Business context and reporting period
This summary covers the Form 10-Q for the quarter ended February 28, 2019, filed by Better Choice Company Inc. (then Sport Endurance, Inc.), not a company identified in the request metadata as SRX Global Inc. The company had suspended its sports nutrition product business in March 2018 and exited its cryptocurrency activities in August 2018. It was pursuing a transition into pet products and animal wellness. The filing reports no sales in the quarter or six-month period.
Financial results and liquidity
| Metric | Three months ended Feb. 28, 2019 | Six months ended Feb. 28, 2019 |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $388,905 | $536,428 |
| Operating loss | $388,905 | $536,428 |
| Net income (loss) | $(166,059) | $339,161 |
| Net income (loss) available to common shareholders | $(234,846) | $229,227 |
| Net income (loss) per share, diluted | $(0.09) | $0.06 |
- Six-month gross profit was $0; margins are not meaningful with no revenue.
- Six-month net income included a $4.213 million noncash gain from remeasuring derivative liabilities and a $472,267 noncash gain on an exchange of debt and equity. These gains were partly offset by a $3.675 million charge for the excess fair value of warrants over common-stock offering proceeds. The reported profit therefore does not reflect operating profitability.
- Cash and cash equivalents were $107,936 at February 28, 2019, versus $199,674 at August 31, 2018. The company reported $48,842 of cash as of April 9, 2019.
- Six-month cash used in operations was $497,233; cash used in investing was $2.2 million, reflecting the TruPet investment; financing provided $2.605 million, primarily from a stock offering.
- Current assets were $149,018 and current liabilities were $2.746 million, a working-capital deficit of $2.597 million. Total stockholders’ deficit was $396,605.
- Convertible notes were $0 at quarter-end following their exchange for Series E preferred stock. Current liabilities included a $2.432 million derivative liability; total debt and liquidity needs should be assessed alongside the preferred-stock and warrant terms.
Changes versus the prior comparable period
Revenue fell from $261 to zero for the quarter and from $475 to zero for the six months. Quarterly SG&A rose to $388,905 from $66,479; six-month SG&A rose to $536,428 from $151,722, primarily due to higher legal and accounting fees and vested stock-option expense. Net loss for the quarter narrowed from $951,494 to $166,059, while the six-month result shifted from a $1.062 million loss to $339,161 income. The improvement chiefly reflected noncash derivative remeasurement and exchange gains, not increased sales. Cash from the December 2018 common-stock offering was $2.657 million net of costs.
Outlook, risks and unusual items
- Management said it expected operating losses over the next 12 months and was seeking $15 million in financing. It stated that it could not continue as a going concern without sufficient financing; the filing reports substantial doubt about the company’s ability to continue.
- The company had definitive agreements to acquire the remainder of TruPet and all of Bona Vida, but both transactions were conditional, including on financing, and closing was not assured. If the financing and acquisitions were completed, management estimated existing investors would own 14% of the company on a fully diluted basis.
- The $2.2 million TruPet investment acquired approximately 6.7% of the business. The filing also disclosed an ongoing risk that fair-value changes in derivative liabilities could materially affect reported earnings.
- After quarter-end, the company changed its name and reincorporated in Delaware, effected a one-for-26 reverse stock split, and changed senior leadership. The filing states that the financial statements retroactively reflect the split.
- Management concluded disclosure controls and procedures were not effective, citing lack of an independent board or audit committee, inadequate segregation of duties, and reliance on a financial consultant for financial reporting. Management planned improvements subject to obtaining resources.
- The company checked “No” to having filed all required Exchange Act reports during the preceding 12 months. It reported no pending or threatened litigation expected to have a material effect and no defaults upon senior securities.
Important facts for investors to verify
- Confirm the issuer identity and ticker: the supplied filing is for Better Choice Company Inc., formerly Sport Endurance, Inc., rather than SRX Global Inc.
- Check whether the proposed $15 million financing was completed, its terms and dilution, and whether the TruPet and Bona Vida acquisitions closed.
- Review post-quarter cash, cash runway, and the company’s ability to meet its current liabilities and fund operations.
- Examine the valuation assumptions and terms of the $2.432 million derivative liability, warrants, and Series E preferred stock, including conversion and dividend provisions.
- Assess whether the company generated operating revenue after the period and whether reported earnings became supported by operations rather than noncash fair-value gains.
- Verify subsequent reporting compliance and whether the disclosed weaknesses in internal controls were remediated.