The un-audited interim consolidated financial statements for the period ended September 30, 2016, prepared by the company, immediately follow.
Notes to Condensed Interim Consolidated Financial Statements
September 30, 2016
(Unaudited)
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., under the laws of the State of Delaware on June 1, 2016.
On February 1, 2013, the Company resolved to enter the music production and distribution business. The Company is a development stage business that intends to develop revenue by providing professional services to recording artists. Such services include production of recordings, management of the manufacture of CDs and internet uploading of music files, and management of the manufacture of promotional merchandise such as T-shirts and caps. The Company has been in the development stage since its formation and has not yet realized any revenues from its planned operations.
The Company has developed its business plan and has commenced marketing of its services but has realized no revenues to date. The Company's business plan calls for the Company to provide on-line services through the Company's new platform, Big Data Media (“BDM”). The primary focus of BDM is 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.
2.
Presentation of Financial Statements
Basis of Presentation
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, 2015. 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, 2015, 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 September 30, 2016, and the results of its operations for the three and nine month periods ended September 30, 2016 and 2015 and its cash flows for the nine month periods ended September 30, 2016 and 2015. Note disclosures have been presented for material updates to the information previously reported in the annual financial statements.
Estimates
The preparation of these condensed interim financial statements has required management to make estimates and assumptions that affect the amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of the 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.
3. Going Concern
The Company’s operations are subject to certain risks and uncertainties including, among others, current and potential competitors with greater resources, dependence on significant customers, lack of operating history and uncertainty of future profitability and possible fluctuations in financial results. In accordance with ASU 2014-15, management has evaluated the Company’s ability to continue as a going concern. Management has determined that there is substantial doubt that the Company will continue as a going concern due to the Company's accumulated deficit of $266,590 as of September 30, 2016 ($167,173 - December 31, 2015), and working capital deficiency of $144,286 (December 31, 2015 - $59,677). 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 unaudited condensed interim consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. Such adjustments could be material.
The accompanying unaudited condensed interim financial statements have been prepared assuming that the Company will continue as a going concern; however, the above condition raises substantial doubt about the Company’s ability to do so. The Company is in the development stage and has not yet realized profitable operations and has relied on non-operational sources to fund operations. The Company has suffered recurring losses and additional future losses are anticipated as the Company has not yet been able to generate revenue. The condensed interim consolidated financial statements do not include any adjustments relating to recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue in existence. The officers and directors have committed to provide advances to fund certain operating costs of the Company.
4. Convertible Notes Payable
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, 2017.
On September 9, 2015, the Company issued a convertible line of credit to an investor that provides for a maximum borrowing of $50,000, which was increased to $100,000 in August 2016. In addition, the maturity date of the line of credit was extended by one year to September 9, 2017. As at September 30, 2016, the Company borrowed $68,250 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) is due on September 9, 2017. 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.
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. Accordingly, the Company recorded a change in fair value of the derivative liability in the amount of $59,953 (2015 – ($1,993)) and $71,585 (2015 – ($1,993)) or the three and nine months ended September 30, 2016, respectively.
The Company recognized financing costs of $23,465 and $30,998 during the three and nine months ended September 30, 2016, and amortization of debt discount of $43,031 and $70,968 for the three and nine months ended September 30, 2016.
On January 8, 2016, the Company issued a convertible promissory note for $20,00. The convertible promissory note bears interest from the date of issuance at the rate of 8% per annum, and is payable one year from the date of issuance. It is convertible any time at a fixed price of $0.20 per share. Commencing on the demand date, all principal and accrued interest shall be payable by the Company upon demand by the investor.
5. Derivative Liability
The convertible line of credit discussed in Note 4 has 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-Merton option pricing model with the following assumptions to measure the fair value of derivative liability at September 30, 2016.
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Stock price
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$0.16
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Risk free rate
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0.35%
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Volatility
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252%
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Conversion/ Exercise price
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$0.096
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Dividend rate
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0%
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Term (years)
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0.94
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The following table represents the Company’s derivative liability activity for the period ended September 30, 2016:
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Amount
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Derivative liability balance, December 31, 2015
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$
13,358
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Issuance of derivative liability
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152,787
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Change in derivative liability during the period
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(71,585)
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Derivative liability balance, September 30, 2016
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$
94,560
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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 September 30, 2016, there were a total of 17,980,000 common shares issued and outstanding.
The Company’s first issuance of common stock, totaling 1,180,000 shares, took place on December 30, 2010 pursuant to the Chapter 11 Plan of Reorganization confirmed by the U.S. Bankruptcy Court in the matter of Spicy Gourmet Organics, Inc. (“SGO”). The Court ordered the distribution of shares in Retail Spicy Gourmet, Inc. to all general unsecured creditors of SGO, with these creditors to receive their
pro rata
share (according to amount of debt held) of a pool of 80,000 shares in the Company. The Court also ordered the distribution of 100,000 shares in the Company to the shareholders of SGO. The Court also ordered the distribution of 1,000,000 shares and 5,000,000 warrants in the Company to the administrative creditors of SGO, with these creditors to receive one share of common stock and five warrants in the Company for each $0.05 of SGO’s administrative debt which they held. The warrants consisted 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. All warrants are exercisable at any time prior to November 19, 2015. On March 24, 2015, all warrants were modified and are convertible into common shares at an exercise price of $0.05, and expire on November 19, 2017.
There were a total 17,980,000 common shares issued and outstanding, and a total of 4,200,000 warrants to acquire common shares (at $0.05) issued and outstanding, at September 30, 2016.
On November 4, 2016, $24,100 of convertible debt was converted into 308,974 common shares.
PREFERRED STOCK: The authorized share capital of the Company includes 20,000,000 shares of preferred stock with $0.0001 par value. As of September 30, 2016, no shares of preferred stock had been issued and no shares of preferred stock were outstanding.
7. 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.
8. 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. The Company has not formulated a policy for the resolution of such conflicts.
9. 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 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. All warrants were exercisable at any time prior to November 19, 2015. The gross value of $53,678 (or approximately $0.0107356 per warrant) were assigned to the warrants. On March 24, 2015, all warrants were modified and are convertible into common shares at an exercise price of $0.05, and expire on November 19, 2017.
As of the date of this report, 800,000 warrants have been exercised at $0.05. There are 4,200,000 warrants outstanding as of September 30, 2016.
10. Subsequent events
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 is 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 the second instalment as at December 7, 2016.
On November 4, 2016, $24,100 of convertible debt was converted into 308,974 common shares.
On November 21, 2016, the Company issued a convertible promissory note for $20,000. The 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.