UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-Q
(Mark
One)
☒ QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the quarterly period ended September 30, 2015
☐ TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the transition period from __________ to __________
COMMISSION
FILE NUMBER: 333-148925
LEGACYXCHANGE,
INC.
(Exact
name of Registrant as specified in its charter)
NEVADA |
|
20-8628868 |
(State or other jurisdiction of
incorporation or organization) |
|
(I.R.S. Employer
Identification No.) |
301
Yamato Road
Boca
Raton, FL 33431
(Address
of principal executive offices)
(800) 630-4190
(Registrant’s telephone number, including
area code)
True
2 Beauty, Inc.
(Former
name, former address and former fiscal, if changed since last report)
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No
☐
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer |
☐ |
Accelerated
filer |
☐ |
Non-accelerated
filer
|
☐ |
Smaller
reporting company |
☒ |
(Do
not check if smaller reporting company) |
|
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes☐
No ☒
Indicate the number of shares outstanding
of each of the issuer’s classes of common stock, as of the latest practicable date. 44,880,056 shares of common stock are
issued and outstanding as of November 16, 2015.
LEGACYXCHANGE,
INC.
FORM
10-Q
September
30, 2015
TABLE
OF CONTENTS
|
|
Page No. |
PART I. - FINANCIAL INFORMATION |
Item 1. |
Financial Statements |
3 |
|
Consolidated Balance Sheets - September 30, 2015 (Unaudited) and March 31, 2015 |
3 |
|
Consolidated Statements of Operations - Three and Six Months Ended September 30, 2015
and 2014 (unaudited) |
4 |
|
Consolidated Statement of Changes in Stockholders’ Deficit – Six Months
Ended September 30, 2015 (unaudited) |
5 |
|
Consolidated Statements of Cash Flows - Six Months Ended September 30, 2015 and 2014
(unaudited) |
6 |
|
Condensed Notes to Unaudited Consolidated Financial Statements. |
7 |
|
|
|
Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
20 |
Item 3 |
Quantitative and Qualitative Disclosures About Market Risk. |
25 |
Item 4 |
Controls and Procedures. |
25 |
PART II - OTHER INFORMATION |
|
|
|
Item 1. |
Legal Proceedings |
25 |
Item 1A. |
Risk Factors |
25 |
Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
25 |
Item 3. |
Defaults Upon Senior Securities |
26 |
Item 4. |
Mine Safety Disclosures |
26 |
Item 5. |
Other Information |
26 |
Item 6. |
Exhibits |
26 |
PART
1 - FINANCIAL INFORMATION
Item 1. Financial
Statements.
LEGACYXCHANGE,
INC.
(FORMERLY
TRUE 2 BEAUTY, INC.)
CONSOLIDATED
BALANCE SHEETS
| |
September 30, 2015 | | |
March 31, 2015 | |
| |
(Unaudited) | | |
| |
| |
| | |
| |
ASSETS | |
| | |
| |
CURRENT ASSETS: | |
| | |
| |
Cash | |
$ | 562 | | |
$ | 4,362 | |
Prepaid expenses | |
| 39,302 | | |
| 28,801 | |
Inventories | |
| 570 | | |
| - | |
| |
| | | |
| | |
Total Current Assets | |
| 40,434 | | |
| 33,163 | |
| |
| | | |
| | |
TOTAL ASSETS | |
$ | 40,434 | | |
$ | 33,163 | |
| |
| | | |
| | |
LIABILITIES AND STOCKHOLDERS' DEFICIT | |
| | | |
| | |
| |
| | | |
| | |
CURRENT LIABILITIES: | |
| | | |
| | |
Accounts payable and accrued liabilities | |
$ | 132,284 | | |
$ | 113,747 | |
Accrued officer salary and director fees | |
| 4,250 | | |
| 8,050 | |
Loan payable | |
| 25,000 | | |
| - | |
Derivative liabilities | |
| 981,639 | | |
| 1,088,085 | |
| |
| | | |
| | |
Total Current Liabilities | |
| 1,143,173 | | |
| 1,209,882 | |
| |
| | | |
| | |
Convertible notes payable, net of discount | |
| 117,862 | | |
| 70,087 | |
| |
| | | |
| | |
TOTAL LIABILITIES | |
| 1,261,035 | | |
| 1,279,969 | |
| |
| | | |
| | |
COMMITMENTS (Note 10) | |
| | | |
| | |
| |
| | | |
| | |
STOCKHOLDERS' DEFICIT: | |
| | | |
| | |
Preferred stock ($0.001 par value; 10,000,000 shares authorized; No share issued or outstanding at September 30, 2015 and March 31, 2015) | |
| - | | |
| - | |
Common stock, ($0.001 par value; 190,000,000 shares authorized; 44,630,056 and 36,951,165 shares issued and outstanding at September 30, 2015 and March 31, 2015, respectively) | |
| 44,630 | | |
| 36,951 | |
Additional paid-in capital | |
| 8,734,413 | | |
| 8,332,206 | |
Accumulated deficit | |
| (9,999,644 | ) | |
| (9,615,963 | ) |
| |
| | | |
| | |
TOTAL STOCKHOLDERS' DEFICIT | |
| (1,220,601 | ) | |
| (1,246,806 | ) |
| |
| | | |
| | |
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT | |
$ | 40,434 | | |
$ | 33,163 | |
The
accompanying condensed notes are an integral part of these unaudited consolidated financial statements.
LEGACYXCHANGE,
INC.
(FORMERLY
TRUE 2 BEAUTY, INC.)
CONSOLIDATED
STATEMENTS OF OPERATIONS
(UNAUDITED)
| |
For the Three Months Ended September 30, | | |
For the Six Months Ended September 30, | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
| |
| | |
| | |
| | |
| |
REVENUE, NET | |
$ | - | | |
$ | (365 | ) | |
$ | - | | |
$ | 358 | |
| |
| | | |
| | | |
| | | |
| | |
COST OF REVENUE | |
| - | | |
| 229 | | |
| - | | |
| 1,536 | |
| |
| | | |
| | | |
| | | |
| | |
GROSS LOSS | |
| - | | |
| (594 | ) | |
| - | | |
| (1,178 | ) |
| |
| | | |
| | | |
| | | |
| | |
OPERATING EXPENSES | |
| | | |
| | | |
| | | |
| | |
Compensation and related taxes | |
| 33,795 | | |
| 52,859 | | |
| 67,766 | | |
| 86,562 | |
Professional fees | |
| 105,490 | | |
| 20,055 | | |
| 216,089 | | |
| 94,264 | |
Other selling, general and administrative | |
| 10,293 | | |
| 8,222 | | |
| 25,571 | | |
| 22,711 | |
| |
| | | |
| | | |
| | | |
| | |
TOTAL OPERATING EXPENSES | |
| 149,578 | | |
| 81,136 | | |
| 309,426 | | |
| 203,537 | |
| |
| | | |
| | | |
| | | |
| | |
LOSS FROM OPERATIONS | |
| (149,578 | ) | |
| (81,730 | ) | |
| (309,426 | ) | |
| (204,715 | ) |
| |
| | | |
| | | |
| | | |
| | |
OTHER INCOME (EXPENSE) | |
| | | |
| | | |
| | | |
| | |
Interest expense | |
| (117,120 | ) | |
| - | | |
| (163,624 | ) | |
| - | |
Initial derivative expense | |
| (47,382 | ) | |
| - | | |
| (166,837 | ) | |
| - | |
(Loss) gain from change in fair value of derivative liabilities | |
| (3,294 | ) | |
| - | | |
| 256,206 | | |
| - | |
Loss on settlement of loans | |
| - | | |
| - | | |
| - | | |
| (5,510 | ) |
| |
| | | |
| | | |
| | | |
| | |
TOTAL OTHER INCOME (EXPENSE), NET | |
| (167,796 | ) | |
| - | | |
| (74,255 | ) | |
| (5,510 | ) |
| |
| | | |
| | | |
| | | |
| | |
NET LOSS | |
$ | (317,374 | ) | |
$ | (81,730 | ) | |
$ | (383,681 | ) | |
$ | (210,225 | ) |
| |
| | | |
| | | |
| | | |
| | |
NET LOSS PER COMMON SHARE | |
| | | |
| | | |
| | | |
| | |
Basic and diluted | |
$ | (0.0073 | ) | |
$ | (0.0022 | ) | |
$ | (0.0095 | ) | |
$ | (0.0059 | ) |
| |
| | | |
| | | |
| | | |
| | |
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING: | |
| | | |
| | | |
| | | |
| | |
Basic and diluted | |
| 43,273,433 | | |
| 36,906,346 | | |
| 40,443,588 | | |
| 35,340,520 | |
The
accompanying condensed notes are an integral part of these unaudited consolidated financial statements.
LEGACYXCHANGE,
INC.
(FORMERLY
TRUE 2 BEAUTY, INC.)
CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT
For
the Six Months Ended September 30, 2015
| |
Preferred Stock | | |
Common Stock | | |
Additional | | |
| | |
Total | |
| |
Number of | | |
| | |
Number of | | |
| | |
Paid-in | | |
Accumulated | | |
Stockholders' | |
| |
Shares | | |
Amount | | |
Shares | | |
Amount | | |
Capital | | |
Deficit | | |
Deficit | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Balance at March 31, 2015 | |
| - | | |
$ | - | | |
| 36,951,165 | | |
$ | 36,951 | | |
$ | 8,332,206 | | |
$ | (9,615,963 | ) | |
$ | (1,246,806 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Stock issued for services | |
| - | | |
| - | | |
| 1,730,000 | | |
| 1,730 | | |
| 80,260 | | |
| - | | |
| 81,990 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Stock issued for accounts payable - related party | |
| - | | |
| - | | |
| 908,807 | | |
| 909 | | |
| 35,758 | | |
| - | | |
| 36,667 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Stock issued for notes conversion | |
| - | | |
| - | | |
| 4,425,500 | | |
| 4,425 | | |
| 84,085 | | |
| - | | |
| 88,510 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Stock issued for accrued interest | |
| - | | |
| - | | |
| 539,584 | | |
| 540 | | |
| 10,252 | | |
| - | | |
| 10,792 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Stock issued for loan fees | |
| - | | |
| - | | |
| 75,000 | | |
| 75 | | |
| 3,525 | | |
| - | | |
| 3,600 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Reclassification of derivative liabilities upon notes conversion | |
| - | | |
| - | | |
| - | | |
| - | | |
| 188,327 | | |
| - | | |
| 188,327 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (383,681 | ) | |
| (383,681 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance at September 30, 2015 (Unaudited) | |
| - | | |
$ | - | | |
| 44,630,056 | | |
$ | 44,630 | | |
$ | 8,734,413 | | |
$ | (9,999,644 | ) | |
$ | (1,220,601 | ) |
The
accompanying condensed notes are an integral part of these unaudited consolidated financial statements.
