Overview
LegacyXchange, Inc., formerly known as True 2 Beauty, Inc. (the "Company") was
originally incorporated as Burrow Mining, Inc., a Nevada corporation, on
December 11, 2006. In February 2010, the Company shifted its focus to the beauty
industry and later amended its Articles of Incorporation and changed its name to
True 2 Beauty, Inc.
On July 10, 2012, the Company formed a new wholly owned subsidiary True2Bid,
Inc. ("True2Bid") which was incorporated in the state of Nevada. This
subsidiary's name was changed to LegacyXchange, Inc. ("LegacyXchange") in
December 2014. The Company continued to sell existing inventory of beauty
products through May 2013 when the final inventory was sold. LegacyXchange
operates an online e-commerce platform focused on delivering users a wide array
of sports and entertainment related products that can be won in an action-packed
environment of a live auction. The Company is currently inactive and is seeking
other business opportunities.
The Company's articles authorize the Company to issue 190,000,000 shares of
common stock and 10,000,000 shares of preferred stock, both at a par value of
$0.001 per share.
The following table summarizes the results of operations for the three months
ended June 30, 2016 and 2015 and is based primarily on the comparative unaudited
financial statements, footnotes and related information for the periods
identified and should be read in conjunction with the financial statements and
the notes to those statements that are included elsewhere in this report.
For the Three Months Ended
June 30,
2016 2015
Loss from operations $ (117,631 ) $ (159,848 )
Other income, net 459,704 93,541
Net income (loss) $ 342,073 $ (66,307 )
Revenue:
We did not generate any revenues from operations for the three months ended June
30, 2016 and 2015.
Operating expenses:
For the three months ended June 30, 2016 and 2015, operating expenses amounted
to $117,631 and $159,848, respectively, a decrease of $42,217 or 26%. For the
three months ended June 30, 2016 and 2015, operating expenses consisted of the
following:
For the Three Months Ended
June 30,
2016 2015
Compensation and related taxes $ 31,036 $ 33,971
Professional and consulting fees 77,107 110,599
Other selling, general and administrative 9,488 15,278
Total $ 117,631 $ 159,848
? Compensation and related taxes:
For the three months ended June 30, 2016 and 2015, compensation and related
taxes amounted to $31,036 and $33,971, respectively, a decrease of $2,935 or 9%.
The decrease was primarily due to reduction in executive compensation.
? Professional and consulting fees:
For the three months ended June 30, 2016 and 2015, professional and consulting
fees amounted to $77,107 and $110,599, respectively, a decrease of $33,492 or
30%. The decrease was primarily attributable to the reduce in operational
activities in 2016 compared to 2015.
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? Other selling, general and administrative:
For the three months ended June 30, 2016 and 2015, other selling, general and
administrative expenses amounted to $9,488 and $15,278, respectively, a decrease
of $5,790, or 38%. The decrease was primarily attributable to the reduce in
operational activities in 2016 compared to 2015.
Loss from operations:
For the three months ended June 30, 2016 and 2015, loss from operations amounted
to $117,631 and $159,848, respectively, a decrease of $42,217, or 26%. The
change was a result of the changes in operating expenses as discussed above.
Other income (expense):
Other income (expense) includes interest expense, initial derivative expense and
gains from the change in fair value of derivative liabilities.
For the three months ended June 30, 2016, total other income, net, amounted to
$459,704 as compared to $93,541 for the three months ended June 30, 2015, an
increase of $366,163 or 391%. The increase was attributable to an increase in
the gain from change in fair value of derivative liabilities of $257,501 or 99%,
decrease in initial derivative expense of $119,455, or 100%, for a total
increase in other income of $376,956 offset by an increase in interest expense
of $10,793, or 23%.
Net income (loss):
For the three months ended June 30, 2016, net income amounted to $342,073, or
net income per common share of $0.01 basic and $(0.00) diluted as compared to
$(66,307) net (loss), or net (loss) per common share of $(0.00) (basic and
diluted) for the three months ended June 30, 2015, a change of $408,380, or
616%. The change was a result of the changes in operating expenses and other
income (expense) as discussed above.
Liquidity and Capital Resources
Liquidity is the ability of an enterprise to generate adequate amounts of cash
to meet its needs for cash requirements. We had a working capital deficit of
$958,818 and $0 of cash as of June 30, 2016 and working capital deficit of
$1,300,891 and $4,209 of cash as of March 31, 2016.
