Registration No. 333-127547
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
(Amendment Number 3)
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------
LEGEND MOTORS WORLDWIDE, INC.
(Name of Small Business Issuer in its Charter)
NEVADA 5010 20-1625144
- ------------------------------------------------------------------------------
(State of Other Jurisdiction of (Primary Standard Industrial (IRS Employer
Incorporation or Organization) Classification Code Number) Identification No.)
1995 East US 20, LaGrange, Indiana 46761
(260) 463-4060
(Address and telephone number of principal executive offices
and principal place of business)
Mr. John Pendl, CFO
17924 US 31 North
Westfield, Indiana 46074
(317) 867-2852
(Name, address and telephone number of agent for service)
Copies to:
The Law Office of James G. Dodrill II, PA
James G. Dodrill II, Esq.
5800 Hamilton Way
Boca Raton, FL 33496
(561) 862-0529
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Approximate date of proposed sale to the public:
As soon as practicable after the effective date of this registration statement.
----------------------
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, check the following box. (X)
If this Form is filed to register additional securities for an
offering pursuant to Rule 462 (b) under the Securities Act, check the
following box and list the Securities Act registration statement number
of earlier effective registration statement for the same offering. ( )
If this Form is a post-effective amendment filed pursuant to Rule
462 (c) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. ( ).
If delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box. ( ).
CALCULATION OF REGISTRATION FEE
PROPOSED PROPOSED
TITLE OF EACH CLASS MAXIMUM MAXIMUM
OF QUANTITY TO OFFERING AGGREGATE AMOUNT OF
SHARES TO BE BE PRICE PER OFFERING REGISTRATION
REGISTERED REGISTERED SHARE <F1> PRICE FEE
- ------------------- ---------- --------- --------- ------------
Common Stock,
$.0001 par value
to be sold by
selling
shareholders 12,000,000 $3.00 $36,000,000 $4,237.20
TOTAL 12,000,000 $3.00 $36,000,000 $4,237.20
- ----------------------
<FN>
<F1>
(1) Estimated solely for the purpose of calculating the
registration fee pursuant to Rule 457.
</FN>
- ------------------------------------------------------------------------------
The registrant hereby amends this registration statement on such
date or dates as may be necessary to delay its effective date until
the registrant shall file a further amendment which specifically
states that this registration statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of
1933 or until the registration statement shall become effective on
such date as the Commission, acting pursuant to said Section 8(a), may
determine.
Information contained herein is subject to completion or amendment.
A registration statement relating to these securities has been filed
with the Securities and Exchange Commission. We may not sell these
securities until the registration statement filed with the Securities
and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy
these securities in any state in which the offer or sale is not
permitted.
PROSPECTUS
SUBJECT TO COMPLETION, DATED JANUARY 11, 2006
12,000,000 Shares of Common Stock
LEGEND MOTORS WORLDWIDE, INC.
The Offering:
This is our initial public offering. We are registering a total
of 12,000,000 shares of our common stock all of which are being
offered by selling shareholders and are being registered for sale at a
price per share of $3.00 per share until our shares are quoted on the
Over The Counter Bulletin Board maintained by NASDAQ and thereafter at
prevailing market prices or in privately negotiated transactions.
There is no established public market for our common stock and we
have arbitrarily determined the offering price. Although we hope to
be quoted on the OTC Bulletin Board which is maintained by NASDAQ, our
common stock is not currently listed or quoted on any quotation
service. Because NASDAQ has no business relationship with the issuers
quoted on the OTC Bulletin Board we are not able to apply directly for
quotation. Only Market Makers may apply to quote securities on this
market. Our Board of Directors has pre-existing relationships with
various Market Makers who have indicated a desire to apply for such
quotation. Issuers are not charged a fee for this service. There
can be no assurance that our common stock will ever be quoted on any
quotation service or that any market for our stock will ever develop.
Proposed Trading Symbol: OTC Bulletin Board - "LMWW"
_________________________________
Investing in our stock involves risks. You should carefully
consider the Risk Factors beginning on page 6 of this prospectus.
We have not authorized anyone else to provide you with different
information. The common stock is not being offered in any state where
the offer is not permitted. You should not assume that the
information in this prospectus or any supplement is accurate as of any
date other than the date on the front of those documents.
______________________
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these securities
or passed upon the adequacy or accuracy of this prospectus. Any
representation to the contrary is a criminal offense.
______________________
The information in this prospectus is not complete and may be
changed. None of these securities may be sold until a registration
statement filed with the Securities and Exchange Commission is
effective. The prospectus is not an offer to sell these securities
and it is not soliciting an offer to buy these securities in any state
where the offer or sale is not permitted.
The date of this prospectus is January 11, 2006.
TABLE OF CONTENTS
Page
----
Prospectus Summary 3
The Offering 4
Summary Financial Information 5
Risk Factors 6
Forward-looking Statements 11
Penny Stock Regulations 12
Use of Proceeds 13
Determination of Offering Price 13
Dividend Policy 13
Management's Discussion and Analysis of Financial Condition
and Results of Operations 14
Business 25
Directors, Executive Officers, Promoters and
Control Persons 37
Principal Shareholders 40
Selling Security Holders 41
Certain Relationships and Related Transactions 45
Description of Securities 48
Indemnification 50
Plan of Distribution 51
Legal Matters 52
Experts 52
Where You Can Find More Information 53
Index to Financial Statements F-1
As used in this prospectus, the terms "we," "us," "our," "the
Company," and "Legend Motors" mean Legend Motors Worldwide, Inc., a
Nevada corporation. The term "selling shareholders" means our
shareholders who are offering to sell their shares of Legend Motors
common stock that are being registered through this prospectus. The
term "common stock" means our common stock, par value $0.0001 per share
and the term "shares" means the 12,000,000 shares of common stock being
offered through this prospectus.
PROSPECTUS SUMMARY
Because this is a summary, you should read the entire prospectus.
You should specifically consider the information set forth under "Risk
Factors" and our financial statements and accompanying notes that
appear elsewhere in this prospectus.
Legend Motors Worldwide, Inc.
We provide the highest quality cars for the automobile
enthusiast. Our primary sources of revenue are luxury van, truck and
SUV conversions and assembly and sale of exotic supercar and roadster
replicas.
We perform luxury van, truck and SUV conversions through our
wholly owned subsidiary, LA West, Inc. (LA West). LA West offers
exclusive luxury van conversions, sport truck conversions, and SUV
conversions. LA West has been in operation for 17 years and has
produced up to 1,800 conversions annually.
We assemble specially constructed replicas of supercars and
roadsters from the 1930's through the 1970's through our wholly-owned
subsidiary, GT 40 North America, Inc. (GT 40). GT 40 is a specialty
motor vehicle assembler that handcrafts replica vehicles from in-house
designed chassis, wiring, plumbing, brakes, interior wheels, tires and
other components.
We operate in our state-of-the-art 78,000 square foot
manufacturing, R&D and training facility which includes an in-house paint
line that allows for custom painting of all vehicles. In addition
to the quality paintwork performed at the facility, vans, trucks and
SUVs are modified to suit customer ideas. These vehicles can
be equipped with trim upgrades such as captain chairs, paneling,
raised roofs, sofa chairs, television sets, fold out beds and
even kitchens and bathrooms.
We were incorporated in Nevada on September 14, 2004. We
currently sell products in 40 states. For the fiscal year ended
December 31, 2004, we achieved pro forma revenues of approximately
$14,739,000.
Our office is located at 1995 East US 20, LaGrange, Indiana 46761.
Our telephone number is (260) 463-4060 and our Internet address is
www.legendmotorsww.com.
The Offering
------------
Securities Offered 12,000,000 shares of
common stock, all of
which are being offered
by the selling
shareholders; See
"Description of
Securities"
Common Stock Outstanding, before offering 10,000,000
Common Stock Outstanding, after offering (1) 12,000,000
Proposed OTC Bulletin Board Symbol LMWW
Use of Proceeds We will not receive any
proceeds from the sale of
common stock by our
selling shareholders. We
will receive proceeds to
the extent that any of
the warrants are
exercised and intend to
use the proceeds from the
exercise of any of the
warrants for an
acquisition(s) and for
general corporate
purposes. See "Use of
Proceeds."
Dividend Policy We do not intend to pay
dividends on our common
stock. We plan to retain
any earnings for use in
the operation of our
business and to fund
future growth.
(1) Assumes the exercise of all 2,000,000 Warrants.
Summary Financial Information
The following is a summary of our unaudited Pro Forma Financial
Statements, which are included elsewhere in this prospectus. You
should read the following data together with the "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" section of this prospectus as well as with our unaudited
Pro Forma Financial Statements and the notes therewith.
Nine Months Nine Months
Ended Ended
September 30, September 30,
2005 2004
------------ ------------
Statement of Operations Data:
Total Revenue $7,892,508 $11,790,286
========== ===========
Cost Of Goods Sold $5,320,517 $8,215,054
========== ==========
Net Loss $(736,576) $(64,435)
========== =========
Balance Sheet Data:
Cash and cash equivalents $94,403 $170,794
======= ========
Total current assets $6,695,256 $6,624,761
========== ==========
Total assets $9,609,563 $9,219,527
========== ==========
Total current liabilities $6,539,113 $7,417,887
========== ==========
Total stockholders' equity $3,046,006 $1,763,122
========== ==========
Total liabilities and stockholders' equity $9,609,563 $9,219,527
========== ==========
RISK FACTORS
The securities offered are highly speculative. You should
purchase them only if you can afford to lose your entire investment
in us. The Company's management believes that the following risk
factors discuss all material risks faced by the company. Please
carefully consider these risk factors, as well as all other
information in this prospectus.
Investors should assume that if any of the following risks
actually materialize, our business, financial condition or results of
future operations could be materially and adversely affected. In
that event, the trading price of our common stock could decline, and
you could lose all or part of your investment.
Our businesses are highly cyclical and this can lead to fluctuations
in our operating results.
====================================================================
The industries in which we operate are highly cyclical and
there can be substantial fluctuations in our manufacturing, sales
and operating results. Consequently, the results for any prior
period may not be indicative of results for any future period.
Companies within the replica automobile sales and luxury truck and
van conversion industries are subject to volatility in operating
results due to external factors such as general economic conditions,
including consumer confidence, employment rates, prevailing interest
rates, inflation, and other economic conditions affecting consumer
attitudes and disposable consumer income generally, demographic
changes and political changes. Specific factors affecting our
industries include:
- Overall consumer confidence and the level of
discretionary consumer spending;
- general economic conditions, particularly in our
targeted markets;
- interest rates;
- employment trends;
- fuel availability and prices.
Our business would be very detrimentally impacted if our
relationship with Ford, Chrysler or General Motors were to be
terminated.
====================================================================
The vast majority of our revenue is at least to some degree
dependent on our relationship with Ford, Chrysler or General Motors.
The loss of one or more of these relationships would immediately
diminish our ability to achieve revenues. There is no assurance
that we will be able to maintain these relationships.
Our business is affected by the availability and terms of financing
to dealers and retail purchasers.
====================================================================
Our business is affected by the availability and terms of
financing to dealers and retail purchasers. Substantial increases
in interest rates and decreases in the general availability of
credit would have an adverse impact upon our business and results of
operations.
The holders of our convertible notes received their shares at lower
prices than the shares are being offered at through this prospectus.
=====================================================================
Certain related parties previously converted outstanding notes
held by us into shares of our common stock at a price of $2.00 per
share. Accordingly, these shareholders were able to acquire shares
at lower prices than our shares are being offered at through this
prospectus. Future sales of these securities may have an adverse
effect on the market price of our common stock should a public
trading market develop for such shares.
We have limited operating results from the combined businesses of GT
40 and LA West under our current management structure and may
determine that we need to hire additional employees to efficiently
manage the businesses.
=====================================================================
We have only recently acquired GT 40 and LA West and at this
time have only limited operating results for the combined businesses.
Because of this we do not presently have significant information
regarding our current management's ability to effectively run the
combined businesses. We may ultimately determine that we need to
hire additional personnel to effectively manage the businesses.
There can be no assurance we will be successful in identifying,
attracting, creating and maintaining relationships with such
personnel.
Fuel shortages, or higher prices for fuel, could have a negative
effect on sales of our recreation vehicles.
====================================================================
Gasoline is required for the operation of all motor vehicles
we produce. Recently gasoline prices have risen dramatically in the
United States. There can be no assurance that the supply of
gasoline will continue uninterrupted, that rationing will not be
imposed or that the price of or tax on gasoline will not
significantly increase in the future. Shortages of gasoline and
substantial increases in the price of gasoline have had a material
adverse effect on the motor vehicle industry as a whole in the past
and could have a material adverse effect on our business in the
future.
Although we have not been involved in any litigation, product
liability and other claims against companies in our industries are
fairly common and if the frequency and size of product liability and
other claims against us increase, our business, results of
operations and financial condition may be harmed.
====================================================================
We may in the future be subject, in the ordinary course of
business, to litigation involving product liability and other
claims, including wrongful death, against us related to personal
injury and warranties. We purchase product liability insurance in
the commercial insurance market. We cannot be certain that our
insurance coverage will be sufficient to cover all future claims
against us. Any increase in the frequency and size of these claims,
as compared to our experience in prior years, may cause the premium
that we are required to pay for insurance to increase significantly.
It may also increase the amounts we pay in punitive damages, not all
of which are covered by our insurance. Adverse determination of
material product liability claims made against us could have a
material adverse effect on our financial condition and results of
operations.
We are dependent on the services of our CEO and on the President
of LA West and the loss of those services would have a material
adverse effect on our business.
=================================================================
We are highly dependent on the services of Lowell G. Hancher,
Jr., our interim CEO and Chairman of the Board and on Vern
Kauffman, the President of LA West. Mr. Kauffman contributes
to our overall corporate strategy. Mr. Kauffman's
business endeavors include nearly 20 years of experience in the
automobile industry. The loss of the services of Mr. Kauffman would
have a material adverse effect upon our business and prospects.
Without Mr. Kauffman's services we would likely not be able to
execute our business plan unless and until we found a replacement
with similar experience. There can be no assurance that we could
find such a replacement or that if we did that we could persuade
such individual to accept employment with us on acceptable terms, or
at all. We do not currently have "key man" insurance on Mr.
Kauffman and we do not anticipate purchasing such insurance in the
near future, if ever. Mr. Kauffman does have life insurance but the
company is not a beneficiary.
The luxury truck, van and SUV conversion and exotic supercar replica
production industries require substantial industry-specific
knowledge and failure to secure productive key personnel may
adversely affect our performance and revenue objectives.
====================================================================
In addition to our reliance on Messrs. Hancher and Kauffman, our
success depends to a significant extent upon our ability to retain key
personnel and to attract talented new personnel. We anticipate that Messrs.
Hancher and Kauffman's leadership and expertise will play a significant factor
in any future success. The loss of the services of either of Messrs. Hancher
or Kauffman or our failure to retain or attract talented new employees could
have a material adverse effect on our business.
Our interim CEO and the President of LA West have the voting power to
control our affairs and may make decisions that do not necessarily
benefit all shareholders equally.
====================================================================
As of the date of this prospectus, Mr. Hancher is the indirect holder
of approximately 13.2% of our outstanding common stock and of warrants to
purchase 800,000 additional shares, bringing his percentage to approximately
19.9%. Additionally, Kauffman owns approximately 15% of our outstanding
common stock and owns warrants to purchase 1,000,000 additional shares
bringing his percentage to approximately 23%. Consequently, Messrs.
Hancher and Kauffman are in a position to substantially influence matters
submitted for shareholder votes, including the ability to elect a majority
of our Board of Directors and to exercise control over our affairs in
general. Messrs. Hancher and Kauffman's decisions may not necessarily
reflect those of our other shareholders.
We face substantial competition in both the luxury truck, van and
SUV conversion and exotic supercar replica production industries.
====================================================================
We face competition from various companies in each product we
offer. A number of our competitors are well financed and could
develop innovative products that would reduce our market share.
Additionally, as we expand our product offerings into new markets
and into offering new products we will face additional competition.
Competition in foreign markets may also be affected by duties,
tariffs, taxes and the effect of various trade agreements, import
restrictions and fluctuations in exchange rates.
If automobile manufacturers decide to do more customizing on their
own our sales and results of operations could be adversely affected.
=================================================================
Because automobile manufacturers do not typically customize
vehicles, dealerships that wish to offer customized vehicles as well
as consumers who want to customize their vehicle need to contract
with a company such as us that specializes in this process. If
manufacturers began customizing vehicles on their own, their
reliance on us and other similar companies would diminish or be
eliminated entirely. Such an event would have an immediate,
material adverse effect on our business, operating results and
financial condition.
Because our products are discretionary purchases a recession could
detrimentally affect our sales.
====================================================================
Our sales are partially dependent on discretionary consumer
spending, which may be affected by general economic conditions. A
recessionary environment could result in a decrease in consumer
spending in general, which could result in decreased spending in our
markets directly or in the overall market for luxury supercar
replicas, either of which could have a material adverse effect on
our business, operating results and financial condition.
Additionally, factors that influence the general economic climate,
such as consumer confidence levels, interest rates, employment
trends and fuel availability and prices could also result in
decreased spending in our markets. If we fail to make adjustments
in response to these events quickly, our operating results and
financial condition could be materially adversely affected.
Increases in the cost of parts or labor could render the company's
primary products unaffordable under our marketing program
====================================================================
If the cost of parts or labor required for producing our
primary products increase we may be forced to increase the price at
which we sell our products. Because our products are discretionary
purchases, increasing such prices could have a material adverse
effect on our business, operating results and financial condition.
There has never been a market for our common stock.
====================================================================
Prior to this offering, there has been no public trading
market for our common stock and there can be no assurances that a
public trading market for the common stock will develop or, if
developed, will be sustained. Although we hope to be accepted for
quotations on the Over the Counter Bulletin Board, which is
maintained by NASDAQ, there can be no assurance that a regular
trading market will develop for the common stock offered through
this prospectus, or, if developed, that it will be maintained.
Because NASDAQ has no business relationship with the issuers quoted
on the OTC Bulletin Board we are not able to apply directly for
quotation. Only Market Makers may apply to quote securities on this
market. Our Board of Directors has pre-existing relationships with
various Market Makers who have indicated a desire to apply for such
quotation. Issuers are not charged a fee for this service.
We have arbitrarily determined the offering price. Accordingly, the
price you pay may not accurately reflect the value of our common
stock and you may not be able to sell the common stock for at least
the offering price or at any price at any time.
====================================================================
We have arbitrarily determined the offering price of the
common stock because there is no market for any of our securities.
There can be no assurance that the offering price accurately
reflects the value of our common stock or that investors will be
able to sell the common stock for at least the offering price or at
any price at any time.
There is no assurance of future dividends being paid.
====================================================================
At this time we do not anticipate paying dividends in the
future, but instead plan to retain any earnings for use in the
operation of our business and to fund future growth. We are under
no legal or contractual obligation to declare or to pay dividends,
and the timing and amount of any future cash dividends and
distributions is at the discretion of our board of directors and
will depend, among other things, on our future after-tax earnings,
operations, capital requirements, borrowing capacity, financial
condition and general business conditions.
FORWARD-LOOKING STATEMENTS
--------------------------
This prospectus includes forward-looking statements that involve
risks and uncertainties regarding management's plans and objectives
for future operations, including plans and objectives relating to our
planned marketing and future economic performance. These
forward-looking statements include statements under the captions
"Prospectus Summary," "Risk Factors," "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and elsewhere in this prospectus. You should
not rely on these forward-looking statements that apply only as of the
date of this prospectus. Forward-looking statements include statements
that are predictive in nature, which depend upon or refer to future
events or conditions. These statements refer to our future plans,
objectives, expectations and intentions. We use words such as
"believe," "anticipate," "expect," "intend," "estimate," "could,"
"feel," "believes," "plan," "should," "will" and other similar
expressions to identify forward-looking statements. In addition, any
statements concerning future financial performance, ongoing business
strategies or prospects and possible future Company actions that may
be provided by management are also forward-looking statements as
defined by the Act. This prospectus also contains forward-looking
statements attributed to third parties relating to their estimates
regarding the growth of certain markets. You should not place undue
reliance on these forward-looking statements, which apply only as of
the date of this prospectus. Our actual results could differ
materially from those discussed in these forward-looking statements.
Factors that could contribute to these differences include those
discussed in the preceding pages and elsewhere in this prospectus. In
addition to the risk factors identified elsewhere, important factors
that could cause actual results to differ materially from estimates or
projections contained in the forward-looking statements include,
without limitation:
- - Acts of war and other political events
- - Widespread adverse weather conditions or natural disaster
- - Unforeseen changes in laws or regulation
- - Increases in the cost of parts or labor could render the
company's primary products unaffordable under our marketing
program
- - General downturn in the auto industry
- - Manufacturers doing more customizing on their own.
Penny Stock Regulations
-----------------------
We are not listed on any stock exchange at this time. We hope
to become a bulletin board traded company. Such shares are referred
to as "penny stocks" within the definition of that term contained in
Rules 15g-1 through 15g-9 promulgated under the Securities Exchange
Act of 1934, as amended. These rules impose sales practices and
disclosure requirements on certain broker-dealers who engage in
certain transactions involving penny stocks. These additional sales
practices and disclosure requirements could impede the sale of our
securities, including securities purchased herein, in the secondary
market. In general, penny stocks are low priced securities that do
not have a very high trading volume. Consequently, the price of the
stock is volatile and you may not be able to buy or sell the stock
when you want. Accordingly, the liquidity for our securities may be
adversely affected, with related adverse effects on the price of our
securities.
Under the penny stock regulations, a broker-dealer selling penny
stocks to anyone other than an established customer or "accredited
investor" (generally, an individual with a net worth in excess of
$1,000,000 or annual income exceeding $200,000 or $300,000 together
with his or her spouse) must make a special suitability determination
for the purchaser and must receive the purchaser's written consent to
the transaction prior to the sale, unless the broker-dealer is
otherwise exempt. In addition, unless the broker-dealer or the
transaction is otherwise exempt, the penny stock regulations require
the broker-dealer to deliver, prior to any transaction involving a
penny stock, a disclosure schedule prepared by the Securities and
Exchange Commission relating to the penny stock. A broker-dealer is
also required to disclose commissions payable to the broker-dealer and
the Registered Representative and current quotations for the
securities. A broker-dealer is additionally required to send monthly
statements disclosing recent price information with respect to the
penny stock held in a customer's account and information with respect
to the limited market in penny stocks.
USE OF PROCEEDS
We will not receive any proceeds from the sale of securities
being offered by our selling shareholders.
We will receive proceeds to the extent that any holder of a
warrant decides to exercise such warrant and intend to use the
proceeds from the exercise of any of the 2,000,000 warrants for
working capital and acquisitions. If all of the 2,000,000 warrants are
exercised at $4.00, we will receive gross proceeds of $8,000,000.
It is not possible to determine when, or if, any of the 2,000,000
warrants will be exercised. We have not identified specific uses of
the funds we may receive from the warrant and will use any proceeds
raised first for working capital then any remaining funds will be used
for general corporate purposes.
A private equity investor, Commerce Street Venture Group ("CSVG")
has agreed to pay all expenses incurred in connection with the
registration of our shares in return for 6,534,166 shares of our
common stock. The Company received no cash in exchange for the
issuance of these shares. CSVG expects to incur expenses of
approximately $230,000 in connection with the registration of the
shares.
DETERMINATION OF OFFERING PRICE
Prior to this offering, there has been no market for our common
stock. The offering price of the shares was arbitrarily determined and
bears no relationship to assets, book value, net worth, earnings,
actual results of operations, or any other established investment
criteria. Among the factors considered in determining the price were
our historical sales levels, estimates of our prospects, the
background and capital contributions of management, the degree of
control which the current shareholders desired to retain, current
conditions of the securities markets and other information.
DIVIDEND POLICY
It is our present policy not to pay cash dividends and to retain
future earnings for use in the operations of the business and to fund
future growth. Any payment of cash dividends in the future will be
dependent upon the amount of funds legally available, our earnings,
our financial condition, our capital requirements and other factors
that the board of directors may think are relevant.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following is a discussion of our results of operations and
our liquidity and capital resources. To the extent that our analysis
contains statements that are not of a historical nature, these
statements are forward-looking statements, which involve risks and
uncertainties. See the "FORWARD-LOOKING STATEMENTS" section above.
Our analysis and discussion should be read in conjunction with our
financial statements and the related notes included elsewhere in this
filing.
Overview of Organizational Development
Legend Motors Worldwide, Inc. (a Nevada corporation) was
incorporated in the state of Nevada on September 14, 2004 as a C
corporation.
On April 28, 2005, the Company entered into agreements to
acquire all of the outstanding common stock of GT 40 North America,
Inc. (a Florida corporation) for 1,847,084 shares of the Company's
common stock. GT 40 North America, Inc. was originally incorporated
on September 5, 2003 and is headquartered in Westfield, Indiana.
At the close of business on April 28, 2005, the Company issued
6,534,166 of its common shares to a private equity firm. The Company
received no cash in exchange for the issuance of these shares. In
exchange for the stock issuance, the private equity firm committed to
paying the costs required to undertake a registration of the Company's
common stock. The Company has no obligation or intent to reimburse
any costs incurred by the private equity firm. The private equity
firm anticipates that it will incur costs in the amount of $230,000 in
the course of the public offering process. As a result, the Company
expensed consulting fees in the amount of $230,000 in April 2005.
On July 1, 2005, the Company entered into an agreement to
acquire 49% of the outstanding common stock of LA West, Inc. for
1,582,492 shares of the Company's common stock.
On July 1, 2005, the Company entered into an agreement to
acquire the remaining 51% of the outstanding common stock of LA West,
Inc. (an Indiana corporation) for 1,647,084 shares of the Company's
common stock. LA West, Inc. was originally incorporated on January
26, 1988 and is headquartered in LaGrange, Indiana.
As a result of the transactions described above, Legend Motors
Worldwide, Inc. is the successor company to the business activities of
the aforementioned companies.
We are recognized as a leader in the assembly of high quality
van, truck and SUV conversions and other specially constructed motor
vehicle. This reputation has enabled us to develop key, long-term
relationships with major automobile manufacturers and dealers.
Critical Accounting Policies and Estimates
The Company's discussion and analysis of its financial
condition and results of operations are based upon the single entity
Financial Statements of Legend Motors Worldwide, Inc., LA West, Inc.
and GT 40 North America, Inc., which have been prepared in accordance
with accounting principles generally accepted in the United States of
America. The preparation of these financial statements required the
use of estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities. On an on-going basis at least
quarterly, the Company evaluates these estimates. The Company bases
its estimates on historical experiences and on various other
assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making
judgments about the carrying value of assets and liabilities that are
not readily apparent from other sources. Actual results may differ
from these estimates.
Management has considered the accounting estimates and assumptions
utilized in preparing these financial statements and concluded that:
* the levels of subjectivity and judgment to which these estimates
and assumptions are subject are not sufficiently uncertain to
cause these estimates and assumptions to be considered material, and
* the impact of these estimates and assumptions on financial
condition or operating performance is not material.
Audited single entity Financial Statements of LA West, Inc. and
GT 40 North America, Inc. for the years ended December 31, 2004 and
2003 are included elsewhere in this filing. Unaudited single entity
Financial Statements of LA West, Inc. and GT 40 North America, Inc.
for the nine months ended September 30, 2005 and 2004 are included
elsewhere in this filing. All of these financial statements should be
read in conjunction with management's discussion and analysis of
financial condition and results of operations
Business Segments
The Company operates the following two reportable business segments:
1. Van, truck and SUV conversions (LA West).
2. Specially constructed vehicles (GT 40).
General Overview of the Operations
Legend Motors is a holding company and it currently holds two
wholly-owned subsidiaries: LA West, Inc. (LA West) and GT 40 North
America, Inc. (GT 40).
LA West offers exclusive lines of luxury van, truck and SUV
conversions. These vehicles can be equipped with trim upgrades such as
captain chairs, paneling, raised roofs, sofa chairs, television sets,
fold out beds and even kitchens and bathrooms. LA West also maintains
an after market parts distribution system and a service support
program. LA West currently maintains a sales force of fourteen sales
representatives, eight employees and six independent contractors.
LA West operates out of a 78,000 square foot manufacturing and
training facility. The facility includes an in-house paint line that
allows for custom painting of all vehicles. Approximately 6,500
square feet of space, consisting of 12 offices, is used for
administration, and approximately 71,500 square feet of space is
available for production and R&D activities.
LA West has entered into a separate pool agreement with each of
Ford Motor Company, General Motors and Daimler-Chrysler. LA West has
also entered into separate finance agreements with these companies'
finance companies (Ford Motor Credit Company, General Motors
Acceptance Corporation and Chrysler Financial Company, respectively).
Under the pool agreements, the Company purchases chassis and later
sells the chassis back to the respective manufacturer after the
Company has completed its conversion or modification and sold the
vehicle to a customer. Title to the chassis passes to the Company
when it purchases the chassis and title passes back to the
manufacturer when the manufacturer repurchases the chassis. The
Company does not make any payments on floor plan payable balances
outstanding. Under the finance agreements, the Company is charged
interest on the floor plan payable balances. Currently, the Company
is charged interest at rates ranging from 1% to 2% for chassis held
for less than 90 days and prime plus 1% (7.25% at January 1, 2006)
for chassis held for greater than 90 days. These "floor planned"
chassis are the stock vehicles upon which the Company performs its
conversions or modifications. At the time when the manufacturer
repurchases the chassis and credits the Company's account the Company
invoices the purchasing dealer for the Company's conversion or
modification. The pool and finance agreements serve as means for the
Company to fund its chassis purchases at very favorable rates relative
to the alternative funding sources available to the Company. The
agreements have no scheduled termination dates.
LA West's sales are mildly seasonal with the last four months
of the calendar year generally lagging the first eight months of the
calendar year by 2-4 absolute percentage points. Percentages of total
unit sales by month since January 1, 2003 were as follows:
Month 2005 2004 2003
- ----- ---- ---- ----
January 11% 9% 10%
February 11% 8% 6%
March 11% 10% 10%
April 9% 10% 10%
May 9% 9% 10%
June 9% 11% 11%
July 8% 9% 9%
August 8% 8% 8%
September 8% 8% 7%
October 6% 7% 6%
November 5% 6% 7%
December 5% 5% 6%
100% 100% 100%
GT 40 is engaged in the assembly of replica supercars and
roadsters. GT 40 is a component car assembler that handcrafts a motor
vehicle assembly from chassis, wiring, plumbing, brakes, interior
wheels, tires and all other required items.
assembly space sufficient to meet research and development projects
for the foreseeable future.
There is insufficient sales history to determine whether
seasonality is a factor in GT 40's business.
Overall Results of Operations - Nine Months Ended September 30, 2005 and 2004
Van, Truck and SUV Conversions
Van conversion revenues for the nine months ended September 30,
2005 decreased $1,894,453, or (44.0)%, as compared to the nine months
ended September 30, 2004. During the nine months ended September 30,
2005, LA West sold 232 van conversions at an average selling price of
$10,422. During the nine months ended September 30, 2004, LA West
sold 411 van conversions at an average selling price of $10,493. The
decrease in units sold is attributable to the following three factors:
1. The lack of OEM consumer rebate programs with respect to vans,
2. the lack of OEM finance company interest rate incentives with respect
to vans, and
3. a change in consumer preference away from vans and toward trucks.
Truck modification revenues for the nine months ended September
30, 2005 decreased $1,664,845, or (26.7)%, as compared to the nine
months ended September 30, 2004. The decrease is primarily
attributable to an OEM's introduction of a competitive product and
industry-wide economic conditions. During the nine months ended
September 30, 2005, LA West sold 570 truck modifications at an average
selling price of $8,016. During the nine months ended September 30,
2004, LA West sold 893 truck modifications at an average selling price
of $6,981. The overall decrease in units sold is attributable to a
decrease of six in Ford units sold, a decrease of 404 in Dodge units
sold and an increase of 87 in GM units sold. The decrease in Dodge
units sold is attributable to Dodge's release in 2005 of a truck model
that features the option upgrades that are typically presented in LA
West's product modifications. The increase in GM units sold is
attributable to management's redirection of sales resources that
previously were dedicated to Dodge sales efforts.