LEGACYXCHANGE,
INC.
(FORMERLY
TRUE 2 BEAUTY, INC.)
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(UNAUDITED)
| |
For the Six Months Ended September 30, | |
| |
2015 | | |
2014 | |
CASH FLOWS FROM OPERATING ACTIVITIES | |
| | |
| |
Net loss | |
$ | (383,681 | ) | |
$ | (210,225 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | |
| | | |
| | |
Stock-based compensation expenses | |
| 64,235 | | |
| 68,508 | |
Stock issued for loan fees | |
| 3,600 | | |
| - | |
Loss on settlement of loans | |
| - | | |
| 5,510 | |
Amortization of debt discount | |
| 136,285 | | |
| - | |
Initial fair value of derivative liabilities | |
| 166,837 | | |
| - | |
Gain from change in fair value of derivative liabilities | |
| (256,206 | ) | |
| - | |
Changes in operating assets and liabilities: | |
| | | |
| | |
Prepaid expenses | |
| 7,254 | | |
| 3,095 | |
Security deposit | |
| - | | |
| 636 | |
Inventories | |
| (570 | ) | |
| - | |
Accounts payable and accrued liabilities | |
| 65,996 | | |
| 3,726 | |
Deferred revenue | |
| - | | |
| (327 | ) |
Accrued officer salary and director fees | |
| (3,800 | ) | |
| 14,300 | |
Due to shareholders | |
| - | | |
| (3,271 | ) |
Due to officer | |
| - | | |
| (198 | ) |
| |
| | | |
| | |
Net cash used in operating activities | |
| (200,050 | ) | |
| (118,246 | ) |
| |
| | | |
| | |
CASH FLOWS FROM FINANCING ACTIVITIES | |
| | | |
| | |
Proceeds received from convertible notes advances | |
| - | | |
| 55,000 | |
Proceeds received from loan payable | |
| 25,000 | | |
| - | |
Proceeds received from convertible notes | |
| 171,250 | | |
| - | |
Proceeds received from sale of stock | |
| - | | |
| 71,895 | |
| |
| | | |
| | |
Net cash provided by financing activities | |
| 196,250 | | |
| 126,895 | |
| |
| | | |
| | |
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | |
| (3,800 | ) | |
| 8,649 | |
| |
| | | |
| | |
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD | |
| 4,362 | | |
| 9,345 | |
| |
| | | |
| | |
CASH AND CASH EQUIVALENTS - END OF PERIOD | |
$ | 562 | | |
$ | 17,994 | |
| |
| | | |
| | |
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | |
| | | |
| | |
Cash paid for: | |
| | | |
| | |
Interest | |
$ | - | | |
$ | - | |
Income taxes | |
$ | - | | |
$ | - | |
| |
| | | |
| | |
NON-CASH INVESTING AND FINANCING ACTIVITIES: | |
| | | |
| | |
Stock issued for future services | |
$ | 37,490 | | |
$ | 33,060 | |
Stock issued for accrued liabilities | |
$ | 36,667 | | |
$ | - | |
Stock issued for loans' principal | |
$ | - | | |
$ | 20,000 | |
Stock issued for convertible notes' principal | |
$ | 88,510 | | |
$ | - | |
Stock issued for accrued interest | |
$ | 10,792 | | |
$ | 2,000 | |
Stock issued for common stock subscription advances | |
$ | - | | |
$ | 113,525 | |
Initial debt discount recorded on convertible notes | |
$ | 171,250 | | |
$ | - | |
Derivative liabilities reclassified to additional paid-in capital upon notes conversion | |
$ | 188,327 | | |
$ | - | |
The
accompanying condensed notes are an integral part of these unaudited consolidated financial statements.
LEGACYXCHANGE, INC.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2015
NOTE 1 – ORGANIZATION AND NATURE OF OPERATIONS
LegacyXChange, Inc. (formerly
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 plans to operate 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, Inc. (formerly
True2Bid, Inc.) to allow for the change in name of its parent company, True 2 Beauty, Inc., to LegacyXChange, Inc.
The Company plans on launching
its website, LegacyXChange.com, for the trading of collectibles and memorabilia across numerous product categories. Following
secure chain of custody protocols that guarantee authenticity from origination, and utilizing unique proprietary DNA “Marks”
that cannot be counterfeited, the Company’s anticipated inventory of collectibles will be permanently marked with DNA, which
can only be verified through DNA analysis. The Company’s goal is to provide the ongoing ability to guarantee authenticity
of items with 100% surety. The Company will track ownership for all Original items, and only the Company can verify authenticity.
The Company will work with athletes and celebrities as they create high valued new collectibles, items that will differentiate
from those already in the marketplace. The site will also allow non-“Marked” third party collectible items to be listed
and sold. However, any third party items, which claim to have authentic signatures, will have to provide documentation of authenticity
from a Company-approved expert authentication company. The site will offer sellers multiple opportunities to advertise and promote
the sale of items.
NOTE 2 – BASIS OF PRESENTATION,
GOING CONCERN AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICITES
Basis of presentation
Management acknowledges its responsibility for the
preparation of the accompanying unaudited consolidated financial statements which reflect all adjustments, consisting of normal
recurring adjustments, considered necessary in its opinion for a fair statement of its consolidated financial position and the
consolidated results of its operations for the periods presented. The accompanying unaudited consolidated financial statements
have been prepared in accordance with accounting principles generally accepted in the United States of America (the “U.S.
GAAP”) for interim financial information and with the instructions Article 8-03 of Regulation S-X. Operating results for
interim periods are not necessarily indicative of results that may be expected for the fiscal year as a whole. These unaudited
consolidated financial statements should be read in conjunction with the summary of significant accounting policies and notes to
the consolidated financial statements for the years ended March 31, 2015 and 2014 included in the Company’s Form 10-K.
Going concern
These unaudited consolidated financial statements have
been prepared assuming that the Company will continue as a going concern, which contemplates, among other things, the realization
of assets and the satisfaction of liabilities in the normal course of business.
As reflected in the accompanying unaudited consolidated
financial statements, the Company had a net loss of $383,681 and $210,225 for the six months ended September 30, 2015 and 2014,
respectively, and net cash used in operations of $200,050 and $118,246 for the six months ended September 30, 2015 and 2014, respectively,
and an accumulated deficit, a stockholders’ deficit and a working capital deficit of $9,999,644, $1,220,601 and $1,102,739,
respectively, at September 30, 2015, did not generate any revenue for the six months ended September 30, 2015 and had a gross loss
for the six months ended September 30, 2014. These matters raise substantial doubt about the Company’s ability to continue
as a going concern. The ability of the Company to continue as a going concern is dependent on the Company’s ability to raise
additional capital, implement its business plan, and generate significant revenues. The unaudited consolidated financial statements
do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. The Company plans
on raising capital through the sale of equity or debt instruments to implement its business plan. There is no assurance these plans
will be realized.
Use of estimates
The preparation of the unaudited consolidated financial
statements in conformity with generally accepted accounting principles in the United States of America 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 three and six months ended September 30, 2015 and 2014 include
the valuation of deferred tax assets, valuation of derivative liabilities and the valuation of stock-based compensation and fees.
LEGACYXCHANGE, INC.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2015
NOTE 2 – BASIS OF
PRESENTATION, GOING CONCERN AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICITES (continued)
Fair value of financial instruments and fair value measurements
The Company adopted the guidance of Accounting Standards
Codification (“ASC”) 820 for fair value measurements which clarifies the definition of fair value, prescribes methods
for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value 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 unaudited consolidated
balance sheets for cash, inventories, accounts payable and accrued liabilities, accrued officer salary and director fees, and loan
payable, approximate their fair market value based on the short-term maturity of these instruments.
Certain financial instruments, such as certain accrued
liabilities, embody obligations that require (or permit at the Company’s discretion) settlement by issuance of a variable
number of the Company’s common shares that have a value equal to a fixed monetary amount. The number of shares required to
be issued to settle that unconditional obligation is variable, because that number of common shares will be determined by the fair
value of the Company’s common shares on the date of settlement or over a stated period of time, such as the average over
the last 30 days before settlement, or the beginning of the quarter. Pursuant to ASC 480-10-25-14(a), the financial instruments
are classified as a liability at the fixed monetary amount with a charge to expense to increase the obligation to the fixed monetary
amount. Upon issuance of the shares to settle the obligation, equity is increased by the amount of the liability and no gain or
loss is recognized for the difference between the settlement date or average market price and the ending market price.
The following table reflects changes for the six months
ended September 30, 2015 for all financial assets and liabilities categorized as Level 3:
| |
Derivative Liabilities | | |
Fixed Monetary Obligation | |
Balance as of March 31, 2015 | |
$ | 1,088,085 | | |
$ | 6,667 | |
Increase in fair value of fixed monetary obligation | |
| - | | |
| 12,000 | |
Initial fair value of derivative liabilities attributable to conversion feature and warrants | |
| 338,087 | | |
| - | |
Reclassification of derivative liabilities upon notes conversion | |
| (188,327 | ) | |
| - | |
Decrease in fair value of fixed monetary obligation | |
| - | | |
| (18,667 | ) |
Gain from change in the fair value of derivative liabilities | |
| (256,206 | ) | |
| - | |
Balance as of September 30, 2015 | |
$ | 981,639 | | |
$ | - | |
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 instruments.
Cash and cash equivalents
Cash and cash equivalents consist of cash and short-term
highly liquid investments purchased with original maturities of three months or less. There were no cash equivalents at September
30, 2015 and March 31, 2015.
