NOTES TO FINANCIAL STATEMENTS
March 31, 2019 and 2018
NOTE 1 – ORGANIZATION AND NATURE
OF OPERATIONS
LegacyXchange, Inc., formerly known as
True 2 Beauty, Inc. (the “Company”) was originally incorporated as Burrow Mining, Inc., a Nevada corporation, on December
11, 2006. In February 2010, the Company shifted its focus to the beauty industry and later amended its Articles of Incorporation
and changed its name to True 2 Beauty, Inc., to better reflect its new business focus.
On July 10, 2012, the Company formed a
new wholly owned subsidiary True2Bid, Inc. (“True2Bid”) which was incorporated in the state of Nevada. This subsidiary’s
name was changed to LegacyXchange, Inc. (“LegacyXchange”) in December 2014. The Company continued to sell existing
inventory of beauty products through May 2013 when the final inventory was sold. LegacyXchange operates an online e-commerce platform
focused on delivering users a wide array of sports and entertainment related products that can be won in an action-packed environment
of a live auction.
On July 2, 2015,
pursuant to a Certificate of Dissolution filing with the Nevada Secretary of State, the Company dissolved LegacyXchange (formerly
True2Bid, Inc.) to allow for the change in name of its parent company, True 2 Beauty, Inc., to LegacyXchange, Inc.
The Company is
currently inactive due to lack of working capital to fund its operations.
NOTE 2 – SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements of
the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (the
“U.S. GAAP”).
Going Concern
The 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 financial statements, the Company had net loss of $142,710 for the
year ended March 31, 2019. The Company had accumulated deficit, stockholders’ deficit and working capital deficit of $10,562,984,
$1,317,838 and $1,317,838, respectively, at March 31, 2019. The Company had no revenues for the year ended March 31, 2019, and
we are currently in default on our loans and convertible notes. Management believes that these matters raise substantial doubt
about the Company’s ability to continue as a going concern for twelve months from the issuance date of this report.
Management cannot provide assurance that
we will ultimately achieve profitable operations or become cash flow positive, or raise additional debt and/or equity capital.
Management believes that our capital resources are not currently adequate to continue operating and maintaining its business strategy
for a period of twelve months from the issuance date of this report. The Company will seek to raise capital through additional
debt and/or equity financings to fund its operations in the future.
Although the Company has historically raised
capital from sales of equity and from the issuance of promissory notes, there is no assurance that it will be able to continue
to do so. If the Company is unable to raise additional capital or secure additional lending in the near future, management expects
that the Company will need to curtail or cease operations. These financial statements do not include any adjustments related to
the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should
the Company be unable to continue as a going concern.
Use of Estimates
The preparation of the 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 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, 2019 and 2018 include assumptions used in assessing estimates of deferred tax valuation allowances and
the valuation of derivative liabilities.
LEGACYXCHANGE, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 2019 and 2018
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, 2019. 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 balance
sheets for cash, due from and to related parties, prepaid expenses, accounts payable and accrued liabilities approximate their
fair market value based on the short-term maturity of these instruments.
Assets or liabilities measured at fair
value on a recurring basis included conversion options in convertible notes and warrants with their exercise price containing a
down-round provision (see Note 5) were as follows at March 31, 2019 and 2018:
|
|
At March 31, 2019
|
|
|
At March 31, 2018
|
|
Description
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
Derivative liabilities
|
|
|
—
|
|
|
|
—
|
|
|
$
|
2,326
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
5,474
|
|
A roll forward of the level 3 valuation
financial instruments is as follows:
|
|
For the Year Ended
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
Balance at beginning of year
|
|
$
|
5,474
|
|
|
$
|
80,165
|
|
Gain from change in fair value of derivative liabilities
|
|
|
(3,148
|
)
|
|
|
(74,691
|
)
|
Balance at end of year
|
|
$
|
2,326
|
|
|
$
|
5,474
|
|
ASC 825-10 “Financial Instruments”,
allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The
fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unless a new election date occurs. If
the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings
at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstanding financial instruments.
