Notes to Condensed Interim Consolidated Financial Statements
June 30, 2017
(Unaudited)
NOTE 1. ORGANIZATION AND NATURE OF BUSINESS
Luminar Media Group, Inc. (“the Company” or “the Issuer”) was organized under the name Retail Spicy Gourmet, Inc. under the laws of the State of Delaware on December 30, 2010. The name was changed to Golden Edge Entertainment, Inc. on February 26, 2013, and to Luminar Media Group, Inc. on August 26, 2016. The Company was established as part of the Chapter 11 reorganization of Spicy Gourmet Organics, Inc. (“SGO”). Under SGO’s Plan of Reorganization, as confirmed by the U.S. Bankruptcy Court for the Central District of California, the Company was incorporated to: (1) receive and hold any interest which SGO had in the business of retail sales of imported spices; and (2) issue shares of its common stock to SGO's general unsecured creditors, to its administrative creditors, and to its shareholder. The Company incorporated its 100% owned subsidiary, Big Data Media, LLC., ("BDM") under the laws of the State of Delaware on June 1, 2016.
The Company is developing its business plan and has commenced marketing of its services but has realized no revenues to date. The Company's current business plan calls for the Company to market and sell the TherOZap device in the United States and other world markets. The TherOZap device is based on a platform technology indicated for the relief of the pain, itch and inflammation from insect stings and bites and is licensed by the Company. The BDM business plan is to provide on-line services with the primary focus to charge customers to create and host content in the eLearning sector where courses and modules can then be continually improved, fine-tuned and evolve into an efficient, effective and engaging e-learning.
NOTE 2.
PRESENTATION OF FINANCIAL STATEMENTS
These unaudited condensed interim consolidated financial statements should be read in conjunction with the financial statements for the Company’s most recently completed fiscal year ended December 31, 2016. These condensed interim consolidated financial statements do not include all disclosures required in annual financial statements, but rather are prepared in accordance with recommendations for interim financial statements in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). These unaudited condensed interim consolidated financial statements have been prepared using the same accounting policies, and methods as those used by the Company in the annual financial statements for the year ended December 31, 2016, except when disclosed below.
The unaudited condensed interim consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments) which are necessary to present fairly the financial position of the Company as at June 30, 2017, and the results of its operations for the three and six month periods ended June 30, 2017, and 2016 and its cash flows for the six-month periods ended June 30, 2017 and 2016. Note disclosures have been presented for material updates to the information previously reported in the annual financial statements.
The accompanying condensed interim consolidated financial statements include the accounts of the Company, and its wholly owned subsidiary, Big Data Media, LLC. All inter-company transactions have been eliminated upon consolidation.
Estimates
The preparation of condensed interim consolidated financial statements in conformity with generally accepted accounting principles 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.
On an ongoing basis, the Company evaluates its estimates, including those related to accrued liabilities and contingencies, the valuation of income taxes, stock based compensation, warrants and convertible notes payable. The Company bases its estimates on historical experiences and on various other assumptions believed to be reasonable under the circumstances. Actual results could differ from those estimates. As adjustments become necessary, they are reported in earnings in the period in which they become known.
NOTE 3. GOING CONCERN
The Company sustained an accumulated deficit as of June 30, 2017 in the amount of $4,142,704 ($418,308 - December 31, 2016) and a working capital deficiency of $150,300 at June 30, 2017 (December 31, 2016 - $211,943). The Company’s continuation as a going concern is dependent on its ability to generate sufficient cash flows from operations to meet its obligations and/or obtain additional financing, as may be required.
The accompanying condensed interim consolidated financial statements have been prepared assuming the Company will continue as a going concern; however, the above condition raises substantial doubt about the Company’s ability to do so. The condensed interim consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should the Company be unable to continue as a going concern. Such adjustments could be material.
NOTE 4. CONVERTIBLE NOTES PAYABLE AND CONVERTIBLE LINE OF CREDIT
On September 9, 2015, the Company issued a convertible line of credit to an investor that provides for a maximum borrowing of $50,000. During the year ended December 31, 2015, the Company borrowed $10,000 under this convertible line of credit. The convertible line of credit (i) is unsecured, (ii) bears interest at the rate of 8% per annum, and (iii) was due on September 9, 2016. The outstanding balance under this convertible line of credit is convertible at any time at the option of the investor into shares of the Company’s common stock that is determined by dividing the amount to be converted by 60% of the bid price on the day of conversion. In September 2016, the convertible line was extended to September 9, 2017 and the maximum borrowing was increased to $100,000. On October 4, 2016, the Company converted $24,100 from the convertible line credit into 308,974 common shares of the Company. During 2016, the Company borrowed an additional $44,500 under this convertible debenture. On February 17, 2017, an amount of $9,600 was transferred from accounts payable to the line of credit and the Company converted $40,000 from the convertible line credit into 312,500 common shares, which settled the convertible line of credit in full.
