Filing summary
Entity and period: The supplied filing is a Form 10-Q for Knight Knox Development Corp., not Artelo Biosciences, Inc. It covers the quarter ended May 31, 2016, and reports nine-month results for the period then ended. The company’s fiscal year ends August 31.
Business context and financial results
Knight Knox describes itself as a development-stage e-commerce company intending to operate an auction and classified-advertising website. It reports minimal operations and no revenue since inception.
| Metric | Three months ended May 31, 2016 | Nine months ended May 31, 2016 | Comparable 2015 period |
|---|---|---|---|
| Revenue | $0 | $0 | $0 |
| Operating expenses | $5,050 | $25,359 | $2,500 / $10,650 |
| Net loss | $5,050 | $25,359 | $2,500 / $10,650 |
| Basic and diluted loss per share | $0.00 | $0.00 | $0.00 |
For the nine months, expenses included $24,750 of professional fees and $609 of general and administrative expense; management attributed the increased professional fees primarily to the S-1 registration and ongoing regulatory requirements. The quarter’s $5,050 of expenses was attributed primarily to professional fees.
Liquidity, cash flow, and balance sheet
- At May 31, 2016, cash and total assets were $3,590; current liabilities were $13,059, comprising $8,609 of accounts payable and accrued liabilities and $4,450 due to a related party. Working capital and stockholders’ equity were both negative $9,469.
- For the nine months, operating cash use was $18,489, financing provided $5,050, and cash declined by $13,439, from $17,029 to $3,590. There was no investing cash flow.
- The $4,450 related-party amount was borrowed from a majority shareholder, is non-interest-bearing, and is due on demand. The filing reports no interest-bearing debt beyond this described loan.
Changes, outlook, and risks
- Nine-month net loss increased to $25,359 from $10,650 in 2015; operating cash use increased to $18,489 from $10,650. Cash fell from $17,029 at August 31, 2015, while liabilities rose from $1,739.
- Management says additional capital is needed to fund operations and anticipates seeking equity or debt financing, but gives no quantified forecast or assurance of obtaining funds. The filing states the company has no current plans to raise additional funds other than pursuant to its current offering.
- The filing identifies substantial doubt about the company’s ability to continue as a going concern: it has no revenue, recurring losses, limited cash, and requires additional capital. It warns that inability to obtain funding could force it to cease operations.
- Management concluded disclosure controls and procedures were not effective as of May 31, 2016, citing the limited number of officers and directors. No material changes in internal control over financial reporting were reported.
- No material legal proceedings or off-balance-sheet arrangements were reported. The filing does not provide a separate quantified margin measure.
Important facts to verify
- Confirm the intended issuer: the provided filing identifies Knight Knox Development Corp., not Artelo Biosciences, Inc.
- Verify the company’s current ability to fund operations, including the status and terms of any offering or other financing.
- Review the on-demand shareholder loan and outstanding payables against available cash.
- Assess remediation of the ineffective disclosure controls and the company’s progress toward launching its planned website and generating revenue.