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LEGX LegacyXChange

Filed: 28 Jan 21, 1:55pm
 

 

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 December 31, 2019

 

☐ 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 Rd., Suite 1240, Boca Raton, FL 33431

 (800) 630-4190
(Address of principal executive offices and zip code) (Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class Trading Symbol Name of each Exchange on which registered
N/A N/A N/A

 

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

 

Large accelerated filerAccelerated filerNon-accelerated filerSmaller reporting companyEmerging growth company
     

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

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: 62,570,659 shares as of January 25, 2021.

 

 

 

 

 

 

LEGACYXCHANGE, INC.

Form 10-Q

December 31, 2019

 

TABLE OF CONTENTS

 

  Page
PART I - FINANCIAL INFORMATION 
  
Item 1.Financial Statements1
 Balance Sheets – December 31, 2019 (Unaudited) and March 31, 20191
 Statements of Operations - Three and Nine Months Ended December 31, 2019 and 2018 (unaudited)2
 Statement of Changes in Stockholders’ Deficit – Three and Nine Months Ended December 31, 2019 and 2018 (unaudited)3
 Statements of Cash Flows - Nine Months Ended December 31, 2019 and 2018 (unaudited)4
 Condensed Notes to Unaudited Financial Statements5
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations.13
Item 3.Quantitative and Qualitative Disclosures About Market Risk.18
Item 4.Controls and Procedures.18
   
PART II - OTHER INFORMATION 
   
Item 1.Legal Proceedings19
Item 1A.Risk Factors19
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds19
Item 3.Defaults Upon Senior Securities19
Item 4.Mine Safety Disclosures20
Item 5.Other Information20
Item 6.Exhibits20
   
 Signatures21

 

i

 

 

PART I - FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

LEGACYXCHANGE, INC.

BALANCE SHEETS

 

  December 31,
2019
  March 31,
2019
 
  (Unaudited)     
ASSETS        
CURRENT ASSETS:        
Cash $375  $- 
Prepaid expense  700   - 
         
Total Current Assets  1,075   - 
         
TOTAL ASSETS $1,075  $- 
         
 LIABILITIES AND STOCKHOLDERS’ DEFICIT        
CURRENT LIABILITIES:        
Accounts payable $135,978  $138,153 
Accrued liabilities  649,569   552,695 
Loans payable – current portion  143,924   143,924 
Convertible notes  480,740   480,740 
Derivative liabilities  -   2,326 
         
Total Current Liabilities  1,430,211   1,317,838 
         
Loans payable - long term  20,000   - 
         
TOTAL LIABILITIES  1,430,211   1,317,838 
         
COMMITMENTS AND CONTINGENCIES        
         
STOCKHOLDERS’ DEFICIT:        
Preferred stock: $0.001 par value; 10,000,000 shares authorized; No shares issued or outstanding at December 31, 2019 and March 31, 2019  -   - 
Common stock: $0.001 par value; 190,000,000 shares authorized; 62,570,659 shares issued and outstanding at December 31, 2019 and March 31, 2019  62,571   62,571 
Additional paid-in capital  9,182,575   9,182,575 
Accumulated deficit  (10,674,282)  (10,562,984)
         
TOTAL STOCKHOLDERS’ DEFICIT  (1,429,136)  (1,317,838)
         
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT $1,075  $- 

 

The accompanying condensed notes are an integral part of these unaudited financial statements.

 

1

 

 

LEGACYXCHANGE, INC.

STATEMENTS OF OPERATIONS

(UNAUDITED)

 

  For the Three Months Ended  For the Nine Months Ended 
  December 31,  December 31, 
  2019  2018  2019  2018 
REVENUE, NET $-  $-  $-  $- 
                 
OPERATING EXPENSES                
Compensation  15,000   15,000   45,000   45,000 
Professional and consulting fees  20,750   750   20,750   750 
                 
TOTAL OPERATING EXPENSES  35,750   15,750   65,750   45,750 
                 
LOSS FROM OPERATIONS  (35,750)  (15,750)  (65,750)  (45,750)
                 
OTHER INCOME (EXPENSE)                
Interest expense  (16,120)  (15,963)  (47,874)  (69,367)
Gain on debt extinguishment  -   2,550   -   2,550 
Gain from change in fair value of derivative liabilities  -   509   -   974 
                 
TOTAL OTHER EXPENSE, NET  (16,120)  (12,904)  (47,874)  (65,843)
                 
NET LOSS $(51,870) $(28,654) $(113,624) $(111,593)
                 
NET LOSS PER COMMON SHARE                
Basic and diluted $(0.00) $(0.00) $(0.00) $(0.00)
                 
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:                
Basic and diluted  62,570,659   62,570,659   62,570,659   62,570,659

 

The accompanying condensed notes are an integral part of these unaudited financial statements.

 

2

 

 

LEGACYXCHANGE, INC.

STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT

For the Three and Nine Months Ended December 31, 2019 and 2018

(UNAUDITED)

 

  Preferred Stock  Common Stock  Additional     Total 
  Number of
Shares
  Amount  Number of
Shares
  Amount  Paid-in
Capital
  Accumulated
Deficit
  Stockholders’
Deficit
 
Balance at March 31, 2019  -  $-   62,570,659  $62,571  $9,182,575  $(10,562,984) $(1,317,838)
                             
Cumulative effect adjustment of derivative liability related to adoption of ASU 2017-11  -   -   -   -   -   2,326   2,326 
                             
Net loss  -   -   -   -   -   (30,790)  (30,790)
                             
Balance at June 30, 2019  -   -   62,570,659   62,571   9,182,575   (10,591,448)  (1,346,302)
                             
Net loss  -   -   -   -   -   (30,964)  (30,964)
                             
Balance at September 30, 2019  -  $-   62,570,659  $62,571  $9,182,575  $(10,622,412) $(1,377,266)
                             
Net loss  -   -   -   -   -   (51,870)  (51,870)
                             
Balance at December 31, 2019  -  $-   62,570,659  $62,571  $9,182,575  $(10,674,282) $(1,429,136)

 

  Preferred Stock  Common Stock  Additional     Total 
  Number of
Shares
  Amount  Number of
Shares
  Amount  Paid-in
Capital
  Accumulated
Deficit
  Stockholders’
Deficit
 
Balance at March 31, 2018  -  $-   62,570,659  $62,571  $9,182,575  $(10,420,274) $(1,175,128)
                             
Net loss  -   -   -   -   -   (51,669)  (51,669)
                             
Balance at June 30, 2018  -   -   62,570,659   62,571   9,182,575   (10,471,943)  (1,226,797)
                             
Net loss  -   -   -   -   -   (31,270)  (31,270)
                             
Balance at September 30, 2018  -  $-   62,570,659  $62,571  $9,182,575  $(10,503,213) $(1,258,067)
                             
Net loss  -   -   -   -   -   (28,654)  (28,654)
                             
Balance at December 31, 2018  -  $-   62,570,659  $62,571  $9,182,575  $(10,531,867) $(1,286,721)

 

The accompanying condensed notes are an integral part of these unaudited financial statements.