Cash
The Company maintains its cash in bank
and financial institution deposits that at times may exceed federally insured limits. There were no balances in excess of FDIC
insured levels as of March 31, 2019 and 2018. The Company has not experienced any losses in such accounts through March 31, 2019.
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.
LEGACYXCHANGE, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 2019 and 2018
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 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. The Company adopted ASU
2014-09 during the three months ended June 30, 2018. The adoption of ASU 2014-09 did not have any material impact on the Company’s
financial statements. The Company did not have revenues for the years ended March 31, 2019 and 2018.
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.
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 Company early adopted ASU 2014-12 during the three
months ended June 30, 2016. The adoption of ASU 2014-12 did not have any material impact on the Company’s financial statements.
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 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 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. The Company early adopted ASU No. 2018-07 during the three months ended March 31,
2018. The adoption ASU No. 2018-07 did not have a material impact on the Company’s financial statements.
Income Taxes
The Company accounts for income tax using
the liability method prescribed by ASC 740 - Income Taxes. Under this method, deferred tax assets and liabilities are determined
based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will
be in effect in the year in which the differences are expected to reverse. The Company records a valuation allowance to offset
net deferred tax assets if based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of
the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized as income or
loss in the period that includes the enactment date.
LEGACYXCHANGE, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 2019 and 2018
The Company follows the accounting guidance
for uncertainty in income taxes using the provisions of ASC 740 “Income Taxes”. Using that guidance, tax positions
initially need to be recognized in the financial statements when it is more likely than not the position will be sustained upon
examination by the tax authorities. As of March 31, 2019, and 2018, the Company had no uncertain tax positions that qualify for
either recognition or disclosure in the financial statements. The Company recognizes interest and penalties related to uncertain
income tax positions in other expense. However, no such interest and penalties were recorded as of March 31, 2019.
Basic and Diluted Loss Per Share
Pursuant to ASC 260-10-45, basic loss per
common share is computed by dividing net loss by the weighted average number of shares of common stock outstanding for the periods
presented. Diluted loss per share is computed by dividing net loss by the weighted average number of shares of common stock, common
stock equivalents and potentially dilutive securities outstanding during the period. Potentially dilutive common shares consist
of common stock issuable for stock options and warrants (using the treasury stock method), convertible notes and common stock issuable.
These common stock equivalents may be dilutive in the future. The following potentially dilutive equity securities outstanding
as of March 31, 2019 and 2018 were not included in the computation of dilutive loss per common share because the effect would have
been anti-dilutive:
|
|
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
Stock warrants
|
|
|
4,539,706
|
|
|
|
5,273,315
|
|
Convertible notes
|
|
|
68,243,823
|
|
|
|
63,369,653
|
|
Total
|
|
|
72,783,529
|
|
|
|
68,642,968
|
|
Related Parties
Parties are considered to be related to
the Company if the parties, directly or indirectly, through one or more intermediaries, control, are controlled by, or are under
common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate
families of principal owners of the Company and its management and other parties with which the Company may deal with if one party
controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting
parties might be prevented from fully pursuing its own separate interests.
Recent Accounting Pronouncements
In August 2018, the FASB issued ASU 2018-13—Fair
Value Measurement (Topic 820): Disclosure Framework Changes to the Disclosure Requirements for Fair Value Measurement, to modify
the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, based on the concepts in the Concepts
Statement, including the consideration of costs and benefits. The amendments in this Update are effective for all entities for
fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company does not believe this
will have a material impact on the Company’s 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.
|
LEGACYXCHANGE, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 2019 and 2018
|
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 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 Company’s
financial statements.