LEGACYXCHANGE, INC.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2015
NOTE 2 – BASIS OF
PRESENTATION, GOING CONCERN AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICITES (continued)
Inventories and cost of revenue
Inventories are stated at the lower of cost or market
value. Cost is determined using the cost to acquire inventory and is valued using the first-in, first-out method. Any inventory
adjustments are based upon management’s review of inventories on hand compared to estimated future usage and sales. Inventories
of finished goods totaled $570 and $0 at September 30, 2015 and March 31, 2015, respectively.
Revenue recognition
The Company recognizes revenue when persuasive evidence
of an arrangement exists, delivery has occurred or services have been rendered, the purchase price is fixed or determinable and
collectability is reasonably assured. The Company’s specific revenue recognition policies are as follows:
|
● |
Product sales from the sale of beauty products by the parent entity (which ceased in May 2013) and sales of products through the subsidiary’s auction site are recognized when the product is shipped to the customer and title is transferred. |
|
● |
To participate in the Company’s auction program, consumers are required to purchase bid packages directly from the Company. Proceeds from the sales of bid packages are recorded as deferred revenue until recognizable as discussed below. In connection with the sale of bid packages, the Company utilized the User-based Revenue Model (“UBRM”). The UBRM is based on the presumption that the period of delivery for the bid package is the estimated average user life, which was estimated by the Company to be 60 days. Consequently, revenue from the sale of bid packages is recognized ratably over the estimated user life of 60 days. |
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.
Pursuant to ASC 505-50, for share-based payments to
consultants and other third parties, compensation expense is determined at the “measurement date.” The expense is recognized
over the service period of the award. Until the measurement date is reached, the total amount of compensation expense remains uncertain.
The Company initially records compensation expense based on the fair value of the award at the reporting date.
Income taxes
Deferred income tax assets and liabilities arise from
temporary differences associated with differences between the financial statements and tax basis of assets and liabilities, as
measured by the enacted tax rates, which are expected to be in effect when these differences reverse. Deferred tax assets and liabilities
are classified as current or non-current, depending upon the classification of the asset or liabilities to which they relate. Deferred
tax assets and liabilities not related to an asset or liability are classified as current or non-current depending on the periods
in which the temporary differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred
tax assets to the amount expected to be realized.
The Company follows the provisions of FASB ASC 740-10
“Uncertainty in Income Taxes” (ASC 740-10). Certain recognition thresholds must be met before a tax position is recognized
in the financial statements. An entity may only recognize or continue to recognize tax positions that meet a “more-likely-than-not”
threshold. As of September 30, 2015 and March 31, 2015, the Company does not believe it has any uncertain tax positions that would
require either recognition or disclosure in the accompanying unaudited consolidated financial statements.
LEGACYXCHANGE, INC.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2015
NOTE 2 – BASIS OF
PRESENTATION, GOING CONCERN AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICITES (continued)
Shipping costs
Shipping costs are included in other selling, general
and administrative expense and totaled $2 and $20 for the three months ended September 30, 2015 and 2014, respectively. Shipping
costs totaled $2 and $115 for the six months ended September 30, 2015 and 2014, respectively.
Advertising
Advertising is expensed as incurred and is included
in other selling, general and administrative expense. The Company did not incur any advertising expense for the three and six months
ended September 30, 2015 and 2014.
Research and development
Expenditures for research and product development costs
are expensed as incurred. The Company did not incur any research and development expense during the three and six months ended
September 30, 2015 and 2014.
Basic and diluted earnings per share
Pursuant to ASC 260-10-45, basic earnings per common
share is computed by dividing income (loss) allocable to common shareholders by the weighted average number of shares of common
stock outstanding for the periods presented. Diluted income (loss) per share is computed by dividing net income (loss) by the weighted
average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each
period. Diluted income (loss) per share reflects the potential dilution that could occur if securities were exercised or converted
into common stock or other contracts to issue common stock resulting in the issuance of common stock that would then share in the
Company’s income (loss) subject to anti-dilution limitations. Potentially dilutive common shares consist of common stock
issuable for stock warrants (using the treasury stock method). For the three and six months ended September 30, 2015 and 2014,
all potentially dilutive securities are excluded from the computation of diluted weighted average number of shares of common stock
outstanding as they would have had an anti-dilutive impact. The Company’s aggregate common stock equivalents at September
30, 2015 and 2014 included the following:
| |
September 30, 2015 | | |
September 30, 2014 | |
Stock warrants | |
| 4,473,315 | | |
| 1,048,315 | |
Total | |
| 4,473,315 | | |
| 1,048,315 | |
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. The Company discloses all related
party transactions. All transactions are recorded at fair value of the goods or services exchanged.
Recent accounting pronouncements
Accounting standards that have been issued or proposed
by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial
statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are
unrelated to its consolidated financial condition, results of operations, cash flows or disclosures.
LEGACYXCHANGE, INC.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2015
NOTE 3 – PREPAID EXPENSES
At September 30, 2015 and March 31, 2015, prepaid expenses
consisted of the following:
| |
September 30, 2015 | | |
March 31, 2015 | |
Prepaid professional service fees | |
$ | 38,952 | | |
$ | 28,801 | |
Prepaid other expense | |
| 350 | | |
| - | |
| |
$ | 39,302 | | |
$ | 28,801 | |
NOTE 4 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
At September 30, 2015 and March 31, 2015, accounts
payable and accrued liabilities consisted of the following:
| |
September 30, 2015 | | |
March 31, 2015 | |
Accrued interest | |
$ | 30,640 | | |
$ | 17,693 | |
Accrued professional fees | |
| 65,688 | | |
| 67,364 | |
Accrued payroll taxes | |
| 33,456 | | |
| 28,690 | |
Other | |
| 2,500 | | |
| - | |
| |
$ | 132,284 | | |
$ | 113,747 | |
NOTE 5 – ACCRUED OFFICER SALARY AND DIRECTOR
FEES
In connection with the employment of a board of director
member, the Company has agreed to compensate him as follows: an initial payment of $1,500 and quarterly payments of $1,500 during
the term, which he serves as a director of the Company. At September 30, 2015 and March 31, 2015, the amount due to this director
was $3,250 and $4,750, respectively, and was included in accrued officer salary and director fees in the accompanying consolidated
balance sheets.
At September 30, 2015 and March 31, 2015, the accrued
and unpaid CEO’s salary was $1,000 and $3,300, respectively, and was included in accrued officer salary and director fees
in the accompanying consolidated balance sheets.
At September 30, 2015 and March 31, 2015, accrued officer
salary and director fees consisted of the following:
| |
September 30, 2015 | | |
March 31, 2015 | |
Accrued director's salary | |
$ | 3,250 | | |
$ | 4,750 | |
Accrued officer’s salary | |
| 1,000 | | |
| 3,300 | |
| |
$ | 4,250 | | |
$ | 8,050 | |
NOTE 6 – LOAN PAYABLE
On July 7, 2015, the Company entered into a loan agreement,
providing for the issuance of a loan in the principal amount of $25,000. The term of the loan is for a period of 60 days from the
execution of the agreement with a twenty-day grace period. The annual interest rate for the loan is 10%. The Company paid the lender
additional consideration of 75,000 shares of common stock valued at $3,600 and recorded as interest expense. At September 30, 2015,
the outstanding principal balance of the loan was $25,000 and $589 of accrued interest.
LEGACYXCHANGE, INC.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2015
NOTE 7 – RELATED PARTY TRANSACTIONS
Effective November 1, 2014, the Company entered into
a service agreement with CFO Oncall Inc., a company majority owned by the Company’s Chief Financial Officer. In accordance
with the service agreement, the service fee is $5,000 per month, which is payable as $3,000 in cash payable in advance on the 1st
of each month, and $2,000 payable at the Company’s option in cash or the Company’s common stock. On June 1, 2015, the
Company issued 726,989 restricted shares of common stock to CFO Oncall, Inc. pursuant to the service agreement. On August 5, 2015,
the Company issued 181,818 restricted shares of common stock to CFO Oncall, Inc. for compensation and to settle accrued liabilities
of $10,000 pursuant to the service agreement (See Note 9). The shares were valued at $10,000 based on 60% of the closing bid price
of the Company’s common stock on the last trading day of the previous quarter as defined in the service agreement. No gain
or loss was recognized on this settlement. At September 30, 2015, amounts due to CFO Oncall amounted to $15,000 and are included
in accounts payable and accrued liabilities on the accompanying consolidated balance sheet.
NOTE 8 – CONVERTIBLE NOTES PAYABLE
Fiscal 2015 Convertible Notes
In October and November 2014, the Company and 7 investors,
subject to adjustment for issuances of common stock at a purchase price of less than the then-effective conversion price investors
(the “Investors”) entered into convertible promissory note agreements, providing the issuance of a 10% convertible
promissory notes (the “Convertible Notes”) with an aggregate principal amount of $400,000. The Convertible Notes are
due and payable on the third anniversary of the date of issuance through October 2017. The Investors are entitled, at their option,
at any time after the issuance of these Convertible Notes, to convert all or any lesser portion of the outstanding principal amount
and accrued but unpaid interest into the Company’s common stock at a conversion price for each share of common stock equal
to $0.02. In the event a registration statement is not filed by either the Company within 60 days following the completion of this
Offering, or the full amount of Conversion Shares are not included in the first registration statement filed by either entity,
or if such registration statement including the Conversion Shares is not declared effective within 180 days following the completion
of the Offering, the Convertible Notes shall then be convertible at the option of the Holder into shares of the common stock, par
value $.001 per share, of the Company at a conversion price equal to the lesser of $0.02 per share or a 25% discount to the average
closing bid price of the Parent Company’s stock for the five days immediately prior to the day upon which the Company receives
a written conversion notice from the Holder for any portion of the Notes. The Penalty Conversion shall remain in effect until such
time as the Company’s registration statement, including the Conversion Shares is declared effective by the SEC. In connection
with the issuance of these Convertible Notes above, the Company determined that the terms of the Convertible Notes include 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.
Accordingly, under the provisions of FASB ASC Topic
No. 815-40, “Derivatives and Hedging – Contracts in an Entity’s Own Stock”, the embedded conversion option
contained in the convertible instruments 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 was determined
using the Binomial Option Pricing Model. On the initial measurement date, the fair value of the embedded conversion option derivative
of $419,000 was recorded as a derivative liability and was allocated as a debt discount up to the proceeds of the notes $383,125
with the remainder $35,875 charged to current period operations as initial derivative expense. Any gains and losses recorded from
changes in the fair value of the liability for derivative contract was recorded as a component of other income/(expense) in the
accompanying consolidated statements of operations.
