NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MAY 31, 2017 AND 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 August 18, 2015, the Company changed its name to Jubilant Flame International, Ltd.
The Company currently has the right to develop and market medical products under a license from BioMark. The primary intended products include Bone-Induction Artificial Bone (“BIAB”) and Vacuum Sealing Drainage (“VSD”).
We currently are not deploying the licenses we hold for the BIAB or VSD products. We have no current operations at this time. For us to develop our business, we will need to raise capital, engage personnel and develop and implement a business plan.
The Company is also licensed to conduct research and development of BioMark's cancer detection scanning technology. In the event that the research and development of BioMark's cancer detection scanning technology provides marketable technology, the Company shall have the right of first refusal to a license to market, sell and distribute such cancer detection scanning technology, all the terms of which would be negotiated at that time of licensing. To date, we have not taken any steps to pursue the research and development of a cancer detection scanning product.
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 August 31, 2017, results of operations, changes in stockholders' equity (deficit) and cash flows for the six month periods ended August 31, 2017 and 2016, 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 August 31, 2017 the Company had current assets of $11,595, and current liabilities total $732,843 resulting in a working capital deficit of $721,248. The Company currently has no profitable trading activities and has an accumulated deficit of $2,884,141 as at August 31, 2017. 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 – PREPAID EXPENSE
The Company is paying an annual fee for its OTC Markets service. The service period is from December 1, 2016 to November 30, 2017. The service charge is recorded as a prepaid expense and amortized using straight line amortization over the service period. Also during the second quarter, the Company prepaid $1,000 to a marketing service company. The prepaid expense balance is $3,188 as of August 31, 2017.
NOTE 5 – 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. During the second quarter ended at August 31, 2017, the company paid off the remaining outstanding note balance in full with 140% interest. As a result, the convertible note balance net of discount amortization for the six months ended August 31, 2017 amounted is zero.
From March 1, 2016 to May 31, 2017, the debtholder converted a total of $59,200 of note principle to 5,707,137 common stock shares based on the convertible note agreement. During the three-months ended August 31, 2017, the debtholder didn’t convert note principle to stock, but instead accepted payoff of the remaining balance of $800 from the Company. 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
|
|
15-Dec-16
|
|
|
3,800
|
|
|
|
603,174
|
|
|
|
0.0063
|
|
16-Mar-17
|
|
|
2,900
|
|
|
|
805,555
|
|
|
|
0.0036
|
|
7-Apr-17
|
|
|
3,700
|
|
|
|
822,222
|
|
|
|
0.0045
|
|
The following is the summary of outstanding convertible note balances
Description
|
|
August 31,
2017
|
|
|
Feb 28,
2017
|
|
|
|
|
|
|
|
|
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.
|
|
$
|
800
|
|
|
$
|
7,400
|
|
Less: debt discount
|
|
|
-
|
|
|
|
(4,238
|
)
|
Less: debt payoff
|
|
|
(800
|
)
|
|
|
-
|
|
Less: current portion
|
|
|
-
|
|
|
|
-
|
|
Long-term convertible debt, net
|
|
$
|
-
|
|
|
$
|
3,162
|
|
Debt Discount
During the six months ended August 31, 2017 and the year ended February 28, 2017, the Company recorded debt discounts totaling $-0- and $4,238, respectively.
The Company amortized $4,238 and $49,448 during the six months ended August 31, 2017 and the year ended February 28, 2017, respectively, to amortization of debt discount.
|
|
As of
|
|
|
As of
|
|
|
|
31-August-17
|
|
|
28-Feb-17
|
|
|
|
|
|
|
|
|
Debt discount
|
|
$
|
58,026
|
|
|
$
|
58,026
|
|
Accumulated amortization of debt discount
|
|
|
(58,026
|
)
|
|
|
(53,788
|
)
|
Debt discount - net
|
|
$
|
-
|
|
|
$
|
4,238
|
|
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 six months ended August 31, 2017:
Derivative liabilities - February 28, 2017
|
|
$
|
9,156
|
|
Add fair value at the commitment date for convertible notes issued during the three months
|
|
|
-
|
|
Fair value reduction for derivatives due to note conversion
|
|
|
(12,276
|
)
|
Fair value mark to market adjustment for derivatives
|
|
|
4,362
|
|
Derivatives extinguishment due to debt payoff
|
|
|
(1,242
|
)
|
Derivative liabilities – August 31, 2017
|
|
|
-
|
|
Less: current portion
|
|
|
-
|
|
Long-term derivative liabilities August 31, 2017
|
|
$
|
-
|
|
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 six months ended August 31, 2017, the Company recorded change in derivatives liability of $4,362 and reduction of derivatives liability of $12,276 due to conversion and derivatives extinguishment of $1,242 due to debt payoff.