 

3

 

 

LEGACYXCHANGE, INC.

STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

  For the Nine Months Ended 
  December 31, 
  2019  2018 
CASH FLOWS FROM OPERATING ACTIVITIES        
Net loss $(113,624) $(111,593)
Adjustments to reconcile net loss to net cash used in operating activities:        
Amortization of debt discount  -   21,649 
Gain from change in fair value of derivative liabilities  -   (974)
Gain on debt extinguishment  -   (2,550)
Changes in operating assets and liabilities:        
Prepaid expenses and other current assets  (700)  - 
Accounts payable  (2,175)  750 
Accrued liabilities  96,874   92,718 
         
Net cash used in operating activities  (19,625)  - 
         
CASH FLOWS FROM FINANCING ACTIVITIES        
Proceeds from loan payable  20,000   - 
         
Net cash provided by financing activities  20,000   - 
         
Net increase (decrease) in cash  375   - 
Cash - Beginning of period  -   - 
Cash - End of the period $375  $- 
         
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:        
Cash paid for:        
Interest $-  $- 
Income taxes $-  $- 
         
NON-CASH INVESTING AND FINANCING ACTIVITIES:        
Cumulative effect adjustment of derivative liability related to adoption of ASU 2017-11 $2,326  $- 

 

The accompanying condensed notes are an integral part of these unaudited financial statements.

 

4

 

 

LEGACYXCHANGE, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2019

 

NOTE 1 – ORGANIZATION AND NATURE OF OPERATIONS

 

LegacyXchange, Inc., formerly known as True 2 Beauty, Inc. (the “Company”) was originally incorporated as Burrow Mining, Inc., a Nevada corporation, on December 11, 2006. In February 2010, the Company amended its Articles of Incorporation and changed its name to True 2 Beauty, Inc.

 

On July 10, 2012, the Company formed a new wholly owned subsidiary True2Bid, Inc. (“True2Bid”) which was incorporated in the state of Nevada. This subsidiary’s name was changed to LegacyXchange, Inc. (“LegacyXchange”) in December 2014. The Company continued to sell existing inventory of beauty products through May 2013 when the final inventory was sold. LegacyXchange operates an online e-commerce platform focused on delivering users a wide array of sports and entertainment related products that can be won in an action-packed environment of a live auction.

 

On July 2, 2015, pursuant to a Certificate of Dissolution filing with the Nevada Secretary of State, the Company dissolved LegacyXchange (formerly True2Bid, Inc.) to allow for the change in name of its parent company, True 2 Beauty, Inc., to LegacyXchange, Inc.

 

The Company is currently inactive due to lack of working capital to fund its operations.

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

Management acknowledges its responsibility for the preparation of the accompanying unaudited financial statements which reflect all adjustments, consisting of normal recurring adjustments, considered necessary in its opinion for a fair statement of its financial position and the results of its operations for the periods presented. The accompanying unaudited financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (the “U.S. GAAP”) 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. Certain information and note disclosure normally included in financial statements prepared in accordance with U.S. GAAP has been omitted from these financial statements pursuant to such accounting principles and, accordingly, they do not include all the information and notes necessary for comprehensive financial statements. These unaudited financial statements should be read in conjunction with the summary of significant accounting policies and notes to the financial statements for the year ended March 31, 2019 of the Company which were included in the Company’s annual report on Form 10-K as filed with the Securities and Exchange Commission on January 19, 2021.

 

Going Concern

 

The unaudited financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in our accompanying unaudited financial statements, the Company had net loss and net cash used in operating activities of $113,624 and $19,625, respectively, for the nine months ended December 31, 2019. The Company had accumulated deficit, stockholders’ deficit and working capital deficit of $10,674,282, $1,429,136 and $1,409,136, respectively, at December 31, 2019. The Company had no revenues for the nine months ended December 31, 2019. The Company’s loans payable in aggregate amount of $143,924 and convertible notes are currently in default. Management believes that these matters raise substantial doubt about the Company’s ability to continue as a going concern for twelve months from the issuance date of this report.

 

Management cannot provide assurance that we will ultimately achieve profitable operations or become cash flow positive, or raise additional debt and/or equity capital. Management believes that our capital resources are not currently adequate to continue operating and maintaining its business strategy for a period of twelve months from the issuance date of this report. The Company will seek to raise capital through additional debt and/or equity financings to fund its operations in the future.

 

Although the Company has historically raised capital from sales of equity and from the issuance of promissory notes, there is no assurance that it will be able to continue to do so. If the Company is unable to raise additional capital or secure additional lending in the near future, management expects that the Company will need to curtail or cease operations. These unaudited financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

5

 

 

LEGACYXCHANGE, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2019

 

Use of Estimates

 

The preparation of the unaudited financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.

 

Fair Value of Financial Instruments and Fair Value Measurements

 

FASB ASC 820 - Fair Value Measurements and Disclosures, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FASB ASC 820 requires disclosures about the fair value of all financial instruments, whether or not recognized, for financial statement purposes. Disclosures about the fair value of financial instruments are based on pertinent information available to the Company on December 31, 2019. Accordingly, the estimates presented in these financial statements are not necessarily indicative of the amounts that could be realized on disposition of the financial instruments. FASB ASC 820 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement).

 

The three levels of the fair value hierarchy are as follows:

 

 Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.
  
 Level 2—Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.
  
 Level 3—Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.

 

The carrying amounts reported in the balance sheets for cash, due from and to related parties, prepaid expenses, accounts payable and accrued liabilities approximate their fair market value based on the short-term maturity of these instruments.

 

Assets or liabilities measured at fair value on a recurring basis included conversion options in convertible notes and warrants with their exercise price containing a down-round provision (see Note 5) and were as follows at December 31, 2019 and March 31, 2019:

 

  

At December 31, 2019

(Unaudited)

  At March 31, 2019 
Description Level 1  Level 2  Level 3  Level 1  Level 2  Level 3 
Derivative liabilities       $        $2,326 

 

A roll forward of the level 3 valuation financial instruments is as follows:

 

 Derivative Liabilities 
Balance at March 31, 2019 $2,326 
Cumulative effect adjustment of derivative liability related to adoption of ASU 2017-11  (2,326)
Balance at December 31, 2019 $ 

 

ASC 825-10 “Financial Instruments”, allows entities to voluntarily choose to measure certain financial assets and liabilities at fair value (fair value option). The fair value option may be elected on an instrument-by-instrument basis and is irrevocable, unless a new election date occurs. If the fair value option is elected for an instrument, unrealized gains and losses for that instrument should be reported in earnings at each subsequent reporting date. The Company did not elect to apply the fair value option to any outstanding financial instruments.

