Notes to the Consolidated Financial Statements
For Three Months Ended March 31, 2012
(Unaudited)
NOTE 1. Business, Basis of Presentation and Significant Accounting Policies:
Business:
Legacy Technology Holdings, Inc. (the "Company" and/or "Legacy") was
incorporated in Colorado in January, 1997. The Company was originally named Life
USA, Inc. On May 20, 2008, the Company changed its name to Legacy Technology
Holdings, Inc. by filing an amendment to its Article of Incorporation. The
Company was organized to engage in any activity or business not in conflict with
the laws of the State of Colorado or of the United States of America. As a
result of the name change, the Company's trading symbol on the Over-the-Counter
Bulletin Board was changed to "LTHO".
Neuro Nutrition, the Company's wholly owned subsidiary, was incorporated on July
23, 2004 in the State of Colorado, and has been in the development stage since.
World Peace, the Company's wholly owned subsidiary was incorporated in the State
of Colorado on May 8, 2008.
Basis of Presentation:
Development Stage Enterprise
The Company has not earned any significant revenues from its limited operations.
Accordingly, the Company's activities have been accounted for as those of a
"Development Stage Enterprise" Among the disclosures required by are that the
Company's financial statements be identified as those of a development stage
company, and that the statements of operation, stockholders' equity (deficit)
and cash flows disclose activity since the date of the Company's inception.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
Legacy and its wholly-owned subsidiaries, Neuro Nutrition, Inc. and Legacy
Technology Holdings (formerly World Peace Technologies, Inc.) All significant
inter-company balances and transactions have been eliminated in consolidation.
Significant Accounting Policies:
Cash and Cash Equivalents
The Company maintains the majority of its cash accounts at a commercial bank.
The total cash balance is insured by the Federal Deposit Insurance Corporation
("FDIC") up to $100,000 per commercial bank. As of December 31, 2011 and 2010,
the Company had zero amounts in excess of the FDIC insured limits. For purposes
of the statement of cash flows, the Company considers all cash and highly liquid
investments with initial maturities of three months or less to be cash
equivalents.
Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affects 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 revenue and expenses during the reporting
period. Such estimates may be materially different from actual financial
results. Significant estimates include the recoverability of long-lived assets
and the collectability of accounts receivable.
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Revenue Recognition
Revenue Recognition is recognized when earned. Sales revenue is recognized at
the date of shipment to customers when a formal arrangement exists, the price is
fixed or determinable, the delivery is completed, no other significant
obligations of the Company exist and collectability is reasonably assured.
Payments received before all of the relevant criteria for revenue recognition
are satisfied are recorded as unearned revenue.
Net Loss per Share
Basic net loss per common share is calculated by dividing the net loss
applicable to common shares by the weighted average number of common and common
equivalent shares outstanding during the period. For the years ended December
31, 2011 and 2010, there were no potential common equivalent shares used in the
calculation of weighted average common shares outstanding as the effect would be
anti-dilutive because of the net loss.
Stock-Based Compensation
The Company adopted the provisions of and accounts for stock-based compensation
using an estimate of value in accordance with the fair value method. Under the
fair value recognition provisions of this statement, stock-based compensation
cost is measured at the grant date based on the fair value of the award and is
recognized as expense on a straight-line basis over the requisite service
period, which generally is the vesting period. The Company elected the
modified-prospective method, under which prior periods are not revised for
comparative purposes. The valuation method applies to new grants and to grants
that were outstanding as of the effective date and are subsequently modified.
Fair Value of Financial Instruments
The carrying amount of accounts payable, accrued expenses, convertible
promissory notes are considered to be representative of their respective fair
values because of the short-term nature of these financial instruments.
Other Comprehensive Income
The Company has no material components of other comprehensive income (loss) and
accordingly, net loss is equal to comprehensive loss in all periods.
Income Taxes
Provision for income taxes represents actual or estimated amounts payable on tax
return filings each year. Deferred tax assets and liabilities are recorded for
the estimated future tax effects of temporary differences between the tax basis
of assets and liabilities and amounts reported in the accompanying balance
sheets, and for operating loss and tax credit carry forwards. The change in
deferred tax assets and liabilities for the period measures the deferred tax
provision or benefit for the period. Effects of changes
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in enacted tax laws on deferred tax assets and liabilities are reflected as
adjustment to the tax provision or benefit in the period of enactment.
