The accompanying notes are an integral part of these consolidated
financial statements.
The accompanying
notes are an integral part of these consolidated financial statements.
The accompanying
notes are an integral part of these consolidated financial statements.
The accompanying
notes are an integral part of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016 and 2015
NOTE
1 – ORGANIZATION AND NATURE OF OPERATIONS
LegacyXchange, Inc., formerly known as
True 2 Beauty, Inc. (the “Company”) was originally incorporated as Burrow Mining, Inc., a Nevada corporation, on December
11, 2006. In February 2010, the Company shifted its focus to the beauty industry and later amended its Articles of Incorporation
and changed its name to True 2 Beauty, Inc., to better reflect its new business focus.
On July 10, 2012, the Company formed a
new wholly owned subsidiary True2Bid, Inc. (“True2Bid”) which was incorporated in the state of Nevada. This subsidiary’s
name was changed to LegacyXchange, Inc. (“LegacyXchange”) in December 2014. The Company continued to sell existing
inventory of beauty products through May 2013 when the final inventory was sold. LegacyXchange operates an online e-commerce platform
focused on delivering users a wide array of sports and entertainment related products that can be won in an action-packed environment
of a live auction.
On July 2, 2015,
pursuant to a Certificate of Dissolution filing with the Nevada Secretary of State, the Company dissolved LegacyXchange (formerly
True2Bid, Inc.) to allow for the change in name of its parent company, True 2 Beauty, Inc., to LegacyXchange, Inc.
Subsequent to March 31, 2016, the Company became inactive due
to lack of working capital to fund its operations.
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation and Principals of Consolidation
The Company’s consolidated financial
statements include the financial statements of the Company and its wholly-owned subsidiary, True2Bid, Inc. (“True2Bid”)
up until the dissolution of True2Bid on July 2, 2015, at which point the financial statements were no longer consolidated. All intercompany accounts and transactions have been eliminated in consolidation
Going
Concern
The
consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and
the settlement of liabilities and commitments in the normal course of business. As reflected in our accompanying consolidated
financial statements, the Company had net loss and net cash used in operating activities of $930,074 and $344,172, respectively,
for the year ended March 31, 2016. The Company had accumulated deficit, stockholders’ deficit and working capital deficit
of $10,546,037, $1,300,891 and $1,300,891, respectively, at March 31, 2016. The Company had no revenues for the year ended March
31, 2016, and we defaulted on our debt. Management believes that these matters raise substantial doubt about the Company’s
ability to continue as a going concern for twelve months from the issuance date of this report.
Management
cannot provide assurance that we will ultimately achieve profitable operations or become cash flow positive, or raise additional
debt and/or equity capital. Management believes that our capital resources are not currently adequate to continue operating and
maintaining its business strategy for a period of twelve months from the issuance date of this report. The Company will seek to
raise capital through additional debt and/or equity financings to fund its operations in the future.
Although
the Company has historically raised capital from sales of equity and from the issuance of promissory notes, there is no assurance
that it will be able to continue to do so. If the Company is unable to raise additional capital or secure additional lending in
the near future, management expects that the Company will need to curtail or cease operations. These consolidated financial statements
do not include any adjustments related to the recoverability and classification of recorded asset amounts and classification of
liabilities that might be necessary should the Company be unable to continue as a going concern.
Use
of Estimates
The
preparation of the consolidated financial statements in conformity with U.S. 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results
could differ from these estimates. Significant estimates during the years ended March 31, 2016 and 2015 include assumptions used
in assessing estimates of deferred tax valuation allowances, the fair value of non-cash equity transactions and the valuation
of derivative liabilities.
LEGACYXCHANGE, INC.
(FORMERLY TRUE 2 BEAUTY, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016 and 2015
Fair
Value of Financial Instruments and Fair Value Measurements
FASB
ASC 820 - Fair Value Measurements and Disclosures, defines fair value as the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market participants at the measurement date. FASB ASC 820 requires
disclosures about the fair value of all financial instruments, whether or not recognized, for financial statement purposes. Disclosures
about the fair value of financial instruments are based on pertinent information available to the Company on March 31. 2016. Accordingly,
the estimates presented in these financial statements are not necessarily indicative of the amounts that could be realized on
disposition of the financial instruments. FASB ASC 820 specifies a hierarchy of valuation techniques based on whether the inputs
to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent
sources, while unobservable inputs reflect market assumptions. The hierarchy gives the highest priority to unadjusted quoted prices
in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level
3 measurement).
The
three levels of the fair value hierarchy are as follows:
|
Level 1—Inputs
are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.
|
|
|
|
Level 2—Inputs
are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar
assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived
from or corroborated by observable market data.
|
|
|
|
Level 3—Inputs
are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants
would use in pricing the asset or liability based on the best available information.
|
The
carrying amounts reported in the consolidated balance sheets for cash, due from and to related parties, prepaid expenses, accounts
payable and accrued liabilities approximate their fair market value based on the short-term maturity of these instruments.