 

6

 

 

LEGACYXCHANGE, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2019

 

Cash

 

The Company maintains its cash in bank and financial institution deposits that at times may exceed federally insured limits. There were no balances in excess of FDIC insured levels as of December 31, 2019 and March 31, 2019. The Company has not experienced any losses in such accounts through December 31, 2019.

 

Derivative Liabilities

 

The Company has certain financial instruments that are embedded derivatives associated with capital raises and certain warrants. The Company evaluates all its financial instruments to determine if those contracts or any potential embedded components of those contracts qualify as derivatives to be separately accounted for in accordance with ASC 815-10 – Derivative and Hedging – Contract in Entity’s Own Equity. This accounting treatment requires that the carrying amount of any derivatives be recorded at fair value at issuance and marked-to-market at each balance sheet date. In the event that the fair value is recorded as a liability, as is the case with the Company, the change in the fair value during the period is recorded as either other income or expense. Upon conversion, exercise or repayment, the respective derivative liability is marked to fair value at the conversion, repayment or exercise date and then the related fair value amount is reclassified to other income or expense as part of gain or loss on debt extinguishment.

 

In July 2017, FASB issued ASU No. 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features. These amendments simplify the accounting for certain financial instruments with down-round features. The amendments require companies to disregard the down-round feature when assessing whether the instrument is indexed to its own stock, for purposes of determining liability or equity classification. The guidance was adopted as of April 1, 2019 and the Company elected to record the effect of this adoption retrospectively to outstanding financial instruments with a down round feature by means of a cumulative-effect adjustment to the balance sheet as of June 30, 2019, the period which the amendment is effective. The Company adopted ASU No. 2017-11 in the period ended June 30, 2019, and the adoption resulted in a cumulative-effect adjustment of $2,326 on its financial statements and at December 31, 2019, there was no derivative liability recorded.

 

Revenue Recognition

 

In May 2014, FASB issued an update Accounting Standards Update, ASU 2014-09, establishing ASC 606 - Revenue from Contracts with Customers. ASU 2014-09, as amended by subsequent ASUs on the topic, establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most of the existing revenue recognition guidance. This standard, which is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2017, requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services and also requires certain additional disclosures. The Company adopted ASU 2014-09 during the three months ended June 30, 2018. The adoption of ASU 2014-09 did not have any material impact on the Company’s financial statements. The Company did not have revenues from operations for the three and nine months ended December 31, 2019.

 

Stock-Based Compensation

 

Stock-based compensation is accounted for based on the requirements of the Share-Based Payment Topic of ASC 718 which requires recognition in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). The ASC also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.

 

In June 2014, the FASB issued Accounting Standards Update No. 2014-12, Compensation — Stock Compensation (Topic 718), Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period (a consensus of the FASB Emerging Issues Task Force) (ASU 2014-12). The guidance applies to all reporting entities that grant their employees share-based payments in which the terms of the award provide that a performance target that affects vesting could be achieved after the requisite service period. The amendments require that a performance target that affects vesting and that could be achieved after the requisite service period is treated as a performance condition. For all entities, the amendments in this Update are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. The effective date is the same for both public business entities and all other entities. The Company early adopted ASU 2014-12 during the three months ended June 30, 2016. The adoption of ASU 2014-12 did not have any material impact on the Company’s financial statements.

 

7

 

 

LEGACYXCHANGE, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2019

 

Pursuant to ASC 505-50 - Equity-Based Payments to Non-Employees, all share-based payments to non-employees, including grants of stock options, were recognized in the financial statements as compensation expense over the service period of the consulting arrangement or until performance conditions are expected to be met. Using a Black Scholes valuation model, the Company periodically reassessed the fair value of non-employee options until service conditions are met, which generally aligns with the vesting period of the options, and the Company adjusts the expense recognized in the financial statements accordingly. In June 2018, the FASB issued ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting, which simplifies several aspects of the accounting for nonemployee share-based payment transactions by expanding the scope of the stock-based compensation guidance in ASC 718 to include share-based payment transactions for acquiring goods and services from non-employees. ASU No. 2018-07 is effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods. The Company early adopted ASU No. 2018-07 during the three months ended March 31, 2018. The adoption ASU No. 2018-07 did not have a material impact on the Company’s financial statements.

 

Income Taxes

 

The Company accounts for income tax using the liability method prescribed by ASC 740 - Income Taxes. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the year in which the differences are expected to reverse. The Company records a valuation allowance to offset net deferred tax assets if based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rates is recognized as income or loss in the period that includes the enactment date.

 

The Company follows the accounting guidance for uncertainty in income taxes using the provisions of ASC 740 “Income Taxes”. Using that guidance, tax positions initially need to be recognized in the financial statements when it is more likely than not the position will be sustained upon examination by the tax authorities. As of December 31, 2019 and March 31, 2019, the Company had no uncertain tax positions that qualify for either recognition or disclosure in the financial statements. The Company recognizes interest and penalties related to uncertain income tax positions in other expense. However, no such interest and penalties were recorded as of December 31, 2019.

 

Basic and Diluted Loss Per Share

 

Pursuant to ASC 260-10-45, basic loss per common share is computed by dividing net loss by the weighted average number of shares of common stock outstanding for the periods presented. Diluted loss per share is computed by dividing net income by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during the period. Potentially dilutive common shares consist of common stock issuable for stock options and warrants (using the treasury stock method), convertible notes and common stock issuable. These common stock equivalents may be dilutive in the future. The following potentially dilutive equity securities outstanding as of December 31, 2019 and 2018 were not included in the computation of dilutive loss per common share because the effect would have been anti-dilutive:

 

  December 31, 
  2019  2018 
Stock warrants  4,225,000   4,539,706 
Convertible notes  69,459,027   67,041,973 
Total  73,684,027   71,581,679 

 

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.

 

8

 

 

LEGACYXCHANGE, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2019

 

Recent Accounting Pronouncements

 

In August 2018, the FASB issued ASU 2018-13—Fair Value Measurement (Topic 820): Disclosure Framework Changes to the Disclosure Requirements for Fair Value Measurement, to modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, based on the concepts in the Concepts Statement, including the consideration of costs and benefits. The amendments in this Update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company does not believe this will have a material impact on the Company’s financial statements.

 

Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the Company’s financial statements.

 

NOTE 3 – ACCRUED LIABILITIES

 

At December 31, 2019 and March 31, 2019, accrued liabilities consisted of the following:

 

  December 31,
2019
  March 31,
2019
 
  (Unaudited)     
Accrued interest $296,035  $248,161 
Accrued professional fees  6,634   2,634 
Accrued payroll taxes  29,727   29,727 
Accrued executive and director compensation  317,173   272,173 
Total $649,569  $552,695 

 

NOTE 4 – LOANS PAYABLE

 

Between July 2015 through March 2016, the Company entered into individual loan agreements with various investors in the aggregate principal amount of $132,769. These loans bear an interest rate of 10% and were due and payable on the first anniversary of the date of issuance of the loans.