In July 2015, the principal amount of $88,510 of this
Fiscal 2015 Convertible Notes was converted into 4,425,500 shares of the Company’s common stock at the conversion price of
$0.02 per share. At September 30, 2015, the principal amount due under this Fiscal 2015 Convertible Notes was $311,490.
During the six months ended September 30, 2015, the
fair value of the derivative liabilities were estimated using the Binomial option-pricing model with the following assumptions:
Dividend rate | |
| 0 | | |
|
Term (in years) | |
| 2.04 to 2.29 years | | |
|
Volatility | |
| 121.91% to 195.81 | % | |
|
Risk-free interest rate | |
| 0.92% to 1.08 | % | |
|
LEGACYXCHANGE, INC.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2015
NOTE 8 – CONVERTIBLE NOTES PAYABLE (continued)
Fiscal 2015 Convertible Notes (continued)
At September 30, 2015, June 30, 2015, March 31, 2015
and on the conversion dates of this Fiscal 2015 Convertible Notes, the Company valued the embedded conversion option derivative
liabilities resulting in a gain from change in fair value of derivative liabilities of $53,476 and $279,471, respectively, for
the three and six months ended September 30, 2015. For the three and six months ended September 30, 2015, the embedded conversion
option derivative liabilities of $188,327 were reclassified to additional paid-in capital upon the related notes conversion.
For the three and six months ended September 30, 2015,
amortization of debt discounts related to these convertible notes amounted to $90,799 and $122,726, respectively, which has been
included in interest expense on the accompanying consolidated statements of operations.
At September 30, 2015 and March 31, 2015, fiscal 2015
convertible promissory notes consisted of the following:
| |
September 30, 2015 | | |
March 31, 2015 | |
Principal amount | |
$ | 311,490 | | |
$ | 400,000 | |
Less: unamortized debt discount | |
| (207,187 | ) | |
| (329,913 | ) |
Convertible notes payable, net | |
$ | 104,303 | | |
$ | 70,087 | |
Fiscal 2016 Convertible Notes
Fiscal 2016 Convertible Notes with principal
amount of $115,000
On May 19, 2015 and June 1, 2015 and June 23, 2015,
the Company and 5 investors (the “Investors”) entered into convertible promissory note agreements, providing the
issuance of a 10% convertible promissory notes (the “Fiscal 2016 Convertible Notes”) with an aggregate principal amount
of $115,000. These convertible notes are due and payable on the third anniversary of the date of May 19, 2018 and June 1, 2018
and June 23, 2018. The Investors are entitled, at their option, at any time after the issuance of these convertible notes, to convert
all or any lesser portion of the outstanding principal amount and accrued but unpaid interest into the Company’s common stock
at a conversion price for each share of common stock equal to $0.05. The conversion price of the convertible notes shall be subject
to adjustment for issuances of common stock at a purchase price of less than the then-effective conversion price. On August 31,
2015, the conversion price of $0.05 per share was amended to $0.035 per share since the Company issued additional convertible notes
with conversion price of $0.035 (see Fiscal 2016 Convertible Notes with principal amount of $56,250).
In connection with the issuance of these convertible
notes, the Company issued five-year common stock purchase warrants (“Warrants”) exercisable at $0.07 per share. These
investors received 20 Warrants for each dollar invested in the convertible notes. The exercise price of the Warrant shall be subject
to adjustment for issuance of common stock at a consideration per share of less than the then-effective exercise price. On August
31, 2015, the exercise price of the Warrant of $0.07 per share was amended to $0.035 per share since the Company issued additional
five-year common stock purchase warrants with exercise price of $0.035 (see Fiscal 2016 Convertible Notes with principal amount
of $56,250).
In connection with the issuance of these convertible
notes, the Company determined that the terms of the convertible notes and the 2,300,000 warrants include down-round provisions
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. Accordingly, under the provisions of FASB ASC Topic No. 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 a 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 warrants derivatives
was determined using the Binomial Option Pricing Model. On the initial measurement date, the fair value of the embedded conversion
option derivatives and warrants derivatives of $234,455 was recorded as a derivative liability and was allocated as a debt discount
up to the proceeds of the notes $115,000 with the remainder $119,455 charged to current period operations as initial derivative
expense. Any gains and losses recorded from changes in the fair value of the liability for derivative contract will be recorded
as a component of other income/(expense) in the consolidated statements of operations.
LEGACYXCHANGE, INC.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2015
NOTE 8 – CONVERTIBLE NOTES PAYABLE (continued)
Fiscal 2016 Convertible Notes (continued)
Fiscal 2016 Convertible Notes with principal
amount of $56,250
On August 31, 2015 and September 8, 2015 and September
25, 2015, the Company and 4 investors (the “Investors”) entered into convertible promissory note agreements, providing
the issuance of a 10% convertible promissory notes (the “Fiscal 2016 Convertible Notes”) with an aggregate principal
amount of $56,250. These convertible notes are due and payable on the third anniversary of the date of August 31, 2018 and September
8, 2018 and September 25, 2018. The Investors are entitled, at their option, at any time after the issuance of these convertible
notes, to convert all or any lesser portion of the outstanding principal amount and accrued but unpaid interest into the Company’s
common stock at a conversion price for each share of common stock equal to $0.035. The conversion price of the convertible notes
shall be subject to adjustment for issuances of common stock at a purchase price of less than the then-effective conversion price.
In connection with the issuance of these convertible
notes, the Company issued five-year common stock purchase warrants (“Warrants”) exercisable at $0.035 per share. These
investors received 20 Warrants for each dollar invested in the convertible notes. The exercise price of the Warrants shall be subject
to adjustment for issuance of common stock at a consideration per share of less than the then-effective exercise price.
In connection with the issuance of these convertible
notes, the Company determined that the terms of the convertible notes and the 1,125,000 warrants include down-round provisions
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. Accordingly, under the provisions of FASB ASC Topic No. 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 a 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 warrants derivatives
was determined using the Binomial Option Pricing Model. On the initial measurement date, the fair value of the embedded conversion
option derivatives and warrants derivatives of $103,632 was recorded as a derivative liability and was allocated as a debt discount
up to the proceeds of the notes $56,250 with the remainder $47,382 charged to current period operations as initial derivative expense.
Any gains and losses recorded from changes in the fair value of the liability for derivative contract will be recorded as a component
of other income/(expense) in the consolidated statements of operations.
During the six months ended September 30, 2015, the
fair value of the derivative liabilities were estimated using the Binomial option-pricing model with the following assumptions:
Dividend rate | |
| 0 | |
Term (in years) | |
| 2.63 to 5.00 years | |
Volatility | |
| 162.15% to 290.63 | % |
Risk-free interest rate | |
| 0.92% to 1.71 | % |
At September 30, 2015, June 30, 2015 and on the initial
measurements of the derivative liabilities, the Company valued the embedded conversion option derivative liabilities and the warrants
derivative liabilities resulting in a loss from change in fair value of derivative liabilities of $56,770 and $23,265, respectively,
for the three and six months ended September 30, 2015. For the three and six months ended September 30, 2015, amortization of debt
discounts related to these convertible notes amounted to $10,364 and $13,559, respectively, which has been included in interest
expense on the accompanying consolidated statements of operations.
At September 30, 2015 and March 31, 2015, fiscal 2016
convertible promissory notes consisted of the following:
| |
September 30,
2015 | | |
March 31,
2015 | |
Principal amount | |
$ | 171,250 | | |
$ | - | |
Less: unamortized debt discount | |
| (157,691 | ) | |
| - | |
Convertible notes payable, net | |
$ | 13,559 | | |
$ | - | |
LEGACYXCHANGE, INC.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2015
NOTE 8 – CONVERTIBLE NOTES PAYABLE (continued)
Fiscal 2016 Convertible Notes (continued)
At September 30, 2015 and March 31, 2015, the total
convertible promissory notes mentioned above consisted of the following:
| |
September 30, 2015 | | |
March 31, 2015 | |
Principal amount | |
$ | 482,740 | | |
$ | 400,000 | |
Less: unamortized debt discount | |
| (364,878 | ) | |
| (329,913 | ) |
Convertible notes payable, net | |
$ | 117,862 | | |
$ | 70,087 | |
note 9 –
STOCKHOLDERS’ DEFICIT
Authorized shares
The Company is authorized to issue 10,000,000 shares
of its $0.001 par value preferred stock. As of September 30, 2015 and March 31, 2015, no shares were issued and outstanding.
The Company is authorized to issue 190,000,000 shares
of its $0.001 par value common stock. As of September 30, 2015 and March 31, 2015, 44,630,056 and 36,951,165 shares of common stock
were issued and outstanding, respectively.
Common stock issued for services
On April 27, 2015, the Company issued 100,000 restricted
shares of common stock to an attorney for services rendered. The shares were valued at the fair market value of $0.06 per share
based on the closing bid price on the grant date. The Company recorded stock-based legal fees of $6,000 for the six months ended
September 30, 2015.
On May 1, 2015, the Company issued 180,000 restricted
shares of common stock to an attorney for services to be rendered. The shares were valued at the fair market value of $0.0549 per
share based on the closing bid price on the grant date. The Company recorded stock-based legal fees of $4,118 for the six months
ended September 30, 2015 and had a remaining prepaid expense of $5,764 at September 30, 2015, which will be amortized over the
remaining service period.
On May 1, 2015, the Company issued 175,000 vested shares
of common stock to an attorney for services to be rendered. The shares were valued at the fair market value of $0.0549 per share
on the grant date which is the measurement date based on the closing bid price on the grant date. The Company recorded stock-based
legal fees of $4,000 for the six months ended September 30, 2015 and had a remaining prepaid expense of $5,608 at September 30,
2015, which will be amortized over the remaining service period.
On June 1, 2015, the Company issued 726,989 restricted
shares of common stock to a company controlled by the Company’s Chief Financial Officer for compensation and to settle accrued
liabilities of $26,667 pursuant to the related service agreement (See Note 7). The shares were valued at $26,667 based on 60% of
the closing bid price of the Company’s common stock on the last trading day of the previous quarter as defined in the service
agreement. No gain or loss was recognized on this settlement.