Assets or liabilities measured at fair
value on a recurring basis included conversion options in convertible notes and warrants with their exercise price containing a
down-round provision (see Note 6) were as follows at March 31, 2016 and 2015:
|
|
At March 31,
2016
|
|
|
At March 31,
2015
|
|
Description
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Derivative liabilities
|
|
|
—
|
|
|
|
—
|
|
|
|
800,973
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,088,085
|
|
A
roll forward of the level 3 valuation financial instruments is as follows:
|
|
For the Year Ended
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Balance at beginning of year
|
|
$
|
1,088,085
|
|
|
$
|
11,966,760
|
|
Initial valuation of derivative liabilities included in debt discount
|
|
|
211,250
|
|
|
|
383,125
|
|
Initial valuation of derivative liabilities expensed
|
|
|
192,151
|
|
|
|
35,875
|
|
Reclassification of derivative liabilities to equity upon conversion of debt
|
|
|
(188,327
|
)
|
|
|
—
|
|
Reclassification of derivative liabilities to gain
on debt extinguishment upon conversion of debt*
|
|
|
(75,357
|
)
|
|
|
—
|
|
(Gain) loss from change in fair value of derivative liabilities
|
|
|
(426,829
|
)
|
|
|
669,085
|
|
Balance at end of year
|
|
$
|
800,973
|
|
|
$
|
1,088,085
|
|
|
*
|
The derivative liabilities related to the note conversions
were reclassified to gain on debt extinguishment during the three months ended March 31, 2016 and were reclassified to equity
during the period prior to the three months ended March 31, 2016. The Company believes the accounting for these conversions under
debt extinguishment accounting is preferable.
|
ASC
825-10 “Financial Instruments”, allows entities to voluntarily choose to measure certain financial assets and liabilities
at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable,
unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that
instrument should be reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value
option to any outstanding financial instruments.
Cash
and Cash Equivalents
For
purposes of the consolidated statements of cash flows, the Company considers all highly liquid instruments with a maturity of
three months or less at the purchase date and money market accounts to be cash equivalents. At March 31, 2016 and 2015, the Company
did not have any cash equivalents.
LEGACYXCHANGE, INC.
(FORMERLY TRUE 2 BEAUTY, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016 and 2015
The
Company maintains its cash in bank and financial institution deposits that at times may exceed federally insured limits. There
were no balances in excess of FDIC insured levels as of March 31, 2016 and 2015. The Company has not experienced any losses in
such accounts through March 31, 2016.
Inventory
Inventories
are stated at the lower of cost or market value. Cost is determined using the cost to acquire inventory and is valued using the
first-in, first-out method. As of March 31, 2016 and 2015, the Company’s inventory was not significant as the Company
was in the process of changing its product line from beauty products to sports and entertainment related products.
Derivative
Liabilities
The
Company has certain financial instruments that are embedded derivatives associated with capital raises and certain warrants. The
Company evaluates all its financial instruments to determine if those contracts or any potential embedded components of those
contracts qualify as derivatives to be separately accounted for in accordance with ASC 815-10 – Derivative and Hedging
– Contract in Entity’s Own Equity. This accounting treatment requires that the carrying amount of any derivatives
be recorded at fair value at issuance and marked-to-market at each balance sheet date. In the event that the fair value is recorded
as a liability, as is the case with the Company, the change in the fair value during the period is recorded as either other income
or expense. Upon conversion, exercise or repayment, the respective derivative liability is marked to fair value at the conversion,
repayment or exercise date and then the related fair value amount is reclassified to other income or expense as part of gain or
loss on debt extinguishment.
In
July 2017, FASB issued ASU No. 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives
and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features. These amendments simplify
the accounting for certain financial instruments with down-round features. The amendments require companies to disregard the down-round
feature when assessing whether the instrument is indexed to its own stock, for purposes of determining liability or equity classification.
The adoption of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.
Revenue
Recognition
In
May 2014, FASB issued an update Accounting Standards Update, ASU 2014-09, establishing ASC 606 - Revenue from Contracts with Customers.
ASU 2014-09, as amended by subsequent ASUs on the topic, establishes a single comprehensive model for entities to use in accounting
for revenue arising from contracts with customers and supersedes most of the existing revenue recognition guidance. This standard,
which is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2017, requires an entity
to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration
to which the entity expects to be entitled in exchange for those goods or services and also requires certain additional disclosures.
adoption of this guidance is not expected to have a material impact on the process for, timing of, and presentation and disclosure
of revenue recognition from customers. The Company did not have revenues from operations for the year ended March 31, 2016.
