Overview
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. The Company has ceased all operations related to
LegacyXchange. Currently, management is seeking other business opportunities.
The Company's articles authorize the Company to issue 190,000,000 shares of
common stock and 10,000,000 shares of preferred stock, both at a par value of
$0.001 per share.
The following table summarizes the results of operations for the years ended
March 31, 2016 and 2015 and is based primarily on the comparative audited
consolidated financial statements, footnotes and related information for the
periods identified and should be read in conjunction with the consolidated
financial statements and the notes to those statements that are included
elsewhere in this annual report.
Years Ended
March 31,
2016 2015
Loss from operations $ (745,943 ) $ (590,987 )
Other expense, net (184,131 ) (781,375 )
Net loss $ (930,074 ) $ (1,372,362 )
Revenue and gross loss
For the years ended March 31, 2016 and 2015, we generated limited revenue of $0
and $437, respectively, and gross loss of $0 and $1,789, respectively, primarily
attributed to the sale of remaining inventory of beauty products in 2015.
Operating expenses
For the years ended March 31, 2016 and 2015, operating expenses amounted to
$745,943 and $589,198, respectively, an increase of $156,745 or 27%. For the
years ended March 31, 2016 and 2015, operating expenses consisted of the
following:
For the Years Ended
March 31,
2016 2015
Compensation and related taxes $ 283,500 $ 156,873
Professional and consulting fees 413,543 361,463
Other selling, general and administrative 48,900 70,862
Total $ 745,943 $ 589,198
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? Compensation and related taxes:
For the years ended March 31, 2016 and 2015, compensation and related taxes
amounted to $283,500 and $156,873, respectively, an increase of $126,627 or 81%.
The increase was primarily attributable to stock-based compensation to an
executive and director in the amount of $139,000 during fiscal year 2016.
? Professional and consulting fees:
For the years ended March 31, 2016 and 2015, professional and consulting fees
amounted to $413,543 and $361,463, respectively, an increase of $52,080 or 14%.
The increase was primarily attributable to the change in our product line from
beauty products to sports and entertainment related products.
? Other selling, general and administrative:
For the years ended March 31, 2016 and 2015, other selling, general and
administrative expenses amounted to $48,900 and $70,862, respectively, a
decrease of $21,962, or 31%. The decrease was primarily attributable to decrease
in travel and entertainment expenses and other administrative expenses during
fiscal year 2016.
Loss from operations:
For the years ended March 31, 2016 and 2015, loss from operations amounted to
$745,943 and $590,987, respectively, an increase of $154,956, or 26%. The change
was a result of the changes in operating expenses as discussed above.
Other income (expense):
Other income (expense) includes interest expense, initial derivative expense,
gain (loss) from change in fair value of derivative liabilities, loss on debt
extinguishment.
For the year ended March 31, 2016, total other expense, net, amounted to
$184,131 as compared to $781,375 for the year ended March 31, 2015, a decrease
of $597,244. The decrease in other expense was attributable to an increase in
interest expense of $260,541, or 367%, increase in initial derivative expense of
$156,276, or 436% and increase in loss on debt extinguishment of $81,853 or
1,486%, for a total increase in other (expense) of $(498,670) offset by other
income from gain on change in fair value of derivative liabilities of $1,095,914
or 164%.
Net loss:
For the years ended March 31, 2016 and 2015, net loss amounted to $930,074 and
$1,372,362, respectively, a decrease of $442,288, or 32%, or a net loss per
common share of $0.02 and $0.04 (basic and diluted), respectively. The change
was a result of the changes in operating expenses and other expenses as
discussed above.
Liquidity and Capital Resources
Liquidity is the ability of an enterprise to generate adequate amounts of cash
to meet its needs for cash requirements. We had a working capital deficit of
$1,300,891 and $4,209 of cash as of March 31, 2016 and working capital deficit
of $1,246,806 and $4,362 of cash as of March 31, 2015.
Year Ended
March 31,
2016
March 31, March 31, Percentage
2016 2015 Change Change
Working capital deficit:
Total current assets $ 65,826 $ 33,163 $ 32,663 98 %
Total current liabilities (1,366,717 ) (1,279,969 ) (86,748 ) 7 %
Working capital deficit: $ (1,300,891 ) $ (1,246,806 ) $ (54,085 ) 4 %
The increase in working capital deficit was primarily attributable to increase
in current assets of $32,663 offset by an increase in current liabilities of
$86,748.
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Cash Flow
A summary of cash flow activities is summarized as follows:
Year Ended
March 31,
2016 2015
Cash used in operating activities $ (344,172 ) $ (476,878 )
Cash provided by financing activities 344,019 471,895
Net decrease in cash
$ (153 ) $ (4,983 )
Net cash used in operating activities:
Net cash flow used in operating activities was $344,172 for the year ended March
31, 2016 as compared to $476,878 for the year ended March 31, 2015, a decrease
of $132,706 or 28%.
