Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with our audited financial statements and the related notes that appear elsewhere in this annual report. The discussions of results, causes and trends should not be construed to imply any conclusion that these results or trends will necessarily continue into the future.
Our audited financial statements are stated in United States Dollars and are prepared in accordance with United States Generally Accepted Accounting Principles.
As of June 30, 2016, we had limited assets which consisted of cash and cash equivalents of $23,790, and inventory of $9,197. In order to fund the development of our business and working capital needs for the next 12 months, we intend to secure additional funding through the sale of common stock, related and non-related party loans, or funding provided by strategic partners. To further implement our plan of operations, we anticipate the costs to develop our products on a commercial scale could very well be in excess of $100,000. We will need at least an additional $50,000 to $100,000 to purchase raw material for commercial production, professional labeling and packaging, and introductory marketing and advertising programs that will educate as well as connect with our targeted customers who seek healthy snacks and food alternatives. If we are not successful in raising additional financing, we will not be able to further our business plan towards commercial production.
11
Results of Operations for our Years Ended June 30, 2016 and 2015
Our net loss for the years ended June 30, 2016 and 2015 are summarized as follows:
|
|
|
|
|
|
|
For the Year
Ended
June 30, 2016
|
|
For the Year
Ended
June 30, 2015
|
|
|
|
|
|
Revenue
|
$
|
-
|
$
|
-
|
Cost of goods sold
|
|
-
|
|
-
|
Gross margin
|
|
-
|
|
-
|
|
|
|
|
|
Expenses:
|
|
|
|
|
Consulting expenses
|
|
106,444
|
|
34,210
|
Marketing expenses
|
|
23,322
|
|
-
|
Website and hosting
|
|
5,079
|
|
-
|
Other expenses
|
|
40,028
|
|
1,867
|
Total expenses
|
|
174,873
|
|
36,077
|
|
|
|
|
|
Other Income/(Expense):
|
|
|
|
|
Interest expense
|
|
(25,993)
|
|
(994)
|
Derivative expense
|
|
(13,401)
|
|
-
|
Change in derivative liability
|
|
(30,780)
|
|
-
|
Gain on relief of debt
|
|
-
|
|
5,000
|
Total other income/(expense)
|
|
(70,174)
|
|
4,006
|
|
|
|
|
|
Net loss before income tax
|
|
(245,047)
|
|
(32,071)
|
Provision for income tax
|
|
-
|
|
800
|
Net loss
|
$
|
(245,047)
|
$
|
(32,871)
|
|
|
|
|
|
Basic and diluted income/(loss) per share
|
$
|
-
|
$
|
-
|
|
|
|
|
|
Weighted average common shares outstanding - basic and diluted
|
|
150,733,517
|
|
400,000,000
|
See accompanying notes to the financial statements.
Revenue
The Company has not earned any revenue during fiscal years ended June 30, 2016 and 2015.
Expenses
Consulting and other expense
Consulting and other expenses were $146,472 and $36,077, respectively, for the fiscal years ended June 30, 2016 and June 30, 2015. For the year ended June 30, 2016, this consisted primarily of consulting expense of $2,500, audit, legal and accounting, and other costs associated with being a publicly reporting company of $103,944, and other expenses of $40,028, compared to the year ended June 30, 2015 where we incurred $11,150 in consulting expenses, audit and accounting, and other costs associated with being a publicly reporting company of $23,060, and other expenses of $1,867.
Sample/marketing expense
Sample and marketing related expenses were $23,322 and $0, respectively, for the fiscal years ended June 30, 2016 and June 30, 2015. Sample and marketing expenses are costs incurred in producing sample products and the placement of samples with potential marketing partners, customers, distributors and retail establishments. Sample product is recorded at cost and removed from inventory.
12
Interest Expense
During the fiscal year ended June 30, 2016, we recognized interest expense of $25,993, which consisted of $3,008 from convertible notes payable and $22,985 from amortization of debt discount. Interest expense for the fiscal year ended June 30, 2015 was $994. This interest was associated to a loan with our pervious Chief Executive Officer and President, Mr. Cenia.
Derivative expenses were $13,401 and $0, respectively, for the fiscal years ended June 30, 2016 and 2015. In 2016, these expenses consisted of OID expenses included in the three convertible notes agreement signed by the Company.
Other income/(expense)
During the fiscal year ended June 30, 2015, we recognized debt forgiveness from lenders upon the change in control of the Company and the sale of our founders ownership interest. We recognized $5,000 in gain on relief of debt for the fiscal year ended June 30, 2015 as compared to none for the fiscal year ended June 30, 2016. We believe this to be a one-time event for the Company and do not believe that we will be able to settle debt or obtain relief from debt in this fashion in the future.
Net Loss
We recognized a net loss of $245,047 for the fiscal year ended June 30, 2016 as compared to net loss of $32,871 for the fiscal year ended June 30, 2015. Net income and net loss for the fiscal years ended June 30, 2016 and June 30, 2015, respectively, included various costs associated with product development which are not capitalized. The company has been preparing for production, which required investment in packaging and raw materials. The company also incurred increased accounting, auditing and legal expenses through the period.
Liquidity and Financial Condition
As of June 30, 2016, and 2015, we had $23,790 and $0 in cash and cash equivalents, respectively. As of June 30, 2016, we had a working capital deficit of $173,557 and an accumulated deficit of $309,677. Our cash position is not significant enough to support our daily operations. Management believes that the actions presently being taken to further refine its business plan and produce inventory to generate revenues provide the opportunity for the Company to continue as a going concern. While we believe in the viability of our strategy to generate sufficient revenues and in our ability to raise additional funds, there can be no assurances that we will accomplish either. Our ability to continue as a going concern is dependent upon our ability to achieve profitable operations or obtain adequate financing.
Cash Flows
Operating Activities
Net cash used in operating activities for the fiscal year ended June 30, 2016 was $145,476 compared to net cash used in operating activities of $35,233 for the fiscal year ended June 30, 2015. Prior to August 2015, the company was in shell status and didnt need a lot of operating cash to maintain operations. Since the company came out of shell status it has started operating and executing its business plan which requires an increase in operating expenses.
Investing Activities
Net cash used in investing activities for the fiscal years ended June 30, 2016 and 2015 was $0.
Financing Activities
Net cash provided by financing activities for the fiscal year ended June 30, 2016 was $169,266. Cash provided by financing activities for the fiscal year ended June 30, 2015 was $35,233. The company came out of shell status during the period and started trading on OTCPINK under the symbol PSNX which allowed the company generate investments into the company.