 

In April and May 2016, the Company entered into individual loan agreements with various investors in the aggregate principal amount of $11,155. These loans bear an interest rate of 10% and were due and payable on the first anniversary of the date of issuance of the loans.

 

In November 2019, the Company entered into loan agreement with an investor in the principal amount of $20,000. This loan bears an interest rate of 6% and were due and payable on the second anniversary of the date of issuance of the loan.

 

As of December 31, 2019, these loans had outstanding principal and accrued interest of $163,924 and $57,614, respectively, and $143,924 of the loans were on default. As of March 31, 2019, these loans were in default and had outstanding principal and accrued interest of $143,924 and $46,463, respectively.

 

During the three and nine months ended December 31, 2019, the Company recorded interest expense of $3,835 and $11,151, respectively, on these loans. During the three and nine months ended December 31, 2018, the Company recorded interest expense of $3,678 and $10,994, respectively, on these loans.

 

NOTE 5 – CONVERTIBLE NOTES PAYABLE

 

At December 31, 2019 and March 31, 2019, convertible notes consisted of the following:

 

  December 31,
2019
  March 31,
2019
 
  (Unaudited)     
Principal amount $480,740  $480,740 
Convertible notes payable $480,740  $480,740 

 

9

 

 

LEGACYXCHANGE, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2019

 

Fiscal 2015 Financing

 

In October and November 2014, the Company entered into a subscription agreement with various purchasers (the “Fiscal 2015 Agreements”) for the sale of the Company’s convertible notes. Pursuant to the Fiscal 2015 Agreements, the Company issued to these purchasers, convertible promissory notes (the “Fiscal 2015 Convertible Notes”) for an aggregate principal amount of $400,000 with the Company receiving proceeds equal to the principal amount. The Fiscal 2015 Convertible Notes bear an interest rate of 10% per year and were due and payable on the third anniversary of the date of issuance through October and November 2017. The purchasers are entitled, at their option, at any time after the issuance of the Fiscal 2015 Convertible Notes, to convert all or any lesser portion of the outstanding principal amount and accrued and unpaid interest into the Company’s common stock at a conversion price of $0.02 During the fiscal year 2016, the conversion price was ratcheted down to $0.01. During the fiscal year 2016, the purchasers converted $130,510 and $10,792 of outstanding principal and accrued interest, respectively, into 7,065,084 shares of the Company’s common stock. As of March 31, 2016, the Fiscal 2015 Convertible Notes were in default and had outstanding principal and accrued interest of $269,490 and $40,197, respectively As of March 31, 2019, the Fiscal 2015 Convertible Notes were in default and had outstanding principal and accrued interest of $269,490 and $122,167, respectively. As of December 31, 2019, the Fiscal 2015 Convertible Notes were in default and had outstanding principal and accrued interest of $269,490 and $142,753, respectively.

 

Fiscal 2016 Financing

 

In May and June 2015, the Company entered into a subscription agreement with various purchasers (the “Fiscal 2016 Agreements I”) for the sale of the Company’s convertible notes and warrants. Pursuant to the Fiscal 2016 Agreements I, the Company issued to the purchasers for an aggregate subscription amount of $115,000: (i) convertible promissory notes in the aggregate principal amount of $115,000 (the “Fiscal 2016 Notes I”) and (ii) five-year warrants to purchase an aggregate of 2,300,000 (twenty warrants for each dollar of the principal amount) shares Company’s common stock at an exercise price of $0.07 (the “Fiscal 2016 Warrants I”). The Company received proceeds equal to the principal amount. The Fiscal 2016 Notes I bear an interest rate of 10% per year and were due and payable on the third anniversary of the date of issuance through May and June 2018. The purchasers are entitled, at their option, at any time after the issuance of the Fiscal 2016 Notes I, to convert all or any lesser portion of the outstanding principal amount and accrued and unpaid interest into the Company’s common stock at a conversion price of $0.05. The conversion price of the Fiscal 2016 Notes I shall be subject to adjustment for issuances of common stock at a purchase price of less than the then-effective conversion price. During the fiscal year 2016, the conversion price was ratcheted down to $0.01. As of March 31, 2019, the Fiscal 2016 Notes I were in default and had outstanding principal and accrued interest of $115,000 and $45,053, respectively. As of December 31, 2019, the Fiscal 2016 Notes I were in default and had outstanding principal and accrued interest of $115,000 and $53,838, respectively.

 

During August through September 2015, the Company entered into a subscription agreement with various purchasers (the “Fiscal 2016 Agreements II”) for the sale of the Company’s convertible notes and warrants. Pursuant to the Fiscal 2016 Agreements II, the Company issued to the purchasers for an aggregate subscription amount of $96,250: (i) convertible promissory notes in the aggregate principal amount of $96,250 (the “Fiscal 2016 Notes II”) and (ii) five-year warrants to purchase an aggregate of 1,925,000 (twenty warrants for each dollar of the principal amount) shares Company’s common stock at an exercise price of $0.07 (the “Fiscal 2016 Warrants II”). The Company received proceeds equal to the principal amount. The Fiscal 2016 Notes II bear an interest rate of 10% per year and were due and payable on the third anniversary of the date of issuance through August through September 2018. The purchasers are entitled, at their option, at any time after the issuance of the Fiscal 2016 Notes II, to convert all or any lesser portion of the outstanding principal amount and accrued and unpaid interest into the Company’s common stock at a conversion price of $0.05. The conversion price of the Fiscal 2016 Notes II shall be subject to adjustment for issuances of common stock at a purchase price of less than the then-effective conversion price. During the fiscal year 2016, the conversion price was ratcheted down to $0.01. As of March 31, 2019, the Fiscal 2016 Notes II were in default and had outstanding principal and accrued interest of $96,250 and $34,478, respectively. As of December 31, 2019, the Fiscal 2016 Notes II were in default and had outstanding principal and accrued interest of $96,250 and $41,830, respectively.

 

During the three and nine months ended December 31, 2019, the Company recorded interest expense of $12,285 and $36,723 on these convertible notes. During the three and nine months ended December 31, 2018, the Company recorded interest expense of $12,285 and $36,724 on these convertible notes.

 

10

 

 

LEGACYXCHANGE, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2019

 

Derivative Liabilities Pursuant to Notes and Warrants

 

In connection with the issuance of the Notes and Warrants, the Company determined that the terms of the Notes and Warrants contain terms that included a down-round provision under which the conversion price and exercise price could be affected by future equity offerings undertaken by the Company or contain terms that are not fixed monetary amounts at inception and included various other terms such as default provisions that caused derivative treatment. Accordingly, under the provisions of ASC 815-40 –Derivatives and Hedging – Contracts in an Entity’s Own Stock, the embedded conversion option contained in the convertible instruments and the Warrants were accounted for as derivative liabilities at the date of issuance and shall be adjusted to fair value through earnings at each reporting date. The fair value of the embedded conversion option derivatives and warrant derivatives were determined using the Binomial valuation model. At the end of each period, on the date that debt was converted into common shares, and on the date of a cashless exercise of warrants, the Company revalued the embedded conversion option and warrants derivative liabilities.

