Business Context and Reporting Period
Company: PureSnax International, Inc. (Note: Request metadata listed "Iqstel Inc," but the filing text identifies the registrant as PureSnax International, Inc.)
Reporting Period: Quarterly period ended September 30, 2016 (Form 10-Q).
Business Overview: A wellness brand focused on healthy snacks and foods (sugar-free, peanut-free, Kosher, etc.). The company operates under a licensing agreement with PureSnax Company, Inc. to distribute products in North America. As of the reporting date, the company had no full-time employees and limited revenue history.
Key Financial Metrics
| Metric | Three Months Ended Sep 30, 2016 | Three Months Ended Sep 30, 2015 |
|---|---|---|
| Revenue | $0 | $0 |
| Net Loss | $(41,389) | $(26,794) |
| Net Cash Used in Operating Activities | $(20,694) | $(9,531) |
| Cash and Cash Equivalents (End of Period) | $4,960 | $187 |
| Total Assets | $21,514 | N/A (Balance sheet not provided for 2015) |
| Total Liabilities | $185,918 | N/A |
| Stockholders' Deficit | $(164,404) | N/A |
| Convertible Notes Payable (Net) | $36,149 | N/A |
| Derivative Liability | $77,069 | $0 |
Material Changes vs. Prior Period
- Net Loss Increase: Net loss increased by approximately 54% from $26,794 in the prior year period to $41,389. This was driven primarily by a $15,368 change in derivative liability and $3,659 in derivative expense, which were non-existent in the prior period.
- Derivative Liabilities: The company recorded a derivative liability of $77,069 due to "reset" and "dilutive issuance" clauses in convertible notes issued during the fiscal year. This liability did not exist in the prior year.
- Operating Expenses: Total operating expenses decreased from $26,794 to $20,079, largely due to a reduction in consulting expenses ($14,749 vs. $21,781) and website/hosting costs ($89 vs. $5,000).
- Liquidity: Cash on hand decreased from $23,790 at the end of the prior fiscal year (June 30, 2016) to $4,960 at September 30, 2016.
Guidance, Outlook, Risks, and Unusual Items
- Going Concern: The filing explicitly states substantial doubt regarding the company's ability to continue as a going concern. Continuation depends on obtaining necessary equity financing and achieving profitable operations.
- Capital Needs: Management estimates a need for an additional $50,000 to $100,000 to purchase raw materials, packaging, and for introductory marketing to begin commercial production.
- Unusual Items: Significant non-cash charges related to the fair value adjustment of derivative liabilities ($15,368) and derivative expense ($3,659) impacted the net loss.
- Debt Conversions: Multiple convertible notes were partially converted into common stock during the quarter, reducing principal balances but increasing share count (from ~100.2M to ~105.4M shares).
- Controls: Management concluded that disclosure controls and procedures were not effective as of the end of the period.
Investor Verification Checklist
- Going Concern Status: Verify if the company has secured the estimated $50k-$100k needed for commercial production to avoid ceasing operations.
- Derivative Liability Volatility: Monitor the fair value of the $77,069 derivative liability, as fluctuations in stock price will directly impact reported net loss.
- Debt Maturity: Review the maturity dates of the remaining convertible notes (ranging from Feb 2017 to March 2017) and the company's ability to repay or convert them.
- Revenue Generation: Confirm if the licensing agreement has resulted in any actual sales revenue, as the company has reported $0 revenue for two consecutive quarters.
- Related Party Loans: Note the $20,930 owed to related parties (Mr. Patrick Gosselin and Gosselin Consulting Group) which are unsecured and non-interest bearing.