Plan of Operation
Contractual Obligations
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
13
Going Concern
The accompanying financial statements have been prepared assuming that our company will continue as a going concern. As shown in the accompanying financial statements, our company incurred losses of $245,047 for the year ended June 30, 2016 and has produced no revenues from operations. These factors raise substantial doubt about our companys ability to continue as a going concern.
The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event that our company cannot continue as a going concern. Management anticipates that it will be able to raise additional working capital through the issuance of stock and through additional loans from investors.
The ability of our company to continue as a going concern is dependent upon our companys ability to attain a satisfactory level of profitability and obtain suitable and adequate financing. There can be no assurance that managements plan will be successful.
Off-Balance Sheet Arrangements
We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.
Critical Accounting Policies
The discussion and analysis of our financial condition and results of operations is based upon the accompanying financial statements, which have been prepared in accordance with the accounting principles generally accepted in the United States of America and are expressed in United States Dollars. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by managements application of accounting policies. We believe that understanding the basis and nature of the estimates and assumptions involved with the following aspects of our financial statements is critical to an understanding of our financial statements.
Basis of Presentation
These financial statements of our company have been prepared in accordance with generally accepted accounting principles in the United States and are expressed in United States dollars. Our companys fiscal year end is June 30.
Use of Estimates
The preparation of financial statements in conformity with United States 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. Our company regularly evaluates estimates and assumptions related to deferred income tax asset valuation allowances. Our company bases our estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by our company may differ materially and adversely from our companys estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
Cash and Cash Equivalents
Our Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents.
Financial Instruments
Our Companys financial instruments consist principally of cash, accounts payable and accrued liabilities, and related party payables, notes payable. The fair value of our companys cash equivalents is determined based on Level 1 inputs, which consist of quoted prices in active markets for identical assets. The carrying value of accounts payable and accrued liabilities and related party payables approximates their fair value because of the short maturity of these instruments. Unless otherwise noted, it is managements opinion our company is not exposed to significant interest, currency or credit risks arising from these financial instruments.
14
The company evaluates all of its agreements to determine if such instruments have derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the consolidated statements of operations. For stock-base derivative financial instruments, the Company uses a weighted average Black-Scholes-Merton option pricing model to value the derivative instrument at inception and on subsequent valuation dates. The classification of derivative instrument, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date. There were no derivative instruments as of June 30, 2015. As of June 30, 2016, the Companys derivative financial instruments were three convertible debt notes and one of then includes convertible warrant that are derivative due to the reset and dilutive issuance clause in the note relating to the conversion price from dilute share issuance. See Note 7.
Earnings (Loss) Per Share
Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. At June 30, 2016, all of our potentially dilutive securities outstanding are anti-dilutive and accordingly, basic loss and diluted loss per share are the same.
Income Taxes
Our Company accounts for income taxes using the asset and liability method which provides that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws that will be in effect when the differences are expected to reverse. Our company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.
Recent Accounting Pronouncements
Jumpstart Our Business Startups Act (JOBS Act) Transition Accounting: pursuant to Section 107(b) of the JOBS Act, we have elected to use the extended transition period for complying with new or revised accounting standards for an emerging growth company. This election will permit us to delay the adoption of new or revised accounting standards that will have difference effective dates for public and private companies until such time as those standards apply to private companies. Consequently, our financial statements may not be comparable to companies that comply with public company effective dates.
Our Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
Item 8. Unaudited Financial Statements and Supplementary Data
PureSnax International, Inc.
June 30, 2016
Index
Report of Independent Registered Public Accounting Firm
F1
Balance Sheets
F4
Statements of Operations
F5
Statements of Stockholders Deficit
F6
Statements of Cash Flows
F7
Notes to the Financial Statements
F8
16
Boyle CPA, LLC
Certified Public Accountant & Consultant
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and
Stockholders of PureSnax International, Inc.
I have audited the accompanying balance sheet of PureSnax International, Inc. (the Company) as of June 30, 2016, and the related statements of operations, stockholders deficit, and cash flows for year then ended. These financial statements are the responsibility of the Companys management. My responsibility is to express an opinion on these financial statements based on my audit.
I conducted my audit in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor was I engaged to perform, an audit of its internal control over financial reporting. My audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, I express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of PureSnax International, Inc. as of June 30, 2016, and the results of its operations and its cash flows for the year ended June 30, 2016 in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 1 to the financial statements, the Companys continuing operating losses raise substantial doubt about its ability to continue as a going concern. Managements plans are also described in Note 1. The financial statements do not include adjustments that might result from the outcome of this uncertainty.
/s/ Boyle CPA, LLC
May 12, 2017
Bayville, NJ
F-1
PLS CPA, A PROFESSIONAL CORPORATION
t
4725 MERCURY STREET #210
t
SAN DIEGO
t
CALIFORNIA 92111
t
t
TELEPHONE (858)722-5953
t
FAX (858) 761-0341
t
FAX (858) 433-2979
t
E-MAIL changgpark@gmail.com
t
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders
Pure Snax International, Inc.
We have audited the accompanying balance sheets of Pure Snax International, Inc. (the Company) as of June 30, 2015, and the related statements of operations, changes in shareholders deficit and cash flows for the year ended June 30, 2015. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statements presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Pure Snax International, Inc. as of June 30, 2015, and the result of its operations and its cash flows for the years ended June 30, 2015 in conformity with U.S. generally accepted accounting principles.
The financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Companys losses from operations raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/PLS CPA
____________________________
PLS CPA, A Professional Corp.
October 13, 2015
San Diego, CA. 92111
F-2
PLS CPA, A PROFESSIONAL CORPORATION
t
4725 MERCURY STREET #210
t
SAN DIEGO
t
CALIFORNIA 92111
t
t
TELEPHONE (858)722-5953
t
FAX (858) 761-0341
t
FAX (858) 433-2979
t
E-MAIL changgpark@gmail.com
t
May 12, 2017
To Whom It May Concern:
We consent to the incorporation by reference in the registration statements of Pure Snax International, Inc. of our report dated October 13, 2015, with respect to the balance sheets as of June 30, 2015, and the related statements of income, cash flows, and shareholders deficit for the fiscal years period ended June 30, 2015, which appears on June 30, 2016 Form 10-K of Pure Snax, Inc.
Very truly yours,
/s/PLS CPA
____________________________
PLS CPA, A Professional Corp.
San Diego, CA 92111
F-3
PureSnax International, Inc.