Stock-Based
Compensation
Stock-based
compensation is accounted for based on the requirements of the Share-Based Payment Topic of ASC 718 which requires recognition
in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments
over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting
period). The ASC also requires measurement of the cost of employee and director services received in exchange for an award based
on the grant-date fair value of the award.
Pursuant to ASC 505-50 - Equity-Based Payments
to Non-Employees, all share-based payments to non-employees, including grants of stock options, were recognized in the consolidated
financial statements as compensation expense over the service period of the consulting arrangement or until performance conditions
are expected to be met. Using a Black Scholes valuation model, the Company periodically reassessed the fair value of non-employee
options until service conditions are met, which generally aligns with the vesting period of the options, and the Company adjusts
the expense recognized in the consolidated financial statements accordingly. In June 2018, the FASB issued ASU No. 2018-07, Improvements
to Nonemployee Share-Based Payment Accounting, which simplifies several aspects of the accounting for nonemployee share-based
payment transactions by expanding the scope of the stock-based compensation guidance in ASC 718 to include share-based payment
transactions for acquiring goods and services from non-employees. ASU No. 2018-07 is effective for annual periods beginning after
December 15, 2018, including interim periods within those annual periods. Early adoption is permitted, but entities may not adopt
prior to adopting the new revenue recognition guidance in ASC 606. The adoption of this guidance is not expected to have a material
impact on the Company’s consolidated financial statements.
LEGACYXCHANGE, INC.
(FORMERLY TRUE 2 BEAUTY, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016 and 2015
Income
Taxes
The
Company accounts for income tax using the liability method prescribed by ASC 740 - Income Taxes. Under this method, deferred
tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and
liabilities using enacted tax rates that will be in effect in the year in which the differences are expected to reverse. The
Company records a valuation allowance to offset net deferred tax assets if based on the weight of available evidence, it is
more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes
of a change in tax rates is recognized as income or loss in the period that includes the enactment date.
The
Company follows the accounting guidance for uncertainty in income taxes using the provisions of ASC 740 “Income Taxes”.
Using that guidance, tax positions initially need to be recognized in the financial statements when it is more likely than not
the position will be sustained upon examination by the tax authorities. As of March 31, 2016, and 2015, the Company had no uncertain
tax positions that qualify for either recognition or disclosure in the financial statements. The Company recognizes interest and
penalties related to uncertain income tax positions in other expense. However, no such interest and penalties were recorded as
of March 31, 2016.
Shipping
Costs
Shipping
costs are included in other selling, general and administrative expense and totaled were not significant for the years ended March
31, 2016 and 2015.
Advertising
Advertising
is expensed as incurred and is included in other selling, general and administrative expense. The Company did not incur any advertising
expense for the years ended March 31, 2016 and 2015.
Basic
and Diluted Loss Per Share
Pursuant
to ASC 260-10-45, basic loss per common share is computed by dividing net loss by the weighted average number of shares of common
stock outstanding for the periods presented. Diluted loss per share is computed by dividing net loss by the weighted average number
of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during the period. Potentially
dilutive common shares consist of common stock issuable for stock options and warrants (using the treasury stock method), convertible
notes and common stock issuable. These common stock equivalents may be dilutive in the future. The following potentially dilutive
equity securities outstanding as of March 31, 2016 and 2015 were not included in the computation of dilutive loss per common share
because the effect would have been anti-dilutive:
|
|
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Stock warrants
|
|
|
5,273,315
|
|
|
|
1,048,315
|
|
Convertible notes
|
|
|
53,621,314
|
|
|
|
20,884,653
|
|
Total
|
|
|
58,894,629
|
|
|
|
21,932,963
|
|
Related
Parties
Parties
are considered to be related to the Company if the parties, directly or indirectly, through one or more intermediaries, control,
are controlled by, or are under common control with the Company. Related parties also include principal owners of the Company,
its management, members of the immediate families of principal owners of the Company and its management and other parties with
which the Company may deal with if one party controls or can significantly influence the management or operating policies of the
other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests.
LEGACYXCHANGE, INC.
(FORMERLY TRUE 2 BEAUTY, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016 and 2015
Recent
Accounting Pronouncements
In
May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (ASU 2014-09), which
supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize
revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an
entity expects to be entitled for those goods or services. ASU 2014-09 defines a five-step process to achieve this core principle
and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing
U.S. GAAP. The standard is effective for annual periods beginning after December 15, 2016, and interim periods therein, using
either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each
prior reporting period with the option to elect certain practical expedients, or (ii) a retrospective approach with the cumulative
effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures).
Early adoption is not permitted. The adoption of this guidance is not expected to have a material impact on the Company’s
consolidated financial statements.
