See accompanying notes to the condensed interim consolidated financial statements
Notes
to the Condensed Interim Consolidated Financial Statements
As
at
March 31, 2016 (unaudited)
1.
NATURE OF OPERATIONS
Legacy
Ventures International Inc. (the “Company”) is a management Company incorporated on March 4, 2014 in the State of
Nevada. Upon its recent acquisition of RM Fresh Brands Inc. (formerly Influx Global Media Inc.) [“RM Fresh”], it is
engaged in the food and beverage distribution business whose principal place of business is located at
2215-B
Renaissance Drive, Las Vegas, Nevada, 89119 USA.
As
explained in Note 5, on September 30, 2015 (the “Closing”), the Company entered into a Share Exchange Agreement (the
“Agreement”) with and among RM Fresh and its shareholders. Pursuant to the Agreement, the Company acquired 100% of
the issued and outstanding shares of RM Fresh in exchange for the issuance of 2,000,000 shares of the Company’s common stock.
As a result of this transaction, RM Fresh became a wholly owned subsidiary of the Company and the former shareholders of RM Fresh
owned approximately 7% of the Company’s shares of common stock.
RM
Fresh was incorporated on July 29, 2008 under the laws of the Province of Ontario, Canada. RM Fresh is engaged in the business
of trading and distribution of food, beverages and body care products.
2.
GOING CONCERN
The Company’s unaudited condensed interim
consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. The Company has incurred recurring losses from operations and as
at March 31, 2016 has accumulated deficit of $2,804,024 which has primarily arisen from a non-cash goodwill impairment charge
in the previous period. Management anticipates the Company will attain profitable status and improve its liquidity through the
acquisition of RM Fresh as explained in Note 5 and continued business development and additional debt or equity investment in
the Company. The Company’s continued existence is dependent upon its ability to continue to execute its operating plan and
to obtain additional debt or equity financing. There can be no assurance that the necessary debt or equity financing will be available,
or will be available on terms acceptable to the Company, in which case the Company may be unable to meet its obligations. Should
the Company be unable to realize its assets and discharge its liabilities in the normal course of business, the net realizable
value of its assets may be materially less than the amounts recorded in the financial statements. The financial statements do
not include any adjustments relating to the recoverability of recorded asset amounts that might be necessary should the Company
be unable to continue in existence.
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation and Consolidation
The unaudited condensed interim consolidated
financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United
States of America (“US GAAP”) for interim financial information and the rules and regulations of the SEC and are expressed
in United States dollars (“USD”). Accordingly, the unaudited condensed interim consolidated financial statements do
not include all information and footnotes required by US GAAP for complete annual financial statements. In the opinion of management,
the accompanying unaudited condensed interim consolidated financial statements reflect all adjustments, consisting of only normal
recurring adjustments, considered necessary for a fair presentation. Interim operating results are not necessarily indicative
of results that may be expected for the year ending June 30, 2016 or for any other interim period. The unaudited condensed interim
consolidated financial statements should be read in conjunction with the audited financial statements of the Company and the notes
thereto as of and for the year ended June 30, 2015.
LEGACY
VENTURES INTERNATIONAL INC.
Notes
to the Condensed Interim Consolidated Financial Statements
As
at
March 31, 2016 (unaudited)
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
The
Company’s fiscal year-end is June 30. The parent Company’s functional currency is US dollar and for its subsidiary
it is Canadian (“CDN”) dollar. The Company’s reporting currency is U.S. dollar.
The
unaudited condensed interim consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary
RM Fresh, Inc. All inter-company transactions and balances have been eliminated in preparing the consolidated financial statements.
Use
of Significant Estimates
The
preparation of the financial statements in conformity with US 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 periods. Areas involving significant estimates
and assumptions include inventory valuation reserves, allowance for doubtful account, intangible assets, goodwill, income taxes,
accruals and going concern assessment. These estimates are reviewed periodically, and, as adjustments become necessary, they are
reported in earnings in the period in which they become known. Actual results could materially differ from those estimates.
Reclassification
of comparative figures
Certain
of the prior period figures have been reclassified to align with Management’s current view of the Company’s operations.
Inventories
Inventories
which comprise of finished goods, is valued at the lower of cost and market value, with cost being determined on a first-in, first-out
basis. The cost of finished goods consists of purchase price, freight, custom duties and other delivery expenses. Net realizable
value is the estimated selling price in the ordinary course of business, less any applicable selling costs. The Company evaluate
the carrying value of inventory on a regular basis, taking into account such factors as historical and anticipated future sales
compared with quantities on hand and the price the Company expects to obtain for products in market compared with historical cost.