Due to the variable conversion price associated with this convertible line of credit, the Company has determined that the conversion feature is considered a derivative liability. The embedded conversion feature at the date of each draw during the six month period ended June 30, 2017, was estimated to be $24,719 (2016 - $12,336), which was recorded as a derivative liability as of the date of issuance. The debt discount is being amortized over the term of the convertible line of credit.
The Company received on July 27, 2015, a total of $10,000 by issuance of a convertible note. This convertible promissory note bears interest from the date of issuance at the rate of 8% per annum. This note was payable one year from the date of issuance. It is convertible any time at a fixed price of $0.40 per share. The expiry date of the convertible note was extended to July 31, 2018.
The Company received on January 8, 2016, a total of $20,000 by issuance of a convertible note. This convertible promissory note bears interest from the date of issuance at the rate of 8% per annum. This note was payable one year from the date of issuance. It is convertible any time at a fixed price of $0.20 per share. The expiry date of the convertible note was January 8, 2017. On January 4, 2017, the Company repaid the note payable through the exercise of warrants.
The Company received on April 1, 2016 a total of $17,800 by issuance of a convertible note. This convertible promissory note bears interest from the date of issuance at the rate of 8% per annum. This note was payable one year from the date of issuance. It is convertible any time at a fixed price of $0.20 per share. The expiry date of the convertible note was April 1, 2017. In March 2017, the Company repaid the amount of the note payable through the exercise of warrants.
The Company received on October 26, 2016 a total of $30,000 by issuance of a convertible note. This convertible promissory note bears interest from the date of issuance at the rate of 12% per annum. This note is payable one year from the date of issuance. It is convertible any time at a fixed price of $0.20 per share. The expiry date of the convertible note is October 26, 2017.
The Company received on November 21, 2016, a total of $20,000 by issuance of a convertible note. This convertible promissory note bears interest from the date of issuance at the rate of 12% per annum. This note is payable one year from the date of issuance. It is convertible any time at a fixed price of $0.20 per share. The expiry date of the convertible note is November 21, 2017.
On February 20, 2017, the Company entered into a convertible line of credit that bears interest at 8% per annum. The maximum borrowing under the line of credit is $50,000. The holder can convert the principle and accrued interest into common shares. The number of common shares into which the loan can be converted shall be determined by dividing the amount being converted by 90% of the bid price on the day of the conversion. A total of $5,000 has been drawn on the line of credit as at June 30, 2017.
On March 22, 2017, the Company entered into a convertible loan in the amount of $15,000. The loan is payable in one year and bears interest at 8% per annum. The Holder can convert the principle and accrued interest into common shares. The number of common shares into which the loan can be converted shall be determined by dividing the amount being converted by 60% of the bid price on the day of the conversion.
The Company recognized $42,414 during the six months ended June 30, 2017 (2016 - $27,937) related to the amortization of the debt discount.
NOTE 5. DERIVATIVE LIABILITY
The convertible line of credits discussed in Note 4 have a variable conversion price which results in the conversion feature being recorded as a derivative liability.
The fair value of the derivative liability is recorded and shown separately under current liabilities. Changes in the fair value of the derivative liability is recorded in the statement of operations under other income (expense).
The Company uses the Black-Scholes option pricing model with the following assumptions to estimate the fair value of derivative liability at:
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June 30, 2017
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December 31, 2016
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Stock price
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0.15
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0.52
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Risk free rate
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1.09%
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0.35%
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Expected volatility
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207.1%
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253.6%
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Conversion/ exercise price
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0.101
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0.312
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Expected dividend rate
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0%
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0%
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Term (years)
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0.71
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0.69
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The following table represents the Company’s derivative liability activity for the periods ended June 30, 2017 and December 31, 2016:
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Amount
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Amount
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June 30, 2017
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December 31, 2016
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Derivative liability balance, beginning of period
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$
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42,770
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13,358
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Issuance of derivative liability during the period
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44,492
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120,135
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Conversion of debt
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(79,398)
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(22,713)
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Change in derivative liability during the period
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13,572
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(68,010)
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Derivative liability balance, end of period
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$
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21,385
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42,770
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NOTE 6. STOCKHOLDERS' EQUITY COMMON STOCK
The authorized share capital of the Company consists of 100,000,000 shares of common stock with $0.0001 par value, and 20,000,000 shares of preferred stock also with $0.0001 par value. No other classes of stock are authorized.
