NOTES TO FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED NOVEMBER 30, 2016
(UNAUDITED)
NOTE 1 – ORGANIZATION AND OPERATIONS
Jubilant Flame International, Ltd. (the “Company”), was formed on September 29, 2009 under the name Liberty Vision, Inc. On November 16, 2015, the Company entered into the cosmetic sector by entering into a Distribution / License Agreement with Rubyfield Holdings LTD (“Rubyfield”), a company organized under the laws of Hong Kong, whereby the Company is Rubyfield’s exclusive independent authorized Master Distributor for all of North America for certain products pertaining to the cosmetics industry. The Company’s president, Ms. Yan Li, is also president of, and exercises control over Rubyfield.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The Company’s financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.GAAP”).
Interim Financial Information
Interim financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") as promulgated in Item 210 of Regulation S-X. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP") have been condensed or omitted pursuant to such SEC rules and regulations. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation of financial position as of November 30, 2016, results of operations, changes in stockholders' equity (deficit) and cash flows for the sixmonth periods ended November 30, 2016 and 2015, as applicable, have been made. The results for these interim periods are not necessarily indicative of the results for the entire year. The accompanying financial statements should be read in conjunction with the financial statements and the notes thereto included in the Company's Form 10-K.
Use of Estimates and Assumptions
The preparation of financial statements in conformity with accounting principles generally accepted 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. Management bases its estimates on historical experience and on various assumptions that are 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.
The Company’s significant estimates include income tax provisions and valuation allowances of deferred tax assets; the fair value of financial instruments and the assumption that the company will continue as a going concern. Those significant accounting estimates or assumptions bear the risk of change due to the fact that there are uncertainties attached to those estimates or assumptions, and certain estimates or assumptions are difficult to measure or value.
Net Loss Per Common Share
Basic net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by dividing net loss by the weighted average number of shares of common stock and potentially outstanding shares of common stock during each period.
NOTE 3 – GOING CONCERN
The financial statements have been prepared on a going concern basis which assumes the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. As at November 30, 2016 the Company had current assets of $19,167, and current liabilities total $943,410 resulting in a working capital deficit of $924,243. The Company currently has no profitable trading activities and has an accumulated deficit of $2,337,021 as at November 30, 2016. This raises substantial doubt about the Company’s ability to continue as a going concern.
The Company may raise additional capital through the sale of its equity securities, through an offering of debt securities, or through borrowings from financial institutions or related parties. By doing so, the Company hopes to generate sufficient capital to execute its new business plan in the medical and cosmetics sector on an ongoing basis. Management believes that actions presently being taken to obtain additional funding provide the opportunity for the Company to continue as a going concern. There is no guarantee the Company will be successful in achieving these objectives.
NOTE 4 – CONVERTIBLE DEBT
On December 9, 2015, the Company issued convertible promissory notes totaling $60,000. At the time of issuance, the notes were evaluated and were determined to contain embedded conversion options that must be bifurcated and reported at fair value with original issue discounts. As a result, a derivative discount on convertible promissory notes was recorded, which net of discount amortization for the nine months ended November 30, 2016 amounted to $3,897.
From March 1, 2016 to November 30, 2016, the debt holder converteda total of $48,800 of note principle to 3,476,186 common stock shares based on the convertible note agreement. The following is a summary of the Company’s conversion:
Date
|
|
Principle
Converted
|
|
|
Shares
issued
|
|
|
Conversion
Price
|
|
|
|
|
|
|
|
|
|
|
|
30-Jun-16
|
|
$
|
15,000
|
|
|
|
113,636
|
|
|
$
|
0.132
|
|
12-Jul-16
|
|
$
|
15,000
|
|
|
|
357,142
|
|
|
$
|
0.042
|
|
15-Aug-16
|
|
$
|
5,700
|
|
|
|
452,380
|
|
|
$
|
0.0126
|
|
24-Aug-16
|
|
$
|
3,100
|
|
|
|
469,696
|
|
|
$
|
0.0066
|
|
7-Sep-16
|
|
$
|
2,400
|
|
|
|
500,000
|
|
|
$
|
0.0048
|
|
20-Sep-16
|
|
$
|
2,400
|
|
|
|
500,000
|
|
|
$
|
0.0048
|
|
22-Sep-16
|
|
$
|
2,600
|
|
|
|
541,666
|
|
|
$
|
0.0048
|
|
28-Sep-16
|
|
$
|
2,600
|
|
|
|
541,666
|
|
|
$
|
0.0048
|
|
The following is the summary of outstanding convertible note balances
Description
|
|
30-Nov-2016
|
|
|
29-Feb-2016
|
|
|
|
|
|
|
|
|
One convertible promissory note in the amount of $60,000, with maturity date of December 9, 2018, bearing interest 0% per annum, convertible into common stock at conversion prices equal to 60% of the lowest price in the prior 20 trading days. The Company expects all debt will be converted to common shares.
