our efforts on
obtaining patent protection for what we believe to be strategic, new product
applications in the marketplace. We will file patent applications where we deem
appropriate to protect our inventions and designs, and we expect the number of
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applications to grow as our business grows and as we continue to innovate in a
range of product categories.
Regulation
The labeling, distribution, importation, marketing and sale of our
products are subject to extensive regulation by various federal agencies,
including the Federal Trade Commission, Consumer Product Safety Commission and
state attorneys general in the U.S., as well as by various other federal, state,
provincial, local and international regulatory authorities in the locations in
which our products are distributed or sold.
We will require that our suppliers, independent manufacturers and
licensees of our products operate their businesses in compliance with the laws
and regulations that apply to them as well as the social and other standards and
policies we impose on them. We do not control these suppliers, manufacturers or
licensees or their labor practices. A violation of our policies, labor laws or
other laws by our suppliers, manufacturers or licensees could interrupt or
otherwise disrupt our sourcing or damage our brand image. Negative publicity
regarding the production methods of any of our suppliers, manufacturers or
licensees could adversely affect our reputation and sales and force us to locate
alternative suppliers, manufacturing sources or licensees.
International Regulation
Our international operations and sources of supply are subject to the
usual risks of doing business abroad, such as possible revaluation of
currencies, export and import duties, anti-dumping measures, quotas, safeguard
measures, trade restrictions, restrictions on the transfer of funds and, in
certain parts of the world, political instability and terrorism. We cannot
predict the likelihood of such developments occurring.
The current global economic recession has resulted in a significant slow
down in international trade and a sharp rise in protectionist actions around the
world. These trends are affecting many global manufacturing and service sectors,
and the footwear and apparel industries, as a whole, are not immune. Companies
in our industry are facing trade protectionist challenges in many different
regions, and we plan to work together with them to address trade issues to
reduce the impact to the industry, while observing applicable competition laws.
Notwithstanding our efforts, such actions, if implemented, could result in
increases in the cost of our products, which could adversely affect our sales or
profitability and the imported footwear and apparel industry as a whole.
Accordingly, we are actively monitoring the developments described below.
China represents an important sourcing and marketing country for us. Many
governments around the world are concerned about China's growing and fast-paced
economy, compliance with WTO rules, currency valuation, and high trade
surpluses. As a result, a wide range of legislative proposals have been
introduced to address these concerns. While some of these concerns may be
justified, we intend to work with broad coalitions of global businesses and
trade associations representing a wide variety of sectors (e.g., services,
manufacturing, and agriculture) to help ensure any legislation enacted and
implemented (i) addresses legitimate and core concerns, (ii) is consistent with
international trade rules, and (iii) reflects and considers China's domestic
economy and the important role it has in the global economic community. We
believe other companies in our industry as well as most other multi-national
companies are in a similar position regarding these trade measures.
In the event any of these trade protection measures are implemented, we
believe that we have the ability to develop, over a period of time, adequate
alternative sources of supply for the products obtained from our present
suppliers. If events prevent us from acquiring products from our suppliers in a
particular country, our operations could be temporarily disrupted and we could
experience an adverse financial impact. However, we believe we could abate any
such disruption, and that much of the adverse impact on supply would, therefore,
be of a short-term nature. We believe our principal competitors are subject to
similar risks.
10
Product Liability and Insurance
We will carry standard insurance policies related primarily to workers'
compensation, physical loss to property and business interruption resulting from
such loss and comprehensive general, product, and vehicle liability. We may
purchase third party coverage for losses in excess of significant levels.
Provisions for losses expected under these programs are recorded based upon
estimates of aggregate liability for claims incurred utilizing independent
actuarial calculations. These actuarial calculations utilize assumptions
including historical claims experience, demographic factors and severity factors
to estimate the frequency and severity of losses as well as the patterns
surrounding the emergence, development and settlement of claims.
Our anticipated product liability insurance may not be available to us in
amounts and on acceptable terms, if at all, and, if available, the coverages may
not be adequate to protect us against any future product liability claims. If we
are unable to obtain insurance at an acceptable cost or on acceptable terms with
adequate coverage or otherwise protect against potential product liability
claims, we will be exposed to significant liabilities, which may harm our
business.
Employees
As of December 1, 2010, Legacy was run by its founder, Rodney Henry. If we
are successful in executing our business strategy, we anticipate hiring new
employees. We do not anticipate that our employees will be represented by a
labor union, nor do we anticipate that they will be any part of any collective
bargaining agreement. We intend to have good relations with our employees.
Facilities
Our corporate headquarters are located at 4625 West Nevso Drive, Suite 2,
Las Vegas, Nevada 89103. We anticipate that our future manufacturing will be
outsourced and that our facilities needs will be primarily targeted to
marketing, sales and administrative staff and will be available to us on
commercially reasonable terms. We anticipate in 2011 opening a show room for our
products in Las Vegas, Nevada.
Other
Our Internet address is www.LegacyAthleticBrand.com. Our annual report on
Form 10-K, quarterly reports on Forms 10-Q, current reports on Forms 8-K, and
amendments to those reports will be available, without charge, on our website,
www.LegacyAthleticBrand.com, as soon as reasonably practical after they are
filed electronically with the Securities and Exchange Commission ("SEC"). Copies
are also available, without charge, from Legacy Athletic Apparel, 4625 West
Nevso Drive, Suite 2, Las Vegas, Nevada 89103, Attention: Secretary.
Legal Proceedings
We are not currently party to any material legal proceedings. From time to
time, we may be involved in various legal proceedings in the ordinary course of
business.
Risk Factors
Forward-Looking Statements
Some of the statements contained in this Form 8-K and the documents
incorporated herein by reference constitute forward-looking statements.
Forward-looking statements relate to expectations, beliefs, projections, future
plans and strategies, anticipated events or trends and similar expressions
concerning matters that are not historical facts, such as statements regarding
our future financial condition or results of operations, our prospects and
strategies for future growth, the development and introduction of new products,
and the implementation of our marketing and branding strategies. In many cases,
you can identify forward-looking statements by terms such as "may," "will,"
"should," "expects," "plans," "anticipates," "believes," "intends," "estimates,"
11
"predicts," "potential" or the negative of these terms or other comparable
terminology.
The forward-looking statements contained in this Form 8-K and the
documents incorporated herein by reference reflect our current views about
future events and are subject to risks, uncertainties, assumptions and changes
in circumstances that may cause events or our actual activities or results to
differ significantly from those expressed in any forward-looking statement.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future events, results, actions,
levels of activity, performance or achievements. Readers are cautioned not to
place undue reliance on these forward-looking statements. A number of important
factors could cause actual results to differ materially from those indicated by
these forward-looking statements, including, but not limited to, those factors
described in "Risk Factors" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations." These factors include, without
limitation:
o changes in general economic or market conditions that could affect
consumer spending and the financial health of our retail customers;
o our ability to effectively manage our growth and a more complex
business;
o our ability to effectively develop and launch new, innovative and
updated products;
o our ability to accurately forecast consumer demand for our products
and manage our inventory in response to changing demands;
o our ability to obtain the financing required to grow our business,
particularly when credit and capital markets are unstable or
tighten;
o increased competition causing us to reduce the prices of our
products or to increase significantly our marketing efforts in order
to avoid losing market share;
o loss of key suppliers or manufacturers or failure of our suppliers
or manufacturers to produce or deliver our products in a timely or
cost-effective manner;
o changes in consumer preferences or the reduction in demand for
athletic and athletic-based lifestyle apparel, footwear and other
products;
o our ability to accurately anticipate and respond to seasonal or
quarterly fluctuations in our operating results;
o our ability to effectively market and maintain a positive brand
image;
o the availability, integration and effective operation of management
information systems and other technology; and
o our ability to attract and maintain the services of our senior
management and key employees.
The forward-looking statements contained in this Form 8-K reflect our
views and assumptions only as of the date of this Form 8-K. We undertake no
obligation to update any forward-looking statement to reflect events or
circumstances after the date on which the statement is made or to reflect the
occurrence of unanticipated events.
Our results of operations and financial condition could be adversely
affected by numerous risks. You should carefully consider the risk factors
detailed below in conjunction with the other information contained in this Form
8-K. Should any of these risks actually materialize, our business, financial
condition and future prospects could be negatively impacted.
12
During a downturn in the economy, consumer purchases of discretionary items are
affected, which could materially harm our sales, profitability and financial
condition.
Many of our products may be considered discretionary items for consumers.
Factors affecting the level of consumer spending for such discretionary items
include general economic conditions, the availability of consumer credit and
consumer confidence in future economic conditions. Consumer purchases of
discretionary items tend to decline during recessionary periods when disposable
income is lower. We have limited experience operating a business during a
recessionary period and can therefore not predict the full impact of a downturn
in the economy on our sales and profitability, including how our business
responds when the economy is recovering from a recession. However, a downturn in
the economy in markets in which we sell our products may materially harm our
sales, profitability and financial condition.
If the financial condition of our retail customers declines, our financial
condition and results of operations could be adversely impacted.
We extend credit to our customers based on an assessment of a customer's
financial condition, generally without requiring collateral. We face increased
risk of order reduction or cancellation when dealing with financially ailing
customers or customers struggling with economic uncertainty. A slowing economy
in our key markets or a continued decline in consumer purchases of sporting
goods generally could have an adverse effect on the financial health of our
retail customers, which could in turn have an adverse effect on our sales, our
ability to collect on receivables and our financial condition.
A decline in sales to, or the loss of, one or more of our key customers could
result in a material loss of revenues and negatively impact our prospects for
growth.
We anticipate that a large majority of our net revenues will be generated
from sales to one or two major retailers. Since we do not anticipate entering
into long-term sales contracts with these key customers, relying instead on our
relationships with these customers and on our position in the marketplace, we
face the risk that one or more of these key customers may not increase their
business with us as we expect, or may significantly decrease their business with
us or terminate their relationship with us. The failure to increase our sales to
these customers as we anticipate would have a negative impact on our growth
prospects and any decrease or loss of these key customers' business could result
in a material decrease in our net revenues and net income.
