Filing Overview
The supplied filing is a Form 10-Q for PureSnax International, Inc., not Iqstel Inc. It covers the quarter and six-month period ended December 31, 2017, in the company’s fiscal year ending June 30. The filing was signed February 16, 2018. The reporting-period metadata identifying “Iqstel Inc.” and “2017 Q2” should be verified.
Business Context
The company exited its Canadian license agreement on March 8, 2017 and intended to develop its own healthy snack and food products. It had not commenced commercial operations and reported no revenue, inventory, or employees as of December 31, 2017. Management planned to develop products, obtain manufacturing and distribution capabilities, and raise capital to fund commercialization.
Financial Position and Results
| Metric | Six months ended Dec. 31, 2017 | Six months ended Dec. 31, 2016 |
|---|---|---|
| Revenue | $0 | $0 |
| Gross margin | $0 | $0 |
| Total expenses | $33,820 | $34,475 |
| Interest expense | $80,528 | $4,874 |
| Change in derivative liability | $72,482 income | $18,698 expense |
| Net loss | $44,853 | $62,404 |
| Net cash used in operating activities | $30,857 | $27,562 |
| Net cash from financing activities | $15,538 | $3,831 |
| Cash at period end | $382 | $59 |
For the three months ended December 31, 2017, revenue was $0, expenses were $20,347, interest expense was $18,558, and the reported net result was $26,208. The statement labels this amount as net loss despite presenting it as positive income; the filing also presents basic and diluted EPS of $(0.00006). This internal inconsistency should be verified against the filed financial statements and XBRL data.
At December 31, 2017, total assets were $382, consisting entirely of cash. Total liabilities were $152,574, including $69,632 of accrued expenses, $26,459 of related-party loans, $6,544 of net convertible notes payable, and a $49,939 derivative liability. Stockholders’ deficit was $152,192.
The company had 851,258,932 common shares outstanding at December 31, 2017 and 974,986,610 outstanding as of February 16, 2018. Preferred stock outstanding totaled 3,187,500 shares. Weighted-average common shares for the six-month period increased to 742,197,886 from 148,241,424 in the prior-year period.
Material Changes Versus Prior Period
- Revenue remained zero in both comparable periods, and the company had no gross profit.
- Six-month net loss improved to $44,853 from $62,404, primarily because the company recorded $72,482 of derivative-liability income, partially offset by a substantial increase in interest expense to $80,528.
- Professional and consulting expense increased to $30,458 from $24,627.
- Cash declined from $15,701 at June 30, 2017 to $382 at December 31, 2017.
- Derivative liability decreased from $98,041 at June 30, 2017 to $49,939 at December 31, 2017, producing significant non-cash earnings volatility.
- Common shares outstanding increased from 441,338,708 at June 30, 2017 to 851,258,932 at December 31, 2017, largely through conversions of convertible notes. The increase creates substantial dilution risk.
- Convertible notes with a face amount of $40,000 remained outstanding at December 31, 2017, but were reported net of a $33,456 debt discount.
Liquidity, Funding and Going-Concern Matters
Management stated that the company requires additional financing to continue operations and implement its business plan. It estimated that commercial-scale product development could exceed $100,000 and that an additional $50,000 to $100,000 would be needed for raw materials, labeling, packaging, introductory marketing, and advertising.
The company had no bank credit facility and no financing commitment. Management expected to seek funding through common-stock issuances, convertible or other debt, related-party loans, and strategic partners. Additional financing may be unavailable or may cause further dilution or increase future cash obligations.
The financial statements state that substantial doubt exists regarding the company’s ability to continue as a going concern. The company had accumulated losses of $618,221 through December 31, 2017, only $382 of cash, no revenue, and liabilities exceeding assets by $152,192. Management identified continued shareholder support, additional equity financing, and achieving profitable operations as necessary to continue.
Outlook, Risks and Unusual Items
- The company’s plan depends on successful product development, manufacturing, marketing, distribution, financing, and eventual profitability; none had been achieved during the reported period.
- Convertible notes contain reset and dilutive-issuance provisions treated as derivative liabilities. Fair-value remeasurement may cause large non-cash swings in reported earnings.
- Debt conversions occurred at very low conversion prices, including $0.0001 to $0.001 per share, materially increasing the share count.
- Subsequent to December 31, 2017, additional note conversions and warrant exercises were reported, including the issuance of tens of millions of common shares. These transactions may further dilute existing holders.
- The company is subject to FDA, product-labeling, consumer-protection, advertising, privacy, and Internet-related regulation. Management stated that it believed it was materially compliant.
- No material litigation or significant off-balance-sheet arrangements were reported.
- Disclosure controls and procedures were reported as ineffective. Separately, management stated that internal control over financial reporting was adequate, an apparent inconsistency requiring clarification.
Investor Verification Checklist
- Confirm the issuer identity: the supplied filing is for PureSnax International, Inc., while the request identifies Iqstel Inc.
- Confirm the applicable period: the filing covers the quarter ended December 31, 2017, not an otherwise unspecified “2017 Q2.”
- Reconcile the three-month net income/net loss presentation and the inconsistent EPS disclosure.
- Review the conversion terms, derivative-liability valuation assumptions, and subsequent equity issuances for dilution exposure.
- Assess whether the company obtained financing after filing and whether available cash was sufficient to support operations.
- Evaluate the going-concern disclosure, accumulated deficit, accrued liabilities, and related-party funding dependence.
- Clarify the differing conclusions regarding ineffective disclosure controls and adequate internal control over financial reporting.