Revenue
Recognition
The
Company recognizes revenues when they are earned, specifically when all of the following conditions are met:
|
●
|
Ownership
of the goods have been transferred to the customers. Ownership of the goods is transferred
to the customers when the good are transferred to a designated carrier in accordance
with shipping terms agreed with the customer.
|
|
●
|
There
is persuasive evidence that an arrangement exists;
|
|
●
|
There
are no significant obligations remaining;
|
|
●
|
Amounts
are fixed or can be determined; and
|
|
●
|
The
ability to collect is reasonably assured.
|
LEGACY
VENTURES INTERNATIONAL INC.
Notes
to the Condensed Interim Consolidated Financial Statements
As
at
March 31, 2016 (unaudited)
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Accounts
Receivable
Accounts
receivable are stated at outstanding balances, net of an allowance for doubtful accounts. The allowance for doubtful accounts
is established through provisions charged against income. Accounts deemed to be uncollectible are charged against the allowance
and subsequent recoveries, if any, are credited to the allowance. Management’s periodic evaluation of the adequacy of the
allowance is based on past experience, aging of the receivables, adverse situations that may affect a customer’s ability
to pay, current economic conditions and other relevant factors. This evaluation is inherently subjective as it requires estimates
that may be susceptible to significant change. Unpaid balances remaining after the stated payment terms are considered past due.
The Company routinely assesses the financial strength of its customers and, therefore, believes that its accounts receivable credit
risk exposure is limited.
Shipping
and Handling Costs
The
Company accounts for shipping and handling fees in accordance with FASB ASC Topic 705 “Cost of Sales and Services”.
Costs related to raw materials purchased, are included in inventory or cost of goods sold, as appropriate. While amounts charged
to customers for shipping product are included in revenues, the related outbound freight costs are included in expenses as incurred.
Segment
Reporting
The
Company operates in one operating segment based on the activities for the Company in accordance with ASC Topic 280-10. Operating
segments are defined as components of an enterprise for which separate financial information is available that is evaluated regularly
by the chief operating decision maker, or decision making group, in deciding how to allocate resources and in assessing performance.
Goodwill
and Identifiable Intangible Assets
Goodwill
and other identifiable intangible assets with indefinite lives that are not being amortized, such as trade names, are tested at
least annually for impairment and are written down if impaired. Identifiable intangible assets with finite lives are amortized
over their estimated useful lives and are reviewed for impairment whenever facts and circumstances indicate that their carrying
values may not be fully recoverable. The identifiable intangible assets are being amortized over its estimated useful lives of
5 years using the straight-line method.
Foreign
Currency Translation
The
parent Company’s functional currency is US dollar and for subsidiary Canadian (“CDN”) dollar. The Company’s
reporting currency is U.S. dollar. Transactions denominated in currencies other than the functional currency are translated into
the functional currency at the exchange rates prevailing at the dates of the transaction. Monetary assets and liabilities denominated
in foreign currencies are translated using the exchange rate prevailing at the balance sheet date. Non-monetary assets and liabilities
are translated using the historical rate on the date of the transaction. All exchange gains or losses arising from translation
of these foreign currency transactions are included in net income (loss) for the year. The translation gains and losses resulting
from the changes in exchange rates are reported in accumulated other comprehensive gain (loss).
LEGACY
VENTURES INTERNATIONAL INC.
Notes
to the Condensed Interim Consolidated Financial Statements
As
at
March 31, 2016 (unaudited)
3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Fair
Value of Financial Instruments
ASC
Topic 820 “
Fair Value Measurements and Disclosures
” defines fair value, establishes a framework for measuring
fair value and expands required disclosure about fair value measurements of assets and liabilities. ASC 820-10 defines fair value
as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or
most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.
ASC 820-10 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize
the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure
fair value:
Level 1
|
-
|
Valuation
based on quoted market prices in active markets for identical assets or liabilities.
|
|
|
|
Level 2
|
-
|
Valuation
based on quoted market prices for similar assets and liabilities in active markets.
|
|
|
|
Level 3
|
-
|
Valuation
based on unobservable inputs that are supported by little or no market activity, therefore requiring management’s best
estimate of what market participants would use as fair value.
|
In
instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy,
the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input
that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular
input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.
Fair
value estimates discussed herein are based upon certain market assumptions and pertinent information available to management.