In
June 2014, the FASB issued Accounting Standards Update No. 2014-12, Compensation — Stock Compensation (Topic 718), Accounting
for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service
Period (a consensus of the FASB Emerging Issues Task Force) (ASU 2014-12). The guidance applies to all reporting entities that
grant their employees share-based payments in which the terms of the award provide that a performance target that affects vesting
could be achieved after the requisite service period. The amendments require that a performance target that affects vesting and
that could be achieved after the requisite service period is treated as a performance condition. For all entities, the amendments
in this Update are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015.
Earlier adoption is permitted. The effective date is the same for both public business entities and all other entities. The adoption
of this guidance is not expected to have a material impact on the Company’s consolidated financial statements.
In
August 2014, the FASB issued Accounting Standards Update No. 2014-15, Presentation of Financial Statements – Going Concern
(Subtopic 205-40), Disclosure of Uncertainties about an Entities Ability to Continue as a Going Concern (ASU 2014-15). The guidance
in ASU 2014-15 sets forth management’s responsibility to evaluate whether there is substantial doubt about an entity’s
ability to continue as a going concern as well as required disclosures. ASU 2014-15 indicates that, when preparing financial statements
for interim and annual financial statements, management should evaluate whether conditions or events, in the aggregate, raise
substantial doubt about the entity’s ability to continue as a going concern for one year from the date the financial statements
are issued or are available to be issued. This evaluation should include consideration of conditions and events that are either
known or are reasonably knowable at the date the financial statements are issued or are available to be issued, as well as whether
it is probable that management’s plans to address the substantial doubt will be implemented and, if so, whether it is probable
that the plans will alleviate the substantial doubt. ASU 2014-15 is effective for annual periods ending after December 15, 2016,
and interim periods and annual periods thereafter. Early application is permitted. The adoption of this guidance is not expected
to have a material impact on the Company’s consolidated financial statements.
In
August 2018, the FASB issued ASU 2018-13—Fair Value Measurement (Topic 820): Disclosure Framework Changes to the Disclosure
Requirements for Fair Value Measurement, to modify the disclosure requirements on fair value measurements in Topic 820, Fair
Value Measurement, based on the concepts in the Concepts Statement, including the consideration of costs and benefits. The amendments
in this Update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after
December 15, 2019. The Company does not believe this will have a material impact on the Company’s consolidated financial
statements.
Removals.
The following disclosure requirements were removed from Topic 820:
|
1.
|
The amount of and
reasons for transfers between Level 1 and Level 2 of the fair value hierarchy
|
|
|
|
|
2.
|
The policy for timing
of transfers between levels
|
|
|
|
|
3.
|
The valuation processes
for Level 3 fair value measurements
|
|
|
|
|
4.
|
For nonpublic entities,
the changes in unrealized gains and losses for the period included in earnings for recurring Level 3 fair value measurements
held at the end of the reporting period.
|
LEGACYXCHANGE, INC.
(FORMERLY TRUE 2 BEAUTY, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016 and 2015
Modifications.
The following disclosure requirements were modified in Topic 820:
|
1.
|
In lieu of a roll
forward for Level 3 fair value measurements, a nonpublic entity is required to disclose transfers into and out of Level 3
of the fair value hierarchy and purchases and issues of Level 3 assets and liabilities.
|
|
|
|
|
2.
|
For investments
in certain entities that calculate net asset value, an entity is required to disclose the timing of liquidation of an investee’s
assets and the date when restrictions from redemption might lapse only if the investee has communicated the timing to the
entity or announced the timing publicly.
|
|
|
|
|
3.
|
The amendments clarify
that the measurement uncertainty disclosure is to communicate information about the uncertainty in measurement as of the reporting
date.
|
Additions.
The following disclosure requirements were added to Topic 820; however, the disclosures are not required for nonpublic entities:
|
1.
|
The changes in unrealized
gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held
at the end of the reporting period.
|
|
|
|
|
2.
|
The range and weighted
average of significant unobservable inputs used to develop Level 3 fair value measurements. For certain unobservable inputs,
an entity may disclose other quantitative information (such as the median or arithmetic average) in lieu of the weighted average
if the entity determines that other quantitative information would be a more reasonable and rational method to reflect the
distribution of unobservable inputs used to develop Level 3 fair value measurements.
|
In
addition, the amendments eliminate at a minimum from the phrase an entity shall disclose at a minimum to promote
the appropriate exercise of discretion by entities when considering fair value measurement disclosures and to clarify that materiality
is an appropriate consideration of entities and their auditors when evaluating disclosure requirements. The Company is evaluating
the impact of the revised guidance and believes that it will not have a significant impact on its consolidated financial statements.
Management
does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material
effect on the accompanying consolidated financial statements.