On June 1, 2015, the Company issued 250,000 vested
shares of common stock to a consultant for marketing services to be rendered. The shares were valued at the fair market value of
$0.054 per share on the grant date which is the measurement date based on the closing bid price on the grant date. The Company
recorded stock-based marketing service fees of $4,500 for the six months ended September 30, 2015 and had a remaining prepaid expense
of $9,000 at September 30, 2015, which will be amortized over the remaining service period.
On July 1, 2015, the Company issued 100,000 vested
shares of common stock to a consultant for web design services to be rendered. The shares were valued at the fair market value
of $0.06 per share on the grant date which is the measurement date based on the closing bid price on the grant date. The Company
recorded stock-based consulting fees of $1,500 for the six months ended September 30, 2015 and had a remaining prepaid expense
of $4,500 at September 30, 2015, which will be amortized over the remaining service period.
On August 5, 2015, the Company issued 181,818 restricted
shares of common stock to a company controlled by the Company’s Chief Financial Officer for compensation and to settle accrued
liabilities of $10,000 pursuant to the related service agreement (See Note 7). The shares were valued at $10,000 based on 60% of
the closing bid price of the Company’s common stock on the last trading day of the previous quarter as defined in the service
agreement. No gain or loss was recognized on this settlement.
LEGACYXCHANGE, INC.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2015
note 9 –
STOCKHOLDERS’ DEFICIT (continued)
Common stock issued for services (continued)
On August 5, 2015, the Company issued 125,000 vested
shares of common stock to two accounting consultants for services rendered and 800,000 vested shares of common stock to two IT
professionals for services rendered. The shares were valued at the fair market value of $0.04 per share on the grant date which
is the measurement date based on the closing bid price on the grant date. The Company recorded stock-based accounting fees of $5,000
and stock-based consulting fees of $32,000, respectively, for the six months ended September 30, 2015.
Common stock issued for notes conversion and accrued interest
On July 9, 2015, $27,510 principal
amount of the Company’s Fiscal 2015 Convertible Notes and $10,792 accrued interest were converted at $0.02 per share into
1,915,084 shares of the Company’s common stock.
On July 22, 2015, $36,000
principal amount of the Company’s Fiscal 2015 Convertible Notes was converted at $0.02 per share into 1,800,000 shares of
the Company’s common stock.
On July 27, 2015, $25,000
principal amount of the Company’s Fiscal 2015 Convertible Notes was converted at $0.02 per share into 1,250,000 shares of
the Company’s common stock.
Common stock issued for loan fees
On July 7, 2015, the Company issued 75,000 vested shares
of common stock as additional consideration for a bridge loan. The shares were valued at the fair market value of $0.048 per share
on the grant date which is the measurement date based on the closing bid price on the grant date. The Company recorded interest
expense of $3,600 for the six months ended September 30, 2015.
Reclassification of derivative liabilities upon
notes conversion
During the three months ended September 30, 2015, the
Company reclassified $188,327 derivative liabilities to additional paid-in capital upon the conversion of Fiscal 2015 Convertible
Notes with principal amount of $88,510.
Warrants
The Company issued warrants with the sale of common
stock during the six months ended September 30, 2015. These warrants have an exercise price of $0.035 per share and expire in 5
years from issuance dates. Warrant activities for the six months ended September 30, 2015 were as follows:
| |
Number of Warrants | | |
Weighted Average Exercise Price | |
Balance at March 31, 2015 | |
| 1,048,315 | | |
$ | 0.400 | |
Issued | |
| 3,425,000 | | |
| 0.035 | |
Exercised/forfeited/expired | |
| - | | |
| - | |
Balance at September 30, 2015 | |
| 4,473,315 | | |
$ | 0.121 | |
Warrant exercisable at September 30, 2015 | |
| 4,473,315 | | |
$ | 0.121 | |
The intrinsic value of the warrants was $34,250 at September 30, 2015.
LEGACYXCHANGE, INC.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2015
note 9 –
STOCKHOLDERS’ DEFICIT (continued)
Warrants (continued)
The following table summarizes the shares of the Company’s
common stock issuable upon exercise of warrants outstanding at September 30, 2015:
Warrants Outstanding | | |
Warrants Exercisable | |
Range of
Exercise
Price | | |
Number
Outstanding at September 30,
2015 | | |
Range of
Weighted
Average Remaining Contractual Life (Years) | | |
Weighted
Average
Exercise
Price | | |
Number
Exercisable at September 30,
2015 | | |
Weighted
Average
Exercise
Price | |
$ | 0.400 | | |
| 356,250 | | |
| 2.0 | | |
$ | 0.400 | | |
| 356,250 | | |
$ | 0.400 | |
| 0.400 | | |
| 25,000 | | |
| 2.1 | | |
| 0.400 | | |
| 25,000 | | |
| 0.400 | |
| 0.400 | | |
| 25,500 | | |
| 2.2 | | |
| 0.400 | | |
| 25,500 | | |
| 0.400 | |
| 0.400 | | |
| 161,543 | | |
| 2.3 | | |
| 0.400 | | |
| 161,543 | | |
| 0.400 | |
| 0.400 | | |
| 103,438 | | |
| 2.4 | | |
| 0.400 | | |
| 103,438 | | |
| 0.400 | |
| 0.400 | | |
| 46,877 | | |
| 2.5 | | |
| 0.400 | | |
| 46,877 | | |
| 0.400 | |
| 0.400 | | |
| 15,001 | | |
| 2.6 | | |
| 0.400 | | |
| 15,001 | | |
| 0.400 | |
| 0.400 | | |
| 106,912 | | |
| 3.6 | | |
| 0.400 | | |
| 106,912 | | |
| 0.400 | |
| 0.400 | | |
| 205,919 | | |
| 3.7 | | |
| 0.400 | | |
| 205,919 | | |
| 0.400 | |
| 0.400 | | |
| 1,875 | | |
| 3.8 | | |
| 0.400 | | |
| 1,875 | | |
| 0.400 | |
| 0.035 | | |
| 2,000,000 | | |
| 4.6 | | |
| 0.035 | | |
| 2,000,000 | | |
| 0.035 | |
| 0.035 | | |
| 300,000 | | |
| 4.7 | | |
| 0.035 | | |
| 300,000 | | |
| 0.035 | |
| 0.035 | | |
| 1,085,000 | | |
| 4.9 | | |
| 0.035 | | |
| 1,085,000 | | |
| 0.035 | |
| 0.035 | | |
| 40,000 | | |
| 5.0 | | |
| 0.035 | | |
| 40,000 | | |
| 0.035 | |
$ | 0.035 – 0.400 | | |
| 4,473,315 | | |
| 2.0 – 5.0 | | |
$ | 0.121 | | |
| 4,473,315 | | |
$ | 0.121 | |
NOTE 10 – CONCENTRATIONS AND COMMITMENTS
Concentrations
Customers
No customer accounted for 10% or more of the Company’s
revenue during the three and six months ended September 30, 2015 and 2014.
Suppliers
No supplier accounted for 10% or more of the Company’s
inventory purchases during the three and six months ended September 30, 2015 and 2014.
Commitments
Service contracts
In September 2014, the Company signed an eight-month
agreement with Applied DNA to work together, in good faith, on a business partnership focused on using Applied DNA Sciences’
unique SigNature© DNA taggant platform, digitalDNA © software platform and other products as required for DNA marking,
tracking and authentication of sports collectibles and sports memorabilia uniquely and authentically identified to an athlete (“Goods”)
and offered either within a True2Bid online auction exchange environment or through other means of sale. The agreement requires
a cash payment of $35,000, of which $10,000 has been paid and the balance of $25,000 was scheduled to be paid in two payments of
$12,500 each on February 1, 2015 and June 1, 2015. However, there has been no development pursuant to the three phases as defined
in the agreement; accordingly, the Company believes no obligation exists and does not intend to pay these installments until the
milestones are reached. This agreement expired in May 2015. In October 2015, the Company received a $10,000 refund from Applied
DNA.
LEGACYXCHANGE, INC.
CONDENSED NOTES TO UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2015
NOTE 10 – CONCENTRATIONS
AND COMMITMENTS (continued)
Commitments (continued)
Service contracts (continued)
On October 29, 2014, the Company entered into a service
agreement with CFO Oncall, effective on November 1, 2014. In accordance to the service agreement, the service fee is $5,000 per
month which is payable as follows: $3,000 in cash payable in advance of the 1st of each month, and $2,000 payable at
the Company’s option in cash or the Company’s common stock at a 40% discount to quoted market prices. The $2,000 portion
is accounted for as stock settled debt in accordance with ASC 480 resulting in a premium on each $2,000 payment amount of $1,333.
The increase in premium in the six months ended September 30, 2015 was $12,000 and the decrease in premium in the six months ended
September 30, 2015 was $18,667. The accumulated premium at September 30, 2015 and March 31, 2015 was $0 and $6,667, respectively,
which were included in accounts payable and accrued liabilities.
On May 1, 2015, the Company entered into a one-year
legal service agreement with an attorney who has agreed to provide corporate and securities related legal services to the Company.
The agreement expires on April 30, 2016. In accordance to this legal service agreement, the Company pays (a) a flat cash fee of
$1,000 per month; and (b) an annual stock fee of 175,000 restricted shares of the Company’s common stock. The Company issued
the 175,000 restricted shares of common stock in June 2015 (See Note 9 – Common stock issued for service). The accrued service
fees related to the service agreement at September 30, 2015 was $2,500, which was included in accounts payable and accrued liabilities.
On May 1, 2015, the Company entered into a one-year
consulting agreement with an attorney who has agreed to provide consulting services to the Company. The agreement expires on April
30, 2016. In accordance to this consulting agreement, the Company pays this consultant (a) $6,000 in equal monthly installments;
and (b) 180,000 shares of the Company’s common stock. The Company issued the 180,000 shares of common stock in June 2015
(See Note 9 – Common stock issued for services). The accrued service fees related to the service agreement at September 30,
2015 was $2,000, which was included in accounts payable and accrued liabilities.