If we grow at a pace more rapid than anticipated, we may not be able to
effectively manage our growth and the increased complexity of our business and
as a result our brand image, net revenues and profitability may decline.
If our operations grow at a pace that is more rapid than anticipated, we
would be required to expand our sales and marketing, product development and
distribution functions, to upgrade our management information systems and other
processes and technology, and to obtain more space to support our expanding
workforce. This expansion could increase the strain on these and other
resources, and we could experience serious operating difficulties, including
difficulties in hiring, training and managing an increasing number of employees,
difficulties in obtaining sufficient raw materials and manufacturing capacity to
produce our products, and delays in production and shipments. In addition, as
our business becomes more complex through the introduction of more new products,
such as new footwear, and the expansion of our distribution channels and
expanded international distribution, these operational strains and other
difficulties could increase. These difficulties could result in the erosion of
our brand image and have a negative impact on net revenues and net income.
If we are unable to anticipate consumer preferences and successfully develop and
introduce new, innovative and updated products, we may not be able to maintain
or increase our net revenues and profitability.
Our success depends on our ability to identify and originate product
trends as well as to anticipate and react to changing consumer demands in a
timely manner. All of our products are subject to changing consumer preferences
that cannot be predicted with certainty. Our new products may not receive
consumer acceptance as consumer preferences could shift rapidly to different
types of sports and lifestyle products or away from these types of products
altogether, and our future success depends in part on our ability to anticipate
and respond to these changes. Failure to anticipate and respond in a timely
13
manner to changing consumer preferences could lead to, among other things, lower
sales and excess inventory levels.
Even if we are successful in anticipating consumer preferences, our
ability to adequately react to and address those preferences will in part depend
upon our continued ability to develop and introduce innovative, high-quality
products. The failure to effectively introduce new products and enter into new
product categories that are accepted by consumers could result in a decrease in
net revenues and excess inventory levels, which could have a material adverse
effect on our financial condition.
Our results of operations could be materially harmed if we are unable to
accurately forecast demand for our products.
To ensure adequate inventory supply, we must forecast inventory needs and
place orders with our manufacturers before firm orders are placed by our
customers. In addition, a significant portion of our net revenues may be
generated by at-once orders for immediate delivery to customers. If we fail to
accurately forecast customer demand we may experience excess inventory levels or
a shortage of product to deliver to our customers.
Factors that could affect our ability to accurately forecast demand for
our products include:
o an increase or decrease in consumer demand for our products;
o our failure to accurately forecast consumer acceptance for our new
products;
o product introductions by competitors;
o unanticipated changes in general market conditions or other factors,
which may result in cancellations of advance orders or a reduction
or increase in the rate of reorders placed by retailers;
o weakening of economic conditions or consumer confidence in future
economic conditions, which could reduce demand for discretionary
items, such as our products; and
o terrorism or acts of war, or the threat thereof, which could
adversely affect consumer confidence and spending or interrupt
production and distribution of product and raw materials.
Inventory levels in excess of customer demand may result in inventory
write-downs or write-offs and the sale of excess inventory at discounted prices,
which would have an adverse effect on gross margin. In addition, if we
underestimate the demand for our products, our manufacturers may not be able to
produce products to meet our customer requirements, and this could result in
delays in the shipment of our products and our ability to recognize revenue, as
well as damage to our reputation and customer relationships.
The difficulty in forecasting demand also makes it difficult to estimate
our future results of operations and financial condition from period to period.
A failure to accurately predict the level of demand for our products could
adversely impact our profitability.
We may need to raise additional capital required to grow our business, and we
may not be able to raise capital on terms acceptable to us or at all.
Growing and operating our business will require significant cash outlays
and capital expenditures and commitments. If cash on hand and cash generated
from operations are not sufficient to meet our cash requirements, we will need
to seek additional capital, potentially through debt or equity financings, to
fund our growth. We may not be able to raise needed cash on terms acceptable to
us or at all. Financings may be on terms that are dilutive or potentially
dilutive to our stockholders, and the prices at which new investors would be
willing to purchase our securities may be lower than the current price per share
of our common stock. The holders of new securities may also have rights,
preferences or privileges which are senior to those of existing holders of
common stock. If new sources of financing are required, but are insufficient or
unavailable, we will be required to modify our growth and operating plans based
on available funding, if any, which would harm our ability to grow our business.
14
We operate in a highly competitive market and the size and resources of some of
our competitors may allow them to compete more effectively than we can,
resulting in a loss of our market share and a decrease in our revenues and gross
profit.
The market for athletic and athletic-based lifestyle apparel and footwear
is highly competitive and includes many new competitors as well as increased
competition from established companies expanding their production and marketing
of products. Many of our competitors are large apparel and footwear companies
with strong worldwide brand recognition. Because of the fragmented nature of the
industry, we will also be competing with other manufacturers, including those
specializing in private label offerings of certain retailers, including some of
our potential retail customers. Many of our competitors have significant
competitive advantages, including greater financial, distribution, marketing and
other resources, longer operating histories, better brand recognition among
consumers, and greater economies of scale. In addition, our competitors have
long-term relationships with our key retail customers that are potentially more
important to those customers because of the significantly larger volume and
product mix that our competitors sell to them. As a result, these competitors
may be better equipped than we are to influence consumer preferences or
otherwise increase their market share by:
o quickly adapting to changes in customer requirements;
o readily taking advantage of acquisition and other opportunities;
o discounting excess inventory that has been written down or written
off;
o devoting resources to the marketing and sale of their products,
including significant advertising, media placement and product
endorsement;
o adopting aggressive pricing policies; and
o engaging in lengthy and costly intellectual property and other
disputes.
In addition, while one of our growth strategies is to increase floor space
for our products in retail stores, retailers have limited resources and floor
space and we must compete with others to develop relationships with them.
Increased competition by existing and future competitors could result in
reductions in floor space in retail locations, reductions in sales or reductions
in the prices of our products, and if retailers earn greater margins from our
competitors' products, they may favor the display and sale of those products.
Our inability to compete successfully against our competitors and maintain our
gross margin could have a material adverse effect on our business, financial
condition and results of operations.
Our profitability may decline as a result of increasing pressure on margins.
Our industry is subject to significant pricing pressure caused by many
factors, including intense competition, consolidation in the retail industry,
pressure from retailers to reduce the costs of products and changes in consumer
demand. These factors may cause us to reduce our prices to retailers and
consumers, which could cause our profitability to decline if we are unable to
offset price reductions with comparable reductions in our operating costs. This
could have a material adverse effect on our results of operations and financial
condition.
We rely on third-party suppliers and manufacturers to provide fabrics and
material for and to produce our products, and we have limited control over these
suppliers and manufacturers and may not be able to obtain quality products on a
timely basis or in sufficient quantity.
Substantially all of our products will be manufactured by unaffiliated
manufacturers. We do not anticipate having long-term contracts with our
suppliers or manufacturing sources, and we will compete with other companies for
fabrics, raw materials, production and import quota capacity.
We may experience a significant disruption in the supply of fabrics or raw
materials from current sources or, in the event of a disruption, we may be
unable to locate alternative suppliers of materials of comparable quality at an
acceptable price, or at all. In addition, our unaffiliated manufacturers may not
be able to fill our orders in a timely manner. If we experience significant
increased demand, or we lose or need to replace an existing manufacturer or
supplier as a result of adverse economic conditions or other reasons, additional
supplies of fabrics or raw materials or additional manufacturing capacity may
not be available when required on terms that are acceptable to us, or at all, or
suppliers or manufacturers may not be able to allocate sufficient capacity to us
in order to meet our requirements. In addition, even if we are able to expand
existing or find new manufacturing or fabric sources, we may encounter delays in
production and added costs as a result of the time it takes to train our
suppliers and manufacturers in our methods, products and quality control
standards. Any delays, interruption or increased costs in the supply of fabric
15
or manufacture of our products could have an adverse effect on our ability to
meet retail customer and consumer demand for our products and result in lower
revenues and net income both in the short and long-term.
We may receive shipments of product that fail to conform to our quality
control standards. In that event, unless we are able to obtain replacement
products in a timely manner, we risk the loss of revenues resulting from the
inability to sell those products and related increased administrative and
shipping costs. In addition, because we do not control our manufacturers,
products that fail to meet our standards or other unauthorized products could
end up in the marketplace without our knowledge, which could harm our brand and
our reputation in the marketplace.
Labor disruptions at ports or our suppliers or manufacturers may adversely
affect our business.
Our business depends on our ability to source and distribute products in a
timely manner. As a result, we rely on the free flow of goods through open and
operational ports worldwide and on a consistent basis from our suppliers and
manufacturers. Labor disputes at various ports or at our suppliers or
manufacturers, create significant risks for our business, particularly if these
disputes result in work slowdowns, lockouts, strikes or other disruptions during
our peak importing or manufacturing seasons, and could have an adverse effect on
our business, potentially resulting in cancelled orders by customers,
unanticipated inventory accumulation or shortages and reduced net revenues and
net income.
Our international operations and the operations of many of our manufacturers are
subject to additional risks that are beyond our control and that could harm our
business.
We anticipate that our apparel and footwear will primarily be manufactured
overseas in Asia. In addition, we anticipate a portion of our net revenues to be
generated through international sales and licensing fees. As a result of our
international manufacturing and sales, we are subject to risks associated with
doing business abroad, including:
o political unrest, terrorism and economic instability resulting in
the disruption of trade from foreign countries in which our products
are manufactured;
o currency exchange fluctuations;
o the imposition of new laws and regulations, including those relating
to labor conditions, quality and safety standards, imports, duties,
taxes and other charges on imports, as well as trade restrictions
and restrictions on the transfer of funds;
o reduced protection for intellectual property rights in some
countries;
o understanding foreign consumer tastes and preferences that may
differ from those in the United States;
o complying with foreign laws and regulations that differ from country
to country;
o disruptions or delays in shipments; and
o changes in local economic conditions in countries where our
manufacturers, suppliers or customers are located.