Three Months Ended
June 30, 2016
June 30, March 31, Percentage
2016 2016 Change Change
Working capital deficit:
Total current assets $ 1,250 $ 65,826 $ (64,576 ) 98 %
Total current liabilities (960,068 ) (1,366,717 ) 406,649 30 %
Working capital deficit: $ (958,818 ) $ (1,300,891 ) $ 342,073 26 %
The decrease in working capital deficit was primarily attributable to a decrease
in current assets of $64,576 and a decrease in current liabilities of $406,649.
Cash Flow
A summary of cash flow activities is summarized as follows:
Three Months Ended
June 30,
2016 2015
Cash used in operating activities $ (15,364 ) $ (117,436 )
Cash provided by financing activities 11,155 115,000
Net decrease in cash
$ (4,209 ) $ (2,436 )
Net cash used in operating activities:
Net cash flow used in operating activities was $15,364 for the three months
ended June 30, 2016 as compared to $117,436 for three months ended June 30,
2015, a decrease of $102,072 or 87%.
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? Net cash flow used in operating activities for the three months ended June 30,
2016 primarily reflected our net income of $342,073 adjusted for the add-back
on non-cash items such as amortization of debt discount of $41,572, gain from
change in fair value of derivative liabilities of $517,001, write-off of
obsolete inventory of $570, amortization of prepaid consulting fees of $9,797
and the changes in operating assets and liabilities primarily consisting of a
decrease in prepaid expenses and other current assets of $50,000, an increase
in accounts payable of $22,369 and an increase in accrued liabilities of
$35,256.
? Net cash flow used in operating activities for three months ended June 30, 2015
primarily reflected our net loss $66,307 adjusted for the add-back on non-cash
items such stock-based compensation of $14,045, amortization of debt discount
of $35,122, initial fair value expense of derivative liabilities of $119,455,
gain from change in fair value of derivative liabilities of $259,500,
amortization of prepaid consulting fees of $11,355 and the changes in operating
assets and liabilities primarily consisting of an increase in prepaid expenses
and current assets of $9,470, an increase in accounts payable $41,664 offset by
a decrease in accrued liabilities of $3,800.
Cash provided by financing activities:
Net cash provided by financing activities was $11,155 for the three months ended
June 30, 2016 as compared to $115,000 for the three months ended June 30, 2015,
a decrease of $103,845 or 90%.
? Net cash provided by financing activities for the three months ended June 30,
2016 consisted of $11,155 of net proceeds from loan payables.
? Net cash provided by financing activities for the three months ended June 30,
2015 consisted of $115,000 of net proceeds from convertible notes, net of
issuance cost.
Cash Requirements
Our management does not believe that our current capital resources will be
adequate to continue operating our company and maintaining our business strategy
for more than 12 months from the date of this report. Accordingly, we will have
to raise additional capital in the near future to meet our working capital
requirements. There can be no assurance that additional financing will be
available to us when needed or, if available, that it can be obtained on
commercially reasonable terms. If we are not able to obtain the additional
financing on a timely basis, if and when it is needed, we will be forced to
scale down or perhaps even cease the operation of our business.
Going Concern
The consolidated financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the settlement of
liabilities and commitments in the normal course of business. As reflected in
our accompanying consolidated financial statements, the Company had net income
and net cash used in operating activities of $342,073 and $15,364, respectively,
for the three months ended June 30, 2016. The net income was primarily
attributed to the gain from the change in far value of derivative liabilities.
The Company had accumulated deficit, stockholders' deficit and working capital
deficit of $10,203,964, $958,818 and $958,818, respectively, at June 30, 2016.
The Company had no revenues for the three months ended June 30, 2016, and we
defaulted on our loans. 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 consolidated financial
statements do not include any adjustments related to the recoverability and
classification of recorded asset amounts and classification of liabilities that
might be necessary should the Company be unable to continue as a going concern.
Common Stock for Debt Conversion
During the three months ended June 30, 2016 and 2015, the lenders did not
convert any of the outstanding convertible notes.
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Sales of Common Stock Pursuant to Subscription Agreements
During the three months ended June 30, 2016 and 2015, there were no sales of
common stock.
Future Financings
We will require additional financing to fund our planned operations. We
currently do not have committed sources of additional financing and may not be
able to obtain additional financing particularly, if the volatile conditions of
the stock and financial markets persist.
There can be no assurance that additional financing will be available to us when
needed or, if available, that it can be obtained on commercially reasonable
terms. If we are not able to obtain the additional financing on a timely basis,
if and when it is needed, we will be forced to further delay or further scale
down some or all of our activities or perhaps even cease the operations of the
business.