NOTE
3 – PREPAID EXPENSES
At
March 31, 2016 and 2015, prepaid expenses consisted of the following:
|
|
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Prepaid consulting fees
|
|
$
|
3,792
|
|
|
$
|
28,801
|
|
Prepaid stock-based consulting fee
|
|
|
7,255
|
|
|
|
-
|
|
Advance for investor relations fee
|
|
|
50,000
|
|
|
|
-
|
|
Total
|
|
$
|
61,047
|
|
|
$
|
28,801
|
|
NOTE
4 – ACCRUED LIABILITIES
At
March 31, 2016 and 2015, accrued liabilities consisted of the following:
|
|
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Accrued interest
|
|
$
|
58,225
|
|
|
$
|
17,693
|
|
Accrued professional fees
|
|
|
2,522
|
|
|
|
22,667
|
|
Accrued payroll taxes
|
|
|
28,690
|
|
|
|
28,690
|
|
Accrued executive and director compensation
|
|
|
30,720
|
|
|
|
8,050
|
|
Total
|
|
$
|
120,157
|
|
|
$
|
77,100
|
|
LEGACYXCHANGE, INC.
(FORMERLY TRUE 2 BEAUTY, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016 and 2015
NOTE
5 – LOANS PAYABLE
During fiscal
year 2016, the Company entered into individual loan agreements with various investors in the aggregate principal amount of $132,769.
These loans bear an interest rate of 10% and were due and payable on the first anniversary of the date of issuance of the loans.
As of March 31, 2016, the loans were in default and had outstanding principal and accrued interest of $132,769 and $2,752, respectively.
During the year ended March 31, 2016, the Company recorded interest expense of $2,752 on these loans.
NOTE
6 – CONVERTIBLE NOTES PAYABLE
At
March 31, 2016 and 2015, convertible debt consisted of the following:
|
|
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Principal amount
|
|
$
|
480,740
|
|
|
$
|
400,000
|
|
Less: unamortized debt discount
|
|
|
(273,298
|
)
|
|
|
(329,913
|
)
|
Convertible notes payable, net
|
|
$
|
207,442
|
|
|
$
|
70,087
|
|
Fiscal
2015 Financing
In October and
November 2014, the Company entered into a subscription agreement with various purchasers (the “Fiscal 2015 Agreements”)
for the sale of the Company’s convertible notes. Pursuant to the Fiscal 2015 Agreements, the Company issued to these purchasers,
convertible promissory notes (the “Fiscal 2015 Convertible Notes”) for an aggregate principal amount of $400,000 with
the Company receiving proceeds equal to the principal amount. The Fiscal 2015 Convertible Notes bear an interest rate of 10% per
year and were due and payable on the third anniversary of the date of issuance through October and November 2017. The purchasers
are entitled, at their option, at any time after the issuance of the Fiscal 2015 Convertible Notes, to convert all or any lesser
portion of the outstanding principal amount and accrued and unpaid interest into the Company’s common stock at a conversion
price of $0.02 During the year ended March 31, 2016, the conversion price was ratcheted down to $0.01. During the year ended March
31, 2016, the purchasers converted $130,510 and $10,792 of outstanding principal and accrued interest, respectively, into 7,065,084
shares of the Company’s common stock. As of March 31, 2015, the Fiscal 2015 Convertible Notes had outstanding principal and
accrued interest of $400,000 and $17,693 respectively As of March 31, 2016, the Fiscal 2015 Convertible Notes were in default and
had outstanding principal and accrued interest of $269,490 and $40,197, respectively.
Fiscal
2016 Financing
In May and June 2015, the Company entered
into a subscription agreement with various purchasers (the “Fiscal 2016 Agreements I”) for the sale of the Company’s
convertible notes and warrants. Pursuant to the Fiscal 2016 Agreements I, the Company issued to the purchasers for an aggregate
subscription amount of $115,000: (i) convertible promissory notes in the aggregate principal amount of $115,000 (the “Fiscal
2016 Notes I”) and (ii) five-year warrants to purchase an aggregate of 2,300,000 (twenty warrants for each dollar of the
principal amount) shares Company’s common stock at an exercise price of $0.07 (the “Fiscal 2016 Warrants I”).
The Company received proceeds equal to the principal amount. The Fiscal 2016 Notes I bear an interest rate of 10% per year and
were due and payable on the third anniversary of the date of issuance through May and June 2018. The purchasers are entitled, at
their option, at any time after the issuance of the Fiscal 2016 Notes I, to convert all or any lesser portion of the outstanding
principal amount and accrued and unpaid interest into the Company’s common stock at a conversion price of $0.05. The conversion
price of the Fiscal 2016 Notes I shall be subject to adjustment for issuances of common stock at a purchase price of less than
the then-effective conversion price. During the year ended March 31, 2016, the conversion price was ratcheted down to $0.01. As
of March 31, 2016, the Fiscal 2016 Notes I were in default and had outstanding principal and accrued interest of $115,000 and $10,074,
respectively.
