Notes to the Financial Statements
For the years ended June 30, 2018 and 2017
1. NATURE OF OPERATIONS
Legacy Ventures International, Inc. (“Legacy”
or the “Company”), was incorporated on March 4, 2014 under the laws of the State of Nevada. Since September 15, 2015,
the Company operated through a wholly-owned subsidiary RM Fresh Brands Inc. (“RM Fresh”), who services food and beverage
retailers and distributors who are looking for innovative, trend-setting products across North America and in international markets.
With a focus on sustainable, category changing consumables, RM Fresh acquired the rights to distribute an extensive portfolio of
highly desirable brands, including Boxed Water, Cleansify, Uncle Si’s Iced Tea, Chef 5-Minute Meals, Gurkha Cigars, Shimla
Foods, Aloe Gloe and Arriba Horchata. Through a network of sub-distribution partners across Canada, RM Fresh provides national
product distribution and brokerage services. RM Fresh has an emerging focus on the United States and Middle East through the establishment
of sub-distribution partners.
On August 31, 2016, in order to fund the ongoing
operation and further development of RM, the Company consented to new third party investments into RM in the approximate total
amount of $175,000, made in the form of cash and retirement of indebtedness owed by RM. As result of these new investments into
RM, the Company’s ownership percentage of the RM Fresh was reduced to twenty percent (20%). In addition, the Company entered
into a new Shareholder Agreement with RM, under which the shares in RM owned by the Company are subject to certain restrictions
on transfer until such time as we declare a shareholder dividend of our RM shares following a going public transaction by RM, or
in the alternative, for one (1) year after RM completes a going public transaction. Further, the Company disposed of an inter-company
liability owed to us by RM in the amount of CDN$166,962. The liability was documented under a Demand Promissory Note issued to
us by RM. The Company then assigned the note to an investor in RM in exchange for $3,000. Finally, the Company entered into a mutual
Release agreement with RM. Under the Release, the Company released and discharged all liabilities owed to the Company by RM (with
the exception of the Demand Promissory Note). RM in turn released the Company of all liabilities owing to RM and released the Company
all ongoing contractual and financial responsibilities to RM, including the Company’s contractual obligation to further fund
management fees or other expenses to be incurred by RM. The carrying value of the investment in RM Fresh was previously written
down to $nil.
On June 28, 2017, Randall Letcavage entered
into a stock purchase agreement for the acquisition of an aggregate of 286,720 shares of Common Stock of the Company, representing
approximately 91% of the issued and outstanding shares of Common Stock of the Company as of such date, from Rehan Saeed, the previous
majority shareholder of the Company (the “Purchase Agreement”). The Purchase Agreements were fully executed and delivered,
and the transaction consummated as of and at July 7, 2017. Consequently, Mr. Letcavage was able to unilaterally control the election
of our Board of Directors, all matters upon which shareholder approval is required and, ultimately, the direction of the Company.
In addition, on June 28, 2017, Rehan Saeed
submitted his resignation from all executive officer positions with the Company, including Chief Executive Officer and President,
effective on the 10th day following the filing of a Schedule 14f-1 with the U.S. Securities and Exchange Commission. On June 28,
2017, Randall Letcavage was appointed as Chief Executive Officer, Chief Financial Officer, Director, effective immediately.
On June 28, 2017, the Company entered into
a non-binding letter of intent to enter into a business combination with Nexalin Technology, Inc., a Nevada corporation (“Nexalin”).
On June 6, 2018, the Company reported that
Matthew Milonas entered into an agreement for the acquisition of an aggregate of 286,720 shares of Common Stock of the Company,
representing approximately 91% of the issued and outstanding shares of Common Stock of the Company (the “Shares”) as
of such date, from Randall Letcavage, the majority shareholder of the Company (the “Agreement”). However, Mr. Milonas
claims that he did not fully execute and deliver the Agreement and has disclaimed ownership of the subject shares. Mr. Letcavage
will not contest Mr. Milonas’ claims and as a result, Mr. Letcavage’s ownership of the shares did not change as disclosed.