NOTE 3 – ACCRUED LIABILITIES
At March 31, 2019 and 2018, accrued liabilities
consisted of the following:
|
|
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
Accrued interest
|
|
$
|
248,161
|
|
|
$
|
184,827
|
|
Accrued professional fees
|
|
|
2,634
|
|
|
|
2,634
|
|
Accrued payroll taxes
|
|
|
29,727
|
|
|
|
29,727
|
|
Accrued executive and director compensation
|
|
|
272,173
|
|
|
|
212,173
|
|
Total
|
|
$
|
552,695
|
|
|
$
|
429,361
|
|
NOTE 4 – LOANS PAYABLE
Between July 2015
through March 2016, the Company entered into individual loan agreements with various investors in the aggregate principal amount
of $132,769. These loans bear an interest rate of 10% and were due and payable on the first anniversary of the date of issuance
of the loans.
Between April
and May 2016, the Company entered into individual loan agreements with various investors in the aggregate principal amount of $11,155.
These loans bear an interest rate of 10% and were due and payable on the first anniversary of the date of issuance of the loans.
As of March 31,
2019, these loans were in default and had outstanding principal and accrued interest of $143,924 and $46,463, respectively. As
of March 31, 2018, these loans were in default and had outstanding principal and accrued interest of $143,924 and $31,871, respectively.
During the years
ended March 31, 2019 and 2018, the Company recorded interest expense of $14,592 and $14,593, respectively, on these loans.
LEGACYXCHANGE, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 2019 and 2018
NOTE 5 – CONVERTIBLE NOTES
PAYABLE
At March 31, 2019 and 2018, convertible
notes consisted of the following:
|
|
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
Principal amount
|
|
$
|
480,740
|
|
|
$
|
480,740
|
|
Less: unamortized debt discount
|
|
|
—
|
|
|
|
(21,649
|
)
|
Convertible notes payable, net
|
|
$
|
480,740
|
|
|
$
|
459,091
|
|
Fiscal 2015 Financing
In October and
November 2014, the Company entered into a subscription agreement with various purchasers (the “Fiscal 2015 Agreements”)
for the sale of the Company’s convertible notes. Pursuant to the Fiscal 2015 Agreements, the Company issued to these purchasers,
convertible promissory notes (the “Fiscal 2015 Convertible Notes”) for an aggregate principal amount of $400,000 with
the Company receiving proceeds equal to the principal amount. The Fiscal 2015 Convertible Notes bear an interest rate of 10% per
year and were due and payable on the third anniversary of the date of issuance through October and November 2017. The purchasers
are entitled, at their option, at any time after the issuance of the Fiscal 2015 Convertible Notes, to convert all or any lesser
portion of the outstanding principal amount and accrued and unpaid interest into the Company’s common stock at a conversion
price of $0.02 During the year ended March 31, 2016, the conversion price was ratcheted down to $0.01. During the year ended March
31, 2016, the purchasers converted $130,510 and $10,792 of outstanding principal and accrued interest, respectively, into 7,065,084
shares of the Company’s common stock. As of March 31, 2018, the Fiscal 2015 Convertible Notes were in default and had outstanding
principal and accrued interest of $269,490 and $94,843, respectively. As of March 31, 2019, the Fiscal 2015 Convertible Notes were
in default and had outstanding principal and accrued interest of $269,490 and $122,167, respectively.
Fiscal 2016 Financing
In May and June 2015, the Company entered
into a subscription agreement with various purchasers (the “Fiscal 2016 Agreements I”) for the sale of the Company’s
convertible notes and warrants. Pursuant to the Fiscal 2016 Agreements I, the Company issued to the purchasers for an aggregate
subscription amount of $115,000: (i) convertible promissory notes in the aggregate principal amount of $115,000 (the “Fiscal
2016 Notes I”) and (ii) five-year warrants to purchase an aggregate of 2,300,000 (twenty warrants for each dollar of the
principal amount) shares Company’s common stock at an exercise price of $0.07 (the “Fiscal 2016 Warrants I”).
