Filing summary
Important identity discrepancy: The request identifies Fingermotion, Inc., but the supplied Form 10-Q is for Property Management Corporation of America. The filing covers the quarter ended August 31, 2016, and the six months ended on that date. Its unaudited statements report dollars unless otherwise noted.
Business context and results
The company provides management and consulting services for residential and commercial properties. It reported two management-services clients; both properties are affiliated with company directors and officers. The filing says executives and directors together own 55% of those properties.
| Metric | Three months ended Aug. 31, 2016 | Three months ended Aug. 31, 2015 | Six months ended Aug. 31, 2016 | Six months ended Aug. 31, 2015 |
|---|---|---|---|---|
| Revenue | $3,613 | $3,607 | $7,087 | $7,271 |
| Gross margin | $1,988 | $1,984 | $3,898 | $4,040 |
| Operating expenses | $4,357 | $11,833 | $12,396 | $19,312 |
| Operating loss | $(2,369) | $(9,849) | $(8,498) | $(15,272) |
| Net loss | $(2,473) | $(1,479) | $(8,706) | $(6,971) |
| Operating cash flow | Not presented by quarter | $(2,005) | $(20,378) |
Financial position and liquidity
- At August 31, 2016, cash was $149 and management-fee receivable was $1,656, for current assets of $1,805. Current liabilities were $48,167, including $20,667 of accounts payable and accrued expenses and $27,500 of related-party notes payable. Working capital was negative $46,362.
- The related-party notes are owed to Washington Capital Advisors LLC, controlled by the chairman; they are unsecured, bear 1.5% interest, and are due on demand. The filing also reports $852 of accrued interest due.
- Stockholders’ deficit was $46,362. The company had no reported long-term debt, but its near-term liquidity was extremely limited.
- Cash fell by $2,005 during the six-month period. There were no financing cash flows in the period; operating cash use was partly offset by an $8,357 increase in accounts payable and accrued expenses.
- Basic and diluted loss per share was reported as $(0.00) for all periods presented.
Changes, outlook and risks
- Six-month revenue declined $184, or about 2.5%, which management attributed to lower rent collections in the first quarter. Six-month operating expenses fell $6,916, mainly from lower general and administrative, office and professional costs.
- Net loss increased by $1,735 for the six-month comparison, despite the lower operating loss, because the prior-year period included $8,459 of income from forgiveness of professional fees related to the initial public offering. No debt-forgiveness income was reported in 2016.
- Management stated that the company needs approximately $150,000 over the next 18 months to carry out its plan. Its only identified definitive financing source was a related-party commitment to lend up to $50,000, less existing loan and accrued-interest balances. The filing gives no assurance that additional funding can be obtained on acceptable terms.
- A private placement launched in January 2016 sought up to $250,000; no units had been sold through the filing date. Proposed use included working capital and evaluating online real-estate investment opportunities.
- The company planned to add clients and expand into nearby Virginia counties, with eventual statewide growth. Management also said it was considering opportunities outside property management. These plans require additional capital.
- The filing states that operating losses, operating cash use and stockholders’ deficit raise substantial doubt about the company’s ability to continue as a going concern. Management’s ability to continue depends on implementing its plan, generating revenue and raising funds; no assurance is provided.
- All revenue came from two contracts with entities associated with directors and officers, creating customer-concentration and related-party considerations. Office space was also sublet from the chairman-controlled related party for $350 per month.
- No legal proceedings or off-balance-sheet arrangements were reported. Management concluded disclosure controls were effective and reported no significant change in internal control over financial reporting.
Key facts for investors to verify
- Confirm the issuer: the provided filing is for Property Management Corporation of America, not Fingermotion, Inc.
- Review the going-concern disclosures, cash balance, negative working capital and the terms and availability of related-party financing.
- Verify the status of the proposed private placement and whether the company obtained the substantial additional capital its plans require.
- Assess reliance on two related-party-affiliated clients and the prospects for adding independent customers.
- Reconcile the share-count disclosures: the balance sheet reports 10,007,000 shares at February 29, 2016 and 10,307,000 at August 31, 2016, while the statement of changes in stockholders’ deficit appears to show 10,307,000 at both dates.