Balance Sheets
(Expressed in US Dollars)
|
|
|
|
|
|
|
June 30,
2016
|
|
June 30,
2015
|
ASSETS
|
|
|
|
|
|
|
|
|
|
CURRENT ASSETS:
|
|
|
|
|
Cash and cash equivalents
|
$
|
23,790
|
$
|
-
|
Prepaid Expenses
|
|
3,834
|
|
-
|
Inventory
|
|
9,197
|
|
-
|
Total Current Assets
|
|
36,821
|
|
-
|
|
|
|
|
|
OTHER ASSETS:
|
|
|
|
|
Total Other Assets
|
|
-
|
|
-
|
|
|
|
|
|
TOTAL ASSETS
|
$
|
36,821
|
$
|
-
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS DEFICIT
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
Accounts Payable and Accrued expenses
|
$
|
46,579
|
$
|
8,143
|
Loans related party
|
|
19,066
|
|
1,800
|
Convertible notes payable, net
|
|
32,490
|
|
-
|
Derivative liability
|
|
112,243
|
|
-
|
TOTAL LIABILITIES
|
|
210,378
|
|
9,943.00
|
|
|
|
|
|
STOCKHOLDERS DEFICIT:
|
|
|
|
|
Preferred stock, $0.001 par value; 1,000,000 shares authorized; 1,000,000 shares and none issued and outstanding at June 30, 2016 and June 30, 2015, respectively
|
|
1,000
|
|
-
|
Common stock, $0.001 par value; 500,000,000 shares authorized; 100,235,564 and 400,000,000 shares issued and outstanding at June 30, 2016 and June 30, 2015, respectively
|
|
100,235
|
|
400,000
|
Additional paid-in capital
|
|
34,885
|
|
(345,313)
|
Accumulated deficit
|
|
(309,677)
|
|
(64,630)
|
TOTAL STOCKHOLDERS DEFICIT
|
|
(173,557)
|
|
(9,943)
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS DEFICIT
|
$
|
36,821
|
$
|
-
|
See accompanying notes to the financial statements.
F-4
PureSnax International, Inc.
Statements of Operations
(Expressed in US Dollars)
|
|
|
|
|
|
|
For the Year
Ended
June 30, 2016
|
|
For the Year
Ended
June 30, 2015
|
|
|
|
|
|
Revenue
|
$
|
-
|
$
|
-
|
Cost of goods sold
|
|
-
|
|
-
|
Gross margin
|
|
-
|
|
-
|
|
|
|
|
|
Expenses:
|
|
|
|
|
Professional Fees and consulting expenses
|
|
106,444
|
|
34,210
|
Marketing expenses
|
|
23,322
|
|
-
|
Website and hosting
|
|
5,079
|
|
-
|
Other expenses
|
|
40,028
|
|
1,867
|
Total expenses
|
|
174,873
|
|
36,077
|
|
|
|
|
|
Other Income/(Expense):
|
|
|
|
|
Interest expense
|
|
(25,993)
|
|
(994)
|
Derivative expense
|
|
(13,401)
|
|
-
|
Change in derivative liability
|
|
(30,780)
|
|
-
|
Gain on relief of debt
|
|
-
|
|
5,000
|
Total other income/(expense)
|
|
(70,174)
|
|
4,006
|
|
|
|
|
|
Net loss before income tax
|
|
(245,047)
|
|
(32,071)
|
Provision for income tax
|
|
-
|
|
800
|
Net loss
|
$
|
(245,047)
|
$
|
(32,871)
|
|
|
|
|
|
Basic and diluted income/(loss) per share
|
$
|
-
|
$
|
-
|
|
|
|
|
|
Weighted average common shares outstanding - basic and diluted
|
|
150,733,517
|
|
400,000,000
|
See accompanying notes to the financial statements.
F-5
PureSnax International, Inc.
Statement of Changes in Stockholders Deficit
For the Years Ended June 30, 2016 and 2015
(Expressed in US Dollars)
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
Common
Stock
|
Preferred
Stock
|
Common Stock
|
Preferred Stock
|
Paid-in Capital
|
Accumulated Deficit
|
|
|
Shares
|
Shares
|
Amount
|
Amount
|
Amount
|
Amount
|
Total
|
|
|
|
|
|
|
|
|
Balance June 30, 2014
|
400,000,000
|
-
|
$400,000
|
$ -
|
$(412,601)
|
$(31,759)
|
$(44,360)
|
|
|
|
|
|
|
|
|
Debt forgiveness from shareholder
|
-
|
-
|
-
|
-
|
67,288
|
-
|
67,288
|
Net loss for the year
|
-
|
-
|
-
|
-
|
-
|
(32,871)
|
(32,871)
|
|
|
|
|
|
|
|
|
Balance June 30, 2015
|
400,000,000
|
-
|
400,000
|
-
|
(345,313)
|
(64,630)
|
(9,943)
|
|
|
|
|
|
|
|
|
Exchange of common stock for preferred shares
|
(300,000,000)
|
1,000,000
|
(300,000)
|
1,000
|
299,000
|
-
|
-
|
Issuance of common stock for cash
|
161,766
|
-
|
161
|
-
|
54,839
|
-
|
55,000
|
Cashless exercise of warrant
|
73,798
|
-
|
74
|
-
|
26,359
|
-
|
26,433
|
Net loss for the year
|
-
|
-
|
-
|
-
|
-
|
(245,047)
|
(245,047)
|
|
|
|
|
|
|
|
|
Balance June 30, 2016
|
100,235,564
|
1,000,000
|
$100,235
|
$1,000
|
$34,885
|
$(309,677)
|
$(173,557)
|
See accompanying notes to the financial statements.
F-6
PureSnax International, Inc.
Statements of Cash Flows
(Expressed in US Dollars)
|
|
|
|
|
|
|
For the Year Ended
June 30, 2016
|
|
For the Year Ended
June 30, 2015
|
CASH FLOW FROM OPERATING ACTIVITIES:
|
|
|
|
|
Net (loss)
|
$
|
(245,047)
|
$
|
(32,871)
|
Adjustments to reconcile net loss to cash (used in) operating activities:
|
|
|
|
|
Amortization of debt discount
|
|
22,985
|
|
-
|
Gain on Debt Relief
|
|
-
|
|
(5,000)
|
Derivative expense
|
|
44,181
|
|
-
|
Changes in assets and liabilities
|
|
|
|
|
(Increase)/decrease in prepaid
|
|
(3,834)
|
|
-
|
(Increase)/decrease in inventory
|
|
(9,197)
|
|
93
|
Increase/(decrease) in accrued expenses and accounts payable
|
|
45,436
|
|
2,545
|
Net cash used in operating activities
|
|
(145,476)
|
|
(35,323)
|
CASH FLOW FROM FINANCING ACTIVITIES:
|
|
|
|
|
Proceed from issuance of common stock
|
|
55,000
|
|
-
|
Repayment of short term borrowings
|
|
(7,000)
|
|
-
|
Proceeds from loan related parties
|
|
17,266
|
|
35,233
|
Proceeds from loan third party
|
|
104,000
|
|
-
|
Net cash provided by financing activities
|
|
169,266
|
|
35,233
|
|
|
|
|
|
CHANGE IN CASH
|
|
23,790
|
|
-
|
CASH AT BEGINNING OF PERIOD
|
|
-
|
|
-
|
CASH AT END OF PERIOD
|
$
|
23,790
|
$
|
-
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION
|
|
|
|
|
Cash paid for:
|
|
|
|
|
Interest
|
$
|
-
|
$
|
-
|
Income taxes
|
$
|
-
|
$
|
800
|
Non-cash investing and financing activities:
|
|
|
|
|
Exchange of Issuance of preferred stock (300M)
|
$
|
(300,000)
|
$
|
-
|
|
|
|
|
|
Exchange of Issuance of preferred stock (1M)
|
$
|
1,000
|
$
|
-
|
See accompanying notes to the financial statements.