Sales of performance athletic products and athletic-based lifestyle products may
not continue to grow and this could adversely impact our ability to grow our
business.
We believe that continued growth in industry-wide sales of performance
athletic products and athletic-based lifestyle products will be largely
dependent on consumers continuing to transition from traditional alternatives to
athletic-based lifestyle products. If consumers are not convinced that these
products are a better choice than traditional alternatives, growth in the
industry and our business could be adversely affected. If industry-wide sales of
athletic-based lifestyle products do not grow, our ability to continue to grow
our business and our financial condition and results of operations could be
materially adversely impacted.
16
Fluctuations in the cost of raw materials could negatively affect our operating
results.
The fabrics and materials used by our suppliers and manufacturers are
synthetic fabrics and involve raw materials, including petroleum-based products.
Significant price fluctuations or shortages in petroleum or other raw materials
can materially adversely affect our cost of goods sold, results of operations
and financial condition.
Our operating results will likely be subject to seasonal and quarterly
variations in our net revenues and net income, which could adversely affect the
price of our Common Stock.
We may experience seasonal and quarterly variations in our net revenues
and net income. Our quarterly results of operations may also fluctuate
significantly as a result of a variety of other factors, including, among other
things, the timing of the introduction of and advertising for new products and
changes in our product mix. Variations in weather conditions may also have an
adverse effect on our quarterly results of operations.
As a result of these seasonal and quarterly fluctuations, we believe that
comparisons of our operating results between different quarters within a single
year will not necessarily be meaningful and that these comparisons cannot be
relied upon as indicators of our future performance. Any seasonal or quarterly
fluctuations that we report in the future may not match the expectations of
market analysts and investors. This could cause the price of our Common Stock to
fluctuate significantly.
The value of our brand and sales of our products could be diminished if we are
associated with negative publicity.
We require that our suppliers, independent manufacturers and licensees of
our products operate their businesses in compliance with the laws and
regulations that apply to them as well as the social and other standards and
policies we impose on them. We do not control these suppliers, manufacturers or
licensees or their labor practices. A violation of our policies, labor laws or
other laws by our suppliers, manufacturers or licensees could interrupt or
otherwise disrupt our sourcing or damage our brand image. Negative publicity
regarding the production methods of any of our suppliers, manufacturers or
licensees could adversely affect our reputation and sales and force us to locate
alternative suppliers, manufacturing sources or licensees.
In addition, we will have sponsorship contracts with a variety of athletes
and feature those athletes in our advertising and marketing efforts. Actions
taken by athletes, teams or leagues associated with our products could harm the
reputations of those athletes, teams or leagues. As a result, our brand image,
net revenues and profitability could be adversely affected.
Sponsorships and designations as an official supplier may become more expensive
and this could impact the value of our brand image.
A key element of our marketing strategy is to create a link in the
consumer market between our products and professional and collegiate athletes.
As competition in the athletic apparel and footwear industry has increased, the
costs associated with athlete sponsorships and official supplier licensing
agreements have increased, including the costs associated with obtaining and
retaining these sponsorships and agreements. If we are unable to create
associations with professional and collegiate athletes, teams and leagues, or to
do so at a reasonable cost, we could lose the on-field authenticity associated
with our products, and we may be required to modify and substantially increase
our marketing investments. Similarly, as the competition for lifestyle brands
has increased, the relative cost of securing sponsorship agreements from
entertainment celebrities will increase as well. As a result, our brand image,
net revenues, expenses and profitability could be materially adversely affected.
If we encounter problems with our distribution system, our ability to deliver
our products to the market could be adversely affected.
We may encounter problems at our distribution facilities. Our distribution
facilities may utilize computer controlled and automated equipment, which means
the operations may be complicated and may be subject to a number of risks
related to security or computer viruses, the proper operation of software and
hardware, power interruptions or other system failures. Our operations could
also be interrupted by floods, fires or other natural disasters near our
distribution facilities, as well as labor difficulties. We intend to maintain
business interruption insurance, but it may not adequately protect us from the
adverse effects that could be caused by significant disruptions in our
distribution facilities, such as the long-term loss of customers or an erosion
of our brand image. In addition, our distribution capacity is dependent on the
17
timely performance of services by third parties, including the shipping of
product to and from our distribution facilities. If we encounter problems with
our distribution facilities, our ability to meet customer expectations, manage
inventory, complete sales and achieve objectives for operating efficiencies
could be materially adversely affected.
We will rely significantly on information technology and any failure,
inadequacy, interruption or security lapse of that technology could harm our
ability to effectively operate our business.
Our ability to effectively manage and maintain our inventory and internal
reports, and to ship products to customers and invoice them on a timely basis
will depend significantly on our enterprise resource planning, warehouse
management, and other information systems. The failure of these systems to
operate effectively or to integrate with other systems, or a breach in security
of these systems could cause delays in product fulfillment and reduced
efficiency of our operations, and it could require significant capital
investments to remediate any such failure, problem or breach.
Our future success is substantially dependent on the continued service of our
senior management and other key employees.
Our future success is substantially dependent on the continued service of
our senior management and other key employees, particularly Rodney Henry, our
founder and Chief Executive Officer. The loss of the services of our senior
management or other key employees could make it more difficult to successfully
operate our business and achieve our business goals.
We also may be unable to retain existing management, product creation,
sales, marketing, operational and other support personnel that are critical to
our success, which could result in harm to key customer relationships, loss of
key information, expertise or know-how and unanticipated recruitment and
training costs.
If we are unable to attract and retain new team members, including senior
management, we may not be able to achieve our business objectives.
Our growth will depend largely upon significant contributions by our
current senior management, product design teams and other key employees.
However, to be successful in continuing to grow our business, we will need to
continue to attract, retain and motivate highly talented management and other
employees with a range of skills and experience. Competition for employees in
our industry is intense and we may experience difficulty from time to time in
attracting the personnel necessary to support the growth of our business. If we
are unable to attract, assimilate and retain management and other employees with
the necessary skills, we may not be able to grow or successfully operate our
business.
Our failure to comply with trade and other regulations could lead to
investigations or actions by government regulators and negative publicity.
The labeling, distribution, importation, marketing and sale of our
products are subject to extensive regulation by various federal agencies,
including the Federal Trade Commission, Consumer Product Safety Commission and
state attorneys general in the U.S., as well as by various other federal, state,
provincial, local and international regulatory authorities in the locations in
which our products are distributed or sold. If we fail to comply with those
regulations, we could become subject to significant penalties or claims, which
could harm our results of operations or our ability to conduct our business. In
addition, the adoption of new regulations or changes in the interpretation of
existing regulations may result in significant compliance costs or
discontinuation of product sales and may impair the marketing of our products,
resulting in significant loss of net revenues.
Our Chief Executive Officer controls the majority of the voting power of our
common stock.
Our Chairman and Chief Executive Officer, Rodney Henry, beneficially owns
51 million shares outstanding of Common Stock. As a result, Mr. Henry has the
majority voting control and is able to direct the election of all of the members
of our Board of Directors and other matters we submit to a vote of our
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stockholders. This concentration of ownership may have various effects
including, but not limited to, delaying or preventing a change of control.
Our fabrics and manufacturing technology are not patented and can be imitated by
our competitors.
The intellectual property rights in the technology, fabrics, materials and
processes used to manufacture our products are generally owned or controlled by
our suppliers and are generally not unique to us. Our ability to obtain patent
protection for our products is limited and we currently own no fabric, materials
or process patents. As a result, our current and future competitors are able to
manufacture and sell products with performance characteristics and fabrications
similar to our products. Because many of our competitors have significantly
greater financial, distribution, marketing and other resources than we do, they
may be able to manufacture and sell products based on our fabrics and
manufacturing technology at lower prices than we can. If our competitors do sell
similar products to ours at lower prices, our net revenues and profitability
could be materially adversely affected.
Our trademark and other proprietary rights could potentially conflict with the
rights of others and we may be prevented from selling some of our products.
Our success depends in large part on our brand image. There may be
obstacles that arise as we grow our operations and expand our product line and
the geographic scope of our marketing. From time to time, we have received
claims relating to the intellectual property rights of others, and we expect
that third parties will continue to assert intellectual property claims against
us, particularly as we expand our business and the number of products we offer.
Any claim, regardless of its merit, could be expensive and time consuming to
defend. Successful infringement claims against us could result in significant
monetary liability or prevent us from selling some of our products. In addition,
resolution of claims may require us to redesign our products, license rights
belonging to third parties or cease using those rights altogether. Any of these
events could harm our business and have a material adverse effect on our results
of operations and financial condition.
Our failure to protect our intellectual property rights could diminish the value
of our brand, weaken our competitive position and reduce our revenues.
We currently rely on a combination of copyright, trademark and trade dress
laws, patent laws, unfair competition laws, confidentiality procedures and
licensing arrangements to establish and protect our intellectual property
rights. The steps taken by us to protect our proprietary rights may not be
adequate to prevent infringement of our trademarks and proprietary rights by
others, including imitation of our products and misappropriation of our brand.
In addition, intellectual property protection may be unavailable or limited in
some foreign countries where laws or law enforcement practices may not protect
our proprietary rights as fully as in the United States, and it may be more
difficult for us to successfully challenge the use of our proprietary rights by
other parties in these countries. If we fail to protect and maintain our
intellectual property rights, the value of our brand could be diminished and our
competitive position may suffer.
From time to time, we may discover unauthorized products in the
marketplace that are either counterfeit reproductions of our products or
unauthorized irregulars that do not meet our quality control standards. If we
are unsuccessful in challenging a third party's products on the basis of
trademark infringement, continued sales of their products could adversely impact
our brand, result in the shift of consumer preferences away from our products
and adversely affect our business.
We expect to license in the future, certain of our proprietary rights,
such as trademarks or copyrighted material, to third parties. These licensees
may take actions that diminish the value of our proprietary rights or harm our
reputation.