|
|
$
|
60,000
|
|
|
$
|
60,000
|
|
Less: debt discount
|
|
|
(58,026
|
)
|
|
|
(58,026
|
)
|
Less: conversions
|
|
|
(48,800
|
)
|
|
|
-
|
|
Add: amortization of debt discount
|
|
|
50,723
|
|
|
|
4,341
|
|
Balance of convertible debt, net
|
|
|
3,897
|
|
|
|
6,315
|
|
Less: current portion
|
|
|
-
|
|
|
|
-
|
|
Long-term convertible debt, net
|
|
$
|
3,897
|
|
|
$
|
6,315
|
|
Debt Discount
During the nine months November 30, 2016 and the year ended February 29, 2016, the Company recorded debt discounts totaling $7,303 and $53,685, respectively.
The debt discount recorded pertains to convertible debt that contains embedded conversion options that are required to bifurcated and reported at fair value and original issue discounts and debt issue cost.
The Company amortized $11,833 and $4,341 during the nine months ended November 30, 2016 and the year ended February 29, 2016, respectively, to amortization of debt discount expense and relieved $38,890 during the nine months ended November 30, 2016 due to conversions.
|
|
As of
|
|
|
As of
|
|
|
|
30-Nov-16
|
|
|
29-Feb-16
|
|
|
|
|
|
|
|
|
Debt discount
|
|
$
|
58,026
|
|
|
$
|
58,026
|
|
Accumulated amortization of debt discount
|
|
|
(11,833
|
)
|
|
|
(4,341
|
)
|
Elimination of debt discount due to conversion
|
|
|
(38,890
|
)
|
|
|
|
|
Debt discount - net
|
|
$
|
7,303
|
|
|
$
|
53,685
|
|
Derivative Liabilities
The Company identified the conversion features embedded within its convertible debts as financial derivatives. The Company has determined that the embedded conversion option should be accounted for at fair value.
The following schedule shows the change in fair value of the derivative liabilities during the nine months ended November 30, 2016 and February 29, 2016 respectively:
Derivative liabilities - February 29, 2016
|
|
$
|
83,049
|
|
Add fair value at the commitment date for convertible notes issued during the nine months
|
|
|
-
|
|
Fair value reduction for derivatives due to note conversion
|
|
|
(66,643
|
)
|
Fair value mark to market adjustment for derivatives
|
|
|
(3,407
|
)
|
Derivative liabilities - November 30, 2016
|
|
|
12,999
|
|
Less: current portion
|
|
|
-
|
|
Long-term derivative liabilities November 30, 2016
|
|
$
|
12,999
|
|
Derivative liabilities - February 28, 2015
|
|
$
|
-
|
|
Add fair value at the commitment date for convertible notes issued during year end February 29, 2016
|
|
|
100,969
|
|
Fair value mark to market adjustment for derivatives
|
|
|
(17,920
|
)
|
Derivative liabilities - February 29, 2016
|
|
|
83,049
|
|
Less: current portion
|
|
|
-
|
|
Long-term derivative liabilities February 29, 2016
|
|
$
|
83,049
|
|
The Company can record the debt discount to the extent of the gross proceeds raised, and expensed immediately the remaining value of the derivative as it exceeded the gross proceeds of the note. During the nine months ended November 30, 2016, the Company recorded change in derivatives liability of $3,407 and reduction of derivatives liability of $66,643 due to conversion.