 

In July 2017, FASB issued ASU No. 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features. These amendments simplify the accounting for certain financial instruments with down-round features. The amendments require companies to disregard the down-round feature when assessing whether the instrument is indexed to its own stock, for purposes of determining liability or equity classification. The guidance was adopted as of April 1, 2019 and the Company elected to record the effect of this adoption retrospectively to outstanding financial instruments with a down round feature by means of a cumulative-effect adjustment to the balance sheet as of June 30, 2019, the period which the amendment is effective. The Company adopted ASU No. 2017-11 in the period ended June 30, 2019, and the adoption resulted in a cumulative-effect adjustment of $2,326 on its financial statements and at December 31, 2019, there was no derivative liability recorded.

 

At December 31, 2018, the Company revalued the conversion option and warrant derivative liabilities. In connection with these revaluation, the Company recorded gain from the change in fair value of derivative liabilities of $974 for the nine months ended December 31, 2018.

 

For the three and nine months ended December 31, 2019, amortization of debt discounts related to the convertible notes amounted to $0 and $0. For the three and nine months ended December 31, 2018, amortization of debt discounts related to the convertible notes amounted to $0 and $21,649, respectively, which has been included in interest expense on the accompanying unaudited statements of operations.

 

NOTE 6 – STOCKHOLDERS’ DEFICIT

 

Authorized shares

 

The Company is authorized to issue 200,000,000 consisting of 190,000,000 shares of common stock at $0.001 per share par value, and 10,000,000 shares of preferred stock at $0.001 per share par value.

 

Preferred Stock

 

As of December 31, 2019 and March 31, 2019, the Company did not have any preferred stock issued and outstanding.

 

Common Stock

 

As of December 31, 2019 and March 31, 2019, the Company had 62,570,659 shares of common stock issued and outstanding.

 

Warrants

 

Warrants issued pursuant to equity subscription agreements

 

During fiscal years 2013 to 2015, in connection with the sale of common stock, the Company issued an aggregate of 1,048,315 five-year warrants to purchase common shares for an exercise price of $0.40 per common share to investors pursuant to unit subscription agreements. These warrants were accounted for as equity. As of March 31, 2019, 314,706 warrants were issued and outstanding. During the nine months ended December 31, 2019, 314,706 of these warrants expired. As of December 31, 2019, there were no warrants were issued and outstanding.

 

11

 

 

LEGACYXCHANGE, INC.
CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS
DECEMBER 31, 2019

 

Warrants issued in connection with the Fiscal 2016 Financing

 

During fiscal years 2016, pursuant to the convertible note agreements under the fiscal 2016 financing discussed in Note 5, the Company issued five-year warrants to purchase an aggregate of 4,225,000 (twenty warrants for each dollar of the principal amount) shares of the Company’s common stock at an exercise price of $0.07. The exercise price of these warrants shall be subject to adjustment for issuances of common stock at a purchase price of less than the then-effective conversion price and were accounted for as derivative liabilities. During the fiscal year 2016, the conversion price was ratcheted down to $0.01. As of December 31, 2019 and March 31, 2019, 4,225,000 warrants were issued and outstanding.

 

Warrant activity for the nine months ended December 31, 2019 are summarized as follows

 

   Number of
Warrants
  Weighted
Average
Exercise Price
  Weighted
Average
Remaining
Contractual
Term (Years)
  Aggregate
Intrinsic Value
 
Balance Outstanding March 31, 2019   4,539,706  $0.04   1.2  $ 
Expired   (314,706) $0.40     $ 
Balance Outstanding at December 31, 2019   4,225,000  $0.01   0.5  $ 
Exercisable at December 31, 2019   4,225,000  $0.01   0.5  $ 

 

NOTE 7 – SUBSEQUENT EVENTS

 

Between February 2020 through June 2020, the Company entered into loan agreements with an investor in the aggregate principal amount of $71,000. The loans bear interest rate of 6% and were due and payable two-years from the date of issuances.  

 

12

 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Overview

 

LegacyXchange, Inc., formerly known as True 2 Beauty, Inc. (the “Company”) was originally incorporated as Burrow Mining, Inc., a Nevada corporation, on December 11, 2006. In February 2010, the Company shifted its focus to the beauty industry and later amended its Articles of Incorporation and changed its name to True 2 Beauty, Inc.

 

On July 10, 2012, the Company formed a new wholly owned subsidiary True2Bid, Inc. (“True2Bid”) which was incorporated in the state of Nevada. This subsidiary’s name was changed to LegacyXchange, Inc. (“LegacyXchange”) in December 2014. The Company continued to sell existing inventory of beauty products through May 2013 when the final inventory was sold. LegacyXchange operates an online e-commerce platform focused on delivering users a wide array of sports and entertainment related products that can be won in an action-packed environment of a live auction. The Company is currently inactive and is seeking other business opportunities.

 

The Company’s articles authorize the Company to issue 190,000,000 shares of common stock and 10,000,000 shares of preferred stock, both at a par value of $0.001 per share.

 

The following table summarizes the results of operations for the three and nine months ended December 31, 2019 and 2018 and is based primarily on the comparative unaudited financial statements, footnotes and related information for the periods identified and should be read in conjunction with the financial statements and the notes to those statements that are included elsewhere in this report.

 

  

Three Months Ended

December 31,

  

Nine Months Ended

December 31,

 
  2019  2018  2019  2018 
Loss from operations $(37,750) $(15,750) $(65,750) $(45,750)
Other expense, net  (16,120)  (12,904)  (47,874)  (65,843)
Net loss $(51,870) $(28,654) $(113,624) $(111,593)

 

Revenue:

 

We did not generate any revenues from operations for the three and nine months ended December 31, 2019 and 2018.

 

Operating expenses:

 

For the three months ended December 31, 2019 and 2018, operating expenses amounted to $37,750 and $15,750, respectively, an increase of $20,000 or 127%. For the nine months ended December 31, 2019 and 2018, operating expenses amounted to $46,750 and $45,750, respectively, an increase of $20,000 or 44%.

 

For the three and nine months ended December 31, 2019 and 2018, operating expenses consisted of the following:

 

  

Three Months Ended

December 31,

  

Nine Months Ended

December 31,

 
  2019  2018  2019  2018 
Compensation $15,000  $15,000  $45,000  $45,000 
Professional and consulting fees  20,750   750   20,750   750 
Total $35,750  $15,750  $65,750  $45,750 

 

Compensation:

 

For the three months ended December 31, 2019 and 2018, compensation amounted to $15,000 for both periods.

 

For the nine months ended December 31, 2019 and 2018, compensation amounted to $45,000 for both periods.