During August through September 2015, the
Company entered into a subscription agreement with various purchasers (the “Fiscal 2016 Agreements II”) for the sale
of the Company’s convertible notes and warrants. Pursuant to the Fiscal 2016 Agreements II, the Company issued to the purchasers
for an aggregate subscription amount of $96,250: (i) convertible promissory notes in the aggregate principal amount of $96,250
(the “Fiscal 2016 Notes II”) and (ii) five-year warrants to purchase an aggregate of 1,925,000 (twenty warrants for
each dollar of the principal amount) shares Company’s common stock at an exercise price of $0.07 (the “Fiscal 2016
Warrants II”). The Company received proceeds equal to the principal amount. The Fiscal 2016 Notes II bear an interest rate
of 10% per year and were due and payable on the third anniversary of the date of issuance through August through September 2018.
The purchasers are entitled, at their option, at any time after the issuance of the Fiscal 2016 Notes II, to convert all or any
lesser portion of the outstanding principal amount and accrued and unpaid interest into the Company’s common stock at a conversion
price of $0.05. The conversion price of the Fiscal 2016 Notes II shall be subject to adjustment for issuances of common stock at
a purchase price of less than the then-effective conversion price. During the year ended March 31, 2016, the conversion price was
ratcheted down to $0.01. As of March 31, 2016, the Fiscal 2016 Notes II were in default and had outstanding principal and accrued
interest of $96,250 and $5,203, respectively.
During the year
ended March 31, 2016 and 2015, the Company recorded interest expense of $48,572 and $17,693, respectively, on these convertible
notes.
LEGACYXCHANGE, INC.
(FORMERLY TRUE 2 BEAUTY, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016 and 2015
Derivative
Liabilities Pursuant to Notes and Warrants
In
connection with the issuance of the Notes and Warrants, the Company determined that the terms of the Notes and Warrants contain
terms that included a down-round provision under which the conversion price and exercise price could be affected by future equity
offerings undertaken by the Company or contain terms that are not fixed monetary amounts at inception and included various other
terms such as default provisions that caused derivative treatment. Accordingly, under the provisions of ASC 815-40 –Derivatives
and Hedging – Contracts in an Entity’s Own Stock, the embedded conversion option contained in the convertible
instruments and the Warrants were accounted for as derivative liabilities at the date of issuance and shall be adjusted to fair
value through earnings at each reporting date. The fair value of the embedded conversion option derivatives and warrant derivatives
were determined using the Binomial valuation model. At the end of each period, on the date that debt was converted into common
shares, and on the date of a cashless exercise of warrants, the Company revalued the embedded conversion option and warrants derivative
liabilities.
In
July 2017, FASB issued ASU No. 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives
and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features. These amendments simplify
the accounting for certain financial instruments with down-round features. The amendments require companies to disregard the down-round
feature when assessing whether the instrument is indexed to its own stock, for purposes of determining liability or equity classification.
The Company is currently evaluating the impact of ASU No. 2017-11 on its consolidated financial statements.
In connection with the issuance of the Fiscal 2016 Financing
Notes and related Warrants, during year ended March 31, 2016, on the initial measurement date, the fair values of the conversion
option derivative and warrants derivative of $403,401 was recorded as derivative liabilities and was allocated as a debt discount
of $211,250 with the remaining $192,151 recorded as derivative expense.
In connection with the issuance of the Fiscal 2015 Financing
Notes and related Warrants, during year ended March 31, 2015, on the initial measurement date, the fair values of the conversion
option derivative and warrants derivative of $419,000 was recorded as derivative liabilities and was allocated as a debt discount
of $385,125 with the remaining $35,875 recorded as derivative expense.
At March 31, 2016 and 2015, the Company revalued the conversion
option and warrant derivative liabilities. In connection with these revaluations, the Company recorded gain (loss) on change on
fair value of derivative liabilities of $426,829 and $(669,085) for the years ended March 31, 2016 and 2015, respectively.
During
the year ended March 31, 2016 and 2015, the fair value of the derivative liabilities was estimated using the Binomial option-pricing
model with the following assumptions:
|
|
|
2016
|
|
|
|
2015
|
|
Dividend rate
|
|
|
—
|
%
|
|
|
—
|
%
|
Term (in years)
|
|
|
2.5 to 3.0
|
years
|
|
|
2.5 to 3.0
|
years
|
Volatility
|
|
|
177 to 282
|
%
|
|
|
177 to 201
|
%
|
Risk—free interest rate
|
|
|
0.83 to 1.21
|
%
|
|
|
0.83 to 1.10
|
%
|
For
the years ended March 31, 2016 and 2015, amortization of debt discounts related to the convertible notes amounted to $267,865
and $53,212, respectively, which has been included in interest expense on the accompanying consolidated statements of operations.
