REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and shareholders of
Jubilant Flame International, Ltd.
Shanghai, China
Opinion on the Financial Statements
We have audited the accompanying balance sheet of Jubilant Flame International, Ltd. (“the Company”), as of February 28, 2021, and the related statements of operations, changes in stockholders’ deficit and cash flows for the year then ended and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of February 28, 2021, and the results of its operations and its cash flows for the year ended February 28, 2021, in conformity with U.S generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatements of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As described in Note 3 to the financial statements and going concern assessment of critical audit matter below, the Company has suffered recurring losses from operations and has working capital and stockholders’ deficit that raise substantial doubt about its ability to continue as a going concern. Management’s plans regarding these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgement. The communication of a critical audit matter does not alter in anyway our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Going Concern Assessment
As described in Note 3 to the financial statements, the Company prepared its financial statements on a going concern basis, and management has concluded that the Company has not generated sufficient income to sustain the operations. For the year ended February 28, 2021, the Company incurred net losses of USD 0.084 million and used the net cash in operating activities of USD 0.061 million. As of February 28, 2021, the accumulated deficit amounted to USD 3.59 million, total stockholders’ deficit of USD 1.12 million and the current liabilities exceeded the current assets in the amount of USD 1.12 million. These matters, among others, raise substantial doubt about the ability of the Company to continue as a going concern.
The principal consideration for our determination that performing procedures relating to the Company’s going concern assessment is a critical audit matter is the significant judgment by management related to the Company’s ability to raise funds and continue operations.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the financial statements. The procedure included confirming the personal commitment to provide financial support for the next twelve-months from the balance sheet date by the Chief Executive Officer of the Company.
/S/ TPS Thayer, LLC
TPS Thayer, LLC
We have served as the Company’s auditor since 2020
Sugar Land, Texas
May 7, 2021
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED FEBRUARY 28, 2021 AND FEBRUARY 29, 2020
NOTE 1 – ORGANIZATION AND OPERATIONS
Jubilant Flame International, Ltd. (the “Company”), was formed on September 29, 2009 under the name Liberty Vision, Inc. The Company provided web development and marketing services for clients. On August 18, 2015, the Company changed its name to Jubilant Flame International, Ltd.
From the fourth quarter of the fiscal year ended February 28, 2018, the Company started to market and sell cosmetics products imported from Asia, Acropass Series products, in the United States market. The Company purchased the inventory from a related party company in China. The Company contracted with a third party to operate the online shopping platform and marketing campaign in the United States until January 2020. In the beginning of 2020, the Company ceased the marketing and selling of cosmetic products in the United States.
From the third quarter of the year ended February 29, 2020, the company began its new business line of providing technical support services for development of new nutrition food products to sell to customers in USA. The company had not generated revenue from this new business by the year ended at February 28.2021.
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”).
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.
Management regularly reviews its estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions. After such reviews, and if deemed appropriate, those estimates are adjusted accordingly. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less to be cash and cash equivalents.
Receivables
Receivables are stated at their carrying values, net of a reserve for doubtful accounts. Receivables consist primarily of amounts due from Sea-Buckthourn nutrition food technical support fee.
Carrying Value, Recoverability and Impairment of Long-Lived Assets
The Company has adopted paragraph 360-10-35-17 of the FASB Accounting Standards Codification for its long-lived assets. The Company’s long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
The Company assesses the recoverability of its long-lived assets by comparing the projected undiscounted net cash flows associated with the related long-lived asset or group of long-lived assets over their remaining estimated useful lives against their respective carrying amounts. Impairment, if any, is based on the excess of the carrying amount over the fair value of those assets. Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable. If long-lived assets are determined to be recoverable, but the newly determined remaining estimated useful lives are shorter than originally estimated, the net book values of the long-lived assets are depreciated over the newly determined remaining estimated useful lives.
The Company considers the following to be some examples of important indicators that may trigger an impairment review: (i) significant under-performance or losses of assets relative to expected historical or projected future operating results; (ii) significant changes in the manner or use of assets or in the Company’s overall business strategy; (iii) significant negative industry or economic trends; (iv) increased competitive pressures; (v) a significant decline in the Company’s stock price for a sustained period of time; and (vi) regulatory changes. The Company evaluates acquired assets for potential impairment indicators at least annually and more frequently upon the occurrence of such events.