Since inception we have funded our operations primarily through equity and debt
financings and we expect that we will continue to fund our operations through
the equity and debt financing. If we are able to raise additional financing by
issuing equity securities, our existing stockholders' ownership will be diluted.
Obtaining commercial or other loans, assuming those loans would be available,
will increase our liabilities and future cash commitments.
There is no assurance that we will be able to maintain operations at a level
sufficient for an investor to obtain a return on his, her, or its investment in
our common stock. Further, we may continue to be unprofitable.
Critical Accounting Policies
We have identified the following policies as critical to our business and
results of operations. Our reported results are impacted by the application of
the following accounting policies, certain of which require management to make
subjective or complex judgments. These judgments involve making estimates about
the effect of matters that are inherently uncertain and may significantly impact
quarterly or annual results of operations. For all of these policies, management
cautions that future events rarely develop exactly as expected, and the best
estimates routinely require adjustment. Specific risks associated with these
critical accounting policies are described in the following paragraphs.
Use of Estimates
The preparation of the consolidated financial statements in conformity with U.S.
GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from these estimates. Significant estimates during the
three months ended June 30, 2016 include assumptions used in valuation of
derivative liabilities.
Fair Value of Financial Instruments and Fair Value Measurements
FASB ASC 820 - Fair Value Measurements and Disclosures, defines fair value as
the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the
measurement date. FASB ASC 820 requires disclosures about the fair value of all
financial instruments, whether or not recognized, for financial statement
purposes. Disclosures about the fair value of financial instruments are based on
pertinent information available to the Company on June 30, 2016. Accordingly,
the estimates presented in these financial statements are not necessarily
indicative of the amounts that could be realized on disposition of the financial
instruments. FASB ASC 820 specifies a hierarchy of valuation techniques based on
whether the inputs to those valuation techniques are observable or unobservable.
Observable inputs reflect market data obtained from independent sources, while
unobservable inputs reflect market assumptions. The hierarchy gives the highest
priority to unadjusted quoted prices in active markets for identical assets or
liabilities (Level 1 measurement) and the lowest priority to unobservable inputs
(Level 3 measurement).
The three levels of the fair value hierarchy are as follows:
Level 1-Inputs are unadjusted quoted prices in active markets for identical
assets or liabilities available at the measurement date.
Level 2-Inputs are unadjusted quoted prices for similar assets and liabilities
in active markets, quoted prices for identical or similar assets and
liabilities in markets that are not active, inputs other than quoted prices
that are observable, and inputs derived from or corroborated by observable
market data.
Level 3-Inputs are unobservable inputs which reflect the reporting entity's own
assumptions on what assumptions the market participants would use in pricing
the asset or liability based on the best available information.
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The carrying amounts reported in the consolidated balance sheets for cash, due
from and to related parties, prepaid expenses, accounts payable and accrued
liabilities approximate their fair market value based on the short-term maturity
of these instruments.
Derivative Liabilities
The Company has certain financial instruments that are embedded derivatives
associated with capital raises and certain warrants. The Company evaluates all
its financial instruments to determine if those contracts or any potential
embedded components of those contracts qualify as derivatives to be separately
accounted for in accordance with ASC 815-10 - Derivative and Hedging - Contract
in Entity's Own Equity. This accounting treatment requires that the carrying
amount of any derivatives be recorded at fair value at issuance and
marked-to-market at each balance sheet date. In the event that the fair value is
recorded as a liability, as is the case with the Company, the change in the fair
value during the period is recorded as either other income or expense. Upon
conversion, exercise or repayment, the respective derivative liability is marked
to fair value at the conversion, repayment or exercise date and then the related
fair value amount is reclassified to other income or expense as part of gain or
loss on debt extinguishment.
In July 2017, FASB issued ASU No. 2017-11, Earnings Per Share (Topic 260);
Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging
(Topic 815): (Part I) Accounting for Certain Financial Instruments with Down
Round Features. These amendments simplify the accounting for certain financial
instruments with down-round features. The amendments require companies to
disregard the down-round feature when assessing whether the instrument is
indexed to its own stock, for purposes of determining liability or equity
classification. The adoption of this guidance is not expected to have a material
impact on the Company's consolidated financial statements.