Other sales for the nine months ended September 30, 2005
decreased $109,851, or (35.8)%, as compared to the nine months ended
September 30, 2004. Of the total decrease, a decrease of $74,300 is
attributable to a decrease in OEM marketing assistance earned. The
Company is eligible to participate in certain sales incentive programs
maintained by the OEMs (Ford, GM and Chrysler). The terms of these
programs are well-defined and the Company is able to accurately
determine the incentive assistance payments earned each month. The
Company accrues the calculated assistance payments as other revenue on
a monthly basis. The timing of the actual payments varies from plan
to plan. The total decrease was also affected by an increase in the
amount of $24,545 attributable to a property tax refund. Due to a
delayed real property tax assessment, the Company remitted in 2003 a
property payment that was based upon an estimate. The actual estimate
was finally received in 2004 and resulted in a refund that was
received during 2004. The Company does not expect this occurrence to
repeat.
Overall gross margin was 35.0% for the nine months ended
September 30, 2005 compared to 33.0% for the nine months ended
September 30, 2004. The net increase was affected by a 2.7% increase
due to an improvement in materials costs due to a change in product
mix towards products that don't require full body paint work offset by
a 1.5% decrease due to an increase in labor costs incurred as a result
of new product development.
Advertising expenses for the nine months ended September 30,
2005 decreased $160,694, or (41.5)%, as compared to the nine months
ended September 30, 2004. LA West has historically targeted
advertising expenses of 2% of sales. Advertising expenses were 2.02%
and 2.42% of sales for the nine months ended September 30, 2005 and
2004, respectively. The decrease is attributable to management's
intensified focus in 2005 on not exceeding the 2% target.
Specially Constructed Vehicles
Vehicle sales revenues for the nine months ended September 30,
2005 decreased $181,300, or (41.6%), as compared to the nine months
ended September 30, 2004. The decrease is a function of the Company's
prototype production and sales history. The Company's business plan
calls for the assembly of thirteen GT Mk. 1 prototypes prior to the
commencement of standard assemblies. The pace of GT 40's historical
prototype assembly was significantly influenced by the chronology of
GT 40's cash flows and customer purchase commitments, which were
nonlinear in nature. As of the date of this report, the Company's
GT Ml. 1 prototype history is as follows:
Prototype Date Completed Date Sold
2P 2/5/04 2/5/04
3P 3/5/04 3/5/04
4P 4/10/04 4/10/04
5P 5/21/04 5/21/04
6P 6/7/04 9/20/04
7P 8/6/04 10/16/04
9P 8/20/04 5/11/05
10P 10/22/04 5/11/05
11P 4/29/05 9/30/05
12P 8/1/05 10/28/05
14P in process n/a
15P in process n/a
16P in process n/a
No prototype 1P, 8P or 13P was assembled. There were seven GT Mk. 1
prototypes available for sale, and five GT Mk. 1 prototypes sold, during the
nine months ended September 30, 2004. There were six GT Mk. 1prototypes
available for sale, and three GT Mk. 1 prototypes sold, during the nine
months ended September 30, 2005. In addition, one prototype Daytona Coupe
was successfully assembled during 2005.
Franchise fee revenues for the nine months ended September 30,
2005 decreased $40,000, or (100.0)%, as compared to the nine months
ended September 30, 2004. The decline reflects management's decision
during 2004 to abandon its dealer network development initiative in
favor of establishing an internal sales and marketing department. In
the early stages of the start up of GT 40, management decided to
pursue the development of a national distribution network consisting
of existing independent (with respect to GT 40) automobile
dealerships. Pursuant to this effort, GT 40 granted territorial
distribution rights to a limited number of dealers in exchange for
franchise fees. The franchise agreements were for 12-month periods
and required bilateral renewal. During 2004 management ceased all
efforts to develop additional franchise agreements and allowed the
existing franchise agreements to expire. All franchise agreements had
expired by September 30, 2005 and there were no remaining obligations
with respect to franchisees on that date. Management expects that
there will be no franchise fee revenues in future periods.
Cost of goods sold for the nine months ended September 30, 2005
decreased $273,248, or (42.6)%, as compared to the nine months ended
September 30, 2004. As a result of the ramp up of the Company's
operations from 2004 to 2005, indirect labor, employee benefits,
shipping and depreciation increased by $33,863, $8,101, $4,706 and
$8,806, respectively. These negative affects were offset by the
positive affect of increased efficiency in the production of later
GT Mk. 1 prototypes during 2005 as compared to the less efficient
production of earlier GT Mk. 1prototypes during 2004. The decrease
also reflects the transfer of GT 40's production and sales functions
to the LA West facility (see additional discussion below).
Cost of finished vehicles sold as a percentage of vehicle sales
was 101.2% for the nine months ended September 30, 2005 as compared to
113.9% for the nine months ended September 30, 2004. The improvement
reflects a decrease in average cost per vehicle sold of $13,457 offset
by a decrease in average selling price per vehicle of $2,394. The
reduced average selling price reflects a decision by management to
sell two vehicles for a total of $155,000 in one transaction to one
buyer and management does not anticipate a second occurrence of such
an event. The selling prices of the two vehicles sold since that
transaction have been $99,000 and $101,151.
Operating expenses for the nine months ended September 30, 2005
decreased $123,153, or 21.2%, as compared to the nine months ended
September 30, 2004. The decrease reflects the transfer of GT 40's
production and sales functions to the LA West facility (see additional
discussion below).
Interest income (expense), net for the nine months ended
September 30, 2005 increased $29,645, or 104.6%) for the nine months
ended September 30, 2004. The increase is primarily attributable to
the accrual of interest on shareholder and related party loans. These
loans were converted into common stock and paid in capital during the
second and third quarters of 2005.
OVERALL RESULTS OF OPERATIONS - Twelve Months Ended December 31, 2004 and 2003
Van, Truck and SUV Conversions
Van conversion sales for the twelve months ended December 31,
2004 decreased $2,241,096, or 29.5%, as compared to the twelve months
ended December 31, 2003. During the twelve months ended December 31,
2004, LA West sold 507 van conversions at an average selling price of
$10,565. During the twelve months ended December 31, 2003, LA West
sold 841 van conversions at an average selling price of $9,034. The
decrease in units sold is attributable to the following four factors:
1. The lack of OEM consumer rebate programs with respect to vans,
2. the lack of OEM finance company interest rate incentives with
respect to vans,
3. the decision by Dodge in late 2003 to cease van production, and
4. a change in consumer preference away from vans and toward trucks.
Truck and SUV conversion sales for the twelve months ended
December 31, 2004 increased $4,056,933, or 108.2%, as compared the
twelve months ended December 31, 2003. During the twelve months
ended December 31, 2004, LA West sold 1,093 truck modifications at an
average selling price of $7,143. During the twelve months ended
December 31, 2003, LA West sold 589 truck modifications at an average
selling price of $6,367. The overall increase in units sold is
attributable to an increase of 60 in Ford units sold, an increase of
462 in Dodge units sold and a decrease of 18 in GM units sold. The
increase in Dodge units sold is attributable to LA West's release of a
new Dodge product in late 2003.
Parts sales for the twelve months ended December 31, 2004
increased $98,891, or 19.3%, to $611,947 as compared to the twelve
months ended December 31, 2003. The increase results from the
increase in the number of the Company's products in the marketplace.
Other sales for the twelve months ended December 31, 2004
increased $151,062, or 63.6%, as compared to the twelve months ended
December 31, 2003. Of the total increase, $96,200 is attributable to
an increase in OEM marketing assistance earned. The Company is
eligible to participate in certain sales incentive programs maintained
by the OEMs (Ford, GM and Chrysler). The terms of these programs are
well-defined and the Company is able to accurately determine the
incentive assistance payments earned each month. The Company accrues
the calculated assistance payments as other revenue on a monthly
basis. The timing of the actual payments varies from plan to plan.
In addition, $24,545 of the increase is attributable to a property tax
refund. Due to a delayed real property tax assessment, the Company
remitted in 2003 a property payment that was based upon an estimate.
The actual assessment was received in 2004 and resulted in a refund
that was received during 2004. The Company does not expect this
occurrence to repeat.
Gross profit as a percent of revenues was 30.7% for the twelve
months ended December 31, 2004 compared to 32.1% for the twelve months
ended December 31, 2003. The decrease is primarily attributable to
the staffing of an internal paint department and an increase in
finished product freight costs.
Gain on involuntary conversion for the twelve months ended
December 31, 2004 decreased $282,341, or (100.0)%, as compared to
the twelve months ended December 31, 2003. The gain was realized on a
weather-related involuntary conversion during 2003. Although it is
possible, management considers it unlikely that such an event will
recur.
Specially Constructed Vehicles
Vehicle sales for the twelve months ended December 31, 2004
increased $535,300, or 100%, as compared to the period from September
5, 2003 (inception) to December 31, 2003. There were eight GT Mk. 1
prototypes available for sale, and six GT Mk. 1prototypes sold, during the
twelve months ended December 31, 2004. GT 40 was in a start up phase
for the majority of the period from September 5, 2003 (inception) to
December 31, 2003 and did not have a completed prototype available for
sale during that period.
Franchise fee revenues for the twelve months ended December 31,
2004 decreased $35,000, or (46.7)%, as compared to the period from
September 5, 2003 (inception) to December 31, 2003. The decline
reflects management's decision during 2004 to abandon its dealer
network development initiative in favor of establishing an internal
sales and marketing department. In the early stages of the start up
of GT 40, management decided to pursue the development of a national
distribution network consisting of existing independent (with respect
to GT 40) automobile dealerships. Pursuant to this effort, GT 40
granted territorial distribution rights to a limited number of dealers
in exchange for franchise fees. The franchise agreements were for 12
month periods and required bilateral renewal. During 2004 management
ceased all efforts to develop additional franchise agreements and
allowed the existing franchise agreements to expire. All franchise
agreements had expired by September 30, 2005 and there were no
remaining obligations with respect to franchisees on that date.
Management expects that there will be no franchise fee revenues in
future periods.
Cost of goods sold for the twelve months ended December 31,
2004 increased $969,428, or 3,606.2%, as compared to the period from
September 5, 2003 (inception) to December 31, 2003. The increase
reflects the sale of six GT Mk. 1 prototypes during 2004 as compared to zero
assemblies sold during 2003. The increase also reflects that the
period from September 5, 2003 (inception) to December 31, 2003 is only
four months in duration and production was taking place for only a
fraction of that period. Specific increases were as follows:
Description Increase
(Decrease)
Materials & Supplies 59,039
Indirect Labor 28,829
Payroll Taxes & Benefits 28,443
Depreciation 21,689
Warranty Work 10,069
Selling, general, and administrative expenses for the twelve
months ended December 31, 2004 increased $731,642, or 471.0%, as
compared to the period from September 5, 2003 (inception) to December
31, 2003. The increase reflects the ramp up of overall operations and
the longer duration of the twelve months ended December 31, 2004
relative to the period from September 5, 2003 (inception) to December
31, 2003. The increase also reflects an increase of $48,028
attributable to the hiring of a production manager, an increase of
$89,977 attributable to the hiring of two sales representatives and an
increase of $41,387 attributable to the hiring of a financial
controller.
Interest expense for the twelve months ended December 31, 2004
increased $47,324, or 8,062.0%, as compared to the period from
September 5, 2003 (inception) to December 31, 2003. Of the total
increase, $47,310 is attributable to the accrual of interest on
shareholder and related party loans. These loans were converted into
common stock and paid in capital during the second and third quarters
of 2005.
Liquidity and Capital Resources
Van, Truck and SUV Conversions
LA West's primary sources of liquidity have been cash generated
by operations and commercial lines of credit.
Cash and cash equivalents were $93,530 and $170,794 as of
September 30, 2005 and 2004, respectively. Cash and cash equivalents
were $72,197 and $73,895 as of December 31, 2004 and 2003,
respectively.
Capital expenditures were $36,119 and $3,072 during the nine
months ended September 30, 2005 and 2004, respectively. Capital
expenditures were $56,030 and $37,568 during the twelve months ended
December 31, 2004 and 2003, respectively. Management anticipates the
following capital expenditures during 2006:
Quarter 1 Network server 20,000
Quarter 1 Various 5,000
Quarter 2 Various 5,000
Quarter 3 Various 5,000
Quarter 4 Various 5,000
-----
Total $40,000
=======
The Company expects to incur EPA testing fees of $50,000 during
January 2006. The EPA testing applies to a new product that LA West
developed during the last four months of 2004. Management believes
that it has identified an un-served niche in its target market and
expects that the product it has developed will yield substantial
sales, although this cannot be assured. Management anticipates
initial sales of this new product in January 2006.
Cash distributions were $27,000 and $72,656 during the nine
months ended September 30, 2005 and 2004, respectively. Cash
distributions were $300,666 during 2004 and $616,530 during 2003. All
distributions were declared and paid prior to Legend Motor's
acquisition of LA West. Management currently has no specific plans to
declare dividend distributions in the future.
Historically, LA West has maintained minimal long-term debt.
As of September 30, 2005, long-term debt consisted of one commercial
loan with a balance due of $39,024, with $24,444 being due after
September 30, 2006. However, this balance was fully repaid on
November 4, 2005 pursuant to the change in LA West's commercial line
of credit (see below) and as of that date LA West has no long-term
debt. Management has no immediate plans to enter into any long-term
debt obligations.
During the reporting period, LA West maintained a secured
credit agreement with a commercial lender. Under the terms of the
secured credit agreement, the Company had a line of credit for up to
$650,000. Interest was payable monthly at the prime rate plus 0.5%.
The line of credit matured on October 5, 2005 and was paid in full at
that time. The outstanding balance on the line of credit was $200,000
as of September 30, 2005 compared to $458,000 as of September 30,
2004. The outstanding balance on the line of credit was $438,000 as
of December 31, 2004 compared to $515,000 as of December 31, 2003.
On November 4, 2005, LA West entered into a replacement secured
credit agreement with a separate commercial lender. Under the terms
of the replacement secured credit agreement, LA West has a line of
credit for up to $250,000. Interest is payable monthly at the prime
rate plus 1.0% (7.25% at January 1, 2006). The line of credit
matures on June 4, 2006 and is collateralized by the following:
* All of the business assets of segmental West, Inc.,
* all of the business assets of Legend Motors Worldwide, Inc., and
* all of the business assets of GT 40 North America, Inc
Under the terms of the agreement, the Company must:
* Maintain tangible net worth of $500,000 or more, and
* maintain a current ratio of 1.0 or more
The outstanding balance on the line of credit was $250,000, as
of January 1, 2006. Management believes that, with continued
positive results of operations, the lender will increase the limit on
this line. However, there is no assurance that this will be the case.
On September 15, 2005 Legend Motors contributed $200,000 to the
capital of LA West. On September 21, 2005 Legend Motors contributed
$100,000 to the capital of LA West. On September 29, 2005 Legend
Motors contributed $100,000 to the capital of LA West. The funds bore
no encumbrances and were available to fund working capital needs. The
contributions were recorded on the books of Legend Motors as
investments in subsidiary and on the books of LA West as additional
paid-in capital and eliminated upon consolidation.
LA West's production facility has the capacity for a
substantial increase in production operations. Management plans to
tap this additional capacity by identifying potential acquisition
targets that possess products having production processes that are
complementary to LA West's facility and production staff. Such
acquisitions in the near term would be funded via capital
contributions from Legend Motors. As of the date of this report,
management is in the initial stage of identifying such potential
targets. No letters of intent, or other such commitments, are in
effect.
Specially Constructed Vehicles
The primary sources of liquidity of this segment have been cash
generated by operations, shareholder loans and related party loans.
Capital expenditures were $93,754 and $ 121,344 during the nine
months ended September 30, 2005 and 2004, respectively. Capital
expenditures were $152,884 during the twelve months ended December 31,
2004 and $63,988 for the period from September 5, 2003 (inception) to
December 31, 2003.
In April 2005 GT 40 management decided to eliminate its sales
function and terminated both of its sales representatives. In July
2005 management concluded that the GT Mk. 1 assembly process was
sufficiently developed to convert from the prototyping phase to the
standard production phase. Completion of GT 40's remaining scheduled
GT Mk. 1 prototypes was outsourced to the LA West production facility.
In addition, standard production of GT Mk. 1 assemblies will
be outsourced to the LA West production facility where the Mk. 1
product will be produced on a dedicated production line.
Pursuant to this transfer, all GT 40 production workers were
terminated on July 5, 2005. No severance or termination costs were, or
are expected to be, incurred with respect to these employment terminations.
As a result, GT 40 has minimal cash needs. Management expects to fund these
minimal cash needs from the future sale of prototype and production Mk.1 units.
As management identifies other replica models it decides to
offer, it will be necessary to dedicate cash to their development.
Management anticipates that it will be able to fund any such
development costs from sales of production Mk. 1 units and from
contribution(s) of capital by Legend Motors.
GT 40's liabilities as of September 30, 2005 and November 15,
2005, were as follows:
Description Balance on 9/30/05 Balance on 11/15/05
- ----------- ------------------ -------------------
Trade Accounts Payable $60,201 $6,542
Interest Payable to Legend Motors 6,884 -0-
Rent Payable 2,388 -0-
Loan Payable to Legend Motors 167,920 128,771
Total $237,393 $135,313
======== ========
Management expects to fund the remaining liabilities from the
sale of its remaining prototypes and future production units.
Recent Accounting Pronouncements
In December 2004, the FASB issued SFAS No. 123 (Revised 2004),
Share-Based Payments ("SFAS 123R"). SFAS 123R requires all share-
based payments to employees, including grants of employee stock
options, to be recognized in the income statement based on their fair
values. The Company is required to adopt the new standard in the
first interim or annual reporting period beginning after December 15,
2005. The Company maintains no share-based compensation plans and
does not expect the adoption of SFAS 123R to have a material effect on
its financial statements.
In December 2004, the FASB issued SFAS No. 151, Inventory Costs,
an amendment of ARB No. 43, Chapter 4 ("SFAS 151"). SFAS 151
clarifies that abnormal amounts of idle facility expense, freight,
handling costs and wasted materials should be recognized as current-
period charges and requires the allocation of fixed production
overheads to inventory based on the normal capacity of the production
facilities. The Company was required to adopt the new standard in the
first interim period beginning after June 15, 2005. The Company's adoption
of SFAS 151 has not had a material effect on its financial statements.
In December 2004, the FASB issued SFAS No. 153, Exchanges of
Nonmonetary Assets, an amendment of APB Opinion 29 ("SFAS 153"). SFAS
153 requires that exchanges of nonmonetary assets be measured based on
the fair values of the assets exchanged, and eliminates the exception
to this principle under APB Opinion 29 for exchanges of similar
productive assets. The Company was required to adopt the new standard
in the first interim reporting period beginning after June 15, 2005.
The Company's adoption of SFAS 153 has not had a material effect on its
financial statements.
BUSINESS
GENERAL OVERVIEW
Legend Motors is a holding company and it currently holds two
wholly-owned subsidiaries: LA West, Inc. (LA West) and GT 40 North
America, Inc. (GT 40).
LA West is headquartered in LaGrange, Indiana. LA West offers
exclusive luxury van, truck and SUV conversions. These vehicles can
be equipped with trim upgrades such as captain chairs, paneling,
raised roofs, sofa chairs, television sets, fold out beds and even
kitchens and bathrooms. LA West is a five-time recipient of Ford's
Quality Excellence Award. LA West also maintains an after market parts
distribution system and a service support program. LA West currently
maintains a sales force of fourteen sales representatives, eight
employees and six independent contractors. This sales force, on
average, has over twenty years of auto and/or conversion industry
sales experience and is managed by a sales manager with 22 years
experience and a marketing director with 32 years of experience. The
LA West sales team has generated as many as 1,800 unit sales annually.
LA West markets to franchise and independent motor vehicle dealers
throughout the U.S. During 2004 LA West sold vehicles to 168 of the
4,300 Ford, 54 of the 7,000 GM and 153 of the 4,300 Chrysler dealers
in the U.S. LA West has entered into inventory pooling and financing
agreements with each of the big three domestic U.S. automakers (Ford,
GM and Chrysler) thereby providing superior marketing and distribution
for company products. The acquisition of LA West provides Legend
Motors with an experienced sales force and proven distribution
channels along with extensive automotive production experience.
LA West operates out of a state-of-the-art 78,000 square foot
manufacturing, R&D and training facility. The facility includes an in-house
paint line that allows for custom painting of all vehicles. In
addition to the quality paintwork performed at the facility, vans,
trucks and SUVs are also modified to suit customer ideas. This
facility is located at 1995 East US 20, LaGrange, Indiana 46761. It
was built in 2000 and is on 22 acres of land. Approximately 6,500
square feet of space, consisting of 12 offices, is used for
administration, and approximately 71,500 square feet of space is
available for production and R&D activities.
GT 40 was established after several years of research into the
exotic sports car market. Former IndyCar teammates Andrew Broadley,
son of the famous Lola creator, Eric Broadley; Bob Hancher, former
IndyCar team Owner; and George Recentio, former race team manager
anticipated the expansion of the exotic sports car market that is now
taking place.
GT 40's automobile assembly operations focus on delivering a line
of replica supercars and roadsters from the 1930's through the 1970's,
a legendary era of auto racing that offered classic designs that still
appear ahead of their time. GT 40 is a component car assembler that
handcrafts an assembly from chassis, wiring, plumbing, brakes,
interior wheels, tires and all other required items at its production
facilities. GT 40 delivers state-of-the-art versions of motor vehicles
that are otherwise unattainable for most motor sports enthusiasts,
including the GT40 Mk.1. By duplicating the styling of historic motor
vehicles, GT 40 is able to rapidly and economically construct short
production runs for established bases of consumers that desire our
products and have the financial ability to pay for them. These fans of
the supercar era will be able to select from the following models,
with more to be added as research dictates:
* GT Mk. 1 reproduction (available in street and race versions)
* 1936 Ford Truck Reproduction
By selecting premium automotive components such as carbon fiber
composite bodies and performance power trains and then handcrafting
each car by highly trained and experienced racecar mechanics, the
company is able to deliver high performance vehicles that are
individually tailored to each GT 40 customer.
ORGANIZATIONAL OVERVIEW
LA West was incorporated in Indiana on January 26, 1988.
GT 40 was incorporated in Florida on September 5, 2003.
Legend Motors was incorporated in Nevada on September 14, 2004.
Legend Motors was initially capitalized on October 5, 2004 when
three individuals exchanged $100,000 for 50,000 of Legend Motor's
common shares and 12,500 of Legend Motors warrants with an exercise
price of four dollars each for Legend Motor's common stock.
On April 28, 2005, Legend Motors entered into a separate formal
share swap agreement with each of the three shareholders of GT 40.
Pursuant to the three agreements, Legend Motors exchanged 1,847,084 of
its common shares (97.4% of the outstanding Legend Motors shares
immediately after the exchange) for 100 shares of GT 40. As a result
of the exchanges, GT 40 became a wholly-owned subsidiary of Legend
Motors.
On April 28, 2005, Legend Motors issued 6,534,166 of its common
shares (77.5% of the outstanding Legend Motors shares immediately
after the issuance) to a private equity firm. Legend Motors received
no cash in exchange for the issuance of these shares. In exchange for
the stock issuance, the private equity firm committed to paying the
costs required to undertake a public offering of Legend Motor's common
stock. Legend Motors has no obligation or intent to reimburse any
costs incurred by the private equity firm.
On April 28, 2005, Legend Motors issued 1,987,500 of its warrants
with an exercise price of four dollars each for its common shares to
the following four recipients:
Name Amount
- ---- ------
Vern Kauffman 1,000,000
Gretchen C. Hancher 400,000
Commerce Street Venture Group, Inc. 400,000
Magellan Financial Media Group, Inc. 187,500
-------
1,987,500
=========
On June 27, 2005, GT 40 entered into formal debt agreements with
certain related parties through common ownership to which GT 40 had
outstanding loans to consolidate the respective loans and accrued
interest due to each respective party. The new debt agreements allow
for the converting of outstanding debt and accrued interest into
common stock of Legend Motors at a stated price of two dollars per
share. The conversion was at the option of the note holders. On June
28, 2005, each of the holders of loans payable executed their
respective options to convert their respective outstanding principal
balances to common stock and 1,064,710 shares were issued (11.2% of
the outstanding Legend Motors shares immediately after the
conversions).
On July 1, 2005, Legend Motors entered into a formal share swap
agreement with a shareholder of LA West pursuant to which Legend
Motors exchanged 1,582,492 shares of its common stock (14.3% of the
outstanding Legend Motors shares immediately after the exchange) for
49% of the outstanding common stock of LA West. Also on July 1, 2005,
Legend Motors entered into a formal share swap agreement with a second
shareholder of LA West pursuant to which Legend Motors exchanged
1,647,084 shares of its common stock (12.9% of the outstanding Legend
Motors shares immediately after the exchange) for the remaining 51% of
the outstanding common stock of LA West. As a result of the two
exchanges, LA West became a wholly-owned subsidiary of Legend Motors.
On July 1, 2005, two shareholders of Legend Motors surrendered a
net total of 2,725,536 shares of Legend Motors common stock (21.4% of
the outstanding Legend Motors shares immediately before, and 27.3%
after, the surrenders) to Legend Motors.
As a result of all the events summarized in this section, as of
July 1, 2005, the Company has 10,000,000 shares of $0.0001 par value
common stock issued and outstanding and 2,000,000 warrants with an
exercise price of four dollars each issued and outstanding.
INDUSTRY OVERVIEW
We have estimated that customers who purchase conversion vans or
trucks and exotic sports cars and vintage trucks have an annual
household income greater than $100,000 and it is our opinion that most
of these customers find making such a purchase to be inconsequential.
Luxury Truck & Van Conversion Industry
- --------------------------------------
Conversion vehicles are typically manufactured by an automaker
and then modified for transportation and recreation use by a company
specializing in customized vehicles. Many of these vehicles are
equipped with trim upgrades such as captains chairs, paneling, raised
roofs, sofa chairs, television sets, beds, kitchens and bathrooms; all
the comforts of home. Types of conversion vehicles include vans,
pickup trucks and sport utility vehicles.
The van conversion industry flourished in the late 1970's and
early 1980's. Thousands of converters joined the ranks of those buying
vans, sprucing them up and reselling them for large profits. The Big
Three American auto makers joined the fray and developed conversion
programs in which the auto maker would contract with approved
converters who would convert a certain number of vehicles and then
market the vans to the auto makers' dealerships.
Kit Car and Component Car Industry
- ----------------------------------
In house research has been performed on the historical accuracy
of details for each product produced.
Except as stated otherwise, the following information expresses
management's opinions or estimates.
The Exotic/Super-Luxury Automobile market is approximately 7,000
units or $1.5 billion annually while the Ultra-Luxury/Prestige Sports
Coupe market enjoys over four times the sales volume, more than 30,000
units per year or approximately $3 billion annually. This translated
into a combined United States market of $4.5 billion in 2002. This
leaves a tremendous opportunity for Legend Motors to leverage its
racecar experience into profitable gains for its shareholders.
Mainstays such as Ferrari and Lamborghini have remained focused
on the exotic sports car segment over the past 30 years and offer
products ranging in price from $135,000 to $250,000. Over the years,
companies such as Fiat and Alfa Romeo have exited the U.S. market and
until recently manufacturers such as Ford, Aston Martin and Maserati
have not challenged the cult-like dominance of Ferrari and
Lamborghini. However, sales data and economic evidence has
highlighted the demand for new products in this space.
From 1986 through 2000, the U.S. automobile luxury market
experienced its longest and strongest rise in history. Unit sales
between 1997 and 2002 grew by 17% and despite 9/11 and the economic
recession, luxury sales fared better in 2001 and 2002 than either
standard or compact vehicles. The strength of this data proved to
Legend Motors management that the time was right for its offerings and
this decision is further validated by the decisions of other leading
automotive manufacturers. For the 2005 model year there are new
models by Ford, Maserati and Porsche. Ford is offering its production
GT version at a manufacturer's suggested retail price (MSRP) of
approximately $150,000. As Ford is only expected to produce 1500 cars
each year for 3 years, the waitlist is long, dealers are raising
prices above the MSRP and prices in the secondary market are being bid
up to $300,000. The Porsche Carrera GT, is set to list at $440,000
and has a similarly long waiting list for prospective buyers.
Clearly, the demand for exotic sports cars is not being met regardless
of prices that are significantly higher than the Legend Motors
products.
While traditional car companies do not have the ability to
profitably manufacture short production runs, small companies with
experience designing and building in the racecar industry can profit
handsomely as they do not have the bloated R & D expenses, union
labor, and high overhead of the larger manufacturers. Based on the
experience of our management team, it is our opinion that on small
production runs, efficiencies would allow for a profit after the first
few cars. By combining off-the-shelf, high-performance parts, a car
can be engineered quickly that will have the look and feel of the
original car while adding luxuries today's car buyers demand.
While the term "kit car" is commonly misused, there is a
significant difference between kit cars and component cars. The
majority of "kit car" products are sold as unassembled "kits" of
individual components that generally do not have engines or
transmissions installed at time of delivery to the customer. For car
enthusiasts with the skills, tools, facilities, and time required to
do the job, the personal assembly aspect of kit cars may be more
enjoyable than driving the finished product. However, other consumers
without the required resources desire to purchase components and
contract for customized assembly of high-tech performance roller cars
ready for final assembly of engine & transmission. Legend Motors is
structured as a pure play in the component car industry and should not
be considered a "kit car" company in any way. All Legend Motors
products are ready to perform at the highest level the moment a
customer accepts delivery. We are a component car assembler that
handcrafts an in-house designed chassis with all other required items
including wiring, plumbing, brakes, interior wheels, tires and paint
completed at our factory. Legend Motors delivers state-of-the-art
versions of cars that are otherwise unattainable for most motor sports
enthusiasts, including the GT40 Mk.1. Legend Motors products are sold
without drive-trains however we have established trained facilities
around the country to install your engine and transmission to our spec
to perform at the highest levels.
The industry generates approximately 1,600 component cars
annually with overall gross revenue of approximately $75,000,000.
While kit cars can be acquired for many familiar models such as the
Ferrari Testarossa, Lamborghini Diablo, Lotus Super Seven and other
exotic cars, Car and Driver magazine calls the Shelby Cobra the
"undisputed darling of the kit car industry." It is estimated that
the Cobra represents 70% of all kit cars sold with over 48 companies
providing different versions of this classic. According to Kit Car
magazine, there are approximately 245 manufacturers, but 75% of all
cars produced are generated by less than a dozen companies, such as
Superformance International and Factory Five, Inc. who both claim to
be the world's largest component car manufacturer with estimated
annual sales of approximately 200 cars. In 2004, Shelby Automobiles
Inc. led by Carroll Shelby became a publicly traded entity and will be
fighting for market share in this highly competitive niche.
Target Market Demographics
- --------------------------
With the baby boomer generation hitting their 40's and 50's, the
market for luxury cars is ripe for growth and that trend should
continue for decades. According to a Ford Motor executive, people are
turning to the luxury market earlier in life than they traditionally
have. One important difference between this group and previous
generations is that they tend to view cars as a way to enjoy driving
rather than avoiding it. Consumers in this category have continually
shown their preference for bigger engines and sporty suspensions.
Most importantly, there is a convergence of the target market and
their fascination with the supercar era that is represented by the
company's product line.