On August 9, 2018, Mr. Letcavage, as the holder
of 91% of the outstanding shares of common stock of the Company, approved the appointment of Peter Sohn as the Chief Executive
Officer and Chief Financial Officer and Director of the Company. Effective December 17, 2018, and Mr. Sohn accepted the appointments
as Chief Executive Officer and Chief Financial Officer and Director of the Company.
LEGACY VENTURES INTERNATIONAL, INC.
Notes to the Financial Statements
For the years ended June 30, 2018 and 2017
1. NATURE OF OPERATIONS (continued)
On December 17, 2018, Mr. Letcavage delivered
to Peter Sohn an agreement for the acquisition by Mr. Sohn of the Shares from Mr. Letcavage, which agreement is dated August 9,
2018, but was delivered and deemed effective on December 17, 2018 (the “Agreement”). As a result Mr. Sohn is now able
to unilaterally control the election of our Board of Directors, all matters upon which shareholder approval is required and, ultimately,
the direction of the Company.
Share Exchange Agreement and Subscriptions
Effective September 11, 2017 (the “Closing
Date”), the Company entered into that certain Share Exchange Agreement (the “Share Exchange Agreement”), dated
as of September 1, 2017, by and among the Company, Nexalin and shareholders of Nexalin holding a majority of the issued and outstanding
shares of Nexalin common stock (the “Nexalin Shareholders”). Pursuant to the Share Exchange Agreement, the Company
agreed to exchange the outstanding equity stock of Nexalin held by the Nexalin Shareholders for units (the “Units”)
consisting of an aggregate of approximately 25,000,000 newly issued shares of the Common Stock, $0.001 par value, of the Company
and warrants (the “Warrants”) to purchase an aggregate of approximately 25,000,000 newly issued shares of the Common
Stock, $0.001 par value, of the Company. The warrants are two-year warrants exercisable at the end of one year for exercise prices
between $1.50 and $1.75 per share, payable in cash. The warrants must be promptly exercised, and subject to forfeiture if not so
exercised, if the Company’s shares achieve a trading price of $3.00 or more for 30 consecutive days. At the Closing Date,
the Company approved the issuance of approximately 15,500,000 shares of common stock to the Nexalin shareholders, together with
warrants for the purchase of an additional 15,500,000 shares and reserved approximately 9,500,000 additional shares, together with
the related warrants, for the issuance to remaining Nexalin shareholders who are expected to execute and deliver the Share Exchange
Agreement, including approximately 1,100,000 shares and related warrants issuable immediately to consultants in connection with
the transactions contemplated by the Share Exchange Agreement. On September 15, 2017, Legacy Ventures International, Inc., (the
“Company”), filed a Current Report on Form 8-K (the “09/15/17 Form 8K”) announcing that effective September
11, 2017 (the “Closing Date”), the Company, on the one hand, and Nexalin Technology, Inc., a Nevada corporation (“Nexalin”),
and shareholders of Nexalin holding a majority of the issued and outstanding shares of Nexalin common stock (the “Nexalin
Shareholders”), on the other hand, entered into a Share Exchange Agreement (the “Share Exchange Agreement”),
dated as of September 1, 2017. In the Share Exchange Agreement the Company agreed to issue units in exchange for all the
outstanding equity stock of Nexalin held by the Nexalin Shareholders. The “Units” were to consist of an aggregate of
approximately 25,000,000 newly issued shares of the Company’s Common Stock, $0.001 par value, and warrants (the “Warrants”)
to purchase an aggregate of approximately 25,000,000 newly issued shares of the Company’s Common Stock, $0.001 par value.
On November 29, 2017, the Company filed an
amendment to its 09/15/17 Form 8-K (the “11/29/17 Amended Form 8K”) announcing that the “Closing Date”
as defined in the Share Exchange Agreement was September 30, 2017, and, further, that as of the date of the of the 11/29/17 Amended
Form 8K, the holders of approximately 90% of the equity securities of Nexalin had exchanged their shares into shares of the Company’s
Common Stock.