Recent Accounting Pronouncements
In July 2010, the Financial Accounting Standards Board ("FASB") issued Proposed
Accounting Standard Update (Topic 450) - Disclosure of Certain Loss
Contingencies. This amendment would lower the current disclosure threshold and
broaden the current disclosure requirements to provide adequate and timely
information to assist users in assessing the likelihood, potential magnitude,
and potential timing (if known) of future cash outflows associated with loss
contingencies. For public entities, the new guidance would be effective for
fiscal years ending after December 15, 2010, and interim and annual periods in
subsequent fiscal years. The Company is currently evaluating the impact of the
future adoption of the Update.
There were various other accounting standards and interpretations issued in 2010
and 2011, none of which are expected to have a material impact on the Company's
financial position, operations or cash flows.
NOTE 2. Going Concern:
In the Company's Annual Report on Form 10-K for the fiscal year ended December
31, 2011, the Report of the Independent Registered Public Accounting Firm
includes an explanatory paragraph that describes substantial doubt about the
Company's ability to continue as a going concern. The Company's financial
statements for the three months ended March 31, 2012 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. The
Company reported a net loss of $44,434 for the three months ended March 31,
2012, and an accumulated deficit of $562,578 as of March 31, 2012. At March 31,
2012, the Company had a working capital deficit of $1,725,232.
The future success of the Company is likely dependent on its ability to attain
additional capital, or to find an acquisition to add value to its present
shareholders and ultimately, upon its ability to attain future profitable
operations. There can be no assurance that the Company will be successful in
obtaining such financing, or that it will attain positive cash flow from
operations. Management believes that actions presently being taken to revise the
Company's operating and financial requirements provide the opportunity for the
Company to continue as a going concern.
NOTE 3. Notes Payable:
The Company's outstanding non-convertible notes payable on March 31,
2012 and December 31, 2011, consisted of:
$ 15,080 Note Payable issued to an investor. Due upon demand.
Interest rate is 8%
10,353 Note payable, issued to vendor. Due upon demand
6,199 Other notes payable
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$ 31,632 Total notes payable outstanding on March 31, 2012 and
===== December 31, 2011.
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NOTE 4. Convertible Notes Payable:
Convertible notes payable as of March 31, 2012 and December 31, 2011 consisted
of the following:
$ 50,000 Note payable 1, convertible into 151,515 shares with
conversion feature expiring in May 2008,
due September 30, 2006, incurring interest at 25%,
attached to the note are 151,515 warrants exercisable
at $0.625 per share, which expired in 2008. The note
is secured by a subordinated pledge of inventory and
accounts receivable.
$ 25,000 Note payable 2, convertible into 50,000 shares of Neuro
Nutrition, Inc. with conversion feature expiring at
end 2007, due September 7, 2006, incurring interest
at 10%.
$ 50,000 Note payable 1, convertible into 151,515 shares with
conversion feature expiring in May 2008,
due September 30, 2006, incurring interest at 25%,
attached to the note are 151,515 warrants exercisable
at $0.625 per share, which expired in 2008. The note
is secured by a subordinated pledge of inventory and
accounts receivable.
$ 75,000 Note payable 4, convertible into 227,273 shares with
conversion feature expiring in May 2008,
due September 30, 2006, incurring interest at 25%,
attached to the note are 227,273 warrants exercisable
at $0.625 per share, which expired in 2008. The note
is secured by a subordinated pledge of inventory and
accounts receivable.
$ 20,000 Note payable 5, convertible into 40,000 shares of Neuro
Nutrition, Inc. anytime at Holder's option, due
February 28, 2007, incurring interest at 20%,attached
to the note are 40,000 warrants for Neuro Nutrition,
Inc. common stock exercisable at $0.65 per share.
$ 50,000 Note payable 6, convertible into 100,000 shares of
Neuro Nutrition, Inc. anytime at Holder's option, due
February 28, 2007, incurring interest at 20%, attached
to the note are 100,000 warrants for Neuro Nutrition,
Inc. common stock exercisable at $0.65 per share.
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$ 75,000 Note payable 7, convertible into 150,000 shares of
Neuro Nutrition, Inc. with conversion feature
expiring in May 2008, due May 27, 2006, incurring
interest at 10%, attached to the note are 150,000
warrants for Neuro Nutrition, Inc. exercisable at
$0.625 per share, which expired in 2008.
$ 50,000 Note payable 8, convertible into 100,000 shares with
conversion feature expiring in November 2008, due
November 11, 2006, incurring interest at 10%, attached to
the note are 200,000 warrants exercisable at $0.625 per
share, which expired in 2008.
