Filing Scope and Business Context
This Form 10-Q is for PureSnax International, Inc., not Iqstel Inc. It covers the quarter and nine-month period ended March 31, 2017, within the fiscal year ending June 30, 2017. The provided metadata identifies “Iqstel Inc.” and “2016 Q3,” which does not match the filing.
PureSnax is an early-stage wellness-food company focused on developing, branding, and distributing healthy snack products, including sugar-free, gluten-free, vegan, kosher, low-fat, low-sodium, and non-GMO products. The company reported limited revenue since inception and had no employees as of March 31, 2017.
Financial Metrics
| Metric | Three Months Ended March 31, 2017 | Nine Months Ended March 31, 2017 | Comparable Period |
|---|---|---|---|
| Revenue | $0 | $0 | $0 |
| Gross margin | $0 | $0 | $0 |
| Total expenses | $43,196 | $77,672 | $72,614 and $120,444, respectively |
| Net loss | $162,738, as presented in the filing | $225,143 | $124,060 and $171,890, respectively |
| Interest expense | $1,681 | $6,555 | $7,997 for each comparable presentation |
| Cash flow from operations | Not separately provided | $(54,953) | $(89,982) |
The three-month statement contains a typographical presentation error for net loss (“$162,738)”); the surrounding disclosures indicate a net loss of $162,738.
- Cash and cash equivalents were $29,681 at March 31, 2017, compared with $23,790 at June 30, 2016.
- Total assets were $62,105, consisting primarily of cash, a $20,237 refund receivable, and $12,187 of inventory.
- Total liabilities were $260,601, including $54,800 of accrued expenses, $24,910 of related-party loans, $173,690 of net convertible notes payable, and a separately presented derivative liability of $7,201 in the balance sheet. The notes contain inconsistent classifications and fair-value disclosures in the filing; investors should verify the reported debt and derivative balances against the filed financial statements.
- Stockholders’ deficit was $(198,496), compared with $(173,558) at June 30, 2016.
- Common shares outstanding increased to 329,188,708 at March 31, 2017 from 100,235,384 at June 30, 2016. Weighted-average common shares for the nine months were 348,796,491, compared with 190,545,455.
- Basic and diluted loss per share for the nine months was $(0.0006), compared with $(0.0009). Potentially dilutive securities were excluded because they were anti-dilutive.
Material Changes Versus the Prior Comparable Period
- Revenue remained at zero, and the company continued to report no gross profit.
- Nine-month operating expenses declined to $77,672 from $120,444, primarily because consulting and other expenses fell to $49,987 from $115,352.
- Despite lower operating expenses, the nine-month net loss increased to $225,143 from $171,890, principally due to derivative-related expense and changes in the fair value of derivative liabilities.
- Derivative expense increased to $161,153 in the operating cash flow reconciliation from $44,515 in the prior period. The statement of operations separately reported derivative expense of $58,290 and a change in derivative liability of $(102,863); the filing’s derivative presentations should be reconciled.
- Operating cash use improved to $54,953 from $89,982. Financing provided $60,844, primarily from $55,000 of third-party loans and $5,844 of related-party loans, compared with $90,423 in the prior period.
- Convertible debt and derivative financing remained central to liquidity. The company issued or funded additional convertible notes and converted substantial portions of debt into common shares at very low conversion prices, resulting in significant dilution.
- The company exited its Canadian license agreement on March 8, 2017 and stated that it would develop its own brand and marketing strategy.
Outlook, Risks, Contingencies, and Unusual Items
- Management stated that it needs at least $50,000 to $100,000 for raw materials, commercial production, labeling, packaging, marketing, and advertising, and estimated that commercial-scale product development could exceed $100,000.
- The company expects to seek additional funding through common-stock issuances, convertible debt, related-party or third-party loans, and strategic partners. No financing commitment had been obtained as of the filing date.
- The financial statements include a going-concern qualification. The company had accumulated losses of approximately $534,820 since inception, negative stockholders’ equity, no revenue, and dependence on additional financing and eventual profitable operations.
- Additional equity or convertible debt could materially dilute existing stockholders and may include rights senior to common stock. Failure to obtain financing could require the company to scale back or cease operations.
- Convertible notes contained reset and dilutive-issuance provisions. These features were accounted for as derivative liabilities and valued using Black-Scholes-based models, with reported volatility of approximately 296% at March 31, 2017 for several instruments.
- Related-party loans totaled $24,910, were unsecured and non-interest-bearing, and had no specified repayment terms.
- Accrued obligations totaled $79,710, comprising $24,910 owed to related parties and $54,800 owed to third parties for professional fees, website development, business expenses, product development, and related costs.
- The company reported no material litigation and no material off-balance-sheet arrangements.
- Management concluded that disclosure controls and procedures were not effective as of March 31, 2017, although management separately stated that internal control over financial reporting was adequate. This apparent inconsistency warrants review.
- Subsequent to quarter-end, Typenex converted portions of a warrant into 25,000,000 shares on April 12, 2017 and 21,500,000 shares on May 2, 2017.
Investor Verification Checklist
- Confirm the issuer and reporting period, because the supplied metadata does not match the filing.
- Reconcile the balance-sheet presentation of convertible notes and derivative liabilities, including the apparent $173,690 classification inconsistency.
- Verify the three-month net-loss figure and correct the statement’s typographical error.
- Assess the going-concern qualification, cash runway, unpaid obligations, and probability of obtaining additional financing.
- Review the conversion prices, reset provisions, warrant terms, and potential dilution from convertible notes and preferred stock.
- Investigate the effectiveness-control conclusion and the inconsistency between ineffective disclosure controls and the statement that internal controls were adequate.
- Evaluate whether the license termination materially affects the company’s product portfolio, commercialization plan, and intellectual-property strategy.