To help identify prospective purchasers for Legend Motors
products and to develop its marketing strategy, the company has
evaluated various customer-profiling studies. While the details of
this data will remain proprietary, we have identified approximate
household income and wealth necessary to afford a car up to the
$150,000 price point. During this process, the company attempted to
identify the difference between regular "rich people" and those
affluent individuals that are highly likely to purchase a luxury
vehicle. The latest edition of Merrill Lynch and Capgemini Ernst &
Young's World Wealth Report suggested that finding luxury car buyers
should not be a problem as the number of what they call "high-net-
worth individuals" grew by 7.5 percent by the end of 2003to almost 7.7
million worldwide.
Sample demographics of the Legend Motors Target Market are as follows:
Sex: Male
Age Range 35-64
Average Age 51
Marital Status Married
Household Income Greater than $100,000 annually
Education College Graduate
Employment Working Full Time
Avg. number of Vehicles Owned 4
We believe that our customer base will continue to increase on a
worldwide basis. We do not anticipate that any one customer's
purchases will account for over 5% of our sales. Accordingly, the
loss of any individual customer will not have a material adverse
effect on Legend Motors Worldwide.
PRODUCTS
Current Products and Services
Primary revenues will be generated from the luxury conversions of
vans and trucks and the sale of our GT Mk. 1. Secondary revenue will
be derived from several sources.
We selected a road version GT Mk. 1 reproduction of the famous
1966 Ford GT40 as our first model for production due to management's
analysis of the potential market, the established base of Ford GT40
enthusiasts demanding replicas, and the ability to generate immediate
cash flow. Historically, the first Ford GT40 Mk. 1 prototype, named
after its height of 40", was based on a 1963 design by Eric Broadley,
famed head of Lola Cars. From prototype to production, there was only
one goal in mind - to challenge Ferrari's dominance at Le Mans. In
1966, the Ford GT40's took 1st, 2nd and 3rd at Le Mans. In 1967 Dan
Gurney and A. J. Foyt finished several miles ahead of the second place
Ferrari. The Gulf-backed GT40 commanded victory in 1968 and 1969
becoming the only car of the same chassis number to win Le Mans twice.
While race performance created the legend and forever solidified
it in the minds of automotive historians and enthusiasts, no one could
have predicted the demand and prices achieved in the years that
followed. Purchasing one of the 97 original GT40's manufactured by
Ford in the 1960's can easily cost in excess of $1,000,000. At a base
list price of $121,000, we believe that our GT Mk. 1 is well
positioned to satisfy the unmet demand for this classic.
Planned Products and Services
The costs of research and development for new models of exotic
sports cars at companies such as Porsche and Ferrari typically run
into the tens of millions of dollars and require several years before
production. Comparatively, we are able to identify models from
historical cars & trucks and bypass the majority of the research and
development costs to produce saleable prototypes. To date, we have
incurred product development and prototype production expenditures
with respect to development efforts on six models. These cars have
been selected for their historic appeal, established demand from our
target market and the low assembly costs. Four of the six model
bodies fit on the chassis being used for current production of the GT
Mk. 1 and will require minimal additional expenditures for design,
engineering and production. Currently produced models are as follows:
* The GT Mk. 1 race version is the same as the road version except
for enhanced performance from a 7.0 liter, 427 cu. in., 550 hp
engine.
* The Daytona Coupe was another Shelby design that later was
transformed into the coupe version by Peter Brock that won the
Federation Internationale de l'Automobile (FIA) GT Championship
in 1965. In the years leading up to the FIA Championship the
lightweight, fuel efficient Cobra raced smaller circuits winning
the first pro United States Road Racing Circuit (USRRC) title
with 6 of 8 victories. The Cobras then moved on to the Ferrari
dominated FIA. The Cobras were slightly slower going into the
circuit but the Cobra team found a loophole in the FIA rules
allowing them to modify the body slightly under the protest of
Ferrari. The Cobra team finally developed a coupe that tested
with a top speed of over 180 mph, a gain of over 15 mph, enough
to challenge Ferrari. The Daytona first raced in Daytona and
soon became known as the "Daytona Cobra Coupe." The Cobras posed
such a challenge to the Ferraris that there were tales of
saboteurs on the Cobras. After the championship in 1965 a new
challenge came to the Cobra that fall. Shelby received a call
from Goodyear to make "record attempts" at the Bonneville Salt
Flats challenging archrival Firestone. The Cobra went on to
claim all the straight-line records possible in its class going
on to claim the 12-hour endurance record on the salt flats for a
total of 23 international USAC/FIA records, including the
incredible 150 mph average for 12 hours.
We are expanding our product offerings from exotic supercar
replicas to vintage trucks. The first vintage truck product to be
prototyped is a 1936 Ford pickup. This model was extremely popular in
its original day and holds a great deal of nostalgic interest.
The company is also diversifying its conversion capabilities to
produce a line of Toter Homes, rigs used for hauling various types of
trailers. The rigs are large enough to house living accommodations
including beds, bathrooms and kitchen areas. Both projects are in the
early stages of research and development.
Cost, profit margin and revenue potential for the 1936 Ford
pickup and the Toter Home have not yet been defined. Production stages
could begin as early as the first quarter of 2006.
We will continue to evaluate models to add to our product lines
either through internal development or strategic acquisitions that
will strengthen our brand and enhance shareholder value. Acquisitions
of other component car manufacturers will only be considered if their
models are consistent with our corporate strategy and if the
acquisition is less expensive than internal product development.
As the population of our replica vehicles in the marketplace
expands, we anticipate that an increasing percentage of revenues will
be realized from customer demand for replacement parts or performance
upgrades. With a typical gross margin of 50% and minimal incremental
costs to process such orders, we anticipate that a substantial portion
of these revenues will flow to the bottom line. We also anticipate
that service revenues will be generated from post-sale repairs and
performance enhancements to our replica vehicles. We anticipate gross
margins in the range of 40%-60% on such elective services. Lastly, we
have developed lines of apparel & accessories products that will be
sold through our website at typical profit margin potentials of up to
35% per item. All of these revenue sources are post-sale and buyer-
selected. Consequently, we believe that they will be perceived by our
customers as highly value-added, thereby allowing us to maintain
higher gross margins.
Research
During the fiscal years 2002 thru 2004, research was done for the
supercar replica operation on the potential market, legislation, and
regulations regarding the compliance of primary products and their
viability in the market place. Our operations have been structured so
as to comply with applicable US laws and regulations, including the
Department of Transportation certification requirements.
The Company expenses research expenses as incurred. Actual research
expenses incurred were as follows:
Year ended December 31, 2003 $1,690
Year ended December 31, 2004 18,262
Nine months ended September 30, 2005 2,201
-------
Total $22,153
Product Development
During calendar year 2003, one GT Mk. 1 prototype unit was begun.
During 2004 eight GT Mk. a prototypes were completed. During 2005, two
GT Mk. 1 prototypes and one Daytona Coupe prototype were completed. Three
GT Mk. 1 prototypes were in process at the end of 2005. We expect to be
able to complete a total of twenty five GT Mk. 1 production units in
calendar year 2006 and fifty GT Mk. 1 production units in calendar year
2007.
The Company expenses product development expenses as incurred.
Product Development Programs and Commitments Summary
We completed one prototype Daytona Coupe during 2005. In 2006 we
expect to complete prototypes of the GT Mk. 1 race version and 1936
Ford pickup models along with one new product per quarter in our
development facility. We will integrate all acquisition production
products to the LA West Standard.
Proposed New Products Requiring Material Investment Resources
We expect to expand new product offerings over time. New product
offerings are expected to be the greatest source of growth for the
company. For example, we have developed design plans that will allow
us to produce a 1936 Ford pickup replica model along with toter homes.
PATENTS AND TRADEMARKS
We have patents, trademarks and trade names for the following:
Patents
- -------
1. Design Patent - Exterior of a fiberglass hood - Application #29-222,947,
pending
Trademarks and Trade names
- --------------------------
1. LA West and design Registration Number 1,961,460, expires March 12,
2006
2. Choo Choo Customs and design Registration number 1,425,160,
expires January 13, 2007
3. L'il Red Express Truck and design Registration number
78,436,306, expires September 23, 2006
Because of the age of the vehicles which we replicate, we do not
have concerns about infringement of intellectual property rights.
When we believe it is appropriate we will seek patent or
trademark protection for other products, marks or services.
SUPPLIERS
The company does not depend upon any single source of supply for
any of production component.
MARKETING - CHANNELS OF DISTRIBUTION:
LA West markets its conversion and modification products to
franchised new motor vehicle dealers across the continental United
States. LA West's other products, primarily parts, are sold to
dealers, body shops and individual vehicle owners. LA West ships its
finished conversion products on a COD basis. Products other than
completed vehicles purchased by a dealer with an established account
with LA West are shipped on 30 day, net terms. All other such
products purchased are shipped only upon receipt of all proceeds in
advance, upon presentation of a validated credit card or on a COD
basis.
LA West maintains an in house managed sales staff, which
includes eight employed and six independent contracted sales
representatives with average experience in the auto/conversion
business of over twenty years. LA West's sales representative
employees are compensated with a base salary and a sales-based
commission and its independent contractor sales representatives are
compensated on a straight commission basis. The sales force is
responsible for sales of both luxury conversions and exotic supercars.
We believe that combining efforts for both products brings better
efficiencies to the overall operation.
LA West employs a sales manager who is responsible for the sales
force. LA West also employs a marketing director who is responsible
for general advertising and promotion, including targeted direct
mailings, national print ads in magazines and newspapers, maintenance
of our internet website and tradeshow operations.
LA West's outside sales force travels to strategic markets across
the U.S. We market to franchise and independent motor vehicle dealers
throughout the U.S. During 2004 we sold vehicles to 168 of the 4,300
Ford, 54 of the 7,000 GM and 153 of the 4,000 Chrysler dealers in the
U.S. However, there is no barrier to selling to any of these dealers
and LA West's potential market includes virtually any Ford, General
Motors and Chrysler franchised dealer and any independent dealer in
the U.S.
LA West has entered into an inventory pooling agreement with each
of the big three domestic U.S. automakers (Ford, GM and Chrysler).
These agreements allow the Company to finance the purchase of chassis
inventory at interest rates that are extremely favorable relative to
other sources of commercial financing. These arrangements allow the
Company to maintain larger inventories thereby providing a competitive
advantage over the bulk of its competitors with respect to marketing
and distribution.
Advertising and Promotion of Exotic Supercars, Vintage Trucks and Street Rods
Our primary marketing efforts are focused on a direct-to-consumer
as well as mass-market media advertising. To further its reach and
exposure, we are evaluating several upscale publications such as Robb
Report and DuPont Registry for a fit with our target demographics.
Our management has discovered that tradeshows offer the greatest
potential to rapidly expose our products and give our marketing
personnel the opportunity to meet more qualified customers than in any
other scenario.
Additionally, we are currently evaluating our options to display
demo supercar vehicles at exotic auto shows and auctions including the
Carlisle and SEMA car events, the Barrett Jackson and Kruse
International auctions as well as Metropolitan auto shows and other
shows such as Detroit's American International Automobile Show and the
New York Auto Show.
Website
We believe that our website (www.legendmotorsww.com) is a
particularly strong marketing tool that yields cost effective,
worldwide exposure. Our website continues to receive several leads
daily through its interactive section where interested parties may
request information online. The website features our primary product
models along with general information describing the manufacturing
facility, location, product specifications, product pricing and
optional upgrade pricing. We also use the website to promote our
apparel and accessories, which is an additional source of revenue and
exposure for our product and brand image.
COMPETITION
We have several close competitors in the luxury van and truck
conversion industry. The more significant of these competitors are as
follows:
* Starcraft Conversions - Predominately a GM-oriented company,
they have recently shifted their focus to truck conversions from
van conversions since 2000. They are perceived in the
marketplace as offering lesser quality and a lower level of
customer service. They participate in the GM and Ford pooling
systems. We believe their total 2004 revenues to have been
approximately $17 million.
* Tuscany Automotive Solutions - They are perceived in the
dealer network as offering high quality products. They
participate in the Ford and Chrysler pooling system. While they
have historically focused on van conversions, during 2004 they
initiated a truck specialty segment. We believe their total 2004
revenues to have been approximately $9 million.
* Explorer Conversions - Predominately a GM-oriented company,
they are the largest van conversion producer in terms of unit
volume and are considered to be one of the pioneers in the
industry. They produce no trucks or specialty/niche vehicles.
They have excellent in house sales and marketing functions and
maintain a good reputation in the auto industry. They
participate in the GM and Ford Pooling systems. While we have no
estimate of their total 2004 revenues, we believe them to have
150 employees and a 150,000 square foot production facility.
* Southern Comfort Conversions - They are well known for their
custom paint on trucks and SUV's. They participate in the GM,
Ford and Chrysler pooling systems, although they mainly focus on
GM products. We believe their total 2004 revenues to have been
approximately $20 million.
We have few close competitors that offer assembled replica
products. ERA Replica Automobiles and CAV Holdings are the closest
comparable competitors because they offer the same type model, the
Ford GT40 Replica.
We expect the markets for our products to become even more
competitive if and when more companies enter them and offer
competition in price, support, additional value added services and
quality, among other factors.
LEGAL PROCEEDINGS
We are not currently involved in litigation, nor are we a party
to any pending litigation.
EMPLOYEES
As of the date of this prospectus we have 58 full-time employees,
including 21 in production, eight in indirect operations, ten in
sales/marketing, seven in research and development, eleven in
administration and our interim CEO. In Addition, we have six independent
sales contractors. We presently have no labor union contract with any
union and we do not anticipate unionization of our personnel in the
foreseeable future. We believe our relationship with our employees is
good.
DESCRIPTION OF PROPERTY
Our van, truck and SUV conversion production facility is located
at 1995 East US 20, LaGrange, Indiana 46761. The 78,000 square foot
facility was built in 2000 and is on 22 acres of land. Approximately
6,500 square feet of space, consisting of 12 offices, is used for
administration, and approximately 71,500 square feet of space is available
for production and R&D activities.
We lease this facility from a related party. The monthly lease
payment is $29,000 and the lease terminates on February 28, 2010.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND/FINANCIAL DISCLOSURE.
We have had no disagreements with our accountants on accounting
and financial disclosure.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Directors and Executive Officers
Our directors, executive officers and key employees are as
follows:
Name Age Position Director Since
Lowell G. Hancher 51 Chief Executive Officer and 2005
Chairman of the Board of
Directors
Vern Kauffman 46 Director and President of 2005
LA West
John G. Pendl 44 Chief Financial Officer
and Director 2005
Joel Updike 57 Director 2005
Dennis Severson 53 Director 2005
The Company's board has not established any committees such as
executive, audit, nominating, compensation or governance committees.
Lowell G. Hancher, Jr.
- ----------------------
Mr. Hancher is a founder of Legend Motors with over 20 years of
experience in product development and corporate management. Mr.
Hancher became our interim CEO and Chairman of the board of directors
in January 2006 and has agreed to serve in these capacities until
the board is able to identigy and hire a replacement. Mr. Hancher
is currently a principal of Commerce Street Venture Group,
Inc., which he founded in 1999. Mr. Hancher was a team owner in
the motor sports world for over 10 years, predominantly Indy Car.
Mr. Hancher is also responsible for introducing the PI research
technology (telemetry systems), which is now used in all motor
sports, to the U.S. Mr. Hancher's term of office as director will
expire on the two-year anniversary of the Company's first annual meeting.
Mr. Hancher also serves on the board of directors of Cycle Country
Accessories Corp.
Vern Kauffman
- -------------
Mr. Kauffman is the founder and President of LA West and has been employed
continuously by LA West for more than 17 years. The award winning
organization was started by Mr. Kauffman customizing and selling a
single van. Mr. Kauffman grew the company to over $14 Million in
revenue in 2004. During his employment with LA West, Mr. Kauffman has
forged personal relationships with numerous representatives of Ford,
Daimler-Chrysler and General Motors that have facilitated the
management of LA West's pooling agreements with those OEMs. Mr.
Kauffman's term of office as director will expire on the two-year
anniversary of the Company's first annual meeting. Mr. Kauffman
served as our Chief Executive Officer and Chairman of the board of directors
until December 28, 2005.
Joel Updike
- -----------
Mr. Updike has more than 30 years experience in the banking and
consulting industries. Mr. Updike graduated in 1970 from Indiana
State University with a degree in Business Management and Finance.
Mr. Updike worked for the Federal Deposit Insurance Corporation until
1979. Mr. Updike then joined the Kendallville Bank and Trust Company
in Kendallville, Indiana where he served as Senior Vice President
until October of 1987,. During his tenure there, Mr. Updike also
graduated from both the Graduate School of Banking at Wisconsin and
the Post-Graduate School of Banking of Wisconsin. In October of 1987,
Mr. Updike established an individual consulting practice specializing
in assisting small businesses in acquiring financing. Mr. Updike's
clients include a wide range of service, manufacturing and
construction companies. From 1996 through 2004, Mr. Updike served as
owner/operator of Broadway & Jefferson Limited, Inc. a commercial
laundry facility in Fort Wayne, Indiana which was sold in 2004. Mr.
Updike continued to operate his consulting practice during those
years, as he does now. Mr. Updike's term of office as director will
expire on the one-year anniversary of the Company's first annual
meeting.
John G. Pendl
- -------------
Mr. Pendl is a corporate finance professional and CPA with experience
in controllership, capital budgeting, treasury and acquisitions.
Prior to joining Legend Motors in July 2004, Mr. Pendl served as Vice
President, Chief Financial Officer and Treasurer from October, 2001 to
July, 2004 of Goran Capital, Inc., a publicly traded investment
holding company. Earlier in his career, Mr. Pendl was an M&A Analyst
and Divisional Controller for Collision Team of America, Inc., a
subsidiary of Ford Motor Company and a tax consultant with the firm of
PricewaterhouseCoopers. Mr. Pendl's term of office as director will
expire at the Company's first annual meeting. Mr. Pendl's terms of
office as Secretary and Treasurer will expire at the Company's first
annual meeting.
Dennis Severson
- ---------------
Mr. Severson has over 25 years of business experience with growth-
oriented companies and understands how to develop profitable products.
Mr. Severson is currently President of Commerce Street Venture Group,
Inc. and has been with the company since 1999. His comfort with a
technical approach to product sales is well-suited to the company's
vehicles and his leadership skills will assist in aggressively
developing the company. As a previous Vice President with Dean Witter
specializing in private placements, he is uniquely capable of
interacting with the investing public and currently sits on the Board
of Directors of a publicly traded company. Mr. Severson has also been
with management and trading for Archer Daniels Midland, the largest
publicly traded agricultural company. In addition, he has been
involved with management of professional sports teams. Mr. Severson's
term of office as director will expire on the one-year anniversary of
the Company's first annual meeting.
Directors' Remuneration
Our directors are presently not compensated for serving on the
board of directors. It is anticipated they will be and it will be
consistent with public companies in the sector and of like size and
profit.
Executive Compensation
Employment Agreements
We entered into an employment agreement with Vern Kauffman, our former
President and Chief Executive Officer, effective July 1, 2005 for a
period of five years. The agreement called for Mr. Kauffman to receive
an annual salary of $175,000 and a bonus equal to five percent (5%) of
our net income before taxes. Furthermore, the agreement contains a
"Covenant Not to Compete" which prevents Mr. Kauffman from competing
with the company during his term of employment or for a term of two
years thereafter. As compensation for such agreement, Mr. Kauffman
receives an additional payment of $25,000 annually. The agreement
also provides for Mr. Kauffman to receive standard benefits such as
health insurance coverage, sick and vacation time and use of an
automobile. <r. Kauffman resigned from his positions as our President
and CEO effective December 28, 2005. He continues to serve as the
President of LA West.
Summary Compensation Table
The following table sets forth the total compensation paid or
accrued for the years ended December 31, 2005, 2004 and 2003 to our
current Chief Executive Officer, Lowell G. Hancher, Jr., our former Chief
Executive Officer, Vern Kauffman and our former Chief
Technology Officer, Andrew Broadley. There is no other individual
currently serving as an executive officer or that served as
an executive officer at the end of our last fiscal year who had
annual compensatino equal to or which exceeded $100,000.
Annual Compensation
Other Restricted Securities All
Annual Stock Underlying LTIP Other
Name Year Salary Bonus Compensation Awards Options Payouts Compensation
- --------- ---- ------ ----- ------------ ---------- ---------- ------- ------------
Lowell G. Hancher, Jr. 2005 -0- - - - - - 24,615(1)
Lowell G. Hancher, Jr. 2004 -0- - - - - - 80,481(1)
Lowell G. Hancher, Jr. 2003 -0- - - - - - 18,750(1)
Vern Kauffman 2005 130,000 - - - - - -
Vern Kauffman 2004 130,000 - - - - - -
Vern Kauffman 2003 130,000 - - - - - -
Andrew Broadley 2005 -0- - - - - - 65,385(1)
Andrew Broadley 2004 -0- - - - - - 103,205(1)
Andrew Broadley 2003 -0- - - - - - 24,999(1)
(1) Cash consulting fees
Stock Option Grants in the past fiscal year
We have not issued any grants of stock options in the past fiscal
year.
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding beneficial
ownership of our common stock as of the date of this prospectus and as
adjusted to reflect the sale of all shares which may potentially be
sold in connection with this registration statement, by (i) those
shareholders known to be the beneficial owners of more than five
percent of the voting power of our outstanding capital stock, (ii)
each director, and (iii) all executive officers and directors as a
group:
Number of Percent Percent
Name and Address of Shares Before After
Beneficial Owner Owned Offering Offering (1)
- ---------------- --------- -------- --------
Commerce Street Venture
Group, Inc.
17322 Westfield Park Road
Westfield, IN 46074 (2) 794,177 6.618% 0%
GT40 North America, Inc.
17924 US 31 North
Westfield, IN 46074 2,000,000 20.000% 0%
G. C. Hancher
1176 Pebblebrook Dr.
Noblesville, IN 46060 (3) 790,000 6.583% 0%
Vern Kauffman
58639 CR 35 Street
Middlebury, IN 46540 (4) 1,792,084 14.934% 0%
Dennis Severson
19560 Winwood Parkway
Noblesville, IN 46062 275,000 2.750% 0%
John G. Pendl
17924 US 31 North
Westfield, Indiana 46074 (5) 65.000 0.541% 0%
Anthony D. Altavilla Trust
& Leslie T. Altavilla
Trust DTD
14300 Clay Terrace Blvd.
Ste. 269
Carmel, IN 46032 (6) 500,130 5.001% 0%
All Directors and Officers
as a Group (5 Persons) (7) 3,716,261 30.969% 0%
(1) Assumes that all warrants are
exercised and all shares offered hereunder are sold.
(2) The amounts and percentages do not
include warrants to purchase 400,000 shares of common stock that
may be acquired at an exercise price of $4.00 per share
commencing 120 days following the effective date of this
prospectus. A five-member committee has equal voting or
investment control over shares owned by Commerce Street Venture
Group. Mr. Lowell G. Hancher, our interim CEO is a member of that
group. The remaining four members of the group are David Finke,
Jane Graham, Roger Hansonand Dennis Severson.
(3) The amounts and percentages do not
include warrants to purchase 400,000 shares of common stock that
may be acquired at an exercise price of $4.00 per share
commencing 120 days following the effective date of this
prospectus. G.C. Hancher is the wife of Lowell G. Hancher, one
of our directors.
(4) Mr. Kaufman is currently the President of LA West. The amounts and
percentages do not include warrants to purchase 1,000,000 shares
of common stock that may be acquired at an exercise price of $4.00
per share commencing 120 days following the date of this prospectus.
(5) Mr. Pendl is our Chief Financial Officer and a Director
(6) The amounts and percentages do not
include warrants to purchase 1,000,000 shares of common stock
that may be acquired by our President at an exercise price of
$4.00 per share commencing 120 days following the date of this
prospectus, 400,000 shares of common stock that may be acquired
by the wife of Mr. Lowell G. Hancher, a Director at an exercise
price of $4.00 per share commencing 120 days following the
effective date of this prospectus. The amount and percentage
does include 790,000 shares of common stock held by the wife of
such Director as well as 794,177 shares held by Commerce Street
Venture Group, Inc.
(7) The amounts and percentages do not include warrants to purchase
6,250 shares of common stock that may be acquired at an exercise price
of $4.00 per share commencing 120 days following the effective date of
this prospectus.
SELLING SECURITY HOLDERS
The following table sets forth certain information with respect to the
ownership of our common stock by selling shareholders as of the date
of this prospectus. Unless otherwise indicated, none of the selling
shareholders has or had a position, office or other material
relationship with us within the past three years.
Ownership of Ownership of
Shares of Common Shares of Common
Stock Prior to Number of Stock After the
Offering Shares Offering
----------------------- Offered ---------------------
Selling Shareholder Shares(1) Percentage(1) Hereby Shares Percentage Notes
- ----------------------------------------------------------------------------------------------
Joseph Abrahams 25,000 0.250% 25,000 0 0%
Anthony D. Altavilla
Trust & Leslie T.
Altavilla Trust DTD 506,380 4.122% 506,380 0 0%
Mark Anderson 6,250 * 6,250 0 0%
Michael Bagela 6,250 * 6,250 0 0%
BAM Ventures 20,000 * 20,000 0 0% 3
Kurtis Bear 6,250 * 6,250 0 0%
Andrew Broadley 100,000 * 100,000 0 0%
Richard Caron 100,000 * 100,000 0 0%
Stanley Coher 25,000 * 25,000 0 0%
Commerce Street
Capital Group, Inc. 281,568 2.346% 281,568 0 0% 4
Commerce Street Venture
Group, Inc. 1,194,177 9.951% 1,194,177 0 0% 5
Stephen I. Cooper 50,000 * 50,000 0 0%
John P. Cusick 12,500 * 12,500 0 0%
Todd Doom 58,333 * 58,333 0 0%
Angela Dozier 10,000 * 10,000 0 0%
David Dozier 20,000 * 20,000 0 0%
Olivia Dozier 10,000 * 10,000 0 0%
Steve Erickson 85,000 * 85,000 0 0%
Michael Felsher 12,500 * 12,500 0 0%
David Finke 58,333 * 58,333 0 0%
Barry S. Gevertz 12,500 * 12,500 0 0%
Paul Gilmartin 25,000 * 25,000 0 0%
Michael Glita & Joan
D. Glita 100,000 * 100,000 0 0%
GO CO LLC 30,000 * 30,000 0 0% 6
Michael Golden 12,500 * 12,500 0 0%
Jane Graham 10,000 * 10,000 0 0%
G S Property
Management, Inc. 25,000 * 25,000 0 0% 7
GT40 North
America, Inc. 2,250,000 18.750% 2,250,000 0 0%
G C Hancher 1,190,000 9.916% 1,190,000 0 0% 8
HDE, Inc. 25,000 * 25,000 0 0% 9
Heidi A. Hoffman 50,000 * 50,000 0 0%
Daniel Hopkins 6,250 * 6,250 0 0%
Integrity Ventures,
Inc. 216,647 1.805% 216,647 0 0% 10
C James Jensen 150,000 1.250% 150,000 0 0%
Donald D. Johnson &
Ann J. Johnson JTTEN 6,250 * 6,250 0 0%
Vern Kauffman (3)(5) 2,792,084 23.067% 2,792,084 0 0% 11
John Kellard 50,000 * 50,000 0 0%
David B. Kelly 25,000 * 25,000 0 0%
Mark G. Langmade 18,750 * 18,750 0 0%
Josh Larson 12,500 * 12,500 0 0%
Erwin Lemowitz TTEE 25,000 * 25,000 0 0%
Walter Lewis &
Gail Lewis 15,000 * 15,000 0 0%
Peter Liebert 15,000 * 15,000 0 0%
M&A Holdings 40,835 * 40,835 0 0% 12
Magellan Capital
Management, Inc. 434,584 3.621% 434,584 0 0% 13
Magellan Financial
Media Group, Inc. 251,250 2.094% 251,250 o 0% 14
Jeffery Markowitz 37,500 * 37,500 0 0%
Dennis M. Mills 6,250 * 6,250 0 0%
Marlin G. Molinaro 284,375 2.370% 284,370 0 0%
Marlin G. Molinaro &
Melody Molinaro 97,072 * 97,072 0 0%
Oakbridge Equities 109,165 * 109,165 0 0% 15
Oakbrooke Consulting
Group, Inc. 120,000 * 120,000 0 0% 16
Kenneth Oestreich &
Sheryl Oestreich 6,250 * 6,250 0 0%
Paul Palmer 12,500 * 12,500 0 0%
Tomas Payan 12,500 * 12,500 0 0%
John Pendl 65,000 * 65,000 0 0% 17
George Recentio 100,000 * 100,000 0 0%
Robert John Richards 6,250 * 6,250 0 0%
Allen Reiss 12,500 * 12,500 0 0%
Steve Rizzone &
Mashid Rizzone 100,000 * 100,000 0 0%
Rydare, LLC 50,000 * 50,000 0 0% 18
Kevin Sallstrom 25,000 * 25,000 0 0%
David R. Schreiber 12,500 * 12,500 0 0%
Dennis Severson 275,000 2.292% 275,000 0 0% 19
Alan C. Shoaf 100,197 * 100,197 0 0%
H. Eliot Subin 25,000 * 25,000 0 0%
Samuel Trancredi 25,000 * 25,000 0 0%
Jeff Tetzlaff 25,000 * 25,000 0 0%
Debbie Stillman 25,000 * 25,000 0 0%
Dwight R. Wade, Jr. 25,000 * 25,000 0 0%
James Whipple 25,000 * 25,000 0 0%
Theresia Whitfield 10,000 * 10,000 0 0%
Nick Williams 6,250 * 6,250 0 0%
Richard J. Wood 6,250 * 6,250 0 0%
Shannon J. Wood 6,250 * 6,250 0 0%
Edward W. Zappe 12,500 * 12,500 0 0%
- --------------------------------------------------------------------------------------------
Total 12,000,000 100.000% 12,000,000 0 0%
1) Assumes that all warrants are exercised and all shares are
sold pursuant to this offering and that no other shares of common
stock are acquired or disposed of by the selling shareholders
prior to the termination of this offering. Because the selling
shareholders may sell all, some or none of their shares or may
acquire or dispose of other shares of common stock, no reliable
estimate can be made of the aggregate number of shares that will
be sold pursuant to this offering or the number or percentage of
shares of common stock that each shareholder will own upon
completion of this offering.
2) Current employee.
3) Debbie Stillman holds sole voting or dispositive power over
these shares.
4) The following persons hold the shared voting or dispositive
power over these shares: L.G. Hancher, are David Finke, Jane
Graham, Roger Hanson and Dennis Severson
5) Includes warrants to purchase 400,000 shares of common
stock that may be acquired at an exercise price of $4.00 per
share commencing 120 days following the date of this prospectus.
L.G. Hancher and Dennis Severson share voting or dispositive
power over these shares.
6) Burl Outlaw holds sole voting or dispositive power over
these shares.
7) Jane Graham holds sole voting or dispositive power over these
shares.
8) G. C. Hancher is the wife of Lowell G. Hancher, one of our
directors. Includes warrants to purchase 400,000 shares of
common stock that may be acquired at an exercise price of
$4.00 per share commencing 120 days following the date of this
prospectus.
9) H. E. Hummel holds sole voting or dispositive power over these
shares.
10) David Finke holds sole voting or dispositive power over
these shares.
11) Mr. Kauffman is currently the President of LA West. Includes
warrants to purchase 1,000,000 shares of common stock that
may be acquired at an exercise price of $4.00 per share
commencing 120 days following the date of this prospectus.
12) Mike Lewis holds sole voting or dispositive power over
these shares.
13) Includes warrants to purchase 187,500 shares of common
stock that may be acquired at an exercise price of $4.00
per share commencing 120 days following the date of this
prospectus. .David Dozier holds sole voting or dispositive
power over these shares.
14) David Dozier holds sole voting or dispositive power
over these shares.
15) Mike Fitzgibbons holds sole voting or dispositive
power over these shares.
16) Mike Fitzgibbons holds sole voting or dispositive
power over these shares.
17) Mr. Pendl serves as our CFO.
18) Mary Fitzgibbons holds sole voting or dispositive power
over these shares.
