Filing Scope and Business Context
The supplied filing is a Form 10-Q for PureSnax International, Inc., not Iqstel Inc. It covers the quarter and nine months ended March 31, 2018, with comparisons to March 31, 2017. PureSnax is an early-stage wellness and healthy-snacks company developing its own products after exiting a Canadian license agreement in March 2017. The company reported no employees and relied on part-time officer/director consultants and other consultants.
Key Financial Metrics
| Metric | Three months ended March 31, 2018 | Nine months ended March 31, 2018 |
|---|---|---|
| Revenue | $0 | $0 |
| Gross margin | $0 | $0 |
| Total operating expenses | $10,510 | $44,330 |
| Derivative expense | $128,433 | $137,940 |
| Net loss | $139,099 | $183,952 |
| Basic and diluted loss per share | $2.51 loss | $4.53 loss |
| Net cash used in operating activities | Not separately provided | $31,481 |
The company had no assets at March 31, 2018, including no cash. Current liabilities were $106,373, consisting principally of $79,672 of accrued expenses, $26,593 of related-party loans and a $108 cash overdraft. Convertible notes and derivative liabilities were reduced to zero through conversions and related accounting adjustments. Stockholders’ deficit was $106,373, and accumulated deficit was $757,320.
Material Changes Versus the Prior Comparable Period
- Nine-month net loss improved to $183,952 from $225,143, primarily because operating expenses declined to $44,330 from $77,672 and interest expense declined to $1,682 from $6,555.
- Derivative expense increased substantially to $137,940 from $58,290, although the prior-year period also included a $102,863 loss from changes in derivative liability and a $20,237 gain on license fees.
- Third-quarter net loss improved to $139,099 from $162,739, while derivative expense increased to $128,433 from $98,506.
- Operating cash use decreased to $31,481 from $54,953. Financing provided $15,780, compared with $60,844 in the prior-year period, leaving ending cash at zero.
- Common shares outstanding increased from 23,004 at June 30, 2017 to 75,004 at March 31, 2018, largely reflecting conversions of convertible notes. All convertible notes had been converted by March 31, 2018.
Liquidity, Outlook, Risks, and Unusual Items
- Management stated that the company requires additional financing to continue operations and develop products. Estimated needs include at least $50,000 to $100,000 for raw materials, labeling, packaging, marketing and advertising, with commercial-scale product development potentially exceeding $100,000.
- The filing states that there is substantial doubt about the company’s ability to continue as a going concern. Continuation depends on shareholder support, additional equity financing and achieving profitable operations.
- The company had no credit lines or bank financing and no financing commitment as of the filing date. Management expected to seek equity, debt or related-party funding, but warned that financing may be unavailable or dilutive.
- Related-party loans of $26,593 were unsecured, non-interest bearing and had no specified repayment terms. Accrued expenses included approximately $79,673 of unpaid legal, professional, website, business, product-development and interest-related costs.
- Derivative and convertible-note accounting materially affected reported results. The company recorded $137,940 of derivative expense for the nine months, while derivative liabilities were reduced to zero after the related notes were converted.
- Disclosure controls and procedures were reported as ineffective. Management nevertheless stated that internal control over financial reporting was adequate, creating an important disclosure inconsistency for investors to evaluate.
- Subsequent events included issuance of Series A convertible preferred stock and common stock to the CEO and CFO as compensation on April 16, 2018, and completion of a 1-for-19,152 reverse stock split on May 9, 2018.
- The filing reports no material pending litigation and no significant off-balance-sheet arrangements.
Most Important Facts to Verify
- Confirm the issuer and period: the supplied document identifies PureSnax International, Inc. and March 31, 2018, rather than Iqstel Inc. or 2017 Q3.
- Verify the company’s post-quarter capitalization, including the April preferred-stock and common-stock issuances and the May reverse split.
- Assess whether the company obtained financing after filing and whether it had sufficient resources to fund planned commercialization.
- Review the terms and potential dilution associated with converted notes, preferred stock and any future equity financing.
- Reconcile the reported ineffective disclosure controls with management’s conclusion that internal control over financial reporting was adequate.
- Evaluate the going-concern uncertainty, zero cash balance, accrued liabilities and lack of revenue before relying on management’s product-development outlook.