Risks Relating to our Common Stock
Our Common Stock is subject to "penny stock" regulations that may
affect the liquidity of our Common Stock.
Our Common Stock is subject to the rules adopted by the SEC that regulate
broker-dealer practices in connection with transactions in "penny stocks." Penny
19
stocks are generally equity securities with a price of less than $5.00 (other
than securities registered on certain national securities exchanges, for which
current price and volume information with respect to transactions in such
securities is provided by the exchange or system).
The penny stock rules require that a broker-dealer, prior to a transaction
in a penny stock not otherwise exempt from those rules, deliver a standardized
risk disclosure document prepared by the SEC, which contains the following:
o a description of the nature and level of risk in the market for
penny stocks in both public offerings and secondary trading;
o a description of the broker's or dealer's duties to the customer and
of the rights and remedies available to the customer with respect to
violation of such duties or other requirements of securities laws;
o a brief, clear, narrative description of a dealer market, including
"bid" and "ask" prices for penny stocks and significance of the
spread between the "bid" and "ask" price;
o a toll-free telephone number for inquiries on disciplinary actions,
definitions of significant terms in the disclosure document or in
the conduct of trading in penny stocks; and
o such other information and is in such form (including language,
type, size and format), as the SEC shall require by rule or
regulation.
Prior to effecting any transaction in penny stock, the broker-dealer also
must provide the customer the following:
o the bid and offer quotations for the penny stock;
o the compensation of the broker-dealer and its salesperson in the
transaction;
o the number of shares to which such bid and ask prices apply, or
other comparable information relating to the depth and liquidity of
the market for such stock;
o the liquidity of the market for such stock; and
o monthly account statements showing the market value of each penny
stock held in the customer's account.
In addition, the penny stock rules require that prior to a transaction in
a penny stock not otherwise exempt from those rules, the broker-dealer must make
a special written determination that the penny stock is a suitable investment
for the purchaser and receive the purchaser's written acknowledgment of the
receipt of a risk disclosure statement, a written agreement to transactions
involving penny stocks, and a signed and dated copy of a written suitability
statement. These disclosure requirements may have the effect of reducing the
trading activity in the secondary market for a stock such as our Common Stock if
it is subject to the penny stock rules.
The public market for our Common Stock is minimal.
Our Common Stock is thinly-traded on the Pink OTC Markets, meaning that
the number of persons interested in purchasing our Common Stock at or near ask
prices at any given time may be relatively small or non-existent. This situation
is attributable to a number of factors, including the fact that we are a small
company which is relatively unknown to stock analysts, stock brokers,
institutional investors and others in the investment community that generate or
influence sales volume, and that even if we came to the attention of such
persons, they tend to be risk-averse and would be reluctant to follow an
unproven company, such as us, or purchase or recommend the purchase of our
Common Stock until such time as we became more seasoned and viable. As a
consequence, there may be periods of several days or more when trading activity
in our Common Stock is minimal or non-existent, as compared to a seasoned issuer
20
which has a large and steady volume of trading activity that will generally
support continuous sales without an adverse effect on share price. There can be
no assurance that a broader or more active public trading market for our Common
Stock will develop or be sustained, or that current trading levels will be
sustained. Due to these conditions, we can give you no assurance that you will
be able to sell your Common Stock at or near ask prices or at all.
It is anticipated that our stock price will be volatile and the
value of your shares may be subject to sudden decreases.
Our stock price is likely to be volatile. The stock market in general and
the market for medical technology companies in particular have experienced
extreme volatility that has often been unrelated to the operating performance of
particular companies. The following factors, in addition to other risk factors
described in this section and general market and economic conditions, may have a
significant impact on the market price of our common stock:
o results of our product development efforts;
o the timing of market entry for our products;
o failure of any of our products to achieve commercial success;
o the announcement of new products or product enhancements by us or
our competitors;
o regulatory developments in the US and foreign countries;
o ability to manufacture our products to commercial standards;
o developments concerning our suppliers or marketing partners;
o changes in financial estimates or recommendations by securities
analysts;
o public concern over our products;
o developments or disputes concerning patents or other intellectual
property rights;
o product liability claims and litigation against us or our
competitors;
o the departure of key personnel;
o the strength of our balance sheet;
o variations in our financial results or those of companies that are
perceived to be similar to us;
o changes in accounting principles or practices;
o general economic, industry and market conditions; and
o future sales of our common stock.
A decline in the market price of our common stock could cause you to lose
some or all of your investment and may adversely impact our ability to attract
and retain employees and raise capital. In addition, stockholders may initiate
securities class action lawsuits if the market price of our stock drops
significantly. Whether or not meritorious, litigation brought against us could
result in substantial costs and could divert the time and attention of our
management. Our insurance to cover claims of this sort may not be adequate.
Your stock ownership will be diluted by our issuance of additional
securities, including in connection with subsequent rounds of financing.
We will need further financing for the continued growth of our business to
achieve our planned growth. No assurance can be given as to the availability of
additional financing or, if available, the terms upon which it may be obtained.
Raising additional financing may result in our issuing additional securities,
which could result in the dilution of your ownership percentage of us. We may
also decide to issue shares in exchange for the acquisition of other companies
in order to expand business operations. The issuance of any such shares will
have the effect of further diluting your ownership percentage.
We may be unable to achieve or sustain profitability or raise
sufficient additional capital, which could result in a decline in our
stock price.
Future operating performance is never certain, and if our operating
results fall below the expectations of securities analysts or investors, the
21
trading price of our Common Stock will likely decline. We are a company with no
revenue and no commercialized products. We will experience significant losses
from operations for the foreseeable future. Moreover, you should anticipate that
operating and capital expenditures will increase significantly in future years
due to continued development expenses, regulatory expenses and the expenses of
commencing manufacturing and marketing of our devices.
Our ability to generate sufficient cash flow or to raise sufficient
capital to fund our operating and capital expenditures depends on our ability to
develop, market and sell our products. This in turn depends, among other things,
on the performance of our products and consumer acceptance. While we may develop
products, we may not be successful in marketing those products to retailers or
to consumers.
There may be restrictions on your ability to resell shares of Common
Stock under Rule 144.
Currently, Rule 144 under the Securities Act permits the public resale of
securities under certain conditions after a six or twelve month holding period
by the seller, including requirements with respect to the manner of sale, sales
volume restrictions, filing requirements and a requirement that certain
information about the issuer is publicly available (the "Rule 144 resale
conditions"). At the time that stockholders intend to resell their shares under
Rule 144, there can be no assurances that we will be subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") or, if so, current in our reporting requirements under the Exchange Act,
in order for stockholders to be eligible to rely on Rule 144 at such time. In
addition to the foregoing requirements of Rule 144 under the federal securities
laws, the various state securities laws may impose further restrictions on the
ability of a holder to sell or transfer the shares of Common Stock.
If our directors and executive officers and their affiliates choose
to act together, they may have the ability to influence all matters
submitted to stockholders for approval.
Our directors, executive officers, and their affiliates in the aggregate,
beneficially own approximately 70% of our outstanding common stock. As a result,
these stockholders, subject to any fiduciary duties owed to our other
stockholders under Nevada law, could be able to exercise a controlling influence
over matters requiring stockholder approval, including the election of directors
and approval of significant corporate transactions, and will have significant
control over our management and policies. Some of these persons or entities may
have interests that are different from yours. For example, these stockholders
may support proposals and actions with which you may disagree or which are not
in your interests. The concentration of ownership could delay or prevent a
change in control of our company or otherwise discourage a potential acquirer
from attempting to obtain control of our company, which in turn could reduce the
price of our common stock. In addition, these stockholders, some of whom have
representatives sitting on our Board of Directors, could use their voting
influence to maintain our existing management and directors in office, delay or
prevent changes of control of our company, or support or reject other management
and board proposals that are subject to stockholder approval, such as amendments
to our employee stock plans and approvals of significant financing transactions.
Nevada law may inhibit a takeover that stockholders consider
favorable and could also limit the market price of our stock.
Sections 78.378 to 78.3793 of the Nevada Revised Statutes generally
restrict the ability of a person acquiring a controlling interest in the company
to do a business combination with the company without the approval of the board
of directors of the company. Sections 78.411 to 78.444 of the Nevada Revised
Statutes generally restricts a business combination with a person or its
affiliate for three years after a person acquires a 10% or greater interest in
our common stock, unless the transaction is approved by our board of directors
before the person acquired the 10% interest.
These provisions may have the effect of entrenching our management team
and may deprive you of the opportunity to sell your shares to potential
acquirers at a premium over prevailing prices. This potential inability to
obtain a control premium could reduce the price of our common stock.
22
Security Ownership of Certain Beneficial Owners and Management
- --------------------------------------------------------------
The following tables reflect, as of the date of this Report, the
beneficial ownership of: (a) each of our directors (including director
designees), (b) each named executive officer, (c) each person known by us to be
a beneficial holder of 5% or more of our common stock, and (d) all of our
directors (including director designees) and executive officers as a group.
Except as otherwise indicated below, the persons named in the table have
sole voting and investment power with respect to all shares of common stock held
by them. Unless otherwise indicated, the principal address of each director and
listed executive officer is 4625 West Nevso Drive, Suite 2, Las Vegas, Nevada
89103.