The fair value at the commitment and re-measurement dates for the Company’s derivative liabilities were based upon the following management assumptions during the six month:
|
|
Commitments
|
|
|
Re-measurement
|
|
Assumption
|
|
Date
|
|
|
Date
|
|
Expected dividends:
|
|
0%
|
|
|
0%
|
|
Expected volatility:
|
|
45%
|
|
|
79.40%~167.1%
|
|
Expected term (years):
|
|
3%
|
|
|
2.02~2.52
|
|
Risk free interest rate:
|
|
1.22%
|
|
|
0.58%~1.11%
|
|
NOTE 5 – RELATED PARTY TRANSACTIONS
In support of the Company’s efforts and cash requirements, it must rely on advances from related parties until such time that the Company can support its operations or attains adequate financing through sales of its equity or traditional debt financing. There is no formal written commitment for continued support by shareholders. The advances are considered temporary in nature and have not been formalized by a promissory note.
On October 27, 2016, the company issued 3,000,000 shares to its CEO at $0.014 per share to settle $42,000 of related party advances. At the same date, the company issued 500,000 shares to its treasurer and secretary at $0.014 per share to settle $7,000 related party advance.As at November 30, 2016, the Company had a $273,571 loan outstanding with the CEO and $840 with the treasurer. This compares with the outstanding balance of $216,473 for the CEO and $8,000 for the treasurer at February 29, 2016. The loansare non-interest bearing, due upon demand and unsecured.
NOTE 6 – ACCRUED OFFICER COMPENSATIONAND STOCK COMPENSATION
On December 15, 2015, the Company entered into employment agreements with its president, Ms. Yan Li, and its secretary and treasurer, Mr. Robert Ireland. Ms. Yan's agreement is retroactively effective as of December 4, 2015, for a term of 36 months (measured from December 4, 2015). Pursuant to the agreement, Ms. Yan shall receive an annual salary of $100,500 and 100,000 shares of the Company's common stock and shall act as the company CEO. Mr. Ireland's agreement is retroactively effective as of December 4, 2015 for a term of 36 months (measured from December 4, 2015). Pursuant to the agreement, Mr. Ireland shall receive an annual salary of $100,500 and 100,000 shares of the Company's common stock and shall act as the Company's secretary and treasurer. The Company valued these shares of stock compensation at $2.10 per share based on the quoted market price of shares of common stock on the effective date of the agreement.
On October 27, 2016, the company issued 500,000 shares to its treasurer and secretary at $0.014 per share to settle $7,000 of related party advances.
On October 27, 2016, the company issued 50,000 shares to its interim CFO at $0.014 per share for his services.
As of November 30, 2016, a total of $669,000 had been accrued as salary compensation payable to the two officers compared to $518,250 at February 29, 2016.
For the nine months ended November 30, 2016, a total of $315,700 stock compensation had been recorded compared to $0 for the same period in the prior year to the two officers.
NOTE 7 – STOCKHOLDERS EQUITY
Forthe quarter ended November 30, 2016, convertible debt of $48,800 was converted into 3,476,186 shares of common stock as provided for in the convertible note agreement. Associated with the note conversion, derivatives liability wasreduced by $66,643 by November 30, 2016.
For the quarter ended November 30, 2016, a total of $250,000 Shares were issued to three officer as stock compensation. Total value of $315,700 has been recorded for the stock compensation.
During the quarter ended November 30, 2016, a total 3,500,000 shares were issued to two officers at a cost of $0.014 per share for a total equity issuance of $49,000 to settle advance from related party.
NOTE 8 – SUBSEQUENT EVENTS
In accordance with ASC 855-10, “Subsequent Events”, the Company has analyzed its operations subsequent to January 6, 2017, the date when the financial statements were issued. The Management of the Company determined that there were no reportable events that occurred during that subsequent period to be disclosed or recorded except the following:
On December 15, 2016, a holder of the company’s convertible debt elected to convert a portion of that debt into 603,174 shares of the company’s common stock.