The Company received proceeds equal to the principal amount. The Fiscal 2016 Notes I bear an interest rate of 10% per year and
were due and payable on the third anniversary of the date of issuance through May and June 2018. The purchasers are entitled, at
their option, at any time after the issuance of the Fiscal 2016 Notes I, to convert all or any lesser portion of the outstanding
principal amount and accrued and unpaid interest into the Company’s common stock at a conversion price of $0.05. The conversion
price of the Fiscal 2016 Notes I shall be subject to adjustment for issuances of common stock at a purchase price of less than
the then-effective conversion price. During the year ended March 31, 2016, the conversion price was ratcheted down to $0.01. As
of March 31, 2018, the Fiscal 2016 Notes I had outstanding principal and accrued interest of $115,000 and $33,393, respectively.
As of March 31, 2019, the Fiscal 2016 Notes I were in default and had outstanding principal and accrued interest of $115,000 and
$45,053, respectively.
During August through September 2015, the
Company entered into a subscription agreement with various purchasers (the “Fiscal 2016 Agreements II”) for the sale
of the Company’s convertible notes and warrants. Pursuant to the Fiscal 2016 Agreements II, the Company issued to the purchasers
for an aggregate subscription amount of $96,250: (i) convertible promissory notes in the aggregate principal amount of $96,250
(the “Fiscal 2016 Notes II”) and (ii) five-year warrants to purchase an aggregate of 1,925,000 (twenty warrants for
each dollar of the principal amount) shares Company’s common stock at an exercise price of $0.07 (the “Fiscal 2016
Warrants II”). The Company received proceeds equal to the principal amount. The Fiscal 2016 Notes II bear an interest rate
of 10% per year and were due and payable on the third anniversary of the date of issuance through August through September 2018.
The purchasers are entitled, at their option, at any time after the issuance of the Fiscal 2016 Notes II, to convert all or any
lesser portion of the outstanding principal amount and accrued and unpaid interest into the Company’s common stock at a conversion
price of $0.05. The conversion price of the Fiscal 2016 Notes II shall be subject to adjustment for issuances of common stock at
a purchase price of less than the then-effective conversion price. During the year ended March 31, 2016, the conversion price was
ratcheted down to $0.01. As of March 31, 2018, the Fiscal 2016 Notes II had outstanding principal and accrued interest of $96,250
and $24,720, respectively. As of March 31, 2019, the Fiscal 2016 Notes II were in default and had outstanding principal and accrued
interest of $96,250 and $34,478, respectively.
During the year
ended March 31, 2019 and 2018, the Company recorded interest expense of $63,334 and $48,741, respectively, on these convertible
notes.
LEGACYXCHANGE, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 2019 and 2018
Derivative Liabilities Pursuant to
Notes and Warrants
In connection with the issuance of the
Notes and Warrants, the Company determined that the terms of the Notes and Warrants contain terms that included a down-round provision
under which the conversion price and exercise price could be affected by future equity offerings undertaken by the Company or contain
terms that are not fixed monetary amounts at inception and included various other terms such as default provisions that caused
derivative treatment. Accordingly, under the provisions of ASC 815-40 –Derivatives and Hedging – Contracts in an
Entity’s Own Stock, the embedded conversion option contained in the convertible instruments and the Warrants were accounted
for as derivative liabilities at the date of issuance and shall be adjusted to fair value through earnings at each reporting date.
The fair value of the embedded conversion option derivatives and warrant derivatives were determined using the Binomial valuation
model. At the end of each period, on the date that debt was converted into common shares, and on the date of a cashless exercise
of warrants, the Company revalued the embedded conversion option and warrants derivative liabilities.
In July 2017, FASB issued ASU No. 2017-11,
Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part
I) Accounting for Certain Financial Instruments with Down Round Features. These amendments simplify the accounting for certain
financial instruments with down-round features. The amendments require companies to disregard the down-round feature when assessing
whether the instrument is indexed to its own stock, for purposes of determining liability or equity classification. The Company
is currently evaluating the impact of ASU No. 2017-11 on its financial statements.
At March 31, 2019 and 2018, the Company
revalued the conversion option and warrant derivative liabilities. In connection with these revaluations, the Company recorded
gain from change on fair value of derivative liabilities of $3,148 and $74,691 for the years ended March 31, 2019 and 2018, respectively.