NOTE
7 – STOCKHOLDERS’ DEFICIT
Authorized
shares
The
Company is authorized to issue 200,000,000 consisting of 190,000,000 shares of common stock at $0.001 per share par value, and
10,000,000 shares of preferred stock at $0.001 per share par value.
Preferred
Stock
As
of March 31, 2016 and 2015, the Company did not have any preferred stock issued and outstanding.
LEGACYXCHANGE, INC.
(FORMERLY TRUE 2 BEAUTY, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016 and 2015
Common
Stock
Common
stock issued for service
|
●
|
During the year
ended March 31, 2016, the Company issued an aggregate of 5,230,000 shares of its common stock with aggregate grant date fair
value based on the closing bid price on the OTC of $151,215 or $0.03 average per share, in exchange for services, pursuant to
an agreement.
|
|
●
|
During the year ended March 31, 2015, the Company issued
an aggregate of 1,485,000 shares of its common stock with aggregate grant date fair value based on the closing bid price on
the OTC of $81,823 or $0.06 average per share, in exchange for services, pursuant to an agreement.
|
Common
stock sold for cash
|
●
|
During
the year ended March 31, 2016, the Company did not issue shares of its commons stock
for cash.
|
|
●
|
During the year ended March 31, 2015, the Company sold 1,303,088
shares of its common stock to several investors for cash proceeds of $71,895, or $0.06 per share pursuant to unit subscription
agreements. The Company also issued 2,062,246 shares of its common stock in relation to subscription advances received in fiscal
year 2014 in the amount of $113,525 or $0.06 per share.
|
Common
stock issued for payment of loan fees
|
●
|
During the year
ended March 31, 2016, the Company issued an aggregate of 741,000 shares of common stock with aggregate grant date fair value
based on the closing bid price on the OTC of $12,258 or $0.02 per share, to a lender for loan fees.
|
|
·
|
During the year ended March 31, 2015, the Company did not issue shares
of its commons stock for loan fees.
|
Common
stock issued for debt conversion
|
●
|
During the year
ended March 31, 2016, the Company issued 7,065,084 shares of its common stock upon the conversion of principal note balances
of $130,510 and accrued interest of $10,792. These shares of common stock had an aggregate fair value based on the closing
bid price on the OTC of $304,022 and the difference between the aggregate fair value and the aggregate converted amount of
$141,302 resulted in a loss on debt extinguishment of $162,720.
|
|
●
|
During the year
ended March 31, 2015, the Company issued 499,300 shares of its common stock upon the conversion of principal note balances of
$20,000 and accrued interest of $2,000. These shares of common stock had an aggregate fair value based on the closing bid
price on the OTC of $27,510 and the difference between the aggregate fair value and the aggregate converted amount of $22,000
resulted in a loss on debt extinguishment of $5,510.
|
Common
stock issued to a former related party for services
|
●
|
During the year ended March 31, 2016, the Company issued
an aggregate of 2,083,410 shares of its common stock with and aggregate grant date fair value based on the closing bid price
on the OTC of $56,667 or $0.03 average per share, in exchange for services, pursuant to an agreement.
|
Warrants
Warrants
issued pursuant to equity subscription agreements
During fiscal years 2013 to 2015, in connection with the sale
of common stock, the Company issued an aggregate of 1,048,315 five-year warrants to purchase shares of Company’s common stock
for an exercise price of $0.40 per common share, to investors pursuant to unit subscription agreements. These warrants were accounted
for as equity. As of March 31, 2016, and 2015, 1,048,315 warrants were issued and outstanding.
Warrants
issued in connection with the Fiscal 2016 Financing
During fiscal years 2016, pursuant to the convertible note agreements
under the fiscal 2016 financing discussed in Note 6, the Company issued five-year warrants to purchase an aggregate of 4,225,000
(twenty warrants for each dollar of the principal amount) shares of the Company’s common stock at an exercise price of $0.07.
The exercise price of these warrants shall be subject to adjustment for issuances of common stock at a purchase price of less than
the then-effective conversion price and were accounted for as derivative liabilities. During the year ended March 31, 2016, the
conversion price was ratcheted down to $0.01. As of March 31, 2016, 4,225,000 warrants were issued and outstanding.
LEGACYXCHANGE, INC.
