Filing summary
Entity and period: The supplied filing identifies the registrant as Smart Server, Inc., not Ridenow Group, Inc. It is a Form 10-Q for the quarter ended May 31, 2016, covering the three and six months ended May 31. The contents page instead says “quarterly period ended February 29, 2016,” an apparent inconsistency. The company’s fiscal year ends November 30.
Business context and financial position
Smart Server describes itself as a development-stage company developing a mobile payment application for restaurant, bar, and club customers. It reports no customers, no market-ready app, and no revenue to date. All amounts below are U.S. dollars.
- Revenue and results: Revenue was $0 in both the quarter and six-month periods, and in the corresponding 2015 periods. Net loss was $18,113 for the quarter versus $11,380 in 2015, and $26,765 for six months versus $25,924. Six-month operating expenses were $22,230 versus $22,628; related-party interest expense was $4,535 versus $3,296.
- Cash flow: Six-month operating cash use was $27,780, compared with $17,358 in 2015. Financing provided $28,000, comprising $23,000 of related-party note proceeds and $5,000 received on a prior stock subscription. Cash increased $220 to $1,783; no investing cash flow was reported.
- Liquidity and debt: At May 31, cash was $1,783 and current assets were $9,283, including $7,500 of prepaid expenses. Current liabilities were $146,220, implying a $136,937 working-capital deficit. Total liabilities were $185,617. Related-party loans totaled $156,000 and accrued interest was $16,818. The filing says the notes bear 6% interest; principal and interest are due within 24 months of each note’s date.
- Equity and assets: Total assets were $11,183, and stockholders’ deficit was $174,434. Accumulated deficit was $244,434. The company reported 5,500,000 common shares outstanding as of July 1, 2016.
Changes, outlook, and risks
Quarterly operating expenses rose to $15,754 from $9,637, principally due to higher professional fees associated with public filings. Six-month operating expenses edged down from $22,628 to $22,230, while net loss increased modestly, primarily alongside higher related-party interest expense. Operating cash use worsened versus the prior-year six-month period, while financing inflows increased.
No quantified revenue or earnings guidance is provided. Management says the company cannot continue for the next 12 months on available cash alone and needs additional financing; without it, the company may be unable to continue or complete app development. The financial statements disclose substantial doubt about the company’s ability to continue as a going concern. Management says future funding may come from equity offerings or additional debt, but availability is uncertain. A $2,000 related-party note was executed on June 15, 2016, after the reporting date.
Risks highlighted include pre-revenue development-stage operations, dependence on additional capital, limited cash and related-party financing, competition and rapid technology change, inability to attract customers or establish mobile-operator relationships, security and intellectual-property risks, limited management resources, restricted resale of securities associated with shell-company status, and penny-stock marketability. The company checked the shell-company box “Yes.” Management concluded disclosure controls were effective and reported no material quarterly change in internal control over financial reporting. No material legal proceedings or off-balance-sheet arrangements were reported.
Key facts for investors to verify
- Confirm the correct issuer and reporting period: the request names Ridenow Group, while the filing names Smart Server; the filing’s cover and contents page give inconsistent period references.
- Assess the going-concern disclosure, cash runway, and feasibility and terms of expected additional financing.
- Review the related-party lender relationship, $156,000 principal balance, $16,818 accrued interest, note maturities, and the subsequent $2,000 borrowing.
- Verify the company’s stated development status, lack of customers and revenue, and progress toward a market-ready app.
- Consider shell-company and penny-stock status, share liquidity, and management’s limited resources.