Number of Shares Percentage of
Name of Beneficial Owner - 5% or Beneficially Owned Shares Beneficially
Greater Stockholders (1) Owned (1)
- --------------------------------------------------------------------------------
Rodney Henry(2) 51,000,000 51.00%
Marc Juliar 6,000,000 6.00%
Rob Fiallo 6,650,000 6.65%
Jeff Sirianni 6,650,000 6.65%
Number of Shares Percentage of
Name of Beneficial Owner - Beneficially Owned Shares Beneficially
Management and Directors (1) Owned (1)
- --------------------------------------------------------------------------------
Rodney Henry(2) 51,000,000 51.00%
Marc Juliar 6,000,000 6.00%
Rob Fiallo 6,650,000 6.65%
Jeff Sirianni 6,650,000 6.65%
Directors and officers as a group
(four persons) 70,300,000 70.30%
_____________
(1) Beneficial ownership is determined in accordance with the rules of
the SEC. Shares of Common Stock subject to options or warrants
currently exercisable or exercisable within 60 days of the date of
this Report are deemed outstanding for computing the percentage
ownership of the stockholder holding the options or warrants, but
are not deemed outstanding for computing the percentage ownership of
any other stockholder. Unless otherwise indicated in the footnotes
to this table, we believe stockholders named in the table will have
sole voting and sole investment power with respect to the shares set
forth opposite such stockholder's name. Unless otherwise indicated,
the officers, directors and stockholders can be reached at our
principal offices, located at 4625 West Nevso Drive, Suite 2, Las
Vegas, Nevada 89103. Percentage of ownership is based on 100,000,000
shares of Common Stock outstanding as of the date of this Report.
(2) Mr. Henry also holds convertible debt, convertible into 24,000,000
shares of common stock. However, such debt is not convertible until
2013. As a result, Mr. Henry is not deemed presently to beneficially
own such shares within the meaning of the rules of the SEC.
Directors and Executive Officers
- --------------------------------
General
Our directors currently have terms which will end at our next annual
meeting of the stockholders or until their successors are elected and qualify,
subject to their death, resignation or removal. Officers serve at the discretion
of the board of directors. There are no family relationships among any of our
directors and executive officers.
23
The following table sets forth certain biographical information with
respect to our directors and executive officers:
Name Position Age
- -------------- ----------------------------------------------- -------
Rodney Henry Chief Executive Officer and Chairman 42
Marc Juliar Director 34
Robert Fiallo Chief Operating Officer, Director Designee 43
Jeff Sirianni Director Designee 33
Brian Beerman Chief Financial Officer 47
Rodney Henry - Chief Executive Officer and Chairman - Rodney Henry is the owner,
founder and CEO of Protege, a mass market athletic footwear and clothing brand,
founded in 2007, that is distributed nationally by Kmart/Sears in over 3000
stores. In 2007, Mr. Henry also executive produced, directed and wrote the
"Stars on Stars" series on Fox Sports Network, a talk show aired nationally,
involving discussions between entertainment celebrities and superstar athletes.
Between 2005 and 2007, Mr. Henry had a production deal with Disney/ESPN and
produced "Back in the Day," a documentary series chronicling the lives of
superstar athletes which was also nationally aired. During that same period, Mr.
Henry was also instrumental in the start-up and operation of the Starbury brand,
a footwear and apparel line sold at Steve and Barry's, featuring Stephon
Marbury. Rodney Henry received his B.S. in Business and Marketing from St.
Thomas Aquinas College in Sparkill, New York and also attended the Fashion
Institute of Technology in New York City.
Marc Juliar - Director - Marc Juliar is an independent contractor to the Film,
Music Video and TV Commercial production business. Mr. Juliar has held many
positions in the film and production business Mr. Juliar was an officer and
director of Paradigm Oil & Gas, Inc., from November 2006 to May 2010. Mr. Juliar
was an officer and director of Kodiak Energy (KDKN), Inc. from April 2004 to
January 2006. Mr. Juliar was an officer and director of Aamaxan Transport, Inc.
(AMXT) from September 2005 until April 2008. Mr. Juliar attended the University
of Toronto located in Toronto, Ontario. Marc Juliar served as our President,
Secretary, Treasurer and sole Director until the effective time of the Merger.
Mr. Juliar has tendered his resignation to the board of directors, to be
effective upon the effectiveness of the appointment of Mr. Fiallo and Mr.
Sirianni. Mr. Juliar has resigned from all officer positions with the Company.
Robert Fiallo - Chief Operating Officer and Director Designee - Robert Fiallo
has since 2008 been the Chairman and Chief Executive Officer of Potomac
Securities, LLC, an SEC-registered, FINRA-licensed broker-dealer of which he was
also the founder. From 2003 to 2008, Mr. Fiallo was Chief Executive Officer of
Fidelity & Trust Bank. As the Founder and CEO of Fidelity & Trust Bank, he led
the organization through considerable growth and earnings, eventually merging
with a publicly traded regional bank. Mr. Fiallo is a native Washingtonian with
well-established roots in the DC Metropolitan area. Having attended Fairfax HS
and the University of Maryland, a solid foundation was built for a professional
career within the financial sector. His career began as a banker with
institutions such as Maryland National Bank, First Tennessee Bank, and F&M Bank.
Mr. Fiallo's appointment to the board of directors will be effective 10 days
after notice of such appointment has been delivered to our shareholders pursuant
to SEC Rule 14f-1.
Jeff Sirianni - Vice President of Business Development, Director Designee - Mr.
Sirianni is the Managing Member of ND3, LLC which he founded in 2007. Prior to
2007, Mr. Sirianni was an educator, most recently teaching elementary school in
Loudoun County, VA. Mr. Sirianni is also the CEO of a small public company Red
Branch Technologies, Inc., a reactor/incubator model company focusing on the
development of security applications, and President of White Door, Inc., a
provider of alternative energy power platforms. Mr. Sirianni sits on the boards
of Red Branch Technologies, Inc., White Door, Inc. and White Door Canarias,
S.L., a Canary Island company situated in the U.S. sponsored ZEC zone for
economical development. Mr. Sirianni is also a Co-Founder and Vice Chairman of
the Board of The E4 Foundation, a non-profit which focuses on facilitating
entrepreneurship and free trade. Mr. Sirianni is an active early-stage investor
and strategic and business consultant to numerous development stage companies.
ND3 assists its clients with a broad range of consulting services in the areas
of business development and education to strategic consultation. ND3 focuses its
efforts on developmental stage companies, both public and private, as well as
mature companies in need of capital formation, funding introductions, and/or
public relations. Mr. Sirianni's portfolio as an investor and/or Co-Founder
includes Blue Rain, LLC - real estate holdings, Nano Therapies, LLC - unique
24
Nano particles utilized for the delivery of drugs, Green Box Solutions, LLC - a
state-of-the-art intelligent power distribution system, Mapachat, LLC - social
networking website dedicated to universities around the nation based on
geo-location and Potomac Holdings - a boutique investment banking firm which
provides consulting and financial services. Mr. Sirianni is also actively
involved with the Canary Island Free Trade and Gateway to Africa initiatives.
Mr. Sirianni earned his degree from King's College in Wilkes-Barre, PA in 1999
and a Masters Degree from George Mason University in Fairfax, VA in 2002. Mr.
Sirianni's appointment to the board of directors will be effective 10 days after
notice of such appointment has been delivered to our shareholders pursuant to
SEC Rule 14f-1.
Brian Beerman - Chief Financial Officer - Brian Beerman is a Certified Public
Accountant and has been a member in the accounting firm Beerman Piper &
Associates, LLC since 2001. Mr. Beerman began his career with the international
accounting firm Ernst & Young in 1985, where he worked until 2000. Mr. Beerman
has extensive experience working with publicly held companies in a variety of
industries and also has specialized in initial public and other offerings. Mr.
Beerman has significant experience working with entrepreneurial companies from
the start up phase through to maturation. For these clients, Mr. Beerman has
assisted in the implementation of information systems, accounting systems and
controls, budgeting and cash flow forecasting, and consulted on a variety of
other business matters. Mr. Beerman earned his degree from Duquesne University
in Pittsburgh, Pennsylvania.
No directors or executive officers are related to one another.
Corporate Governance
We are committed to having sound corporate governance principles. We
believe that such principles are essential to running our business efficiently
and to maintaining our integrity in the marketplace. Our Board of Directors
presently has two and promptly hereafter will have three directors, but does not
have any standing committees.
Director Qualifications
We believe that our directors should have the highest professional and
personal ethics and values, consistent with our longstanding values and
standards. They should have broad experience at the policy-making level in
business or banking. They should be committed to enhancing stockholder value and
should have sufficient time to carry out their duties and to provide insight and
practical wisdom based on experience. Their service on other boards of public
companies should be limited to a number that permits them, given their
individual circumstances, to perform responsibly all director duties for us.
Each director must represent the interests of all stockholders. When considering
potential director candidates, the Board of Directors also considers the
candidate's character, judgment, diversity, age and skills, including financial
literacy and experience in the context of our needs and the needs of the Board
of Directors.
Director Independence
The Board of Directors has determined that one of our three members of our
Board of Directors, Mr. Siranni, is independent under the listing standards of
Nasdaq. We intend to expand our board of directors in the future to maintain a
majority of independent directors on our Board of Directors in the future.
Executive Compensation
- ----------------------
Executive Compensation
None of our executive officers, including our Chief Executive Officer,
received compensation for the years ended December 31, 2009 and 2008.
25
Option/SAR Grants to Executive Officers
None of our executive officers received or exercised any stock awards,
stock options or SARs during the year ended December 31, 2009, or otherwise were
the beneficial owners of any stock awards, stock options or SARs at December 31,
2009.
Employment Agreements
At the effective time of the Merger, we entered into an interim
compensation agreement with GMFJ, LLC, a company owned by Mr. Henry pursuant to
which Mr. Henry will serve as our Chairman and Chief Executive Officer for up to
six months. The agreement provides for initial compensation during this up to
six-month period at a rate of $10,000 per month, such compensation to accrue
until such time as the Company has additional financing. The agreement is only
an interim arrangement, and we anticipate entering into a formal employment or
compensation agreement for the services of Mr. Henry as soon as practicable and
in any event during the first half of 2011.
Certain Relationships and Related Transactions
- ----------------------------------------------
In connection with the Merger, we entered into the compensation agreement with
Mr. Henry to serve as our Chairman and Chief Executive Officer. In addition, Mr.