F-7
PureSnax International, Inc.
Notes to Financial Statements
(Expressed in US Dollars)
1.
Nature of Business and Continuance of Operations
B-Maven, Inc. (the Company) was incorporated in the State of Nevada on June 24, 2011. The Company was initially in the business of developing, manufacturing, marketing and selling the E-Scentual Skin Care Collection, a skin care line combining science with nature to form what we believed to be an advanced beauty treatment using all natural ingredients. The Company has limited revenue to date and consequently its operations are subject to all risks inherent in the establishment of a new business enterprise. The Company has changed its name with the State of Nevada from B-Maven, Inc to PureSnax International, Inc., on July 29
th
, 2015. Upon execution of the License Agreement as described in above, the Company has changed its business direction to focus on the manufacturing, distribution, sales and marketing of the Pure Snax Company, Inc., brand.
2.
Going Concern
These 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. For the period from inception on June 24, 2011 through June 30, 2016, the Company has incurred accumulated losses totalling $309,677. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability of the Company to obtain necessary equity financing to continue operations, and the attainment of profitable operations. These factors raise substantial doubt regarding the Companys ability to continue as a going concern. These financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. As of June 30, 2016, we had limited assets which consisted of cash and cash equivalents of $23,790, and inventory of $9,197. In order to fund the development of our business and working capital needs for the next 12 months, we intend to secure additional funding through the sale of common stock, related and non-related party loans, or funding provided by strategic partners. To further implement our plan of operations, we anticipate the costs to develop our products on a commercial scale could very well be in excess of $100,000. We will need at least an additional $50,000 to $100,000 to purchase raw material for commercial production, professional labeling and packaging, and introductory marketing and advertising programs that will educate as well as connect with our targeted customers who seek healthy snacks and food alternatives. If we are not successful in raising additional financing, we will not be able to further our business plan towards commercial production.
3.
Summary of Significant Accounting Policies
a)
Basis of Presentation
These financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America and are expressed in US dollars. The Companys fiscal year end is June 30.
b)
Use of Estimates
The preparation of financial statements in conformity with United States 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. The Company regularly evaluates estimates and assumptions related to income taxes. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Companys estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
c)
Cash and Cash Equivalents
The Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents. The company has no cash equivalents.
F-8
2.
Summary of Significant Accounting Policies (continued)
d)
Cash and Cash Equivalents
The company evaluates all its agreements to determine if such instruments have derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the consolidated statements of operations. For stock-base derivative financial instruments, the Company uses a weighted average Black-Scholes-Merton option pricing model to value the derivative instrument at inception and on subsequent valuation dates. The classification of derivative instrument, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date. There were no derivative instruments as of June 30, 2015. As of June 30, 2016, the Companys derivative financial instruments were three convertible debt notes and one of then includes convertible warrant that are derivative due to the reset and dilutive issuance clause in the note relating to the conversion price from dilute share issuance. See Note 7.
e)
Fair Value Measurements
ASC Topic 820, Fair Value Measurements and Disclosures, requires disclosure of the fair value of financial instruments held by the Company. ASC Topic 825, Financial Instruments, defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The three levels of valuation hierarchy are defined as follows:
·
Level 1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.
·
Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in the active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
·
Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurements.
The Companys derivative instruments were reported at fair value using Level 2 inputs as discussed in Note 7.
The Company uses level 2 inputs for its valuation methodology for the warrant derivative liabilities as their fair values were determined by using a probability weighted average Black-Scholes-Merton pricing model based on various assumptions. The Companys derivative liability is adjusted to reflect fair value at each period end, with any increase or decrease in the fair value being recorded in result of operations as adjustments to fair value of derivatives.
At June 30, 2016 and 2015, the Company identified the following liabilities that are required to be presented on the balance sheet at fair value:
|
|
|
|
|
|
|
|
|
Description
|
|
Fair Value
As of
June 30, 2016
|
|
|
|
Fair Value Measurements at
June 30, 2016
Using Fair Value Hierarchy
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Derivative liability
|
$
|
112,243
|
$
|
0
|
$
|
0
|
$
|
112,243
|
Total
|
$
|
112,243
|
$
|
0
|
$
|
0
|
$
|
112,243
|
|
|
|
|
|
|
|
|
|
Description
|
|
Fair Value
As of
June 30, 2015
|
|
|
|
Fair Value Measurements at
June 30, 2015
Using Fair Value Hierarchy
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
Derivative liability
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
Total
|
$
|
0
|
$
|
0
|
$
|
0
|
$
|
0
|
F-9
f)
Inventory
Inventory for the fiscal years ended June 30, 2016 and 2015 were $9,197 and $0, respectively. As of June 30, 2016, the inventory consisted of finish goods inventory of $9,197. The Company uses FIFO method to account for its inventory. The Companys policy for obsolete inventory is
based on periodical reviews of the value of items in inventory and provides write-downs or write-offs of inventory based on its assessment of market conditions. Write-downs and write-offs are charged to cost of goods sold
.
g)
Earnings (Loss) Per Share
Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. At June 30, 2016, the Company has anti-dilutive shares totaling 520,030 and also potentially dilutive securities outstanding and accordingly, basic loss and diluted loss per share are the same.
Net loss per share is calculated using the weighted average number of shares of common stock outstanding during the applicable period. Basic weighted average common shares outstanding do not include shares of restricted stock that have not yet vested, although such shares are included as outstanding shares in the Company's Consolidated Balance Sheet. Diluted net loss per share is computed using the weighted average number of common shares outstanding and if dilutive; potential common shares outstanding during the period. Potential common shares consist of the additional common shares issuable in respect of convertible debt and warrants.