19) Mr. Severson is one of our directors.
On October 5, 2004, Legend Motors Worldwide, Inc. (Legend) issued
25,000 of its common shares and 6,250 of its warrants with an exercise
price of four dollars each for its common shares to Anthony D.
Altavilla in exchange for $50,000.
On October 5, 2004, Legend issued 12,500 of its common shares and
3,125 of its warrants with an exercise price of four dollars each for
its common shares to Marlin G. Molinaro in exchange for $25,000.
On October 5, 2004, Legend issued 12,500 of its common shares and
3,125 of its warrants with an exercise price of four dollars each for
its common shares to Alan C. Shoaf in exchange for $25,000.
On April 28, 2005, Legend entered into agreements to acquire 100%
of the outstanding common stock of GT 40 North America, Inc. (GT 40)
for 1,847,084 shares of Legend's common stock. Under this agreement,
Legend issued 1,647,084 of its common shares to Lowell G. Hancher,
Jr., 100,000 of its common shares to Andrew Broadley and 100,000 of
its common shares to George Recentio.
On April 28, 2005, Legend issued 6,534,166 of its common shares
to Commerce Street Venture Group, Inc. (CSVG), a private equity firm.
Legend received no cash in exchange for the issuance of these shares.
In exchange for the stock issuance, CSVG committed to paying the costs
required to undertake a public offering of Legend's common stock.
Legend has no obligation or intent to reimburse any costs incurred by
CSVG. CSVG anticipates that it will incur costs in the amount of
$230,000 in the course of the public offering process.
On April 28, 2005, Legend Motors issued 1,987,500 of its warrants
with an exercise price of four dollars each for its common shares to
the following four recipients:
Name Amount
---- ------
Vern Kauffman 1,000,000
Gretchen C. Hancher 400,000
Commerce Street Venture Group, Inc. 400,000
Magellan Financial Media Group, Inc. 187,500
-------
1,987,500
On June 27, 2005, GT 40 entered into formal debt agreements with
Lowell G. Hancher, Jr., CSVG and Magellan Financial Media Group, Inc.
(Magellan). These debt agreements allowed for the conversion of
outstanding debt principal into common stock of GT 40 at a stated
price of two dollars per share. Conversion was at the option of each
note holder. On June 28, 2005, each of the note holders executed
their respective conversion options and Legend issued 434,220 of its
common shares to Lowell G. Hancher, Jr., 566,740 of its common shares
to CSVG and 63,750 of its common shares to Magellan.
On July 1, 2005, Legend entered into an agreement to acquire 49%
of the outstanding common stock of LA West, Inc. (LA West) for
1,582,492 shares of Legend's common stock. Pursuant to this
agreement, Legend issued 1,582,492 of its common shares to CSVG.
On July 1, 2005, Legend entered into an agreement to acquire the
remaining 51% of the outstanding common stock of LA West for 1,647,084
shares of Legend's common stock. Pursuant to this agreement, Legend
issued 1,647,084 of its common shares to Vern Kauffman.
On July 1, 2005, Lowell G. Hancher, Jr. voluntarily surrendered
2,226,304 shares of Legend's common stock to Legend and CSVG
voluntarily surrendered 2,149,232 shares of Legend's common stock to
Legend. Legend then issued 145,000 of those shares to Vern Kauffman
and 1,505,000 of those shares to GT 40. No consideration was received
for the issued shares
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Legend Motors Worldwide, Inc. (Legend) leases office and
production facilities from Lowell G. Hancher, Jr., our interim CEO,
as of January 2006. The lease took effect on July 1, 2005 and
is for a term of five years. The monthly lease payment is $3,037
and total rent payable under this arrangement was $9,111
during the three months ended September 30, 2005. Under the
terms of the lease, Legend must also pay the portion of the real
property taxes allocable to the leased premises. Such allocable
portion during 2004 would have been approximately $9,144 and is
anticipated to be $5,341 for the seven months ended January 1, 2006.
The parties mutually agreed to terminate the lease on January 31, 2006.
On various occasions since its inception, Legend has loaned
funds to GT 40 North America, Inc. (GT 40). As of September 30, 2005,
the total lent to GT 40 was $170,000 and the total repaid by GT 40 was
$2,080. The loan is a demand loan bearing interest at the rate of 5%.
Total interest payable on the loan through September 30, 2005 was as
follows:
Description Amount
----------- ------
Year ended December 31, 2004 $827
Nine months ended September 30, 2005 $6,057
------
Total $6,884
------
LA West, Inc. (LA West) leases its operating facilities from LA
Investments, LLC which is 50% owned by Vern Kauffman and 50% owned by
the Vern Kauffman's spouse. Effective on April 1, 2005, the monthly
lease payment increased to $29,000. Prior to that, the monthly lease
payment was $22,500. The lease is for a period of ten years through
February 28, 2010 and may be renewed for five additional one-year
terms. Rent paid to LA Investments, LLC totaled $270,000 for the year
ended December 31, 2003, $270,000 for the year ended December 31, 2004
and $241,500 for the nine months ended September 30, 2005. Under the
terms of the lease, LA West must also pay the real property taxes on
the leased premises. Total such payments during 2004 were
approximately $23,576. Neither Legend nor LA West has a variable interest
in LA Investments, LLC.
LA West paid Team LA Motorsports, Ltd. $86,800 for the year ended
December 31, 2003, $103,000 for the year ended December 31, 2004 and
$74,748 for the nine months ended September 30, 2005 for advertising
and promoting of LA West. Vern Kauffman's spouse owns 100% of Team LA
Motorsports, Ltd.
For the period from October 1, 2003 through December 1, 2004,
GT 40 rented its office and production space from Lowell G. Hancher,
Jr. The monthly lease payment was $5,412 and total rent payable under
this arrangement was $16,237 during 2003 and $64,947 during 2004. The
lease called only for basic rent payments.
For the period from December 1, 2004 through June 30, 2005, GT
40 leased its office and production space from Lowell G. Hancher, Jr.
The monthly lease payment was $10,000 and total rent payable under
this arrangement was $10,000 during 2004 and $60,000 during the six
months ended June 30, 2005. Under the terms of the lease, GT 40 must
also pay the portion of the real property taxes allocable to the
leased premises. Such allocable portion was approximately $763 during
2004 and is anticipated to be approximately $4,578 for the six months
ended June 30, 2005.
GT 40 has entered into transactions with various related
parties. All loans due to stockholders and companies in which those
stockholders have interest were demand notes bearing interest at the
rate of 5%. The following balances were outstanding at September 30:
2005 2004
---- ----
Accounts Payable - Related Parties (Stockholder) $-0- $100,389
Accounts Payable - Related Parties (Related Companies) 2,388 29,000
----- -------
$2,388 $129,389
====== ========
Accrued Interest - Stockholder $6,884 $18,626
Accrued Interest - Related Companies -0- 10,291
--- ------
$6,884 $28,917
====== =======
Loans from Stockholder $167,920 $707,042
======== ========
Loans from Related Parties $90,000 $578,212
======= ========
GT 40 has paid the following consulting fees to Lowell G. Hancher, Jr.,
our interim CEO as of January 2006:
Description Amount
----------- ------
2003 $18,750
2004 80,481
Nine months ended September 30, 2005 24,615
------
Total $123,846
========
GT 40 has paid the following engineering fees to our former Chief
Technical Officer, Andrew Broadley:
Description Amount
----------- ------
2003 $25,000
2004 103,205
Nine months ended September 30, 2005 67,308
-------
Total $195,513
========
The following transactions occurred between GT 40 and related parties
during the nine months ended September 30 and are included in selling,
general and administrative expenses in the statements of operations:
2005 2004
---- ----
Consulting Fees Paid to Stockholders $67,692 $111,730
Engineering Fees Paid to Stockholder 67,308 72,436
------ ------
$135,000 $184,166
======== ========
Because of their initiatives in founding and organizing our business
Messrs. Kauffman, Hancher and Broadley may be considered promoters of
our company. Mr. Kauffman previously served as our CEO and continues to
serve as the President of LA West and one of our Directors and is
presently the holder of 1,792,084 shares of our common stock and warrants
to acquire an additional 1,000,000 shares of our common stock at a price
of $4.00 per share. Mr. Hancher serves as our interim CEO and Chairman of
our Board of Directors as of January 2006 and is presently the indirect
holder of 1,584,177 shares of our common stock and warrants to acquire an
additional 800,000 shares of our common stock at a price of $4.00
per share. Mr. Broadley is presently the holder of 100,000 shares of our
common stock.
DESCRIPTION OF SECURITIES
General
Our authorized capital stock consists of 50,000,000 shares of
common stock, par value $0.0001 per share. As of the date of this
prospectus, 10,000,000 shares of common stock are issued and
outstanding. The transfer agent for our common stock is Atlas Stock
Transfer of Salt Lake City, Utah. In our articles of incorporation,
we have chosen to not be governed by certain provisions of the Nevada
Revised Statutes. In general, these provisions would limit the voting
rights of investors who attempt to purchase a controlling interest in
the company. Because we have chosen to not be governed by these
provisions it will be easier for an individual to purchase a
controlling interest in our company than if we had chosen to be
governed by such provisions.
Common Stock
We are authorized to issue 50,000,000 shares of our common stock,
$0.0001 par value, of which 10,000,000 shares are issued and
outstanding as of the date of this prospectus. The issued and
outstanding shares of common stock are fully paid and non-assessable.
Except as provided by law or our certificate of incorporation with
respect to voting by class or series, holders of common stock are
entitled to one vote on each matter submitted to a vote at a meeting
of shareholders.
The holders of shares of common stock will be entitled to receive
dividends, if and when declared payable from time to time by the board
of directors, from funds legally available for payment of dividends.
Upon our liquidation or dissolution, holders of shares of common stock
will be entitled to share proportionally in all assets available for
distribution to such holders.
Preferred Stock
The board of directors has the authority, without further action
by our shareholders, to issue up to 20,000,000 shares of preferred
stock, par value $.0001 per share, in one or more series and to fix
the rights, preferences, privileges and restrictions thereof,
including dividend rights, conversion rights, voting rights, terms of
redemption, liquidation preferences and the number of shares
constituting any series or the designation of such series. No shares
of preferred stock are currently issued and outstanding. The issuance
of preferred stock could adversely affect the voting power of holders
of common stock and could have the effect of delaying, deferring or
preventing a change of our control.
Warrants
We presently have 2,000,000 warrants outstanding. Each warrant
entitles the holder thereof to purchase one share of common stock at a
price per share of $4.00 commencing 120 days following the date of
this prospectus. All warrants expire December 31, 2007.
Pursuant to applicable federal and state securities laws, in the
event a current prospectus is not available, the warrant holders may
be precluded from exercising the warrants and we would be precluded
from redeeming the warrants. There can be no assurance that we will
not be prevented by financial or other considerations from maintaining
a current prospectus. Any warrant holder who does not exercise prior
to the redemption date, as set forth in our notice of redemption, will
forfeit the right to purchase the common stock underlying the
warrants, and after the redemption date or upon conclusion of the
exercise period, any outstanding warrants will become void and be of
no further force or effect, unless extended by our Board of Directors.
The number of shares of common stock that may be purchased with
the warrants is subject to adjustment upon the occurrence of certain
events, including a dividend distribution to our shareholders or a
subdivision, combination or reclassification or our outstanding shares
of common stock. The warrants do not confer upon holders any voting
or any other rights as our shareholders.
We may at any time, and from time to time, extend the exercise
period of the warrants, provided that written notice of such extension
is given to the warrant holders prior to the expiration date then in
effect. Also, we may reduce the exercise price of the warrants for
limited periods or through the end of the exercise period if deemed
appropriate by the Board of Directors. Any extension of the term
and/or reduction of the exercise price of the warrants will be subject
to compliance with Rule 13e-4 under the Exchange Act including the
filing of a Schedule 14E-4. Notice of any extension of the exercise
period and/or reduction of the exercise price will be given to the
warrant holders. We do not presently contemplate any extension of the
exercise period or any reduction in the exercise price of the
warrants. The warrants are also subject to price adjustment upon the
occurrence of certain events including subdivisions or combinations of
our common stock.
Market for Common Equity and Related Stockholder Matters
There is no established public market for our common stock and we
have arbitrarily determined the offering price. Although we hope to
be quoted on the OTC Bulletin Board which is maintained by NASDAQ, our
common stock is not currently listed or quoted on any quotation
service. Because NASDAQ has no business relationship with the issuers
quoted on the OTC Bulletin Board we are not able to apply directly for
quotation. Only Market Makers may apply to quote securities on this
market. Our Board of Directors has pre-existing relationships with
various Market Makers who have indicated a desire to apply for such
quotation. Issuers are not charged a fee for this service. There
can be no assurance that our common stock will ever be quoted on any
quotation service or that any market for our stock will ever develop
or, if developed, will be sustained.
As of December 31, 2005, there were 93 shareholders of record of
our common stock and a total of 10,000,000 shares outstanding. All
10,000,000 shares are being registered in this offering and
accordingly there are no outstanding shares at this time that would be
subject to Rule 144.
DISCLOSURE OF COMMISSION POSITION
OF INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Article 11 of our Articles of Incorporation includes certain
provisions permitted by the Section 78.7502 of the Nevada Revised
Statutes, which provides for indemnification of directors and officers
against certain liabilities.
In general, Section 78.7502 permits us to indemnify our officers
and directors in situations where they (1) rely on information,
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 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,
(c) unless such director or officer is not entitled to rely on
such information, opinions, reports, books of account or statements if
he has knowledge concerning the matter in question that would cause
reliance thereon to be unwarranted., or
(2) acted in good faith and in a manner which he 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 his conduct was unlawful.
Pursuant to our Articles of Incorporation, our officers and
directors are indemnified, to the fullest extent available under
Nevada Law, against expenses actually and reasonably incurred in
connection with threatened, pending or completed proceedings, whether
civil, criminal or administrative, to which an officer or director is,
was or is threatened to be made a party by reason of the fact that he
or she is or was one of our officers, directors, employees or agents.
We may advance expenses in connection with defending any such
proceeding, provided the indemnitee undertakes to repay any such
amounts if it is later determined that he or she was not entitled to
be indemnified by us.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to our directors, officers and
controlling persons pursuant to the foregoing provisions or otherwise,
we have been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the
Securities Act and is therefore, unenforceable.
PLAN OF DISTRIBUTION
The selling stockholders and any of their pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of
their shares of common stock on any stock exchange, market or trading
facility on which the shares are then traded or in private
transactions at a price of $3.00 per share until our shares are quoted
on the Over The Counter Bulletin Board maintained by NASDAQ and
thereafter at prevailing market prices or in privately negotiated
transactions. Because NASDAQ has no business relationship with the
issuers quoted on the OTC Bulletin Board we are not able to apply
directly for quotation. Only Market Makers may apply to quote
securities on this market. Our Board of Directors has pre-existing
relationships with various Market Makers who have indicated a desire
to apply for such quotation. Issuers are not charged a fee for this
service. The selling stockholders may use any one or more of the
following methods when selling shares:
* ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
* block trades in which the broker-dealer will attempt to sell the
shares as agent but may position and resell a portion of the
block as principal to facilitate the transaction;
* purchases by a broker-dealer as principal and resale by the
broker-dealer for its account;
* an exchange distribution in accordance with the rules of the
applicable exchange;
* privately negotiated transactions;
* a combination of any such methods of sale; and
* any other method permitted pursuant to applicable law.
The selling stockholders may also sell shares under Rule 144
under the Securities Act, if available, rather than under this
prospectus.
In order to comply with the securities laws of certain states, if
applicable, the shares may be sold only through registered or licensed
brokers or dealers. In addition, in certain states, the shares may
not be sold unless they have been registered or qualified for sale in
such state or an exemption from such registration or qualification
requirement is available and complied with.
The selling stockholders may pledge their shares to their brokers
under the margin provisions of customer agreements. If a selling
stockholder defaults on a margin loan, the broker may, from time to
time, offer and sell the pledged shares.
Broker-dealers engaged by the selling stockholders may arrange
for other brokers-dealers to participate in sales. Broker-dealers may
receive commissions or discounts from the selling stockholders (or, if
any broker-dealer acts as agent for the purchaser of shares, from the
purchaser) in amounts to be negotiated. The selling stockholders do
not expect these commissions and discounts to exceed what is customary
in the types of transactions involved.
The selling stockholders and any broker-dealers or agents that
are involved in selling the shares may be deemed to be "underwriters"
within the meaning of the Securities Act in connection with such
sales. In such event, any commissions received by such broker-dealers
or agents and any profit on the resale of the shares purchased by them
may be deemed to be underwriting commissions or discounts under the
Securities Act.
We will pay all of the expenses incident to the registration,
offering and sale of the shares to the public, but will not pay
commissions and discounts, if any, of underwriters, broker-dealers or
agents, or counsel fees or other expenses of the selling shareholders.
We have also agreed to indemnify the selling shareholders and related
persons against specified liabilities, including liabilities under the
Securities Act.
We have advised the selling shareholders that while they are
engaged in a distribution of the shares included in this prospectus
they are required to comply with Regulation M promulgated under the
Securities Exchange Act of 1934, as amended. With certain exceptions,
Regulation M precludes the selling shareholders, any affiliated
purchasers, and any broker-dealer or other person who participates in
such distribution from bidding for or purchasing, or attempting to
induce any person to bid for or purchase any security which is the
subject of the distribution until the entire distribution is complete.
Regulation M also prohibits any bids or purchases made in order to
stabilize the price of a security in connection with the distribution
of that security. All of the foregoing may affect the marketability
of the shares offered hereby in this prospectus.
LEGAL MATTERS
The Law Office of James G. Dodrill II, P.A. of Boca Raton,
Florida will provide an opinion for us regarding the validity of the
common stock offered in this prospectus.
EXPERTS
The financial statements of Legend Motors Worldwide, Inc., GT 40
North America, Inc. and LA West, Inc included in this prospectus have
been so included in reliance on the reports of Tedder, James, Worden &
Associates, P.A., an independent registered certified public
accounting firm, given on the authority of said firm as experts in
auditing and accounting.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registration statement under the Securities Act
with respect to the securities offered hereby with the Commission, 450
Fifth Street, N.W., Washington, D.C. 20549. This prospectus, which is
a part of the registration statement, does not contain all of the
information contained in the registration statement and the exhibits
and schedules thereto, certain items of which are omitted in accordance
with the rules and regulations of the Commission. For further
information with respect to Legend Motors Worldwide, Inc. and the
securities offered hereby, reference is made to the registration
statement, including all exhibits and schedules thereto, which may be
inspected and copied at the public reference facilities maintained by
the Commission at 100 F Street, N.E., Washington, D. C. 20549, at
prescribed rates during regular business hours. You may obtain
information on the operation of the public reference facilities by
calling the Commission at 1-800-SEC-0330. Also, the SEC maintains an
Internet site that contains reports, proxy and information statements,
and other information regarding issuers that file electronically with
the Commission at http://www.sec.gov. Statements contained in this
prospectus as to the contents of any contract or other document are not
necessarily complete, and in each instance reference is made to the
copy of such contract or document filed as an exhibit to the
registration statement, each such statement being qualified in its
entirety by such reference. We will provide, without charge upon oral
or written request of any person, a copy of any information
incorporated by reference herein. Such request should be directed to
us at Legend Motors Worldwide, Inc., 1995 East US 20, LaGrange,
Indiana 46761, Attention: John G. Pendl, CFO. Our Internet address is
www.legendmotorsww.com.
Following the effectiveness of this registration statement, we
will file reports and other information with the Commission. All of
such reports and other information may be inspected and copied at the
Commission's public reference facilities described above. The
Commission maintains a web site that contains reports, proxy and
information statements and other information regarding issuers that
file electronically with the Commission. The address of such site is
http://www.sec.gov. In addition, we intend to make available to our
shareholders annual reports, including audited financial statements,
unaudited quarterly reports and such other reports as we may determine.
REPORT OF INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Legend Motors Worldwide, Inc.:
We have audited the accompanying balance sheet of Legend Motors
Worldwide, Inc. as of December 31, 2004, and the related
statements of income, stockholders' equity, and cash flows for
the period from September 14, 2004 (inception) to December 31,
2004. 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 audit.
We conducted our audit 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. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides 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 Legend Motors Worldwide, Inc. as of December 31, 2004, and the
results of its operations and its cash flows for the period from
September 14, 2004 (inception) to December 31, 2004 in conformity
with U.S. generally accepted accounting principles.
/s/ Tedder, James, Worden & Associates, P.A.
December 9, 2005
Orlando, Florida
Legend Motors Worldwide, Inc.
Balance Sheet
December 31, 2004
ASSETS
Current Assets:
Cash $62
Interest Receivable 827
Receivable from Related Party 99,120
-------
Total Assets $100,009
=========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Income Taxes Payable 2
--
Total Liabilities 2
--
Stockholders' Equity:
Preferred Stock, $0.0001 par value, 20,000,000
shares authorized, no shares issued and
outstanding -0-
Common Stock, $0.0001 par value, 50,000,000
shares authorized, 50,000 shares issued and
outstanding 5
Capital in Excess of Par 99,995
Retained Earnings 7
--
Total Stockholders' Equity 100,007
--------
Total Liabilities and Stockholders' Equity $100,009
---------
See Accompanying Notes to Financial Statements.
Legend Motors Worldwide, Inc.
Statement of Income
Period From
September 14, 2004
(Inception) to
December 31, 2004
------------------
Net Sales $-0-
Selling, General and Administrative Expenses 818
----
Loss from Operations (818)
Other Income:
Interest Income 827
Net Income Before Income Taxes 9
Income Tax Expense 2
--
Net Income $7
---
Weighted Average Shares of Common
Stock Outstanding:
Basic 50,000
=======
Diluted 62,500
=======
Income Per Common Share:
Basic $0.00
=====
Diluted $0.00
=====
See Accompanying Notes to Financial Statements.
Legend Motors Worldwide, Inc.
Statement of Cash Flows
Period From
September 14, 2004
(Inception) to
December 31, 2004
------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $7
Adjustments to Reconcile Net Income to
Net Cash Used In Operating Activities:
(Increase) Decrease in Assets:
Interest Receivable (827)
Increase (Decrease) in Liabilities:
Income Taxes Payable 2
--
Net Cash Used In Operating Activities (818)
-----
CASH FLOWS FROM INVESTING ACTIVITIES
Net Cash Used In Investing Activities -0-
---
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of Common Stock and Warrants 100,000
Loan To Related Party (100,000)
Payments Received on Loan to Related Party 880
----
Net Cash Provided by Financing Activities 880
----
Net Increase in Cash 62
Cash - Beginning of Period -0-
---
Cash - End of Period $62
----
See Accompanying Notes to Financial Statements.
Legend Motors Worldwide, Inc.
Statement of Stockholders' Equity
For the Period from September 14, 2004 (Inception) to December 31, 2004
Capital in Total
Common Stock Excess Retained Stockholders'
Shares Amount Of Par Earnings Equity
------ ------ ---------- -------- -------------
Inception(September 14, 2004) -0- $-0- $-0- $-0- $-0-
Issuance of Common Stock 50,000 5 99,995 -0- 100,000
Net Income -0- -0- -0- 7 7
--- ---- --- -- --
Balances at December 31, 2004 50,000 $5 $99,995 $7 $100,007
------- --- -------- --- ---------
See Accompanying Notes to Financial Statements.
Legend Motors Worldwide, Inc.
Notes to Financial Statements
December 31, 2004
1. BUSINESS
Legend Motors Worldwide, Inc. (the "Company") is an investment
holding company. At December 31, 2004 it held no investments.
The Company's headquarters are located in LaGrange, Indiana.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates - The preparation of financial statements in
conformity with accounting principles generally accepted in the
United States of America (GAAP) requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Income Taxes - The Company accounts for income taxes utilizing
the asset and liability method. This approach requires the
recognition of deferred tax assets and liabilities for the
expected future tax consequences attributable to temporary
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases
and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in
tax rate is recognized in income in the period that included the
enactment date.
Concentration of Credit Risk - Financial instruments which
potentially subject the Company to concentrations of credit risk
consist of cash. The Company places its cash with high credit
quality financial institutions.
3. INCOME TAXES
The Company had no deferred tax assets and liabilities at
December 31, 2004.
A reconciliation between the effective rate for income taxes and
the amount computed by applying the statutory Federal income tax
rate to loss from continuing operations before provision for
income taxes for the period from September 14, 2004 (inception)
to December 31, 2004 is as follows:
For the Period From
September 14, 2004
(Inception) to
December 31, 2004
-------------------
Statutory Federal Tax Rate (34.0)%
State and Local Taxes 5.6%
Effect of Graduated Tax Rate Brackets 17.4
Effective Tax Rate 22.2%
Legend Motors Worldwide, Inc.
Notes to Financial Statements
December 31, 2004
The Company utilizes a December 31 year end for Federal and state
income tax purposes. The tax effects of the temporary
differences between reportable financial statement income and
taxable income are recognized as a deferred tax asset and
liability.
4. STOCKHOLDERS' EQUITY
The Company has 50,000,000 shares of $0.0001 par value common
stock authorized, of which 50,000 shares were issued and
outstanding at December 31, 2004. The Company has 20,000,000
shares of $0.0001 par value preferred stock authorized, of which
no shares were issued and outstanding at December 31, 2004.
5. RELATED PARTY TRANSACTIONS
The Company has extended a loan to a related company through
common ownership for $100,000. The loan is a demand note bearing
interest at the rate of 5%. The following balances were
outstanding at December 31, 2004:
Accrued Interest - Related Company 827
====
Loan to Related Company $99,120
========
6. EARNINGS PER SHARE
Basic and fully diluted earnings per share for the period from
September 14, 2004 (inception) to December 31, 2004 was
determined as follows:
Income Shares Per-Share
(Numerator) (Denominator) Amounts
----------- ------------- -------
Net Income $7
Less: Preferred stock dividends -0-
---
Basic EPS $7 50,000 $0.00
Warrants -0- 12,500
--- ------
Diluted EPS $7 62,500 $0.00
--- ------ -----
There have been several transactions subsequent to the income
statement date that would change the number of common shares or
potential common shares presented in these earnings per share
calculations. All these transactions are summarized in footnote
7 (Subsequent Events) below.
7. SUBSEQUENT EVENTS
At the close of business on April 28, 2005, the Company entered
into a separate formal share swap agreement with each of the
three shareholders of GT 40 North America, Inc. (GT 40).
Pursuant to the three agreements, the Company exchanged 1,847,084
of the Company's common shares for 100 shares of GT 40. As a
result of the exchanges, GT 40 became a wholly-owned subsidiary
of the Company.
At the close of business on April 28, 2005, the Company issued
6,534,166 of its common shares to a private equity firm. The
Company received no cash in exchange for the issuance of these
shares. In exchange for the stock issuance, the private equity
firm committed to paying the costs required to undertake a public
offering of the Company's common stock. The Company has no
obligation or intent to reimburse any costs incurred by the
private equity firm. The private equity firm anticipates that it
will incur costs in the amount of $230,000 in the course of the
public offering process. As a result, the Company will expense
consulting fees in the amount of $230,000 in April 2005.
At the close of business on April 28, 2005, the Company issued
1,987,500 warrants with an exercise price of four dollars each
for its common shares to four shareholders of the Company.
Legend Motors Worldwide, Inc.
Notes to Financial Statements
December 31, 2004
On June 27, 2005, GT 40 entered into formal debt agreements with
certain related parties through common ownership to which GT 40
had outstanding loans to consolidate the respective loans and
accrued interest due to each respective party. The new debt
agreements allow for the converging of outstanding debt and
accrued interest into common stock of GT 40 or the Company at a
stated price of two dollars per share. The converging is at the
option of the note holder. On June 28, 2005, each of the holders
of loans payable executed their respective options to convert
their respective outstanding principle balances to common stock
and 1,064,710 shares were issued.
On July 1, 2005, the Company entered into a formal share swap
agreement with a shareholder of L.A. West, Inc. pursuant to which
the Company exchanged 1,582,492 shares of the Company's common
stock for 49% of the outstanding common stock of L.A. West, Inc.
Also on July 1, 2005, the Company entered into a formal share
swap agreement with a second shareholder of L.A. West, Inc.
pursuant to which the Company exchanged 1,647,084 shares of the
Company's common stock for the remaining 51% of the outstanding
common stock of L.A. West, Inc. As a result of the two
exchanges, L.A. West, Inc. became a wholly-owned subsidiary of
the Company.
On July 1, 2005, an individual shareholder of the Company surrendered
2,226,304 shares of the Company's common stock to the Company and the
above referenced private equity firm voluntarily surrendered 2,149,232
of theCompany's common shares to the Company. The Company then issued
145,000 of those shares to a second individual shareholder and 1,505,000
of those shares to GT 40. No consideration was received for the
issued shares.
As a result of all the subsequent events summarized in this
footnote, as of July 1, 2005, the Company has 10,000,000 shares
of $0.0001 par value common stock issued and outstanding and
2,000,000 warrants with an exercise price of four dollars each
issued and outstanding.
Legend Motors Worldwide, Inc.
Balance Sheet
(Unaudited)
ASSETS September 30, 2005 September 30, 2004
------------------ ------------------
Current Assets:
Cash $ 30 $ -0-
Interest Receivable 6,884 -0-
Receivable from Related Party 167,920 -0-
Investment in Subsidiaries 400,614 -0-
---------------- ----------------
Total Assets $ 575,448 $ -0-
================ ================
LIABILITIES AND STOCKHOLDERS' DEFICIT
Income Taxes Payable $ -0- $ -0-
Payable to Related Parties 18,613 260
---------------- ----------------
Total Liabilities 18,613 260
---------------- ----------------
Stockholders' Equity:
Common Stock, $0.0001 par value, 50,000,000 shares
authorized, 10,000,000 and -0- shares issued and
outstanding on September 30, 2005 and 2004,
respectively 1,000 -0-
Preferred Stock, $0.0001 par value, 20,000,000 shares
authorized, no shares issued and outstanding -0- -0-
Capital in Excess of Par 800,034 -0-
Accumulated Deficit (244,199) (260)
---------------- ----------------
Total Stockholders' Equity (Deficit) 556,835 (260)
---------------- ----------------
Total Liabilities and Stockholders' Equity $ 575,448 $ -0-
================ ================
See Accompanying Notes to Financial Statements.
Legend Motors Worldwide, Inc.
Statement of Income
(Unaudited)
Period From
September 14, 2004
Nine Months Ended (Inception) to
September 30, 2005 September 30, 2004
---------------- ----------------
Net Sales $ -0- $ -0-
Operating Expenses:
Salaries, Wages and Employee Benefits 5,217 -0-
Occupancy Costs 11,397 -0-
Advertising and Sales 2,000 -0-
Other General and Administrative Expenses 231,232 260
---------------- ----------------
Total Operating Expenses 249,846 260
---------------- ----------------
Loss from Operations (249,846) (260)
Other Income (Expense):
Interest Income 6,057 -0-
Interest Expense (419) -0-
---------------- ----------------
Total Other Income (Expense) 5,638 -0-
---------------- ----------------
Net Loss Before Income Taxes (244,208) (260)
Income Tax Benefit (2) -0-
---------------- ----------------
Net Loss $ (244,206) $ (260)
================ ================
Weighted Average Shares of Common Stock Outstanding:
Basic and Diluted 5,343,202 -0-
================ ================
Loss Per Common Share:
Basic and Diluted $ (0.05) $ 0.00
================ ================
See Accompanying Notes to Financial Statements.
Legend Motors Worldwide, Inc.