COMMON STOCK: As of June 30, 2017, there were a total of 28,001,474 (December 31, 2016 - 18,688,974) common shares issued and outstanding.
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On January 25, 2017, the Company issued 400,000 common shares pursuant to a conversion of warrants at an exercise price of $0.05.
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On March 2, 2017, the Company issued 312,500 common shares pursuant to a conversion of the convertible line of credit. The debt was converted at a price of $0.128 per common share based on the trading price on that date and the conversion rate.
·
On March 6, 2017, the Company issued 8,000,000 restricted common shares to the Chief Executive Officer as compensation, valued at $3,600,000 based on the trading price on that date. This amount has been recorded as an Operating expense on the condensed interim consolidated statement of operations.
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On March 15, 2017, the Company issued 400,000 common shares pursuant to a conversion of warrants
at an exercise price of $0.05 per common share.
·
On April 17, 2017, the Company issued 200,000 common shares pursuant to a conversion of warrants. The warrants were exercised at a price of $0.05 per common share.
As a result of these issuances there were a total 28,001,474 common shares issued and outstanding, and a total of 2,800,000 warrants to acquire common shares at $0.05 issued and outstanding at June 30, 2017.
PREFERRED STOCK: The authorized share capital of the Company includes 20,000,000 shares of preferred stock with $0.0001 par value. As of June 30, 2017, and December 31, 2016, no shares of preferred stock had been issued and no shares of preferred stock were outstanding.
NOTE 7. LOSS PER SHARE
The computation of loss per share for the three and six month periods ended June 30, 2017 and 2016 is as follows:
For the six months ended June 30, 2017, the net loss is $3,724396 ($76,742 – June 30, 2016). The weighted average number of common shares is 21,698,186 (17,580,000 – June 30, 2016) for a basic loss per share of $ 0.1716 ($ 0.0044 – June 30, 2016). For the three months ended June 30, 2017, the net loss is $41,267 ($51,019 – June 30, 2016). The weighted average number of common shares is 21,698,186 (17,580,000 – June 30, 2016) for a basic loss per share of $0.0019 ($0.0029 – June 30, 2016).
NOTE 8. INCOME TAXES
The Company has no revenues since inception but has incurred operating expenses. Accordingly, the Company has made no U.S. federal income tax provision since its inception on December 30, 2010.
NOTE 9. RELATED PARTY TRANSACTIONS
The Company neither owns nor leases any real or personal property. The officers and directors for the Company are involved in other business activities and may, in the future, become involved in other business opportunities. If a specific business opportunity becomes available, such persons may face a conflict in selecting between the Company and their other business interests.
NOTE 10. WARRANTS
On December 30, 2010 (inception), the Company issued 5,000,000 warrants exercisable into 5,000,000 shares of the Company’s common stock. These warrants were issued per order of the U.S. Bankruptcy Court in the matter of Spicy Gourmet Organics, Inc. (“SGO”) to the administrative creditors of SGO. These creditors received an aggregate of 5,000,000 warrants consisting of 1,000,000 “ A Warrants ” each convertible into one share of common stock at an exercise price of $3.00; 1,000,000 “ B Warrants ” each convertible into one share of common stock at an exercise price of $4.00; 1,000,000 “ C Warrants ” each convertible into one share of common stock at an exercise price of $5.00; 1,000,000 “ D Warrants ” each convertible into one share of common stock at an exercise price of $6.00; and 1,000,000 “ E Warrants ” each convertible into one share of common stock at an exercise price of $7.00. During 2015, the warrant exercise price was changed to $0.05 and the life of the warrants was extended by two years. The value of the modification was estimated using a Black-Scholes pricing model and was determined to be not material. All warrants are exercisable at any time prior to November 19, 2017. As of June 30, 2017, 2,200,000 warrants have been exercised at $0.05. There are 2,800,000 warrants outstanding as of June 30, 2017, with an exercise price of $0.05 per share (December 31, 2016 - 3,800,000).
NOTE 11. COMMITMENTS
On October 31, 2016, the Company entered into an exclusive license agreement with The Jenex Corporation ("Jenex") in relation to Jenex’s novel thermal therapy device used for insect bites and stings. The license gives the Company the exclusive right to sell the device in all markets outside of Canada including the United States, Europe and Asia. Under the agreement, the Company paid $25,000 in October 2016 and was obliged to pay an additional $25,000 by November 15, 2016, $75,000 by December 15, 2016 and $125,000 by February 28, 2017. The Company has not made any instalments after the initial payment of $25,000 and is re-negotiating the timing of payments with Jenex. The Company has accrued the $25,000 payment that was due at November 15, 2016.