10-Q Summary
Registrant and period: The provided filing is for PureSnax International, Inc., not Iqstel Inc. It is a Form 10-Q for the quarter and six months ended December 31, 2015, with a June 30 fiscal year-end. The financial statements are unaudited. The filing identifies the company as a Nevada smaller reporting company with 100,000,000 common shares outstanding at December 31, 2015.
Business context
PureSnax is an early-stage wellness food and snack company. In August 2015, it entered into a 10-year exclusive worldwide trademark license with PureSnax Company, Inc., a Canadian company in which CEO and director Patrick Gosselin holds a 10% interest. The company intends to manufacture, distribute, sell, and market health-oriented snacks, including products using the “Wow it’s not sugar!” trademark. Management expected sales to begin in the first quarter of 2016, but the filing reports no revenue through December 31, 2015.
Financial metrics
| Metric | Six months ended December 31, 2015 | Six months ended December 31, 2014 |
|---|---|---|
| Revenue | $0 | $0 |
| Gross margin | $0 | $0 |
| Total operating expenses | $47,830 | $16,256 |
| Net loss | $47,830 | $17,652 |
| Net loss per share | $(0.00) | $(0.00) |
| Net cash used in operating activities | $14,912 | $17,800 |
| Net cash provided by financing activities | $15,004 | $17,800 |
| Cash at period end | $92 | $0 |
For the three months ended December 31, 2015, revenue was $0, operating expenses were $21,036, and net loss was $21,036, compared with operating expenses of $5,600 and net loss of $5,900 in the prior-year quarter. No interest expense was recorded in the 2015 periods.
At December 31, 2015, total assets were $92, consisting entirely of cash. Total liabilities were $57,865, including $41,061 of accrued expenses and $16,804 of unsecured, non-interest-bearing related-party loans with no specified repayment terms. Stockholders’ deficit was $57,773. The company had no inventory, prepaid expenses, bank financing, or lines of credit.
Material changes versus the prior comparable period
- Revenue remained zero for both the six-month and three-month comparative periods.
- Six-month operating expenses increased to $47,830 from $16,256, primarily due to higher consulting, audit and accounting, legal, public-company, and website-related costs.
- Six-month net loss increased to $47,830 from $17,652; quarterly net loss increased to $21,036 from $5,900.
- Accrued expenses increased from $8,143 at June 30, 2015 to $41,061 at December 31, 2015, while related-party loans increased from $1,800 to $16,804.
- In September 2015, 300,000,000 common shares were cancelled in exchange for 1,000,000 Series A convertible preferred shares. Each preferred share is convertible into 120 common shares, has senior liquidation preference, and carries voting rights based on its conversion entitlement.
- Cash flow from operations improved modestly year over year, but remained negative and was funded by related-party borrowings.
Outlook, liquidity, risks, and unusual items
Management states that the company requires additional financing to continue operations and implement its business plan. It estimates that commercial-scale product development could exceed $100,000 and that an additional $50,000 to $100,000 may be needed for raw materials, labeling, packaging, marketing, and advertising. Management expects to seek equity financing, debt, related-party loans, or strategic funding, but had no specific committed funding source as of the filing date.
The financial statements contain a going-concern warning. The company has accumulated losses of $112,461 from inception through December 31, 2015, has only $92 of cash, has no revenue, and depends on shareholder support, additional financing, and achieving profitable operations. Failure to obtain financing could require the company to delay, scale back, or cease operations. Future equity or convertible debt financing could materially dilute existing shareholders.
The license agreement requires a royalty of 10% of net sales of licensed products, payable in cash or common stock at a 20% discount. U.S. approval of the “Wow it’s not sugar!” trademark remained pending. The company also disclosed no material litigation and no significant off-balance-sheet arrangements.
Subsequent events disclosed after December 31, 2015 included proposed financing arrangements: a $30,000 convertible note term sheet with EMA Financial, LLC and a proposed $165,000 convertible note arrangement with Typenex Co-Investment, LLC. The filing states that final execution documents were still to be completed. These instruments include conversion features, discounts or variable conversion prices, warrants, fees, and potential dilution. The company also entered into an advisory and financing agreement with Almorli Advisors that could require a 10% cash fee and restricted shares equal to 5% of capital raised from introduced investors.
Investor verification points
- Confirm the correct issuer: the supplied filing is for PureSnax International, Inc., while the request identifies Iqstel Inc.
- Verify whether the proposed EMA and Typenex financings were ultimately executed, funded, and converted, and quantify resulting dilution.
- Assess the company’s ability to continue as a going concern given $92 of cash, $57,865 of liabilities, no revenue, and the stated financing requirements.
- Review the terms and related-party nature of the trademark license, including the 10% royalty and stock-payment alternative.
- Confirm the status of the U.S. “Wow it’s not sugar!” trademark and whether expected first-quarter 2016 sales began.
- Reconcile the preferred stock’s 120-to-1 conversion feature and voting rights with the reported common share count and fully diluted ownership.