Statement of Cash Flows
(Unaudited)
Period From
September 14, 2004
Nine Months Ended (Inception) to
September 30, 2005 September 30, 2004
---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ (244,206) $ (260)
Adjustments to Reconcile Net Income to Net Cash Used
In Operating Activities:
Issuance of Common Stock in Lieu of Cash in Exchange
for Professional Services 230,000 -0-
(Increase) Decrease in Assets:
Interest Receivable (6,057) -0-
Increase (Decrease) in Liabilities:
Payable to Related Parties 260
Income Taxes Payable (2) -0-
---------------- ----------------
Net Cash Used In Operating Activities (20,265) -0-
---------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Investments in Subsidiaries (400,614) -0-
---------------- ----------------
Net Cash Used In Investing Activities (400,614) -0-
---------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of Common Stock and Warrants 400,614 -0-
Stockholder Capital Contributions 70,419 -0-
Loan (To) Related Parties (69,500) -0-
Loan From Related Parties 313,614 -0-
Payments Remitted on Loan from Related Party (295,000) -0-
Payments Received on Loan to Related Party 700 -0-
---------------- ----------------
Net Cash Provided by Financing Activities 420,847 -0-
---------------- ----------------
Net Decrease in Cash (32) -0-
Cash - Beginning of Period 62 -0-
---------------- ----------------
Cash - End of Period $ 30 $ -0-
================ ================
See Accompanying Notes to Financial Statements.
Legend Motors Worldwide, Inc.
Statement of Stockholders' Equity
For the Nine Months Ended September 30, 2005 and the Period from September 14,
2004 (Inception) to September 30, 2004 (Unaudited)
Capital
in Total
Common Stock Excess Retained Stockholders'
Shares Amount Of Par Earnings Equity
------------ ------------ ------------ ------------ ------------
Inception (September 14, 2004) -0- $ -0- $ -0- $ -0- $ -0-
Issuance of Common Stock -0- -0- -0- -0- -0-
Net Loss -0- -0- -0- (260) (260)
------------ ------------ ------------ ------------ ------------
Balances at September 30, 2004 -0- $ -0- $ -0- $ (260) $ (260)
============ ============ ============ ============ ============
Balances at December 31, 2004 50,000 $ 5 $ 99,995 $ 7 $ 100,007
Issuance of Common Stock 9,950,000 995 629,619 -0- 630,614
Stockholder Capital Contributions -0- -0- 70,419 -0- 70,419
Net Loss -0- -0- -0- (244,206) (244,206)
------------ ------------ ------------ ------------ ------------
Balances at September 30, 2005 10,000,000 $ 1,000 $ 800,033 $ (244,199) $ 556,834
============ ============ ============ ============ ============
See Accompanying Notes to Financial Statements.
Legend Motors Worldwide, Inc.
Notes to Financial Statements
September 30, 2005
1. BUSINESS
Legend Motors Worldwide, Inc. (the "Company") is an investment holding company.
The Company's headquarters are located in LaGrange, Indiana.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America (GAAP)
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Income Taxes - The Company accounts for income taxes utilizing the asset and
liability method. This approach requires the recognition of deferred tax assets
and liabilities for the expected future tax consequences attributable to
temporary differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rate is recognized in income in the period that included the enactment date.
Concentration of Credit Risk - Financial instruments which potentially subject
the Company to concentrations of credit risk consist of cash. The Company places
its cash with high credit quality financial institutions.
3. INCOME TAXES
The Company had no deferred tax assets and liabilities at September 30, 2005 or
September 30, 2004.
A reconciliation between the effective rate for income taxes and the amount
computed by applying the statutory Federal income tax rate to loss from
continuing operations before provision for income taxes for the period from
September 14, 2004 (inception) to December 31, 2004 is as follows:
For the Period From
September 14, 2004
(Inception) to
December 31, 2004
-----------------
Statutory Federal Tax Rate (34.0)%
State and Local Taxes (5.6)%
Effect of Graduated Tax Rate Brackets 17.4
----------
Effective Tax Rate 22.2%
==========
Legend Motors Worldwide, Inc.
Notes to Financial Statements
September 30, 2005
The Company utilizes a December 31 year end for Federal and state income tax
purposes. The tax effects of the temporary differences between reportable
financial statement income and taxable income are recognized as a deferred tax
asset and liability.
4. STOCKHOLDERS' EQUITY
The Company has 50,000,000 shares of $0.0001 par value common stock authorized,
of which 10,000,000 shares were issued and outstanding at September 30, 2005.
The Company has 20,000,000 shares of $0.0001 par value preferred stock
authorized, of which no shares were issued and outstanding at September 30,
2005.
At the close of business on April 28, 2005, the Company entered into a separate
formal share swap agreement with each of the three shareholders of GT 40 North
America, Inc. (GT 40). Pursuant to the three agreements, the Company exchanged
1,847,084 of the Company's common shares for 100 shares of GT 40. As a result of
the exchanges, GT 40 became a wholly-owned subsidiary of the Company.
At the close of business on April 28, 2005, the Company issued 6,534,166 of its
common shares to a private equity firm. The Company received no cash in exchange
for the issuance of these shares. In exchange for the stock issuance, the
private equity firm committed to paying the costs required to undertake a public
offering of the Company's common stock. The Company has no obligation or intent
to reimburse any costs incurred by the private equity firm. The private equity
firm anticipates that it will incur costs in the amount of $230,000 in the
course of the public offering process. As a result, the Company will expense
consulting fees in the amount of $230,000 in April 2005.
At the close of business on April 28, 2005, the Company issued 1,987,500
warrants with an exercise price of four dollars each for its common shares to
four shareholders of the Company.
On June 27, 2005, GT 40 entered into formal debt agreements with certain related
parties through common ownership to which GT 40 had outstanding loans to
consolidate the respective loans and accrued interest due to each respective
party. The new debt agreements allow for the converging of outstanding debt and
accrued interest into common stock of GT 40 or the Company at a stated price of
two dollars per share. The converging is at the option of the note holder. On
June 28, 2005, each of the holders of loans payable executed their respective
options to convert their respective outstanding principle balances to common
stock and 1,064,710 shares were issued.
On July 1, 2005, the Company entered into a formal share swap agreement with a
shareholder of L.A. West, Inc. pursuant to which the Company exchanged 1,582,492
shares of the Company's common stock for 49% of the outstanding common stock of
L.A. West, Inc. Also on July 1, 2005, the Company entered into a formal share
swap agreement with a second shareholder of L.A. West, Inc. pursuant to which
the Company exchanged 1,647,084 shares of the Company's common stock for the
remaining 51% of the outstanding common stock of L.A. West, Inc. As a result of
the two exchanges, L.A. West, Inc. became a wholly-owned subsidiary of the
Company.
Legend Motors Worldwide, Inc.
Notes to Financial Statements
September 30, 2005
On July 1, 2005, two shareholders of the Company surrendered a net total of
2,725,536 shares of the Company's common stock to the Company. These shares are
held in treasury by the Company.
As a result of the events summarized in this footnote, as of September 30, 2005,
the Company has 10,000,000 shares of $0.0001 par value common stock issued and
outstanding and 2,000,000 warrants with an exercise price of four dollars each
issued and outstanding.
5. RELATED PARTY TRANSACTIONS
The Company has extended loans to a related company through common ownership.
The loan is a demand note bearing interest at the rate of 5%. The following
balances were outstanding at September 30:
2005 2004
---------- ----------
Accrued Interest - Related Company $ 6,884 $-0-
========== ==========
Loan to Related Company $ 167,920 $-0-
========== ==========
6. EARNINGS PER SHARE
Basic and fully diluted earnings per share for the nine months ended September
30, 2005 was determined as follows:
Income Shares Per-Share
(Numerator) (Denominator) Amounts
------------ ------------ ------------
Net Loss $ (244,206)
Less: Preferred stock dividends -0-
------------
Basic EPS $ (244,206) 5,343,202 $ (0.05)
Diluted EPS $ (244,206) 5,343,202 $ (0.05)
============ ============ ============
As of September 30, 2005, the Company had 2,000,000 of its warrants with an
exercise price of four dollars each for its common shares outstanding that, if
exercised by the holders, could potentially dilute basic earning per share in
the future. These warrants were not included in the computation of diluted
earnings per share because to do so would have been antidilutive for the period
presented.
Basic and fully diluted earnings per share for the nine months ended September
30, 2004 was determined as follows:
Legend Motors Worldwide, Inc.
Notes to Financial Statements
September 30, 2005
Income Shares Per-Share
(Numerator) (Denominator) Amounts
------------ ------------ ------------
Net Loss $ (260)
Less: Preferred stock dividends -0-
------------
Basic EPS $ (260) -0- $ 0.00
Diluted EPS $ (260) -0- $ 0.00
============ ============ ============
As of September 30, 2004, the Company had no securities, either authorized or
issued, that could potentially dilute basic earning per share.
There have been no subsequent transactions that would change the number of
common shares or potential common shares presented in these earnings per share
calculations.
Legend Motors Worldwide, Inc. and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
Pro forma
September 30, September 30,
2005 2004
ASSETS
Current Assets:
Cash $94,403 $170,794
Accounts Receivable 532,821 465,614
Inventories 5,966,928 5,951,700
Current Deferred Tax Asset 63,392 -0-
Other Current Assets 37,712 36,653
------ ------
Total Current Assets 6,695,256 6,624,761
Property and Equipment, Net 809,651 534,578
Goodwill 2,003,658 2,003,658
Long Term Deferred Tax Asset 20,184 -0-
Other Assets 80,814 56,530
------ ------
Total Assets $9,609,563 $9,219,527
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable 526,254 1,090,765
Accounts Payable - Related Party -0- 129,649
Accrued Expenses 520,004 315,539
Accrued Interest -0- 28,917
Customer Deposits -0- 45,000
Short Term Debt 214,580 480,100
Loan From Stockholder 90,000 707,042
Loan From Related Parties -0- 478,212
Floor Plan Payable 5,188,275 4,142,663
--------- ---------
Total Current Liabilities 6,539,113 7,417,887
Long Term Debt 24,444 38,518
------ ------
Total Liabilities 6,563,557 7,456,405
--------- ---------
Commitments and Contingencies
Stockholders' Equity:
Common Stock 1,000 513
Capital in Excess of Par 5,102,279 1,899,700
Accumulated Deficit (1,967,273) (137,091)
----------- ---------
Total Stockholders' Equity 3,136,006 1,763,122
--------- ---------
Total Liabilities and
Stockholders' Equity $9,609,563 $9,219,527
========== ==========
See Accompanying Notes to Financial Statements.
Legend Motors Worldwide, Inc. and Subsidiaries
Consolidated Statements of Income
(Unaudited)
Nine Months Pro forma
Ended Ended
September 30, September 30,
2005 2004
---- ----
Sales $7,892,508 $11,790,286
Cost of Goods Sold 5,320,517 8,215,054
--------- ---------
Gross Profit (Loss) 2,571,991 3,575,232
Operating Expenses:
Salaries, Wages and Employee Benefits 1,141,396 1,380,377
Occupancy Costs 443,185 416,070
Advertising and Sales 256,095 441,912
Loss (Gain) on Sale of Property -0- 40,067
Other General and Administrative Expenses 1,337,990 1,126,579
--------- ---------
Selling, General and Administrative Expenses 3,178,666 3,405,005
--------- ---------
Income (Loss) from Operations (606,675) 170,227
Net Interest Expense (Income) 213,479 234,662
------- -------
Loss Before Income Taxes (820,154) (64,435)
Income Tax Expense (Benefit) (83,578) -0-
-------- ---
Net Loss $(736,576) $(64,435)
========== =========
Weighted Average Shares of Common
Stock Outstanding:
Basic and diluted 8,312,477 5,126,660
========= =========
Loss Per Common Share:
Basic and diluted $(0.09) $(0.01)
======= =======
See Accompanying Notes to Financial Statements.
Legend Motors Worldwide, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Pro forma
Ended Ended
September 30, September 30,
2005 2004
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $(736,576) $(64,435)
Adjustments to Reconcile Net Loss to
Net Cash Used In Operating Activities:
Depreciation 102,204 72,215
Gain on Sale of Equipment -0- 40,067
Current Deferred Tax Asset (63,392)
Long Term Deferred Tax Asset (20,184)
Issuance of Common Shares in Lieu of Cash 230,000 -0-
(Increase) Decrease in Assets:
Accounts Receivable (257,180) (325,629)
Inventories 132,562 (674,393)
Floor Planned Chassis 165,900 3,851,017
Interest Receivable (6,057) -0-
Prepaid Expenses and Other Current Assets 5,680 25,310
Related Party Receivables (16,715) -0-
Increase (Decrease) in Liabilities:
Accounts Payable (403,871) 233,899
Accounts Payable - Related Parties 764,926 584,574
Floor Planned Chassis (165,901) (3,851,017)
Accrued Interest 57,940 28,330
Accrued Expenses 202,918 4,239
Customer Deposits -0- (98,000)
--- --------
Net Cash Used In Operating Activities (7,746) (173,823)
------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of Property and Equipment (129,873) (124,416)
Proceeds from Sale of Property and Equipment -0- 6,300
Increase in Other Assets (7,333) (7,334)
------- -------
Net Cash Used In Investing Activities (137,206) (125,450)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Proceeds (Repayments) on Line of Credit (238,000) (57,000)
Net Proceeds (Repayments) on Long Term Debt (11,163) (36,619)
Payments on Capital Lease Obligation (38,512) (86,262)
Capital Contributions 565,068 -0-
Stockholder Distributions (27,000) (72,656)
Net Proceeds (Repayments) on Stockholder
Loans (56,889) 633,042
Net Proceeds (Repayments) on Related
Party Loans (50,186) -0-
-------- ---
Net Cash Provided by Financing Activities 167,096 380,505
------- -------
Net Increase (Decrease) in Cash 22,144 81,232
Cash - Beginning of Period 72,259 89,562
------ ------
Cash - End of Period $94,403 $170,794
======= ========
Supplemental Disclosure of Non-cash Investing and Financing Activities:
Four creditors of the Company's wholly-owned subsidiary
exercised their respective options to convert debt obligations of the
subsidiary into 1,064,710 common shares of the Company. As a result,
the subsidiary's outstanding debt was reduced by $2,129,420 and the
subsidiary's capital in excess of par was increased by $2,129,420.
The Company entered into a separate formal share swap
agreement with each of the three shareholders of GT 40 North America,
Inc. (GT 40). Pursuant to the three agreements, the Company exchanged
1,847,084 of the Company's common shares for 100 shares of GT 40. As
a result of the exchanges, GT 40 became a wholly-owned subsidiary of
the Company
See Accompanying Notes to Financial Statements.
Legend Motors Worldwide, Inc. and Subsidiaries
Consolidated Statement of Stockholders' Equity
(Unaudited)
Common Capital in Total
Stock Excess Retained Stockholders'
Shares Amount Of Par Earnings Equity
------ ------ ------ -------- ------
Inception (September
14, 2004) -0- $-0- $-0- $-0- $-0-
Issuance of Common Stock 5,126,660 513 1,899,700 -0- 1,900,213
Stockholder Distributions -0- -0- -0- (72,656) (72,656)
Net Income (Loss) -0- -0- -0- (64,435) (64,435)
--- --- --- -------- --------
Balances at
September 30, 2004 5,126,660 $513 $1,899,700 $(137,091) $1,763,122
========= ==== ========== ========== ==========
Balances at December 31, 2004 5,126,660 $513 $1,645,202 $(1,203,697) $442,018
Issuance of Common Stock 4,873,340 487 3,030,293 -0- 3,030,780
Stockholder Distributions -0- -0- -0- (27,000) (27,000)
Capital Contributed -0- -0- 426,784 -0- 426,784
Net Income (Loss) -0- -0- -0- (736,576) (736,576)
--- --- --- --------- ---------
Balances at September
30, 2005 10,000,000 $1,000 $5,102,279 $(1,967,273) $3,136,006
========== ====== ========== ============ ==========
See Accompanying Notes to Financial Statements.
Legend Motors Worldwide, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 2005 and 2004
1. BUSINESS
Legend Motors Worldwide, Inc. (the "Company") is an investment holding
company. The Company's headquarters are located in LaGrange,
Indiana. The Company's consolidated financial statements include the
accounts of the Company's subsidiary companies as described in "Basis
of Presentation" in footnote 2 below.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - The consolidated financial statements are
prepared in accordance with Generally Accepted Accounting Principles
(GAAP). The consolidated financial statements include the accounts,
after intercompany eliminations, of the Company and its wholly owned
subsidiaries as follows:
* LA West, Inc. ("LA West") is a wholly-owned subsidiary of the
Company.
* GT 40 North America, Inc. ("GT 40") is a wholly-owned subsidiary
of the Company.
Accounts Receivable - The Company ships its finished conversion
products on a COD basis. Products other than completed vehicles
purchased by a dealer with an established account with the Company are
shipped on 30 day, net terms. All other such products purchased are
shipped only upon receipt of all proceeds in advance, upon
presentation of a validated credit card or on a COD basis. Accounts
receivable are recorded at net realizable value. Historically, bad
debt write-offs have essentially been nil. There were no bad debt
write-offs in 2003 or 2004. In the opinion of management, no
provision is deemed necessary for uncollectible accounts at December
31, 2004.
Revenue Recognition - In accordance with Staff Accounting Bulletin No.
104, Topic 13: Revenue Recognition, the Company records revenue for
the completion of van conversions and truck modifications and its
other products when products are shipped, the price is final or
determinable and collection of the sales price is reasonably assured.
The Company utilizes inventory chassis in conjunction with their van
conversions and truck modifications. These chassis are owned by the
Company until the completion and shipment of the van conversion or
truck modification. At the time of revenue recognition, the chassis
are sold back to the respective manufacturer and the elements of the
Company's conversion or modification are sold directly to the
respective dealership. The Company purchases and resells each floor
planned chassis to the respective manufacturer at the same price for
which it was purchased, less any dealer holdback, discounts and other
incentives received. Also in accordance with Staff Accounting
Bulletin No. 104, Topic 13: Revenue Recognition, no revenue is
recognized with respect to resale of the chassis to the respective
manufacturer. Any of the products sold by the Company may be returned
by the buyer, although such returns are infrequent and immaterial.
When such returns do occur, the appropriate revenue account is
directly reduced. Also in accordance with Staff Accounting Bulletin
No. 104, Topic 13: Revenue Recognition, GT 40 records revenue for the
sale of vehicles when the customer has executed a customer purchase
agreement, the vehicle is delivered, the price is final and collection
Legend Motors Worldwide, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 2005 and 2004
of the sales price is reasonably assured. GT 40's standard purchase
agreement establishes the price, payment terms and the transfer of
title to the vehicle upon the buyer's acceptance thereof. Standard
terms are one-half of purchase price in advance with the remaining
balance due upon delivery. GT 40 utilizes a delivery service that
collects the remaining balance due prior to delivery. GT 40
recognizes revenue when the final payment is received from the
customer. GT 40 sold one year franchise rights in 2004 and 2003 of
$40,000 and $75,000, respectively, which granted the franchisees the
exclusive rights to sell GT 40's motor vehicles within specific
designated areas.
Use of Estimates - The preparation of financial statements in
conformity with GAAP requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Inventories - Inventories are carried at the lower of cost or market.
The cost is determined using the first-in, first-out method. The
Company evaluates its inventory value at the end of each year to
ensure that it is carried at the lower of cost or market. This
evaluation includes an analysis of its physical inventories, a review
of potential obsolete and slow-moving stock based on historical
product sales and forecasted sales and an overall consolidated
analysis of potential excess inventory. To the extent historical
physical inventory results are not indicative of future results and if
future events affect, either favorably or unfavorably, the salability
of the Company's products or its relationship with certain key
vendors, the Company's inventory reserves could differ significantly,
resulting in either higher or lower future inventory provisions.
Property and Equipment - Property and equipment are stated at cost
less accumulated depreciation. Depreciation is provided using the
straight-line method over the estimated useful life of the asset.
Maintenance and repairs are expensed as incurred.
Impairment of Long-Lived Assets - The Company evaluates its long-lived
assets for financial impairment as events or changes in circumstances
indicate that the carrying amount of such assets may not be
recoverable. The Company evaluates the recoverability of long-lived
assets used in operations by measuring the carrying amount of the
assets against their estimated undiscounted future cash flows. If
such evaluations indicate that the future undiscounted cash flows of
certain long-lived assets are not sufficient to recover the carrying
value of such assets, the assets are adjusted to their approximate
fair values.
Cost of Goods Sold - The components of cost of goods sold in the
accompanying statements of income include all direct materials and
direct labor associated with the assembly and/or manufacturing of the
Company's products.
Accrued Warranty Costs - Estimated future costs related to product
warranties are accrued as products are sold based on prior experience
and known current events and are included in accrued expenses in the
Legend Motors Worldwide, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 2005 and 2004
accompanying balance sheet. Accrued warranty costs have historically
been sufficient to cover actual costs incurred and are included within
cost of goods sold.
Advertising Costs - The Company expenses costs of advertising as
incurred. Advertising costs for the nine months ended September 30,
2005 and 2004 were approximately $150,000 and $262,000, respectively,
and are included within Advertising and Sales expenses in the
Statements of Operations.
Research and Development Costs - Research and development costs are
expensed as incurred. Research and development costs totaled $2,201
and $18,262 for the nine months ended September 30, 2005 and 2004,
respectively, and are included in Other General and Administrative
Expenses in the statements of operations.
Income Taxes - The Company accounts for income taxes utilizing the
asset and liability method. This approach requires the recognition of
deferred tax assets and liabilities for the expected future tax
consequences attributable to temporary differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and tax
credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rate is recognized in income in the
period that included the enactment date. With respect to periods prior
to July 1, 2005, LA West's then-shareholder elected to be taxed under
the provisions of Subchapter S of the Internal Revenue Code. Under
those provisions, LA West did not pay federal or state corporate
income taxes on its taxable income. Instead, the then-shareholder was
liable for individual federal income taxes on LA West's taxable income
or net operating loss. At the close of business on June 30, 2005, the
then-shareholder sold 49% of LA West's common shares outstanding to
Commerce Street Venture Group, Inc. a C corporation. On July 1, 2005,
the Company acquired 100% of the outstanding stock of LA West. The
Company is also a C corporation. As S corporations are not permitted
to have a C corporation as a shareholder, effective July 1, 2005, LA
West is no longer eligible for the tax treatment of the provisions of
Subchapter S. Effective on July 1, 2005, LA West will be taxed under
the provisions of Subchapter C of the Internal Revenue Code. From
that date forward, LA West will account for income taxes utilizing the
asset and liability method. The Michigan Single Business Tax was
$1,300 and $1,970 for the nine months ended September 30, 2005 and
2004, respectively. The Pennsylvania franchise tax was $-0- and $-0-
for the nine months ended September 30, 2005 and 2004, respectively
Concentration of Credit Risk - Financial instruments which potentially
subject the Company to concentrations of credit risk consist
principally of cash. The Company places its cash with high credit
quality financial institutions. At various times throughout 2005 and
2004, the Company's cash balance in its cash accounts held at a
financial institution was in excess of the federally insured limit.
Legend Motors Worldwide, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 2005 and 2004
The Company also maintains chassis inventory on its premises which are
purchased from and sold back to the respective manufacturer at the
same price. The chassis inventory is used in conjunction with the
components of the Company's independent sale of specialty van
conversions and truck modifications products.
3. INVENTORIES
The components of inventories at September 30 were as follows:
2005 2004
---- ----
Floor Planned Chassis $5,188,275 $4,142,663
Finished Vehicles 82,272 362,317
Raw Materials 286,537 1,035,166
Work in Process 39,991 21,897
Finished Goods 369,853 389,657
------- -------
$5,966,928 $5,951,700
---------- ----------
Floor planned chassis represents the cost of chassis ordered under the
Company's floor plan agreements. Finished goods represents the
capitalized costs attributable to the Company's value-added elements
in completed conversions and modifications on hand as of the balance
sheet date (see footnote 4).
4. FLOOR PLAN PAYABLE
The Company held chassis inventory totaling $5,188,275 and $4,142,663
at September 30, 2005 and 2004, respectively. The Company had a floor
plan payable at September 30 as follows:
2005 2004
---- ----
Ford Motor Credit Company $3,096,008 $1,393,514
General Motors Acceptance Corporation 1,955,292 630,544
Chrysler Financial Company, L.L.C. 136,975 2,118,605
------- ---------
$5,188,275 $4,142,663
---------- ----------
The Company has entered into a pool agreement with each of these
companies. Under these agreements, the Company purchases chassis and
later sells the chassis back to the respective manufacturer (see
Footnote 3). The Company accrues and pays interest monthly on the
outstanding floor plan payables ranging from 1% to 2%, as of September
30, 2005, for floor planned chassis held for less than 90 days and
prime plus 1% (7.00% at November 4, 2005) for floor planned chassis
held for greater than 90 days. The interest is reported as "Interest
Expense" on the Company's income statement. Title to the chassis
passes to the Company at purchase and passes back to the manufacturer
when the manufacturer repurchases the chassis. The Company does not
make any payments on floor plan payable balances outstanding.
Legend Motors Worldwide, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 2005 and 2004
5. PROPERTY AND EQUIPMENT
Property and equipment, their estimated useful lives and related
accumulated depreciation at September 30 were as follows:
Useful Life
(Years) 2005 2004
------- ---- ----
Shop Equipment and Fixtures 2-7 $697,152 $594,964
Furniture and Office Equipment 3-10 215,650 210,538
Transportation Equipment 5-6 42,075 33,124
Signage 7-10 19,380 13,459
Leasehold Improvements 8-15 71,771 97,861
Construction in Process n/a 62,094 19,300
------ ------
1,108,122 969,246
Less Accumulated Depreciation 298,471 434,668
------- -------
$809,651 $534,578
======== ========
6. ACCRUED EXPENSES
The components of accrued expenses at September 30 were as follows:
2005 2004
---- ----
Accrued Warranty $201,000 $201,000
Accrued Property Taxes 6,090 6,077
Accrued Payroll 115,048 92,374
Other 197,866 16,088
------- ------
$520,004 $315,539
======== ========
7. LINE OF CREDIT
The Company had a revolving line of credit with a maximum amount
available of $650,000. The balance at September 30, 2005 was
$200,000. Interest was payable monthly at the prime rate plus 0.5%
(7.00% at November 1, 2005), and the principal was scheduled to mature
on October 5, 2005. The line of credit was collateralized by all the
business assets of LA West and was guaranteed by LA West's former sole
stockholder. The balance due was fully repaid on November 4, 2005
(see footnote 15).
8. LONG TERM DEBT
2005 2004
Long Term Debt consisted of the following
at September 30:
Note payable to Farmers State Bank, interest
at prime plus 0.75% (7.0% at September 30,
2005), payable in equal monthly installments
of principal and interest of $1,396 to March
2008, collateralized by all the business
assets of the Company and guaranteed by the
stockholder. $39,024 $60,618
Less Current Portion 14,580 22,100
------ ------
$24,444 $38,518
======= =======
Legend Motors Worldwide, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 2005 and 2004
Future maturities of long term debt are as follows:
Year
Ending
December 31,
------------
2005 $3,417
2006 15,002
2007 15,928
2008 4,677
-----
$39,024
-------
9. INCOME TAXES
The components of deferred tax assets and liabilities at September 30
were as follows:
Deferred Tax Assets (Liabilities): 2005 2004
---- ----
Accrued Expenses $13,300 $22,027
Inventory Accounting 149,570 114,155
Property and Equipment (7,355) (2,830)
Net Operating Loss Carryforwards 751,166 221,547
------- -------
906,681 354,899
Less Valuation Allowance (823,105) 354,899
--------- -------
Net Deferred Tax Assets (Liabilities) $83,576 $-0-
------- ----
The Company has recorded a valuation allowance against its deferred
tax assets since management believes that based upon current available
objective evidence it is more likely than not that the affected
deferred tax assets will not be realized.
A reconciliation between the effective rate for income taxes and the
amount computed by applying the statutory Federal income tax rate to
loss from continuing operations before provision for income taxes is
as follows:
For the For the
Nine Months Ended Nine Months Ended
September 30, 2005 September 30, 2004
------------------ ------------------
Statutory Federal Tax Rate (34.0)% (34.0)%
Nondeductible Expenses 0.16% (359.2)%
State and Local Income Taxes (5.58)% (64.9)%
Increase in Valuation Allowance 29.24% 458.1
------ -----
Effective Tax Rate (10.19)% 0.0%
======== ====
The Company utilizes a December 31 year end for Federal and state
income tax purposes. The tax effects of the temporary differences
between reportable financial statement income and taxable income are
recognized as a deferred tax asset and liability.
Legend Motors Worldwide, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 2005 and 2004
10. COMMITMENTS AND CONTINGENCIES
Leases
LA West leases its operating facilities and certain equipment under
noncancellable lease agreements expiring at various dates through
February 2010. Rental expense was $241,500 and $202,500 for the nine
months ended September 30, 2005 and 2004, respectively.
The Company also leases various equipment under capital leases
expiring at various dates through June 2005. The leased assets are
included in the balance sheet as part of property and equipment at a
cost of $316,267 as of September 30, 2005. Amortization of these
assets held under capital leases is included with depreciation expense
and was $25,656 and $35,336 for the nine months ended September 30,
2005 and 2004, respectively.
Future minimum lease payments under non-cancelable operating leases
(with initial or remaining terms in excess of one year) and future
minimum capital lease payments as of December 31, 2004 are as follows:
Year Ending Capital Operating
December 31, Leases Leases
------------ ------ ------
2006 -0- 349,298
2007 -0- 348,325
2008 -0- 348,000
2009 -0- 348,000
Thereafter -0- 58,000
--- ------
Total minimum lease payments -0- $1,451,623
--- ----------
Prior to July 2005, GT 40 leased office and production space under a
non-cancelable operating lease agreement that was scheduled to expire
in November 2009. GT 40 negotiated a revised non-cancelable operating
lease agreement that took effect in July 2005 and expires in June
2010. The minimum future rental commitment at September 30, 2005
under this operating lease is as follows:
Year Ending September 30:
-------------------------
2006 $36,446
2007 $36,446
2008 $36,446
2009 $30,371
-------
$139,709
========
11. STOCKHOLDERS' EQUITY
The Company has 50,000,000 shares of $0.0001 par value common stock
authorized, of which 10,000,000 shares were issued and outstanding at
September 30, 2005. The Company has 20,000,000 shares of $0.0001 par
value preferred stock authorized, of which no shares were issued and
outstanding at September 30, 2005.
At the close of business on April 28, 2005, the Company entered into a
separate formal share swap agreement with each of the three
shareholders of GT 40. Pursuant to the three agreements, the Company
Legend Motors Worldwide, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 2005 and 2004
exchanged 1,847,084 of the Company's common shares for 100 shares of
GT 40. No contingent payments, options or commitments are specified
in the acquisition agreements and no research & development assets
were purchased. As a result of the exchanges, GT 40 became a wholly-
owned subsidiary of the Company.
At the close of business on April 28, 2005, the Company issued
6,534,166 of its common shares to a private equity firm. The Company
received no cash in exchange for the issuance of these shares. In
exchange for the stock issuance, the private equity firm committed to
paying the costs required to undertake a public offering of the
Company's common stock. The Company has no obligation or intent to
reimburse any costs incurred by the private equity firm. The private
equity firm anticipates that it will incur costs in the amount of
$230,000 in the course of the public offering process. As a result,
the Company will expense consulting fees in the amount of $230,000 in
April 2005.
At the close of business on April 28, 2005, the Company issued
1,987,500 warrants with an exercise price of four dollars each for its
common shares to four shareholders of the Company.
On June 27, 2005, GT 40 entered into formal debt agreements with
certain related parties through common ownership to which GT 40 had
outstanding loans to consolidate the respective loans and accrued
interest due to each respective party. The new debt agreements allow
for the converging of outstanding debt and accrued interest into
common stock of GT 40 or the Company at a stated price of two dollars
per share. The converging is at the option of the note holder. On
June 28, 2005, each of the holders of loans payable executed their
respective options to convert their respective outstanding principle
balances to common stock and 1,064,710 shares were issued.