The impairment charges, if any, are included in operating expense in the accompanying statements of income and comprehensive income (loss).
Recent Accounting Pronouncements
The Company has implemented all new accounting pronouncements that are in effect as of the date of the issuance of these financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). Under this guidance, lessees will be required to recognize on the balance sheet a lease liability and a right-of-use asset for all leases, with the exception of short-term leases. The lease liability represents the lessee’s obligation to make lease payments arising from a lease, and will be measured as the present value of the lease payments. The right-of-use asset represents the lessee’s right to use a specified asset for the lease term, and will be measured at the lease liability amount, adjusted for lease prepayment, lease incentives received and the lessee’s initial direct costs. The standard also requires a lessee to recognize a single lease cost allocated over the lease term, generally on a straight-line basis. The new guidance is effective for fiscal years beginning after December 15, 2018. ASU 2016-02 is required to be applied using the modified retrospective approach for all leases existing as of the effective date and provides for certain practical expedients. Early adoption is permitted. Because the Company does not currently have any lease, the adoption of ASU 2016-02 does not have a impact to the Company’s financial statements and related disclosures upon adoption on March 1, 2019. The adoption of this standard will change the way that the Company accounts lease in the future.
Recent Accounting Pronouncements Not Yet Adopted
In December 2019, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (ASU 2019-12), which simplifies the accounting for income taxes. This guidance will be effective for entities for the fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020 on a prospective basis, with early adoption permitted. We will adopt the new standard effective January 1, 2021 and do not expect the adoption of this guidance to have a material impact on our consolidated financial statements.
The Company has considered all other recently issued accounting pronouncements and does not believe the adoption of such pronouncements will have a material impact on its consolidated financial statements.
Fair Value of Financial Instruments
The Company measures assets and liabilities at fair value based on expected exit price as defined by the authoritative guidance on fair value measurements, which represents the amount that would be received on the sale date of an asset or paid to transfer a liability, as the case may be, in an orderly transaction between market participants. As such, fair value may be based on assumptions that market participants would use in pricing an asset or liability. The authoritative guidance on fair value measurements establishes a consistent framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level.
The following are the hierarchical levels of inputs to measure fair value:
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·
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Level 1: Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.
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·
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Level 2: Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.
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·
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Level 3: Unobservable inputs reflecting the Company’s assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.
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The carrying amounts of the Company’s financial assets and liabilities, such as cash, accounts receivable, accounts payable, due to related party and loan payable, approximate their fair values because of the current nature of these instruments. .
Commitments and Contingencies
Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated.
Income Taxes
Deferred income tax assets and liabilities are provided for based upon differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the statements of operations in the period that includes the enactment date.
Revenue Recognition
Sales
The Company recognizes eCommerce sales revenue, net of sales taxes and estimated sales returns, upon delivery to the customer. Additionally, estimated sales returns are calculated using historical experience of actual returns as a percent of sales. No estimated sales returns were recorded for the years ended February 28, 2021 or February 29, 2020.
Cost of Sales
Cost of sales includes actual product cost, the cost of transportation to the Company’s distribution facilities.
Operating, Selling, General and Administrative Expenses
Operating, selling, general and administrative expenses include all operating costs of the Company, except cost of sales, as described above.
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.
Since the company has incurred losses for all periods, the impact of the common stock equivalents would be anti- dilutive and therefore are not included in the calculation.
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 of February 28, 2021, the Company had a working capital deficit of $1,118,942. The Company currently has limited profitable trading activities and has an accumulated deficit of $3,592,223 as of February 28, 2021.
The COVID-19 pandemic has had and continues to have a major slowdown effect on worldwide business activity. Although the Company does not anticipate any fundamental change in its business plans, management does expect some degree of unavoidable slowdown due to the Company’s inherent reliance on business activities from multiple external partners, clients outside our control. 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 nutrition food technical service 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. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
NOTE 4 – 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.