The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values due to the short-term
nature of these instruments or interest rates that are comparable to market rates. These financial instruments include due from
a shareholder, accounts receivable, accounts payable, accrued expenses, due to shareholders and note payable. The Company's cash,
which is carried at fair value, is classified as a Level 1 financial instruments. Bank accounts are maintained with financial
institutions of reputable credit, therefore, bear minimal credit risk.
Impairment
of Long-Lived Assets
The
Company reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amounts
of the assets may not be recoverable through undiscounted future cash flows. If impairment exists based on expected future undiscounted
cash flows, a loss is recognized in income. The amount of the impairment loss is the excess of the carrying amount of the impaired
asset over the fair value of the asset, typically based on discounted future cash flows. The Company has assessed its long-lived
assets and has determined that there is an impairment of goodwill amounting to $1,394,135 as explained in Note 5.
Recently
Issued Accounting Standards
The
Company evaluated all recent accounting pronouncements issued and determined that the adoption of these pronouncements would not
have a material effect on the financial position, results of operations or cash flows of the Company.
4.
DUE TO STOCKHOLDERS
Amount
due to stockholders is unsecured, interest free and is repayable on demand.
LEGACY
VENTURES INTERNATIONAL INC.
Notes
to the Condensed Interim Consolidated Financial Statements
As
at
March 31, 2016 (unaudited)
5.
GOODWILL AND INTANGIBLE ASSETS
Business
Acquisition
ASC
Topic 805, “Business Combinations” requires that all business combinations be accounted for using the acquisition
method and that certain identifiable intangible assets acquired in a business combination be recognized as assets apart from goodwill.
ASC Topic 350, “Intangibles-Goodwill and Other” (“ASC 350”) requires goodwill and other identifiable intangible
assets with indefinite useful lives not be amortized, such as trade names, but instead tested at least annually for impairment
(which the Company tests each year end, absent any impairment indicators) and be written down if impaired. ASC 350 requires that
goodwill be allocated to its respective reporting unit and that identifiable intangible assets with finite lives be amortized
over their useful lives.
On
September 30, 2015 (the “Closing”), the Company entered into a Share Exchange Agreement (the “Agreement”)
with and among RM Fresh and its shareholders. Pursuant to the Agreement, the Company acquired 100% of the issued and outstanding
shares of RM Fresh in exchange for the issuance of 2,000,000 shares of the Company’s common stock. As a result of this transaction,
RM Fresh became a wholly owned subsidiary of the Company and the former shareholders of RM Fresh owned approximately 7% of the
Company’s shares of common stock.
This
acquisition was accounted for using the acquisition method of accounting. The fair value of assets, liabilities and intangible
assets and the purchase price allocation as of the valuation date, which is September 30, 2015 is as follows:
|
|
|
|
|
|
Allocation of Purchase Price
|
|
|
|
|
$
|
|
Cash
|
|
|
3,671
|
|
Accounts receivable
|
|
|
91,055
|
|
Inventories
|
|
|
26,636
|
|
Prepaid expenses
|
|
|
1,875
|
|
Total assets
|
|
|
123,237
|
|
|
|
|
|
|
Accounts payable
|
|
|
(34,458
|
)
|
Due to shareholders
|
|
|
(36,914
|
)
|
Note payable
|
|
|
(26,000
|
)
|
Loan payable
|
|
|
(18,000
|
)
|
Total liabilities
|
|
|
(115,372
|
)
|
Net assets
|
|
|
7,865
|
|
Intangible asset acquired
|
|
|
|
|
Trade-name
|
|
|
236,000
|
|
Customer base/distribution rights
|
|
|
233,000
|
|
Total intangible assets acquired
|
|
|
469,000
|
|
Goodwill
|
|
|
1,703,135
|
|
Total net assets acquired
|
|
|
2,180,000
|
|
LEGACY
VENTURES INTERNATIONAL INC.
Notes
to the Condensed Interim Consolidated Financial Statements
As
at
March 31, 2016 (unaudited)
5.
GOODWILL AND INTANGIBLE ASSETS
(continued)
Business
Acquisition
(continued)
The
purchase consideration of 2,000,000 shares of the Company’s common stock valued as detailed below:
|
|
|
$
|
|
Number of common Stock
|
|
|
2,000,000
|
|
Market price on the date of issuance
|
|
|
1.09
|
|
Fair value of common stock
|
|
|
2,180,000
|
|
Goodwill
Goodwill
of $309,000 represents the excess of cost over fair value of net assets of RM Fresh acquired, less impairment. Key factors that
make up the goodwill created by the transaction include knowledge and experience of the acquired customer base, vendor relationship,
workforce and expected synergies from the combination of operations as it pertains to the business of RM Fresh.