On July 1, 2005, the Company entered into a formal share swap
agreement with a shareholder of LA West pursuant to which the Company
exchanged 1,582,492 shares of the Company's common stock for 49% of
the outstanding common stock of LA West. Also on July 1, 2005, the
Company entered into a formal share swap agreement with a second
shareholder of LA West pursuant to which the Company exchanged
1,647,084 shares of the Company's common stock for the remaining 51%
of the outstanding common stock of LA West. As a result of the two
exchanges, LA West became a wholly-owned subsidiary of the Company.
On July 1, 2005, two shareholders of the Company surrendered a net
total of 2,725,536 shares of the Company's common stock to the
Company. These shares are held in treasury by the Company.
12. RELATED PARTY TRANSACTIONS
On July 1, 2005, the Company entered into an employment agreement with
its President and Chief Executive Officer. The agreement has a term
of five years and calls for an annual salary of $175,000 and a bonus
equal to five percent (5%) of the Company's net income before taxes.
The agreement also contains a "Covenant Not to Compete" which
Legend Motors Worldwide, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 2005 and 2004
precludes vents the Company's President and Chief Executive Officer
from competing against the company during his term of employment or
for a term of two years thereafter. As compensation for such
agreement, the Company must pay an additional $25,000 annually. The
agreement also provides for standard benefits such as health insurance
coverage, sick and vacation time and use of an automobile.
LA West's operating facilities are leased from L.A. Investments, LLC
which is 50% owned by a stockholder of the Company and 50% owned by
the stockholder's spouse. Effective on April 1, 2005, the monthly
lease payment increased to $29,000. Prior to that, the monthly lease
payment was $22,500. The lease is for a period of ten (10) years
through February 28, 2010 and may be renewed for five additional one-
year terms. Rent expense paid to L.A. Investments, LLC totaled
$241,500 and $202,500 for the nine months ended September 30, 2005 and
2004, respectively, and is included within selling, general and
administrative expenses.
LA West paid Team L.A. Motorsports, Ltd. $2,830 and $27,000 for the
nine months ended September 30, 2005 and 2004, respectively, for
advertising and promoting of the Company. The spouse of a stockholder
of the Company owns 100% of Team L.A. Motorsports, Ltd.
GT 40 has entered into transactions with various related parties. All
loans due to stockholders and companies in which those stockholders
have interest were demand notes bearing interest at the rate of 5%.
The following balances were outstanding at September 30:
2005 2004
---- ----
Accounts Payable - Related Parties (Stockholder) $-0- $100,649
Accounts Payable - Related Parties (Related Companies) -0- 29,000
--- ------
$2,388 $129,649
====== ========
Accrued Interest - Stockholder $-0- $18,626
Accrued Interest - Related Companies -0- 10,291
--- ------
$-0- $28,917
==== =======
Loans from Stockholder $90,000 $707,042
======= ========
Loans from Related Companies $-0- $478,212
==== ========
The following transactions occurred between GT 40 and related parties
during the nine months ended September 30 and are included in selling,
general and administrative expenses in the statements of operations:
2005 2004
---- ----
Consulting Fees Paid to Stockholders $67,692 $111,730
Engineering Fees Paid to Stockholder 67,308 72,436
------ ------
$135,000 $184,166
======== ========
For the period from October 1, 2003 through December 1, 2004, GT 40
rented office and production space from a stockholder. Total rent
payments under this arrangement were $48,710 during the nine months
ended September 30, 2004.
Effective December 1, 2004, GT 40 leased office and production space
from a stockholder (see footnote 7). Total rent payments under this
lease during the nine months ended September 30, 2005 were $60,000.
In addition, GT 40 was required to deposit $10,000 with the landlord.
This amount represents the rent for the last month of the lease period
and is included in other assets.
13. EARNINGS PER SHARE
Basic and fully diluted earnings per share for the nine months ended
September 30, 2005 was determined as follows:
Income Shares Per-Share
(Numerator) (Denominator) Amounts
----------- ------------- -------
Net Loss $(736,576)
Less: Preferred stock dividends -0-
---
Basic EPS $(736,576) 8,312,477 $(0.09)
Diluted EPS $(736,576) 8,312,477 $(0.09)
========== ========= =======
As of September 30, 2005, the Company had 2,000,000 of its warrants
with an exercise price of four dollars each for its common shares
outstanding that, if exercised by the holders, could potentially
dilute basic earning per share in the future. These warrants were not
included in the computation of diluted earnings per share because to
do so would have been antidilutive for the period presented.
Basic and fully diluted earnings per share for the nine months ended
September 30, 2004 was determined as follows:
Income Shares Per-Share
(Numerator) (Denominator) Amounts
----------- ------------- -------
Net Loss $(64,435)
Less: Preferred stock dividends -0-
---
Basic EPS $(64,435) 5,126,660 $(0.01)
Diluted EPS $(64,435) 5,126,660 $(0.01)
--------- --------- -------
As of September 30, 2004, the Company had no securities, either
authorized or issued, that could potentially dilute basic earning per
share.
Legend Motors Worldwide, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 2005 and 2004
There have been no subsequent transactions that would change the
number of common shares or potential common shares presented in these
earnings per share calculations.
14. ACQUISITIONS OF SUBSIDIARIES
At the close of business on April 28, 2005, the Company entered into a
separate formal share swap agreement with each of the three
shareholders of GT 40 North America, Inc. (GT 40). Pursuant to the
three agreements, the Company exchanged 1,847,084 of the Company's
common shares for 100 shares of GT 40. No contingent payments,
options or commitments are specified in the acquisition agreements and
no research & development assets were purchased. As a result of the
exchanges, GT 40 became a wholly-owned subsidiary of the Company. For
purposes of these pro forma financial statements, the acquisition has
been accounted for as if it had occurred on January 1, 2004.
The aggregate purchase price was $65,017, including common stock
valued at $65,017. The value of the 1,847,084 common shares issued by
the Company was determined based on the fair market value of
professional services rendered on behalf of the Company by an outside
consultant in exchange for shares of the Company's common stock on the
same date as that of the acquisition of GT 40. The following table
summarizes the estimated fair values of the assets acquired and
liabilities assumed at the date of acquisition:
Cash $16,688
Inventory 534,823
Fixed Assets, Net 203,342
Other Assets 30,908
Goodwill 1,858,043
---------
Total Assets Acquired 2,643,804
---------
Accounts Payable 111,011
Short Term Debt 2,467,776
---------
Total Liabilities Assumed 2,578,787
---------
Net Assets Acquired $65,017
-------
On July 1, 2005, the Company entered into a formal share swap
agreement with a shareholder of LA West, Inc. pursuant to which the
Company exchanged 1,582,492 shares of the Company's common stock for
49% of the outstanding common stock of LA West, Inc. Also on July 1,
2005, the Company entered into a formal share swap agreement with a
second shareholder of LA West, Inc. pursuant to which the Company
exchanged 1,647,084 shares of the Company's common stock for the
remaining 51% of the outstanding common stock of LA West, Inc. No
contingent payments, options or commitments are specified in the
acquisition agreements and no research & development assets were
purchased. As a result of the two exchanges, LA West, Inc. became a
wholly-owned subsidiary of the Company. For purposes of these pro
forma financial statements, the acquisition has been accounted for as
if it had occurred on January 1, 2004.
The aggregate purchase price was $113,681, including common stock
valued at $113,681. The value of the 3,229,576 common shares issued
was determined based on the share value established by the acquisition
of GT 40.
The following table summarizes the estimated fair values of the assets
acquired and liabilities assumed at the date of acquisition:
Cash $129,301
Accounts Receivable 469,566
Inventory 5,345,561
Fixed Assets, Net 303,135
Other Assets 129,823
-------
Total Assets 6,377,386
---------
Accounts Payable 540,691
Accrued Expenses 184,077
Short Term Debt 5,510,762
Long Term Debt 28,175
------
Total Liabilities Assumed 6,263,705
=========
Net Assets Acquired $113,681
========
The acquisitions of GT 40 and LA West were contemplated and negotiated
pursuant to an overall plan to combine the separate companies' product
lines and management assets into a synergized and integrated motor
vehicle marketing business.
15. SUBSEQUENT EVENTS
During the reporting period, the Company maintained a secured credit
agreement with a commercial lender (see footnote 7). Between
September 15, 2005 and September 29, 2005 Legend contributed $400,000
to the capital of the Company. The line of credit matured on October
5, 2005 and was paid in full at that time using the contributed funds.
On November 4, 2005, the Company entered into a replacement secured
credit agreement with a separate commercial lender. Under the terms
of the replacement secured credit agreement, the Company has a line of
credit for up to $250,000. Interest is payable monthly at the prime
rate plus 1.0% (7.00% at November 1, 2005). The line of credit
matures on June 4, 2006 and is collateralized by all the business
assets of the Company.
16. SEGMENT INFORMATION
Our operating activity consists of two operating segments: Van, Truck
and SUV Conversions (Conversions) and Specially Constructed Replica
Vehicles (Replicas). The Conversion segment includes primarily the
sale of exclusive luxury van conversions, sport truck conversions, and
Legend Motors Worldwide, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
September 30, 2005 and 2004
SUV conversions. The Replicas segment includes primarily the sale of
specially constructed replicas of historical supercars and roadsters.
Segment selection is based on the organizational structure we use to
evaluate performance and make decisions on resource allocation, as
well as availability and materiality of separate financial results
consistent with that structure.
Conversions Replicas Other Total
----------- -------- ----- -----
Nine Months Ended
September 30, 2005
Revenues:
External Customers $7,638,508 $254,000 $-0- $7,892,508
Intersegment -0- -0- -0- -0-
Income:
Income (Loss) Before Income Taxes 48,283 (619,999) (248,438) (820,154)
Other Disclosures:
Interest Income 93 -0- 6,057 6,150
Interest Expense 161,225 57,985 419 219,629
Depreciation
Gain (Loss) on Sale of Assets -0- -0- -0- -0-
Purchases of Fixed Assets 36,119 93,754 -0- 129,873
Total Assets 6,950,265 639,569 2,019,729 9,609,563
Conversions Replicas Other Total
----------- -------- ----- -----
Pro forma Nine Months
Ended September 30, 2004
Revenues:
External Customers $11,314,986 $475,300 $-0- $11,790,286
Intersegment -0- -0- -0- -0-
Income:
Income (Loss) Before Income Taxes 701,280 (765,455) (260) (64,435)
Other Disclosures:
Interest Income 102 -0- -0- 102
Interest Expense 206,424 28,340 -0- 234,764
Depreciation
Loss (Gain) on Sale of Assets 40,143 (76) -0- 40,067
Purchase of Fixed Assets 3,072 121,344 -0- 124,416
Total Assets 6,413,613 802,256 2,003,658 9,219,527
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholder of LA West, Inc.:
We have audited the accompanying balance sheet of LA West, Inc. as of
December 31, 2004, and the related statements of income, stockholder's
equity, and cash flows for the years ended December 31, 2004 and 2003.
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 auditing standards
generally accepted in the United States of America. Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements.
An audit also includes 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 LA West,
Inc. as of December 31, 2004, and the results of its operations and
its cash flows for the years ended December 31, 2004 and 2003 in
conformity with accounting principles generally accepted in the United
States of America.
/s/ Tedder, James, Worden & Associates, P.A.
December 9, 2005
Orlando, Florida
L.A. WEST, INC.
BALANCE SHEET
DECEMBER 31, 2004
ASSETS
Current Assets:
Cash $72,197
Accounts Receivable 279,927
Inventories 6,202,014
Prepaid Expenses and Other Current Assets 37,271
------
Total Current Assets 6,591,409
Property and Equipment, Net 278,091
Other Assets 58,435
------
Total Assets $6,927,935
==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts Payable $690,613
Accrued Expenses 299,985
Current Portion of Capital Lease Obligations 38,512
Current Portion of Long Term Debt 14,580
Line of Credit 438,000
Floor Plan Payable 5,354,176
---------
Total Current Liabilities 6,835,866
Long Term Debt, Less Current Portion 35,607
------
Total Liabilities 6,871,473
---------
Commitments and Contingencies
Stockholder's Equity:
Common Stock, no par value, 1,000 shares
authorized, 100 shares issued and outstanding 1,000
Additional Paid-In Capital 30,000
Retained Earnings 25,462
------
Total Stockholder's Equity 56,462
------
Total Liabilities and Stockholder's Equity $6,927,935
=========
See Accompanying Notes to Financial Statements.
L.A. WEST, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
2004 2003
---- ----
Truck and SUV Conversion Sales $7,806,905 $3,749,972
Van Conversion Sales 5,356,587 7,597,683
Parts Sales 611,947 513,056
Other Sales 388,637 237,575
------- -------
Net Sales $14,164,076 $12,098,286
Cost of Goods Sold 9,817,587 8,217,252
--------- ---------
Gross Profit 4,346,489 3,881,034
--------- ---------
Operating Expenses (Income):
Salaries, Wages and Employee Benefits 1,691,863 1,687,092
Occupancy Costs 455,360 433,738
Advertising and Sales 885,279 975,858
Other General and Administrative 554,322 563,808
Loss on Sale of Property and Equipment 40,143 36,088
Gain on Involuntary Conversion -0- (282,341)
-- --------
Total Operating Expenses 3,626,967 3,414,243
--------- ---------
Income from Operations 719,522 466,791
Other Income (Expenses):
Interest Income 111 373
Interest Expense (236,227) (347,600)
------- -------
Total Other Expense (236,116) (347,227)
------- -------
Net Income $483,406 $119,564
======= =======
Weighted Average Shares of Common Stock
Outstanding:
Basic and Diluted 100 100
--- ---
Earnings Per Common Share:
Basic and Diluted $4,834.06 $1,195.64
======== ========
See Accompanying Notes to Financial Statements.
L.A. WEST, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
2004 2003
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $483,406 $119,564
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Depreciation 119,465 163,466
Loss on Sale of Property and Equipment 40,143 36,088
(Increase) Decrease in Assets:
Accounts Receivable (139,942) 109,153
Raw Materials and Finished Goods 125,339 (33,545)
Floor Planned Chassis 2,639,504 5,057,908
Prepaid Expenses and Other Current Assets 1,319 4,366
Increase (Decrease) in Liabilities:
Accounts Payable (85,677) 19,540
Accrued Expenses (11,317) 14,569
Floor Plan Payable (2,639,504) (5,057,908)
----------- -----------
Net Cash Provided by Operating Activities $532,736 $433,201
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in Other Assets $(9,779) $(9,778)
Purchases of Property and Equipment (56,030) (37,568)
Proceeds from Sale of Property and Equipment 800 200,000
--- -------
Net Cash Provided by (Used in) Investing Activities $(65,009) $152,654
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions to Stockholder $(300,666) $(616,530)
Net Proceeds (Repayments) on Line of Credit (77,000) 325,000
Payments on Long Term Debt (13,864) (124,580)
Payments on Capital Lease Obligations (77,895) (109,023)
-------- ---------
Net Cash Used in Financing Activities $(469,425) $(525,133)
--------- ---------
Net Increase (Decrease) in Cash $(1,698) $60,722
Cash - Beginning of Year 73,895 13,173
------ ------
Cash - End of Year $72,197 $73,895
====== ======
Supplemental Disclosures of Cash Flow Information:
Cash Paid During the Year for Interest $247,553 $343,801
======= =======
Cash Paid During the Year for Income Taxes $5,127 $9,824
===== =====
Supplemental Disclosure of Non-cash Investing and
Financing Activities:
A net non-cash distribution of $30,541 was made that
transferred equipment with a net carrying value of
$84,126 and a capital lease obligation of $53,585 to an
entity related to the stockholder through common
ownership.
See Accompanying Notes to Financial Statements.
L.A. WEST, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2004 AND 2003
Additional Retained
Common Paid in Earnings Total
Stock Capital (Deficit) Equity
------ ------- --------- ------
Balances at December 31, 2002 $1,000 $30,000 $370,229 $401,229
Net Income -0- -0- 119,564 119,564
Distributions -0- -0- (616,530) (616,530)
------ ------- --------- ---------
Balances at December 31, 2003 $1,000 $30,000 $(126,737) $(95,737)
Net Income -0- -0- 483,406 483,406
Distributions -0- -0- (331,207) (331,207)
------ ------- --------- ---------
Balances at December 31, 2004 $1,000 $30,000 $25,462 $56,462
====== ======= ========= =========
See Accompanying Notes to Financial Statements.
LA WEST, INC.
Notes to Financial Statements
December 31, 2004
1. BUSINESS
LA West, Inc. (the "Company") is primarily engaged in the design,
assembly, and sale of specialty van conversions and truck
modifications throughout the United States of America. The Company's
headquarters and assembly facility are located in LaGrange, Indiana.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounts Receivable - The Company ships its finished conversion
products on a COD basis. Products other than completed vehicles
purchased by a dealer with an established account with the Company are
shipped on 30 day, net terms. All other such products purchased are
shipped only upon receipt of all proceeds in advance, upon
presentation of a validated credit card or on a COD basis. Accounts
receivable are recorded at net realizable value. Historically, bad
debt write-offs have essentially been nil. There were no bad debt
write-offs in 2003 or 2004. In the opinion of management, no
provision is deemed necessary for uncollectible accounts at December
31, 2004.
Revenue Recognition - In accordance with Staff Accounting Bulletin No.
104, Topic 13: Revenue Recognition, the Company records revenue for
the completion of van conversions and truck modifications and its
other products when products are shipped, the price is final or
determinable and collection of the sales price is reasonably assured.
The Company utilizes inventory chassis in conjunction with their van
conversions and truck modifications. These chassis are owned by the
Company until the completion and shipment of the van conversion or
truck modification. At the time of revenue recognition, the chassis
are sold back to the respective manufacturer and the elements of the
Company's conversion or modification are sold directly to the
respective dealership. The Company purchases and resells each floor
planned chassis to the respective manufacturer at the same price for
which it was purchased, less any dealer holdback, discounts and other
incentives received. Also in accordance with Staff Accounting
Bulletin No. 104, Topic 13: Revenue Recognition, no revenue is
recognized with respect to resale of the chassis to the respective
manufacturer. Any of the products sold by the Company may be returned
by the buyer, although such returns are infrequent and immaterial.
When such returns do occur, the appropriate revenue account is
directly reduced.
Use of Estimates - The preparation of financial statements in
conformity with accounting principles generally accepted in the United
States of America (GAAP) requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Inventories - Inventories are carried at the lower of cost or market.
The cost is determined using the first-in, first-out method. The
Company evaluates its inventory value at the end of each year to
ensure that it is carried at the lower of cost or market. This
LA WEST, INC.
Notes to Financial Statements
December 31, 2004
evaluation includes an analysis of its physical inventories, a review
of potential obsolete and slow-moving stock based on historical
product sales and forecasted sales and an overall consolidated
analysis of potential excess inventory. To the extent historical
physical inventory results are not indicative of future results and if
future events affect, either favorably or unfavorably, the salability
of the Company's products or its relationship with certain key
vendors, the Company's inventory reserves could differ significantly,
resulting in either higher or lower future inventory provisions.
Property and Equipment - Property and equipment are stated at cost
less accumulated depreciation. Depreciation is provided using the
straight-line method over the estimated useful life of the asset.
Maintenance and repairs are expensed as incurred.
Cost of Goods Sold - The components of cost of goods sold in the
accompanying statements of income include all direct materials and
direct labor associated with the assembly and/or manufacturing of the
Company's products.
Accrued Warranty Costs - Estimated future costs related to product
warranties are accrued as products are sold based on prior experience
and known current events and are included in accrued expenses in the
accompanying balance sheet. Accrued warranty costs have historically
been sufficient to cover actual costs incurred and are included within
cost of goods sold.
Advertising Costs - The Company expenses costs of advertising as
incurred. Advertising costs for the years ended December 31, 2004 and
2003 were approximately $347,000 and $369,000, respectively, and are
included within Advertising and Sales expenses in the Statements of
Operations.
Impairment of Long-Lived Assets - The Company evaluates its long-lived
assets for financial impairment as events or changes in circumstances
indicate that the carrying amount of such assets may not be
recoverable. The Company evaluates the recoverability of long-lived
assets used in operations by measuring the carrying amount of the
assets against their estimated undiscounted future cash flows. If
such evaluations indicate that the future undiscounted cash flows of
certain long-lived assets are not sufficient to recover the carrying
value of such assets, the assets are adjusted to their approximate
fair values.
Income Taxes - The Company's shareholder elected to be taxed under the
provisions of Subchapter S of the Internal Revenue Code. Under those
provisions, the Company does not pay federal or state corporate income
taxes on its taxable income. Instead, the shareholder is liable for
individual federal income taxes on the Company's taxable income or net
operating loss. The Michigan Single Business Tax was $5,194 and
$7,858 for 2004 and 2003, respectively. The Pennsylvania franchise
tax was $407 and $315 for 2004 and 2003, respectively.
LA WEST, INC.
Notes to Financial Statements
December 31, 2004
Concentration of Credit Risk - Financial instruments which potentially
subject the Company to concentrations of credit risk consist
principally of cash. The Company places its cash with high credit
quality financial institutions. At various times throughout 2004, the
Company's cash balance in its cash account held at a financial
institution was in excess of the federally insured limit. The Company
also maintains chassis inventory on its premises which are purchased
from and sold back to the respective manufacturer at the same price.
The chassis inventory is used in conjunction with the components of
the Company's independent sale of specialty van conversions and truck
modifications products.
3. INVENTORIES
The components of inventories at December 31, 2004 were as follows:
Floor Planned Chassis $5,354,176
Raw Materials 514,450
Finished Goods 333,388
----------
$6,202,014
4. PROPERTY AND EQUIPMENT
Property and equipment, their estimated useful lives and related
accumulated depreciation at December 31, 2004 were as follows:
Useful Life
(Years)
Shop Equipment and Fixtures 7 $493,806
Furniture and Office Equipment 3-5 195,793
Transportation Equipment 6 25,000
Signage 10 13,459
Leasehold Improvements 8-10 71,771
------
799,829
Less Accumulated Depreciation 521,738
-------
$278,091
=======
LA WEST, INC.
Notes to Financial Statements
December 31, 2004
5. ACCRUED EXPENSES
The components of accrued expenses at December 31, 2004 were as
follows:
Accrued Warranty $201,000
Accrued Property Taxes 23,576
Accrued Payroll 23,177
Accrued Bonuses 26,692
Accrued Vacation 10,000
Accrued Interest 13,146
Other 2,394
-------
$299,985
=======
The Company's warranty accruals are based upon the Company's
historical experience with respect to warranty claims. The Company's
recent experience with respect to warranty claims is as follows:
Balance at December 31, 2003 $201,000
Accrued Warranty expense 201,315
Warranty costs incurred (244,590)
Warranty claims filed with vendors 43,275
------
Balance at December 31, 2004 $201,000
--------
6. FLOOR PLAN PAYABLE
The Company held chassis inventory totaling $5,354,176 at December 31,
2004. The Company had a floor plan payable with Ford Motor Credit
Company of $2,895,170, General Motors Acceptance Corporation of
$1,213,587 and Chrysler Financial Company, L.L.C. of $1,245,419 at
December 31, 2004, respectively. The Company has entered into a pool
agreement with each of these companies. Under these agreements, the
Company purchases chassis and later sells the chassis back to the
respective manufacturer (see Note 2). The Company accrues and
pays interest monthly on the outstanding floor plan payables ranging
from 1% to 2%, as of December 31, 2004, for floor planned chassis held
for less than 90 days and prime plus 1% (6.25% at December 31, 2004)
for floor planned chassis held for greater than 90 days. The interest
is reported as "Interest Expense" on the Company's statements of operations.
Title to the chassis passes to the Company at purchase and passes back
to the manufacturer when the manufacturer repurchases the chassis. The
Company does not make any payments on floor plan payable balances
outstanding.
7. LINE OF CREDIT
The Company has a revolving line of credit with a maximum amount
available of $650,000. The balance at December 31, 2004 was $438,000.
Interest is payable monthly at the prime rate plus 0.5% (5.75% at
December 31, 2004), and matures on October 5, 2005. The line of
credit is collateralized by all the business assets of the Company and
is guaranteed by the stockholder.
LA WEST, INC.
Notes to Financial Statements
December 31, 2004
8. LONG TERM DEBT
Long term debt consisted of the following at December 31, 2004:
Note payable to Farmers State Bank,
interest at prime plus 0.75% (6.0%
at December 31, 2004), payable in
equal monthly installments of
principal and interest of $1,396 to
March 2008, collateralized by all
the business assets of the Company
and is guaranteed by the
stockholder. $50,187
Less Current Portion 14,580
------
$35,607
-------
Future maturities of long term debt are as follows:
Year Ending
December 31,
2005 $14,580
2006 15,002
2007 15,928
2008 4,677
-----
$50,187
-------
9. GAIN ON INVOLUNTARY CONVERSION
In May 2003, the Company experienced a hail storm which resulted in
damages to the Company's floor plan inventory. During the year ended
December 31, 2003, the Company incurred repair costs of approximately
$258,000 and received insurance recoveries of approximately $540,000,
resulting in a gain on involuntary conversion of approximately
$282,000.
10. RELATED PARTY TRANSACTIONS
The Company's operating facilities are leased from L.A. Investments,
LLC which is 50% owned by the stockholder and 50% owned by the
stockholder's spouse. Effective on April 1, 2005, the monthly lease
payment increased to $29,000. Prior to that, the monthly lease payment
was $22,500. The lease is for a period of ten (10) years through
February 28, 2010 and may be renewed for five additional one-year
terms. Rent expense paid to L.A. Investments, LLC totaled $270,000
for the years ended December 31, 2004 and 2003, respectively, and is
included within selling, general and administrative expenses.
The Company paid Team LA Motorsports, Ltd. $103,000 and $86,800 for
the years ended December 31, 2004 and 2003, respectively, for
advertising and promoting of the Company. The stockholder's spouse
owns 100% of Team LA Motorsports, Ltd.
LA WEST, INC.
Notes to Financial Statements
December 31, 2004
11. COMMITMENTS AND CONTINGENCIES
Leases
The Company leases its operating facilities and certain equipment
under noncancellable lease agreements expiring at various dates
through February 2010. Rental expense amounted to approximately
$272,000 for the years ended December 31, 2004 and 2003, respectively.
The Company also leases various equipment under capital leases
expiring at various dates through June 2005. The leased assets are
included in the balance sheet as part of property and equipment at a
cost of $316,267 as of December 31, 2004. Amortization of these
assets held under capital leases is included with depreciation expense
and was approximately $50,500 for the years ended December 31, 2004
and 2003, respectively.
Future minimum lease payments under non-cancelable operating leases
(with initial or remaining terms in excess of one year) and future
minimum capital lease payments as of December 31, 2004 are as follows:
Year Ending Capital Operating
December 31, Leases Leases
------------ ------ ------
2005 $39,619 $329,798
2006 -0- 349,298
2007 -0- 348,325
2008 -0- 348,000
2009 -0- 348,000
Thereafter -0- 58,000
--- ------
Total minimum lease payments 39,619 $1,781,421
==========
Less amounts representing
interest, with annual
interest rates ranging from
9.76% to 11.71%. 1,107
-----
Present value of net minimum
capital lease payments 38,512
------
Less current portions of
obligations under capital
leases 38,512
------
Obligations under capital
leases, excluding current
portion $-0-
----
12. EMPLOYEE BENEFIT PLAN
The Company has a defined contribution plan (the "Plan") qualifying
under Section 401(k) of the Internal Revenue Code. Substantially all
employees who have met certain service requirements are eligible for
participation in the Plan. Participants may defer and contribute to
the Plan up to 15% of their compensation not to exceed the IRS limit.
The participants' contributions vest immediately, while the Company
contributions vest over six years. The Company's contribution rate is
determined on a year to year basis at the sole discretion of the
Company, not to exceed $3,000 in any plan year. There were no Company
contributions for the years ended December 31, 2004 and 2003.
LA WEST, INC.
Notes to Financial Statements
December 31, 2004
13. STOCKHOLDER'S EQUITY
The Company has 1,000 shares of no par value common stock authorized
of which 100 shares were issued and outstanding at December 31, 2004.
14. EARNINGS PER SHARE
Basic and fully diluted earnings per share for the twelve months ended
December 31, 2004 was determined as follows:
Income Shares Per-Share
(Numerator) (Denominator) Amounts
----------- ------------- -------
Net Income $483,406
Basic EPS $483,406 100 $4,834.06
--------
Diluted EPS $483,406 100 $4,834.06
-------- --- ---------
As of December 31, 2004, the Company had no securities, either
authorized or issued, that could potentially dilute basic earning per
share.
Basic and fully diluted earnings per share for the twelve months ended
December 31, 2003 was determined as follows:
Income Shares Per-Share
(Numerator) (Denominator) Amounts
----------- ------------- -------
Net Income $119,564
Basic EPS $119,564 100 $1,195.64
--------
Diluted EPS $119,564 100 $1,195.64
======== === =========
As of December 31, 2003, the Company had no securities, either
authorized or issued, that could potentially dilute basic earning per
share.
There have been no subsequent transactions that would change the
number of common shares or potential common shares presented in these
earnings per share calculations.
15. SUBSEQUENT EVENTS
On March 11, 2005, the sole shareholder of the Company entered into an
agreement to sell 49% of the common shares outstanding to Commerce
Street Venture Group, Inc. ("Commerce Street") by executing a note
payable. On June 30, 2005 the last payment on the note payable was
made and the shares were transferred to Commerce Street.
On July 1, 2005, the former sole shareholder entered into a formal
share swap agreement with Legend Motors Worldwide, Inc. ("Legend") for
LA WEST, INC.
Notes to Financial Statements
December 31, 2004
51% of the Company's shares. Pursuant to this agreement, the
shareholder exchanged 51 shares of the Company's common stock for
shares of Legend. Also on July 1, 2005, Commerce Street entered into
a formal share swap agreement with Legend. Pursuant to this
agreement, Commerce Street exchanged 49 shares of the Company's common
stock for shares of Legend. As a result of the two exchanges, the
Company became a wholly-owned subsidiary of Legend.
On March 11, 2005, the Company entered into an employment agreement
with its President and Chief Executive Officer. The agreement is
effective July 1, 2005, has a 5 year term and provides for an annual
salary of $175,000 plus a bonus equal to five percent (5%) of the
Company's net income before taxes. The agreement also provides for
certain employee benefits, including health insurance coverage, sick
and vacation time and use of an automobile.
LA WEST, INC.
BALANCE SHEET
(UNAUDITED)
September 30,
2005 2004
ASSETS ---- ----
Current Assets:
Cash $93,530 $170,794
Accounts Receivable 437,107 465,614
Inventories 5,999,268 5,307,927
Related Party Receivables 16,715 -0-
Prepaid Expenses and Other Current Assets 31,156 34,823
Current Deferred Tax Asset, Net 63,392 -0-
------ ---
Total Current Assets 6,641,168 5,979,158
Property and Equipment, Net 243,326 378,465
Other Assets 65,768 55,990
------ ------
Total Assets $6,950,262 $6,413,613
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities:
Accounts Payable $443,602 $843,589
Accrued Expenses 542,454 324,039
Income Taxes Payable 56,683 -0-
Current Portion of Capital Lease Obligations -0- 51,817
Current Portion of Long Term Debt 14,580 22,100
Line of Credit 200,000 458,000
Floor Plan Payable 5,188,275 4,142,663
--------- ---------
Total Current Liabilities 6,445,594 5,842,208
Long Term Debt, Less Current Portion 24,444 38,518
Long Term Deferred Tax Liability, Net 2,479 -0-
----- ---
Total Long Term Liabilities 26,923 38,518
------ ------
Total Liabilities 6,472,517 5,880,726
--------- ---------
Commitments and Contingencies
Stockholder's Equity:
Common Stock 1,000 1,000
Additional Paid-In Capital 430,000 30,000
Retained Earnings 46,745 501,887
------ -------
Total Stockholder's Equity 477,745 532,887
------- -------
Total Liabilities and Stockholder's Equity $6,950,262 $6,413,613
========== ==========
See Accompanying Notes to Financial Statements.
LA WEST, INC.