On December 26, 2017, the Company filed a Current Report on Form
8K (the “12/26/17 Form 8K”) announcing that on December 21, 2017, the Company’s sole officer and director, Randy
Letcavage, who was at the time Nexalin’s sole officer and director, resigned all officer and director positions with the
Company and Nexalin. It was also announced that Mark White was appointed as the Interim Chief Executive Officer and Interim Chief
Financial Officer of both the Company and Nexalin. Finally, it was announced that Rick Morad was appointed as the sole director
of the Company and Nexalin.
On February 1, 2018, the Company filed a Current Report on Form
8K (the “02/01/18 Form 8K”) announcing that Mark White was appointed as a Company director.
LEGACY VENTURES INTERNATIONAL, INC.
Notes to the Financial Statements
For the years ended June 30, 2018 and 2017
1. NATURE OF OPERATIONS (continued)
On February 28, 2018, the Company filed a Current Report on Form
8K (the “02/28/18 Form 8K”) wherein the Company filed (i) the Nexalin audited financial statements for the twelve months
ended June 30, 2017 and 2016; (ii) the Nexalin unaudited financial statements for the three months ended September 30, 2017 and
2016; and (iii) the Nexalin unaudited condensed pro forma financial statements for the Company for the twelve months ended June
30, 2017 and as of and for the three months ended September 30, 2017.
On March 30, 2018, the Company filed a Current Report on Form 8K
(the “03/30/18 Form 8K”) announcing the appointment of Dr. Benjamin V. Hue as a director of the Company.
Notwithstanding the disclosure made in the 09/15/17 Form 8K and
the11/29/17 Amended Form 8K, the consummation of the acquisition of Nexalin was subject to a number of contractual conditions and
legal requirements. These included:
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(i)
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all representations and warranties of the Company contained in the Share Exchange Agreement were to be true in all material respects;
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(ii)
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the Company was to have performed and complied in all material respects with all covenants and agreements required by the Share Purchase Agreement;
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(iii)
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the Company was to obtain all material consents, approvals and authorizations required to be obtained and make all filings required to be made by the Company for the authorization and consummation of the Share Purchase Agreement;
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(iv)
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Nexalin and the Nexalin Shareholders were to be given the opportunity to initiate and complete their legal, accounting and business due diligence of the Company and the results were to be satisfactory to Nexalin and the Nexalin Shareholders in their sole and absolute discretion;
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(v)
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the Units, which included the Company’s Common Stock and Warrants, were to be delivered to the Nexalin Shareholders within five (5) business days following the Closing of the Share Exchange Agreement. The Company was also required to take any and all action required under the various state securities laws in connection with the issuance of the Units.
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Once new management and a new Board of Directors
were in place, they conducted a review of the Company and the steps taken and to be taken to consummate the acquisition of Nexalin.
After the due diligence review was performed, including legal, accounting and business investigations of the Company, the
new management and new Board of Directors became aware of a series of issues that put into question whether there had been or could
be completion of the acquisition transaction and that put into issue whether past actions by the Company complied with applicable
legal requirements and better business practice. After performing this due diligence review, the new Board of Directors determined
that many of the requirements of and pre-conditions to the Share Exchange Agreement were not completed and the condition of the
Company was not satisfactory to accomplish the objectives of the Share Exchange Agreement.
After careful consideration, the current management
and Board of Directors believe that the previously announced share exchange, in fact, had not closed, and because of the many issues
identified in its due diligence review, some of which cannot ever be satisfied or adequately remedied, it considers that the Share
Exchange Agreement is null and void
ab initio
.
It is the opinion of current management and
the current Board of Directors, based on the nullity of the Share Exchange Agreement, that Nexalin never was and is not now a wholly
owned subsidiary of the Company.
LEGACY VENTURES INTERNATIONAL, INC.