The following table presents the computation of basic and diluted net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended June 30
|
|
|
|
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
Net loss attributable to PureSnax
|
|
$
|
(245,047)
|
$
|
(32,871)
|
Less: preferred stock dividends
|
|
|
-
|
|
-
|
Net loss applicable to common stock
|
|
$
|
(245,047)
|
$
|
(32,871)
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding - basic and diluted
|
|
150,733,517
|
|
400,000,000
|
|
|
|
|
|
|
|
|
|
Loss per share - basic and diluted
|
|
$
|
(0.0016)
|
$
|
(0.0001)
|
h)
Foreign Currency Translation
The Companys initial operations will be in the United States however global expansion is anticipated which results in exposure to market risks from changes in foreign currency exchange rates. The financial risk is the risk to the Companys operations that arise from fluctuations in foreign exchange rates and the degree of volatility of these rates. Currently, the Company does not use derivative instruments to reduce its exposure to foreign currency risk. The Company's functional currency for all operations worldwide is the U.S. dollar. Nonmonetary assets and liabilities are translated into their U.S. dollar equivalents at historical rates and monetary assets and liabilities are translated at exchange rates in effect at the end of the year. Revenues and expenses are translated at average rates for the year. Gains and losses from translation of foreign currency financial statements into U.S. dollars are included in current results of operations.
i)
Recent Accounting Pronouncements
Jumpstart Our Business Startups Act (JOBS Act) Transition Accounting: pursuant to Section 107(b) of the JOBS Act, we have elected to use the extended transition period for complying with new or revised accounting standards for an emerging growth company. This election will permit us to delay the adoption of new or revised accounting standards that will have difference effective dates for public and private companies until such time as those standards apply to private companies. Consequently, our financial statements may not be comparable to companies that comply with public company effective dates.
In April 2016, the FASB issued Accounting Standards Update (ASU) 2016-10, Revenue from Contracts with Customers (Topic 606) Identifying Performance Obligations and Licensing (ASU 2016-10). ASU 2016-10 was issued by the Board to improve Topic 606 by reducing:
F-10
1)
The potential for diversity in practice at initial application
2)
The cost and complexity of applying Topic 606 both at transition and on an ongoing basis.
The core principle of the guidance in Topic 606 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
To achieve that core principle, an entity should apply the following steps:
1)
Identify the contract(s) with a customer
2)
Identify the performance obligations in the contract
3)
Determine the transaction price.
4)
Allocate the transaction price to the performance obligations in the contract.
5)
Recognize revenue when (or as) the entity satisfies a performance obligation.
The amendments in ASU 2016-10 clarify the following two aspects of Topic 606: identifying performance obligations and the licensing implementation guide, while retaining the related principles for those areas. The effective date and transition requirements for the amendments in ASU 2016-10 are for annual reporting periods beginning after December 31, 2016, including interim periods within that reporting period. FASB ASU 2015-14 Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, defers the effective date of Update 2014-09 by one year. The Company is currently assessing this guidance for future implementation.
In March 2016, the FASB issued ASU 2016-09, Compensation Stock Compensation (Topic 718) Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 was issued as part of the Boards Simplification Initiative. The areas for simplification in this Update involve several aspects of the accounting for share-based payment transactions, Accounting for Income Taxes, Classification of Excess Tax Benefits on the Statement of Cash Flows, Forfeitures, Minimum Statutory Tax Withholding Requirements, Classification of Employee Taxes Paid on the Statement of Cash Flows When an Employer Withholds Shares for Tax-Withholding Purposes, Practical Expedient- Expected Term, and Intrinsic Value. The amendments in this Update are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The Company is currently assessing this guidance for future implementation.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 requires entities to recognize lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Topic 842 requires the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous GAAP. When measuring assets and liabilities arising from a lease, a lessee (and a lessor) should include payments to be made in optional periods only if the lessee is reasonably certain to exercise an option to extend the lease or not to exercise an option to terminate the lease. Similarly, optional payments to purchase the underlying asset should be included in the measurement of lease assets and lease liabilities only if the lessee is reasonably certain to exercise that purchase option. In addition, also consistent with the previous leases guidance, a lessee (and a lessor) should exclude most variable lease payments in measuring lease assets and lease liabilities, other than those that depend on an index or a rate or are in substance fixed payments.
For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line basis over the lease term.
The accounting applied by a lessor is largely unchanged from that applied under previous GAAP.
In January 2015, FASB issued Accounting Standards Update (ASU) No. 201501 Income Statement Extraordinary and Unusual Items, Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items. Eliminating the concept of extraordinary items will save time and reduce costs for preparers because they will not have to assess whether a particular event or transaction event is extraordinary (even if they ultimately would conclude it is not). This also alleviates uncertainty for preparers, auditors, and regulators because auditors and regulators no longer will need to evaluate whether a preparer treated an unusual and/or infrequent item appropriately. This update is effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2015. Early application is permitted.
F-11
The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
4.
Related Party Transactions
a)
At June 30, 2016, Mr. Patrick Gosselin loaned the Company $14,686, and Gosselin Consulting Group, Inc. loaned the Company $4,380. Gosselin Consulting Group, Inc., is a private Canadian company that is owned by Mr. Patrick Gosselin. The amounts owed are unsecured, non-interest bearing with interest imputed at 2.47% per annum, and have no specified repayment terms. The loan to related parties is $19,066 as of June 30, 2016.
b)
The licensed trademark Wow its not sugar! has been approved in Canada and submitted in the United States. Final approval in the United States is pending issuance of the trademark in Canada as of March 31, 2016.
5.
Stockholders Equity
The Companys authorized capital consists of 500,000,000 shares of common stock with a par value of $0.001 per share and 1,000,000 shares of preferred stock with a par value of $0.001 per share.
On June 1, 2015, the board of directors approved a forward split of the issued and outstanding common shares on the basis of 40 new common shares for each 1 existing common share. Upon effectiveness of the forward split, the issued and outstanding shares of common stock increased from 10,000,000 to 400,000,000. All share and per share amounts have been retroactively adjusted to reflect the forward stock split. On June 11, 2015, the Companys Articles of Incorporation were amended reflect these changes.
On September 21, 2015, Patrick Gosselin executed an agreement whereby an aggregate of 300,000,000 common stock shares would be cancelled in exchange for the issuance of 1,000,000 shares of Series A Convertible Preferred stock.
On September 29, 2015 the Company filed an amendment to its certificate of designation whereby its Series A Convertible Preferred Stock authorized was increased to 1,000,000 shares with a par value of $0.001 per share, Senior liquidation preference to all junior shares, Convertible into common shares at a ratio of one Series A Preferred to 120 common shares, Right to vote for each share of common stock into which a convertible share could be converted, No redemption rights, Certain protective provisions, and No pre-emptive rights.