On June 1, 2015, the Company entered into a one-year
consulting agreement with a consultant who has agreed to provide consulting services to the Company. The agreement expires on May
31, 2016. In accordance to this consulting agreement, the Company pays the consultant (a) Per Tier 1 athlete/celebrity: (i) 2,500
restricted shares of the Company’s common stock; (ii) 4% of the advertising revenue generated from items offered for sale
on the site related to the athlete/celebrity, which were not sold directly by the athlete/celebrity; (iii) 1% of the net item sales
of any original merchandise sold by the athlete/celebrity; (b) For all other tiers, including collectible specialists, corporations:
(i) 1,500 shares of the Company’s common stock; (ii) 3% of the advertising revenue generated from items offered for sale
on the site related to the athlete/celebrity, which were not sold directly by the athlete/celebrity; (iii) 1% of the net item sales
of any original merchandise sold by the athlete/celebrity or entity; (c) 250,000 shares of the Company’s common stock upon
signing, plus $3,500 per month for the following services: (i) advisory services related to professional sports franchises; (ii)
introduction to sports related industry leaders; (iii) assistance in athlete management; (iv) assistance in athlete promotions.
For (a) and (b), the percentage of net sales and percentage of advertising revenue will be paid to the consultant as long as the
athlete/celebrity/other remains a vendor for the Company, otherwise the consultant earns no commission or fees. The consultant
will be paid any commission on the 10th of each month for revenue generated in the preceding month, and the first of
every month for the $3,500 monthly payment. The Company issued the 250,000 restricted shares of common stock in June 2015 (See
Note 9 – Common stock issued for service).
On September 1, 2015, the Company entered into a consulting
agreement with a consultant who has agreed to provide consulting services to the Company. The agreement can be terminated at any
time by either party. In accordance to this consulting agreement, the Company pays the consultant (a) 75,000 shares of the Company’s
common stock upon both parties signing this agreement; (b) 25,000 shares of the Company’s common stock per month, commencing
at September 1, 2015 and continuing each month thereafter until this agreement has been terminated; (c) $2,000 per month, due and
payable on the first of every month, commencing September 1, 2015; (d) 1,500 restricted shares of the Company’s common stock
for each athlete, celebrity, or company that agrees to participate with the Company during the course of this agreement; (e) 1%
of the revenue generated from the sales of original merchandise from athletes or celebrities consultant has participate with the
Company during the course of this agreement. The consultant will be paid any commissions on the 10th of each month for
revenue generated in the preceding month. The issuance of stock will occur every 90 days. As of September 30, 2015, the Company
did not issue the related shares to the consultant. The accrued service fees related to the service agreement at September 30,
2015 was $5,890, which was included in accounts payable and accrued liabilities.
LEGACYXCHANGE, INC.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL
STATEMENTS
SEPTEMBER 30, 2015
NOTE 11 – SUBSEQUENT EVENTS
Convertible note with principal amount of $40,000
On October 9, 2015, the Company and an investor (the
“Investor”) entered into a convertible promissory note agreement, providing the issuance of a 10% convertible
promissory note (the “Convertible Note”) with a principal amount of $40,000. The Convertible Note is due and payable
on the third anniversary of the date of October 8, 2018. The Investor is entitled, at its option, at any time after the issuance
of the Convertible Note, to convert all or any lesser portion of the outstanding principal amount and accrued but unpaid interest
into the Company’s common stock at a conversion price for each share of common stock equal to $0.035. The conversion price
of the convertible note shall be subject to adjustment for issuances of common stock at a purchase price of less than the then-effective
conversion price.
In connection with the issuance of the convertible
note, the Company issued five-year common stock purchase warrants (“Warrants”) exercisable at $0.035 per share. The
investor received 20 Warrants for each dollar invested in the convertible note. The exercise price of the Warrant shall be subject
to adjustment for issuance of common stock at a consideration per share of less than the then-effective exercise price.
In connection with the issuance of the convertible
note, the Company determined that the terms of the convertible note and the 800,000 warrants include down-round provisions 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. Accordingly, under the provisions of FASB ASC Topic No. 815-40, “Derivatives
and Hedging – Contracts in an Entity’s Own Stock”, the embedded conversion option contained in the convertible
instrument and the warrants were accounted for as a 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 derivative and warrants derivative
was determined using the Binomial Option Pricing Model. On the initial measurement date, the fair value of the embedded conversion
option derivative and warrants derivative of $75,486 was recorded as a derivative liability and was allocated as a debt discount
up to the proceeds of the note $40,000 with the remainder $35,486 charged to current period operations as initial derivative expense.
Any gains and losses recorded from changes in the fair value of the liability for derivative contract will be recorded as a component
of other income/(expense) in the consolidated statements of operations.
Common stock issued for service
On October 26, 2015, the Company issued 250,000 restricted
shares of common stock to a consultant for services rendered and to be rendered. The shares were valued at the fair market value
of $0.0389 per share based on the closing bid price on the grant date. The Company reduced accounts payable of $3,890 and recorded
a prepaid expense of $5,835, which will be amortized over the remaining service period.
LegacyXChange, Inc. is referred to herein as “we”,
“our” or “us”.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
We
were originally incorporated as Burrow Mining, Inc., a Nevada corporation, on December 11, 2006. In February 2010, we shifted
our focus to the beauty industry and later amended our Articles of Incorporation and changed our name to True 2 Beauty, Inc.,
to better reflect our new business focus.
On
July 10, 2012, we formed a new wholly owned subsidiary True2Bid, Inc. (“True2Bid”), a Nevada incorporated entity.
This subsidiary’s name was changed to LegacyXChange, Inc. (“LegacyXChange”) in December 2014. We continued to
sell existing inventory of beauty products through May 2013 when the final inventory was sold. LegacyXChange plans to operate
an online e-commerce platform focus 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, we dissolved LegacyXChange,
Inc. (formerly True2Bid, Inc.) to allow for the change in name of our parent company, True 2 Beauty, Inc., to LegacyXChange, Inc.
We plan on launching our website,
LegacyXChange.com, for the trading of collectibles and memorabilia across numerous product categories. Following secure chain
of custody protocols that guarantee authenticity from origination, and utilizing unique proprietary DNA “Marks” that
cannot be counterfeited, our anticipated inventory of collectibles will be permanently marked with DNA, which can only be verified
through DNA analysis. Our goal is to provide the ongoing ability to guarantee authenticity of items with 100% surety. We will
track ownership for all Original items, and only we can verify authenticity. We will work with athletes and celebrities as they
create high valued new collectibles, items that will differentiate from those already in the marketplace. The site will also allow
non-“Marked” third party collectible items to be listed and sold. However, any third party items, which claim to have
authentic signatures, will have to provide documentation of authenticity from a Company-approved expert authentication company.
The site will offer sellers multiple opportunities to advertise and promote the sale of items.
Critical
accounting policies and estimates
Our
discussion and analysis of our financial condition and results of operations are based upon our unaudited consolidated financial
statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation
of these unaudited consolidated financial statements requires us to make estimates and judgments that affect the reported amounts
of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We continually evaluate
our estimates, including those related to income taxes, and the valuation of equity transactions. We base our estimates on historical
experience and on various other assumptions that we believed to be reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
Any future changes to these estimates and assumptions could cause a material change to our reported amounts of revenues, expenses,
assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. We believe the
following critical accounting policies affect our more significant judgments and estimates used in the preparation of the unaudited
consolidated financial statements.
Revenue
recognition
We
recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the
purchase price is fixed or determinable and collectability is reasonably assured. Our specific revenue recognition policies are
as follows:
|
● |
Product sales from the
sale of beauty products, which ceased in May 2013, and sales of products through the subsidiary’s auction website are
recognized when the product is shipped to the customer and title is transferred. |
|
|
|
|
● |
Under our auction program, consumers
are required to purchase bid packages directly from us. Proceeds from the sales of bid packages are recorded as deferred revenue
until recognizable as discussed below. In connection with the sale of bid packages, we utilized the User-based Revenue Model
(“UBRM”). The UBRM is based on the presumption that the period of delivery for the bid package is the estimated
average user life, which was estimated by us to be 60 days. Consequently, revenue from the sale of bid packages is recognized
ratably over the estimated user life of 60 days. |
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.
Pursuant
to ASC Topic 505-50, for share-based payments to consultants and other third parties, compensation expense is determined at the
“measurement date” and establishes that share-based payment transactions with nonemployees shall be measured at the
fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable.
Convertible
notes and related embedded derivatives
We
account for the embedded conversion option and warrants contained in convertible instruments under the provisions of FASB ASC
Topic No. 815-40, “Derivatives and Hedging – Contracts in an Entity’s Own Stock”. The embedded conversion
option and warrants contained in the convertible instruments 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 warrants derivatives were determined using the Binomial Option Pricing Model. On the initial measurement date,
the fair value of the embedded conversion option derivative and warrants liabilities were recorded as derivative liabilities and
were allocated as a debt discount up to the proceeds of the notes with the remainder charged to current period operations as initial
derivative expense. Any gains and losses recorded from changes in the fair value of the liabilities for derivative contract was
recorded as a component of other income/(expense) in the accompanying unaudited consolidated statements of operations.
Recent
accounting pronouncements
Accounting
standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have
a material impact on the consolidated financial statements upon adoption. We do not discuss recent pronouncements that are not
anticipated to have an impact on or are unrelated to our consolidated financial condition, results of operations, cash flows or
disclosures.
RESULTS
OF OPERATIONS
Comparison
of results of operations for the three and six months ended September 30, 2015 and 2014.
Revenue
and gross loss
For
the three and six months ended September 30, 2015, we did not generate any revenue. We generated negative revenue of $365 for
the three months ended September 30, 2014 and we generated limited revenue of $358 for the six months ended September 30, 2014.
We generated a gross loss of $594 and $1,178 for the three and six months ended September 30, 2014, respectively, which related
primarily to the sale of remaining inventory of beauty products.