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 three month:
|
|
Commitments
|
|
|
Re-measurement
|
|
Assumption
|
|
Date
|
|
|
Date
|
|
Expected dividends:
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected volatility:
|
|
|
45
|
%
|
|
203.7%~245.3
|
%
|
Expected term (years):
|
|
|
3
|
|
|
1.39~1.73
|
|
Risk free interest rate:
|
|
|
1.22
|
%
|
|
1.19%~1.35
|
%
|
NOTE 6 – 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 August 30, 2017, Mr. Robert Ireland resigned as Secretary/Treasurer of the Company. Additionally, upon his resignation, he surrendered all outstanding equity compensation to the Company and agreed to cancel all outstanding debt of $840 that was owed to him for past compensation.
As at August 31, 2017, the Company had a $322,969 loan outstanding with its CEO, Ms. Yan Li and $-0- with its former treasurer Mr. Ireland. This compares with the outstanding balance of $282,889 for Ms. Yan Li and $840 for Mr. Ireland at February 28, 2017. The loans are non-interest bearing, due upon demand and unsecured.
A related party created a website, that was active beginning in August of 2015, and billed the Company $25,000. The expense of this website will be amortized over 36 months at the rate of $694 per month.
A related party’s company is providing accounting service to the company, at an estimated annual service fee of $16,000.
NOTE 7 – ACCRUED OFFICER COMPENSATION AND 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. Both agreements were 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 and Mr. Ireland shall receive an annual salary of $100,500 and 100,000 shares of the Company's common stock.
On August 30, 2017, Mr. Robert Ireland resigned as Secretary/Treasurer of the company. Additionally, upon his resignation, he surrendered all outstanding equity compensation to the company and agreed to cancel all outstanding debt of the Company that was owed to him for past compensation.
On August 30, 2017, Mr. Lei Wang was appointed as the Chief Financial Officer by the company’s Board of Directors. Mr. Wang will be paid stock compensation time to time base on business progress. Mr. Wang was also granted 200,000 shares of restricted common stock at the time of his appointment, which vests immediately. The restricted stock has a value of $2,100 based on stock market price of $0.0105 per share at stock grant date.
On August 30, 2017, Mr. Kecheng Xu was appointed as Secretary/Treasurer by the company’s Board of Directors, effective immediately. Mr. Xu will be paid stock compensation time to time based on business progress. Mr. Xu was granted 50,000 shares of restricted common stock at the time of his appointment. The restricted stock has a value of $525 base on stock market price of $0.0105 per share at stock grant date.
As a result, on August 31, 2017, a total of $409,875 had been accrued as salary compensation payable to the CEO and same amount of $409,875 as debt forgiveness Mr. Robert Ireland compared to $719,250 to the two officers at February 28, 2017. During the six months ended August 31, 2017, a total of $107,625 stock compensation had been recorded for three officers compared to $105,000 for the same period in the prior year to the two officers. 175,000 granted shares valued at $367,500 have been canceled as stock compensation to Mr. Robert Ireland upon his resignation.
NOTE 8 – STOCKHOLDERS EQUITY
During the quarter ended August 31, 2017, convertible debt of $6,600 was converted into 1,627,777 shares of common stock as provided for in the convertible note agreement. Associated with the note conversion, derivatives liability was reduced by $12,276 by August 31, 2017. During the same period, convertible debt of $800 was paid off to the debtholder with 140% interest. Associated with the debt payoff, derivatives liability was reduced by $1,242 by August 31,2017.
During the quarter ended August 31, 2017, a total of 300,000 Shares were issued to three officers as stock compensation. Total value of $107,625 has been recorded for the stock compensation. 175,000 granted shares valued at $367,500 have been canceled as stock compensation to Mr. Robert Ireland upon his resignation.
NOTE 9
– SUBSEQUENT EVENTS
None.