Henry, as licensor, and Legacy Athletic Apparel LLC, as licensee, were parties
to an Intellectual Property License Agreement dated as of October 25, 2010. We
assumed the License Agreement in the Merger. Under the License Agreement, the
licensor grants to us the exclusive right to use the proprietary marks and other
intellectual property covered by the License Agreement in connection with the
specified licensed products, which includes the types of athletic-based
lifestyle products we intend to market. The territory of the license includes
designated regions throughout the World. However, if we do not have more than de
minimis sales in a given region within 24 months of the date of the License
Agreement, that region will no longer be part of the territory under the License
and our rights with respect to that region will be terminated. Under the License
Agreement, we are to pay to the licensor a royalty amount equal to 4% of the Net
Sales up to $5,000,000, 8% of Net Sales from $5,000,001 to $12,000,000 and 10%
of Net Sales above $12,000,000. "Net Sales" under the License Agreement means
the gross sales to our customers, including related customers, of all products
and services related to the licensed products, less only discounts, returns,
allowances and chargebacks and uncollectible accounts up to 5% of all gross
sales. The term of the license commenced on the date of the License Agreement
and continues until terminated pursuant in accordance with its terms or December
31, 2028. A copy of the License Agreement is included as an Exhibit to this
Current Report on Form 8-K.
Description of Securities
- -------------------------
Common Stock
There are 250,000,000 shares of Common Stock and 10,000,000 shares of
Preferred Stock authorized for issuance. As of the date of this Report, there
are 100,000,000 shares of Common Stock issued and outstanding and no shares of
Preferred Stock are issued or outstanding. The holders of our Common Stock are
entitled to one vote per share on all matters to be voted on by the
stockholders. All shares of Common Stock are entitled to participate in any
distributions or dividends that may be declared by the Board of Directors,
subject to any preferential dividend rights of outstanding shares of our
Preferred Stock. Subject to prior rights of creditors, all shares of Common
Stock are entitled, in the event of our liquidation, dissolution or winding up,
to participate ratably in the distribution of all our remaining assets, after
distribution in full of preferential amounts, if any, to be distributed to
holders of our Preferred Stock. There are no sinking fund provisions applicable
to our Common Stock. Our Common Stock has no preemptive or conversion rights or
other subscription rights.
Convertible Debt
Prior to the Merger, we had $50,609 in convertible notes, convertible into
15,200,000 shares of Common Stock. Concurrent or promptly following the closing
of the Merger we converted all of the outstanding convertible notes into
15,200,000 shares of Common Stock and we converted $28,099 of other outstanding
indebtedness of the Company into 10,670,000 shares of Common Stock. The
26
securities were issued pursuant to exemptions from registration under Regulation
S, Rule 506 of Regulation D and Section 3(a)(9) of the Securities Act.
Prior to the Merger, Legacy had $30,000 in convertible debt, which we
assumed in the Merger. This debt is held by Mr. Henry, our Chief Executive
Officer, and is convertible into 24,000,000 shares of Common Stock, commencing
in 2013 or upon the occurrence of certain liquidity events. Subject to the
limitations on the convertibility of Mr. Henry's debt, the convertible debt is
convertible at the option of the holder into the number of shares of Common
Stock set forth above, subject to customary adjustments in the event of stock
splits, dividends or the like.
Warrants and Options
As of the date of this Report we have no outstanding options or warrants
to purchase Common Stock.
Nevada Anti-takeover Statutes
Our Articles of Incorporation and Bylaws contain provisions that may make
it more difficult for a third party to acquire or may discourage acquisition
bids for the Company. Subject to certain limitations, our Board of Directors is
authorized, without the action of our stockholders, to issue authorized but
unissued common stock and to designate one or more series of preferred stock,
and to issue such authorized but unissued preferred stock. The existence of
authorized but unissued common and preferred stock enables us to discourage or
to make it more difficult to obtain control of us by means of a merger, tender
offer, proxy contest or otherwise.
Market For Common Equity and Related Stockholder Matters
- --------------------------------------------------------
Our Common Stock is quoted on the Pink OTC Markets, under the trading
symbol "MNVN." Our Common Stock is thinly-traded on the Pink OTC Markets,
meaning that the number of persons interested in purchasing our Common Stock at
or near ask prices at any given time may be relatively small or non-existent.
There can be no assurance that a broader or more active public trading market
for our Common Stock will develop or be sustained, or that current trading
levels will be sustained. If such a market is developed, we cannot assure you
what the market price of our Common Stock will be in the future. You are
encouraged to obtain current market quotations for our Common Stock and to
review carefully the other information contained in this Report or incorporated
by reference into this Report.
We have never declared or paid cash dividends on our capital stock, and do
not anticipate paying cash dividends on our Common Stock in the foreseeable
future.
Changes in and Disagreements with Accountants
- ---------------------------------------------
Not applicable.
Defaults upon Senior Securities
- -------------------------------
We do not have any senior securities as of the date of this Report other
than the newly issued convertible notes, which are not in default.
Indemnification of Directors and Officers
- -----------------------------------------
Section 78.138 of the Nevada Revised Statutes, or NRS, provides that
directors and officers of a Nevada corporation are generally not liable to the
corporation or its shareholders if the director or officer acts in good faith
and with a view to the interests of the corporation. In performing their
respective duties, directors and officers are entitled to rely on information,
27
opinions, reports, books of account or statements, including financial
statements and other financial data, that are prepared or presented by: (a) one
or more directors, officers or employees of the corporation reasonably believed
to be reliable and competent in the matters prepared or presented; (b) counsel,
public accountants, financial advisers, valuation advisers, investment bankers
or other persons as to matters reasonably believed to be within the preparer's
or presenter's professional or expert competence; or (c) a committee on which
the director or officer relying thereon does not serve, established in
accordance with NRS 78.125, as to matters within the committee's designated
authority and matters on which the committee is reasonably believed to merit
confidence, but a director or officer is not entitled to rely on such
information, opinions, reports, books of account or statements if the director
or officer has knowledge concerning the matter in question that would cause
reliance thereon to be unwarranted.
Section 78.7502(1) of the NRS permits us to indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, except an action by or in the right of the corporation, by reason
of the fact that the person is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses, including attorneys' fees,
judgments, fines and amounts paid in settlement actually and reasonably incurred
by the person in connection with the action, suit or proceeding if the person:
(a) is not liable pursuant to NRS 78.138 (applicable to directors and officers,
as provided above); or (b) acted in good faith and in a manner which he or she
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe the conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction or upon a
plea of nolo contendere or its equivalent, does not, of itself, create a
presumption that the person is liable pursuant to NRS 78.138 or did not act in
good faith and in a manner which he or she reasonably believed to be in or not
opposed to the best interests of the corporation, or that, with respect to any
criminal action or proceeding, he or she had reasonable cause to believe that
the conduct was unlawful.
Section 78.7502(2) of the NRS permits us to indemnify any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the fact that the person is or was a
director, officer, employee or agent of the corporation, or is or was serving at
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against expenses, including amounts paid in settlement and attorneys' fees
actually and reasonably incurred by the person in connection with the defense or
settlement of the action or suit if the person: (a) is not liable pursuant to
NRS 78.138 (applicable to directors and officers, as provided above); or (b)
acted in good faith and in a manner which he or she reasonably believed to be in
or not opposed to the best interests of the corporation. Indemnification may not
be made for any claim, issue or matter as to which such a person has been
adjudged by a court of competent jurisdiction, after exhaustion of all appeals
therefrom, to be liable to the corporation or for amounts paid in settlement to
the corporation, unless and only to the extent that the court in which the
action or suit was brought or other court of competent jurisdiction determines
upon application that in view of all the circumstances of the case, the person
is fairly and reasonably entitled to indemnity for such expenses as the court
deems proper.
Section 78.7502(3) of the NRS provides that, to the extent that a
director, officer, employee or agent of a corporation has been successful on the
merits or otherwise in defense of any action, suit or proceeding referred to in
subsections (1) and (2) described above, or in defense of any claim, issue or
matter therein, the corporation shall indemnify him or her against expenses,
including attorneys' fees, actually and reasonably incurred by him or her in
connection with the defense.
Section 78.751(1) of the NRS provides that any discretionary
indemnification pursuant to NRS 78.7502, unless ordered by a court or advanced
pursuant to 78.751(2), may be made by the corporation only as authorized in the
specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances. The determination
must be made: (a) by the stockholders; (b) by the board of directors by majority
vote of a quorum consisting of directors who were not parties to the action,
suit or proceeding; (c) if a majority vote of a quorum consisting of directors
who were not parties to the action, suit or proceeding so orders, by independent
legal counsel in a written opinion; or (d) if a quorum consisting of directors
who were not parties to the action, suit or proceeding cannot be obtained, by
independent legal counsel in a written opinion.
28
Section 78.751(1) of the NRS provides that the articles of incorporation,
the bylaws or an agreement made by the corporation may provide that the expenses
of officers and directors incurred in defending a civil or criminal action, suit
or proceeding must be paid by the corporation as they are incurred and in
advance of the final disposition of the action, suit or proceeding, upon receipt
of an undertaking by or on behalf of the director or officer to repay the amount
if it is ultimately determined by a court of competent jurisdiction that the
director or officer is not entitled to be indemnified by the corporation. The
provisions of this subsection do not affect any rights to advancement of
expenses to which corporate personnel other than directors or officers may be
entitled under any contract or otherwise by law.
Section 78.751(1) of the NRS provides that the indemnification pursuant to
NRS 78.7502 and advancement of expenses authorized in or ordered by a court
pursuant to 78.751: (a) does not exclude any other rights to which a person
seeking indemnification or advancement of expenses may be entitled under the
articles of incorporation or any bylaw, agreement, vote of stockholders or
disinterested directors or otherwise, for either an action in the person's
official capacity or an action in another capacity while holding office, except
that indemnification, unless ordered by a court pursuant to NRS 78.7502 or for
the advancement of expenses made pursuant to 78.751(2), may not be made to or on
behalf of any director or officer if a final adjudication establishes that the
director's or officer's acts or omissions involved intentional misconduct, fraud
or a knowing violation of the law and was material to the cause of action; and
(b) continues for a person who has ceased to be a director, officer, employee or
agent and inures to the benefit of the heirs, executors and administrators of
such a person.