Operating
expenses
For
the three months ended September 30, 2015 and 2014, operating expenses amounted to $149,578 and $81,136, respectively, an increase
of $68,442 or 84.4%. For the six months ended September 30, 2015 and 2014, operating expenses amounted to $309,426 and $203,537,
respectively, an increase of $105,889 or 52.0%. Operating expenses consisted of the following:
| |
Three Months Ended
September 30, | | |
Six Months Ended
September 30, | |
| |
2015 | | |
2014 | | |
2015 | | |
2014 | |
Compensation and related taxes | |
$ | 33,795 | | |
$ | 52,859 | | |
$ | 67,766 | | |
$ | 86,562 | |
Professional fees | |
| 105,490 | | |
| 20,055 | | |
| 216,089 | | |
| 94,264 | |
Other selling, general and administrative | |
| 10,293 | | |
| 8,222 | | |
| 25,571 | | |
| 22,711 | |
| |
$ | 149,578 | | |
$ | 81,136 | | |
$ | 309,426 | | |
$ | 203,537 | |
|
● |
For the three months ended September
30, 2015 and 2014, compensation and related taxes amounted to $33,795 and $52,859, respectively, a decrease of $19,064 or
36.1%. The decrease during the three months ended September 30, 2015 was attributable to the decrease in board member compensation
of approximately $20,000, offset by the increase in payroll taxes of approximately $1,000. For the six months ended September
30, 2015 and 2014, compensation and related taxes amounted to $67,766 and $86,562, respectively, a decrease of $18,796 or
21.7%. The decrease during the six months ended September 30, 2015 was attributable to the decrease in board member compensation
of approximately $20,000, offset by the increase in payroll taxes of approximately $1,000. We expect administrative salaries
to remain at the current quarterly level. |
|
● |
For the three months ended September
30, 2015 and 2014, professional fees amounted to $105,490 and $20,055, respectively, an increase of $85,435 or 426.0%. The
increase during the three months ended September 30, 2015 was mainly attributable to an increase in accounting fees of approximately
$28,000 incurred for services performed by our Chief Financial Officer and auditors, and an increase in consulting fees of
approximately $57,000 as a result of our business expansion. For the six months ended September 30, 2015 and 2014, professional
fees amounted to $216,089 and $94,264, respectively, an increase of $121,825 or 129.2%. The increase during the six months
ended September 30, 2015 was mainly attributable to an increase in accounting fees of approximately $46,000 incurred for services
performed by our chief financial officer and auditors, an increase in consulting fees of approximately $69,000 resulting from
our business expansion, and an increase in other miscellaneous items of approximately $7,000. We expect professional fees
to increase as we incur significant costs associated with our public company reporting requirements, and costs associated
with newly applicable corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002 and other
rules implemented by the Securities and Exchange Commission. |
|
● |
For the three months ended September
30, 2015 and 2014, other selling, general and administrative expenses, which consisted primarily of bank service charge, travel
and entertainment, insurance, office supplies, amounting to $10,293 and $8,222, respectively, an increase of $2,071, or 25.2%.
For the six months ended September 30, 2015 and 2014, other selling, general and administrative expenses amounted to $25,571
and $22,711, respectively, an increase of $2,860, or 12.6%. |
Loss
from operations
For
the three months ended September 30, 2015 and 2014, loss from operations amounted to $149,578 and $81,730, respectively, an increase
of $67,848, or 83.0%. For the six months ended September 30, 2015 and 2014, loss from operations amounted to $309,426 and $204,715,
respectively, an increase of $104,711, or 51.1%.
Other
income (expense)
Other
income (expense) includes interest expense, initial derivative expense, gain/loss from change in fair value of derivative liabilities
and loss on settlement of loans. For the three months ended September 30, 2015, total other expense amounted to $167,796 as compared
to total other expense of $0 for the three months ended September 30, 2014, an increase of $167,796. The increase in other expense
for the three months ended September 30, 2015 as compared to the three months ended September 30, 2014 was mainly attributable
to:
|
● |
An increase in interest expense of
$117,120, due to the increase in interest from our convertible notes payable and loan payable; and |
|
● |
An increase in initial derivative expense
of $47,382 related to the embedded conversion option contained in our convertible notes payable and warrant liabilities and
an increase in loss from change in fair value of derivative liabilities of $3,294 which did not have any corresponding expenses
or losses during the three months ended September 30, 2014. |
For
the six months ended September 30, 2015, total other expense amounted to $74,255 as compared to total other expense $5,510 for
the six months ended September 30, 2014, an increase of $68,745. The increase in other expense for the six months ended September
30, 2015 as compared to the six months ended September 30, 2014 was mainly attributable to:
|
● |
An
increase in interest expense of $163,624, due to the increase in interest from our convertible notes payable and loan payable; |
|
|
|
|
● |
An
increase in initial derivative expense of $166,837 related to the embedded conversion option contained in our convertible
notes payable and warrant liabilities and an increase in gain from change in fair value of derivative liabilities of $256,206
which did not have any corresponding expenses or gain during the six months ended September 30, 2014; and |
|
|
|
|
● |
A
decrease in loss on settlement of loans of $5,510. |
Net
loss
As
a result of the factors described above, our net loss for the three months ended September 30, 2015 and 2014 was $317,374 and
$81,730, respectively, or a net loss per common share of $0.0073 and $0.0022 (basic and diluted), respectively. As a
result of the factors described above, our net loss for the six months ended September 30, 2015 and 2014 was $383,681 and $210,225, respectively, or
a net loss per common share of $0.0095 and $0.0059 (basic and diluted), respectively.
Liquidity
and Capital Resources
Liquidity
is the ability of a company to generate funds to support its current and future operations, satisfy its obligations and otherwise
operate on an ongoing basis. At September 30, 2015 and March 31, 2015, we had cash balances of approximately $600 and $4,400,
respectively.
Our
working capital deficit decreased approximately $74,000 to working capital deficit of approximately $1,103,000 at September 30,
2015 from working capital deficit of approximately $1,177,000 at March 31, 2015. The decrease in working capital deficit was primarily
attributable to an increase in prepaid expenses of approximately $11,000, a decrease in accrued officer salary and director fees
of approximately $4,000, and a decrease in derivative liabilities of approximately $106,000, offset by a decrease in cash of approximately
$4,000, an increase in accounts payable and accrued liabilities of approximately $19,000, and an increase in loan payable of approximately
$25,000.
During
the six months ended September 30, 2015, a few investors and we entered into convertible promissory note agreements, providing
the issuance of a 10% convertible promissory notes (the “Fiscal 2016 Convertible Notes”) with an aggregate principal
amount of $171,250. The Fiscal 2016 Convertible Notes are due and payable on the third anniversary of the issue dates. The Investors
are entitled, at their option, at any time after the issuance of these Fiscal 2016 Convertible Notes, to convert all or any lesser
portion of the outstanding principal amount and accrued but unpaid interest into our common stock at a conversion price for each
share of common stock equal to $0.035. The conversion price of the Fiscal 2016 Convertible Notes shall be subject to adjustment
for issuances of common stock at a purchase price of less than the then-effective conversion price.
Cash
Flow
Net
cash flow used in operating activities was approximately $200,000 for the six months ended September 30, 2015 as compared to net
cash flow used in operating activities of approximately $118,000 for the six months ended September 30, 2014, an increase of approximately
$82,000.
|
● |
Net cash flow used in operating
activities for the six months ended September 30, 2015 primarily reflected a net loss of approximately $384,000 and the non-cash
item of gain from change in fair value of derivative liabilities of approximately $256,000, and the changes in operating assets
and liabilities primarily consisting of a decrease in accrued officer salary and director fees of approximately $4,000, offset
by a decrease in prepaid expenses of approximately $7,000, an increase in accounts payable and accrued liabilities of approximately
$66,000 and the add-back of non-cash items, such as stock-based compensation expenses of approximately $64,000, stock issued
for loan fees of approximately $4,000, amortization of debt discount of approximately $136,000, and an initial fair value
of derivative liabilities of approximately $167,000. |
|
● |
Net cash flow used in operating
activities for the six months ended September 30, 2014 primarily reflected net loss of approximately $210,000, and the changes
in operating assets and liabilities primarily consisting of a decrease in deferred revenue of approximately $300 and a decrease
in due to shareholders of approximately $3,000, offset by a decrease in prepaid expenses of approximately $3,000, a decrease
in security deposit of approximately $600, an increase in accounts payable and accrued expenses of approximately $4,000, an
increase in accrued officer salary and director fees of approximately $14,000, and the add-back of non-cash items, such as
stock-based compensation expenses of approximately $69,000 and loss on settlement of loans of approximately $6,000. |
We
did not incur any investing activity during the six months ended September 30, 2015 and 2014.
Net
cash flow provided by financing activities was approximately $196,000 for the six months ended September 30, 2015 as compared
to approximately $127,000 for the six months ended September 30, 2014. During the six months ended September 30, 2015, we received
proceeds from loan payable of $25,000 and received proceeds from convertible notes of approximately $171,000. During the six months
ended September 30, 2014, we received proceeds from convertible notes advances of approximately $55,000 and proceeds from sale
of common stock of approximately $72,000.
Our
primary uses of cash have been for salaries and fees paid to third parties for professional services. All funds received have
been expended in the furtherance of growing the business. The following trends are reasonably likely to result in a material decrease
in our liquidity over the near to long term:
|
● |
An increase in working
capital requirements to finance our current business, |
|
● |
Addition of administrative
and sales personnel as the business grows, and |
|
● |
The cost of being a public
company. |
We
currently have no material commitments for capital expenditures. We will need to raise additional funds, particularly if we are
unable to generate positive cash flow as a result of our operations. We estimate that based on current plans and assumptions,
that our available cash will be insufficient to satisfy our cash requirements under our present operating expectations. Other
than working capital and funds received pursuant to the Securities Purchase Agreement, we presently have no other significant
alternative source of working capital. We have used these funds to fund our operating expenses, pay our obligations and grow our
company. We will need to raise significant additional capital to fund our operations and to provide working capital for our ongoing
operations and obligations. We do not anticipate we will be profitable in the rest of fiscal 2016. Therefore our future operation
is dependent on our ability to secure additional financing. Financing transactions may include the issuance of equity or debt
securities, obtaining credit facilities, or other financing mechanisms. However, the trading price of our common stock and a downturn
in the U.S. equity and debt markets could make it more difficult to obtain financing through the issuance of equity or debt securities.
Even if we are able to raise the funds required, it is possible that we could incur unexpected costs and expenses or experience
unexpected cash requirements that would force us to seek alternative financing. Furthermore, if we issue additional equity or
debt securities, stockholders may experience additional dilution or the new equity securities may have rights, preferences or
privileges senior to those of existing holders of our common stock. The inability to obtain additional capital may restrict our
ability to grow and may reduce our ability to continue to conduct business operations. If we are unable to obtain additional financing,
we will be required to cease our operations.
We
anticipate that depending on market conditions and our plan of operations, we may incur operating losses in the foreseeable future.