STATEMENTS OF INCOME
(UNAUDITED)
Nine Months Ended
September 30,
2005 2004
---- ----
Truck and SUV Conversion Sales $4,569,198 $6,234,043
Van Conversion Sales 2,418,001 4,312,454
Parts Sales 453,918 461,247
Other Sales 197,391 307,242
------- -------
Net Sales 7,638,508 11,314,986
Cost of Goods Sold 4,963,660 7,584,949
--------- ---------
Gross Profit 2,674,848 3,730,037
--------- ---------
Operating Expenses:
Salaries, Wages and Employee Benefits 1,191,778 1,301,089
Occupancy Costs 366,713 338,613
Advertising and Sales 445,428 677,453
Other General and Administrative Expenses 465,744 465,137
Loss on Sale of Property and Equipment -0- 40,143
--- ------
Total Operating Expenses 2,469,663 2,822,435
--------- ---------
Income from Operations 205,185 907,602
------- -------
Other Income (Expenses):
Interest Income 93 102
Interest Expense (161,225) (206,424)
--------- ---------
Total Other Expense (161,132) (206,322)
--------- ---------
Net Income Before Income Taxes 44,053 701,280
Income Tax Expense (Benefit) (4,230) -0-
------- ---
Net Income $48,283 $701,280
======= ========
Weighted Average Shares of Common
Stock Outstanding:
Basic and Diluted 100 100
=== ===
Earnings Per Common Share:
Basic and Diluted $482.83 $7,012.80
======= =========
See Accompanying Notes to Financial Statements.
LA WEST, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended
September 30,
2005 2004
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $48,283 $701,280
Adjustments to Reconcile Net Income
to Net Cash Provided by Operating
Activities:
Depreciation 70,883 51,530
Loss on Sale of Property and Equipment -0- 40,143
Current Deferred Tax Asset, Net (63,392) -0-
Long Term Deferred Tax Liability, Net 2,479 -0-
(Increase) Decrease in Assets:
Accounts Receivable (157,180) (325,629)
Raw Materials and Finished Goods 36,846 (192,087)
Floor Planned Chassis 165,900 3,851,017
Related Party Receivables (16,715) -0-
Prepaid Expenses and Other Current Assets 6,115 3,766
Increase (Decrease) in Liabilities:
Accounts Payable (247,010) 75,800
Accrued Expenses 242,469 4,239
Income Taxes Payable 56,683 -0-
Floor Plan Payable (165,901) (3,851,017)
--------- -----------
Net Cash Provided by (Used in)
Operating Activities $(20,540) $359,042
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in Other Assets $(7,333) $(7,334)
Purchases of Property and Equipment (36,119) (3,072)
Proceeds from Sale of Property and Equipment -0- 800
--- ---
Net Cash Provided by (Used in)
Investing Activities $(43,452) $(9,606)
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions to Stockholder $(27,000) $(72,656)
Net Proceeds (Repayments) on Line of Credit (238,000) (57,000)
Stockholder Capital Contributions 400,000 -0-
Payments on Long Term Debt (11,163) (36,619)
Payments on Capital Lease Obligations (38,512) (86,262)
-------- --------
Net Cash Provided by (Used in)
Financing Activities $85,325 $(252,537)
------- ----------
Net Increase in Cash $21,333 $96,899
Cash - Beginning of Period 72,197 73,895
------ ------
Cash - End of Period $93,530 $170,794
------- --------
Supplemental Disclosures of Cash Flow
Information:
Cash Paid During the Period for Interest $152,151 $195,077
-------- --------
Cash Paid During the Period for State Taxes $5,647 $5,843
------ ------
Supplemental Disclosure of Non-cash
Investing and Financing Activities:
A net non-cash distribution of
$30,541 was made that transferred
equipment with a net carrying value
of $84,126 and a capital lease
obligation of $53,585 to an entity
related to the stockholder through
common ownership.
See Accompanying Notes to Financial Statements.
LA WEST, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004
(UNAUDITED)
Additional Retained
Common Paid in Earnings Total
Stock Capital (Deficit) Equity
----------------------------------------------------
Balances at December 31, 2003 $1,000 $30,000 $(126,737) $(95,737)
Net Income -0- -0- 701,280 701,280
Distributions -0- -0- (72,656) (72,656)
--- --- -------- --------
Balances at September 30, 2004 $1,000 $30,000 $501,887 $532,887
------ ------- -------- --------
Balances at December 31, 2004 $1,000 $30,000 $25,462 $56,462
Capital Contributed -0- 400,000 -0- 400,000
Net Income -0- -0- 48,283 48,283
Distributions -0- -0- (27,000) (27,000)
--- --- -------- --------
Balances at September 30, 2005 $1,000 $430,000 $46,745 $477,745
------ -------- ------- --------
See Accompanying Notes to Financial Statements.
1. BUSINESS
LA West, Inc. (the "Company") is primarily engaged in the design,
assembly, and sale of specialty van conversions and truck
modifications throughout the United States of America. The Company's
headquarters and assembly facility are located in LaGrange, Indiana.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounts Receivable - The Company ships its finished conversion
products on a COD basis. Products other than completed vehicles
purchased by a dealer with an established account with the Company
are shipped on 30 day, net terms. All other such products purchased
are shipped only upon receipt of all proceeds in advance, upon
presentation of a validated credit card or on a COD basis. Accounts
receivable are recorded at net realizable value. Historically, bad
debt write-offs have essentially been nil. There were no bad debt
write-offs during the nine months ended September 30, 2005 and 2004,
respectively. In the opinion of management, no provision is deemed
necessary for uncollectible accounts at September 30, 2005 and 2004.
Revenue Recognition - In accordance with Staff Accounting Bulletin
No. 104, Topic 13: Revenue Recognition, the Company records revenue
for the completion of van conversions and truck modifications and
its other products when products are shipped, the price is final or
determinable and collection of the sales price is reasonably
assured. The Company utilizes inventory chassis in conjunction with
their van conversions and truck modifications. These chassis are
owned by the Company until the completion and shipment of the van
conversion or truck modification. At the time of revenue
recognition, the chassis are sold back to the respective
manufacturer and the elements of the Company's conversion or
modification are sold directly to the respective dealership. The
Company purchases and resells each floor planned chassis to the
respective manufacturer at the same price for which it was
purchased, less any dealer holdback, discounts and other incentives
received. Also in accordance with Staff Accounting Bulletin No.
104, Topic 13: Revenue Recognition, no revenue is recognized with
respect to resale of the chassis to the respective manufacturer.
Any of the products sold by the Company may be returned by the
buyer, although such returns are infrequent and immaterial. When
such returns do occur, the appropriate revenue account is directly
reduced.
Use of Estimates - The preparation of financial statements in
conformity with accounting principles generally accepted in the
United States of America (GAAP) requires management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Inventories - Inventories are carried at the lower of cost or
market. The cost is determined using the first-in, first-out method.
The Company evaluates its inventory value at the end of each year to
ensure that it is carried at the lower of cost or market. This
evaluation includes an analysis of its physical inventories, a
review of potential obsolete and slow-moving stock based on
historical product sales and forecasted sales and an overall
consolidated analysis of potential excess inventory. To the extent
historical physical inventory results are not indicative of future
results and if future events affect, either favorably or
unfavorably, the salability of the Company's products or its
relationship with certain key vendors, the Company's inventory
reserves could differ significantly, resulting in either higher or
lower future inventory provisions.
Property and Equipment - Property and equipment are stated at cost
less accumulated depreciation. Depreciation is provided using the
straight-line method over the estimated useful life of the asset.
Maintenance and repairs are expensed as incurred.
Cost of Goods Sold - The components of cost of goods sold in the
accompanying statements of income include all direct materials and
direct labor associated with the assembly and/or manufacturing of
the Company's products.
Accrued Warranty Costs - Estimated future costs related to product
warranties are accrued as products are sold based on prior
experience and known current events and are included in accrued
expenses in the accompanying balance sheet. Accrued warranty costs
have historically been sufficient to cover actual costs incurred and
are included within cost of goods sold.
Advertising Costs - The Company expenses costs of advertising as
incurred. Advertising costs for the nine months ended September 30,
2005 and 2004 were approximately $150,000 and $262,000,
respectively, and are included within Advertising and Sales expenses
on the Statements of Operation.
Impairment of Long-Lived Assets - The Company evaluates its long-
lived assets for financial impairment as events or changes in
circumstances indicate that the carrying amount of such assets may
not be recoverable. The Company evaluates the recoverability of
long-lived assets used in operations by measuring the carrying
amount of the assets against their estimated undiscounted future
cash flows. If such evaluations indicate that the future
undiscounted cash flows of certain long-lived assets are not
sufficient to recover the carrying value of such assets, the assets
are adjusted to their approximate fair values.
Income Taxes - With respect to periods prior to July 1, 2005, the
Company's shareholder elected to be taxed under the provisions of
Subchapter S of the Internal Revenue Code. Under those provisions,
the Company does not pay federal or state corporate income taxes on
its taxable income. Instead, the shareholder is liable for
individual federal income taxes on the Company's taxable income or
net operating loss. At the close of business on June 30, 2005, the
Company's shareholder sold 49% of the Company's common shares
outstanding to Commerce Street Venture Group, Inc. a C corporation.
As S corporations are not permitted to have a C corporation as a
shareholder, effective July 1, 2005, the Company is no longer
eligible for the tax treatment of the provisions of Subchapter S
Effective on July 1, 2005, the Company will be taxed under the
provisions of Subchapter C of the Internal Revenue Code. From that
date forward, the Company accounts for income taxes utilizing the
asset and liability method. This approach requires the recognition
of deferred tax assets and liabilities for the expected future tax
consequences attributable to temporary differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and
tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rate is recognized in income in the
period that included the enactment date. The Michigan Single
Business Tax was $1,300 and $1,970 for the nine months ended
September 30, 2005 and 2004, respectively. The Pennsylvania
franchise tax was $5,647 and $5,843 for the nine months ended
September 30, 2005 and 2004, respectively.
Concentration of Credit Risk - Financial instruments which
potentially subject the Company to concentrations of credit risk
consist principally of cash. The Company places its cash with high
credit quality financial institutions. At various times throughout
2004, the Company's cash balance in its cash account held at a
financial institution was in excess of the federally insured limit.
The Company also maintains chassis inventory on its premises which
are purchased from and sold back to the respective manufacturer at
the same price. The chassis inventory is used in conjunction with
the components of the Company's independent sale of specialty van
conversions and truck modifications products.
3. INVENTORIES
The components of inventories at September 30 were as follows:
2005 2004
---- ----
Floor Planned Chassis $5,188,275 $4,142,663
Raw Materials 441,140 775,607
Finished Goods 369,853 389,657
------- -------
$5,999,268 $5,307,927
---------- ----------
Floor planned chassis represents the cost of chassis ordered under
the Company's floor plan agreements. Finished goods represents the
capitalized costs attributable to the Company's value-added elements
in completed conversions and modifications on hand as of the balance
sheet date (see Footnotes 2 and 6).
4. PROPERTY AND EQUIPMENT
Property and equipment, their estimated useful lives and related
accumulated depreciation at September 30 were as follows:
Useful Life
(Years) 2005 2004
------- ---- ----
Shop Equipment and Fixtures 7 $523,791 $484,119
Furniture and Office Equipment 3-5 198,228 195,035
Transportation Equipment 6 28,700 25,000
Signage 10 13,459 13,459
Leasehold Improvements 8-10 71,771 71,771
------ ------
835,949 789,384
Less Accumulated Depreciation 592,623 410,919
------- -------
$243,326 $378,465
-------- --------
5. ACCRUED EXPENSES
The components of accrued expenses at September 30 were as follows:
2005 2004
---- ----
Accrued Warranty $201,000 $201,000
Accrued Property Taxes 6,090 6,077
Accrued Payroll 115,048 92,374
Accrued Advertising 22,450 8,500
Other 197,866 16,088
------- ------
$542,454 $324,039
-------- --------
6. FLOOR PLAN PAYABLE
The Company held chassis inventory totaling $5,188,275 and
$4,142,663 at September 30, 2005 and 2004, respectively. The
Company had a floor plan payable at September 30 as follows:
2005 2004
---- ----
Ford Motor Credit Company $3,096,008 $1,393,514
General Motors Acceptance Corporation 1,955,292 630,544
Chrysler Financial Company, L.L.C. 136,975 2,118,605
------- ---------
$5,188,275 $4,142,663
========== ==========
The Company has entered into a pool agreement with each of these
companies. Under these agreements, the Company purchases chassis
and later sells the chassis back to the respective manufacturer (see
Footnote 2). The Company accrues and pays interest monthly on the
outstanding floor plan payables ranging from 1% to 2%, as of
September 30, 2005, for floor planned chassis held for less than 90
days and prime plus 1% (7.00% at November 4, 2005) for floor planned
chassis held for greater than 90 days. The interest is reported as
"Interest Expense" on the Company's income statement. Title to the
chassis passes to the Company at purchase and passes back to the
manufacturer when the manufacturer repurchases the chassis. The
Company does not make any payments on floor plan payable balances
outstanding.
7. LINE OF CREDIT
The Company had a revolving line of credit with a maximum amount
available of $650,000. The balance at September 30, 2005 was
$200,000. Interest was payable monthly at the prime rate plus 0.5%
(7.00% at November 1, 2005), and the principal was scheduled to
mature on October 5, 2005. The line of credit was collateralized by
all the business assets of the Company and was guaranteed by the
stockholder. The balance due was fully repaid on November 4, 2005
(see footnote 16).
8. LONG TERM DEBT
2005 2004
---- ----
Long Term Debt consisted of the following at
September 30:
Note payable to Farmers State Bank, interest
at prime plus 0.75% (7.0% at September 30,
2005), payable in equal monthly installments
of principal and interest of $1,396 to March
2008, collateralized by all the business
assets of the Company and guaranteed by the
stockholder. $39,024 $60,618
Less Current Portion 14,580 22,100
------ ------
$24,444 $38,518
======= =======
Future maturities of long term debt are as follows:
Year Ending
December 31,
2005 $3,417
2006 15,002
2007 15,928
2008 4,677
-----
$39,024
-------
9. INCOME TAXES
The components of deferred tax assets and liabilities at September
30 were as follows:
2005 2004
---- ----
Current Deferred Tax Asset, Net:
Inventory Accounting $63,392 $-0-
======= ====
Long Term Deferred Tax Liability, Net:
Property and Equipment $(2,479) $-0-
======== ====
A reconciliation between the effective rate for income taxes and the
amount computed by applying the statutory Federal income tax rate to
loss from continuing operations before provision for income taxes
for the nine months ended September 30 is as follows:
2005 2004
---- ----
Federal Statutory Tax (34.0)% -0-%
Nondeductible Expenses 12.9% -0-%
State Income Taxes (3.5)% -0-%
------ ----
Effective Tax Rate (24.6)% -0-%
======= ====
The Company utilizes a December 31 year end for Federal and state
income tax purposes. The tax effects of the temporary differences
between reportable financial statement income and taxable income are
recognized as a deferred tax asset and liability.
10. ACQUISITION OF THE COMPANY
On March 11, 2005, the sole shareholder of the Company entered into
an agreement to sell 49% of the common shares outstanding to
Commerce Street Venture Group, Inc. ("Commerce Street") by executing
a note payable. On June 30, 2005 the last payment on the note
payable was made and the shares were transferred to Commerce Street.
On July 1, 2005, the former sole shareholder entered into a formal
share swap agreement with Legend Motors Worldwide, Inc. ("Legend")
for 51% of the Company's shares. Pursuant to this agreement, the
shareholder exchanged 51 shares of the Company's common stock for
shares of Legend. Also on July 1, 2005, Commerce Street entered
into a formal share swap agreement with Legend. Pursuant to this
agreement, Commerce Street exchanged 49 shares of the Company's
common stock for shares of Legend. As a result of the two
exchanges, the Company became a wholly-owned subsidiary of Legend.
11. RELATED PARTY TRANSACTIONS
The Company's operating facilities are leased from LA Investments,
LLC which is 50% owned by the stockholder and 50% owned by the
stockholder's spouse. Effective on April 1, 2005, the monthly lease
payment increased to $29,000. Prior to that, the monthly lease
payment was $22,500. The lease is for a period of ten (10) years
through February 28, 2010 and may be renewed for five additional
one-year terms. Rent expense paid to LA Investments, LLC totaled
$241,500 and $202,500 for the nine months ended September 30, 2005
and 2004, respectively, and is included within selling, general and
administrative expenses.
The Company paid Team LA Motorsports, Ltd. $74,748 and $27,000 for
the nine months ended September 30, 2005 and 2004, respectively, for
advertising and promoting of the Company. The stockholder's spouse
owns 100% of Team LA Motorsports, Ltd.
12. COMMITMENTS AND CONTINGENCIES
The Company leases its operating facilities and certain equipment
under noncancellable lease agreements expiring at various dates
through February 2010. Rental expense was $241,500 and $202,500 for
the nine months ended September 30, 2005 and 2004, respectively.
The Company also leases various equipment under capital leases
expiring at various dates through June 2005. The leased assets are
included in the balance sheet as part of property and equipment at a
cost of $316,267 as of September 30, 2005 and 2004. Amortization of
these assets held under capital leases is included with depreciation
expense and was approximately $25,656 and $35,336 for the nine
months ended September 30, 2005 and 2004, respectively.
Future minimum lease payments under non-cancelable operating leases
(with initial or remaining terms in excess of one year) and future
minimum capital lease payments as of September 30, 2005 are as
follows:
Year Ending Capital Operating
December 31, Leases Leases
- ------------ ------ ------
2005 $-0- $88,298
2006 -0- 349,298
2007 -0- 348,325
2008 -0- 348,000
2009 -0- 348,000
Thereafter -0- 58,000
--- ------
Total minimum lease payments $-0- $1,539,921
==== ==========
13. EMPLOYEE BENEFIT PLAN
The Company has a defined contribution plan (the "Plan") qualifying
under Section 401(k) of the Internal Revenue Code. Substantially
all employees who have met certain service requirements are eligible
for participation in the Plan. Participants may defer and
contribute to the Plan up to 15% of their compensation not to exceed
the IRS limit. The participants' contributions vest immediately,
while the Company contributions vest over six years. The Company's
contribution rate is determined on a year to year basis at the sole
discretion of the Company, not to exceed $3,000 in any plan year.
There were no Company contributions for the nine months ended
September 30, 2005 or the years ended December 31, 2004 and 2003.
14. STOCKHOLDER'S EQUITY
The Company has 1,000 shares of no par value common stock authorized
of which 100 shares were issued and outstanding at September 30,
2005.
15. EARNINGS PER SHARE
Basic and fully diluted earnings per share for the nine months ended
September 30, 2005 was as follows:
Income Shares Per-Share
(Numerator) (Denominator) Amounts
----------- ------------- -------
Net Income $48,283
Basic EPS $48,283 100 $482.83
-------
Diluted EPS $48,283 100 $482.83
------- --- -------
As of September 30, 2005, the Company had no securities, either
authorized or issued, that could potentially dilute basic earning
per share.
Basic and fully diluted earnings per share for the nine months ended
September 30, 2004 was as follows:
Income Shares Per-Share
(Numerator) (Denominator) Amounts
----------- ------------- -------
Net Income $701,280
Basic EPS $701,280 100 $7,012.80
--------
Diluted EPS $701,280 100 $7,012.80
======== === =========
As of September 30, 2004, the Company had no securities, either
authorized or issued, that could potentially dilute basic earning
per share.
There have been no subsequent transactions that would change the
number of common shares or potential common shares presented in
these earnings per share calculations.
16. SUBSEQUENT EVENTS
During the reporting period, the Company maintained a secured credit
agreement with a commercial lender (see Footnote 7). Between
September 15, 2005 and September 29, 2005 Legend contributed
$400,000 to the capital of the Company. The line of credit matured
on October 5, 2005 and was paid in full at that time using the
contributed funds.
On November 4, 2005, the Company entered into a replacement secured
credit agreement with a separate commercial lender. Under the terms
of the replacement secured credit agreement, the Company has a line
of credit for up to $250,000. Interest is payable monthly at the
prime rate plus 1.0% (7.00% at November 1, 2005). The line of
credit matures on June 4, 2006 and is collateralized by all the
business assets of the Company.
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders of
GT 40 North America, Inc.:
We have audited the accompanying balance sheet of GT 40 North
America, Inc. as of December 31, 2004, and the related statements
of operations, stockholders' deficit, and cash flows for the year
ended December 31, 2004 and for the period from September 5, 2003
(inception) to December 31, 2003. 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 auditing standards
generally accepted in the United States of America. Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes 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 GT 40 North America, Inc. as of December 31, 2004, and the
results of its operations and its cash flows for the year ended
December 31, 2004 and the period from September 5, 2003
(inception) to December 31, 2003 in conformity with accounting
principles generally accepted in the United States of America.
/s/ Tedder, James, Worden & Associates, P.A.
December 9, 2005
Orlando, Florida
GT 40 North America, Inc.
Balance Sheet
December 31, 2004
ASSETS
Current Assets:
Cash $ -0-
Inventories 398,681
Prepaid Expenses and Other Current Assets 6,123
----------
Total Current Assets 404,804
Property and Equipment, Net 155,882
Other Assets 10,890
----------
Total Assets $ 571,576
==========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Accounts Payable $ 210,199
Accounts Payable - Related Parties 139,239
Accrued Expenses 47,198
Accrued Interest 48,483
Loans From Stockholder 754,782
Loans From Related Parties 835,285
----------
Total Current Liabilities 2,035,186
----------
Commitments and Contingencies
Stockholders' Deficit:
Common Stock, $1 par, 1,000 shares authorized,
100 shares issued and outstanding 100
Accumulated Deficit (1,463,710)
Total Stockholders' Deficit (1,463,610)
-----------
Total Liabilities and Stockholders' Deficit $571,576
-----------
See Accompanying Notes to Financial Statements.
GT 40 North America, Inc.
Statements of Operations
Period From
September 5,
2003
Year Ended (Inception) to
December 31, December 31,
2004 2003
---- ----
Vehicle Sales 535,300 -0-
Franchise Fees 40,000 75,000
------- ------
Net Sales $575,300 $75,000
Cost of Goods Sold 996,310 26,882
-------- ------
Gross Profit (Loss) (421,010) 48,118
Operating Expenses:
Salaries, Wages and Employee Benefits 498,745 115,916
Occupancy Costs 96,771 21,707
Advertising and Sales 89,667 7,675
Other General and Administrative Expenses 201,798 10,041
------- ------
Total Operating Expenses 886,981 155,339
------- -------
Loss from Operations (1,307,991) (107,221)
Other Income (Expense):
Interest Expense (47,911) (587)
Loss Before Income Taxes (1,355,902) (107,808)
Income Tax Expense -0- -0-
--- ---
Net Loss $(1,355,902) $(107,808)
============ ==========
Weighted Average Shares
of Common Stock
Outstanding:
Basic and Diluted 100 100
=== ===
Loss Per Common Share:
Basic and Diluted $(13,559.02) $(1078.08)
============ ==========
See Accompanying Notes to Financial Statements.
GT 40 North America, Inc.
Statements of Cash Flows
Period From
September 5,
2003
Year Ended (Inception) to
December 31, December 31,
2004 2003
---- ----
CASH FLOWS FROM OPERATING
ACTIVITIES
Net Loss $(1,355,902) $(107,808)
Adjustments to Reconcile Net
Loss to Net Cash Used In
Operating Activities:
Depreciation 30,019 3,110
Loss on Sale of Equipment 301 -0-
(Increase) Decrease in Assets:
Inventories (237,213) (161,468)
Prepaid Expenses and Other
Current Assets 17,251 (23,374)
Other Assets (10,350) (540)
Increase (Decrease) in
Liabilities:
Accounts Payable 181,438 28,761
Accounts Payable - Related Parties 114,869 24,370
Accrued Interest 47,896 587
Accrued Expenses 47,198 -0-
Customer Deposits (143,000) 143,000
--------- --------
Net Cash Used In Operating Activities (1,307,493) (93,362)
----------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES
Purchases of Property and Equipment (152,884) (63,988)
Proceeds from Sale of Property
and Equipment 5,500 -0-
------ ---
Net Cash Used In Investing
Activities (147,384) (63,988)
---------- ---------
CASH FLOWS FROM FINANCING
ACTIVITIES
Issuance of Common Stock -0- 100
Loans From Stockholder 702,842 74,000
Loans From Related Parties 736,368 98,917
-------- -------
Net Cash Provided by Financing Activities 1,439,210 173,017
---------- --------
Net Increase (Decrease) in Cash (15,667) 15,667
Cash - Beginning of Period 15,667 -0-
------- ---
Cash - End of Period $-0- $15,667
=== =======
Supplemental Disclosure of Non-cash Investing and
Financing Activities:
The Company sold property and equipment to a stockholder
for carrying value which was used to reduce the
principle of the loans from stockholder by $22,060.
See Accompanying Notes to Financial Statements.
GT 40 North America, Inc.
Statements of Stockholders' Deficit
For the Period from September 5, 2003 (Inception) to December 31,
2004
Total
Common Stock Accumulated Stockholders'
Shares Amount Deficit Deficit
------------------------------------------------------
Inception (September 5, 2003) -0- $-0- $-0- $-0-
Issuance of Common Stock 100 100 -0- 100
Net Loss -0- -0- (107,808) (107,808)
---- ---- --------- ---------
Balances at December 31, 2003 100 $100 $(107,808) $(107,708)
Net Loss -0- -0- (1,355,902) (1,355,902)
--- --- ----------- -----------
Balances at December 31, 2004 100 $100 $(1,463,710) $(1,463,610)
---- ----- ------------ ------------
See Accompanying Notes to Financial Statements.
GT 40 North America, Inc.
Notes to Financial Statements
December 31, 2004
1. BUSINESS
GT 40 North America, Inc. (the "Company") is primarily engaged in
the design, assembly, and sale of specially constructed cars
throughout the United States of America, Canada, Mexico, and
Europe. The Company's headquarters and assembly facility are
located in Westfield, Indiana.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition - In accordance with Staff Accounting
Bulletin No. 104, Topic 13: Revenue Recognition, the Company
records revenue for the sale of vehicles when the customer has
executed a customer purchase agreement, the vehicle is delivered,
the price is final and collection of the sales price is
reasonably assured. The Company's standard purchase agreement
establishes the price, payment terms and the transfer of title to
the vehicle upon the buyer's acceptance thereof. Standard terms
are one-half of purchase price in advance with the remaining
balance due upon delivery. The Company utilizes a delivery
service that collects the remaining balance due prior to
delivery. The Company recognizes revenue when the final payment
is received from the customer. The Company sold one year
franchise rights in 2004 and 2003 of $40,000 and $75,000,
respectively, which granted the franchisees the exclusive rights
to sell the Company's motor vehicles within specific designated
areas.
Use of Estimates - The preparation of financial statements in
conformity with accounting principles generally accepted in the
United States of America (GAAP) requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Inventories - Inventories are carried at the lower of cost or
market. The cost is determined using the average cost method. The
Company evaluates its inventory value at the end of each year to
ensure that it is carried at the lower of cost or market. This
evaluation includes an analysis of its physical inventories, a
review of potential obsolete and slow-moving stock based on
historical product sales and forecasted sales and an overall
consolidated analysis of potential excess inventory.
To the extent historical physical inventory results are not
indicative of future results and if future events affect, either
favorably or unfavorably, the salability of the Company's
products or its relationship with certain key vendors, the
Company's inventory reserves could differ significantly,
resulting in either higher or lower future inventory provisions.
Property and Equipment - Property and equipment are stated at
cost less accumulated depreciation. Depreciation is provided
using the straight-line method over the estimated useful life of
the asset. Maintenance and repairs are expensed as incurred.
Cost of Goods Sold - The components of cost of goods sold in the
accompanying statements of operations include all direct
materials, labor and overhead associated with the assembly and/or
manufacturing of the Company's products.
GT 40 North America, Inc.
Notes to Financial Statements
December 31, 2004
Impairment of Long-Lived Assets - The Company evaluates its long-
lived assets for financial impairment as events or changes in
circumstances indicate that the carrying amount of such assets
may not be recoverable. The Company evaluates the recoverability
of long-lived assets used in operations by measuring the carrying
amount of the assets against their estimated undiscounted future
cash flows. If such evaluations indicate that the future
undiscounted cash flows of certain long-lived assets are not
sufficient to recover the carrying value of such assets, the
assets are adjusted to their fair values.
Income Taxes - The Company accounts for income taxes utilizing
the asset and liability method. This approach requires the
recognition of deferred tax assets and liabilities for the
expected future tax consequences attributable to temporary
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases
and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in
tax rate is recognized in income in the period that included the
enactment date.
Research and Development Costs - Research and development costs
are expensed as incurred. Research and development costs totaled
$18,262 for the year ended December 31, 2004 and $1,690 for the
period from September 5, 2003 (inception) to December 31, 2003
and are included in Other General and Administrative Expenses in
the statement of operations.
Concentration of Credit Risk - Financial instruments which
potentially subject the Company to concentrations of credit risk
consist principally of cash. The Company places its cash with
high credit quality financial institutions. At various times
throughout 2004, the Company's cash balance in its cash account
held at a financial institution was in excess of the federally
insured limit.
3. INVENTORIES
Inventories consisted of the following at December 31, 2004:
Raw Materials $213,675
Work in Progress 31,450
Finished Goods 153,556
-------
$398,681
--------
GT 40 North America, Inc.
Notes to Financial Statements
December 31, 2004
4. PROPERTY AND EQUIPMENT
Property and equipment, their estimated useful lives and related
accumulated depreciation at December 31, 2004 were as follows:
Useful Life
(Years)
---------
Shop Equipment and Fixtures 2-5 $125,325
Furniture and Office Equipment 3-10 16,139
Transportation Equipment 5 13,375
Signage 7-10 5,702
Construction in Process n/a 26,500
------
187,041
Less Accumulated Depreciation 31,159
------
$155,882
========
5. ACCRUED EXPENSES
The components of accrued expenses at December 31, 2004 were as
follows:
Accrued Payroll $24,531
Accrued Payroll Taxes 21,656
Other 1,011
-----
$47,198
=======
6. INCOME TAXES
The components of deferred tax assets and liabilities at December
31, 2004 were as follows:
Deferred Tax Assets (Liabilities):
Accrued Expenses $9,962
Inventory Accounting 60,238
Property and Equipment (949)
Net Operating Loss Carryforwards 508,845
--------
578,096
Less Valuation Allowance 578,096
--------
Net Deferred Tax Assets (Liabilities) $-0-
----
The Company has recorded a full valuation allowance against its
deferred tax assets since management believes that based upon
current available objective evidence it is more likely than not
that the deferred tax asset will not be realized.
GT 40 North America, Inc.
Notes to Financial Statements
December 31, 2004
A reconciliation between the effective rate for income taxes and
the amount computed by applying the statutory Federal income tax
rate to loss from continuing operations before provision for
income taxes for the year ended December 31, 2004 and the period
from September 5, 2003 (inception) to December 31, 2003 is as
follows:
For the Period
Year Ended From September 5,
December 31, 2003 (Inception) to
2004 December 31, 2003
------------ -------------------
Federal Statutory Tax (34.0)% (34.0)%
Nondeductible Expenses 0.1% 0.1%
Increase in Valuation Allowance 33.9% 33.9%
Effective Tax Rate -0-% -0-%
The Company utilizes a June 30 year end for Federal and state
income tax purposes. As of December 31, 2004 and 2003, the
Company has net operating loss carryforwards of approximately
$1,284,000 and $30,000, respectively. The carryforward will
expire on June 30, 2024, if not utilized by that date. The
Company's net operating loss carry forwards may be subject to
annual limitations, which could reduce or defer the utilization
of the losses as a result of an ownership change as defined in
Section 382 of the Internal Revenue Code. The tax effects of the
temporary differences between reportable financial statement
income and taxable income are recognized as a deferred tax asset
and liability.