The
Company test for impairment of goodwill at the reporting unit level. In assessing whether goodwill is impaired, the Company utilize
the two-step process as prescribed by ASC 350. The first step of this test compares the fair value of the reporting unit, determined
based upon discounted estimated future cash flows, to the carrying amount, including goodwill. If the fair value exceeds the carrying
amount, no further work is required and no impairment loss is recognized. If the carrying amount of the reporting unit exceeds
the fair value, the goodwill of the reporting unit is potentially impaired and step two of the goodwill impairment test would
need to be performed to measure the amount of an impairment loss, if any. In the second step, the impairment is computed by comparing
the implied fair value of the reporting unit’s goodwill with the carrying amount of the goodwill. If the carrying amount
of the reporting unit’s goodwill is greater than the implied fair value of its goodwill, an impairment loss in the amount
of the excess is recognized and charged to statement of operations.
Goodwill
amounting to $1,394,135 was immediately impaired based on the implied fair value of goodwill determined based on the enterprise
value of the acquiree of approximately $786,000. The discounted cash flow method was used to arrive at the value of the enterprise
using following major assumptions:
Ø
Weighted average cost of capital (discount rate) of 22%;
Ø
Beta 1.23 (risk associated with benefit streams); and
Ø
Long term growth rate of 2.75%.
Intangible
assets
Identifiable
intangible assets having gross values of $469,000 ($422,100 net of amortization charge of $46,900) comprise of gross fair values
of trade-name of $236,000 and customer base/distribution rights of $233,000. Relief from royalty approach was used to arrive at
the fair value of trade-name using major assumptions a) 2% royalty rate; b) 10 year life; c) cost to maintain trade name at $2,000
increasing 2.75% annually; and d) discount rate of 22%. Multi-Period Excess Earnings Method was used to arrive at the fair value
of customer base/distribution rights using major assumptions a) net sales base from years 2015 to 2025; b) retention rate of 85%
and c) discount rate of 22%.
LEGACY
VENTURES INTERNATIONAL INC.
Notes
to the Condensed Interim Consolidated Financial Statements
As
at
March 31, 2016 (unaudited)
5.
GOODWILL AND INTANGIBLE ASSETS
(continued)
Intangible
Assets
(continued)
Amortization
expense of $23,450 on these intangible assets were recorded for the three months ended March 31, 2016. The following table presents
the estimated future amortization expense of these identifiable intangible assets:
|
|
|
$
|
|
2016
|
|
|
46,900
|
|
2017
|
|
|
93,800
|
|
2018
|
|
|
93,800
|
|
2019
|
|
|
93,800
|
|
2020
|
|
|
93,800
|
|
2021
|
|
|
23,450
|
|
|
|
|
445,550
|
|
6. ACCOUNTS AND OTHER RECEIVABLES
During the three months ended March 31, 2016,
RM Fresh entered into a simultaneous arrangement with a customer and a supplier, whereby RM Fresh would act as an intermediary
between the two parties. As a result of this arrangement, RM Fresh has booked a receivable from the supplier and a payable to the
customer, amounting to CAD160,000 each.
7. NOTE PAYABLE
Outstanding note payable of $53,363 represents
unsecured promissory notes amounting to $26,000 and $27,363 issued on April 1, 2015 and March 4, 2016, respectively bearing interest
at 20% and 12% per annum, respectively repayable within a year from issuance date. Interest accrued on these notes during the three
months ended March 31, 2016 amounted to $1,528 ($nil for three months ended March 31, 2015).
Further, on August 21, 2015 the Company issued
$180,000 convertible notes payable bearing interest at 10% p.a. repayable on February 21, 2017. The principal amount and accrued
interest were convertible into common stock of the Company at the option of the holder at any time from the date of issuance $1.
The Company concluded that there is no beneficial conversion feature determined in accordance with the guidance provided in ASC
470. Accordingly, these notes were recognized as liability at the time of issuance. On September 30, 2015 all the Holders exercised
their right to convert the outstanding principal amount of these notes, into shares of the Company’s common stock at a price
of $1.00 per share (Note 9).
8. FORGIVENESS OF LOAN
Loan amounting to $17,974 provided by a related
party to RM Fresh before acquisition to meet the working capital requirements and was unsecured, interest free and was repayable
on demand. During nine months ended March 31, 2016, the related party agreed to forgive the loan in favour of the Company.
