Business context and reporting period
Filing identity mismatch: The supplied filing is for Knight Knox Development Corp., not Artelo Biosciences, Inc. It is a Form 10-Q for the three months ended November 30, 2015, the company’s first fiscal quarter of 2016; financial statements are unaudited. Knight Knox describes itself as a development-stage e-commerce company planning an auction and classified-ad website. It reported minimal operations and no revenue since inception.
Financial results and liquidity
| Metric | Three months ended Nov. 30, 2015 | Three months ended Nov. 30, 2014 |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $15,219 | $2,000 |
| Net loss | $(15,219) | $(2,000) |
| Cash used in operating activities | $(14,258) | $(500) |
| Cash provided by financing activities | $1,200 | $0 |
| Net decrease in cash | $(13,058) | $(500) |
At November 30, 2015, cash and total assets were $3,971; current liabilities were $3,300, leaving working capital of $671. Liabilities included $2,700 in accounts payable and accrued liabilities and a $600 non-interest-bearing, on-demand loan from a majority shareholder. Stockholders’ equity was $671 on the balance sheet. No investing cash flows, interest, or income-tax payments were reported. Profitability and margins are not meaningful given the absence of revenue.
Material changes versus the prior comparable period
Operating expenses and net loss increased from $2,000 to $15,219, primarily because of professional fees for an S-1 registration and ongoing regulatory requirements. Cash fell from $17,029 at August 31, 2015 to $3,971 at November 30, 2015. The company collected a $600 share-subscription receivable and borrowed $600 from a shareholder during the quarter. Weighted-average shares outstanding rose to 7,640,000 from 6,000,000 in the prior-year quarter.
Outlook, risks, contingencies, and unusual items
- Management stated that additional capital is needed to fund operations and that the company has no established revenue source sufficient to cover operating costs. The filing says these conditions raise substantial doubt about the company’s ability to continue as a going concern; additional financing is not assured.
- Management cited potential equity sales, traditional financing, and support from management or significant shareholders as possible funding sources. It also said it had no plans to raise additional funds beyond its current offering. No revenue, earnings, or cash-flow guidance was provided.
- Disclosure controls and procedures were concluded to be ineffective as of November 30, 2015, due to the company’s limited number of officers and directors. No material changes in internal control over financial reporting were reported.
- The company reported no material legal proceedings, unregistered share sales during the quarter, defaults on senior securities, or material off-balance-sheet arrangements.
Important facts for investors to verify
- Confirm issuer identity: the filing names Knight Knox Development Corp., whereas the request identifies Artelo Biosciences, Inc.
- Review the company’s ability to obtain near-term financing, given $3,971 of cash, no revenue, operating cash use of $14,258 for the quarter, and the stated going-concern uncertainty.
- Verify the $600 related-party loan’s repayment status and terms; it is described as due on demand and non-interest-bearing.
- Reconcile the MD&A balance-sheet table, which displays stockholders’ equity as “$6711,” with the financial statements’ reported amount of $671.
- Assess the implications of ineffective disclosure controls and the planned development and launch of the auction website.