Notes to the Financial Statements
For the years ended June 30, 2018 and 2017
2. GOING CONCERN
The Company’s 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. During the current year, the Company has incurred recurring losses from operations and as at June 30, 2018
has a working capital deficiency, and an accumulated deficit of $6,536,554,. Further, as explained in Note 1, on August 31, 2016,
the Company’s ownership percentage of RM Fresh has been reduced to 20%. 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. These conditions
raise substantial doubt about our ability to continue as a going concern. 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 financial statements of the Company
have been prepared in accordance with accounting principles generally accepted in the United States of America and are expressed
in United States dollars (“USD”).
The Company’s fiscal year-end
is June 30. The parent Company’s functional currency is US dollar and the Company’s reporting currency is U.S. dollar.
The Company’s fiscal year-end is June
30. The parent Company’s functional currency is US dollar and the Company’s reporting currency is U.S. dollar. The
Company’s results were consolidated up to August 31, 2016.
The financial statements of the Company as
at, June 30, 2017, do not include the assets and liabilities of RM Fresh, which is no longer a wholly-owned subsidiary effective
August 31, 2016, as described in Note 9.
Cash
Cash includes cash on hand and balances with banks.
LEGACY VENTURES INTERNATIONAL, INC.
Notes to the Financial Statements
For the years ended June 30, 2018 and 2017
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue Recognition
The Company recognizes revenues when they are earned, specifically
when all of the following conditions are met:
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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.
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there is persuasive evidence that an arrangement exists;
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there are no significant obligations remaining;
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amounts are fixed or can be determined; and
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the ability to collect is reasonably assured.
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Segment Reporting
The Company operates in one operating and geographical
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. All the sales of
the Company are in Canada and were related to FM Fresh..
Loss Per Share
The Company has adopted the Financial Accounting
Standards Board’s (“FASB”) Topic 260-10 which provides for calculation of “basic” and “diluted”
earnings per share. Basic earnings per share includes no dilution and is computed by dividing net income or loss available to common
stockholders by the weighted average number of common shares outstanding for the period. Diluted earnings per share reflect the
potential dilution of securities that could share in the earnings of an entity. Diluted earnings per share exclude all potentially
dilutive shares if their effect is anti-dilutive. All dilutive common share equivalents were anti-dilutive for the years ended
June 30, 2018 and 2017.
LEGACY VENTURES INTERNATIONAL, INC.
Notes to the Financial Statements
For the years ended June 30, 2018 and 2017
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Foreign Currency Translation
Legacy Venture International, Inc.’s
functional currency is US dollar and the subsidiary’s functional currency up to August 31, 2016, was the 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.
In translating the financial statements of the Company’s subsidiary from their functional currency into the Company’s
reporting currency of US dollars, balance sheet accounts are translated using the closing exchange rate in effect at the balance
sheet date for monetary items and using the historical rate on the date of the transaction for non-monetary items, and income and
expense accounts are translated using an average exchange rate prevailing during the reporting period. The translation gains and
losses resulting from the changes in exchange rates are reported in accumulated other comprehensive gain (loss).
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.
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 -
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Valuation based on quoted market prices in active markets for identical assets or liabilities.
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Level 2 -
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Valuation based on quoted market prices for similar assets and liabilities in active markets.
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Level 3 -
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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.
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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.
LEGACY VENTURES INTERNATIONAL, INC.
Notes to the Financial Statements
For the years ended June 30, 2018 and 2017
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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 accounts payable and accrued liabilities, convertible notes, interest
payable and advances from third parties. 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.
See note 9 for additional details.
Income Taxes
The Company accounts for income taxes under
ASC Topic 740 Accounting for Income Taxes. The Company provides for federal and provincial income taxes payable, as well as for
those deferred because of the timing differences between reporting income and expenses for financial statement purposes versus
tax purposes. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between
the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Deferred
tax assets and liabilities are measured using the enacted tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recoverable or settled. The effect of a change in tax rates is recognized as income or
expense in the period of the change. A valuation allowance is established, when necessary, to reduce deferred income tax assets
to the amount that is more likely than not to be realized.