 

13

 

 

Professional and consulting fees:

 

For the three months ended December 31, 2019 and 2018, professional and consulting fees amounted to $20,750 and $750, respectively, an increase of $20,000 or 2,667%. The increase resulted from increase in accounting fee in 2019.

 

For the nine months ended December 31, 2019 and 2018, professional and consulting fees amounted to $20,750 and $750, respectively, an increase of $20,000 or 2,667%. The increase resulted from increase in accounting fee in 2019.

 

Loss from operations:

 

For the three months ended December 31, 2019 and 2018, operating expenses amounted to $37,750 and $15,750, respectively, an increase of $20,000 or 127%. The increase was a result of the changes in operating expenses as discussed above.

 

For the nine months ended December 31, 2019 and 2018, operating expenses amounted to $46,750 and $45,750, respectively, an increase of $20,000 or 44%. The increase was a result of the changes in operating expenses as discussed above.

 

Other income (expense):

 

Other income (expense) includes interest expense, gain from the change in fair value of derivative liabilities and gain on debt extinguishment.

 

For the three months ended December 31, 2019, total other expense, net amounted to $16,120 as compared to $12,904 for the three months ended December 31, 2018, an increase of $3,216 or 25%. The increase was attributable to an increase in interest expense of $157, or 1% offset by a decrease in the gain from the change in fair value of derivative liabilities of $509 or 100% and a decrease in the gain on debt extinguishment of $2,550 or 100%.

 

For the nine months ended December 31, 2019, total other expense, net amounted to $47,874 as compared to $65,843 for the nine months ended December 31, 2018, a decrease of $17,969 or 27%. The decrease was attributable to a decrease in interest expense of $21,496, or 31%, a decrease in the gain from change in fair value of derivative liabilities of $974 or 100% and a decrease in the gain on debt extinguishment of $2,550 or 100%.

 

Net loss:

 

For the three months ended December 31, 2019, net loss amounted to $51,780, or net loss per common share of $(0.00) (basic and diluted) as compared to $28,654, or net loss per common share of $(0.00) (basic and diluted) for the three months ended December 31, 2017, an increase of $23,216, or 81%. The increase was a result of the changes in operating expenses and other income (expense) as discussed above.

 

For the nine months ended December 31, 2019, net loss amounted to $113,624 or net loss per common share of $(0.00) (basic and diluted) as compared to $111,593 or net loss per common share of $(0.00) (basic and diluted) for the nine months ended December 31, 2019, an increase of $2,031, or 2%. The increase was a result of the changes in operating expenses and other income (expense) as discussed above.

 

Liquidity and Capital Resources

 

Liquidity is the ability of an enterprise to generate adequate amounts of cash to meet its needs for cash requirements. We had a working capital deficit of $1,409,136 and $375 of cash as of December 31, 2019 and working capital deficit of $1,317,838 and $0 of cash as of March 31, 2019.

 

  December 31,
2019
  March 31,
2019
  Change  Percentage
Change
 
Working capital deficit:            
Total current assets $1,075  $  $1,075   100%
Total current liabilities  (1,410,211)  (1,317,838)  (92,373)  7%
Working capital deficit: $(1,409,136) $(1,317,838) $(91,298)  7%

  

The increase in working capital deficit was primarily attributable to an increase current asset of $1,075 offset by an increase in current liabilities of $92,373.

 

14

 

 

Cash Flow

 

A summary of cash flow activities is summarized as follows:

 

  

Nine Months Ended

December 31,

 
  2019  2018 
Cash used in operating activities $(19,625) $ 
Cash provided by financing activities  20,000    
Net increase in cash $375  $ 

 

Net cash used in operating activities:

 

Net cash flow used in operating activities was $19,625 and $0 for the nine months ended December 31, 2019 and 2018, respectively, and increase of $19,625 or 100%.

 

Net cash flow used in operating activities for the nine months ended December 31, 2019 primarily reflected our net loss of $113,624 adjusted for the changes in operating assets and liabilities consisting of an increase in prepaid and other current assets of $700 an increase in accrued liabilities of $96,874 offset by a decrease in accounts payable of $2,175.

 

Net cash flow used in operating activities for the nine months ended December 31, 2018 primarily reflected our net loss of $111,593 adjusted for the add-back on non-cash items such as amortization of debt discount of $21,649, gain from change in fair value of derivative liabilities of $974, gain on debt extinguishment of $2,550 and the changes in operating assets and liabilities primarily consisting of an increase in accounts payable of $750 and an increase in accrued liabilities of $92,718.

 

Cash provided by financing activities:

 

Net cash provided by financing activities was $20,000 and $0 for the nine months ended December 31, 2019 and 2018, respectively, an increase of $20,000, or 100%.

 

Net cash provided by financing activities for the nine months ended December 31, 2019 consisted of $20,000 of net proceeds from loan payable as compared to nil during the nine months ended December 31, 2018.

 

Cash Requirements

 

Our management does not believe that our current capital resources will be adequate to continue operating our company and maintaining our business strategy for more than 12 months from the date of this report. Accordingly, we will have to raise additional capital in the near future to meet our working capital requirements. There can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, if and when it is needed, we will be forced to scale down or perhaps even cease the operation of our business.

 

Going Concern

 

The unaudited financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in our accompanying unaudited financial statements, the Company had net loss and net cash used in operating activities of $113,624 and $19,625, respectively, for the nine months ended December 31, 2019. The Company had accumulated deficit, stockholders’ deficit and working capital deficit of $10,674,282, $1,429,136 and $1,409,136, respectively, at December 31, 2019. The Company had no revenues for the nine months ended December 31, 2019. The Company’s loans payable in aggregate amount of $143,924 and convertible notes are currently in default. Management believes that these matters raise substantial doubt about the Company’s ability to continue as a going concern for twelve months from the issuance date of this report.

 

Management cannot provide assurance that we will ultimately achieve profitable operations or become cash flow positive, or raise additional debt and/or equity capital. Management believes that our capital resources are not currently adequate to continue operating and maintaining its business strategy for a period of twelve months from the issuance date of this report. The Company will seek to raise capital through additional debt and/or equity financings to fund its operations in the future.

 

15

 

 

Although the Company has historically raised capital from sales of equity and from the issuance of promissory notes, there is no assurance that it will be able to continue to do so. If the Company is unable to raise additional capital or secure additional lending in the near future, management expects that the Company will need to curtail or cease operations. These financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

  

Future Financings

 

We will require additional financing to fund our planned operations. We currently do not have committed sources of additional financing and may not be able to obtain additional financing particularly, if the volatile conditions of the stock and financial markets persist.

 

There can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, if and when it is needed, we will be forced to further delay or further scale down some or all of our activities or perhaps even cease the operations of the business.

 

Since inception we have funded our operations primarily through equity and debt financings and we expect that we will continue to fund our operations through the equity and debt financing. If we are able to raise additional financing by issuing equity securities, our existing stockholders’ ownership will be diluted. Obtaining commercial or other loans, assuming those loans would be available, will increase our liabilities and future cash commitments.