9. STOCKHOLDERS’ EQUITY
COMMON STOCK - AUTHORIZED
As at March 31, 2016, the Company authorized
to issue 10,000,000 shares of preferred stock, with a par value of $0.0001 and 100,000,000 shares of common stock, with a par value
of $0.0001.
COMMON STOCK - ISSUED AND OUTSTANDING
On September 9, 2015, the Board of Directors and Shareholders of the Company approved a Certificate of Amendment
to its Articles of Incorporation to increase the par value of Company’s common stock and preferred stock from no par value
to $0.0001 per share and approved a 1:7 forward split upon the increase of the par value. As a result, the issued and outstanding
shares of common stock of the Company increased from 7,400,000 shares prior to the Forward Split to 51,800,000 shares following
the Forward Split.
LEGACY
VENTURES INTERNATIONAL INC.
Notes
to the Condensed Interim Consolidated Financial Statements
As
at
March 31, 2016 (unaudited)
9.
STOCKHOLDERS’ EQUITY
(continued)
On
September 30, 2015 the Company issued 2,000,000 shares of common stock to the former shareholders of RM Fresh pursuant to Share
Exchange Agreement as explained in Note 5. Further, the Principal shareholder of the Company agreed to cancel 25,800,000 shares
of common stock in accordance with the Cancellation Agreement.
As explained in Note 7, on September 30, 2015
the holders of convertible notes payable exercised their option to convert the notes payable into shares at a price of $1 per
share with the resultant issuance of 180,000 shares.
During
October and December 2015, the Company issued 92,000 shares of common stock to three investors at a price of $1.25 per common
stock and received gross proceeds of $115,000.
On
October 1, 2015, the Company issued 250,000 shares of common stock to a director in connection with joining the board of directors.
These shares were fair valued at $337,500, determined based on the market price on the date of issuance, and recorded as expense
under professional fees in the statement of operations.
During
October and December 2015, the Company issued 335,000 shares of common stock to various third parties in connection with providing
consulting services. These shares were fair valued at $452,350, determined based on the market price on the date of issuance,
to be expensed over the term of the respective agreements. Accordingly, the Company initially recorded $452,350 as prepaid expense
and during the nine months ended March 31, 2016, $289,244 were expensed and included in professional fees in the statement of
operations.
During
February 2016, the Company issued 70,000 shares of common stock to one investor at a price of $0.50 per common stock and received
gross proceeds of $35,000.
On
January 8, 2016 and March 31, 2016, the Company issued 250,000 shares and 250,000 shares respectively of common stock to two directors
in connection with joining the board of directors. These shares were fair valued at $290,000 and $22,500 respectively, determined
based on the market price on the date of issuance, and recorded as expense under professional fees in the statement of operations.
On
January 26, 2016, the Company issued 100,000 shares of common stock to one third parties in connection with providing consulting
services. These shares were fair valued at $89,000, determined based on the market price on the date of issuance, to be expensed
over the term of the respective agreements. Accordingly, the Company initially recorded $89,000 as prepaid expense and during
the three months ended March 31, 2016, $14,833 was expensed and included in professional fees in the statement of operations.
At
March 31, 2016, there were 29,527,000 shares of common stock issued and outstanding (June 30, 2015 – 51,800,000 shares of
common stock) of which 15,247,000 shares are restricted while 14,280,000 are unrestricted.
The
restricted shares have been issued to various parties through private placements, as start up capital or as consideration for
professional services. These restricted shares will be available for sale under Rule 144 of the Securities Act of 1933, as amended,
when the conditions of Rule 144 have been met.
10.
RELATED PARTY TRANSACTIONS AND BALANCES
The
Company’s transactions with related parties were, in the opinion of the directors, carried out on normal commercial terms
and in the ordinary course of the Company’s business.
Other
than disclosed elsewhere in the consolidated financial statements, the other related party transaction is management fees of $47,626
in the three months ended March 31, 2016 and $101,541 in the nine months ended March 31, 2016, charged from the entities owned
by the stockholders of the Company for providing warehousing and other logistic services. Amounts owed to entities owned by the
stockholders in respect of these services was $41,487 as at March 31, 2016 (June 30, 2015: $nil).
11.
SUBSEQUENT EVENTS
The
Company’s management has evaluated subsequent events up to May 20, 2016, the date the unaudited condensed interim consolidated
financial statements were issued, pursuant to the requirements of ASC Topic 855 and has determined that there no significant subsequent
events to report.
LEGACY
VENTURES INTERNATIONAL INC.