The Company adopted the FASB guidance concerning
accounting for uncertainty in income taxes, which clarifies the accounting and disclosure for uncertainty in tax positions, as
of July 1, 2017. The guidance requires that the Company determine whether it is more likely than not that a tax position
will not be sustained upon examination by the appropriate taxing authority. If a tax position does not meet the more likely
than not recognition criterion, the guidance requires that the tax position be measured at the largest amount of benefit greater
than 50 percent not likely of being sustained upon ultimate settlement. Based on the Company’s evaluation, management
has concluded that there are no significant uncertain tax positions requiring recognition in the financial statements.
Stock Based Compensation
The Company accounts for share-based
payments in accordance with the provision of ASC 718, which requires that all share-based payments issued to acquire goods or services,
including grants of employee stock options, be recognized in the statement of operations based on their fair values, net of estimated
forfeitures. ASC 718 requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods
if actual forfeitures differ from those estimates. Compensation expense related to share-based awards is recognized over the requisite
service period, which is generally the vesting period. The Company accounts for stock based compensation awards issued to non-employees
for services, as prescribed by ASC 718-10, at either the fair value of the services rendered or the instruments issued in exchange
for such services, whichever is more readily determinable, using the guidelines in ASC 505-50. The Company issues compensatory
shares for services including, but not limited to, executive, management, accounting, operations, corporate communication, financial
and administrative consulting services.
LEGACY VENTURES INTERNATIONAL, INC.
Notes to the Financial Statements
For the years ended June 30, 2018 and 2017
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
CHANGE IN ACCOUNTING POLICY
The FASB issued ASU No. 2017-11,
Earnings
Per Share (Topic 260) Distinguishing Liabilities From Equity (Topic 480) Derivatives and Hedging (Topic 815): Accounting for Certain
Financial Instruments With Down Round Features II Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments
of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests With a Scope Exception
, allows a
financial instrument with a down-round feature to no longer automatically be classified as a liability solely based on the existence
of the down-round provision. The update also means the instrument would not have to be accounted for as a derivative and be subject
to an updated fair value measurement each reporting period.
On consideration of the above factors, the
Company elected to early adopt ASU 2017-11 on July 1, 2017. The ASU is effective for public business entities for fiscal years,
and interim periods within those fiscal years, beginning after December 15, 2018. For all other organizations, the amendments are
effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December
15, 2020.
The early adoption allows the Company to reduce
the cost and complexity of updating the fair value measurement each reporting period and eliminate the unnecessary volatility in
reported earnings created by the revaluation when the Company’s shares’ value changes.
The Company presented the change in accounting
policy through the retrospective application of the new accounting principle to all prior periods, as described in ASU No. 250-10-45-5,
Accounting Changes and Error Corrections. There was no impact on opening balances from adopting this standard.
Recently issued accounting pronouncements
In November 2015, the FASB issued ASU No. 2015-17,
"Balance Sheet Classification of Deferred Taxes," which requires that deferred tax liabilities and assets be classified
on our Balance Sheets as noncurrent based on an analysis of each taxpaying component within a jurisdiction. ASU No. 2015-17 is
effective for the fiscal year commencing after December 15, 2017. The Company does not anticipate that the adoption of ASU No.
2015-17 will have a material effect on the balance sheet or the results of operations.
In January 2016, the FASB issued ASU 2016-01,
Financial Instruments - Overall (Subtopic 740): Recognition and Measurement of Financial Assets and Financial Liabilities. This
ASU is effective for annual and interim reporting periods beginning after December 15, 2017. ASU 2016-01 enhances the reporting
model for financial instruments to provide users of financial statements with more decision-useful information. The Company is
currently assessing the impact of ASU 2016-01.
NOTE 4. BASIC AND DILUTED NET LOSS PER SHARE
The Company follows ASC Topic 260 to account
for the loss per share. Basic loss per common share ("EPS") calculations are determined by dividing net loss by
the weighted average number of shares of common stock outstanding during the year. Diluted loss per common share calculations
are determined by dividing net loss by the weighted average number of common shares and dilutive common share equivalents (if dilutive)
outstanding. All dilutive common share equivalents were anti-dilutive for the years ended June 30, 2018 and 2017.
