SEC Form 10-Q Summary
Filing identity: The supplied filing is for PureSnax International, Inc., not Iqstel Inc. It covers the three months ended September 30, 2017, the company’s fiscal first quarter, and compares results with the three months ended September 30, 2016. The interim financial statements are unaudited.
Business Context and Reporting Period
PureSnax exited its Canadian license agreement on March 8, 2017 and stated that it intends to develop its own health-food and snack brands, including vegan, sugar-free, gluten-free, kosher and other specialty products. The company had no full- or part-time employees; its two officers and directors worked as part-time consultants. No revenue-generating commercial operations were reported during the quarter.
Key Financial Metrics
| Metric | Three months ended September 30, 2017 | Three months ended September 30, 2016 |
|---|---|---|
| Revenue | $0 | $0 |
| Gross margin | $0 | $0 |
| Operating expenses | $13,473 | $20,079 |
| Interest expense | $61,970 | $2,283 |
| Net loss | $71,061 | $41,389 |
| Basic and diluted loss per share | $0.00014 loss | $0.0004 loss |
| Net cash used in operating activities | $21,089 | $20,694 |
| Net cash provided by financing activities | $15,419 | $1,864 |
| Ending cash | $10,031 | $4,960 |
At September 30, 2017, total assets were $10,031, consisting entirely of cash. Total liabilities were $236,526, including $58,591 of accrued expenses, $26,340 of related-party loans, $42,936 of net convertible notes payable and a $108,659 derivative liability. Stockholders’ deficit was $226,495.
The company reported 628,420,498 common shares outstanding at September 30, 2017, compared with 441,338,708 at June 30, 2017. As of November 17, 2017, reported common shares outstanding were 756,199,499.
Material Changes Versus the Prior Comparable Period
- Revenue remained zero and there were no cost of goods sold in either period.
- Operating expenses declined by $6,606, or approximately 33%, primarily because professional and consulting expenses decreased from $14,749 to $11,964.
- Interest expense increased by $59,687, largely reflecting debt discounts and other financing-related costs.
- Net loss increased by $29,672, or approximately 72%, to $71,061.
- Operating cash use was broadly stable, increasing by $395.
- Financing proceeds increased to $15,419, including $15,000 from a third-party loan and $419 from related parties.
- Common shares outstanding increased substantially due primarily to conversions of convertible debt at approximately $0.001 per share, resulting in significant dilution.
- The derivative liability increased from $98,041 at June 30, 2017 to $108,659 at September 30, 2017, although the quarter included a $13,762 favorable change in derivative fair value.
Guidance, Outlook, Risks and Unusual Items
Management stated that it expects to require at least $50,000 to $100,000 for raw materials, commercial production, packaging, labeling, marketing and advertising, in addition to potentially more than $100,000 to develop products at commercial scale. Planned funding sources include common-stock issuance, convertible or other debt, related-party loans and strategic partners. No financing commitment had been obtained.
The filing states that accumulated losses since inception totaled $644,429 and that substantial doubt exists regarding the company’s ability to continue as a going concern. Continued operations depend on shareholder support, additional equity financing, successful product development and the achievement of profitable operations. Failure to obtain funding could require the company to delay, scale down or cease operations.
Convertible notes contain reset and dilutive-issuance provisions that are accounted for as derivative liabilities and may create significant earnings volatility and future share dilution. The company had no bank credit facility and owed $151,596 to third parties for general business expenses, professional fees and other costs, in addition to $26,340 owed to related parties.
Subsequent to quarter-end, the company disclosed additional conversions and warrant exercises that issued substantial numbers of common shares, including 32,885,000 shares from a cashless warrant exercise and more than 102 million shares from three Adar Bays note conversions.
Management identified disclosure controls and procedures as ineffective as of September 30, 2017. Separately, management stated that its internal control over financial reporting was adequate, creating an important control-reporting distinction to verify. No material legal proceedings were reported.
Most Important Facts for Investors to Verify
- Confirm that the filing entity is PureSnax International, Inc.; the supplied metadata identifies Iqstel Inc.
- Assess the going-concern qualification against only $10,031 of cash, $236,526 of liabilities and no revenue.
- Review the terms, maturity dates, conversion prices and reset provisions of the convertible notes and related derivative liabilities.
- Quantify dilution from the quarter’s debt conversions and the post-quarter-end warrant and note conversions.
- Reconcile the reported $61,970 of quarterly interest expense with debt discounts, conversions and financing terms.
- Evaluate whether the company can obtain the stated $50,000 to $100,000 funding requirement and finance commercial production.
- Investigate the ineffective disclosure-controls conclusion and reconcile it with management’s separate statement that internal control over financial reporting was adequate.