(FORMERLY TRUE 2 BEAUTY, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016 and 2015
Warrant activity for the years ended March 31, 2016 and 2015
are summarized as follows
|
|
Number of
Warrants
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted
Average
Remaining
Contractual
Term (Years)
|
|
|
Aggregate
Intrinsic Value
|
|
Balance Outstanding March 31, 2014
|
|
|
733,609
|
|
|
$
|
0.40
|
|
|
|
3.7
|
|
|
$
|
—
|
|
Issued in connection with equity subscription agreements
|
|
|
314,706
|
|
|
$
|
0.40
|
|
|
|
4.2
|
|
|
|
—
|
|
Balance Outstanding at March 31, 2015
|
|
|
1,048,315
|
|
|
$
|
0.40
|
|
|
|
3.1
|
|
|
|
—
|
|
Issued in connection with convertible notes
|
|
|
4,225,000
|
|
|
$
|
0.01
|
|
|
|
4.3
|
|
|
|
—
|
|
Balance Outstanding at March 31, 2016
|
|
|
5,273,315
|
|
|
$
|
0.09
|
|
|
|
3.9
|
|
|
$
|
—
|
|
Exercisable at March 31, 2016
|
|
|
5,273,315
|
|
|
$
|
0.09
|
|
|
|
3.9
|
|
|
$
|
—
|
|
NOTE
8 – INCOME TAXES
The
Company maintains deferred tax assets and liabilities that reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The deferred
tax assets at March 31, 2016 and 2015 consist of net operating loss carryforwards. The net deferred tax asset has been fully offset
by a valuation allowance because of the uncertainty of the attainment of future taxable income. The items accounting for the difference
between income taxes at the effective statutory rate and the provision for income taxes for the years ended March 31, 2016 and
2015 were as follows:
|
|
Years Ended
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
Income tax expense (benefit) at U.S. statutory rate of 34%
|
|
$
|
(316,225
|
)
|
|
$
|
(466,603
|
)
|
Income tax benefit - State
|
|
|
(46,504
|
)
|
|
|
(68,618
|
)
|
Non-deductible expenses
|
|
|
67,129
|
|
|
|
328,314
|
|
Change in valuation allowance
|
|
|
295,600
|
|
|
|
206,907
|
|
Total provision for income tax
|
|
$
|
—
|
|
|
$
|
—
|
|
The
Company’s approximate net deferred tax asset at March 31, 2016 and 2015 was as follows:
|
|
Years Ended
March 31,
|
|
Deferred Tax Asset:
|
|
2016
|
|
|
2015
|
|
Net operating losses
|
|
$
|
1,343,538
|
|
|
$
|
1,047,938
|
|
Valuation allowance
|
|
|
(1,343,538
|
)
|
|
|
(1,047,938
|
)
|
Net deferred tax asset
|
|
$
|
—
|
|
|
$
|
—
|
|
The
net operating loss carryforward was $3,444,968 and $2,687,019 at March 31, 2016 and 2015, respectively. The Company provided a
valuation allowance equal to the deferred income tax asset for the years ended March 31, 2016 and 2015 because it was not known
whether future taxable income will be sufficient to utilize the loss carryforward. The increase in the allowance was $295,600
and $206,907 for the years ended March 31, 2016 and 2015, respectively. The potential tax benefit arising from the loss carryforward
will expire through 2036.
LEGACYXCHANGE, INC.
(FORMERLY TRUE 2 BEAUTY, INC.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2016 and 2015
Additionally,
the future utilization of the net operating loss carryforward to offset future taxable income may be subject to an annual limitation
as a result of ownership changes that could occur in the future. If necessary, the deferred tax assets will be reduced by any
carryforward that expires prior to utilization as a result of such limitations, with a corresponding reduction of the valuation
allowance.
The Company does not have any uncertain tax positions or events
leading to uncertainty in a tax position. The Company’s 2016, 2015 and 2014 Corporate Income Tax Returns are subject to Internal
Revenue Service examination.
NOTE
9 – COMMITMENTS AND CONTINGENCIES
Service
Contracts
In September 2014, the Company signed an
eight-month agreement with Applied DNA to work together, in good faith, on a business partnership focused on using Applied DNA
Sciences’ unique SigNature© DNA taggant platform, digitalDNA © software platform and other products as required
for DNA marking, tracking and authentication of sports collectibles and sports memorabilia uniquely and authentically identified
to an athlete (“Goods”) and offered either within a True2Bid online auction exchange environment or through other means
of sale. The agreement requires a cash payment of $35,000, of which $10,000 has been paid and the balance of $25,000 was to be
paid in two payments of $12,500 each on February 1, 2015 and June 1, 2015. However, there has been no development pursuant to the
three phases as defined in the agreement and, accordingly, the Company believes no obligation exists and does not intend to pay
these installments until the milestones were reached. This agreement expired in May 2015.
NOTE
10 – SUBSEQUENT EVENTS
In April and May
2016, the Company entered into individual loan agreements with various investors in the aggregate principal amount of $11,156.
These loans bear an interest rate of 10% and were due and payable on the first anniversary of the date of issuance of the loans.
These loan payables defaulted on April and May 2017.
Between November 2019 through June 2020, the Company entered
into a loan agreements with an investor in the aggregate principal amount of $91,000. The loans bear an interest rate of 6% and
were due and payable two-years from the date of issuances.
F-17