LEGACY VENTURES INTERNATIONAL, INC.
Notes to the Financial Statements
For the years ended June 30, 2018 and 2017
5. PROMISSORY AND CONVERTIBLE NOTES
On September 11, 2017, the Company issued a
Convertible Promissory Note (“Convertible Note”) to an accredited investor. The Convertible Note has an aggregate principal
amount of $500,000 and matures one year from the date of issuance (the “Maturity Date”) and has an interest rate of
4% per annum. The holder may convert the Notes at any time up to the Maturity Date into shares of the Company’s common stock,
par value $0.001 per share, at a conversion price equal to $1.00 per share and the note were to automatically convert upon the
filing of the audited financial statement for Nexalin by the Company. The Company may prepay the Convertible Note prior to the
Maturity Date and/or the date of conversion without penalty upon receiving the written consent of the holder. As the conversion
feature is not separable, it has been reflected on the balance sheet as at June 30, 2018. Interest expense for the year ended June
30, 2018 was $16,000.
As a result of the series of events noted
above, on April 11, 2018, the Company wrote-off the value of the note as well as the accrued interest receivable thereon. Subsequent
to June 30, 2018, the note was assigned to an accredited arm’s length third party, in exchange for the waiver of the convertible
promissory note payable pursuant to the terms of the Assignment Agreement.
The Convertible Note payable contains a beneficial
conversion feature. As a result, the Company recognized a nominal value for the Convertible note, at the September 11, 2017 issuance
date, the balance of which will be accreted to the face value at the effective interest rate. For the years ended June 30, 2018,
and 2017, accretion expense was $32,424 and $nil, respectively. The difference between the nominal value ascribed to the Convertible
Note on issuance and the face value was recorded in Additional Paid In Capital. As at June 30, 2018, the carrying value of the
note was $32,425.
On September 11, 2017, the Company received
a Promissory Note ("Promissory Note") from Nexalin Technology, Inc. The Promissory Note has an aggregate principal
amount of $500,000 and is payable on December 31, 2017 (the "Maturity Date"), and bears an interest rate of 4% per annum.
Interest income for the year ended June 30, 2018 was $11,617.
On June 28, 2017
the Company issued $20,000
of unsecured convertible
promissory notes (“Notes”) against the balance Due to Shareholders (see notes 6 and 7 for additional details). The
Notes matured on June 27, 2018, and bear interest at a rate of 8% per annum. The Notes are convertible into the Common Stock of
the Company at a fixed conversion rate of $0.75 per share at any time prior to the maturity date. The Company evaluated the terms
and conditions of the Notes under the guidance of ASC 815, Derivatives and Hedging. The conversion feature met the definition of
conventional convertible for purposes of applying the conventional convertible exemption. The definition of conventional contemplates
a limitation on the number of shares issuable under the arrangement. The instrument was convertible into a fixed number of shares
and there were no down round protection features contained in the contracts. The Company was required to consider whether the hybrid
contracts embodied a beneficial conversion feature (“BCF”). The calculation of the effective conversion amount resulted
in a BCF because the fair value of the conversion was greater than the Company’s stock price on the date of issuance and
a BCF was recorded in the amount of $20,000 and accordingly the amount of $20,000 was credited to Additional Paid in Capital. The
BCF which represents debt discount is accreted over the life of the loan using the effective interest rate. Accretion expense for
the year ended June 30, 2018, was $20,000. Interest expense for the year ended June 30, 2018 was $1,609. As at June 30, 2018, the
carrying value of the note was $20,000.
No amounts have been paid to date for the above
mentioned notes.
NOTE 6. RELATED PARTY ADVANCES AND BALANCES, AND ADVANCES FROM
THIRD PARTIES
During the years ended June 30, 2018 and 2017, the Company was advanced
$22,925 and $nil, respectively, by a third party, the funds were used to pay certain professional fees including auditors, and
accountants. The Company is currently in the process of negotiating with the third party with respect to settlement of the amount
advanced.