 

There is no assurance that we will be able to maintain operations at a level sufficient for an investor to obtain a return on his, her, or its investment in our common stock. Further, we may continue to be unprofitable.

 

Critical Accounting Policies

 

We have identified the following policies as critical to our business and results of operations. Our reported results are impacted by the application of the following accounting policies, certain of which require management to make subjective or complex judgments. These judgments involve making estimates about the effect of matters that are inherently uncertain and may significantly impact quarterly or annual results of operations. For all of these policies, management cautions that future events rarely develop exactly as expected, and the best estimates routinely require adjustment. Specific risks associated with these critical accounting policies are described in the following paragraphs.

 

Fair Value of Financial Instruments and Fair Value Measurements

 

FASB ASC 820 - Fair Value Measurements and Disclosures, defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. FASB ASC 820 requires disclosures about the fair value of all financial instruments, whether or not recognized, for financial statement purposes. Disclosures about the fair value of financial instruments are based on pertinent information available to the Company on December 31, 2019. Accordingly, the estimates presented in these financial statements are not necessarily indicative of the amounts that could be realized on disposition of the financial instruments. FASB ASC 820 specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement).

 

The three levels of the fair value hierarchy are as follows:

 

 Level 1—Inputs are unadjusted quoted prices in active markets for identical assets or liabilities available at the measurement date.
  
 Level 2—Inputs are unadjusted quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data.
  
 Level 3—Inputs are unobservable inputs which reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability based on the best available information.

 

The carrying amounts reported in the balance sheets for cash, due from and to related parties, prepaid expenses, accounts payable and accrued liabilities approximate their fair market value based on the short-term maturity of these instruments.

 

16

 

 

Revenue Recognition

 

In May 2014, FASB issued an update Accounting Standards Update, ASU 2014-09, establishing ASC 606 - Revenue from Contracts with Customers. ASU 2014-09, as amended by subsequent ASUs on the topic, establishes a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most of the existing revenue recognition guidance. This standard, which is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2017, requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services and also requires certain additional disclosures. The Company adopted ASU 2014-09 during the three months ended June 30, 2018. The adoption of ASU 2014-09 did not have any material impact on the Company’s financial statements. The Company did not have revenues from operations for the three and nine months ended December 31, 2019.

 

Stock-Based Compensation

 

Stock-based compensation is accounted for based on the requirements of the Share-Based Payment Topic of ASC 718 which requires recognition in the financial statements of the cost of employee and director services received in exchange for an award of equity instruments over the period the employee or director is required to perform the services in exchange for the award (presumptively, the vesting period). The ASC also requires measurement of the cost of employee and director services received in exchange for an award based on the grant-date fair value of the award.

 

In June 2014, the FASB issued Accounting Standards Update No. 2014-12, Compensation — Stock Compensation (Topic 718), Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period (a consensus of the FASB Emerging Issues Task Force) (ASU 2014-12). The guidance applies to all reporting entities that grant their employees share-based payments in which the terms of the award provide that a performance target that affects vesting could be achieved after the requisite service period. The amendments require that a performance target that affects vesting and that could be achieved after the requisite service period is treated as a performance condition. For all entities, the amendments in this Update are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. The effective date is the same for both public business entities and all other entities. The Company early adopted ASU 2014-12 during the three months ended June 30, 2016. The adoption of ASU 2014-12 did not have any material impact on the Company’s financial statements.

 

Pursuant to ASC 505-50 - Equity-Based Payments to Non-Employees, all share-based payments to non-employees, including grants of stock options, were recognized in the financial statements as compensation expense over the service period of the consulting arrangement or until performance conditions are expected to be met. Using a Black Scholes valuation model, the Company periodically reassessed the fair value of non-employee options until service conditions are met, which generally aligns with the vesting period of the options, and the Company adjusts the expense recognized in the financial statements accordingly. In June 2018, the FASB issued ASU No. 2018-07, Improvements to Nonemployee Share-Based Payment Accounting, which simplifies several aspects of the accounting for nonemployee share-based payment transactions by expanding the scope of the stock-based compensation guidance in ASC 718 to include share-based payment transactions for acquiring goods and services from non-employees. ASU No. 2018-07 is effective for annual periods beginning after December 15, 2018, including interim periods within those annual periods. The Company early adopted ASU No. 2018-07 during the three months ended March 31, 2018. The adoption ASU No. 2018-07 did not have a material impact on the Company’s financial statements.

 

Recent Accounting Pronouncements

 

In August 2018, the FASB issued ASU 2018-13—Fair Value Measurement (Topic 820): Disclosure Framework Changes to the Disclosure Requirements for Fair Value Measurement, to modify the disclosure requirements on fair value measurements in Topic 820, Fair Value Measurement, based on the concepts in the Concepts Statement, including the consideration of costs and benefits. The amendments in this Update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company does not believe this will have a material impact on the Company’s financial statements.

 

Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying financial statements.

 

Off-Balance Sheet Arrangements

 

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to our stockholders.

 

17

 

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Disclosure Controls and Procedures

 

We maintain “disclosure controls and procedures,” as that term is defined in Rule 13a-15(e), promulgated by the SEC pursuant to the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer to allow timely decisions regarding required disclosure. Our management, with the participation of our principal executive officer and principal financial officer, evaluated our disclosure controls and procedures as of the end of the period covered by this quarterly report on Form 10-Q. Based on this evaluation, our principal executive officer and principal financial officer concluded that as of December 31, 2019, our disclosure controls and procedures were not effective.

 

Our management, including our principal executive officer and principal financial officer, is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our management, with the participation of our principal executive officer and principal financial officer, evaluated the effectiveness of our internal control over financial reporting as of December 31, 2019. Our management’s evaluation of our internal control over financial reporting was based on the framework in Internal Control-Integrated Framework (2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management concluded that as of December 31, 2019, our internal control over financial reporting was not effective.

 

The ineffectiveness of our internal control over financial reporting was due to the following material weaknesses which we identified in our internal control over financial reporting:

 

 (1)the lack of multiples levels of management review on complex accounting and financial reporting issues, and business transactions,
   
 (2)a lack of adequate segregation of duties and necessary corporate accounting resources in our financial reporting process and accounting function as a result of our limited financial resources to support hiring of personnel and implementation of accounting systems, and

 

We expect to be materially dependent upon third parties to provide us with accounting consulting services related to accounting services for the foreseeable future. We believe this will be sufficient to remediate the material weaknesses related to our accounting discussed above. Until such time as we have a chief financial officer with the requisite expertise in U.S. GAAP, there are no assurances that the material weaknesses and significant deficiencies in our disclosure controls and procedures will not result in errors in our financial statements which could lead to a restatement of those financial statements.

 

A material weakness is a deficiency or a combination of control deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.