On February 24, 2016, the Company issued to Typenex Co-Investment, LLC,
85,662 common stock purchase warrants, with a term of three years, at an exercise price of $0.271 per share. This was in connection with the Promissory
convertible note the Company issued to Typenex Co-Investment, LLC.
On April 1, 2016, the Company executed a subscription agreement with Nick Mastoris for the purchase of 44,118 restricted shares of Common Stock for a purchase price of $15,000.
On April 5, 2016, the Company executed a subscription agreement with Gary Kamen for the purchase of 73,530 restricted shares of Common Stock for a purchase price of $25,000.
On April 1, 2016, the Company executed a subscription agreement with Principe Asset Partners LLC for the purchase of 44,118 restricted shares of Common Stock for a purchase price of $15,000.
On May 13, 2016, Typenex Co-Investment, LLC elected to convert warrant # 1 with a fair market value of $26,433 into 73,798 shares of the Companys common stock,
at an exercise price of $0.35789 per share.
On June 7, 2016, the Company issued to Typenex Co-Investment, LLC,
31,852 common stock purchase warrants, with a term of three years, at an exercise price of $0.69 per share.
F-12
Warrants
The Company issued several Notes in prior periods and converted them in the issuance of warrants. The following table summarizes information about the Companys warrants at June 30, 2016:
|
|
|
|
|
|
|
|
|
|
|
Number of Units
|
|
Weighted Average
Exercise Price
|
|
Weighted Average Remaining
Contractual Term
(in years)
|
|
Intrinsic
Value
|
Outstanding at June 30, 2014
|
|
0
|
$
|
0
|
|
0
|
$
|
0
|
Granted
|
|
0
|
|
0
|
|
0
|
|
0
|
Exercised
|
|
0
|
|
0
|
|
0
|
|
0
|
Outstanding at June 30, 2015
|
|
0
|
|
0
|
|
0
|
|
0
|
Granted - Warrant 1
|
|
73,798
|
|
0.36
|
|
3.01
|
|
0
|
Exercised - Warrant 1
|
|
(73,798)
|
|
(0.36)
|
|
|
|
0
|
Granted - Warrant 2
|
|
76,501
|
|
0.18
|
|
2.67
|
|
0
|
Outstanding at June 30, 2016
|
|
76,501
|
$
|
0.18
|
|
2.67
|
$
|
0
|
Exercisable at June 30, 2016
|
|
76,501
|
$
|
0.18
|
|
2.67
|
$
|
0
|
Most of the above warrants were issued in connection to conversion of convertible notes from Typenex Co-Investment, LLC. When the debt is converted and warrants are issued, the Company determines the fair value of the warrants using the Black-Scholes model and takes a charge to interest expense at the date of issuance.
The exercise price for warrants outstanding and exercisable at June 30, 2016 is as follows:
|
|
|
|
|
|
|
Outstanding
|
|
Exercisable
|
Number of Warrants
|
|
Exercise Price
|
|
Number of Warrants
|
|
Exercise Price
|
76,501
|
$
|
0.18
|
|
76,501
|
$
|
0.18
|
6.
Convertible Notes Payable
The Company issued convertible notes payable in 2016. The outstanding balance and any accrued interest is due on maturity date. Under the agreement, the notes can be convertible at holders discretion into common shares of the Company stock.
The Companys convertible notes payable are as follows:
|
|
|
|
|
|
|
|
|
|
|
Convertible Note
|
|
Issuance Date
|
|
Maturity Date
|
|
Interest Rate
|
|
Original Borrowing
|
|
Balance at
June 30,2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 1 - EMA
|
|
February 5, 2016
|
|
February 6, 2017
|
|
10%
|
$
|
30,000
|
$
|
30,000
|
Note 2 - Typenex
|
|
February 24, 2016
|
|
March 24, 2017
|
|
10%
|
|
32,500
|
|
32,500
|
Note 3 - Pinz
|
|
March 1, 2016
|
|
March 1, 2017
|
|
10%
|
|
30,556
|
|
30,556
|
Note 4 - Typenex
|
|
June 7, 2016
|
|
March 24, 2017
|
|
8%
|
|
27,500
|
|
27,500
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
120,556
|
|
|
|
|
|
|
|
|
|
|
|
Debt Discount
|
|
|
|
|
|
|
|
|
|
(88,066)
|
|
|
|
|
|
|
|
|
|
|
|
Net balance
|
|
|
|
|
|
|
|
|
$
|
32,490
|
As of June 30, 2016, convertible notes payables had a balance of $32,490 and only one convertible note, Note 2 was converted into common shares of the Companys stock
The company adopted the provision of FASB ASC Topic, Derivatives and Hedging (ASC 815) (previously EITF 07-5, Determining Whether an Instrument (or an Embedded Feature) is Indexed to an Entitys Own Stock), as the convertible note agreement contained certain provision that the convertible note failed to pass the fixed for fixed criteria of the ASC 815, the conversion feature of the convertible debt should have to be bifurcated and recorded separately until the conversion date.
F-13
Based on ASC 815, the Company determined that the convertible debt contained embedded derivatives and full ratchet provision which the Company valued the embedded derivative using the Black-Scholes method. The following table represent fair value of embedded derivative movement from the date of issuance to June 30, 2016.
|
|
|
|
|
|
|
Embedded Derivative Liabilities
|
|
Fair Value at Date
of Issuance
|
|
Changes in Fair
Value 2016
|
|
Fair Value at
June 30, 2016
|
Note 1 Issued in 2016
|
$
|
45,072
|
$
|
5,918
|
$
|
50,990
|
Note 2 Issued and Converted in 2016
|
|
16,773
|
|
(16,773)
|
|
-
|
Note 3 Issued in 2016
|
|
28,885
|
|
12,345
|
|
41,230
|
Note 4 Issued in 2016
|
|
17,166
|
|
2,857
|
|
20,023
|
|
|
|
|
|
|
|
Total
|
|
|
$
|
4,347
|
$
|
112,243
|
EMA Convertible Note Transaction
a)
On February 5, 2016, the Company issued a one year convertible note to an otherwise unaffiliated, non-institutional third party in the principal amount of $30,000. The note (i) is unsecured, (ii) bears interest at rate of ten (10) percent per annum, and (iii) was issued with an original issue discount of $3,500.