At March 31, 2019 and 2018, the fair value
of the derivative liabilities was estimated using the Binomial option-pricing model with the following assumptions:
|
|
|
2019
|
|
|
|
2018
|
|
Dividend rate
|
|
|
—
|
%
|
|
|
—
|
%
|
Term (in years)
|
|
|
0.1 to 1.5 years
|
|
|
|
0.1 to 2.8 years
|
|
Volatility
|
|
|
159% to 219
|
%
|
|
|
290% to 305
|
%
|
Risk—free interest rate
|
|
|
2.40
|
%
|
|
|
2.09% to 2.56
|
%
|
For the years ended March 31, 2019 and
2018, amortization of debt discounts related to the convertible notes amounted to $21,649 and $85,357, respectively, which has
been included in interest expense on the accompanying statements of operations.
NOTE 6 – STOCKHOLDERS’
DEFICIT
Authorized shares
The Company is authorized to issue 200,000,000
consisting of 190,000,000 shares of common stock at $0.001 per share par value, and 10,000,000 shares of preferred stock at $0.001
per share par value.
Preferred Stock
As of March 31, 2019 and 2018, the Company
did not have any preferred stock issued and outstanding.
Common Stock
As of March 31,
2019 and 2018, the Company had 62,570,659 shares of common stock issued and outstanding.
Warrants
Warrants issued pursuant to equity subscription
agreements
During fiscal years 2013 to 2015, in connection
with the sale of common stock, the Company issued an aggregate of 1,048,315 five-year warrants to purchase common shares for an
exercise price of $0.40 per common share to investors pursuant to unit subscription agreements. These warrants were accounted for
as equity. As of March 31, 2018, 329,707 warrants were issued and outstanding. During the year ended March 31, 2019, 15,001 of
warrants expired. As of March 31, 2019, 314,706 warrants were issued and outstanding.
LEGACYXCHANGE, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 2019 and 2018
Warrants issued in connection with the
Fiscal 2016 Financing
During fiscal years 2016, pursuant to the
convertible note agreements under the fiscal 2016 financing discussed in Note 5, the Company issued five-year warrants to purchase
an aggregate of 4,225,000 (twenty warrants for each dollar of the principal amount) shares of the Company’s common stock
at an exercise price of $0.07. The exercise price of these warrants shall be subject to adjustment for issuances of common stock
at a purchase price of less than the then-effective conversion price and were accounted for as derivative liabilities. During the
year ended March 31, 2016, the conversion price was ratcheted down to $0.01. As of March 31, 2019 and 2018, 4,225,000 warrants
were issued and outstanding.
Warrant activity for the years ended March
31, 2019 and 2018 are summarized as follows
|
|
Number of
Warrants
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted
Average
Remaining
Contractual
Term (Years)
|
|
|
Aggregate
Intrinsic Value
|
|
Balance Outstanding at March 31, 2017
|
|
|
5,273,315
|
|
|
$
|
0.09
|
|
|
|
2.9
|
|
|
$
|
—
|
|
Expired
|
|
|
(718,608
|
)
|
|
$
|
0.40
|
|
|
|
—
|
|
|
$
|
—
|
|
Balance Outstanding at March 31, 2018
|
|
|
4,554,707
|
|
|
$
|
0.04
|
|
|
|
2.2
|
|
|
$
|
—
|
|
Expired
|
|
|
(15,001
|
)
|
|
$
|
0.40
|
|
|
|
—
|
|
|
$
|
|
|
Balance Outstanding at March 31, 2019
|
|
|
4,539,706
|
|
|
$
|
0.04
|
|
|
|
1.2
|
|
|
$
|
—
|
|
Exercisable at March 31, 2019
|
|
|
4,539,706
|
|
|
$
|
0.04
|
|
|
|
1.2
|
|
|
$
|
—
|
|
NOTE 7 – INCOME TAXES
The Company maintains deferred tax assets
and liabilities that reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income tax purposes. The deferred tax assets at March 31, 2019 and 2018
consist of net operating loss carryforwards. The net deferred tax asset has been fully offset by a valuation allowance because
of the uncertainty of the attainment of future taxable income.