? Net cash flow used in operating activities for the year ended March 31, 2016
primarily reflected our net loss of $930,074 adjusted for the add-back on
non-cash items such as stock-based compensation expense $163,500, common stock
issued for services and loan fees of $220,140, loss on debt extinguishment of
$87,363, amortization of debt discount of $267,865, initial fair value expense
of derivative liabilities of $191,151, gain on the change in fair value of
derivative liabilities of $426,829 and the changes in operating assets and
liabilities primarily consisting of an increase in prepaid expenses and other
current assets of $32,816, increase in accounts payable of $60,679 and increase
in accrued liabilities of $53,849.
? Net cash flow used in operating activities for the year ended March 31, 2015
primarily reflected our net loss $1,372,362 adjusted for the add-back on
non-cash items such common stock issued for services of $81,823, debt
extinguishment of $5,510, amortization of debt discount of $53,212, initial
fair value expense of derivative liabilities of $35,875, loss on the change in
fair value of derivative liabilities of $669,085 and the changes in operating
assets and liabilities primarily consisting of an increase in prepaid expenses
of $9,940, increase in accounts payable $82,172 offset by a decrease in accrued
liabilities of $22,253.
Cash provided by financing activities:
Net cash provided by financing activities was $344,019 for the year ended March
31, 2016 as compared to $471,895 for the year ended March 31, 2016, a decrease
of $127,876 or 27%.
? Net cash provided by financing activities for the year ended March 31, 2016
consisted of $132,769 of net proceeds from loan payable and $211,250 of net
proceeds from convertible debt, net of discounts.
? Net cash provided by financing activities for the year ended March 31, 2015
consisted of $400,000 of net proceeds from convertible debt, net of discounts
and $71,895 net proceeds from sale of common stock.
Cash Requirements
Our management does not believe that our current capital resources will be
adequate to continue operating our company and maintaining our business strategy
for more than 12 months from the date of this report. Accordingly, we will have
to raise additional capital in the near future to meet our working capital
requirements. There can be no assurance that additional financing will be
available to us when needed or, if available, that it can be obtained on
commercially reasonable terms. If we are not able to obtain the additional
financing on a timely basis, if and when it is needed, we will be forced to
scale down or perhaps even cease the operation of our business.
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.
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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.
Additional Purchaser Rights and Company Obligations
The Securities Purchase Agreements include additional purchaser rights and
Company obligations including obligations on the Company to reimburse the
Purchasers for legal fees and expenses, satisfy the current public information
requirements under SEC Rule 144(c), obligations on the Company with respect to
the use of proceeds from the sale of securities and Purchaser rights to
participate in future Company financings. Reference should be made to the full
text of the Securities Purchase Agreement.
Common Stock 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 $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 $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.
Sales of Common Stock Pursuant to Subscription Agreements
During the year ended March 31, 2016, there were no sales of common stock.
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.
Future Financings
We will require additional financing to fund our planned operations. We
currently do not have committed sources of additional financing and may not be
able to obtain additional financing particularly, if the volatile conditions of
the stock and financial markets persist.
There can be no assurance that additional financing will be available to us when
needed or, if available, that it can be obtained on commercially reasonable
terms. If we are not able to obtain the additional financing on a timely basis,
if and when it is needed, we will be forced to further delay or further scale
down some or all of our activities or perhaps even cease the operations of the
business.
Since inception we have funded our operations primarily through equity and debt
financings and we expect that we will continue to fund our operations through
the equity and debt financing. If we are able to raise additional financing by
issuing equity securities, our existing stockholders' ownership will be diluted.
Obtaining commercial or other loans, assuming those loans would be available,
will increase our liabilities and future cash commitments.
There is no assurance that we will be able to maintain operations at a level
sufficient for an investor to obtain a return on his, her, or its investment in
our common stock. Further, we may continue to be unprofitable.
Critical Accounting Policies
We have identified the following policies as critical to our business and
results of operations. Our reported results are impacted by the application of
the following accounting policies, certain of which require management to make
subjective or complex judgments. These judgments involve making estimates about
the effect of matters that are inherently uncertain and may significantly impact
quarterly or annual results of operations. For all of these policies, management
cautions that future events rarely develop exactly as expected, and the best
estimates routinely require adjustment. Specific risks associated with these
critical accounting policies are described in the following paragraphs.
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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.
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.
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.
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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.
Through March 31, 2018, 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.
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.
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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 any 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.
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 unaudited consolidated financial statements.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to
have a current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources that is material to our stockholders.
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