During the years ended June 30, 2018, and 2017, the Company was
advanced $nil and $31,061, respectively, from shareholders. See note 7 for additional details.
The Company’s transactions with related
parties were, in the opinion of the management, carried out on normal commercial terms and in the ordinary course of the Company’s
business.
Other than disclosed elsewhere in the financial
statements, the other related party transaction is management fees of $Nil for the years ended June 30, 2018 and 2017 charged by
entities owned by the shareholders of the Company for providing warehousing and other logistic services. Amounts owed to entities
owned by the stockholders in respect of these services were $Nil as at June 30, 2018 and 2017. Further as explained in note 8,
management fee for year ended June 30, 2017 include $2,105,370 representing issuance of 35,537shares of common stock and 250,000
shares of common stock issued to the then CEO of the Company.
LEGACY VENTURES INTERNATIONAL, INC.
Notes to the Financial Statements
For the years ended June 30, 2018 and 2017
7. FORGIVENESS OF LOAN
During year ended June 30, 2017, a loan
amounting to $22,987 provided by a shareholder to meet the working capital requirements was forgiven in favour of the Company.
8. STOCKHOLDERS’ DEFICIENCY
COMMON AND PREFERRED STOCK - AUTHORIZED
As at June 30, 2018 and 2017, the Company authorized
to issue 10,000,000 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
There were no common stock transactions for
the year ended June 30, 2018.
At June 30, 2018 and 2017, there were 315,064
shares of common stock issued and outstanding.
On October 28, 2016, the Company issued 35,537
shares of common stock to the CEO, as consideration for management services. These shares were fair valued at $355,370, determined
based on the market price on the date of issuance, and recorded in the statement of operations as management fees during the year
ended June 30, 2017.
On November 16, 2016, the Board of Directors
and stockholders of the Company approved a 1:1000 reverse split. As a result, the issued and outstanding common stock of the Company
decreased from 65,064,000 shares prior to the reverse split to 65,064 shares following the reverse split. Prior year amounts have
been restated from the earliest period presented, to reflect the effect of the reverse split.
On May 9, 2017, the Company issued 250,000
shares (post reverse split shares) of common stock to the CEO, as consideration for management services. These shares were fair
valued at $1,750,000, determined based on the market price on the date of issuance, and recorded in the statement of operations
as management fees during the year ended June 30, 2017.
9. LOSS OF CONTROL
Loss of Control:
On August 31, 2016, the Company entered into
a group of transactions related to RM Fresh. In order to fund the ongoing operation and further development of RM Fresh, the Company
consented to new third party investments into RM Fresh in the approximate total amount of $175,000, made in the form of cash and
retirement of indebtedness owed by RM Fresh, reducing the Company’s ownership percentage of RM Fresh to twenty percent (20%)
and is thus accounted for as an available for sale investment. As a result, the financial statements of the Company as at, June
30, 2017, do not include the assets and liabilities of RM Fresh, which is no longer a wholly-owned subsidiary effective August
31, 2016. The statement of operations of the Company includes the results of the operations of RM Fresh up to August 31, 2016,
which is the effective date of change in control, due to loss of control in RM Fresh and consequent de-consolidation. The fair
value of the assets and liabilities as at August 31, 2016 and the carrying value of the investments, which resulted in the Company
recording a gain of $84,021 in the statement of operations, is as follows:
LEGACY VENTURES INTERNATIONAL, INC.