The CEO confirmed the personal commitment to provide financial support for the next twelve-months from the balance sheet date.
As of February 28, 2021, the Company had a $551,125 advance payment from its CEO, Ms. Yan Li. This compares with an outstanding balance of $489,945 for Ms. Yan Li as of February 29, 2020. The advances are non-interest bearing, due upon demand and unsecured. The company business is operated from an office provided by the CEO.
A related party company is providing accounting service to the company at an estimated annual service fee of $21,000.
From November 2017, the Company began purchasing cosmetic and sprout products from two related parties controlled by our CEO. The Company purchased a total of $47,643 of inventory from two related parties which was sold during the year ended February 29, 2020, the accounts payable balance of which is outstanding as of February 28, 2021 and February 29, 2020.
NOTE 5 – ACCRUED OFFICER COMPENSATION AND STOCK COMPENSATION
On December 15, 2015, the Company entered into an employment agreement with its president, Ms. Yan Li. The agreement was retroactively effective as of December 4, 2015, for a term of 36 months (measured from December 4, 2015). Pursuant to the agreement, both Ms. Yan shall receive an annual salary of $100,500 and 100,000 shares of the Company’s common stock.
On January 15, 2019, the board of the company approved new compensation to its five officers including two new appointed directors. The five directors waived their salary and will receive a total of 500,000 shares each year for a term of three years.
As of February 28, 2021, a total of $535,500 had been accrued as accrued officer compensation payable to its president compared to $535,500 as of February 29, 2020.
As of February 28, 2021, a total of $18,000 in stock compensation expense had been recorded for five officers compared to a total of $18,000 in stock compensation recorded for the same period as of February 29, 2020.
NOTE 6 – INCOME TAX
At February 28, 2021, the Company had unused federal and state net operating loss carryforwards available of approximately $1,010,394, which may be applied against future taxable income, if any, and which expire in various years through 2041.
This loss carry-forward expires according to the following schedule:
Year Ending February 28, 2021
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Amount
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2034
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$
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54,197
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2035
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|
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-
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2036
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|
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539,420
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2037
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|
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107,453
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2038
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|
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118,828
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2039
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|
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80,296
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2040
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49,514
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2041
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60,686
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Total
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$
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1,010,394
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The following is a reconciliation of the tax provision as calculated at the statutory tax rate to the provision as recognized for the years ended February 28, 2021 and February 29, 2020:
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2021
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2020
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Tax provision at statutory rates
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$
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(17,679
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)
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$
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(15,991
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)
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Effect of permanent and Temporary difference(s)
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4,935
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5,593
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Change in valuation allowance
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12,744
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10,398
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Net tax expense
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$
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-
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$
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-
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There were permanent differences and temporary differences to reconcile the tax provision for the years ended February 28, 2021 and 2020, other than the change in valuation allowance of $12,744 and $10,398, respectively. All tax years from inception remain open for examination by the tax authorities.
In addition to tax loss carry forward, unrecognized deferred tax assets as of February 28, 2021 and February 29, 2020, primarily related to accrued officer compensation and other accrued expense not deductible until paid for income tax purposes amounted to $ 1,155 and $1,813, respectively.
NOTE 7 – STOCKHOLDERS’ DEFICIT
Common Stock
The Company has authorized share capital of 75,000,000 shares of common stock authorized with a par value of $0.001 per share.
On January 15, 2019, Company’s Board of Directors renewed the employment agreement with its CEO and decided to grant its CEO and other four officers and directors, including two newly appointed directors, a total of 500,000 shares as stock compensation each year for a term of three years. The granted restricted stock is valued based on stock market price of $0.036 per share at stock grant date.
As of February 28, 2021, a total of 500,000 shares valued at $18,000 in stock compensation expense had been recorded for five officers compared to a total of 500,000 shares valued at $18,000 in stock compensation to the same five directors as of February 29, 2020.
NOTE 8 – SUBSEQUENT EVENTS
In accordance with ASC 855-10, “Subsequent Events”, the Company has analyzed its operations subsequent to February 28, 2021 to May 7, 2021, 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.