Section 78.752(1) of the NRS provides that a corporation may purchase and
maintain insurance or make other financial arrangements on behalf of any person
who is or was a director, officer, employee or agent of the corporation, or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise for any liability asserted against the person and liability and
expenses incurred by the person in his or her capacity as a director, officer,
employee or agent, or arising out of his or her status as such, whether or not
the corporation has the authority to indemnify such a person against such
liability and expenses.
Section 78.752(2) of the NRS provides that the other financial
arrangements made by the corporation pursuant to 78.752(1) may include the
following: (a) the creation of a trust fund; (b) the establishment of a program
of self-insurance; (c) the securing of its obligation of indemnification by
granting a security interest or other lien on any assets of the corporation; (d)
the establishment of a letter of credit, guaranty or surety. No financial
arrangement made pursuant to Section 78.752(2) may provide protection for a
person adjudged by a court of competent jurisdiction, after exhaustion of all
appeals therefrom, to be liable for intentional misconduct, fraud or a knowing
violation of law, except with respect to the advancement of expenses or
indemnification ordered by a court.
Section 78.752(3) of the NRS provides that any insurance or other
financial arrangement made on behalf of a person pursuant to 78.752may be
provided by the corporation or any other person approved by the board of
directors, even if all or part of the other person's stock or other securities
is owned by the corporation.
Section 78.752(4) of the NRS provides that, in the absence of fraud: (a)
the decision of the board of directors as to the propriety of the terms and
conditions of any insurance or other financial arrangement made pursuant to this
section and the choice of the person to provide the insurance or other financial
arrangement is conclusive; and (b) the insurance or other financial arrangement:
(1) is not void or voidable; and (2) does not subject any director approving it
to personal liability for his or her action, even if a director approving the
insurance or other financial arrangement is a beneficiary of the insurance or
other financial arrangement.
Section 78.752(5) of the NRS provides that a corporation or its subsidiary
which provides self-insurance for itself or for another affiliated corporation
pursuant to this section is not subject to the provisions of title 57 of NRS.
We intend to enter into indemnification agreements with each of our
officers and directors providing for indemnification to the maximum extent
permitted under Nevada law and we also intend to obtain directors and officers
liability insurance on behalf of our directors and officers.
29
Item 3.02 - Unregistered Sales of Equity Securities
Convertible Notes
Prior to the closing of the transactions contemplated by the Merger
Agreement, there were 9,800,000 shares of Common Stock issued and outstanding.
Concurrent or promptly following the closing of the Merger we converted $28,099
of outstanding indebtedness of the Company held by three accredited investors
into 10,670,000 shares of Common Stock and we converted outstanding convertible
note indebtedness held by five accredited investors in the aggregate amount of
$50,609 into 15,200,000 shares of Common Stock. In addition, concurrent or
promptly following the closing, we issued 13,330,000 shares of Common Stock to
two director nominees in consideration of their agreement to serve as directors
of the Company. The securities were issued pursuant to exemptions from
registration under Regulation S, Rule 506 of Regulation D and Section 3(a)(9) of
the Securities Act, as applicable.
Merger Agreement
Pursuant to the terms of the Merger Agreement, Legacy merged with and into
Mondial, with Mondial being the surviving entity. As a result of the Merger,
Mondial succeeded to the business and acquired all the assets and assumed all
the liabilities of Legacy. Upon the closing of the Merger, each percent of
common membership interest of Legacy (such percentages, the "Legacy Shares")
issued and outstanding were converted automatically into the right to receive a
510,000 shares of Mondial common stock, par value $.001 per share (the "Common
Stock"), or up to an aggregate of 51,000,000 shares of Common Stock, subject to
the rights of the former members of Legacy to exercise and perfect their
dissenters' rights, if any, under applicable provisions of Virginia law to
accept cash in lieu of shares of Common Stock. The securities were issued
pursuant to an exemption from registration under Section 4(2) of the Securities
Act and Rule 506 of Regulation D thereunder.
Prior to the closing of the transactions contemplated by the Merger
Agreement, there were 9,800,000 shares of Common Stock issued and outstanding.
Concurrent or promptly following the closing of the Merger we converted $28,099
of outstanding indebtedness of the Company held by three accredited investors
into 10,670,000 shares of Common Stock and we converted outstanding convertible
note indebtedness held by five accredited investors in the aggregate amount of
$50,609 into 15,200,000 shares of Common Stock. In addition, concurrent or
promptly following the closing, we issued 13,330,000 shares of Common Stock to
two director nominees in consideration of their agreement to serve as directors
of the Company. The securities were issued pursuant to exemptions from
registration under Regulation S, Rule 506 of Regulation D and Section 3(a)(9) of
the Securities Act, as applicable.
Following the completion of the transactions contemplated by the Merger
Agreement, there were 100,000,000 shares of Common Stock issued and outstanding
(subject to the rights of the former members of Legacy to exercise and perfect
their dissenters' rights, if any, under applicable provisions of Virginia law).
In connection with the closing of the Merger, the sole member of Legacy has
waived any dissenters' rights, and so we believe no Legacy Shares are entitled
to dissenters' rights.
Item 5.02 - Departure Of Directors Or Principal Officers; Election Of Directors;
Appointment Of Principal Officers; Compensatory Arrangements of Certain Officers
On December 30, 2010, upon effectiveness of the Merger described in Item
2.01 which is incorporated by reference in this item, Marc Juliar resigned from
his positions as chief executive officer and chief financial officer and Rodney
Henry, Rob Fiallo, and Brian Beerman became the Chief Executive Officer, the
Chief Operating Officer and the Chief Financial Officer of the corporation. In
addition, effective upon notice to our shareholders pursuant to SEC Rule 14f-1,
Marc Juliar will resign as a director and Rob Fiallo and Jeff Sirianni will be
appointed directors of the corporation.
30
Item 9.01 - Financial Statements and Exhibits
(a) Financial Statements of Business Acquired
Financial statements relating to Legacy are included in this Report
commencing at Page F-1.
(b) Pro forma financial information
Certain pro forma financial information relating to Mondial and Legacy
is included in this Report commencing at Page PF-1.
(c) Exhibits
See Exhibit Index at page 32 following the financial statements and
pro forma financial information.
31
FINANCIAL STATEMENTS
LEGACY ATHLETIC APPAREL, LLC
----------------------------
(A DEVELOPMENT STAGE COMPANY)
-----------------------------
FINANCIAL STATEMENTS
--------------------
September 30, 2010
------------------
FINANCIAL STATEMENTS
- --------------------
Report of Independent Registered Public Accounting Firm F-1
Balance Sheet F-2
Statement of Operations F-3
Statement of Members' Capital (Deficit) F-4
Statement of Cash Flows F-5
Notes to Financial Statements F-6
F-1
Stan J.H. Lee, CPA
2160 North Central Rd. Suite 203 - Fort Lee - NJ 07024
P.O. Box 436402 - San Diego - CA 92143-6402
619-623-7799 - Fax 619-564-3408 - E-mail) stan2u@gmail.com
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
-------------------------------------------------------
To the Management and Members of
Legacy Athletic Apparel, LLC;
We have audited the accompanying balance sheet of Legacy Athletic Apparel, LLC.
(the "Company") (a development stage company) as of September 30, 2010, and the
related statements of operations, members' capital and cash flows for the period
from June 23, 2010 (inception) to September 30, 2010. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform an audit of its internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Legacy Athletic Apparel, LLC.
as of September 30, 2010, and the results of its operations and its cash flows
for the period from June 23, 2010 (inception) to September 30, 2010 in
conformity with accounting principles generally accepted in the United States of
America.
The accompanying financial statements have been prepared assuming that the
Company would continue as a going concern. As discussed in the note to the
financial statements, the Company has not generated profits to date and lacks
the liquidity which raises substantial doubt as to its ability to continue as a
going concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
/s/ Stan J.H. Lee, CPA
_____________________
Stan J.H. Lee, CPA
December 14, 2010
F-1
Legacy Athletic Apparel, LLC
Balance Sheet
September 30, 2010
Assets
Current assets:
Cash and cash equivalents $ 53
-----------------
Total current assets 53
Total assets $ 53
=================
Liabilities and member's capital (deficit)
Current liabilities:
Accounts payable $ 200
Interest accrued $ 3,125
Note payable 50,000
-----------------
Total current liabilities 53,325
Member's capital (deficit) (53,272)
-----------------
Total liabilities and member's capital (deficit) $ 53
=================
See notes to financial statements.
F-2
Legacy Athletic Apparel, LLC
Statement of Operations
Period from June 23, 2010 (Inception)
to September 30, 2010
Revenue $ -
-----------------
Operating expenses
Marketing 50,000
General and administrative 147
-----------------
50,147
-----------------
Loss from operations (50,147)
-----------------
Other income (loss)
Interest expense 3,125
-----------------
3,125
-----------------
Loss before income tax provision (53,272)
-----------------
Provision for income tax -
-----------------
Net loss $ (53,272)
=================
See notes to financial statements.
F-3
Legacy Athletic Apparel
Statement of Member's Capital (Deficit)
Period from June 23, 2010 (Inception)
to September 30, 2010
Member contribution $ -
Net loss (53,272)
-----------------
Member's capital (deficit) at September 30, 2010 $ (53,272)
=================
See notes to financial statements.
F-4
Legacy Athletic Apparel
Statement of Cash Flows
Period from June 23, 2010 (Inception)
to September 30, 2010
Cash flows from operating activities
Net loss $ (53,272)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Accounts payable 200
Interest accrued 3,125
-----------------
Net cash used by operating activities (49,947)
-----------------
Cash flows from financing activities
Proceeds from note payable 50,000
-----------------
Net cash provided by financing activities 50,000
-----------------
Increase in cash and cash equivalents 53
Cash and cash equivalents at beginning of period -
-----------------
Cash and cash equivalents at end of period $ 53
=================
See notes to financial statements.