Revenue Recognition
In May 2014, FASB issued an update Accounting Standards Update, ASU 2014-09,
establishing ASC 606 - Revenue from Contracts with Customers. ASU 2014-09, as
amended by subsequent ASUs on the topic, establishes a single comprehensive
model for entities to use in accounting for revenue arising from contracts with
customers and supersedes most of the existing revenue recognition guidance. This
standard, which is effective for interim and annual reporting periods in fiscal
years that begin after December 15, 2017, requires an entity to recognize
revenue to depict the transfer of promised goods or services to customers in an
amount that reflects the consideration to which the entity expects to be
entitled in exchange for those goods or services and also requires certain
additional disclosures. adoption of this guidance is not expected to have a
material impact on the process for, timing of, and presentation and disclosure
of revenue recognition from customers. The Company did not have revenues from
operations for the three months ended June 30, 2016.
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 consolidated financial statements.
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Pursuant to ASC 505-50 - Equity-Based Payments to Non-Employees, all share-based
payments to non-employees, including grants of stock options, were recognized in
the consolidated financial statements as compensation expense over the service
period of the consulting arrangement or until performance conditions are
expected to be met. Using a Black Scholes valuation model, the Company
periodically reassessed the fair value of non-employee options until service
conditions are met, which generally aligns with the vesting period of the
options, and the Company adjusts the expense recognized in the consolidated
financial statements accordingly. In June 2018, the FASB issued ASU No. 2018-07,
Improvements to Nonemployee Share-Based Payment Accounting, which simplifies
several aspects of the accounting for nonemployee share-based payment
transactions by expanding the scope of the stock-based compensation guidance in
ASC 718 to include share-based payment transactions for acquiring goods and
services from non-employees. ASU No. 2018-07 is effective for annual periods
beginning after December 15, 2018, including interim periods within those annual
periods. Early adoption is permitted, but entities may not adopt prior to
adopting the new revenue recognition guidance in ASC 606. The adoption of this
guidance is not expected to have a material impact on the Company's consolidated
financial statements.
Recent Accounting Pronouncements
In May 2014, the FASB issued Accounting Standards Update No. 2014-09, Revenue
from Contracts with Customers (ASU 2014-09), which supersedes nearly all
existing revenue recognition guidance under U.S. GAAP. The core principle of ASU
2014-09 is to recognize revenues when promised goods or services are transferred
to customers in an amount that reflects the consideration to which an entity
expects to be entitled for those goods or services. ASU 2014-09 defines a
five-step process to achieve this core principle and, in doing so, more judgment
and estimates may be required within the revenue recognition process than are
required under existing U.S. GAAP. The standard is effective for annual periods
beginning after December 15, 2016, and interim periods therein, using either of
the following transition methods: (i) a full retrospective approach reflecting
the application of the standard in each prior reporting period with the option
to elect certain practical expedients, or (ii) a retrospective approach with the
cumulative effect of initially adopting ASU 2014-09 recognized at the date of
adoption (which includes additional footnote disclosures). Early adoption is not
permitted. The adoption of this guidance is not expected to have a material
impact on the Company's consolidated financial statements.
In August 2014, the FASB issued Accounting Standards Update No. 2014-15,
Presentation of Financial Statements - Going Concern (Subtopic 205-40),
Disclosure of Uncertainties about an Entities Ability to Continue as a Going
Concern (ASU 2014-15). The guidance in ASU 2014-15 sets forth management's
responsibility to evaluate whether there is substantial doubt about an entity's
ability to continue as a going concern as well as required disclosures. ASU
2014-15 indicates that, when preparing financial statements for interim and
annual financial statements, management should evaluate whether conditions or
events, in the aggregate, raise substantial doubt about the entity's ability to
continue as a going concern for one year from the date the financial statements
are issued or are available to be issued. This evaluation should include
consideration of conditions and events that are either known or are reasonably
knowable at the date the financial statements are issued or are available to be
issued, as well as whether it is probable that management's plans to address the
substantial doubt will be implemented and, if so, whether it is probable that
the plans will alleviate the substantial doubt. ASU 2014-15 is effective for
annual periods ending after December 15, 2016, and interim periods and annual
periods thereafter. Early application is permitted. The Company early adopted
ASU 2014-15 during the three months ended June 30, 2016. The adoption of ASU
2014-15 did not have any material impact on the Company's consolidated financial
statements.
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 consolidated
financial statements.
Management does not believe that any other recently issued, but not yet
effective accounting pronouncements, if adopted, would have a material effect on
the accompanying consolidated financial statements.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to
have a current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources that is material to our stockholders.
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