The principal is convertible into shares of the Companys common stock at any time and from time-to-time at the instance of either the Company or the holder. The per-share conversion price is an amount equal to fifty percent (50%) of the lowest (20)-day volume weighted average closing bid price for the Companys common stock, as reported in the Stock Market, for the twenty (20- trading days immediately preceding the date of the notice of conversion, subject to downward adjustment in the event that the Company issues any securities at a price per share lower than the then-current conversion price, provided, however, that in no event shall the conversion price per share be less than $.00001. The Company provided the holder with certain negative covenants and events of default, each standard for transactions of this nature.
Due to the "reset" and "dilutive issuance" clause in this note relating to the conversion price from dilutive share issuance, the Company has determined that the conversion feature is considered a derivative liability for the Company, which is detailed in Note 7.
The Company determined an initial derivative liability of $45,072, which is recorded as a derivative liability as of the date of issuance while also recording an $30,000 debt discount on its balance sheet and $15,072 derivative expense on its profit and loss in relation to the bifurcation of the embedded conversion options of the note. The debt discount is being amortized over the one year term.
Typenex Convertible Note Transaction
a)
On February 24, 2016, the Company issued a one year convertible note to an otherwise unaffiliated, non-institutional third party in the principal amount of $32,500. The note (i) is unsecured, (ii) bears interest at rate of ten (10) percent per annum, and (iii) was issued with an original issue discount of $7,500.
In connection to the issuance of the Promissory Note, the Company also issued 85,662 common stock purchase warrants, with a term of three years, at an exercise price of $0.271 per share.
The principal is convertible into shares of the Companys common stock at any time and from time-to-time at the instance of either the Company or the holder. The per-share conversion price is an amount equal to fifty cents ($0.50) and the holder of the note may convert any or all of the principal outstanding into shares of the Companys common stock. However, in the event that Market Capitalization Falls below $15,000,000 at any time, then in such event (a) the Lender Conversion Price for all lender conversion occurring after the first date of such occurrence shall equal the lower of the lender conversion price and the market price as of any applicable date of Conversion, and (b) the true-up provision shall apply to all lender conversions that occur after the first date the market capitalization falls below $15,000,000. The Company provided the holder with certain negative covenants and events of default, each standard for transactions of this nature.
Due to the "reset" and "dilutive issuance" clause in this note relating to the conversion price from dilutive share issuance, the Company has determined that the conversion feature is considered a derivative liability for the Company, which is detailed in Note 7.
The Company determined an initial derivative liability of $16,773, which is recorded as a derivative liability as of the date of issuance while also recording an $16,773 debt discount on its balance sheet in relation to the bifurcation of the embedded conversion options of the note. The debt discount is being amortized over the one year term.
F-14
On June 7, 2016, the Company issued a one year convertible note to an otherwise unaffiliated, non-institutional third party in the principal amount of $27,500. The note (i) is unsecured, (ii) bears interest at rate of eight (8) percent per annum, and (iii) was issued with an original issue discount of $2,500. The holder of the note may convert any or all of the principal outstanding into shares of the Companys common stock at $.50 per shares.
In connection with the issuance of the Promissory Note, the Company also issued 31,852 common stock purchase warrants, with a term of three years, at an exercise price of $0.69 per share.
The Company determined an initial derivative liability of $17,166, which is recorded as a derivative liability as of the date of issuance while also recording an $17,166 debt discount on its balance sheet in relation to the bifurcation of the embedded conversion options of the note. The debt discount is being amortized over the one year term.
Pinz Convertible Note Transaction
On March 1, 2016, the Company issued a one year convertible note to an otherwise unaffiliated, non-institutional third party in the principal amount of $30,556. The note (i) is unsecured, (ii) bears interest at rate of ten (10) percent per annum, and (iii) was issued with an original issue discount of $3,056.
The principal is convertible into shares of the Companys common stock at any time and from time-to-time at the instance of either the Company or the holder. The per-share conversion price is an amount equal to sixty percent (60%) of the lowest (20)-day volume weighted average closing bid price for the Companys common stock, as reported in the Stock Market, for the twenty (20)-trading days immediately preceding the date of the notice of conversion, subject to downward adjustment in the event that the Company issues any securities at a price per share lower than the then-current conversion price, provided. The Company provided the holder with certain negative covenants and events of default, each standard for transactions of this nature.
Due to the "reset" and "dilutive issuance" clause in this note relating to the conversion price from dilutive share issuance, the Company has determined that the conversion feature is considered a derivative liability for the Company, which is detailed in Note 7.
The Company determined an initial derivative liability of $28,885, which is recorded as a derivative liability as of the date of issuance while also recording an $30,556 debt discount on its balance sheet, and $(1,671) derivative expense on its profit and loss in relation to the bifurcation of the embedded conversion options of the note. The debt discount is being amortized over the one year term.
7.
Derivative Liabilities
The Convertible note discussed in Note 6 had a reset provision and a dilutive issuance clause that gave rise to a derivative liability. The reset provided for the conversion price to be adjusted downward in the event that the Company issued any securities at a price per shares than the then-current conversion price; provided, however, the holder(s) of the note may convert any or all of the principal outstanding into shares of the Companys common stock at a price equal to 50% and 60% of the lowest trading price of the common stock during the 20 trading days prior to issuing a notice of conversion to the Company and at $0.5 per shares.
The fair value of the derivative liability was recorded and shown separately under current liabilities. Changes in the fair value derivative liability were recorded in the consolidated statement of operations under other income (expenses).
The company evaluates all of its agreements to determine if such instruments have derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the consolidated statements of operations. For stock-base derivative financial instruments, the Company uses a weighted average Black-Scholes-Merton option pricing model to value the derivative instrument at inception and on subsequent valuation dates. The classification of derivative instrument, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.