Notes to the Financial Statements
For the years ended June 30, 2018 and 2017
9. LOSS OF CONTROL (continued)
|
|
Fair value
as at
August 31,
2016
|
|
Cash
|
|
$
|
12,720
|
|
Accounts receivable
|
|
|
250,203
|
|
Inventories
|
|
|
78,891
|
|
Harmonized sales tax recoverable
|
|
|
24,071
|
|
Total assets
|
|
$
|
365,885
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
307,571
|
|
Due to stockholders
|
|
|
7,529
|
|
Due to related parties
|
|
|
60,145
|
|
Notes payable
|
|
|
51,794
|
|
Total liabilities
|
|
|
427,039
|
|
Net liabilities
|
|
$
|
61,154
|
|
|
|
|
|
|
Purchase consideration value of investments in RM Fresh shares on date of acquisition
|
|
|
2,180,000
|
|
Impairment recorded until June 30, 2016
|
|
|
(2,180,000
|
)
|
Carrying value of investments in RM Fresh shares on date of change in control
|
|
|
-
|
|
Gain on date of change in control due to deconsolidation of net liabilities of RM Fresh
|
|
$
|
61,154
|
|
The Company recognized net gain due
to loss of control of $84,021 comprising of $61,154 as explained above and $22,867 being translation adjustment. Management has
concluded that the entire available for sale investment in RM Fresh is impaired and hence the investment is written off.
10. INCOME TAXES
Income taxes
The provision for income taxes differs from
that computed at the corporate tax rate of approximately 27.5% for the year ended June 30, 2018 and 39% for the year ended June
30, 2017 as follows:
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Net Loss for the year
|
|
$
|
625,298
|
|
|
$
|
2,031,920
|
|
Expected Income Tax recovery
|
|
|
171,960
|
|
|
|
792,831
|
|
Tax rate changes and other adjustments
|
|
|
(150,310)
|
|
|
|
-
|
|
Tax effect of expenses not deductible for income tax
|
|
|
(19,920)
|
|
|
|
(779,737
|
)
|
Change in valuation allowance
|
|
|
(1,730
|
)
|
|
|
(13,094
|
)
|
Deferred tax assets, net of valuation allowance
|
|
$
|
-
|
|
|
$
|
-
|
|
LEGACY VENTURES INTERNATIONAL, INC.
Notes to the Financial Statements
For the years ended June 30, 2018 and 2017
10. INCOME TAXES (continued)
Deferred tax assets
Deferred taxes are provided on a liability
method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carry
forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be
realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Net deferred tax assets consist of the
following components as of June 30:
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Deferred Tax Assets – Non-current:
|
|
|
|
|
|
|
Tax effect of NOL Carryover
|
|
$
|
249,520
|
|
|
$
|
247,799
|
|
Less valuation allowance
|
|
|
(249
,520
|
)
|
|
|
(247,799
|
)
|
Deferred tax assets, net of valuation allowance
|
|
$
|
-
|
|
|
$
|
-
|
|
At June 30, 2018 the Company had net operating
loss carry forwards of approximately $1,301,131 (June 30, 2017: $635,382) that may be offset against future taxable income from
the year 2019 to 2038. No tax benefit has been reported in the June 30, 2018 financial statements since the potential tax benefit
is offset by a valuation allowance of the same amount.
11. SUBSEQUENT EVENTS
On August 9, 2018, Mr. Letcavage, as the holder
of 91% of the outstanding shares of common stock of the Company, approved the appointment of Peter Sohn as the Chief Executive
Officer and Chief Financial Officer and Director of the Company. Effective December 17, 2018, and Mr. Sohn accepted the appointments
as Chief Executive Officer and Chief Financial Officer and Director of the Company.
On December 17, 2018, Mr. Letcavage delivered
to Peter Sohn an agreement for the acquisition by Mr. Sohn of the Shares from Mr. Letcavage, which agreement is dated August 9,
2018, but was delivered and deemed effective on December 17, 2018 (the “Agreement”). As a result Mr. Sohn is now able
to unilaterally control the election of our Board of Directors, all matters upon which shareholder approval is required and, ultimately,
the direction of our Company.
Subsequent to June 30, 2018, the Company was advanced $50,000 by
an arm’s length third party by way of a convertible promissory note.
Subsequent to June 30, 2018, the promissory note receivable was
assigned to an accredited arm’s length third party, in exchange for the waiver of the convertible promissory note payable
pursuant to the terms of the Assignment Agreement.