 

Changes in Internal Control Over Financial Reporting

 

There was no change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Securities Exchange Act of 1934) during the quarter ended December 31, 2019 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

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PART II - OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

We know of no material, existing or pending legal proceedings against our Company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.

 

ITEM 1A. RISK FACTORS

 

Not applicable to smaller reporting companies.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

Except for provided below, all unregistered sales of our securities during the quarter ended December 31, 2019, were previously disclosed in a Quarterly Report on Form 10-Q or in a Current Report on Form 8-K.

 

During the three months ended December 31, 2019, there were no unregistered sales of our securities.

 

The shares of common stock, notes and warrants referenced herein were issued in reliance upon the exemption from securities registration afforded by the provisions of Section 4(a)(2) of the Securities Act of 1933, as amended, (“Securities Act”).

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

Loans Payable

 

Between July 2015 through March 2016, the Company entered into individual loan agreements with various investors in the aggregate principal amount of $132,769. These loans bear an interest rate of 10% and were due and payable on the first anniversary of the date of issuance of the loans.

 

In April and May 2016, the Company entered into individual loan agreements with various investors in the aggregate principal amount of $11,155. These loans bear an interest rate of 10% and were due and payable on the first anniversary of the date of issuance of the loans.

 

As of December 31, 2019, these loans were in default and had outstanding principal and accrued interest of $143,924 and $57,457, respectively. As of March 31, 2019, these loans were in default and had outstanding principal and accrued interest of $143,924 and $46,465, respectively.

 

Fiscal 2015 Financing

 

In October and November 2014, the Company entered into a subscription agreement with various purchasers (the “Fiscal 2015 Agreements”) for the sale of the Company’s convertible notes. Pursuant to the Fiscal 2015 Agreements, the Company issued to these purchasers, convertible promissory notes (the “Fiscal 2015 Convertible Notes”) for an aggregate principal amount of $400,000 with the Company receiving proceeds equal to the principal amount. The Fiscal 2015 Convertible Notes bear an interest rate of 10% per year and were due and payable on the third anniversary of the date of issuance through October and November 2017. The purchasers are entitled, at their option, at any time after the issuance of the Fiscal 2015 Convertible Notes, to convert all or any lesser portion of the outstanding principal amount and accrued and unpaid interest into the Company’s common stock at a conversion price of $0.02 During the fiscal year 2016, the conversion price was ratcheted down to $0.01. During the fiscal year 2016, the purchasers converted $130,510 and $10,792 of outstanding principal and accrued interest, respectively, into 7,065,084 shares of the Company’s common stock. As of March 31, 2016, the Fiscal 2015 Convertible Notes were in default and had outstanding principal and accrued interest of $269,490 and $40,197, respectively As of March 31, 2019, the Fiscal 2015 Convertible Notes were in default and had outstanding principal and accrued interest of $269,490 and $122,167, respectively. As of December 31, 2019, the Fiscal 2015 Convertible Notes were in default and had outstanding principal and accrued interest of $269,490 and $142,753, respectively.

 

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Fiscal 2016 Financing

 

In May and June 2015, the Company entered into a subscription agreement with various purchasers (the “Fiscal 2016 Agreements I”) for the sale of the Company’s convertible notes and warrants. Pursuant to the Fiscal 2016 Agreements I, the Company issued to the purchasers for an aggregate subscription amount of $115,000: (i) convertible promissory notes in the aggregate principal amount of $115,000 (the “Fiscal 2016 Notes I”) and (ii) five-year warrants to purchase an aggregate of 2,300,000 (twenty warrants for each dollar of the principal amount) shares Company’s common stock at an exercise price of $0.07 (the “Fiscal 2016 Warrants I”). The Company received proceeds equal to the principal amount. The Fiscal 2016 Notes I bear an interest rate of 10% per year and were due and payable on the third anniversary of the date of issuance through May and June 2018. The purchasers are entitled, at their option, at any time after the issuance of the Fiscal 2016 Notes I, to convert all or any lesser portion of the outstanding principal amount and accrued and unpaid interest into the Company’s common stock at a conversion price of $0.05. The conversion price of the Fiscal 2016 Notes I shall be subject to adjustment for issuances of common stock at a purchase price of less than the then-effective conversion price. During the fiscal year 2016, the conversion price was ratcheted down to $0.01. As of March 31, 2019, the Fiscal 2016 Notes I were in default and had outstanding principal and accrued interest of $115,000 and $45,053, respectively. As of December 31, 2019, the Fiscal 2016 Notes I were in default and had outstanding principal and accrued interest of $115,000 and $53,838, respectively.

  

During August through September 2015, the Company entered into a subscription agreement with various purchasers (the “Fiscal 2016 Agreements II”) for the sale of the Company’s convertible notes and warrants. Pursuant to the Fiscal 2016 Agreements II, the Company issued to the purchasers for an aggregate subscription amount of $96,250: (i) convertible promissory notes in the aggregate principal amount of $96,250 (the “Fiscal 2016 Notes II”) and (ii) five-year warrants to purchase an aggregate of 1,925,000 (twenty warrants for each dollar of the principal amount) shares Company’s common stock at an exercise price of $0.07 (the “Fiscal 2016 Warrants II”). The Company received proceeds equal to the principal amount. The Fiscal 2016 Notes II bear an interest rate of 10% per year and were due and payable on the third anniversary of the date of issuance through August through September 2018. The purchasers are entitled, at their option, at any time after the issuance of the Fiscal 2016 Notes II, to convert all or any lesser portion of the outstanding principal amount and accrued and unpaid interest into the Company’s common stock at a conversion price of $0.05. The conversion price of the Fiscal 2016 Notes II shall be subject to adjustment for issuances of common stock at a purchase price of less than the then-effective conversion price. During the fiscal year 2016, the conversion price was ratcheted down to $0.01. As of March 31, 2019, the Fiscal 2016 Notes II were in default and had outstanding principal and accrued interest of $96,250 and $34,478, respectively. As of December 31, 2019, the Fiscal 2016 Notes II were in default and had outstanding principal and accrued interest of $96,250 and $41,830, respectively.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

Not applicable.

 

ITEM 6. EXHIBITS

 

Exhibit No. Description of Exhibit
31.1* Certification of Principal Executive Officer and Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act Of 2002.
   
32.1* Certification of Principal Executive Officer and Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act Of 2002.
   
101.INS* XBRL INSTANCE DOCUMENT
101.SCH* XBRL TAXONOMY EXTENSION SCHEMA
101.CAL* XBRL TAXONOMY EXTENSION CALCULATION LINKBASE
101.DEF* XBRL TAXONOMY EXTENSION DEFINITION LINKBASE
101.LAB* XBRL TAXONOMY EXTENSION LABEL LINKBASE
101.PRE* XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE

 

 

*Filed herewith.

 

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SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) 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: January 28, 2021  
 By:/s/ William Bollander
  William Bollander
  Chief Executive Officer, Chief Financial Officer and President (Principal Executive, Financial and Accounting Officer)

 

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