On December 22, 2017, the United States
signed into law the Tax Cuts and Jobs Act (the “Act”), a tax reform bill which, among other items, reduces the current
federal income tax rate to 21% from 34%. The rate reduction is effective January 1, 2018, and is permanent. The Act has caused
the Company’s deferred income taxes to be revalued. As changes in tax laws or rates are enacted, deferred tax assets and
liabilities are adjusted through income tax expense. Pursuant to the guidance within SEC Staff Accounting Bulletin No. 118 (“SAB
118”), as of March 31, 2018, the Company recognized the provisional effects of the enactment of the Act for which measurement
could be reasonably estimated. Since the Company has provided a full valuation allowance against its deferred tax assets, the revaluation
of the deferred tax assets did not have a material impact on any period presented. The ultimate impact of the Act may differ from
these estimates due to the Company’s continued analysis or further regulatory guidance that may be issued as a result of
the Act.
The items accounting for the difference
between income taxes at the effective statutory rate and the provision for income taxes for the years ended March 31, 2019 and
2018 were as follows:
|
|
Years Ended
March 31,
|
|
|
|
2019
|
|
|
2018
|
|
Income tax benefit at U.S. statutory rate of 21% in 2019 and 34%
in 2018
|
|
$
|
(29,969
|
)
|
|
$
|
(51,825
|
)
|
Income tax benefit - State
|
|
|
(7,136
|
)
|
|
|
(7,621
|
)
|
Non-deductible expenses
|
|
|
4,147
|
|
|
|
4,160
|
|
Effect of change in U.S. effective rate to 21%
|
|
|
—
|
|
|
|
18,429
|
|
Change in valuation allowance
|
|
|
32,958
|
|
|
|
36,857
|
|
Total provision for income tax
|
|
$
|
—
|
|
|
$
|
—
|
|
LEGACYXCHANGE, INC.
NOTES TO FINANCIAL STATEMENTS
March 31, 2019 and 2018
The Company’s approximate net deferred tax asset at March
31, 2019 and 2018 was as follows:
|
|
Years Ended
March 31,
|
|
Deferred Tax Asset:
|
|
2019
|
|
|
2018
|
|
Net operating losses
|
|
$
|
1,037,352
|
|
|
$
|
1,004,394
|
|
Valuation allowance
|
|
|
(1,037,352
|
)
|
|
|
(1,004,394
|
)
|
Net deferred tax asset
|
|
$
|
—
|
|
|
$
|
—
|
|
The net operating loss carryforward was
$3,989,814 and $3,863,055 at March 31, 2019 and 2018, respectively. The Company provided a valuation allowance equal to the deferred
income tax asset for the years ended March 31, 2019 and 2018 because it was not known whether future taxable income will be sufficient
to utilize the loss carryforward. The change in the allowance was $32,958 and $36,857 for the years ended March 31, 2019 and 2018,
respectively.
These net operating
loss carryforwards may be available to reduce future years’ taxable income. The potential tax benefit arising from the loss
carryforward of $967,537 will expire through 2037. The potential tax benefit arising from the net operating loss carryforward
of $69,815 from the period following to the Act’s effective date can be carried forward indefinitely within the annual usage
limitations.
Additionally, the future utilization of
the net operating loss carryforward to offset future taxable income may be subject to an annual limitation as a result of ownership
changes that could occur in the future. If necessary, the deferred tax assets will be reduced by any carryforward that expires
prior to utilization as a result of such limitations, with a corresponding reduction of the valuation allowance.
The Company does not have any uncertain
tax positions or events leading to uncertainty in a tax position. The Company’s 2019, 2018 and 2017 Corporate Income Tax
Returns are subject to Internal Revenue Service examination.
NOTE 8 – SUBSEQUENT EVENTS
Between November
2019 through June 2020, the Company entered into loan agreements with an investor in the aggregate principal amount of $91,000.
The loans bear interest rate of 6% and were due and payable two-years from the date of issuances.
F-15