F-5
Legacy Athletic Apparel, LLC
Notes To Financial Statements
September 30, 2010
Note 1--Organization, Description of Business, and Continuance of Operations
Legacy Athletic Apparel, LLC (Legacy) was formed on June 23, 2010 and was
incorporated under the laws of the Commonwealth of Virginia as a limited
liability company with its offices located in Ashburn, Virginia.
Legacy is focused on the design, manufacture, marketing and distribution of
fashion-forward contemporary athletic footwear and apparel. The Company intends
to build a unique collection of low priced, high quality proven professional
athletic footwear and apparel products. In addition, the Company is prepared to
augment its product launch with a complementary portfolio of apparels and
accessories that will include hats and skull caps, t-shirts, jackets,
sweatshirts, and shorts. The Company plans to utilize endorsements from notable
National Basketball Association (NBA) and National Football League athletes, and
anticipates announcing its initial line of athletic action sportswear at NBA
All-Star weekend in Los Angeles, California in February 2011.
In order to minimize cost and deliver a quality brand to the marketplace at an
affordable price, the Company will utilize its network of contacts in China and,
where appropriate, other Asian countries to secure quality finished goods at an
attractive cost. The Company's sales strategy is to hit its target market
quickly and pursue retailers in the low and mid tier markets who have national
presence. The Company also plans to expand into international markets and
additional products lines with limited additional cost through license and
sub-license agreements. The Company will also be involved in the creation of new
brands and the acquisition of existing brands.
The Company has not realized any revenues since inception. At September 30,
2010, the Company had a member's deficit and working capital deficiency of
$50,147 The ability of the Company to continue as a going concern is dependent
on raising capital to fund its business plan and ultimately to attain profitable
operations. Accordingly, these factors raise substantial doubt as to the
Company's ability to continue as a going concern. The Company to date has funded
its operations through a note payable. Management plans to raise additional
funds through issuance of additional capital stock.
Note 2--Summary of Significant Accounting Policies
Basis of Accounting
The financial statements of the Company have been prepared in conformity with
generally accepted accounting principles in the United States of America and are
stated in US dollars.
Going Concern
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. The Company has net losses for the
period from inception (June 23, 2010) to September 30, 2010 of $ 50,147. This
condition raises substantial doubt about the Company's ability to continue as a
going concern. The Company's continuation as a going concern is dependent on its
ability to meet its obligations, to obtain additional financing as may be
required and ultimately to attain profitability. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
F-6
Management is planning to raise additional funds through debt or equity
offerings. There is no guarantee that the Company will be successful in these
efforts.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original
maturity of six months or less to be cash equivalents.
At September 30, 2010, the Company maintained its cash balances in one financial
institution located in Ashburn, Virginia. The cash account consists of an
operating checking account which is insured by the Federal Deposit Insurance
Corporation. The Company currently has $250,000 of funds subject to FDIC
protection.
Income Taxes
Income taxes have not been provided because the Company has elected to be
treated as a Virginia limited liability company for income tax purposes. As
such, the Company's income or loss is passed through to the member and reported
on their individual income tax returns. The Company's open audit period is from
June 23, 2010 (inception) to September 30, 2010. The Company is subject to
routine audits by taxing jurisdictions, however, there are currently no audits
for any tax periods in progress.
In June 2006, the Financial Accounting Standards Board issued ASC 740-10
(formerly known as FASB Interpretation No. 48, Accounting for Uncertainty in
Income Taxes), which prescribed a comprehensive model for how an entity should
measure, recognize, present, and disclose in its financial statements uncertain
tax positions that an organization has taken or expects to take on a tax return.
The Company adopted ASC 740-10 as of June 23, 2010. There was no impact to the
Company's financial statements as a result of the implementation of ASC 740-10.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles in the United States of America requires management to
make estimates and assumptions that affect the reported amount of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amount of revenues and expenses
during the reporting period. Actual results could differ from these estimates.
Financial instruments
The Company's financial instruments consist of cash, accounts payable and a note
payable. The fair values of these financial instruments approximate their
carrying values due to the short-term maturity of those instruments. In
management's opinion, the Company is not exposed to significant interest rate,
currency exchange rate or credit risk arising from these financial instruments.
The Company is not party to any derivative instruments.
F-7
Stock Based Compensation
The Company has not adopted a stock option plan and has not granted stock
options. Accordingly, no stock-based compensation has been recorded to date.
Recent Accounting Pronouncements
Recent accounting pronouncements issued by the FASB (including its EITF) and the
AICPA are not believed by management to have a material impact on the Company's
present or future financial statements.
Note 3--Note Payable
On July 15, 2010, the Company has an unsecured $50,000 note payable with an
individual which was due by September 30, 2010. In accordance with the note
agreement, interest is accruing at the rate of 2.5% per month until the amount
is paid in full. The note remains unpaid at the time of issuance of audit
report.
Note 4--Members's Capital
The company has 100 membership units issued and outstanding.
Note 5--Subsequent Events
Pursuant to the terms of the Merger Agreement dated as of December 14, 2010,
Legacy merged with and into Mondial Ventures, Inc. ("Mondial"), a Nevada
corporation, with Mondial being the surviving entity. As a result of the Merger,
Mondial succeeded to the business and acquired all the assets and assumed all
the liabilities of Legacy. Upon the closing of the Merger, each percent of
common membership interest of Legacy (such percentages, the "Legacy Shares")
issued and outstanding were converted automatically into the right to receive a
510,000 shares of Mondial common stock, par value $.001 per share (the "Common
Stock"), or up to an aggregate of 51,000,000 shares of Common Stock. Prior to
the closing of the transactions contemplated by the Merger Agreement, there were
9,800,000 shares of Common Stock issued and outstanding. Concurrent or promptly
following the closing of the Merger Mondial converted $28,099 of outstanding
indebtedness of Mondial held by three accredited investors into 10,670,000
shares of Common Stock and Mondial converted outstanding convertible note
indebtedness held by five accredited investors in the aggregate amount of
$50,609 into 15,200,000 shares of Common Stock. In addition, concurrent or
promptly following the closing, Mondial issued 13,330,000 shares of Common Stock
to two director nominees in consideration of their agreement to serve as
directors of Mondial.
Following the completion of the transactions contemplated by the Merger
Agreement, there were 100,000,000 shares of Common Stock issued and outstanding.
Prior to the Merger, Legacy had $30,000 in convertible debt, which Mondial
assumed in the Merger. This debt is held by Mr. Henry, our Chief Executive
Officer, and is convertible into 24,000,000 shares of Common Stock, commencing
in 2013 or upon certain liquidity events. Subject to the limitations on the
convertibility of Mr. Henry's debt, the convertible debt is convertible at the
option of the holder into the number of shares of Common Stock set forth above,
subject to customary adjustments in the event of stock splits, dividends or the
like.
F-8
PRO FORMA FINANCIAL INFORMATION
Pro Forma Condensed Combined Balance Sheets and Statement of Operations
- -----------------------------------------------------------------------
On December 30, 2010, Mondial Ventures, Inc. acquired 100% of outstanding
member's capital of Legacy Athletic Apparel, LLC, a Virginia limited liability
company, pursuant to Agreement and Plan of Merger dated as of December 14, 2010
(the "Merger Agreement").
Pro Forma accounting effects of the Merger Agreement are presented in the tables
which presents the combined results of balance sheets and operations as they may
have appeared had the acquisition and financing transactions described above
occurred as of January 1, 2010 (the effective date of start of accounting fiscal
year of Mondial Ventures, Inc.).
The unaudited pro forma condensed combined balance sheet and statement of
operations has been derived from and should be read together with the historical
financial statements and footnote disclosures of Mondial Ventures, Inc. as part
of the Annual Report on Form 10-K the Company filed with the Securities Exchange
Commissions on May 11, 2010 and the historical financial statements of Mondial
Ventures, Inc., prepared in accordance with accounting principles generally
accepted in the United States ('U.S. GAAP"), for the fiscal year ended December
31, 2009.
PF-1
Mondial Ventures, Inc.
Pro Forma Condensed Balance Sheet
September 30, 2010
Mondial Legacy Combined
--------------------------------------------
Assets
Current Assets
Cash and cash equivalents $ - $ 53 $ 53
--------------------------------------------
Total current assets - 53 53
--------------------------------------------
Total assets $ - $ 53 $ 53
============================================
Liabilities and stockholders'
equity (deficit)
Current liabilities
Accounts payable and accrued
liabilities $ 1,726 $ 200 $ 1,926
Convertible note payable 50,609 - 50,609
Note payable - 50,000 50,000
Shareholder loan 25,461 - 25,461
--------------------------------------------
Total current liabilities 77,796 50,200 127,996
Commitments and contingencies
Stockholders' equity (deficit)
Common stock, $.001 par value;
75,000,000 shares authorized,
9,800,000 shares issued and
outstanding, respectively 9,800 - 9,800
Additional paid-in capital 19,800 - 19,800
Members' capital (deficit) - (50,147) (50,147)
Deficit accumulated during
exploration stage (107,396) - (107,396)
--------------------------------------------
Total shareholders' equity (77,796) (50,147) (127,943)
--------------------------------------------
Total liabilities and shareholders'
equity $ - $ 53 $ 53
============================================
PF-2
EXHIBIT INDEX
-------------
Exhibit No. Description
- ----------- ----------------------------------------------------------------
2.1 Agreement and Plan of Merger by and between Mondial Ventures,
Inc., a Nevada corporation, and Legacy Athletic Apparel LLC., a
Virginia limited liability company, dated as of December 14,
2010
4.1 Legacy Convertible Note issued to Rodney Henry
10.1 Compensation Letter dated as of December 30, 2010 between the
Registrant and Rodney Henry
10.2 Intellectual Property License Agreement dated as of October 25,
2010 between Legacy Athletic Apparel LLC and Rodney Henry
17.1 Resignation of Marc Juliar from Mondial Ventures, Inc.
32
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Mondial Ventures, Inc.
Dated: December 30, 2010 By: /s/ Rodney Henry
---------------------------
Rodney Henry
Chief Executive Officer
33
- --------------------------------------------------------------------------------