Therefore, our independent registered public accounting firm has raised substantial doubt about our ability to continue as a going
concern in their audit opinion for the years ended March 31, 2015 and 2014.
Our
liquidity is negatively impacted by the significant costs associated with our public company reporting requirements, costs associated
with newly applicable corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002 and other
rules implemented by the Securities and Exchange Commission. We expect all of these applicable rules and regulations to significantly
increase our legal and financial compliance costs and to make some activities more time consuming and costly.
Contractual
Obligations and Off-Balance Sheet Arrangements
Contractual
Obligations
We
have certain fixed contractual obligations and commitments that include future estimated payments. Changes in our business needs,
cancellation provisions, changing interest rates, and other factors may result in actual payments differing from the estimates.
We cannot provide certainty regarding the timing and amounts of payments. We have presented below a summary of the most significant
assumptions used in our determination of amounts presented in the tables, in order to assist in the review of this information
within the context of our consolidated financial position, results of operations, and cash flows. The following tables summarize
our contractual obligations as of September 30, 2015, and the effect these obligations are expected to have on our liquidity and
cash flows in future periods.
| |
Payments Due by Period | |
Contractual obligations: | |
Total | | |
Less than 1 year | | |
1-3 years | | |
3-5 years | | |
5+ years | |
Convertible notes payable (principal) | |
$ | 482,740 | | |
$ | - | | |
$ | 482,740 | | |
$ | - | | |
$ | - | |
Loan payable (principal) | |
| 25,000 | | |
| 25,000 | | |
| - | | |
| - | | |
| - | |
Accrued interest for convertible notes and loan | |
| 30,640 | | |
| 30,640 | | |
| - | | |
| - | | |
| - | |
Total | |
$ | 538,380 | | |
$ | 55,640 | | |
$ | 482,740 | | |
$ | - | | |
$ | - | |
Off-balance
Sheet Arrangements
We
do not have any off-balance sheet arrangements.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
None.
ITEM 4.
CONTROLS AND PROCEDURES
(A) EVALUATION
OF DISCLOSURE CONTROLS AND PROCEDURES
As
of September 30, 2015, our principal executive officer and principal financial officer conducted an evaluation regarding the effectiveness
of our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) under the Exchange Act). Based upon the
evaluation of these controls and procedures, our principal executive officer and principal financial officer concluded that our
disclosure controls and procedures were effective as of the end of the period covered by this report.
(B) CHANGES
IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There
were no changes in our internal control over financial reporting in our second fiscal quarter of the fiscal year ended March 31,
2016 covered by this Quarterly Report on Form 10-Q, that have materially affected, or are reasonably likely to materially affect,
the Company's internal control over financial reporting.
PART
II-OTHER INFORMATION
ITEM 1.
LEGAL PROCEEDINGS
We are
not currently a party to any legal proceedings.
ITEM 1A.
RISK FACTORS
As a smaller
reporting company, we are not required to provide risk factors in this Form 10-Q.
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Fiscal
2016 Convertible Notes
On
August 31, 2015, we entered into a convertible promissory note agreement (“Note Agreement”) with an accredited investor
for $22,000.
On
September 8, 2015, we entered into a Note Agreement with an accredited investor for $30,000.
On
September 8, 2015, we entered into a Note Agreement with an accredited investor for $2,250.
On
September 25, 2015, we entered into a Note Agreement with an accredited investor for $2,000.
The
Note Agreements (the “Fiscal 2016 Convertible Notes”) have an aggregate principal amount of $56,250 and are due and
payable on the third anniversary of the date of each Note Agreement. The Investors are entitled, at their option, at any time
after the issuance of these Fiscal 2016 Convertible Notes, to convert all or any lesser portion of the outstanding principal amount
and accrued but unpaid interest into our common stock at a conversion price for each share of common stock equal to $0.035. The
conversion price of the Fiscal 2016 Convertible Notes is subject to adjustment for issuances of common stock at a purchase price
of less than the then-effective conversion price. In connection with the issuance of these Fiscal 2016 Convertible Notes, we issued
five-year common stock purchase warrants (“Warrants”) exercisable at $0.035 per share. The above investors received
20 Warrants for each dollar invested in the Fiscal 2016 Convertible Notes. The exercise price of the Warrants shall be subject
to adjustment for issuance of common stock at a consideration per share of less than the then-effective exercise price.
Convertible
Note with principal amount of $40,000
On
October 9, 2015, we entered into a Note Agreement with an accredited investor for $40,000.
The
Note Agreement has a principal amount of $40,000 and is due and payable on the third anniversary of the date of October 8, 2018.
The investor is entitled, at its option, at any time after the issuance of the Convertible Note, to convert all or any lesser
portion of the outstanding principal amount and accrued but unpaid interest into our common stock at a conversion price for each
share of common stock equal to $0.035. The conversion price of the convertible note is subject to adjustment for issuance of common
stock at a purchase price of less than the then-effective conversion price. In connection with the issuance of the convertible
note, we issued five-year common stock purchase warrants (“Warrants”) exercisable at $0.035 per share. The investor
received 20 Warrants for each dollar invested in the convertible note. The exercise price of the Warrants shall be subject to
adjustment for issuance of common stock at a consideration per share of less than the then-effective exercise price.
Common
stock issued for service
On
July 1, 2015, we issued 100,000 restricted shares of common stock to a web design consultant for services rendered and to be rendered.
On
August 5, 2015, we issued 181,818 restricted shares of common stock to a company controlled by our chief financial officer for
services rendered and to settle accrued liabilities of $10,000 pursuant to the related service agreement.
On
August 5, 2015, we issued 15,000 restricted shares of common stock to an accountant for accounting services rendered.
On
August 5, 2015, we issued 110,000 restricted shares of common stock to an accountant for accounting services rendered.
On
August 5, 2015, we issued 400,000 restricted shares of common stock to a consultant for IT services rendered.
On
August 5, 2015, we issued 400,000 restricted shares of common stock to a consultant for computer programming services rendered.
On
October 26, 2015, we issued 250,000 restricted shares of common stock to a consultant for services rendered and to be rendered.
Common
stock issued for notes conversion and accrued interest
On
July 9, 2015, $27,510 principal amount of our Fiscal 2015 Convertible Notes and $10,792 accrued interest was converted into 1,915,084
shares of our common stock.
On
July 22, 2015, $36,000 principal amount of our Fiscal 2015 Convertible Notes was converted into 1,800,000 shares of our common
stock.
On
July 27, 2015, $25,000 principal amount of our Fiscal 2015 Convertible Notes was converted into 1,250,000 shares of our common
stock.
Common
stock issued for loan fees
On
July 7, 2015, we issued 75,000 vested shares of common stock as additional consideration for a bridge loan with principal of $25,000.
The shares were valued at the fair market value of $0.048 per share on the grant date which is the measurement date based on the
closing bid price on the grant date. We recorded interest expense of $3,600 for the six months ended September 30, 2015.
ITEM 3.
DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5.
OTHER INFORMATION
None.
ITEM
6. EXHIBITS
31.1 |
| Rule 13a-14(a)/15d-14(a) certification
of Chief Executive Officer |
31.2 |
| Rule 13a-14(a)/15d-14(a) certification
of Principal Financial Officer |
32.1 |
| Section 1350 certification
of Chief Executive Officer and Chief Financial Officer |
101.INS |
|
XBRL Instance Document |
101.SCH |
|
XBRL Taxonomy Extension Schema Document |
101.CAL |
|
XBRL Taxonomy Extension Calculation
Linkbase Document |
101.DEF |
|
XBRL Taxonomy Extension Definition
Linkbase Document |
101.LAB |
|
XBRL Taxonomy Extension Label Linkbase
Document |
101.PRE |
|
XBRL Taxonomy Extension Presentation
Linkbase Document |
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
|
LEGACYXCHANGE, INC. |
|
|
|
Date: November 16, 2015 |
By: |
/s/ William Bollander |
|
|
William Bollander,
Chief Executive Officer |
|
|
|
|
|
|
Date: November 16, 2015 |
By: |
/s/ Adam Wasserman |
|
|
Adam Wasserman,
Chief Financial Officer |
27
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF
THE
SARBANES-OXLEY ACT OF 2002
I, William Bollander, certify
that:
1. I have
reviewed this quarterly report on Form 10-Q of LegacyXChange, Inc.;
2. Based
on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to
the period covered by this report;
3. Based
on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant’s other
certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
|
a) |
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; |
|
b) |
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
c) |
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; |
|
d) |
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; |
5. The
registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or
persons performing the equivalent function):
|
a) |
all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and |
|
b) |
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal controls over financial reporting. |
Dated:
November 16, 2015 |
By: |
/s/
William Bollander |
|
|
William Bollander
Chief Executive Officer
(Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL AND ACCOUNTING
OFFICER
PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Adam Wasserman, certify that:
1. I have
reviewed this quarterly report on Form 10-Q of LegacyXChange, Inc.;
2. Based
on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to
the period covered by this report;
3. Based
on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in
all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods
presented in this report;
4. The registrant’s other
certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange
Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
|
a) |
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; |
|
b) |
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
c) |
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; |
|
d) |
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; |
5. The
registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over
financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons
performing the equivalent function):
|
a) |
all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting
which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial
information; and |
|
b) |
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal controls over financial reporting. |
Dated:
November 16, 2015 |
By: |
/s/ Adam Wasserman |
|
|
Adam Wasserman
Chief Financial Officer
(Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly
Report of LegacyXChange, Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2015 as filed with the
Securities and Exchange Commission on the date hereof (the “Report”), William Bollander, chief executive officer of
the Company, and Adam Wasserman, chief financial officer of the Company, certify, pursuant to 18 U.S.C. section 1350 of the Sarbanes-Oxley
Act of 2002, that:
| (1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange
Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company. |
Date: November 16, 2015 |
By: |
/s/ William Bollander |
|
|
William Bollander
Chief Executive Officer |
|
|
(Principal
Executive Officer) |
Date: November 16, 2015 |
By: |
/s/ Adam Wasserman |
|
|
Adam Wasserman
Chief Financial Officer
(Principal Financial Officer) |
A signed original of this written statement required
by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form
within the electronic version of this written statement has been provided to the Company and will be retained by the Company and
furnished to the Securities and Exchange Commission or its staff upon request.
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