F-15
The range of significant assumptions which the Company used to measure the fair value of the derivative liability at June 30, 2016 was as follows:
|
|
|
|
|
Pinz Capital
|
|
Inception
|
|
June 30, 2016
|
Stock price
|
$
|
0.27
|
$
|
0.31
|
Risk free rate
|
|
0.68%
|
|
0.45%
|
Volatility
|
|
110.01%
|
|
153.85%
|
Exercise prices
|
$
|
0.16
|
$
|
0.15
|
Terms (years)
|
|
1.00
|
|
0.66
|
|
|
|
|
|
EMA Financial
|
|
Inception
|
|
June 30, 2016
|
Stock price
|
$
|
0.33
|
$
|
0.31
|
Risk free rate
|
|
0.55%
|
|
0.45%
|
Volatility
|
|
107.57%
|
|
153.85%
|
Exercise prices
|
$
|
0.14
|
$
|
0.13
|
Terms (years)
|
|
1.01
|
|
0.66
|
|
|
|
|
|
Typenex - Warrant 1
|
|
Inception
|
|
May 13, 2016
(exercise date)
|
Stock price
|
$
|
0.27
|
$
|
0.82
|
Risk free rate
|
|
0.90%
|
|
0.91%
|
Volatility
|
|
110.01%
|
|
126.75%
|
Exercise prices
|
$
|
0.19
|
$
|
0.41
|
Terms (years)
|
|
3.01
|
|
2.8
|
|
|
|
|
|
Typenex - Warrant 2
|
|
Inception
|
|
June 30, 2016
|
Stock price
|
$
|
0.69
|
$
|
0.31
|
Risk free rate
|
|
0.94%
|
|
0.71%
|
Volatility
|
|
129.67%
|
|
153.85%
|
Exercise prices
|
$
|
0.43
|
$
|
0.18
|
Terms (years)
|
|
2.73
|
|
2.67
|
The convertible notes were not repaid during the year ended June 30, 2016
The following table represents the Companys derivative liability activity for the embedded conversion features for the years ended June 30, 2016 and 2015:
|
|
|
Derivative liability balance, June 30, 2015
|
|
-
|
Issuance of derivative liability during the year ended June 30, 2016
|
$
|
107,896
|
Change in derivative liability during the year ended June 30, 2016
|
$
|
4,347
|
Derivative liability balance, June 30, 2016
|
$
|
112,243
|
8.
Income Taxes
The Company accounts for income taxes using the asset and liability method which provides that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.
Deferred income taxes arise from the temporary between financial statement and income tax recognition of net operating losses. These loss carryovers are limited under the Internal Revenue Code should significant change in ownership occur.
At June 30, 2016 and 2015 the Company had net operating loss carry forwards of approximately $245,047 and $32,871 respectively, that may be offset against future taxable income, if any, rateable through 2035. These carry-forwards are subject to review by the Internal Revenue Service.
F-16
The deferred tax assets of at each date of $85,766, and $11,505 created by the net operating losses has been offset by a 100% valuation allowance because the likelihood of realization of the tax benefit cannot be determined. The change in the valuation allowance in the 2016 and 2015 was $74,261 and $2,700, respectively.
The effects of the temporary differences that gives rise to significant portions of the deferred tax assets at June 30, 2016 and 2015 are as follows:
|
|
|
|
|
|
|
June 30,
|
|
June 30,
|
|
|
2016
|
|
2015
|
Deferred income tax assets
|
|
|
|
|
Federal
|
$
|
85,766
|
$
|
11,505
|
Valuation allowance
|
|
(85,766)
|
|
(11,505)
|
|
|
|
|
|
Net deferred income tax assets
|
$
|
-
|
$
|
-
|
There is no current or deferred tax expense for the years ended June 30, 2016 and 2015. The Company has not filed tax returns however management believes there are no taxes dues as of June 30, 2016 and 2015.
There was no Federal income tax expense for the years ended June 30, 2016 and 2015 due to the Companys net losses. There are no state taxes in the State of Nevada.
The company includes interest and penalties arising from the underpayment of income taxes in the consolidated statements of operations in general and administrative expenses.
The tax years that remain subject to examination by major taxing jurisdictions are those for the tax years of 2016, 2015 and 2014.
The Company has net operating loss carry forwards of $309,677, which expire commencing in 2035.
9.
Subsequent Events
On August 22, 2016, EMA Financial, LLC (the holder), elected to convert $7,000 of the principal outstanding amount of $30,000 convertible promissory note issued by the Company on February 5, 2016, into 200,000 shares of the Companys common stock at a conversion price of $0.035. The holder principal outstanding amount after conversion is $23,000.
On August 26, 2016, Typenex Co-Investment, LLC (the holder), elected to convert $20,000 of the principal outstanding amount of $60,000 convertible promissory note issued by the Company on February 24, 2016, into 332,779 shares of the Companys common stock at a conversion price of $0.0601. The holder principal outstanding amount after conversion is $40,000
On September 13, 2016, EMA Financial, LLC (the holder), elected to convert $4,392.50 of the principal outstanding amount of $23,000 convertible promissory note, into 500,000 shares of the Companys common stock at a conversion price of $0.008785 The holder principal outstanding amount after conversion is $18,607.50.
On September 16, 2016, Pinz Capital International, LP (the holder), elected to convert $10,000 of the principal outstanding amount of $30,556 convertible promissory note issued by the Company on March 1, 2016, into 664,010 shares of the Companys common stock at a conversion price of $0.01506. The holder principal outstanding amount after conversion is $20,556.
On September 20, 2016, Typenex Co-Investment, LLC (the holder), elected to convert $15,019,14 of the principal outstanding amount of $40,000 convertible promissory note issued by the Company on February 24, 2016, into 999,943 shares of the Companys common stock at a conversion price of $0.01502. The holder principal outstanding amount after conversion is $24,980.86
On September 27, 2016, Pinz Capital International, LP (the holder), elected to convert $7,500 of the principal outstanding amount of $20,556 convertible promissory note issued by the Company on March 1, 2016, into 1,785,714 shares of the Companys common stock at a conversion price of $0.0042. The holder principal outstanding amount after conversion is $13,056.
On September 28, 2016, EMA Financial, LLC (the holder), elected to convert $1,617.00 of the principal outstanding amount of $18,607.50 convertible promissory note, into 1,650,000 shares of the Companys common stock at a conversion price of $0.001. The holder principal outstanding amount after conversion is $16,990.50.
F-17
On October 14, 2016, Pinz Capital International, LP (the holder), elected to convert $5,000 of the principal outstanding amount of $13,056 convertible promissory note issued by the Company on March 1, 2016, into 2,976,190 shares of the Companys common stock at a conversion price of $0.001680. The holder principal outstanding amount after conversion is $8,056.
On October 17, 2016, EMA Financial, LLC (the holder), elected to convert $5,370.40 of the principal outstanding amount of $16,990.50 convertible promissory note, into 5,480,000 shares of the Companys common stock at a conversion price of $0.001. The holder principal outstanding amount after conversion is $11,620.10.
On October 25, 2016, Pinz Capital International, LP (the holder), elected to convert $9,656 of the principal outstanding amount of $8,056 (Plus interests) convertible promissory note issued by the Company on March 1, 2016, into 8,046,488 shares of the Companys common stock at a conversion price of $0.0012. The holder principal outstanding amount after conversion is $0.
On October 25, 2016, EMA Financial, LLC (the holder), elected to convert $4,402.30 of the principal outstanding amount of $11,620.10 convertible promissory note, into 6,289,000 shares of the Companys common stock at a conversion price of $0.001. The holder principal outstanding amount after conversion is $7,217.80.
On March 8, 2017, the Company has exited their License Agreement with the Canadian Licensor and will no longer represent that brand.
F-18