7. COMMITMENTS AND CONTINGENCIES
Prior to July 2005, the Company leased office and production
space under a non-cancelable operating lease agreement that was
scheduled to expire in November 2009. The minimum future rental
commitment at December 31, 2004 under this operating lease is as
follows:
Year Ending
December 31,:
2005 $120,000
2006 $120,000
2007 $120,000
2008 $120,000
2009 $100,000
--------
$580,000
========
GT 40 North America, Inc.
Notes to Financial Statements
December 31, 2004
8. STOCKHOLDERS' EQUITY
The Company has 1,000 shares of $1.00 par value common stock
authorized of which 100 shares were issued and outstanding at
December 31, 2004.
9. RELATED PARTY TRANSACTIONS
The Company has entered into transactions with various related
parties. All loans due to stockholders and companies in which
those stockholders have interest were demand notes bearing
interest at the rate of 5%. The following balances were
outstanding at December 31, 2004:
Accounts Payable - Related Parties (Stockholder) $110,239
Accounts Payable - Related Parties (Related Companies) 29,000
------
$139,239
========
Accrued Interest - Stockholder $29,160
Accrued Interest - Related Companies 19,323
------
$48,483
=======
Loans from Stockholder $754,782
========
Loans from Related Companies $835,285
========
The following transactions occurred with related parties during
the year ended December 31, 2004 and for the period from September 5,
2003 (inception) to December 31, 2003 and are included in selling,
general and administrative expenses in the statements of
operations:
For the Period
Year Ended From September 5,
December 31, 2003 (Inception) to
2004 December 31, 2003
------------ -------------------
Consulting Fees Paid to Stockholders $160,961 $62,500
Engineering Fees Paid to Stockholder 103,205 -0-
-------- ---
$264,166 $62,500
========= ========
For the period from October 1, 2003 through December 1, 2004, the
Company rented office and production space from a stockholder.
Total rent payments under this arrangement were $64,947 and
$16,237 during the year ended December 31, 2004 and for the
period from September 5, 2003 (inception) to December 31, 2003,
respectively.
Effective December 1, 2004, the Company leased office and
production space from a stockholder (see Note 7). Total rent
payments under this lease during 2004 were $10,000. In addition,
GT 40 North America, Inc.
Notes to Financial Statements
December 31, 2004
the Company was required to deposit $10,000 with the landlord.
This amount represents the rent for the last month of the lease
period and is included in other assets.
10. EARNINGS PER SHARE
Basic and fully diluted earnings per share for the twelve months
ended December 31, 2004 was as follows:
Income Shares Per-Share
(Numerator) (Denominator) Amounts
----------- ------------- ---------
Net Loss $(1,355,902)
Basic EPS $(1,355,902) 100 $(13,559.02)
Diluted EPS $(1,355,902) 100 $(13,559.02)
============ === ============
As of December 31, 2004, the Company had no securities, either
authorized or issued, that could potentially dilute basic earning
per share.
Basic and fully diluted earnings per share for the period From
September 5, 2003 (Inception) to December 31, 2003 was as
follows:
Income Shares Per-Share
(Numerator) (Denominator) Amounts
----------- ------------- -------
Net Loss $(107,808)
Basic EPS $(107,808) 100 $(1,078.08)
Diluted EPS $(107,808) 100 $(1,078.08)
As of December 31, 2003, the Company had no securities, either
authorized or issued, that could potentially dilute basic earning
per share.
There have been no subsequent transactions that would change the
number of common shares or potential common shares presented in
these earnings per share calculations.
11. SUBSEQUENT EVENTS
At various dates from January 2005 through June 2005, the Company
received additional net fundings of approximately $673,000
through additional loans from a company in which a stockholder
has an ownership interest.
At the close of business on April 28, 2005, each of the Company's
three shareholders entered into a formal share swap agreement
with Legend Motors Worldwide, Inc. ("Legend"). Pursuant to the
three agreements, the Company's shareholders exchanged all of
their shares in the Company for shares of Legend. As a result of
the exchanges, the Company became a wholly-owned subsidiary of
Legend.
On June 27, 2005, the Company entered into formal debt agreements
with the respective related parties to which the Company had
outstanding loans to consolidate the respective loans and accrued
interest due to each related party. The new agreements allow for
the converging of outstanding debt and accrued interest into
common stock of the Company at a stated price of two dollars per
share. The converging is at the option of the note holder. The
respective promissory notes each have accrued interest due on
August 31, 2005 and any remaining outstanding principle and
accrued interest payable on August 31, 2006 may be converted to
common stock of the Company. On June 28, 2005, each of the
holders of loans payable executed their respective options to
convert their respective outstanding principle balances to common
stock.
GT 40 North America, Inc.
Balance Sheets
(Unaudited)
September 30,
----------------------------
2005 2004
------------ ------------
ASSETS
Current Assets:
Cash $ 843 $ -0-
Accounts Receivable 100,000 -0-
Inventories 302,965 643,773
Prepaid Expenses and Other Current Assets 6,556 1,830
------------ ------------
Total Current Assets 410,364 645,603
Property and Equipment, Net 209,693 156,113
Other Assets 19,512 540
------------ ------------
Total Assets $ 639,569 $ 802,256
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
Accounts Payable $ 60,201 $ 186,859
Accounts Payable - Related Parties 2,388 129,389
Accrued Interest 6,884 28,917
Customer Deposits -0- 45,000
Loans From Related Parties -0- 578,212
Loans From Stockholder 167,920 707,042
------------ ------------
Total Current Liabilities 237,393 1,675,419
------------ ------------
Commitments and Contingencies
Stockholders' Equity (Deficit):
Common Stock 100 100
Capital in Excess of Par 2,485,785 -0-
Accumulated Deficit (2,083,709) (873,263)
------------ ------------
Total Stockholders' Equity (Deficit) 402,176 (873,163)
------------ ------------
Total Liabilities and Stockholders' Equity (Deficit) $ 639,569 $ 802,256
============ ============
See Accompanying Notes to Financial Statements.
GT 40 North America, Inc.
Statements of Operations
(Unaudited)
Nine Months Ended September 30,
----------------------------
2005 2004
------------ ------------
Vehicle Sales $ 254,000 $ 435,300
Franchise Fees -0- 40,000
------------ ------------
Net Sales $ 254,000 $ 475,300
Cost of Goods Sold 356,857 630,105
------------ ------------
Gross Profit (Loss) (102,857) (154,805)
Operating Expenses:
Salaries, Wages and Employee Benefits 296,927 273,558
Occupancy Costs 71,953 63,540
Advertising and Sales 10,780 74,268
Gain on Sale of Property and Equipment -0- (76)
Other General and Administrative Expenses 79,497 171,020
------------ ------------
Total Operating Expenses 459,157 582,310
------------ ------------
Loss from Operations (562,014) (737,115)
Other Income (Expense):
Interest Expense (57,985) (28,340)
------------ ------------
Loss Before Income Taxes (619,999) (765,455)
Income Tax Expense -0- -0-
------------ ------------
Net Loss $ (619,999) $ (765,455)
============ ============
Weighted Average Shares of Common Stock Outstanding:
Basic and Diluted 100 100
============ ============
Loss Per Common Share:
Basic and Diluted $ (6,199.99) $ (7,654.55)
============ ============
See Accompanying Notes to Financial Statements.
GT 40 North America, Inc.
Statements of Cash Flows
(Unaudited)
Nine Months Ended September 30,
----------------------------
2005 2004
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ (619,999) $ (765,455)
Adjustments to Reconcile Net Loss to Net Cash Used In Operating
Activities:
Depreciation 31,321 20,685
Gain on Sale of Equipment -0- (76)
(Increase) Decrease in Assets:
Accounts Receivable (100,000) -0-
Inventories 95,716 (482,306)
Prepaid Expenses and Other Current Assets (433) 21,544
Increase (Decrease) in Liabilities:
Accounts Payable (156,861) 158,099
Accounts Payable - Related Parties 764,926 584,314
Accrued Interest 57,940 28,330
Accrued Expenses (39,551) -0-
Customer Deposits -0- (98,000)
------------ ------------
Net Cash Provided by (Used In) Operating Activities 33,059 (532,865)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of Property and Equipment (93,754) (121,344)
Proceeds from Sale of Property and Equipment -0- 5,500
------------ ------------
Net Cash Used In Investing Activities (93,754) (115,844)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Payments (Repayments) on Loans From Stockholder (33,111) 633,042
Stockholder Capital Contributions 94,649 -0-
Loans From Related Parties -0- -0-
------------ ------------
Net Cash Provided by Financing Activities 61,538 633,042
------------ ------------
Net Increase (Decrease) in Cash 843 (15,667)
Cash - Beginning of Period -0- 15,667
------------ ------------
Cash - End of Period $ 843 $ -0-
============ ============
Supplemental Disclosure of Non-cash Investing and Financing Activities:
Four stockholders of the Company exercised their respective options to convert
debt obligations of the Company into common shares of the Company. As a result,
the Company's outstanding loans from related parties and from stockholder were
reduced by $2,129,420 and the Company's capital in excess of par was increased
by $2,129,420 (see footnote 7).
See Accompanying Notes to Financial Statements.
GT 40 North America, Inc.
Statements of Stockholders' Deficit
For the Periods from December 31, 2003 to September 30, 2004
and from December 31, 2004 to September 30, 2005
(Unaudited)
Additional Total
Common Stock Paid In Accumulated Stockholders'
Shares Amount Capital Deficit Deficit
------------ ------------ ------------ ------------ ------------
Balances at December 31, 2003 100 $ 100 $ -0- (107,808) $ (107,708)
Net Loss -0- -0- -0- (765,455) (765,455)
------------ ------------ ------------ ------------ ------------
Balances at September 30, 2004 100 $ 100 $ -0- $ (873,263) $ (873,163)
============ ============ ============ ============ ============
Balances at December 31, 2004 100 $ 100 $-0- $ (1,463,710) $ (1,463,610)
Debt to Equity Conversion -0- -0- 2,129,420 -0- 2,129,420
Stockholder Capital Contributions -0- -0- 356,365 -0- 356,365
Net Loss -0- -0- -0- (619,999) (619,999)
------------ ------------ ------------ ------------ ------------
Balances at September 30, 2005 100 $ 100 $ 2,485,785 $ (2,083,709) $ 402,176
============ ============ ============ ============ ============
See Accompanying Notes to Financial Statements.
GT 40 North America, Inc.
Notes to Financial Statements
September 30, 2005
1. BUSINESS
GT 40 North America, Inc. (the "Company") is primarily engaged in the design,
assembly, and sale of specially constructed vehicles throughout the United
States of America, Canada, Mexico, and Europe. The Company's headquarters and
assembly facility are located in Westfield, Indiana.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition - In accordance with Staff Accounting Bulletin No. 104,
Topic 13: Revenue Recognition, the Company records revenue for the sale of
vehicles when the customer has executed a customer purchase agreement, the
vehicle is delivered, the price is final and collection of the sales price is
reasonably assured. The Company's standard purchase agreement establishes the
price, payment terms and the transfer of title to the vehicle upon the buyer's
acceptance thereof. Standard terms are one-half of purchase price in advance
with the remaining balance due upon delivery. The Company utilizes a delivery
service that collects the remaining balance due prior to delivery. The Company
recognizes revenue when the final payment is received from the customer. The
Company sold one year franchise rights in 2004 of $40,000 which granted the
franchisees the exclusive rights to sell the Company's motor vehicles within
specific designated areas. The Company sold no franchise rights in 2005.
Use of Estimates - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America (GAAP)
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Inventories - Inventories are carried at the lower of cost or market. The cost
is determined using the average cost method. The Company evaluates its inventory
value at the end of each year to ensure that it is carried at the lower of cost
or market. This evaluation includes an analysis of its physical inventories, a
review of potential obsolete and slow-moving stock based on historical product
sales and forecasted sales and an overall consolidated analysis of potential
excess inventory. To the extent historical physical inventory results are not
indicative of future results and if future events affect, either favorably or
unfavorably, the salability of the Company's products or its relationship with
certain key vendors, the Company's inventory reserves could differ
significantly, resulting in either higher or lower future inventory provisions.
Property and Equipment - Property and equipment are stated at cost less
accumulated depreciation. Depreciation is provided using the straight-line
method over the estimated useful life of the asset. Maintenance and repairs are
expensed as incurred.
Cost of Goods Sold - The components of cost of goods sold in the accompanying
statements of operations include all direct materials, labor and overhead
associated with the assembly and/or manufacturing of the Company's products.
GT 40 North America, Inc.
Notes to Financial Statements
September 30, 2005
Impairment of Long-Lived Assets - The Company evaluates its long-lived assets
for financial impairment as events or changes in circumstances indicate that the
carrying amount of such assets may not be recoverable. The Company evaluates the
recoverability of long-lived assets used in operations by measuring the carrying
amount of the assets against their estimated undiscounted future cash flows. If
such evaluations indicate that the future undiscounted cash flows of certain
long-lived assets are not sufficient to recover the carrying value of such
assets, the assets are adjusted to their fair values.
Income Taxes - The Company accounts for income taxes utilizing the asset and
liability method. This approach requires the recognition of deferred tax assets
and liabilities for the expected future tax consequences attributable to
temporary differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rate is recognized in income in the period that included the enactment date.
Research and Development Costs - Research and development costs are expensed as
incurred. Research and development costs totaled $2,201 and $18,262 for the nine
months ended September 30, 2005 and 2004, respectively, and are included in
Other General and Administrative Expenses in the statements of operations.
Concentration of Credit Risk - Financial instruments which potentially subject
the Company to concentrations of credit risk consist principally of cash. The
Company places its cash with high credit quality financial institutions. At
various times throughout 2004, the Company's cash balance in its cash account
held at a financial institution was in excess of the federally insured limit.
3. INVENTORIES
The components of inventories at September 30 were as follows:
2005 2004
---------- ----------
Raw Materials $ 180,702 $ 259,559
Work in Progress 39,991 21,897
Finished Goods 82,272 362,317
---------- ----------
$ 302,965 $ 643,773
========== ==========
GT 40 North America, Inc.
Notes to Financial Statements
September 30, 2005
4. PROPERTY AND EQUIPMENT
Property and equipment, their estimated useful lives and related accumulated
depreciation at September 30 were as follows:
Useful Life
(Years) 2005 2004
------------ ------------ ------------
Shop Equipment and Fixtures 2-5 $ 173,361 $ 110,845
Furniture and Office Equipment 3-10 17,422 15,503
Transportation Equipment 5 13,375 8,124
Signage 7-10 5,921 5,748
Leasehold Improvements 15 -0- 20,342
Construction in Process n/a 62,094 19,300
------------ ------------
272,173 179,862
Less Accumulated Depreciation 62,480 23,749
------------ ------------
$ 209,693 $ 156,113
============ ============
5. INCOME TAXES
The components of deferred tax assets and liabilities at September 30 were as
follows:
2005 2004
------------ ------------
Deferred Tax Assets (Liabilities):
Accrued Expenses $ 2,727 $ 11,454
Inventory Accounting 86,178 114,155
Property and Equipment (4,876) (2,830)
Net Operating Loss Carryforwards 728,175 221,547
------------ ------------
812,204 344,326
Less Valuation Allowance 812,204 344,326
------------ ------------
Net Deferred Tax Assets (Liabilities) $ -0- $ -0-
============ ============
The Company has recorded a full valuation allowance against its deferred tax
assets since management believes that based upon current available objective
evidence it is more likely than not that the deferred tax asset will not be
realized.
A reconciliation between the effective rate for income taxes and the amount
computed by applying the statutory Federal income tax rate to loss from
continuing operations before provision for income taxes for the nine months
ended September 30 is as follows:
2005 2004
---------- ----------
Federal Statutory Tax (34.0)% (34.0)%
Nondeductible Expenses (0.2)% (0.2)%
Increase in Valuation Allowance 34.2% 34.2%
---------- ----------
Effective Tax Rate 0.0% 0.0%
========== ==========
GT 40 North America, Inc.
Notes to Financial Statements
September 30, 2005
The Company utilizes a June 30 year end for Federal and state income tax
purposes. As of September 30, 2005, the Company has net operating loss
carryforwards of approximately $1,839,000. The carryforwards, if not utilized
beforehand, will expire as follows:
Expiration Date Amount
--------------- ----------
June 30, 2025 $1,284,000
June 30, 2026 555,000
----------
Total $1,839,000
==========
The Company's net operating loss carry forwards may be subject to annual
limitations, which could reduce or defer the utilization of the losses as a
result of an ownership change as defined in Section 382 of the Internal Revenue
Code. The tax effects of the temporary differences between reportable financial
statement income and taxable income are recognized as a deferred tax asset and
liability.
6. COMMITMENTS AND CONTINGENCIES
Prior to July 2005, the Company leased office and production space under a
non-cancelable operating lease agreement that was scheduled to expire in
November 2009. The Company negotiated a revised cancelable operating lease
agreement that took effect in July 2005 and expires in June 2010. The minimum
future rental commitment at September 30, 2005 under this operating lease is as
follows:
Year Ending September 30:
-------------------------
2006 $ 36,446
2007 $ 36,446
2008 $ 36,446
2009 $ 30,371
--------
$139,709
========
7. STOCKHOLDERS' EQUITY
The Company has 1,000 shares of $1.00 par value common stock authorized of which
100 shares were issued and outstanding at September 30, 2005.
On June 27, 2005, the Company entered into formal debt agreements with the
respective related parties to which the Company had outstanding loans to
consolidate the respective loans and accrued interest due to each related party.
The agreements provide for interest to be paid on unpaid principal at the rate
of 5% and allow for the converging of outstanding debt into common stock of the
Company at a stated price of two dollars per share. The converging is at the
option of the note holder. The respective promissory notes each have accrued
interest due on August 31, 2005 with any remaining outstanding principal and
accrued interest payable on August 31, 2006. On June 28, 2005, each of the
holders of loans payable executed their respective options to convert their
respective outstanding principal balances to common stock and 1,064,710 common
shares of Legend Motors Worldwide, Inc. were issued (in lieu of GT 40 common
shares). As a result, the Company's outstanding loans from related parties and
from stockholder were reduced by $2,129,420 and the Company's capital in excess
of par was increased by $2,129,420.
GT 40 North America, Inc.
Notes to Financial Statements
September 30, 2005
8. RELATED PARTY TRANSACTIONS
The Company has entered into transactions with various related parties. All
loans due to stockholders and companies in which those stockholders have
interest were demand notes bearing interest at the rate of 5%. The following
balances were outstanding at September 30:
2005 2004
------------ ------------
Accounts Payable - Related Parties (Stockholder) $ -0- $ 100,389
Accounts Payable - Related Parties (Related Companies) 2,388 29,000
------------ ------------
$ 2,388 $ 129,389
============ ============
Accrued Interest - Stockholder $ 6,884 $ 18,626
Accrued Interest - Related Companies -0- 10,291
------------ ------------
$ 6,884 $ 28,917
============ ============
Loans from Stockholder $ 167,920 $ 707,042
============ ============
Loans from Related Companies $ -0- $ 578,212
============ ============
The following transactions occurred with related parties during the nine months
ended September 30 and are included in selling, general and administrative
expenses in the statements of operations:
2005 2004
------------ ------------
Consulting Fees Paid to Stockholders $ 67,692 $ 111,730
Engineering Fees Paid to Stockholder 67,308 72,436
------------ ------------
$ 135,000 $ 184,166
============ ============
For the period from October 1, 2003 through December 1, 2004, the Company rented
office and production space from a stockholder. Total rent payments under this
arrangement were $48,710 during the nine months ended September 30, 2004.
Effective December 1, 2004, the Company leased office and production space from
a stockholder. Total rent payments under this lease during the nine months ended
September 30, 2005 were $60,000. In addition, the Company was required to
deposit $10,000 with the landlord. This amount represents the rent for the last
month of the lease period and is included in other assets.
GT 40 North America, Inc.
Notes to Financial Statements
September 30, 2005
9. EARNINGS PER SHARE
Basic and fully diluted earnings per share for the nine months ended September
30, 2005 was as follows:
Income Shares Per-Share
(Numerator) (Denominator) Amounts
------------ ------------ ------------
Net Loss $ (619,999)
Less: Preferred stock dividends -0-
------------
Basic EPS $ (619,999) 100 $ (6,199.99)
------------
Diluted EPS $ (619,999) 100 $ (6,199.99)
============ ============ ============
As of September 30, 2005, the Company had no securities, either authorized or
issued, that could potentially dilute basic earning per share.
Basic and fully diluted earnings per share for the nine months ended September
30, 2004 was as follows:
Income Shares Per-Share
(Numerator) (Denominator) Amounts
------------ ------------ ------------
Net Loss $ (765,455)
Less: Preferred stock dividends -0-
------------
Basic EPS $ (765,455) 100 $ (7,654.55)
------------
Diluted EPS $ (765,455) 100 $ (7,654.55)
============ ============ ============
As of September 30, 2004, the Company had no securities, either authorized or
issued, that could potentially dilute basic earning per share.
There have been no subsequent transactions that would change the number of
common shares or potential common shares presented in these earnings per share
calculations.
10. ACQUISITION OF THE COMPANY
At the close of business on April 28, 2005, each of the Company's three
shareholders entered into a formal share swap agreement with Legend Motors
Worldwide, Inc. ("Legend"). Pursuant to the three agreements, the Company's
shareholders exchanged all of their shares in the Company for shares of Legend.
As a result of the exchanges, the Company became a wholly-owned subsidiary of
Legend.
No dealer, salesman or other
person is authorized to give any
information or to make any
representations not contained in
this prospectus in connection with
the offer made hereby, and, if
given or made, such information or
representations must not be relied
upon as having been authorized by
Legend Motors. This prospectus
does not constitute an offer to
sell or a solicitation to an offer
to buy the securities offered
hereby to any person in any state
or other jurisdiction in which such
offer or solicitation would be
unlawful. Neither the delivery of
this prospectus nor any sale made
hereunder shall, under any
circumstances, create any
implication that the information
contained herein is correct as of
any time subsequent to the date
hereof.
Until _________ __, 2006 (90 days
after the date of this prospectus)
all dealers that effect
transactions in these securities,
whether or not participating in
this offering, may be required to
deliver a prospectus. This is in
addition to the dealer's obligation
to deliver a prospectus when acting
as underwriters and with respect to
their unsold allotments or
subscriptions.
Legend Motors Worldwide, Inc.
12,000,000 SHARES
----------
PROSPECTUS
----------
January 11, 2006
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article 11 of our Articles of Incorporation includes certain
provisions permitted by Section 78.7502 of the Nevada Revised
Statutes, which provides for indemnification of directors and officers
against certain liabilities.
In general, Section 78.7502 permits us to indemnify our officers
and directors in situations where they (1) rely on information,
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,
unless such director or officer is not entitled to rely on such
information, opinions, reports, books of account or statements if he
has knowledge concerning the matter in question that would cause
reliance thereon to be unwarranted., or
(2) acted in good faith and in a manner which he 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 his conduct was unlawful.
Pursuant to our Articles of Incorporation, our officers and
directors are indemnified, to the fullest extent available under
Nevada Law, against expenses actually and reasonably incurred in
connection with threatened, pending or completed proceedings, whether
civil, criminal or administrative, to which an officer or director is,
was or is threatened to be made a party by reason of the fact that he
or she is or was one of our officers, directors, employees or agents.
We may advance expenses in connection with defending any such
proceeding, provided the indemnitee undertakes to repay any such
amounts if it is later determined that he or she was not entitled to
be indemnified by us.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to our directors, officers and
controlling persons pursuant to the foregoing provisions or otherwise,
we have been advised that in the opinion of the SEC such
indemnification is against public policy as expressed in the
Securities Act and is therefore, unenforceable.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
At the close of business on April 28, 2005, the Company issued
6,534,166 of its common shares to a private equity firm. The Company
received no cash in exchange for the issuance of these shares. In
exchange for the stock issuance, the private equity firm committed to
paying the costs required to undertake a public offering of the
Company's common stock. The Company has no obligation or intent to
reimburse any costs incurred by the private equity firm. The private
equity firm anticipates that it will incur costs in connection with
this registration statement as follows:
SEC registration fee $4,237.20
Legal fees and expenses $125,000.00
Accounting fees and expenses $85,000.00
Miscellaneous $15,762.80
-------------
Total $230,000.00
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
The following information is furnished with regard to all securities
sold by Legend Motors Worldwide, Inc. within the past three years that
were not registered under the Securities Act. The issuances described
hereunder were made in reliance upon the exemptions from registration
set forth in Section 4(2) of the Securities Act relating to sales by an
issuer not involving any public offering. None of the foregoing
transactions involved a distribution or public offering.
Date Name Number of Shares Total Price
- ---- ---- ---------------- -----------
July 1, 2005 Commerce Street Venture Group 1,582,492 (1)
July 1, 2005 Vern Kauffman 1,647,084 (2)
June 28, 2005 Lowell G. Hancher, Jr. 434,220 $864,220 (3)
June 28, 2005 Commerce Street Venture Group 566,740 $1,133,480 (3)
June 28, 2005 Magellan Financial Media Group, Inc. 63,750 $127,500 (3)
April 28, 2005 Lowell G. Hancher, Jr. 1,647,084 (4)
April 28, 2005 Andrew Broadley 100,000 (4)
April 28, 2005 George Recentio 100,000 (4)
April 28, 2005 Commerce Street Venture Group 6,534,166 (5)
October 5, 2004 Anthony D. Altavilla 25,000 (6) $50,000
October 5, 2004 Marlin G. Molinaro 12,500 (7) $25,000
October 5, 2004 Alan G. Shoaf 12,500 (7) $25,000
(1) issued in exchange for 49% of the outstanding common stock of LA West.
(2) issued in exchange for 51% of the outstanding common stock of LA West.
(3) Issued upon conversion of note payable at a price of $2.00 per share.
(4) Represents a portion of the 1,847,084 issued in exchange for 100% of
the outstanding common stock of GT 40 North America, Inc.
(5) In exchange for the stock issuance, CSVG committed to paying the costs
required to undertake a registration of Legend's common stock. Legend
has no obligation or intent to reimburse any costs incurred by CSVG.
CSVG anticipates that it will incur costs in the amount of $230,000
in the course of the registration process.
(6) Issuance also included warrants to purchase 6,250 shares of our common
stock at an exercise price of $4.00 per share.
(7) Also included warrants to purchase 3,125 shares of our common stock at
an exercise price of $4.00 per share.
On July 1, 2005, Lowell G. Hancher, Jr. voluntarily surrendered
2,226,304 shares of Legend's common stock to Legend and CSVG
voluntarily surrendered 2,149,232 shares of Legend's common stock to
Legend. Legend then issued 145,000 of those shares to Vern Kauffman
and 1,505,000 of those shares to GT 40. No consideration was received
for the issued shares.
On April 28, 2005, Legend Motors issued 1,987,500 of its warrants
with an exercise price of four dollars each for its common shares to
the following four recipients:
Name Amount
- ---- ------
Vern Kauffman 1,000,000
Gretchen C. Hancher 400,000
Commerce Street Venture Group, Inc. 400,000
Magellan Financial Media Group, Inc. 187,500
---------
Total 1,987,500
ITEM 27. EXHIBITS
Exhibit Number Description
3.1 Amended and Restated Articles of Incorporation of
Legend Motors Worldwide, Inc.
3.2 Bylaws of Legend Motors Worldwide, Inc.
4.1 Specimen certificate of the Common Stock of
Legend Motors Worldwide, Inc.
4.2 Specimen form of Warrant
5.1 Opinion of Law Office of James G. Dodrill II,
P.A. as to legality of securities being
registered*
10.1 Employment Agreement with Vern Kauffman
10.2 Lease of Business Property entered July 1, 2005
between the Company and Lowell G. Hancher, Jr.
10.3 Lease of Business Property entered August 18,
1999 between the LA West and LA Investments LLC
10.4 Lease of Equipment entered June 23, 2000 between
LA West and Varilease Corporation
10.5 Promissory Note dated June 27, 2005 with Lowell
G. Hancher, Jr.
10.6 Promissory Note dated June 27, 2005 with Commerce
Street Venture Group
10.7 Promissory Note dated June 27, 2005 with Magellan
10.8 Share Swap Agreement between the Company and
Lowell G. Hancher, Jr.
10.9 Share Swap Agreement between the Company and
Andrew Broadley
10.10 Share Swap Agreement between the Company and
George Recentio
10.11 Share Swap Agreement between the Company and Vern
Kauffman
10.12 Share Swap Agreement between the Company and
Commerce Street Venture Group
10.13 Converter Pool Agreement with Ford Motor Company
10.14 Pool Agreement with DaimlerChrysler Corporation
10.15 Special Vehicle Manufacturer Converters Agreement
with General Motors Corporation
23.1 Consent of Tedder, James, Worden & Associates,
P.A., independent registered certified public
accounting firm, regarding Legend Motors
Worldwide, Inc.
23.2 Consent of Tedder, James, Worden & Associates,
P.A., independent registered certified public
accounting firm, regarding LA West.
23.3 Consent of Tedder, James, Worden & Associates,
P.A., independent registered certified public
accounting firm, regarding GT40.
23.4 Consent of James G. Dodrill II, P.A. (included in
Exhibit 5.1)
* to be filed by amendment.
ITEM 28. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (the "Act") may be permitted to directors,
officers and controlling persons of the Company pursuant to the
foregoing provisions, or otherwise, the Company has been advised that
in the opinion of the Securities and Exchange Commission such
indemnification is against public policy and as expressed in the Act
and is, therefore, unenforceable.
The Company hereby undertakes to:
(1) File, during any period in which it offers or sells
securities, a post-effective amendment to this registration
statement to:
i. Include any prospectus required by Section 10(a)(3) of
the Securities Act;
ii. Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental
change in the information in the registration
statement.
iii. Include any additional or changed material information
on the plan of distribution.
(2) For determining liability under the Securities Act, treat
each post-effective amendment as a new registration statement of
the securities offered, and the offering of the securities at
that time to be the initial bona fide offering.
(3) File a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the
offering.
(4) For determining any liability under the Securities Act,
treat the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon Rule 430A
and contained in a form of prospectus filed by the Company under
Rule 424(b)(1) or (4) or 497(h) under the Securities Act as part
of this registration statement as of the time the Commission
declared it effective.
(5) For determining any liability under the Securities Act,
treat each post-effective amendment that contains a form of
prospectus as a new registration statement for the securities
offered in the registration statement, and that offering of the
securities at that time as the initial bona fide offering of
those securities.
(6) Insofar as indemnification for liabilities arising under
the Securities Act of 1933 (the "Act") may be permitted to our
directors, officers and controlling persons pursuant to the
foregoing provisions, or otherwise, we have been advised by the
Securities and Exchange Commission that such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by us of expenses incurred or paid by one of
our directors, officers or controlling persons in the successful
defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, we will, unless in the opinion of our
counsel the matter has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the question whether such
indemnification by us is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such
issue.
Signatures
In accordance with the requirements of the Securities Act of
1933, the registrant certifies that it has reasonable ground to
believe that it meets all of the requirements for filing on Form
SB-2 and authorized this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the
city of LaGrange state of Indiana on January 11, 2006.
LEGEND MOTORS WORLDWIDE, INC.
By: /s/ L. G. Hancher, Jr.
--------------------------
L. G. Hancher, Jr.
Principal Executive Officer and Director
In accordance with the requirements of the Securities Act of
1933, this registration statement has been signed by the following
persons in the capacities indicated on January 11, 2006.
By: /s/ L. G. Hancher, Jr. Principal Executive Officer and
-----------------------------
L. G. Hancher, Jr. Director
By: /s/ Vern Kauffman Director
-----------------------------
Vern Kauffman
By: /s/ John G. Pendl Treasurer, Principal Financial Officer
-----------------------------
John G. Pendl Principal Accounting Officer and
Director
By: /s/ Joel Updike Director
-----------------------------
Joel Updike
By: /s/ Dennis Severson Director
-----------------------------
Dennis Severson