Filing summary
Entity and period: The supplied filing is a Form 10-Q for Property Management Corporation of America, not Fingermotion, Inc. It covers the three months ended May 31, 2014, the company’s first reported quarter after incorporation in January 2014. The interim financial statements are unaudited.
Business and financial results
The company provides management and consulting services to residential and commercial property owners. It had two management contracts, both involving properties partly owned by its executive officers and directors.
- Revenue: $3,587; cost of revenue was $1,614, leaving gross profit of $1,973 and a gross margin of approximately 55%.
- Expenses and loss: Operating expenses were $29,544, mainly professional fees ($25,511). Operating loss was $27,571; net loss was $27,657, including $86 of interest expense. Basic and diluted loss per share was reported as $0.00.
- Cash flow: Operating activities provided $558, as the $27,657 net loss was offset by changes in prepaid expenses and accounts payable/accruals. Cash increased from $2,446 to $3,004. Interest paid was $86.
- Balance sheet and liquidity: At May 31, cash and total assets were $3,004. Current liabilities were $44,502, including $21,965 of accounts payable and accrued expenses and $22,537 of related-party notes payable. Stockholders’ deficit was $41,498; MD&A reports negative working capital of $41,498.
- Debt and capital: Related-party loans from an entity controlled by the CEO carried 1.5% annual interest and were payable on demand. The filing reports a further $5,000 loan from that entity on June 6, 2014.
Changes, outlook, and risks
No prior comparable quarter is presented. Relative to February 28, 2014, cash decreased from $2,446? No: it increased to $3,004; prepaid expenses fell from $6,250 to zero, accounts payable and accrued expenses rose from zero to $21,965, and accumulated deficit increased from $14,741 to $42,398. The company reported no off-balance-sheet arrangements or legal proceedings.
Management described the company as being in the development stage, with planned principal operations not yet commenced. It planned to add clients and expand from Fauquier County into nearby Virginia counties and eventually statewide. The company said it needed additional capital, estimated at approximately $50,000 over the next 12 months. A best-efforts public offering sought $50,000 minimum and up to $100,000; although the registration statement became effective June 26, 2014, no shares had been sold and no proceeds received as of the report date. Management said expansion would also require additional financing and acknowledged there was no assurance of obtaining it or that terms would be acceptable.
The financial statements disclose substantial doubt about the company’s ability to continue as a going concern, citing recurring losses and potentially insufficient cash. Management’s plans depend on generating revenue and raising capital. All reported revenue came from two clients affiliated with directors and officers; the office sublease and working-capital loans were also with a CEO-controlled entity. Management concluded disclosure controls were effective and reported no significant quarterly change in internal control over financial reporting.
Most important facts to verify
- Confirm the filing is for Property Management Corporation of America; the request identifies Fingermotion, Inc.
- Review the going-concern disclosure, cash position, negative working capital, and reliance on additional financing.
- Verify related-party loan balances and terms, including the June 6 loan and the MD&A’s stated approximate $27,657 of related-party funding through June 30.
- Assess revenue concentration and related-party conflicts: both initial client properties were partly owned by company executives, and all reported revenue came from those contracts.
- Check whether the offering raised funds after the filing date and whether the planned client acquisition and geographic expansion progressed.