$ 50,000 Note payable 8, convertible into 100,000 shares with
conversion feature expiring in November 2008, due
November 11, 2006, incurring interest at 10%, attached to
the note are 200,000 warrants exercisable at $0.625 per
share, which expired in 2008.
$ 5,000 Note payable 10, convertible into 10,000 shares with
conversion feature expiring in November 2008, due
November 11, 2006, incurring interest at 10%, attached to
the note are 20,000 warrants exercisable at $0.625 per
share, which expired in 2008.
$ 50,000 Note payable 11, convertible into 100,000 shares anytime
at Holder's option, due December 7, 2006, incurring
interest at 10%, attached to the note are 200,000
warrants exercisable at $0.625 per share, which
expired in 2008.
$ 25,000 Note payable 12, convertible into 50,000 shares anytime
at Holder's option, due February 20, 2007, incurring
interest at 10%, attached to the note are 100,000
warrants exercisable at $0.75 per share, which
expired in 2008.
$ 5,000 Note payable 13, convertible into 10,000 shares anytime
at Holder's option, due February 28, 2007, incurring
interest at 10%, attached to the note are 20,000
warrants exercisable at $0.75 per share, which
expired in 2008.
$ 50,000 Note payable 14, convertible into 125,000 shares
anytime at Holder's option, due September 12, 2006,
incurring interest at 25%, attached to the note are
250,000 warrants exercisable at $0.75 per share,
which expired in 2008. This note is secured by
inventory and accounts receivable.
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$ 50,000 Note payable 15, convertible into 125,000 shares anytime
at Holder's option, due September 12, 2006,
incurring interest at 25%, attached to the
note are 250,000 warrants exercisable at
$0.75 per share, which expired in 2008. This
note is secured by inventory and accounts receivable.
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$630,000 Total Convertible notes payable. All these notes, with
======== the exception of notes 1, 3, 4, 14 and 15 are unsecured.
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As of March 31, 2012, all of the convertible notes described above are in
default.
NOTE 5. Stock Options and Warrants:
At March 31, 2012 the Company had common stock purchase warrant activity as
described below.
Non-employee stock options
The Company accounts for non-employee stock options under ASC 718, whereby
option costs are recorded based on the fair value of the consideration received
or the fair value of the equity instruments issued, whichever is more reliably
measurable. Unless otherwise provided for, the Company covers option exercises
by issuing new shares.
The Company's subsidiary Neuro Nutrition, Inc. at the beginning of 2010 had
140,000 common stock purchase warrants outstanding. The warrants are to be
effectively granted for exercise upon conversion by the warrant holder of an
accompanying note payable into common stock, which said note the holder can
convert anytime at his option. The warrant holder has two years after effective
grant date to exercise the warrants, at a price of $.625 per share. No Neuro
Nutrition, Inc. warrants were exercised or expired during the three months ended
March 31, 2012 or the year ended December 31, 2011, leaving a balance of 140,000
warrants at March 31, 2012.
Employee stock options
The Company accounts for employee stock options under ASC 718. Unless otherwise
provided for, the Company covers option exercises by issuing new shares. There
were no employee stock options issued or outstanding at March 31, 2012.
NOTE 6. Taxes:
The Company is subject to foreign and domestic income taxes. The Company has had
no income, and therefore has paid no income tax.
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Deferred income taxes arise from temporary timing differences in the recognition
of income and expenses for financial reporting and tax purposes. The Company's
deferred tax assets consist entirely of the benefit from net operating loss
(NOL) carry-forwards. The NOL carry forwards expire in various years through
2030. The Company's deferred tax assets are offset by a valuation allowance due
to the uncertainty of the realization of the NOL carry-forwards. NOL
carry-forwards may be further limited by a change in company ownership and other
provisions of the tax laws.
The Company's deferred tax assets, valuation allowance, and change in valuation
allowance are as follows:
Estimated NOL
Carry-forward Valuation Net Tax
Period Ending benefit Allowance Benefit
March 31, 2012 $112,516 -
Estimated NOL
Carry-forward Valuation Net Tax
Period Ending benefit Allowance Benefit
December 31, 2011 $103,629 -
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NOTE 7 - Legal Proceedings:
In May 2008 a complaint was filed in the District Court for the County of
Boulder, Colorado by product suppliers of the Company (the "Plaintiffs") seeking
collection of trade accounts due in the approximate amount of $127,000 plus
collection costs. Research of the account by Plaintiff's counsel effectively
reduced this amount to approximately $64,000, which is included in the Company's
balance sheet liabilities. The case is ongoing at the present time.
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